FEDERAL COURT OF AUSTRALIA Forty Two International Pty Limited v Barnes [2014] FCA 85 Citation: Forty Two International Pty Limited v Barnes [2014] FCA 85 Parties: FORTY TWO INTERNATIONAL PTY LIMITED ACN 095 622 889, BLUEFREEWAY LIMITED ACN 112 262 819 and THE GANG OF 4 PTY LTD ACN 095 624 678 v KIM BARNES and LEE HAWKSLEY File number(s): NSD 2018 of 2008 Judge(s): GRIFFITHS J Date of judgment: 18 February 2014 Catchwords: CONTRACT – whether respondents breached implied terms in contract – implied terms attaching to express terms – implied term to disclose matters relevant to express term – loss of opportunity – interpretation and application of release and entire agreement clauses where cause of action concealed by party seeking to rely on them TRADE PRACTICES – whether respondents engaged in misleading or deceptive conduct through non-disclosure – misleading or deceptive conduct by silence – application of s 42 of the Fair Trading Act 1987 (NSW) – loss of opportunity DUTY TO DISCLOSE – whether there is a duty under the general law requiring directors to disclose material personal interests relating to the interests of the company – whether there is a duty under the general law requiring directors not to place their own personal interests in actual or potential conflict with interests of company – whether respondents breached these general law duties CORPORATIONS – whether duties under ss 182 and 191 of Corporations Act 2001 (Cth) were breached by non-disclosure of personal interest in a transaction by directors of company DAMAGES – assessment of damages for loss of opportunity – quantifying damages EVIDENCE – discussion of principle in Jones v Dunkel (1959) 101 CLR 298 – application of ss 69, 135, 183 of the Evidence Act 1995 (Cth) CROSS CLAIM – whether the applicants made misleading or deceptive representations – application of s 52 of the Trade Practices Act 1974 (Cth) Legislation: Corporations Act 2001 (Cth) ss 182, 191, 1317H Evidence Act 1995 (Cth) ss 69, 135, 183 Fair Trading Act 1987 (NSW) s 42 Trade Practices Act 1974 (Cth) s 52 Cases cited: Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Bank of Credit and Commerce International SA v Ali [1999] All ER 1005 Bourke v Beneficial Finance Corporation Ltd (1993) 124 ALR 716 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Concut Pty Ltd v Worrell (2000) 176 ALR 693 Daniels v Anderson (1995) 37 NSWLR 438 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Fink v Fink (1946) 74 CLR 127 GIO Insurance Ltd v Leighton Contractors Pty Ltd (1995) 9 ANZ Insurance Cases 76,305 Guest v Commissioner of Taxation [2007] FCA 193 Hart v MacDonald (1910) 10 CLR 417 Hawkins v. Clayton (1988) 164 CLR 539 Harvey v Phillips (1956) 95 CLR 235 Hope v R.C.A Photophone of Australia Pty Ltd (1937) 59 CLR 348 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty (Ltd) (1986) 12 FCR 477 Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 Jones v Dunkel (1959) 101 CLR 298 Lithgow City Council v Jackson (2011) 244 CLR 352 Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 NSW Medical Defence Union v Transport Industries Insurance Co Ltd (1985) 4 NSWLR 107 Oceania Pty Ltd v Philips Electronics Australia Limited [2008] NSWSC 710 P & V Industries Pty Ltd v Porto (2006) 14 VR 1 Philips Electronics Australia Limited v Insight Oceania Pty Ltd [2009] NSWCA 124 Pilmer v Duke Group Limited (2001) 207 CLR 165 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Sensis Pty Ltd v McMaster-Fay [2005] NSWCA 163 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 State of New South Wales v Moss [2000] NSWCA 133 The Moorcock (1889)14 PD 64 United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 Dates of hearing: 3 - 21 December 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 637 Counsel for the Applicants: J M Ireland QC and J Burn Solicitor for the Applicants: Argyle Lawyers Pty Ltd Counsel for the Respondents: R E Dubler SC and A Shearer Solicitor for the Respondents: Herbert Geer Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2018 of 2008 BETWEEN: FORTY TWO INTERNATIONAL PTY LIMITED ACN 095 622 889 First Applicant BLUEFREEWAY LIMITED ACN 112 262 819 Second Applicant THE GANG OF 4 PTY LTD ACN 095 624 678 Third Applicant AND: KIM BARNES First Respondent LEE HAWKSLEY Second Respondent JUDGE: GRIFFITHS J DATE OF ORDER: 18 February 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The parties are to seek to agree proposed final orders, including as to costs, in the light of the reasons for judgment. If they are unable to reach agreement within fourteen days hereof, within that time they should file and serve written submissions not exceeding five pages in length in support of their respective proposed orders. 2. Subject to any party demonstrating that there is a need for a further oral hearing, final orders will be made on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2018 of 2008 BETWEEN: FORTY TWO INTERNATIONAL PTY LIMITED ACN 095 622 889 First Applicant BLUEFREEWAY LIMITED ACN 112 262 819 Second Applicant THE GANG OF 4 PTY LTD ACN 095 624 678 Third Applicant AND: KIM BARNES First Respondent LEE HAWKSLEY Second Respondent JUDGE: GRIFFITHS J DATE: 18 February 2014 PLACE: SYDNEY TABLE OF CONTENTS INTRODUCTION [1] PART A: BACKGROUND [5] FTI and BlueFreeway [5] CMUK licence negotiations [22] The Exit Agreement [35] PART B: BROAD OUTLINE OF THE PARTIES' CLAIMS [38] A Outline of applicants' primary case and respondents' defence [38] (a) Applicants' claims in contract [41] Respondents' defence to applicants' claim in contract [47] (b) Applicants' claims of breach of statutory and general law duties [55] (i) Breach of duty to avoid conflicts of interest [64] (ii) Breach of duty to disclose [68] (c) Applicants' case concerning misleading or deceptive conduct [72] (d) Applicants' case concerning equitable fraud [79] B The cross claim outlined [80] PART C: THE EVIDENCE SUMMARISED [85] A Summary of the evidence of the applicants' witnesses [86] (a) Mr Nick Greiner [86] (b) Mr Gregory Daniel [101] (c) Mr Ken McDonnell [123] Mr McDonnell's credibility [133] (d) Mr David Eyles [189] (e) Mr David Simmonds [195] (f) Mr Ian Puckrin [199] (g) Mr Mark Petrucco [217] B Summary of the evidence of the respondents' witnesses [221] (a) Mr Kim Barnes [221] (b) Mr Lee Hawksley [268] (c) Mr David McKell [320] (d) Ms Catherine Willems [326] (e) Mr George Tully [331] (f) Mr Ian Smith [335] (g) Mr Derek Harris [338] (h) Mr Andrew Martin [342] (i) Mr Raaj Govintharajah [347] (j) Mr Stephen Salmon [353] (k) Mr Roland Wettenhall [360] PART D: KEY FINDINGS OF FACT [367] (a) Some core findings of fact [370] (b) Discovery issues raised by the respondents [399] PART E: CONSIDERATION OF APPLICANTS' CLAIMS [404] (a) Contract [405] (i) Implied term in the SPA [406] Breach and loss [426] (ii) Implied terms in the Management Deed and Exit Agreement [430] (b) Breach of fiduciary and statutory duties [435] (c) Misleading or deceptive conduct [438] (i) The respondents' pleading objections [438] (ii) Some relevant legal principles [444] (iii) The first representation [447] (iv) The second representation [456] (v) Reliance and causation [463] PART F: DAMAGES [492] The applicants' submissions outlined [492] The respondents' submissions outlined [497] Resolution of BlueFreeway's claim for damages [502] (a) The primary claim for damages [502] (b) Loss of opportunity damages [524] (i) Valuing the lost chance or opportunity [530] PART G: CONSIDERATION OF CROSS CLAIM [548] (a) Campaign Master Commitment Representation [551] (i) Mr Webb's objective of spending as little as possible on Campaign Master [555] (ii) Exclude Campaign Master from the portal and support Traction [559] (iii) Group no longer to sell Campaign Master [571] (iv) Mr Hawksley's future role [573] (v) FTI sales staff to sell products other than Campaign Master [574] (vi) Reduced level of support, maintenance and development of Campaign Master [575] (b) Funding Representation [577] (c) Entire Agreement Representation [579] CONCLUSION [580] SCHEDULE A: RULINGS ON SOME EVIDENTIARY MATTERS [582] A Respondents' objections to Mr Simmonds' affidavit dated 17 November 2012 [582] B Respondents' objection to all of Mr Puckrin's affidavit dated 30 November 2012 [589] (a) Discovery Issues [591] (b) Late service of affidavit and respondents' prejudice [605] (c) Section 135 of the Act [621] (d) Records not proved to be business records [622] REASONS FOR JUDGMENT INTRODUCTION 1 The second applicant (BlueFreeway) seeks damages against each of the respondents (Messrs Barnes and Hawksley) arising primarily from circumstances connected with a share purchase agreement executed on 24 October 2006 (the SPA). BlueFreeway's claims are based on alleged breaches of various contracts, breaches of statutory and fiduciary duties and misleading or deceptive conduct. Messrs Barnes and Hawksley also bring a cross claim against BlueFreeway, seeking damages for misleading or deceptive conduct. 2 Under the SPA, Messrs Barnes and Hawksley (and some associates) sold their shares in Forty Two International Pty Limited (FTI), to BlueFreeway. In December 2006, Messrs Barnes and Hawksley (and their associates) received initial payments of $10 million under the SPA for their shares. In November 2007, a further sum of approximately $16 million was paid to Messrs Barnes and Hawksley under the SPA following the execution of an Exit Agreement in either late October or early November 2007 (the Exit Agreement), after which Messrs Barnes and Hawksley left the BlueFreeway group. The negotiations and the circumstances leading up to the execution of the Exit Agreement are central to these proceedings. BlueFreeway's claims for damages largely depend upon it establishing that, but for certain allegedly deceptive prior conduct on the part of Messrs Barnes and Hawksley, the payment of $16 million would not have occurred. The conduct in question relates to the respondents' role in funding the payment by a UK company of a licence acquired from FTI. The applicants claim that the respondents failed to disclose their funding role in that transaction. 3 For the reasons which follow I consider that BlueFreeway has established an entitlement to an award of damages in the amount of $2 million in respect of the respondents' conduct which I find constituted both a breach of an implied term in the SPA as well as being misleading or deceptive. The quantum of damages reflects the loss of BlueFreeway's opportunity or chance to negotiate a termination payment with the respondents which is less than the $16 million which was actually paid. I also consider that the respondents' cross claim should be dismissed. 4 These reasons are structured as follows: PART A BACKGROUND PART B BROAD OUTLINE OF THE PARTIES' CLAIMS PART C THE EVIDENCE SUMMARISED PART D SOME KEY FACTUAL FINDINGS PART E CONSIDERATION OF APPLICANTS' CLAIMS PART F DAMAGES PART G CONSIDERATION OF CROSS CLAIM SCHEDULE A RULINGS ON SOME EVIDENTIARY MATTERS PART A: BACKGROUND FTI and BlueFreeway 5 FTI is a company engaged in developing and selling digital marketing products. Messrs Barnes and Hawksley founded FTI in 2001 and were the original directors and shareholders of the company. Broadly speaking, Mr Barnes, who was the Managing Director, had particular responsibility for product development and financial administration. Mr Hawksley was the Marketing Director with responsibility for sales. Although both had an involvement in all aspects of FTI's operations, it appears that Mr Barnes had primary responsibility for financial matters. The third applicant (Gang of 4) was created by Messrs Barnes and Hawksley to hold intellectual property. By 2006, Messrs Barnes and Hawksley together owned 92% of the equity in FTI. Two associates held the remaining 8%. 6 FTI developed and supported several software programs, the most important of which is Campaign Master. Campaign Master is an email marketing software system with certain advanced functionalities which enables commercial organisations to send out marketing material to their clients and monitor the responses. The product was not sold to customers as a one-off item of software. Rather, it was principally sold under a contract involving a recurring monthly usage fee. Campaign Master experienced significant success and by 2005 had been widely accepted in the market. 7 Initially, FTI operated only in Australia. By early 2006, however, FTI had also established a business connection with a UK registered company called Campaign Master (UK) Limited (CMUK) for the distribution of the Campaign Master product in the UK. CMUK was formed specifically to act as a reseller of Campaign Master in the UK. FTI executed a reseller agreement with CMUK on 1 February 2006. The chief executive officer and major shareholder of CMUK was Mr Gurjeet Dhillon, with whom Mr Barnes had previously had a long business association in the UK. 8 In late 2005 to early 2006 Messrs Barnes and Hawksley were considering ways to leverage FTI's success by obtaining finance or selling their shares in FTI to a larger company. They engaged KPMG to assist them and to prepare an Information Memorandum for potential investors. The Information Memorandum was released in about June 2006. Prior to its release, Messrs Barnes and Hawksley were approached by representatives of BlueFreeway, who expressed interest in acquiring FTI. 9 BlueFreeway was established with the aim of creating a publicly listed company with ten independent "portfolio companies" operating in different areas of digital and interactive marketing and communications. BlueFreeway aimed to create an online "portal" (which came to be referred to as "blu") through which it would offer the portfolio companies' products and services, and in this way become a leading "one-stop" digital marketing and interactive communications media company. Mr Richard Webb, who was BlueFreeway's chief executive officer, was the driving force behind BlueFreeway. Mr Greg Daniel was the executive chairman of BlueFreeway. The other directors were Mr Ken McDonnell (who was the chief financial officer), Mr Nick Greiner and Mr Warwick Smith. 10 Messrs Webb and Daniel approached Messrs Barnes and Hawksley in May 2006 (prior to the release of the IM) expressing an interest in acquiring both FTI and Gang of 4. Heads of agreement were executed in August 2006 on a conditional basis which restricted Messrs Barnes and Hawksley from dealing with any other potential purchasers. On 24 October 2006, the SPA was executed. It was conditional upon the success of the proposed float of BlueFreeway on the Australian Securities Exchange (ASX). 11 The sale price under the SPA was calculated by reference to three amounts: the "Initial Payment", the "Additional Payment" and the "Earn Out Price". The Initial Payment involved BlueFreeway paying $10 million to Messrs Barnes and Hawksley (and their associates). It was paid in December 2006. The Additional Payment and the Earn Out Price were calculated by reference to earnings before interest and tax (EBIT) targets for FTI for the 2007-2009 financial years. 12 The Additional Payment was an amount to be paid to Messrs Barnes and Hawksley by the delivery of shares in BlueFreeway as soon as reasonably practicable after 31 October 2007. The number of shares was determined by reference to a formula which embodied various elements as defined in the SPA, in particular the FTI EBIT target for the 2007 year (the FTI EBIT 07). The FTI EBIT 07 threshold target was $2.5 million. Clause 3.1 of the SPA relevantly provided: 3.1 Calculation of Additional Payment (a) Where the Forty Two EBIT 07 is greater but not less than $2.5 million but equal to or less than $3.0m the Buyer must pay the Additional Payment to the Sellers in Accordance (sic) with this Clause (sic) (b) The Buyer must pay the Additional Payment to the Sellers by delivering the following number of Buyer Shares to the Sellers (sic) Number of Shares= (Forty Two EBIT 07 - Forty Two Forecast EBIT 07) x 4.0x Thirty Day VWAP 07. 13 "Thirty Day VWAP 07" was defined in Schedule 1 (although it was mistakenly referred to as "Thirty Day VWAP 08") as meaning the weighted average trading price of Buyer Shares sold on the ASX during the 30 consecutive trading days prior to 30 October 2007. 14 "EBIT" was defined in Schedule 1 of the SPA as meaning, in respect of any financial year, the consolidated earnings of FTI and Gang of 4 before interest income, interest expenses and income tax, but after amortisation and depreciation, as set out in the Earn Out Accounts. The "Earn Out Accounts" were defined as meaning accounts to be prepared by BlueFreeway in accordance with Schedule 4. Under Schedule 4, BlueFreeway was obliged to prepare and deliver to the respondents audited consolidated accounts of FTI and Gang of 4 and a draft certificate stating the EBIT. The Earn Out Accounts were required to be prepared in accordance with accounting principles. It might also be noted that under cl 1.2 of Schedule 4, BlueFreeway was obliged to: not do or omit to do, and must procure that no member of the Buyer Group does or omits to do, any act or thing whicih (sic) adversely distorting (sic) the results of the Business or the ability of the Buyer to achieve the highest level of EBIT, except as agreed by the Sellers (acting reasonably and if such a thing does occur the EBIT will be adjusted to compensate (sic). 15 As will emerge below, this provision is important to the respondents' cross claim. 16 The Earn Out Price was: (a) an amount to be paid to Messrs Barnes and Hawksley in either cash or shares in BlueFreeway (at the election of Messrs Barnes and Hawksley) as soon as reasonably practicable after 30 October 2008 (the Earn Out Price 2008); and (b) an amount to be paid to Messrs Barnes and Hawksley by delivery of shares as soon as reasonably practicable after 30 October 2009 (the Earn Out Price 2009). 17 The Earn Out Price was subject to certain conditions relating to the 2008 and 2009 EBIT targets for FTI. 18 The SPA also provided for a "Clawback Amount". This was an amount to be paid by Messrs Barnes and Hawksley to BlueFreeway on or before 30 December 2009 in the event that the EBIT targets set out in the SPA for the 2008 and 2009 financial years were not achieved. 19 On 24 October 2006, Messrs Barnes and Hawksley also entered into a Management Deed with each of the applicants (the Management Deed). The Management Deed was for a term to commence on the completion of the SPA (19 December 2006) and to end on completion of the "Earn Out Period" (30 October 2009). The Management Deed set out the terms and conditions of the operation and decision-making of FTI and Gang of 4 at a board level during that term. Under clause 2, BlueFreeway was entitled to nominate three directors to the boards of both those companies, while Messrs Barnes and Hawksley were entitled jointly to nominate two directors to both boards. Under clause 3.3, certain matters could only be determined by a board resolution that was supported by at least one director nominated by BlueFreeway and one director nominated by Messrs Barnes and Hawksley. 20 Messrs Barnes and Hawksley remained as directors of FTI following its acquisition by BlueFreeway. BlueFreeway appointed three additional directors of FTI, including Mr Webb and Mr McDonnell. The other was Mr Simon Spencer. 21 Also on 24 October 2006, each of the respondents entered into Executive Service Agreements with both FTI and Gang of 4, under which both were employed to undertake all duties and responsibilities consistent with the role of Joint General Manager and each was to receive fixed remuneration in the amount of $120,000 per annum. CMUK licence negotiations 22 A central matter in the proceeding is the role which Messrs Barnes and Hawksley played in the sale in May 2007 of a licence to CMUK to sell Campaign Master. That licence sale set in train a course of events which resulted in the execution of the Exit Agreement and the payment by BlueFreeway under that agreement of approximately $16 million to Messrs Barnes and Hawksley. 23 Prior to the sale of FTI to the BlueFreeway group, Messrs Barnes and Hawksley had commenced discussions with Mr Dhillon of CMUK to change FTI's business model with CMUK from a reseller arrangement to one in which CMUK was to acquire a perpetual licence for the Campaign Master product for the UK, Ireland and (initially) India. From about January 2007, Mr Dhillon showed renewed interest in negotiating for a perpetual licence of the Campaign Master product for the nominated territories. 24 Between February and May 2007, Messrs Barnes and Hawksley and later, Mr McDonnell, were involved in detailed negotiations with Mr Dhillon regarding the software licence. 25 It was also during this period that Messrs Barnes and Hawksley became concerned that Mr Webb's "super salesforce" for BlueFreeway, to which FTI's sales team had been recruited, marginalised Campaign Master in favour of an alternative (and competitive) product within the group called "Traction". Traction was developed by a company known as Mass Media, in which BlueFreeway had recently acquired a majority interest. Messrs Barnes and Hawksley were very concerned that the promotion of Traction was affecting their capacity to receive earn out payments under the SPA. 26 The CMUK software licence was approved by the board of BlueFreeway and signed on 22 May 2007 (the Licence Agreement). It provided for payment by CMUK to FTI of a licence fee of ₤1.7 million (approximately $4.1 million). The licence fee was due to be paid on 30 June 2007. 27 On 22 May 2007, BlueFreeway made an announcement to the ASX (the ASX Announcement). The ASX Announcement stated that BlueFreeway anticipated forecast earnings for the period ending 30 June 2007 to exceed its prospectus statutory forecast by 25% (from $3.6 million to $4.5 million). The consideration for the Licence Agreement significantly contributed to that excess. BlueFreeway's share price rose on the back of the ASX Announcement. Because of the amount of time devoted to the ASX Announcement by the respondents in cross examining various witnesses, I will set out its full terms: BlueFreeway advises forecast second-half earnings up by 25 per cent versus prospectus Earnings upgraded of 96 per cent versus prior year Sydney, Australia – Tuesday 22nd May 2007: BlueFreeway Limited, a leading global provider of digital and interactive marketing services, advised today that it anticipates forecast earnings for the period ending June 30th 2007 to exceed its prospectus statutory forecast by 25% from $3.6M to $4.5M. The revised earnings forecast is subject to May and June trading conditions remaining favourable and no unforeseen adverse circumstances arising during this period. The company's revised forecast anticipates revenues will increase from $17.1m to $19.4m for the 2007 second-half period. The earnings upgrade has been driven by organic growth in the initial ten companies which made up BlueFreeway at the time of the IPO in December 2006, reinforcing the many benefits of the model. The four acquisitions made in April 2007 will have minimal impact on the 2007 fiscal year results but are expected to contribute significantly to the 2008 fiscal year results. Statutory Forecast – Second Half (unaudited statutory and proforma accounts) A$'M 2007 2H Forecast 2007 2H Prospectus Variance to Prospectus 2006 2H Actual Variance to 2006 Revenue $19.4 $17.1 13.5% $10.6 83.0% EBIT (excluding OEI) $4.5 $3.6 25.0% $2.3 95.7% Richard Webb, Chief Executive Officer BlueFreeway, said: "BlueFreeway has been born at a time of an unprecedented shift away from traditional media, and as such has realised growth via its one-stop-shop offering through its corporate sales team:" (sic) "While the company has made, and will continue to make, accretive acquisitions, this result demonstrates that our foundation companies continue to grow and become more efficient and are well placed to benefit from unprecedented growth in online marketing and advertising spending." "We anticipate that further acquisitions will be made in the short to medium term, but only where a clear strategic and financial case can be made. We will continue to apply strict investment criteria to acquisitions to ensure they grow shareholder returns." Factors that have contributed to the company's positive variance to its pre-listing forecast include: • Restructure of the Forty Two international UK reseller framework based on a license fee rather than a revenue sharing model. The restructure removes a barrier to growth for the existing distributor in the UK and allows BlueFreeway to realise its investment in Forty Two International. Under the pre existing arrangement the distributor shared revenue with Forty Two International. This restricted its ability to grow and at the same time BlueFreeway Limited was unable to sell "Campaign Master" directly into the territory. The restructuring of the United Kingdom has resulted in incremental revenue of $2.4m. It is likely that this transaction model will be replicable in other geographic regions where Forty Two International does not establish a direct presence. • Accelerated sales from the Australian BlueFreeway corporate sales division which were not projected to contribute to the company's performance until the 2008 financial year. • Positive performance against budget by several of the Portfolio Companies within the group as a result of an overall revenue of business operations and better utilisation of resources. • Strong revenue performance has been offset by the acceleration of initiatives designed to generate returns in the 2008 fiscal year. These initiatives include: ͦ Expansion of the geographic sales force in the United Kingdom and Australia ͦ Expansion of the BlueCentral hosting infrastructure in Los Angeles, London, and Singapore ͦ Establishment of a 24X7 centralised service and support centre in Sydney ͦ Establishment of back office shared services for the group Mr Webb said: "I am particularly pleased that the increase to forecast earnings has occurred and has allowed us to bring forward investments to expand our offering and global footprint ahead of the schedule outlined in our prospectus." Importantly, on a like-for like (pro forma) basis, the first ten companies that made up BlueFreeway on listing have increased their revenue and EBIT (excluding outside equity interest) by 66.7% and 97.6% respectively, over the same period last year. A summary of the full year proforma analysis is provided for reference below. Full Year Pro Forma (unaudited proforma accounts) A$'000 2007 2007 Prospectus Variance to Prospectus 2006 Actual Variance to 2006 Forecast Revenue $34.5 $32.6 5.8% $20.7 66.7% EBIT (excluding OEI) $8.1 $7.2 12.5% $4.1 97.6% About Blue Freeway www.bluefreeway.com BlueFreeway (ASX: BLU) is an Australian-based global digital and interactive marketing communications company with stakes in a growing portfolio of digital and interactive marketing specialists, as well as BlueCentral, a leading hosting and business infrastructure company. The company has offices in Australia, the United States, the United Kingdom, France, and India. BlueFreeway offers a suite of end-to-end, internet and mobile marketing solutions, to major corporate and government advertisers. The Portfolio Companies in the BlueFreeway group include: Agency Fusion, BlueCentral, Cogentis, Communicator Interactive, Deepend Sydney, Digicon, eHound, Forty Two International, IBC, IXION, JSA Interactive, MassMedia Studios, SageMetrics, Spin Communications, and Tentacle. For BlueFreeway Inquires please contact Ken McDonnell Chief Finance Officer 28 Prior to the licence sale in May 2007, Messrs Barnes and Hawksley believed that CMUK would be able to obtain funding for the licence fee from a Mr Terry Tully, who resided in the UK. When Mr Dhillon was unable to finalise funding with Mr Tully in May 2007, he was reluctant to proceed with the licence sale. But Mr Dhillon then changed his mind on the basis of assurances given to him by Messrs Barnes and Hawksley over the weekend of the 19-20 May 2007 that, if necessary, they would provide the funding to CMUK. By 30 June 2007, which was the deadline for payment of the licence fee to be paid to FTI, the arrangement with Mr Tully for the funding of the licence fee had still not been finalised. Messrs Barnes and Hawksley then stepped in and procured the necessary finance by personally guaranteeing a loan to a company they had incorporated in Australia, which then forwarded the money to its UK parent, CMUK. 29 The funding of the licence fee is pivotal to the applicants' case. The licence fee was paid to FTI on 29 June 2007 by the company which had been recently incorporated by Messrs Barnes and Hawksley for that purpose, CMUK (Aust) Pty Limited (CMUK (Aust)), which obtained the necessary finance after Messrs Barnes and Hawksley agreed to be guarantors of a bill facility to CMUK (Aust) with a limit of $4.3 million from the National Australia Bank (NAB). To secure the facility, Messrs Barnes and Hawksley deposited $4.3 million into a term deposit with NAB. In doing so, they used part of the $10 million which they had received from BlueFreeway as the Initial Payment under the SPA. 30 BlueFreeway claims that it was not aware of Messrs Barnes and Hawksley's role in funding the licence transaction. It alleges that they deliberately concealed their involvement with a view to increasing the Additional Payment by boosting FTI's 2007 EBIT. BlueFreeway contends that if it had known of Messrs Barnes and Hawksley's involvement in the financing, BlueFreeway would not have entered into the Exit Agreement with them in October 2007. It initially claimed that, under that counterfactual, Messrs Barnes and Hawksley would have continued to discharge their functions as directors and managers of FTI until 30 June 2009. And, in light of FTI's financial performance over the 2008 and 2009 financial years, they say that Messrs Barnes and Hawksley would not have received any further consideration for the sale of their shares in FTI. Rather, they would have been obliged to repay to BlueFreeway part of the initial payment sum of $10 million under the "Clawback" provisions of the SPA. 31 BlueFreeway subsequently advanced an alternative formulation of the counterfactual. It says that it is entitled to an award of damages in respect of the respondents' misleading or deceptive conduct for the loss of the opportunity or chance to negotiate a termination agreement with the respondents "with all cards on the table" and, in particular, with full knowledge of their involvement in financing the licence transaction. BlueFreeway says that, in those circumstances, it would have negotiated a payout amount which was substantially less than the $16 million which it paid under the Exit Agreement. As will emerge below, the respondents objected to BlueFreeway being permitted to run this alternative case because they say it was not pleaded. 32 Messrs Barnes and Hawksley deny BlueFreeway's allegations. They say that it was "no secret" that they provided finance to guarantee the loan because that was known to both Messrs Webb and McDonnell. They say that they were encouraged by Mr Webb to become involved in the financing in order to finalise the transaction promptly. In particular, they rely on a meeting at the Aurora Place cafÉ, evidently on 6 March 2007, during which they claim that, in Mr McDonnell's presence and in the context of a discussion about whether Mr Dhillon would be able to obtain the necessary funds, Mr Webb urged them to "do whatever it takes" to ensure that the licence transaction was completed by 30 June 2007. The respondents claim that this statement was made in the context of the discussion about the likelihood of CMUK obtaining the necessary finance to fund the transaction and shortly after Mr Hawksley had said at this stage of the meeting that Mr Dhillon knew "two rich blokes in Australia" who had recently received $10 million. Messrs Barnes and Hawksley also say that they expected their financial support to CMUK to be only a short-term arrangement pending completion of a funding agreement between CMUK and Mr Tully. 33 It might also be noted at this point that Mr Webb was not called by the applicants as a witness in the proceeding, a matter which the respondents emphasise and to which I will return below. 34 The receipt by FTI of the CMUK licence fee made a substantial difference to the operating results of FTI for the 2007 financial year. As a result, the FTI EBIT 07 reached the target of $2.5 million as set out in the SPA, thereby securing the respondents' entitlement under the SPA to an Additional Payment to the value of approximately $16 million. The payment was ultimately made in cash, not shares as contemplated by the SPA. The Exit Agreement 35 Throughout 2007 Messrs Barnes and Hawksley became increasingly concerned about the implications for FTI and, in particular the future of Campaign Master, of Mr Webb's vision or plans for BlueFreeway. Much of their concern related to Mr Webb's plans to create the "blu portal" and their perception of his lack of support for Campaign Master, in contrast with his seemingly strong support for Traction. In the period from August to October 2007, negotiations took place involving Messrs Barnes and Hawksley on the one hand and primarily Mr Webb on the other hand (although Mr McDonnell also had a lesser involvement), with a view to Messrs Barnes and Hawksley leaving the BlueFreeway group. The Exit Agreement was negotiated and executed so as to bring about an early termination of the relevant contractual arrangements between BlueFreeway and Messrs Barnes and Hawksley (such as the SPA, the Management Deed and the Executive Service Agreements). The Exit Agreement terminated the SPA and required the resignation of both Messrs Barnes and Hawksley as directors of FTI, as well as quantifying the final consideration they would receive from BlueFreeway for their shares in FTI. Although the evidence is not entirely clear, it appears that the Exit Agreement was eventually signed in early November 2007. 36 The final entitlements included the Additional Payment which was calculated by reference to the FTI EBIT 07. It was agreed that, for the purpose of the payment under the Exit Agreement, the FTI EBIT 07 would include the CMUK licence fee, which meant that the relevant target was reached. Under the Exit Agreement, the Additional Payment was to be made to Messrs Barnes and Hawksley in cash or shares on or before 1 November 2007. The provisions in the SPA relating to the Earn Out Price and the Clawback Amount were removed in the Exit Agreement. 37 On or about 1 November 2007, BlueFreeway paid $16,436,488 to Messrs Barnes and Hawksley and their associates pursuant to the Exit Agreement. This amount represented the Additional Payment as agreed under the Exit Agreement ($16,463,538) less certain deductions. Messrs Barnes and Hawksley thereafter resigned as directors of FTI and Gang of 4, as noted above, and all other related agreements were terminated. PART B: BROAD OUTLINE OF THE PARTIES' CLAIMS A Outline of applicants' primary case and respondents' defence 38 The applicants' claims raise the following causes of action: breach of contract, breach of fiduciary and statutory duties, and misleading or deceptive conduct under s 42 of the Fair Trading Act 1987 (NSW) (FT Act). The applicants' case largely centres on the financial involvement of Messrs Barnes and Hawksley in the negotiation of the CMUK licence agreement and the alleged concealment from BlueFreeway of their role in that transaction during negotiations relating to both the Licence Agreement and the Exit Agreement. The applicants say that, but for the involvement of Messrs Barnes and Hawksley in relation to the financing and but for their failure to disclose that involvement: (a) BlueFreeway would not have entered into the Exit Agreement; (b) the SPA would have remained enforceable according to its terms; and (c) the entitlements of Messrs Barnes and Hawksley under the SPA would not have included the Additional Payment and hence the sum of $16,436,488 would not have been paid. 39 As noted above, the applicants also argued in the alternative that BlueFreeway is entitled to damages for the loss of the opportunity to negotiate a termination arrangement with the respondents with full knowledge of their involvement in procuring finance for CMUK. 40 It is convenient to set out in broad terms the applicants' individual causes of action and the essence of the respondents' defence. (a) Applicants' claims in contract 41 The applicants' case in contract relies on the implication of various terms in the SPA, Management Deed and the Exit Agreement, which terms Messrs Barnes and Hawksley are said to have breached by failing to disclose to BlueFreeway the role they played in procuring and guaranteeing the payment of the licence fee. 42 The applicants claim that the terms and conditions below are implied in the SPA, Management Deed and Exit Agreement respectively. The applicants claim there was a breach of some of these implied terms by Messrs Barnes and Hawksley (excluding those discussed at (b) below): (a) an implied term and condition of the SPA that Messrs Barnes and Hawksley would disclose to BlueFreeway all information known to them which might become relevant to the calculation of the FTI EBIT 07; (b) a series of implied terms and conditions of the Management Deed. The first of these is a term that Messrs Barnes and Hawksley would disclose to the BlueFreeway Director (as defined) any matter of which they had knowledge which was relevant to the exercise of voting rights pursuant to clause 3.3 of the Management Deed. The other suggested implied terms in that agreement are that the respondents would not in the course of operating the business of FTI and Gang of 4 undertake any transactions that would disadvantage BlueFreeway and that the respondents would disclose to BlueFreeway any matters of which they had knowledge which might become relevant to the calculation of the Earn Out Price provided by the SPA. However, as the respondents point out, only the first of those implied terms is alleged to have been breached; and (c) an implied term and condition of the Exit Agreement that Messrs Barnes and Hawksley had disclosed to BlueFreeway all information relevant to the calculation of the FTI EBIT 07. 43 In respect of each of those alleged implied terms, the applicants say that: (a) the terms are implied in fact; (b) Messrs Barnes and Hawksley were managing FTI's business as a subsidiary of BlueFreeway and were responsible for its negotiations with commercial parties; (c) Messrs Barnes and Hawksley were privy to the commercial negotiations and transactions and the trading results of FTI; (d) the BlueFreeway Director had to be fully informed by Messrs Barnes and Hawksley of matters upon which voting rights might be exercised from time to time pursuant to the Management Deed; (e) the calculation of the FTI EBIT 07 required full knowledge and information of the nature of FTI's commercial negotiations and transactions; and (f) the directors of BlueFreeway were not in possession of equivalent knowledge and information to that held by Messrs Barnes and Hawksley in relation to the commercial negotiations and transactions. 44 The terms are said to be implied in fact to give effect to the presumed or hypothetical intention of the parties. The applicants submit that, in determining whether a term ought to be implied in fact, the established test requires the Court to engage in a hypothetical inquiry through the eyes of an officious bystander. They submit that a broadly formulated obligation may be required to give a specific contract business efficacy, citing Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 at 190-191. 45 The applicants also say that the terms ought to be implied because, as at 24 October 2006 (i.e. the date of execution of the SPA, the Management Deed and the Executive Service Agreements), it would have been clear to the officious bystander that the EBIT performance of FTI for the ensuing three years was a matter of central importance to the SPA, namely the consideration payable by BlueFreeway to Messrs Barnes and Hawksley and their associates. 46 The applicants also submit that the terms should be implied having regard to the following matters: (a) under the Management Deed, Messrs Barnes and Hawksley had a large degree of independence in running FTI's business; (b) when the CMUK licence deal arose it was the respondents, particularly Mr Barnes, who had the historical business association with Mr Dhillon; (c) when Messrs Barnes and Hawksley identified the potential deal in February 2007, they began to negotiate directly with Mr Dhillon; (d) it was only in late April 2007 that Mr McDonnell assumed a superintending role during the negotiations after he was directed to do so by the BlueFreeway board; (e) Mr McDonnell warned Mr Hawksley in early May 2007 about the need for transparency in the negotiations; (f) Messrs Barnes and Hawksley themselves recognised that considerations referable to earn out calculations were vital to the ongoing relationship between the parties during the three financial years following the acquisition of FTI; and (g) Mr Hawksley conceded in cross examination that honesty between the parties as to matters affecting the EBIT was fundamental to the commercial relations between them. Respondents' defence to applicants' claim in contract 47 Messrs Barnes and Hawksley deny that the relevant terms should be implied. Their submissions in respect of the implication of such terms may be summarised as follows: (a) courts are generally slow to imply a term into a contract (citing Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346 (Codelfa)); (b) the implication of a term in fact should satisfy the following five conditions which were identified by the Privy Council (on appeal from the Supreme Court of Victoria) in B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (BP Refinery) and these requirements should be treated strictly: …[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. (c) whether or not a term is to be implied is dependent on the objective intention of the parties at the time of the contract and does not depend on what their subsequent acts might show was their subjective understanding; and (d) the SPA, Management Deed and Exit Agreement were prepared by the applicants' solicitors as a "complex suite of documents" and hence there is a heavy onus on the applicants to establish that the pleaded terms are implied. 48 Messrs Barnes and Hawksley also made the following submissions with respect to the alleged implied terms individually. 49 First, with respect to the term allegedly implied in the SPA regarding disclosure of all information known to Messrs Barnes and Hawksley which might become relevant to the calculation of the FTI EBIT 07, Messrs Barnes and Hawksley submit that such a term generally conflicts with the "orthodox principle that outside of any recognised relationship uberrimae fidei, no duty of disclosure is imposed upon contracting parties". In oral submissions, Mr Dubler SC (who appeared with Mr Shearer for the respondents) submitted that a duty of disclosure is ordinarily only implied in relationships of utmost good faith, such as insurance contracts or partnership contracts. 50 Secondly, Messrs Barnes and Hawksley also draw attention to some express terms of the SPA concerning the calculation of the EBIT (such as cll 4.3(c) (obligation to prepare and provide full past accounts and forecasts for 2007 and 2008); 4.3(e) (obligation to provide explanations and information requested by the purchasers); and 5.2(d) (obligation to deliver ledgers, journals and books of account)). They also draw attention to various provisions relating to the preparation of "Earn Out Accounts" which, together with monthly financial reporting obligations (which are set out in both Sch 4 and cl 1.1 of Sch 5), enable the relevant EBIT to be calculated. They also point to the general "catch all" obligation in clause 1.1 of Schedule 5 of the SPA to provide BlueFreeway with other financial and operational reports and as it reasonably requests. They say that having regard to these provisions, the broad obligation of disclosure is not necessary for the business efficacy or sensible operation of the SPA. 51 Messrs Barnes and Hawksley also contend that the term does not meet the requirements that it be "clearly expressed", "reasonably and equitable" and "so obvious it goes without saying", submitting that a term requiring disclosure of information that "might become relevant" is "vague and creates an obligation of uncertain breadth" and would be "one-sided and onerous". They say further that the implied term is inconsistent with the "detailed express reporting terms". 52 Thirdly, their defence to the further amended statement of claim also points to the following additional clauses of the SPA which are said to be inconsistent with the alleged implied term: • cl 15.11(a) of the SPA which provided that the SPA embodied the entire agreement between the parties; and cl 15.11(c) of the SPA which provided that any statement, representation, term, warranty, condition, promise or undertaking made, given, or agreed to in any prior negotiation, arrangement, understanding, or agreement, has no effect except to the extent expressly set out or incorporated by reference in the SPA. 53 Fourthly, with respect to the Management Deed, Messrs Barnes and Hawksley submit that the subject matter of the Management Deed is a "power-sharing arrangement in respect of decision-making at the board level of FTI during the Earn Out Period". They say that the pleaded implied term is not necessary and is largely irrelevant to the terms of the Management Deed. They submit that the alleged term is not reasonable and equitable as it creates a positive duty of disclosure in circumstances where the respondents are not fiduciaries of BlueFreeway, and further that there is no reciprocity in the suggested obligation. They also say that the suggested term is not capable of clear expression and not "so obvious it goes without saying". The respondents highlight that, having regard to cl 2 of the Management Deed (which provides that the respondents may appoint two directors of FTI), the Management Deed did not require for its operation that the respondents personally be directors of FTI and that the alleged implied term is inconsistent with this position. 54 In their closing submissions, Messrs Barnes and Hawksley also argue that the alleged implied term in the Exit Agreement is in the form of a warranty as to the disclosure of matters concerning the FTI EBIT 07 and that such a term is "wholly anomalous" in circumstances where the Exit Agreement sought to resolve a dispute about the very subject matter in respect of which the term is sought to be implied (namely by the parties confirming and agreeing on the FTI EBIT 2007). They also say that the term is inconsistent with the entire agreement provision (cl 12.11 of the Exit Agreement) and the releases given in cl 10.1. Otherwise, they rely on their submissions regarding the similar term which the applicants' claim should be implied in the SPA. (b) Applicants' claims of breach of statutory and general law duties 55 The applicants claim that the following duties were owed by Messrs Barnes and Hawksley to FTI and were breached: (a) a duty under s 182 of the Corporations Act 2001 (Cth) (Corporations Act) not to improperly use their position to gain an advantage for themselves or someone else; (b) a duty under s 191 of the Corporations Act to give notice to the other directors of FTI of any material personal interest held by either Messrs Barnes or Hawksley in a matter relating to the affairs of FTI; (c) a duty under the general law not to place their own personal interests in actual or potential conflict with the interests of FTI; and (d) a duty under the general law to disclose to the other directors of FTI any material personal interest either Messrs Barnes or Hawksley had in a matter relating to the affairs of FTI. 56 The applicants divided the alleged duties into two groups and it is convenient to follow the same structure. I will refer to the duties at [55](a) and (c)] as the alleged "duties to avoid conflicts of interest" and the duties at [55](b) and (d)] as the "duties to disclose". The statutory and general law duties will be referred to separately where appropriate. 57 Messrs Barnes and Hawksley admit that they owed FTI the duties specified at [55](a) - (c)] above, however, they do not admit that they owed any general law duty to disclose any material personal interests. They say that such a duty is positive in character and that no such duty is recognised in Australian law, citing Hollingsworth J's decision in P & V Industries Pty Ltd v Porto (2006) 14 VR 1 at 9, as well as the High Court's decision in Pilmer v Duke Group Limited (2001) 207 CLR 165 at [74]. 58 Messrs Barnes and Hawksley otherwise defend the above allegations and they also bring a cross claim against BlueFreeway. Principally, they say that BlueFreeway knew or ought to have known that they were providing financial assistance to CMUK. Further they say that Mr Webb and Mr McDonnell encouraged them to "do whatever it takes" to ensure the transaction was completed in the 2007 financial year, including providing finance for the transaction. They say that Mr Webb wanted to ensure that the Licence Agreement was signed by May 2007 so that an earnings upgrade could be announced in the ASX Announcement on 22 May 2007. They dispute the applicants' allegation that in providing finance they acted in their own interests (to secure the Additional Payment). They say that they simply acted on Mr Webb's directive to "do whatever it takes". 59 Alternatively, Messrs Barnes and Hawksley say that there was no duty to disclose their role in providing financial support for the licence sale transaction. They say that BlueFreeway had full knowledge that they would benefit from the Licence Agreement in accordance with the terms of the SPA. In these circumstances, they say that the applicants nevertheless ensured that the licence sale went ahead to the commercial advantage of the applicants on receipt of the licence fee (namely additional funds, achieving budget forecast, maintenance of share price etc). They say that their actions in procuring and entering into the transactions were of no material relevance to the applicants or to their decision to execute the Exit Agreement. Accordingly, they say that they had no duty to disclose their role in the transaction before or after the Licence Agreement had been executed. Messrs Barnes and Hawksley say that their conduct in procuring and guaranteeing the licence payment was immaterial to the applicants because the provision of financial assistance or a guarantee to CMUK was not capable of adversely affecting or otherwise interfering with the interests of either FTI or BlueFreeway. 60 Further, in defending the applicants' claims, Messrs Barnes and Hawksley allege that during 2007 BlueFreeway had breached the SPA by adopting business priorities which had an adverse effect on the expansion of FTI's business and FTI's financial results – namely promoting Traction instead of Campaign Master. 61 Messrs Barnes and Hawksley say that any loss suffered by the alleged inducement to enter into the Exit Agreement must be reduced by BlueFreeway's obligation to pay the 2008 Earn Out Price and the 2009 Earn Out Price. They also say that they made no profit under the Exit Agreement, but rather gave up valuable rights to future benefits under the SPA. Messrs Barnes and Hawksley also rely on an express term in the Exit Agreement which they say fully releases them from any claims brought by the applicants. 62 Messrs Barnes and Hawksley say further that, even if the applicants can establish the existence of the alleged duties, they should not succeed because of the difficulties presented on the issues of both breach and loss. Messrs Barnes and Hawksley highlight that the alleged duties are said to be owed by them to FTI, whereas the pleaded loss is suffered by BlueFreeway. Messrs Barnes and Hawksley say that FTI alone received the benefit of the licence fee and suffered no loss from any of the alleged breaches of duty. 63 In contrast, the applicants contend that the alleged duties extend to circumstances where, although FTI gained a benefit by receiving the licence fee, that benefit was at the expense of an increased obligation on the part of its parent (BlueFreeway) to pay additional monies by way of consideration under the SPA. The applicants submit that the receipt of the licence fee was not merely for FTI's benefit because FTI's sole shareholder, BlueFreeway, had to make substantial payments to Messrs Barnes and Hawksley as a consequence of the licence fee being received by FTI. (i) Breach of duty to avoid conflicts of interest 64 The applicants say that the duties to avoid conflicts of interest (see [55](a) and (c) above) were breached by the actions of Messrs Barnes and Hawksley in providing security which enabled CMUK (Aust) to fund the licence fee where CMUK did not otherwise have the capacity to pay. They contend that Messrs Barnes and Hawksley's aim and purpose in providing the security which enabled CMUK (Aust) to fund the licence fee was to increase the FTI EBIT 07 calculation for the purposes of the SPA and thus increase their claims against BlueFreeway under the SPA. The applicants also claim that Messrs Barnes and Hawksley acted with the purpose of advancing their own positions, preferring their own interests and gaining an advantage for themselves in negotiating with BlueFreeway to amend the SPA and negotiating further financial terms to their own advantage. 65 With respect to the alleged duty under s 182 of the Corporations Act, Messrs Barnes and Hawksley submit that the following five elements need to be established: (a) the person must have been an officer or employee of the corporation at the relevant time; (b) the person must have used their position; (c) that use must have been improper; (d) that improper use must have been for the purpose of gaining (relevantly) an advantage; and (e) that advantage must have been for the person or some other person. 66 Messrs Barnes and Hawksley say that s 182 is concerned with the direct use of the employee or officer's position to gain an advantage. They submit that their conduct here in guaranteeing the licence fee did not involve a use of their positions as directors of FTI and further that there was no improper use. They say that their conduct in providing security was not done for the purpose of gaining an advantage for themselves. They also contend that the security arrangements were personal guarantees provided by them to a third party and did not involve direct use of their positions as directors of FTI. They say that their actions ensured that CMUK did not default in its financial obligations to FTI and that FTI received the benefit of the licence payment and did not incur any financial obligations to any person, hence that there was no related party transaction. 67 In response to the pleaded general law duty, Messrs Barnes and Hawksley submit that the applicants have not particularised any conflict of interest, and they rely on the matters referred to above in relation to the alleged duty under s 182 to deny the existence of any such conflict of interest. They say that the provision of finance in all the circumstances was "consistent with FTI's interests in obtaining the licence fee rather than having a defaulting counterparty to chase for payment". (ii) Breach of duty to disclose 68 The alleged duties of disclosure ([55](b) and (d) above) are said to have been breached by the failure of Messrs Barnes and Hawksley to disclose to FTI that they themselves had procured and guaranteed payment of the licence fee. As noted in [57] above, Messrs Barnes and Hawksley do not accept that any such general law duty of disclosure exists. Furthermore, they say that if such a duty does exist, they did in fact make adequate disclosure to the applicants. 69 As to the applicants' reliance on s 191 of the Corporations Act, Messrs Barnes and Hawksley submit that no claim for damages can arise under this provision as it is not a corporation/scheme civil penalty provision for the purposes of s 1317H of the Corporations Act. 70 Messrs Barnes and Hawksley contend that, in any event, even if the applicants had no actual or constructive notice of their role in the transaction, there was no breach of s 191 of the Corporations Act. They submit that their conduct did not involve a material personal interest which they were obliged to disclose under s 191. That submission has the following elements. First, Messrs Barnes and Hawksley contend that the steps taken to procure the licence fee did not result in either of them having a material personal interest in a matter that relates to the affairs of FTI. They did not have a material personal interest in the licence or the fees received. They had an interest in obtaining their entitlements under the SPA but they say that that related to the affairs of BlueFreeway, not FTI. They highlight that there was no duty of disclosure alleged to be owed to BlueFreeway as neither Mr Barnes nor Mr Hawksley were officers of BlueFreeway. 71 Secondly, Messrs Barnes and Hawksley point to the requirements under s 191(3) of the Corporations Act that the notice which has to be given under s 191 must be given at a directors' meeting and the details are to be recorded in the minutes of that meeting. They add that no board meeting took place during the relevant period. They emphasise that they asked for a board meeting to be arranged, but Mr McDonnell refused to do so.. (c) Applicants' case concerning misleading or deceptive conduct 72 The applicants' case regarding misleading or deceptive conduct involves allegations that Messrs Barnes and Hawksley falsely represented to the applicants that CMUK itself had the capacity to pay the licence fee to FTI (the first representation). It is also alleged that the conduct that Messrs Barnes and Hawksley engaged in to procure and guarantee payment of the licence fee themselves was misleading or deceptive or likely to mislead or deceive because it represented to the applicants that the licence fee had been paid to FTI by CMUK (the second representation). The applicants say that the above representations were made in trade and commerce, are false and are in breach of s 42 of the FT Act. They also claim that they suffered loss or damage because, but for that conduct, they would not have entered into the Exit Agreement, no Additional Payment would have been made pursuant to the Exit Agreement and BlueFreeway would not have refrained from enforcing the clawback provisions of the SPA. 73 Messrs Barnes and Hawksley deny that: (a) either representation was ever made; and (b) that their conduct was misleading or deceptive or likely to mislead or deceive because the applicants were either aware or ought to have been aware of their involvement in financing the transaction. 74 In any event, they say that BlueFreeway did not rely upon either representation so as to give rise to any loss or damage and that it would have approved the transaction regardless of its knowledge of how it was funded because of its strong desire to have the transaction included in the group accounts for 2007. 75 The respondents also claim that the applicants' misleading or deceptive conduct case as presented was outside the pleadings. 76 The primary claim for relief is for damages, which are sought only by BlueFreeway. That claim is made on alternative bases. The first basis is that, if the respondents had revealed the truth of their role as financiers before the Exit Agreement was executed, they would not have received the Additional Payment of approximately $16 million and, on one hypothesis, they would have remained with FTI for another two years, but they would not have achieved any earn out entitlement for 2008 or 2009. The alternative basis involves a different hypothesis, which the applicants describe as "the more likely one". It is that there would have been an exit agreement, but that BlueFreeway would have negotiated a substantially lower amount than $16 million if it had known of the nature and extent of the respondents' role in financing the licence transaction. BlueFreeway claims an amount for the loss of the chance or opportunity to negotiate such lower amount. 77 In their pleadings, the applicants also sought, in the alternative, an account of profits. No submission was made in support of that claim, nor was it addressed by the respondents. I will assume that it was not pressed. 78 The respondents deny that the applicants are entitled to any damages. They contend that the applicants have not established reliance or causation so as to entitle them to any damages, and they also say that the "loss of a chance" was not pleaded. I will deal with these and other matters relating to relief below. (d) Applicants' case concerning equitable fraud 79 No submissions were made by the applicants in support of this claim and the respondents made clear that they regarded the claim as having been abandoned. They also made no submissions in respect of it. I propose to proceed on the basis that this claim was not pressed by the applicants. B The cross claim outlined 80 The respondents bring a cross claim, alleging misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) (TP Act) (which is applicable because of the relevant dates). Their case relates to two matters. The first matter concerns representations allegedly made by BlueFreeway to support Campaign Master as well as representations which the respondents say Mr Webb made to them to the effect that, if necessary, they themselves should fund the Licence Agreement to ensure that the transaction was finalised before the end of the 2007 financial year. The second matter concerns representations arising out of the entire agreement clause in the Exit Agreement. 81 Expanding on the first of those matters, the respondents allege that, in the context of the past support which FTI had offered to CMUK (which they say was known to BlueFreeway), BlueFreeway made various statements to the respondents and CMUK confirming their continued commitment to Campaign Master and the business of FTI and, in particular, that no decision had been made by BlueFreeway to alter the level of support for Campaign Master (the Campaign Master Commitment Representation). The respondents say that, contrary to these statements, BlueFreeway had already decided to curtail support for Campaign Master and to marginalise both it and the respondents in various ways. In support of that claim the respondents place heavy emphasis on an email dated 3 May 2007 which Mr Webb sent to both Mr MacDonald and Mr Spencer in which Mr Webb stated that his "objective is to spend as little as possible to support this product [i.e. Campaign Master] over the next few years" and that Traction will be the product which would be put into the portal. It should also be noted that, in the email, Mr Webb also made reference to Mr MacDonald "reviewing our obligations" with Mr Spencer before executing the CMUK Licence Agreement, the significance of which I will consider below. 82 The respondents also allege that BlueFreeway represented to them that the licence fee sale had to be executed by 22 May 2007 and be paid for by 30 June 2007 to avoid BlueFreeway suffering severe financial difficulties. They claim that Mr Webb told them that if CMUK could not arrange the necessary financing in time, they should "do whatever it takes" in order to ensure completion of the transaction in the 2007 financial year (the Funding Representation). 83 The respondents say that, in reliance upon those representations, they provided short-term finance to allow the licence fee to be paid pending finalisation of long-term financial arrangements between CMUK and its intended financier, Mr Tully. They allege that Mr Tully withdrew his support when he became aware of BlueFreeway's decisions to marginalise Campaign Master. They say that if they also had known of those decisions, they would have taken steps to prevent their implementation and ensured BlueFreeway's continued support of Campaign Master in accordance with its contractual obligations. They say that they suffered loss or damage, which includes the amount of the financial support which they say they would not otherwise have provided to secure the licence fee transaction (and which they ultimately forfeited when CMUK (Aust) defaulted). 84 Expanding upon the second aspect of the cross claim which, as noted above, arises from the entire agreement clause in the Exit Agreement, the respondents say that, by that clause, BlueFreeway represented that it would not rely upon any representations relating to the subject matter of the Exit Agreement and that that agreement constituted the entire agreement of the parties (the Entire Agreement Representations). They say further that the applicants have engaged in misleading or deceptive conduct in bringing these proceedings because: (a) the proceedings include an allegation that the respondents made certain representations which are alleged to be false; (b) cl 12.11 of the Exit Agreement specified that there were no representations relating to the subject matter of the Agreement which were not fully specified therein; (c) the representations the subject of the applicants' misleading or deceptive conduct case were not specified in the Exit Agreement but they should have been; and (d) if those representations had been specified, the respondents would not have executed the Exit Agreement unless and until they were released from any possible claim arising from the funding support they provided to CMUK. PART C: THE EVIDENCE SUMMARISED 85 It is convenient to summarise the relevant witness evidence, commencing with the applicants' witnesses. A Summary of the evidence of the applicants' witnesses (a) Mr Nick Greiner 86 Mr Greiner swore three affidavits. He was a non-executive director of BlueFreeway from 24 November 2006 (i.e. after the SPA was executed) until 3 July 2009. He described Mr Webb as playing "a principal part" in BlueFreeway acquiring a group of portfolio companies to form one of Australia's first listed digital and interactive marketing communications services group. He described the board's discussion in early 2007 of the proposal for FTI to sell a software licence to CMUK. He described how Messrs Webb and McDonnell, as executive directors of BlueFreeway, reported to the board about matters affecting those negotiations with a view to the board ultimately considering whether or not to approve the execution of the Licence Agreement. 87 Mr Greiner also gave evidence that he assumed that CMUK would be paying the licence fee from its own resources and that at no stage during 2007 was he aware or did he suspect that Messrs Barnes and Hawksley would use their own money or security to facilitate the payment of the licence fee. Mr Greiner said that if he was aware of the true facts relating to the source of the financing, he would have requested that the matter be discussed by the board and that the board take legal advice. He said that he would have approached the matter on the basis that, whilst it was generally beneficial for the group for FTI to receive a licence fee in excess of $4 million, it was not advantageous for the group as a whole if the consequence of receiving that fee was to entitle Messrs Barnes and Hawksley to receive more than $16 million under the SPA. He said that he would have conveyed to the BlueFreeway board that the licence agreement should not be approved on that basis. He acknowledged that the prospect of receipt of the licence fee represented a significant improvement in the operating results of FTI and the BlueFreeway group, but if the licence fee amount had not been received in the 2007 financial year and the forecasts in the November 2006 prospectus were not achieved, he said that he believed that the board would have considered the matter and made any appropriate responses, including discussing with management how the operating results could be improved. He said that at no stage did he regard the conclusion of the licence transaction with CMUK as vital. Mr Greiner also gave evidence of board discussions regarding how the licence fee would be accounted for in the group's accounts. 88 In cross examination, Mr Greiner was taken to the February 2007 board minutes where it is reported that there was a 26% EBIT shortfall regarding FTI. He said that the problems BlueFreeway was experiencing with FTI at that time were that it did not have an adequate sales force and there was also an issue about granting a software licence in the UK. He agreed that Mr Webb had a vision of there being a central sales team for the group but he added that that did not mean that such a goal was to be achieved immediately. Mr Greiner said he regarded FTI as the "strugglers" in the BlueFreeway group. 89 Mr Greiner was taken to the minutes of the 26 March 2007 board meeting, at which the details of the proposal to sell the licence to CMUK were discussed. He agreed that there was an implication in the minutes that the board was implicitly adopting Mr Webb's vision of not having Campaign Master sold through the portal. He said that Mr Webb seemed to regard the portal as a factor differentiating BlueFreeway from other companies. Despite this Mr Greiner said that in practice the individual companies continued to sell their products individually and that the central sales force was very limited at this time. 90 Mr Greiner also said that there was some board discussion as to how to treat the proceeds of the licence and whether it should be regarded as a one-off or recurring fee. He said the board was keen to treat the transaction a certain way because it had the potential to be a precedent for licence sales in other markets. Mr Greiner also said it was very likely that he raised the accounting treatment of the licence fee proceeds at the board meeting in May 2007 because he viewed that as the sort of matter that he could make a useful contribution on, relating as it did to governance of the company. He said he had no detailed recollection of what he said about the topic. 91 Mr Greiner agreed that it was part of the board's vision to provide an option for Campaign Master to be sold through the portal. He accepted, however, that there were tensions and all sorts of possibilities and he emphasised that, in his view, the board should not become too prescriptive about these matters and that nothing was "set in stone". 92 Mr Greiner was taken to the board papers for 4 May 2007 and to the reference to FTI's performance. Its revenue had now slipped from 26% below forecast at the previous meeting to 55%. He agreed that the increasing gap was a matter of some concern to the board and that if BlueFreeway had to report a decrease in revenue of that magnitude it would have a big impact on share price. 93 Mr Greiner was also asked a series of questions in cross examination regarding changes in the terms of the proposed licence sale, particularly the drop in the licence fee from £2.5 million paid in three instalments to £1.5m paid as a lump sum. He said he did not make any enquiries as to why the terms changed and he simply relied on Messrs Webb and McDonnell, who were involved in the negotiations. He said he was not too fussed about the differences in price because whatever they obtained was all an upside for BlueFreeway. 94 Although Mr Greiner was not personally involved in the drafting of the ASX Announcement or present at the board meeting on 20 March 2007 when it was approved, he was asked various questions about it. The ASX Announcement (see [27] above) was the vehicle by which BlueFreeway reported the 25% upgrade in revenue compared with the prospectus forecast. Mr Greiner agreed that they 25% upgrade was achieved by an increase in revenue of $4.5 million, of which approximately $4 million represented the licence sale. He agreed that if that figure was removed the company's performance would have been very poor and that there would have been adverse consequences for the management's credibility, share price and possible breach of banking covenants. He also agreed that it might have resulted in Mr Webb being dismissed as CEO if the group was doing so poorly. 95 Mr Greiner also agreed that there were various statements in the ASX Announcement which were "gilding the lily". He was taken to the use of the phrase "organic growth". He said that, in his view, organic growth referred to growth other than by way of acquisitions. He also agreed that the announcement exaggerated the benefits of the one-stop shop and that earlier figures prepared by the audit committee showed that BlueFreeway had not earned any revenue itself. Having said that, however, he said that there was a BlueFreeway sales force at this time and it was working at times in conjunction was the portfolio companies' sales forces and that the outcomes were being booked to the individual companies. Accordingly, he said that it was strictly incorrect to say what was in the announcement, however, he resisted the proposition that the announcement contained misrepresentations. 96 Mr Greiner confirmed that he was not personally involved in the negotiations leading up to the execution of the Exit Agreement in October 2007. 97 Mr Greiner was subject to a testing cross examination concerning the counterfactual and what he would have done as a director of BlueFreeway if he had been aware prior to execution of either the Licence Agreement or the subsequent Exit Agreement of the true facts concerning the financing of the licence transaction. Various hypotheticals were put to him with a view to testing his affidavit evidence that he would have opposed the transactions if he had known the true nature of the financing. Despite that testing cross examination, Mr Greiner generally maintained his stated position on these matters. 98 Mr Greiner explained that his opposition was based on his belief that the Licence Agreement was not a genuine transaction in circumstances where Messrs Barnes and Hawksley were on both sides of the transaction and stood to benefit by approximately $16 million for their investment of approximately $4 million. He described their financing as "a device". Mr Greiner said that, while he did not have an opportunity at the relevant time to discuss the matter with the other directors of BlueFreeway and that, while he would have listened to what they had to say, in his view the position was "pretty clear". He said that if he had knowledge of the arrangement he would not have supported it because it was a device and any director would have to "struggle hard" to approve the transaction. 99 Mr Greiner accepted in cross examination that if there was no Exit Agreement things would have been difficult for BlueFreeway, but he said they would simply have had to work through the problems. He also said the Exit Agreement could not be separated from the earn out issue. Mr Greiner said that even if there may have been a desire by BlueFreeway to finalise the matter by 30 June 2007, there would have been other options. One option would be to defer final payment until the external funder came up with the money. Other options included the possibility of vendor finance, possibly by BlueFreeway itself or a bridging loan. He said he would want to explore those other options before ever agreeing to Messrs Barnes and Hawksley providing financing, an option which he described as "near the bottom". Mr Greiner also expressed his dissatisfaction with the secrecy surrounding the funding by Messrs Barnes and Hawksley. 100 Mr Greiner impressed me as a truthful and honest witness whose evidence on relevant matters should be accepted. He did not hesitate to acknowledge when his memory of events failed him and he sought to be responsive to questions which were put to him in a lengthy and searching cross examination. I accept Mr Greiner's evidence, including on some important disputed matters as will emerge further below. (b) Mr Gregory Daniel 101 Mr Daniel was the non-executive chairman of BlueFreeway between 18 October 2006 and 4 April 2008. 102 Mr Daniel gave evidence of his awareness of the negotiations with CMUK concerning licensing the Campaign Master software and of Mr McDonnell's involvement. He said that he had no knowledge personally that Messrs Barnes and Hawksley were providing financial assistance in the form of security to CMUK and that, if he had been aware of that prior to 22 May 2007 when the Licence Agreement was signed, he would have insisted upon a full discussion of the issue by the BlueFreeway board. Mr Daniel added that, while the receipt of an amount in excess of $4 million before the end of the 2007 financial year would have been advantageous to the BlueFreeway group, he personally would not have been in favour of the transaction. He said that he would have insisted that the board take legal advice and that, subject to such advice, he would not have supported FTI proceeding to execute the Licence Agreement if Messrs Barnes and Hawksley provided such security. 103 Mr Daniel also said that if he had become aware after 29 June 2007 of the security arrangement, he would have ensured that that fact was discussed by the board and legal advice obtained. He added that, subject to such advice, he personally would have objected to the Exit Agreement being executed. Mr Daniel said that he would have preferred for the SPA to take its course rather than proceed with an Exit Agreement which provided more than $16 million to Messrs Barnes and Hawksley and their associates. 104 Mr Daniel also gave evidence concerning the accounting treatment of the transaction. He said that the auditors' advice was to the effect that the item should be treated as being of a recurrent character and therefore had to be taken into account for the purposes of calculating the EBIT of both BlueFreeway and FTI for the 2007 financial year. 105 In cross examination, Mr Daniel was asked various questions about Mr Webb's "long term vision". Mr Daniel said that he had some reservations about the proposal, but that he deferred to Mr Webb's greater experience in interactive marketing. He said that Mr Webb's vision for the blu portal was prescient and that whether or not it was ahead of its time was a matter that could be debated but that other companies had subsequently adopted a similar strategy. 106 Mr Daniel was asked various questions regarding the tension presented by the fact that the BlueFreeway group had competing products. He said that he relied upon assurances from management that Campaign Master and Traction had a different appeal in different markets. Campaign Master was pitched to the small-medium market while Traction was pitched to the larger corporate area. He also said that the bulk of Mass Media's business as he understood it was in consultancy and agency arrangements and not just marketing its email product. In his view there was a clear delineation between the two products but he accepted that he was not familiar with their respective functionality and he ultimately relied on the management team. 107 Mr Daniel was cross examined on the February 2007 board minutes and the reference to "closing the gap" which he understood to be a reference to hiring more sales staff for FTI. He also described the difficulties to be expected when small and personally owned businesses become part of a larger group. He said that, in his experience, the owners tend to be more focused on what they will get out of the matter financially than concentrating on the success of the new business. He said he was also conscious that BlueFreeway had been brought together very quickly and that this created disruption and problems with adjustment for new companies. Mr Daniel said that Mr Webb strongly favoured central control of the business operations whereas he was not so keen on that concept. 108 On the issue of his knowledge in March 2007 as to whether Campaign Master would be included in the portal, Mr Daniel said he did not have any direct recollection of the details but he assumed that it was left with management to discuss these sorts of matters with FTI. He described Mr Webb's email in May 2007 as being expressed more "brusquely" than Mr Daniel saw the position at the time. He said he was aware that there were negotiations taking place between Mr Webb and FTI about the proposed restructure and the possible use of the FTI sales team. 109 Mr Daniel was cross examined on Mr Barnes' estimates of the earn outs based on various EBIT figures. Mr Daniel said the board was not aware of the detailed figures, which were left to Mr Webb to deal with in his negotiations leading up to execution of the Exit Agreement. He said that all the board was told was that there was a broad vision by Mr Webb to restructure the group. He said that Mr Webb had a very centralised view which was somewhat different to the board's more entrepreneurial view. Mr Daniel emphasised several times that Mr Webb's vision for the group was embryonic and that while the board gave him a fair degree of rein in 2007, his vision or plan had not been formally endorsed by the board at that time. Mr Daniel said that the board was still waiting to see information and details from Mr Webb on his vision. He said the board's focus was on the performance of the portfolio companies and not on the scheme for a portal which was Mr Webb's concern. Mr Daniel said the board was generally happy for Mr Webb to proceed with his restructuring plans and his proposals concerning the sales force but the board never envisaged that there would be a wholesale restructure. 110 Mr Daniel was also cross examined on the Exit Agreement. He said the board was told that it was the only available option as the company was obliged to honour the SPA. The board simply assumed that the earn out figures had been calculated in accordance with the relevant documentation. He had no recollection of the Exit Agreement being discussed outside the board and he was not surprised when it was put to him that there was no board minute recording any discussion of the Exit Agreement at board level. Mr Daniel said that he had a vague recollection of having discussed the matter with someone at some time. 111 Mr Daniel confirmed in cross examination that, as at October 2007, Mr Webb still had the board's confidence but they also questioned him when it was thought appropriate. He said that Mr Webb (and Mr McDonnell) signed the Exit Agreement in the context of a belief that Messrs Barnes and Hawksley were not running FTI in the best interests of the BlueFreeway group and were "recalcitrant". He said that at the time the poor performance of FTI was a primary concern of the board and that Mr Webb wanted to restructure things so as to allow the group to realise its full potential. 112 In common with Mr Greiner's cross examination, Mr Daniel was asked a series of searching questions about the counterfactual and what he would have done in October 2007 if he knew about the funding of the licence transactions. He repeatedly said that he would not view the matter favourably and would have opposed entry into the Exit Agreement. He said that the board would have been alarmed. He said that the whole thing presented an "ethically challenging proposition". Mr Daniel said that he was alarmed that, with funding support provided by Messrs Barnes and Hawksley, the transaction was not a market driven acquisition, but rather "an inside job". He said that as non-executive chairman he would want to take into account the longer term implications for the company's reputation if such an arrangement was implemented and endorsed. I accept that evidence. I found Mr Daniel to be a truthful and convincing witness. 113 Mr Daniel was cross examined on the references in his affidavit to obtaining legal advice. It was effectively put to him that he was being inconsistent in now saying that if he had obtained positive legal advice he still would not have proceeded with the Exit Agreement. He responded by saying that it was never his intention to suggest in his affidavit that he simply would have adopted the legal advice. Rather, he said he would take that into account but then still form his own view on the matter. I also accept that evidence. 114 Mr Daniel was also asked in cross examination whether he had taken into account in his answers to the counterfactual that the imperative at the time was to get rid of Messrs Barnes and Hawksley in order to enable Mr Webb to develop his vision. Mr Daniel said that that would not matter, even if refusal of the Exit Agreement meant that Messrs Barnes and Hawksley would remain and need to be treated in accordance with the SPA. Mr Daniel said that there were other options. He explained that based on his experience of dealing with volatile people in the marketing world, mediation can sometimes help resolve difficulties. He said that he would have tried to mediate a conciliation between Mr Webb and Messrs Barnes and Hawksley. Mr Daniel viewed Mr Webb as a strong and emphatic man and that he as chairman would try to get to the bottom of the issues and the personal conflicts which existed and try to find a way to resolve the difficulties. He said that a possible scenario was that Messrs Barnes and Hawksley would be retained as senior consultants to concentrate on new business. I found Mr Daniel's evidence on these matters to be logical and persuasive and I accept it. I understand his evidence to be to the effect that, if the Exit Agreement had not been signed, he would have explored various options by way of renegotiation with the respondents. 115 After being taken to the relevant board papers dealing with FTI's decline in EBIT from March through to May 2007, Mr Daniel was asked questions concerning the ASX Announcement. He confirmed that he had no recollection of being presented with a draft of the announcement at that board meeting. He sought to explain the meaning of the terms "schedule" and "changes to wording" in the board minutes. He said that his recollection was that Mr Webb did not present a draft announcement but merely indicated orally what it would contain. Although the minutes contain a reference to "amending the wording", which suggest that there may have been a draft before the board, I have no reason to disbelieve Mr Daniel's evidence which I find was given honestly and to the best of his recollection. 116 Mr Daniel was further cross examined on the contents of the ASX Announcement (which he initially described as "a press release", but then readily accepted that that was an erroneous description of the document). He repeatedly said that he had no recollection of actually reading the ASX Announcement at or shortly after its publication, and he thought that he had only read it recently in his preparation for the hearing. When pressed on this, particularly by reference to the proposition that it would have been effectively irresponsible of the non-executive chairman not to read the announcement in the light of the comments made by the board at the 17 May 2007 meeting, he qualified his earlier evidence by saying that "I might have read it afterwards". This concession then led to a line of questioning to the effect that he effectively stood aside and allowed Mr Webb to do whatever he wanted. Mr Daniel's response was that it would not be unreasonable to have a degree of faith in Mr Webb's capacity to produce such a document in the light of the board's discussion. I accept that evidence. 117 As to the accuracy of the ASX Announcement itself, Mr Daniel said that it put a positive light on things, which he described as not being unusual in the world of corporate financial relations. He said that he had no recollection of challenging Mr Webb about some of the statements that appeared in the announcement. When he was asked about the reference to the licence sale representing a $2.4 million incremental revenue increase whereas it represented in fact a $4 million one-off item, Mr Daniel said that he would have to defer to Mr McDonnell (the chief financial officer) about the meaning of "incremental revenue". When asked why the announcement did not inform the market that the board viewed the licence fee as a one-off amount, Mr Daniel responded by saying that the accounting treatment of the item was under debate and that management's view was that it should be regarded as recurring expenditure, which ultimately prevailed when advice from Deloitte was received. Again, I accept his evidence on this topic. 118 Mr Daniel accepted that if BlueFreeway had been forced to go to the market on the basis of only having earned a half million dollars and without including the $4 million earned from the licence sale this would have had a share price impact. But he firmly resisted the proposition that this could have been disastrous and possibly resulted in the share price dropping from $2.40 in June 2007 down to 7 or 8 cents if the licence fee had not been included. Mr Daniel explained that the market could never be predicted and that there were all sorts of factors, many of them inexplicable, which impact upon share price. As Mr Daniel pointed out, the fundamentals which might apply in other sectors do not necessarily apply to this on-line sector which was in a period of dynamic growth a "rising tide" in 2007. I found his evidence on these matters to be convincing and I accept it. 119 Mr Daniel rejected the proposition that another ASX announcement dated 29 August 2007, which made no reference to the amount of the licence fee, was drafted with the view to avoiding any adverse impact on the share market. He said that there was no "panic" in the boardroom concerning the group's financial position. He said that the board took the view that a failure to achieve the prospectus forecasts could have been explained on the basis of the newness of the BlueFreeway group and the lack of focus of some of its portfolio companies after the consolidation. He said that these matters would need to be explained to the market but that the board was willing to take a long-term view. I also accept that evidence. 120 As a member of the audit committee, Mr Daniel was cross examined about the possible impact on the group's bank covenants if it had not been able to announce a 25% excess in the prospectus forecast. He accepted that if the licence fee had not been able to be included in the ASX announcement this could have put pressure on the bank covenants. But Mr Daniel rejected the proposition that this might have led to insolvency, saying that if events had been different it may well have been that BlueFreeway would have had to open discussions with its own bank or other banks with a view to refinancing its operations. Again, I accept his evidence. 121 Mr Daniel was then cross examined at some length about a reference in a document dated 11 September 2008 to 3 million of his shares in BlueFreeway having been released from escrow on 7 December 2007. He said that was a "mystery" to him because he left BlueFreeway in April 2008. He also denied that he had ever sought to have any of his shares in the group released from escrow, however, he said that some shares were transferred into his superannuation fund. 122 In re-examination, Mr Daniel explained that it was possible that the reference to his shares being released from escrow may have related to the transfer of shares into his superannuation fund towards the end of 2007. I accept that evidence. (c) Mr Ken McDonnell 123 Mr McDonnell swore three affidavits. As noted above, he was the chief financial officer of the BlueFreeway group from around the time of the IPO in late 2006 until early 2008 when he left the group at the same time as Mr Webb. During his time as chief financial officer he reported to both Mr Webb and Mr Daniel. 124 He gave evidence of his involvement in the negotiations in 2007 leading up to the Licence Agreement, including his participation in various meetings in March 2007 with Messrs Webb, Barnes and Hawksley. He also gave evidence, which I accept, that at the board meeting held around 26 March 2007, Mr Daniel asked him on behalf of the board to be involved in all the negotiations with CMUK concerning the proposed Campaign Master licence transaction and not to allow Messrs Barnes and Hawksley to conduct the negotiations without him. It is evident that there was a concern at the board level to ensure that those negotiations were conducted transparently and in the best interests of all of the group's shareholders. 125 Mr McDonnell also gave evidence, which I accept, that he subsequently spoke with Messrs Barnes and Hawksley and told them that, as they both had a conflict of interest because of the earn out provisions of the SPA, Mr McDonnell would take control of the negotiations. Mr McDonnell described in some detail the steps he took in overseeing the negotiations, including his consideration and approval of draft terms sheets and his insistence in mid-April 2007 that there be no negotiations with Mr Dhillon without his involvement. He described the exchange of emails he had with Mr Dhillon involving the provision of various drafts of the licence agreement in May 2007 and his reporting to the board of the negotiations, which culminated in the signing of the Licence Agreement on 21 May 2007 by Mr Dhillon in the United Kingdom and on 22 May 2007 by Mr Barnes and himself in Australia. He also gave evidence of his involvement in the drafting of the ASX Announcement concerning that transaction, which he said by that time had been agreed should be taken up in the group accounts as recurrent income for the 2007 financial year. 126 Mr McDonnell gave extensive evidence concerning the tensions which had emerged by mid-2007 between Messrs Barnes and Hawksley and BlueFreeway's management. He attributed that tension to his belief that Messrs Barnes and Hawksley were not prepared to accept the advice given by Mr Webb and himself aimed at increasing FTI's revenue in order to achieve the forecasts for the financial year ended 30 June 2008. He said that the negotiations which were taking place in August 2007 concerning the terms upon which Messrs Barnes and Hawksley might leave the group were being undertaken by Mr Webb on behalf of BlueFreeway. 127 Mr McDonnell also gave evidence concerning the funding of the licence fee. He said that both at the time that the $4.1 million was received by FTI and at the time of the execution of the Exit Agreement later in 2007, he believed that the sum had been paid by CMUK from its own resources. He did not believe that Messrs Barnes or Hawksley had any part in providing money or security to facilitate CMUK's payment of the licence fee. As will emerge further below I accept that evidence. 128 In his evidence in chief, Mr McDonnell also said that, if he had been informed at the relevant times about the financing role played by Messrs Barnes and Hawksley in the transaction, he would have immediately reported that fact to both Mr Daniel and to Mr Webb. He said that he believed that the board would then have discussed whether or not to proceed with the proposed licence transaction and that legal advice would also have been taken. Further, as a director of BlueFreeway, he said that, if he knew that Messrs Barnes and Hawksley were providing money or security, he would have only voted to allow FTI to execute the Licence Agreement on the basis that they agreed in writing that the licence fee was not to be included as part of FTI's 2007 EBIT for the purpose of calculating any Additional Payment due to them. He said that although he would have wanted the licence fee to be counted as part of that EBIT for the purposes of market reporting, he would not have voted to allow FTI to proceed with the transaction if the licence fee amount was to be included in the earn out calculation. He explained that that was because, although he recognised that the inclusion of the licence fee represented a short-term gain for BlueFreeway and its shareholders, it would also mean that a liability would arise to pay Messrs Barnes and Hawksley and their associates shortly thereafter (in either cash or shares) in the sum of $16 million, which he considered not to be in the interests of BlueFreeway or its shareholders. For these reasons, he said that if he had been aware after 29 June 2007 of Messrs Barnes and Hawksley's involvement in the financing of the transaction, he would have recommended that the Exit Agreement not be executed. As will emerge further below when I deal with this issue, I accept his evidence. 129 In his third affidavit, Mr McDonnell also directly addressed meetings which took place in March 2007 involving himself, Mr Webb and Messrs Barnes and Hawksley concerning the proposed licence agreement. He said that at one of those meetings, either Mr Barnes or Mr Hawksley said that Mr Dhillon now had an investor who was prepared to buy a perpetual licence for the UK, Ireland and India. Mr McDonnell also gave evidence that at none of those meetings in March 2007 nor later did he hear Mr Hawksley say in reference to Mr Dhillon that Mr Dhillon "was friendly with two rich blokes in Australia who have just come into $10 million". Mr McDonnell acknowledged in his evidence in chief that words may have been said by Mr Webb to the effect that Messrs Barnes and Hawksley should "do whatever it takes to conclude the licence deal with CMUK". He added, however, that there was never any suggestion by Mr Webb in his presence that the respondents should participate in any funding arrangement in respect of the licence fee payable by CMUK to FTI. 130 Mr McDonnell said that he believed throughout the period from March 2007 to execution of the Licence Agreement on 22 May 2007 that there was a third party investor involved who was providing funds to allow CMUK to pay the licence fee ultimately negotiated. He said that he never had any knowledge or suspicion that either Messrs Barnes or Hawksley were associated with the payment of the licence fee or the provision of any security necessary for CMUK to make the payment. Mr McDonnell also said that he was never told by either Messrs Barnes or Hawksley or by Mr Dhillon that CMUK's external investor was not proceeding. Although Mr McDonnell was subjected to a searching cross examination relating to the financing of the transaction (see further below), I accept his evidence. 131 Mr McDonnell also gave evidence that, in the course of preparing for the proceeding, he had listened to various tape recordings of conversations he had had with various people, including Messrs Barnes and Hawksley, during the period April - July 2007 (i.e. when relations between the respondents and some BlueFreeway executives, particularly Mr Webb and, perhaps to a lesser extent Mr McDonnell, were very strained). He said that he was not previously aware that those conversations were being recorded. As will emerge further below, Messrs Barnes and Hawksley, acting on legal advice, had adopted a practice around this time of taking notes of conversations concerning their interests in FTI and they subsequently found it easier to record those conversations without informing the other participants. 132 Mr McDonnell also gave evidence in chief of his views concerning the tension which existed in 2007 between the Campaign Master and Traction. He said that while he did not have a technical understanding of those products, at a business level he understood at the relevant time that they were directed to different markets and that Traction had greater capabilities. Moreover, he deposed that at no stage during 2007 was he aware of any decision having been made to "kill" Campaign Master nor was there any discussion on that topic in which he participated at board level in BlueFreeway. Although he acknowledged that from time to time some people within BlueFreeway expressed the view that Traction had a wider range of functionality, he was not aware in 2007 of any decision within BlueFreeway which would have impacted upon Campaign Master so as to reduce its sales. On the contrary, he says that all his discussions with Messrs Barnes and Hawksley in the first half of 2007 were directed to increasing sales of that product, not decreasing them. Mr McDonnell's credibility 133 Mr McDonnell was subjected to a lengthy and probing cross examination which ultimately led to the respondents making a submission that his credibility should not be accepted by reference to seven topics upon which he gave evidence. It is convenient if I now deal with that matter. I will first outline the relevant aspects of his cross examination and then explain why I reject the attack upon Mr McDonnell's credibility and accept his evidence on relevant matters in dispute. 134 The first aspect of the respondents' attack on Mr McDonnell's credibility relates to the claim that he allowed unreasonable forecasts for FTI to be included in the 2006 prospectus. Mr McDonnell was taken to an email dated 21 November 2006 which was sent by Mr Barnes. It indicated that, at that time, Mr Barnes was raising issues about FTI's performance and the need to recruit more sales staff. Mr McDonnell accepted that he had discussed the matter with Mr Barnes. He said that he told Mr Barnes to identify several large prospective clients and to indicate whether or not they were at risk. It was put to him that he instructed Mr Barnes not to deal directly with Deloitte about certain matters relating to FTI's financial prospects. Mr McDonnell explained that he told Mr Barnes that he wanted to be the sole point of contact with Deloitte on all of these matters leading up to the IPO, because there were ten separate portfolio companies and that it would have been impossible unless all information was routed through him as chief financial officer of the group. In my view, that is a logical position to take. 135 Mr McDonnell agreed that he was angry that Mr Barnes had gone directly to Deloitte. It is notable that Mr Barnes subsequently apologised for having done so. 136 Mr McDonnell was then asked questions concerning the need for forecasts in prospectuses to have a reasonable basis. He was taken to an email dated 21 November 2006 sent to him by Mr Barnes which raised concerns about including FTI sales forecast information in the prospectus because of the "large elements of risk about them". It was put to him that Mr Barnes' email was never forwarded by him to the auditor. He could not recall whether or not it had but he said that, in any event, it was up to the auditor to look at the individual circumstances in order to assess whether a risk was manageable or not for the purposes of including it in the prospectus forecast. Mr McDonnell rejected the proposition that he did not pass the email onto the auditors because he knew that they would reject it and it would have adverse consequences for the forecasts in the prospectus. I accept his evidence on this point. He was the CFO and it was his choice as to what material should go through to the auditors. He had no obligation to forward the covering email. It was the underlying information which was important. 137 Mr McDonnell said that the auditors reviewed the material sent to them and they said that the forecasts could be adjusted. The forecasts were then revised and the auditors accepted the information they had been given as reasonable. He also said that he told Mr Barnes to only provide prospects or forecasts which had a reasonable basis. It was put to him that this was not the case and that he was deliberately acting as gatekeeper in terms of the information provided to the auditors. He rejected that. 138 In my view, Mr McDonnell's actions were consistent with his responsibility as chief financial officer and disclose no impropriety on his part. I reject the challenge to Mr McDonnell's credibility based on this line of evidence. 139 The second topic concerns the respondents' claim that Mr McDonnell was "plainly duplicitous" and misled Messrs Dhillon, Barnes and Hawksley about the future plans BlueFreeway had for Campaign Master and the competing product, Traction. This topic also figures prominently in the cross claim. Mr McDonnell was taken to an email dated 10 December 2006 from Mr Webb where he said to a management staff member not to tell Messrs Barnes and Hawksley that BlueFreeway would use Traction for internal purposes until after a meeting scheduled for the next day on 11 December 2006. Mr McDonnell said he had no recollection of the meeting held on 11 December 2006 and he was not able to say one way or the other whether Messrs Barnes and Hawksley were told about Mr Webb's plans for Traction. I believe him. 140 Mr McDonnell rejected the proposition that he observed Mr Webb having a closer relationship with Mass Media than with FTI. He accepted, however, that Mr Webb told him that his preference was to use FTI's sales force to sell a wider range of products and that it might also be sensible to combine FTI's product development with BlueFreeway's so that there was a coordinated approach to product development. Mr McDonnell also acknowledged that this would require the consent of both Messrs Barnes and Hawksley under Schedule 5 of the SPA. 141 Mr McDonnell accepted that it was an option at the time to not further develop Campaign Master. Mr Webb's view was that 12 FTI sales personnel could come across to BlueFreeway and add value to the group, but he also said that this was simply a plan or proposal by Mr Webb which, to be realised, would need both board approval and also the consent of the former FTI shareholders as required under the SPA. Mr McDonnell explained that he did not think approval would be given by the board because of the financial implications. 142 Mr McDonnell said that he accepted on face value the EBIT figures for 2008 and 2009 supplied by Mr Barnes in respect of the earn out. He agreed that whether or not the licence fee was included for 2007 the earn out figure still worked out at about $23 million under each of the various scenarios, excluding the licence fee sale. 143 Mr McDonnell was taken to the board minutes of 26 March 2007. The licence sale was recorded there as £2.5 million over three years and there was a reference to Campaign Master not being in the portal. Mr McDonnell explained that that was because it was a global portal and it was impossible to include Campaign Master if the portal was to be made available in the UK because CMUK had an exclusive licence. Mr McDonnell acknowledged that Messrs Barnes and Hawksley were not aware of the proposals to exclude Campaign Master from the portal. When asked whether he appreciated at the time that to exclude Campaign Master from the global portal would be in breach of Schedule 5 to the SPA (which conferred a right to elect to have Campaign Master sold through the portal), he said that "that may have been an issue" and he also accepted that it "could be a potential breach" of the SPA. 144 I was impressed with Mr McDonnell's frankness and honesty in acknowledging these matters. Far from diminishing his credibility, his answers enhanced his credibility. 145 When asked whether excluding Campaign Master from the portal could affect FTI's sales, he said "potentially, yes" if in fact that proved to be the outcome i.e. if the portal was in fact introduced. 146 Mr McDonnell also said that if the portal proceeded, a question might arise about the need to pay compensation to FTI. He emphasised, however, that as at 26 March 2007, the portal was still only a concept and that therefore there was no need at that time to disclose any of the proposals to Messrs Barnes and Hawksley. He later amplified that answer by reiterating that it was Mr Webb's plan and that Mr McDonnell knew that board approval would have to be obtained and there was a question whether that would be given because of the financial implications. He said that it was also subject to obtaining the necessary consent from the former FTI shareholders. 147 When asked whether the reason for non-disclosure was because of a concern not to jeopardise the licence sale, he said that he did not think that. He flatly denied having any agreement or understanding with Mr Webb that they should keep Messrs Barnes and Hawksley in the dark about the proposals for the portal and exclude Campaign Master. I accept his evidence. 148 He was taken to the minutes of a Mass Media management meeting on 29 May 2007, where there are further references to decisions having been taken to exclude Campaign Master and to include only Traction in the portal. There is also a reference in the minutes to the possibility of one-off licence sales in other markets. Mr McDonnell strongly denied having any understanding with Mr Webb that matters would be put on hold pending finalisation of the licence sale to CMUK so as not to jeopardise it. He said that there was no decision to kill off Campaign Master. He stressed that these matters were at the time proposals and not realities. He also said that the minutes of the meeting were not accurate as it was always intended that Campaign Master would survive and would continue to be sold by FTI as one-off licences in other markets. Mr McDonnell also said that they could not kill it off because they had obligations under the proposed licence sale agreement to maintain the product. I found his evidence on these matters to be convincing and I accept it. 149 Mr McDonnell was asked whether he had concerns about the response of CMUK in terms of the proposed licence sale if they knew of these plans regarding the portal etc. He responded by saying that BlueFreeway was not abandoning Campaign Master given the maintenance agreement obligations. When asked whether he agreed that it was obvious that a licensee would be concerned if the licensor was not going to sell a product in its own country, he said that it had no impact upon what CMUK did with the product in its own licence territory. I found his evidence to be plausible and I accept it. 150 Mr McDonnell was also taken to an email dated 3 May 2007, which is referred to above, which records Mr Webb's objective at the time as spending as little as possible on Campaign Master over the next few years and that Traction would be put into the portal. The email also refers to Mr McDonnell reviewing "our obligations" with Mr Spencer before executing the Licence Agreement. 151 Before dealing with Mr McDonnell's evidence on this document, it is convenient to make the following observations. The respondents rely heavily on the document as evidencing Mr Webb's marginalisation of Campaign Master and his strong preference for Traction. But careful attention needs to be given to the entire contents of the email. Mr Webb's stated objective of spending as little as possible over the next few years on Campaign Master is not inconsistent with BlueFreeway still meeting all its relevant contractual obligations to the respondents. Indeed, it is notable that Mr Webb made express reference in his email to Mr McDonnell carrying out a review of BlueFreeway's obligations, together with Mr Spencer, before the Licence Agreement was executed. This must be a reference to its contractual obligations to the respondents. 152 Mr McDonnell said that he spoke to Mr Webb after seeing his email dated 3 May 2007. He said that he told Mr Webb that he regarded the matters raised therein as being merely "a plan" and board approval was required. Mr Webb responded by saying thanks for the advice but this is my plan. Mr McDonnell said that even though Mr Webb was continuing to work on his plan, Mr McDonnell knew that it was only a plan, was not concrete and Mr McDonnell was confident that the plan would never get board approval. He said there was no point disclosing Mr Webb's vision to FTI when it still had to get board approval and the consent of FTI was also necessary. Mr McDonnell emphasised found that it was his view at the time that Mr Webb's plan would never happen. He described Mr Webb's plan as "pie in the sky". He also said that to disclose these matters to FTI would inflame what was an already tense situation and would not achieve anything worthwhile. Mr McDonnell flatly denied the proposition that he or Mr Webb were deliberately not wanting to tell FTI or CMUK of his plan. 153 I found Mr McDonnell's answers on these matters to be commercially sensible and generally plausible and I accept his evidence. 154 It was put to Mr McDonnell that FTI was told that under the group arrangements they would get incremental sales from a central sales force selling their products, which could not be achieved if their product was excluded from the portal. His response was to say that Campaign Master was instead to be a stand alone product outside the portal and that even though they would not get incremental sales from the portal itself there were some clients who did not want all of the portal products and in such cases they could be directed to Campaign Master as a stand alone product. This seems commercially sensible and I accept Mr McDonnell's response. 155 Mr McDonnell was then taken to a document dated 4 May 2007 which recorded both a 55% decline in FTI's EBIT and that earnings were dropping month by month. It was put to him that the document refers to the new portal being launched, which suggests that there must have been a decision to that effect. Mr McDonnell's response was to draw attention to the fact that there was no dollar figure next to that and the next item, which related to the opening of a support centre. He explained the significance of the lack of any dollar figure as being that these matters were simply Mr Webb's hopes and aspirations and did not have board approval. Again, I found this evidence to be convincing and I reject the respondents' challenge to his credibility based upon the second topic. 156 The third topic relied upon by the respondents in impugning Mr McDonnell's credibility relates to the claim that he misled the market by the ASX Announcement on 22 May 2007 and subsequently, which increased the share price of BlueFreeway. He was taken to that part of the board papers for the 17 May 2007 board meeting which related to the item described in the index as "press announcements" (although, in fact, it related to the ASX Announcement). Mr McDonnell said he had no recollection whether or not there was a draft of the ASX Announcement presented to the board, and said that it may well have been a verbal presentation. He accepted that he had responsibility for preparing the minutes of the board meetings, but he could not recollect the precise words of any presentation by Mr Webb on this matter. He said that he provided some input into the numbers that were used but that he was not directly involved in the preparation of the ASX Announcement. That was done by a public relations firm after the 17 May board meeting. He confirmed, however, that he checked the announcement against what the board had agreed at the 17 May meeting. 157 When Mr McDonnell was taken to a copy of the ASX Announcement ([27] above), his immediate response was to say that he thought that the value of the licence was $4.5 million, but when further matters were brought to his attention, he did not hesitate to acknowledge his error. I find this enhanced his overall credibility. 158 Mr McDonnell was then asked a series of specific questions concerning the accuracy of some of the statements in the ASX Announcement. He was taken to the references to the various factors which contributed to the up-grade. He was asked about the "incremental revenue" figure of $2.4 million in respect of the licence fee. The clear innuendo in the questions was that the market was not being told that the true value was $4 million. He explained, however, that the incremental figure represented the difference between the licence fee and any ongoing revenue earned as a result of the CMUK business, which included looking at future earnings in the UK and deducting them from the $4 million fee in order to arrive at the incremental value. In my view his explanation was plausible and provides no sufficient basis for doubting his credibility. 159 Mr McDonnell was then asked how he arrived specifically at the net figure of $2.4 million and he responded by saying that he would be unable to do that other than at the level of generality just described because he no longer had his working papers. His response was entirely reasonable in the circumstances. 160 Mr McDonnell was then taken through various other aspects of the ASX Announcement and it was put to him that they did not represent a fair view for the market. He agreed that certain parts of the announcement were not "clearly stated". He pointed out though that there is a reference to sales being replicated and that it was implicit in the first dot point that the board was treating it as a one-off matter because of the reference to "restructure" and also a reference to the possibility of the matter being replicated. He also said that the failure to disclose the $4 million figure was consistent with board policy which was not to disclose the value of individual transactions and that explained why he provided the incremental revenue figure. He said that the reference to it being a "licence fee" should also convey that it was a one-off transaction, at least in the eyes of the board at that time. He flatly rejected the proposition that he used the $2.4 million figure so as to disguise from the market the real value of the transaction. It was put to him that if it had been clear that it was just a one-off item, the market would not have viewed it very positively and that could have had an impact on the share price. He disagreed. I found his evidence on these matters to be, frank, truthful and responsive and I accept it. 161 It was then put to Mr McDonnell that the ASX Announcement was a "statistical lie" because it gave a misleading impression that the increase in revenues was across the entire group. He denied that proposition and said that BlueFreeway's approach was to always make financial statements on a group and not an individual company basis. I found that evidence to be plausible. 162 Mr McDonnell was then asked questions about the word "organic", which he said was not his word but that he saw it as referring to the existing businesses and not new ones. It was put to him that it was misleading to talk about organic growth when only one company had really contributed to the upgrade. He reiterated that it was not board policy to disclose the position of individual companies and when it was put to him that the announcement could have said that it was just one of the companies without identifying it he said that the emphasis was on a group focus and not individual companies. 163 Mr McDonnell also said that the board was not in desperate need of cash at that time, but that nevertheless the licence sale was helpful to the company in terms of its results. He was then asked questions about the possible breach of the bank covenants without the upgrade. He accepted that there would have been an issue and that they may have needed to renegotiate matters with the bank. He confirmed that BlueFreeway was using a $30 million bank facility for acquisitions and that the bank facility might have been jeopardised if there was a big shortfall on the prospectus forecast. Again, I found his evidence on these matters to be truthful and I accept it. 164 Mr McDonnell was then closely cross examined about the meeting held in March 2007 at the Aurora Place cafÉ and the conversation involving Mr Webb and Messrs Barnes and Hawksley about what would happen if CMUK did not come up with the licence fee money. Mr McDonnell first said that he had no recollection of Mr Webb saying that Messrs Barnes and Hawksley should "do whatever it takes" to secure the deal. When he was reminded of paragraph 16 of his third affidavit which dealt with that issue, Mr McDonnell confirmed that he did not deny that Mr Webb may have said something along the lines "do whatever it takes". But he was adamant that he never heard Mr Webb say that that extended to the deal being funded by Messrs Barnes and Hawksley. I accept that evidence. 165 Mr McDonnell was taken to Mr Dhillon's email dated 18 May 2007 in which doubts were raised about funding for the proposed licence agreement. Mr McDonnell confirmed that he was disappointed to learn that there was uncertainty with the funding, but that he saw it as only a question of timing. He said he had no recollection after the 18 May email of hearing Mr Webb tell Messrs Barnes and Hawksley to do whatever it takes to clinch the deal, including providing funding. He was robustly cross examined on this point but he did not shift his ground. He flatly denied that he had any suspicion that they had funded the transaction. I believe him. 166 It was put to Mr McDonnell that his evidence was in effect tainted by a settlement deed he had signed with BlueFreeway when he left the group which imposed an obligation on him as part of the settlement to provide "ongoing assistance" to BlueFreeway as "reasonably required". He rejected the suggestion that it had affected his evidence and, again, I believe him. I found Mr McDonnell to be a frank and truthful witness. 167 When Mr McDonnell's cross examination resumed for a third day, he was taken to various investor presentations which occurred after the 22 May 2007 licence deal, including a Bell Potter presentation on 13 June 2007 and an ASX announcement dated 29 August 2007. Mr McDonnell said the Bell Potter presentation was both prepared and given by Mr Webb (not himself) and it contained similar material to the earlier ASX Announcement dated 22 May 2007 about the benefits of the model. 168 It was put to Mr McDonnell that the ASX announcement dated 29 August 2007 did not contain any reference to the licence fee or its value at $4 million. Consistently with his earlier evidence, Mr McDonnell said it was group policy at the time to only present group numbers and consolidated results. He was then asked why in the earlier ASX Announcement reference was made to the incremental revenue figure of $2.4 million. He said that a distinction needed to be drawn between the two types of announcement. One was an earnings upgrade while another was reporting on the full year consolidated results and necessarily focused upon the group as a whole and not individual companies. I found this explanation to be plausible and I accept it. 169 The fourth topic which the respondents contend provides an evidentiary basis for their challenge to Mr McDonnell's credibility related to his alleged involvement in facilitating the release from escrow of certain shares held by Mr Webb in BlueFreeway, which the respondents allege was done in breach of ASX listing rules. In cross examination, Mr McDonnell was taken to ASX listing rule 3.10A and his attention was drawn to the requirement that 10 days' notice be given of the release of shares from escrow. Mr McDonnell described the process as involving notification of individuals concerned, as well as the ASX and the share registry. When asked whether there was some arrangement to prevent the sale of shares which were in escrow, he said that that was left to the share registry to control because they had all the relevant information and only could lift the escrow and facilitate a sale. He was then taken to various correspondence relating to the release from escrow of Mr Webb's shares and to an ASX share price query, as well as his response to that query. Mr McDonnell said he had made various enquiries over the weekend after receipt of the ASX query and that he had been told on three previous days leading up to 7 December that someone had entered a lower bid price which was immediately matched. The ASX took no further steps in relation to the matter. 170 Mr McDonnell denied that Mr Webb ever told him that some of his shares had been released from escrow or that he had sold some of his shares. He was taken to the shareholder information in BlueFreeway's annual reports for 2007 and 2008 which revealed that Mr Webb sold approximately 2 million shares between the dates of these two annual reports. Mr McDonnell said he knew nothing about it. I believe him. 171 It was put to him that he was involved in a joint exercise with Mr Webb from 22 May 2007 to have the BlueFreeway share price increased, an allegation which he rejected. I believe him. 172 Mr McDonnell was then taken to the proposal for CMUK to buy the licence at a reduced figure of £1.5 million and Mr Hawksley's reaction that that figure was too low and that he would try to get a higher figure. When asked about the "governance issues" which he raised at this time with Mr Hawksley, Mr McDonnell said that he told Mr Hawksley that he had an obligation as a director of a subsidiary company to consider BlueFreeway's interests, because it was the sole shareholder of FTI. Mr McDonnell accepted that Mr Hawksley said something along the lines that a higher price, albeit one achieved at a later date, would be in the best interests of shareholders, but he added that a higher price was achieved in any event, namely £1.7 million. 173 Mr McDonnell acknowledged that he did not respond by letter to Mr Hawksley's email dated 8 May 2007 in which he was asked to reduce to writing any governance issues, but he said that he had a lengthy telephone conversation with Mr Hawksley in which he emphasised the importance of transparency because of Mr Hawksley's conflict of interest. I accept this evidence unreservedly. It is entirely consistent with Mr Hawksley's secret telephone recording of the earlier conversation they had on 7 May 2007 on this subject. In my view, Mr McDonnell's concerns about the need for transparency and adherence to basic principles of proper corporate governance were entirely genuine and reflected well on his credibility and integrity. It is equally evident that Mr Hawksley struggled to attain a similar appreciation of these matters. 174 With a view to testing Mr McDonnell's evidence on the counterfactuals, he was asked to respond to a series of hypotheticals. One of the hypotheticals had the following elements: on 28 June Mr Webb tells you that he was very anxious and that he had just been told that CMUK had an investor called Mr Tully but he needs more time, possibly weeks or months, in order to come up with the licence fee price; Mr Tully has had a close association of some 30 years with Mr Hawksley and Mr Hawksley gave an assurance that Mr Tully would pay without question; Mr Webb then says that Mr Hawksley trusts Mr Tully completely; he adds that if BlueFreeway does not get the money in by 29 June 2007 there will be all sorts of problems and that he as chief executive officer is very anxious; he also describes how Mr Hawksley can cover the funding issue in the short term by providing a guarantee for a loan from NAB for 6 months; he adds that Mr Webb personally supports this proposal and that he has advice from his auditor to the effect that it is not a related party transaction and legal advice that there is no SPA problem if the funding is to occur in this way; and Mr Webb adds that he will tell the board of BlueFreeway about this and his support for it. 175 Having regard to all those matters it was then put to Mr McDonnell that he would have done nothing to oppose Mr Webb. Mr McDonnell rejected that proposition and quickly added that if those events occurred he would go directly to the chairman with all of that information. I believe him. 176 Mr McDonnell was then taken to the budget review meeting held on 30 May 2007 which had been secretly recorded by one of the respondents regarding the portal. Mr Webb confirmed at that time that Campaign Master would not be in the portal and he explained that was because they could not carve out the UK from BlueFreeway's global operations. Mr McDonnell was asked why he did not tell CMUK or BlueFreeway at that time. He said that Mr Dhillon had no interest in it because he had exclusive rights in the UK. BlueFreeway was unable to market the product there because of CMUK's exclusivity and ongoing development of Campaign Master had been promised under the licence agreement. 177 He was then taken to another transcript of a meeting recorded by either Mr Barnes or Mr Hawksley on 13 June 2007 and what was said there about the sales force in the context of FTI hiring new staff without the approval of either Mr Webb or Mr McDonnell. It was put to him that this surely would impact adversely on FTI earnings. In response, Mr McDonnell said that there was a budgetary issue at the time and BlueFreeway wanted to impose constraints to avoid extra costs being incurred for the budget. He denied that he was trying to force the restructure by putting obstacles in the way of FTI's existing business. He added that he was simply saying that they could not have hired staff without obtaining consent. I found his evidence to be entirely plausible and I accept it. 178 Overall, to the extent that it was put that Mr McDonnell was simply Mr Webb's cat's paw, he came across in the witness box as being independent and firm in his own mind and I reject any submission to the contrary. 179 The fifth topic used as a basis to challenge Mr McDonnell's credit relates to the respondents' allegation that he misled investors during the capital raising by BlueFreeway in October 2007. In particular, the respondents contend that neither the announcement of the capital raising nor the investor presentation gave a true view of the group's results. Mr McDonnell was taken to various draft resolutions for the AGM and to various other documents which dealt with the way in which the capital raised would be spent. Mr McDonnell accepted that there was an administrative oversight or mistake in including in the documentation a reference to the allottees' right to elect cash and have a book-build. He pointed out that the error had not been picked up by the auditors. Once again, far from harming his credibility I found his candid responses on this matter to reflect well on his credibility. 180 The sixth topic relied upon by the respondents in attacking Mr McDonnell's credit relates to the share placement to institutional and sophisticated investors on 17 October 2007 and to the references to wanting to raise $16.2 million at $1.70 a share. Mr McDonnell said that notification was given to the AGM about the proposed issue of shares to FTI but that, as things turned out, although the resolution was passed in those terms, the shares were ultimately issued to institutional investors and not to Messrs Barnes and Hawksley and their associates. He explained that the wording of the proposed resolution was settled in September, well in advance of the Exit Agreement (although he expressed some doubts as to when the agreement was actually signed). It was also evident that Mr McDonnell seriously doubted that at the time of both the AGM and earlier when the resolution was sent out to shareholders that the Exit Agreement had in fact been signed. In my view, he genuinely believed that the negotiations were still ongoing and had not yet "crystallised". It was put to him that because the resolution was expressed as it was, there was no valid AGM approval for issuing the shares to the external investors and that he and Mr Webb were deliberately misleading shareholders, propositions which he rejected. 181 Ultimately, Mr McDonnell was unable to answer why he did not propose an amendment to the proposed resolution at the AGM so as more accurately to reflect the fact that the placement of shares would be to external investors and not to the former shareholders of FTI as stated in the AGM resolution. He said that Messrs Barnes and Hawksley elected to take their shares as cash and that the money raised from the external investors was used to pay some of that money. He agreed that since more than 15% of capital was involved shareholder agreement was required. 182 In my view, there is nothing in any of Mr McDonnell's answers to these lines of questioning or to his conduct which casts doubt on his credibility. I was impressed with the manner in which he sought to respond candidly to each of the relevant matters and he sought at all times to provide truthful and responsive answers. 183 The final topic relied upon by the respondents in attacking Mr McDonnell's credit relates to what the respondents say are conflicts between his evidence and that of Messrs Greiner and Daniel as to whether the Exit Agreement was taken to the board for approval and also whether the board was regularly updated on the negotiations preceding its execution. 184 Mr McDonnell said he did not oppose Mr Webb on the restructure and his negotiations to secure an agreement which would see Messrs Barnes and Hawksley quit the group, but that they did "have some words" on the topic. When asked to explain this further, Mr McDonnell said that he insisted to Mr Webb that things be done in a structured manner. Mr McDonnell agreed that he did not insist upon a board meeting, but explained that this was because he knew that the board was aware of what was going on as it was regularly updated by Mr Webb at board meetings. He said that the specific issue of the Exit Agreement was raised before the board. It was put to him at this point that he was lying and that he and Mr Webb deliberately kept the Exit Agreement away from the board. Mr McDonnell rejected both those allegations. I accept Mr McDonnell's evidence on these matters and I have no hesitation in rejecting the respondents' claim that I should make adverse findings concerning his credibility. 185 I also consider that Mr McDonnell's credibility was enhanced by certain matters raised in re-examination. First, he said that Mr Webb had tried to bully him once but he told Mr Webb to "pull his head in". I believe him. Mr McDonnell impressed me as a strong, independent and determined person and not "a pushover". 186 Secondly, as to the staff freeze in June 2007, Mr McDonnell accepted that FTI had had difficulties with staff and that it was a budgetary matter to impose the freeze because they needed to look at other ways of solving FTI's problems rather than simply hiring more staff. 187 Thirdly, in relation to the hypotheticals upon which he had been cross examined, Mr McDonnell was asked in re-examination what he would do if Mr Webb told him that the licence sale would be funded by Messrs Barnes and Hawksley and that there was no choice but to do that and sign the Exit Agreement. Mr McDonnell responded by saying that he would have rejected this proposition by Mr Webb. He was then asked what he would have done if these things had arisen in October 2007. He said he would have contacted the chairman and the other directors and sought a board meeting to discuss the matter and resolve it. I accept that evidence. 188 For all these reasons I reject the respondents' attack on Mr McDonnell's credibility. I accept his evidence on all disputed matters. (d) Mr David Eyles 189 Mr Eyles affirmed an affidavit and was cross examined. His evidence is relevant to the respondents' cross claim and, in particular, to the allegation that BlueFreeway marginalised Campaign Master. Mr Eyles is a software engineer who joined FTI in April 2005 and still works for the company in developing Campaign Master. 190 He gave evidence that the longer he was at FTI the more he became involved in the development of Campaign Master to a point where, from October 2007 he worked full time on the software. He described Campaign Master as "software as a service", and explained that this meant that the product is fully hosted on an external server and all customer interactions with the software take place through the Internet by use of the customer's web browser. His work as a developer of the product involved enhancement and improvement of the software and fixing software problems or "bugs". He said that since BlueFreeway's acquisition of FTI and Mass Media in 2006, Campaign Master had its own development team and Traction had a separate development team. This is despite the fact that, since the latter part of 2011, Campaign Master has been marketed under one "umbrella brand" called "Traction Digital". Mr Eyles said that FTI continues today to market Campaign Master throughout Australia under the brand "Traction Digital" and also continues to supply the product under licence to CMUK for the UK and Ireland. 191 Mr Eyles gave evidence of his interaction with CMUK staff in the UK, including providing assistance at their request in the period from May 2007 until March 2008. He said that the assistance he provided was in the nature of customer support and he described how he gave information to CMUK staff as to the operation of the Campaign Master software or reporting problems. Mr Eyles also explained his general procedure for providing such assistance to CMUK, which varied according to the difficulty of the issue and the amount of time required for its resolution. He also gave a detailed description of the work carried out by FTI during the period from about May 2007 to February 2009 involving further development of the Campaign Master software, which included writing a new source code of the software. He also described the work carried out by the FTI development team in respect of Campaign Master since 2009 to the present. 192 Mr Eyles summed up his involvement in developing Campaign Master over approximately the last seven years with FTI in the following terms: During the whole period of my involvement with Campaign Master the product has been supported. Where bugs have been encountered they have been fixed. In addition, there have been enhancements to the product to make it more useable (sic) and of greater advantage to customers. 193 In cross examination, Mr Eyles accepted that in late 2007 CMUK was complaining about lack of support for Campaign Master. He said that the complaints were directed at the lack of development work, rather than the lack of support as such. He explained the distinction between development and support on the basis that development refers to creating new features of the software, whereas support relates to maintaining the product. 194 Mr Eyles was taken to an affidavit he prepared in earlier proceedings brought by CMUK which apparently involved a claim that Campaign Master was not being developed. Paragraph 9 of that affidavit was tendered as Exhibit 3 and contained information on staffing which Mr Eyles explained was based on emails he had sorted through. Apparently, that litigation settled. I accept all Mr Eyles' evidence and give it particular weight because of its detailed nature. (e) Mr David Simmonds 195 The applicants called Mr Simmonds, a chartered accountant from Ernst & Young as an expert witness. His evidence was directed to commenting on an expert report dated 8 October 2012 by Mr Wettenhall, an accountant called by the respondents. The report had been prepared at the respondents' request in support of their cross claim. Mr Wettenhall was asked to comment on Mr Barnes' estimates of the EBIT for FTI if the business had continued to be conducted under the SPA during 2008 and 2009 and to indicate whether he considered that those estimates were reasonably based. 196 The respondents objected to large parts of Mr Simmonds' evidence on the basis that it was not expert evidence. They also took objection to several individual paragraphs in his affidavit. In circumstances where I had not yet been taken to Mr Wettenhall's evidence (which would take some time), I indicated that the most convenient course was to allow Mr Simmonds' affidavit to be read subject to the respondents' objections and that I would deal with those objections in my final reasons for judgement. The parties were content with this course. My rulings and reasons relating to the respondents' objections to Mr Simmonds' affidavit are set out in Schedule A to these reasons for judgement. 197 In cross examination, Mr Simmonds confirmed that, in his view, there is a difference between expressing an expert opinion on an auditing issue and actually conducting an audit. He agreed that he had not conducted an audit in the statutory sense. He said that he considered that there was no reason why the principles applied in conducting an audit could not also be used to express an opinion on an auditing issue, but that it would be critical to make clear that opinion was being expressed, rather than an audit being conducted. 198 Mr Simmonds agreed that he did not criticise Mr Wettenhall for applying the relevant accounting standard. Mr Simmonds also confirmed that his evidence addressed the issue of what accounting opinion might be given by an auditor if an audit was being undertaken and the funding question arose. (f) Mr Ian Puckrin 199 The applicants read four affidavits prepared by Mr Puckrin. Mr Puckrin is currently the group financial controller for IPMG Pty Ltd (IPMG), a position which he has held since March 2008. In August 2010, BlueFreeway changed its name to IPMG. Mr Puckrin is an accountant and a member of the Institute of Chartered Accountants in Australia. 200 Rulings were given on various paragraphs in those affidavits which were objected to by the respondents. The respondents also objected on various grounds to the entirety of the affidavit dated 30 November 2012 and, after hearing argument in support of that overall objection, I rejected the objection and indicated that I would explain why in the reasons for judgment. I ruled on various individual objections (some of which also overlapped with the overall objection, particularly the individual objections to paragraphs 7, 8, 9, 23 and 24 of the 30 November 2012 affidavit). It might also be noted that the respondents tendered various paragraphs from two other affidavits sworn by Mr Puckrin, dated 12 December 2011 and 28 February 2012 respectively. 201 The reasons why I rejected the respondents' objection to the entirety of Mr Puckrin's affidavit dated 30 November 2012 are set out in Schedule A to these reasons for judgment. 202 In his first affidavit (4 March 2011), Mr Puckrin was asked to calculate what additional payments, if any, BlueFreeway would be obliged to make under clauses 1.1 and 1.2 of Schedule 3 to the SPA upon the assumptions that the Exit Agreement had not been entered into and the licence fee payable by CMUK was included in FTI's 2007 EBIT. He concluded that, on those assumptions, no additional payment would be required in either 2008 or 2009 because, in the case of 2008, not only was FTI's EBIT for 2008 less than its EBIT for 2007 but it was also less than $2.5 million, hence not meeting the requirements of clause 1.1. He reached the same conclusion in respect of 2009, on the basis that there was no entitlement to an earn out price for that year pursuant to clause 1.2 of Schedule 3 to the SPA because FTI's 2009 EBIT was also less than $2.5 million. 203 In his second affidavit (dated 11 March 2011), Mr Puckrin came to the same conclusions as he had in his first affidavit notwithstanding that in his second affidavit he also took into account some additional provisions in the SPA as well as certain provisions in the Exit Agreement. He also concluded that, under clause 1.4 of Schedule 3 to the SPA, BlueFreeway would have been entitled to a clawback from the respondents in the amount of $5,831,804 plus interest. 204 In his third affidavit (dated 30 November 2012, to which the respondents unsuccessfully took an overall objection), Mr Puckrin explained that when he joined the BlueFreeway group in March 2008 as group financial controller he gained access to all the financial records of the group, including the records of FTI. Among those records were MYOB data files containing accounting information in electronic form which had been provided to FTI's accountants in respect of the financial year ended 30 June 2007. He said that the MYOB data relating to FTI was then integrated into the group's financial and accounting electronic records, again using the MYOB accounting system. Mr Puckrin also described how the accounting records of Mass Media (which, as noted above, markets Traction) had always been kept and maintained on another computer accounting system, known as "QuickBooks". 205 Mr Puckrin explained how in mid-2012 he had assisted in preparing a comparative schedule calculating and setting out the revenues and margins of Campaign Master and Traction for the years 2007-2012 for the purpose of including that material in an affidavit being prepared by Mr David Burkett for this proceeding (Mr Burkett was the chief executive officer of BlueFreeway at that time). In the events that occurred, Mr Burkett swore two affidavits, which set out various financial details, including profit and loss figures, but they were not read. 206 In his third affidavit, Mr Puckrin said that he had checked the group's MYOB accounting records against some of the figures provided in Mr Burkett's two affidavits and he confirmed that, with some minor exceptions, those figures accurately summarised the financial information which appeared in the MYOB records of FTI for the years 2007-2009. Mr Puckrin annexed to his affidavit an annexure marked IMP-4, which he described as print-outs of records relating to FTI derived from the electronic MYOB data held by BlueFreeway which he said accorded with the audited accounts of the group for the financial years 2007-2012. 207 In his fourth affidavit (dated 11 December 2012), Mr Puckrin substituted some new financial reports relating to FTI which he derived from electronic MYOB data held by BlueFreeway for those which he had relied upon in his third affidavit. In particular, he substituted a document marked annexure IMP-7 for the document marked annexure IMP-4 in his third affidavit. He concluded that the EBIT calculations for 2008 and 2009 set out in both his first and second affidavits reconciled with the information contained in annexure IMP-7. 208 Mr Puckrin was cross examined on the assumptions he made in his first affidavit concerning his EBIT calculations. He accepted that his calculations were based on an assumption that the actual EBIT figures for 2008 and 2009 would not have changed if Messrs Barnes and Hawksley had continued to run the FTI business. He also accepted that a different outcome may have been achieved to that which was reflected in the actual figures if they had continued to run the business during that period. He also conceded that he did not have any direct knowledge of any plans Messrs Barnes and Hawksley had for the FTI business in 2008 and 2009. 209 Mr Puckrin was also taken to the assumptions he made in his 4 March 2011 affidavit regarding EBIT calculations. He accepted that his figures were based on an assumption that the actual EBIT figures for 2008 and 2009 would not have changed if Messrs Barnes and Hawksley had continued to run the FTI business. He ultimately accepted that it may well be that if they had continued to run the business a different outcome may have been achieved. He conceded, however, that he did not have any direct knowledge of the plans Messrs Barnes and Hawksley had for the business in 2008 and 2009. He also accepted that revenues could be affected if a company experienced significant changes in its management or staff. 210 Mr Puckrin was taken to various documents relating to lack of product support and development. He accepted that such matters could also have a negative impact on revenue. 211 Mr Puckrin was taken to an email by Mr Charara dated 26 February 2008, who was another director of BlueFreeway, which stated that there was considerable EBIT upgrade potential in 2008 having regard to certain problems affecting FTI over the previous 12 months which were identified in the email. In response, Mr Puckrin pointed out that it would be incorrect to infer that FTI had not had a chief executive officer during the entire previous 12 month period because Mr Barnes only left in November 2007. 212 Mr Puckrin also accepted that if there had been a freeze on new sales staff appointments for FTI, that could have had a negative impact. He was taken to an email dated 13 June 2007 from Mr Hawksley to Mr McDonnell which stated that, unless more staff were recruited by 1 July 2007, FTI's budget would need adjustment. That email was sent in response to an email sent earlier that day by Mr McDonnell to Mr Hawksley (which was copied to Mr Barnes) in which he confirmed that there were to be no new staff hires for FTI without approval from both Mr Webb and himself. Mr Puckrin also accepted under cross examination that the FTI sales force was diverted from selling Campaign Master in order to cross-sell other BlueFreeway products and that this might have an adverse impact on EBIT. 213 Mr Puckrin was then asked a series of questions comparing the information he relied upon in calculating EBIT for 2008 and 2009 based upon the MYOB data used by him with EBIT figures which were set out in a recapitalisation proposal dated July 2008 which had been prepared by PWC for FTI to be put to the National Australia Bank. Mr Puckrin agreed that some of the figures differed and he explained them on the basis that he relied upon the actual figures drawn from the MYOB data, which may not have been used for the NAB proposal. I found this plausible. 214 In cross examination Mr Puckrin was also asked a series of questions relating to his involvement in the discovery process for this proceeding. He said that he had no prior involvement in that process until October 2010 when he took over primary responsibility for it. He confirmed that neither he nor anyone else to his knowledge had issued any directive to staff not to destroy documents once the proceeding commenced in December 2008. The cross examination on this topic was predicated on the proposition that the MYOB data was a "record of information" and therefore fell within the relevant definition of a "document" for the purposes of the list of categories, the Federal Court Rules and the Evidence Act. I consider that assumption to be highly questionable, for reasons which are set out in Schedule A to these reasons for judgement. 215 Mr Puckrin ultimately acknowledged that, in supervising the discovery process, he did not make any enquiries of Herceg Solicitors, notwithstanding that they had acted for the BlueFreeway group for many years and that there is a letter which confirmed that the firm was in possession of 20 boxes of potentially relevant material which was caught by a subpoena served on that firm. The Court was not taken to that material so its significance is unclear. 216 Mr Puckrin generally impressed me as truthful witness who sought to be responsive to the questions he was asked. I will discuss below the respondents' submissions on some aspects of Mr Puckrin's evidence. (g) Mr Mark Petrucco 217 Mr Petrucco is the applicants' solicitor in the proceeding. He swore two affidavits in the proceeding, dated 7 September and 17 December 2012 respectively. Mr Petrucco was not required for cross examination. 218 Mr Petrucco gave evidence concerning his attempts to have Mr Webb participate in the proceeding. In February 2011, he discovered that Mr Webb was the chief executive officer of a New Zealand company called Renaissance Ltd. He described the contact he made around that time with Mr Webb by both email and telephone and his attempts to organise a conference with him in Australia to discuss the litigation. Those attempts proved unsuccessful. 219 Mr Petrucco also gave evidence of further searches he made in April and May 2012 to locate Mr Webb. These searches revealed that Mr Webb was by then the chief executive officer of a business called Effective Measure in Melbourne. He said that he had a telephone conversation with Mr Webb on 9 May 2012 in which Mr Webb told him that the only way that he would speak to him about the litigation was if he were subpoenaed to attend Court. I discuss the respondents' Jones v Dunkel (1959) 101 CLR 298 submission concerning Mr Webb's absence in [460(f)] and [511] below. 220 Mr Petrucco's second affidavit described the steps taken by the applicants in providing discovery of the applicants' financial records. B Summary of the evidence of the respondents' witnesses (a) Mr Kim Barnes 221 Mr Barnes swore a total of nine affidavits in the proceeding and was cross examined. I will provide a broad summary of his affidavit evidence before outlining his oral evidence. 222 Mr Barnes' first affidavit (dated 16 November 2011) dealt with discovery matters and was relied upon by the respondents to support their contention that there had been inadequate discovery by the applicants and that various relevant documents, including many emails to and from Mr Webb, had not been discovered. That issue is dealt with in [398]-[402] below. 223 In his second affidavit (dated 19 December 2011), the body of which comprised 112 pages prior to objections, Mr Barnes dealt with the history of FTI and the Gang of 4 and the development of Campaign Master. He described the discussions which Mr Hawksley had with Mr Dhillon in early 2007 about the possibility of CMUK licensing Campaign Master. He said that during a telephone conversation between them at that time the issue of financing such a transaction arose and Mr Hawksley told Mr Dhillon that he knew some people in the UK who might be interested in investing in CMUK's business. 224 Mr Barnes also described the negotiations leading up to the sale of FTI to BlueFreeway. He claimed that various statements were made by representatives of BlueFreeway during those negotiations regarding FTI and its role in the group which he relied upon in deciding to sell his shares in FTI. He said that those statements were important to him at the time because he was led to believe that BlueFreeway would provide the sales and marketing resources necessary to take Campaign Master "to the next level" and in a global marketplace; that the portfolio of companies being brought together in the group would offer significant cross-selling opportunities; that he and Mr Hawksley would be left to run FTI and develop the Campaign Master software themselves, and that Campaign Master would benefit from the proposed "super sales team". The respondents rely on this evidence in support of their cross claim. 225 In his second affidavit, Mr Barnes also described the circumstances leading up to the licence sale to CMUK. He gave evidence of the meeting he attended together with Messrs Webb, McDonnell and Mr Hawksley at the Aurora Place cafÉ in early March 2007 in which he said Mr Webb asked how likely it was that Mr Dhillon would come up with the money for the transaction. Mr Barnes said that after Mr Webb queried what would happen if Mr Dhillon did not raise the necessary funds, Mr Hawksley said words to the following effect: I don't know, he didn't say. I know quite a few people who may be interested. Anyway, if he doesn't have rich friends or relatives, he knows a couple of blokes in Australia who have recently come into a lot of money. 226 Mr Barnes said that, at that point, Mr Webb laughed and said: "Well, let's hope it doesn't come to that!". Mr Barnes also explained that he understood Mr Hawksley's reference to knowing a couple of blokes in Australia who had recently come into a lot of money to be a reference to Mr Hawksley and himself and the Initial Payment they had recently received from BlueFreeway for their FTI shares. I will analyse that evidence below in the section on misleading or deceptive conduct. 227 In his second affidavit, Mr Barnes also dealt at some length with FTI's financial performance during 2007, the impact of not being able to recruit staff and the problems created for FTI by Mr Webb's plans for the portal, including his proposal to exclude Campaign Master from the portal, as well as the steps he says were taken by BlueFreeway in favour of Traction and to the detriment of Campaign Master. He said he would have sought legal advice on Campaign Master being excluded from the portal and then either commenced litigation against BlueFreeway in relation to the exclusion or, alternatively, adjusted FTI's EBIT to compensate for the exclusion. He also gave a detailed account of the events surrounding the execution of the Exit Agreement and to discussions which he had with Mr Dhillon in London in October 2007 regarding financing of the licence transaction and Mr Tully's withdrawal. Mr Barnes also gave evidence as to the results which he believed FTI would have achieved up to 2009 if he and Mr Hawksley had operated the business in accordance with the budget they presented to BlueFreeway on 8 June 2006. In his second affidavit, Mr Barnes also responded to certain aspects of Mr McDonnell's affidavit dated 4 March 2011. 228 In his third affidavit (dated 30 January 2012), Mr Barnes responded to Mr Puckrin's evidence relating to discovery issues and, in particular, FTI's storage of electronic data. 229 In his fourth affidavit (dated 19 September 2012), Mr Barnes gave evidence as an expert on various financial matters relating to FTI and its cross claim which he was asked to address. In particular he gave expert evidence to the following effect [81 of affidavit]: (a) on the assumptions that the SPA had remained on foot and the CMUK licence sale had occurred in the 2007 financial year, FTI's EBIT for 2008 and 2009 would have been $3,958,525 and $10,258,079 respectively; (b) on the assumptions that the SPA remained on foot and the CMUK licence sale instead occurred in the 2008 financial year, FTI's EBIT for those years would have been $8,073,502 and $10,258,079 respectively; (c) on the assumptions that the SPA remained on foot but there had been no CMUK sale, FTI's EBIT for those years would have been $5,173,105 and $11,645,525 respectively; and (d) the total earn out payable under Schedule 3 of the SPA for the financial years 2007-2009 in each of the above circumstances would have been $36,727,865, $31,032,315 and $38,582,099 respectively (the latter figure was subsequently corrected to $36,582, 99 in the light of Mr Wettenhall's calculations and Mr Barnes also provided alternative figures based on certain variables relating to sales targets). 230 In his fifth affidavit (dated 5 October 2012), Mr Barnes updated his earlier affidavits in the light of his review of documents which were not previously available to him. Part of his new evidence was directed to describing the differences between Campaign Master and Traction. Mr Barnes concluded that there were not any major functional differences between the two products but that, in his view, BlueFreeway had a commercial preference for its larger prospective clients to use Traction rather than Campaign Master. Mr Barnes also responded to parts of the affidavits of Mr Eyles and Mr McDonnell. 231 In his sixth affidavit (dated 16 November 2012), Mr Barnes provided further evidence concerning his discussions in October 2007 with Mr Dhillon regarding the guarantee provided to secure the financing for the licence transaction. In particular, he recounted conversations he had with Mr Dhillon in December 2009 and May 2010, which were to the effect that Mr Dhillon declined to become involved in the current proceeding for various reasons, including because he felt constrained by the terms of settlement of the earlier proceedings involving CMUK and FTI and also because of his desire to maintain a good working relationship with BlueFreeway. 232 In his seventh affidavit (dated 27 November 2012), large parts of which were not read, Mr Barnes revised some of the evidence and calculations in his earlier affidavits in the light of financial documents which had only just become available to him, in particular documents produced by Deloitte on subpoena. 233 Mr Barnes also swore two further affidavits, both dated 17 December 2012 (his eighth and ninth affidavits respectively). The first related to FTI's financial data in Exhibit B in the proceeding, upon which Mr Hawksley was later cross examined. The second dealt with the applicants' discovery of the MYOB database and the material produced thereunder. 234 Mr Barnes was subject to a reasonably lengthy cross examination, which I will now outline. He was asked a series of questions concerning the forecasts he provided to KPMG for inclusion in the 2006 Information Memorandum prepared by that firm concerning the proposed sale of FTI. He forecast a profit of $844,000 for the 2006 financial year, a figure which he said he arrived at by taking into account such matters as existing costs and projected revenue including in respect of existing contracts, as well as sales targets. Mr Barnes was taken to a copy of the November 2006 prospectus relating to BlueFreeway, which contained a forecast figure of $2.2 million for FTI's EBIT in 2007. That compared with an EBIT figure of $3 million in a document prepared by Harris and Co who were acting on behalf of FTI. Mr Barnes acknowledged that this demonstrated a significant decline in FTI's forecasts. He also accepted that this downgrade was happening during a time when he and Mr Hawksley were running the FTI business in 2007. He explained the poor performance as being entirely due to the problem of filling vacant sales staff positions. 235 Mr Barnes accepted that by January 2007 he strongly doubted that an EBIT figure of $2.5 million could be achieved in 2007 and he also agreed that that figure had to be met if he and Mr Hawksley were to receive an earn out for 2007, 2008 and 2009. 236 Mr Barnes was then asked a series of questions concerning the negotiations with Mr Dhillon regarding the proposed licence transaction. A figure of £2.45 million was originally proposed in respect of a licence covering not just the UK and Ireland, but also India. He said that that figure had been arrived at on the basis of forecasts he had done for CMUK. He said that he and Mr Daniel had previously worked with Mr Dhillon in a business called Solutions Six. He said that Mr Hawksley then took over the negotiations with Mr Dhillon. 237 Mr Barnes was shown the minutes of a BlueFreeway board meeting held on the 27 February 2007 where reference is made to FTI's poor operating results, which are recorded there as being due to vacant sales positions which the business was having trouble filling, but that the business had a strategy to close the gap and that that strategy would be reported to the board at its next meeting. In cross examination Mr Barnes said that that "strategy" was not a reference to the licence transaction. He accepted that FTI had an ongoing problem with filling sales positions and that that was affecting FTI's forecast for 2007. He said that other companies were suffering with the same problem at the time. 238 Mr Barnes confirmed that he was aware of Mr Webb's portal plans before the SPA was signed. He said it had been raised in 2006 and that he did not see any dangers in it at the time indeed, he saw it as a good idea. He also confirmed that he was aware of Traction after the heads of agreement were signed and before he signed the SPA and he accepted that he had the option to walk away from the deal if he had wanted to. He said that he saw Traction's involvement as a "huge problem". He said that the concern was not so much with Traction itself, but rather with Mr Webb's assurance that no other email marketing company would be in the group and that assurance formed part of the basis on which he and Mr Hawksley agreed to bring FTI into the group. 239 When asked about the protection clauses inserted in the SPA because of their concerns about Mass Media and Traction, he pointed to cl 3.3(z) and the prohibition on sharing FTI's intellectual property with Mass Media and the adjustment to the EBIT figures if BlueFreeway took business away from FTI. 240 Mr Barnes was cross examined on his email dated 1 March 2007 and its attachment. The email contains a reference to a sales manager having been "let go". The attachment is a document which Mr Barnes authored, with some input from Mr Hawksley. It described a proposal that FTI become the selling arm of BlueFreeway, which Mr Barnes said was Mr Webb's idea. Mr Barnes saw that proposal as severely affecting their earn out rights. He acknowledged that there were problems with the existing structure but if there were going to be any changes to the business structure he believed that there would have to be a renegotiation of the earn out provisions in the agreements. He described Mr Webb's plans as being positive, but that they had to be accompanied by amendments to the earn out provisions to reflect the fact that the changes would otherwise severely impact on the capacity of Mr Hawksley and himself to earn those earn outs. He said that that without those changes he would oppose Mr Webb's plans. 241 Mr Barnes was also asked a series of questions about diary notes which he took of conversations at meetings with representatives of BlueFreeway affecting FTI. The first of his diary notes is dated 6 March 2007. He said that he started to take diary notes when he became concerned that they might end up in litigation with BlueFreeway and his solicitor, Mr Smith, advised them to take diary notes to have a record of relevant discussions. He said that he normally shared his diary notes with Mr Hawksley. Later in cross examination, Mr Barnes said that they had started in April-May 2007 tape-recording both meetings and telephone conversations. He said that those present at a meeting might see the recording device on the table but he conceded that people involved in telephone conferences would not have known of the fact that their conversation was being recorded. This practice does Mr Barnes no credit. 242 Mr Barnes acknowledged that it was clear in early March 2007 that a $2.45 million licence fee would provide a big benefit in terms of him securing an additional payment under the SPA and also that if the licence deal did not go through in that year the $2.5 million threshold would not be met. 243 Mr Barnes was taken to a diary note dated 22 March 2007 dealing with the negotiations on changing the earn out provisions as the price of Mr Webb being able to implement his plans. He said that at this time consideration was being given to spreading the licence fee transaction over three years. Mr Barnes said that he saw it as an issue of "revenue recognition" and that he obtained advice from an auditor on how it ought to be handled. The auditor's advice is dealt with in an email dated 22 March 2007 and was provided by Burrows Mezares. 244 Mr Barnes accepted that if a $1.5 million fee for year one was included in the EBIT for 2007, that would produce a total EBIT of $3 million for that year and thus the $2.5 million threshold for earn out would be met. 245 Mr Barnes also confirmed that he had a preference to receive cash and not shares as part of the proposed changes to the earn out provisions. He said that he had a preference for cash because of the greater certainty that provided. 246 Mr Barnes acknowledged that he had a concern in the period March - June 2007, when he was working on the 2008 budget for FTI, that Mr Webb's portal plans would have an adverse impact on FTI if Campaign Master was excluded. He described how in June 2007 Mr McDonnell put forward a proposal that FTI stop selling Campaign Master entirely and just service existing clients so as to free up FTI sales staff to sell other BlueFreeway products. He said that he saw no good in Mr McDonnell's proposal, particularly because of its likely impact on the earn out entitlements. Mr Barnes later accepted that, prior to the staff freeze being imposed in June 2007, there was nothing stopping FTI from recruiting except for the problems in the market of actually attracting sales staff. 247 Mr Barnes was also asked a series of questions in cross examination concerning the negotiations with Mr Dhillon. He agreed that, as at 3 May 2007, the likely sale price as agreed with Mr Dhillon was £1.5 million. Mr Barnes said that he and Mr Hawksley were upset that Mr McDonnell's negotiations had produced that figure, which they thought was too low, and that Mr Hawksley conducted further negotiations with Mr Dhillon to secure an amount of £1.7 million. Mr Barnes said that he was content to proceed with that figure (which represented about $4 million) and that it would secure their entitlement to an additional payment (which, at that time, would have been paid in shares). Mr Barnes also acknowledged that Mr Hawksley had introduced to Mr Dhillon some possible financiers for the licence transaction, including Mr Terry Tully. 248 Mr Barnes was then asked a further series of questions relating to the funding of the CMUK licence transaction. He said that he had a recollection of speaking to Mr Dhillon over the weekend immediately before the agreement was announced in which he discussed the possibility of him funding the transaction. Mr Barnes confirmed that he had no diary note of the conversation, nor did he send an email afterwards. He said that Mr Dhillon told him that Mr Tully was not likely to come up with the money within the time frame wanted by BlueFreeway. Mr Barnes says that he told Mr Dhillon that Mr Webb was desperate to get the deal done in the current financial year and that he and Mr Hawksley would put up the funds until Mr Tully could finalise his financing. Mr Barnes told Mr Dhillon that BlueFreeway needed the deal done and that Mr Dhillon had said that the terms still needed to be right and he asked whether it was "okay" for Mr Barnes and Mr Hawksley to fund it. Mr Barnes said that he told Mr Dhillon that Mr Webb was clear about what was going on and there was no issue there. Mr Barnes said that Mr Dhillon viewed the proposed funding as "unusual" and he was seeking confirmation that it was okay for Messrs Barnes and Hawksley to finance the transaction on a short term basis. He added that Mr Dhillon was not concerned one way or the other whether or not the sale should take place before 30 June 2007. I consider that Mr Dhillon's concerns regarding the respondents' proposed funding role were well founded. 249 When he was asked in cross examination why he did not send any confirmatory email following his discussion about funding with Mr Dhillon over that weekend, Mr Barnes said that he did not see any need to send such an email. It was put to him that he was well aware before 22 May 2007 that if the deal was delayed or fell over then he would not get an earn out for the 2007 year. Initially, Mr Barnes' response was to challenge the correctness of that proposition, but he then accepted that it was correct. It was put to Mr Barnes that he had every motivation to offer to finance the deal in order to secure it so as to get the earn out. Mr Barnes responded by saying that he would have been better off if he had waited until 2008. Mr Barnes was then asked why he did not tell either Mr Webb or Mr McDonnell about the funding proposal. He responded by saying that it was clear to him that Mr Webb was asking him to offer the money so he did not see any need to tell him. Mr Barnes said that Mr Webb had made it clear that the deal had to be done and that his "body language" confirmed that. He also said that he was confident that Mr Tully would ultimately come up with the money. Mr Barnes then said that Mr Hawksley told him in June 2007 that it looked like Mr Tully would not be able to finance the transaction. 250 Mr Barnes described the whole thing as "the elephant in the room" and that he was left with no doubt that Mr Webb simply wanted to "make it happen". He said that he got the impression that Mr Webb did not want to talk about it and that since he (i.e. Mr Barnes) did not care one way or the other there was no need to tell Mr Webb. Mr Barnes reiterated that he did not really care whether the deal went through in 2007 or 2008. He said that he was certain, however, that Mr Webb wanted the deal done in 2007 because BlueFreeway needed it. I will deal with these issues further below in the section on misleading or deceptive conduct but I indicate now that I do not accept Mr Barnes' explanation of the motives for his actions. 251 In response to a question as to why he had not told Mr McDonnell about the funding, he said that he believed that Mr McDonnell was aware of what was happening because he had been present at their discussions and, although he had been silent, he also appreciated that the deal had to be done by 30 June 2007. Mr Barnes agreed that there was no email to Mr Webb about the deal. 252 Mr Barnes said that he had never discussed with Mr Hawksley whether they should tell Mr Webb or Mr McDonnell. He confirmed that he was aware that Mr McDonnell had raised with Mr Hawksley issues of governance and the need for complete transparency in the licence deal. It was put to Mr Barnes that they were not acting transparently in not telling anyone about the deal. He responded by say that he was "absolutely confident" that Mr Webb knew about it and he made reference to a meeting held at a cafÉ where Mr Webb had said that he was out of ideas and he told Messrs Barnes and Hawksley to "just make it happen". 253 Mr Barnes was then was taken to a document dated 8 June 2007 which he prepared (the relevant terms of the document are set out at [508] below). It related to Mr Webb's proposal to change FTI's business model. The proposal essentially involved moving the existing FTI sales force into a wider BlueFreeway sales force, maintaining the existing FTI development team structure, Mr Barnes exiting and Mr Hawksley moving from his current role to focus on licence sales globally (in fact, Mr Hawksley later left the group at the same time as Mr Barnes). Mr Barnes' document then set out various reasons why he and Mr Hawksley opposed the proposal (see [508] below). In cross examination, Mr Barnes acknowledged that the strong language he used in the document reflected his real concerns that the proposed changes would destroy FTI. 254 Mr Barnes said that when he and Mr Hawksley learned that Mr Tully would not invest the necessary money in time, they discussed what should happen. He said that they went to the NAB on or around 20 June 2007 because Mr Hawksley already banked there. He described how the NAB wanted an Australian company incorporated for the purposes of the transaction. He said he introduced Mr Dhillon to his solicitor, Mr Smith. Mr Smith arranged the incorporation of an Australian subsidiary of CMUK and also arranged for his friend, Mr O'Sullivan, to be the sole director of the company. Mr Barnes confirmed that he had previously met Mr O'Sullivan a few times as he was a member of the same golf club. 255 Mr Barnes was asked to whom he would look if NAB called on the guarantee. He said it would be Mr Tully. He accepted that there was no documentation on which he could rely and that he had just been happy to do a "hand shake deal" with Mr Hawksley. He relied on Mr Hawksley's confidence that Mr Tully would eventually come good with the money. Mr Barnes said that they both he and Mr Hawksley expected that the loan would only be needed for a very short period of time before Mr Tully provided the financing. 256 It was put to Mr Barnes that the absence of documentation was consistent with he and Mr Hawksley hiding their involvement in the entire matter. Mr Barnes denied that proposition, and said that their personal names were used in getting the guarantee and that Mr Hawksley's address was also nominated for the purpose of receiving bank statements. I will return to deal with this matter in [460(g)] below. 257 It was then put to Mr Barnes that if he was so open about it why did he not tell Mr Webb or Mr McDonnell because that "would have been the honest thing to do". He responded by say that he had a "firm belief" that both Mr Webb and Mr McDonnell completely understood what was happening so there was no need to tell them. When it was put to him that CMUK (Aust) was incorporated in order to hide the truth of the transaction from BlueFreeway, Mr Barnes denied the allegation of secrecy and again pointed to the fact that they had used Mr Hawksley's address to receive bank statements. He added that if Mr McDonnell had asked him about the origins of the money he would have told him but he never asked. I do not accept this evidence. The various steps taken by the respondents in procuring the necessary finance are consistent with a desire on their part to avoid the board of either FTI or BlueFreeway becoming aware of their involvement. I will deal with this matter further below in the section dealing with misleading or deceptive conduct. 258 Mr Barnes was then asked a series of questions regarding his fourth affidavit, including the assumptions he made regarding sales targets and sales persons. He explained that he adopted a sales target of $594,000, which is half way between the historic target of $528,000 set for the FTI sales force in 2005 and 2006 and a new increased target of $666,000. He used a figure of 70% of that target for the purpose of his modelling and an attrition rate of 5% (which he said was conservative because historically the rate was 3%). 259 Mr Barnes confirmed that he thought that a target of $528,000 was reasonable and that he used it in the revised budget he did in June 2007 and the forecast for the 2008 financial year. He said that his forecast budget of $2.4 million EBIT for 2008 was based on the 70% discount off the target of $594,000. His spreadsheet suggests that there were only two sales people employed at the time it was prepared, which highlighted the difficulties of filling sales positions. 260 Mr Barnes was then asked a series of questions concerning the Exit Agreement. His evidence was that it was signed on 9 October 2007 and that the money was paid on 1 November 2007. He said that Mr Smith provided legal advice to him. He also said that he believed that they should receive at least $10 million more than the $16 million payout they received. Mr Barnes said that Mr Hawksley urged him to agree to the Exit Agreement and to leave the group even though at that time Mr Hawksley said that he intended to stay on with BlueFreeway. Mr Barnes' understanding was that Mr Hawksley had been offered an ongoing role with BlueFreeway, but none was offered to him. Mr Barnes said that Mr Hawksley had expressed concerns to him that he thought that FTI's future looked bleak in October 2007 because of Mr Webb's vision. 261 Mr Barnes was then asked some questions about the figure of $2.4 million for FTI's 2008 EBIT which he calculated in June 2007. Mr Barnes said that figure took into account the risks of FTI selling its products through BlueFreeway but he still believed that figure was achievable. 262 Mr Ireland QC (who, together with Mr Burn, appeared for the applicants) then put the following series of propositions to Mr Barnes as reflecting what must have been his reasoning in June 2007 in arriving at that figure of $2.4 million: (a) the likelihood of achieving the $2.5 million EBIT for 2007 did not look good if the licence sale did not go forward; and (b) given the EBIT forecast of $2.4 million for 2008 there was no certainty that he would get an earn out for that period. 263 In the light of those propositions, it was then put to Mr Barnes that he must have decided in those circumstances to step in and provide his share of the funding for the licence transaction to enable the deal to be completed before 30 June 2007 because only by so doing could he be assured of an earn out payment for 2007 and the outlook for any earn out in 2008 also looked poor given his 2008 budget. 264 Mr Barnes' initial response to these questions was to say that it was Mr McDonnell who had asked him to come up with an EBIT for 2008 in the sum of $2.4 million and that he merely complied. I do not accept that response. 265 When it was again put to Mr Barnes that his reasoning must have been that he had to fund the deal in order to secure an earn out for 2007 Mr Barnes said it was his understanding that it would have been sufficient to have simply signed the deal even if the money did not come in before the end of the financial year. I do not accept that evidence. 266 It was then put to Mr Barnes that the fact there was no documentation in respect of his arrangements with CMUK was "extraordinary". Mr Barnes said that he had a discussion with Mr Dhillon about recovering the amount of the guarantee after their term deposits were forfeited to NAB in January 2008 when CMUK defaulted on the loan. He said that he had never sent a letter of demand to Mr Dhillon, but that he had had a discussion with Mr Dhillon who said that he would repay the money if he ever sold CMUK. 267 Mr Barnes was clearly well prepared in giving his evidence but he did not impress me at all times as giving frank answers to many matters in dispute. Unless his oral evidence is supported by contemporaneous and non self-serving documentation, I do not accept it. (b) Mr Lee Hawksley 268 Mr Hawksley prepared three affidavits and was cross examined. The body of his first affidavit comprised 99 pages and although his two subsequent affidavits were shorter the following summary of his evidence in chief is limited to key relevant topics. 269 In his first affidavit, Mr Hawksley described his involvement in the development and the successful commercialisation of Campaign Master. He described how in late 2005 he discussed with Mr Barnes that they might try to leverage FTI's success and obtain finance to grow the business or possibly sell FTI. This led to the publication in approximately June 2006 of the Information Memorandum by KPMG. 270 Mr Hawksley also discussed in some detail the approach by BlueFreeway to acquire FTI and the negotiations leading up to its acquisition of all the shares in FTI, including the draft heads of agreement received by him in mid-July 2006, which contained information regarding BlueFreeway's plans (Mr Hawksley received a final draft of the heads of agreement in mid-August 2006). The heads of agreement also stated that FTI would principally operate within its existing ordinary course of business post acquisition and would maintain its existing operational integrity, subject to some stated exceptions relating to what were described as "the ongoing BlueFreeway model". Mr Hawksley said that the information contained in that document formed the most significant part of his decision to proceed with the sale to BlueFreeway. 271 Mr Hawksley also described how at a meeting in mid-July 2006 he and Mr Barnes gave a powerpoint presentation to representatives of BlueFreeway, in which they identified and discussed three main factors which would impact upon their ability to achieve their financial forecasts, namely FTI's ability to hire sales people at the right time, its sales team achieving 80% of the sales target and FTI maintaining its product and service advantages. He also described how Mr Webb said that BlueFreeway was intending to develop a super sales team and to have a presence internationally which would sell and service the group's portfolio products. Mr Hawksley also described how at that meeting there was a discussion about FTI's relationship with CMUK. 272 Mr Hawksley drew attention to the final draft of the heads of agreement which contained the following additional information in [36] under the heading "Sales Synergy Function": • Forty Two International will be a key product division within the Blue Freeway model. • Blue Freeway will aim to sell Forty Two International's product and service suite along side (sic) other constituent company products and services in order to offer corporates, Government and SME's a fully integrated offering of online marketing and communications products. Forty Two International's involvement with the Blue Freeway's sales function will include: o Formulation of integrated client offerings of online services….. o Participation in Blue Freeway marketing presentations to clients including the involvement of relevant Forty Two International sales and technical staff o The full and complete execution of Forty Two International's services engaged as a component of Blue Freeways online offering to clients … • Blue Freeway will ensure that all revenues earned by Blue Freeway from existing business lines and developing business lines of Forty Two International will be directed to Forty Two International's EBIT calculation. 273 Mr Hawksley said that, based on what he had been told during the negotiations by BlueFreeway's representatives, as well as what was contained in the heads of agreement, he had thought that there would not be a direct competitor of FTI within the BlueFreeway portfolio. He said that he would have expected that to be disclosed if it was to be the case because having a direct competitor in the group would have a material impact upon the decision to sell to BlueFreeway and the ability to grow the FTI business as intended. He also described his surprise when he learned immediately after signing the heads of agreement in late August 2006 that Mass Media would also be within the group. He explained that this was because Mass Media had developed Traction and Mr Hawksley regarded that product as "a direct head to head competitor with Campaign Master". Mr Hawksley said that around this time he and Mr Barnes discussed whether they should withdraw from the sale but they decided not to and instead agreed that they would concentrate on structuring their agreements with BlueFreeway so as to maximise the potential of the FTI business (i.e. by protecting their interests). 274 Mr Hawksley gave detailed evidence of the negotiations leading up to the execution in late October 2006 of the suite of agreements comprising the SPA, the Management Deed, the Operations Agreement (which formed Schedule 5 to the SPA), the Non-Compete Agreement and the Executive Service Agreements. 275 Mr Hawksley also gave evidence regarding a meeting held on 6 December 2006 in which there was a discussion with some representatives of BlueFreeway, including Mr Webb, about BlueFreeway's plans to sell Traction and not Campaign Master in the UK because CMUK had exclusive rights under its reseller agreement to sell that product in its territory. Mr Hawksley said that he vigorously objected to that proposal on the basis that it amounted to selling a competing product in one of FTI's markets. He made a diary note of the meeting. 276 Mr Hawksley also gave detailed evidence of discussions he had with various BlueFreeway representatives, including Mr Webb, in early 2007 regarding Mr Webb's plans to create a "super salesteam". 277 Mr Hawksley described a series of events which occurred in early 2007 which he believed demonstrated that BlueFreeway was favouring Traction over Campaign Master, including at an industry exhibition in Sydney called "Adtech". After Adtech Mr Hawksley said that he received reports from various FTI employees to the effect that they had been told that BlueFreeway was not interested in Campaign Master and simply wanted its sales force and customer base with a view to having the FTI sales team sell all the products and services across the BlueFreeway portfolio. He also said that he believed these events figured in the decisions of two of FTI's top sales representatives to resign from FTI within a few months of Adtech. 278 Mr Hawksley also gave evidence of a meeting which took place on 23 February 2007 at which Mr Webb and Mr McDonnell were also present. He said that Mr Webb advanced two options, namely that FTI be "cut loose" or alternatively, join the group and sell the new portal with all the portfolio companies' products and that, under either option, the existing earn out deal would remain. The options were discussed but were not accepted. Mr Hawksley took a diary note of the meeting. 279 Mr Hawksley also gave detailed evidence concerning the discussions and negotiations leading up to the licence transaction with CMUK, including the meeting held on 6 March 2007 at the Aurora Place cafÉ which was attended by Messrs Webb, McDonnell, Barnes and himself. He reported that Mr Dhillon was keen to enter into a licence agreement for the sum of £2.45 million. He said that Mr Webb asked what were the chances of the sale being finalised and where the money would come from, to which Mr Hawksley replied: I'd have to say at this stage it's unlikely because it's far too early in the cycle to be confident. It's your archetypical bluebird isn't it? What I will say is that Gurj [i.e. Mr Dhillon] is a serious guy, I don't think he'd even broach if he didn't think he could find the money. You never know with these Anglo-Indians they've got rich relatives all over the place. At the end of the day he's very friendly with two rich blokes in Australia who have just come into ten million dollars. 280 Mr Hawksley then said that Mr Webb said words to the following effect: Whatever it takes, we need this deal to happen. Several companies are missing targets and we're looking like we'll miss the prospectus forecast. You guys need to really make this deal work, we need it. 281 Mr Hawksley said that he understood Mr Webb's remarks to mean that Mr Webb thought that there was a possibility that he and Mr Barnes would fund the transaction and that he would not have any difficulty with that arrangement. Mr Hawksley did not make a note of this exchange in his diary note of this meeting. For reasons which I develop below, I do not accept that this conversation could reasonably have been understood to constitute Mr Webb directing or authorising the respondents personally to finance the transaction. 282 Mr Hawksley also gave evidence of various other meetings and conversations relating to the licence sale, which included discussions as to how it would be recorded for accounting purposes and the implications that would have for relevant provisions of the SPA relating to such matters as FTI's 2007 EBIT and clawback. Mr Hawksley took diary notes of some but not all of those meetings and conversations. He took a diary note of a meeting held on 28 March 2007 with Messrs Webb and McDonnell during which he says Mr Webb commented that the licence transaction had to happen because Messrs Barnes and Hawksley had "screwed us over on your forecast, you're going to miss it by a mile", an allegation which Mr Hawksley said he denied. He said he then told Mr Webb that FTI needed to hire sales people quickly and that, like BlueFreeway, they were struggling in that regard. Mr Hawksley says that he also told Mr Webb that he was "comfortable with the performance of the business given the available resources". Mr Hawksley emphasised that there was considerable discussion about the proposed licence transaction because of the impact it would have on their earn out entitlements. I accept that evidence. 283 Mr Hawksley also described how, during April 2007, Mr Webb said in his presence that the licence sale was "vitally important" to BlueFreeway's future and that he wanted Mr McDonnell to become more involved. I accept that evidence. 284 Mr Hawksley described how in late 2007 Mr McDonnell indicated that, although £2.45 million had been the asking price, he thought £1.5 million was acceptable. He says that Mr McDonnell also gave reassurances to Mr Dhillon regarding BlueFreeway's commitment to Messrs Barnes and Hawksley and to FTI and Campaign Master. Mr Hawksley said that he expressed his strong displeasure to Mr McDonnell about lowering the price, partly because of the impact upon their earn out. He said he told Mr McDonnell that he wanted a FTI board meeting to determine whether a licence sale at $1.5 million was in FTI's best interest. He said that Mr McDonnell stated that there was no need for a board meeting and that "this deal is happening in any way it can" and that the deal "has to happen in time for our announcement or it will never happen", to which Mr Hawksley says he responded by saying words to the effect that it made no difference to him or Mr Barnes when the deal happened. I do not accept Mr Hawksley's claim that he and Mr Barnes were indifferent to the timing of the transaction. On the contrary, I consider that they both had a deep interest and desire to have the transaction completed before 30 June 2007 because of its favourable impact on their earn out. 285 Mr Hawksley also gave evidence relating to the circumstances surrounding the execution of a term sheet between CMUK and FTI on 3 May 2007 regarding the licence transaction. He said that he thought that £1.5 million was too cheap and that he told Mr McDonnell that a higher price could be obtained. Mr Hawksley said that, at this time, he assumed that CMUK had arranged its finance and that he was aware that there had been discussions between Mr Dhillon and various potential investors in CMUK, including Mr Terry Tully, whom Mr Hawksley thought was the most likely investor. Mr Hawksley gave evidence of discussions he had in early 2007 with Mr Tully regarding the nature of Campaign Master and the revenue received from it. I accept that evidence. 286 In his first affidavit, Mr Hawksley also described a conversation he had with Mr McDonnell on 7 May 2007 regarding "governance issues", which were triggered by Mr Hawksley's involvement in negotiating the licence deal with Mr Dhillon and its ramifications for the earn out which he and Mr Barnes would receive under the SPA. He said that at that time he also received an email from Mr Dhillon which made reference to him spending a lot of time over the weekend tying up "a few loose ends" on finance, but that he had no reason to believe at that time that Mr Dhillon had not made funding arrangements for the licence sale. I accept that evidence. 287 Mr Hawksley gave evidence regarding a lengthy conversation which he said he had with Mr Tully over the weekend of 19-20 May 2007, in which Mr Tully told him that he was definitely going to finance the deal but that he would do it in his own time. During that conversation Mr Hawksley says that he asked Mr Tully whether he could see any reason why he would not proceed if Mr Hawksley needed "to cover this short term", to which Mr Tully said that he had no difficulty if Mr Hawksley liked it enough to put his own money into it in the short-term and that this would give him even more confidence. Mr Hawksley said that, based on the 30 year relationship he had with Mr Tully, he was convinced that Mr Tully would finance the deal to the extent required. He said that he then spoke with Mr Barnes and proposed that they both provide short term funding if necessary in circumstances where he believed that Mr Tully would be able to finalise his arrangements by 30 June 2007, when payment was due. (Later in cross examination, Mr Hawksley explained that he had known Mr Tully for 30 years, regarded him as a close friend and mentor and that Mr Tully saw him as the son he never had because he had three daughters). There is no reason to doubt this evidence. 288 Mr Hawksley also gave evidence of numerous telephone conversations he had with Mr Tully and Mr Dhillon during June 2007 (sometimes including Mr Barnes) concerning their attempts to conclude a funding arrangement. He said that when it appeared that Mr Dhillon was not going to be able to make the payment by 30 June 2007, Mr Barnes and he agreed that they would help out. They approached the NAB about the possibility of a loan which they would guarantee. He said that the bank advised that the loan should be provided to an Australian subsidiary of CMUK and that Messrs Barnes and Hawksley should guarantee to support the loan, such that when CMUK came up with the funding the loan would be extinguished and the guarantee released. Mr Hawksley said that he was not personally involved in the incorporation of the Australian subsidiary and that all he could recall of his personal involvement in the transaction was him signing documentation with NAB and transferring approximately $2.1 million to a term deposit account with that bank. I accept that evidence. 289 In his first affidavit, Mr Hawksley also gave detailed evidence in support of his claim that BlueFreeway failed to disclose its alleged decision to "abandon" Campaign Master and, in particular, in relation to an email dated 3 May 2007 from Mr Webb to Mr Spencer (who was the chief technical officer of BlueFreeway and a director of FTI) and Mr McDonnell, in which Mr Webb wrote: My objective is to spend as little as possible to support this product [Campaign Master] over the next few years. 290 As will emerge from my analysis of that email in [555]-[557] below, I do not consider that it supports Mr Hawksley's claims. 291 Mr Hawksley also gave evidence that if he had been informed of that alleged decision to abandon Campaign Master he would have sought legal advice as to whether it constituted a breach of the SPA and related agreements and, subject to Mr Barnes' views, threatened to commence legal proceedings (or actually commence such proceedings), to have inter alia all of Traction's revenue treated as part of FTI's EBIT, as well as insisting on an FTI board meeting to determine whether the decision should be disclosed to CMUK so that the licence transaction could be negotiated in good faith. Mr Hawksley gave some evidence as to the steps he would have taken if he had been aware at the time of the minutes of a board meeting of Mass Media on 29 May 2007, which included a reference to Campaign Master not being part of the portal following completion of the CMUK deal, that Traction would be the stand-alone campaign management tool, that Mr Hawksley would be able to sell one off licences of Campaign Master to other markets and that Campaign Master was "to no longer be sold by BlueFreeway or BF [BlueFreeway] portfolio companies". 292 Mr Hawksley also gave detailed evidence of events leading up to the execution of the Exit Agreement, including the document prepared by him and Mr Barnes on 12 June 2007 relating to FTI's budget for the 2008 financial year, and their concerns that BlueFreeway would abandon Campaign Master in favour of Traction and the portal. 293 In his first affidavit, Mr Hawksley also gave detailed evidence in support of the cross claim as to what he believed FTI's EBIT for 2008 and 2009 would have been if the SPA had remained on foot. He said that, on the basis of various assumptions which he explained in his affidavit, the EBIT figure for 2008 would have been further boosted by a minimum of $850,000 and by $2.9 million in 2009. 294 In both his first and second affidavit (dated 12 October 2012), Mr Hawksley responded to Mr McDonnell's affidavit evidence and gave further evidence in support of the allegations raised in the cross claim relating to the allegation that BlueFreeway was favouring Traction at the expense of Campaign Master and to the steps which he says he would have taken to maximise FTI's business if he had continued to be involved. 295 In his third affidavit (dated 12 October 2012), Mr Hawksley provided further evidence in reply to Mr McDonnell's affidavit dated 8 June 2012, including specifically in relation to Mr McDonnell's evidence at paragraph 16 that he did not hear Mr Hawksley say at the Aurora Place cafÉ meeting that "Mr Dhillon was friendly with two rich blokes in Australia who have just come into $10 million". Mr Hawksley said that he had a clear recollection of observing Mr McDonnell and the others who were present at that meeting laughing at that particular comment. I deal below in [460(d)] with the significance of everyone laughing at the alleged comment. 296 In his third affidavit, Mr Hawksley also responded to the affidavits of Mr Burkett (which ultimately were not read) and Mr Eyles. 297 Mr Hawksley gave some oral evidence in chief. He confirmed that FTI used a program called "Sales Force" to record relevant information concerning the progress of sales, tracking them from their genesis as a cold call through to contract. He said that sales revenue was not recorded on Sales Force but was recorded on MYOB. 298 In cross examination, Mr Hawksley said he had some limited involvement in the preparation of the forecasts for the KPMG Information Memorandum, but that the work had primarily been done by Mr Barnes with some input from KPMG. He confirmed that he had discussions with Mr Barnes about assumptions in preparing forecasts for 2006, 2007 and 2008. In particular he said that they discussed the need to build the size of their sales team and grow their presence in Melbourne. 299 Mr Hawksley confirmed that in June 2006 FTI was experiencing some problems hiring good sales staff, which he described as "a perennial challenge". He said that the Information Memorandum forecasts assumed a certain number of sales staff and also that they were performing adequately. He confirmed that the sales quota was to the best of his memory about $500,000 a year and that they used a 70% target figure. 300 Mr Hawksley was then asked a series of questions relating to the differences between the various EBIT forecasts and figures set out in the financial statements for 2006, compared with the Information Memorandum and the prospectus for the float of BlueFreeway. He was asked to explain why, by the time the SPA was signed in December 2006, the 2007 forecast was lower than it had been back in June 2006. Mr Hawksley made reference to the difficulties of hiring sales staff and that there were difficulties in the general labour market. He accepted that it was essential that sufficient sales personnel be employed if the 2007 forecast was to be achieved. He agreed that there was no improvement in the staff market in early 2007, although he added that it varied a little from month to month and was not constant. In re-examination on the issue of the staff freeze Mr Hawksley confirmed that FTI made one or two hirings in early 2007, but not at the rate that the business required. I accept that evidence. 301 On the issue of FTI's concerns about Traction, Mr Hawksley said that he did not feel threatened by Traction as a competing product to Campaign Master in its own right but saw the difficulty lying in the fact that the same group (i.e. BlueFreeway) was selling both products and the problems that caused for the sales force and where they should concentrate their efforts. 302 Mr Hawksley also acknowledged that, while he was worried about the impact on their earn out entitlements presented by any changes in FTI's business, Mr Smith had inserted various protection clauses in the SPA which were designed to protect earn out and there was an entitlement to recalculate EBIT if BlueFreeway took steps which were adverse to FTI's EBIT. 303 Mr Hawksley was also asked various questions about his practice of taking diary notes. He confirmed that some of the diary notes were not made immediately after a particular event, but rather within a day or two of the relevant meeting or conversation, such as the diary note dated 9 January 2007. I interpolate at this point that it is evident from the terms of many of Mr Hawksley's diary notes that they were written from a particular perspective and with self-interest very much in mind. Mr Hawksley said it was around February 2007 when he started to take diary notes of meetings and conversations and then he subsequently decided to record some meetings and conversations because it would take too long to do a diary note. He said that all the recordings were backed up on his personal computer. Mr Hawksley said that the recorder was visible in his "folio" on the table. He accepted that someone on the other end of the telephone would not be able to see it. When asked if what he did was "underhand" he responded "not particularly, no". He accepted, however, it was not his ordinary practice to record telephone conversations. As is the case with Mr Barnes, Mr Hawksley's practice of surreptitiously recording telephone conversations does him no credit. 304 Mr Hawksley was then asked a series of questions about Mr McDonnell's concerns about "governance issues" and, in particular, the recording he made of the telephone conversation they had on 7 May 2007 on that topic. The recording was then played in Court. It contained repeated references by Mr McDonnell to the need for transparency in the negotiations relating to the licence sale. Under cross examination, Mr Hawksley did not dispute the proposition that the thrust of what Mr McDonnell was saying to him in that conversation was that it was critical that nothing be kept secret from him. 305 I should also add at this point that listening to the recording considerably enhanced Mr McDonnell's credibility and integrity as a witness. I have no doubt about the genuineness of his concerns about governance issues and the need for complete transparency. 306 Mr Hawksley was asked a series of questions concerning the financing of the licence sale. He was asked when he first raised the issue of funding with Mr Tully and he replied that he thought it was back in March and over the telephone. Mr Hawksley said that although he did send some emails to Mr Tully on the issue, they were all on his work computer which was not now available. Mr Hawksley acknowledged that, in those circumstances, the Court was fully dependent on his recollections of those conversations. 307 It was then put to him that, it having emerged over that weekend that Mr Tully was not committed to providing the finance within the relevant timeframe, Mr Dhillon had indicated that he would not sign the licence agreement without a commitment on funding. Mr Hawksley said that Mr Dhillon told him over that weekend that he was trying to do a deal with Mr Tully and that he was the only person with whom he was dealing. Mr Hawksley also acknowledged that he did not disclose to Mr Dhillon that he had also spoken to Mr Tully over the weekend because he said he was concerned to safeguard any confidential information which Mr Tully had given to him. I find this explanation to be disingenuous. 308 Mr Hawksley confirmed that, in view of the lack of funding certainty and Mr Dhillon's refusal to sign unless he had financing in place, either he or Mr Barnes told Mr Dhillon that they would give him "comfort". Mr Hawksley also acknowledged that there was no email recording these discussions and that they were all oral. When it was later put to him that no one in BlueFreeway knew that he and Mr Barnes were funding the licence sale, Mr Hawksley responded that Mr Webb "absolutely knew". I do not accept that claim. 309 With the licence fee agreement executed on 22 March 2007, Mr Hawksley confirmed that he understood that payment was required by 30 June. He said that he then got back to Mr Tully in the second or third week of June about funding the deal. He said he left it for that length of time because he did not doubt Mr Tully would fund it by the payment date. His best recollection was that it was Mr Barnes who told him around mid-June that Mr Tully was not committing to the deal. 310 Mr Hawksley also said that, around this time, there was quite a brawl going on over FTI's budget for 2008. He said that he thought that the FTI staff freeze which was in place would aggravate problems for FTI because his whole growth strategy for the business was to hire more sales staff and they were being told that that could not occur without consent. 311 Mr Hawksley was taken to the revised budget and to Mr Barnes and his response to BlueFreeway's proposal. He said Mr Barnes authored this document, which included various passages which expressed in very strong terms that Mr Webb's plan threatened FTI's very viability and its growth into 2009. He described it as a proposal to "dismantle" FTI and that it was "disastrous". 312 Mr Hawksley agreed that he was later told by Mr Barnes that Mr Tully would not be able to get the money in time. Mr Hawksley acknowledged that if the money was not paid in time then the licence agreement could be rescinded, but he added that this was not uppermost in his mind at the time. 313 Significantly, Mr Hawksley also accepted that if the money was not paid by 30 June 2007, FTI's EBIT for 2007 would not reach the $2.5 million hurdle with the further consequence that there would not be any earn out for that year for either Mr Barnes or himself. As I have indicated, I believe that this was a matter of major concern to them both at that time. 314 When it was put to Mr Hawksley that it was entirely uncommercial for him and Mr Barnes to put their money at risk in the way that they did, he responded by saying that this was not so because he trusted Mr Tully implicitly. In my view, this simply serves to underline the uncommercial nature of the arrangements. 315 When Mr Hawksley was asked why there was no commercial agreement with Mr Dhillon to repay the loan if Mr Tully did not come good with the financing, he pointed to the trust which he said existed between the relevant people because Mr Barnes had a strong relationship with Mr Dhillon and Mr Hawksley had a strong relationship with Mr Tully. To the extent that it is relevant, I find this evidence difficult to accept. 316 Mr Hawksley said that after June 2007 FTI's prospects got worse and that Mr Webb wanted to move forward to put Traction into the portal. He said that Mr Webb was "obsessed" with the portal. He accepted that if that did occur then it would remove all FTI's growth prospects, but he then immediately added that while those plans would be disastrous for FTI, they knew that Mr Webb had to get their consent for such a change to occur. 317 Mr Hawksley acknowledged that the options were to sue Mr Webb if he pressed on with the changes without getting their consent for breach of the SPA or take their money and exit the arrangement. He added that those options did not really emerge until later in 2007 and that it was Mr Webb who raised the question of them exiting. I accept that evidence. 318 Mr Hawksley also acknowledged that he never told Mr Webb that he and Mr Barnes were funding the licence deal, but he strongly denied that he had acted in a duplicitous way in not telling either Mr Webb or Mr McDonnell about the funding arrangement. As will emerge below, I do not accept that denial. 319 As with Mr Barnes, I did not form a favourable impression of Mr Hawksley on many disputed matters. Unless indicated otherwise on some matter, I would only accept his evidence where it is supported by contemporaneous and non self-serving documentation. (c) Mr David McKell 320 Mr McKell swore one affidavit and was cross examined. He was employed by FTI from approximately September/October 2005 until September/October 2007 as Business Manager, which he described as essentially a sales executive position. He described his involvement in selling Campaign Master for FTI during that period, which he said he found easy to sell during the first year or so. Mr McKell also described how in approximately March 2007 he raised with Mr Hawksley his concerns because BlueFreeway had competing products in Campaign Master and Traction. He also gave evidence of his attendance at Adtech in March 2007 and the prominence given to Traction at that exhibition. He said he again conveyed his concerns to Mr Hawksley and relayed to him that he had been told by a representative of BlueFreeway at Adtech that BlueFreeway acquired FTI because its sales team was the most successful team and that they were not after Campaign Master. He said that Mr Hawksley responded by saying to him inter alia that he must not stop selling Campaign Master. 321 Mr McKell said that it became increasingly difficult to achieve sales because of BlueFreeway's positioning of Traction ahead of and above Campaign Master. He said that he resigned in 2007 and that the main reasons were what he had been told at Adtech, that BlueFreeway had not made it easier for FTI to make sales and that as a result his sales commission had approximately halved. 322 Under cross examination, Mr McKell confirmed that while he was with FTI he was based at St Leonards (where he reported to both Mr Barnes and Mr Hawksley, who were also based there) and that FTI's Sydney-based sales team was physically separated from the BlueFreeway operations in Macquarie Street. 323 Mr McKell was also asked a series of questions regarding his sales budget. When asked what budget he had in September 2007, he said that to the best of his recollection it was about $300,000 a year. He explained that he was paid a base salary and then a commission if he met his target. 324 After being taken to various documents recording sales information for 2006 and 2007 which indicated that he had total sales of $274,000 for the financial year 2007 and a total of $321,000 for the period from 12 July 2006 to September 2007, Mr McKell accepted the accuracy of those figures. 325 I have no reason to doubt that Mr McKell's evidence accurately reflected his subjective views. Most of it was expressed at a high level of generality which was of little assistance to the Court. (d) Ms Catherine Willems 326 Ms Willems swore one affidavit and was cross examined. She described how she began working with FTI in approximately August 2006 as a consultant and how she later became the customer relations manager there. She originally worked from FTI's offices at St Leonards but she then moved to FTI's Bligh Street office. She gave evidence about her impressions of FTI's success during the period when Messrs Barnes and Hawksley were associated with the company and then later after they left. She recalled that, during the period they were there, the clients were quite happy with Campaign Master during 2007 and in early 2008 and that FTI had some large clients, including Fairfax, TNT and DHL. She gave evidence of having been told by the Chief Product Officer for BlueFreeway about its plans to develop a web portal from which clients could get access to everything BlueFreeway offered and that Campaign Master's developers were primarily diverted to the development of that portal, with the consequence that she found it increasingly difficult to obtain their time to work on improvements and refinements to Campaign Master. She said that as attention was taken away from developing Campaign Master, her clients became increasingly frustrated because the product was not being worked on and that she received complaints from them. However, she could recollect only very general details. She also described the difficulties of selling both Traction and Campaign Master and discussions which took place arising from those difficulties. She also described various changes in financial management within FTI after Messrs Barnes and Hawksley left in late 2007, which she said produced problems in billing clients, which caused frustration to clients and made it difficult to get new sales. 327 Under cross examination, Ms Willems acknowledged that she had not been a member of FTI's sales team. She was taken to the document which records her as being in the sales force and having been responsible for sales to the amount of approximately $53,000. She said she was a consultant but that in that capacity she might become aware of the need for some additional feature by a client, in which case if that occurred she got the credit for it but she was not a sales person at any time. She also said that Mr Harris, whose name also appeared on that list, was not a sales person. She confirmed that the list of people being sales people at St Leonards was correct. She said that during 2007 up until November she was involved in liaising with clients about bugs in their software and also in the further development of Campaign Master. She said she liaised between the technical people and her clients on these matters. She moved to the City in October 2007 where she was given the title of "account director" but basically she had the same role as she had had at FTI. 328 Ms Willems explained how her role changed to chief operating officer of FTI in May 2008. She occupied that position until August 2009 when she was told that a company of that size did not require such an officer. Her position then further changed to a consulting and strategic marketing role. She left FTI in December 2009. She said that during the period August to December 2009 she was based at the offices in Riley Street, Darlinghurst. 329 In further cross examination, Ms Willems said that the FTI sales force was never integrated into the BlueFreeway sales force and she added that enthusiasm for that concept waned after January 2008 when Mr Webb left. 330 In re-examination, Ms Willems confirmed that while the FTI sales force received some training about cross-selling other BlueFreeway products, the sales people found that the new products were outside their comfort zone and they preferred to stick with what was familiar and successful, namely selling Campaign Master. I have no reason to doubt that Ms Willem's evidence accurately reflects her personal views. (e) Mr George Tully 331 Mr Tully swore one affidavit and gave his evidence by video link from Nottingham, England. He was cross examined. He is the brother of the late Terry Tully, who died in 2009. He said that he had been friends with Mr Hawksley for approximately 20 years. He said that he had a close relationship with his brother up until his death and that they were in business together for approximately 25 years, operating nursing homes and garages. He said that, while his brother was alive, they normally spoke together on a daily basis, including about business matters. He said that Terry told him about discussions he was having with Mr Hawksley about a business deal involving an email business which he was seriously looking at. He said that sometime later his brother told him that he had decided not to pursue the deal. 332 In cross examination, Mr Tully acknowledged that when he swore his affidavit he did not have before him any business documents relating to the dealings between his brother and Mr Hawksley, nor did his brother ever show him any documents relating to that topic. He readily accepted that he was not aware of the details of the discussions between Mr Hawksley and his brother and simply knew that they were having discussions. When he was asked for his recollection of when it was that Terry told him that he did not want to become involved in Mr Hawksley's business, he said that it was pretty soon after Mr Hawksley had left England and that as best he could recall it was around July or August 2007 because the days were long. He confirmed that he thought it was sometime in summer. 333 In re-examination when asked whether there was to his knowledge more than one set of meetings between his brother and Mr Hawksley he said that he thought there were a series of meetings over the period of time that Mr Hawksley was in England and that they were meeting "quite regularly". 334 I accept Mr Tully's evidence. (f) Mr Ian Smith 335 Mr Smith is a partner of Harris & Co, solicitors. He swore an affidavit and was cross examined. He confirmed that he acted for Messrs Barnes and Hawksley in relation to the sale of their shares to FTI and he described some of the negotiations in which he was involved in mid-2006 relating to the heads of agreement. He also confirmed that in mid-2007 he introduced Messrs Barnes and Hawksley to the NAB at Bondi to discuss a loan to CMUK to be guaranteed by them. He had no recollection of having accompanied them to the Bank. He said he was asked by Mr Barnes to incorporate an Australian subsidiary as the borrower. 336 When asked why Mr O'Sullivan was appointed as a director of the subsidiary, Mr Smith said that CMUK needed a resident director. When asked why he did not appoint Mr Barnes or Mr Hawksley as a director he said that that was because of perceived conflicts if they were a director of a UK subsidiary acquiring a licence from FTI, of which they were directors. That assessment was plainly correct. He said that Mr O'Sullivan was his choice as he had known him for 20 years and regarded him as an astute businessman and director of various companies and had wide experience. He confirmed that Mr O'Sullivan was alive and well and that it was he who instructed him later in 2007 to deregister the company. 337 I accept Mr Smith's evidence unreservedly. (g) Mr Derek Harris 338 Mr Harris swore an affidavit and was cross examined. He currently works with a company called Exact Target, which is owned by Mr Hawksley and was working there when he prepared his affidavit. He said that he had been employed at FTI from mid-2005 until January 2009. He said that his initial position was as a consultant with responsibility for meeting with clients and handling client accounts and design work. He said his work was focused on Campaign Master. He explained that from late 2007 or early 2008 onwards he was employed there as a Product Manager. He explained how during that period he, along with most of FTI's staff, moved from the FTI office at St Leonards to BlueFreeway's office in Bligh Street and that, shortly after that move, Messrs Barnes and Hawksley left FTI. 339 Mr Harris described several changes that were made to FTI after Messrs Barnes and Hawksley left, including that he and other FTI staff received training on other products, including Traction, and that he was told that all staff would be trained on all products across all of the portfolio companies. He said that in 2008 things moved in a completely different direction because BlueFreeway wanted to combine everything into a single portal to be called "blu". He described how Campaign Master and Traction were both competing simultaneously for business. He also described how in early 2008, after Mr Webb had left BlueFreeway, FTI had a wages and hiring freeze, which was demoralising and unsettled the remaining staff. 340 In cross examination, Mr Harris explained that his job as Product Manager was to liaise between the technical people and customers. He confirmed that he knew that Traction was available from Mass Media for some time and that when BlueFreeway had both Traction and Campaign Master they were not regarded as competitors but rather as products under the same umbrella. He said he received training on Traction in early 2008 because BlueFreeway wanted their staff to understand all the group's products. 341 Mr Harris said he never was involved in the blu portal. He also confirmed that while preparatory steps were taken to launch the blu portal it never actually went live. He said he had seen a sign-up page but was aware that it never came to fruition. I accept Mr Harris' evidence. (h) Mr Andrew Martin 342 Mr Martin swore an affidavit and was cross examined. Like Mr Harris, Mr Martin currently works for Exact Target, a company owned by Mr Hawksley. He said he had been there for the last three years and that he reports to Mr Hawksley as managing director. 343 Mr Martin was with FTI from 2001 until June 2005, during which time he was involved in selling Campaign Master, but he then relocated to the UK to work for CMUK, again selling Campaign Master as National Sales Manager. He described how Campaign Master had several competitors in the UK but that the product was being continually developed to remain competitive. He said that he took three months off work with CMUK in mid-2007 and that when he returned he spent most of his time dealing with problems with existing clients as it seemed to him that Campaign Master was not being developed and problems were not being resolved. He described some of those problems, including frequent difficulties with clients logging in, emails not being sent, and insecurity with customer data. He described his frustration in seeking to resolve some of these problems in discussions with Mr Salmon, who at that time had responsibility for developing Campaign Master in FTI. He said he ultimately resigned his position because he was frustrated with the problems with Campaign Master and he considered that there was no control over what was happening in Australia. 344 In cross examination, Mr Martin was taken to his resignation email. He explained that it did not provide the real reason why he left CMUK because he did not want to upset the other staff. He said that the real reason was the issues with Campaign Master in the UK, as described in his affidavit, which caused clients to be "extremely frustrated". He said that these problems had been going on for about six months starting in October or November 2007 and that the problems related to lack of support and the product not being developed as much after October/November 2007 as previously. 345 Mr Martin accepted that despite these issues Campaign Master continued to be sold in the UK. When he left CMUK it had staff totalling about 10, i.e. it had grown from a staff of just three when he joined it in 2005. He also confirmed that Exact Target now provides rival email marketing products to both Traction and Campaign Master. 346 I accept that Mr Martin's evidence truthfully reflects his personal views. (i) Mr Raaj Govintharajah 347 Mr Govintharajah affirmed an affidavit and was cross examined. He commenced working at FTI in early 2005 as a sales representative in the Sydney office, but he then moved to Victoria in mid-2006 when he became FTI's general manager of Victoria. He held that position until approximately August 2007, when he became BlueFreeway's sales director in Victoria. He said that currently he is a director of the Salient Group Pty Ltd, which specialises in the recruitment of sales staff, and that he owns half the shares in that business, with the other half being owned by Messrs Barnes and Hawksley. 348 Mr Govintharajah described how when he first started working in sales at FTI he sold Campaign Master. He also said that immediately after the sale of FTI to BlueFreeway, "it was more or less business as usual" and he did not notice any substantial change in operations. But after a couple of months, it became clear to him that the sale had resulted in changes, including the development of internal confusion within FTI as to whether the sales staff should be selling Campaign Master or Traction. He also gave evidence about further changes in the business after Messrs Barnes and Hawksley left FTI in late 2007, including changes in the market strategy, the identification of focus clients and the focus of products being sold. He described how in late 2007 FTI's sales staff were instructed to sell other BlueFreeway products to clients of FTI who were using Campaign Master. 349 In cross examination, Mr Govintharajah was asked about his recollections of any slowdown in development of Campaign Master after Messrs Hawksley and Barnes left. He said that there were longer delays in product releases whereas previously there were none. He was asked whether he could particularise the level of those differences but he said he was unable to do so by reference to any specific features because it was all too long ago. He accepted that during his time with FTI and BlueFreeway in Victoria all product development was carried out in Sydney. 350 He was asked some questions about the difficulty of recruiting sales staff in Melbourne in 2007. He said it was difficult to get the right people in Melbourne, and the same difficulties were being experienced by all software vendors. He described the difficulty as only moderate and not significant. He also confirmed that FTI had the largest sales team and that they were asked to cross-sell other BlueFreeway products after Mr Barnes and Mr Hawksley left. 351 Mr Govintharajah was then asked some questions about the portal. I found his evidence on this topic to be a little confused. He said that he never sold any subscription on the portal but that it provided access to a range of BlueFreeway products, including Campaign Master. When he was pressed on this matter, he said maybe it was not and that he could be wrong. 352 Mr Govintharajah gave his evidence truthfully but I found that it was given at such a high level of generality that it should attract only limited weight. (j) Mr Stephen Salmon 353 Mr Salmon prepared three affidavits in the proceedings and was cross examined. He began working with FTI in early 2001 as an information technology contractor, largely doing software development and system maintenance and construction. He also described the steps he took to store FTI's electronic documents when the company was taken over by BlueFreeway, including FTI's MYOB accounting data. To the best of his recollection he then copied that information onto a disk and transferred it to a server at BlueFreeway's Bligh Street office. He explained how emails to and from FTI's staff who worked at its St Leonards' office were stored on a separate hard drive, which was later moved into a room in BlueFreeway's George Street office. He also explained how in approximately late October 2008 he was asked to resurrect a server for BlueFreeway in the course of the proceedings brought against it by CMUK. He said that this involved making the emails in the old system readable by those in the FTI office. He said that he understood that a team of people reviewed the emails and extracted any which involved relations with CMUK. 354 In his second, affidavit, Mr Salmon explained that at some point after Messrs Barnes and Hawksley had left FTI, their personal computers were moved from FTI's offices at St Leonards to offices in Pitt Street/Broadway and stored in an unused room. He said that he understood that they remained there when the FTI development team moved to offices in Riley Street in 2009. He also recalled that one of the computers which was moved from FTI's St Leonards' office to Pitt Street/Broadway included the FTI mail server, which included emails sent and received by Mr Barnes and Mr Hawksley. He said that he was able to make those emails available to be read in the discovery task undertaken by him in the CMUK-FTI proceedings in 2008. He said that he provided all the documents to Mr Sean Newell at BlueFreeway. He said he had no recollection of anyone saying to him that any documents, including emails belonging to Mr Barnes and Mr Hawksley, were missing. This is important evidence which sits uneasily with the respondent's complaint about deficient discovery of such material (see further [399]-[403] below). 355 In his third affidavit, Mr Salmon corrected certain matters with which he disagreed in the affidavit of Mr Dickerson, a former employee and systems administrator for BlueFreeway sworn 17 February 2012. In particular, he said that his recollection was that only the sales, marketing and support staff of FTI moved to Bligh Street in late 2007 and that technical and development staff remained at St Leonards. He said that all FTI staff who went to Bligh Street were given new equipment, including personal computers. Mr Salmon also disagreed with some of Mr Dickerson's evidence as to what was stored on FTI's servers. 356 In his first affidavit, Mr Salmon also described how after BlueFreeway acquired FTI, the number of people working on Campaign Master dwindled until only he and one other person were involved on that task. He also said that, in his view, Campaign Master and Traction were written for very different markets. However, he said that shortly after BlueFreeway purchased FTI he was involved in meetings to look at merging the two products. He also described his participation in meetings when a representative of Mass Media expressed very strong views that Traction should become the only email marketing product in the group and that the features of Campaign Master should be incorporated into Traction. He also described how FTI became very short staffed and also how instructions were given to staff who were selling Campaign Master that they must all start selling Traction. He said that he designed and wrote Campaign Master. 357 In cross examination, Mr Salmon confirmed that he had been an IT consultant since 2001 and had been involved in the IT aspects of FTI's business for many years. In relation to FTI's move from St Leonards to the City, he said that there were two servers at St Leonards, one dealing with files and the other dealing with emails. He said they also provided a degree of redundancy for each other. He said that MYOB accounting system data was filed on one of the servers. He accepted that the MYOB material could be used to generate business records. He said that there was software on Mr Barnes' computer which enabled that data to be used in various forms, but that the MYOB data itself was kept on the server. 358 Mr Salmon was taken to some business invoices which indicated that his company charged for retrieving information for the purposes of providing discovery in the earlier CMUK proceedings. He said that his task there was to extract any email from the FTI server which had a UK address in either the "to or from" box. He said that for that purpose he had access to all the information on FTI's servers. 359 I accept Mr Salmon's evidence. (k) Mr Roland Wettenhall 360 Mr Wettenhall prepared three affidavits and was cross examined. He is a chartered accountant and a fellow of the Institute of Chartered Accountants in Australia. He was called by the respondent as an expert. In the report attached to his first affidavit, he answered three questions upon which he was asked to opine. The first question was whether, upon review of BlueFreeway's accounts, did BlueFreeway suffer loss or any damage because it made the Additional Payment to the respondents instead of issuing shares under the SPA. He concluded that BlueFreeway would have been in the same position if shares had been issued as originally contemplated, as opposed to the Additional Payment being made in cash. 361 Mr Wettenhall answered the second question, namely how the Additional Payment was treated by BlueFreeway in its accounts in the 2008 financial year, by drawing attention to Note 31 of the Notes to the Financial Statements, where it is stated that a figure of $16.7 million was included as a payment to the vendors of FTI in cash. 362 In respect of the third question, which asked him to opine how the Additional Payment ought to have been properly characterised in accounting terms, he said that it was correctly characterised as consideration for the purchase of an asset, namely the parcel of shares in FTI. 363 Mr Wettenhall's second affidavit attached a report dated 12 October 2012, in which he expressed his opinion as to whether Mr Barnes' estimates of the hypothetical future earnings of FTI were correct. In general terms, he said that they were for reasons which are set out in his report. 364 In his third affidavit, Mr Wettenhall attached a report dated 28 November 2012, in which he was asked to review the opinions expressed in his earlier reports having regard to the report prepared by Mr Simmons. In general terms, Mr Wettenhall confirmed his earlier views, subject to some minor matters identified in his third report. 365 In cross examination, Mr Wettenhall was asked various questions about his review of Mr Barnes' reports which set out forecasts for 2008 and 2009. He said that he used an auditing standard in order to test the assumptions and opinions of Mr Barnes in arriving at those forecasts. He said that an auditor could undertake a similar exercise in a real audit which would also involve having discussions with management to test whether their forward earnings were reasonable. He accepted that he had not had any meetings with Mr Barnes personally in order to have similar sorts of discussions in the exercise he carried out. He said he had had no contact with Mr Barnes at all and had simply reviewed his written materials. He accepted that those materials turned on the accuracy of various assumptions made by Mr Barnes, including the level of sales he attributed to various individuals. Mr Wettenhall acknowledged that he had not carried out an independent critical analysis of revenue figures and that he had simply relied upon the figures used by Mr Barnes. 366 I found Mr Wettenhall to be a truthful witness, however, as he implicitly accepted, his evidence relied heavily on Mr Barnes' assumptions being correct, a matter which I will return to below at [520]-[522]. PART D: KEY FINDINGS OF FACT 367 There are several key factual findings which are central to the parties' competing claims. At the risk of some repetition, it is convenient to highlight these key findings in this part of the judgment. I shall also deal here with the respondents' complaints regarding the applicants' discovery. 368 Findings of fact are required in respect of the following core issues: (a) whether Messrs Barnes and Hawksley expressly or impliedly disclosed their role in providing security for the payment of the licence fee; (b) what were the motivations of Messrs Barnes and Hawksley in providing that security; (c) related to (b), did Mr Webb and/or Mr McDonnell exhort the respondents to provide finance for the licence transaction if necessary; and (d) did the executives of BlueFreeway make representations concerning the support that Campaign Master would receive during the term of the SPA and if so, what are their significance? 369 Other important matters in respect of which factual findings are required, including matters going to loss and damage, will be considered separately. (a) Some core findings of fact 370 The applicants say that the respondents were aware that FTI's financial results were not meeting their forecasts and that they were worried as to the consequences for their earn out payments under the SPA if these forecasts were not met. The applicants also emphasise that the respondents were feeling threatened by Mr Webb's plans to promote Traction at the expense of Campaign Master because of the consequence that that would have on FTI's financial results and consequently their earn out. The applicants say that in these circumstances the licence transaction was the only means by which the FTI EBIT 07 would reach the target for the respondents to receive the Additional Payment under the SPA. They say that the respondents deliberately concealed their role in providing finance for the licence transaction as they were concerned that had their role been discovered the licence transaction would not have proceeded. I substantially agree with those submissions, which are supported by the following evidence. 371 By the time the SPA and Management Agreements were signed in late October 2006 it was already clear that the revenue and EBITDA (earnings before interest, taxes, depreciation and amortisation) for FTI which had been provided by Messrs Barnes and Hawksley for the June 2006 Information Memorandum were proving to be unrealistic. Messrs Barnes and Hawksley attributed that situation both at the time and in the witness box to difficulties in hiring suitable sales staff. 372 There is also force in the applicants' submission that the FTI sales force was never constructed adequately by Messrs Barnes and Hawksley during the 2007 financial year. They point to documentary evidence which shows the forecast for the FTI EBIT 07 significantly decreased from their own estimate of $4,229,000 in the Information Memorandum to $1.5 million in February 2007 over the period June 2006 to February 2007 (less than two months after FTI joined the BlueFreeway group). The applicants say that these documents show that by February 2007 Messrs Barnes and Hawksley must have realised that the ordinary or "underlying" EBIT for FTI for 2007 would not reach the critical figure of $2.5 million, which was necessary to trigger additional consideration for them under the SPA. From February 2007, in the context of their dealings with Mr Dhillon and Mr McDonnell concerning the proposed CMUK licence, the fee of $4.2 million generated by that transaction became the only possible source of revenue which could lead to further earn out entitlements for Messrs Barnes and Hawksley by virtue of the financial results for the 2007 financial year. 373 The following figures support the applicants' contention: - EBIT 07 forecast fell from $4,229,000 in the Information Memorandum to $3 million in August 2006 before the SPA was signed, - to $1,167,477 as a result of further forecasting carried out by them in November 2006, - to $2.3 million when the prospectus calculations were reviewed on 6 November 2006, - to $2.2 million in November 2006 in the BlueFreeway prospectus, and - $1.5 million in February 2007 when Mr Barnes revised the forecast. 374 Apparently, the first time Mr Barnes made mention of the CMUK licence to Mr McDonnell was in an email of 26 February 2007, where the potential licence sale was described as a "bluebird". At this stage Messrs Barnes and Hawksley were negotiating with Mr Dhillon without real supervision from Mr McDonnell. At around this time, the board of BlueFreeway noted the faltering performance of FTI by reference to the January operating results. There was a 26% shortfall in the group results against forecast, which was due in no small part to FTI's faltering performance. 375 By 1 March 2007, Messrs Webb and McDonnell were engaged in discussions with Messrs Barnes and Hawksley about a restructure of the earn out provisions of the SPA. Their discussions included a proposal for a new combined sales team which could sell Campaign Master and Traction and to which FTI's existing sale force would be recruited. Although earnings from existing FTI clients would be left with that company, the proposal under consideration involved stagnation of growth in earnings by virtue of sales of the Campaign Master product as new sales were to be attributed to a new central selling company (which later became BlueFreeway Australia Pty Limited). Messrs Barnes and Hawksley were opposed to the proposal because of its effect on their earn out. 376 I accept the applicants' contention that, from March 2007, Messrs Barnes and Hawksley developed a mentality in which they regarded themselves as at odds with Mr Webb because of his ambitions for a "super salesforce" for the BlueFreeway group. They had apparently obtained legal advice as to whether the negotiated terms of the SPA could protect them from a change in the business model of FTI of the type which Mr Webb was now initiating. They had kept private notes and sometime later commenced to record meetings and telephone conversations without the knowledge or consent of the other participants. 377 By the end of March 2007, the terms sheet for the CMUK licence agreement had been prepared. At 11 April 2011, the negotiations for the CMUK licence deal remained as a dialogue between Messrs Barnes and Hawksley on the one hand and Mr Dhillon on the other. In a telephone conversation on 19 April 2007, Mr Hawksley reported to Mr McDonnell as to the licence negotiations with Mr Dhillon. The "governance" issue was at the forefront of Mr McDonnell's mind at this point. 378 On 30 April 2007, Mr Barnes reported to Mr McDonnell that Mr Dhillon "still had quite a few ducks to line up". On 3 May 2007, Mr Dhillon signed the terms sheet which unexpectedly reduced the proposed licence fee to ₤1.5 million. In his covering email, Mr Dhillon apologised for the fee reduction. The terms sheet was not binding and the parties thereafter worked towards execution of the Licence Agreement itself. Messrs Barnes and Hawksley became increasingly anxious concerning what they viewed as Mr Webb's preference for Traction at the expense of Campaign Master. As noted above, Messrs Barnes and Hawksley were secretly recording telephone conversations during this period. 379 At the 4 May 2007 board meeting of BlueFreeway, the details of the Licence Agreement were reported. By this stage it was resolved that the licence fee would be received in one payment prior to 30 June 2007. The deteriorating fortunes of the group and FTI were also noted at that meeting. 380 On 7 May 2007, Mr Hawksley and Mr McDonnell had a lengthy telephone conversation which was recorded by Mr Hawksley without Mr McDonnell's knowledge (the "governance phone call"). The recording was played in Court and there was also a written transcript of it. The conversation is significant for several reasons, including what it reveals regarding (a) Mr Hawksley's concerns at that time to ensure that his earn out was maximised; and (b) Mr McDonnell's genuine concerns to ensure complete transparency and proper governance in the negotiations to finalise the licence transaction. 381 The governance phone call took place in the context of a previous conversation about governance and an email sent earlier that day in which Mr Hawksley expressed his disappointment to Mr McDonnell that Mr McDonnell had agreed with Mr Dhillon to accept a lower price for the licence than that which Mr Hawksley believed he could obtain. Further relevant context to the conversation is the fact that Mr McDonnell had been directed by the BlueFreeway board to become more deeply involved in the negotiations because of the board's concern that Messrs Barnes and Hawksley had a conflict of interest. During this conversation, the following exchange occurred: Mr Hawksley: On the face of it, my bloke doesn't feel that there is a governance issue but I guess he was asking me to be more, a bit more specific on what you were thinking about so that he could give me more, a final opinion on it? Mr McDonnell: If you go back to my comments of yesterday there's not at the moment because everything's been transparent. I suppose the reason I raised it, is I was concerned that particularly at a late stage when you're finalising the deal, is for instance, say you went and had a conversation… Mr Hawksley: Yeah. Mr McDonnell: It didn't get played back through me, with the view to maximising your earn out and that disadvantaged the shareholders and the deal fell over… Mr Hawksley: Yeah [inaudible/I see] Mr McDonnell: You see what I'm getting at? So as I'm saying, we just need, that's why I've been very, very focused the whole way through this to make sure we keep that level of transparency. And as I said to you yesterday the fact that you know, that has been the case as I said, as far as I'm aware. The fact that I've got back to the shareholders with that information and that's what we've agreed on, that's fine. My comment was more about just making sure, that you know, we continue to do that and we don't have any other course, particularly at that stage when I was actually going to the shareholders. If there is something that slipped through the cracks there, that's where someone could say well hang on, no and there was the potential, because you've got to be focused and careful that if you negotiate on the basis of something is good for you but it falls through or it's not good for the shareholders as a group, that's what I'm saying, that's where you need to be careful. Just a friendly warning to make sure that you keep yourself on the right side of the line. Mr Hawksley: Okay so it's just, I guess that's only a, I mean obviously I'm trying to negotiate a higher price just because we want a higher price, not connecting it to my earn out at all. I mean it clearly is and that's unavoidable but I mean I'm certainly not going to put the deal at jeopardy just because my emotions are bruised because Gurjeet fucked me over on the price. 382 Throughout the recorded conversation, Mr McDonnell repeatedly emphasised to Mr Hawksley the importance he attached to maintaining transparency throughout the negotiations and of the negotiations producing an outcome which was in the best interest of the shareholders of FTI, namely BlueFreeway. The following exchange occurred later in the conversation: Mr Hawksley: So is that your only concern around the governance issue Ken? Because you mentioned some other things last week that weren't connected to that at all? Mr McDonnell: Such as? Mr Hawksley: Stuff like, we don't want people looking at this in 12 months time and thinking it was a deal amongst mates or something. Mr McDonnell: No, no, basically what we're looking at is, and it's the same issue and that's why I'm so anal about the level of transparency because normally when these sorts of conflicts things come up and blow up in your face, it's normally not at the time when you're doing it because everyone can rationalise what's being done. It's 12 months down the track, where people look at it and go well hang on, what was the reason for that? And that's why it has to be, it has to be focused, it has to go through the board process, it just can't go through side conversations, otherwise you get into that situation where in 12-18 months time, in the absence of everything else and someone looks at it, they go well hang on, the only reason they would have done that was because of this. And that's where that comment comes in. They are actually related items because it is that period down the track when people try and read into what happened at a particular point in time and that's why I'm so focused on making sure that whatever we do goes back through the board and we do it on the basis of the terms sheet so that there is that level of transparency. 383 Towards the end of the conversation, and after telling Mr McDonnell that he was "well out of my depth in regard to corporate governance as you can well imagine", Mr Hawksley made clear that he was concerned to get a full understanding of any issue which was troubling Mr McDonnell in this context and he said: I'm a simple man and I start worrying all over the place and I'm worried that I might have done something wrong, my earn out's in jeopardy, my employment contract's in jeopardy and all that sort of stuff and all I'm trying to do is win a deal. 384 Mr McDonnell responded by saying: Exactly and that's why I made the point, even when we were talking yesterday. So long as I'm aware of everything that's transpired…. There's no issue. 385 Mr Hawksley then concluded the conversation by saying that he would seek further legal advice on the transparency issue before he spoke to Mr Dhillon by telephone that night. 386 On 8 May 2007, after taking further legal advice, Mr Hawksley responded to Mr McDonnell in an email which was in the following terms: I think my head is clearing!! My advice is this: - there are no issues with governance (sic). Everything we've done and are doing is clearly in the best interests of the shareholders (and indeed has been done as a consequence of instruction from the shareholders in that we (you) have sought verification/instruction/approval of the BF board for every significant step of the deal). - That there is a knock-on personal benefit is an unavoidable contractual reality between me and the shareholders. - However, since you have formally (in writing) stated that you feel there maybe governance issues you should now formally (in writing) either tell me what they are or tell me that there aren't any as you did verbally yesterday. I don't want to make a mountain out of a molehill here but as I explained yesterday, you've got my mind spinning and I'm just seeking assurances that my conduct and future involvement in this deal is not going to cause any issues. 387 The applicants describe this email as "a challenging response to Mr McDonnell to the extent that they [i.e. Messrs Barnes and Hawksley] saw no conflict or difficulty". I agree. 388 On 12 May 2007, and after BlueFreeway's solicitor (Mr Herceg) had raised his concern that the licence deal might be announced but then BlueFreeway might find that the money was not available a few weeks later, Mr Barnes sent an email back which included the following statement: We've been absolutely assured the money is there and I believe them. I take the risk point, but it's not something I think we need to introduce. 389 On 17 May 2007, it was reported to the BlueFreeway board that the proposed licence sale price had increased from £1.5 million to £1.7 million (an increase which had been negotiated between Mr Hawksley and Mr Dhillon). At this time, the financial position of the group, especially FTI, continued to decline and FTI's EBIT for 2007 was now 59% below budget. According to Mr Hawksley, it was around this time that he learned that Mr Tully needed more time to finalise the financing, which prompted him and Mr Barnes to assure Mr Dhillon that, if necessary, they would cover the licence fee which was due for payment by 30 June 2007. 390 The applicants place heavy emphasis on the fact that there are no documents which record this assurance and they contend that this may be consistent with the fact that the respondents intended from an earlier date to finance the transaction. That may well have been the case but it is unnecessary to determine the matter. In any event, they contend, and I agree, that Mr McDonnell was not privy to the "intense discussions" which took place over the weekend of 19-20 May 2007 involving Mr Barnes and/or Mr Hawksley with Mr Dhillon, and Mr Hawksley's separate discussions with Mr Tully. 391 As to the ASX Announcement, the applicants urge that Court to reject the respondents' contention that it was drafted in a way which was intended to mask the significant contribution of the licence sale price to the group's improved result. They say that there is no evidence to support a finding that the board was propping up the share price or was in a state of panic regarding the group's financial performance. They say that if the Licence Agreement had not been signed in time, the announcement would have been made on the basis of the group results excluding the licence fee payment. I accept those submissions. 392 The applicants also say that the respondents were driven by their personal concerns to maximise their earn out payments. I agree. This emerges from the discussions which took place in finalising FTI's budget for 2008, and their resistance to Mr Webb's plan to change the business model because of their concerns of its financial consequences for their earn out in 2008 and 2009, a resistance which is manifest in the proposal document prepared by Messrs Barnes and Hawksley. They stated there that if Mr Webb's plans were accepted they "would most likely lead to the end of FTI as a viable company if licence sales could not be made at a sustainable level". On 12 June 2007 Mr Barnes produced his revised budget for 2008, which forecast a "locked in" EBIT for 2008 of $2.4 million. By June 2007, the respondents knew that the licence fee payment was the only way in which the FTI EBIT 07 figure of $2.5 million could be achieved, thereby securing their earn out, and that Mr Webb's new business model threatened FTI's viability and the EBIT calculations for 2008 and 2009. 393 Matters came to a head in mid-June 2007 when the respondents learned that Mr Tully would not finalise his financing arrangements with CMUK so as to permit payment of the licence fee by the end of that month. Failure to make that payment meant that neither the prospectus forecast nor the threshold of $2.5 million for the FTI EBIT 07 would be met and the Licence Agreement could be terminated. Moreover, having decided to fund the licence fee themselves, the respondents then took steps to suppress their role in the funding arrangements, as is reflected in the choice of Mr O'Sullivan as director of CMUK (Aust) and the absence of any formal documentation between the respondents and either Mr Dhillon or Mr Tully which protected them in the event of default. I accept the applicants' submission that the financing arrangements were orchestrated by the respondents in a manner which was calculated to suppress the truth because they must have perceived that, if their true role was revealed either then or later, the BlueFreeway board would have regarded their role as financiers as completely unacceptable. 394 From the respondents' viewpoint it was essential during the period of the negotiations leading up to the Exit Agreement that their role as financiers be kept secret, all the more so in circumstances where FTI's business situation continued to deteriorate during the latter half of 2007. I accept the applicants' contention that this conduct enabled the respondents to secure contractual benefits under the Exit Agreement which otherwise would not have occurred. The relationship between the respondents and the applicants had reached such a point that it was inevitable that there would be a parting of the ways, leaving the only issue as the terms on which that would take place and, in that context, it was vital to the respondents that the applicants not know of their role in financing the Licence Agreement. 395 Messrs Barnes and Hawksley submit that it was "no secret" that they provided finance for the transaction. They say that Messrs Webb and McDonnell were either aware or ought to have been aware that they were providing finance, or were likely to provide finance, having regard to the historically close financial relationship between FTI and CMUK, the participation of Messrs Webb and McDonnell in negotiations with CMUK and the conversations which they all had concerning financing of the transaction about which they gave evidence. 396 In particular, Messrs Barnes and Hawksley emphasise that Mr Webb exhorted them to do "whatever it takes", which they say they understood to include them providing finance for the transaction to ensure that the licence sale would be completed in the 2007 financial year. They say that they acted in response to this exhortation. In this regard, they point to the following evidence: Mr Hawksley asserts that he said to Mr Webb, in the presence of both Mr McDonnell and Mr Barnes that "at the end of the day he's [Mr Dhillon] very friendly with two rich blokes in Australia who have just come into ten million dollars"; Mr Barnes recalls a similar conversation and asserts that Mr Hawksley said "Anyway, if he [Mr Dhillon] doesn't have rich friends or relatives he knows a couple of blokes in Australia who have recently come into a lot of money"; in response to which everyone laughed and Mr Webb replied "Well, let's hope it doesn't come to that!"; the respondents submit that even though Mr McDonnell cannot recall the statement made by Mr Hawksley does not deny that it was said, accepting that Mr Webb told the respondents to do "whatever it takes". They say that there is no evidence to directly contradict Messrs Barnes and Hawksley's evidence in this regard, highlighting that Mr Webb was not called by the applicants; Mr Barnes claims that Mr Webb said on a number of occasions to "do whatever it takes" to finalise the deal; Mr Hawksley's evidence that Mr McDonnell said to Mr Hawksley in February 2008 "I thought you would have been heading over to the UK to protect your investment in Gurj's business"; and they also challenge Mr McDonnell's credibility, which I have dealt with above at [133] – [188]. 397 Messrs Barnes and Hawksley contend that the evidence does not support the applicants' allegations that they acted with the aim and purpose of advancing their position and increasing their claims against BlueFreeway under the SPA. Messrs Barnes and Hawksley say that they acted in response to Mr Webb's exhortation to "do whatever it takes" to ensure the licence transaction was completed. They say they were indifferent as to whether the licence fee would be paid in the 2007 or 2008 financial year, saying that the benefits they expected in the ordinary course under the SPA over its term were of an equivalent order with or without the licence transaction. They emphasise that the negotiations for the Exit Agreement to amend the SPA were not yet underway and hence they could not have been motivated by that agreement. They refer to Mr Barnes' evidence that he expected that they would be better off if the licence transaction occurred in the 2008 financial year rather than the 2007 financial year. They say that the applicants' alleged aims and purposes are inconsistent with this indifference. They say the only "logical and rational" explanation is that they provided short-term security to achieve the timing demanded by Messrs Webb and McDonnell rather than to suit their own financial interests. I do not accept these contentions. I find that the respondents were very much driven by a concern to secure the Additional Payment and their earn out. 398 Messrs Barnes and Hawksley dispute the applicants' assertion that they were threatened by Mr Webb's plans for Traction and that this motivated them to negotiate an early exit (which included the Additional Payment). They accept that they were concerned about Mr Webb's plans for Traction but say that it would have been in their interests to continue under the SPA and to enforce provisions which protected the Campaign Master product. I do not accept that contention. The respondents willingly negotiated with Mr Webb about the terms of their departure. (b) Discovery issues raised by the respondents 399 The respondents ask the Court to draw adverse inferences because they claim that the applicants failed to take prompt and appropriate steps to preserve the safe custody of various documents, including the electronic email files of Mr Webb and themselves. They also complain that the relevant FTI server was wiped or destroyed after the contemplation and commencement of the proceedings and that no explanation has been offered by the applicants. The respondents allege that Mr Webb deliberately deleted his mail box on leaving the group and that the applicants took inadequate steps to preserve many documents even though the proceedings were threatened. They say that the relevant information has been lost and that the Court should respond as follows. First, where the respondents give evidence of their recollection of documents which existed at the time but have not been discovered by the applicants, that evidence should be accepted "without hesitation". Secondly, they say that because of the "document destruction", the Court should more readily drawn inferences adverse to the applicants regarding the level of knowledge or belief on the part of Messrs Webb and McDonnell concerning the respondents' funding role. 400 For the following reasons, I am not satisfied that the adverse findings or response urged by the respondents should be drawn. First, Mr Webb is not a witness in the proceeding in circumstances where the applicants attempted without success to have him participate. It was open to the respondents to subpoena him if they had wished. I am not prepared to make a finding against Mr Webb that he deliberately destroyed documents without him having an opportunity to be heard on such a serious allegation. I also reject the respondents' submission that Mr Webb's emails have not been produced. Those emails were stored on BlueFreeway's servers, not FTI's. They were not located in the first wave of discovery but they were in the second wave, as Mr Puckrin's evidence demonstrated. 401 Secondly, insofar as the email electronic files of Messrs Barnes and Hawksley and other allegedly missing documents are concerned, as I indicated above, I accept Mr Salmon's evidence on those matters. He described how shortly after Messrs Barnes and Hawksley left the group in November 2007, FTI administrative personnel were transferred from FTI's office in St Leonards to the City (Bligh Street). New computers were issued to the transferred staff and they were asked to transfer to the new system all electronic data originally shared on the FTI servers at St Leonards, which included email files. Because the respondents had left FTI at this time, their documents were not transferred as part of this process. I do not consider that any blame should attach to the applicants in this regard. 402 Mr Salmon also described his role in the discovery process for the CMUK-FTI proceedings in 2008. Mr Salmon described how, after a request from Mr Sean Newell, he sought to recover documents from the old FTI servers. But that search was limited to emails which were sent by or to nominated people at the CMUK offices in England. Accordingly, emails between Messrs Barnes, Hawksley, Webb or McDonnell were not caught by that relatively limited search. I accept the applicants' submission that, in these circumstances, there is no basis for the respondents' claim that documents located in the 2008 proceedings have been withheld. 403 I am not satisfied that the respondents have demonstrated that any relevant documents have not been produced and, accordingly, I am not prepared to respond as sought by them. PART E: CONSIDERATION OF APPLICANTS' CLAIMS 404 It is convenient to now consider at greater length the applicants' claims, which can broadly be separated into their claims in contract, breach of fiduciary or statutory duties owed independently of contract and, finally, misleading or deceptive conduct contrary to s 42 of the FT Act. (a) Contract 405 As noted above in [41]-[42], the applicants' case in contract turns on the Court accepting their argument that certain terms requiring disclosure should be implied in the SPA, Management Deed and/or Exit Agreement. The term which the applicants suggest should be implied in the SPA is that Messrs Barnes and Hawksley were bound to disclose to BlueFreeway all information known to them which might become relevant to the calculation of the FTI EBIT 2007. Although the applicants also pleaded some other implied terms in both the Management Deed and the Exit Agreement, in their closing address the applicants' submissions were confined to the implied term concerning disclosure in the SPA. For the following reasons, I accept the applicants' case in respect of that particular suggested implied term. (i) Implied term in the SPA 406 The respondents gave heavy emphasis to the proposition that, outside areas involving the doctrine of uberrimae fidei (such as in insurance or partnership agreements), there is an "orthodox principle" that no duty of disclosure is imposed upon contracting parties. They cited no authority in support of that sweeping and unqualified proposition and I consider that it is expressed too absolutely. Focusing on insurance contracts for the moment, while it appears settled that there is no general duty to disclose material facts after a contract of insurance is entered into, different considerations arise if the contract of insurance contains express terms which require disclosure of information to the insurer. In such a case, a good faith obligation may attach to the supply of such information, as has been recognised in cases such as NSW Medical Defence Union v Transport Industries Insurance Co Ltd (1985) 4 NSWLR 107 and GIO Insurance Ltd v Leighton Contractors Pty Ltd (1995) 9 ANZ Insurance Cases 76,305. 407 As is evident from the applicants' formulation of the suggested implied term, it is not expressed as an implied duty of good faith. Accordingly, it is unnecessary for me to become involved in the ongoing debate as to whether such a duty is inherent in all commercial contracts or, if it is not, whether in the particular circumstances a duty of good faith should be implied (see the discussion by Bergin CJ in Equity in Insight Oceania Pty Ltd v Philips Electronics Australia Limited [2008] NSWSC 710 at [168]-[175], noting that an appeal from her Honour's judgment was dismissed in Philips Electronics Australia Limited v Insight Oceania Pty Ltd [2009] NSWCA 124). 408 In my view, determination of the question whether the suggested implied term should be read into the SPA turns on the application of well established principles laid down in cases such as BP Refinery at 282-3 and Codelfa at 347 and their application to the relevant circumstances here. Adopting that approach, I find for the following reasons that the suggested term should be implied. 409 First, it must be acknowledged at the outset that it is well-established that courts are generally reluctant to imply terms in commercial agreements (see, for example, Codelfa at 346) and the applicants carry the onus of proving that such a term should be implied. It must also be accepted that this onus is more difficult to discharge in the case of detailed commercial contracts which are the product of extensive negotiations and in which legal advisers were deeply involved, as is the case here. In Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, the High Court approved the following observations of Deane J in Hawkins v. Clayton (1988) 164 CLR 539 at 573: … where it is apparent that the parties have not attempted to spell out the full terms of their contract, the court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case... . 410 Secondly, I consider that the suggested implied term is necessary to give business efficacy to the SPA. In particular, I consider that the term satisfies the following well-known observations on this issue made by Bowen LJ in The Moorcock (1889)14 PD 64 at 68: In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. 411 Under the SPA, both BlueFreeway and the respondents were obliged to exchange specified financial information so that an accurate EBIT could be determined for the purpose of then calculating any entitlement on the part of the respondents to receive the Additional Payment or subsequent earn outs. Given their senior management roles with FTI and Gang of 4 the respondents had considerably greater access to, and knowledge of, sales and related information bearing upon FTI's performance than BlueFreeway. Having regard to these and other matters which I will discuss immediately below, and to the purpose for which the respondents were to provide financial information to BlueFreeway, I consider that the SPA would lack business efficacy if the suggested term was not implied. 412 In my view, the officious bystander would have appreciated as at 24 October 2006 (being the date of execution of the SPA), that the EBIT performance of FTI over the next three years was a matter of central importance in the transaction because of its bearing upon the calculation of any Additional Payment to which Messrs Barnes and Hawksley and their associates were entitled. Furthermore, it is evident from the terms of the Management Agreement, a document which complemented the SPA and was executed at the same time, that Messrs Barnes and Hawksley would enjoy a large degree of independence in the running of FTI's business over that period and that they may become aware of information which might be relevant to the calculation of the FTI EBIT 07 and which was unknown to BlueFreeway or its representatives. For example, cl 3.5 of the Management Agreement provided that the business carried on by FTI shall be undertaken in accordance with an Operations Plan and the Budget (as defined therein) under the joint direction of Messrs Barnes and Hawksley (other than for decisions which, under cl 3.3, required what was described as a "Majority Decision of Directors", a concept which was also defined therein). 413 The independent and important roles performed by Messrs Barnes and Hawksley as senior executives of FTI is further underlined by the provisions of their respective Executive Service Agreements, which also formed part of the suite of agreements executed in conjunction with BlueFreeway's acquisition of all the shares in FTI under the SPA. Mr Barnes was engaged by FTI in the position of managing director, while Mr Hawksley was employed as sales and marketing director. Subject to the Management Deed and any directions by the board, both were required under cl 3.1 of their respective Executive Service Agreements to undertake all their duties and responsibilities consistent with the role of joint general manager of FTI (and Gang of 4). Moreover, under cl 3.4 of their respective Effective Service Agreements, each was obliged to report directly to the board and to give prompt and full information about their conduct of the business of the companies to the board. It is evident from these provisions that the parties plainly recognised that their ongoing relationship was based on mutual trust and close cooperation. 414 For what it is worth (noting that the issue is to be determined objectively and not by reference to the subjective intentions of the parties), both Messrs Barnes and Hawksley also recognised that their ongoing relationship with the other parties to the relevant agreements during the three financial years following the prospectus and BlueFreeway's acquisition of FTI, placed the parties in a position where considerations referable to Earn Out calculations were vital. Mr Hawksley acknowledged in cross examination that honesty between the parties as to matters affecting EBIT calculation was fundamental to their commercial relationship. 415 It seems to me that the matter may be tested this way. Would the officious bystander, knowing as at the date of the execution of the SPA that there was a possibility that Messrs Barnes and Hawksley would be involved in the financing of a licence sale in the manner which occurred, consider that they were obliged under the SPA to disclose their involvement to BlueFreeway in view of the implications of that involvement for the calculation of the EBIT and Additional Payment? In my view, there can be little or no doubt that the officious bystander would consider that there was such an obligation in those circumstances. Contrary to the respondents' submission, I do not consider that the SPA is capable of a sensible operation in the absence of such an implied term. In particular, for the reasons immediately given below I do not consider that the express terms in the SPA relating to the reporting of financial information to which the respondents drew attention are sufficient to give business efficacy and a sensible operation to that agreement. 416 Thirdly, the suggested implied term in the SPA is both supplementary to and not inconsistent with express terms in that agreement which deal with Messrs Barnes and Hawksley's obligations to provide BlueFreeway with financial information to enable an accurate calculation of EBIT. Clause 1.1 of Schedule 5 (which was headed "Operational Agreement"), imposed various obligations on Messrs Barnes and Hawksley (which were described as "Operational Requirements"), including reporting obligations to provide all report financial information. In particular, they had an obligation to provide BlueFreeway with a report detailing "Sales" segmented by activity, as defined by BlueFreeway, to be remitted on the first working day of each new month post completion of the SPA and in a form and template as provided by BlueFreeway. The respondents were also obliged by the preamble to Schedule 5 to: fulfil and execute the Operational Requirements in a proper, efficient and professional manner; and to assist in good faith in the integration of the operations of the Company within BlueFreeway. 417 Although these express terms do not explicitly require the respondents to disclose information relating to their personal involvement in financing a transaction for inclusion in the calculation of FTI's EBIT, that is scarcely surprising because it is improbable that the parties ever turned their minds to that possibility. The suggested implied term fills that gap in the SPA. It provides further appropriate content to the respondents' express obligations to provide BlueFreeway with monthly reports detailing sales information, a requirement which is an "Operational Requirement" as defined in Schedule 5 and which must therefore (along with all other Operational Requirements as defined in that Schedule) be fulfilled and executed "in a proper, efficient and professional manner". The reference in that phrase to "proper" is important. It sits uncomfortably with the respondents' primary contention that they were under no contractual obligation to inform BlueFreeway that they personally had financed a sales transaction in the amount of approximately $4 million, which meant that they were entitled to receive an Additional Payment of approximately $16 million to which they would not otherwise have been entitled. 418 It is important to emphasise that the suggested implied term does not operate as a freestanding obligation but rather complements and attaches to express terms in the SPA. In my view, the position may be different if there were no express contractual terms relating to the respondents' obligation to provide financial information to BlueFreeway to enable inter alia an accurate calculation of EBIT. In those circumstances, it is unlikely that the Court would imply a term which imposed a freestanding duty of disclosure. 419 I also reject the respondents' submission that the suggested implied term is not clearly necessary in order to make the SPA work or to avoid an unworkable situation because the preparation of the Earn Out Accounts can readily take place on the basis of the information provided pursuant to the specified reporting regime. The reporting regime which is reflected in the various express terms in the SPA to which the respondents have drawn attention do not have the effect of compelling them to disclose their role in funding the licence fee, notwithstanding that their involvement was critical to the Licence Agreement being executed by 30 June 2007 and thus being taken into account as a significant component of the FTI's EBIT 07. It may be assumed that one of the reasons why this situation was not covered by the various express terms constituting the reporting regime was the fact that no one contemplated the possibility of these events occurring when the SPA and related agreements were executed. Consequently, the occasion did not arise for the matter to be dealt with expressly. BlueFreeway was entitled to be told about the respondents' role in financing the transaction so that it could consider and determine its propriety. When viewed through the eyes of the officious bystander, however, and imputing to that person knowledge of the circumstances which occurred, I consider that the suggested implied term should be accepted. 420 Fourthly, and arising from the findings expressed above, I consider that the term is of such a character that it meets the requirement that it be "obvious" in the sense described by Mackinnon LJ in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227. I reject the respondents' submission that it cannot be said that both parties would have consented to the inclusion of the suggested term if it had arisen for consideration. 421 Fifthly, in my view and contrary to the respondents' position, the applicants' formulation of the suggested implied term demonstrates that it is capable of clear expression and is reasonably certain in its operation. In particular, I do not accept the respondents' contention that the phrase "which might become relevant" in the suggested implied term is vague and creates an obligation of uncertain breadth because it is said that it would require a constant review of a mental state against a test involving a possibility of relevance. The suggested implied term is formulated by reference to an obligation to disclose all information which is known to the respondents which might become relevant to a particular matter, namely the calculation of the FTI EBIT 07. The methodology for calculating that figure is set out in some detail in the SPA. The calculation has to be made at a particular point in time and I consider that the reference in the suggested implied term to information which is known to Messrs Barnes and Hawksley and might become relevant to that calculation simply reflects that chronology. 422 Sixthly, I do not consider that the suggested implied term contradicts any express term in the SPA. I do not accept the respondents' submission that there is an inconsistency between the suggested implied term and cll 4.3(c), (e) or 5.2(d) of the SPA. The first of those provisions obliged the Sellers (which included the respondents) to prepare accounts and forecasts for specified financial years, but that was not an ongoing obligation which had to be performed during the period to which the Additional Payment provisions related. Rather, the obligation under cl 4.3(c) to prepare particular accounts and forecasts was limited to the period preceding the proposed float of the BlueFreeway group. The obligation under cl 4.3(e) of the SPA to provide an explanation and information upon request was similarly confined. Both provisions were directed to facilitating preparation of the proposed prospectus for the initial public offering in relation to BlueFreeway and were not intended to have a continuing operation beyond that event. 423 Nor, in my view, did cl 5.2(d) have a continuing obligation beyond the completion date for the sale and purchase of the shares in FTI and Gang of 4. The effect of that clause was to oblige the Sellers to deliver ledgers, journals and books of account relating to FTI and Gang of 4 to BlueFreeway on completion of that sale and purchase transaction and did not have any enduring operation beyond that point. 424 Nor do I accept the respondents' contention that there is an inconsistency between the suggested implied term and the express provision in cl 1.1 of Schedule 5 of the SPA, which obliged the Sellers to provide the Buyer with "other financial and operational reports as reasonably requested by the Buyer". It is difficult to see how that provision has any scope to operate in circumstances where the BlueFreeway board is not aware of any particular conduct or action which might otherwise trigger such a request being made. In contrast, the suggested implied term simply operates by reference to the respondents having knowledge of a particular matter which might become relevant to the calculation of the EBIT for 2007 and requires no knowledge or suspicion on the part of BlueFreeway. In my view, the suggested implied term appropriately gives effect to that obligation on the part of the respondents to disclose such information in circumstances where they alone are privy to the information relating as it does to their conduct and activities which might become relevant to the EBIT calculation. Moreover, having regard to those matters I do not accept that the term is "one-sided". 425 The respondents also rely upon the boilerplate provisions in cll 15.11(a) and (c) (see [52] above) as being inconsistent with the suggested implied term. I disagree. Insofar as the entire agreement clause is concerned, it is well settled that such a clause does not operate to exclude the implication of specific terms to give business efficacy to a contract unless implied terms are expressly referred to (see Hope v R.C.A Photophone of Australia Pty Ltd (1937) 59 CLR 348). The position is similar in respect of cl 15.11(c): see, for example, Hart v MacDonald (1910) 10 CLR 417. Breach and loss 426 Having accepted the suggested implied term in the SPA, it is convenient to now deal with the applicants' claim that it was breached and that they suffered loss. 427 The respondents contend that there was no breach of the alleged obligation because, although they accept that the money received in respect of the Licence Agreement was "earnings" and had to be included in the FTI EBIT 07 calculation, they say that the source of funding did not affect whether or not revenue was to be counted towards EBIT under the terms of the SPA. That is true, but it fails to grapple with BlueFreeway's alternative claim that, if it had known of the respondents' role in guaranteeing the financing, it would have negotiated to pay the respondents substantially less than $16 million and it claims damages for loss of that opportunity. 428 In failing to disclose their involvement in securing the finance for the Licence Agreement, I find that the respondents breached the implied term of the SPA to disclose to BlueFreeway all of the information which might become relevant to the calculation of the EBIT. 429 I deal further with the question of whether the applicants suffered a loss of opportunity below at[524] - [547] in the context of misleading or deceptive conduct, where I will also deal with damages. (ii) Implied terms in the Management Deed and Exit Agreement 430 As noted above, the applicants did not in their closing submissions advance any substantive argument in favour of the implication of any of the suggested terms in either the Management Deed or the Exit Agreement. In the case of the Management Deed, in their closing written submissions the applicants say the suggested implied term in the SPA concerning disclosure also applies to the Management Deed. I reject that contention. No such implied term concerning disclosure was pleaded in respect of the Management Deed. 431 The only suggested implied term which the applicants' plead was breached in relation to the Management Deed is a term that the respondents would disclose to the BlueFreeway Director (as defined) any matter of which they had knowledge relevant to the exercise of voting rights pursuant to cl 3.3 of the Management Deed. For the following reasons, I do not accept that pleaded claim: (a) I do not consider the suggested implied term necessary to give the Management Deed business efficacy. That agreement was fundamentally a power-sharing arrangement. It was not concerned with financial matters such as how EBIT or any Additional Payment was to be calculated. Those matters were dealt with in the SPA. I accept the respondents' submission that the Management Deed is effective and capable of sensible operation without the suggested implied term having regard to the subject matter of the Management Deed, which is very different from the SPA; (b) I am not persuaded that the suggested term is reasonable or equitable having regard to the nature of the duty it would entail; (c) I am not persuaded that the suggested term satisfies the requirement that it be so obvious that it goes without saying; and (d) in circumstances where, given the terms of cl 2 of the Management Deed, neither Mr Barnes nor Mr Hawksley was required to be a director of FTI, the suggested implied term would be inconsistent with the express terms of that agreement. 432 In relation to the Exit Agreement, the suggested implied term is that Messrs Barnes and Hawksley had disclosed to BlueFreeway all information relevant to the calculation of the FTI EBIT 07. In my view, for the following reasons, no such term should be implied in the Exit Agreement. 433 First, it is important to note that, in contrast to the position with the SPA, where the suggested implied term operates in the performance of the parties' agreement, the suggested implied term in the Exit Agreement would create an obligation of disclosure before an agreement was entered into. The relevant principles were described by Gleeson CJ, Gaudron and Gummow JJ in Concut Pty Ltd v Worrell (2000) 176 ALR 693 at [36]-[37] in the following terms: In Bank of Credit and Commerce International SA v Ali, Lightman J dealt with this section of Lord Atkin's speech and said that Bell v Lever Brothers, Ltd was authority for the following propositions: The current law as generally understood may be stated as follows: that (1) (subject to one exception) neither party to a contract is obliged to disclose facts material to the decision of the other party whether to enter into that contract; (2) the exception is limited to contracts which are uberrimae fidei; (3) neither contracts of employment nor contracts of compromise (unless by way of family arrangement) fall within this exceptional category; and (4) neither the employer nor the employee, once in contractual relations, are under a duty as such to disclose to each other their own breaches of contract. Proposition (4) may require qualification to allow for obligations of disclosure which attend a fiduciary duty, if informed consent is to be obtained to what otherwise would be a breach of that duty. Further, particular problems arise respecting the contracts of compromise identified in proposition (3) by his Lordship where there is a question respecting the actual or apparent authority of counsel to enter into such a compromise. In Harvey v Phillips, Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ said that a court did not appear to possess a discretion to rescind or set aside such a compromise and continued: The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. Questions respecting non-disclosure of a material fact where disclosure is required may also arise where the complaint is one of contravention of s 52 of the Trade Practices Act 1974 (Cth). None of these questions arises here (sic). (Footnotes omitted). 434 I am not satisfied that the suggested term should be implied into the Exit Agreement. The suggested term is not essential to give the Exit Agreement business efficacy. As will emerge below, different considerations arise under the applicants' separate complaint that the respondents' non-disclosure was misleading or deceptive and contravened s 42 of the FT Act. The significance of the differences between non-disclosure in contract law as opposed to the law relating to statutory prohibitions such as s 42 of the FT Act was emphasised in the extract from Concut set out above. (b) Breach of fiduciary and statutory duties 435 Although the applicants pressed their claims of breach of fiduciary duty and other statutory duties, they devoted little time to these causes of action in their closing address. They candidly acknowledged that an important issue for determination is whether those duties extend to circumstances in which, although FTI gained a benefit by receiving the licence fee, that benefit was at the expense of an increased obligation on the part of its parent, BlueFreeway, to pay additional monies to the respondents under the SPA. It is evident that the applicants were aware of the difficulties presented by the fact that any duties owed by Messrs Barnes and Hawksley as directors of FTI were duties which were owed to that company and not to the parent company, of which they were not directors. 436 I accept the respondents' submission that this has fatal consequences for BlueFreeway's claim that it is entitled to damages for breach of such duties. The fundamental difficulty with the applicants' claims of breach of duty is that the alleged fiduciary and other statutory duties were all owed to FTI and not to BlueFreeway and only BlueFreeway suffered any arguable loss as the result of any breach of such a duty. There is no allegation that the respondents owed any duty of a fiduciary or statutory nature to BlueFreeway (as opposed to FTI). Nor did the applicants plead that FTI itself suffered any loss as a result of any such breach (as opposed to BlueFreeway). When FTI received the payment for the licence fee, it was passed through to its parent. 437 This being a complete answer to this aspect of BlueFreeway's claim for damages, I do not consider that it is necessary to determine whether there was any breach of fiduciary or statutory duty by the respondents viz a viz FTI because no such case is pleaded and it is not alleged that FTI suffered any loss or damage. (c) Misleading or deceptive conduct (i) The respondents' pleading objections 438 As noted above, the respondents claim that the applicants presented a new case of misleading or deceptive conduct in their closing address because the claim is now advanced as one of "failing to correct an impression earlier made", i.e. having told BlueFreeway that CMUK had the funds to pay the licence fee (implicitly with assistance from a third party financier), Messrs Barnes and Hawksley did not subsequently inform BlueFreeway that they had stepped in and procured the finance for CMUK when the third party financier failed to commit in time to financing the transaction. The respondents say that this case is not reflected in either the first or second representations as pleaded by the applicants. They emphasise the need for clear pleadings of allegations of misleading or deceptive conduct, including where silence or non-disclosure is relied upon, as recently reinforced in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at [5] per French CJ and Kiefel J (Miller). 439 I reject the respondents' pleading objection for the following reasons. Although the applicants' pleading regarding this cause of action is not expressed as clearly and ideally as it might be, I consider that it was sufficient to put the respondents on notice that it raised a claim of misleading or deceptive conduct because of the failure to correct an impression which had been earlier made by the respondents' conduct. That is evident from the following analysis of the relevant paragraphs of the further amended statement of claim, noting in particular the significance of paragraph 12C. 440 Paragraph 15AC of the further amended statement of claim is in the following terms: The respondents' conduct pleaded in paragraphs 12B, 12C, 15A and 15AB, was misleading or deceptive or likely to mislead or deceive because it represented to the applicants that the Licence Fees had been paid to the first applicant by CMUK ("Second Representation"). 441 Paragraph 12B set out the steps which were taken by the respondents, without the knowledge or consent of the applicants, to procure the financing for the transaction. Paragraph 12C, which is one of the paragraphs referred to as constituting the second representation, is also important. It states: "The respondents did not disclose to the first applicant the fact that they themselves had procured and guaranteed payment of the Licence Fees". In my view, this provides an adequate pleaded basis for the applicants' case of failure to correct an impression made earlier. 442 The respondents also complain that the pleading is deficient because it fails to clarify whether the allegation is that they represented to the applicants that CMUK itself had the capacity to pay the licence fee, i.e. without the need for any borrowing, or whether they represented that CMUK could pay the licence fee with money borrowed from a third party. Again, the pleading may not have been ideal but, in my view, the applicants' case as pleaded and presented left the respondents in no doubt that it was the latter formulation which was being asserted. Viewed in context, the allegation that the respondents represented that CMUK itself had the capacity to pay for the licence carries with it two reasonable implications. First, that in common with many commercial transactions, borrowing may be involved from a third party. The second implication, which flows from the first, is that any such borrowing did not involve the respondents. 443 Moreover, as the evidence filed on behalf the respondents relating to this issue reveals, that is the way in which the respondents approached the matter and, notwithstanding their formal submission that they were simply responding to the case as pleaded, they were not prejudiced. (ii) Some relevant legal principles 444 Many of the relevant principles relating to a claim of misleading or deceptive conduct based on non-disclosure or silence were recently addressed by French CJ and Kiefel J in Miller at [14]-[23]. They may be summarised as follows (omitting case references): (a) in determining whether there has been a contravention of a provision such as s 42 of the FT Act, it is necessary to determine whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive; (b) for conduct to be misleading or deceptive it is not necessary that it convey express or implied representations and it is sufficient that it leads or is likely to lead into error; (c) as the Full Court found in Demagogue Pty Ltd v Ramensky, statutory prohibitions on misleading or deceptive conduct may achieve consequences and remedies which differ from those which are available under the general law; (d) in cases involving non-disclosure of information, all relevant circumstances and context are to be considered, including the knowledge of the person to whom the conduct is directed, the existence of common assumptions and practices in the relevant context and whether the circumstances are such as to give rise to a reasonable expectation that if some relevant fact exists it would be disclosed. However, the notion of a "reasonable expectation" is unnecessary in a case involving a false representation where the undisclosed fact is the falsity of the representation; and (e) as a general proposition, a statutory prohibition in the nature of s 52 of the TP Act, does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. Accordingly, such a provision does not oblige a party to such negotiations to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence. 445 It appears that the statements made by French CJ and Kiefel J in Miller were primarily directed to non-disclosure in commercial negotiations preceding the parties entering into an agreement, hence they have direct relevance to the applicants' claim of misleading or deceptive conduct relating to the Exit Agreement. Their Honours' analysis may also have some bearing upon a claim of misleading or deceptive conduct arising from non-disclosure which arises in the performance of an agreement which already exists. The analysis reaffirms that merely because there is no duty of disclosure at common law or in equity does not mean that in an appropriate case silence or non-disclosure is not actionable under a provision such as s 42 of the FT Act. However, although there is no requirement that there be an independent duty to disclose, it is unlikely that silence will amount to misleading or deceptive conduct unless, in the particular circumstances, there is a reasonable expectation that a relevant fact will be disclosed if it exists and is known only to the other party. 446 As the respondents point out, there is a two-step analysis required in assessing whether conduct is misleading or deceptive in respect of either s 42 of the FT Act or its Commonwealth analogues. That analysis was helpfully described by Gordon J in Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470 at [14]-[15]: The relevant legal principles have been well traversed by Australian courts. A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [105]; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] ATPR 42-000 at [18] per Dowsett J (with whom Jacobson and Bennett JJ agreed) and Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] ATPR 42-106 at [37]…. Second, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a "quintessential question of fact": Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459 at [49]. (iii) The first representation 447 The first representation is that Messrs Barnes and Hawksley falsely represented to the applicants that CMUK itself had the capacity to pay the licence fee to FTI (implicitly, with money borrowed from a third party). The evidence establishes that, on several occasions, the alleged representation was made by one or other of the respondents. Those occasions include the meeting held on 6 March 2007 which was attended by the respondents, Mr McDonnell and Mr Webb. Mr McDonnell was then a director of each of the applicant companies. Mr McDonnell gave evidence that at the meeting held some time in March 2007, one or other of the respondents said that Mr Dhillon had an investor who was prepared to pay a perpetual licence for the UK, Ireland and India. I accept that evidence. It is substantially corroborated by Mr Hawksley's own diary note of the meeting (see [460(b)] below). For reasons which are set out at [133]-[188] I reject the respondents' challenge to Mr McDonnell's credibility both generally and on this specific issue. 448 I also reject the respondents' further submission that Mr McDonnell did not in his evidence identify any representation as pleaded. His evidence which is described immediately above plainly does identify the representation. 449 Other evidence corroborates what Mr McDonnell says he was told. On 18 May 2007, Mr Dhillon sent an email to Mr McDonnell, which was copied to both Messrs Barnes and Hawksley, in which he attached some proposed amendments to the draft Licence Agreement. In obvious response to pressure which Mr Dhillon thought Mr McDonnell was applying on him to finalise the transaction promptly, Mr Dhillon wrote: I understand the time pressure from your side and I am doing the best I can, but you must remember I am also finalising my loan agreement and these things take time. I need to make sure they are tied in together as I do not want to find myself in a position that I sign the agreement before finalising the final details of the loan agreement. I am sure you can understand my position. 450 This is a clear additional reference to a third party financier, who was not either Messrs Barnes or Hawksley. Although the representation there was made by Mr Dhillon – and not by the respondents – the email is consistent with Mr McDonnell's evidence that, at all times after the relevant March meeting at which he was told about Mr Dhillon's investor by either Mr Barnes or Mr Hawksley, he believed that there was such an investor and that it was not either of them. 451 To similar effect, Mr Barnes gave evidence of the meeting held on 6 March 2007 in which the licence sale was discussed between the respondents and Mr Webb and Mr McDonnell. He recalled Mr Hawksley saying that they had had preliminary discussions with Mr Dhillon about CMUK purchasing a Campaign Master licence "provided it could find the necessary investors". Any person hearing that statement from Mr Barnes would understand it to be a reference to obtaining finance from a third party investor, who was not either Mr Barnes or Mr Hawksley. 452 Other relevant evidence on this issue includes Mr Barnes' evidence that, in a telephone conversation with Mr McDonnell on 30 April 2007, he updated Mr McDonnell on progress in finalising the transaction. He says that he told Mr McDonnell that he believed that Mr Dhillon "still hasn't finalised finance, although there was no suggestion that it wouldn't get done or was at risk". And in a later conversation they had on 2 May 2007, Mr Barnes says that he told Mr McDonnell that, after speaking with Mr Dhillon, Mr Dhillon's "investor" was not prepared to pay the £2.45 million for the licence which had been agreed upon at that point. 453 The respondents also submit that there is no evidence of reliance by the applicants on the first representation. I disagree. As a director of all the applicant companies, Mr McDonnell gave evidence, which I accept, that from March 2007 onwards he believed that CMUK was obtaining finance from an external investor and if he had known that Messrs Barnes and Hawksley had financed the transaction, he would have brought the matter to the attention of the BlueFreeway board and opposed execution of the Exit Agreement. 454 The respondents further submit that if the Court found that the pleaded first representation was made, it should find that it was not misleading or deceptive because any such representation was truthful at the time that it was made having regard to Mr Tully's interest in providing the finance. In [15C] of the further amended statement of claim the applicants plead that the first representation was false on the basis that CMUK did not have the capacity to pay and did not itself pay the licence fee. 455 Although the first representation was in fact made, I do not consider that it was false at the time that it was made because, in March 2007, it was in fact the case that Mr Tully was the likely external financier to CMUK for the proposed licence transaction. I am not satisfied that the evidence establishes that the respondents always intended to finance the transaction. However, the first representation still forms an important part of the context for the applicants' allegation of misleading or deceptive conduct, which is based on the respondents' failure to disclose their subsequent involvement in procuring finance for the transaction. The earlier position changed when they told Mr Dhillon over the weekend of 19-20 May 2007 that they would fill the void created by Mr Tully's unwillingness to commit to providing the finance to CMUK before the proposed public announcement of the transaction early the following week. At that time, they said that they would provide the finance if necessary. Their assurance was critical to Mr Dhillon's decision to proceed with the Licence Agreement, which was executed on 22 May 2007 and announced shortly thereafter. In the events which then transpired, when it emerged later in June that Mr Tully would not provide finance prior to the payment deadline of 30 June 2007, steps were taken by Messrs Barnes and Hawksley to fulfil their earlier commitment to Mr Dhillon by arranging finance with the NAB in the manner described above, which they never revealed to FTI or BlueFreeway. (iv) The second representation 456 The second representation arises from the respondents' conduct, as described above, in procuring the financial arrangements with the NAB which enabled CMUK to pay the licence fee without disclosure to the applicants and against the background of the conduct underpinning the first representation. The applicants submit that that conduct was misleading or deceptive or likely to mislead or deceive because it represented to the applicants that the licence fee had been paid to FTI by CMUK with external financing, when in fact the fee was only paid because of the undisclosed financial assistance provided by the respondents. I accept that submission. 457 For the following reasons, I reject the respondents' submissions on this topic. First, I reject their contention that there is a "fundamental difficulty with the allegations" because the conduct underpinning the second representation includes the conduct underpinning the first representation and that representation was not false. As explained above at [455], the first representation provides important context to the overall conduct which the applicants allege was misleading or deceptive because the respondents failed to disclose their personal involvement in the funding. 458 Secondly, I reject the respondents' submission that the context and surrounding circumstances do not support the making of the second representation. They place great reliance upon the fact that CMUK did ultimately pay for the licence fee but through its wholly-owned subsidiary CMUK (Aust) with funds borrowed from the NAB and secured by the respondents' guarantees. In my view, this submission fails to confront the burden of the applicants' complaint, namely that the payment would not have occurred without the involvement of Messrs Barnes and Hawksley and they never disclosed to the applicants their role as guarantors which ultimately enabled CMUK to pay the licence fee. 459 Thirdly, I do not accept the respondents' contention that the applicants were in fact aware of the respondents' role and involvement in securing the necessary finance. This contention is largely based upon the respondents' proposition that their involvement occurred against a background of Mr Webb telling them in March 2007, in the presence of Mr McDonnell, to "do whatever it takes" to ensure that the transaction was finalised by 30 June 2007, which they say included financing the transaction themselves if necessary. 460 For the following reasons, I do not accept some important aspects of the respondents' version of the relevant events: (a) I do not accept that the respondents have established that either or both Mr Webb or Mr McDonnell were aware of their role as financiers. The high point of the evidence is the discussion which took place at the Aurora Place cafÉ, evidently on 6 March 2007, in which they say that, in the context of discussing whether CMUK had the funds to pay for the licence, Mr Hawksley referred to Mr Dhillon knowing 'two rich blokes in Australia" who had recently received $10 million. Mr Barnes gave evidence that, at that point, everyone laughed and Mr Webb then urged them to "do whatever it takes" to have the transaction completed by 30 June 2007. Mr McDonnell denied that he heard any reference to "the two rich blokes in Australia etc", but he accepted that Mr Webb may have said to Messrs Barnes and Hawksley that they should "do whatever it takes to conclude the licence deal with CMUK". I accept Mr McDonnell's evidence on these matters and refer again to [133]-[188] above as to why I reject the respondents' attack upon his credibility; (b) I acknowledge that Mr McDonnell's denial that he heard any reference to 'the two rich blokes in Australia etc" does not mean that Mr Hawksley did not say those words. He may well have (although one might have reasonably expected that if the words were said they would have been noted in the otherwise detailed diary note Mr Hawksley prepared following the meeting, and even though there is a reference in the diary note to the effect that Mr Webb and Mr McDonnell were told by the respondents that CMUK "now had an investor who was prepared to buy a perpetual licence", there is no note of either part of the conversation referred to above or, indeed, any understanding by Mr Hawksley that Mr Webb was encouraging them to finance the transaction is necessary); (c) even if Mr Hawksley did say the words alleged I do not consider that that statement, whether viewed either in isolation or when juxtaposed with Mr Webb's subsequent exhortation "to do whatever it takes etc", establishes that Mr Webb authorised Messrs Barnes and Hawksley to become involved in the financing of the transaction in the way that they did or that that involvement was known to either Mr Webb or Mr McDonnell; (d) as noted above, Mr Barnes gave evidence that everyone at the meeting laughed when Mr Hawksley referred to 'the two rich blokes in Australia etc", which is consistent with the statement being regarded by them all as a joke and not as something to be taken seriously. This is reinforced by Mr Barnes' further evidence that, having laughed at the suggestion, Mr Webb then immediately said: "Well, let's hope it doesn't come to that!" The respondents submit that they should have been provided with an opportunity in cross examination to comment on whether they regarded it as a joke. Having regard to the fact that Mr Barnes himself gave this evidence in chief about everyone laughing, I do not consider that there was any such obligation on the applicants; (e) the position is not altered by Mr Webb's subsequent exhortation to "do whatever it takes etc". I do not view that statement as encouraging the respondents to become involved in the furtive way which they did in financing the transaction. Mr Webb clearly had a strong desire to have the transaction completed before 30 June 2007 because of the favourable impact that would have on the group's results for that financial year. I am not prepared, however, to make a finding that Mr Webb exhorted the respondents to become personally involved in financing the transaction and to not disclose the nature and extent of their involvement to BlueFreeway or, indeed, to the other directors of FTI which included, of course, both Mr Webb and Mr McDonnell, and also Mr Spencer; (f) Mr Barnes also gave evidence of a meeting he attended in early May 2007 with Mr Webb and Mr Hawksley. Apparently Mr McDonnell was not present. He said that during the course of the meeting Mr Hawksley said that Mr Dhillon had reported to them that, while he still expected the deal to happen, he did not yet have committed financial backers. He says that Mr Webb told them that BlueFreeway could not afford to post a bad first year result and that the sale had to be finalised quickly to avoid having to make an earnings downgrade and that they should "make this sale happen in the next couple of weeks or it will be too late". Mr Barnes said that he understood from Mr Webb's comment and exchange of "knowing glances" that Mr Webb's comment was a continuation of the earlier conversations in March 2007 when reference was made to "two rich blokes in Australia" and "do whatever it takes". For my part, I do not consider that this evidence establishes that Mr Webb authorised the respondents to provide the funding in the manner which they did. It is true that, as the respondents repeatedly emphasised, Mr Webb was not called as a witness, but I do not consider that Mr Barnes' evidence and its reference to "knowing glances" provides an adequate evidentiary basis to give rise to an inference which then attracts the principle in Jones v Dunkel (see further [511] below); (g) assuming that Mr Webb did say words along the lines of "do whatever it takes", I consider that it is far more probable that he was urging both Mr Barnes and Mr Hawksley, who had an established relationship with Mr Dhillon and who had been primarily involved in the negotiations with him up until this time, to do whatever it took, in the sense of using all available ethical and proper means, to persuade Mr Dhillon to finalise the transaction as soon as possible so that it could assist BlueFreeway's financial position in 2007. I reject the respondents' contention that Mr Webb authorised them to engage in the clandestine conduct which they subsequently did; (h) viewed objectively, their conduct in procuring the finance for the licence fee transaction was misleading or deceptive because what was ultimately portrayed to both the BlueFreeway board and the market generally as a genuine arm's length transaction was not in truth of that character at all. That is because Messrs Barnes and Hawksley secretly financed the transaction notwithstanding that they had a major conflict of interest because they stood to gain a substantial personal financial advantage by having the transaction included in the EBIT for 2007. Both the respondents were well aware of this. In an email sent on 2 May 2007, Mr Hawksley described the proposed transaction as a "win-win" to both BlueFreeway and himself because, having been told recently by Mr McDonnell that all the licence fee would count towards EBIT, this was "great news" for Mr Hawksley because of its impact on "my earn out calc". In my view, this written statement (which I consider accurately reflects Mr Hawksley's state of mind at the relevant time) cannot be reconciled with Mr Hawksley's oral evidence of a conversation he claims to have had with Mr McDonnell in late April 2007. He claims that during the course of this conversation Mr McDonnell said that the deal had to be finalised before the proposed ASX announcement or it would never happen and that he responded to that statement by saying: Piss off Ken, if we want the deal to happen later it can. It makes no difference to us when it happens. I do not accept that evidence. Both Mr Barnes and Mr Hawksley were very anxious to have the transaction finalised promptly so that it could be counted in the FTI EBIT 07 and secure their earn out. They were both well aware of the ramifications of the deal for their earn out. Indeed, Mr Hawksley's diary note of the meeting held on 6 March 2007 states that the purpose of the meeting, which was called by the respondents, was to point out the ramifications of the deal. His diary note records that, during the course of the meeting, Mr Barnes raised with Mr Webb and Mr McDonnell "the fact that this would send our FY07 Additional Payment through the roof and that we should all look at that"; (i) I also consider that it is significant that neither Mr Barnes nor Mr Hawksley claim that they subsequently told either Mr Webb or Mr McDonnell that they had personally procured payment of the licence fee by CMUK in the way that they did. Indeed, their evidence is to the contrary. They both say that they did not disclose the fact or details of their involvement. It is difficult to understand why they would not have reported back to either or both Mr Webb or Mr McDonnell if they considered that they had been authorised by Mr Webb to proceed in the fashion that they did. Quite apart from the objective need for transparency created by their personal involvement in facilitating the transaction, it is also reasonable to expect that they would have been anxious to apprise Mr Webb and/or Mr McDonnell of their involvement given that it was critical to the transaction with CMUK being finalised in 2007, which then had highly favourable implications for the group as a whole; and (j) a further difficulty in accepting the respondents' account of these events relates to the secrecy which surrounded their involvement and the absence of any written documentation providing for recourse from CMUK in the event of default. I attach no weight to the emphasis placed by Mr Barnes in particular on the fact that Mr Hawksley's address was used for the receipt of bank statements from the NAB, bearing in mind banker-client confidentiality constraints. The lack of transparency surrounding their involvement also needs to be assessed against a background of the recorded conversation between Mr McDonnell and Mr Hawksley on 7 May 2007, in the course of which Mr McDonnell repeatedly emphasised to Mr Hawksley the need for complete transparency in the negotiations with CMUK because of the respondents' conflict of interest. Mr Hawksley was sufficiently troubled by the governance issues being raised by Mr McDonnell that he sought and obtained his own legal advice on the subject on at least two occasions in May 2007 prior to the weekend of 19-20 May 2007 when apparently he and Mr Barnes first told Mr Dhillon that, if necessary, they would provide the funding. And, as noted above, Mr Smith (who provided legal advice to both Mr Barnes and Mr Hawksley) gave evidence that it was not possible to appoint either of them as directors of CMUK (Aust) because of the perceived conflicts involved. It can be inferred that, at the relevant times, both Mr Barnes and Mr Hawksley were well aware of the conflict of interest arising from their proposed role as financiers and they took active steps to minimise the risk of that involvement becoming known to the boards of either FTI or BlueFreeway, because I infer, they did not want to jeopardise their earn out entitlements. 461 It is well settled that intention to mislead or deceive is not a necessary ingredient of liability for provisions such as s 42 of the FT Act (see by analogy Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 and Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty (Ltd) (1986) 12 FCR 477 at 504 per Lockhart J). Accordingly, it is not necessary to determine whether or not the respondents intended by their conduct in procuring the financing and in not disclosing their involvement to the board of either BlueFreeway or FTI to mislead or deceive. In my view, however, the evidence reveals that they embarked upon a course of procuring the financing without authorisation from either Mr Webb or Mr McDonnell and they took no steps to ensure that the nature and extent of their involvement was disclosed to either board. Indeed, the steps which they took in procuring the financing were carried out in a way which had either the design or at least the effect of keeping both boards in the dark about the fact and details of their involvement. 462 To sum up, in my view, both the respondents were conscious of the conflict of interest presented by their involvement in the financing of the transaction but they wanted to hide the nature and extent of their involvement because of a concern that disclosure might jeopardise their earn out entitlements under the SPA. I consider the respondents' conduct to have been misleading or deceptive in not disclosing to those boards the nature and extent of their involvement after they had created an impression that the licence fee would be paid by CMUK, with genuine third-party funding, as part of an overall arm's length transaction. BlueFreeway had a reasonable expectation that the respondents would disclose the nature and extent of their involvement in procuring the finance for the licence transaction. (v) Reliance and causation 463 In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [24] (Campbell), French CJ emphasised the relationship between the question whether conduct is misleading or deceptive within the meaning of s 42 of the FT Act and whether a person has suffered loss or damage which thereby entitles them to damages under s 68 of that Act: The distinction between characterisation of the conduct and determination of the causation of the claimed loss said to result from it must be maintained. In so saying, it is necessary to acknowledge that there may be practical overlaps in the resolution of these logically distinct questions. The characterisation of conduct may involve assessment of its notional effects, judged by reference to its context. The same contextual factors may play a role in determining causation. 464 For the following reasons, I do not accept the respondents' contentions that, if the conduct complained of was misleading or deceptive, there was no reliance on the conduct so as to give rise to an award of damages to BlueFreeway and/or there was no causal link between that conduct and any loss suffered by BlueFreeway. 465 First, as noted above, a majority of the directors of BlueFreeway (i.e. Messrs Daniel, Greiner and McDonnell) said that if they had known of the nature and extent of the respondents' involvement in financing the transaction, they would not have voted in favour of BlueFreeway executing the Exit Agreement and I accept that evidence. 466 Mr Greiner and Mr Daniel also said that if they had known of the involvement they would have taken legal advice on the implications of the source of the funding. When tested in cross examination as to what he would have done in the counterfactual, Mr Greiner said that he regarded the financial arrangements as "a device" and that while he would have wanted to hear the views of other directors he considered that the position was "pretty clear" and that he would not have supported it. I accept that evidence unreservedly. Mr Greiner was an impressive witness and his credibility was not directly challenged. 467 Mr Daniel also explained in cross examination that, in the counterfactual, he would have considered the legal advice but then still formed his own view on the matter. He described the funding support provided by the respondents as being "an inside job" and not market driven. I accept that evidence and his explanation that he would have opposed entry into the Exit Agreement because of the longer term adverse implications for BlueFreeway's reputation if the transaction was implemented and endorsed by the board with those financial arrangements. I found Mr Daniel's explanation of the reasons why he would have opposed the Exit Agreement to be compelling and, as noted above, I accept his evidence. 468 Mr McDonnell gave evidence that if he had known of the financing role played by the respondents he would have immediately reported that to both Mr Daniel and Mr Webb and that a board meeting would have been called. He also said that legal advice would have been taken, but that he would have approved execution of the Licence Agreement only if the respondents agreed that the licence fee was not to be included in the 2007 EBIT. He also said that if he had been aware of their involvement he would not have recommended that BlueFreeway execute the Exit Agreement. As noted above, Mr McDonnell gave reasons why he would take these positions in the counterfactual. I accept his evidence on these matters and refer again to the reasons in [133]-[188] above as to why I reject the respondents' attack upon his credibility. I found Mr McDonnell to be a truthful witness. 469 In circumstances where I accept the evidence of the three BlueFreeway directors who were called as witnesses as to how they would have acted in the counterfactual, I reject the respondents' claim that there is no evidence of reliance or causation to attract an award of damages under s 42 of the FT Act in favour of BlueFreeway. In my opinion, the fact that neither Mr Webb nor Mr Smith (two other directors of the company) was called to give evidence has no material relevance on this issue. In the case of Mr Webb, I do not accept the respondents' submission that it is clear that Mr Webb would have vigorously advocated execution of the Exit Agreement because it was vital to the pursuit of his business plans. And even if he did, having heard and accepted the views expressed by Messrs Daniel, Greiner and McDonnell, I do not believe that Mr Webb's advocacy would have overcome their fundamental concerns regarding the propriety of the transaction and they would have opposed execution of the Exit Agreement. 470 The respondents sought to avoid such a finding by saying that the decision to enter the Exit Agreement was a decision made by Mr Webb. They say that Mr Webb alone conducted the negotiations concerning the Exit Agreement and that none of the other directors had any involvement in it. They say that in those circumstances the hypothetical evidence of the three directors is irrelevant because neither they nor the BlueFreeway board were the decision-makers. 471 In my view, however, that submission confuses what in fact occurred with the relevant elements of the counterfactual and the assumptions which underpin it. Even if the respondents' description of what in fact occurred is accepted as accurate (and it might be noted that the description overlooks some important evidence, including evidence that Mr McDonnell was involved to some extent in the sense that he arranged for and was involved in the legal documentation of the arrangement and, together with Mr Webb, he signed the Exit Agreement on behalf of BlueFreeway; and also Mr Daniel's evidence that he was confident that the Exit Agreement had been discussed at the board level even though it was not minuted), I do not consider that it is determinative in the counterfactual. The counterfactual is predicated on the assumption that the board was aware of the nature and extent of the respondents' involvement in the financing, an assumption which, on the findings I have made above, is at odds with what actually occurred. 472 Nor do I accept the twelve other contentions advanced by the respondents in seeking to avoid adverse findings of reliance and causation. For convenience and with a view to not unnecessarily lengthening these reasons for judgment, some of those contentions may be dealt with together. 473 First, the respondents say that the decision whether to enter into the Licence Agreement was a decision for the FTI board and a majority of that board was not called to give evidence. But this submission ignores the fact that BlueFreeway was the sole shareholder of FTI and appointed a majority of the directors to that board. Any decision taken by the FTI board would have to be a decision which was taken in the best interests of its sole shareholder. Furthermore, that submission fails to engage with a central issue in the counterfactual, which is whether or not the BlueFreeway board would have approved the Exit Agreement and the payment of the Additional Payment. 474 Secondly, the fact that Mr Greiner said that he had not seen or read the Exit Agreement is not determinative in the counterfactual. Again, the respondents confuse what actually happened with what would have happened in the counterfactual. 475 Thirdly, the respondents say that Mr Greiner conceded in cross examination that if he had received advice from a reputable source which sanctioned the transaction, it may have led him to support the transaction. I do not consider that this accurately describes Mr Greiner's evidence. Mr Greiner said that a legitimate vendor financing arrangement was an option. He was then asked to assume in the counterfactual that: (a) the financing was not a related party transaction; (b) there was no prohibition against the financing in the SPA; and (c) BlueFreeway's executives were not opposed to the respondents providing the finance. 476 On the basis of those assumptions, it was put to him that he would have approved the respondents' involvement, to which he answered: Well, if we had had advice from Mallesons – I don't think we could have afforded them at the time - but if we had had advice from Mallesons that said, you know, "Our judgment is this is completely okay, you run no risk," and we would have had the normal sort of discussion you and I are having, and we would have said, "Is there a legal risk, is there a reputational risk, is there a – you know, what are the risks, commercial risks?" And if Mallesons hypothetically had said, "No, no, there is absolutely no risk, and here's a letter saying it's, you beaut, go do it," a bit hard for me to say that I would not take notice of that. I think it is a stretch, but that is for others, no doubt. 477 Mr Greiner's careful answer does not support the respondents' contention, but it does indicate that, in certain circumstances, he may have been persuaded to approve exit arrangements based on full disclosure. 478 For completeness, it might also be noted that the respondents adduced no evidence to support another important assumption underpinning this line of questioning, namely that a reputable law firm would have provided a written opinion to the board stating that there was nothing untoward about the respondents' role in the financing, let alone an unqualified statement that there was no reputational risk for BlueFreeway. 479 Fourthly, the respondents rely on Mr Daniel's evidence that the board essentially accepted what they were told which was that they had no option but to exercise the Exit Agreement and that he also suggested that he may have sought to mediate some kind of alternative arrangement between the parties. Again, this does not accurately describe Mr Daniel's evidence. Mr Daniel made abundantly clear in cross examination that, in the counterfactual, he "would have personally been very opposed to the exit agreement being -being executed". Moreover, his evidence as to what in fact occurred in terms of executing the Exit Agreement is not determinative of what would have happened in the counterfactual. And his evidence concerning the possibility of a mediation was given in the context of him responding to an hypothetical scenario of the board refusing to approve the Exit Agreement and how the group would then deal with the breakdown in relationships between Mr Webb and BlueFreeway management on the one hand and the respondents on the other hand. I understood his reference to the possibility of a mediation as meaning that he would seek to arrange a renegotiation, which does not preclude the possibility of the parties arriving at a different agreement under which the respondents would exit the group, as long as there was full disclosure. 480 Fifthly, the respondents place heavy emphasis upon the fundamental importance of the licence transaction to BlueFreeway's success and the need to cut ties with the respondents if Mr Webb's vision was to proceed. They contend that these considerations would have prevailed and caused the board to approve the Exit Agreement in the counterfactual. The difficulty with this submission is that it flies in the face of the evidence of each of Mr Daniel, Mr Greiner and Mr McDonnell who, when presented with those propositions, resoundingly and rationally rejected them. I accept their evidence as to why they would still have opposed execution of the Exit Agreement and, if necessary, pursued other options for dealing with the strained relations with the respondents. 481 Sixthly, the respondents sought to attach some significance to the fact that, although the respondents had a contractual entitlement to receive the Additional Payment of approximately $16 million by way of shares, in the course of the Exit Agreement negotiations this entitlement was converted to an immediate cash payment. The significance of this matter was never adequately explained. 482 Seventhly, the respondents sought to discredit the evidence of both Mr Daniel and Mr Greiner on the counterfactual by suggesting that it did not reflect the same "detachment" which characterised other parts of their evidence. I disagree. Their evidence on this subject was given rationally and convincingly and I accept it unreservedly, as I do their other evidence. 483 Eighthly, they say that if in the counterfactual the issue of execution of the Exit Agreement arose in late October, at that time there was an additional director of the BlueFreeway board, namely Mr David Smithers (who was appointed on 22 October 2007), and he was not called as a witness the consequence was that there was no evidence of how a majority of the board would have acted at that time. The difficulty with this submission is that it assumes that, in the counterfactual, consideration of the Exit Agreement would have arisen after 22 October 2007 and not at an earlier time when, on the hypothetical, the board was first informed of the nature and extent of the respondents' role in financing the transaction. Yet again, the respondents seem to confuse what actually occurred with the hypothetical elements of the counterfactual. 484 For the reasons given in [463]-[483] above, I reject the respondents' contention that there is no evidence of reliance on the first representation. They also contend that there is no evidence of reliance in respect of the second representation and they say that the position here is even worse because Mr McDonnell gave express evidence that at the relevant time he had formed no view and had no information as to the origin of the funds. In support of that contention, the respondents draw attention to [20] of Mr McDonnell's third affidavit, which is in the following terms: Throughout the period up to the execution of the CMUK Licence Agreement on 22 May 2007, I was of the belief that there was a third party investor involved who was providing funds which would allow CMUK to pay the licence fee ultimately negotiated. 485 Far from supporting the respondents' contention, this evidence is diametrically opposed to it. I reject the respondents' contention. 486 The respondents also say that the entire agreement clause in the Exit Agreement stands in the way of BlueFreeway being awarded damages for misleading or deceptive conduct under s 42 of the FT Act. The significance of such a clause in this context was explained by Gummow, Hayne, Heydon and Kiefel JJ in Campbell at [130] as follows: It is as well to add, however, that, of itself, neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained. As pointed out earlier, by reference to the reasons of McHugh J in Butcher, whether conduct is misleading or deceptive is a question of fact to be decided by reference to all of the relevant considerations, of which the terms of the contract are but one. (Footnotes omitted). 487 The respondents correctly acknowledge that an entire agreement clause is not legally determinative. In my view the clause here does not operate to defeat the claim for damages for misleading or deceptive conduct. Such a clause is unlikely to have any meaningful effect or operation in circumstances where the gravamen of the complaint is that the respondents engaged in misleading or deceptive conduct by their silence and failed to reveal the true state of affairs which was inconsistent with previous representations they had made. 488 Finally, the respondents resist any claim for relief relying upon the release given in cl 10 of the Exit Agreement, which is in the following terms: 10. Releases 10.1 Release Except as set out in clause 10.2, in consideration of the Sellers agreeing to the earn out cancellation set out in clause 7 and Blue Freeway making the Additional Payment in accordance with clause 6 the parties agree that upon the Termination Date they irrevocably, fully and finally discharge and release each other from any claims, actions, proceedings or demands of any nature that party has or may have had against the other party under the Share Purchase Agreement, the Management Agreement, the Barnes ESA and the Hawksley ESA or howsoever arising from the purchase by Blue Freeway of the shares in the Companies, including, but not limited to, under or in relation to the early termination of the Hawksley ESA or the Barnes ESA. 10.2 Exceptions The release under clause 10.1 does not apply in relation to any claims, actions, proceedings or demands arising under: (a) this agreement; (b) the Non-Compete Agreement; (c) any agreement entered into by the parties in the future; or (d) clauses 6.2, 7 or 12, or warranties 8 or 20 in schedule 8, of the Share Purchase Agreement, in the period up to the date which is 6 months after the Termination Date. 489 For the following reasons, I reject the respondents' reliance on the release clause. First, I do not consider that the clause applies to defeat a claim such as that made here which arises out of matters which were not in the knowledge of the applicants at the time the Exit Agreement was executed. In his decision at first instance in United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 818, and in his Honour's customary fashion, McClelland J carefully analysed the effect of a release clause in circumstances similar to here and made the following pertinent observations (omitting case citations): It is a principle of equity "that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor": Grant v John Grant & Sons Pty Ltd. Indeed the examination of the authorities undertaken by the High Court in that case indicates that a substantially similar rule operates at common law. In Grant v John Grant & Sons Pty Ltd, the High Court quotes with approval the following words of Lord Westbury in London and South Western Railway Co v Blackmore: "The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given." and the following words of Tunton J in Upton v Upton: "…the general words of a release may be limited by the particular matter out of which the release springs, and the particular intent of the parties by whom the release is executed…" It is abundantly clear that it was not contemplated by the parties that the release in question would extend to liability arising from Mr Blackman's and HPI's activities in Australia, or a fortiori, to activities of the kind the subject of these proceedings, which were concealed from USSC. (Footnotes omitted). 490 This analysis of the relevant principles was not challenged in the appeal to the High Court in that litigation and I respectfully adopt it. 491 Secondly, for the reasons I have given above, I have accepted the applicants' contention that BlueFreeway did not have knowledge of the true circumstances under which CMUK had financed the licence transaction. Its lack of knowledge was due in no small part to the steps taken by the respondents to hide those circumstances from BlueFreeway. I accept the applicants' contention that it would be unconscionable for the respondents to rely upon a general reading of the terms of cl 10.1 which would have the effect of defeating their claim for damages based on the respondents' misleading or deceptive conduct. PART F: DAMAGES The applicants' submissions outlined 492 The following section is relevant to the applicants' claim for damages for both breach of contract and contravention of s 42 of the FT Act. 493 A noted above, BlueFreeway's claim for damages was put in two alternative ways. The first and stated primary basis is that, if all cards had been on the table before the Exit Agreement was finalised, the respondents would not have been paid approximately $16 million and, on one hypothesis, they would have remained with the group for the next two years. BlueFreeway says that, on this hypothesis and having regard to the actual performance of FTI in the relevant years as set out in Exhibit A, the respondents would not have achieved any earn out entitlement for either 2008 or 2009. BlueFreeway also says that, on this hypothesis, its damages include its loss of the use of monies and incurred costs in respect of the $16 million paid to the respondents, as well as the loss of the use of monies which it says it would have been entitled to in the amount of approximately $6 million (including interest) in respect of the clawback which it says it would have been entitled to claim under the SPA. 494 BlueFreeway contends that the actual results of FTI for 2008 and 2009, as reflected in Exhibit A, are a reliable guide as to what would have happened to FTI if the respondents had remained with that company during 2008 and 2009. In support of that submission they rely on the fact that the respondents acceded to the changes made in October 2007 when FTI's sales staff were moved from St Leonards to the City to become part of an integrated salesforce for the group. They also say that the move within the group to change its business model was a significant one and that the respondents themselves indicated in June 2007 that they viewed FTI as having no prospects for the next two years if Mr Webb's initiatives were implemented. They add that the fortunes of the group were only revived after Mr Webb departed in January 2008, but that there was "a period of consternation" in the group until about June 2008, which would not have been avoided if the respondents had stayed on. 495 The alternative basis for the claim for damages is predicated on the contingency that the Court found that, if the respondents had revealed their involvement in financing the transaction, there would still have been a termination agreement and a parting of the ways. But BlueFreeway says that, on this hypothesis, it would have negotiated a pay out of an amount which is substantially less than $16 million. Hence, BlueFreeway claims damages representing the value of the loss of its chance or opportunity to negotiate a substantially lesser figure than the $16 million paid to the respondents under the Exit Agreement. 496 In assessing the chance or opportunity, the applicants say that the following factors are relevant: (a) by November 2007, Messrs Barnes and Hawksley were determined to leave FTI. Mr Barnes initially wanted to negotiate for a higher sum and held the view that there was an extra $10 million earn out potential for them both. But, on the respondents' own case, Mr Hawksley persuaded Mr Barnes to settle at a cash figure calculated by reference to the value of shares in BlueFreeway as at 31 October 2007; (b) if the truth had been known, there would be no foundation upon which the Additional Payment could have been calculated having regard to the evidence of a majority of the directors of BlueFreeway that they would never have sanctioned the payment of $16 million if they had known the true circumstances; and (c) in a hypothetical negotiation with the respondents, they would plainly have sought at least repayment of the $4.2 million which they stood to lose in circumstances where CMUK was unable to obtain the necessary refunding from another source. But BlueFreeway would have been determined to reduce the level of a cash payout with the probable consequence that there would have been a walk-away settlement along the lines of the Exit Agreement, but at a far reduced figure. In his oral reply, Mr Ireland QC said that there was a good case that there would have been a negotiated fee in the order of $4.2 million if the respondents' role had been revealed, but he accepted that there were other objective factors which indicate that a different payment might have been made, and that account also needed to be taken of the fact that the respondents were keen to leave at this point in time and Mr Webb was also happy for them to go. The respondents' submissions outlined 497 It is convenient to summarise the respondents' response to both ways in which BlueFreeway puts its claim for damages. 498 They describe the primary claim as resting on the proposition that BlueFreeway would have been better off if the SPA had run its course, as opposed to executing the Exit Agreement. They say that to make good the argument, the applicants (who carry the onus) need to persuade the Court that: (a) there was no realistic prospect of future earn outs; (b) the respondents had no valuable claim to adjusted EBIT or damages for breach of the SPA (which, in effect, is the subject of the cross claim); (c) the other clauses in the Exit Agreement, such as the release provisions and the non-compete provisions, had no value to the BlueFreeway; and (d) evidentiary weight should be given to the figures in Exhibit A regarding FTI's actual results for 2008 and 2009. 499 Each of these matters was elaborated on by the respondents in both the written and oral submissions, however, to avoid duplication I will not summarise their detailed arguments at this point but will address them below. 500 Turning to the alternative claim for damages for loss of a chance or opportunity, the respondents say that that case was not pleaded. 501 In their closing oral address, the respondents also added the following two additional submissions on the applicants' alternative claim. First, they say that there is no evidence to support the claim that an opportunity was lost because all the applicants' evidence assumed that the SPA would continue. Secondly, they say that their most critical objection is that it was never put to either Mr Barnes or Mr Hawksley "that they would have accepted anything less than what they did" and that the evidence is that they were not frightened by the prospect of their funding role being revealed. Resolution of BlueFreeway's claim for damages (a) The primary claim for damages 502 As noted above, BlueFreeway's primary claim for damages is predicated on the hypothesis that no Exit Agreement was executed and that the various contractual arrangements continued according to their terms until late 2009. In quantifying those damages, BlueFreeway relies heavily on the figures in Exhibit A, which record FTI's actual results for 2008 and 2009 and are based on MYOB data. If those figures are accepted as a reliable guide to the likely earnings of FTI during those years if the respondents had remained, the EBIT target of $2.5 million, which would trigger earn our entitlements for the respondents in those years, would not have been reached. 503 The respondents urge the Court to attach no weight to Exhibit A and, instead, to adopt Mr Barnes' forecasts of FTI's earnings and EBIT for 2008 and 2009, as supported by Mr Wettenhall's expert evidence. 504 In my view, (and acknowledging that the issue is one which turns on degrees of possibilities or probabilities), it is more likely than not that, if the respondents had properly disclosed their role in financing the licence transaction, the parties would still have negotiated arrangements under which the respondents would leave FTI and terminate the relevant contractual relationships. I do not accept the respondents' contention that the respondents would have remained with FTI for the duration of the SPA even if they had disclosed that role. In my view, that is most unlikely. It is evident that Mr Hawksley was keen to settle and accept the $16 million payout figure. Mr Barnes acknowledged as much in cross examination and he agreed that Mr Hawksley was encouraging him at the time to also accept that figure. Mr Barnes sent an email to Mr Hawksley on 16 August 2007 saying that he thought there was another $10 million to be obtained. In cross examination, however, he accepted that he "capitulated" and that Mr Hawksley "convinced me that staying there would be a major pain in the butt in terms of selling and that he was concerned about that". He said that he ultimately agreed to go along with Mr Hawksley because he owed him a big favour (the full nature of which he never described). In my view, it is likely that a similar outcome would have occurred in the counterfactual. 505 Accordingly, the primary claim for damages does not arise because I do not accept that, in the counterfactual, the SPA would have run its course. For completeness, however, I make the following observations concerning the evidence on this aspect of the claim for damages. 506 For the following reasons, I consider that the figures in Exhibit A are a reliable guide as to FTI's likely earnings if this aspect of the counterfactual had been accepted. First, as the applicants point out, there was a period of hiatus between November 2007 and March 2008 during which the respondents left FTI and many staff were physically relocated from St Leonards to the City office. However those difficulties appear to have been generally confined to that period. 507 Secondly, it is relevant to take into account the 2008 budget for FTI, which was prepared in June 2007 by Mr Barnes and the statements made by both the respondents as to FTI's prospects for the two relevant years. The 2008 budget forecast a profit of only $2.4 million, which would fall below the threshold required for the respondents to receive an earn out for that year. 508 It is evident by this time that the respondents were very troubled by Mr Webb's proposal to change the FTI business for the 2008 financial year. Those concerns are recorded in a document dated 8 June 2007, which Mr Barnes sent to Mr McDonnell in response to both that proposal and what he described as "the decision to exclude Campaign Master from BLU". In cross examination, Mr Barnes said that Mr Hawksley had some input into the document and that they were proposing a renegotiation of the earn out formula in the SPA if they were to agree to Mr Webb's proposed restructure. The following extracts from the document reflect the respondents' profound pessimism at that time regarding FTI's prospects: We have received a proposal from Rick Webb and Ken McDonnell of BlueFreeway to change the Forty Two International (FTI) business for the 2008 financial year (FY08) which may be summarised as follows: • Move the existing Forty Two sales force under BlueFreeway to act as an SME portfolio wide sales force (BlueFreeway to pick up the cost and revenue). • Maintain the existing Forty Two development team structure under Kim Barnes. • Move Lee Hawksley from current role to focus on license sales globally (sic). BlueFreeway have estimated that based on the above and excluding any new licence revenue FTI would record and EBIT of $2.4 m in FY08. In addition, Blue Freeway would expect FY08 EBIT including new licence revenue to be in excess of $3.0 m. On what has been presented to date Lee and Kim would reject this proposal for the following reasons. • It would most likely lead to the end of FTI as a viable company if licence sales could not be made at sustainable levels. • It would totally disenfranchise Lee and Kim from the BlueFreeway group. • It changes the business entirely from a recurring revenue approach to project based sales. • It removes any potential for growth in FY09. • It would certainly lead to erosion of the existing client base. • … • It does not make best use of the skills of management or staff (sic). • BlueFreeway grossly underestimate the loyalty staff has not only to Lee and Kim but also to the vision of Campaign Master as a product (sic). This change to the business would undoubtedly lead to significant staff resignations. • … • The proposal does not achieve the objective stated by Rick in our budget review meeting to achieve an earn-out for Lee and Kim in FY08. o The proposal also effectively precludes an earn-out in FY09. • The proposal would mean the effective end of what is by most measures the BlueFreeway group's best performing business. • … Given all of the above, the proposal cannot be in the best interests of the shareholders. 509 For the following reasons, I do not accept the respondents' challenge to the evidentiary value of Exhibit A as being a reliable guide to FTI's likely performance in 2008 and 2009 if they had remained with FTI. First, the respondents submit that in cross examination Mr Puckrin "disowned" the view he had expressed in his expert report that the actual results for 2008 and 2009 were relevant to assessing the likely performance of FTI under the continuing management of the respondents in the counterfactual. In my view, that is not an accurate characterisation of Mr Puckrin's evidence, which is summarised in [199]-[216] above. Rather, while accepting that his EBIT calculations for 2008 and 2009 relied on the MYOB data showing FTI's actual results for those years, he acknowledged that if the business had been run differently, different outcomes might have been achieved. That is no more than common sense. It requires, however, the respondents to demonstrate that if they had remained with FTI, its performance would have improved in those two years. Having regard to FTI's performance in the 2007 financial year, when the respondents were managing its business, I do not accept that they have established on the balance of probabilities that the position would have changed if they had not left in November 2007. 510 Secondly, I do not accept the respondents' contention that there is "a wealth of evidence" which demonstrates that the issues which arose after they left FTI would not have occurred if they had remained. On the contrary, the primary issues which impacted upon FTI's performance, particularly the problems of recruiting suitable sales staff and the practical difficulties created by the same group selling both Campaign Master and Traction, were issues which arose while the respondents were with FTI. I see no convincing reason why the situation would have changed if they had remained. 511 Thirdly, the respondents submit that an adverse inference should be drawn because the applicants failed to call a number of managers at FTI who could have given evidence about the company's performance in those years. I do not accept that submission. It fails to take into account the fact that, for the Jones v Dunkel principle to apply, the respondents first need to demonstrate that a particular inference ought to be drawn having regard to the existing evidence. Once this evidentiary threshold is met, an inference is then more strongly drawn if the other party fails to call a witness within its camp who could give evidence on the issue and could be expected to be called (see Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at [165]-[167] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ and at [232]-[233] per Heydon J). As I indicated above, I do not accept that the respondents established the threshold requirement for the principle to apply. 512 In his expert report, Mr Barnes said that if the SPA had remained on foot, the respondents would have been entitled to an earn out of $20,264,327 in 2009, a figure which rises to $28,378,374 if slightly more optimistic assumptions are made. The figure drops to $12,777,074 if less optimistic assumptions are made (it should be noted that different figures are advanced by the respondents in support of their cross claim because, in that counterfactual, there is no licence sale in 2007 and therefore no funding by them of the licence transaction). 513 The respondents submit that Mr Barnes' assessment of the future earnings for FTI for 2008 and 2009 should be accepted, not only because they are supported by Mr Wettenhall, but also because they claim that they are consistent with contemporary documents created before litigation. For example, they point to a document prepared by Mr Barnes in early March 2007, which he sent to both Mr Webb and Mr McDonnell, setting out why the respondents saw a need for a changed earn out structure. Mr Barnes' covering email dated 1 March 2007 indicates how tense relations were at that time between the respondents and Mr Webb and Mr McDonnell. The attached document, sets out a proposal that FTI would become the sales arm of BlueFreeway, selling all products from all companies within the group, including both Traction and Campaign Master. The proposal also contemplated that, in due course, this would be done via the planned portal. Another part of the proposal was that FTI would cease the development and support of Campaign Master. Part of the document also dealt with earn out, and included the following statements by Mr Barnes (emphasis in original): As has always been stated, the big earn-out years for the previous shareholders are going to be 2008 and 2009 as the effects of recurring revenue and a low churn rate come into play. Already - and even though we are significantly behind target for FY07 - FY08 will generate an EBIT profit of over $2,000,000 with zero new sales from this point (1 March 2007) forward. Even with an absolutely abysmal result of 40% of sales target and with zero geographical expansion and no contribution from BlueFreeway or the portfolio companies, FY08 will produce EBIT of $4.3m and FY09 $8.1m. That represents what appears to be an absolutely worst case scenario of $22.4m -($8.1m - $2.5m) x 4) - in total earn-out to FTI's previous shareholders. If FTI achieves its target (80%), the figure is $48.2m and if the sales team achieves its target (100%) it's $62m. Again that assumes no geographical expansion and no contribution from Blue Freeway or the portfolio companies. Naturally enough these are not numbers to be walked away from lightly. 514 The respondents say that these figures were not challenged by Mr McDonnell as chief financial officer at the time and they rely upon the following answers he gave in cross examination in respect of Mr Barnes' figures in that document: Now, I suggest you that you did not have, as at 1 March 2007, information to doubt the basic premises put here. Isn't that right?--- But-no, I didn't have that information. And that, at the time, you accepted it as being at least potentially credible?--- Accept on face value. 515 I do not consider that this exchange adds any particular support to Mr Barnes' figures. Mr McDonald made clear that he did not have access to the relevant information to enable him to make an informed assessment and that he was simply accepting the figures on face value. 516 The respondents also rely upon a statement which appears in an email dated 16 August 2007 which Mr Barnes sent to Mr Hawksley and, in particular, on the view expressed by Mr Barnes therein that "there's no reason why we can't get another $10m in earn-out". To put that statement into its proper context, however, and to appreciate the qualifications which were attached to it, it is necessary to set out the entire paragraph of the email, which said: Whatever you say about risk there is no doubt that we have the opportunity to earn a huge amount from FY09. If we implement the functionality we've planned, particularly in the financial sector, there's no reason why we can't get another $10m in earn-out. That might seem unlikely now, but it's only $2.5m more than we made in FY07. 517 In support of Mr Barnes' expert report relied upon by the respondents in the proceeding, they also point to an email sent by Deloitte on 21 August 2007 to Mr McDonnell, which they say confirmed Mr Barnes' "thinking" because it contained the following statement: Company believes the earn outs in 08/09/10 will be significantly greater and therefore want to do a deal now to pay the first earn out and cancel the others. 518 Again, however, that statement needs to be put in its proper context. The email was written after Deloitte had conducted an internal meeting that day and the email was sent to Mr McDonnell seeking reasons as to why BlueFreeway wanted to include the FTI EBIT 07 and pay it in circumstances where "the lawyers think there is scope to exclude this from the EBIT FY07 earn out under schedule 4 of the SPA." In that context, the email then continues with the following statement: We could only come up with: • Conservative position as no formalised legal position has been received (sic) • Company believes the earn outs in 08/09/10 will be significantly greater and therefore want to do a deal now to pay the first earn out and cancel the others. 519 When viewed in its entirety, it is difficult to regard this email as providing any support for the respondents' submission that the auditors confirmed Mr Barnes' "thinking". They were simply seeking instructions and to assist in that process the auditors suggested some possible reasoning for what they understood to be BlueFreeway's position, without knowing whether that suggested reasoning was accurate or would be accepted by Mr McDonnell. 520 The applicants also criticised some aspects of Mr Barnes' figures, criticisms which I believe have some force. First, it is difficult to sustain some of the assumptions upon which his forecasts were based. On his "low case", Mr Barnes' forecasts for earnings and EBIT for 2008 and 2009 are based on the figure of $548,000 as an annual sales target for each salesperson and 60% of that figure (i.e. $316,000) is used as representing the annual earnings of an FTI salesperson. Mr Barnes also assumed that in those years there would be 8 sales personnel, each earning $316,000 per annum in ordinary sales (except in July 2007 when he assumed that there would be 7 sales personnel). 521 As the applicants point out, is difficult to reconcile these assumptions with a report prepared by Mr Milton in April 2008 in which he examined the historic performance of FTI and allocated sales to individuals. The report is based on actual facts. It shows that in actual fact during the period July 2007 to November 2007 (and including Mr Hawksley as a sales person), the number of FTI sales staff varied from a maximum of 6 in the period July-September 2007 inclusive to a minimum of 4 in November 2007, which is fewer than the 8 member sales team assumed by Mr Barnes. There were never 8 FTI sales personnel employed in sales in the months upon which Mr Barnes' forecasts depend. 522 The second difficulty raised by the applicants, which I accept, is that Mr Barnes' forecasts are boosted by his assumption that additional revenue would have been generated by the development of new modules for the Campaign Master product, yet that assumption played no part in Mr Barnes' actual budgeting process in June 2007 and it is difficult to understand why that assumption should be made now. 523 For these reasons, if the issue had been necessary to determine, I would have preferred Exhibit A to Mr Barnes' forecasts regarding the likely performance of FTI in 2008 and 2009 if the respondents had remained. (b) Loss of opportunity damages 524 As noted above, the applicants submit that the more likely hypothesis is that, if the respondents' involvement in financing the licence transaction had been revealed prior to execution of the Exit Agreement, the parties would still have negotiated a termination of their contractual relationships, but Blue Freeway would have paid them substantially less than $16 million. The respondents challenge that hypothesis and say that the respondents would have remained with FTI for the duration of the SPA. In my opinion, the position would have been no different if the respondents had disclosed their involvement in financing the licence transaction. For the reasons I have given above, I consider that, in the counterfactual, it is more likely than not that the parties would have still sat down after 30 June 2007 and negotiated terms and conditions for terminating their existing contractual relationships. Accordingly, it is necessary to assess the applicants' alternative claim for damages for loss of opportunity. 525 The leading case on loss of opportunity damages for misleading or deceptive conduct is Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 (Sellars). It was held there (at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ), that in a claim for such damages under s 52 of the TPA there is no requirement for an applicant to show, on the balance of probabilities, that there was some prospect of deriving a benefit from the opportunity which is lost, rather it is sufficient to show by reference to degrees of possibilities and probabilities that there were some prospects of deriving that benefit. It was also held there at 355 that the general standard of proof in civil actions ordinarily governs the separate issue of causation and whether the applicant has sustained any loss or damage: Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. (Emphasis in original). 526 Having regard to these principles and to the circumstances here, I do not accept the respondents' submission that it was incumbent upon the applicants to put to each of Mr Barnes and Mr Hawksley whether, in the counterfactual, they would agree to a payout figure other than $16 million and, if so, what amount they would accept. The absence of such evidence may well be relevant to the measurement of the value of the loss of the opportunity to negotiate a different figure but it is not fatal to that exercise. I should also add that I do not accept the respondents' related submission that they were not frightened or concerned about the prospect of their role being revealed. That submission is inconsistent with the findings made above concerning the steps taken by the respondents to keep the other directors of FTI and the BlueFreeway board in the dark on that matter because of the respondents' keen interest in not jeopardising their earn out payment. 527 Nor do I consider that there is any force in the respondents' pleading objection to the claim for loss of opportunity damages. The further amended statement of claim clearly pleaded that BlueFreeway sought damages for misleading or deceptive conduct. Damages are available for that cause of action under s 68 of the FT Act. Express reference was made to that provision in the further amended application. In my view, there was no requirement for the applicants to specify in their pleadings the precise basis upon which the damages should be assessed. The particulars to the relevant paragraph of the further amended statement of claim expressly identified the quantum of the Additional Payment as part of BlueFreeway's loss. There is nothing in the pleadings which is inconsistent with damages being assessed on the basis of a lost opportunity. That is not to say, however, that the applicants do not carry an onus in respect of the measurement of their loss or damage (see further below). 528 I also reject the respondents' claim that there is no evidence to support the applicants' claim for damages for the alleged lost opportunity and that all the relevant evidence assumed that the SPA would continue. In my view, this contention cannot be accepted having regard to the extensive evidence given by Messrs Daniel, Greiner and McDonnell, most of it in cross examination, regarding the counterfactual which is directed to what the board would have done if the true position had been revealed at the time the Exit Agreement was being negotiated. It includes Mr Daniel's evidence that he, as chairman of the company, would have sought to mediate a resolution with the respondents. I do not see that evidence as being incompatible with the claim for damages for loss of an opportunity to negotiate a payout substantially less than $16 million. In my opinion, there was evidence of what BlueFreeway would have done had it known the true position, including the possibility of achieving a different resolution with the respondents by way of the mediation. 529 To similar effect, Mr Greiner accepted that, if there had been disclosure, one of the options was the possibility of vendor finance, which is one of the options which he would have wished to explore for ever agreeing to the respondents being involved in the financing. (i) Valuing the lost chance or opportunity 530 I respectfully agree with the following summary of the relevant approach in a loss of chance or opportunity case as described by the New South Wales Court of Appeal in Daniels v Anderson (1995) 37 NSWLR 438 at 530-1: Accordingly, the issue of causation should be approached upon the basis of proof upon the balance of probabilities with the qualification that an assessment of whether the chance which is said to have been lost had a value is to be made upon the possibilities or probabilities of the case. For this reason it is appropriate to consider initially the question of whether a chance was lost as a consequence of the breaches of duty and in the event that an affirmative answer is given to that question to defer consideration of the value issue which should be dealt with in determining whether, and if so what damages are payable. 531 For the reasons given above, I consider that, because of the respondents' breach of the relevant implied term in the SPA and also their misleading or deceptive conduct, BlueFreeway did lose the opportunity to negotiate a lower payout figure with the respondents compared with that which was agreed under the Exit Agreement. I do not accept the respondents' contention that there was no loss because, by making that payment in cash, BlueFreeway was relieved of its obligation under the SPA to issue shares to the respondents. The fundamental difficulty with that contention is that it fails to grapple with the fact that the claim to damages is for a lost opportunity to negotiate a different outcome and the need to accommodate the evidence of a majority of the directors as to their attitude to the respondents benefiting personally in an amount of $16 million from their clandestine involvement in the financing of a licence transaction worth a little over $4 million to FTI. 532 I now turn to the task of valuing that lost chance or opportunity, which, as noted above, is ascertained by reference to the degree of probabilities or possibilities. 533 It is well settled that the mere fact that the quantum of damages is difficult to assess does not excuse the Court from having to make such an assessment. In contract law, where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss to defeat an award of damages (see Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ). It was held in Sellars at 349 that the same principle applies to actions for damages for the loss of a chance or opportunity under s 52 of the TPA. The position is the same under the FT Act. 534 That is not to say, however, that the Court is at liberty to simply pluck a figure from the air as the value of such a loss. The Court is required to offer a sound or informed basis for the assessment of its value of the loss (see, for example, Sensis Pty Ltd v McMaster-Fay [2005] NSWCA 163 at [57]). The task of assessment will be aided by relevant evidence (and the applicants carry the onus of establishing the value of the lost opportunity), but it is also the case that, in the absence of such evidence and assuming that the lost opportunity was not wholly speculative, the Court must do the best it can with the materials before it. And as Heydon JA observed in State of New South Wales v Moss [2000] NSWCA 133 at [72], the Court will be "more ready to shoulder the burden of acting without specific evidence where that evidence is difficult to call". 535 The authorities also suggest that, while a percentage figure can be used in calculating the amount of an award of damages for loss of an opportunity, the Court is also entitled to take a global approach and award a lump sum (see, for example, Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 505-7). 536 Taking into account these general principles, and noting the limitations in the applicants' evidence on this matter, as was emphasised by the respondents, I make the following observations. 537 I accept the relevance of the three matters set out in [496] above, but I do not consider them to be exhaustive. First, I consider that the respondents were determined to leave FTI by November 2007 and, although Mr Barnes' initial position was to seek to negotiate a higher sum than $16 million (possibly up to an extra $10 million), he was persuaded by Mr Hawksley to settle for a cash figure in the amount of approximately $16 million (which was determined by reference to the then current value of the shares in BlueFreeway to which they would otherwise have been entitled). 538 Secondly, there is some force in the submission that, if the true circumstances of the funding had been known to BlueFreeway, there would have been no proper foundation upon which the Additional Payment could have been calculated. That is because a majority of the directors gave evidence, which I have accepted, that they would not have sanctioned a payment in that amount if the full facts were known. On the other hand, that is the only figure which has been presented to the Court as representing the outcome of the parties' negotiations which resulted in the termination of their contractual relationships, albeit on a different basis to that which arises under the counterfactual. 539 Thirdly, I consider that it is also reasonable to accept the applicants' proposition that, in a hypothetical negotiation, Messrs Barnes and Hawksley would have been anxious to ensure that the amount that they had outlaid as part of their guarantee was properly recognised and protected. 540 Fourthly, in my view it is reasonable to expect that the negotiations would probably involve the respondents claiming that they should be compensated for the early termination of the SPA and related agreements and the consequential loss of the likely benefits under those arrangements, including the possibility of earn out payments for 2008 and 2009. Presumably they would, if necessary, have relied upon the kind of analysis which Mr Barnes prepared for the purpose of the cross claim. By the same token, however, it can reasonably be expected that BlueFreeway would have argued strongly that there was very real doubt whether any earn out would have been paid in either of those years having regard to FTI's financial figures for the 2007 financial year (absent the licence sale). This would introduce some uncertainty. 541 Fifthly, I believe that it is also relevant to take into account other benefits which would accrue to BlueFreeway if a settlement could be reached with the respondents involving the termination of their existing contractual arrangements and the restrictions which they imposed on the group's business strategy including, but not necessarily limited to, Mr Webb's vision or plans. Termination of those agreements also meant that BlueFreeway could, if it wished, fully absorb FTI's technical and sales teams into its wider operations, as well as obviating its potential liability to make payments to the respondents under the Executive Service Agreements. Another benefit to be taken into account from BlueFreeway's perspective was that exit arrangements would release the company from the respondents' threats to bring legal action against it for breach of the SPA and would also involve non-compete obligations. 542 I do not suggest that any of these factors had an indisputable foundation in fact, rather I consider that these are the sorts of matters which are likely to have weighed on the parties' minds if they were negotiating exit arrangements with all cards on the table. 543 Sixthly, as I indicated above, because neither of the respondents was asked in cross examination whether under the relevant hypothesis they would have agreed to a payout figure other than $16 million, that is another relevant factor to take into account in assessing the value of the lost opportunity. It introduces a further degree of uncertainty which must diminish the value of that lost opportunity. Further uncertainty surrounds what the terms of the legal advice would have been regarding the appropriate steps to be taken in respect of ensuring that the respondent's funding role complied with all relevant legal and governance requirements. 544 Seventhly, further uncertainty is introduced by Mr McDonnell's evidence. He says that if he had known that the respondents had played a part in arranging payment of licence fee he would have recommended to the board that the Exit Agreement not be executed. He also says, however, that he would have discussed the matter with the other members of the board. On the counterfactual, it is unclear on his evidence whether he might have been persuaded by the other directors, including Mr Daniel and/or Mr Greiner, to agree to an exit arrangement involving the payment of a different and lesser amount to the respondents. In my view, there is a distinct possibility that he may have been so persuaded, but the position is uncertain, which again must diminish the value of the lost opportunity. 545 The same can be said in respect of the other directors of the board who were not called to give evidence and whose likely attitude is unknown. That too introduces an element of uncertainty. 546 Taking all these matters into account, and doing the best that I can on the basis of the limited materials before me, I consider that there was a real and non-speculative chance that BlueFreeway would have negotiated a payout of less than $16 million in concluding termination arrangements with the respondents and knowing of their involvement in financing the licence transaction. But I do not consider that there were realistic prospects of BlueFreeway negotiating a payout of substantially less than $16 million. 547 In my view, the lost opportunity is appropriately reflected in an award of damages to BlueFreeway in the amount of $2 million. PART G: CONSIDERATION OF CROSS CLAIM 548 The cross claim is outlined in [80] to [84] above and involves various allegations against BlueFreeway of misleading or deceptive conduct, in contravention of s 52 of the TP Act. For convenience, I will refer to the cross claimants as the respondents and to the cross defendants as the applicants (noting that the cross claim relates only to FTI and BlueFreeway and not to Gang of 4). 549 The cross claim raises the following primary issues for determination: (a) did BlueFreeway make the Campaign Master Commitment Representation and, if it did, had it already decided to curtail support for Campaign Master and marginalise both that product and the respondents; (b) did BlueFreeway make the Funding Representation and, if so, did the respondents rely upon it in procuring finance for the licence transaction; and (c) did BlueFreeway make the Entire Agreement Representation and, if so, are they are actionable? 550 It is convenient to deal with each of those primary issues in turn. (a) Campaign Master Commitment Representation 551 In broad terms, the Campaign Master Commitment Representation comprises a series of statements which the respondents say BlueFreeway made to them (and to Mr Dhillon) which gave them reassurance of BlueFreeway's ongoing commitment to supporting Campaign Master and FTI's business by continuing to sell and develop Campaign Master. An important element of the Campaign Master Commitment Representation is the respondents' claim that BlueFreeway represented to them that no decision had been made by it to alter the level of support for Campaign Master, FTI's business or the role of Messrs Barnes and Hawksley in that business. The respondents further allege that the Campaign Master Commitment Representation was false because, either before the various statements were made or, alternatively, by May 2007, BlueFreeway had made various decisions which were inconsistent with its stated commitment to providing ongoing support for Campaign Master (referred to collectively by the respondents as the Campaign Master Decisions). They identified the subject matter of the Campaign Master Decisions as follows: (a) a decision that FTI and BlueFreeway would spend as little as possible to support Campaign Master over the next few years; (b) a decision that Campaign Master would not be part of the blu portal and that the group would support Traction as the stand-alone campaign management tool; (c) a decision that Campaign Master would no longer be sold by BlueFreeway or any of its portfolio companies, including FTI; (d) a decision that Mr Hawksley's future role would be in the selling of one-off licences of Campaign Master and that BlueFreeway would have no or only a very minor role in the future; (e) a decision that FTI's sales staff would be employed by BlueFreeway to sell products other than Campaign Master; and (f) a decision that in the future there would not be the same level of support, maintenance and development of the Campaign Master product as had occurred in the past. 552 The applicants denied both the Campaign Master Commitment Representation as well as the Campaign Master Decisions, however, rather unhelpfully, those denials were not elaborated upon in either their written or oral closing addresses. 553 The respondents say that the making of the Campaign Master Commitment Representation is "incontrovertible" and, in support of that submission, they made reference to various parts of the evidence. It is unnecessary for me to refer to that material because I accept their submission that the Campaign Master Commitment Representation was made by or on behalf of BlueFreeway. 554 I am not satisfied, however, that the respondents have established that the Campaign Master Decisions were in fact made by BlueFreeway. I will deal with each of those decisions in turn. (i) Mr Webb's objective of spending as little as possible on Campaign Master 555 As noted above, the respondents place heavy reliance on Mr Webb's email dated 3 May 2007, which was sent to Mr McDonnell and Mr Spencer, and stated that his objective was to spend as little as possible to support Campaign Master over the next few years and that Traction would be put into the portal. 556 As I have indicated above, it is important to note that Mr Webb also made reference in his email to the need for Mr McDonnell to review BlueFreeway's obligations before executing the Licence Agreement, which I consider to be an acknowledgement on Mr Webb's part that attainment of his objective was subject to any relevant legal constraints. Many of those constraints had been included in the SPA and related documentation at the insistence of the respondents because, in part, of their concerns about the ramifications of Mr Webb's plan or vision, including to create a "super salesforce" for the group (see, in particular, cl 1.3 of Schedule 5 which described BlueFreeway's "aim" of building a sales team by region, domestically and internationally with a view to selling the group's products and services). Hence clauses were inserted in the SPA, particularly in Schedule 5 relating to operational requirements, which were directed to protecting the respondents' position. And as noted in [14] above, cl 1.2 of Schedule 4 of the SPA imposed various obligations on BlueFreeway to maximise the highest level of EBIT for the benefit of the respondents except as agreed by them. 557 Furthermore, while it is abundantly clear that Mr Webb had a personal vision or plan at this time to restructure the group which, if achieved, would have had significant implications for Campaign Master and FTI generally, I do not consider that this email establishes that a decision had been made by the BlueFreeway board to approve Mr Webb's stated objective. Any major restructure of the group would require not only formal board approval but also, potentially, the consent of the respondents. 558 Mr McDonnell was subjected to a lengthy cross examination which was aimed at having him accept that he shared Mr Webb's vision. He resisted that proposition repeatedly. Mr McDonnell described how, having received Mr Webb's email dated 3 May 2007, he "had words" with him about it and reminded him of their obligations and the need to seek board approval. He added that he strongly doubted that such approval would have been given because of the financial implications. Mr McDonnell said that throughout 2007 he was not aware of any decision to "kill' Campaign Master, nor was the issue discussed by the BlueFreeway board. I accept that evidence. (ii) Exclude Campaign Master from the portal and support Traction 559 As noted above, this issue was addressed in their evidence by Messrs Daniel, Greiner and McDonnell. Each of them acknowledged that Mr Webb had a vision or plan to restructure the group and develop the blu portal but none of them said that the board had granted its approval. Although Mr Daniel described Mr Webb's plans for the portal as "prescient", he also expressed some personal reservations about it. He emphasised that the board had not formally approved Mr Webb's plan and that it was awaiting further details from Mr Webb. He said that while the board was generally happy for Mr Webb to proceed with his plans to restructure the group and to create a super sales force, the board never envisaged that there would be a wholesale restructure. I accept that evidence. 560 As noted above, Mr Greiner was taken to the board minutes of 26 March 2007 which, after referring to the opportunity to sell a licence to CMUK for the UK and Ireland, contained the following statement alongside the item "February Operating Review": As BlueFreeway is not able to sell direct in the territory and would not be using Campaign Master in the portal the sale would not adversely impact on forward revenues. 561 Although Mr Greiner acknowledged that this appeared to indicate that the board was implicitly adopting Mr Webb's vision of not including Campaign Master in the global portal, he stopped short of saying that the board had approved that plan. In my view, this aspect of the minutes does not constitute a tacit approval by the board, noting that the discussion took place at an early stage of the negotiations to sell the licence and it was not certain at that time that the transaction would even be finalised. 562 In any event, as is evident from the minutes, the view at the time was that Campaign Master could not be included in the global portal because that would be inconsistent with CMUK's proposed exclusive licence in the UK and Ireland. In other words, there was a rational basis for not including Campaign Master in the portal which had nothing to do with preferring Traction over that product. It might also be noted that Mr Greiner said that he viewed Mr Webb's plans as not being set in stone. I accept Mr Greiner's evidence on these matters. 563 Mr McDonnell's evidence concerning Campaign Master and Traction is summarised in [132] above. Mr McDonnell said that he was not aware of any decision to prefer Traction and marginalise Campaign Master. Indeed, he said that all his discussions with the respondents in the first half of 2007 were directed to increasing the sales of Campaign Master, not decreasing them. He viewed Mr Webb's plan to exclude Campaign Master from any future worldwide portal as "pie in the sky'. Mr McDonnell said that he did not observe Mr Webb having a closer relationship with Mass Media than with FTI. He acknowledged that he knew of Mr Webb's plans to bring FTI's sales and product development teams more closely into the group, but then said, correctly in my view, that that would require the respondents' consent. 564 The respondents were also well aware by at least early March 2007 of Mr Webb's plans to create a super sales force and to restructure the group. That was the context for them preparing a detailed document regarding those proposals and sending it to both Mr Webb and Mr McDonnell on 1 March 2007, in which they made plain that the proposed restructure would require their consent and that the earn out provisions would have to be renegotiated because of the implications of the proposal. 565 The respondents emphasise the importance to their cross claim of an email dated 15 August 2007 which was sent by Mr Fanale of Mass Media to inter alia Mr Webb and copied to Mr McDonnell. The email purported to confirm a discussion held the previous day with Mr Webb. Reference was made in the email to Campaign Master being rebranded to the blu portal as "only an interim measure" to ensure that the group did not lose FTI's clients. It also referred to Traction being "the sole campaign management platform for blu once any missing features from 42 blu are added" and that, in the meantime, campaign management activity sold by BlueFreeway or any of its resellers would be sold onto "the Traction blu platform and not through 42 blu". In the email, Mr Fanale also asked that he be informed of any relevant commercial agreement between BlueFreeway and FTI on these matters. 566 Significantly, Mr Fanale made express reference in the email to having waited patiently for action to be taken on these matters for over 7 months. The respondents say that this demonstrates that decisions must have been made by BlueFreeway that long ago. In my view, far from establishing that relevant final decisions had been made by BlueFreeway on matters affecting the relationship between Traction and Campaign Master, this email indicates that matters were still fluid and unresolved. That is why Mr Fanale was seeking to put pressure on Mr Webb to formalise arrangements and he concluded his email with an expression of hope that they could "go some way to sorting this out this afternoon". 567 The fluidity of the position is further reflected in the minutes of a management meeting held on 29 May 2007, at which Messrs Fanale, Webb and McDonnell are recorded as being present. The minutes appear on Mass Media's letterhead and they contain the following statements regarding FTI: It is understood that now the UK deal has gone through we can progress with the following: • 42 sales staff to be employed by BlueFreeway to sell the portal • Campaign master (sic) can not be part of the portal as a result of the sale and Traction is the stand alone campaign management tool • Lee would be able to sell one off licenses (sic) of Campaign Master to other markets • Campaign master (sic) to no longer be sold by BlueFreeway or BF portfolio companies. 568 These statements reflect Mr Fanale's understanding as at 29 May 2007, but it is only too evident from the terms and tone of his subsequent email which was sent months later in August 2007 that, while these matters had clearly been discussed, they had not yet been finalised. 569 Mr McDonnell also explained why he did not consider it necessary to inform the respondents about Mr Webb's portal plans because they had not been approved by the board and he personally doubted that they ever would. As noted above in [155] Mr McDonnell also explained the significance of the fact that no dollar figures had been allocated to Mr Webb's portal proposal. I accept Mr McDonnell's evidence on these matters as accurately reflecting his subjective views. I reject the respondents' claim that Mr McDonnell duplicitously and deceptively withheld this information from the respondents. 570 Even if it be accepted that Mr Webb personally had a vision which strongly favoured Traction at the expense of the respondents' interests, I do not accept that at any time during 2007 his vision or plan to restructure the group had been approved by the BlueFreeway board. (iii) Group no longer to sell Campaign Master 571 In support of their claim that the decision had been made by BlueFreeway that Campaign Master would no longer be sold by the group or any of its portfolio companies, the respondents primarily rely on the terms of the fourth item of the extract from the minutes of the management meeting held on 29 May 2007 as referred to in [567] above. I repeat and adopt what I have said above concerning the fluidity of the position and my reasons for rejecting the significance the respondents attach to that document. 572 For completeness, I should also add that I reject the respondents' criticisms of Mr McDonnell's evidence relating to the minutes. When he was taken to the reference in the minutes to Traction being the stand-alone campaign management tool, he said that that was wrong because it was always intended that even if Campaign Master was excluded from the portal, it would continue to be sold as a "stand alone product". I accept his evidence. (iv) Mr Hawksley's future role 573 The minutes are also relied upon by the respondents in support of their contention that a decision had been made in respect of Mr Hawksley's future role, which would see him selling one off licences of Campaign Master to other markets. It is evident that the respondents were well aware of this possibility in mid-2007. There is also an express reference to Mr Hawksley's future role in the detailed document prepared by Mr Barnes Mr Hawksley which was sent to Mr McDonnell on 12 June 2007. Under the heading of "BlueFreeway Budget Proposal", they summarised what they understood to be the proposed restructure being put forward by Mr Webb and Mr McDonnell as including a proposal to "move Lee Hawksley from current role to focus on license sales globally". It is significant that the topic was seen by the respondents themselves as "a proposal", which they strongly opposed because of inter alia its adverse impact on their interests. I am not satisfied that the respondents have established that BlueFreeway had made a decision on this topic. The matter was still under consideration. (v) FTI sales staff to sell products other than Campaign Master 574 It is clear on the evidence that an important part of Mr Webb's plan or vision was to bring the FTI sales team under a group umbrella and to sell products other than Campaign Master. It is equally clear that the respondents were well aware of that proposal when, on 12 June 2007, they provided their detailed comments on the "Blue Freeway Budget Proposal", which included a reference to the proposal to move the existing FTI salesforce under Blue Freeway "to act as an SME portfolio wide sales force". I consider that their response accurately describes the matter as a proposal and I am not satisfied that they have established that BlueFreeway had formally decided to approve and implement that proposal by Mr Webb. (vi) Reduced level of support, maintenance and development of Campaign Master 575 For similar reasons, whatever may have been Mr Webb's plans or aspirations with regard to these matters, I am not satisfied that the respondents have established that a formal decision had been made by BlueFreeway to approve those plans. The applicants acknowledge that there was a period of hiatus between November 2007 and March 2008 after the respondents left FTI and its St Leonards' offices were moved to the City as part of its integration with BlueFreeway. This is confirmed in the report prepared by Mr Milton entitled "Forty Two: NSW Sales Review and Recommendations 08-09". It is not unexpected that such disruptions would have had an impact on the levels and effectiveness of the support, maintenance and development of the software, but I do not accept that these things occurred as a result of a conscious decision by on behalf of the BlueFreeway board to withdraw support for these matters. I also accept Mr Eyles' evidence regarding FTI's support and development activities during his 7 years with FTI. 576 For all these reasons, therefore, I am not satisfied that the respondents have established this part of their cross claim and I reject it. (b) Funding Representation 577 This aspect of the cross claim turns on the Court accepting the respondents' claims that Mr Webb authorised them to provide, if necessary, financial assistance in order to ensure that the licence transaction was completed in the 2007 financial year. I have rejected those claims in the section above dealing with the applicants' case of misleading or deceptive conduct and I repeat and adopt that reasoning. 578 Accordingly, I also reject this part of the cross claim. (c) Entire Agreement Representation 579 In my view this aspect of the cross claim is misconceived because it is predicated on the proposition that the applicants should have set out in the Exit Agreement the misrepresentations which form the basis of their misleading or deceptive conduct case. The obvious difficulty with that proposition is that, at the time the Exit Agreement was executed, I have found that BlueFreeway was unaware of the respondents' involvement in financing the transaction because it had not been disclosed to them. Necessarily, therefore, this aspect of the cross claim must also be rejected. CONCLUSION 580 For all these reasons, I consider that the applicants are entitled to an award of damages plus interest on the basis of the respondents' breach of an implied term of the SPA as well as their contravention of s 42 of the FT Act. Otherwise, the further amended application should be dismissed. The cross claim should also be dismissed. 581 The parties were agreed that they should be given an opportunity to seek to agree final orders, including as to costs, in the light of the Court's reasons for judgment. They should seek to do so within 14 days hereof. If they are unable to reach agreement, they should within that same period file and serve written submissions not exceeding five pages in length in support of their respective proposed orders. The Court's current inclination is to finalise orders on the basis of the papers and without a further oral hearing. If any party opposes that course they should explain why in their written submissions. SCHEDULE A: RULINGS ON SOME EVIDENTIARY MATTERS A Respondents' objections to Mr Simmonds' affidavit dated 17 November 2012 582 As noted above in [196], when the applicants sought to read this affidavit the respondents objected to large parts of it on the basis that it was not expert evidence. They also raised specific objections to some individual paragraphs. With the parties' consent, I ruled that the affidavit should be read subject to those objections and that I would deal with them in my final reasons for judgement, which I now do. 583 Mr Simmonds prepared a report which is annexed to his affidavit. He was asked first to express his opinion as to whether a particular accounting standard (AUS 804 Audit of Prospective Financial Information (AUS 804)) was applicable in relation to assessing the income statement forecast of FTI as calculated by Mr Barnes and, if so, whether that accounting standard had been applied appropriately by Mr Wettenhall in his report. Further, he was asked to make certain specified assumptions and to then address the following second question: Had it been known at the time of the audit of the 2007 accounts of BlueFreeway that the Directors of FTI, Messrs Barnes and Hawksley had personally facilitated the payment of the Licence Fee to be made, would that fact trigger additional procedures compared to what would have been done had it not been known, in the process of auditing the 2007 accounts of BlueFreeway, and if so what would they be? 584 As to the first question he was asked to address, Mr Simmonds agreed that AUS 804 was applicable in assessing FTI's forecasts, but he concluded in paragraph 55 of his report that it had not been appropriately applied by Mr Wettenhall. Mr Simmonds explained that this was because Mr Wettenhall had qualified his report by saying that it had not been prepared in the context of an audit and that he had not audited the information provided to him. In the light of those statements, Mr Simmonds said that it was unclear to him as to why the accounting standard had been referred to at all by Mr Wettenhall because it relates to providing an audit opinion in relation to prospective financial information when in fact Mr Wettenhall had expressed no such audit opinion. 585 As to the second question which he was asked to address, Mr Simmonds answered the first part of the question affirmatively on the basis that, on that hypothesis, new information had been introduced which would have triggered the need to follow additional procedures in conducting an audit. He said that the first of those procedures would arise from the need to gain, to the extent possible, a thorough understanding of the respondents' role in funding the licence fee. He said that there would also be a need to assess the need for additional audit procedures to be performed in relation to accounting for the transaction. Finally, he said that in his view there would be two key additional areas of audit focus arising from that new information. He discussed those two additional relevant accounting standards in Section F of his report. 586 The respondents objected to Mr Simmonds' evidence relating to the issue whether Mr Wettenhall had appropriately applied AUS 804. They submitted that his evidence on this issue effectively amounted to the expression of an opinion on the proper construction of the relevant accounting standard and did not involve any specialist expertise. In particular, they objected to paragraphs 49-55 of Mr Simmonds' report. They contended that the Court can read the accounting standard for itself and determine whether or not it has been appropriately applied. I agree and uphold the objection to those paragraphs. 587 The respondents also objected to large parts of Section F of Mr Simmonds' report, which addressed the second question described above. The primary objection to this material was on the ground of relevance, but they also challenged some parts on the basis of what has become known as a Makita objection (see Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 concerning the requirement that an expert witness provide a sufficient statement of his or her reasoning which underpins a particular opinion). 588 Mr Ireland QC submitted that this material was relevant to the counterfactual and the likely impact on an audit of the relevant accounts if the auditors were aware of the involvement of the respondents in funding the licence sale. He said that, on the hypothetical, the auditors would have made a report to the board and that the nature of their involvement would therefore have come to the board's attention via that path and as an alternative to being informed by management. Mr Dubler SC responded by saying that the applicants have not pleaded that there was any duty of disclosure affecting an auditor. That may be so, but I view this part of Mr Simmonds' report as potentially relevant to the respondents' cross claim, which necessarily involves a counterfactual regarding the forecast revenues for 2008 and 2009, and I admit it on that basis. I also consider that Mr Simmonds has adequately explained in paragraph 60 of his report the basis upon which he arrived at his answer to question two and, therefore, the respondents' Makita objection is rejected. B Respondents' objection to all of Mr Puckrin's affidavit dated 30 November 2012 589 The respondents objected to the entirety of this affidavit on the following grounds: (a) three annexures to the affidavit which contained financial information were discoverable documents which were not discovered and, accordingly, the applicants should not be able to rely upon those documents; (b) leave should not be granted for the applicants to rely upon the material because the affidavit had been filed so late i.e. the last working day before the trial commenced. They said they would suffer serious prejudice if leave was granted; (c) the material should be excluded under s 135 of the Evidence Act 1995 (Cth) (the Act), on the basis that its probative value was substantially outweighed by the danger that the evidence might be unfairly prejudicial to them or cause undue waste of time; and (d) finally, the respondents contended that the applicants had not established that the relevant annexures were "business records" for the purposes of s 69 of the Act, so as to avoid the hearsay rule. 590 I rejected these objections and indicated that I would provide reasons in my final reasons for judgement, which I now do, dealing with each of the four grounds of objection in turn. (a) Discovery Issues 591 The three annexures contain financial information and figures drawn from data stored in two software accounting systems used by BlueFreeway called "MYOB" and "Quick Books". For the purposes of Mr Puckrin's affidavit, the annexures were presented in the form of documents containing financial information. It was evident that the documents were created relatively recently and for the purpose of Mr Puckrin giving evidence in the proceeding. The documents were created by Mr Puckrin using raw financial data stored in either of the two electronic accounting systems. 592 Mr Puckrin gave evidence that, when he joined the BlueFreeway group in March 2008 as chief financial controller, he obtained full access to the financial records of the group and its portfolio companies. He said that, prior to the acquisition of FTI by BlueFreeway in December 2006, BlueFreeway's accounts had been kept by a firm of accountants called Carboni & Co using the computer accounting system called MYOB. Annexure IMP-3 comprised a series of emails involving Ms Carboni from Carboni & Co dealing with year- end accounts and statutory reporting for the financial year 2007. In an email dated 24 July 2007 addressed to both a Mr Bryan O'Loughlin and copied to Mr Barnes, Ms Carboni attached a draft financial statement for FTI, including a detailed balance sheet as at June 2007. The respondents' objection was directed to that draft financial statement and detailed balance sheet on the basis that they had not been discovered. 593 Mr Puckrin gave evidence that IMP-4 (which was replaced during the course of the hearing by IMP-7 and was tendered as Exhibit A) comprised print-outs of various profit and loss statements relating to FTI, which he said were derived from the electronic MYOB data held by BlueFreeway. He further stated that the data accorded with the audited accounts of the BlueFreeway Group for the financial years ended 30 June 2007, 2008 and 2009. Although objection was taken to the three relevant annexures to Mr Puckrin's affidavit, the respondents' challenge was primarily directed to Exhibit A. 594 Mr Puckrin also gave evidence that IMP-5 was made up of print-outs of financial reports relating to Mass Media derived from the electronic data stored in Quick Books, another accounting system used by BlueFreeway. He also said that that data accorded with the audited accounts of the BlueFreeway group for the financial years end 30 June 2007, 2008 and 2009. 595 For the applicants, Mr Ireland QC denied that any of the relevant annexures were discoverable. He pointed out that the underlying data was stored in electronic form in either MYOB or Quick Books and, in effect the data, comprised a "vat of material". He said that none of the categories of discovery relied upon by the respondents required the applicants to discover the entire vat of data within either the MYOB or Quick Books accounting systems. He submitted that, where the discovery categories identified specific documents, such as financial statements, they had been produced. He said that the data used to generate the controversial annexures to Mr Puckrin's affidavit did not fit within any of the relevant categories of discovery. In particular, he submitted that there was no obligation on the applicants to create an otherwise non-existing document for the purposes of discovery. 596 For the following reasons, I agree with the applicants' submission that the information or material contained in the three relevant annexures was not discoverable. 597 First, it is relevant to note the terms of the following categories of discovery in the notice and further notice for discovery which the respondents say applied to the three annexures: 21. Copies of all documents with respect to the monthly sales activity of Forty-Two International's products between the period of 1 July 2007 to 30 June 2009. 39. Copies of the financial and audited account reports for each of BlueFreeway and Forty-Two International for the 2006-2007 and 2007-2008 financial years… 40. Copy of BlueFreeway's consolidated statements for the Portfolio Companies for the 2006-2007 and 2007-2008 financial years… 598 Secondly, it is relevant to note that the notices for discovery contained the following definition of "document" (a definition which incidentally adopts some, but not all, of the definition of "document" in the dictionary to the Act): For the purposes of this notice: (a) "documents" means any record of information and includes without limitation: (i) anything on which there is writing; (ii) anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them; (iii) anything from which sounds, images or writings can be reproduced with or without the aid of anything else; (iv) a map, plan, drawing or photograph; (v) notes, audio tapes, video tapes, correspondence, files, minutes, memoranda, email, computer record and any other document in electronic form. 599 In my view, none of the categories of discovery relied upon by the respondents required the applicants to generate or create a document drawing on raw data stored in either of the two electronic accounting systems. No such document was brought into existence until Mr Puckrin prepared his affidavit dated 30 November 2012. At that point he plainly created a document or record of information, but that was not the case at the times when discovery was being conducted. At those times the raw data was simply embedded in the relevant accounting systems. 600 The position may have been different if the data in those electronic accounting systems was stored in a form which reflected the documents created by Mr Puckrin. But that was not the case. As I understand matters, the raw data was only brought into the form which is reflected in the three relevant annexures when Mr Puckrin created those annexures for the purposes of his affidavit. 601 I might add that, in any event, even if the material contained in the relevant annexures was discoverable and had not been discovered, I do not accept that that would mean that the applicants could not rely upon the relevant material. In particular, I do not accept the respondents' submission that such material would have to be rejected having regard to what the following statement by the Full Court in Bourke v Beneficial Finance Corporation Ltd (1993) 124 ALR 716 at 731-2: Generally the sanction for the failure of a party to discover documents is that the party is unable to tender those documents in evidence (emphasis added). 602 The first point to note about that statement is the fact that the Full Court was plainly not purporting to enunciate an absolute rule. The use of the word "generally" necessarily recognises that no such absolute rule was intended. In my view, the Court retains a discretion as to whether or not to permit a party to rely upon a document where discovery obligations have not been met. Naturally, a party's failure to comply with its discovery obligations will weigh heavily in the exercise of that discretion. But I consider that other relevant considerations may also arise in any particular case, including such matters as the significance of the material to the issues in the proceedings, the prejudice to the other parties if the material is allowed to be relied upon and whether any such prejudice can be adequately accommodated (such as by granting an adjournment or by other steps taken within the framework of the proceedings which do not require the hearing schedule to be disturbed, such as adjusting the order of witnesses or "fast-tracking" the issue and return of relevant subpoenas). 603 Secondly, it is also important to note that the Full Court's statement was obiter dictum. The statement was made in the context of the Full Court dealing with the question whether a new trial should be ordered in circumstances where documents had not been properly discovered. The Full Court was not addressing the question whether a party should be permitted to rely upon a document which ought to have been discovered and was not. 604 Thirdly, I respectfully agree with the following comments of D L Bailey and E K Evans, Discovery and Interrogatories Australia, at (loose leaf service) [37,335]: The better view is that in the absence of express or general powers such as those referred to above, the court should not refuse to admit in evidence documents not discovered but allow reliance on them on such terms as to adjournment, recall of witnesses, reopening of the surprised party's case and payment of costs as will prevent any unfairness to that party. (b) Late service of affidavit and respondents' prejudice 605 Mr Puckrin's affidavit was served on 30 November 2012, shortly before the trial was due to commence. It was not disputed that leave was required to rely upon the affidavit because it was filed well outside the relevant directions for the filing of evidence. 606 The respondents oppose leave on the ground that they would suffer significant prejudice if leave was granted. That was said to be particularly so because they had a fundamental concern about the accuracy of the data underpinning the controversial annexures. The respondents submit that they have real concerns whether the figures concerning the financial years 2008-2009 accurately reflect sales of Campaign Master during those periods and correctly allocate appropriate expenses in connection with those sales to FTI. They argue that they believe that BlueFreeway may not have maintained accurate separate accounts for FTI which correctly reflected the expenses and sales relevant to the various products sold by FTI during those periods, particularly Campaign Master. The respondents further complain that, had the material been provided earlier, they would have had an opportunity to investigate the accuracy of the information by pursuing various steps. Those steps included the possibility of issuing a subpoena to Carboni & Co, seeking discovery of other records from the applicants' computer systems and having subpoenas issued to particular customers for invoices from BlueFreeway/FTI in order to check if proper accounts had been kept capturing all relevant sales of Campaign Master. 607 The respondents further complain about their prejudice relating to Mr Puckrin's statements that the data from which IMP-3 and Exhibit A were drawn accorded with the audited accounts of the BlueFreeway Group. They say that no audited accounts had been discovered for either FTI or Mass Media. I should record at this point that I attach no weight to the respondents' claims concerning the absence of audited accounts for FTI. As a member of a consolidated group of companies, there was no legal requirement to produce audited accounts in respect of individual portfolio companies. 608 Mr Ireland QC responded to these claims by emphasising that Mr Puckrin's affidavit had been prepared in response to various objections to evidence by the respondents and served only on 22 November 2012. Some of those objections related to various passages in Mr Puckrin's earlier affidavits dated 4 and 11 March 2011 in which he set out calculations of EBIT for the financial years 2008 and 2009. Mr Ireland QC submitted that the respondents had had ample opportunity to raise any concerns well before 22 November 2012 relating to those passages. He added that the respondents were aware as far back as March 2011 that the parties were in dispute as to the relevant EBIT figures and it should be assumed that they simply took a forensic decision to raise no objection or seek further material until they filed their list of objections to evidence on 22 November 2012. I understood Mr Ireland QC's submission to be along the lines that any prejudice to the respondents is essentially of their own making. 609 In my view, there is force in the contention that the respondents could have raised much earlier their concerns regarding the absence of substantiating material in respect of the financial matters set out in Mr Puckrin's two affidavits dated March 2011. Although their listed objections to evidence were filed and served in accordance with the Court directed timetable, it should have come as no surprise that the applicants might take steps to address the relevant objections, in circumstances where the evidence addressed a significant issue in the proceedings. That issue is whether FTI's performance in the financial years 2008 and 2009 produced profitability figures or consequential EBIT calculations which even approach the $2.5 million threshold specified in the SPA for the respondents to be eligible for earn out in those years. 610 The applicants must bear some responsibility for the evidentiary deficiencies in Mr Puckrin's earlier affidavits, but I accept their contention that it was not until 22 November 2012 (when they were first notified of the respondents' objection to Mr Puckrin's summary of the relevant EBIT calculations) that those summaries became controversial. 611 Secondly, and in any event, I ruled that Exhibit A should be provisionally admitted on the basis that any prejudice to the respondents might be able to be overcome by the applicants responding quickly to any request made by the respondents to have access to additional relevant source material. Mr Ireland QC offered to make promptly available to the respondents any material in the applicants' possession required by the respondents in order to deal with the three controversial annexures. 612 As matters transpired, the respondents subsequently renewed their challenge to the admissibility of Exhibit A on the basis of their prejudice, which they said they were now able to particularise. They relied on an affidavit by Mr Barnes sworn 17 December 2012 and two affidavits by Mr Davis both dated 10 December 2012. In response, the applicants relied upon an affidavit of Mr Petrucco sworn 17 December 2012. 613 The thrust of that evidence may be summarised as follows. 614 First, the applicants said that it would take some time for them to produce from their archives hard copies of FTI sales invoices and other materials sought by the respondents arising from Mr Puckrin's affidavit dated 30 November 2012. However, they did make available for inspection around 10,000 FTI sales invoices which they had printed from the MYOB electronic accounting system. 615 Secondly, Mr Barnes gave evidence to the effect that he had spent many hours over the weekend reviewing those sales invoices but that they were inadequate to enable him to form a view as to whether EBIT figures for 2008 and 2009 advanced by the applicant in Exhibit A were correct. In particular, he said that the electronic sales invoices did not address the respondents' concern that during the relevant periods some FTI clients were not properly invoiced in respect of their Campaign Master transactions and that there may also have been a misallocation of both expenses and the financial records concerning subscriptions to both Campaign Master and Traction. 616 Mr Dubler SC contended that, in the light of the respondents' prejudice, Exhibit A should not be admitted or, if it was, the proceedings should be adjourned until sometime in 2013 in order to enable the respondents to have access to and consider all the source material sought by them. 617 The applicants opposed any adjournment in the proceeding or exclusion of Exhibit A. They placed particular reliance upon the following matters: (a) the applicants had been engaged in a very lengthy process of discovery in the proceedings, providing three separate lists of documents, the most recent of which was in April 2012 when copies of all discovered documents were furnished to the respondents. They included many financial documents, including management accounts which were provided to the respondents in April 2012; (b) the EBIT calculations now appearing in Exhibit A contained the same total figures as were first provided to the applicants in Mr Puckrin's affidavit of 11 March 2011; (c) in those circumstances, both the EBIT calculations and the figures lying behind Exhibit A were in the possession of the respondents for months before the hearing began; and (d) although Mr Barnes makes several "theoretical" complaints as to whether other income or expenses had not been properly accounted for in 2008 and 2009 thereby reducing profit and EBIT for those years, such assertions had not been substantiated. In particular, Mr Barnes was unable to identify any suggested anomaly arising from his weekend review of the electronic sales invoices extracted from MYOB. 618 In my view, the respondents failed to establish a basis upon which Exhibit A should be rejected or the proceedings adjourned. My reasons for this conclusion substantially reflect the applicants' contentions summarised above. In particular, it seems to me that the respondents made a forensic decision after reviewing Mr Puckrin's affidavit of 11 March 2011 not to pursue with the applicants at that time the source materials upon which Mr Puckrin's EBIT figures were based and instead proceed on the basis of their view that the relevant material was inadmissible. It was not until 22 November 2012 that the respondents advised the applicants of their objections to that material. 619 I consider that it is also significant, independently of Mr Puckrin's affidavit dated 11 March 2011, that the respondents were provided with Excel spreadsheets on a disc in April 2012, which spreadsheets included EBIT figures for 2008 and 2009 which are identical to the figures relied on by Mr Puckrin. Accordingly, it was open to the respondents at that time to require access to source documents underlying those figures. They did not do so. They complain that, although Mr Petrucco now describes those Excel spreadsheets as "management accounts", they were not so described in the relevant lists of discovered documents. I attach little or no weight to that fact. The critical point is that the respondents had the material in their possession and failed to take any further relevant steps in respect of it. 620 Finally, in my view it was undesirable and inappropriate for the hearing to be adjourned until sometime in 2013. The proceedings had been commenced as long ago as December 2008 and had been set down for a three week hearing in December 2012. As the parties were aware, if the hearing was not completed during the scheduled time, Court commitments meant that they would not be able to resume until well into 2013. Moreover, I also took into account the fact that the respondents themselves must bear some responsibility for finding themselves in the position that they did [of having to deal with Exhibit A] in circumstances where it was open to them from at least April 2012 (if not earlier) to take appropriate steps to deal with the matter. (c) Section 135 of the Act 621 The Court has a discretion to exclude evidence under s 135 of the Act if its probative value is substantially outweighed by the danger that the evidence might relevantly be unfairly prejudicial to a party or cause or result in undue waste of time. In my view, this is not an appropriate case to exercise that discretion. First, for reasons I have given above, I do not accept that the probative value of the relevant evidence is substantially outweighed by the respondents' claimed prejudice. I repeat what I have said above on the topic of prejudice. Secondly, I do not accept that admitting the evidence will result in an undue waste of time. That is because I consider that, for reasons given above, appropriate steps can be taken to enable the respondents to deal with the evidence within the framework of the scheduled hearing. (d) Records not proved to be business records 622 The respondents submitted that the relevant annexures are admissible as business records under s 69 of the Act only if the applicants satisfy the relevant requirements of that provision, including in particular what was described as the "personal knowledge requirement" in respect of each representation contained in the relevant documents. 623 In the respondents' submission (citing Lithgow City Council v Jackson (2011) 244 CLR 352 at [17] per French CJ, Heydon and Bell JJ), the applicants carried the onus of establishing for the purposes of subsection 69(2) that: (a) each representation in the relevant documents was made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. 624 In accordance with subsection 69(5) of the Act, the respondents accept that a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived. 625 The respondents contended that the personal knowledge requirement is not satisfied here because the evidence as to the provenance of the relevant documents and their compilation is hearsay in circumstances where: (a) Mr Puckrin only became involved with BlueFreeway from March 2008, yet he purports to give hearsay evidence to the effect that: (i) in 2006, FTI's accounts were kept by Carboni & Co using an accounting system known as MYOB; (ii) when he joined BlueFreeway, there were MYOB data files containing accounting information prepared by Carboni & Co for FTI and in about December 2007 the data from those files was delivered in electronic form by Carboni & Co to BlueFreeway and integrated into the BlueFreeway's Group financial accounting records using MYOB; (iii) from about January 2008, the accounting functioning in respect of the 2008 financial year in respect of FTI was carried out at BlueFreeway's central office; and (b) all these matters occurred prior to Mr Puckrin joining BlueFreeway in March 2008. Accordingly, his evidence was hearsay. 626 The respondents contended that there is no direct evidence establishing the system in place at the relevant times by which the representations concerning the financial details in the documents were collated and recorded, with the consequence that there was no evidentiary foundation upon which the applicants could establish that each representation was recorded by someone with the requisite personal knowledge. 627 The essence of the respondents' submission on this matter is captured in the following passage from Mr Dubler SC's oral argument: The seminal issue is, your Honour, by looking at what has been printed, is your Honour able to draw the inference that the figures that emerge here have been derived from persons who can be reasonably presumed to have personal knowledge. Does your Honour need more if we object, and we do, to explain that there was a system in place that in particular allowed for the '06 and '07 material that had been prepared by others to have been correctly integrated, and to be based on proper source material and documents or people who had the personal knowledge of the underlying source of material that became this. And hence our submission where plainly there is simply an accounting type material printed, is that enough in a legal case, or must, on objection, there be some admissible evidence about the manner of its creation. 628 For the following reasons, I reject the respondents' objection to the effect that the business record exemption from the hearsay rule does not apply to the relevant material. 629 First, while it is true that Mr Puckrin did not join the BlueFreeway Group until March 2008, it is not disputed that, at that time, he gained access to all the past and current financial records of the Group, including the financial records of FTI. Nor is it contested that the 2006 financial statements of FTI were prepared by Carboni & Co. The respondents' complaint is the absence of any non-hearsay evidence establishing that Carboni & Co used the MYOB accounting system in preparing those financial statements. But it is clear from Mr Puckrin's evidence that, as at March 2008, the records of BlueFreeway and FTI included MYOB data files containing accounting information prepared by Carboni & Co in respect of the financial years ending 30 June 2006 and 2007. Section 183 of the Act has the effect that, if a question arises about the application of a provision of the Act in relation to a document, the Court may draw any reasonable inferences from the document as well as from other matters from which inferences may properly be drawn. Having regard to the matters described above, I infer the MYOB accounting system was used in the course of preparing FTI's financial statements for both 2006 and 2007. 630 Secondly, the relevant annexures constitute hardcopy documents of data from the MYOB files prepared and maintained up until December 2007 by Carboni & Co in respect of FTI and thereafter by the BlueFreeway Group. Mr Puckrin gave evidence that in about December 2007, the data from those MYOB files in Carboni & Co's possession were delivered by that accounting firm in electronic form to BlueFreeway and integrated into the Group's financial accounting records, which were also in electronic form and used the MYOB accounting system. Mr Puckrin further deposed that, from about January 2008, the accounting function in respect of the 2008 financial year for FTI was carried out at BlueFreeway's offices in Macquarie Street Sydney. It can be inferred that the matters were apparent to Mr Puckrin who had full access as chief financial controller to all of the financial records of both the Group and FTI. 631 I infer that the information contained in the MYOB data files for FTI for the financial year ended 30 June 2006 and part of the following financial year were prepared by accounting staff at Carboni & Co, persons who might reasonably be supposed to have had personal knowledge of the matters reflected in that data. The respondents did not contest the proposition that, as a matter of law, there is no requirement under s 69(2) of the Act to identify by name the "person" who had or might reasonably be supposed to have had the requisite personal knowledge (see, for example, Guest v Commissioner of Taxation [2007] FCA 193 at [29] per Heerey J) (Guest). 632 Furthermore, in circumstances where BlueFreeway took over responsibility for preparing accounting information in respect of FTI from December 2007, again using the MYOB accounting system, I infer that the relevant data in respect of the financial years ending 2008 and 2009 was prepared by one or more persons in BlueFreeway's finance department who had or might reasonably be supposed to have had personal knowledge of the matters reflected in that data. 633 Thirdly, I do not accept the respondents' core proposition that the relevant documents are not business records for the purposes of s 69 unless the applicants adduce direct and admissible evidence of the systems in place at the relevant times under which financial details were collated and recorded. In my opinion, that proposition sits uncomfortably with both the policy underlying s 69, and the Court's power to draw appropriate inferences in accordance with s 183 of the Act. 634 As to the policy underlying s 69, I respectfully agree with the following observations of Heerey J in Guest at [25]: The policy behind the provisions clear enough. Routine business records, made before any legal proceeding arises or is contemplated (cf the exception in s 69(3)), have an inherent likelihood of reliability which outweighs the common laws aversion to hearsay evidence where the maker of a statement cannot be tested by cross-examination. The utility of s 69 would be greatly diminished if it were necessary to locate among large organisations, perhaps over a long period of time, persons who made representations, often in circumstances where the practical needs of the organisation did not require any identification at the time the representations were made (emphasis added). 635 Although Heerey J's remarks were specifically directed to the question of whether there is a need specifically to identify the "person" in order for subsection 69(2) to operate, I consider that they are also apposite to the respondents' contention here concerning the need for non-hearsay evidence establishing the system under which relevant financial details were collated and recorded. 636 As to s 183 of the Act, I consider that it authorises the drawing of the inferences I have made above, which are sufficient to satisfy the requirements of subsection 69(2). I do not accept the respondents' contention that, in the circumstances here, the applicants also had the onus of establishing by direct evidence the systems in place by which the data in the relevant accounting software was compiled and collated. In my view, the respondents' concerns regarding the accuracy of the raw data goes to the weight of Mr Puckrin's evidence and not to its admissibility. 637 For all these reasons, therefore, I rejected the respondents' overall objection to Mr Puckrin's affidavit. I certify that the preceding six hundred and thirty-seven (637) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. Associate: Dated: 18 February 2014