Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Wormald v Maradaca Pty Ltd [2020] NSWCA 289 Hearing dates: 02 November 2020 Date of orders: 13 November 2020 Decision date: 13 November 2020 Before: Bathurst CJ at [1]; Bell P at [2]; Payne JA at [161] Decision: (1) Appeal and cross-appeal allowed. (2) Judgments of 24 April 2020 and 8 May 2020 and the orders made on 8 May 2020 of the Court below be set aside. (3) Order that the first respondent pay the second appellant $114,639.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). (4) Order that the first respondent pay the first cross-appellant $30,289.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). (5) Order that the first respondent pay the second cross-appellant $55,072.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). (6) Order that the Further Amended Statement of Cross-Claim be dismissed with costs. (7) The first and second respondents pay the appellants' and cross-appellants' costs. Catchwords: MISLEADING OR DECEPTIVE CONDUCT – Misleading or deceptive conduct – misleading or deceptive conduct by silence - alleged non-disclosure relating to sale of shares in private company – where purchaser was an experienced commercial participant – whether primary judge erred in characterising specific representation as providing an "assurance" to the purchaser of shares in private company – whether primary judge erred in finding that the purchaser had a "reasonable expectation" that certain disclosures would be made – whether any misleading or deceptive conduct was causative of loss or damage – where as a matter of common sense causation, loss sustained was due to a calculated risk by an experienced commercial participant, and not by any alleged misleading or deceptive conduct Legislation Cited: Civil Procedure Act 2005 (NSW) s 100 Competition and Consumer Act 2010 (Cth) sch 2 – Australian Consumer Law s 18 Trade Practices Act 1974 (Cth) s 52 Cases Cited: Argy v Blunts & Lane Cove Real Estate Pty Ltd (t/as Blunts of Lane Cove) (1990) 26 FCR 112 Australia & New Zealand Banking Group Ltd v Pham [1999] VSC 503 Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375; [1999] FCA 954 Banque Commerciale SA en Liquidation v Akhil Holdings Limited (1990) 169 CLR 279; [1990] HCA 11 BHP Billiton Olympic Dam Corporation Pty Ltd v Bluestone Apartments Pty Ltd (No 2) [2013] SASC 133 Boensch v Pascoe (2019) 94 ALJR 112; [2019] HCA 49 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592; [2004] HCA 60 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70 DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 557 Des Forges v Wright [1996] 2 NZLR 758 Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 First Mineral Resources Pty Ltd v WMC Resources Ltd [2000] WASC 309 Fraser v NRMA Holdings Limited (1995) 55 FCR 452 G&M Borg P/L v New South Wales Dairy Corp [2003] NSWSC 382 Havyn Pty Ltd v Webster [2005] NSWCA 182 Hayle Holdings Pty Ltd v Australian Technology Group Ltd [2000] FCA 1242 Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Kizbeau Pty Ltd v WG and B Pty Ltd (1995) 184 CLR 28; [1995] HCA 4 Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2 Oscty Pty Ltd v Ufford Holdings Pty Ltd (1989) NSW ConvR 55-494 Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514; [2003] HCA 25 Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (as trustee for the Baker Family Trust) (2005) 220 ALR 211; [2005] FCAFC 131 Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 Street v Luna Park Sydney Pty Ltd (2009) 223 FLR 245; [2009] NSWSC 1 Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9 Watpac Constructions (NSW) Pty Limited v Charter Hall Funds Management Limited [2017] NSWSC 865 White Constructions Pty Ltd v PBS Holdings Pty Ltd [2020] NSWCA 277 Williams v Commonwealth Bank of Australia [1999] NSWCA 345 Category: Principal judgment Parties: Shaun Edmund Wormald (First Appellant) Wirra Wirra Investments Pty Ltd as trustee for the Wormald Trust (Second Appellant) Maradaca Pty Ltd (First Respondent) ELB Pty Ltd (Second Respondent) John Leonard Barrett (Third Respondent) Steven Moran (Fourth Respondent) Representation: Counsel: S J Free SC with A Munro (Appellants) I R Pike SC with A d'Arville (First and Second Respondents) J L Barrett (Third Respondent) (In person) S Moran (Fourth Respondent) (In person) Solicitors: Marque Lawyers (Appellants) John De Mestre & Co (First and Second Respondents) File Number(s): 2020/152628 Publication restriction: N/A Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2020] NSWSC 440 Date of Decision: 24 April 2020 Before: Lindsay J File Number(s): 2016/00056273 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] Broadreach Services Pty Limited (BRS) was a company in the business of providing specialist enterprise video and digital media managed services to a number of large corporate clients. BRS's major customer was Optus and, without the continued support of Optus, BRS was, at all material times, at risk of insolvency. In 2014, both Optus and companies of which Ms Kaliviotis was the principal, namely Maradaca Pty Limited (Maradaca) and Electroboard Solutions Pty Ltd (ELB), manifested an interest in acquiring BRS. Maradaca had made a number of earlier offers to purchase the shares in BRS including one on 11 November 2014 for $1.35 million, which was approved by the company's shareholders. However, on 25 November 2014, a senior executive of Optus indicated to BRS that Optus would terminate its Master Services Agreement (MSA) with BRS, and a number of BRS employees would discontinue their employment, if the proposed transaction went ahead with Maradaca. Ms Kaliviotis was informed of this conversation, indicated that she understood and accepted the disclosures made, and that she nevertheless wished to proceed with the transaction. However on 5 December 2014, Maradaca's offer was rejected by the shareholders of BRS, who instead favoured a sale to Optus which, by a Term Sheet dated 4 December 2014 (the Optus Term Sheet) made an offer to acquire 100% of the shareholding in BRS for $1.6 million. On 5 December 2014, a Memorandum of Understanding between Optus and BRS was executed (the Optus MOU). From this date, no further due diligence enquiries were made by Ms Kaliviotis or anyone on her behalf. Negotiations with Optus continued but, by 19 January 2015, the Majority Shareholders of BRS, namely Mr Barrett, Mr Moran and Wirra Wirra Investments Pty Ltd, perceived that no deal would be reached with Optus and thereby agreed to move towards abandoning the Optus deal, and to reopening lines of communication with Ms Kaliviotis and Maradaca. Mr Barrett telephoned Ms Kaliviotis on 19 January 2015 to indicate that the sale to Optus was falling through and to inquire whether Ms Kaliviotis was still interested in proceeding, to which she replied that she was. Mr Barrett emphasised the urgency of finalising the transaction, and when Ms Kaliviotis indicated that she would need to do more due diligence, Mr Barrett outlined that they did not have time. Mr Barrett outlined that Ms Kaliviotis had done due diligence up to November, and that $200,000 from the sale price would be "set aside… to deal with any problems". On 23 January 2015, the shareholders of BRS and Maradaca proceeded to formalise the Share Sale and Purchase Agreement (SSA) with Ms Kaliviotis for a total price of $1.35 million. The SSA was accompanied by a Side Letter between Maradaca and the Majority Shareholders, by which they agreed to provide the solicitors for Maradaca with $200,000 to be paid into an escrow account (the Escrow Funds) for the purpose of satisfying any claim for breach of warranty under the SSA. These funds were to be released if no such warranty claim was made within 90 days of the date of the SSA. On 22 February 2016, almost 13 months after execution of the SSA, the Majority Shareholders commenced proceedings against Maradaca for release of the Escrow Funds. Maradaca brought a cross-claim for misleading or deceptive conduct, arguing that Ms Kaliviotis had a "reasonable expectation" that certain matters would be disclosed to her, including the existence of the Optus Term Sheet and Optus MOU, that the CEO of BRS had indicated that switching back to the ELB deal would have "catastrophic consequences" for the business, and that Optus had been negotiating with key employees and had threatened to poach some key employees. The primary judge found that the Majority Shareholders had engaged in misleading or deceptive conduct and awarded damages in the aggregate of $1.35 million together with interest in favour of ELB, having found a contravention of s 18 of the Australian Consumer Law in the failure to disclose the existence, terms, implementation and currency of the Optus Term Sheet and Optus MOU. His Honour further dismissed the claim with respect to the refund of the Escrow Funds. The principal issues on appeal were: 1. Whether the primary judge erred in his characterisation of the conversation between Mr Barrett and Ms Kaliviotis on 19 January 2015 as involving "assurances" of the kind described by the primary judge. 2. Whether the primary judge erred in finding that Maradaca had a reasonable expectation that there would be disclosure of the contractual arrangements between BRS and Optus and other matters. 3. Whether the primary judge erred in finding that any misleading or deceptive conduct was causative of loss or damage. The Court held (Bell P, Bathurst CJ and Payne JA agreeing), allowing the appeal: 1. The primary judge erred in his characterisation of the 19 January 2015 telephone conversation between Mr Barrett and Ms Kaliviotis as involving various express or implicit assurances. No such assurances were given by Mr Barrett – the statement that $200,000 would be set aside from the sale price "to deal with any problems" was neither a statement that there were no problems, nor that there were problems having a value of $200,000 but, rather, was an acknowledgment that there could be problems, and $200,000 was what the Majority Shareholders would be prepared to set aside to deal with any such problems. Contrary to his Honour's finding, there was no assurance that "there was no need to do due diligence", but rather, that there was no time to do so: [1] (Bathurst CJ); [122]-[129] (Bell P); [161] (Payne JA). 2. The primary judge erred in finding that Maradaca had a reasonable expectation that there would be disclosure of the contractual arrangements between BRS and Optus. Far from any "reasonable expectation" arising that Ms Kaliviotis would be informed of matters, the refusal to allow or entertain further due diligence operated as a negativing of any expectation that may otherwise have existed, reasonable or otherwise: [1] (Bathurst CJ); [130] (Bell P); [161] (Payne JA). Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 557, considered. 1. The primary judge erred in his finding that there was misleading or deceptive conduct by silence, or by a combination of silence and some assurance given to Ms Kaliviotis in the 19 January 2015 telephone conversation. As a matter of common sense causation, any loss that was sustained was done so not by any misleading or deceptive conduct, but by a calculated risk undertaken by an experienced commercial participant: [1] (Bathurst CJ); [151] (Bell P); [161] (Payne JA). Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319; [2009] HCA 25; Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389; DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117; Fraser v NRMA Holdings Limited (1995) 55 FCR 452; Havyn Pty Ltd v Webster [2005] NSWCA 182; Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31, considered. Judgment 1. BATHURST CJ: I agree with Bell P. 2. BELL P: By judgment delivered on 24 April 2020 (see Barrett v Maradaca Pty Ltd [2020] NSWSC 440), Lindsay J (the primary judge) awarded damages in the aggregate of $1.35 million together with interest in favour of Electroboard Solutions Pty Ltd (ELB), having found a contravention of the Competition and Consumer Act 2010 (Cth), sch 2 – Australian Consumer Law, s 18 (the ACL) by the cross-defendants in relation to a sale of shares in Broadreach Services Pty Ltd (BRS). The primary judge dismissed a claim brought by the first, second and third cross-defendants as plaintiffs for the refund of $200,000 which had been paid into escrow (the Escrow Funds) pursuant to a side letter (the Side Letter) entered into at the time of the share sale transaction. 3. The first three cross-defendants, John Leonard Barrett (Mr Barrett), Steven Moran (Mr Moran) and Wirra Wirra Investments Pty Ltd as trustee for the Wormald Trust (Wirra Wirra), were each shareholders in BRS. Their shareholdings respectively comprised 13.48%, 24.5% and 51% of the total shareholding in BRS. They will be collectively referred to as the Majority Shareholders. 4. The fourth cross-defendant, Shaun Edmund Wormald (Mr Wormald), was a director of both Wirra Wirra and BRS. Overview 1. BRS was a company which was founded in 2001 and was in the business of providing specialist enterprise video and digital media managed services to a number of large corporate clients. In 2014, it had launched a new product named "MeetSmart" for Enterprise and Government. BRS's major customer was Optus or, more particularly, Alphawest Services Pty Ltd, a subsidiary in the Optus group of companies, with which BRS had a Master Services Agreement (the MSA). 2. The Share Sale and Purchase Agreement (SSA) was between Maradaca Pty Limited (Maradaca) as purchaser and the Majority Shareholders, together with the remaining three shareholders in BRS whose collective shareholding comprised just over 11% of the shareholding in the company. These three shareholders were not party to the proceedings. 3. The principal of Maradaca and ELB was Marie Kaliviotis (Ms Kaliviotis). The primary judge described Ms Kaliviotis' interest in acquisition of BRS in the following terms which were not challenged: "30. Ms Kaliviotis' interest in acquisition of BRS (despite its weak financial position) was the product of a hope that she could obtain the services of BRS' skilled staff and use the close commercial relationship between Optus and BRS to develop a commercial relationship which her group of companies already had with Optus and which she, if not Optus, regarded as a good, mutually beneficial relationship. Because of that hope she was prepared, in December 2014, to acquire BRS despite current and projected losses and a requirement that the company be financially supported by her group until at least March 2015. She had such confidence in her ability to work constructively with Optus that, in December 2014, she accepted a risk that, if her group acquired BRS, Optus might terminate the MSA and entice BRS employees to join its staff." 1. It should be noted that, at [168], the primary judge referred to Messrs Barrett and Moran as being members of Ms Kaliviotis' staff. Earlier, at [40] and [41], the primary judge referred to Messrs Barrett and Moran as working as consultants to ELB and Maradaca between February 2014 and November 2015, and June 2014 and December 2015 respectively. 2. The SSA was executed on or about 23 January 2015. The total consideration under the SSA for the acquisition of all of the shares was $1.35 million. 3. Maradaca had made a number of earlier offers to purchase the shares in BRS including one on 11 November 2014 for $1.35 million but this was rejected by the shareholders on 5 December 2014, with the shareholders instead favouring a sale to Optus. Negotiations with Optus continued but, by 19 January 2015, the Majority Shareholders perceived that no deal would be reached with Optus and lines of communication were re-opened with Ms Kaliviotis and Maradaca. 4. The SSA was accompanied by the Side Letter between Maradaca and the Majority Shareholders, also dated 23 January 2015. Clauses 3 and 5 of the Side Letter are of particular relevance to these proceedings and the appeal. 5. Clause 3, headed "Set Off", provided: "3.1 The Majority Shareholders will contribute, by way of direction given to the Buyer on Completion for the relevant part of the Completion Amount, funds to the total value of $200,000.00 (with the proportion of this sum contributed by each of the Majority Shareholders being equal to their proportion of the Majority Sale Shares (Escrow Funds), to be held in escrow by the Buyer's lawyers until the date that is 90 days after the date of the Agreement. 3.2 The Buyer will be entitled to set off against the Escrow Funds, any amount that is finally determined to be due and owing to the Buyer as a result of any Claim relating to a breach of Warranty under the Agreement (Warranty Claim). 3.3. The parties acknowledge that any Warranty Claim by the Buyer to effect a set off as contemplated in this clause 3 will be deemed to have been finally determined where: (a) the Majority Shareholders and the Buyer have agreed to the substance of such Warranty Claim; or (b) the Warranty Claim is determined by a Court. 3.4 If the Buyer has not made a Warranty Claim on or before the date that is 90 days after the date of the Agreement, the Buyer's lawyers will release the Escrow Funds back to the majority Shareholders in the proportions equal to their proportion of the Majority Sale Shares, as part of the Purchase Price due to the Majority Shareholders." 1. Clause 5, headed "Disclosure", provided: "The Buyer acknowledges that certain disclosures qualifying the Agreement (and in particular the Warranties) were disclosed in the form of an email from Kristy Dixon of Marque Lawyers (acting for the Target Company) to the Buyer's lawyer, John Diacopoulos, on Tuesday 25 November 2014 at 5.37PM, and that these matters fall within clause 8.1(a)(iv) of the Agreement." The letter of 25 November 2014 referred to in this clause was of particular significance, as referred to more fully at [37] below. 1. On 28 January 2015, Maradaca in turn assigned its newly acquired shares in BRS to a related entity ELB. 2. On 22 February 2016, almost exactly 13 months after execution of the SSA, the Majority Shareholders commenced proceedings against Maradaca in the District Court of New South Wales for release of the Escrow Funds, alleging that no Warranty Claim within the meaning of the Side Letter had been made within 90 days of the SSA. Maradaca in due course brought a cross-claim for misleading or deceptive conduct and the proceedings were transferred to the Supreme Court of New South Wales in 2017. Mr Wormald was joined as a cross-defendant to the cross-claim in February 2018. 3. The case was heard over 7 days in early October 2019 and reasons for judgment were delivered on 24 April 2020 with final orders made on 8 May 2020. These were as follows: "1. ORDER that each Cross-Defendant is to pay to the Second Cross-Claimant the following respective amount: (a) First Plaintiff/Cross-Defendant to pay $307,211. (b) Second Plaintiff/Cross-Defendant to pay $282,428. (c) Third Plaintiff/Cross-Defendant to pay $222,861. (d) Fourth Cross-Defendant to pay $337,500. 2. ORDER that each Cross-Defendant is to pay to the Second Cross-Claimant pre-judgment interest on the amounts in order 1, calculated up to 24 April 2020 respectively as follows: (a) First Plaintiff/Cross-Defendant to pay $90,987.06. (b) Second Plaintiff/Cross-Defendant to pay $83,647.05. (c) Third Plaintiff/Cross-Defendant to pay $66,005.02. (d) Fourth Cross-Defendant to pay $99,957.79. 3. ORDER that the security fund held in escrow (Escrow) by the former solicitors for the Defendant/Cross-Claimants (Allsop Glover) and any interest accrued on the Escrow is to be applied as directed by the Second Cross-Claimant. 4. ORDER that the plaintiffs pay the defendant's costs of the Statement of Claim on the ordinary basis. 5. ORDER that, on the ordinary basis: (a) the First, Second and Third Cross Defendants pay 85% of the Cross Claimants' costs up to and including 22 February 2018; and (b) the Cross Defendants pay 85% of the Cross Claimants' costs on and from 23 February 2018. 6. ORDER that the Statement of Claim and the Amended Statement of Cross Claim otherwise be dismissed. 7. ORDER that these orders be entered forthwith." 1. On 24 July 2020, Wirra Wirra and Mr Wormald, who had been and continued to be represented separately from Messrs Barrett and Moran, filed a notice of appeal challenging the whole of the decision at first instance. On the same day, Messrs Barrett and Moran filed what was styled a "notice of cross-appeal" also challenging the whole of the decision at first instance. Other than in respect of two paragraphs in the notice of appeal (relating to apportionment as between cross-defendants), the notice of appeal and notice of cross-appeal were in materially identical terms. 2. Maradaca and ELB also filed a notice of contention, seeking to support the conclusion of the primary judge on grounds other than those relied upon in the Court below. 3. The specific grounds contained in the notice of appeal, notice of cross-appeal and notice of contention are best considered in the context of a fuller understanding of the background to the dispute and the findings of the primary judge. Background 1. As with many companies heavily dependent on a particular customer, BRS was vulnerable to its relationship with Optus being terminated. It was also vulnerable in terms of its cashflow, as delays in the payment of invoices by its major customer would necessarily have an impact on its own cashflow for obvious reasons. As the primary judge put it at [29], "[t]he ongoing viability of BRS was dependent upon maintenance of competent, skilled staff and its commercial relationship with Optus. Without the continued support of Optus BRS was, at all material times, at risk of insolvency." 2. In 2014, both Optus and companies associated with Ms Kaliviotis manifested an interest in acquiring BRS. 3. On 30 May 2014, ELB executed a "Memorandum of Understanding (MOU) and Option", expressed to be made between it and BRS, which in effect contained an offer to purchase all the issued share capital of BRS for $1.25 million subject to due diligence inquiries. This option was not exercised. The MOU was expressed to be legally binding, contained a confidentiality clause and a clause to the effect that for a period of 30 days from its execution, neither BRS nor its shareholders would engage any other party in discussion or negotiation of terms of acquisition, share transfer or ownership of BRS. 4. On 18 September 2014, ELB and BRS signed another legally binding "Memorandum of Understanding (MOU) and Option" which in effect increased the offer to $1.5 million, subject to "satisfactory legal and taxation due diligence" inquiries. This MOU also contained a confidentiality clause. 5. Due diligence was undertaken and access was given to the "Due Diligence Materials" listed in Sch 6 of the SSA from 1 October 2014. 6. In mid-October 2014, Ms Kaliviotis advised BRS that she was no longer prepared to offer $1.5 million because, as she said in her affidavit dated 30 January 2017, she was concerned about the accuracy of cashflow projections, the extent of the employer liabilities and the overdraft. It was shortly after this, on or around 21 October 2014, that Mr Brownlow, who worked in the financial section of Ms Kaliviotis' companies and had prepared his own cashflow on the basis of information supplied by BRS, informed Ms Kaliviotis that "come November the company would exceed its overdraft of one million dollars" and "that the company was going to continue to exceed its overdraft until at least March 2015": trial tp. at 106. The Discussion Points 1. On 17 October 2014, Mr Wormald provided Ms Kaliviotis a document headed "Marie and Shaun Discussion Points" (the Discussion Points) which was essentially a marketing document which contained a financial overview of the company including information in relation to current sales revenue, EBITDA profit and loss information for the financial years 2012-Points contained the following discussion in relation to Optus and cashflow: "As can be seen from the Cash flow statement also attached to the email the company is cash positive and actually very nicely positive if one removes one off payments not part of business as usual. The cash position does fluctuate quite a bit as can be seen over the last two years and is very cyclical which does reflect the current position. The limited overdraft facility (3 months of working capital currently) has limited Broadreach's ability to grow aggressively and with your additional facilities would allow a much more aggressive growth strategy to be implemented. The Optus channel is very challenging due to Optus size and inability to deliver PO (Optus Singtel internal process) in a timely manner and long payment terms which does add pressure to working capital requirements (and hence the overdraft). It is expected that the facility will not be required at all within a 6-12 month period at most based on new contracts coming on line in the next 4-5 months that we have worked with Optus in scoping, pricing that will also nearly double the on-going annuity managed services revenue from the Optus channel plus all the synergy benefits from the tie up with Electroboard. Post the first 6 months of integration and the migration of finance function to Electroboard a further+/- 500,000 pa saving can be realized (CEO and Finance function integration) if required again adding even more value to your investment. Another synergy area that could be considered is the internal IT function which Broadreach outsources at a cost of $180,000 pa." 1. The Cashflow statement for the company showed a negative cashflow of $855,537 for the financial year ending 2013 and negative $537,465 for the financial year ending 2014. It was and is to be inferred that this negative cashflow was funded or to be funded by the company's overdraft facility to which reference had been made in the Discussion Points. Employee entitlements of some $264,392 as at September 2014 were also disclosed. 2. After reading the Discussion Points, Ms Kaliviotis informed Mr Wormald that she remained "concerned about the liabilities to the staff, the overdraft and the cash flow forecast", and was not prepared to increase her offer to $1.5 million but maintained her earlier offer of $1.25 million. 3. Later, on 11 November 2014, Ms Kaliviotis increased her original offer to $1.35 million and also offered to assume liability for BRS's overdraft, as recorded at [96] of the primary judgment. 4. On 12 November 2014, Joe Boyd (Mr Boyd), an external accountant, wrote to Anthony Harris (Mr Harris), CFO of Azure Group, copied to Mr Wormald, Hugh Wormald, Mr Berriman (Chairman of BRS) and Mr Griffiths (CEO of BRS) as follows: "Attached is [t]he updated Cash Flow Forecast. What has been updated is the immediate payments and receipts and of course the current bank balance. In the interest of time, the Sales Pipeline & PO's have not been updated in these numbers. The numbers are consistent with our recent discussions that we will exceed our $1m facility by 25th November and we will be again go over our $1m facility in December, Jan and Feb culminating in a high overdraft of $1.365m at end of Feb '15. We are projecting a strong recovery in our cash flow with positive bank balance at the end of March rising to $1.3m positive during April and remaining positive throughout May. Can I ask the Board members please to approve this Cash Flow Forecast before Anthony releases this to EB." The cashflow forecast spreadsheets were attached. 1. Board approval was given and late on the evening of 12 November 2014, Mr Harris forwarded to Simon Brownlow (the Financial Controller of ELB) the forecasts, together with the following email and the earlier email Mr Boyd had sent Mr Harris reproduced at [31] above: "Trust this email finds you well. ln the spirit of continual disclosure it is important to disclose the current cash-flow outlook of BRS and with commentary, This cash-flow forecast is less than your own expectations in terms of the overdraft as per the cash-flow forecast you prepared (overdrawn $1.5m). Also, as you can see from commentary below the cash-flow excludes recent updates to [the] sales pipeline and purchase orders expected. I am working on the legals with our lawyers and moving toward finalising the outstanding actions needed to be handled. I am authorised by the board of BRS to issue this report." 1. The two emails and cashflow disclosure referred to above were somewhat surprisingly not referred to by the primary judge in his judgment. They were important documents both in terms of understanding Ms Kaliviotis' risk appetite and the significance of her renewed offer to acquire the shares in January 2015. 2. The primary judge recorded at [97] that on 19 November 2014, the BRS shareholders held an extraordinary general meeting at which, in substance, the shareholders voted to approve Maradaca's offer to acquire the company. 3. On 25 November 2014, Messrs Barrett, Moran and Wormald participated in a telephone conference with John Paitaridis (Mr Paitaridis), a senior executive of Optus, in which, in substance, he threatened that Optus would cancel BRS's MSA if the BRS shares were sold to Ms Kaliviotis. This led to Ms Kaliviotis being informed of the substance of that telephone conference both orally (by Mr Barrett) and in writing. According to the primary judge (at [100]), Mr Barrett told Ms Kaliviotis that Mr Paitaridis had said that: (a) Optus would cancel the MSA if the BRS shares were sold to her; (b) Optus had said that they would set up a capability internally; (c) Optus had said that they intended to poach BRS staff; and (d) Optus did not acknowledge Ms Kaliviotis' worth as an existing client of Optus. 4. The written communication, made on the same day, was more formal. The 25 November 2014 email 1. In an email dated 25 November 2014, the solicitors acting for the Majority Shareholders, Marque Lawyers, wrote to Ms Kaliviotis' solicitor, Mr Diacopoulos, the following email: "As discussed this morning, I [a solicitor acting on behalf of BRS and, implicitly, its shareholders] have chased for instructions from Broadreach Services (BRS) regarding the status of approval by the shareholders of the proposed sale and purchase agreement. Information has come to light on which my clients have sought our advice today regarding the impact of that information under the proposed agreement. We have advised our clients that the new information has raised significant issues under the seller warranties contemplated by the proposed agreement, such that proceeding with the proposed transaction on the basis of the current warranties would create significant material liability for the shareholders. I am instructed to disclose the matters that have come to light as follows: 1. Optus has indicated that it would not provide its consent to any change of control of BRS and therefore would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring. 2. There is a risk that a number of current BRS employees would not continue their employment if the proposed transaction proceeds and, in light of the likely termination of the Optus agreement, it is consequently very likely that a significant number of employees would be lost upon the proposed transaction proceeding. 3. BRS has entered into a tax payment plan with the ATO. 4. Although perhaps not a material issue, for total transparency our clients would also like to disclose an incomplete schedule in the data room for contractual commitments. The error identified has the impact of adding $75k to the total contractual amounts outstanding (contracts generally greater than 12 months). I am instructed that this update will be added to the data room and schedule sent direct from BRS under separate cover. In light of the above, I understand from my clients that it is not possible to achieve confirmation from the shareholders that they will approve and execute the proposed sale agreement in its current form. I am therefore instructed to request that your client [the defendant/first cross claimant] consider whether it will accept these disclosures against the warranties (such that the sellers will not have any liability for any loss to BRS resulting from the matters described in the disclosures), so that this revised proposal can be submitted to the BRS shareholders. I am further instructed to request whether we can have your client's response as quickly as possible, as BRS is now in a position of needing to urgently consider its options." 1. Mr Diacopoulos responded to this email on 27 November 2014 as follows: "I confirm my earlier telephone advice that my client understands and accepts the disclosures made in your email of the 25th and wishes to proceed. Accordingly, subject to instructions could you kindly submit a revised Agreement." 1. A form of share sale agreement had been prepared which made provision, inter alia, for the purchaser to take over BRS's $1 million overdraft facility with the Commonwealth Bank of Australia (CBA). This was the overdraft facility which had been referred to in the Discussion Points and which would need to be drawn upon in light of the cash flow forecasts disclosed on 12 November 2014. Ms Kaliviotis 1. At this point, it is convenient to record a number of unchallenged findings made by the primary judge about Ms Kaliviotis. Reference has already been made at [8] above to the primary judge's finding as to Ms Kaliviotis' motivation in contemplating the share acquisition and the reasons for her appetite for risk. 2. At [150] of his judgment, the primary judge observed that: "Ms Kaliviotis was forthright in her acknowledgement that, in causing the first cross claimant to make an offer to buy BRS' shareholding for $1.35 million in November – December 2014, she (based upon what she then knew) was prepared to take risks (formally disclosed to her in the email dated 25 November 2014) that, if the cross claimants acquired BRS, Optus would terminate its MSA with BRS and a number of BRS employees would discontinue their employment..." 1. At [167]-[169] of his judgment, the primary judge observed that ELB and Maradaca: "167. … must be taken, at all material times, to have been a sophisticated commercial operation, headed by Ms Kaliviotis as an astute business woman; experienced in the type of business operated by themselves, BRS and Optus; and possessed of knowledge about the commercial environment in which such business was conducted. 168. That Ms Kaliviotis was a person who was willing, and able, to take calculated risks in the conduct of business cuts both ways. On the one hand, she was prepared to take a risk on the purchase of BRS as a marginal commercial operation in order to secure a platform for dealings with Optus, notwithstanding a warning that Optus might undermine BRS' commercial operations should the company be acquired by the cross claimants. On the other hand, her preparedness to take such a risk was calculated by reference to due diligence inquiries conducted under her supervision; assurances given to her by or on behalf of the cross defendants (particularly the first and second cross defendants as members of her staff and the fourth cross defendant in connection with his 'Discussion Points'); and her perception that she had a good commercial relationship with Optus which would survive commercial rivalry with Optus intrinsic to the competing offers made by the cross claimants and Optus in 2014 for acquisition of BRS. 169. She was a business woman prepared to take a calculated risk, but she was not foolhardy or irresponsible. …." 1. One observation that may be made at this point is that the primary judge's statement at [168] that Ms Kaliviotis was prepared to proceed "notwithstanding a warning that Optus might undermine BRS' commercial operations should the company be acquired by the cross claimants" appears to underplay or underemphasise what Marque Lawyers had disclosed to Ms Kaliviotis by way of email on 25 November 2014. The warning was not that Optus "might undermine" BRS's commercial operations, but that Optus "would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring" (emphasis added). 2. At [172], the primary judge observed that, at least after 25 November 2014, Ms Kaliviotis "was aware of the company's weak financial position (requiring her support until at least March 2015) and she was independently aware of the importance to BRS of its skilled employees and its economic dependence upon Optus work." Optus negotiations 1. During this period, BRS was also negotiating with Optus as a potential buyer. The threats made by Mr Paitaridis of Optus on 25 November 2014 have already been referred to at [34] above. They evidently did not deter Ms Kaliviotis. 2. On 28 November 2014, the BRS board of directors gave notice of an extraordinary general meeting of the company to permit the company's shareholders to reconsider their approval of the first cross-claimant's offer to acquire the company, in light of a fresh offer from Optus. The meeting was called for 5 December 2014. 3. In an email sent on 4 December 2014 to Mr Wormald, Mr Paitaridis wrote as follows: "As discussed, keen to get on and close this transaction. SingTel, Optus has submitted a compelling offer to acquire Broadreach, we are committed to concluding the acquisition as soon as possible. In our recent experience with similar acquisitions, FIRB approval has been quick - no reason to expect delays on this one. I do however need to remind you, Broadreach and the other shareholders that if another party acquires Broadreach we will be in a position to exercise our right to terminate the MSA due to there being a material change in control of the supplier, as it is our clear right. I reiterate my commitment to getting this deal done, as I believe it is in the best interests of Broadreach employees, shareholders and customers. I need your support to get this done please. We will await advice from you following the shareholders meeting." 1. By a Term Sheet dated 4 December 2014 (the Optus Term Sheet), Optus Networks Pty Ltd made an offer, subject to due diligence, to acquire 100% of the shareholding in BRS for $1.6 million. Some but not all of the clauses of this Term Sheet were intended to be legally binding. Included in the legally binding clauses was cl 15, headed "Confidentiality", which provided that: "The Parties will not at any time disclose the contents of this Term Sheet and the fact that negotiations are taking place between the Parties in relation to the Proposed Transaction without the consent of the other Party, unless such disclosure is required by law or any regulatory body or the rules of a recognised stock exchange. The terms of this provision shall survive the completion or termination of the Proposed Transaction for a period of 12 months from completion or termination, whichever is the later". 1. On 5 December 2014, a Memorandum of Understanding between Optus Administration Pty Ltd and BRS was executed (the Optus MOU). The Term Sheet and the Optus MOU provided for Optus to have exclusivity and confidentiality in its ongoing negotiations to acquire BRS, to speak directly to BRS employees and to provide BRS with a prepayment for services of $236,000. 2. Clause 12 of the Optus Term Sheet, headed "Completion", provided that if Completion of the Proposed Transaction: "… shall take place within 2 business days of satisfaction of all conditions precedents specified in the Definitive Agreements, including receipt of written notice by the Australian Federal Treasurer which is unconditional or subject only to conditions acceptable to the Acquirer that there is no objection under the Foreign Acquisitions and Takeovers Act 1975 (Cth) or Australian foreign investment policy to the Proposed Transaction. If Completion of the Proposed Transaction does not take place by 15th January 2015, the Acquirer, shall provide a pre-payment of A$400k to the Company on substantially the same terms as the memorandum of understanding referred to in part 8 of this Term Sheet." 1. Key terms of the Optus MOU were as follows: "3. The Optus Business/Alphawest and Broadreach strategic partnership (a) Broadreach and Alphawest have signed a Master Supply Agreement (MSA) dated 12 July 2010, for the provision of services to Alphawest. Nothing in this MoU affects the rights or obligations of Alphawest and Broadreach under the terms of the MSA. (b) Optus Business/Alphawest and Broadreach have worked together to provide first class Video Conferencing professional services, managed video conferencing, and digital media / signage services (Services). Optus Business Enterprise and Government customers are served by the obligations under the MSA for Broadreach to provide Services to those customers. (c) An affiliate of Optus is in negotiations with the Company and its shareholders on a possible acquisition of 100% of the shares of the Company. 4. Request for financial support (a) Matthew Griffiths (MD Corporate Development) and Joe Boyd (CFO) of Broadreach have recently advised Optus of its current and near term financial performance. (b) Broadreach have indicated that in the short term the cash balance of the company will be negative and without an injection of funds continuity of service operation for all video conferencing and digital media services provided to Optus could be detrimentally affected. (c) The management of Broadreach has requested the expedition of the purchase orders for existing contracts that are due for renewal ahead of the normal payment terms of Optus and the processing payments to a value of $236,000AUD by the close of business of one business day after the execution of the Term Sheet dated 4th December 2014 (Pre-payment Amount). Optus is agreeable to provide the Pre-payment Amount by the close of business of one business day after the execution of the Term Sheet and Broadreach would guarantee continuity of service delivery to Optus. … 7. Commercial Terms (a) Optus will pay Broadreach the Pre-payment Amount in consideration for the following undertakings: i. for a period of 75 days of execution of this MoU, Broadreach and its shareholders will not engage any other party in discussion or negotiation of terms of acquisition, share transfer, or ownership of Broadreach; ii. for a period of 180 clays from receipt of the Pre-payment Amount Broadreach will make available to Optus financial management its current financial performance including balance sheet, current flow receipts. Further, a nominated person from the Optus finance team will meet with their counterpart at Broadreach to review Broadreach's financial position; (b) The parties agree that if, in the reasonable opinion of either Broadreach or Optus, at any time there is a significant likelihood that an Insolvency Event may occur Broadreach will act in good faith to negotiate (at fair market value) the transfer of the assets and employment agreements or the Broadreach Video Network Operating Centre to Optus. 8. Termination (a) This MoU will terminate on the earliest of: i. notice in writing by Optus; or ii. the completion or the share sale purchase agreement for the acquisition or 100% shares in Broadreach by an affiliate of Optus; or iii. 180 days from the date of execution of this MoU. (b) Upon termination of this MoU, the Pre-payment Amount shall immediately become due and repayable to Optus, except to the extent that the Pre-payment Amount relates to Services already performed by Broadreach." 1. On 5 December 2014, an extraordinary general meeting of the shareholders of BRS was held in which, over Mr Barrett's sole dissent, all shareholders rejected a motion for reconfirmation of the proposed sale to Maradaca and instead agreed to accept Optus' offer. On the same day, Ms Kaliviotis was advised that the shareholders had resolved to sell the shares to Optus. After 5 December 2014, no further due diligence enquiries were made by Ms Kaliviotis or anyone on her behalf. 2. Between the period 5 December 2014 and 19 January 2015, the following events, as summarised by the primary judge at [114] took place: "(a) Optus' Head Office sought to renegotiate the Optus offer to acquire BRS in terms more detrimental to the BRS shareholders; (b) although Optus honoured its commitment under the MOU to make to BRS a pre-payment of $236,000 for services to be rendered, the directors and managers of BRS were increasingly concerned about the solvency of the company absent further financial support from Optus; (c) on or about 15 January 2015, the management of BRS was made aware that Optus would not be making to the company the voluntary payment of $400,000 which the Term Sheet dated 4-5 December 2014 contemplated Optus would make on that date if its proposed acquisition of the company had not taken place by then; and (d) with BRS' financial circumstances rapidly deteriorating, the company's management (including [Mr Wormald]) on 16 January 2015 began exchanging emails about the possibility of abandoning the proposed sale of the company to Optus in favour of the earlier proposed sale to the cross claimants". 1. BRS announced the sale to Optus to its staff, and Optus began interviewing staff between 9 December 2014 and 16 January 2015. The purpose of these interviews was in part to seek to convince the staff to enter into retention agreements with BRS and/or Optus which contained non-compete and non-solicitation clauses. 2. On 16 January 2015, Mr Wormald emailed Mr Griffiths with the following two questions: "1. What are the obligation[s] of the board to shareholders re any changes to whom the business is sold i.e. switching back to the EB deal that is? 2. Are there any other board obligations or corporate governance matters in this regard that we need to execute on? Please advise ASAP if any exist that you can see". 1. Around 45 minutes later, Mr Griffiths responded to Mr Wormald's questions by email, set out as follows: "…I believe that once an EGM has taken place, the sale of the company becomes a shareholder matter. Of course, at any time, the shareholders can ask the Board to work on their behalf. Specifically with your point 1: I'm not sure of the status of switching back to the EB deal. From a shareholder perspective, didn't the shareholders vote to reject that deal at the last EGM? Also, there is no drag along for Mike's shares. From a Board perspective, the company has two binding exclusivity contracts with Optus (the Term Sheet and the MoU) that last until mid Feb? Notwithstanding the above, the primary focus of the Board has to be: 1. Solvency 2. Corporate Governance - acting on behalf of all of the shareholders and understanding the implications of our contractual obligations as a company. At this point, solvency should be our main concern (as a Board), as getting through payroll at the end of next week was guaranteed by the Optus $400k pre-payment, which now looks like it won't happen. Based on the last forecast from Joe (14th Jan), we are approx. $50k short of making payroll on 23rd Jan (end of next week). This morning, I requested the payment of approx $121,000 of Optus invoices outside the Optus AP monthly cycle. We will know by Monday if these have been paid. I would suggest an urgent Board meeting on Monday to discuss our solvency at that point. Corporate Governance is covered in part by having regular Board meetings. However, related to the current M&A activity, I'd suggest we have an obligation to inform the shareholders once we become formally aware that the terms of the Optus acquisition have materially changed. I'd also be concerned about any potential repression of minority shareholder rights - unanimity amongst the shareholders is highly desirable if we're going to switch horses again. As a side point, it is worth noting that switching back to the EB deal could have catastrophic consequences for the business on an on-going business, given that we have announced the Optus deal internally, all our key staff are currently negotiating retention agreements with Optus, we are fundamentally dependent on Optus for short term cash flow, and Optus have threatened to cancel the MSA, poach all our staff, and cancel our major contracts if we don't close with them. I think we need a Board meeting on Monday." 1. In response to this email, Mr Wormald instructed Mr Griffiths as follows: "Lets tee up the meeting but suggest that we invite the major shareholders as guests to the meeting for the part on M&A. I also think your views as the CEO should be shared with the major shareholders outside the board so that there is a full understanding of any actions and the consequences." 1. At 4.41 pm on the same day, Mr Griffiths emailed Mr Wormald as follows: "In my view, there is a real risk that we won't be able to make payroll this month. As noted before, under current assumptions, we are $50k short and although I have requested some further payment from Optus, we are also dependent on NEC paying us $40k as well. Given your previous emails about the EB deal potentially being revisited, it would appear that we have 3 options to guarantee solvency in the next 7 days: • Option 1 (Trigger the Optus $400k pre-payment): I understand that this would require signing the SPA and meeting outstanding CP's·. • Option 2 (Close the EB deal next week): Assuming Marie B can move fast, I'd assume this deal could complete within 7 days, Optus exclusivity notwithstanding. • Option 3 (Extend the CBA Overdraft Facility to $ 1.2m): Is this an option? Option 1 is the obvious solution, although I understand that Steve and John won't sign at this time, and the non payment of the $400k under the term sheet looks like a particularly poor example of bad faith (given that Optus know our financial position). Are Steve and John aware that there is a current expected price of $ 1.38m? Even though this is significantly below the $1.6m expected, this would still appear to be above EB's offer. Either way, I'd strongly suggest that the shareholders action either Option 1 or Option 2 next week. I'm not sure that doing nothing remains an option." 1. On 19 January 2015, the Majority Shareholders met with BRS management and the company's solicitor. The draft agenda for the meeting was distributed by Mr Griffiths by email on that day, which provided as follows: "1. Current BRS Financial Position (Joe Boyd) 2. Optus Deal - Current Status [Anthony Harris] • Expected Shareholder value vs Term Sheet. • Potential upside/downside (inc. warranty claims) • $400k pre-payment. 3. EB Deal [John Barrett] • Expected shareholder value • Time frame for deal plus mechanics (takeover overdraft, etc) • Potential fallout (cancel MSA, poaching staff, etc) 4. Legal Issues [Kristy Dixon, solicitor] • Optus Exclusivity - SW [Shaun Wormald] /Shareholders/Broadreach implications • MoU pre-payment of $236k (repayment?) • Drag along of MR [Mr Reddie] with EB deal • Injunctions, legal recourse, etc." 1. As the primary judge outlined, there was consensus that the meeting discussed BRS's dire financial circumstances, including the probability that if BRS was not taken over with external financial support on or before 28 January 2015, it would, upon that date, become insolvent: at [121]. 2. At the meeting, the Majority Shareholders agreed to move towards abandoning the Optus deal, and Messrs Wormald, Moran and Barrett agreed that the latter would speak to Ms Kaliviotis about reinstating the $1.35m offer she had made in November 2014. The primary judge's holding at [122] was that: "The strong probability is that, at the meeting, the first plaintiff was requested to sound out Ms Kaliviotis as to whether she remained interested in acquiring BRS, with discussion of a proposal that the major shareholders contribute to a $200,000 'escrow account' as an incentive to Ms Kaliviotis to effect a quick takeover of BRS. It is equally probable that, after the meeting, the first plaintiff had a further discussion with Anthony Harris about what the first plaintiff might say to Ms Kaliviotis." The 19 January 2015 telephone conversation 1. On 19 January 2015, Mr Barrett telephoned Ms Kaliviotis who was holidaying overseas at the time, to inquire if she was still interested in acquiring BRS. Ms Kaliviotis' version of that conversation, which the primary judge accepted at [129] to be correct, was as follows: "Barrett: The sale to Optus is falling through. They were meant to pay us money but are mucking us around and haven't done so. Are you still interested? Ms Kaliviotis: Yes, I am. Barrett: We need to finalise it quickly. Ms Kaliviotis: We will need to do more due diligence. Barrett: We don't really have the time. I don't want Optus to know that the sale is going through. Ms Kaliviotis: I don't know what the current financial position is and I don't know what the current debts are. Barrett: You have done due diligence up to November. [The third cross defendant, the second plaintiff] and I will set aside $200,000 from the sale price to deal with any problems. Ms Kaliviotis: That sounds all right. I will tell Roger [Tiller] and John [Diacopoulos, her solicitor]." Events between 19 January 2015 and the Share Sale Agreement 1. The primary judge accepted as substantially correct the following telephone conversation said to have occurred between Mr Barrett and Ms Kaliviotis on 20 January 2015: "Ms Kaliviotis: ELB (the second cross claimant] is going to be the purchaser, not Maradaca [the first cross claimant]. Barrett: The shareholders have already executed the Share Sale Agreement, which was with Maradaca. If we change purchasers at this stage, this would delay the purchase and might prevent the transaction from occurring. Ms Kaliviotis: I will need to transfer the shares to ELB after the sale then. If you are happy to cover any stamp duty on the transfer, I am happy to go ahead with Maradaca making the initial purchase. Barrett: That's fine." 1. On or about 20 January 2015, Mr Tiller had a telephone conversation with Ms Kaliviotis about whether further due diligence should be conducted, in terms to the following effect: "Tiller: Should we be doing further due diligence? Kaliviotis: [The first plaintiff/cross defendant] said there was no time and we have to move quickly. [He, the second plaintiff/cross defendant and the fourth cross defendant] have agreed to put $200,000 in escrow to cover us in the event that we find anything untoward after the purchase goes through. I want [the second cross claimant] to purchase the BRS shares, but [the first plaintiff/cross defendant] tells me that because of the short timeframe, the shareholders want to use the previous version of the Share Sale Agreement which has [the first cross claimant's] name on it. I said that was fine given the urgency, but that [the first cross claimant] would assign the shares in BRS to [the second cross claimant] after the sale went through, that the vendors needed to pay any stamp duty associated with that transfer. [The first plaintiff/cross defendant] agreed with that. This all needs to be documented." The Share Sale Agreement 1. On 23 January 2015, the shareholders of BRS and Maradaca proceeded to formalise the SSA with Ms Kaliviotis for a total price of $1.35 million, subject to adjustments. 2. The expression "Due Diligence Materials" was defined by cl 1.1 of the SSA to mean: "(a) all documents and information made available to the Buyer, its representatives or advisers from 1 October 2014, an index of which is attached as Schedule 6; (b) all written answers given to written questions submitted by the Buyer, its representatives or advisers in connection with the Buyer's due diligence investigations prior to the date of this agreement in respect of the sale and purchase of the Sale Shares; and (c) the information set out in the dropbox data room established by the Sellers in relation to the sale and purchase of the Sale Shares and referred to as '15.0 Transaction Documentation-Electroboard'." 1. Clause 5.2 of the SSA provided for the proceeds of sale to be allocated to the sellers in proportion to the number of shares held in BRS by them. Its terms also included, inter alia, warranties given by the sellers to the buyer (cl 8); limitations on the liability of the seller arising from disclosures made by the sellers (cl 9); a "no reliance" clause (cl 9.3); an "entire agreement" clause (cl 16.8); and a qualified covenant against assignments of rights and interests under the agreement (cl 16.3). 2. Clause 8 of the SSA contained the following "Warranties and Indemnities": "8.1 Warranties The Sellers give the Warranties in favour of the Buyer, and represent and warrant that each of the Warranties given is accurate, complete and not misleading: (a) in respect of each Warranty that is expressed to be given on a particular date, on that date; and (b) in respect of each other Warranty, on the date of this agreement and on each day between the date of this agreement and the Completion Date (including at Completion). 8.2 Reliance The Sellers acknowledge that the Buyer enters into this agreement and completes this agreement in reliance on the accuracy and completeness of the Warranties. 8.3 Application of Warranties Each Warranty remains in full force after Completion and is separate and independent and not limited or restricted by any other Warranty or provision of this agreement." 1. Clause 9.1 of the SSA contained the following on "Limitations of liability": "(a) The Buyer acknowledges and agrees that the Sellers have disclosed or are deemed to have disclosed against the Warranties, and the Buyer is aware of and will be treated as having actual knowledge of, all facts, matters and circumstances that: (i) are provided for or described in this agreement or a Transaction Document; (ii) are disclosed in the Due Diligence Materials; (iii) are disclosed on any public record (including any records maintained by ASIC, IP Australia or any other Government Agency, or any domain name registrars or any equivalent bodies in other jurisdictions in which the Business is conducted); or (iv) are within the actual knowledge of a Buyer Group Member. (b) The Warranties are given subject to the disclosures or deemed disclosures described in clause 9.1(a). The Sellers will have no liability under the Warranties to the extent that disclosure is made or is deemed to have been made against the Warranties under this clause 9.1. (c) The Buyer may not bring a Warranty Claim if the facts, matters and circumstances giving rise to that Warranty Claim are disclosed (or are deemed to have been disclosed) under clause 9.1(a)." 1. Clause 9.3 of the SSA provided that: "The Buyer acknowledges, and represents and warrants to the Sellers that: (a) at no time has: (i) a Seller or any person on their behalf, made or given; or (ii) any Buyer Group Member relied on, any representation, warranty, promise or undertaking in respect of the future financial performance or prospects of the Target Company or the Business or otherwise; (b) no representations, warranties, promises, undertakings, statements or conduct in respect of the future financial performance or prospects of the Target Company or the Business or otherwise have: (i) induced or influenced the Buyer to enter into, or to agree to any terms or conditions of, this agreement; (ii) been relied on in any way as being accurate by a Buyer Group Member; (iii) been warranted to a Buyer Group Member as being true; or (iv) been taken into account by the Buyer as being important to its decision to enter into, or to agree to any or all of the terms of, this agreement; (c) it has entered into this agreement after satisfactory inspection and investigation of the affairs of the Target Company and the Business, including a detailed review of all the Due Diligence Materials; and (d) it has made, and it relies upon, its own searches, investigations, enquiries and evaluations in respect of the Target Company and the Business, except to the extent expressly set out in this agreement (including in the Warranties)." 1. Clause 9.4 of the SSA provided that: "The parties acknowledge that the Sellers are under no obligation to provide any Buyer Group Member or its advisers with any information on the future financial performance or prospects of the Target Company or the Business. If a Buyer Group Member has received opinions, estimates, projections, business plans, budget information or other forecasts in respect of the Target Company or the Business, the Buyer acknowledges and agrees that: (a) there are uncertainties inherent in attempting to make these estimates, projections, business plans, budgets and forecasts and the Buyer is familiar with these uncertainties; (b) the Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, business plans, budgets and forecasts furnished to it; and (c) the Sellers are not liable under any Claim arising out of or relating to any opinions, estimates, projections, business plans, budgets or forecasts in respect of the Target Company or the Business." 1. Clause 9.5 of the SSA put a cap on maximum exposure for breach of warranty. Clause 9.5(b) provided that: "The maximum aggregate amount that: (i) the Sellers are together required to pay in respect of: (A) all Claims arising out of breach of a Title Warranty whenever made is limited to 100% of the Purchase Price; and (B) all other Claims whenever made is limited to 15% of the Purchase Price; and (ii) each Seller Is required to pay in respect of all Claims whenever made is limited to its Respective Proportion of the relevant amount referred to in clause 9.5(b)(i)." 1. On or about 23 January 2015, the Majority Shareholders entered in the Side Letter, by which they provided the solicitors for Maradaca with the Escrow Funds totalling $200,000 for the purpose of satisfying any claim for breach of warranty under the SSA. The aftermath of the acquisition of BRS 1. On completion of the SSA on 28 January 2015, Maradaca funded BRS to pay out its overdraft, by a loan of $886,067.45 made to BRS by ELB. Two days later, Mr Tiller had a telephone conversation with Mr Reddie (in the latter's capacity as a representative of Optus), in which Mr Tiller endeavoured to assure Optus that, under ELB's management, BRS's capabilities would be maintained, with Mr Reddie expressing concerning that BRS would not be able to maintain its skilled staff. 2. In that telephone conversation and in subsequent correspondence on 1 February 2015, Mr Tiller endeavoured to assure Optus that ELB would use its best endeavours to ensure that BRS would maintain the continuity of services previously provided by the company, and that BRS would endeavour to retain its skilled employees. 3. By two separate letters dated 4 March 2015 signed by Mr Paitaridis addressed to BRS, which were in substantially similar terms, Optus terminated the Term Sheet and the MOU dated 4-5 December 2014 and, upon termination of the MOU, demanded that BRS repay the prepaid $236,000. 4. On or about 17 March 2015, three BRS employees simultaneously resigned from BRS and commenced employment with Optus. 5. On 19 April 2015, Optus issued to BRS an invoice for repayment of the sum of $236,000 plus GST. 6. On 20 April 2015, the solicitors for ELB/Maradaca delivered to the solicitors for the cross-defendant a letter, which relevantly included the following: "It has come to the notice of the purchaser that Broadreach Services Pty Ltd (the 'Company') had entered into a term sheet and MoU with Optus on or about 4th December 2014, setting out arrangements that if breached by the Company could result in the Company being liable to Optus for $236,000 plus GST. I am instructed that the 'Optus arrangements' of the 4th December 2014 were not disclosed to my client and accordingly my client is of the view that there is breach of warranty on the part of the vendors of the shares in that there is at least a breach of warranty given under paragraph 7.2 of Schedule 2 of the share sale agreement dated the 23rd January 2015. Optus terminated the Term Sheet and indicated that it intended to make a claim. Optus has now made a claim for the return of all funds paid namely the sum of $259,600.00. I am also advised to put the vendors on notice that there may be other warranty breaches. Accordingly the relevant vendors of the shares in Broadreach Services Pty Ltd are hereby put on notice that the escrow amount will be held in trust by [the cross claimants' solicitors] on behalf of Maradaca Pty Ltd and Us assignee Electroboard Solutions Pty Ltd for the purpose of it being applied to meet the liability of the Company in favour of Optus…" The cross-defendants objected to BRS repaying the $236,000 plus GST as demanded by Optus. 1. By a letter dated 4 May 2015, the solicitor for Maradaca/ELB articulated the first cross-claimant's core complaint about the sale of the BRS shareholding as follows: "the fact is there was no disclosure to the purchaser on the part of the vendors of the existence of the Term Sheet and MOU. Your client [sic] would have been aware that the Term Sheet and MOU were not disclosed to the purchaser and that those documents could impact on the purchaser". 1. In late June 2015, Optus terminated its MSA with BRS. On or about 29 June 2015, a further five BRS employees simultaneously resigned to go to Optus, and it took BRS approximately two months to replace them. 2. In the months following ELB's acquisition of BRS, a total of 10 BRS employees resigned to instead work with Optus. The case as pleaded 1. The case as pleaded was based upon representations sought to be spelled out from the "Discussion Points" document of 17 October 2014, non-disclosure of a series of matters which occurred between March 2012 and 31 October 2014, non-disclosure of the terms of the Optus Term Sheet and Optus MOU, and various matters which had been said by BRS's CEO, Mr Griffiths, in two emails to Mr Wormald of 16 January 2015. In para 32 of the Further Amended Statement of Cross-Claim (FASCC), particular focus was placed upon the following matters which were alleged not to have been disclosed to the cross-claimants: (a) "switching back to the EB deal could have catastrophic consequences for the business on an on-going business"; (b) Optus had in fact been negotiating with Key Employees as to the terms of their employment; and (c) Optus had threatened to "poach" the Key Employees or some of them. 1. The FASCC made no reference at all to the telephone call of 19 January 2015 between Mr Barrett and Ms Kaliviotis. No representations were pleaded as arising from it, nor was anything said in the telephone conversation alleged to have been misleading or deceptive. The significance of this observation lies in the fact that what was said in this conversation assumed critical importance in the reasoning of the primary judge, as shall be seen below. 2. The proceedings at first instance seem, in this regard, to have departed significantly from the pleaded case. This is not an unknown phenomenon in litigation and where both sides have acquiesced in this, neither party can be heard to complain on an appeal that the case departed from the pleadings: see Banque Commerciale SA en Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 288; [1990] HCA 11; Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70. 3. Thus, under the subheading "Competing Narratives", the primary judge described Maradaca/ELB's case as that the cross-defendants "engaged in misleading and deceptive conduct by silence": at [160]. His Honour noted that Maradaca/ELB placed heavy reliance on Gummow J's decision, when a member of the Federal Court, in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 and 41; [1992] FCA 557 (Demagogue) and on this Court's decision in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at 209. 4. The primary judge noted at [161] that "[t]he cross defendants accepted this statement of the law, but emphasised authoritative statements about the need to take into account the commercial sophistication of Ms Kaliviotis … her preparedness to take a risk in acquisition of BRS in light of the disclosures made in the centrally important email of 25 November 2014". His Honour also noted the cross-claimants' particular reliance upon Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 at [20], [22], [91] and [96] (Miller) and the important observation of Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475 (Lam): "Where parties are dealing at arm's length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not of itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That would occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information." 1. No point was taken on appeal that the appeal should be upheld because the primary judge's analysis and the way Maradaca/ELB put their case departed from the pleadings. The converse of this is that the appeal must be assessed by reference to the primary judge's findings in light of the way the case was put and argued at first instance. 2. In this context, the primary judge's finding at [65] is of much significance. His Honour there recorded that: "The cross claimants acknowledge that, had their offer to acquire BRS been accepted on 5 December 2014, the first and second disclosures made in the email would have precluded any claim for relief of the type they now seek to make by reference to the Share Sale Agreement." 1. To similar effect, the primary judge held at [170] that: "Had the first cross claimant's offer to acquire BRS been accepted on 5 December 2014 (in lieu of Optus' offer) the disclosures made in paragraphs 1 and 2 of the email dated 25 November 2014 (referred to in clause 5.1 of the Side Letter dated 23 January 2015), and the first cross claimant's acknowledgement of those disclosures on 27 November 2014, would have been fatal to any claim that the first cross claimant's acquisition of BRS was tainted by misleading or deceptive conduct on the part of the cross defendants. The cross claimants do not contend otherwise." 1. This acceptance meant that, as the primary judge pointed out, the case in effect became one of non-disclosure of matters that had occurred to or within BRS from 5 December 2014 to 23 January 2015 when the SSA was executed. Accordingly, the focus of the proceedings at first instance was primarily upon whether or not Ms Kaliviotis and her interests had a "reasonable expectation" that certain matters would be disclosed. It will be necessary to return to the ambit of that concept in a commercial context when the relevant authorities are considered in further detail. The primary judgment 1. At [173]-[176] of his judgment, the primary judge said: "[173] The cross defendants contend that the cross claimants' commercial sophistication, knowledge and preparedness to take a risk operate decisively against their claim for relief as (the cross defendants contend) those factors continued to operate after 5 December 2014, up to and including 28 January 2015. [174] The terms of the conversation between the first plaintiff/cross defendant and Ms Kaliviotis on 19 January 2020 cut both ways. [175] On the one hand, Ms Kaliviotis was told that 'the sale to Optus is falling through' and the first plaintiff/first cross defendant did not 'want Optus to know' that a sale with the cross claimants 'is going through', signalling perhaps that Optus may have remained a competitive rival of the cross claimants. Ms Kaliviotis' willingness to proceed with an acquisition of BRS, without more due diligence, on the basis of a $200,000 security fund might also demonstrate a voluntary assumption of an element of risk on the part of the cross claimants. [176] Against that, Ms Kaliviotis did not have disclosed to her the terms, or currency, of the arrangements between 'BRS' and Optus, and she was implicitly assured that a security fund of $200,000 was sufficient to address any want of updated due diligence. She was, implicitly, given comfort that not much had changed since her (the first cross claimant's) offer was rejected by 'BRS' on 5 December 2014." (emphasis in original). 1. The last paragraph of this extract characterised the statement made by Mr Barrett to Ms Kaliviotis in the 19 January 2015 conversation as involving an "implicit assurance" to Ms Kaliviotis. His Honour in this and later paragraphs of his reasons expressed the assurance in a number of different ways: * an "implicit assurance that (with the benefit of a $200,000 security fund) there was no need to do 'due diligence' beyond that done in November 201[4]": at [169]; * "she was implicitly assured that a security fund of $200,000 was sufficient to address any want of updated due diligence. She was, implicitly, given comfort that not much had changed since her (the first cross claimant's) offer was rejected by "BRS" on 5 December 2014": at [176]; * "assuring her that not much had changed, without disclosure of things that had changed in the interim and without disclosure, more particularly, of their ongoing contractual commitments to Optus (BRS' largest customer), inconsistent though such commitments were with the sale of BRS to the cross claimants": at [177]; * "an assurance that a security fund of $200,000 would be sufficient to accommodate any change of circumstances that occurred after 4 December 2014": at [191]; * "Mr [sic] Kaliviotis was not so keen on her companies acquiring BRS that she was prepared for them to acquire it without an assurance that there had been no material change in circumstances since 4 December 2014": at [196]; * "an assurance of the cross defendants (through the first cross defendant) that there had been no material change in circumstances since the first cross claimant's offer of November/December 2014": at [230]; * "an assurance that a security fund of $200,000 would be sufficient to accommodate a change of circumstances": at [230]. 1. The essence of the primary judge's reasoning leading to the conclusion that there had been misleading or deceptive conduct by reason of non-disclosure was contained in [183]-[187] of the judgment as follows: "[183] Having made specific disclosures on 25 November 2014 about risks associated with a sale of 'BRS' to the first cross claimant, and the first plaintiff/cross defendant having told Ms Kaliviotis that 'the sale to Optus is falling through', the cross claimants had a reasonable expectation that, before contracting to acquire BRS, they would be informed of: (a) any legal impediment to their acquisition of BRS in the contractual arrangements between 'BRS' and Optus; and (b) any development post-4 December 2014 which would materially change the nature of, or increase, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014. [184] By way of illustration, Ms Kaliviotis was not told that there was a risk (consistent with item 18 of the Optus Term Sheet dated 4 December 2014) that Optus might seek to enforce by injunctive relief its contractual entitlement to exclusivity in ongoing negotiations for acquisition of BRS. [185] Expressed commercially, despite their invitation to Ms Kaliviotis (as the moving mind of the cross claimants) to acquire BRS (and their encouragement of that acquisition) the cross defendants did not disclose to the cross claimants that, upon their acquisition of BRS, they would, by virtue of that acquisition, be confronted by: (a) a legal dispute with Optus as BRS' major customer, upon the custom of which BRS' ongoing economic viability was dependent; and (b) a heightened prospect that, having been engaged in direct negotiations with Optus about their future employment terms, skilled employees of BRS (upon whom a successful conduct of its business also depended) would migrate to Optus. [186] The cross claimants were not told that Optus' acquisition of BRS had been announced to BRS staff; that Optus had interviewed BRS employees with a view to ensuring their availability to work in the interests of Optus; or that Optus had 'pre-paid' BRS $236,000 in return for exclusivity in negotiations and access to financial information. [187] These non-disclosures, taken together, were of a type which materially changed the nature of, and increased, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014. By the terms of the Term Sheet and the MOU dated 4-5 December 2014, Optus had acquired legal rights affecting the disposition of shares in BRS and the conduct of BRS' business which, if the cross claimants were to acquire BRS, would expose BRS (and, indirectly at least, the cross claimants) to adversarial claims by Optus, the very entity from which BRS and the cross claimants hoped to solicit business so as to secure the economic viability of BRS." 1. In addition to this basal finding, the primary judge also rejected the cross-defendants' submission to the effect that, even if these non-disclosed matters had been disclosed, Maradaca would still have gone through with the transaction. That was to reject a submission that, even if there had been misleading or deceptive conduct, such conduct was not causal of any loss or damage. 2. The primary judge's conclusion in this regard was also influenced by his Honour's characterisation of the 19 January 2015 conversation as an assurance. Thus, the passages extracted at [93] above from [191] and [196] of the primary judgment fell within that section of the judgment which dealt with causation. 3. The essence of the primary judge's reasoning on the question of causation was contained in [191]-[192] as follows: "[191] The cross defendants not only invited, but encouraged, the cross claimants to enter those arrangements (without further due diligence) upon an assurance that a security fund of $200,000 would be sufficient to accommodate any change of circumstances that occurred after 4 December 2014. The cross claimants did not, and could not, know that 'BRS' was still contracted to deal exclusively with Optus (as appears to have been the case) or that (if that was not the case) Optus nevertheless believed, and had reasonable grounds to believe, that "BRS" remained tied to negotiations with it. [192] Even if Ms Kaliviotis, informed of BRS' contractual commitment to Optus, remained open to the possibility of further negotiations in the future (time permitting), she would not have been prepared to do so without further due diligence inquiries and, given her commercial object of building her ongoing relationship with Optus, satisfying herself that she was not simply buying a fight with Optus. It is highly doubtful that she would ever have agreed to acquire BRS without a reduction in the purchase price of $1.35 million. For their part, the cross defendants (particularly the second plaintiff/cross defendant) had no appetite to accept less than that price. No alternative, renegotiated deal was on the cards." 1. On the question of damages, the primary judge accepted the expert opinion of Mr Samuel, a forensic accountant, that at the time it was acquired by Maradaca, the BRS shareholding had a value of "nil": at [215]. This assessment, however, was based upon assumptions that were not made good by the evidence, namely that Ms Kaliviotis would not have proceeded at all had she known of certain non-disclosed matters (evidence she had originally given by affidavit but which was partly abandoned in evidence in chief and to the extent it remained her evidence she was skilfully but fairly cross-examined out of it) such that there was no willing but not anxious buyer of the shares in BRS as at the transaction date. The assessment was also based upon an assumption the Maradaca/ELB was not aware of Optus' threats to cancel the Master Services Agreement if there was a change in control. This assumption, too, was contrary to the facts. 2. The primary judge assessed damages at [226] as follows: "Subject to consideration of submissions about apportionment under the Competition and Consumer Act 2010 Cth, and an allowance for a 'set off' of the $200,000 security fund held in escrow, judgment, in substance, should be entered for the second cross claimant against the cross defendants in the sum of $1.35 million, together with interest at the rate prescribed by section 100 of the Civil Procedure Act 2005 NSW from 28 January 2015." 1. The primary judge apportioned this verdict severally between the cross-defendants as reflected in the orders set out at [17] above. His Honour rejected a claim by Mr Wormald and Wirra Wirra to the effect that responsibility for the loss should be borne by Messrs Barrett and Moran on the basis that they had taken a more active role in negotiations with Ms Kaliviotis. The reasoning on the apportionment question was in essence contained in [232]-[235] of the primary judgment as follows: "[232] As the 'major shareholders' in BRS, the cross defendants worked collectively towards effecting a sale of 100% of the shares in BRS, either to Optus or to the cross claimants. Their decision on 5 December 2014 to reject the first cross claimant's offer, and to accept Optus' offer, was a collective one; the first plaintiff/cross defendant subordinated his personal dissent to the will of the majority. The decision to re-open negotiations with Mr Kaliviotis on 19 January 2015 was, likewise, a collective decision. It was no less a collective decision because the cross defendants delegated the task of approaching Ms Kaliviotis to the first plaintiff/cross defendant as a person she trusted. [233] They each knew the terms of the agreement of 5 December 2014 to sell BRS to Optus, and that steps (commercially unsatisfactory as they may have seemed) had been taken by Optus and BRS to implement that agreement. They each knew or ought to have known that Optus had not released 'BRS' from any ongoing contractual commitment to confidential negotiations. [234] The fourth cross defendant was, at all stages of the negotiation processes of 2014 and 2015, actively involved. His 'Discussion Points' document of 17 October 2014 was calculated to entice Ms Kaliviotis to acquire BRS. He was actively involved in the decision making of the 'major shareholders' at all stages. In January 2015 he was actively involved in weighing up the options for the 'major shareholders' in effecting a sale of BRS before the company, on 28 January 2015, was expected to become insolvent. [235] Any one of the cross defendants could have warned Ms Kaliviotis of the terms, currency and state of implementation of the Optus agreement. She was personally known to each of the first plaintiff/cross defendant, the second plaintiff/cross defendant and the fourth cross defendant. Any one of them could have prevented the cross claimants' loss by a timely disclosure to Ms Kaliviotis, an insistence upon a collective disclosure or a refusal to sell their shareholding without disclosure." 1. It should also be noted that the primary judge rejected the submission that Maradaca/ELB's damages should be reduced to nil for contributory negligence under s 236(1) of the Australian Consumer Law. 2. Although in light of his Honour's conclusions on misleading or deceptive conduct, it was not strictly necessary to deal with a breach of warranty claim under the SSA, the primary judge held at [237(k)-(n)] that: "The warranty claim made by the first cross claimant and sought to be enforced by the second cross claimant (as assignee of the first cross claimant) is a claim made (by reference to paragraph 15.2 of Schedule 2 and clause 8.1 of the Share Sale Agreement) to the effect that the Due Diligence Materials provided to the first cross claimant were 'accurate and complete in all material respects and not misleading' and that there was 'no information of which any Seller [was] aware which would, by its omission, render any information in the Due Diligence Materials to be inaccurate in any material respect or misleading'. The Due Diligence Materials did not include any information relating to the existence, terms, implementation or currency of the Optus Term Sheet or the MOU dated 4-5 December 2014. The omission of any reference to the Term Sheet and the MOU rendered the Due Diligence Materials misleading, with the consequence that the Sellers were in breach of their warranty. As a result of that breach of warranty, the second cross claimant (as assignee of the first cross claimant) has an entitlement to be indemnified from the security fund." 1. His Honour said at [239] that the "essential point is that the plaintiffs' failure to disclose the existence, terms, implementation and currency of the Optus Term Sheet and MOU rendered information in the Due Diligence Material inaccurate in material respects, and misleading, in the context of the Share Sale Agreement entered on 23 January 2015." Grounds of appeal 1. Wirra Wirra and Mr Wormald challenged the primary judge's conclusions on misleading or deceptive conduct, causation, contribution, loss and damage and apportionment between the cross-defendants, and the conclusions on the breach of warranty claim. The core attack on the central finding of misleading or deceptive conduct was contained in appeal grounds 2-5 as follows: "2. The trial judge erred in finding that the cross-claimants had a reasonable expectation in all the circumstances that the cross defendants collectively, or alternatively the third and fourth cross defendants specifically, would inform the cross-claimants of the contractual arrangements between BRS and Optus (in the form of the Term Sheet and MOU) and of any development since 5 December 2014 which would materially change the nature or magnitude of the risks associated with termination of the Master Services Agreement with Optus or the loss of current BRS employees. 3. The trial judge erred in finding that in the period between 5 December 2014 and the sale of the shares to the first cross-claimant on 23 January 2015 there was a change in the nature or magnitude of the risks associated with termination of the Master Services Agreement with Optus or the loss of current BRS employees that was material, having regard to the circumstances of the sale to the cross-claimants. 4. The trial judge erred in finding that the cross-defendants collectively, or alternatively the third and fourth cross-defendants specifically, had given the cross-claimants an 'assurance' in January 2015 that nothing material had changed since 5 December 2014, there was no need to do due diligence beyond that which had been done up to 5 December 2014 and/or that a security fund of $200,000 was sufficient to address any want of further due diligence and any change of circumstances. 5. The trial judge erred in finding that upon their acquisition of shares in BRS, the cross-claimants were confronted with a legal dispute with Optus." 1. The "cross-appeal" of Messrs Barrett and Moran (see [18] above) materially replicated the grounds in Wirra Wirra and Mr Wormald's appeal other than those concerned with apportionment as between the cross-defendants. 2. Maradaca/ELB also filed a Notice of Contention, with ground 1 relevantly as follows: "In addition to the conduct found by the trial judge to be misleading and deceptive the cross-defendants also engaged in further conduct which was misleading, deceptive or likely to mislead or deceive by failing to inform the cross-claimants of the following matters: (a) that between mid-October 2014 and 23 January 2015 the overdraft of BRS increased by nearly $200,000 from $690,000 to $886,000 or thereabouts; (b) that without external financial assistance prior to 28 January 2015, there were reasonable grounds for an expectation that BRS would on that date be insolvent; (c) that BRS was $50,000 short of making payroll in January 2015; (d) that BRS had requested that invoices be paid outside the billing cycle; (e) that the Chief Executive Officer of BRS held the view that a sale of BRS to the cross-claimants could have 'catastrophic consequences' for the business of BRS vis a vis Optus; and (f) that in late 2014 a representative of Optus had specifically threatened to poach employees away from BRS regardless of the terms of the Master Services Agreement between Optus and BRS." Paragraphs 1(a) and (f) of the Notice of Contention were not pressed. 1. Maradaca/ELB contended that, had one or more of the matters referred to in (b)-(e) above been disclosed, they would not have entered into the contractual arrangements on 23 and 28 January 2015 to acquire the shares in BRS. Consideration The authorities 1. In Fraser v NRMA Holdings Limited (1995) 55 FCR 452 at 467 (Fraser v NRMA), the Full Court of the Federal Court said in the context of s 52 of the Trade Practices Act 1974 (Cth), that: "Where the contravention of s 52 alleged involves failure to make full and fair disclosure of information, the applicant carries the onus of establishing how or in what manner that which was said involved error or how that which was left unsaid had the potential to mislead or deceive." 1. Whilst this proposition is elementary, in a case such as the present where the way it was ultimately put changed quite significantly from the way it was originally pleaded, the evidence led may be deficient or inadequate to demonstrate a case that has developed or been refined as a trial progresses. In this context, the well-known dictum of Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 (Ferrcom) may come into play, acknowledging always that hypothetical, counterfactual evidence given after the event must be closely scrutinised: see, for example, Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514; [2003] HCA 25 at [29]; Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 at [155] and [214]; and Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 560, 581. 2. In Ferrcom, Handley JA expressed the view that the Court should not draw inferences favourable to a party when no attempt was made to prove them by direct evidence and, in particular, when no relevant questions were asked of the witness. His Honour continued (at 418) by saying that he could see no reason why the principles in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8: "…should not apply when a party by failing to examine a witness in chief on some topic, indicates 'as the most natural inference that the party fears to do so'. This fear is then 'some evidence' that such examination in chief 'would have exposed facts unfavourable to the party': see Jones v Dunkel (at 320-321) per Windeyer J." 1. The failure to lead evidence as to why non-disclosed evidence was material (and the failure to ask questions in relation to the subject matter of the non-disclosed matters at the time) was treated as significant in DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117 at [136]. 2. Key propositions to emerge from the High Court's important decision in Miller include the following: * the language of reasonable expectation [found in cases such as Demagogue] is not statutory: at [19]; * in commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context: at [20]; * close analysis of all of the circumstances of a transaction embraces a consideration of the sophistication of the parties and their experience in their fields: at [91]; * the knowledge of the person to whom the conduct is directed may be relevant: at [20]. See also Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319; [2009] HCA 25 at [26]; * the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business may also be relevant: at [20]; * the analysis is objective: at [20]; * the analysis is to be "unmediated by" high moral expectations exceeding the requirements of the general law: at [21]; * the statutory prohibition on misleading or deceptive conduct does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party: at [22]; and * the failure to make reasonable inquiries, whilst not automatically defeating a statutory claim for damages for misleading or deceptive conduct, is a circumstance that is relevant to a consideration as to whether a failure to make disclosure is correctly characterised as misleading: at [91]. 1. None of these propositions is inconsistent with the observations of Gleeson CJ in Lam set out at [87] above, which remains an important authority in this context. Lam has been regularly followed and applied: see, for example, Street v Luna Park Sydney Pty Ltd (2009) 223 FLR 245; [2009] NSWSC 1 at [179]; G&M Borg P/L v New South Wales Dairy Corp [2003] NSWSC 382 at [34]; Williams v Commonwealth Bank of Australia [1999] NSWCA 345 at [119]; Oscty Pty Ltd v Ufford Holdings Pty Ltd (1989) NSW ConvR 55-494; BHP Billiton Olympic Dam Corporation Pty Ltd v Bluestone Apartments Pty Ltd (No 2) [2013] SASC 133 at [21]; Donne Place Pty Ltd v Conan Pty Ltd [2005] QCA 481 at [43]; First Mineral Resources Pty Ltd v WMC Resources Ltd [2000] WASC 309 at [17]; Hayle Holdings Pty Ltd v Australian Technology Group Ltd [2000] FCA 1242 at [327] and [370]; Australia & New Zealand Banking Group Ltd v Pham [1999] VSC 503 at [87] and [176]; Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375; [1999] FCA 954 at [208]; and Des Forges v Wright [1996] 2 NZLR 758 at 764. 2. Of similar effect to Gleeson CJ's observations in Lam are those of Macfarlan JA, with whom Beazley ACJ and Payne JA agreed, in Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 at [86] (Jewelsnloo): "…the normal competitive basis upon which arm's length commercial parties deal with each other is not abrogated by statutory prohibitions on misleading and deceptive conduct. Such parties are not obliged to volunteer information to the others with whom they are dealing simply because they realise, or should realise, that it is of importance to the commercial interests of the others. There has to be something more that renders their silence misleading or deceptive." 1. More recently, in Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2, Barrett AJA, with whom Meagher and Leeming JJA agreed, observed at [40] that: "Silence is itself a fact that must be assessed like any other and, unless the circumstances as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist but not communicated, there is no basis on which silence of itself can warrant an inference of a representation that the fact does not exist." 1. As to commercial context, the sage observations of McDougall J in Watpac Constructions (NSW) Pty Limited v Charter Hall Funds Management Limited [2017] NSWSC 865 at [173] are also of relevance: "Where parties are … of equal bargaining power and equally well resourced and advised, the careless disregard by one of its own interests is an unlikely starting point to trigger the operation, adversely to the other, of s 18 [of the ACL] when those parties are in dispute. Of course, where the misleading or deceptive conduct relied upon is based on some active conduct or positive misrepresentation, totally different considerations may apply." 1. Reference should also be made to the decision of the Full Court of the Federal Court in Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (as trustee for the Baker Family Trust) (2005) 220 ALR 211; [2005] FCAFC 131 where it was observed, in the context of a discussion of causation, that: "[101] As the learned author of Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection observes at [11.720], there are numerous authorities for the proposition that clauses seeking to exclude liability for contraventions of s 52 of the TPA are not effective but the authorities admit of the possibility that in some circumstances such a clause may be operative (J D Heydon, vol 2, Law Book Co, Sydney; see also C Lockhart, The Law of Misleading or Deceptive Conduct, 2nd ed, LexisNexis Butterworths, Sydney, 2003 at [10.17]–[10.18]). [102] We do not need to resolve the divergent explanations given in the cases. It is sufficient to say that the authorities recognise that reliance is a question of fact and that the existence of an exclusion or qualification clause is relevant to a determination of the question of whether an applicant has established reliance. [103] In Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048 (Keen Mar) Morling and Wilcox JJ were of the view that a well-drafted disclaimer, drawn to the attention of the contracting party and acknowledged in writing to have been made, was sufficient to negate reliance. Their Honours reversed a finding of reliance made by the primary judge: see at 53,147 and 53,151. As in the present case, there was evidence that the applicant had legal advice. [104] Here the disclosure documents contained numerous exhortations to Mr and Mrs Baker and Silver Fox to make their own investigations of the potential profitability of the franchise. There were also acknowledgments in the disclosure documents and the franchise agreement in the clearest terms that the applicant did not rely on any representation as to the turnover or profits of the franchise. The acknowledgments were more numerous than in Keen Mar and were in clear words." 1. Although these observations were made in the context of a consideration of causation and reliance, the existence of clauses such as cll 9.3 and 9.4 of the SSA (see [70]-[71] above) may provide important context, especially in a commercial setting, against which a question as to whether silence amounts to misleading or deceptive conduct may be assessed: see Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592; [2004] HCA 60 at [150]- [153]; Jewelsnloo at [63]. 2. On the question of causation in the context of misleading or deceptive conduct, the following statement by Santow JA in Havyn Pty Ltd v Webster [2005] NSWCA 182 at [116(c)] (Havyn) remains a valuable summary: "Causation is a question of fact to be determined by reference to common sense and experience, and one upon which policy considerations and value judgments necessarily enter: March v Stramare (E & MH) Pty Ltd (supra). In that respect, certainly in cases of complexity which warrant this (Harvey v PD [2004] NSWCA 97; (2004) 59 NSWLR 639 at 671 per Spigelman CJ) and perhaps more generally, a two-stage test of causation is to be applied in which the Court considers (1) whether factually the conduct in question is a historical cause of the damage, and (2) if so, whether normatively the defendant ought to be held legally responsible for that damage: see in the fair trading context Tambree v Travel Compensation Fund [2004] NSWCA 24; in other contexts, Pledge v Roads and Traffic Authority [2004] HCA 13; (2004) 205 ALR 56 at 59 per Hayne J (Kirby J concurring). The law looks at what influences the actions of parties, acknowledging that people can be swayed by several considerations to varying extents, rather than considering cause and effect in mathematical or philosophical terms: Como Investments Pty Ltd (In liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 41-550 at 43,619; Henville v Walker at 494 per McHugh J." 1. In the same case, Santow JA observed at [116(i)] that an unreasonable failure to take care for one's own interests is relevant only insofar as it is the operative cause of a severable part of the loss to which the contravention did not materially contribute. In that sense, a plaintiff's conduct must be so dominant in the causal chain as to be properly regarded as the real or effective cause of the loss claimed: see Argy v Blunts & Lane Cove Real Estate Pty Ltd (t/as Blunts of Lane Cove) (1990) 26 FCR 112 at 138; Havyn at [116(f)]. 2. In considering the primary judge's findings, although his Honour accepted Ms Kaliviotis' account of the 19 January 2015 conversation, this is not a case in my opinion where the "glaringly improbable" standard of appellate review is engaged: cf White Constructions Pty Ltd v PBS Holdings Pty Ltd [2020] NSWCA 277 at [103], [138] and [155]. The terms of the primary judge's findings as to what was said in that conversation are not under challenge. Rather, the challenge is as to whether or not the conversation, as found by the primary judge, had the character of supplying an assurance or assurances to Ms Kaliviotis of the various kinds described at [93] above. 3. The inquiry prompted by this matter, at least as concerns the objective characterisation of conduct as misleading or deceptive, turns on an analysis of the words used. In this context, the standard of review is more akin to that set out in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 and Warren v Coombes (1979) 142 CLR 531 at 551; [1979] HCA 9. In other words, this Court, in reviewing the primary judge's characterisation of conduct, including his Honour's interpretation as to what emerged from the 19 January 2015 telephone conversation, is in as good a position as the primary judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the primary judge's findings. Was there relevantly misleading or deceptive conduct causative of loss or damage? 1. I take as a starting point the question of the proper characterisation of the 19 January 2015 telephone conversation between Mr Barrett and Ms Kaliviotis and, in particular, whether it involved any of the varying assurances which the primary judge said it gave rise to, whether expressly or implicitly: see [93] above. I do not consider that it did and that the primary judge, with the greatest of respect, erred in his conclusion to the contrary. This conclusion coloured the balance of his analysis, and warrants appellate intervention. My reasons for this are as follows. 2. First, no express assurances were given. Rather, there was an air of desperation to Mr Barrett's overture – "The sale to Optus is falling through. They were meant to pay us money but are mucking us around and haven't done so … We need to finalise it quickly … We don't really have the time. I don't want Optus to know that the sale is going through." The statement that $200,000 would be set aside from the sale price "to deal with any problems" was neither a statement that there were no problems nor that there were problems having a value of $200,000 but, rather, was an acknowledgment that there could be problems, and $200,000 was what the Majority Shareholders would be prepared to set aside to deal with any such problems. As submitted in reply on Mr Wormald's behalf, the conversation proceeded on the assumption that things may well have changed, but the circumstances did not permit inquiry into the materiality of any such changes. 3. Secondly, contrary to the primary judge's observations at [176] and [177] that Ms Kaliviotis was given "comfort" and an "assurance" that "not much had changed" since her first offer was rejected, she had been told that Optus had not paid the company money that it was meant to pay BRS and was "mucking" it around. This statement must be understood in the context of Ms Kaliviotis' earlier knowledge as to BRS's heavy reliance on Optus and very poor cashflow/overdraft position, which would and could only have been exacerbated by the company being "mucked around" by Optus: see, for example, [26], [31] and [32] above. Moreover, the urgency to the request and the need for speed, only reinforced by the follow up telephone conversation the following day (see [63] above), suggested a rapidly deteriorating and vulnerable and/or volatile position. 4. Thirdly, contrary to [169] of the primary judgment, there was no assurance that "there was no need to do due diligence"; rather, the representation was that there was no time to do so. The reason that there was no time to do so was the urgency of the situation. In light of what Ms Kaliviotis knew from her pre-5 December 2014 due diligence, including in relation to BRS's cashflow and overdraft, combined with what she had learnt about Optus "mucking [BRS] around" and not making payments, the urgency fairly obviously had to do with the company's financial position. 5. Fourthly, as to the suggestion at [196] and [230] of the primary judgment that there was an assurance that "there had been no material change of circumstances", there was nothing of the kind. Apart from the fact that the language of the conversation was far removed from this characterisation, no such assurance was sought or given, and the giving of any such assurance would have been quite inconsistent with the offer to pay $200,000 into escrow under what became the Side Letter. 6. Fifthly, the SSA did contain cll 9.3 and 9.4 (referred to at [70]-[71] above) which are inconsistent with an assurance having been given and which also provide some context for the case based upon misleading or deceptive conduct by silence. Moreover, and of real significance, was the fact that warranty claims under the SSA were, to Maradaca/ELB's knowledge, capped at 15% of the purchase price: see cl 9.5(b)(i)(B). This is inconsistent with any subsisting expectation of being informed of matters, the failure to disclose which would generate a liability to pay damages to the value of, or indeed exceeding the purchase price under, the SSA. 7. There is force in the submission advanced on behalf of Mr Wormald that Mr Barrett: "said that time did not permit any further due diligence and that if Ms Kaliviotis wished to purchase BRS she would need to proceed without further information about what had occurred since the completion of her due diligence. The $200,000 to be placed in escrow was offered as a solution to appease her concerns about proceeding in this way, as an amount to 'deal with any problems'. That offer was not in any sense tied to an assurance that the amount would necessarily be adequate to deal with any change in circumstances." 1. For these reasons, the primary judge was, with respect, wrong to characterise the 19 January 2015 telephone conversation between Mr Barrett and Ms Kaliviotis as involving the varying assurances he ascribed to it. There is no doubt that that characterisation influenced and pervaded his Honour's reasoning process. 2. Moreover, far from any "reasonable expectation" arising that Ms Kaliviotis would be informed of matters, to use the non-statutory language associated with Demagogue, the refusal to allow or entertain further due diligence operated as a negativing of any expectation that may otherwise have existed, reasonable or otherwise. With the request for further due diligence declined, it was "buyer-beware", subject to the $200,000 that had been proffered by Mr Barrett in the 19 January 2015 telephone conversation "to deal with any problems". 3. As noted at [86] above, as ultimately advanced, Maradaca/ELB's case was one of misleading or deceptive conduct by silence although, as I have observed, there is no doubt that the primary judge's ultimate conclusions were influenced by his take on the 19 January 2015 conversation. Focussing, however, on the case of misleading or deceptive conduct by silence, a number of important points must be made. 4. First, as the authorities surveyed disclose, context is extremely important. The context included the sophistication and risk appetite of the purchaser, here represented by Ms Kaliviotis, and the commercial context of the arrangement. The context was a commercial negotiation between sophisticated arms-length parties. Ms Kaliviotis knew that BRS' financial position was precarious and depended on its major customer, Optus. Ms Kaliviotis knew that BRS had recently agreed to a sale to Optus, their major customer, but that the sale was falling through and BRS was alleging in that context that Optus had failed to pay BRS a substantial sum due to it. Mr Kaliviotis knew that BRS were anxious for a quick sale. Such was the urgency that the existing sale documents that had been prepared in November 2014 were to be used, even though Ms Kaliviotis had nominated a new purchaser for the BRS shares. In context, Ms Kaliviotis plainly knew that BRS would likely go into liquidation if a sale was not achieved very quickly. Ms Kaliviotis had asked to conduct further due diligence but was told on 19 January 2015 that there would be no due diligence afforded in respect of the period since the earlier offer was rejected on 5 December 2014. 5. Secondly, as also noted above, as at 5 December 2014, Ms Kaliviotis and Maradaca/ELB had been told that: * Optus would terminate its Master Services Agreement with BRS upon a change of control to Maradaca/ELB; * it was very likely that a significant number of employees would be lost upon the proposed transaction proceeding; * BRS has entered into a tax payment plan with the ATO. Nothing said thereafter to Ms Kaliviotis or her executives gave any comfort that these matters had changed. The first and second matters were of particular significance, with the former likely to be rendered even more likely if, as Ms Kaliviotis was told on 19 January 2015, negotiations with Optus were failing. The third matter was symptomatic of a company under cashflow distress. 1. In this context, the primary judge's statement at [212] that: "The fragility of BRS' financial position in the days leading up to 5 December 2014 (when the BRS shareholders agreed to sell their shares to Optus, on terms requiring further negotiation, rather than to the defendant/first cross claimant) was not, in itself, the subject of great controversy in these proceedings", is also of some significance. That position of fragility was well known to Maradaca/ELB and Ms Kaliviotis. It emerged from the Brownlow cashflow of 21 October 2014 (see [26] above), the disclosure of the cash flows on 12 November 2014 (see [31]-[32] above) and the Marque Lawyers disclosure on 25 November 2014: see [37] above. If anything, that fragility would only have been reinforced by the refusal by Mr Barrett to afford any further due diligence in the telephone conversation of 19 January 2015 and the urgency as to the need to do a deal which was conveyed in that conversation. In light of previous disclosures including as to BRS's cashflows through January and February 2015, the reasons for the urgency to a businesswoman of the sophistication and experience of Ms Kaliviotis must have been wholly apparent. That, on her own account, she raised no issue about this in the conversation only reinforces that conclusion. 1. Thirdly, Ms Kaliviotis and Maradaca/ELB had been prepared to invest $1.35 million and assume BRS's liability under its CBA facility, notwithstanding this knowledge as at 5 December 2014. She had also been advised on or around 21 October 2014 that that "come November the company would exceed its overdraft of one million dollars" and "that the company was going to continue to exceed its overdraft until at least March 2015": see [26] above. 2. Fourthly, by the time of execution of the SSA, Ms Kaliviotis and Maradaca/ELB must be taken to have known that: * Optus had been in discussion with BRS between 5 December 2014 and 19 January 2015; * those discussions and the negotiation were highly likely to have been confidential and that BRS and its shareholders were not at liberty to disclose the terms of those discussions; * Optus had been conducting its own due diligence which in practical terms was likely to have involved discussions with key BRS employees; * the sale to Optus of BRS was "falling through" and BRS asserted that Optus was meant to pay BRS money due to it in relation to that proposed sale but had not; * the terms of the SSA itself, and in particular clauses 8 and 9, set out at [68]-[72] above, contained significant promises inconsistent with Ms Kaliviotis placing reliance upon any understanding that nothing material to BRS had changed since the earlier due diligence she had conducted had been completed. 1. Fifthly, Ms Kaliviotis was an experienced businesswoman who had formed a strong view as to the value to her companies of the transaction and, notwithstanding the unqualified warnings she had been given on 25 November 2014, nonetheless, as the primary judge held at [30], had such confidence in her ability to work constructively with Optus that, in December 2014, she accepted a risk that, if her group acquired BRS, "Optus might terminate the MSA and entice BRS employees to join its staff." 2. Sixthly, irrespective of whether or not the 19 January 2015 telephone conversation is characterised as involving an assurance or not, Maradaca/ELB had secured what was effectively a $200,000 buffer to its acquisition. That amounted to almost 15% of the purchase price which incidentally in effect gave Maradaca/ELB a fund to substantially secure the maximum cap for breach of warranties under cl 9.3 of the SSA. 3. Contrary to the primary judge's conclusion, I am not satisfied that Maradaca/ELB established that there was misleading or deceptive conduct by silence, or by a combination of silence and some assurance given to Ms Kaliviotis in the 19 January 2015 telephone conversation. Nor am I satisfied that Maradaca/ELB established that any loss or damage sustained by them was caused by any misleading or deceptive conduct for which either the Majority Shareholders or Wirra Wirra were responsible. 4. The primary judge focussed on the matters set out in [183]-[187] of his judgment, reproduced at [94] above, to reach his conclusion that there had been misleading or deceptive conduct by silence. The "reasonable expectation" identified by the primary judge at [183] as arising from the specific disclosures on 25 November 2014 was that: "…before contracting to acquire BRS, they would be informed of: (a) any legal impediment to their acquisition of BRS in the contractual arrangements between 'BRS' and Optus; and (b) any development post-4 December 2014 which would materially change the nature of, or increase, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014." 1. As to (a), Maradaca had the benefit of an express warranty under cl 2.1(a) of Sch 2 to the SSA that the execution, delivery and performance by each seller of his or its obligations under the SSA would not constitute a breach of any obligation or cause or result in a default under any agreement. Why, with the benefit of such an explicit warranty, there would be an expectation of being informed of a matter inconsistent with this warranty, is not apparent. There would be no such expectation because the risk had already been addressed in the specific terms of the parties' contract. 2. As to what the primary judge described at [184] as the non-disclosure of the risk that Optus might seek to enforce by injunctive relief its contractual entitlement to exclusivity in ongoing negotiations for acquisition of BRS, any such negotiations ex hypothesi would not have been ongoing had the transaction with Maradaca been consummated. 3. Ms Kaliviotis, moreover, did not give evidence to the effect that, had she known that Optus had an exclusivity clause in the Term Sheet or as part of its negotiating arrangements with BRS, she would not have gone ahead with the acquisition or gone ahead with it but at a lower price. This raises at least two possibilities: first, that she did in fact know of the matters on which the primary judge fastened as amounting to non-disclosures or that, even if she did not know some or all of these matters, that would not have made a difference to her decision to go ahead with the acquisition. Certainly, in line with Ferrcom, no favourable inference should be drawn in Ms Kaliviotis' favour in this regard. 4. As to (b), the supposed reasonable expectation that any development after 5 December 2014 which would materially change the nature of, or increase, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014 would be disclosed, it is equally difficult to understand how or why any such expectation would have arisen, especially in circumstances where a request for further due diligence was expressly rebuffed. This point also provides an answer to the matters sought to be raised under the notice of contention. 5. Furthermore, I respectfully disagree with the primary judge's assessment at [187] that, between 5 December 2014 and 23 January 2015 when the SSA was executed, there was a material change in the nature of, and increase in, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014. Those risks, it will be recalled, were unqualified and profound, namely that: (i) Optus would terminate its MSA with BRS upon any change of control transaction occurring; and (ii) that there was a risk that a number of current BRS employees would not continue their employment if the proposed transaction proceeded and, in light of the likely termination of the Optus agreement, it is consequently very likely that a significant number of employees would be lost upon the proposed transaction proceeding. 1. As to causation, the SSA was a transaction which carried significant risks which Ms Kaliviotis was confident could be negotiated and managed. The risk which she was prepared to take in early December 2014 was not materially different to that which she was prepared to assume 6 weeks later in circumstances where she had been told that negotiations with Optus were failing and she was offered a $200,000 form of insurance. She accepted this risk in the course of a telephone conversation which, on her own account, could only have taken less than a minute. She did not ask any specific questions as to the level of the overdraft she was to assume liability for, or the amount of cash at hand. She did not ask why matters had become so urgent and pressing. That was either because the answer to that question must have been obvious to her based upon her previous knowledge and understanding of BRS and its finances, or because she was prepared to take the risk she did. 2. It is also to be observed that the risks of the transaction she was prepared to take did not materialise for a considerable period of time. BRS continued to interact with Optus for a reasonable period of time, BRS continued to trade and not insignificant tax benefits were secured. The level of overdraft at the time of the SSA, moreover, was $880,000, rather less than had been projected in earlier and disclosed cashflow forecasts. 3. The primary judge's finding on causation and reliance was underpinned by his Honour's conclusion that an assurance had been given in the 19 January 2015 telephone conversation. For the reasons given above, I would reject that characterisation and also reject the primary judge's finding of causation. 4. The claim of misleading or deceptive conduct was in some respects advanced defensively after the Majority Shareholders had sought to recover the Escrow Funds. Had Maradaca/ELB and Ms Kaliviotis in truth been misled when control was assumed of BRS, one might have expected a claim of misleading or deceptive conduct far more quickly than it emerged. One might also have expected the 19 January 2015 conversation to form a centrepiece in the pleading had it been understood and relied upon by Ms Kaliviotis as some form of assurance. Although it obviously formed part of her affidavit evidence, it did not feature in the cross-claim which she verified. 5. At the end of the day, I accept the submission advanced on behalf of Mr Wormald that was amply supported by evidentiary references to the cross-examination of Ms Kaliviotis that: "When Mr Barrett engaged with Ms Kaliviotis again on 19 January 2015 she was plainly conscious that things were likely to have changed since November 2014. As noted above, her initial inclination was to seek further due diligence. It was made clear to her that the only option on offer was to proceed to a purchase without the opportunity to gather updated information. Ms Kaliviotis was prepared to proceed in those circumstances. She did not know the current financial position of BRS or what the current debts of the business were. She did not undertake any further due diligence or ask for any additional material. She did not ask for additional time to consider her position. When her adviser, Mr Tiller, questioned whether further due diligence should be conducted, Ms Kaliviotis told him that there was no time. She gave evidence, multiple times, that she 'didn't think about [the transaction] because [she] was on holidays'. The decision to proceed in these circumstances was consistent with a bullish attitude to risk that Ms Kaliviotis had exhibited throughout. She did not review any of the employee contracts to see whether BRS staff were able to move to a competitor, such as Optus. Ms Kaliviotis understood the significant risks as disclosed in the November Disclosure Email, but gave evidence that she discounted those risks on the basis of 'assurances' she allegedly received after receipt of that email. As Ms Kaliviotis conceded on multiple occasions in cross-examination, Mr Wormald did not give any 'assurances' to her after receiving the November Disclosure Email. The re-engagement on 19 January 2015 presented Ms Kaliviotis with an even riskier opportunity, but one she was prepared to pursue." (footnotes omitted). 1. Any loss that was sustained was sustained, as a matter of common sense causation, not by any misleading or deceptive conduct, but by a calculated risk undertaken by an experienced commercial participant. The warranty claim 1. Ground 17 of the notice of appeal complained that the finding of the primary judge that the failure of the appellants to disclose the existence, terms, implementation and currency of the Optus Term Sheet and MOU rendered the Due Diligence Material inaccurate in material respects, and misleading, such as to constitute a breach of warranty pursuant to cl. 15.2 of Sch. 2 and cl. 8.1 of the SSA. At the trial, Maradaca/ELB accepted that if they did not succeed on the misleading and deceptive conduct claim they were likely to fail on the warranty claim. 2. Ground 18 of the notice of appeal, which dealt with the timing of the making of the warranty claim, was not pressed. 3. In this Court, virtually no attention was paid to the breach of warranty claim. In the respondent's written submissions, no doubt reflecting the approach taken at trial, ground 17 of the notice of appeal and the warranty claim was not specifically mentioned. Whilst a proposed cross-appeal addressing a new breach of warranty claim was circulated on 30 October 2020 (together with written submissions in support of filing that proposed cross-appeal out of time), the application was abandoned on 2 November 2020, the morning of the hearing of the appeal. 4. On the hearing of the appeal, Mr Free SC for the first and second appellants submitted that: "The focus of the reasoning was on misleading and deceptive conduct and his Honour effectively reasoned on the breach of warranty claim that, having found misleading and deceptive conduct, in effect, breach of warranty was established… …our friends at trial, and we understand they don't resile from this position on appeal, accept that if they don't win on misleading and deceptive conduct they can't win on the breach of warranty case…" 1. Other than to indicate that the breach of warranty case which succeeded below was not abandoned, Mr Pike SC, for Maradaca/ELB did not address the separate warranty claim at all in his oral address on the appeal. 2. In these circumstances and given the way the matter was run at first instance and on appeal where the success of the claim depended on establishing non-disclosure, it is not necessary to deal any further with the breach of warranty claim. Remaining claims 1. These reasons are sufficient to dispose of the appeals and the notice of contention. Given the conclusions reached I have considered whether in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] I should deal on a contingent basis with the issues of contributory negligence, damages and apportionment of damages. I have concluded that I should not. It is neither necessary nor efficient to do so: see Boensch v Pascoe (2019) 94 ALJR 112; [2019] HCA 49 at [7]-[8] 2. The detailed attack made upon the primary judge's assessment that the company had a nil value at the time of the acquisition, a conclusion that was driven by incorrect assumptions that the forensic accountant, Mr Samuel, called on behalf of Maradaca/ELB, was asked to make (see [98] above), raises issues about which detailed findings would need to be made, contrary to my principal conclusion that causation was not established. There are also issues about the value of BRS in the years after its acquisition by Maradaca/ELB where a substantial profit was achieved and the extent to which that evidence should be taken into account: Kizbeau Pty Ltd v W.G. and B. Pty Ltd (1995) 184 CLR 28; [1995] HCA 4. Findings about apportionment of damages are even more problematic as they depend upon both findings about causation and damages, contrary to my principal conclusions. Orders 1. I propose the following orders: 1. Appeal and cross-appeal allowed. 2. Judgments of 24 April 2020 and 8 May 2020 and the orders made on 8 May 2020 of the Court below be set aside. 3. An order that the first respondent pay the second appellant $114,639.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 4. An order that the first respondent pay the first cross-appellant $30,289.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 5. An order that the first respondent pay the second cross-appellant $55,072.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 6. An order that the Further Amended Statement of Cross-Claim be dismissed with costs. 7. The first and second respondents pay the appellants' and cross-appellants' costs. 1. PAYNE JA: I agree with Bell P. ********** 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 November 2020