Supreme Court New South Wales Medium Neutral Citation: Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 7) [2020] NSWSC 1060 Hearing dates: 10 August 2020 Date of orders: 13 August 2020 Decision date: 13 August 2020 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Parties to bring in short minutes reflecting the decisions summarised at [17] Catchwords: CONTRACTS – proper construction of the Share Purchase Deed – whether its effect is that the Resilium Transaction should be reversed in its entirety JUDGMENTS AND ORDERS – reasons – orders necessary to give effect to principal judgment Legislation Cited: Competition and Consumer Act 2010 (Cth), Sch 2 ('Australian Consumer Law') Cases Cited: Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 3) [2019] NSWSC 1759 Category: Consequential orders (other than Costs) Parties: James Angelis as trustee for the Angelis Family Trust (First Plaintiff/Second Cross-Defendant on First Cross-Claim/Sixth Cross-Defendant on Second Cross-Claim) Jitendra Dutt (Second Plaintiff/Third Cross-Defendant on First Cross-Claim) Nathan Brown (Third Plaintiff/Fourth Cross-Defendant on First Cross-Claim) Antony Goldsmith (Fourth Plaintiff/Fifth Cross-Defendant on First Cross-Claim) Copiapo Pty Ltd as trustee for FCK Consulting Trust (Fifth Plaintiff/Sixth Cross-Defendant on First Cross-Claim) Pemba Capital Partners Fund I Partnership, LP (First Defendant/First Cross-Claimant on First Cross-Claim/First Cross-Defendant on Second Cross-Claim) Pemba Capital Partners Pty Ltd as trustee for the Castlereagh St (Swan) Co-Investment Trust (Second Defendant/Second Cross-Claimant on First Cross-Claim/Second Cross-Defendant on Second Cross-Claim) Adrian Christopher Kitchin (Third Defendant/Seventh Cross-Defendant on First Cross-Claim/First Cross-Claimant on Second Cross-Claim) Benjamin James Hastie (Fourth Defendant/Eighth Cross-Defendant on First Cross-Claim/Second Cross-Claimant on Second Cross-Claim) Drue Jonathon Giles Castanelli (Fifth Defendant/Ninth Cross-Defendant on First Cross-Claim/Third Cross-Claimant on Second Cross-Claim) Coverforce Holdings Pty Ltd (Sixth Defendant/First Cross-Defendant on First Cross-Claim/Fourth Cross-Defendant on Second Cross-Claim) Resilium BidCo Pty Ltd (Fourth Cross-Claimant on Second Cross-Claim) Resilium OpCo Pty Ltd (Fifth Cross-Defendant on Second Cross-Claim) Representation: Counsel: J C Giles SC with P Knowles (Plaintiffs) P Flynn SC with E Bathurst (First and Second Defendants) M R Elliott SC with D Ratnam (Third, Fourth and Fifth Defendants) Solicitors: Norton Rose Fulbright (Plaintiffs) Herbert Smith Freehills (First and Second Defendants) Roberts & Partners Lawyers (Third, Fourth and Fifth Defendants) File Number(s): 2019/201647 Judgment 1. I gave judgment in this matter on 10 December 2019: Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 3). [1] 2. These reasons assume familiarity with that judgment. I will use the same abbreviations. 3. I decided that: (1) the shareholders of Coverforce remained bound by the 2017 Shareholders Agreement; (2) Pemba was not estopped from asserting the contrary; (3) but for AUB's announcement on 9 December 2019, Pemba would have been entitled to proceed with the sale to AUB; (4) Coverforce did have authority to enter, and did effectively enter, the 25 March 2019 Share Purchase Deed; (5) Coverforce did not have the requisite board approval to complete the transactions envisaged in the 25 March 2019 documents; (6) there had been no valid allotment of shares in Coverforce to the Kitchin Parties; (7) Mr Kitchin has not been validly appointed as a director of Coverforce; (8) the Kitchin Parties were accordingly entitled to elect either to: (a) exercise their right under cl 5.6 of the 25 March 2019 Share Purchase Deed to 'reverse' the 'actions' effected by the 25 March 2019 Resilium Transaction documents and to thereby, in effect, 'unwind' the Resilium Transaction; or (b) recover damages from Coverforce. 1. On 11 December 2019 I made orders intended to give effect to my 10 December 2019 reasons. Those orders were made in terms prepared by the parties. 2. Orders 8 to 19 were intended, as I understood it, to "reverse" the Resilium Transaction in accordance with the election made by the Kitchin Parties in accordance with my findings set out at [3(8)] above. 3. Those orders were that: 8. Coverforce forthwith transfer to the Kitchin Parties the shares in Resilium OpCo. 9. Pemba and the Angelis Parties do all things they are able to do that are necessary to facilitate compliance by Coverforce with Order 8. 10. Coverforce, the Angelis Parties and Pemba co-operate with and assist the Kitchin Parties to facilitate the orderly transmission of the business, property, employees and affairs of Resilium OpCo, Resilium Pty Ltd and Resilium Insurance Broking back to them and the Kitchin Parties, including the orderly: a. extraction, removal and transfer of the information, records, property and assets of those entities from Coverforce (whether electronic or hard copy); b. relinquishment of any position of authority or control that any officer or employee of Coverforce has in respect of the assets and business of any of those entities; c. the transfer of the employees to Resilium Pty Ltd and Resilium Insurance Broking Pty Ltd listed in Schedule A to these orders. 11. That Mr Dutt forthwith resign as a director of Resilium Pty Ltd and Resilium Insurance Broking Pty Ltd and that Mr Angelis fortieth resign as a director of Resilium OpCo; 12. The Angelis Parties be restrained from transferring, disposing of, or otherwise dealing with any of the assets of Resilium OpCo, Resilium Pty Ltd and Resilium Insurance Broking Pty Ltd, or instructing, directing or otherwise causing or permitting such events to occur, otherwise than for the purposes of complying with an order of this Court, without the prior written consent of Mr Kitchin. 13. Coverforce account to Resilium OpCo for any and all profits derived by it from the businesses of Resilium OpCo, Resilium Pty Ltd and Resilium Insurance Broking Pty Ltd. 14. An account be taken for the purpose of establishing the quantum of the sum to be accounted for pursuant to order 13 above. 15. In the first instance and subject to further order Coverforce pay the costs of and incidental to the account to be taken pursuant to order 13 above. 16. Declare that the call option in the Coverforce Call Option deed is not exercisable by Coverforce. 17. Declare that the loan contracts and security deeds between Coverforce and the Kitchin Parties remain binding and operative according to their terms. 18. To the extent that Coverforce cannot enforce the repayment of the loan funds pursuant to the loan contracts referred to in Order 17, upon the completion of the steps referred to in Orders 8 to 15 above, the Kitchin Parties make restitution of those loan funds to Coverforce. 19. The employment contracts between Coverforce and the Kitchin Parties be set aside. 1. The orders did not specify, and I received no submissions concerning my power to make the orders proposed by the parties. I do not understand any party now to contend there was no power to make the orders; whether by reason of cl 5.6 of the Share Purchase Deed or by reason of s 237 of the Australian Consumer Law. [2] 2. The Kitchen Parties have taken many of the steps necessary to reverse the Resilium Transaction. 3. These reasons are concerned with two steps that remain: 1. the account, referred to in orders 13 to 15, by Coverforce of the profits it derived from the Resilium business between June and December 2018 ("the Account"); and 2. the repayment by the Kitchin Parties to Coverforce of the loans, referred to in orders 17 and 18 ("the Loans"). The Account 1. As to the Account, I made directions for the Angelis Parties to prepare an Account and on 16 June 2020 referred out to the Honourable R C McDougall QC the taking of the Account. Mr McDougall delivered his report on 27 July 2020. When adjusted by certain agreed amounts, the result of the Account is that Coverforce is required to pay Resilium OpCo $8,274,620.51. It is common ground that Mr McDougall's report should be adopted. The Loans 1. The Loans were made by Coverforce to the Kitchin Parties to enable the Kitchin Parties to purchase the shares in Resilium from Suncorp. The amount advanced by Coverforce to the Kitchin Parties was some $25 million. 2. The Loan Agreement provided that the Loans were interest free and not repayable until the "Termination Date"; a term of ten years. 3. When the Kitchin Parties elected to reverse the Resilium Transaction, an issue arose as to when they must repay the Loans. For a time, the Kitchin Parties contended that they were not obliged to make repayment until the Termination Date. During February I received detailed submissions from the parties on that question in anticipation of a hearing on 2 March 2020. 4. However, on 2 March 2020 counsel for the Kitchin Parties informed me that the Kitchin Parties now agreed to repay the Loans within a reasonable time: said to be by 31 May 2021. It was therefore not necessary for me then to deal with the submissions received during February. 5. On 25 March 2020 I directed that the fixing of a reasonable time be deferred until the Account had been taken. The Issues remaining 1. The following issues now require determination: 1. the date by which the Kitchin Parties should repay the Loans; 2. whether the Kitchin Parties should pay Coverforce interest at Court rates until the Loans are repaid; 3. the security which the Kitchin Parties should give Coverforce in the meantime; 4. when the amount of the Account should be paid; 5. whether the Kitchin Parties should have liberty to apply in relation to any orders made; and 6. what order should be for costs made. Decision 1. My conclusions are that: 1. the Loans should be repaid by 31 May 2021; 2. interest on the Loans should be paid at Court rates from 11 December 2019; 3. repayment of the Loans should be secured by a charge over the shares in Resilium BidCo; 4. the Account is to be paid on 24 May 2021; 5. the Kitchin Parties do not have liberty to apply; 6. Coverforce is to pay the costs of the reference including the Kitchin Parties' costs on the reference; and 7. the Parties should make submissions as to the remaining costs issues, which I will decide on the papers. Coverforce remains unrepresented 1. In the main judgment I recorded that because of a deadlock on the Coverforce board it was not represented but that the Angelis Parties were effective contradictors of Pemba's and the Kitchin Parties' positions [3] . 2. Since December 2019, Coverforce has appeared by solicitor and counsel, including at the hearings on 2 and 25 March 2020. However, from 24 April 2020 it has again ceased to be represented. 3. No one suggested this was an impediment to me dealing with the remaining issues. I see the position now to be the same as it was last year. One party or other has put all arguments needed to protect Coverforce's position. As a practical matter, there is no alternative but to resolve the remaining issues without Coverforce's separate involvement. Agreed Orders 1. It is agreed that, in addition to an order adopting Mr McDougall's report, the following orders should be made. 2. First, it is agreed that orders 17 and 18 that I made on 11 December 2019 should be set aside. 3. It is also agreed that I should make orders setting aside the Loan Agreements made between Coverforce and the Kitchin Parties and the identified related documents. 4. As to the remaining orders, it is agreed I should publish reasons in relation to the outstanding matters and then invite the parties to confer and agree on the form of the orders to be made. Repayment date 1. The Angelis Parties and Pemba now agree that the Kitchin Parties should have until 31 May 2021 to repay the loan. 2. There is controversy, however, as to the terms that should be imposed on the Kitchin Parties in the meantime. Interest 1. The first question is whether the Kitchin Parties should pay interest at Court rates on the Loans from the date of my 11 December 2019 orders. 2. In my opinion, they should. 3. The parties' agreement that the Loans be interest-free was in the context that Coverforce was to own the Resilium income producing asset, Resilium OpCo, which through the Management Services Agreement received the revenue from the Resilium business. 4. Since 11 December 2019, the Resilium transaction has been reversed in part; but not completely. The Kitchin Parties have recovered their shares in Resilium OpCo, but still retain the proceeds of the Loans advanced to them by Coverforce to enable them to purchase the Resilium business from Suncorp. 5. In those circumstances, a condition that should be imposed on the Kitchin Parties in return for having until 31 May 2021 to repay the Loans is that they pay interest to Coverforce on the Loans from 11 December 2019 to the repayment date at Court rates. Security 1. Although under the terms of the Loan Agreements the Loans were unsecured, the Kitchin Parties now agree to provide security to Coverforce in terms to be determined by the Court. 2. The Kitchin Parties propose that Coverforce be given a charge over their shares in Resilium BidCo in a form that has been identified and that: 1. secures due and punctual payment of the money; 2. prevents the Kitchin Parties from dealing with the shares; and 3. provides that if the secure moneys are not repaid by the due date, the charge is immediately enforceable, including by way of appointment of a receiver and exercise of other powers. 1. The Kitchin Parties propose a limited recourse security such that Coverforce's rights will be limited to a capacity to exercise rights over the charged property. 2. The Angelis Parties seek a wider charge over the Resilium BidCo shares, being a charge in the same terms as the charges that were granted as part of the transaction which has failed. I do not think this is appropriate. The original charge over the Resilium BidCo shares was prepared in contemplation of a very long commercial relationship between the Angelis Parties and the Kitchin Parties. It contains a large suite of undertakings, many of which are not relevant for present purposes. 3. The Angelis Parties also seek a charge over Resilium OpCo. 4. The Angelis Parties sought this security because: "Now that the Resilium Transaction has been unwound, and shares in Resilium OpCo have been returned to the Kitchin Parties, it is appropriate the security extend to the shares in Resilium OpCo. Resilium OpCo continues to enjoy the economic benefit of the business. Without security over that economic benefit, the protection afforded by security would be compromised. Certainly, the value of the security without any rights against Resilium OpCo would be considerably less than the amount advanced under the Loan Agreement, as the advances reflected the purchase price of the entire Resilium Business." 1. However, Resilium BidCo is the owner of the Resilium business. Thus the charge proposed by the Kitchen Parties is a charge over the shares in the Resilium owner. In my opinion that is, in all the circumstances, sufficient protection for the Angelis Parties. When should the Account be paid? 1. The question is whether Coverforce should be ordered to pay Resilium OpCo the amount of the Account now, or whether payment should be deferred until, or shortly before, the Kitchin Parties repay the Loan. 2. Pemba submitted that, on its proper construction, the effect of cl 5.6 of the Share Purchase Deed is that, now that the Kitchin Parties have elected to reverse the Resilium Transaction, all elements of that transaction must now be reversed. It followed, Pemba submitted, that as repayment by the Kitchin Parties of the Loans to Coverforce and the accounting by Coverforce to Resilium OpCo for the profits derived are both elements in that process, and in that sense interrelated, they should occur simultaneously. 3. Accordingly, Pemba submitted, Coverforce should not be required to pay the amount of the Account until the time at which the Kitchin Parties repay the Loans: 31 May 2021. 4. That issue was fully ventilated in the February submissions to which I referred at [13] above. As the Kitchin Parties stated on 2 March 2020 that they would repay the Loans within a reasonable time, it was not necessary for me to deal with the question at that time. 5. It is now necessary to decide the question, as it is relevant to what order be made about when the amount of the Account be paid. 6. The clause provided: "5.6 Completion simultaneous (a) Subject to clause 5.6(b), the actions to take place as contemplated by this clause 5 are interdependent and must take place, as nearly as possible, simultaneously and will be taken to have occurred simultaneously. If one action does not take place, then without prejudice to any rights available to any party as a consequence: (i) there is no obligation on any party to undertake or perform any of the other actions; (ii) to the extent that such actions have already been undertaken, the parties must do everything reasonably required to reverse those actions; and (iii) each party must each return to each other party (as applicable) all documents delivered to it under this clause 5. (b) Completion is taken to have occurred when each party has performed its obligations under this clause 5." 1. The particular subject of the Share Purchase Deed was the sale by the Kitchin Parties to Coverforce of the shares in Resilium OpCo and the allotment by Coverforce of shares in itself to the Kitchin Parties. The Share Purchase Deed does not, in terms, deal with anything else. 2. The "actions" referred to in the opening words of cl 5.6(a) included those matters which were, in terms dealt with in cll 5.2 and 5.3. 3. The question is whether the "actions" referred to in cl 5.6(a) also included the other "actions" necessary to effect the Resilium Transaction, including the "action" of Coverforce making the Loans to the Kitchin Parties. 4. In my opinion, they did. 5. Clause 5.6 speaks of "actions" that are "contemplated by this clause 5". It does not speak of the "actions" that are "specified" or "provided for" by cl 5. That suggests that the parties to the Share Purchase Deed were looking beyond the "actions" for which the Share Purchase Deed in terms provided, and to the wider universe of the other "actions" to take effect by the suite of documents executed on 25 March 2019. 6. Those documents were designed to achieve a single purpose: the Resilium Transaction. 7. The parties to the Share Purchase Deed were the key players participating in that transaction: Coverforce itself, the Kitchin Parties and Resilium OpCo. 8. That suggests to me that those parties intended the expression "the actions to take place as contemplated by this clause 5" to mean not merely those specified in cl 5, but all actions "contemplated" by the share transfer and allotment for which the clause provided. 9. Accordingly, I accept Pemba's submissions concerning cl 5.6. 10. This is a powerful factor pointing to the conclusion that Coverforce not be required to pay the amount of the Account to Resilium OpCo until the Kitchin Parties repay the Loans. 11. Orders 13 and 14 made on 11 December 2019 did not specify a time by which the Account was to take place. Taken alone, that might suggest that the parties intended that any amount found to be due from Coverforce to Resilium OpCo once the account was taken, be paid forthwith. 12. However order 18 provided that "upon the completion of" the steps specified earlier in the orders, including the taking of the Account, the Kitchin Parties should "make restitution" of the Loan, assuming Coverforce could not enforce the Loan Agreements. That order is now, by consent, to be set aside. However, it suggests that the parties intended that the events occur closely together. 13. On the other hand, the amount of the Account represents Resilium OpCo's profits derived from the Resilium businesses between June and December 2019. 14. Neither the Angelis Parties nor Pemba cavilled with the Kitchin Parties' submissions that: 1. Coverforce has no entitlement to that profit; 2. the profits should have been sitting in the bank account of Resilium OpCo when I made the 11 December 2019 orders and should be there today available for use by Resilium; 3. the funds only went into Coverforce's bank accounts because it chose to receive the Resilium revenues into, and pay Resilium costs out of, Coverforce's own bank accounts rather than those of Resilium OpCo; and 4. this notwithstanding that it was Resilium OpCo, not Coverforce, who was retained by Resilium to perform that role. 1. Those matters are factors pointing to immediate payment of the amount of the Account. 2. There was also a suggestion in the Kitchin Parties' submissions that payment now of the amount of the Account would assist the Kitchin Parties to negotiate with the financial institutions they have approached to fund repayment of the Loans. However, the evidence adduced in support of that proposition was not sufficient for me to reach any such conclusion. 3. The Angelis Parties and Pemba agree that, were payment by Coverforce of the amount of the Account to be deferred until on or shortly before the date by which the Loans must be repaid they will cause Coverforce to: 1. obtain an unconditional bank guarantee in favour of Resilium OpCo to secure repayment of the amount of the Account either on the date by which the Kitchin parties must repay the Loans or, if this is necessary, some short time before that date and into the Kitchin Parties solicitors' trust account; and 2. pay interest on the amount of the Account at Court rates from 11 December 2019 until payment. 1. The matter is finely balanced, but my conclusion is that the appropriate order to make is that Coverforce pay Resilium OpCo the amount of the Account 7 days prior to the date to be set for the repayment by the Kitchin Parties of the Loans. As the Loans repayment date is to be 31 May 2021, the date for payment of the Account will be 24 May 2021. 2. That date is set on the basis that Coverforce does procure a bank guarantee and agree to pay interest, as set out at [61]. Should there be liberty to apply? 1. The Kitchin Parties submitted that "given the uncertainty in the market, it is not inconceivable that additional time might be needed beyond 31 May 2021" for the Kitchin Parties to repay the Loan. 2. In those circumstances, the Kitchen Parties sought an order granting them liberty to apply to extend the date for repayment beyond 31 May 2021. 3. I do not think that is the appropriate course to adopt. The orders to be made as a result of these reasons will be final orders disposing of the proceedings. 4. On behalf of the Kitchin Parties it was submitted that such an order could be made under s 237 of the Australian Consumer Law. Assuming there is power under that section to make such an order I do not think it would be appropriate to exercise that power, to adopt the language of the Angelis Parties' submissions, to maintain supervision over the relief to see if it turns out well for the plaintiff. I think the Angelis Parties were correct to submit that a reasonable time during which the Kitchin Parties must repay the Loans must be fixed prospectively and not variably as events develop. 5. I do not propose to grant the Kitchin Parties liberty to apply. Costs 1. The Angelis Parties contended that the amount for which Coverforce should account was in the order of $4 million. Mr McDougall has determined that the amount is more than double that figure. The Kitchin Parties have achieved success in the Account and they should have their costs from the party now liable to make account: Coverforce. Coverforce should pay the costs of the reference, including the Kitchin Parties' costs thereof. 2. It is agreed that, in relation to the other costs incurred since 10 December 2019, the parties should make submissions as to the appropriate costs order informed by the outcome of this application. 3. I will deal with that question on the papers. Conclusion 1. The parties should now confer and agree on the orders necessary to give effect to these reasons. Endnotes 1. [2019] NSWSC 1759. 2. Competition and Consumer Act 2010 (Cth), Sch 2 ('Australian Consumer Law'). 3. At [38] to [43] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 August 2020