Supreme Court New South Wales Medium Neutral Citation: Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208 Hearing dates: 5 – 13 October 2021 Date of orders: 9 March 2022 Decision date: 09 March 2022 Jurisdiction: Equity Before: Ward CJ in Eq Decision: 1. In the Stav proceeding, order that each of the first and second defendants pay Stav Investments damages of $1,012,500.00 for contraventions of s 1041I of the Corporations Act 2001 (Cth), s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law (NSW). 2. In the Stav proceeding, dismiss the second plaintiff's claims. 3. In the LK Group Investments proceeding, order that each of the first and second defendants pay LK Group Investments of $1,012,500.00 for contraventions of s 1041I of the Corporations Act 2001 (Cth), s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law (NSW). 4. Order that the first and second defendants pay the plaintiffs' costs of the proceedings. Catchwords: CORPORATIONS — Misleading or deceptive conduct — "No transaction" case — Where defendants made various warranties and representations to the plaintiffs as to their ownership of valuable intellectual property, and the value of their company — Representations as to future matters — Silence or non-disclosure — Where plaintiffs induced to invest in defendants' company on the basis of representations — Where defendants' company not a going concern — Whether plaintiffs entitled to recover totality of their investments CORPORATIONS — Misleading or deceptive conduct — Contributory negligence and proportionate liability CONTRACTS — Breach of contract — Where defendants made various contractual warranties which were in fact false — Causation — Whether falsity of warranties causative of plaintiffs' loss Legislation Cited: Australian Consumer Law, s 236 Australian Securities and Investments Commission Act 2001 (Cth), ss 12BAB, 12GF, 12GP, 12GR Civil Liability Act 2002 (NSW), s 3, Part 4 Civil Procedure Act 2005 (NSW), ss 19, 65 Competition and Consumer Act 2010 (Cth), ss 87CB, 87CD, 131A, 137B, Schedule 2 Copyright Act 1968 (Cth), ss 10, 29(1)(a), 32, 35 Corporations Act 2001 (Cth), ss 436C, 1041I, 1041H, 1041L, 1041N Fair Trading Act 1987 (NSW), s 28(1)(b) Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9 Legal Profession Uniform Law Application Act 2014 (NSW), Sch 2 Limitation Act 1969 (NSW), s 14 Uniform Civil Procedure Rules 2005 (NSW), r 6.2 Cases Cited: ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; 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[2001] HCA 52 Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Jones v Daniel [1894] 2 Ch 332 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Joslyn v Berryman (2003) 214 CLR 552; [2003] HCA 34 JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; [2016] FCAFC 20 JWH Group Pty Ltd v Kimpura Pty Ltd (2004) 61 IPR 295; [2004] WASC 39 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 Lee v Westpac Banking Corporation (No 2) [2016] FCA 901 Lifehealthcare Distribution Pty Ltd v Nicholas [2011] NSWSC 661 Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; [2008] FCAFC 2 McMillan v Coolah Home Base (No 3) [2020] NSWSC 1325 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79 Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd [2020] NSWCA 234 Merewether v Scottish Australian Mining Co Ltd (1907) 4 CLR 953; [1907] HCA 8 Mistrina v Australian Consulting Engineers [2020] NSWCA 223 Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 Nintendo Co Ltd v Centronics Systems Pty Ltd (No 2) (1994) 181 CLR 134; [1994] HCA 27 Oscar Chess Ltd v Williams [1957] 1 All ER 325 Palmer Street Developments Pty Limited v J & E Vanjak Pty Ltd [2018] QCA 111 Perestrello e Companhia Limitada v United Paint Co Ltd [1969] 3 All ER 479 Phoenix Commercial Enterprises v City of Canada Bay Council [2010] NSWCA 64 Pilmer v The Duke Group Ltd (2001) 207 CLR 165; [2001] HCA 31 Potts v Miller (1940) 54 CLR 282; [1940] HCA 43 Precision Pools Pty Ltd v Federal Commissioner of Taxation (1992) 37 FCR 554; [1992] FCA 746 RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50 Reinhold v New South Wales Lotteries Corp (No 2) (2008) 82 NSWLR 762; [2008] NSWLR 187 Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (2014) 314 ALR 35; [2014] FCAFC 50 Standard Chartered Bank v Pakistan National Shipping Corporation [No 2] [2003] 1 AC 959 Street v Luna Park Sydney Pty Ltd [2007] NSWSC 588 Summergreene v Parker (1950) 80 CLR 304; [1950] HCA 13 Tesco Supermarkets Ltd v Nattrass [1972] AC 153; [1971] 2 AII ER 127 The Grain Pool of Western Australia v The Commonwealth (2000) 202 CLR 479; [2000] HCA 14 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Tonitto v Bassal (1992) 28 NSWLR 564 Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609; [1969] 2 All ER 941 Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75 W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR 572; [1906] HCA 79 Williams v Pisano (2015) 90 NSWLR 342; [2015] NSWCA 177 Wyzenbeek v Australasian Marine Imports Pty Ltd (in Liq) (2019) 272 FCR 373; [2019] FCAFC 167 Xu v Lindsay Bennelong Developments Pty Ltd [2020] NSWSC 1692 Texts Cited: Heydon, Heydon on Contract: The General Part (Thomson Reuters, 2019) Category: Principal judgment Parties: 2018/00245168 Stav Investments Pty Ltd atf the Stav Investments Family Trust (First Plaintiff) Scott Stavretis (Second Plaintiff) Andrew George Taylor (First Defendant) John Thomas Charles Wilkinson (Second Defendant) 2019/00376795 LK Group Investments Pty Ltd (Plaintiff) Andrew George Taylor (First Defendant) John Thomas Charles Wilkinson (Second Defendant) Representation: Counsel: AC Casselden SC with TE O'Brien (Plaintiffs) H Somerville with D Meyerowitz-Katz (Defendants) Solicitors: Marque Lawyers Pty Ltd (Plaintiffs) TPS & Co Lawyers (Defendants) File Number(s): 2018/00245168; 2019/00376795 Publication restriction: Nil Judgment 1. HER HONOUR: In this matter, two sets of proceedings were heard together. The first (the Stav Proceeding) (2018/245168) was commenced by Stav Investments Pty Ltd (Stav Investments) by statement of claim filed on 9 August 2018 in the general list in the Equity Division (the matter being subsequently transferred to the Commercial List). The second (the LK Proceeding) (2019/376795) was commenced by LK Group Investments Pty Ltd (LK Group Investments) by summons and commercial list statement in the Commercial List on 29 November 2019 (with an amended summons being filed on 5 December 2019). 2. In both proceedings, claims are made for damages for breach of contractual warranties and for damages, pursuant to s 236 of the Australian Consumer Law being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act) (Federal ACL) or the Australian Consumer Law (NSW) (ACL NSW) (being a reference to the operation of s 28(1)(b) of the Fair Trading Act 1987 (NSW)) , s 1041I of the Corporations Act 2001 (Cth) (Corporations Act), or s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) for misleading or deceptive conduct, in relation to the purchase of shares in Yatango Mobile Pty Ltd (Yatango Mobile), a company now in liquidation. 3. The claims brought by Stav Investments and LK Group Investments are brought (or now brought) by each, respectively, expressly in its capacity as trustee (in the case of Stav Investments, for the Stav Investments Family Trust; in the case of LK Group Investments, for the Kestelman Investments Family Trust). 4. The second plaintiff in the Stav Proceeding is Mr Scott Stavretis, the principal of Stav Investments. Mr Stavretis was granted leave to be joined as a plaintiff in the Stav Proceeding by order of Stevenson J made on 3 August 2020. Following the joinder of Mr Stavretis as second plaintiff in the Stav Proceeding, in accordance with the orders made by Stevenson J, a second further amended commercial list statement was filed on 3 August 2020. In the course of submissions, issue was taken by the defendants that no amended statement of claim or summons was filed following the transfer of the Stav Proceeding to the Commercial List and joinder of Mr Stavretis and hence they maintain that the relief claimed (by Stav Investments) remains as set out in the initial statement of claim – and that Mr Stavretis has not made any claim for relief in the Stav Proceeding. (This is not the last of the technical pleading points taken by the defendants in the course of the respective proceedings – as I explain later in these reasons.) The plaintiffs in the Stav Proceeding, in response to this complaint, point to the orders made by Stevenson J at the time that Mr Stavretis was joined to the proceeding and maintain that it is clear that Mr Stavretis is seeking relief in his own right in addition to the relief sought by Stav Investments (see T 403.40-50, 404.1-9). I consider this and other arguments in relation to the way in which the claims have been brought in due course below. 5. In the LK Proceeding, the claims made are set out in the amended summons filed on 5 December 2019 and a second further amended commercial list statement filed on 11 August 2020. 6. The defendants in both sets of proceedings are Mr Andrew Taylor and Mr John Wilkinson, the officers and shareholders of Yatango Mobile at the relevant time, each of whom personally gave contractual warranties in respect of the purchase of shares in Yatango Mobile and each of whom is alleged to have made certain representations in connection with the purchase. The defendants filed further amended commercial list responses in both matters on 17 September 2021. Apart from the limitation defences raised by the defendants, the defendants maintain that the plaintiffs have not established liability; nor have they established causation or loss; and that, if the plaintiffs' claims otherwise succeed, then their liability should be reduced by reason of the plaintiffs' alleged contributory negligence and, further, that their liability should be proportionate to the liability of various alleged concurrent wrongdoers. Neither of the defendants himself gave evidence in the proceedings. Overview of claims 1. Broadly speaking, by way of overview, before Yatango Mobile went into liquidation in 2015, it was an online reseller of mobile phone plans. A subsidiary of Yatango Mobile, Yatango Mobile (Australia) Pty Ltd (YMA) had an agreement with Optus pursuant to which Optus provided wholesale mobile telecommunications services to YMA, which YMA would then on-sell to retail investors. Sales were made principally through an online platform (promoted, at least to the plaintiffs, as being unique) which enabled users to customise their mobile phone plans (and was marketed to users through social media and word of mouth). The first defendant, Mr Taylor, was the founder, director and Chief Executive Officer of Yatango Mobile. The second defendant, Mr Wilkinson, was the Chief Financial Officer and company secretary of Yatango Mobile. 2. In 2013, Mr Stavretis and Mr Larry Kestelman (the latter being the principal of LK Group Investments), who were business associates and had been involved in various successful businesses together in the past, were approached to invest in Yatango Mobile's business. Mr Stavretis and Mr Kestelman say that various representations were made to them about the Yatango Mobile business and, in particular, about the ownership of the intellectual property associated with the online platform used in Yatango Mobile's business, on which it is said reliance was placed by them when the decision was made to invest (through the corporate entities then established) in the business. 3. In late 2013, the corporate plaintiffs were incorporated and entered into share sale agreements (in the form of signed Terms Sheets) with Yatango Mobile, Mr Taylor and Mr Wilkinson, pursuant to which each of the corporate plaintiffs agreed to purchase shares in Yatango Mobile (in consideration of the payment of a sum of $750,000 by each of the two purchasers). There is a dispute as to the actual date that the parties entered into the 2013 share sale agreements (which were dated 28 November 2013). This is relevant having regard to a limitations defence by the defendants in relation to the claim by LK Group Investments. 4. In 2014, the corporate plaintiffs each invested a further $262,500 in Yatango Mobile, acquiring further shares under a second set of sale agreements again in the form of signed Terms Sheets. 5. Under the respective agreements, relevantly, in addition to warranties given by Yatango Mobile, each of Mr Taylor and Mr Wilkinson gave personal warranties as to particular matters, including (as adverted to above) as to the ownership of the intellectual property used in Yatango Mobile's business. The complaint by the plaintiffs is as to breaches of various of those warranties. The matters the subject of those warranties also form part of the claim for damages for misleading or deceptive conduct under the consumer legislation referred to above. 6. The defendants, among other things, point to ambiguity in the term "intellectual property" and as to what was meant by the "code" used in Yatango Mobile's business or developed by Yatango Mobile. They deny breach of the contractual warranties (for various reasons) and deny the making of the alleged representations and that there was reliance on the alleged representations (assuming any such representations were made). The defendants also contend that the plaintiffs have not established any loss. 7. On 20 October 2015, Yatango Mobile was placed in external administration and by 24 November 2015 Yatango Mobile was in liquidation. 8. The plaintiffs' claims in the respective proceedings to a large extent mirror each other (although there are some relevant differences). 9. The claims for breach of contract are, as adverted to above, claims for breach of various of the contractual warranties. The corporate plaintiffs maintain that they are entitled to recover substantial damages to place them in the position in which they would have been had the contractual warranties not been breached. It is said that they are entitled to recover the amount paid by them and they say that, under the respective share sale agreements, the parties agreed that Yatango Mobile, and the shares purchased, had a particular value (that value having been agreed on the basis that the contractual warranties given by the defendants were true) whereas the shares acquired, in circumstances where the warranties were false, are valueless. The defendants vehemently complain against any such allegation (i.e., as to the shares being valued as worthless) being entertained, on the basis that the fact of Yatango Mobile's liquidation was not pleaded nor were the consequences of that liquidation in respect of the value of the shares. The defendants say that because the fact of liquidation has not been pleaded the defendants cannot claim any loss by reference to the fact that the company has gone into liquidation (see for example at T 358.14-20). 10. The limitation defence to various of the contractual and misleading or deceptive conduct claims advanced by LK Group Investments is based on the contention that the 2013 contract was entered into on 28 November 2013 and that, given that the LK Proceeding was commenced on 29 November 2019, claims for breach were time barred by force of s 14 of the Limitation Act 1969 (NSW). 11. As to the claims for misleading or deceptive conduct, the corporate plaintiffs' case is advanced by them as a "no transaction" case, namely that certain misleading or deceptive representations were made and relied upon by the plaintiffs in entering into the share sale agreements in circumstances where, but for those representations, the investments would not have been made. 12. The principal representations about which complaint is made are as follows. 13. First, what are referred to as the "Ownership Representations", in essence that the intellectual property used by Yatango Mobile in relation to the operation of its business was owned by, licensed to or controlled by Yatango Mobile. 14. Second, what are referred to as the "YM Asset Representations", in respect of the first investments made in 2013, namely that the value of Yatango Mobile's assets was as recorded in a consolidated group balance sheet provided to the plaintiffs on 17 September 2013 (which included the assets of YMA despite it being wholly owned by Mr Taylor). 15. Third, what is referred to as the "Valuation Representation", in respect of the first investments made in 2013, namely that Yatango Mobile was valued at $15 million, before the capital investments made by the corporate plaintiffs, and $16.5 million after it. 16. Fourth, what is referred to as the "Roll-Up Representation", made in respect of the second investments made in 2014, namely that the corporate plaintiffs' shares in Yatango Mobile would be exchanged for shares in a new holding company. 17. The plaintiffs contend that the defendants made these representations as principals (given that they were made in the context of the defendants giving personal warranties) but, in the alternative, it is contended that the defendants were knowingly involved in the giving of those representations by Yatango Mobile (and this is the basis of the alternative accessorial liability claims made against the defendants). Chronology of events Incorporation of Yatango entities in 2012 1. In August 2012, Mr Taylor established the "Yatango" business. On 2 August 2012, the following companies were incorporated: Yatango Mobile; Yatango Pty Ltd (Yatango) (a holding company subsequently re-named Yatango Holdings Pty Ltd) (Yatango Holdings). On 9 June 2012, YMA was incorporated. On 11 June 2013, Yatango Labs (Australia) Pty Ltd was incorporated, and on 1 May 2015 Yatango Mobile Labs Pty Ltd was incorporated. (Collectively, the Yatango Mobile Group.) As noted above, Mr Taylor was appointed as a director of Yatango Mobile and Mr Wilkinson its company secretary. Yatango (subsequently re-named Yatango Holdings) was at all times owned by Mr Taylor and companies associated or controlled by him (The Digital Bakery Ltd and Telcovision Pty Ltd). Mr Taylor owned all of the issued shares in YMA (until early 2015). ECConnect Proposal signed 14 August 2012 1. On or about 14 August 2012, Mr Taylor signed a proposal (referred to as the ECConnect Proposal) dated 27 June 2012 put forward by an entity associated with Mr Bradley Apps, a software developer. 2. The ECConnect Proposal related to a generic system (ECSuite) that Mr Apps' company (Appscorp trading as ECConnect) had developed and provided to five other telecommunications companies, three of which used the billing system "module" (see T 223.20-45). The billing system was originally "built" in about 2004 for an entity called Startel (see T 223.50, 224.1-11). 3. Mr Apps' evidence was that other customers of ECConnect used systems which "started from the one base code base and then were customised to suit their requirements". Mr Apps said that the base billing system used was the same for every customer; but that the difference for Yatango Mobile (from those other customers) was that it "wanted to go to the market with different types of plans so that billing system would have been customised to suit them". 4. The ECConnect Proposal referred to ECSuite as a "tried and trusted system": ECSuite is a fully customizable [sic] web based application which incorporates all of our software modules providing the backbone and features needed to run a telecommunications company. The systems wilI be customized [sic] to suit your needs and provided for self hosting [sic] or fully hosted in our secure, redundant data center in Brisbane. 1. As to the Customised Code, the defendants say that Mr Apps agreed that what ECConnect did was effectively to "plug" the billing system into Yatango Mobile's platform and that it then became "all one platform". It is noted that Mr Apps said that ECConnect's customers "would have this base code and it would get customised to suit them", and it is said that what was done for Yatango in this regard was very similar to what was done for a customer called Amaysim, a competitor of Yatango. 2. Mr Apps gave evidence that the product referred to in the 27 June 2012 ECConnect Proposal as "ECPortal" was "classed as Customised Code because it didn't exist at the time of this proposal", and that Yatango Mobile was the first customer for which ECConnect had built such a product. The defendants say that ECPortal was built by ECConnect in accordance with a design supplied by Yatango Mobile. Mr Apps' evidence was that ECConnect had two employees who "were dedicated employees for Yatango working from their office"; and identified Daniel Badger and Joseph Nwokolo as those employees. Mr Apps agreed that, while the billing system was being developed, his employees were working with Yatango Mobile's employees in developing the platform. Optus key carrier agreement 1. On 24 August 2012, YMA entered into a key carrier agreement with Optus Networks Pty Limited (Optus), pursuant to which Optus provided wholesale mobile telecommunications services to YMA, which YMA could on-sell to retail customers. 2012 BJYP Agreement 1. The ECConnect Proposal was effectively superseded in about September 2012, when Yatango Mobile entered into an Intellectual Property Transfer Agreement (the 2012 BJYP Agreement) with another company associated with Mr Apps (BJYP Pty Ltd, to which I refer as BJYP). In essence, the 2012 BJYP Agreement provided for the transfer and licensing of a "Code" and "Customised Code" for a billing system which the plaintiffs say was central to the operation of Yatango Mobile's business. 2. Pursuant to cl 1.1 of the 2012 BJYP Agreement, Yatango Mobile was to establish a new entity (Yatango Mobile Labs) on or about the date the last party signed the agreement. Pursuant to cl 1.2 of the 2012 BJYP Agreement, the business of Yatango Mobile Labs was to consist of acquiring a copy of the Base Code from BJYP and then licensing the Code and Customised Code to Yatango Mobile and its subsidiaries. Pursuant to cl 2, Yatango Mobile was to hold 80% of the shares in Yatango Mobile Labs, and BJYP was to hold 20%. 3. Pursuant to cl 1.3 of the 2012 BJYP Agreement, BJYP agreed to transfer to Yatango Mobile Labs "a copy of the Intellectual Property". The term "Intellectual Property" was defined as "all intellectual property used in the Code". The term "Code" was in turn defined as "version 1 of the EC source code base, the specification for which is set out in Schedule 1 to this agreement". (Mr Apps' evidence is that this is what was later referred to as the "Base Code". The defendants say, however, that there is an open question as to whether Mr Apps' evidence as to the building of Base Code is a reference to the "platform" referred to in the email communications referred to below.) 4. Clause 1.4 of the 2012 BJYP Agreement provided that Yatango Mobile Labs would, at its cost, engage ECConnect to provide services to customise and develop the Intellectual Property to the requirements of Yatango Mobile Labs for an (unspecified) period of time, which services were said to be "described more fully in the ECConnect Agreement". 5. The reference to the "ECConnect Agreement" was to a document headed "Appscorp Customer Order Form for Software and Services", which was dated 10 September 2012 and signed by Mr Taylor on behalf of Yatango Mobile on or about 29 September 2012. It provided for Appscorp to supply and install certain software (the defendants say that this was apparently the ECConnect billing, provisioning, and customer management systems), and to provide support services with respect to that software. There was also provision for out of scope services charged at an hourly rate. 6. The defendants say that the 2012 BJYP Agreement said nothing about the customisation and development of intellectual property. However, the 2012 BJYP Agreement at least contemplated some customisation as per the definition of Developed Materials (see below). Moreover, it clearly provided for the (yet to be incorporated) entity (Yatango Mobile Labs) to engage ECConnect to customise and develop intellectual property. 7. As adverted to above, the 2012 BJYP Agreement included a defined term "Developed Materials", that being: the Intellectual Property including all material, documents, equipment, information and data (however stored), wholly and solely created, developed, customised or implemented under the ECConnect Agreement or for the purposes of the venture between the parties. 1. Clause 5.1 of the 2012 BJYP Agreement provided (inter alia) that all Intellectual Property Rights in the Developed Materials, excluding certain things, vested in Yatango Mobile Labs. 2. The defendants place emphasis on cl 5.5 of the 2012 BJYP Agreement in that it provided that, in the event that the company (Yatango Mobile Labs) experienced an Insolvency Event, defined to include voluntary administration or liquidation, the Intellectual Property the subject of the agreement would revert to the originator (therefore the defendants say that it would not then have been property available for distribution in the event of the liquidation of the company to which it was to be assigned under this agreement) (see T 31.28-50). 3. The relevance the defendants ascribe to this seems to be as going to the ultimate question of loss – i.e., if, on a liquidation of the (then only contemplated) Yatango Mobile subsidiary that was to hold the intellectual property, ownership of the intellectual property reverted to the originator of the intellectual property then that might have an effect on the value of the shares in Yatango Mobile that were being acquired (see, in due course, the evidence of the forensic accounting expert, Mr Potter, as to the implications of there not being an absolute entitlement to the intellectual property on which the use of the online platform was based). However, it may be (and I must say that I found the submissions on this not altogether clear) that the defendants are also placing reliance on this clause as going to the question of any reliance on a warranty as to the ownership of the intellectual property (insofar as the 2012 BJYP Agreement was provided to Mr Stavretis prior to the acquisition of shares in Yatango Mobile and he was thereby on notice of this provision). (I add here that there is no suggestion that this clause was in any way drawn to Mr Stavretis' attention; and it seems to me unlikely, from the tenor of his evidence in the witness box, that Mr Stavretis would have noted or paid attention to the import of this particular clause even if he did have regard to the agreement itself.) 4. Insofar as the 2012 BJYP Agreement provided for Yatango Mobile to create a new subsidiary called Yatango Mobile Labs and provided for it to transfer not less than 20% of Yatango Mobile Labs to BJYP in exchange for the development, transfer and licensing of code, the plaintiffs say that those agreements were never performed and that the code was never transferred to Yatango Mobile Labs (a company which did not exist at the time) or to Yatango Mobile. (Further, at T 9.48-50, the plaintiffs say that the agreement in relation to intellectual property did not include Base Code and that, at best, there was a mere licence to use the code.) 5. The plaintiffs relied in support of their case on an affidavit affirmed on 16 April 2019 by Mr Bradley Apps, in which he deposes that his company Appscorp Pty Ltd (Appscorp), trading as ECConnect, had the "base code" which could be used to base a billing system, i.e., the intellectual property for a billing and provisioning system. The plaintiffs maintain that the 2012 BJYP Agreement provided that Yatango Mobile Labs would engage Appscorp to customise software for Yatango Mobile. 6. Pausing here, it is clear that the 2012 BJYP Agreement is premised on BJYP owning the "Code" (which Mr Apps says meant "Base Code" and which was so defined in the 2014 BJYP Agreement) and all "intellectual property used in the code", since this is what BJYP was there promising to transfer to the (then yet to be incorporated) Yatango Mobile Labs. I say this because there is more than a flavour of artificiality about the position here adopted by the defendants (see their submissions in due course) as to the difficulties for the plaintiffs in the definition of intellectual property as contained in the contractual warranties. 7. Viewed perhaps simplistically, what the defendants marketed (as having a considerable value) was a business with an unique online platform; and that the online platform used or was based on software that comprised the customisation of a particular Base Code. It may well be that none of the individuals who is a party to this proceeding understood precisely how that software or Customised Code worked in a technical way or what intellectual property was comprised in it. However, it is abundantly clear that the defendants were promoting the Yatango Mobile business as one that had the benefit of the intellectual property used in that online platform (and substantial value was certainly attributed to the billing system software in the consolidated balance sheet provided to the plaintiffs in connection with the proposed investment). For it now to be suggested that it had no value (or that warranties as to the intellectual property used in the business have no practical content) would be surprising to say the least – yet that was the flavour of the arguments here put by the defendants. Yatango trademarks and domain names 1. In October 2012, Mr Taylor registered two Yatango trademarks in the name of Yatango Holdings. The domain names for the websites used by Yatango Mobile (yatango.com.au; yatango.com; yatangomobile.com.au; and yatangomobile.com) were registered in the name of The Digital Bakery (Australia) Trust. It is said by the plaintiffs that the Yatango business also used a passport and reward system and customer management system, the intellectual property in that software being owned by Yatango Holdings and Yatango Mobile (though the defendants maintain that there is no evidence of this). Marketing of Yatango Mobile business 1. On 31 January 2013, Yatango Mobile (which was described, in a document headed "Yatango Mobile Investor Overview", as an "SIM only, cloud based social Telco platform that allows people to customize their own mobile plan and pay for what they need, delivering true personalisation – harnessing the power of the social graph, modulated billing and big data analytics") went "live". From that time, Yatango Mobile operated a consumer marketing website, web and mobile applications and an e-connect billing and provisioning system. (Therefore, by 31 January 2013 there must have been some form of Customised Code in order to have permitted the website to go "live" even if it was still the subject of further or ongoing development, because the defendants were marketing it as such.) 2. In its marketing materials, Yatango Mobile marketed itself as having two points of difference compared with other like companies: first, that it used social media and online technology to acquire customers at a relatively low cost; and, second, that it permitted customers to "customise" their mobile plans, in that they could select the amount of data, the number of text messages, and the time spent making phone calls that they would pay for each month, thus allowing them to pay for the services they actually used. Approach to Mr Stavretis and Mr Kestelman to invest in Yatango Mobile 1. In late August 2013, Mr Stavretis (who, as did Mr Kestelman, had significant experience in the mobile telecommunications industry at the time) was approached by Mr Ryan O'Hare (a former business associate of Mr Stavretis) as to the possibility of investment by Mr Stavretis and Mr Kestelman in Yatango Mobile. It appears that the defendants were looking to raise capital for the Yatango Mobile business at the time. Initial meeting on 28 August 2013 1. On 28 August 2013, there was a meeting between Mr Stavretis, Mr O'Hare, Mr Kestelman and Mr Taylor. The evidence of Mr Stavretis and Mr Kestelman is to the effect that, at the meeting, Mr Stavretis asked who owned the online platform and "IP" (which was described in the marketing material, as noted above, as the differentiator for Yatango Mobile from other companies). The plaintiffs say that they had concerns about the ownership of the "IP", which was a matter relevant to their decision to invest, and that it was in that context that the defendants gave the contractual warranties on which the plaintiffs here rely. 2. The defendants say that there is no explanation as to how Mr Stavretis knew, as at 28 August 2013 (when he says that he asked about the ownership of Yatango's trade marks and was assured by Mr Taylor that they were owned by Yatango Mobile), that there were registered trade marks used by Yatango Mobile. It seems to me that this criticism misses the point. Mr Stavretis may have had no actual knowledge one way or the other as to whether there were registered documents used in the Yatango Mobile business; he may simply have assumed this. The significance of his evidence to my mind is that it reveals that, as at the initial meeting, enquiry was being made as to the ownership of intellectual property or IP used in the Yatango Mobile business; which supports the plaintiffs' submission that they had concerns about the matter and made those concerns known to the defendants. 3. The defendants further say that Mr Stavretis' evidence in his first affidavit that, during the initial 28 August 2013 meeting, Mr Taylor said that the company was valued at $15 million conflicts with contemporaneous documents (referring to the 30 September 2013 email to Mr O'Hare and the 7 October 2013 email from Mr Stavretis to Mr Kestelman (as to which, see below) which the defendants say calls into question the account given by Mr Stavretis of the 28 August 2013 meeting). The defendants say that it is highly unlikely that at the initial 28 August 2013 meeting Mr Taylor said that the valuation was $15 million, rather than $45 million (which is the figure given in the contemporaneous documents). (The defendants further say that the pleaded representation as to the value of the company was not made even on Mr Stavretis' own account of events; alternatively, it is submitted in effect that Mr Stavretis' evidence of the way the conversation occurred should not be accepted.) 4. Mr Kestelman's evidence is that, after the meeting on 28 August 2013, he left it to Mr Stavretis to be the primary point of contact with the defendants. That is consistent with the contemporaneous documents. Further meeting on 2 September 1. On 2 September 2013, Mr Stavretis had a further meeting with Mr Wilkinson and Mr Taylor in Sydney as to a potential investment in the Yatango business. 2. On 3 September 2013, Mr Taylor sent an email to Mr Stavretis, referring to the 2 September 2013 meeting and the potential investment in Yatango. Mr Taylor said that he was "happy to extend you the following terms at a 20% discount on the advertised rate in order to secure your involvement and limit the number of additional new shareholders", below which appeared two bullet points which provided "[i]nvestment = US$5m" and "[s]hare of company = 11.1%". At the conclusion of this email, Mr Taylor stated that "[o]ntop of this, we would also like to secure a variable arrangement with your Manila based Service centre, on favourable terms to help us scale our operational coverage internationally". 3. Pausing here, it is accepted that this is a reference to a company with which Mr Stavretis and Mr Kestelman were associated, Acquire Client Services Pty Ltd (Acquire), which provided call centre services principally from Manila. Thus, it appears from this communication that it was Yatango Mobile which raised the suggestion that it engage the services of Acquire in Manila to assist in its operations (and did not suggest that it was a term of the offer there being made). (I note that the defendants plead that Mr Stavretis and Mr Kestelman are concurrent wrongdoers in that they breached their duties to the respective corporate plaintiffs by having, as a "condition precedent" to their investment in Yatango Mobile, that Acquire be engaged to provide services to YMA.) "Acquire" proposal 1. On 8 September 2013, Mr Stavretis sent an email to the defendants attaching a proposal by Acquire Asia Pacific to provide contact centre services to Yatango Mobile. The plaintiffs say that this was independent of anything to do with the Yatango Mobile investment opportunity and was in response to Mr Taylor's request to secure an arrangement with Acquire. Provision of corporate structure and financial information 1. On 17 September 2013, Mr Stavretis received an email from Mr Wilkinson, copied to Mr Taylor, in which Mr Wilkinson responded to queries that had been raised by Mr Stavretis (inserting in the response a number of Dropbox links and text). Mr Stavretis was provided with copies of various documents, including, relevantly, the 2012 BJYP Agreement (from which the defendants contend he was on notice of the position as to licensing or ownership of the software). 2. With respect to a request from Mr Stavretis for information in relation to the company structure, Mr Wilkinson provided a drop link box with a corporate structure diagram (that incorrectly showed that Yatango Mobile owned 100% of YMA); as to the query about financials, a balance sheet for the Yatango Mobile Group was attached (consolidating the assets of Yatango Mobile, YMA and other entities). Similarly, a financial forecast plan was attached. As to the item "business summary", this was said "to be advised" and, similarly, the item commercial arrangements was met with "TBA". There was a Dropbox link in response to the request for key commercial agreements. There was also a request for information on the "platform". In response to the query for "Details of intellectual property" there was another Dropbox link. 3. The plaintiffs say that the consolidated balance sheet is significant in that it shows the Yatango Mobile Group (though YMA was not a wholly or majority owned subsidiary) with net assets of about $9.5 million, including the principal asset as billing software (i.e., "Fixed Assets Software Development – Billing System: $12,312,733"). The balance sheet thus shows a software development billing system (at a value of $12.3 million) as being a principal asset of some (not identified) entity within the consolidated Yatango Mobile Group. The plaintiffs complain that Yatango Mobile never acquired ownership or a licence for that billing and provisioning system. 4. The defendants are adamant (by reference, among other things, to Mr Apps' evidence) that Yatango Mobile did indeed have a licence to use the relevant software for the billing and provisioning system (though I note that there is conceptually a material difference between ownership of something and the benefit of a licence to use that thing – and see Mr Potter's evidence in relation to this in due course). Negotiations as to the "value" of Yatango Mobile 1. On 30 September 2013, Mr Stavretis exchanged emails with Mr O'Hare regarding Yatango Mobile's valuation of its shares. In his 30 September 2013 email, Mr Stavretis said to Mr O'Hare that: … Andy [Taylor] had a valuation of $45m or so in mind which for 15,000 customers (most on a free trial) and a very unproven organic sales model (taking out Kogan) its just way over valued. He mentioned he would put something forward on a lower val however I just don't think we will get there. … I did have a very quick look at some the [due diligence] material they sent through and quickly see there are some risks in the business with the main risk is the IP is not controlled by them which can lead to any input cost for licensing the IP of the platform and the other director works for their competitor. … 1. The defendant says that this reveals the real concern that Mr Stavretis had about the "software issue" – i.e., that it was a concern about licensing cost – but ultimately it does not seem to me to matter (unless it goes to the question of reliance) why Mr Stavretis had a concern; rather, the significant point is that there was such a concern being raised in the contemporaneous communication with Mr O'Hare, which is consistent with Mr Stavretis' recollection that he raised the ownership issue in the initial meeting. 2. As to the 30 September 2013 email, the defendants say that this shows both that Mr Stavretis was not taking Mr Taylor's valuation at face value, and that he proposed to satisfy himself as to the value of the company (and that the $15 million valuation had not yet been mentioned at the time the email was sent, noting that Mr O'Hare's response in an email dated 30 September 2013 suggested that a valuation of $20 million could be supported). The defendants further attach importance to this email because they say (as adverted to above) that it is a contemporaneous record of Mr Stavretis' concern in relation to the intellectual property (namely, that if it was not owned by Yatango Mobile then there could be an increase in costs because they would have to pay for a licence). Complaint is made that while (in cross-examination) Mr Stavretis said that control was only one element of his concerns, the other "elements" have neither been identified nor explained by Mr Stavretis. 3. On 7 October 2013, Mr Stavretis sent an email to Mr Kestelman in which he stated that "[t]he valuation they started with was over $45m. They want us on board and I have now got the offer down to a $15m valuation" (which, as the defendants say, suggests that the $15 million valuation was first negotiated at some point between 30 September 2013 and 7 October 2013). 4. The 7 October 2013 email also refers to "two issues that I have with their business, a software licensing issue with their platform that they need to addressed [sic] and some company structuring needs to be sorted (trying to get the IP to stay in Oz rather than Singapore)". The defendants say that, in context, the "software licensing issue" to which reference is there made is obviously a reference to the issue Mr Stavretis had raised with Mr O'Hare in the 30 September 2013 email, being Mr Stavretis' concern regarding input costs. As to Acquire, the email said "I'm still going with them on the call center [sic] side which they are holding back on presumably as bait for the investment". 5. The response to this from Mr Kestelman, in an email dated 7 October 2013, was that "I think if you think its [sic] a good idea I would want to be sold on why as I'm not dying to invest in a telco start-up". 6. As to the 7 October 2013 email from Mr Stavretis to Mr Kestelman, the defendants say that Mr Stavretis does not explain in terms the concern in relation to the software licensing to which he there referred or what gave rise to that concern. The defendants say that this may (although it is not clear) have related to Mr Stavretis' review of the 2012 BJYP Agreement (which was provided in a Dropbox link contained in the 17 September 2013 email from Mr Wilkinson). Insofar as the plaintiffs plead the 2012 BJYP Agreement as a particular of the "First Pre-Contract IP Rights Representations", the defendants submit that not only was the pleaded representation not made in that document but also that the provision of the document is consistent with the defendants being transparent as to the true position. 7. On 14 October 2013, Mr Stavretis sent an email to Mr Taylor, stating that: … The company is being offered at a valuation of $15m, which is a substantial amount for a business that's not making money and has very low revenue. The investment and [sic] I understand from our initial meeting is based around the platform and from what I understand from your initial pitch is your platform together with your model has some sort of uniqueness around how you acquire clients at a lower cost than others due to the way you acquire clients through social media and the worth [sic] of mouth that brings to acquire others. I believe you mentioned that for every 1 of your clients they are bringing on 4 clients. … To substantiate a valuation near $15m I would need to see solid proof of this - or some other reason on why the Platform or the model is so uniquely different to all the others out there (we all know most MVNO's [Mobile Virtual Network Operators] here and OS [overseas] fail). [Emphasis in original] 1. Pausing here, Mr Taylor did not respond to this email to demur from the proposition that what was being pitched was the "platform" nor did he suggest that there was not some "uniqueness" about the platform or model. 2. In this regard, the defendants say that Mr Stavretis' 14 October 2013 email to Mr Taylor, asking Mr Taylor to "substantiate" the $15 million valuation, shows that Mr Stavretis understood the value proposition to be what he referred to as "the platform" and Yatango Mobile's social media customer acquisition model. The defendants say that this indicates that Mr Stavretis was thinking carefully about the valuation and how much he was willing to invest; and that he was conducting his own enquiries as to value (rather than taking Mr Taylor at his word). 3. On 15 October 2013, Mr Stavretis had a telephone conversation with Mr Taylor and Mr Wilkinson in relation to Yatango Mobile (see Mr Stavretis' first affidavit affirmed on 23 April 2019 at [25]; see also affidavit of Mr Taylor sworn 10 September 2019 at [117] in which Mr Taylor denies that a conversation to that effect took place). Mr Stavretis deposed that Mr Taylor said words to the following effect in the course of the conversation: "[T]he IP will be sorted, and Yatango will own it. We're already in the process of sorting this out and we will have assurances in the form of warranties in the term sheet that reflect that Yatango owns the IP". On the same day, Mr Stavretis sent a spreadsheet to Mr Kestelman with forecast customer acquisitions for Yatango Mobile. (The defendants say that there is no evidence as to when Mr Stavretis received this spreadsheet or what he made of it, but that it shows the diligence with which Mr Stavretis was investigating the proposed investment.) 4. Mr Stavretis' email of 17 October 2013 included the statement that: The DD revealed two issues that I have with their business, a software licensing issue with their platform that they need to addressed [sic] and some company structuring needs to be sorted (trying to get the IP to stay in Oz rather than Singapore). 1. In Mr Kestelman's email to Mr Stavretis, on 17 October 2013 Mr Kestelman stated that "[u]nless you can see huge potential in the software and the model its [sic] just another telco. Right now I am not sold". (Thus, it is clear that Mr Kestelman was focusing on the "software" and the "model".) Corporate structure 1. On 21 October 2013 at 9.43 am, Mr Stavretis requested from Mr Wilkinson "an updated corporate structure on how it will look". In response, at 10.24 am, Mr Wilkinson forwarded to Mr Stavretis an advice that Mr Taylor and Mr Wilkinson had received from Pinnacle Group on 9 October 2013 in relation to the ownership of Yatango Mobile's intellectual property and potential tax-effective structures; and there was a further discussion regarding the proposed structures. (The defendants note that, in cross-examination, Mr Stavretis denied any recollection of that advice and also denied knowing that Yatango Mobile had received advice from Pinnacle Group –- despite having earlier given evidence that he relied on "a corporate structure sent to me from Andy Taylor … which was from an adviser called Pinnacle" prior to executing the First Contracts – see T 106.25-27.) 2. At 10.58am on 21 October 2013, Mr Taylor sent an email to Mr Stavretis, saying: John's working on this [i.e., in context, the corporate structure] for you now. Please note it will be subject to sign off from our Tax Advisors. But essentially we are working to a structure whereby Yatango Mobile PTY ltd [sic] owns 100% of each trading company that holds the regional wholesale agreements as well as the IP company that will receive licence income for the platform from the trading companies. The platform IP itself is owned by Yatango Mobile Lab's [sic] which is 80% owned by Yatango Mobile PTY ltd [sic] and 20% by Brad Apps from EC Connect [sic]. 1. This email in terms is conveying that there was already an entity known as Yatango Mobile Labs which owned "the platform IP". That was not, on any view of things, the case as Yatango Mobile Labs had not yet been incorporated. 2. As to the reliance placed by the plaintiffs, as a particular of the "First Pre-Contract IP Rights Representation", in the 21 October 2013 email from Mr Taylor to Mr Stavretis referring to Mr Wilkinson working on the "IP issue", the defendants submit that no such representation was made in the email. The defendants say that, in context, the email is forward-looking; i.e., that it is describing a structure that is planned to be in place, not the structure that is presently in place. Moreover, the defendants rely on this as an example of what they say is Mr Stavretis' selective memory, insofar as he recalled receiving that email but not the email sent shortly beforehand on the same day, attaching the Pinnacle advice. (Pausing here, the statement that the "platform IP itself is owned by …" is not expressed in prospective terms at all.) 3. On 25 October 2013, Mr Taylor sent an email to Mr Stavretis wanting to know "where his head was at" in relation to the investment. 4. On 30 October 2013, Mr Stavretis sent an email which made an offer of a cash investment of $1 million (saying that this would most likely be split 50/50 between "Larry and my vehicles") at a pre-money valuation of $10 million. The email included a term for a "[l]ast right of refusal to match any future contact centre work in the Philippines". There was reference in the email to "[w]arranties around the IP license [sic] agreement being sorted as discussed". Mr Stavretis deposed to the discussions regarding the intellectual property licence in his first affidavit at [25] as follows. (I note that the discussion is relied on as a particular of the "First Pre-Contract IP Rights Representation".) Mr Stavretis: I sent you an email yesterday asking about the IP issues. I just want to run through these with you. I am concerned about Yatango not owning the IP underlying its online platform. This IP needs to be transferred from BJYP. It's essential that Yatango owns the underlying IP because the online platform is where the value in this company is. Mr Taylor: Don't worry, the IP will be sorted, and Yatango will own it. We're already in the process of sorting this out and we will have assurances in the form of warranties in the term sheet that reflect that Yatango owns the IP. Mr Stavretis: When will this be sorted out? Mr Wilkinson: Don't worry, it'll all be sorted before you sign the term sheet. 1. As to Mr Stavretis' account of the 30 October 2013 conversation (as to warranties around the licence agreement being "sorted out"), the defendants say that this is self-serving and implausible. It is said that, at its highest, the pleaded representation was not made in that discussion; and that, at most, Mr Stavretis attributed to Mr Taylor a promise that "the IP will be sorted". 2. On 4 November 2013, Mr Stavretis sent an email to Mr Taylor, stating: To Increase value Would you consider something like this; -2 year agreement with acquire -$12 per hour -25 agents by 1Jan -50 agents by 1Jul I don't want to speak to Larry about if [sic] it's not possible - let me know pls 1. Mr Taylor responded to the effect "50 agents+ by 1 Jul is doable, yes. On the premise you strike at the $15m val". (This suggests a link in Mr Taylor's mind, seemingly prompted by Mr Stavretis' email, between the "value" at which the investment would be struck and the Acquire deal.) 2. As to the 4 November 2013 email exchange between Mr Stavretis and Mr Taylor, the defendants say that it was clearly understood by both parties that Mr Stavretis was offering to increase the agreed pre-money valuation of Yatango Mobile in return for the agreement with Acquire that was foreshadowed in the email. The defendants say that Mr Stavretis' denial in cross-examination that this was his understanding (and his evidence that he meant something about decreasing the price in Acquire) was self-serving and implausible. 3. On 6 November 2013, Mr Stavretis made a revised offer in which the valuation had been increased to $14 million and the additional terms in relation to the Acquire agreement had been added. (Again, the defendants say that Mr Stavretis clearly saw the proposed Acquire agreement as justifying the increase in valuation and that Mr Stavretis' evidence to the contrary was implausible.) 4. In response to that offer, Mr Taylor sent an email, stating: - The valuation is coming in at $15m, I can't go below this, especially if we are committing to more expensive resource - Can we get you to invest upto [sic] $1,250,000? - I can commit to 50 agents by July, 25 by Jan will be tough, but let's have a chat. There is a few things we need to do to dismantle what we have done already 1. In relation to the 6 November 2013 email from Mr Taylor (to the effect that the valuation was "coming in" at $15 million), pleaded by the plaintiffs as the "$15M Value Representation" (i.e., a representation that, as at 6 November 2013, the value of Yatango Mobile as a going concern was $15 million), the defendants maintain that the value that Mr Taylor there attributed to the company was: clearly in the nature of an offer rather than a representation as to the objective value of the company; and expressly tied to the Acquire commitment. The defendants deny that the pleaded representation was made, and say that Mr Stavretis did not understand it to have been made. 2. On 7 November 2013, Mr Stavretis made a further offer by email to Mr Taylor, stating that "You've won me over. … Here is the offer". The offer was for a $1.5 million investment on a pre-money valuation of $15 million, with an Acquire two year commitment of a minimum 50 agents from 1 July 2014 and last right of refusal for any additional staff. (The defendants say that, again, the valuation was clearly tied to the Acquire deal and that it was not just a case of two agreements being negotiated in tandem. Indeed, the defendants say that the extent to which the two deals were dependent upon one another is also clear from Mr Stavretis' 28 November 2013 email – see below – in which Mr Stavretis said that the term sheets would not be valid until the Acquire agreement was received.) 3. The 7 November 2013 offer from Mr Stavretis was acceptable to Mr Taylor, who responded that "That's great news! Welcome onboard [sic] mate!!". Negotiation of draft term sheet 1. On 8 November 2013, Mr Taylor sent Mr Stavretis a draft term sheet. Clause 2.17 of that term sheet included a number of warranties personally from Mr Taylor and Mr Wilkinson. The warranties at sub-clauses (a), (b), (c), and (e) were in the same form as those in the final term sheets as signed (although (c) and (e) became (d) and (f) respectively). (These are relied on by the plaintiffs as having given rise to certain representations in the final term sheet, which are defined as the "First IP Ownership Representation", "First Code Assignment Representation", "First No Infringement Representation", and "First No Dealing Representation". The claims dealing with the "No Dealing Representation" were not ultimately pressed.) 2. It is noted by the defendants that the plaintiffs also plead the draft term sheet as a particular of the "First Pre-Contract IP Rights Representation" but the defendants point out that that representation is materially different from any of the representations which are said to have been made in the final form of term sheet. In the defendants' submission, the draft term sheet cannot be construed as giving rise to the pleaded representation. (Broadly speaking, I accept that the mere sending of a draft document in the context of contractual negotiation will not necessarily be a representation as to the truth of matters stated therein as opposed to a representation, say, that a party might, if the contractual terms are agreed, ultimately make such a representation. A term in a draft document might well, for example, later be discovered to be incorrect or amended before the contract is finalised. Therefore, I do not attach much significance to the sending of the draft term sheet.) 3. On 9 November 2013, Mr Stavretis sent an email with proposed amendments to the term sheet. The amendments relevantly included: an amendment to the chapeau of the warranties (such that they were now to be given by Yatango Mobile in addition to the personal warranties from Mr Taylor and Mr Wilkinson); the addition of a new sub-clause (c), to the effect that the company has a valid licence to use all intellectual property and software used by the company and is held by a subsidiary of the company and such licence is exclusive (which was in the same form as the final term sheet, and is pleaded by the plaintiffs in the final term sheet as having given rise to the "First IP Licence Representation"); and the amendment of what was sub-clause (d), to the effect that the company has not entered into any deed, contract, arrangement, assignment or understanding dealing in any way with the IP, (which was in the same form as the final term sheet as sub-clause (f), and is pleaded by the plaintiffs in the final term sheet as having given rise to the "First No Dealing Representation"). The claims dealing with the "First Authorisation Representation", being a representation that Yatango Mobile, Mr Taylor and Mr Wilkinson had capacity and all necessary authorisations to execute and comply with their obligations under the First Contracts were also not ultimately pressed. 4. On 10 November 2013, Mr Wilkinson sent Mr Stavretis an amended term sheet. The amendments included the changes to the warranties requested in Mr Stavretis' email. The form of the warranties in this contract was the same as those in the one that was ultimately executed. 5. The plaintiffs plead the 10 November 2013 amended draft term sheet as a particular of the "First Pre-Contract IP Rights Representation". The defendants submit that no such representation was made in the amended draft term sheet. It is noted that Mr Stavretis said in cross-examination that the proposed amendments to the term sheet had probably been drafted by his lawyer, although he may have edited them before sending the email. (The defendants place much weight on the fact that Mr Stavretis has not adduced in evidence the advice he received from his lawyer in relation to the warranties and the reasons for the changes. I address this in due course.) 6. I note that the defendants say that it is significant that the term sheet contained no rescission clause (i.e., a clause to operate if it transpired that any one or more of the contractual warranties was or were incorrect). The defendants draw from this that the plaintiffs bargained for a lower price for the shares in the event that the intellectual property was not where it was supposed to be or, in effect, bargained for a right to sue for contractual damages if warranties were incorrect (not a right to recover their money) (see T 30.24-25, 50, 31.1-9). The argument seems to be that, if a party enters into a contract with a warranty clause, that party does so thereby contemplating that the warranty might be false – and therefore that there can have been no reliance on the truth of the warranty (it being said to be some kind of insurance clause) (see T 31.11-14). At T 30-31, however, it seemed to be suggested that i.e., that it is the seeking of warranties (and not the making thereof) that demonstrates a contemplation of potential falsehood and an inability to place full reliance on the matters warranted. I have a great deal of difficulty with the defendants' position in this regard. I see no inconsistency between relying on the truth of something that is warranted in a contract when deciding to enter into the contract, but also having an entitlement to sue for damages if the warranty turns out to be false. Nor does it seem to me to lie comfortably in the mouth of the defendants in effect that reliance could not have been placed on the truth of the matters warranted because of the very fact that the warranties were sought. Incorporation of corporate plaintiffs 1. On 11 November 2013, Mr Stavretis instructed his accountant to incorporate Stav Investments as trustee for the Stav Investments Family Trust. 2. On 12 November 2013, Stav Investments was incorporated, with Mr Stavretis appointed as director. On the same day, LK Group Investments was incorporated. Corporate structure information 1. Also on 12 November 2013, Mr Stavretis sent an email to Mr Wilkinson, copied to Ms Kristy Dixon (a solicitor advising Mr Stavretis), asking Mr Wilkinson to "Please send me and Kristy (cc'ed) the corporate structure and which entity has the software/IP". Later that day, Mr Wilkinson sent an email to Mr Stavretis and Ms Dixon, saying: Currently the proposed entity is Yatango Labs Pte Limited as per this dropbox link: … However, we are currently obtaining advice re a more efficient structure with the IP entity being incorporated in Ireland. I'll send through a diagram as soon as I receive it from Pinnacle (our Tax advisors), hopefully later today. 1. It is noted that the plaintiffs rely on this email as a particular of the "First Pre-Contract IP Rights Representation". The defendants submit that no such representation was made in the email; and that the email made clear that the structure of the Yatango Group (and which entity would own the intellectual property) was still in development. 2. The defendants further say that Mr Stavretis obviously sought for the corporate structure to be sent to Ms Dixon in order to receive advice in relation to it. The defendants submit that privilege has been waived in that advice (and that, as that advice has not been put before the Court, it can be inferred that the advice would not assist Mr Stavretis' case). Alternatively, the defendants submit that, if it is held that privilege has not been waived, then the above inference should be drawn (from an absence of evidence which Mr Stavretis would be expected to give), regardless of whether that evidence is privileged. It is said that, given that Mr Stavretis claims to have been misled by the 12 November 2013 email, it is highly material that he has chosen to withhold the advice his solicitor gave in relation to it, which advice it is said would clearly shed light on the extent to which Mr Stavretis relied on any representation made in the email. That seems to me pure speculation, particularly where the 12 November 2013 email is clearly talking about a proposed corporate structure in Ireland. 3. On 14 November 2013, Mr Taylor sent a further corporate structure document to Mr Stavretis headed "Yatango Corporate Group". (The plaintiffs rely on this email as a particular of the "First Pre-Contract IP Rights Representation". Again, the defendants say that no such representation arose from the email.) The plaintiffs say that the representation as to group structure was false – as it shows that Yatango Mobile owns 100% of YMA; whereas in fact YMA was owned by Mr Taylor not Yatango Mobile. It is noted that it was only in early 2015, a few months before the two companies went into liquidation, that Mr Taylor transferred his shares in YMA to Yatango Mobile. The plaintiffs say that YMA was the operating entity within the group and the trading entity that had the contract with Optus. (The defendants complain that ownership of YMA was not a material fact that was pleaded.) 4. On 18 November 2013, Mr Kestelman sent an email to Mr Stavretis saying "I am to proceed 50/50 with you" but also asking "is it covered that no assets will be separated and spun off from the company?". 5. On 18 November 2013, Mr Stavretis sent a further email to Mr Taylor, asking "Is the IP in Yatango PI (Ireland) yet or is the plan it will be moved?". In response, Mr Taylor wrote "Not setup [sic] yet mate, in motion", and Mr Wilkinson separately responded that "[i]t's in the process of being moved". (Pausing here, while this indicates that there was a process of restructuring as to which entity held the intellectual property, it does not suggest that it was not already held by a subsidiary of Yatango Mobile as had been previously advised.) 6. Mr Stavretis' first affidavit sets out a conversation with Mr Taylor which Mr Stavretis says took place on 18 November 2013 (at [34]) which was to the following effect: Mr Taylor: I got your email. I thought it'd be easier to just give you a call. Mr Stavretis: I know that you've been seeking advice about the best structure for Yatango and the company that should hold its IP. I think it would be better to keep the structure very simple and its definitely my preference to keep the IP in Australia. Mr Taylor: The advice I've been given is to have it offshore – maybe in Singapore, but probably in Ireland. Mr Stavretis: I don't agree with that. The IP should stay in Australia. Can you talk to your advisers more about this? Wat about the rest of the IP issues? Mr Taylor: There are no issues. Everything is sorted. Mr Stavretis: Ok, I'll check if I need to make some further amendments to the term sheet in case you end up going ahead with an Irish IP entity. I'll get back to you. 1. That conversation is relied on as a particular of the "First Pre-Contract IP Rights Representation". In the defendants' submission, the conversation to which Mr Stavretis there deposes is unlikely given the emails sent that day. The defendants say that Mr Stavretis did not complain in the emails about the proposal to move the intellectual property overseas. (That, however, would be consistent with Mr Stavretis understanding, or accepting, that a Yatango Mobile subsidiary could hold the intellectual property, assuming the overseas company to be so associated with Yatango Mobile.) In any event, the defendants say that little turns on that because, even if the 18 November 2013 conversation happened precisely as Mr Stavretis recounts it, the pleaded representation was not made. 2. The plaintiffs note that, by this stage, Mr Stavretis has been told that the "IP" was sitting in Yatango Mobile Labs (see the 21 October 2013 email) (an entity which in fact did not then exist), which is said to be a subsidiary of Yatango Mobile (again, see the 21 October 2013 email) and he was being told that it was to be moved to Yatango Pte Ltd in Ireland (which was to be 80% owned by Yatango Mobile) (matters which did not eventuate). 3. Pausing here, this shows the artificiality of some of the defendants' submissions, in that there is no suggestion (in the response by Mr Taylor or Mr Wilkinson to the 18 November 2013 email) that there was not some "IP" presently held by an entity known as Yatango Mobile Labs that was to be transferred to a company to be incorporated in Ireland; nor that the "IP" was not to be held by a subsidiary of Yatango Mobile (whether that be Yatango Mobile Labs or the Irish company); nor was there any suggestion that they did not understand what was meant by "IP" (and, had there been, it would have been implausible since it was they who were promoting the unique nature of their billing and provisioning system, the intellectual property in which had been the subject of the earlier queries). The defendants must be taken to have understood that, whatever that intellectual property comprised, it was this that the plaintiffs were being told was then owned by Yatango Mobile Labs and was to be held by Yatango Mobile or a subsidiary of Yatango Mobile. Hence, however technically one construes the contractual warranties (and, as I have earlier indicated, technicality was a hallmark of the defendants' submissions), the claim based on representations does not require the same construction based exercise – rather, it turns on what would objectively have been conveyed to a reasonable person in the position of the plaintiffs as to the "IP" that was said to be "in the process of being moved". As it turns out, that process seems to have been little more than a contemplation by the defendants that an Irish company might in future be set up to which the "IP" might be moved (from wherever it was then held) to facilitate the global expansion of the business. 4. On 19 November 2013, Mr Stavretis sent an email to Mr Taylor and Mr Wilkinson, attaching a further updated term sheet and a Contact Centre Services Agreement between Acquire and YMA. Various iterations of the Contact Centre Services Agreement were exchanged by Mr Stavretis and Mr Wilkinson. 5. On 27 November 2013, Mr Stavretis sent an email to Mr Taylor and Mr Wilkinson, confirming that Stav Investments and LK Group Investments were the entities entering into the respective term sheets and attaching the "final" terms sheets. Execution of term sheets 1. Mr Wilkinson sent an email on 28 November 2013 to Mr Stavretis at 11.21am, saying "Can you please execute along with Larry [Kestelman] and send back before we sign the Acquire agreement". The plaintiffs thus say that the defendants wanted to "lock in" the Yatango Mobile investment before committing to Acquire. 2. On 28 November 2013, LK Group Investments executed the term sheet and Mr Stavretis, on behalf of Acquire, signed the Contract Services Agreement (the Acquire Agreement) (which provided for a minimum commitment as from 29 November 2013). 3. On 28 November 2013 at 5.39pm, Mr Stavretis sent to Mr Taylor and Mr Wilkinson an email attaching the three agreements (a term sheet for each corporate plaintiff and the Acquire agreement) but stating that "all three documents are provided subject to Yatango and all applicable parties executing all 3 documents simultaneously, and are not valid until I receive all documents executed accordingly their [sic] current form, within 24 hours". 4. The plaintiffs note that the term sheets attached to Mr Stavretis' email of 28 November 2013 were modified to reflect the proper consideration of $750,000 each (as opposed to $1.5 million each). The plaintiffs note that there was also an amended Annexure A showing the overall investment amount split into two investors. In an email on 29 November 2013, Mr Stavretis amended cl 1.2 to remove reference to Stav Investments as trustee for the Stavretis Family Trust and instead refer to Stav Investments Family Trust (although the signing page retained the reference to the Stavretis Family Trust) (see T 18.46-50, 19.1-6 regarding two important changes to Annexure A). 5. Pausing here, with respect to the Limitation Act point, the plaintiffs say that the sending of the signed terms sheets early in the evening on 28 November 2013 cannot have been acceptance of the offer comprised by the document sent in the 11.21am email because variations had been made to the documents; and, second, that acceptance was to be on the specific basis that all 3 documents were signed simultaneously (and received by Mr Stavretis within 24 hours). 6. On 29 November 2013, Mr Stavretis sent to Mr Wilkinson and Mr Taylor an email attaching the updated term sheet executed by him as director of Stav Investments with the Stav Investments Family Trust recorded in the term sheet; and asked for Mr Taylor to sign. Mr Stavretis' evidence that on that date he also arranged two personal loans from Acquire Asia Pacific Manila Inc (AAPMI) (of which Mr Stavretis is director, and which forms part of the Acquire group of companies) for himself and Mr Kestelman (for the investment amount). 7. On 29 November 2013, Mr Wilkinson sent an email to Mr Stavretis and Mr Taylor, attaching Mr Wilkinson's executed term sheet (thus within the 24 hours that had been stipulated by Mr Stavretis). Executed term sheets – First Contracts 1. It was not until 2 December 2013 that Mr Wilkinson sent the fully executed terms sheets and the Acquire Agreement to Mr Stavretis (by Dropbox link). On that day, two transfers of $750,000 each were made to Yatango Mobile (on behalf of Stav Investments and LK Group Investments, respectively). (Pausing here, it seems to me not insignificant that the transfer of moneys only took place after the three "fully executed" documents were sent to Mr Stavretis on 2 December 2013, which is consistent with the parties' understanding being that it was not until then that there was a binding agreement for the investment – certainly there is no evidence that on 28 or 29 November 2013 Mr Wilkinson or Mr Taylor was insisting on payment because a binding agreement had already been finalised.) 2. The plaintiffs thus say that the agreements did not become binding until 2 December 2013 (relevant to the issue of the limitations defence to the LK Group Investments' claims in respect of the first of the term sheet contracts). 3. The first term sheets (dated 28 November 2013), provided that Mr Stavretis and Mr Kestelman would, through their nominated entities, each invest $750,000 in Yatango Mobile in order to acquire 612,217 shares, equivalent to 4.545% of Yatango Mobile's equity on a pre-money valuation (i.e., a value of the business prior to the contribution of the investment moneys) of $15 million. These are referred to in the commercial list documents as the "First Contracts". 4. The investors pursuant to the signed term sheets were the respective corporate plaintiffs (both of which had been incorporated on 12 November 2013, apparently for the specific purpose of making the investments into Yatango Mobile). As noted, the plaintiffs allege (and ultimately the defendants did not seem to challenge) that the corporate plaintiffs entered into the term sheets in their capacity as trustees of the respective trusts referred to above. 5. Clause 2.17 of each term sheet included personal warranties by Mr Taylor and Mr Wilkinson (as well as the same warranties by Yatango Mobile). The warranties in the respective Terms Sheets for each of the corporate plaintiffs are identical. Of those, the plaintiffs ultimately relied on the following warranties: (a) the Company (or one of its subsidiaries) owns the intellectual property used in relation to the Company's business (Intellectual Property) both legally and beneficially; (b) all code used by the Company which has been developed by employees of Company or third parties has been assigned to the Company Mobile or a subsidiary of the Company; (c) the Company has a valid license [sic] to use all Intellectual Property in the software used by the Company that is held by a subsidiary of the Company and such license [sic] is exclusive, perpetual and has been granted for nominal consideration; (d) the use of the Intellectual Property by the Company does not infringe any rights (including the intellectual property rights or moral rights) of any third party; … (f) except as indicated in this Term Sheet, the Company has not entered into any deed, contract, arrangement, assignment or understanding dealing in any way with the Intellectual Property; … (j) the Company and each of Taylor and Wilkinson has capacity and all necessary authorisations unconditionally to execute and comply with its or his obligations under this Term Sheet and this Term Sheet constitutes its or his valid and legally binding obligations and is enforceable against it or him by the Investor in accordance with its terms; … Acquire Agreement 1. The Acquire Agreement (headed "Contact Centre Services Agreement") was entered into between Yatango Mobile and Acquire. As at the date of the First Contracts, Mr Stavretis and Mr Kestelman were both directors of Acquire and were the ultimate owners of Acquire through various entities. Acquire operated a call centre in the Philippines. Pursuant to the Acquire Agreement, Yatango Mobile was to be provided with call centre services by Acquire. 2. An initial proposed Acquire contract provided for an agreed minimum spend by 30 September 2014 of $144,000 (i.e., a minimum spend of around $14,400 per month over a 10-month period). As ultimately executed, the minimum spend was increased to $156,000 for that period. The plaintiffs say that there was nothing particularly attractive about the Acquire Agreement – that there was no real commercial value because, under the contract, there was revenue of about $15,000 per month (compare this with a $1 million investment in Yatango Mobile) – and hence, as I understand it, that there was no particular benefit to Acquire such as might have put them in a position of conflict vis-à-vis their duties to the corporate plaintiffs. The defendants on the other hand argue that entry into this agreement was in breach by Mr Stavretis and Mr Kestelman of their duties as directors of the respective corporate plaintiffs (since it involved a benefit to a separate company, Acquire, in which they held an interest, to the detriment of the corporate plaintiffs – since they paid an increased price for their investment on the basis of entry into the Acquire Agreement). As noted, this is disputed by the plaintiffs. Request for further investment in 2014 1. On or about 2 April 2014, Mr Taylor approached Mr Stavretis regarding the need to raise additional funds as part of a "Pre IPO Funding Investment Round". At the time, Mr Taylor was planning an initial public offering (IPO) of shares in Yatango, which owned about 60% of the shares in Yatango Mobile. Mr Stavretis deposed that the conversation went as follows, in his first affidavit at [38]: Mr Taylor: We need to raise some additional funds and are thinking about doing it pre IPO. Mr Stavretis: What do you need more funds for? We invested in the company not long ago. I thought you would still be using those funds to keep growing the company. Mr Taylor: We've put together a pre-IPO presentation that I'll send to you. We're really excited about the future direction of Yatango. 1. On 8 May 2014, Mr Stavretis received an email from Mr Wilkinson seeking a further $250,000 investment from Stav Investments and LK Group Investments respectively in Yatango Mobile. 2. Also in about April 2014, the parties began discussing a "scrip for scrip" rollover, pursuant to which the shareholders in Yatango Mobile would exchange their Yatango Mobile shares for Yatango shares (referred to in later documents as the "roll up"). (The defendants say, but the plaintiffs dispute, that Mr Stavretis was resistant to this idea.) 3. On 21 May 2014, Mr Stavretis sent an email to Mr Taylor requesting an update for the scrip for scrip and FY 2015 forecast, saying that: … Why transfer us into Yatango Pty Ltd (an entity I am not familiar with, and have not done any [due diligence] on). Why not the other way around by vending Mobi city into the main entity your investors are in? In our initial discussions with Yatango, receiving the funding from Larry and I would allow the executive team to focus on growing the business rather than capital raising however most of the action I have seen to date has been meetings regarding capital raising / borrowings / IPO's [sic] and now the purchase of another vechicle [sic] and more restructuring. Perhaps I am not privy to the rest of the action going on however I do believe the focus should be on growing the revenue of this business and rolling out the other offerings we are all very excited by. … In regards to loaning further funds as requested, I am [sic] believe we require clarity on the current investment before providing an answer. Mr Wilkinson appointed director of Yatango Mobile 1. On 1 June 2014, Mr Wilkinson was appointed director of Yatango Mobile. Bridging finance required in early June 2014 1. On 6 June 2014, Mr Taylor sent an email to shareholders of Yatango Mobile providing an update on Yatango Mobile and seeking bridging finance. Employee Transfer Agreement 1. On about 27 June 2014, an Employee Transfer Agreement (dated 20 June 2014) was executed by Mr Apps' company, Appscorp, and Yatango Mobile (the Employee Transfer Agreement) cl GA-5 of which relevantly provided that: Separate to this Agreement, Appscorp and Yatango will enter into agreements covering an IP transfer agreement and a shareholder agreement. Such agreements are to be finalised and executed at the earliest opportunity. Until such a time that the IP Transfer agreement is executed, ownership of intellectual property will be assigned to the party that developed such property. [My emphasis] 1. No IP transfer agreement or shareholder agreement (as referred to in the above clause) was executed at the time. Although Mr Apps' evidence was that he executed the second BJYP agreement in about June 2014 (and that he did not have a copy of the agreement signed by Yatango Mobile), it appears more likely (particularly having regard to statements made in the later IPO documents) that the second agreement was signed in September 2014 (see below). 2. Pursuant to cl PI-1 of the Employee Transfer Agreement, two individuals (Mr Badger and Mr Nwokolo) were transferred as employees from Appscorp to Yatango Mobile, commencing on 1 July 2014. The defendants note that there is some evidence that Mr Nwokolo remained employed by Yatango Mobile as a "Billing Developer" in September 2015. 3. The Employee Transfer Agreement provided at cl PI-3 that there would be "No change to current processes regarding work/task allocation and day-to-day task management". The significance apparently attached by the defendants to the Employee Transfer Agreement, as I understand it, is as to the party that developed the relevant intellectual property (having regard to the issue of ownership of the intellectual property); i.e., that intellectual property associated with any customisation of code after the transfer of the two employees would reside in Yatango Mobile (not Appscorp). This could only seemingly be relevant to the warranties under the second of the term sheets entered into in 2014, since the transfer of the employees had not occurred at the time of the first term sheets in 2013 (so any customisation before then must have been by employees of Appscorp – albeit that they might have been working from Yatango Mobile's offices and perhaps working towards a design supplied by it – and, in accordance with the Employee Transfer Agreement, would, until the contemplated IP transfer and shareholders agreements, be "assigned" (this meaning, as I understand it, effectively "attributed") to Appscorp). 4. I note in passing that Mr Apps, in his evidence in cross-examination, said in effect that the arrangement for the transfer of the employees was prompted by the continuing default in payment of fees owing by Yatango Mobile (T 235.12-15), which would be consistent with the financial difficulties apparently being experienced by it (and for which bridging finance or further investment was being sought) at around this time. Meeting on 24 June 2014 1. On 24 June 2014, Mr Stavretis attended a meeting in Sydney with Mr Wilkinson, Mr Taylor and Mr O'Hare. Mr Stavretis deposed in his first affidavit that, in the course of that meeting, Mr Taylor stated that Yatango Mobile would soon face insolvency unless it acquired further funding, and requested a further $250,000 investment from Stav Investments. At the meeting, Mr Stavretis reiterated that he was yet to receive a shareholders agreement, to which Mr Wilkinson was said to respond with "[i]t's coming". Loan Agreement with AAPMI 1. On 30 June 2014, thus seemingly some six months after the initial investment in Yatango Mobile, Mr Stavretis (as director of AAPMI) entered into a loan agreement with AAPMI for the amount of $750,000 (the amount of the initial investment). Further investment in Yatango Mobile 1. On 30 June 2014, Mr Taylor sent an email to Mr Stavretis seeking further investment in Yatango Mobile, proposing a change to the deal that had been discussed at the meeting on 24 June 2014 (namely, the provision of $1 million in the form of a convertible note). 2. On 11 July 2014, Mr Wilkinson sent an email to Mr Stavretis, attaching a term sheet in relation to that proposed further investment. The further term sheet provided for a further investment by each of the corporate plaintiffs in the amount of $250,000 to acquire 344,856 shares in Yatango Mobile, equivalent to 2.17% of Yatango Mobile's equity on a pre-money valuation of $10 million. On 14 July 2014, Mr Wilkinson sent an email to Mr Stavretis attaching an amended term sheet, which provided for an investment of $262,500 to acquire 362,099 shares (equivalent to 2.28% of Yatango Mobile's equity, again on a pre-money evaluation of $10 million). The executed further term sheet was dated 16 July 2014. 2014 term sheets – Second Contracts 1. On 18 July 2014, Mr Stavretis wrote to Mr Wilkinson and Mr Taylor, sending LK Group Investments' further executed term sheet. On the same day, Mr Stavretis arranged the separate transfer of $262,500 each to Yatango Mobile on behalf of Stav Investments and LK Group Investments. 2. These are referred to in the commercial list statements as the "Second Contracts". They included cl 2.17 warranties to the same effect as the First Contracts (with some amendment to the warranty in relation to the value of the company which was recorded in cl 2.17(h) of the First Contracts as having on issue 12,244,344 ordinary shares, and in cl 2.17(h) of the Second Contracts as having on issue 13,794,246 ordinary shares) but also included an additional warranty (cl 2.17(k)) regarding the proposed "roll up" of shares which was to be effected by 31 August 2014. This additional warranty was in the following terms: (k) Taylor and Wilkinson will effect a "roll up" of all shareholders in the Company such that their respective shares in the Company will be exchanged on a one for one basis for shares in Yatango Pty Ltd by no later than August 31 2014, resulting in the Investor having the same percentage of shares in the new entity as the Investor holds in the Company and all rights attaching to the shares and granted to the Investor under this Term Sheet (or previous Term Sheet(s) executed by the Investor) will be transferred to apply to the shares held in the new entity. "Roll-up" correspondence 1. On 4 August 2014, Mr Stavretis wrote to the defendants, saying: While I know there is magnitude of things going on. I do need at some stage clarity on the 'Roll-up'.. Possibly worth going through this with Ryan [O'Hare] whilst he is there? I also question – would it not be easier to keep the Yatango Mobile entity as the main entity and vend the mobility entity into it rather than a roll- up. Not sure why we wouldn't do it that way. 1. Following a shareholders' meeting on 14 August 2014, Mr Wilkinson sent email correspondence to Mr Stavretis and others which provided that the scrip for scrip roll-up was to occur prior to the "RTO SPA" being executed. 2014 BJYP Agreement 1. In about September 2014, Yatango Mobile entered into another intellectual property agreement with BJYP (entitled an Intellectual Property Transfer and Licence Agreement) (the 2014 BJYP Agreement). 2. As noted above, Mr Apps said he executed the second BJYP agreement in about June 2014. However, the prospectus issued on or about 1 July 2015 in relation to the proposed initial public offering (IPO) of shares in Yatango Mobile disclosed that the 2014 BJYP Agreement was entered into on 12 September 2014 (and presumably some care was taken to ensure that the IPO prospectus was correct so I would place more weight on that contemporaneous document than Mr Apps' recollection of when he entered into the second BJYP agreement). 3. Recital A of the 2014 BJYP Agreement provided that Yatango Mobile and BJYP were parties to the 2012 BJYP Agreement. Recital B of the 2014 BJYP Agreement provided that the parties wished to terminate the 2012 agreement and to sign a new agreement to assign and license the intellectual property rights in the Base Code and the Customised Code. 4. Under the heading "Background", cl 1.1(a) provided that each party agreed that some obligations under the 2012 BJYP Agreement were not performed by the parties. 5. Clause 1.1(b) of the 2014 BJYP Agreement included an acknowledgement by the parties that "since about 2012, BJYP has licenced [sic] the Intellectual Property Rights in the Base Code and the Customised Code to YM [Yatango Mobile]". 6. The term "Base Code" was defined as "the complete high level language computer programs which, when compiled, generate the object and executable program that constitutes the ECConnect Code (Version 1), the specification for which is set out in Schedule 1 to this Agreement". Schedule 1 of the September 2014 BJYP Agreement was in the same terms as Schedule 1 of the 2012 BJYP Agreement (which the defendants submit indicates that the "Base Code" in the former is the same as the "Code" in the latter). 7. The term "Customised Code" was defined in the 2014 BJYP Agreement as "all customisations and developments to the Base Code and all material, documents, equipment, information and data (however stored) which is created, developed or customised at the cost and direction of YM [Yatango Mobile] or New Co". Pausing here, this bears some similarity to the definition of "Developed Materials", as contained in the 2012 BJYP Agreement, but it is not identical. 8. The 2014 BJYP Agreement again required the establishment of a new entity (no longer referred to as Yatango Mobile Labs; now referred to as "New Co"), which was to be 80% owned by Yatango Mobile and 20% by BJYP (cll 2.1 and 2.3-2.6). Relevantly, cl 2.2 provided that a new company was to be incorporated to acquire the assignment of IP rights in the Customised Code from BJYP and to acquire a licence to the Base Code; and to license the Customised Code to Yatango Mobile and its related bodies corporate. 9. Clause 3.1 of the 2014 BJYP Agreement required BJYP, subject to the execution of a relevant shareholder agreement, to "assign and transfer all Intellectual Property Rights in the Customised Code which exist at the Start Date to New Co free from any Security Interest". (Pausing here, again there was no execution of any shareholder agreement – hence this condition appears to have been unsatisfied.) 10. Clause 3.3 of the 2014 BJYP Agreement provided that: Subject to clause 3.1, all Intellectual Property Rights which but for this Agreement would vest in BJYP as a result of BJYP or its Related Body Corporates creating or modifying future Customised Code when providing software development services to New Co, will vest absolutely in New Co immediately upon creation or modification by BJYP or its Related Body Corporates. 1. The defendants say that this agreement did not otherwise specify what comprised the Customised Code in any detail. Acquire obtains charge over assets of Yatango Mobile and YMA 1. In about December 2014, the Acquire Agreement was varied such that Acquire was granted a charge over all past, present, and after-acquired property of Yatango Mobile and YMA. General Security Deeds were entered into by Yatango Mobile and YMA in favour of Acquire. Proposed IPO announcement 1. On 20 March 2015, Yatango entered into a mandate agreement with Foster Stockbroking and Azure Capital with respect to the proposed IPO (which was to be conducted by way of a "reverse takeover" through Latitude Consolidate Limited). The proposed IPO was announced on 23 March 2015. (It is said that, a few days before this, the plaintiffs had entered into agreements pursuant to which the "roll up" would be effected as part of the IPO process – reference being made to the letter of 18 March 2015, the subject line being "Proposed listing of Yatango on ASC and Selective Buy-Back".) Incorporation of Yatango Mobile Labs on 1 May 2015 1. Yatango Mobile Labs was incorporated on 1 May 2015. (No shareholders' agreement was ever entered into between BJYP and Yatango Mobile.) Loan agreement in relation to second investment in Yatango Mobile 1. On 30 June 2015 (again, some months after the actual investment), Mr Stavretis, as director of Acquire Asia Pacific Manila 2, Inc (AAPM2I), entered into a loan agreement with AAPM2I in the amount of $262,500 (the amount of the 2014 investment in Yatango Mobile). Prospectus in relation to the proposed IPO 1. On 1 July 2015, a prospectus was issued in relation to the proposed IPO. However, the proposed IPO was undersubscribed and did not proceed. The consultants who had been engaged to arrange the IPO terminated their mandate on or about 12 August 2015. The defendants says that the failure of the IPO appears to have precipitated the ultimate breakdown in the relationship between the parties to this dispute and the end of the Yatango business. Demand for information and appointment of insolvency practitioner 1. On 18 August 2015, the plaintiffs' solicitors (Marque Lawyers) wrote to Yatango Mobile and YMA on behalf of Stav Investments, LK Group Investments, and Acquire, requesting certain information (including details of the intellectual property) and to inspect Yatango Mobile's records. On 21 August 2015, they appointed an insolvency practitioner to investigate Yatango Mobile's affairs. Appointment of management consultant as CEO of Yatango entities 1. In about late August 2015, a management consultant, Mr Jon Kirk, was appointed as the Chief Executive Officer of the Yatango entities. The defendants say that this was in an attempt to turn the business around. 2. By 18 September 2015, Mr Kirk had advised that a time critical update was that he was looking for $2.5 million as a "barebones requirement for moving forward" to ensure Yatango's continued operating requirements by no later than 25 September 2015. By 25 September 2015, this had increased and Mr Kirk was looking for $3.5 million no later than 29 September 2015. Appointment of administrator to YMA 1. As at about 25 September 2015, Acquire had billed $864,204 to Yatango Mobile, of which $384,134 had been paid, with $480,069 outstanding. 2. On or about 29 September 2015, pursuant to the terms of the General Security Deed, Acquire appointed joint administrators to YMA, pursuant to s 436C of the Corporations Act. Email from Jon Kirk regarding "brand" 1. On 1 October 2015, Mr Kirk sent an email to Mr Stavretis, in which Mr Kirk stated that the "Brand" was owned by Yatango Holdings (formerly Yatango), the "Billing" was "in Mobiles", the "IP (front end) platform (code)" was "in Mobiles", and the "Customer Base" was "in Mobiles Australia" (i.e., the plaintiffs say, this was advice that Yatango Mobile did not own all the IP used by Yatango Mobile in the business). 2. This email was provisionally admitted in evidence (subject to a s 136 limitation sought that it be evidence only of Mr Kirk's understanding of the position). That is the way in which in any event I would have read the email. Unless it could be regarded as an admission by Yatango Mobile (and I have difficulty with this being an admission since Mr Kirk was a management consultant acting as Chief Executive Officer at the time but was not, in my opinion, in that capacity the directing mind or will of the company – see, for example, Tesco Supermarkets Ltd v Nattrass [1972] AC 153; [1971] 2 AII ER 127 at 170 per Reid LJ; Brambles Holdings v Carey (1976) 15 SASR 270 at 279 per Bray CJ; and Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 at 582-3 per Brennan CJ, Deane, Gaudron and McHugh JJ), the s 136 limitation should stand. I note that Mr Kirk was not called to give evidence as to the basis of his recollection or understanding of the matters asserted in this email. 3. Mr Stavretis responded to this email, saying "Interesting… I have guarantee's [sic] from Yatango Mobile Pty Ltd as well as personal guarantees from Andy [Taylor] and John [Wilkinson] that that is not the case. If they don't play ball they are going to be @#%#*%". 4. Consistently with the above, Mr Kestelman says that, around October 2015, Mr Stavretis informed him that Yatango Mobile did not own all of the IP in the business; nor did it have all requisite licences in place. Letter of demand 1. On 9 October 2015, Marque Lawyers sent a letter of demand to the defendants on behalf of Stav Investments and LK Group Investments asserting that the warranties in the term sheets had been breached. Appointment of external administrators to Yatango Holdings and Yatango Mobile 1. On 20 October 2015, Mark Hutchins and Jason Tang of Cor Cordis Charted Accountants were appointed as external administrators to Yatango Holdings and Yatango Mobile. 2. On 3 November 2015, Mr Wilkinson ceased to be a director and company secretary of Yatango Mobile. 3. On 16 November 2015, Cor Cordis produced its administrators' report in relation to Yatango Holdings. Change of domain names 1. Meanwhile, on 22 October 2015, Mr Taylor sent an email to Marque Lawyers, informing them that the domain names used by Yatango had been changed. Plaintiffs' claims 1. The claims here alleged by the plaintiffs, as noted earlier, are broadly for breach of contractual warranties and for misleading or deceptive conduct (as well as an alternative claim based on accessorial liability for misleading or deceptive conduct). In oral submissions the plaintiffs placed primary emphasis on the misleading or deceptive conduct claims. The plaintiffs also allege that, to the extent that Yatango Mobile was liable for misleading or deceptive conduct, the defendants were involved in its contraventions. In each case, the plaintiffs allege that the defendants: aided, abetted, counselled or procured; induced; were knowingly concerned in or party to; or conspired with others to effect, the relevant contravention. 2. The contractual warranties on which the plaintiffs rely are those set out above. Each warranty is also alleged to be a representation for the purposes of the misleading or deceptive conduct claims. 3. As to the warranty in cl 2.17(a), the plaintiffs particularise the intellectual property used in relation to Yatango Mobile's business in their second further amended commercial list statement as follows: Yatango Mobile or one of its subsidiaries did not own, control, or have a licence to use the following intellectual property used in relation to Yatango Mobile's business: (a) the domain name www.yatango.com.au; (b) the domain name www.yatango.com; (c) the domain name www.yatangomobile.com.au; (d) the domain name www.yatangomobile.com; (e) Australian registered trade mark no.1522261, being the word mark YATANGO; and (f) Australian registered trade mark no.1522867, being the word 'Yatango' presented in a fanciful font; (g) customised, high-level language computer programs (Customised Code) as customised for Yatango Mobile by BJYP Pty Ltd (BJYP) pursuant to an agreement between BJYP and Yatango Mobile (IP Agreement); (h) a software system known as the 'Passport and Rewards System'; and (i) a software system known as the 'Customer Management System'. 1. As noted earlier, the allegation as to breach of the warranty in cl 2.17(a) is that neither Yatango Mobile nor any of its subsidiaries owned the intellectual property used in relation to the company's business both legally and beneficially. The plaintiffs say this is false and that ownership of the relevant intellectual property was not held by those entities. 2. As to the warranty in cl 2.17(b) (defined by the plaintiffs as the "Code Assignment Warranty"), the plaintiffs say this is false because the Customised Code developed for Yatango Mobile by BJYP was to be assigned to Yatango Mobile, pursuant to the BJYP Agreement between Yatango Mobile and BJYP but that this assignment never occurred. 3. As to the warranty at 2.17(c) (defined by the plaintiffs as the "First IP Licence Warranty") this is said to be false, misleading or deceptive or likely to mislead or deceive because the "Intellectual Property" in the software used by Yatango Mobile was not held by a subsidiary of Yatango Mobile and Yatango Mobile therefore did not have a licence from a subsidiary to use: "(i) BJYP's base source code contained within the Customised Code; (ii) the Passport and Rewards System; or (iii) the Customer Management System". 4. As to the warranty at cl 2.17(d) (defined by the plaintiffs as the "First No Infringement Warranty"), this is alleged to have been false because Yatango Mobile did not have a licence to use BJYP's base source code contained within the Customised Code. 5. As to cl 2.17 (k) (relevant only to the Second Contracts), this is alleged to have been breached since the roll-up there warranted did not occur. 6. In the Stav Proceeding, there are allegations made with respect to representations defined as the first and second "Pre-Contract IP Rights Representations", those being representations that "the intellectual property used by Yatango Mobile in relation to the operation of its business was owned by, licenced to [sic] or controlled by Yatango Mobile". The particulars of the relevant representations refer to a number of documents and alleged oral conversations. 7. The Stav plaintiffs also allege a "Failure to Disclose Pre-Contract IP Rights Representation", namely, an alleged failure to disclose the "IP Ownership Position" as defined, being that: (a) the intellectual property used by Yatango Mobile in relation to the operation of its business, including all code developed by employees of Yatango Mobile or third party software developers: (i) was not owned by Yatango Mobile or one of its subsidiaries; and (ii) in respect of intellectual property owned by a subsidiary and used by Yatango Mobile, was not licensed to be used by Yatango Mobile; and (b) the intellectual property used by Yatango Mobile was owned by: (i) the trustee for the Digital Bakery (Australia) Trust; … (iii) Yatango Holdings Pty Ltd (formerly Yatango Pty Ltd) (New Yatango Entity); or (iv) BJYP Pty Ltd, (together, the IP Ownership Position). 1. I have addressed the content of the YM Asset Representation and the $15M Value Representation above (at [20] and [87] respectively). The YM Asset Representations and the $15M Value Representation are together defined as the "First Pre-Contract Value Representations". It is alleged that they were misleading or deceptive because the annual report for Yatango Mobile as at 30 June 2013 prepared by SEIVA Accountants contained different information from what appeared in the consolidated balance sheet for the Yatango Mobile Group that was provided by Mr Wilkinson. 2. As to the cl 2.17(k) warranties in the Second Contracts regarding the roll-up (defined by the plaintiffs as the "Pre-Contract Roll Up Representation" and the "Contractual Roll Up Representation"), the plaintiffs contend that these were misleading or deceptive because there was no reasonable basis to make them. Complaint as to "unpleaded" allegations 1. The defendants (having been held to the "quasi-pleading" of their own commercial list response on the issue as to whether they could raise matters of causation that were not pleaded – see T 25.7-17, T 287.5-14) are, perhaps unsurprisingly, adamant that the plaintiffs should also be held to their pleaded case. In that regard, the defendants say that the matters set out below (that were asserted or contended for in the plaintiffs' opening submissions) are unpleaded, and hence are matters on which the plaintiffs should not be permitted to rely. 2. As to the pleading points raised by the defendants, the plaintiffs say that the defendants erroneously approach the pleading on the basis that all facts and evidence need be pleaded. The plaintiffs maintain that all material facts that were required to be pleaded have been pleaded. Second, reference is made to the modern approach to pleading points being taken at a time after the service of evidence (referring to the decision of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Authority (2006) 33 WAR 82; [2006] WASC 281 at [9] cited in McMillan v Coolah Home Base (No 3) [2020] NSWSC 1325 at [6]). It is said that the defendants have been on notice for a considerable time as to the case made against them. In particular, complaint is made by the defendants as to the following assertions made by the plaintiffs. 3. First, assertions to the effect that the defendants had misrepresented the true ownership of YMA (which it is said forms no part of the plaintiffs' pleaded case). 4. Second, assertions to the effect that the defendants had misrepresented that Yatango Mobile Labs had been incorporated when it had not been incorporated (which, again, is said to form no part of the plaintiffs' pleaded case). The plaintiffs say that the issue as to the incorporation of Yatango Mobile Labs is directly relevant to the material fact whether the billing software coding and intellectual property was owned by Yatango Mobile or its subsidiaries, given that the incorporation of Yatango Mobile Labs was a necessary step in that happening pursuant to the 2012 BJYP Agreement. 5. Third, that the alleged misrepresentations "remained operative" and that this was relevant to the measure of the plaintiffs' loss. It is noted that while the commercial list statement in the Stav Proceeding alleges that certain representations were ongoing until either entry into the First or Second Contracts, the commercial list statement in the LK Group Investments Proceeding makes no allegations of any ongoing representations. Complaint is made that there is no allegation anywhere that a representation remained operative and that this was causally connected to any loss suffered by the plaintiffs. As to the complaint made concerning the assertion of ongoing representations, the plaintiffs point to the distinction between a continuing representation (which must be pleaded and may give rise to fresh causes of action with new limitation periods) and a representation made which is not corrected or which a plaintiff continues to believe to be true (which need not be pleaded). It is said by the plaintiffs that in any event, the defendants have been on notice of this matter. 6. Fourth, as to accessorial liability, it is noted that, in the plaintiffs' written outline, there is reference to the defendants' involvement in the giving of representations by Yatango Mobile. The defendants say that these allegations are not open to the plaintiffs on their pleadings (in the absence of allegations as to the requisite knowledge of the alleged accessories). In this regard, reference is made to the decision of Dowsett J in Lee v Westpac Banking Corporation (No 2) [2016] FCA 901 (Lee v Westpac) at [40]) in effect as to the need to identify the conduct by the defendants which is said to constitute the defendants' involvement in each alleged misleading or deceptive representation, and then to identify the defendants' knowledge concerning each of them; and that it is not sufficient to plead a series of generalised allegations and then assert reliance on all of them as proving generalised knowledge. 7. The defendants say that the commercial list statement in the Stav Proceeding contains one allegation concerning the defendants' knowledge (which it is said suffers from the same vice as that identified by Dowsett J in Lee v Westpac) and that the Stav plaintiffs have not identified, by reference to the alleged representations, the precise knowledge that the defendants are alleged to have had (and that the commercial list statement in the LK Group Investments Proceeding contains no allegation with respect to the defendants' knowledge). 8. As to the pleading complaint in relation to accessorial liability, the plaintiffs say that the conduct of the defendants was squarely pleaded; that all the conduct relied upon was of the defendants personally and as agents for Yatango Mobile. It is noted that the defendants accept that their knowledge is pleaded in [10] of the second further amended commercial list statement (albeit as a particular). The plaintiffs accept that it should have been pleaded but say that this is an objection to form, not as to substance. 9. Fifth, as to Yatango Mobile's financial difficulties and liquidation, the defendants make much complaint of the reference in the submissions by the plaintiffs to the liquidation of Yatango Mobile and that the shares purchased by the corporate plaintiffs were rendered worthless (and as to the loss suffered because the "coding used in the billing and provisioning system was simply never transferred to Yatango Mobile or any of its subsidiaries", which meant that a valuable asset was not available to be sold in order to provide a return to the creditors and contributories in the liquidation). It is said that no such allegation has been pleaded. 10. The defendants say that, if the liquidation was to be relied upon in respect of the question of causation and loss, it was required to be pleaded; noting the requirement in a misleading or deceptive conduct case to plead "the necessary material facts to establish the causal relationship between the misleading or deceptive conduct and the loss" (citing Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408; [2014] FCAFC 152 at [119]-[122] per Siopis J (Barnes v Forty Two)); and saying that a "mere statement that the plaintiff claims 'damages' is not sufficient to let in evidence of a particular kind of loss which is not a necessary consequence of the wrongful act and of which the defendant is entitled to fair warning" (there citing Perestrello e Companhia Limitada v United Paint Co Ltd [1969] 3 All ER 479 (Perestrello) at 486 per Lord Donovan). (Pausing here, I do not consider that reliance on Perestrello is particularly helpful here. That case involved a very different situation. The causal effect there not pleaded related to a claim for loss of profit that had been foreshadowed in a letter before the action but the claim in the writ was for special damages on a continuing basis for fruitless expenditure until a point in time immediately prior to the hearing, some five years later.) 11. The defendants say that the plaintiffs' damages cases, as pleaded, amount to no more than assertions that they lost the value of their investments, pointing out that the pleaded material facts end with the entry into the Second Contracts. The defendants say that there is no pleaded allegation to the effect that Yatango Mobile was later in financial distress and ultimately went into liquidation, let alone that this was in some way causally connected with the losses the plaintiffs claim to have suffered. Further, it is said that there is no pleaded allegation that the plaintiffs would be in a better position had the billing and provisioning system been an asset of Yatango Mobile in the liquidation. 12. The defendants contend that the plaintiffs' failure to plead these matters is significant because, had they done so, the defendants would have pleaded positive defences to the effect of those outlined in their submissions (at [126]-[133], which related to events causative of the liquidation or occurring after the liquidation) but which the defendants now accept (they say because the liquidation forms no part of the plaintiffs' pleaded damages case) do not fall for determination. (I note that the acceptance by the defendants that the matters outlined in the above-mentioned paragraphs of their submissions was after I had rejected the admission of that evidence as not related to their pleaded defence – but that is perhaps beside the point.) 13. Further, it is submitted that, in order for a subsequent event such as a liquidation to be admissible on the question of loss in a "no transaction" case, it is necessary for it to be a subsequent event that "arise[s] from the nature or use of the thing itself", and not one that "affect[s] the value of the thing but arise[s] from sources supervening upon or extraneous to the fraudulent inducement" (citing Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4 at 291 per Brennan, Deane, Dawson, Gaudron and McHugh JJ (Kizbeau)). Thus, it is said that the fact of the liquidation is not itself evidence that the plaintiffs have suffered any loss, unless it is also established that the liquidation was a consequence of the "nature or use" of the shares that the plaintiffs purchased. It is submitted that if the plaintiffs sought to prove that the liquidation was a consequence of the nature or use of the shares, that ought to have been pleaded; and that, as it was not, the plaintiffs cannot rely on that argument. 14. As to the pleading complaint in relation to the liquidation of Yatango Mobile, the plaintiffs contend that the case that they have advanced is an orthodox no transaction case. They say that the element of causation is satisfied by the material contribution the representations made to the entry into the transaction (see at [7A] and [7B] of the second further amended commercial list statement). It is said that damage occurs upon entry into the transaction. The loss pleaded is the loss of the money invested (see at [93]-[96] of the second further amended commercial list statement). The plaintiffs say that the authorities relied upon by the defendants (Barnes v Forty-Two and Perestrello) concern the need to plead a loss of opportunity. The plaintiffs disavow any such case. Rather, they say that the case is the same kind as that advanced in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 (Ingot), referring to the analysis by Ipp JA to the straightforward no‑transaction cases at [137]-[166]. 15. The plaintiffs say that it is not necessary for a party to plead every circumstance which may be taken into account in the assessment of loss; those are properly matters for evidence. Moreover, it is said that there can be no dispute about the fact of liquidation; noting that it is expressly addressed in the evidence served by the plaintiffs (referring to Mr Stavretis' first affidavit at [63]-[64] and to the two paragraphs tendered from Mr Taylor's affidavit marked as Exhibit G – [37]-[38]). It is said that it is also pleaded in both further amended commercial list responses (in respect of the Stav Proceeding at [30] and in relation to the LK Proceeding at [25]). 16. The plaintiffs emphasise that the defendants do not contend (nor, it is said, would they have contended) that the liquidation occurred for completely different reasons (see, for example T 358.28-43), but, rather, the defendants contended that had the fact of liquidation been pleaded they would have raised the "Yomojo" matter (to the effect that an entity associated with Mr Stavretis bought assets from the company after it went into administration and used those assets to obtain some benefit). The plaintiffs say that it is difficult to understand how any opportunity realised by a different legal entity associated with Mr Stavretis could impact the analysis. Further, the defendants contend that the plaintiffs can only recover the loss arising from subsequent events where that subsequent event itself arises from the nature of the thing the plaintiffs acquired. The plaintiffs say that, as was the case in Ingot where a no transaction case was advanced, the plaintiffs would not have suffered loss from external administration had there been no transaction. Determination 1. As noted, much emphasis was placed by the defendant on the plaintiffs being held to their pleaded case, a proposition with which (in principle) I have no difficulty. The principles in that regard are not in dispute; and the circumstances in which parties may depart from their pleaded case have been articulated elsewhere (see Ingot at [424] per Ipp JA. See further Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490; [1916] HCA 81 at 517 per Isaacs and Rich JJ; Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 per Mason CJ and Gaudron J at 286–7; Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [2007] NSWCA 75 at [57] per Spigelman CJ). I accept that there has been no acquiescence by the defendants to any expansion of the plaintiffs' "pleaded case". 2. That said, the debate took on an air of artificiality insofar as complaint is made as to matters such as there not being pleaded the fact that Yatango Mobile has gone into liquidation. There is no dispute as to that fact. The real dispute is as to the consequences of that fact on the claimed loss. Here, the plaintiffs say (on their representation claims) that this is a "no transaction" case and they should recover their investment. If it were necessary, to establish that claim, for them to plead a particular consequence of the liquidation of Yatango Mobile, then they may well have had a difficulty if that consequence was not expressly pleaded. However, as I understand the argument, while the plaintiffs say that, without the IP ownership, the Yatango Mobile shares were valueless, they do not contend that their loss is to be measured on the basis that the Yatango Mobile shares have proved worthless since or by reason of its liquidation; rather, they say that (but for the misrepresentations on which they relied) they would not have invested in Yatango Mobile at all – and hence they should recover the totality of their investment (irrespective of the fact that it is one that has turned out to be worthless). 3. I note that the submissions from the defendants seemed to suggest that what the plaintiffs had to prove was that the liquidation of Yatango Mobile had been caused by the fact that the IP was not owned by the company or otherwise the subject of an exclusive licence. The plaintiffs do not accept that they have to plead or prove that the liquidation was caused by the problem with the IP and they say that they do not advance such a case (referring to Ipp JA in Ingot). 4. As to the complaints made as to the various "unpleaded allegations" I have concluded as follows. 5. First, as to the ownership of YMA, I agree that this is not an allegation contained in the relevant commercial list documents but I understood this part of the opening submissions to be in effect setting the background to the overall claims – and not as an intention to expand the pleaded case. 6. Second, as to the fact that Yatango Mobile Labs had not been incorporated at the relevant time, again, this seem to me to be part of the background to the claims that are made by the plaintiffs – and the fact that Yatango Mobile Labs had not been incorporated until 1 June 2015 is a matter of evidence. 7. Third, as to the representations remaining "operative" on one view, nothing turns on whether the alleged misrepresentations "remained operative" at least insofar as it is raised in the context of the limitation defence raised by the defendants – see below. The question of loss is dealt with in Mr Potter's reports, which I address in due course. However, to the extent that it is raised as one of the circumstances in which it may be appropriate not to apply the so-called rule in Potts v Miller (1940) 54 CLR 282; [1940] HCA 43 (Potts v Miller), then it seems to me that the alleged no disclosure representation at the very least would support such submission. 8. Fourth, as to the allegation of accessorial liability, I see force in the defendants' complaint as to the lack of a sufficient pleading of knowledge. Those claims, however, are relevant only to the extent that the principal liability for misleading or deceptive conduct is not made good. Therefore, ultimately nothing turns on this complaint concerning the plaintiffs' pleadings. 9. Fifth, as to the plaintiffs' failure to plead the liquidation as a material fact, I have already commented on this above. I accept the plaintiffs' submissions on this issue. Limitations defences 1. At this point it is convenient to deal with the limitations defences that have been raised by the defendants: first, in relation to LK Group Investments' claim in relation to the first contract it entered into with Yatango Mobile and, second, in relation to the claim made by Mr Stavretis in his personal capacity. LK Group Investments: limitations defence 1. The limitations defence raised in answer to various of the claims made by LK Group Investments against the defendants (in essence the claims in relation to the first of the investment contracts) relates to the date on which the contract was formed. The defendants say that this occurred on 28 November 2013 (and hence causes of action arising on that date had expired by the time the LK Proceeding was commenced by summons and commercial list statement filed on 29 November 2019). The contention of LK Group Investments, however, is that the First Contract was concluded on 2 December 2013, placing emphasis on the communications between 28 November 2013 and 2 December 2013 referred to in the chronology above. 2. As adverted to above, the plaintiffs say that the 5.39pm email by Mr Stavretis on 28 November 2013 attaching the terms sheets cannot have been acceptance of the offer in the documents attached to the 11.21am email to which it responded, first, because variations had been made to the documents; and, second, because it was made clear that acceptance was to be on the specific basis that all three documents were signed simultaneously. Thus, the plaintiffs say that the acceptance was not until 2 December 2013 (and commencement of the LK Proceeding on 29 November 2019 was therefore within the six year period). 3. There is no dispute that, pursuant to s 14(1)(a) of the Limitation Act, an action on a cause of action founded on contract is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff. Nor is there dispute as to the proposition that, insofar as LK Group Investments' case is that it suffered loss on entry into the First Contract (by reason of the alleged breaches of contractual warranties), that cause of action accrued on the date of entry into the contract (reference being made to HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [28] (HTW Valuers) in that context). Insofar as the statutory causes of action are concerned, a similar limitation period applies (see s 12GF(2) of the ASIC Act, s 236(2) of the ACL, s 1041I(2) of the Corporations Act), the cause of action accruing when LK Group Investments first suffered loss (which appears to be accepted as being the date of entry into the First Contract). 4. The defendants note that [9] of the list statement initially filed by LK Group Investments on 29 November 2019 contained the allegation that the First Contract was entered into on or about 28 November 2013; but that on 5 December 2019 this allegation was amended, such that the First Contract is now alleged to have been entered into on 2 December 2019. Pausing here, I attach no significance to the amendment of the commercial list statement in this regard. Any admission arising by reference to the initial allegation has clearly been superseded. 5. Insofar as LK Group Investments maintained in submissions that the limitations defence was misconceived because the limitation period runs from the day after the cause of action accrues (relying on s 36(1) of the Acts Interpretation Act 1987 (NSW)) (and therefore if the contract was entered into and breached on 28 November 2013, it was commenced on the final day of the period), the defendants accept that the time period began to run on 29 November 2013 but say that it therefore stopped running on 28 November 2019. I agree that this first argument does not assist LK Group Investments and that a six year limitation period with a cause of action accruing on 28 November 2013 would commence on 29 November 2013 but expire on 28 November 2019. 6. As to the plaintiffs' second argument (that the 2013 share sale agreements were only fully executed on 2 December 2013), the defendants point to Mr Kestelman's evidence that he could not recall giving Mr Stavretis a direction that LK Group Investments would not be bound by the contract until the Acquire contract was signed (which it is said supports the position that the agreement was entered into at the earlier time). 7. As to the limitation defence raised against LK Group Investments, the plaintiffs reiterate their opening submissions, based on the chronology of the formation of the contracts, examined above. The plaintiffs maintain that the final form of the contract was not agreed until 2 December 2013, adding that the failure to call Mr Wilkinson means that the natural inference from the provision of the further contracts on 2 December 2013 is that they were signed that day by the defendants (see the email of Mr Wilkinson of 2 December 2013). Determination 1. As noted, the nub of the limitations issue turns on the date on which LK Group Investments became bound by the First Contract. On a straightforward application of contract law principles, for acceptance of an offer to give rise to a binding contract (and leaving aside the need for the parties objectively have intended the contract immediately to come into existence upon acceptance of the offer) the acceptance must correspond precisely to the terms of the offer (or else it is an implied rejection of the offer and instead constitutes a counter-offer): see, for example, Appleby v Johnson (1874) LR 9 CP 158 at 163-4 per Grove J; Jones v Daniel [1894] 2 Ch 332 at 335 per Romer J: Ballas v Theophilos (1957) 98 CLR 193; [1957] HCA 90 at 196 per Dixon CJ; Precision Pools Pty Ltd v Federal Commissioner of Taxation (1992) 37 FCR 554; [1992] FCA 746 at 560 per Spender J. In the present case, there was an amendment to the term sheets in that, relevantly, the annexure corrected the amount of the investment being made by each investor. (There was also an amendment as to the parties in the Stav parties term sheet, that being one of the three documents that Mr Stavretis had communicated needed to be simultaneously executed and received by him before any contract became binding.) It cannot be said, in the circumstances, that the purported acceptance was unequivocal. 2. Moreover, where the parties have entered into written contracts, such as in the context of a sale of land, exchange of contracts is necessary for there to be a binding contract (see Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 QB 609; [1969] 2 All ER 941 per Lord Denning MR at 619-20, the distinction there being drawn between the law as to delivery of a deed and the law in relation to exchange of counterpart contracts). Delivery of a signed contractual document stipulating that a party is not to be bound until the occurrence of a particular event (commonly where a document is delivered in escrow) indicates very clearly that the party in question does not intend to be bound unless and until the happening of that particular event (see, relevantly, Tonitto v Bassal (1992) 28 NSWLR 564, which concerned the requirement of simultaneous delivery of three documents). 3. In the present case, Mr Stavretis clearly stated the condition to which any binding contract coming into existence was to be subject (the three documents being signed simultaneously – by which he presumably meant executed by each party since there was no arrangement for execution to take place at the same time – and the receipt by him of those fully executed documents). That did not occur until 2 December 2013 (on which day the moneys were then transferred for the investments). Insofar as the defendants suggest that Mr Kestelman's evidence in some way meant that Mr Stavretis was not authorised to impose such a stipulation, I do not accept that the defendants can here rely on such an argument. It is clear that Mr Stavretis was the person principally negotiating with the defendants on behalf of both he and Mr Kestelman (and ultimately the respective corporate plaintiffs); and was held out by Mr Kestelman as being the party with whom communications would occur (the primary "point of contact"). Mr Stavretis was ostensibly authorised to stipulate the time at which the plaintiffs intended to become bound by the agreements the subject of the signed term sheets, when he delivered the documents, and he clearly did so. Mr Kestelman has in effect ratified that conduct by his submissions in the present case. The fact that he cannot recall giving an instruction to this effect is not to the point. 4. Thus I have concluded that the limitations defence in respect of LK Group Investments' claims fails. Mr Stavretis: limitations defence 1. In relation to Mr Stavretis, the limitations defence raised by the defendants relies in the first place on the fact that no summons or statement of claim has to date been filed on behalf of Mr Stavretis personally. 2. Reference is made to s 19 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act), which provides that proceedings are to be commenced and carried on in the manner prescribed by the rules of court; and to r 6.2 of the Uniform Civil Procedure Rules 2005 (NSW), which provides that a person may commence proceedings in the court by filing a statement of claims or summons. 3. The defendants say that Mr Stavretis (following his joinder on 3 August 2020) has not commenced "an action on a cause of action founded on contract" within the meaning of s 14(1)(a) of the Limitation Act, nor has he "commenced" or "begun" a statutory cause of action for misleading or deceptive conduct. 4. The defendants say that this is not an insubstantial matter, pointing to the fact that a summons making a damages claim is required to include a solicitor's certificate under cl 4 of Sch 2 to the Legal Profession Uniform Law Application Act 2014 (NSW) (to the effect that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim for damages in the proceedings have reasonable prospects of success) and that no such certificate has ever been given in relation to any personal claims Mr Stavretis proposes to advance. Further, it is submitted that it is important as a matter of procedural fairness for the defendants to be apprised of the relief sought against them; and that this has not occurred. 5. The defendants say that the limitation date has long passed in relation to any claims that Mr Stavretis may personally have; and hence that it follows that all of Mr Stavretis' personal claims are out of time. 6. Insofar as it is said that Mr Stavretis does not personally make any substantive claim for relief in the Stav Proceeding, the plaintiffs referred to the relief set out in the commercial list statement from [92] under the heading "Loss or Damages". However, the defendants point to Practice Note SC Eq 3 and in particular cll 8 and 9 of the Practice Note (which I do not here need to set out). The defendants note that [92] and following paragraphs of the Stav commercial list statement are in the "contentions" section of the document. It is said that their function (as set out in cl 9(b) of the Practice Note) is to state the allegations the plaintiffs make, and to identify the legal grounds for the relief claimed; and complaint is here made that the plaintiffs do not identify the relief claimed itself (only the legal grounds for it). 7. The defendants emphasise that, pursuant to both the UCPR and the Practice Note, the relief claimed is to be specified in the summons, not the commercial list statement; and they complain that, by failing to file a summons seeking claims for relief, Mr Stavretis has failed to comply with the Practice Note and the UCPR. It is said that, given the strict approach to pleadings that the parties have adopted (another seeming reference back to the fate of the defendants' unpleaded causation contentions), it follows that Mr Stavretis claims no individual relief in the proceeding. 8. Alternatively, and in any event, the defendants note that the commercial list statement adding Mr Stavretis as an individual plaintiff was filed on 3 August 2020. It is said that, on his case, the causes of action he seeks to make arose on the entry into the First and Second Contracts (respectively, on his case, on 2 December 2013 and 18 July 2014). The defendants say that since six years have elapsed since then Mr Stavretis' personal claim is well out of time. 9. As to the pleading points raised against Mr Stavretis in his personal capacity, it is noted that on 3 August 2020, Stevenson J acceded to an application by the plaintiffs to have Mr Stavretis added as a party. Insofar as the defendants now maintain that he has never made a claim because of a procedural irregularity in that the proceedings were commenced by way of statement of claim and then transferred to the commercial list, it is said that the commercial list statement replaced the statement of claim and no summons was filed. The relief sought was set out in the list statement, namely damages. The plaintiffs submit that the Court is permitted to permit a trial without further pleading (referring to r 14(2) of the UCPR). It is said that the defendants' complaint in this regard is a complaint as to form and should not be permitted to defeat the merits. In any event, it is noted that, if required, leave could be granted for a summons to be filed reflecting the relief set out in the list statement. It is said that there can be no doubt that the defendants knew that the relief that Mr Stavretis was seeking was by way of damages (referring to [8] of the summons, filed 29 November 2019 , to demonstrate that the issue of damages is likely to arise and a question of the assessment of damage in respect of both the corporate plaintiff and in respect of Mr Stavretis individually). 10. In relation to the calculation of the limitation period in respect of Mr Stavretis, he was added as a party on 3 August 2020. The plaintiffs say that the defendants submitted before Stevenson J that they would suffer prejudice from the addition of Mr Stavretis as a party to the proceedings (compared to Mr Stavretis commencing separate proceedings) because such separate proceedings might face limitation orders (see the transcript of the proceedings before Stevenson J on 31 July 2020 at T 12.3); and that on that occasion part of the argument for the addition of Mr Stavretis to the proceedings was that a mistake had been made in not having Mr Stavretis named as a plaintiff ("the pleading bungle" to which Stevenson J referred (see T 8.15 of the transcript of the proceedings on 31 July 2020). 11. It is submitted by the plaintiffs that this engages the power within s 65(2)(b) of the Civil Procedure Act that permits amendments referable to the time the proceedings commenced. Where s 65(3) applies, it empowers new claims to be added to a proceeding, and unless otherwise ordered the claims are taken to be made from the commencement of the proceedings. It is said by the plaintiffs that no such order has been made in circumstances where there was a clear mistake accepted by Stevenson J. Insofar as r 6.28 of the Uniform Civil Procedure Rules provides that joinder takes effect from the date of joinder, the plaintiffs submit that s 65(2)(b) of the Civil Procedure Act applies and the joinder argument must fail, the rule being subordinate to the provision in the Civil Procedure Act. Determination 1. I consider the primary way in which the above limitations argument has been made is without merit. Orders were made for the joinder of Mr Stavretis on 3 August 2020 and for the filing of a commercial list statement. That was done. There was no order for the filing of an amended summons. If there was a technical breach of the rules in this regard, then there is power to dispense with the rules. It is a nonsense to suggest that the defendants have not been well and truly on notice of the claims made against them in the Stav Proceeding (including the position of Mr Stavretis) for quite some time; and it is telling that no complaint was made as to the lack of a certified summons at an earlier time. To accede to this submission by the defendants would be a triumph of form over substance. To the extent necessary I would dispense with the requirement for filing by Mr Stavretis of a summons or statement of claim. This would, in any event, be unnecessary if the alternative limitation argument succeeds. 2. As to the alternative way in which this argument is put, it is relevant to note the provisions under the rules as to the time at which joinder of parties to proceedings take effect. Rule 6.28 of the Uniform Civil Procedure Rules provides: If the court orders that a person be joined as a party, the date of commencement of the proceedings, in relation to that person, is taken to be the date on which the order is made or such later date as the court may specify in the order. 1. Sub-sections 65(2) and (3) of the Civil Procedure Act, upon which the plaintiffs rely, provide as follows: … (2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as— … (b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court's opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or … (3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced. 1. As to the plaintiffs' submissions as to s 65(3) taking precedence over r 6.28, it is to be noted that s 9 of the Civil Procedure Act empowers the Uniform Rules Committee to make rules "not inconsistent with this Act". It does not appear to me that r 6.28 is inconsistent with s 65(3), insofar as the rule provides for circumstances in which a party is joined to proceedings, and s 65(3) provides for circumstances, relevantly by reference to s 65(2)(b), in which the name of a party is corrected, which may have the effect of substituting a new party to the proceedings, but is not, in effect, a joinder. It is only s 65(3) that empowers a court to make an order as to the date on which the proceedings are taken to have commenced. 2. Rule 6.28, which provides for the date of commencement of proceedings in relation to parties joined, as opposed to the correction of mistakes in the name of a party, only empowers a court to specify a later, as opposed to an earlier, date on which the proceedings are taken to have commenced. 3. It was put to Stevenson J, when seeking to join Mr Stavretis as a plaintiff to the proceedings by way of the second further amended commercial list statement, that his omission from earlier iterations of the statement had been an error. Strictly speaking, this does not appear to be the correction of a mistake in the name of a party to the proceedings (as contemplated by s 65(2)(b) of the Civil Procedure Act) at least insofar as his joinder was beyond what was necessary to remedy a difficulty with the pleaded representations having been made to Mr Stavretis at a time prior to the incorporation of Stav Investments (on which Stav Investments' claim is based); i.e., insofar as the joinder encompassed a personal claim by Mr Stavretis to loss personally caused to him in the form of interest payments on loans taken by him to fund Stav Investments' purchase of shares in Yatango Mobile. 4. Rather, as to the latter it seems to me that an inadvertent omission was being corrected by way of joinder of Mr Stavretis to the proceedings. 5. I have considered whether s 65(3) might operate here by reference to s 5(2)(c); i.e., that Mr Stavretis having been joined to correct an error in the name of the party to whom the alleged pre-contractual representations were made, there was then an addition of a new (personal) cause of action arising out of the same facts. However, this was not the way the argument was put by the plaintiffs before Stevenson J, and his Honour was clearly not determining any limitations issue at the time he permitted the joinder. Accordingly, I consider that r 6.28 of the Uniform Civil Procedure Rules applies and the date on which the proceeding against Mr Stavretis in his personal capacity was commenced is the date on which Stevenson J made orders granting leave to file the second further amended commercial list statement, being 31 July 2020. 6. I therefore consider that the second basis upon which the limitation argument is put is made good, and Mr Stavretis' claim in his personal capacity is time barred pursuant to s 14(1)(a) of the Limitation Act and the cognate provisions in the ACL, the ASIC Act and the Corporations Act. As such, the relief sought by Mr Stavretis in his personal capacity, being interest on the loan from AAPM21 in the amount of $58,517.58 cannot be recovered. This conclusion does not, however, affecting the findings with respect to the relief sought by Stav Investments pleaded at [93] and [94] of the second further amended commercial list statement. 7. Had I concluded otherwise on this limitation argument I would have found that the claim by Mr Stavretis in his personal capacity was made good. There was clear reliance on the relevant representations – see below; and I do not accept that the fact that the loan arrangements were entered into at the close of the respective financial years does not belie reliance. It seems to me more likely to have been the formal recognition of earlier arrangements between Mr Stavretis and his corporate entity. In any event, nothing turns on this because of the conclusion reached on the limitations point. Evidence in the proceedings 1. Turning then to the evidence in the proceedings, I note that each of Mr Stavretis and Mr Kestelman gave evidence and was cross-examined in the plaintiffs' case; as was Mr Apps; and that evidence was also adduced from an expert witness (Mr Potter), whose expertise the defendants do not challenge (although they contend that no weight should be placed on his reports as the assumptions on which they are based have not been made good). 2. The defendants elected to call no witnesses in support of their case (submitting that there was no need to do so as the plaintiffs had failed to establish their case). That of course was a forensic decision on their part but (particularly in relation to evidence that, as parties to the proceeding, they might themselves have been expected to give) if there are matters on which competing inferences would be available on the evidence and on which they could reasonably have been expected to be able to shed light or explain, then an adverse Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 inference would be available to the effect that their evidence on the issue would not assist their case. In particular, I consider this to arise in the context of any challenge to what was said in conversations or discussions to which Mr Taylor and Mr Wilkinson was a party and on which they could have (but did not) shed light. Mr Stavretis' evidence 1. The defendants are highly critical of Mr Stavretis' evidence, labelling it as "deeply problematic". It is said that Mr Stavretis was evasive and exhibited a selective memory; that he would say anything that he thought would advance his case, regardless of the truth; that he often gave answers in cross-examination which directly contradicted earlier evidence he had given; that he refused to make concessions even where something he said was obviously an error; and that much of what he said was entirely implausible. The defendants contend that there can be no confidence in his evidence except to the extent that it is against his interests or corroborated by contemporaneous evidence. In particular, the defendants refer to various aspects of Mr Stavretis' evidence as evasive and/or as exhibiting a selective memory. 2. First, that Mr Stavretis refused to accept that his 21 October 2014 email was sent to the defendants, even though in his affidavit he referred to it as an email he exchanged with Mr Taylor and Mr Wilkinson regarding the progression of the roll-up. 3. Second, that although Mr Stavretis corrected [16] of his second affidavit (as to the time from which he understood he had engaged in negotiations on behalf of the corporate plaintiffs) in respect of Stav Investments (which had only been incorporated on 12 November 2013), he did not concede the same error in relation LK Group Investments. (Pausing here, I do not consider that anything turns on this, since it is clear that Mr Stavretis understood he was engaging in the discussions on behalf of Mr Kestelman and it is not implausible that he would have expected that to include any corporate entity through which, if he did decide to invest, Mr Kestelman would ultimately invest in the business). 4. Third, criticism is made as to Mr Stavretis' evidence (which he maintained in cross-examination) to the effect that, had he known that Yatango Mobile, Mr Taylor and/or Mr Wilkinson would not effect the roll-up of his shares between 16 July 2014 and 31 August 2014, then he (through Stav Investments) would not have entered into the Second Contract. The defendants say that this is inconsistent with contemporaneous emails, referring in particular to his emails on 21 May 2014 and 4 August 2014 (see above) and to the fact that he did not complain in the period from late 2014 to early 2015 as to the failure to effect the roll-up. The defendants say that it is implausible that Mr Stavretis was just "questioning" the way in which the roll-up was proposed to occur. 5. Pausing here, I do not see the fact that Mr Stavretis was considering an alternative way of effecting the roll-up, or expressing an alternative preference, is inconsistent with reliance on a warranty that the roll-up would occur as there provided (if the alternative(s) did not proceed). Rather, I accept that Mr Stavretis was exploring alternative ways that he might perhaps have preferred at the time be adopted. As to the failure to complain about the fact that it had not been affected by 31 August 2014, I do not consider that this necessarily amounted to any abandonment of any rights or expectation that a roll-up would occur. 6. The defendants nevertheless say that the claim in relation to the roll-up is an attempt to "reverse-engineer" a misleading or deceptive conduct case based on something that was warranted by the defendants and did not occur, notwithstanding that the plaintiffs had no desire for its occurrence. The defendants say that Mr Stavretis' evidence with respect to the roll-up was a self-serving contrivance seeking to advance his pleaded case regardless of the underlying truth. I do not accept this. 7. Fourth, there is criticism of Mr Stavretis' evidence as to the issue of the trade marks (to which I have referred above) including that there is no explanation as to how Mr Stavretis knew as at 28 August 2013 (when he says he made the enquiry as to their ownership) that there were any registered trade marks used by Yatango Mobile. It is noted that Mr Stavretis said in his first affidavit that he became aware in around October 2015 that the Yatango trade marks were owned by Yatango Holdings, but he could not recall whether he undertook the trade mark searches himself or whether he instructed someone to do so and provide him with the results; and referred to correspondence sent by his solicitors in relation, amongst other things, to the ownership of those trade marks. 8. The defendants say that Mr Stavretis' evidence in cross-examination as to the issue of his understanding or awareness, or otherwise, at or around November 2013 as to the availability of trade mark searches is inconsistent with his affidavit evidence that he may have performed trade mark searches himself in October 2015 (though I note that this evidence goes to his understanding or awareness at very different points in time). The defendants also say that Mr Stavretis' lack of recollection in the witness box of giving instructions to his lawyers to send the letter of 9 October 2015 or the follow-up email of 14 October 2015 is most likely due to a realisation that the correspondence was inconsistent with the evidence he had earlier given in relation to his knowledge of trade mark searches. The defendants say that the correspondence was expressly referenced in Mr Stavretis' first affidavit in a manner intended to convey that Mr Stavretis had given instructions. 9. The defendants further point to Mr Kestelman's evidence that he had no specific discissions with anyone in relation to the ownership of the trade marks; and to the lack of any mention of the trade marks in any contemporaneous correspondence before Mr Kirk's email of 1 October 2015 (which referred to the "Brand"). Thus, the defendants say that there is nothing to corroborate Mr Stavretis' assertion that the ownership of the trade marks was material to his decision to invest in Yatango Mobile; and that his evidence that the trade marks were discussed at the 28 August 2013 is a self-serving contrivance. 10. The defendants suggest that there are two far more likely explanations for what occurred in relation to the trade marks prior to entry into the First Contracts: first, that Mr Stavretis never turned his mind to the existence or non-existence of trade marks and the matter was never raised; second, that Mr Stavretis well knew where the trade marks were (pursuant to legal advice that he has not put into evidence). (The relevance of this, apart from the submissions as to Mr Stavretis' credibility as a witness, is that the defendants argue that in either case the plaintiffs have not established reliance in relation to the allegations insofar as they concern the trade marks.) I deal with the issue of reliance in due course. As to the complaint that this evidence was contrived, I do not draw that conclusion. I do not see it as implausible that Mr Stavretis could simply have assumed that Yatango Mobile used trade marks in its business and was making the enquiry as to ownership in that context. As to the evidence as to his knowledge of the ability to make trade mark searches, it seemed clear (with no disrespect intended) that Mr Stavretis was unclear as to the detail of registration procedures or the like. 11. Fifth, the defendants point to the conflicting evidence as between Mr Kestelman and Mr Stavretis in relation to the due diligence process that was conducted in relation to the investment. Mr Kestelman's evidence was that Mr Stavretis was the "point person" on a due diligence process, in relation to which they received advice from lawyers, accountants, and "other professionals"; whereas Mr Stavretis denied having lawyers or accountants involved in the due diligence process, and was adamant that he could recall sending no information to his lawyers other than the draft term sheets. 12. The defendants say that Mr Stavretis gave directly conflicting evidence regarding whether he was performing due diligence for Mr Kestelman (at one stage agreeing that he was doing all of the due diligence for Mr Kestelman; at another, denying that he had ever provided advice to Mr Kestelman or had been requested to do due diligence on Mr Kestelman's behalf.) The defendants argue for a finding that Mr Stavretis was conducting due diligence on Mr Kestelman's behalf, and that he was professionally advised when he did so. It is said that Mr Stavretis' evidence to the contrary was unpersuasive. 13. As to the findings sought by the defendants in relation to the due diligence process, the most telling evidence in that regard seems to me the answer given by Mr Stavretis when asked to explain what he understood to be "due diligence" (see at T 139.21-50). It is evident from that, in my opinion, that Mr Stavretis was not referring to the kind of formal due diligence process commonly adopted in relation to commercial matters where, for example, a data room is set up (often at the solicitors' offices), confidentiality undertakings are given, and the like. Rather, Mr Stavretis seems to have understood this as simply being the undertaking by him of his own "research" as to the investment. The very fact that he referred in this regard to the enquiries made of the defendants is telling. Ordinarily I would have thought that a due diligence process is carried out to test what a proposed investor is being told about the "deal" or the subject matter of the investment (not simply to have the very persons promoting the investment provide their own views as to those matters). I quite accept that the enquiries Mr Stavretis was making were done on Mr Kestelman's behalf, in the sense that Mr Stavretis was conveying information to him in relation to the proposed investment. I do not, however, accept that Mr Stavretis was professionally advised as to the due diligence process itself (there being no evidence of this); nor do I think this is established by the fact that certain documents relating to the investment were sent to his solicitor (since that would be equally consistent with Ms Dixon being the solicitor instructed to prepare or advise on the terms of the investment contract – rather than the deal itself). 14. As to the conflicting evidence of Mr Kestelman and Mr Stavretis in respect of the due diligence process, I consider that Mr Kestelman's evidence made clear that he was not the one directly involved and I consider the disparity explicable by the fact that Mr Kestelman was clearly making assumptions as to what had occurred and who had been involved rather than any direct knowledge of this. 15. Reference is also made by the defendants to the evidence given by Mr Stavretis in respect of the negotiations as to the value to be placed on the company for the purpose of the proposed investment by the plaintiffs (including the suggestion that Mr Taylor made reference at the first meeting to a value of $15 million). The defendants say that Mr Stavretis' evidence was inconsistent with contemporaneous documents (such as the 30 September 2013 and 7 October 2013 emails to which reference has been made above); and that it was self-serving and selective; and implausible (including as to the suggestion Mr Stavretis placed any reliance on the balance sheet for the Yatango Mobile Group as at 30 June 2013, it being noted that the balance sheet was not referred to in the contemporaneous documents and it being said that Mr Stavretis was clearly sceptical about Yatango Mobile's valuation weeks after the balance sheet was provided). I deal with questions of reliance in due course. While I accept that it is implausible having regard to the contemporaneous documents that a value of $15 million was placed on the company at the first meeting, I do not consider that this supports the making of the adverse credibility findings seemingly sought by the defendants of Mr Stavretis. 16. Finally, I note that the defendants say that, although Mr Stavretis initially denied that the Yatango website was the customer interface, and said that it was what prospective customers saw, he then conceded that it was the website that included the "sliders" which allowed customers to adjust their mobile phone plans (that being part of the business model about which he was excited). The defendants note that Mr Stavretis later in his evidence appeared to suggest that the "platform" was actually the billing system and not the website. The defendants say that this evidence was an obvious contrivance designed to advance Mr Stavretis' interests rather than to give a truthful account. They say that Mr Stavretis was clearly exaggerating the significance of Mr Apps' billing system, relative to the other aspects of the Yatango Mobile platform, in an attempt to improve his case; and that Mr Apps' evidence should be preferred. I do not accept that Mr Stavretis' evidence was a contrivance. I would, however, defer to Mr Apps' description of the platform and the coding (see below) given his technical expertise and involvement in its development. 17. As to the submissions concerning Mr Stavretis and, in particular, matters going to credit, the plaintiffs say that, in general terms, the defendants' challenge to Mr Stavretis' credit were pernickety in nature and expose the true weakness in the defendants' case. It is said that, in circumstances where the defendants have not given evidence, the evidence given by Mr Stavretis as to what he claims the defendants said to him at different times is more readily capable of acceptance, than had they given an alternative version. The plaintiffs say that Mr Stavretis' evidence is largely consistent with the contemporaneous documentary record. It is submitted that, to the extent there are inconsistencies or discrepancies in his evidence, they are trivial in nature, do not go to the heart of the issues to be determined and are readily explained by the passage of time. 18. The plaintiffs further submit that certain of the submissions as to Mr Stavretis' credit do not accurately summarise the evidence (referring to the criticism of Mr Stavretis' confusion as to the dismembered email chain in the Court Book: see at T 112.40-44). It is submitted that there is no cause for criticising Mr Stavretis for not remembering to whom an email was sent back in 2014, nor for being confused by the dismembered emails in the Court Book. It is noted that Mr Stavretis is criticised for failing to correct his affidavit concerning being authorised by LK Group prior to its incorporation. The plaintiffs say that this does not adversely affect his credit, the real point being that he was authorised by Mr Kestelman and he did not appreciate that there was any real issue concerning the date of incorporation requiring correction (see T 119.20-31). 19. In respect of the roll‑up, the plaintiffs say that it is not inconsistent with reliance on the roll‑up to have asked whether there was another way to join the companies together, approximately one month prior to the Second Contracts. Mr Stavretis explained that he was simply asking questions. Nor, it is submitted, is it inconsistent with relying upon the roll‑up to suggest another way of achieving the same result after the Second Contracts had been entered into. The plaintiffs emphasise that the roll‑up had been warranted and the warranty provided that the roll‑up would be effected in a particular way. It is said that Mr Stavretis explained that he was just questioning why they were proposing to do it that way (see T 111.24-25). It is submitted that it is clear that Mr Stavretis did want the two companies rolled up but was open to different ways of achieving that outcome. The plaintiffs say that the defendants had warranted that it would be done by 31 August 2014 in a particular way and it is submitted that this would have materially contributed to the decision to invest. 20. As to the fact that Mr Stavretis did not complain that the roll‑up had not been effected by that date, the plaintiffs point to the fact that he did seek updates of the status of the roll‑up and raised complaints that it had not been done (referring to an email dated 19 November 2014 from Mr Stavretis to Messrs Taylor, Wilkinson and O'Hare in which Mr Stavretis requested that the defendants provide an update as to the share roll-up and restructure activities at the next shareholder meeting; and an email dated 19 May 2015 in which Mr Stavretis sought further updates). 21. As to the criticism of Mr Stavretis' evidence that he asked about trademarks at the initial meeting on 28 August 2013, the plaintiffs point out that Mr Kestelman also gave evidence that Mr Stavretis made that enquiry (and that his evidence in this regard was unchallenged by the defendants) (see Mr Kestelman's affidavit at [15]). Second, it is said that, in circumstances where the only witnesses called who were at that meeting are consistent in this regard, and the defendants have chosen not to give evidence, the plaintiffs' evidence should readily be accepted. 22. As to the perceived inconsistency in Mr Stavretis' evidence with respect to his awareness of the availability of trademark searches at various times, the plaintiffs say that this goes nowhere and is readily explicable. The plaintiffs say that the obvious and compelling explanation is that, although in 2013, Mr Stavretis did not know how to undertake trademark searches, he came to learn how to do so by 2015. It is said that nothing turns on Mr Stavretis' lack of recollection of giving instructions to his lawyers to send letters seven years ago. 23. As to the inconsistency between Mr Stavretis' and Mr Kestelman's evidence concerning the due diligence process, again it is said that this is readily explicable. It is noted that Mr Stavretis was responsible for this, not Mr Kestelman; that Mr Kestelman made plain that he merely understood that there was due diligence and that he presumed certain matters would have been attended to (referring by way of example to T 51.30). The plaintiffs say that Mr Kestelman wrongly presumed that professional advisers were engaged in the due diligence process; and that the direct evidence of Mr Stavretis should be accepted over Mr Kestelman's presumption (or assumption). 24. As to the question of Mr Stavretis' recollection of the price mentioned by the defendants at the initial meeting, the plaintiffs say that little turns on this but that it was not put to him. 25. As to the reference to the email (CB 635) said to be forward‑looking by reference to the fact that Mr Stavretis was already on notice that an overseas subsidiary might be used to hold Yatango Mobile's intellectual property, the plaintiffs emphasise that what Mr Stavretis was told was that the platform IP itself was owned by Yatango Mobile Labs (which was 80% owned by Yatango Mobile and 20% by Mr Apps from ECConnect – i.e., that it was presently owned by an Australian subsidiary of Yatango Mobile) and that what was still "in motion" was the transfer of that intellectual property from one subsidiary of Yatango Mobile to another. Mr Kestelman's evidence 1. The defendants do not suggest that Mr Kestelman was "as unreliable a witness" as they contend Mr Stavretis was (the plaintiffs describing this as a faint attack on his credit), but they say that caution should be exercised in relation to some aspects of his evidence, including the following. 2. First, Mr Kestelman's oral evidence that Yatango Mobile was not a start-up company (which is said to be inconsistent with contemporaneous emails from him in which he refers to his disinterest in a start-up telco). 3. Second, Mr Kestelman's evidence that he asked no questions about the Yatango Mobile online platform at the 28 August 2013 initial meeting, and that he said nothing at the meeting other than the two sentences attributed to him at [15] of his affidavit. The defendants note that Mr Kestelman later stressed in his oral evidence how impressed he was with the Yatango Mobile platform and say that, if that were true, then it is unlikely that he asked no questions about the platform during the initial meeting. (I do not accept that this conclusion necessarily follows from the premise on which it is based. Mr Kestelman might simply have left it to others to ask questions about the platform – that does not suggest he was not impressed by it at the time.) 4. The defendants further say that this oral evidence (as to Mr Kestelman being impressed with the Yatango Mobile platform) sits uncomfortably with contemporaneous correspondence, in which he wrote to Mr Stavretis that he was "not dying to invest in a telco start-up" (in an email of 7 October 2013), that "all I see on this is a telco … Unless you can see huge potential in the software and the model, its [sic] just another telco" (in an email of 17 October 2013) and, later, that he could not comment "on the value or deal but I again question for you [sic] to make sure you are happy the model works and they have the deals in place to make it work" (in an email of 18 November 2013). The defendants say that the contemporaneous emails suggest that Mr Kestelman was not so "enamoured" with the Yatango Mobile platform as he sought to convey in his oral evidence; and they say that he was, instead, relying entirely on Mr Stavretis' assessment of the Yatango Mobile platform and business. Again, I see a distinction between being impressed with a platform and being unconvinced or sceptical as to the value or model in place in relation to the platform. Moreover, it is ironic (to say the least) that the parties promoting the uniqueness of the offering by reference to the platform now appear to cavil with the proposition that someone in Mr Kestelman's position (from whom they were seeking a not insubstantial investment at the time) would be impressed by it. 5. Third, the defendants point to Mr Kestelman's affidavit (at [19](a)) in which he deposes that Mr Stavretis advised him in an email of 17 October 2013 that "the platform used in the Yatango Mobile business was not licensed by Yatango Mobile or one of its subsidiaries". The defendants say that the email (see extract in chronology above) referred to "a software licensing issue with their platform that they need to addressed [sic]", and said nothing about the platform not being licensed by Yatango Mobile or one of its subsidiaries. The defendants say that Mr Kestelman's insistence in the witness box that this is genuinely how he interpreted the email reflects poorly on his credit. It is submitted that the wording of his affidavit is a" transparent attempt to advance his case", rather than a genuine reflection of his understanding at the time the email was received by him. I disagree. It seems to me quite plausible that Mr Kestelman (who had in other emails emphasised the need to be sure that the intellectual property could not be separated out or spun off from the company) could have understood the reference to a "software licensing issue with the platform" that needed to be addressed as relating to the company's rights in relation thereto. 6. Third, Mr Kestelman's evidence that the structure of the ownership of the intellectual property amongst Yatango Mobile and its subsidiaries was "above [his] pay grade". The defendants say that this is a laughable proposition from a person who has been a senior executive officer or director of multiple telecommunications companies and investment funds. Pausing here, I considered this at the time to be a comment made in a self-deprecatory manner (rather than a serious comment as to comparative wages); and I draw nothing adverse to Mr Kestelman's credit from this comment. 7. Fourth, the defendants say that Mr Kestelman's evidence in cross-examination to the effect that the words in his affidavit at [30] (where he deposed that he had said to Mr Stavretis in mid-June 2014 that the "the fence posts seem to be changing a lot here") were the product of his independent recollection and were typed by him personally into the affidavit is implausible. The defendants say that these words were clearly taken from an email Mr Stavretis sent to Mr Taylor on 20 June 2014. The defendants say that the fact that Mr Kestelman refused to concede that he had refreshed his memory using the email reflects poorly on his credit. I disagree. The colloquial nature of the words used both in the email and the witness box is such that this might well indicate a clear recollection of those words being used at the time – i.e., they might well have stood out in Mr Kestelman's memory and it might well be that Mr Stavretis was in effect parroting Mr Kestelman's words in the email to Mr Taylor. 8. Finally, it is said that Mr Kestelman's evidence that he wanted the roll-up to occur was obviously self-serving and unsupported by contemporaneous documents. I deal with the roll-up issue in due course. 9. As to the attack on Mr Kestelman's credit, the plaintiffs submit that Mr Kestelman was an honest and intelligent witness whose evidence that should be accepted. It is accepted that he was initially not "sold" on the investment (as emerges from the contemporaneous documents) but it is said that he was ultimately convinced by the belief in the platform which he understood the company ultimately owned. Insofar as there is criticism of Mr Kestelman for saying things were "above [his] pay grade", the plaintiffs say that those questions that were put to Mr Kestelman by reference to legal questions; and that the fact that his recollection is consistent with contemporaneous documents confirms his recollection. As to the submission that Mr Kestelman gave no evidence that he relied on the truth of the warranty, the plaintiffs say that this is wrong (referring to [28] of Mr Kestelman's affidavit). It is noted that Mr Kestelman also gave evidence that he would not have invested if Mr Stavretis had not recommended it (see [39]) and that Mr Stavretis gave evidence that had he known the truth, he would not have recommended the investment to Mr Kestelman (see Mr Stavretis' affidavit affirmed 22 January 2020 at [44]). Conclusion as to credit of individual plaintiffs 1. I do not make adverse findings against either of the individual plaintiffs. Inconsistencies in their accounts (and an inability to recall with precision events that occurred) seem to me to be a hallmark of genuine recollection rather than the reverse. In any event, as in most cases, more weight should be placed on contemporaneous documents than oral accounts some years later of events by persons who have a personal interest in the dispute (and unconsciously or otherwise may be putting a gloss on particular events or conversations). Mr Apps 1. Mr Apps was called as a witness in the plaintiffs' case. He struck me as a genuine witness. He might fairly be described as a computer boffin. Although not giving evidence as an expert witness, Mr Apps' evidence was of assistance since he was involved in the design or customisation of the code required for the online platform used in the Yatango Mobile business and he was able to put into (relatively comprehensible) lay terms what he understood in relation to the coding (from the perspective of one who had been involved in its development). 2. Mr Apps described his understanding of what a "platform" is as follows (at T 225.29-36 and T230.33-36): So my definition of platform would be a … cumulative collection of IT systems, altogether, is what is referred to as a platform. And so the base code, the customised codes, which includes the billing system, is all part of that platform. You could also consider like the Yatango website as a platform, which Appscorp or BJYP didn't work on, as well as the mobile app as part of the platform. And I believe that's what Yatango would have been selling the idea of that the investors, would have been selling them a platform which is a - the whole thing altogether. … My thought about the platform includes the Yatango Mobile website and mobile app, plus the code that we were working on as well, so far as the billing system goes, provisioning system and the .. [not transcribable].. platform is everything. 1. Pausing here, the defendants say that this explanation is consistent with the investor presentation provided to Mr Stavretis by Mr Wilkinson on 17 September 2013. The defendants point to Mr Apps' evidence that the "Product" that Yatango Mobile was selling was its "Web App" and "Mobile App" (on which Appscorp or BJYP did not work). (The Web App and Mobile App were described as a "[custom] developed Social CRM powered data analytics capability" which was superimposed over a "proven Telco engine". That is, the customer interface was the Yatango Mobile digital frontend, available through those Apps, a Data Insights Engine, and a Service Layer which were built upon the billing gateway and the "data warehouse".) (Insofar as Mr Apps has sought to characterise what Yatango Mobile was "selling", I do not accept that he is in a position to assist me in construction of the contract per se. Rather, I find his evidence helpful in understanding the software underpinning the billing and provisioning system which was used in the Yatango Mobile business.) 2. Mr Apps' evidence was that the "Base Code" was code performing the functions described in Schedule 1 of the 2012 BJYP Agreement; i.e., it was the code underlying the suite of products referred to in Mr Apps' 27 June 2012 (ECConnect) proposal to Yatango Mobile as "ECSuite", comprising the "modules" referred to as "ECGateway", "EC Manage", "ECBill", and "ECSMS". 3. Mr Apps' evidence is that none of ECConnect's other customers owned the Base Code. (The defendants say that Yatango Mobile was no different in that respect; which seems to me a clear admission that Yatango Mobile did not own at least the Base Code.) Mr Apps said that, as with Yatango Mobile, for its other customers ECConnect "would have this [Base Code] and it would get customised to suit them" (saying that what was done for Yatango was very similar to what was done for a customer (and competitor of Yatango) called Amaysim). Mr Apps said that the features he provided to Yatango Mobile were common to other telecommunications businesses with whom he had worked. 4. It is clear that Mr Apps considered that his company had some form of intellectual property in at least some part of the software since he entered into agreements (the 2012 BJYP Agreement and the 2014 BJYP Agreement) in which it was agreed that it would be assigned or transferred. Indeed, Mr Apps said in cross-examination that Yatango Mobile was the first company with which ECConnect had "some sort of intellectual property licence and agreement with", and that he would more commonly enter into an agreement in line with the 27 June 2012 proposal. 5. The defendants say that the effect of the ECConnect Proposal appears to be that the customer pays a subscription fee for the use of ECConnect's products. The defendant says that it was therefore customary for ECConnect to confer to its customers no ownership rights in relation to its products; whereas for Yatango Mobile it agreed to assign the entirety of its rights in the customised version of the products to a (not-yet-incorporated) subsidiary of Yatango Mobile. 6. The defendants say that Mr Apps' evidence in this respect was similar to that of Mr Kestelman when the latter was questioned in relation to a telecommunications company with which Mr Kestelman had formerly been associated (Dodo). Mr Kestelman said that Dodo used a proprietary built billing system which was written on an Oracle platform. The defendants note that Mr Stavretis agreed that, before November 2013, a billing system for a telecommunications company was replaceable. The defendants say that it can be inferred that ECConnect was not the only company in the Australian market offering software systems of this type to telecommunications companies. Insofar as Mr Stavretis later gave evidence conflicting with this (which the defendants say exaggerated the uniqueness of Yatango Mobile's billing system), the defendants contend that Mr Apps' evidence (to the extent that it conflicts with that of Mr Stavretis) should be preferred. I make the same comment in this regard as made above in relation to my deferral to Mr Apps' evidence. 7. Further, the defendants say that, in relation to Yatango Mobile's platform, Mr Kestelman's evidence was that he was interested in purchasing only the proprietary software that they had developed, and not the "off-the-shelf" software. The defendants say that it is clear from Mr Apps' evidence that the Base Code could properly be described as "off-the-shelf" software in that it was proprietary software owned by ECConnect and offered to ECConnect's customers. The defendants submit that the Base Code is in the same category as Microsoft Windows, in that it could not reasonably be expected to have been owned by Yatango Mobile. It is said that, like Microsoft Windows, it was a third party software product which Yatango Mobile used but which would not fall within the definition of "Intellectual Property" in cl 2.17(a) of each term sheet, and neither would it constitute "code used by the Company which has been developed by employees of the Company or third parties" within the meaning of cl 2.17(b). 8. Albeit confusing in parts, I considered Mr Apps' evidence to be genuine as to his understanding of the development and customisation of the platform and code used in connection with the Yatango Mobile business. Expert evidence 1. As noted, Mr Potter gave evidence as to the issue of loss (namely, evidence of the value of the shares in Yatango Mobile). The defendants contend that no weight should be placed on Mr Potter's opinion (as expressed in his reports, which the defendants say are not germane to the assessment of the plaintiffs' losses), there is no challenge by the defendants to Mr Potter's expertise or competence in the field of valuation of shares. Rather, the defendants contend that the assumptions Mr Potter was asked to make are not established on the evidence. 2. Mr Potter addressed the following three scenarios. In so doing, Mr Potter assessed (respectively) the total losses of both Stav Investments and LK Investments as $1,012,500 under Scenario 1; $504,665 under Scenario 2; and $68,250 under Scenario 3. Scenario 1 1. In Scenario 1, Mr Potter was instructed to use the records of Yatango Mobile applicable to the period prior to entry into the First and Second Contracts. He assumed, in effect, that the plaintiffs established that "the underlying intellectual property in the billing system was not owned or the subject of a licence for use in favour of Yatango Mobile". Based on that assumption, and in light of the fact that the majority of the assets of the company were related to expenditure on the billing and associated systems, that it had incurred (or had forecast to incur) trading losses in 2013, 2014, and 2015, Mr Potter concluded that Yatango Mobile could not be considered a going concern for valuation purposes, because the revenues it earned were not legally permissible. While the defendants point out that Mr Potter accepted in cross-examination that, if there was a licence in place, then he would have to revisit his view based on the terms of the licence, I note that Mr Potter qualified this to a large extent (and I am here paraphrasing) insofar as his opinion for Scenario 1 would not change greatly, based on an erosion of the margins made on the revenue per customer, and what certainty the licensee would have of the licence remaining in place following the expiry of the stipulated term. Mr Potter thus calculated the plaintiffs' loss as at 28 November 2013 and 16 July 2014 to be the total value of the investment ($750,000 and $262,000 respectively). Scenario 2 1. In Scenario 2, Mr Potter was asked to assess the value of the company assuming the accuracy of the balance sheet for the Yatango Mobile Group as at 30 June 2013, as provided to Mr Stavretis by Mr Wilkinson on 17 September 2013 (that being the balance sheet the provision of which is alleged by the Stav plaintiffs to have constituted pre-contract misleading or deceptive conduct). No separate value was attributed to good will. 2. Mr Potter calculated the plaintiffs' loss under Scenario 2 to be $367,914 as at 28 November 2013, and $136,752 as at 16 July 2014. Scenario 3 1. In Scenario 3, Mr Potter was instructed to assume that the $15 million valuation of Yatango Mobile in Mr Taylor's 6 November 2013 email was accurate. Mr Potter assumed that the difference between the $15 million evaluation, and the net asset position of $9.6 million, would be good will associated with Yatango Mobile. Mr Potter accordingly calculated the plaintiffs' loss to be $68,250 as at 28 November 2013, and $0 as at 16 July 2014. 2. It is noted that Mr Potter agreed that the best measure of the market value of an asset is the price at which it actually sells to an informed investor. On that basis, assuming that no misrepresentations are established, the defendants say that Scenario 3 is, on Mr Potter's evidence, a correct measure of the actual value of the shares at the time of entry into the contract. In Scenario 3, Mr Potter found no loss in relation to the Second Contracts. It is said that the foreshadowed adjustment is to add $34,087.50 to reflect the investment made by each plaintiff. The defendants contend that, given that there were two investments (each of $750,000), that amount should be doubled; and that it follows that no loss was suffered in relation to the Second Contracts. 3. As to Scenario 3, the defendants say that, given Mr Potter's correction at the commencement of his oral evidence, an amount needs to be added to Mr Potter's calculations as expressed in his report to reflect the investments made by the plaintiffs. Plaintiffs' submissions 1. In essence, the plaintiffs' position is that, in 2013 and again in 2014, they agreed to purchase shares in Yatango Mobile because they believed in the online platform used by its business (being a conglomeration of software described as Yatango Mobile's differentiator from its competitors) (see Mr Stavretis' first affidavit at [9]); part of which online platform was the billing and provisioning software by which Yatango Mobile was able was to bill its customers in line with Optus' requirements. The plaintiffs' case is that, before investing in the company they were concerned to ensure that the intellectual property and coding used by the business was owned by Yatango Mobile; that the defendants reassured each of the plaintiffs that this was so and provided contractual warranties to that effect; and that, unbeknownst to the plaintiffs, the truth was otherwise. Broadly, I accept their account of events which I consider to be consistent with the contemporaneous documents. 2. The plaintiffs advanced two main claims: the misleading or deceptive conduct claims and the claims for breach of contractual warranties (placing emphasis in oral submissions on the former). Misleading or deceptive conduct claims 1. As to the first of those claims, the plaintiffs invoke a raft of statutory provisions. As to which one or more of those provisions is applicable, in essence this turns on whether the defendants' conduct was in relation to a "financial service", in that if the conduct was in relation to a financial service it is accepted by the plaintiffs that the Federal ACL will not apply (see s 131A of the Competition and Consumer Act) but s 1041H of the Corporations Act and s 12DA of the ASIC Act will apply) whereas if the conduct was not in relation to a financial service, then the Federal ACL will apply (and the other Federal Acts – the Corporations Act and the ASIC Act – will not). It is noted that, regardless of which Federal law applies, the ACL NSW will continue to apply. 2. The term "financial services" includes a dealing in a financial product which includes shares (see s 2 of the Federal ACL and s 12BAB of the ASIC Act). It is noted that the phrase "in relation to" has been given a broad reading in this context and extends to the conduct that induces a person to purchase a financial product from a third party (see Australian Competition and Consumer Commission v Original Mama's Pizza and Ribs [2008] FCA 370 at [110]-[121] per Madgwick J; Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150 at [322]-[327] per Robson J). 3. Section 12BAB of the ASIC Act defines "financial service" as follows: (1) For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they: (a) provide financial product advice (see subsection (5)); or (b) deal in a financial product (see subsection (7)); or (c) make a market for a financial product (see subsection (11)); or (d) operate a registered scheme; or (e) provide a custodial or depository service (see subsection (12)); or (ea) provide a superannuation trustee service; or (f) operate a financial market (see subsection (15)) or clearing and settlement facility (see subsection (17)); or (g) provide a service (not being the operation of a derivative trade repository) that is otherwise supplied in relation to a financial product (other than an Australian carbon credit unit or an eligible international emissions unit); or (h) engage in conduct of a kind prescribed in regulations made for the purposes of this paragraph. 1. "Financial product" is defined in s 12BAA of the ASIC Act: (1) Subject to subsection (8), for the purposes of this Division, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see subsection (4)); (b) manages financial risk (see subsection (5)); (c) makes non‑cash payments (see subsection (6)). … Meaning of makes a financial investment (4) For the purposes of this section, a person (the investor) makes a financial investment if: (a) the investor gives money or money's worth (the contribution) to another person and any of the following apply: (i) the other person uses the contribution to generate a financial return, or other benefit, for the investor; (ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); (iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor; and (b) the investor has no day‑to‑day control over the use of the contribution to generate the return or benefit. Note 1: Examples of actions that constitute making a financial investment under this subsection are: (a) a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day‑to‑day affairs of the company); or (b) a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day‑to‑day control over the operation of the scheme). Note 2: Examples of actions that do not constitute making a financial investment under this subsection are: (a) a person purchasing real property or bullion (while the property or bullion may generate a return for the person, it is not a return generated by the use of the purchase money by another person); or (b) a person giving money to a financial services licensee who is to use it to purchase shares for the person (while the purchase of the shares will be a financial investment made by the person, the mere act of giving the money to the licensee will not of itself constitute making a financial investment). … (7) Subject to subsection (8), the following are financial products for the purposes of this Division: (a) a security; (b) any of the following in relation to a managed investment scheme: (i) an interest in the scheme; (ii) a legal or equitable right or interest in an interest covered by subparagraph (i); (iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii); (c) a derivative; (d) a contract of insurance (see subsection (9)) other than: (i) health insurance provided as part of a health insurance business (as defined by Division 121 of the Private Health Insurance Act 2007); or (ii) insurance provided as part of a health‑related business (as defined by section 131‑15 of that Act) that is conducted through a health benefits fund (as defined by section 131‑10 of that Act); (e) a life policy, or a sinking fund policy, within the meaning of the Life Insurance Act 1995, that is not a contract of insurance (see subsection (9)); (f) a beneficial interest in a superannuation fund (as defined by section 10 of the Superannuation Industry (Supervision) Act 1993); (g) an RSA (retirement savings account) within the meaning of the Retirement Savings Accounts Act 1997; (h) any deposit‑taking facility made available by an ADI (within the meaning of the Banking Act 1959) in the course of its banking business (within the meaning of that Act), other than an RSA (RSAs are covered by paragraph (g)); (i) a debenture, stock or bond issued or proposed to be issued by a government; (j) a foreign exchange contract; (k) a credit facility (within the meaning of the regulations); (l) an Australian carbon credit unit; (la) an eligible international emissions unit; (m) anything declared by the regulations to be a financial product for the purposes of this subsection. 1. In this regard, given the present case involves impugned conduct by the defendants in relation to the purchase of a financial product (i.e., shares in Yatango Mobile), I am satisfied that the Federal ACL does not apply and that the relevant legislation to consider is the ASIC Act in this context, as well as the Corporations Act and ACL NSW (the latter, as noted, applying regardless of whether or not the defendants' conduct was in relation to a financial service). 2. The plaintiffs categorise the representations alleged to be misleading or deceptive into three broad categories: first, representations concerning the ownership of intellectual property and coding used by the Yatango Mobile business; second, representations concerning the value of the company and its net asset position; and, third, representations concerning the roll-up whereby shareholders of Yatango Mobile such as the corporate plaintiff would become shareholders in Yatango Holdings, the parent company. As already noted, the claims concerning the "No Dealing" Representations and Authorisation Representations were not pressed (those being the allegations at [7](e) and (f); [15](e) and (g)). Further, the allegation as to the failure to disclose pre-contract intellectual property rights representation (see [11]) is only pressed in the event that it is held that the Second IP Ownership Representation was not made by the proffering of the warranty in cl 2.17(a) of the Second Contracts. Representations concerning the ownership of intellectual property and coding 1. As to the first category of misrepresentation (the ownership of the intellectual property and coding), the plaintiffs' case is that the defendants represented that Yatango Mobile or its subsidiaries owned all intellectual property and coding used by the business (and that this was not the case). The plaintiffs say that the representation principally arose from the defendants' proffering of personal warranties to that effect in the draft and final term sheets (see cl 2.17) and in essence it is said that, by proffering these personal warranties, each of the defendants represented that Yatango Mobile or its subsidiaries owned all the intellectual property and coding used by the business. 2. Emphasis is placed by the plaintiffs on what was said at the meeting on 28 August 2013 namely, that Yatango is an online platform that allows users to customise their own service and get a better deal (Mr Stavretis' first affidavit at [16]); and statements to the effect that all of the IP and trademarks used in the business are owned by the company or one of its subsidiaries (Mr Stavretis' first affidavit at [16]). It is accepted that some statements were made to the effect that coding was being transferred but the plaintiffs say that it was subsequently represented that this had been "sorted out". It is said that the evidence of Mr Kestelman and Mr Stavretis concerning conversations with the defendants is uncontested; so that their account of what was said on 28 August 2013 can readily be accepted. 3. Reference is then made to the meeting of 2 September 2013, in which statements were made to the effect that the true value in Yatango lay in its flexible platform (i.e., that it is not so much a mobile telecommunication company, but more of a software company) (see Mr Stavretis' first affidavit at [17]); and as to the intellectual property being transferred to a subsidiary, possibly in Ireland (again later said to have been "sorted out"). 4. The plaintiffs next rely on the telephone conversation on 15 October 2013, between Mr Stavretis, Mr Taylor and Mr Wilkinson (see Mr Stavretis' first affidavit at [25]) about which Mr Stavretis was not challenged in cross-examination. Emphasis is placed on the statement by Mr Stavretis in that conversation that "I'm concerned about Yatango not owning the IP underlying its online platform. This IP needs to be transferred from BJYP. It's essential that Yatango owns the underlying IP because the online platform is where the value in this company is"; and that Mr Taylor's response was "Don't worry, the IP will be sorted and Yatango will own it. We're already in the process of sorting this out and we will have assurances in the form of warranties in the term sheet that reflects that Yatango owns the IP". It is noted that Mr Stavretis asked "When will this be sorted out?" and Mr Wilkinson responded "Don't worry, it will all be sorted before you sign the term sheet". 5. Reliance is placed on the email from Mr Taylor to Mr Stavretis on 21 October 2013, in which he says that "The platform IP itself is owned by Yatango Mobile Labs which is 80% owned by Yatango Mobile Proprietary Limited and 20% by Brad Apps from ECConnect". The plaintiffs note that this is false because Yatango Mobile Labs did not even exist and no transfer had taken place. (I regard this as a quite extraordinary statement to have been made by Mr Taylor, in circumstances where Yatango Mobile Labs was not incorporated on 1 May 2015; and he gave no evidence to suggest that he was there mistakenly referring to another entity in the group.) 6. Reference is then made to the exchange of emails on 18 November 2013 in which Mr Stavretis enquired whether the IP had been transferred to the Irish subsidiary and was told, first, by Mr Wilkinson, that it was in motion and then, very shortly thereafter, by Mr Taylor that it was in the process of being moved. At this stage (and see the chronology set out earlier), what the plaintiffs are being told (seemingly inconsistently) on 15 October 2013 is that the "IP" needs to be transferred from BJYP but then on 21 October 2013 that the "platform IP" is owned by an entity (Yatango Mobile Labs, which is 80% owned by Yatango Mobile); and on 18 November 2013 that the IP is in the process of being moved to another subsidiary of Yatango Mobile. However, the first two of those statements can be reconciled in that it is there being conveyed that the "IP" or whatever "platform IP" was necessary to be transferred from Mr Apps' entity has been "sorted out" and is now held by an entity 80% owned by Yatango Mobile (albeit that there is then some discussion about transferring it to an Irish entity). 7. It is submitted (and I accept) that it is clear from the evidence that Mr Stavretis was pressing for reassurance as to where, ultimately, the IP was going to be (and what he was being told was that it was within the group). From the various iterations of the term sheet, the plaintiffs say it is clear that Mr Stavretis is looking for comfort in relation to subsidiary companies and in relation to the transfer of shares, so that Yatango Mobile will always have ownership or control in relation the intellectual property. (The significance of this from a commercial point of view becomes evident when reference is made to Mr Potter's evidence.) 8. As to the conversation that occurred on 18 November 2013 (see Mr Stavretis' first affidavit at [23]) where he attributes to Mr Taylor the statement that "[t]here are no issues. Everything is sorted", the plaintiffs say that it is clear that from then Mr Stavretis believed that the intellectual property had been transferred to a subsidiary of Yatango Mobile because he proposed amendments to the warranties to be given by the defendants the following day. The changes proposed by Mr Stavretis related to the warranty at cl 2.17(a) in which Mr Stavretis has inserted "or one of its subsidiaries". Consistent with that amendment, some amendment was sought to cl 2.10 in relation to the transfer of shares that made it clear that if there was a Yatango entity registered in Ireland, there were restrictions on the transfer of shares. It is said that this shows that in Mr Stavretis' mind those were important matters. I agree. The plaintiffs say that the amendment to cl 12.17(a) would not have been necessary unless Mr Stavretis believed it reflected the fact. Again, I agree. 9. It is said that it was following these particular representations (that all of the IP issues had been sorted) that the defendants then provided signed versions of the term sheets, by which they personally warranted that Yatango Mobile or its subsidiaries owned the intellectual property and coding used by the business. It is submitted that this conduct by the defendants represented that Yatango Mobile or its subsidiaries owned the intellectual property and coding used by the business, including that constituting the platform. 10. As to the Second Contracts, there is an allegation of misleading or deceptive conduct by silence because it was never disclosed or brought to the attention of Mr Stavretis or Mr Kestelman that, in truth, Yatango Mobile or its subsidiaries did not own the intellectual property and coding in relation to the online platform. 11. The plaintiffs say that there is little doubt that misleading conduct may be a representation given in a contract (citing Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (Campbell v Backoffice) at [35]-[36] per French CJ; Australian Competition and Consumer Commission v Valve Corporation (No 3) (2016) 337 ALR 647; [2016] FCA 196 at [222] per Edelman J (Valve Corp (No 3)); RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50 at [61]-[65] per Weinberg, Whelan and Santamaria JJA (RCR Energy)). In Valve Corp (No 3), Edelman J, then sitting in the Federal Court said at [222]: Since 'engaging in conduct' includes 'the making of, or the giving effect to a provision of, a contract or arrangement', representations contained within a contract are capable of being misleading or deceptive conduct. Indeed, a contractual provision can constitute misleading conduct even towards persons who are not party to the contract. His Honour there cited Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, where it was said by Lockhart and Gummow JJ that it is "no objection to relief under [provisions for breach of the equivalent of s 18(1)] that the misleading conduct is found in the making of a contractual provision, and the complainant does not have contractual privity with the defendant". 1. The plaintiffs accept that difficulties may arise where a party makes promises to perform under a contract and whether those promises constitute representations such as to a future matter (referring to RCR Energy at [67]) but they say that the provision of contractual warranties of fact is more straightforward. 2. The plaintiffs say that the principal conduct here relied upon is the proffering of the personal warranties, as opposed to those warranties becoming contractually binding. It is alleged that, but for such proffering, the corporate plaintiffs would not have executed the contracts. 3. As noted earlier, the plaintiffs submit that it is clear from the contemporaneous records that they were initially hesitant about investing in Yatango Mobile; one of their principal concerns being whether Yatango Mobile or its subsidiaries owned the intellectual property and software coding used in its business. It is submitted that the representations made by the defendants allayed those concerns and materially contributed to the decision by the corporate plaintiffs to invest: $1,500,000 ($750,000 each) in 2013; and $525,000 ($262,500 each) in 2014. 4. The plaintiffs say that the representations as to the ownership of IP used by Yatango Mobile's business were misleading or deceptive for three main reasons. 5. First, that neither Yatango Mobile nor its subsidiaries owned the coding as modified for Yatango Mobile in the ECConnect billing software which formed part of the online platform (referring to Mr Apps' evidence at T 225.48-50). It is said that such software plainly constituted coding, but it also constituted intellectual property in the form of copyright, being a literary work within the definition of s 10 of the Copyright Act 1968 (Cth) (Copyright Act). 6. Second, the plaintiffs say that although Yatango Mobile had entered into the 2012 BJYP Agreement before the First Contracts and then entered into the 2014 BJYP Agreement after the Second Contracts, at no point was there a transfer of ownership from BJYP to Yatango Mobile or its subsidiaries of the software constituting the billing system as modified for Yatango Mobile (that being the Base Code and the Customised Code) (reference being made to Mr Apps' evidence at T 220.35-44). It is noted that the 2012 BJYP Agreement was breached and it was ultimately terminated (see cl 1 of the 2014 BJYP Agreement). At the time of the first term sheet the 2012 BJYP Agreement was in place – so it is accepted by the plaintiffs that there was a licence but it is said there was not ownership (see T 324.17-20). 7. Third, the plaintiffs say that no transfers ever took place from BJYP pursuant to the 2014 BJYP Agreement, because BJYP's obligation to transfer was conditional upon matters which were never satisfied (such as agreeing to a shareholders' agreement) (see cl 3.1; T 219.35-44); and it is noted that the proposed subsidiary that Yatango Mobile had been obliged to incorporate under the 2012 BJYP Agreement (Yatango Mobile Labs) was not even incorporated until May 2015, a few months prior to the companies going into external administration. 8. As to the trademarks, it is said that the trademarks used by the business (being for the name Yatango and then a trademark for a particular design – that is, the name Yatango using "fancy" font) were not owned by Yatango Mobile or its subsidiaries. It is noted that both trademarks were registered in the name of Yatango Pty Ltd (which later became Yatango Holdings). It is noted that Yatango Holdings was the majority shareholder of Yatango Mobile (not its subsidiary) and hence it is said that the trademarks were not owned by Yatango Mobile or its subsidiaries. The plaintiffs say that this is not without significance, given that one of the matters which attracted the plaintiffs to Yatango Mobile was (as per Mr Kestelman's evidence) "[t]he way they acquired clients through social media and word of mouth" (T 68.7-8). It is said that the goodwill developed in that regard would travel with the trademarks. 9. As to the registration of domain names, the plaintiffs accept that the registration of a domain name is not, strictly speaking, intellectual property. It is submitted by the plaintiffs, however, that the representations were misleading, in that they had a tendency to, and did, lead Mr Stavretis and Mr Kestelman to presume that the domain names were registered in the name of Yatango Mobile or one of its subsidiaries (see Mr Stavretis' first affidavit at [79] and Mr Kestelman in his evidence at T 74.48-50). In fact, the domain names were registered in the name of another entity controlled by Mr Taylor (the Digital Bakery Australia Trust). Thus it is said that the domain names of the various websites used by the business (www.yatango.com.au, www.yatago.com, www.yatangomobile.com.au and www.yatangomobile.com) (see Exhibit G, [165] and [166] tendered from Mr Taylor's unread affidavit sworn 10 September 2019) were not owned by it. 10. The plaintiffs say that there can be no dispute that, when the contracts were entered into, each of those domain names was registered in the name of the Digital Bakery Australia Trust (which is not a subsidiary of Yatango Mobile). It is noted that this was not disputed in response to a notice to admit served on the defendants (see Exhibit F, being a Notice to Admit Facts dated 17 August 2021 and a Notice Disputing Facts and Authenticity of Documents dated 30 August 2021). 11. The plaintiffs say that the IP and coding representations were made to induce the plaintiffs to invest in Yatango Mobile in circumstances where concerns had been expressed by them about the ownership. As such, it is said that reliance can be inferred (citing Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [54]-[55] (ACCC v TPG)) but in any event it is said that, in circumstances where there was no real challenge of either Mr Stavretis or Mr Kestelman, it can more readily be accepted that there was actual reliance in respect of those representations. 12. As to the incorporation of the corporate plaintiffs after some of the representations were made, it is said that the principal representations made to Stav Investments (arising out of the First and Second Contracts), were made to it after a time that it had been incorporated on 12 November 2013 but in any event in relation to pre-incorporation representations, a corporation may suffer loss by misleading representations made to its principal before it existed or was acquired (see Palmer Street Developments Pty Limited v J & E Vanjak Pty Ltd [2018] QCA 111 at [28]-[29] citing Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526). Further, it is said that even if Stav Investments cannot recover losses based upon self-representations, then Mr Stavretis will be able to do so. This, however, is subject to the limitations issue with respect to Mr Stavretis. 13. As to LK Group Investments and Mr Kestelman, it is submitted that third parties to original representations may recover compensation from the maker of the representation, if the representation was made with objective awareness that it may be passed on to others such as the third parties (referring to White J in Andrews v Racken Pty Ltd [2007] NSWSC 1010 at [277] and [278], even if the person passing on the information is not the agent for the third party (see [278])). The plaintiffs say that the defendants knew that Mr Stavretis was passing on information to Mr Kestelman (referring to Mr Kestelman's affidavit at [15] in which Mr Kestelman represented to Messrs Taylor and Wilkinson that Mr Stavretis would be his "point person", and the email of 29 August 2013 between Mr Kestelman and Mr Taylor). It is said that Mr Kestelman's evidence as to what took place at the meeting of 28 August 2013 should be accepted in circumstances where Mr Taylor was not called to give evidence in relation to that meeting. 14. As to the evidence of reliance in respect of the first type of representation (being the ownership of the intellectual property and coding), the plaintiffs say that it is clear that they were concerned to ensure that the intellectual property and associated online platform were owned by Yatango Mobile or one of its subsidiaries; that the representations made by the defendants gave comfort to the plaintiffs and materially contributed to the decision to invest; and that without the representations, the investment would not have been made. 15. The plaintiffs point to Mr Kestelman's evidence that he believed the intellectual property issues had been resolved before he entered into the First Contract (at [28] of his affidavit) and reference is made to Mr Kestelman's evidence in cross-examination, that "[t]he only thing that I liked about this company was the platform" (T 58.35-36) and his evidence (at T 58.38-40; T 58.44-45) that: Q. You didn't invest in it because of the billing system, did you? A. I invested because of the whole platform, I thought it was a very good platform. … A. [The] … billing system was one part of what is a great platform. 1. It is noted that Mr Kestelman rejected the suggestion that he liked the business model or the idea behind the business model, rather than the platform itself (T 68.21-31), saying, in effect, that the business model was "underpinned by the platform. They're inseparable. You can't run that model without the platform and vice versa. … That business model without the platform is just a dream" (T 68.14-19). At T 68.23-31, Mr Kestelman said: No. I liked the platform. The business model is something that a lot of people had thought about, but no-one can execute. So what was unique about their proposition was that they were actually executing on the model that other people – I can't say that it was completely revolutionary to come up with a perfect model for a client to be able to choose exactly what they want, how they want. The problem was the execution. I wasn't aware of any other platform that was actually able to do it. So I was not impressed by their actual execution. I wasn't impressed by the number of clients they had. What I was impressed about was their platform. 1. At T 72.36-44, Mr Kestelman's evidence was that his principal interest was the IP and his principal concern in investing was that the IP was ultimately owned by the company in which he was investing. The plaintiffs say that this is consistent with the contemporaneous documents (referring to the email of 17 October 2013 in which Mr Kestelman said to Mr Stavretis "Unless you can see huge potential in the software and the model, it's just another telco. Right now I'm not sold" and to the email from Mr Kestelman to Mr Stavretis on 18 November 2013 in which he asked "Is it covered that no assets will be separated and spun off from the company[?]"). 2. In relation to Mr Stavretis' evidence on reliance, reference is made to his first affidavit at [16], where he deposed that he thought the differentiator was the online platform and that he had concerns about whether the IP associated with the online platform was all owned by Yatango Mobile (at [17]) and to his evidence as to the reassurances by the defendants, which led him to believe that the intellectual property was all owned by Yatango Mobile or its subsidiaries and to invest in that belief ([24]-[36]; [78]-[81]). It is noted that Mr Stavretis gave evidence that, had he known the true position, he would not have entered into the contracts and he would not have invested, nor would he have recommended that investment to Mr Kestelman. Reference is made to his cross-examination at T 163.41-44, where he gave evidence that he would not have invested if Yatango merely had control of the intellectual property; that he (T 150.17-24) considered the billing system was unique in that it was able to facilitate the unique offerings that Yatango provided and it was going to provide (i.e., the customisation of mobile phone plans) and as to (T 150.34-50) the importance of the billing system to link between the customised mobile phone packages offered by Yatango Mobile and the Optus system from which it purchased access to the network. 3. Reference is also made to the evidence of Mr Stavretis at T 151.15ff to the effect that the billing system was part of the customer interface operated by Yatango Mobile and to his evidence at T 153.3-8 that the "billing system enables you to buy the software, enables you to complete and [actually] execute on that". The plaintiffs say that the contemporaneous documents bear out that evidence (referring to the 30 September 2013 email where Mr Stavretis first raised concerns about the main risk being that the intellectual property was not controlled by Yatango Mobile; the 7 October 2013 email where Mr Stavretis expressed similar concerns to Mr Kestelman; the 14 October 2013 email from Mr Stavretis to Mr Taylor, relevantly stating that the investment is based around the platform and asking him whether the IP issue had been sorted out; and the email of 21 October 2013 in which Mr Taylor said that the platform itself is owned by Yatango Mobile Labs, which is 80% owned by Yatango Mobile. It is noted that the offers that Mr Stavretis made to invest were on the basis that warranties would be given concerning the intellectual property; and that Mr Stavretis amended the warranty in the term sheet to reflect the fact that the intellectual property was held by a subsidiary of Yatango Mobile, not Yatango Mobile itself, and made the change to cl 2.10 in relation to restrictions on the transfer of shares. Representations concerning the value of the company and its net asset position 1. As to the second category of misrepresentation (the value of the company and its net asset position), the plaintiffs allege that the defendants represented that Yatango Mobile had net assets with its subsidiaries of $9.56 million (relying on the balance sheet that was provided to Mr Stavretis on 17 September 2013) and that Yatango Mobile was worth $15 million. 2. As to the asset representation, it is said that this was made by the provision to Mr Stavretis of the balance sheet of Yatango Mobile Group as at 30 June 2013, which recorded net assets of $9.56 million, including the billing system, which was recorded at a value of $12.3 million. 3. It is the plaintiffs' case that the representation as to the value of the software billing system was false. It is said that the billing system was not owned by Yatango Mobile or its subsidiaries (referring to the evidence of Mr Apps and the BJYP IP transfer agreements). Emphasis is placed on the fact that the financial reports for Yatango Mobile for the year ended 30 June 2013 paint a completely different picture (Exhibit E, being the appendices to the expert report of Mr Potter), the directors' declaration as to which was dated 6 November 2013 (before entry into the First Contract on 2 December 2013). This document was never provided to the plaintiffs. It records, in respect of Yatango Mobile, net assets at $1.581 million; and the billing system was valued as an asset worth only about $312,000. The plaintiffs emphasise that no explanation has been given by the defendants in this regard, despite Mr Wilkinson being responsible for preparing this financial report (see the admission at Exhibit H (being the tender of various paragraphs of Mr Wilkinson's affidavit) notably at [59](a) that he prepared the financial documentation). 4. As to the representation that Yatango Mobile was worth $15 million, the plaintiffs say that this representation arises out of a negotiation between the parties. It is accepted that the parties were negotiating a valuation for the purpose of determining what proportion of Yatango Mobile the corporate plaintiffs would own if they invested. However, the plaintiffs rely on Mr Taylor's refusal to accept a valuation of $14 million, stating that "The valuation is coming in at $15 million and I can't go below this" (see the email dated 6 November 2013 from Mr Taylor to Mr Stavretis). It is said that this was a representation that the company had actually been valued at $15 million but there is no evidence that there was any such valuation. 5. In that regard, it seemed to me from the contemporaneous communications that this was a negotiation between the parties as to a notional value to be ascribed to the company for the purposes of working out how much would be paid for the investment, rather than a representation that it had been externally or otherwise valued at a particular amount. However, the plaintiffs say that the email referred to above is of a different character. It is submitted that this has a tendency to lead one into error, i.e., that there is, in existence, a valuation that is coming in at $15 million. 6. The particular representation (at [5B] of the second further amended commercial list statement) was pleaded as being that, as at 6 November 2013, the value of Yatango Mobile as a going concern was $15 million. It is said that, given the fact that Yatango Mobile did not own the billing system (which it had recorded as an asset worth $12.3 million) that representation was misleading or deceptive (and, in circumstances where neither Mr Taylor or Mr Wilkinson had given evidence there's no suggestion to the contrary that there was no valuation). 7. It is noted that Mr Kestelman and Mr Stavretis gave evidence in cross-examination that they relied upon these matters in entering into the contract. When Mr Kestelman was asked the basis on which he thought $15 million was a reasonable value for Yatango Mobile his answer at T 60.45-46 was "[the] [p]latform and all the IP that came with that platform and the assurances that the platform was part of the deal", and he went on to say that he formed an opinion to proceed with the deal on the basis that the value was in its intellectual property (at T 61.1-2). At T 65.21, Mr Kestelman confirmed that when he decided to invest by signing the first term sheet, he did so on the basis that he understood the company had a valuation of $15 million. Mr Stavretis confirmed that he considered the balance sheet in making the investment (T 144.49-50, T 145.1) and that he genuinely believed that Yatango Mobile's billing system was worth $12.3 million (see T 150.8-15). Representations concerning the roll-up of shares 1. As to the third misrepresentation (the roll-up representation which relates to the Second Contracts entered into between the parties) the plaintiffs' case is that, prior to the entry into the Second Contracts, the defendants represented that the corporate plaintiffs' shares in Yatango Mobile would be exchanged for shares in Yatango Holdings and that that would take place by 31 August 2014. The plaintiffs say that the representation arises from the proffering of contractual warranties that the roll-up would occur by that time. It is said that this was a representation as to a future matter, and that as the defendants have not given evidence themselves they have not made out reasonable grounds for making it (and hence it is deemed to be misleading – see s 12BB of the ASIC Act and s 769C of the Corporations Act). 2. It is noted that each of the corporate plaintiffs (through their principals, Mr Stavretis and Mr Kestelman) gave evidence that it relied upon the roll-up in entering into the Second Contracts (in relation to Stav Investments, see Mr Stavretis' first affidavit at [81](b); T 202.23-25; in relation to LK Group Investments, see the evidence of Mr Kestelman at T 79.27-39). Loss resulting from the misleading or deceptive conduct and measure of damages 1. As to the question of loss in relation to misleading or deceptive conduct, it is said that the proper measure of loss is the amount which represents the prejudice or disadvantage suffered by the plaintiffs as a result of altering its position in reliance on the misleading conduct of the defendants (referring to Ingot at [169]-[191] per Ipp JA (Ingot Capital); Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [132] per McHugh J (Henville v Walker); HTW Valuers at [65] per Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ; ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 at [960], [969] per Jacobson, Gilmour and Gordon JJ (ABN AMRO)). It is noted that in Henville v Walker at [131], McHugh J said that "general principles for assessing damages may have to give way altogether in particular cases to solutions best adapted to give the injured claimant an amount which will most fairly compensate for the wrong suffered". Thus, it is said that the approach to assessing that loss must be flexible and best adapted to give the injured plaintiff an amount which will most fairly compensate them for the wrong suffered (see Ingot Capital at [171], HTW Valuers at [63], Henville v Walker at [131], and ABN AMRO at [963]). 2. As to damages under s 236 of the Federal ACL (not here applicable as I have found that it does not apply) "are not limited by analogy to the award of damages under contract, tort, deceit or equitable remedies" (see Ingot at [173] and Henville v Walker at [130]). The plaintiffs say that (cf the defendants' submissions) the rule in Potts v Miller is not some rigid or inflexible rule (citing for this proposition the Full Court of the Federal Court in ABN AMRO at [969]). In ABN AMRO the Full Federal Court said of the so-called rule in Potts v Miller, that labelling it is "unhelpful and dangerous": … It is unhelpful and dangerous because inevitably the wrong question is asked: namely, is the rule in Potts v Miller satisfied, rather than asking the more fundamental question, what are the facts and do those facts establish a compensable loss and, if so, what was its true measure? Put at its highest, Potts v Miller points to considerations which may, not must, bear upon the assessment of that "true measure". … [Emphasis in original] 1. At [963], in ABN AMRO it was emphasised that "there will be many cases where the losses are not represented by the difference between the price and the value of the asset at the time of purchase" and that the circumstances of those cases are not closed. 2. The plaintiffs say that the approach in Potts v Miller is but one approach to assessing damages and proved to be a method of separating loss resulting from contravening conduct from that resulting from extraneous events (citing the Full Court at [964]-[965], citing what the High Court said in HTW Valuers at 65). It is said that the deduction of true value at the acquisition date from the price paid is no more than a guide to the assessment of damages under the applicable section (there s 82) and that the width of that section permits other approaches to the assessment of damages, so long as they work no injustice. 3. The plaintiffs refer to circumstances in which the rule has not been applied including those where a plaintiff is locked into the investment, so has no choice but to continue holding the asset and facing risks which may be otherwise independent of the misrepresentation. In those circumstances, it is said that the realisation of those risks will from part of a plaintiff's loss (see Ipp JA in Ingot at [177]; ABN AMRO at [978]-[979]). Another example is where the misrepresentation continues after the date of purchase, contributing to a plaintiff's choice to continue to hold the asset and incur loss which is otherwise independent of the defendant (see Gibbs CJ in Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68 at 221-222). 4. The plaintiffs submit that both those examples (being locked into the investment or where the misrepresentation continues after the date of purchase) apply to each of the plaintiffs. It is said that the misrepresentation continued until around 1 October 2015, when the plaintiffs were informed by Mr Kirk as to the issue regarding the ownership of the intellectual property. It is emphasised that this was a private company, not a publicly traded company, so it is said that the plaintiffs were locked in. Yatango Mobile was placed into external administration on 20 October 2015 and then it subsequently went into liquidation. The plaintiffs say that the shares are worthless (referring to the liquidator's report in this regard – see the appendices to Mr Potter's expert report, marked Exhibit E, at tab 19). The plaintiffs say that in those circumstances, each corporate plaintiff paid just over $1 million and is left with nothing as a result. Accordingly, it is said that their loss is the full amount of the purchase, plus interest. It is noted that this was the conclusion reached by Mr Potter in relation to his Scenario 1 (see Mr Potter's third report at [3.28]-[3.31], where Mr Potter opined that it was reasonable to value Yatango Mobile on a net asset basis, rather than cash flow, given that it was not a going concern (see [3.10] of Mr Potter's third report). It is said that Mr Potter was there valuing it as at the date of purchase. 5. The plaintiffs' primary case is thus that the shares have no value because it was an insolvent company. 6. It is noted that Mr Potter reached the conclusion (in his preferred Scenario 1) that Yatango Mobile was worthless (see [2.2] of his third report) and suggested that each corporate plaintiffs' loss should be assessed as being the full amount of their purchase price. It is said that Mr Potter's report suggests that he was undertaking a measure of contractual loss. The plaintiffs say that the comparison of purchase price to that value in each scenario is inapposite for that purpose. However, it is submitted that this approach is appropriate for a no transaction claim, such as those that the plaintiffs bring for misleading deceptive conduct under the (NSW and Federal) ACL or the related provisions in the other legislation referred to above. 7. As to Mr Stavretis' personal loss, the plaintiffs submit that he incurred interest costs on the loans that he provided to Stav Investments to make the investments in Yatango Mobile. It is submitted that he is entitled to recover the expenses that he incurred as a result of the contravening conduct of the defendants (see the second further amended commercial list statement at [96] and the evidence of personal loss in his third affidavit at [18]-[39]). 8. Mr Stavretis claims, in respect of the first loan, losses in the order of $241,000 for interest accrued and in respect of the second loan, losses in the order of $58,000 in respect of interest accrued (see T 336.22-24). Contractual warranties claim 1. As to the claim based on the contractual warranties claim, the plaintiffs submit that the defendants breached many of the contractual warranties they gave from the execution of the First Contracts and the Second Contracts. Intellectual property warranty: cl 2.17(a) 1. As to the intellectual property and coding warranty given in cl 2.17(a), that Yatango Mobile or one of its subsidiaries legally and beneficially owned all intellectual property used in relation to the company's business, the plaintiffs note that, where parties use technical legal terms in their agreement, they are presumed to use these terms in their true legal sense unless the contrary intention is manifest (see Merewether v Scottish Australian Mining Co Ltd (1907) 4 CLR 953; [1907] HCA 8 at 965; Phoenix Commercial Enterprises v City of Canada Bay Council [2010] NSWCA 64 at [167]-[174]). It is noted that the defendants accept that intellectual property includes copyright and trademarks (referring to their written outline of submissions at [55]). 2. The plaintiffs thus submit that the only construction issue arising is whether or not, properly construed, the phrase encompasses domain name registration. As noted earlier, the plaintiffs accept that such registration is not intellectual property within the true legal sense of the phrase. The plaintiffs say, however, that there are three aspects in respect of which this intellectual ownership warranty was breached: first, in relation to the trademarks (on the basis that the trademarks used by the business were not owned by Yatango Mobile or its subsidiaries, but were rather owned by a holding company). 3. The plaintiffs say that, contrary to the defendants' submissions in opening (that there would be no evidence as to what intellectual property was actually used by the business – see at T 29.6-15), there is direct evidence from Mr Taylor as to Yatango Mobile operating websites which were used to implement the marketing strategy (see the admissions made by Mr Taylor in [51] and [52] of his unread affidavit, tendered in the plaintiffs' case as Exhibit G). It is noted that Mr Taylor also gave evidence that he registered the trademarks in the name of Yatango Holdings (at [41] of that affidavit, forming one of the paragraphs marked as Exhibit G). The plaintiffs submit that there is little doubt that Yatango Mobile was using the trademark for its business, including through the Yatango website. Insofar as the defendants have asserted that it is unlikely that the parties intended warranties to apply to the Yatango trademarks (see [64] of the defendants' outline of submissions), the plaintiffs say that there is no contextual reason why the parties would have objectively intended to exclude such intellectual property from the warranty. 4. The second breach of intellectual property ownership alleged is the billing coding. Reference is made to the evidence as to how the code developed for the ECConnect billing system was not owned by Yatango Mobile. It is noted that Mr Taylor explained that the billing system was used by Yatango Mobile in order to manage the billing for customers, and also to provision services on the Optus network; and that, without this, Yatango Mobile would not have been able to provide customers with access to the Optus network (see [57] of Mr Taylor's affidavit which was tendered as Exhibit G). 5. The plaintiffs point out that computer coding has long been subject to copyright (citing Computer Edge v Apple Computer (1986) 161 CLR 171; [1986] HCA 19 at 182 per Gibbs CJ, 196 per Mason and Wilson JJ). Therefore, it is said that it constituted intellectual property within the meaning of the warranties the defendants gave. Again, it is said that the defendants' own evidence demonstrates that the coding was being used for the business at the time the First Contracts were entered into it (referring to [50] of Mr Taylor's affidavit which was tendered as Exhibit G). Further, reference is made to Mr Apps' evidence that the coding was in use at the relevant time (T 216.10-23). 6. The third breach of the intellectual property ownership warranty relates to the domain name registration. The domain names used by Yatango Mobile were not registered in its name. The plaintiffs submit that the phrase "intellectual property used in relation to the company's business" should be construed as extending to all property and registrations necessary for the online platform which it is said was at the heart of the defendant's pitch to investors in Yatango Mobile. Coding warranty: cl 2.17(b) 1. As to the coding warranty (cl 2.17(b)) the plaintiffs submit that the defendants warranted that all code used by Yatango Mobile which had been developed, either by employees or third parties, had been assigned to Yatango Mobile or its subsidiaries. It is said that, in fact, the code which had been developed by Appscorp or BJYP was never assigned to Yatango Mobile or its subsidiaries. As such, it is said that it never formed part of the assets of Yatango Mobile or its subsidiaries. Accordingly, it is submitted that the defendants were in breach of the coding warranty at all times concerning the ECConnect billing system. Licence warranty: cl 2.17(c) 1. As to the warranty at cl 2.17(c), it is said that even if it could be established that the intellectual property used by Yatango Mobile was owned by one of its subsidiaries, the defendants would be in breach of this warranty because there were no licences which provided that Yatango Mobile could use such intellectual property for nominal consideration. No infringement warranty: cl 2.17(d) 1. As to the so-called "No Infringement" warranty at cl 2.17(d), it is said that the trademarks, used by Yatango Mobile were owned by Yatango Holdings. It is said that, although Yatango Holdings owned a majority of the shares in Yatango Mobile, there is no evidence that there was a valid licence in favour of Yatango Mobile to use that trademark. It is said that this is a matter for which the defendants could have been expected to give evidence and that their failure to call such evidence means that one can more readily be satisfied that there was no such licence. Roll-up warranty: cl 2.17(k) 1. As to the roll-up warranty (cl 2.17(k)), the plaintiffs say that the documentary record clearly establishes that the roll-up set out in that warranty did not occur and, certainly, did not occur by 31 August 2014. Loss resulting from breaches of contractual warranties 1. The plaintiffs say that the corporate plaintiffs suffered actual loss of some sort as a result of the breaches of warranty and therefore it is necessary (albeit potentially difficult) to assess damages (citing Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 at 83 per Mason CJ and Dawson J (Commonwealth v Amann Aviation) and also referring to what was said in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79 at 411 per Dixon and Fullagar JJ (McRae) and what Dixon J and McTiernan J said in Fink v Fink (1946) 74 CLR 127; [1946] HCA 54 at 143). 2. They say that they suffered loss because, first, the corporate plaintiffs purchased shares in Yatango Mobile on the faith of its online platform, an essential part of which online platform was the ECConnect billing system. It is said that (as Mr Taylor has admitted), without that, Yatango Mobile would not have been able to provide customers with access to the Optus network (see [50] and [57] of Mr Taylor's affidavit). Second, it is said that, far from Yatango Mobile or its subsidiaries owning all the intellectual property and coding used by the business, it merely had a licence to use this software under the 2012 BJYP Agreement which it failed to perform. 3. Third, as noted already, it is said that one of the few documents concerning Yatango Mobile which the defendants provided to the plaintiffs before they decided to invest was a balance sheet for the Yatango Mobile Group which recorded that the Group had net assets of $9.56 million and recorded its most valuable asset as the billing system at $12.3 million (which was not the case). 4. Fourth, it is said that once it is recognised that, contrary to the warranties given by the defendants, the billing system was not an asset of Yatango Mobile or its subsidiaries, it is clear that what the corporate plaintiffs purchased which was approximately 6% of Yatango Mobile was worth dramatically less than it would have been had the warranties been true. 5. Having suffered some sort of loss, it is submitted that the corporate plaintiffs could be awarded damages on the three alternative bases (reflected by Mr Potter's three scenarios). 6. It is accepted that the usual measure of damages for breach of contract is that necessary to put the plaintiff in the position they would have been in but for the breach, namely, in this case, had the warranties been true. It is submitted that the corporate plaintiffs should be awarded damages being the difference between what their investment would have been worth at the date of breach if the warranties had been true, compared to what the shares were worth. 7. As to what the shares acquired by the plaintiffs would have been worth, but for the breach, that is, had the warranties been true, the plaintiffs say that the price paid for the shares represents the value of the shares for three reasons. In that regard, they point, first, to the clauses in each of the First Contracts and Second Contracts in which the parties agreed what Yatango Mobile was worth (cl 2.15 in respect of both contracts). The First Contracts recorded the agreed value of $15 million; in the Second Contracts, the agreed value was reduced from $15 million to $10 million. The plaintiffs emphasise that, in respect of the First Contracts, the post money (i.e., post capitalisation value) was agreed to be $16.5 million. The plaintiffs submit that this is the correct measure of the worth of the shares, had the warranties been correct; that is, the parties have agreed by this clause that the shares were worth what the corporate plaintiffs paid for them, if the warranties had been correct. 8. The second matter to which the plaintiffs point is that, it is said that, aside from the fact that there was a contractual clause as to the agreed valuation, the fact that sophisticated investors with experience in the industry (that is, the plaintiffs) were willing to pay for the shares on the basis that the warranties were true is said to be evidence of the market value in that hypothetical (noting that this was the very premise upon which Mr Potter was cross-examined and that he said at T 247.7-13 that this would be correct). It is noted that Mr Potter went on to accept that the best evidence of value is evidence of what an informed, sophisticated investor would agree to pay for the shares (see T 283.50, T 284.1-2). 9. Third, in this regard, the plaintiffs emphasise that the defendants have not led any evidence that the shares would not have been worth what the plaintiffs paid for them, had the warranties been true. 10. As to what the shares were actually worth, in circumstances where the warranties were untrue, the plaintiffs submit that the shares were worthless. It is noted that Mr Potter assessed them as such, on the basis that the company did not own the billing software (Scenario 1). It is said that one other factor which would support such a finding (and which was not taken into account by Mr Potter) is that the trademarks were not owned by Yatango Mobile. 11. Thus, it is submitted that each of the corporate plaintiffs is entitled to damages in the amounts it invested, being $1,012,500 plus interest. 12. The plaintiffs say that a similar analysis may be undertaken by comparing Mr Potter's assessment of the shares under Scenario 3, on the basis of the $15 million valuation which assumed intellectual property ownership, and Scenario 1 assessment, which was nil (see Mr Potter's third report at [2.1] - [2.7]). It is noted that in Mr Potter's examination-in-chief, Mr Potter made a correction to increase the assessment under Scenario 3, on the basis that the post-capitalised value was $16.5 million (T 244.2-14). The effect of that evidence in relation to Scenario 3 is that the plaintiffs concede there needs to be an adjustment i.e., the assessed value of the Yatango Mobile shares in Mr Potter's table at [2.7] would be increased by $34,087.50, which alters that total to $715,837.50 (for the First Contracts), and in relation to the Second Contracts, there would be an increase of $6,053.40 for each of the two contracts, increasing the assessed value of Yatango Mobile shares from around $293,000 to $299,322.40. 13. Thus, the plaintiffs say that they would have had shares worth $1,015,169, but in fact received worthless shares, as assessed under Scenario 1, which reflected the lack of ownership. 14. Finally, it is said that the loss may be assessed by comparing Mr Potter's assessment of the shares under Scenario 2, based upon the balance sheet provided on 17 September 2013, which included the $12.3 million valuation for the billing software, and Scenario 1. It is noted that on this scenario, the loss figure is slightly lower again because Mr Potter based his calculations on the balance sheet, where the shares were worth approximately half what the corporate plaintiffs paid for them, assuming Yatango Mobile did own the billing system. It is noted that Mr Potter nevertheless gave evidence to the effect that the veracity of the balance sheet is questionable (T 267.18-24). Accordingly, the plaintiffs submit that the other assessment methods should be preferred to Scenario 2. (The defendants also, as I explain below, say that Scenario 2 should be disregarded.) 15. The plaintiffs' alternative case, in terms of the assessment of damages, is that they seek to recover reliance damages; that is damages for waste of expenditure; and they argue that the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed (and that it is for the promisor to prove the contrary). They note that, in relation to reliance damages, that includes payments to third parties and payments made under the contract (referring to Pilmer v The Duke Group Ltd (2001) 207 CLR 165; [2001] HCA 31). 16. The three main cases relied upon in support of that alternative damages case are: McRae, Commonwealth v Amann Aviation, and then more recently, Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd [2020] NSWCA 234 at [28]-[37] (Meetfresh). 17. The plaintiffs say that they sought to purchase shares in a company that owned intellectual property rights to an online platform; and that is not what was provided as the company did not own intellectual property rights. The plaintiffs say that, subject to the question of interest, they only seek damages to recover the purchase price. 18. It is noted that in Commonwealth v Amann Aviation it was explained that the law assumes that a plaintiff would have at least recovered the reasonable expenses incurred (see at 86-90), noting that it involves the presumption that a party would not enter into a contract in which its costs were not recoverable and saying that it is "just and fair that the repudiating party should bear the onus of showing that the party not in breach would have made a loss on the contract". The plaintiffs here say that it is not the case that damages for wasted expenditure are available only where it is impossible or difficult to quantify an expectation of damages of the usual kind, noting that such an argument was rejected in Meetfresh at [30]-[31]. 19. Accordingly, it is said that the corporate plaintiffs are entitled to claim expenses they incurred in reliance on the contracts, namely, payment of the purchase price, and on the basis that it is presumed they would have at least made a sufficient profit from the contract to recover their costs, had the warranties been true. It is said that they invested in Yatango Mobile on the basis that its online platform had great potential but, in fact, the intellectual property constituting the online platform was not all owned by Yatango Mobile. 20. The plaintiffs emphasise that it is for the defendants to prove that, even if the warranties had been true, those costs would have been thrown away (i.e., proof that Yatango Mobile would have failed, regardless). The plaintiffs say that, far from proving this matter, the defendants' evidence suggests that the downfall of Yatango Mobile was directly connected with the falling out which occurred between the plaintiffs and the defendants following the plaintiffs' discovery of the false warranties. It is said that their evidence suggests that, but for the defendants' actions as a result of this dispute (i.e., having Acquire appoint an administrator to YMA), Yatango Mobile may have gone on to be a success; and thus their evidence as to Acquire supports, rather than rebuts, the presumption. 21. Finally, it is accepted that if it is shown that the corporate plaintiffs received a valuable benefit under the contracts which they retained (such as the shares in Yatango Mobile), that would need to be deducted from the amount recoverable by the corporate plaintiffs. However, the plaintiffs say that the defendants must demonstrate that the corporate plaintiffs received such a benefit (citing Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 [264] and Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158 at [175]). The plaintiffs say that, to discharge that onus, the defendants were required to lead evidence that the shares acquired had a particular value, despite Yatango Mobile not owning the intellectual property and coding it used. It is said that they have not done so and that Mr Potter's report suggests to the contrary. Defendants' submissions 1. One issue that was raised in the defendants' outline of submissions and at the commencement of the hearing, but ultimately not pressed, was as to the bringing of the claims by the corporate plaintiffs in the asserted capacity as trustee of the respective trusts; that complaint being as to the fact that a copy of the respective trust deeds had not been produced. Ultimately, I directed that a copy of the trust deed or other document establishing the respective trusts be shown on a confidential basis to the defendants' legal representatives to put to rest what appears to have been an arid dispute as to whether the trusts in question actually existed and whether the corporate plaintiffs were the trustees of the said trusts (and hence as to whether the corporate plaintiffs were the proper plaintiffs). 2. Turning then to the particular claims made against them, the defendants' submissions are that each of those claims must fail. Claim for breach of contractual warranties 1. The defendants say that the immediate difficulty with the contractual warranties is that they did not identify what the parties understood to be "the intellectual property used in relation to the Company's business", noting that it has been observed (see JWH Group Pty Ltd v Kimpura Pty Ltd (2004) 61 IPR 295; [2004] WASC 39 at [78] per Pullin J) that "[t]he phrase 'intellectual property' is a phrase best avoided if precision is required"; and that the term broadly refers to rights regarding "original compositions, inventions, designs, trade marks and other products of intellectual effort " (citing Nintendo Co Ltd v Centronics Systems Pty Ltd (No 2) (1994) 181 CLR 134; [1994] HCA 27 at 160; The Grain Pool of Western Australia v The Commonwealth (2000) 202 CLR 479; [2000] HCA 14 at [17]). The defendants note that it is commonly understood at least to include copyright, patents, and trade marks; but can also apply to such disparate things as trade secrets, or the right to protection against unfair competition. 2. The defendants accept that, in construing the warranties, regard may be had to the surrounding circumstances and to pre-contractual negotiations, but they emphasise the distinction between statements and actions of the parties which were reflective of their mutually shared actual intentions to be bound in some particular way and statements and actions of the parties which did no more than reveal the terms of the contract which the parties intended or hoped to make and which were subsequently superseded by, and merged in, the contract itself. Intellectual property warranty: cl 2.17(a) 1. The defendants say that a proper construction of the warranties at cll 2.17(a)-(g) of each term sheet requires the resolution of the ambiguity in the terms "intellectual property" and "code". In this regard, reference is made to the definitions in s 10 of the Copyright Act of "computer program" ("a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result") and "literary work" (defined to include "a computer program or compilation of computer programs"). Reference is also made to the provisions of ss 29(1)(a), 32 and 35 of the Copyright Act for the proposition that a corporation may be the owner of copyright in a literary work where its employees are the authors and they made the literary work in pursuance of the terms of their employment; and to the definition of a "work of joint authorship" in s 10, the defendants noting that, pursuant to s 78, for a work of joint authorship, a reference to the author is a reference to all the authors (and hence in relation to a work of joint authorship, each author is a co-owner of the copyright in the work). (By way of example of the kind of evidence required to establish authorship of a computer program, reference is made to JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; [2016] FCAFC 20 at [287]-[304].) 2. The defendants say that, properly construed, the "intellectual property used in relation to the Company's business" as referred to in cl 2.17(a) was the intellectual property associated with Yatango Mobile's unique offering; that is, its acquisition of customers through social media, and its online platform (that is, the Web App and Mobile App). It is said that this is the product that Yatango Mobile was selling (and the investment opportunity that was "pitched"). 3. The defendants say that it is clear from contemporaneous correspondence that the intellectual property that was really the subject of (at least) Mr Stavretis' concerns was the intellectual property associated with what Yatango Mobile referred to as its "platform". However, the defendants say that this begs the questions as to what exactly was the platform and what intellectual property was associated with it which was capable of being owned by Yatango Mobile. 4. So, for example, it is said that Mr Stavretis initially denied that the Yatango website was the customer interface, and said that it was what prospective customers saw; but then conceded that it was the website that included the "sliders" which allowed customers to adjust their mobile phone plans (that being part of the business model about which he was excited). The defendants note that Mr Stavretis later in his evidence appeared to suggest that the "platform" was actually the billing system and not the website. The defendants say that this evidence was an obvious contrivance designed to advance Mr Stavretis' interests rather than to give a truthful account. They say that Mr Stavretis was clearly exaggerating the significance of Mr Apps' billing system, relative to the other aspects of the Yatango Mobile platform, in an attempt to improve his case; and that Mr Apps' evidence should be preferred. Again, I do not regard Mr Stavretis' evidence in this regard as contrived or exaggerated. In lay terms (and it is not suggested that Mr Stavretis was a computer programmer or software designer), what was being "sold" to the investors in the Yatango Mobile business was that it had a unique online platform that allowed users to customise their mobile phone plans (certainly one that involved access to the website and use of "sliders" but which platform involved a particular billing and provisioning system). In that context, concern on the part of Mr Stavretis (and Mr Kestelman) to be sure that the relevant intellectual property to enable the ongoing use of that unique online platform is quite understandable (for the reasons that emerged in the course of Mr Potter's cross-examination). 5. Turning then to the nine particular items alleged to be the intellectual property, the defendants say that it is necessary to determine: first, whether it was an item of "intellectual property used in relation to the Company's business" within the meaning of the term sheets; and, second, if so, whether it was owned by Yatango Mobile or one of its subsidiaries. The defendants maintain that (leaving aside the two registered trade marks) the evidence does not establish that the particularised items existed as "intellectual property used in relation to the Company's business" as that term ought be construed. 6. First, as to the domain names, it is said that the evidence does not establish that any of those domain names was used in relation to Yatango Mobile's business, save for www.yatangomobile.com.au; and that this domain name was not an item of "property" capable of being "owned". Rather, it is said that all that could have existed was a licence (or at minimum, an implied licence) to use the domain name. The defendants say that there is no evidence that it was owned by any other entity (indeed, as I understand it, they say that a domain name is not capable of ownership as such). 7. Second, as for the "Passport and Rewards System" and the "Customer Management System", the defendants say that the evidence is not sufficient to establish that these things existed, let alone that they were "intellectual property" which was used in relation to Yatango Mobile's business but owned by some other entity. 8. Third, as to the "Customised Code" the subject of the 2012 BJYP Agreement, which it is noted had been disclosed to the plaintiffs during the due diligence process, the defendants note that pursuant to that agreement BJYP had agreed to assign all intellectual property rights in the Customised Code to a subsidiary of Yatango Mobile (which was to be incorporated). The defendants point out that this ultimately did occur but in any event, they say that the evidence does not establish that the "Customised Code" was "intellectual property used in relation to the Company's business". 9. Fourth, as to the trade marks, the defendants do not appear to contest that the trade marks were not owned by Yatango Mobile but they say that ownership of trade marks can be easily ascertained at no cost by a search of a public register and they submit that it is unlikely that the parties intended the warranties to apply to the Yatango trade marks. 10. The defendants say that the allegation that Yatango Mobile did not have a licence to use the Base Code is untenable in view of the express acknowledgment in cl 1.1(b) of the September 2014 BJYP Agreement that it did have such a licence, as well as Mr Apps' evidence to like effect. They say that this disposes of most of the pleaded issues concerning the platform. 11. Otherwise, to the extent that the plaintiffs' pleadings allege that Yatango Mobile did not own the Customised Code, the defendants say that the evidence is not sufficient to establish what was (or was not) owned, nor by whom. It is said that there is not even any evidence as to what the Customised Code comprised as at the dates the term sheets were entered into, let alone who owned it. 12. The defendants say that the position in relation to the assignment of the Customised Code is equally unclear. Again, it is said that the evidence does not permit a finding with any degree of confidence as to precisely what the Customised Code was as at the dates the term sheets were entered into; nor what rights subsisted in that code which were capable of assignment and had not been assigned. 13. Thus, it is submitted that the plaintiffs have failed to establish the matters asserted in the particulars concerning the Base Code or the Customised Code. 14. As to the other contractual warranties on which the plaintiffs were said to rely (and the breach of which was said to engender loss to the plaintiffs), the defendants say as follows. Coding warranty: cl 2.17(b) 1. As to cl 2.17(b), the defendants say that the evidence does not establish that the "Customised Code" was code used by Yatango Mobile which had been developed by employees of Yatango Mobile or third parties. Further, it is said that the Customised Code had been assigned to a subsidiary of Yatango Mobile. The defendants say that the assignment may have been subject to certain preconditions, but that the warranty made no representation that any such assignment was unconditional. Licence warranty: cl 2.17(c) 1. As to cl 2.17(c), the defendants say that this allegation is confused. They argue that the effect of the warranty is that where a subsidiary of Yatango Mobile held particular intellectual property in software which was used by Yatango Mobile, that subsidiary had granted a licence to use the intellectual property. It is said that if any intellectual property in software was not held by a subsidiary then it was not the subject of the warranty. The defendants say that there is no evidence that the particularised items in this allegation (see above) were software in relation to which a subsidiary of Yatango Mobile held intellectual property and which was used by Yatango Mobile without a licence from that subsidiary. No Infringement warranty: cl 2.17(d) 1. As to cl 2.17(d), the "No Infringement" warranty, the defendants maintain that this is an unsubstantiated assertion. Roll-up warranty: cl 2.17(k) 1. As to cl 2.17(k), the defendants say, first, that notwithstanding the chapeau, the clause is plainly not a warranty; rather, that it is in the nature of a promise by Mr Taylor and Mr Wilkinson to do certain things. Second, it is said that what Mr Taylor and Mr Wilkinson promised to do was to effect a transaction pursuant to which all of the shareholders in Yatango Mobile would become shareholders in Yatango on certain terms. The defendants say that an immediate difficulty with such a promise is that Mr Taylor and Mr Wilkinson alone did not have the ability to effect such a transaction. It is said that a transaction involving Yatango and all of the shareholders in Yatango Mobile would require the agreement of both Yatango and of all of the shareholders in Yatango Mobile (including the plaintiffs). Further, it is said that the terms of the proposed transaction had clearly not been finalised and that these matters would have been objectively obvious to all concerned at the time of entry into the Second Contracts. The defendants say that it follows that, to the extent that cl 2.17(k) purported to be a contractual promise, it was in the nature of an agreement to agree; and that it is not legally enforceable (referring to what was said in Summergreene v Parker (1950) 80 CLR 304; [1950] HCA 13 at 315-316 per Latham CJ). 2. Alternatively, it is said that if there were any enforceable obligations they could go no higher than that Mr Taylor and Mr Wilkinson were required to use all reasonable endeavours to effect the roll-up. It is submitted that the 31 August 2014 date was plainly aspirational and was not an obligation in relation to which time was of the essence. In that respect, it is said to be clear from the contemporaneous correspondence that there were negotiations in relation to the proposed roll-up that became protracted. It is said that the plaintiffs eventually entered into an agreement in relation to this in March 2015 but that this agreement was not effected because the proposed IPO did not proceed. Thus, it is said that Mr Taylor and Mr Wilkinson did not breach any obligations under the Second Contracts in relation to the proposed roll-up. Damages for breach of contractual warranties 1. As to the question of damages for breach of contractual warranties, were such a breach to be established, the defendants say that the appropriate measure of damages is the amount that would put the plaintiffs in the position in which they would have been had the warranties been correct (citing EW Blanch Pty Ltd v Cooper [2005] NSWCA 217). The defendants accept that the starting point for calculating damages for breach of warranties in a share sale agreement is usually the difference between the price paid and the actual value of the shares. However, the defendants say that the true measure of damages may not necessarily be the difference between the price paid and the objective market value of the shares; rather, one must look at the manner in which the price was calculated and how the warranties contributed to it (if at all). It is noted that the plaintiffs will recover only nominal damages if they fail to prove the amount of damage suffered by reason of the breaches (citing Lifehealthcare Distribution Pty Ltd v Nicholas [2011] NSWSC 661 at [155] per Hammerschlag J). 2. The defendants say that in the present case the value at which the plaintiffs' shares were acquired was negotiated between sophisticated parties and included the benefit to Mr Kestelman and Mr Stavretis of the Acquire deal and the position of Yatango, including: its need for working capital and the proposed IPO. It is noted that the pre-money valuation for the First Contracts was $15 million whereas for the Second Contracts (some six months later) it was $10 million. 3. It is said that there is no evidence as to the impact, on the value of the shares, of the matters the subject of the warranties (whether on a market value basis or on the basis on which the price in fact paid by the plaintiffs was calculated), noting that the plaintiffs' expert, Mr Potter, did not consider that question. 4. Further, the defendants maintain that, even taking the plaintiffs' case at its highest, in many instances the damages are negligible. In this regard, reference is made to the "Customised Code". The defendants say that Yatango Mobile had a contractual right to obtain ownership of whatever intellectual property existed. They say that the measure of the plaintiffs' loss would be the difference in value between the plaintiffs' shares if the Customised Code was owned by Yatango Mobile and the same shares if Yatango Mobile had an enforceable right to obtain ownership. It is submitted that, even apart from the lack of any evidence on that question, there is little, if any, difference in value. 5. Similarly, it is said that even if the plaintiffs are correct regarding the roll-up warranty, it is far from obvious that they would be in a better position now had they in fact been issued shares in Yatango Holdings (and that there is no evidence to that effect). 6. Thus, it is said that it follows that if the plaintiffs do establish any breaches of the contractual warranties, they should recover nominal damages only. Misleading or deceptive conduct claims 1. As to the allegation of misleading or deceptive conduct under the various statutes, the defendants say that whichever be the applicable statute, what must be determined is whether, objectively viewed, the conduct had the tendency to lead the plaintiffs into error in the particular circumstances in which it occurred and, if so, whether any loss has been suffered and whether there is a causal link between the impugned conduct and the claimed loss. Pre-Contract IP Rights Representations 1. The defendants say that none of the documents or conversations particularised in relation to the Pre-Contract IP Rights Representations included a representation in the pleaded terms and that this claim fails for want of evidence. 2. As to the alleged "Failure to Disclose Pre-Contract IP Rights Representation", complaint is made that this allegation is "hopelessly vague". It is said that the plaintiffs have identified no specific information that they say ought to have been disclosed, nor is there any evidence of what would have occurred had such information been disclosed. It is submitted that, on the evidence, the alleged representation has not been established. YM Asset Representations 1. As to the pre-contractual value representations, the defendants identify the following difficulties with the "YM Asset Representations", namely that: the balance sheet, on its face, related to the Yatango Mobile Group, and not Yatango Mobile; the balance sheet included a clear disclaimer that "[t]his statement is to be read in conjunction with the Notes to the Financial Statements and the accompanying Compilation"; and they say that a sophisticated investor such as Mr Stavretis would objectively be taken to know that: (i) a billing system is not an asset (such as real property or a motor vehicle) in relation to which there would be a readily identifiable value which could be ascertained through relatively simple means; and (ii) there are a number of ways to record asset value in a balance sheet (such as cost price, realisable sale value, true value, and so on), and that the balance sheet did not, on its face, disclose which method had been used. 2. In those circumstances, and in the context of the ongoing negotiations between the parties, the defendants say that the representations in the balance sheet went no higher than that Yatango Mobile estimated the value of the billing system to be $12,312,733, and not the objective truth of that fact. $15M Value Representation 1. As to the $15M Value Representation, it is noted that the 6 November 2013 email was part of a chain of correspondence commencing with the email from Mr Stavretis on 30 October 2013, in which he stated that: "The offer; / a cash investment of $1,000,000 … Pre-money valuation of $10,000,000" and with a further email on 6 November 2013 from Mr Stavretis saying "Revised offer / A cash investment of $1,000,000 … Pre-money valuation of $14,000,000". It is noted that in the impugned email, Mr Taylor stated that "[t]he valuation is coming in at $15m, I can't go below this, especially if we are committing to more expensive resource" and that, in response, Mr Stavretis said "[y]ou won me over … Here is the offer; / - Cash investment of $1.5m on a pre-money val of $15m". 2. The defendants say that, in that context, the $15 million value was plainly an offer; and not a representation as to the objective value of Yatango Mobile. It is said that it was a representation as to the value at which Mr Taylor was willing to issue shares in Yatango Mobile, and that Mr Stavretis interpreted it as such. 3. As to the allegation that the combined First Pre-Contract Value Representations were misleading or deceptive, by reference to the annual report prepared for Yatango Mobile as at 30 June 2013, the defendants say that this allegation has no substance and that this claim must fail because there is no evidence of reliance in relation to either the balance sheet or the valuation in the 6 November 2013 email. It is said that Mr Stavretis came to his own conclusions as to the value of the Yatango Mobile shares, taking into consideration the company's assets, and that he did not rely on what he was told about the value by the defendants. (It is submitted in effect that it would be expected that a sophisticated investor such as Mr Stavretis would not rely on what he was told about value by the defendants.) Breaches of the contractual warranties as misleading or deceptive conduct 1. As to the allegation by the plaintiffs that the warranties in the term sheets amounted to representations (for the purposes of the misleading or deceptive conduct claims); the defendants say that, on the proper construction of the warranties, the warranties were not false but they go on to make the following further submissions. 2. The defendants accept that the act of signing a contract ordinarily makes a representation "that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, … whatever they might be" (citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [45]. However, beyond that, the defendants invoke what was said in McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; [2008] FCAFC 2 at [138] per Allsop J, as his Honour then was, namely that "the divining of representations from the making of contractual promises and the entry into contracts is a task to be approached with caution and with an eye to all the facts and not by reference to implying representations mechanistically from equivalent promises". 3. The defendants say that, in the circumstances of the present case, they did not, by signing the term sheets, make a representation that the warranties were objectively true. It is contended that the representation they made was that they were willing to agree to be bound by a document containing those warranties. 4. Further, it is noted that, in circumstances where both parties know the true position, a statement to the contrary in a written document will not be misleading or deceptive or likely to mislead or deceive (citing Ingot at [43] per Giles JA). The defendants say that this is relevant to the claim in relation to the warranties insofar as they concerned the "Customised Code", in that, as at the time the First Contracts were signed, the 2012 BJYP Agreement had been disclosed by the defendants to the plaintiffs. It is said that all parties were aware of the position (namely that BJYP had agreed to assign the Customised Code to Yatango Mobile Labs – a company that had not yet been incorporated but would, on its incorporation, be a subsidiary of Yatango Mobile) and that a warranty as to the status of the Customised Code that may otherwise have been misleading was, in those circumstances, not misleading. 5. Alternatively, if it is found that any of the pleaded representations was in fact made and was misleading, the defendants contend that the plaintiffs have not established that they were in fact misled by the representations. 6. The defendants argue that the inclusion of the warranties in the contracts is itself strong evidence that the plaintiffs were not misled (especially in the absence of an express rescission clause) because they say that this indicates that the plaintiffs turned their minds to the question of whether the things stated in the warranties were true, that they knew that those things may not have been true, and that they decided that in the circumstances they would be sufficiently protected against that contingency by the contractual remedies available to them should the warranties have been breached. It is submitted that this is the purpose of inserting such warranties into a contract of sale (absent a rescission clause). The defendants maintain that the warranties function as a form of pseudo-insurance (in that if they are breached the plaintiffs can claim compensation which has the effect of reducing the amount they pay for the shares). Pausing here, how this submission accommodates the submissions made as to the contractual claim is not by any means clear – in that it is hardly a form of pseudo insurance if the contractual breach of warranty fails at the outset (as the defendants contend) but presumably their answer to this is simply that is was not very effective "pseudo-insurance"). 7. A further matter to which the defendants attach significance is that they say the evidence shows that the plaintiffs were legally advised during the due diligence process, and that there is express evidence that they received advice on "the corporate structure and which entity has the software/IP" but have not put into evidence that advice (instead invoking legal professional privilege). The defendants maintain that any privilege has been waived because the evidence given by Mr Stavretis as to what he would have done had he known the position in relation to the intellectual property is inconsistent with the maintenance of privilege over the advice he received in relation to that intellectual property (citing GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2020] NSWCA 266 (Xinfeng) at [57], [59] per Macfarlan JA). In those circumstances, (while the defendants did not here challenge the claim for privilege) it is said that it can be inferred from the failure to put the advice into evidence that it would not have assisted Mr Stavretis' case that he knew nothing about the true ownership position and was misled by the defendants. 8. As to the allegation that there has been a waiver of legal professional privilege given that reliance is part of the plaintiffs' case, the plaintiffs say that this is inconsistent with authorities such as Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 and Galati v Deans [2019] NSWSC 1548 (at [29]). Insofar as the defendants submit that an adverse inference should be drawn about what that advice contained, it is noted that this inference is left unexplained. 9. Pausing here, I do not consider that, applying the test as articulated in Xinfeng, it can be said that there has been an implied waiver of privilege in the present case. Indeed, the conclusion there drawn seems apt to the present circumstances. There, the issue of implied waiver of privilege arose by reference to the allegation as to the lack of awareness (at the time consent orders were made in proceedings in this Court providing for judgment to be entered in favour of the plaintiffs) as to illegality under Chinese law that was said to affect the underlying transaction (and hence it was alleged that there was an unilateral mistake). What was sought was production of any legal advice at the time of the agreement to enter into the consent orders. The Court of Appeal (Macfarlan JA, with whom McCallum JA and Simpson AJA agreed, emphasised that the test for implied waiver was one of inconsistency between the conduct of the privilege holder and maintenance of the privilege, not one of general fairness or of relevance to an issue in the proceeding (see at [57]), Although it was accepted that the advice would have been relevant, the Court of Appeal concluded that there was no implied waiver. 10. Here, the circumstances said to give rise to the implied waiver appear to be the unfairness of the plaintiffs (or the Stav plaintiffs) having received advice (either on the transaction or the due diligence process – that being unclear) in circumstances where the plaintiffs' case involves a question as to the state of awareness of the true position in respect of IP ownership rights at the time. On the test as explained in Xinfeng, it is hard to see that there has been any implied waiver in any such advice. In any event, there was no challenge to the claim for legal professional privilege in the present case. There is no basis from which I can infer that any such advice went to the issue as to ownership of the intellectual property. I do not accept that the adverse inference here sought by the defendants can or should properly be drawn. 11. Alternatively, the defendants say that, if the advice remains privileged, it can nevertheless be inferred from Mr Stavretis' failure to adduce evidence regarding the due diligence he conducted that the things he learned during that due diligence would not assist his case. 12. The defendants emphasise that the plaintiffs were sophisticated parties who were legally represented and it is said (although the evidence does not in my opinion support this) that they conducted an extensive due diligence process before investing. It is said that the plaintiffs took nothing the defendants said at face value; and that the warranties in the term sheets are no exception. 13. Again, I do not accept that any such adverse inference would properly be drawn. Mr Stavretis made clear his understanding of a due diligence process (which is hardly what I would expect of commercial parties engaging in such a process and which by no means leaves room for the inference here sought to be drawn.) 14. As to the cl 2.17(k) warranties in the Second Contracts regarding the roll-up (defined as the Pre-Contract Roll Up Representation and the Contractual Roll Up Representation), the defendants dispute that these were misleading or deceptive (on the basis that there was no reasonable ground to make them) for the following reasons. 15. First, it is said that, looked at in the context in which the roll-up warranties were made (namely that the roll-up was the subject, at the time of entry into the Second Contracts, of ongoing negotiations between the plaintiffs, the defendants, Yatango, and the other shareholders in Yatango Mobile), the warranties represented no more than that the defendants would continue in good faith to advance those negotiations (as it is said they in fact did). 16. Second, the defendants reiterate their submission that the cl 2.17(k) warranties were in the nature of promises to do certain things; pointing out that the fact that something does not come to pass does not render misleading an earlier representation that it would be done (citing Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88; SPAR Licensing Pty Ltd v MIS QLD Pty Ltd [2014] FCAFC 50; 314 ALR 35 at [18]-[21] per Buchanan J). It is submitted that a promise to do something can go no higher than an implied representation that the person who makes the promise intends, at the time the promise was made, to do that thing. The defendants say that it is clear that they in fact attempted to implement the proposed roll-up, and failed in that respect only because the proposed IPO was under-subscribed. In those circumstances it is submitted that there is no basis on which to infer that the cl 2.17(k) warranties were misleading in any respect. 17. As to the defendants' submission to the effect that, by putting it in as a warranty in the contract, the reliance was not on the truth of what was being warranted but the reliance was on the existence of the warranty, the plaintiffs say that the suggestion that commercial parties are equally happy having an action for damages for breach of contractual warranty, rather than actually wanting the warranted facts to be true, cannot be accepted. The plaintiffs say that they wanted to invest in a company that owned the online platform; they did not want to pay money to pursue the defendants in litigation for breach of warranty. 18. Third, and in any event, the defendants contend that the plaintiffs have not established reliance on these warranties. 19. As noted above, the defendants contend that Mr Stavretis (and through him Stav Investments) has not established reliance on the relevant contractual warranties or alleged representations. It is contended that Mr Stavretis did not take at face value what was said as to the value of the company; indeed it is said that he was clearly sceptical as to the valuation weeks after the balance sheet was provided and hence that the balance sheet was not material to any decisions made by him; that Mr Stavretis relied on his own due diligence; that he either never turned his mind to the existence or otherwise of the trade marks or that he knew where those trade marks resided (having received legal advice); and that he had no desire for the roll-up to occur as provided under cl 2.17(k) of the Second Contract. 20. It is noted that Mr Stavretis' evidence in cross examination was that when he received the 14 November 2013 document he believed that there was "a structure in place to move the IP", but that he could not say where he thought the intellectual property was held at the time, and he conceded that the structure had not yet been finalised. 21. The defendants say that, in order to succeed in their reliance case, the Stav plaintiffs need to establish that they relied on the representations said to have been made by the defendants in the contractual warranties, as opposed to the fact of the provision of the warranties. It is submitted that the provision of the contractual warranties in the form agreed on 10 November 2013 did not give rise to the pleaded representations. Rather, it is said that the warranties were there because Mr Stavretis believed there to be a risk in relation to intellectual property ownership and wanted to ensure that he had contractual rights he could exercise in the event the warranties turned out to be false. 22. It is said that this is consistent with the attitude Mr Stavretis in fact showed in October 2015 when he instructed his solicitors to seek that the trade marks and domain names be transferred to Yatango Mobile. Again, the defendants submit that such a finding can more comfortably be made given Mr Stavretis' failure to place in evidence the advice he received in relation to the form of warranties. 23. Further, it is said that the Stav plaintiffs must establish that they relied on the representations being made in a personal capacity by the defendants, as opposed to the representations being made by the company (Yatango Mobile). It is said that, to the extent the representations were made in the defendants' personal capacity, the Stav plaintiffs have not proven reliance on them. I refer to this submission further below. 24. As to the position of LK Group Investments, it is noted that the pleaded case on behalf of LK Group Investments is limited to the representations said to have been made by the provision of the contractual warranties. The defendants say that Mr Kestelman gave no evidence that he relied on the truth of those warranties or that he would not have entered into either contract had he not believed those warranties to be true. The defendants say that Mr Kestelman's evidence in cross-examination was that he relied on various other things: principally, the advice he received from Mr Stavretis (including the conduct by Mr Stavretis of a due diligence process on his behalf); advice from lawyers, accountants, and "other professionals" (again, the complaint being that there was no evidence of this advice); and certain implied "assurances" that he said were made by the defendants in the initial meeting on 28 August 2013 (and which are not pleaded). 25. The defendants say that Mr Kestelman's evidence was contrary to his having relied on the truth of the contractual warranties in that: he said that he never discussed the contractual warranties with Mr Stavretis; he did not say that he understood that Yatango Mobile owned all of the relevant intellectual property as at the date of the First Contract (rather, his evidence was that he expected "a process to be put in place to make sure that what the owners implied we were going to get, we will eventually get" and "that all assets would come, or at least undertakings for those assets to be transferred into that company, would come with the purchase price of the $15 million"); and his evidence was that he did not understand the effect of cl 2.9 of the First Contract to be that Yatango Mobile could sell any asset valued at over $200,000 subject only to consulting with LK Group Investments first (which is said to be inconsistent with Mr Kestelman having read and carefully considered the contract prior to signing it). 26. Further, the defendants say (as they do in relation to Mr Stavretis) that Mr Kestelman has given no evidence to indicate that he relied on any representations being made by Mr Taylor and Mr Wilkinson in their personal capacities, rather than on behalf of the company (Yatango Mobile). 27. As to the proposition that reliance had not been established on representations as made by the defendants in their personal capacity, the argument appeared to be put both as a pleading point (that the same conduct, i.e., the making of representations, had been pleaded both against the defendants and the company – which was not a party to the proceedings) and as going to reliance. Complaint was made that the conduct pleaded at [5AA] for example, was the same conduct as pleaded against the individuals. It was said (this being described as a conceptual point) that: The point is that one of those protagonists or one of the persons who undertook the impugned conduct [Yatango Mobile] is not a party. It is Yatango Mobile and it's said to have done the same thing as the defendants in these proceedings. The question arises, having regard to the principles in Arrium [being Anchorage Capital], what are the defendants' representations, if they are, indeed, representations, that caused the plaintiffs to invest, as distinct from the representations which are put in exactly the same terms that were made by the company which is not a party? 1. The defendants say that there is no evidence that the plaintiffs relied on the representations being made by the defendants personally (as opposed to being made as organs of the company which is also alleged to have made the very same representations). Reference was made to the findings made by Ball J at [405] in Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025 (Anchorage Capital) in this regard. Pausing here, and with all due respect, I do not consider the analogy here sought to be drawn with Anchorage Capital is apt. In Anchorage Capital, his Honour found that there was no evidence that reliance had been placed on what the signatories personally had done. Here, the representations (at the very least, undoubtedly those made by way of the contractual warranties) were expressly made by the defendants in their personal capacity. The defendants must have intended those warranties to be relied upon as being given in their personal capacity. 2. The plaintiffs submit that the facts of Anchorage Capital are very different from the present, noting that the case related to draw down notices issued pursuant to banking facilities in existence between a corporate entity and the bank. Reference is made to what Ball J said at [408], applying the decision of Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120 (ASIC v Narain) and concluding that the signatories themselves were merely acting as organs of the company giving a contractual notice. 3. As to the defendants' suggestion in their submissions to the effect that, because representations have been pleaded as made both by the company and also by the individuals personally, this was within the reasoning in Anchorage Capital, the plaintiffs say that this is misconceived because it is the one act and that Mr Taylor and Mr Wilkinson are clearly acting as principals in the giving of the warranties and making of the representations and therefore they are personally liable. Damages for misleading or deceptive conduct 1. As to the principles applicable to the assessment of damages for misleading or deceptive conduct inducing a party to enter into an agreement to purchase investment assets such as shares, reference is made to the approach in Potts v Miller, namely, that the proper measure of damages is the difference between the price paid and the value of the thing obtained at the time the loss is suffered (and reference is made to HTW Valuers at [35]-[40]). 2. The defendants say that, even if the plaintiffs establish that misrepresentations were made on which the plaintiffs relied, and that they would not have entered into the transaction at all but for the misrepresentations (as opposed to purchasing the shares at a lower price), that would not alter the proper measure of damages. Reference is made to the observation by Brereton J (as his Honour then was) in Street v Luna Park Sydney Pty Ltd [2007] NSWSC 588 at [9] that: It makes not the slightest difference that it is the plaintiff's case that they would never have purchased the subject property but for the conduct complained of, as distinct from that they would have purchased it only for a reduced price. In many fraud or s 52 cases a purchaser will say that he, she or it would never have purchased had they known the true position. Even so, having purchased, the asset may prove to be worth no less than what they paid for it, in which case they have suffered no loss, despite reliance on misleading and deceptive conduct and despite the fact that they would not have embarked on the purchase but for that conduct. … 1. The defendants accept (although they consistently made a point during the hearing as to the lack of evidence of this fact) that Yatango Mobile subsequently became insolvent and was placed into liquidation; and they accept that it may be appropriate in some cases to have regard to subsequent events in order to determine the value of the shares the plaintiffs acquired (though not where an intervening event breaks the chain of causation) referring to what was said by the High Court in Kizbeau at 291 as to the distinction between subsequent events that arise from the nature or use of the thing being valued (which are admissible to prove the value of the thing) and subsequent events that affect the nature of the thing but arise from sources supervening upon or extraneous to the (there fraudulent) inducement (which are inadmissible to prove the value of the thing). 2. The defendants submitted in this context that the difficulties faced by Yatango Mobile had nothing to do with anything the subject of the misrepresentations alleged by the plaintiffs (i.e., that Yatango Mobile did not fail because it did not own or have a licence to use any particular intellectual property but, instead, failed for other reasons including that: it could not afford to pay its commitments to Acquire under the call centre agreement; the proposed IPO had been unsuccessful; and Acquire had appointed administrators to YMA and, after the subsequent acquisition of YMA's assets, Yatango Mobile lost its principal source of income). As adverted to above, this was the subject of much complaint during the course of the hearing – as to whether evidence in relation to subsequent events was admissible in circumstances where the gravamen of the allegation (an issue of causation of loss) had not been pleaded. I ruled against the defendants on this issue (a ruling relied upon by them in their numerous complaints as to unpleaded allegations by the plaintiffs to which I have already referred and which I do not need here to repeat). 3. The defendants' position is that the proper measure of the plaintiffs' loss (if any) is the difference between the price the plaintiffs paid for their shares in Yatango Mobile and the true value of those shares as at the date of acquisition; and it is submitted that the plaintiffs have failed to prove that they suffered any loss in that respect. Accessorial liability for misleading or deceptive conduct 1. The defendants say that the plaintiffs have not alleged the material facts necessary to establish these grounds of vicarious liability. In order for any of these grounds to be made out with respect to a particular contravention, it is necessary for the plaintiffs to establish that the defendants had actual knowledge of the essential elements of the contravention, and with that knowledge committed some act or omission which contributed to or brought about the contravention. 2. The defendants say that the particulars given by the plaintiffs consist of nothing more than cross-references to the allegations concerning the making of the relevant representation. For example, having regard to the alleged $15M Value Representation, it is noted that the particulars to the allegations at [5BA] and [5BB] of the second further amended commercial list statement in the Stav Proceeding (that Yatango Mobile made the representation and that Mr Taylor, in his personal capacity, was an accessory to it being made) do no more than cross-reference the allegation at [5B] that Yatango Mobile and Mr Taylor made the $15M Value Representation. It is said that the allegations in relation to breach and reliance are included in the "rolled-up" allegations at [7A]-[8B]. 3. The defendants complain that the plaintiffs have not alleged any actions of Mr Taylor that are said to have contributed to, or brought about the making of, the representation by Yatango Mobile other than the (said to be circular) allegation that he made the representation; and it is said that there is no allegation that Mr Taylor had knowledge of the essential elements of the contravention. It is submitted that all of the allegations of accessorial liability have the same defects. In particular, the defendants complain that there is no allegation that either defendant had knowledge of the essential elements of any contravention. Contributory negligence 1. The defendants have raised the defence of contributory negligence to limit any liability to an amount reflecting the proportion of loss or damage considered just and equitable, having regard to the extent of the plaintiffs' share in the responsibility for the loss or damage by reason of their failure to take reasonable care (see s 137B of the Competition and Consumer Act ; s 1041I(1B) of the Corporations Act; s 12GF(1B) of ASIC Act, cognate provision under the ACL (NSW) (were it to apply) and s 9 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW). It is said that there is no contention in the present case that the defendants intentionally, or fraudulently or maliciously, caused the damage suffered by the plaintiffs. 2. The bases on which it is argued that the plaintiffs were guilty of contributory negligence are as follows. 3. First (and only to the extent that the plaintiffs are otherwise successful on their contentions as to this agreement), that the plaintiffs made their investments in circumstances in which they had actual knowledge of cl 5.5 of the 2012 BJYP regarding the assignment of the Customised Code. It is noted that cl 5.5 of the agreement provided that, on the occurrence of an Insolvency Event in relation to Yatango Mobile, the intellectual property rights transferred by BJYP to Yatango Mobile would revert to BJYP. The defendants say that this is significant because the plaintiffs caused an Insolvency Event in relation to Yatango Mobile by appointing administrators to it. Thus it is said that the plaintiffs caused the loss by Yatango Mobile of the Customised Code (and, if it was truly the Customised Code that was the source of the value of Yatango Mobile, the plaintiffs are responsible for the diminution in the value of their shares by reason of the reversion of the assignment of it by BJYP). 4. Second, that the plaintiffs entered into the Second Contracts in circumstances where they had actual knowledge that Yatango Mobile was in financial distress. It is said that so doing was a failure by the plaintiffs to protect their own interests. (The defendants also rely on this for the purposes of apportioning loss to Mr Stavretis and Mr Kestelman.) 5. Third, that the plaintiffs failed to conduct searches of publicly available registers in relation to the ownership of the impugned trade marks or internet domain names (and failed to engage a lawyer or other person capable of doing so), which searches would have revealed the registered owner of the trade marks and the person to whom the domain names were registered. It is said that if, as the plaintiffs allege, the registration of the trade marks and the domain names was so crucial to their investments that they would not have invested had they known that those things were registered to some other entity (reference again being made in this context to what the defendants contend was the conduct by the plaintiffs of an extensive due diligence process prior to investing), then it beggars belief that they would not perform searches available to them (at no cost) of public registers that could have confirmed the position. (The defendants point to Mr Stavretis' evidence that in fact he did this on 17 April 2019 – see Mr Stavretis' first affidavit, affirmed 23 April 2019 at [74]). Proportionate liability 1. As with the contributory negligence defence, the defendants say that whichever statute applies to the plaintiffs' misleading or deceptive conduct claims, those claims are subject to a statutory provision which limits the defendants' liability to an amount reflecting the proportion of loss or damage considered just and equitable, having regard to the extent of the defendants' responsibility for the damage or loss, in circumstances where there are concurrent wrongdoers (i.e., persons who are legally liable to the plaintiff for the same loss), relying on s 87CD of the Competition and Consumer Act, s 1041N of the Corporations Act, s 12GR of the ASIC Act, and s 35 of the Civil Liability Act 2002 (NSW) (Civil Liability Act). The defendants rely on those provisions in relation to the following alleged concurrent wrongdoers: Yatango Mobile; Mr Stavretis and Mr Kestelman; and LK Group Investments. Yatango Mobile 1. As to Yatango Mobile, the defendants point out that the plaintiffs' own case is that Yatango Mobile is jointly and severally made each of the misrepresentations on which they rely. The defendants say that because it is alleged that Yatango Mobile severally made those representations the issue does not arise as to whether (see Williams v Pisano (2015) 90 NSWLR 342; [2015] NSWCA 177 (Williams v Pisano)) a single act by multiple persons could be apportionable as between them (Emmett AJA there concluding at [65]-[85] that it could be so apportionable; Bathurst CJ and McColl JA leaving the question open). 2. It is said that if Yatango Mobile's conduct was severable, it would plainly be the case that its acts or omissions caused the loss independently of the acts and omissions of Mr Taylor and Mr Wilkinson; and that in those circumstances, Yatango Mobile was no less liable for any individual act or omission than was either of the defendants (and any liability should be apportioned equally between them. Mr Stavretis and Mr Kestelman 1. The defendants point out that, as at the date of the First Contracts, Mr Stavretis and Mr Kestelman were both directors of Acquire and were the ultimate owners of Acquire through various entities. The defendants say that, as directors of the plaintiff companies, Mr Stavretis and Mr Kestelman owed the companies duties at common law and under statute to act in good faith and in the best interests of the companies. In circumstances where the companies were corporate trustees, it is submitted that the best interest of the companies included to ensure that the companies acted properly in accordance with the respective trust deeds and in the best interests of the beneficiaries of the respective trusts. 2. The defendants say that a component of the price paid by Stav Investments and LK Group Investments for their shares in Yatango Mobile was for the Acquire Agreement (i.e., that the corporate plaintiffs were paying more for the shares than they otherwise would have, because Yatango Mobile was also entering into an agreement pursuant to which Acquire would provide services to it). The defendants contend that, while there was an obvious benefit to Acquire in that transaction, there was no obvious benefit to either of Stav Investments or LK Group Investments (let alone to the interests of the beneficiaries who were to become the beneficial owners of the shares in Yatango Mobile). It is said that the deal was clearly for the benefit of Mr Stavretis and Mr Kestelman, both of whom had interests in Acquire, but to the detriment of both the corporate plaintiffs and to the beneficiaries of the respective trusts. 3. Thus, it is submitted that each of Mr Stavretis and Mr Kestelman placed himself in a position where his own interests conflicted with the interests of the company of which he was a director, and proceeded to act to his own personal benefit and to the detriment of the company, by causing the company to incur a liability and apply the loan proceeds to purchase shares at what he knew was above the value of the shares in order to confer a benefit on a third party. It is submitted that this was in flagrant breach of their duties as directors. 4. In those circumstances, the defendants say that any liability they have to the plaintiffs should be reduced by the amount for which the plaintiffs overpaid in order to secure the Acquire Agreement (and they submit, presumably by reference to the negotiations leading up to the First Contracts, that this accounted for at least about a third of the total purchase price). Mr Stavretis and LK Group Investments 1. The defendants point to Mr Kestelman's evidence that he relied on advice from Mr Stavretis in making his investments into Yatango Mobile, something which they say is also clear from the contemporaneous correspondence. 2. It is submitted that, in all probability, Mr Kestelman relied entirely on Mr Stavretis in relation to whether to invest in Yatango Mobile; and placed no reliance on anything said by Mr Taylor or Mr Wilkinson (such that the claim by LK Group Investments fails on causation grounds). However, in the alternative, if it is found that Mr Kestelman relied in part on Mr Taylor and Mr Wilkinson, then it is submitted that Mr Kestelman was relying to a far greater extent on what he was being told by Mr Stavretis. It is said that this occurred in circumstances where Mr Stavretis failed even to conduct searches of publicly available registers to confirm the true position as to the registration of trade marks and domain names or as to the implementation of the agreement with BJYP. In those circumstances, it is submitted that Mr Stavretis plainly failed to exercise due skill and care in advising Mr Kestelman on whether he (or, through him, LK Group Investments) should invest in Yatango Mobile; and that, if the representations made by the defendants to Mr Stavretis were misleading or deceptive, then the representations made by Mr Stavretis to Mr Kestelman were likewise misleading or deceptive. 3. Thus, to the extent that LK Group Investments' claim otherwise succeeds, it is submitted that the defendants' liability should be reduced by the amount for which Mr Stavretis was responsible. Mr Stavretis' personal claim 1. If Mr Stavretis' personal claim is not dismissed on limitations grounds, then the defendants say that it fails for want of evidence. 2. The defendants say that the evidence establishes that the investments made by the plaintiffs in Yatango Mobile in respect of the First Contracts were remitted from AAPMI; and that, on its face, this appears to have comprised loans from that company to the corporate plaintiffs. It is noted that there is some evidence that Mr Stavretis directed a Ms Len Moreto to make the payments in relation to the Second Contracts, but that there is no evidence as to the actual source of the funds. 3. Mr Stavretis has adduced evidence of loan agreements entered into by him with AAPMI and AAPM2I, and asserts that those loan agreements were in respect of advances of funds in relation to the investments into Yatango Mobile; that he on-lent the loan proceeds to Stav Investments; and that, accordingly, he is owed money by Stav Investments and, in turn, owes money to the two Acquire entities (some of which has been repaid). 4. The defendants say that the sole pieces of evidence supporting this case comprise the (purported) financial reports of the Stav Investments Family Trust for the financial years ended 30 June 2014 and 30 June 2015. The defendants say "purported" seemingly because they dispute the accuracy or veracity of those documents. It is noted that those documents are both signed by Mr Stavretis and dated 5 June 2020 (the same date he affirmed his third affidavit, to which they were exhibited). It is noted that Mr Stavretis had no recollection of how those documents came to be in his possession, who had prepared them, why he had signed them, or why they were exhibited to his affidavit. The defendants say that no weight should be placed on those documents and that, absent those documents, Mr Stavretis has nothing rising above his own assertions to support his personal claim. Thus, the defendants contend that Mr Stavretis' personal claim should be dismissed. Measure of damages 1. The defendants accept in principle that a mobile telecommunications company cannot trade if it has no operative billing system. However, the defendants maintain that the proposition that Yatango Mobile had no licence to use the billing system is incorrect. It is said that Mr Apps accepted that Yatango Mobile had such a licence. Accordingly, the defendants say that Mr Potter's Scenario 1 does not reflect the true position. 2. The defendants also complain that Mr Potter was not asked to take into account the contingent rights that Yatango Mobile had under the agreements with BJYP for the Base Code and Customised Code to be transferred to Yatango Mobile Labs on its incorporation, on the occurrence of which Yatango Mobile would have an 80% interest in the entire system, and an option to purchase the remaining 20% interest. It is noted that Mr Potter said he was given an "unsigned deed" which could have been that agreement, but he did not consider it because he relied on the assumption he was given. 3. Another difficulty that the defendants identify with Scenario 1 is that Mr Potter was not provided sufficient information to ascertain the value of the Yatango Mobile platform. It is said that Mr Potter adopted a costs-based valuation approach, which the defendants say is not generally an appropriate approach for an income-generating asset of this type. 4. Further (as in the other two scenarios), the defendants say that Mr Potter did not, in Scenario 1, take into account the money that was being raised by Yatango Mobile in return for the issue of new shares in it (the so-called "post-money valuation"). 5. Thus, it is said by the defendants that no reliance can be placed on Mr Potter's opinion regarding Scenario 1 as the assumptions he made are contrary to the evidence. 6. The defendants note that Mr Potter had difficulty accepting the balance sheet as a basis for the valuation exercise, and said that if it were up to him he would have placed no reliance on it. The defendants say that Scenario 2 should be dismissed on that basis. 7. Further, complaint is made that Mr Potter did not, in Scenario 2, attempt to assess the value of goodwill (that would not necessarily be recorded in the balance sheet) on account of the expectations of future profitability in the business, although he acknowledged that there must have been some goodwill value (on account of the discrepancy between the agreed valuation of $15 million in relation to the First Contracts and the recorded net assets of Yatango Mobile at the time). 8. The defendants point out that Mr Potter expressly noted that he did this based on his assumptions, and that, had he been asked to undertake his own valuation of the assets and goodwill of Yatango Mobile for the purposes of Scenario 2, his assessment of value is likely to have been different to the instructions he received. 9. The defendants say that, to the extent that some of the intellectual property was not in fact owned by Yatango Mobile but other of the intellectual property was owned by it, then the proper measure of loss would be the difference that the particular property in question made to the overall value of the company. The defendants say that one would thus start with the $15 million valuation and deduct the value of those items. As the plaintiffs have not adduced evidence in relation to the value of individual items of intellectual property, the defendants say that it follows that unless they have established that Yatango Mobile owned nothing, they have not proven their loss. Plaintiffs' reply submissions 1. Reference is made to the evidence of Mr Taylor in relation (at [50] of his affidavit sworn 10 September 2019, and marked Exhibit G) as to the operation by Yatango Mobile from January 2013 of the "ECConnect billing and provisioning system to conduct its business in offering mobile telecommunications services" (reference is further made to Mr Taylor's evidence at [56] and [57] as to the billing system). It is submitted that the software, which formed part of the online platform (that being a conglomeration of software systems) satisfied the Copyright Act and attracts copyright. The plaintiffs say that the mere fact that it can work together with other software as part of an online platform does not change the matter. 2. As to the reliance placed by the defendants on the Employee Transfer Agreement, the plaintiffs say that what that agreement provides is that the intellectual property is to be dealt with in the IP transfer agreement (the 2014 BJYP Agreement), and not effected by the Employee Transfer Agreement (see cl GA‑5). The plaintiffs note that the defendants themselves accept that the requirements for the transfer of the intellectual property under the 2014 BJYP Agreement were not satisfied (referring to [132] of the defendants' supplementary submissions). 3. As to the assertion that the Base Code was not on any view intellectual property within the meaning of cl 2.17(a) of the term sheets nor code for the purposes of cl 2.17(b), the plaintiffs say, first, that the construction of "intellectual property used" as excluding the Base Code but including other software which formed part of the online platform is not an available construction; and, second, noting that the submission is based upon Mr Kestelman's evidence that he was not interested in "off the shelf" software such as those products developed by Microsoft, that the software developed by Mr Apps, including the Base Code, is highly specialised and of a very different nature to something that could be purchased from the shelf of a store. 4. Insofar as the defendants have raised as a pleading point that the plaintiffs have not alleged that the Base Code was not owned, the plaintiffs point out that it is pleaded that the representations were wrong because ""the intellectual property used by Yatango Mobile was owned by BJYP" (referring to the commercial list statement at [10](b)(iv)), which it is said includes the Base Code and Customised Code. Further, it is noted that at [19] of the commercial list statement at (g) of the particulars, it is alleged that all IP was not owned. The plaintiffs accept that (g) is "unfortunately worded" but say that, read carefully, it is a reference to "customer high‑level language computer programs as customised for Yatango Mobile". It is said that, given Mr Apps' evidence that the whole code was required for the software to work in the online platform, this must include what came to be described as the Base Code and Customised Code. In addition, it is said that this matter was plainly addressed by the evidence of Mr Apps, which was served in his affidavit of 16 April 2019; that the defendants have been on notice of this matter since that date; and that they have not sought to respond to this evidence. It is noted that this was also the subject of the plaintiffs' notice to admit facts and that it was expressly denied by the defendants (see Exhibit F). 5. As to Mr Potter's evidence, the plaintiffs note that the defendants' submissions are to the effect that they say Scenario 1 should be ignored, because Mr Potter's assumption as to the licence was incorrect. However, the plaintiffs emphasise that Mr Potter gave evidence that, if Yatango Mobile had a licence, it was possible that his opinions would change but he could not say it was probable (T 264.34-42); and that in re‑examination Mr Potter confirmed that his opinion would not change if there was a licence on market terms (T 284.43-50, T 285.1-7). The plaintiffs say that this (a licence on market terms) is what Yatango Mobile was to get under the 2012 BJYP Agreement, if performed, at a cost in accordance with market rates (referring to cl 3A of that agreement). 6. As to the roll‑up warranty, and the defendants' submission that it could be inferred, based on the documentary evidence, that there were reasonable grounds for Mr Taylor and Mr Wilkinson to make the representation in respect of roll‑up, the plaintiffs say that the defendants were required to adduce evidence as to the basis for the representation and their reliance on reasonable grounds for the making of the representation (citing Futuretronics International Pty Ltd v Gadzhis (1992) 2 VR 217 at 241-242), the evidentiary onus being on the defendants in that regard. (I note that the defendants have pleaded positively that there were reasonable grounds.) The plaintiffs did not rely upon s 4(2) of the Federal ACL, or any cognate provision, which provides that, in relation to a proceeding concerning a representation made with respect to a future matter, the party making the representation is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. In light of this provision, the failure of the defendants to adduce any evidence as to the purported reasonable grounds for the making of the representation may well be dispositive. 7. As to the issue of proportionate liability, on which the defendants bear the onus, the plaintiffs say that this has not been discharged. As to the proposition that Yatango Mobile was a concurrent wrongdoer, the plaintiffs refer to Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 at [39]-[56], and say that here the alleged wrongdoing of Yatango Mobile was merely the acts of the defendants and that no apportionment should be made. 8. As to the position relating to the Acquire Agreement, the plaintiffs say that the defendants' argument is premised on the proposition that the share purchase was a bad deal for the plaintiffs and that the Acquire deal was to the benefit of Mr Stavretis and Mr Kestelman (but to the detriment of the plaintiff companies). The plaintiffs say that this proposition has not been made good; that the defendants would need to show that the share purchase was knowingly a bad deal for the plaintiffs (and that it was only a bad deal because of a misrepresentation by the defendants); and they say that it has not been established that great benefits were to be made under the Acquire Agreement. It is noted in that context that the quantum of the revenue received was small compared to the investment made for the shares (the minimum commitment under the final executed Acquire Agreement for a significant period of time being $156,000 whereas Mr Kestelman and Mr Stavretis, through their corporate entities, parting with $750,000 each). Finally, it is noted that Mr Stavretis and Mr Kestelman were the sole shareholders of the relevant corporate entities and it is said that they would have given fully informed consent. 9. As to Mr Stavretis being a concurrent wrongdoer, complaint is made that the defendants have not articulated what his duty was and how it arose in relation to the due diligence; nor how it was breached. The plaintiffs say that it has not been established that a party who received contractual warranties needs independently to verify the matters warranted; and, as to the suggestion that Mr Stavretis is liable to Mr Kestelman for passing on the misrepresentation made to him, it is said that Mr Stavretis was plainly acting merely as a conduit. 10. As to the allegation of contributory negligence, the plaintiffs say that there can be no negligence in circumstances where each of the plaintiffs has relied upon the representations contained within the contractual warranties (that being, it is said, the whole point of a contractual warranty). Determination Contractual warranties 1. I deal first with the contractual warranties (also relied on from the misleading or deceptive conduct claims) although, as argued, the plaintiffs' case rested primarily on the misleading or deceptive conduct claims. 2. The accuracy of the warranty (and, accordingly, whether it can indeed be classified as such) is to be determined as at the date of entry into the contract: Oscar Chess Ltd v Williams [1957] 1 All ER 325. In that case, Lord Denning held (at 328-329) that in classifying a condition as a true warranty, one looks to the intention of the parties. It was said to be easy to infer a warranty in circumstances in which the representor states a fact which should be within the representer's own knowledge and of which the buyer is ignorant, intending that the buyer act on such a warranty (citing Crouchman v Hill [1947] 1 All ER 103). Similarly, where the representor makes a promise about something which is within their own control it is likely to have been intended as a warranty. Where a party to a contract has special expertise that enables the party to verify a warranty, or is on notice as to the possible untruth of a warranty but fails to make inquiries, a court may be reluctant to characterise the clause in question as a warranty, which would thereby entitle the plaintiff to damages upon breach (see at 330). For the reasons that follow, I do not find there to be any conduct on the part of the plaintiffs that militates against the conclusion that the clauses in question were intended by the defendants to be relied upon by the plaintiffs as warranties. 3. As to the particular contractual warranties, I have concluded as follows. Clause 2.17(a) 1. Clause 2.17(a), which has been extracted above, provided that Yatango Mobile and each of the defendants warranted, jointly and severally, that Yatango Mobile (or one of its subsidiaries) owns the intellectual property used in relation to Yatango Mobile's business both legally and beneficially. 2. I have referred above to the issues raised by the defendants as to what is comprised by the "Intellectual Property" as defined in the term sheet; and in particular that it involves two concepts (that it be "intellectual property" as such (which excludes the domain names) and that it be "used" in the company's business). As at the time of the First Contracts, there can be no serious dispute that there was intellectual property being used in Yatango Mobile's business, that being the code (or Base Code as Mr Apps referred to it) that had been developed by Mr Apps' company with whatever degree of customisation had by then been necessary for the Yatango website to go "live". The fact that this code or Base Code was not owned by Yatango Mobile or any of its subsidiaries at the time the first share sale contracts were entered into is obvious from the fact that there was an agreement on foot for it to be transferred and that had not happened. 3. Any suggestion that there was no intellectual property then being used in the business is untenable (particularly in the light of the defendants' marketing of the online platform as the unique differentiator of its business) and indeed it was expressly disavowed in the defendants' submissions. Rather, what the defendants say is (not that there was no IP or no software but that) there is no evidence that there was coding that could have been covered by the warranty (or warranties). Complaint is made that the "billing system" label is one that has been introduced in the course of the case (see T 382.38-42). It is asserted that, with respect to the Customised Code, it did not exist and that the billing system is a "furphy" so far as the warranty is (or warranties are) concerned (see T 381.20-21). Pausing here, such an argument to my mind ignores the fact that the investment was "sold" to the plaintiffs on the very basis that there was something unique in the online platform in relation to customers' mobile phone plans. 4. However, it is clear from the BJYP Agreement that something (whether it is called code or Base Bode is immaterial) had been developed by Mr Apps or his company; that it was to be transferred to a subsidiary of Yatango Mobile; and that (having regard to Mr Apps' evidence) it was being used as part of the billing system or online platform used by Yatango Mobile (for the website that had gone live, according to the defendants, in January 2013). I place weight on Mr Apps' evidence in this regard. 5. The fact that, by the time the First Contracts were entered into, the plaintiffs were on notice that the IP was in the process of being moved does not assist the defendants because the representation that had been made was to the effect that it was being moved from where it was then located (Yatango Mobile Labs) which was a subsidiary of Yatango Mobile. That was simply false. Moreover, as adverted to above, the warranty concerned a matter which was uniquely within the control of the defendants, and regarding which the defendants had especial knowledge: nothing within the plaintiffs' conduct, expertise or knowledge disentitles them from relying upon the warranty contained in cl 2.17(a). 6. Accordingly, there was a breach of the warranty in cl 2.17(a) contained in the First Contracts (and the corresponding representation was misleading or deceptive, which I will address more fully in due course). 7. By the time of the Second Contracts, it was plain that the ownership of the code or Base Code had not earlier been assigned to Yatango Mobile or any of its subsidiaries. The 2014 BJYP Agreement did make provision for the assignment of the Base and Customised Code to a new entity to be a subsidiary of Yatango Mobile but this was conditional on certain events that did not ultimately occur. Therefore there was also a breach of the ownership warranty at that time. Clause 2.17(b) 1. Clause 2.17(b), which has been extracted above, provided that Yatango Mobile and each of the defendants warranted, jointly and severally, that all code used by Yatango Mobile which has been developed by employees of Yatango Mobile or third parties has been assigned to Yatango Mobile or one of its subsidiaries. 2. The wording of this warranty is in the past tense (i.e., "has been assigned"). It is predicated on code having been developed by employees of Yatango Mobile or third parties that was then used by Yatango Mobile. I accept that there is no evidence as to what any employees of Yatango Mobile had done precisely in relation to the development of the code or Base Code; but there is evidence that employees of Appscorp had developed code for some time for Yatango Mobile and, as I have concluded above, that the code was being used by Yatango Mobile. It is clear that there was no assignment of that code to Yatango Mobile or any subsidiary of Yatango Mobile. Rather, there was an agreement to assign the code (the BJYP Agreement) which had not been performed (as is clear from the 2014 BJYP Agreement). 3. Thus, there was a breach of this contractual warranty (and the corresponding representation was misleading or deceptive). There was a corresponding breach in my opinion of the same warranty in the Second Contracts because all that had occurred at that stage was a conditional assignment. True it is that the 2014 BJYP Agreement made provision, in the event of liquidation, for the intellectual property to be "assigned" (by which I read the intent as being "attributed" to the entity that had developed or customised the code which by at least mid July 2014 would presumably have included some development or customisation of the code by the employees that had been transferred to Yatango Mobile from Mr Apps' company). However, I do not read that as including the Base Code or earlier modifications to the Base Code before that time. Clause 2.17(c) 1. Clause 2.17(c), which has been extracted above, provided that Yatango Mobile and each of the defendants warranted, jointly and severally, that Yatango Mobile had a valid licence to use all intellectual property in the software used by Yatango Mobile and that such licence was exclusive, perpetual, and had been granted for nominal consideration. 2. I accept that the evidence supports the conclusion that Yatango Mobile did have a licence to use the intellectual property in the software (as Mr Apps' evidence made clear) (albeit that it was strictly not in relation to software that was "held by a subsidiary of the Company") but there is nothing to support the conclusion that it was a perpetual licence (and it is not clear that it was exclusive). Therefore, strictly speaking, I consider that there was a breach of this contractual warranty also (and that the corresponding representation was misleading or deceptive) although it may be difficult to establish loss flowing from this breach of warranty it is accepted that there was a bare licence (and the fact that it was not expressed to be exclusive or perpetual does not necessarily establish that damage was suffered as a result). Clause 2.17(d) 1. Clause 2.17(d), which has been extracted above, provided that Yatango Mobile and each of the defendants warranted, jointly and severally, that the use of the intellectual property by Yatango Mobile did not infringe any rights, including the intellectual property rights or moral rights, of any third party. 2. I am not persuaded that there has been a breach of this contractual warranty in light of the bare licence that Mr Apps appears to have conceded was in existence. Clause 2.17(k) 1. Clause 2.17(k) of the Second Contracts, which has been extracted above, provided that Yatango Mobile and each of the defendants warranted, jointly and severally, that Mr Taylor and Mr Wilkinson will effect a "roll up" of all shareholders in Yatango Mobile such that their respective shares in Yatango Mobile will be exchanged on a one for one basis for shares in Yatango Pty Ltd by no later than 31 August 2014 resulting in Stav Investments and LK Group Investments having the same percentage of shares in the new entity as they did in Yatango Mobile and all rights attaching to those shares granted under the Second Contracts will be transferred to apply to the shares held in the new entity. 2. An argument was put by the defendants that cl 2.17(k) (expressed in the future tense, and lacking in detail as to how the roll-up would be effected) constituted an agreement to agree, as opposed to a warranty per se. It is useful to note at the outset that the word "warranty" has been said to be "one of the most ill-used expressions in the legal dictionary" (Finnegan v Allen [1943] KB 425 at 430 per Lord Greene MR). However, the term warranty includes within its expansive range of meanings a promise that something will be done in the future: see, eg. Heydon, Heydon on Contract: The General Part (Thomson Reuters, 2019) at [7.330]. Whereas, to agree to agree is to defer the whole or some part of an agreement to the future, that is, to leave undetermined the essential terms of the agreement until some future date (Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; [2016] HCA 26 at [59] per Gageler J). That is not the case here. 3. The effect of this contractual warranty seems to me that it was an assurance or warranty that the "roll-up" there provided for would be effected by the defendants within the time stipulated. It was in that sense that I consider that the defendants warranted that it would occur in the future. It is not expressed as an agreement per se (and I consider that the parties and their legal advisers would have been well capable of making provision to that effect had it been so intended). 4. Further, it is a warranty as to something that will happen in the future (which did not happen) so that, to the extent that it is relied on as a representation then the evidentiary onus falls on the defendants to establish that there were reasonable grounds for the making of that representation (and the defendants, though positively pleading the existence of reasonable grounds, did not themselves give evidence to discharge that onus). 5. I find that there was a breach of this contractual warranty in the Second Contracts (and that the corresponding representation was misleading or deceptive). Damages for breach of contractual warranties 1. As to the damages for breach of the contractual warranties, the measure of loss is to place the plaintiffs in the position in which they would have been had the warranties proved to be correct. In this regard, I have some difficulty in assessing the loss arising as a result of the respective contractual warranties since it is not apparent that the ultimate demise of the failed business was due to the fact that the contractual warranties were incorrect. 2. The plaintiffs, however, argue that the circumstances of this case are on all fours with the case of McRae, in that what the plaintiffs contracted to buy were shares in a company with an unique online platform (with the software and coding warranted under the terms sheets) and that this did not exist, in the sense that the intellectual property underpinning the online platform was not owned by Yatango Mobile, and the platform was thus, in effect, valueless. The plaintiffs maintain that a departure from the so-called rule in Potts v Miller is warranted on the basis that they were in effect locked-in to their investment in a company which was not publicly listed and that the shares they acquired were worthless without ownership of the intellectual property to support the online platform. Hence it is said that the appropriate measure of compensation for the corporate plaintiffs is the repayment of the amount they expended in acquiring the investment. 3. It seems to me that there is a distinction here to be drawn between the McRae type of case and the present. Here, the shares existed but the contractual warranties as to matters relating to the coding or software for the online platform on which the value of the business (and hence the shares) depended proved to be incorrect. I would therefore have been inclined simply to order nominal damages for the breaches of contractual warranty in relation to the coding (but in light of my conclusions as to the misleading or deceptive conduct claims nothing turns on this). 4. Similarly, as to the "roll-up" warranty I am left in doubt as to what loss was ultimately suffered by reason of the fact that the roll-up did not occur. Misleading and deceptive conduct claims 1. At the outset, it is important to note that the incorporation of the representations within the contract as warranties does not disentitle the plaintiffs from pursuing statutory remedies for misleading and deceptive conduct (Alati v Kruger (1955) 94 CLR 216; [1955] HCA 64 at 220 and 222 per Dixon CJ, Webb, Kitto and Taylor JJ). 2. As to the misleading or deceptive conduct claims, I have already noted my conclusion that the Federal ACL does not apply but that the other statutory provisions here invoked are applicable. 3. Whether conduct has been engaged in is misleading or deceptive is determined objectively (see Campbell v Backoffice at [25] per French CJ). Conduct will be misleading if it has a tendency to lead a person into error: (see ACCC v TPG at [39]). The question is whether the impugned conduct, viewed as a whole, and in context, had a sufficient tendency to lead a person exposed to the conduct into error, such as to form an erroneous assumption or conclusion about some fact or matter. It is noted that if individuals, such as the defendants, engage in conduct that is misleading or deceptive, they may be principally liable for that conduct, even if they were acting as an agent of a company (see Williams v Pisano at [42] per Emmett JA, with Bathurst CJ and McColl JA agreeing; Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [40]; Standard Chartered Bank v Pakistan National Shipping Corporation [No 2] [2003] 1 AC 959 at 973-974 per Lord Rodger of Earlsferry). 4. Reference is made by the plaintiffs to ASIC v Narain (see at [94]-[95]; [98]-[100]), where the Chief Executive Officer was held personally liable for a misleading ASX release but the company secretary was not (as the latter's actions were ministerial in nature). The plaintiffs submit that the defendants in the present case were not merely acting as corporate organs and are personally liable for their conduct (noting that the defendants personally provided the contractual warranties, and entered into each of the First Contracts and Second Contracts personally). It is noted that the first draft of the First Contracts was prepared by the defendants, and only contained personal warranties about these matters. It is submitted by the plaintiffs that the defendants were thus not merely ministerial organs involved in making representations on behalf of the company, but that they made representations themselves as principals. I agree. 5. The allegations of accessorial liability made against each of the defendants for misleading or deceptive conduct are only pressed in the event that it is held that the defendants did not make representations personally (and hence it is not here strictly necessary for me to consider the accessorial liability claims; though I note that the plaintiffs say that knowledge of the falsity of the representations may readily be inferred from the documentary evidence, given that they have not been called to give evidence and there is force to that submission). 6. Pursuant to s 236 of the Federal ACL, s 12GF of the ASIC Act and s 1041I of the Corporations Act a person who has suffered loss or damage "because of" or "by" contravening conduct may recover the amount of that loss or damage. The contravening conduct need not be the only cause of the loss or injury suffered and it suffices if it contributed materially (see Henville v Walker at [61], [70], [106]; Mistrina v Australian Consulting Engineers [2020] NSWCA 223 at [89]). The plaintiffs note (particularly in the context of the LK Proceeding) that this may be satisfied where a misleading representation is made to a person who then causes a plaintiff to enter into a transaction (see Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604 at [507] per Jackson J. Thus it is said that LK Group Investments may recover for misleading conduct which influenced any recommendation Mr Stavretis made to Mr Kestelman about the investment, which in turn influenced the investment decision made by Mr Kestelman on behalf of LK Group Investments. 7. I find that the various alleged misrepresentations arising by reference to the contractual warranties were made (having regard to the conversations and communications relied upon by the plaintiffs as set out above and to the proffering of the contractual warranties). While I accept that the mere provision of a draft term sheet would be unlikely of itself to give rise to a representation that the content of the matters set out in the draft was true (not least because draft documents may well be the subject of amendment and clarification in due course), I consider that the combination of the representations made in the oral conversations and the email communications together with the final warranties in the term sheets as executed did amount to representations which have been shown to be misleading or deceptive for the reasons set out when considering the contractual warranties. 8. As to the balance of the alleged representations, I find as follows. Pre-Contract IP Rights Representations 1. First, as to the Pre-Contract IP Rights Representations (relied on in the Stav Proceeding), being representations that the intellectual property used by Yatango Mobile in relation to the operation of its business was owned by, licensed to or controlled by Yatango Mobile, I find that those representations were made (by reference to the conversations and email communications on which the plaintiffs have relied) and that those representations were misleading at least insofar as they related to the ownership or control by Yatango Mobile of the intellectual property used in the operation of its business (for the reasons set out above). I do not accept that the representations as to the licensing of the software were misleading. Failure to Disclose Pre-Contract IP Rights Representation 1. As to the "Failure to Disclose Pre-Contract IP Rights Representation", namely, an alleged failure to disclose the "IP Ownership Position" as defined (see as set out earlier above), I accept that there was a failure to disclose those matters. The question is whether there was some form of duty or obligation to disclose those matters such that silence on the part of the defendants would be misleading (i.e., as conveying a misleading state of affairs – see authorities on when silence or failure to disclose may be misleading, such as: Henjo Investments Pty Limited v Collins Marrickville Pty Limited (1988) 39 FCR 546 especially at 556-558 per Lockhart J; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 per Black CJ, 40-42 per Gummow J, as his Honour then was; W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR 572; [1906] HCA 79 at 577 per Griffith CJ). Insofar as the significance of silence always falls to be considered in the context in which it occurs, I consider that the failure to disclose the true position as to the ownership of the intellectual property was misleading in circumstances where the defendants were obliged to disclose to the plaintiffs the true IP ownership position. I reach this conclusion in light of the initial queries as to the trade marks that I find were made and as to the numerous enquiries as to ownership of the IP to which the response was variously to the effect that the IP was held by a Yatango Mobile subsidiary or that the position was being sorted or had been sorted, when it clearly had not, although I do not consider that this relevantly takes the matter any further than the IP Ownership Rights Representations. YM Asset Representations 1. As to the "YM Asset Representations" (that "the value of the software underlying Yatango Mobile's billing system was $12,312,733" and "Yatango Mobile's net asset position was $9,560,322"), I have more difficulty. Certainly, the consolidated group balance sheet indicated that there was an asset within the group in respect of the software for the billing system which had a value attributed to it of in excess of $12 million; and that the assets of Yatango Mobile were as there recorded. However, I am inclined to think that this represents no more than that this was the directors' view at the time (and in any event I am not persuaded that the plaintiffs relied on such a representation – since I consider that they are more likely to have relied on their own views of the value of the billing system and assets of Yatango Mobile – based on Mr Stavretis' so-called due diligence). Therefore, I do not find this claim made good. $15M Value Representation 1. Again, as to the "$15M Value Representation" (i.e., that "the value of Yatango Mobile as a going concern was $15,000,000"), I do not find that such a representation was made (or, If made, was relied upon). The email dated 6 November 2013 sent by Mr Taylor to Mr Stavretis (on which reliance is placed for this representation) was vague in its terms (referring simply to a valuation "coming in" at $15 million). In the absence of anything more specific I do not accept that it would have conveyed that there was some formal valuation being obtained and it is relevant to note that the plaintiffs do not seem to have enquired then or at any later time as to provision of any such valuation. It seems to me more likely that this was part of a negotiation process in order to reach a bargain as to the notional value to be attributed to the company for the purpose of the proposed investment. Pre-Contract Roll-Up Representations 1. Finally, as to the "Pre-Contract Roll-Up Representations", I find that they were made by the proffering of the contractual warranties and, so far as they were representations as to future intention, I am not persuaded that there is evidence to establish that there were reasonable grounds for the making of those representations. 2. I consider that reliance has been established on the representations that I have found were made (and indeed that they were intended to induce reliance by way of entry into the respective contracts). 3. As to the contention that reliance has not been established on the representation being made by the defendants in their personal capacities, as noted above I do not accept that contention. It is clear that the plaintiffs were relying on the warranties being made personally by the defendants (since they were expressed as such) and I consider that the representations were also relied upon in that context. As to Mr Stavretis personally, I accept that he relied on the pre-contract warranties when committing Stav Investments to the contracts and I accept that he suffered loss by reason of the loan arrangements entered into for him to fund the acquisitions by the company. The fact that the loan arrangements were entered into at the end of the respective financial years does not seem to me to alter that position. Rather, it is consistent with Mr Stavretis documenting what was the intended arrangement between him and his company at the end of the financial year. Damages for misleading and deceptive conduct 1. As to the damages recoverable for the misleading or deceptive conduct, I consider that this is properly a "no transaction" case in the sense that the plaintiffs assert that they would not have entered into the transaction were it not for the misleading representation; and that the corporate plaintiffs should therefore be put in the position where they are compensated for the entirety of their investment in Yatango Mobile (Wyzenbeek v Australasian Marine Imports Pty Ltd (in Liq) (2019) 272 FCR 373; [2019] FCAFC 167). As I said in Xu v Lindsay Bennelong Developments Pty Ltd [2020] NSWSC 1692 at [460], an award for damages in a "no transaction" case in a suit for misleading and deceptive conduct requires the court to be satisfied that, "but for" the conduct at issue, the plaintiff would not have entered into the transaction, and so would not have suffered the loss. I am so satisfied in the present case. 2. Insofar as the Potts v Miller test is concerned, what they acquired were shares in a company that (without ownership or control of the software or coding in which the value of its business lay) was not a going concern. To the extent that the plaintiffs had obtained a benefit from that investment then it would be appropriate for them to account for that benefit. However, no such benefit was shown to have been derived (and I accept that it was for the defendants to establish such a benefit). While Mr Potter accepted that the holding of a licence might possibly change his analysis on Scenario 1, he made clear that it would not be likely to change by much (since the licence was not a perpetual licence and hence there would be no security that the licence would endure). Given that the value attributed to the company was fundamentally in its online platform, I consider that the appropriate scenario to adopt is Mr Potter's Scenario 1. The effect of this (pending determination of the contributory negligence and proportionate liability and apportionment claims by the defendant) is that the plaintiffs would be entitled to damages equivalent in amount to their investments effected by the First and Second Contracts. 3. Turning then to the claim in contributory negligence, I am not persuaded that this has been established. A finding of contributory negligence turns on an examination of the factual circumstances in order to determine whether the plaintiffs contributed to their own loss by failing to take reasonable care of their person, property or economic circumstances (see Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6 at [30] per Gleeson CJ, McHugh, Gummow and Hayne JJ). Contributory negligence is to be determined objectively: a plaintiff will be guilty of contributory negligence where they expose themselves to a risk which might reasonably have been foreseen and avoided, and suffer damage within the class of risk to which they exposed themselves (Joslyn v Berryman (2003) 214 CLR 552; [2003] HCA 34 at [16] and [32] per McHugh J). 4. In the context of misrepresentation, and misleading and deceptive conduct, Sir Nicholls VC in Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 at 574 held that "[i]n principle, carelessness in not making other inquiries provides no answer to a claim when the plaintiff has done that which the representor intended he should do". Of relevance in determining whether reliance upon a misrepresentation was negligent is whether a due diligence process was undertaken; whether there was an obligation (or indeed an ability) to "double guess" the representation given; and whether there was exhibited a lack of care in performing the actions induced by, and consequent upon, the misrepresentation (ABN AMRO at [1470]). Where the information available to the plaintiffs did not identify with sufficient clarity the risks of the investment, where the defendants failed to disclose those risks which they themselves knew about, and where instead the defendants made repeated representations as to the lack of risk, the plaintiffs were entitled to accept the defendants words and deeds at face value, particularly in light of their repeated inquiries as to the possible risk, and the defendants repeated assurances that the risk had been "dealt with" in response (ABN AMRO at [1480]). 5. The suggestion that there was a failure to look after the plaintiffs' own interests because they invested in Yatango Mobile when they were aware it was in financial distress is hardly an attractive argument when the defendants were pressing for the investment. 6. As to the defences based on proportionate liability principles, I am not persuaded that these are made good. Part 4 of the Civil Liability Act makes provision for the apportionment of liability. Similarly, ss 1041H, 1041I, and 1041L of the Corporations Act, s 87CD of the Competition and Consumer Act and s 12GR of the ASIC Act are cognate provisions. Each of these regimes provides for the apportionment of responsibility for the damage arising out of the misleading or deceptive conduct of multiple wrongdoers. The various provisions provide for proceedings involving an apportionable claim (here satisfied by virtue of s 87CB(1) of the Competition and Consumer Law, s 12GP of the ASIC Act, and s 1041L of the Corporations Act) involving concurrent wrongdoers. In such proceedings, the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss. 7. Under this regime, liability is apportioned to each wrongdoer according to the court's assessment of the extent of their responsibility (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [10] per French CJ, Hayne and Kiefel JJ). 8. Where an apportionable claim exists, and concurrent wrongdoers have been identified, the task of the court in apportioning liability will be guided by consideration of blameworthiness, causative potency, any benefits or profits obtained by one concurrent wrongdoer, the task the wrongdoer is required to perform, and the degree of departure from the requisite standard of care (Reinhold v New South Wales Lotteries Corp (No 2) (2008) 82 NSWLR 762; [2008] NSWLR 187 at [50] and [61]; Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 at [3] (which was overturned by the High Court, although not on this point)). 9. Insofar as Yatango Mobile is said to be a concurrent wrongdoer it is clear that the company was in effect the corporate emanation of the defendants. As to the position in relation to the Acquire Agreement, I accept that it has not been shown that entry into this agreement was in breach of any duty owed by Mr Stavretis and Mr Kestelman to their respective associated companies but, even if there was, it would be open to them to have ratified that breach (and implicitly they may be taken to have consented to entry into the Acquire Agreement). Finally, as to the submission that Mr Kestelman's reliance on Mr Stavretis' due diligence in some way amounted to negligence on his part (or that there was a breach of some duty by Mr Stavretis) I do not accept that this is established. I see no breach of any duty of care owed by Mr Kestelman to LK Group Investments in relation to the reliance placed by him on his business associate being the point of contact in the negotiations; and I do not accept that Mr Stavretis was in breach of any duty owed to Mr Kestelman in relation to the (seemingly idiosyncratic) way in which he conducted his due diligence in relation to the acquisition. 10. The reality is that the defendants induced the plaintiffs into investing substantial sums into Yatango Mobile business on the faith of representations (backed up by contractual warranties to the same effect) that Yatango Mobile had an unique online platform with considerable value that differentiated itself from its competitors and, when asked directly as to the ownership of the intellectual property (underpinning that platform), they misrepresented the true position. Orders 1. For the above reasons I make the following orders: 1. In the Stav proceeding, order that each of the first and second defendants pay Stav Investments damages of $1,012,500.00 for contraventions of s 1041I of the Corporations Act 2001 (Cth), s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law (NSW). 2. In the Stav proceeding, dismiss the second plaintiff's claims. 3. In the LK Group Investments proceeding, order that each of the first and second defendants pay LK Group Investments of $1,012,500.00 for contraventions of s 1041I of the Corporations Act 2001 (Cth), s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law (NSW). 4. Order that the first and second defendants pay the plaintiffs' costs of the proceedings. ********** 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: 09 March 2022