Supreme Court New South Wales Medium Neutral Citation: Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 3) [2019] NSWSC 1759 Hearing dates: 28 October – 11 November, 13 – 14 November and 4 – 5 December 2019 Decision date: 10 December 2019 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: The shareholders of Coverforce remain bound by the 2017 Shareholders Agreement; Pemba would have been entitled to proceed with the sale to AUB; the Kitchin Parties are entitled to reverse the Resilium transaction or recover damages Catchwords: CONTRACTS – formation – agreement – whether shareholders agreed to vary the shareholders agreement CONTRACTS – construction – interpretation – purported "binding" term sheet – what the term sheet was binding to do CONTRACTS – construction – interpretation shareholders agreement – decisions "in relation to" subject matters which required special majority shareholder approval – what "in relation to" means in this context CONTRACTS – misleading conduct under statute – misleading or deceptive conduct – representations – representations as to authority of company to enter transaction CORPORATIONS – contracts – formalities – statutory assumptions – persons entitled to assume document duly executed – whether person knew or suspected that assumption was incorrect Legislation Cited: Australian Consumer Law Corporations Act 2001 (Cth) Cases Cited: Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP [2019] NSWSC 1646 Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472; [2001] FCA 1549 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68 Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475 Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310; [1929] HCA 34 Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288 Sykes v Reserve Bank of Australia (1998) 158 ALR 710; (1998) 88 FCR 511 Travel Compensation Fund v Tambree t/as R Tambree & Associates (2005) 224 CLR 627; [2005] HCA 69 Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 Watson v Foxman (1995) 49 NSWLR 315 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 Category: Principal judgment Parties: James Angelis as trustee for the Angelis Family Trust (First Plaintiff/Second Cross-Defendant on First Cross-Claim/Sixth Cross-Defendant on Second Cross-Claim) Jitendra Dutt (Second Plaintiff/Third Cross-Defendant on First Cross-Claim) Nathan Brown (Third Plaintiff/Fourth Cross-Defendant on First Cross-Claim) Antony Goldsmith (Fourth Plaintiff/Fifth Cross-Defendant on First Cross-Claim) Copiapo Pty Ltd as trustee for FCK Consulting Trust (Fifth Plaintiff/Sixth Cross-Defendant on First Cross-Claim) Pemba Capital Partners Fund I Partnership, LP (First Defendant/Cross-Claimant on First Cross-Claim/First Cross-Defendant on Second Cross-Claim) Pemba Capital Partners Pty Ltd as trustee for the Castlereagh St (Swan) Co-Investment Trust (Second Defendant/Cross-Claimant on First Cross-Claim/Second Cross-Defendant on Second Cross-Claim) Adrian Christopher Kitchin (Third Defendant/Seventh Cross-Defendant on First Cross-Claim/First Cross-Claimant on Second Cross-Claim) Benjamin James Hastie (Fourth Defendant/Eighth Cross-Defendant on First Cross-Claim/Second Cross-Claimant on Second Cross-Claim) Drue Jonathon Giles Castanelli (Fifth Defendant/Ninth Cross-Defendant on First Cross-Claim/Third Cross-Claimant on Second Cross-Claim) Coverforce Holdings Pty Ltd (Sixth Defendant/First Cross-Defendant on First Cross-Claim/Fourth Cross-Defendant on Second Cross-Claim) AUB Group Ltd (Seventh Defendant/Third Cross-Defendant on Second Cross-Claim) Resilium BidCo Pty Ltd (Fourth Cross-Claimant on Second Cross-Claim) Resilium OpCo Pty Ltd (Fifth Cross-Defendant on Second Cross-Claim) Representation: Counsel: F Corsaro SC with H Pintos-Lopez and E Olivier (Plaintiffs) R A Dick SC with P Flynn SC (on 4 December 2019) and E Bathurst (First and Second Defendants) M R Elliott SC with D Ratnam (Third to Fifth Defendants) N M Bender (Seventh Defendant) Solicitors: Mills Oakley (Plaintiffs) Herbert Smith Freehills (First and Second Defendants) Roberts & Partners Lawyers (Third to Fifth Defendants) Allens (Seventh Defendant) File Number(s): SC 2019/201647 TABLE OF CONTENTS Judgment Coverforce is not represented The issues Decision Representation The alleged "convention" as to the management and operation of Coverforce Credit The critical terms of the 2017 Shareholders Agreement Special Board Approval Exit Variation The events leading to the 31 October Term Sheet Mr Angelis identifies Resilium as a potential acquisition The poor relationship between Mr Angelis and the Pemba directors Mr Kitchin decides to go it alone Coverforce board meeting on 24 September 2018 Mr Angelis's offer to buy out Pemba The first Suncorp-Kitchin Term Sheet Intervention of Mr Neal Events leading to the 31 October Term Sheet Coverforce board meeting on 29 October 2018 The ABL Draft Term Sheet and the ABL Draft Shareholders Agreement 30 and 31 October 2018 The 30 October 2018 emails and conversations Conversations between Mr Angelis and Mr Kitchin 31 October 2018 The 31 October Term Sheet The Purported 31 October Shareholders Agreement The position as conveyed to Mr Kitchin Events after 31 October 2018 The Stage 2 Suncorp Term Sheet The 10 December 2018 board meeting Events thereafter The 13 December 2018 email communications The 14 December 2018 email communications 22 December 2018 – the last word from Pemba Drafting of the Resilium Transaction documents Mr Neal's meeting with Mr Summerhayes Pemba communications on 19 and 23 March 2019 Execution of the Resilium Transaction documents The Share Purchase Deed Events leading up to completion of the Resilium Transaction Completion of the Resilium Transaction The sale to AUB Was there a binding agreement between Pemba and Coverforce? What is the effect of the 31 October Term Sheet? Not an agreement binding Coverforce (or Mr Kitchin) to proceed with the Resilium Transaction Not an agreement binding on Pemba to amend the 2017 Shareholders Agreement An agreement binding in some respects Conclusion concerning the alleged agreement between Mr Angelis and Pemba Was any agreement void for uncertainty? No estoppel The result Consequences so far as concerns the Resilium Transaction Can the Kitchin Parties compel Coverforce to "reverse" the Resilium Transaction under the Share Purchase Deed? Was Special Majority Board Approval required for Coverforce to enter the Share Purchase Deed? The authority of Mr Dutt and Ms Angelis to execute the Resilium Transaction documents Assumptions under s 129 Coverforce represented it had authority to enter the Share Purchase Deed Ratification by Pemba The Kitchin Parties are entitled to enforce the Share Purchase Deed The Kitchin Parties' right under cl 5.6(a)(ii) of the Share Purchase Deed "Reversing the actions" – some documents unaffected The Coverforce Call Option Deed "Reversing the actions" – other aspects Conclusions as to the rights of the Kitchin Parties What is the consequence of these findings for the sale to AUB? The Kitchin Parties' misleading or deceptive conduct claims Against the Angelis Parties and Coverforce Against Pemba Damages Conclusion Judgment 1. The sixth defendant, Coverforce Holdings Pty Ltd, is Australia's largest unlisted insurance broker. 2. In 1994, the first plaintiff, Mr James Angelis, established the business now carried on by Coverforce. Mr Angelis has been the managing director and chief executive of Coverforce, and its predecessors since then. 3. Until 2012, the business was essentially an Angelis family business. To the extent that there were other shareholders, they held shares as valuable employees of the business. 4. During this period, the business was operated by Mr Angelis through a group of companies which the parties referred to as the "Coverforce Group". 5. In late 2011, Mr Angelis received a proposal from a private equity investor, now known as Pemba Capital Partners Pty Ltd, to invest in the group. 6. On 12 April 2012, the Coverforce Group was restructured to facilitate Pemba's investment. The newly incorporated Coverforce Holdings Pty Ltd acquired the Coverforce Group. Pemba took an equity stake and became a shareholder in Coverforce along with Mr Angelis and other minority shareholders. Those parties entered a shareholders agreement that the parties referred to as the "2012 Shareholders Agreement". 7. Under the 2012 Shareholders Agreement, Pemba and Mr Angelis were each entitled to appoint two directors to the Coverforce board. Mr Angelis appointed himself and the second plaintiff, Mr Jitendra Dutt. Mr Dutt is also the Chief Financial Officer of Coverforce. Pemba's current appointees are Mr George Georgiadis and Mr Mark Summerhayes. Mr Summerhayes is currently chairman of the board. The fifth director is Mr Ian Neal, appointed in April 2012 as a non-executive independent director. 8. In July 2016, Pemba transferred its equity participation in Coverforce to the first defendant, Pemba Capital Partners Fund I Partnership, LP. The distinction between the Pemba entities is not significant and, for simplicity, I will refer simply to "Pemba". 9. By 29 November 2017, following a series of further share transfers, the shareholders in Coverforce were: 1. Mr Angelis as to 48.5%; 2. Mr Dutt as to 1.2%; 3. the fourth plaintiff, Mr Antony Goldsmith as to 1%; 4. the third plaintiff, Mr Nathan Brown as to 0.3%; and 5. Pemba as to 49%. 1. Messrs Angelis, Dutt, Goldsmith and Brown are the plaintiffs. I will refer to them as the "Angelis Parties". 2. On 29 November 2017, the shareholders entered into an amended and restated shareholders agreement, which the parties referred to as the "2017 Shareholders Agreement". 3. Under each of 2012 and 2017 Shareholders Agreements, if Pemba wished to achieve an "Exit", it was entitled to compel the remaining shareholders to sell the same proportion of their shares as Pemba was selling, and at the same price and on the same terms. The parties referred to this as Pemba's "Drag Right". 4. The Drag Right gave Pemba, as a private equity investor in Coverforce, the ability to deliver to a prospective purchaser of its shares the entire shareholding and thus complete ownership of Coverforce. Mr Summerhayes agreed that the Drag Right was a drastic right. He said that it was "ultimate protection" for an equity investor like Pemba. Mr Summerhayes said that the right was only to be used on a "cold day in hell". "Like today" he added. 5. Coverforce was a party to each of the 2012 and 2017 Shareholders Agreements. Each provided that if there was any inconsistency between it and Coverforce's constitution, "this agreement prevails to be extent of any inconsistency". Accordingly, the parties directed their submissions to the relevant provisions of the shareholders agreements, rather than those in the constitution. For the same reason, I will not refer further to the constitution unless necessary. 6. In the years up to 2018, Mr Angelis caused the Coverforce business to expand by acquiring a number of competing insurance broking businesses. Those businesses were identified and acquired by Coverforce on the recommendation of Mr Angelis. 7. In April 2018, Mr Angelis identified the business conducted by Resilium Pty Ltd as another potential candidate for acquisition by Coverforce. Resilium was then a wholly-owned subsidiary of Suncorp Insurance Services Ltd. Resilium held an Australian Financial Services Licence (AFSL) and carried on business distributing insurance products such as business and personal insurance. Resilium operated through a network of authorised representatives. Those representatives had their own portfolio of clients and who operated using Resilium's AFSL. 8. For some months prior to April 2018, the managing director of Resilium, the third defendant, Mr Adrian Kitchin, and two senior employees of Resilium, Mr Benjamin Hastie and Mr Drue Castanelli, who are the fourth and fifth defendants, were in discussion with Suncorp about a possible management buyout ("MBO") by them of the Resilium business. I will refer to those individuals as the "Kitchin Parties". 9. Evidently, developments at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had prompted Suncorp to contemplate the "divestment" of Resilium "given the risks associated with Suncorp continuing to own a vertically integrated general insurance broking business" (to adopt the language in an internal Suncorp document dated 20 July 2018). 10. Mr Angelis raised the possibility of an acquisition of Resilium at a Coverforce board meeting on 25 June 2018. 11. Between then and October 2018, Mr Angelis conducted negotiations with Mr Kitchin about the possibility of such an acquisition. Speaking broadly, those negotiations were conducted on the basis of Coverforce financing the Kitchin Parties' MBO of Resilium, and the Kitchin Parties procuring that Coverforce acquire the Resilium business in exchange for a shareholding in Coverforce. I will set out the detail of those negotiations later in these reasons. 12. During those negotiations, Mr Kitchin made clear to Mr Angelis that there could be no agreement unless Pemba agreed to surrender its Drag Right. That was because, first, Mr Kitchin did not wish to become a shareholder in Coverforce and then be forced to "exit" as a shareholder if Pemba chose to do so and, second, because Mr Kitchin understood that Suncorp would not agree to a transaction with a party one of whose shareholders had such a right. 13. Ultimately, on 31 October 2018, Mr Angelis (for Coverforce) and Mr Kitchin executed a "Binding Term Sheet". I will call that document the "31 October Term Sheet". 14. That document stated that "the proposed terms and conditions" for the acquisition of Resilium included that: 1. Coverforce and Mr Kitchin would jointly acquire Resilium for $20 million; 2. Coverforce would loan Mr Kitchin the funds necessary for that acquisition; 3. Mr Kitchin would become a shareholder in Coverforce; and 4. Mr Kitchin would become a party to a shareholders agreement which would be amended and restated "in substantially the form" as a document which was attached and which was based on the 2017 Shareholders Agreement. 1. The 31 October Term Sheet is to be contrasted with two other term sheets, executed by Mr Kitchin and Suncorp on 22 October 2018 and 12 December 2018, to which I will return. 2. I shall refer to the shareholders agreement which was annexed to the 31 October Term Sheet as the "Purported 31 October Shareholders Agreement". 3. A central issue in these proceedings is whether, by reason of these documents, and in the events that happened, the Angelis Parties and Pemba agreed to vary the 2017 Shareholders Agreement to the effect of the Purported 31 October Shareholders Agreement. 4. Pemba's case is that the 2017 Shareholders Agreement has not been varied. It seeks a declaration to that effect as well as a declaration to the effect that the Purported 31 October Shareholders Agreement "was and is invalid, void and of no effect". 5. On 25 March 2019, Coverforce, the Kitchin Parties and Suncorp executed a suite of documents which purported to implement what the parties referred to as the "Resilium Transaction" and to have the effect that, on settlement on 31 May 2019: 1. Coverforce advanced $20 million interest free to the Kitchin Parties to finance the MBO by the Kitchin Parties of Resilium; 2. the Kitchin Parties caused Resilium's revenues to be transferred to Coverforce; 3. the Kitchin Parties became shareholders in Coverforce; and 4. Mr Kitchin became a director of Coverforce. 1. The result, according to the Angelis Parties and the Kitchin Parties, is that: 1. the directors of Coverforce now include Mr Kitchin, as well as Messrs Angelis, Dutt, Summerhayes, Georgiadis and Neal; 2. the shareholders of Coverforce now are, rounding up figures for simplicity: 1. Mr Angelis as to 42.1%; 2. Mr Dutt as to 1.09%; 3. Mr Goldsmith as to 0.9%; 4. Mr Brown as to 0.27%; 5. Pemba as to 43.6%. 6. Mr Kitchin as to 10.2%; 7. Mr Hastie as to 0.6%; 8. Mr Castanelli as to 0.6%; and 9. Copiapo Pty Ltd as to 0.9%; 1. Pemba no longer has its Drag Right; and 2. Coverforce is now, for all practical purposes, the owner of the Resilium business. 1. Pemba, on the other hand, maintains that the 2017 Shareholders Agreement is still in force, that Mr Angelis had no authority to commit Coverforce to the Resilium Transaction and that the documents executed on 25 March 2019 were not effective. 2. Pemba seeks a declaration that the purported issue of shares to Mr Kitchin, Mr Hastie and Mr Castanelli "was and is invalid, void and of no effect". 3. Pemba does not seek a declaration to the effect that the 25 March 2019 Resilium Transaction documents are ineffective. However, in response to the Kitchin Parties' Cross-Claim, Pemba pleads that the Resilium Transaction documents were not authorised by the board of Coverforce and not validly entered into by Coverforce. That issue was at play throughout the hearing. 4. On the basis that the Resilium Transaction documents were not effective, Pemba contracted to sell its shares in Coverforce to the former seventh defendant, AUB Group Ltd and, in purported exercise of its Drag Right, sought to compel the Angelis Parties to do the same. 5. This transaction was subject to Pemba providing AUB with certain due diligence information, due last Friday, 6 December 2019, and the completion of due diligence by AUB by 31 December 2019. Pemba's ability to require Coverforce and the Angelis Parties to provide it with such due diligence information depended on whether the 2017 Shareholders Agreement or the Purported 31 October Shareholders Agreement governs those parties' obligations. 6. For that reason, I was asked to deliver these reasons urgently. 7. Early in the hearing, the Angelis Parties withdrew their claim against AUB. 8. Yesterday, 9 December 2019, AUB announced to the market that it had terminated its contract with Pemba on the basis of Pemba's failure to provide "as at the date agreed" that due diligence information. Coverforce is not represented 1. Because of this dispute, there is currently a deadlock on the Coverforce board. For that reason, the board has been unable to appoint legal advisors to represent Coverforce in these proceedings. 2. No party sought any order appointing a party to represent Coverforce's interests in the proceedings. It was common ground that, as the Coverforce business is active and highly profitable, it would have been commercially disastrous for a receiver or provisional liquidator to be appointed to Coverforce for this purpose. 3. Each of the shareholders of Coverforce has actively participated in these proceedings. As was submitted on behalf the Kitchin Parties, all of the shareholders have a keen interest in acting in this litigation in a manner that does not prejudice the legitimate interests of Coverforce. Each has had every opportunity to identify and advance arguments that would serve Coverforce's interests. Each has done so. 4. I accept the submission made on behalf of both Pemba and the Kitchin Parties that the Angelis Parties are effective contradictors of their cases, so far as they affect Coverforce, and that the interests of Coverforce will not be adversely affected by its want of separate representation no matter what the outcome of these proceedings may be. 5. And, as a practical matter, I saw no alternative than to proceed this way. 6. The Angelis Parties drew attention to two particular matters in respect of which it was said Coverforce might wish to be heard. They were whether Coverforce might wish to exercise its rights under a dispute resolution clause in one of the Resilium transaction documents and to exercise its rights under the agreement by which it agreed to lend the Kitchin Parties the $20 million referred to at [28(a)] above. I deal with these questions below (see [585] to [586] and [507] respectively). The issues 1. A central issue is whether the shareholders of Coverforce are bound by the 2017 Shareholders Agreement or the Purported 31 October Shareholders Agreement. 2. Pemba accepted that, if the shareholders of Coverforce are bound by the Purported 31 October Shareholders Agreement, or Pemba is estopped from asserting they are not, Pemba could not have proceeded with the sale of its shares in Coverforce to AUB. 3. On the other hand, if the shareholders of Coverforce remain bound by the 2017 Shareholders Agreement, and if Pemba is not estopped from denying that this is so, then but for AUB's announcement yesterday Pemba could have proceeded with the sale to AUB of its shares in Coverforce and, exercising its Drag Right, the Angelis Parties' shares in Coverforce. 4. There is also an issue as to whether Coverforce effectively entered the 25 March 2019 documents referable to the Resilium Transaction, particularly a Share Purchase Deed made between Coverforce, the Kitchin Parties and another entity pursuant to which, amongst other things, Coverforce purportedly issued shares in itself to the Kitchin Parties. 5. There is a further issue as to whether, assuming Coverforce did effectively enter those documents, it had requisite board approval to complete the transactions envisaged by those documents; particularly the allotment of shares to the Kitchin Parties and the appointment of Mr Kitchin as a director of Coverforce. Decision 1. In substance, my conclusion is that: 1. the shareholders of Coverforce remain bound by the 2017 Shareholders Agreement; 2. Pemba is not estopped from asserting the contrary; 3. but for AUB's announcement yesterday, Pemba would have been entitled to proceed with the sale to AUB; 4. Coverforce did have authority to enter, and did effectively enter, the 25 March 2019 Share Purchase Deed; 5. Coverforce did not have the requisite board approval to complete the transactions envisaged in the 25 March 2019 documents; 6. there has been no valid allotment of shares in Coverforce to the Kitchin Parties; 7. Mr Kitchin has not been validly appointed as a director of Coverforce; 8. the Kitchin Parties are accordingly entitled to elect either to: 1. exercise their right under cl 5.6 of the 25 March 2019 Share Purchase Deed to "reverse" the "actions" effected by the 25 March 2019 Resilium Transaction documents and to thereby, in effect, "unwind" the Resilium Transaction; or 2. recover damages from Coverforce. Representation 1. I have been greatly assisted by the efficient manner in which the proceedings were conducted by counsel for each of the parties. 2. During final oral submissions, I was provided with extensive written submissions. Much of what follows, particularly in relation to uncontroversial background matters, is drawn with gratitude from those submissions. The alleged "convention" as to the management and operation of Coverforce 1. In his affidavit evidence, Mr Angelis explained how he had caused Coverforce to acquire "target businesses" over the years. He explained that those businesses were acquired on his recommendation and that he considered he was "able to bind Coverforce in the relevant transaction because no one ever told me otherwise". 2. In opening, the Angelis Parties submitted that in pursuing that strategy "the Coverforce Board and shareholders departed from the formal decision-making processes set out in the company's constitution and shareholders agreements". 3. In my opinion, any such convention that may have been established in regard to the acquisition of businesses prior to the transactions with which these proceedings are concerned casts no light on the issues before me. 4. This is for three reasons. 5. First, none of the previous transactions to which Mr Angelis referred involved the need to make amendments to either the 2012 or the 2017 Shareholders Agreement. 6. Second, the Angelis Parties only plead that "absent any indication to the contrary" did Mr Angelis have some kind of apparent authority to bind Coverforce "without formal resolution or formal acknowledgment of consent". In this case, as I will describe below, there was clear "indication to the contrary" from Pemba in relation to the Resilium Transaction. 7. Finally, the Angelis Parties proffered no estoppel or any other legal theory to suggest why Mr Angelis's subjective understanding of the circumstances in which he was able to bind Coverforce should be given legal effect. 8. These matters may explain why the Angelis Parties placed little weight on these matters in their final submissions. Credit 1. I heard evidence from Mr Angelis, Mr Neal, Mr Dutt, Mr Summerhayes, Mr Georgiadis and Mr Kitchin. Each was extensively cross-examined. 2. The impression I gained was that each of these witnesses was doing his best accurately to recount the events with which these proceedings are concerned. I do not think that any of these men sought to give evidence before me which was not truthful. 3. However, there are some instances, which I set out below, where the evidence that Mr Angelis gave cannot be correct. 4. In this regard, I can do no better than to repeat McLelland CJ in Eq's memorable words in Watson v Foxman (1995) 49 NSWLR 315 at 319: "…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience." 1. Mr Angelis's evidence was, at times, affected by the considerations to which McLelland CJ in Eq referred. The critical terms of the 2017 Shareholders Agreement Special Board Approval 1. Clause 5.5(a) of the 2017 Shareholders Agreement provided: "5.5 Simple majority (a) Except resolutions in relation to matters which must be decided in accordance with clause 5.6(a), all resolutions at meetings of the Board must be decided by a simple majority vote of Directors entitled to vote in respect of the relevant resolution, provided that, for so long as Pemba holds more Shares than any other Shareholder, an affirmative vote is obtained from at least 1 Pemba Director (Simple Majority Approval)." 1. As Pemba, at all times, held more shares than any other shareholder, a "Simple Majority Approval" thus required the vote of at least one Pemba director. 2. Clause 5.6(a) provided: "5.6 Special majority (a) Subject to clause 5.6(b), any decision of the Directors in relation to a matter set out in Schedule 2 or as otherwise specified in this agreement, must be determined by Simple Majority Approval, provided that an affirmative vote is also obtained from [Mr Angelis] (in his capacity as Management Shareholder Director), for so long as the [Angelis Parties] hold, in aggregate, at least 30% of the Total Share Capital, in respect of the relevant resolution (Special Majority Board Approval)." (Emphasis in original.) 1. As the Angelis Parties, at all relevant times, held at least 30% of the shares in Coverforce, the effect of cl 5.6, when read with cl 5.5 was that, for there to be a "Special Majority Board Approval", the vote of at least one Pemba director as well as the vote of Mr Angelis was required. 2. The "Special Majority Board Approval" matters set out in Schedule 2 to the 2017 Shareholders Agreement included: "(2) (Key Executives): the appointment or termination of Key Executives and the determination of their terms of engagement and any change to the material terms of their engagement by any member of the Group, including remuneration. (3) (Financial indebtedness): any decision to incur or increase financial indebtedness of any member of the Group in excess of $50,000 unless the funds obtained for the indebtedness are to be used for activities in the ordinary course of business of the Group. … (5) (Share capital): the alteration of the share capital of any member of the Group, the establishment or alteration of any employee share plan and the issue of Equity Securities under such a plan. (6) (Merger): the entry by any member of the Group into any merger, consolidation or amalgamation whether with or into any other company (including any joint venture or partnership arrangement) or the acquisition or any interest in any other company or business or the establishment or entry into of any new business. … (8) (Board Composition): any change to the board composition rules in respect of any member of the Group or the appointment or removal of Non-Executive Directors. … (11) (Loans): any loan of money or provision of financial accommodation in excess of $50,000 by any member of the Group to any person other than by way of deposit with a bank or other institution the normal business of which includes the acceptance of deposits." (Emphasis in original.) 1. The Resilium Transaction documents executed on 25 March 2019 purported to provide for: 1. the appointment of Mr Kitchin as a "Key Executive" (defined to mean an employee with a salary package in excess of $150,000); 2. the alteration of the share capital of Coverforce; 3. the acquisition by Coverforce of an interest in another company or business (Resilium); and 4. the loan by Coverforce or provision of financial accommodation in excess of $50,000 (the $20 million interest free loan from Coverforce to the Kitchin Parties). 1. No Special Majority Board Approval was ever given to the Resilium Transaction. 2. There is an issue as to whether Special Majority Board Approval was required before Coverforce entered the 25 March 2019 Resilium Transaction documents, and in particular, the Share Purchase Deed, as opposed to completing the transactions contemplated by those documents. 3. This gives rise to a question of construction that I deal with at [517] to [533] below. 4. In reply submissions, the Angelis Parties sought to draw a distinction between the "alteration of share capital" for the purposes of cl 5 of Schedule 2 and the "issue of shares". It was submitted that the purported issue of shares in Coverforce pursuant to the 25 March 2019 Resilium Transaction documents to the Kitchin Parties "did not alter Pemba's share capital; the Pemba parties retained exactly the same number of shares of exactly the same type following the share issue". 5. But that is not the point. Schedule 2 of the 2017 Shareholders Agreement does not speak of alteration to "Pemba's share capital" but of "the alteration of the share capital of any member of the Group" and thus of Coverforce itself; it being a member of the "Group". A decision to alter that share capital required Special Majority Board Approval. Exit 1. Clause 8.2(a) of the 2017 Shareholders Agreement provided that, subject to a number of provisions which are not relevant, "Pemba may Dispose of all or part of its Shares to a Third Party at any time". 2. Clause 9 dealt with "Exit" which was defined to mean "a Share Sale or IPO". 3. Clauses 9.1, 9.2 and 9.3 provided: "9.1 Proposal to Exit It is the intention of the parties to achieve an Exit which maximises Shareholder value. 9.2 Condition of Exit At any time after the date of this agreement, Pemba (Selling Shareholders) may give a written notice (Sale Notice) to the Company and the Management Shareholders (Other Shareholders) stating that the Selling Shareholders wish to undertake an Exit. 9.3 Proceeding with an Exit (a) Subject to clause 9.4 [not relevant here], upon receipt of a Sale Notice, all Shareholders must each use their best endeavours to implement the Exit within the time period specified by the Selling Shareholders. (b) Without limiting clause 9.3(a): (1) the Other Shareholders must cooperate with, and provide all reasonable access and assistance required by the potential buyer in relation to the sale of the Shares, including access to due diligence materials and personnel involved in the management of the Group and its Business; (2) the Other Shareholders must, at the written request of the Selling Shareholders, sell the same proportion of Shares as the Selling Shareholders as part of the Exit at the same price and on the same terms as the Selling Shareholders; and (3) the Other Shareholders must do all things and execute all documents as may be required by the Selling Shareholders to implement the Exit. (c) The Shareholders acknowledge that as part of an Exit the Shareholders may be required to give warranties and indemnities to a buyer of the Company and that in such circumstances all Shareholders must give the same warranties and indemnities on the same basis as one another." (Emphasis in original.) 1. The Drag Right is contained in cl 9.3(b)(2) and (3). 2. An issue arose as to the proper construction of this clause and, in particular, whether the effect of cl 9.1 was to impose on Pemba an obligation to maximise shareholder value. I dealt with that issue as a separate question on 25 November 2019: see Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP [2019] NSWSC 1646. Variation 1. Clause 15.8 dealt with variation and provided: "(a) A variation of this agreement must be in writing and signed by the Company and all of the Shareholders other than the Small Shareholders". 1. "Small Shareholder" was defined to mean a shareholder holding less than 5% of the total share capital of Coverforce. The Small Shareholders were thus, as at the date of the 2017 Shareholders Agreement, Messrs Dutt, Goldsmith and Brown. The events leading to the 31 October Term Sheet Mr Angelis identifies Resilium as a potential acquisition 1. Mr Angelis described his identification of Resilium as a potential acquisition target as follows: "Given my participation in the insurance broking industry for over 24 years, I was aware of competitors and others in the market. I also had developed a network of contacts and associates. I made a point of trying to know and understand developments in the insurance market, and the operations and dealings of competitors. In this way, I became aware of the business and operations of Suncorp Insurance Services Limited and its related entities. I learnt that Suncorp owned and operated 'Resilium', an insurance intermediary, through a subsidiary Resilium Pty Ltd… I saw this as a potential target business for Coverforce, and took steps to initiate negotiations with a view to Coverforce acquiring Resilium from Suncorp." 1. In April 2018, Mr Angelis spoke to a senior executive of a subsidiary of Suncorp about his interest in Resilium. That person suggested that Mr Angelis contact Mr Kitchin. 2. Mr Angelis met with Mr Kitchin in May 2018. They had met earlier in unrelated circumstances. 3. As I have mentioned, at that time Mr Kitchin, together with Mr Hastie and Mr Castanelli, was negotiating a possible MBO of Resilium from Suncorp. That process had started in late 2017. 4. Mr Kitchin had been looking at various options to fund the MBO, including Macquarie Bank. 5. In May 2018, Mr Kitchin told Mr Angelis that he was interested in "exploring how Coverforce could support my bid to acquire Resilium". 6. Mr Angelis replied: "We will be able to support you with your bid and as part of that, you would be become a Coverforce shareholder with equity in Coverforce. The value of the Resilium business that you own would equate to approximately 11-12% of the issued shareholding in Coverforce and you would be a Coverforce director. To assist you, we would provide you with the funds required to acquire the business on an interest free basis." 1. Discussions continued to the point where, at a board meeting on 25 June 2018, Mr Angelis informed his fellow directors of "the Resilium discussions to date". Mr Angelis told the board: "Suncorp is getting rid of its shares in Resilium and there is an opportunity for us to acquire Resilium together with Resilium's CEO, Adrian Kitchin. He is in negotiations with Suncorp. I will keep you informed as this develops". 1. Mr Angelis said: "Mr Kitchin has raised some concerns regarding Pemba's drag rights under the 2017 Shareholders Agreement". 1. Mr Georgiadis responded: "[I]n order for Pemba to provide its shareholder approval for the Resilium Transaction, Pemba will require a clear pathway to [e]xit". 1. Shortly after the meeting, Mr Georgiadis reported to Mr Summerhayes that at the meeting Mr Angelis had reported that Mr Kitchin "has raised some concerns re drag" but that Mr Georgiadis had been "very clear that we'll need a full drag to make this work". 2. Mr Angelis accepted in cross-examination that he knew, at this stage, that any transaction whereby Coverforce would acquire Resilium was a matter which Pemba would be interested in and that it was important to keep Pemba directors informed once the negotiations got to the point of an offer. Mr Angelis agreed that although the acquisition of Resilium was embryonic at this time, it was always something that was going to require the approval of the Coverforce board. 3. At this stage, both Mr Summerhayes and Mr Georgiadis saw the acquisition of Resilium as a potentially valuable opportunity, but considered that it needed to be verified by due diligence in due course. 4. By August 2018, Mr Georgiadis, and thus Pemba, knew that any participation by Coverforce in an MBO of Resilium would involve Coverforce making a loan to the Kitchin Parties in consideration for the acquisition. 5. What Mr Summerhayes and Mr Georgiadis did not know with certainty at this point was whether the proposed arrangement with Resilium was so valuable to Coverforce, and thus to Pemba as a shareholder in Coverforce, that its value outweighed the value of the Drag Right. 6. By 23 August 2018, negotiations between Mr Angelis and Mr Kitchin had got to the stage where Mr Angelis sent Mr Kitchin a copy of the 2017 Shareholders Agreement. 7. Shortly after Mr Kitchin received that email, he had a discussion with Mr Angelis in which he said: "I have read the shareholders agreement. There are things in that agreement that are problematic. I am concerned about the drag rights that enable Pemba to drag shareholders in Coverforce into a sale. That would mean they could drag me into a sale. If we do this deal I do not want to get dragged into an exit and to then have to sell my shares. I do not want to do that as it will create a problem for me with Suncorp as they will not want to see me buying Resilium and then flipping it or someone else flipping it for potentially more money than what Suncorp sold it for. The major attraction for me with Coverforce being involved other than providing the loans and becoming a shareholder [in Coverforce] is to go to an IPO with Resilium as an asset down the track. It is a real opportunity for me, however, if the shareholders agreement remains the way it is, I will do the Resilium deal on my own as I do not want to be forced to sell my shares." 1. Mr Kitchin asked Mr Angelis whether it would assist if he spoke to Mr Summerhayes and Mr Georgiadis, to which Mr Angelis replied: "No I will deal with Pemba you deal with Suncorp". 1. In cross-examination, Mr Angelis agreed that it was his choice not to involve Pemba in the communications with Mr Kitchin from this point in time. In fact, Pemba had no direct contact with any of the Kitchin Parties at any time. 2. On 28 August 2018, Mr Kitchin sent Mr Angelis an email stating that, having reviewed the agreement "without recourse to lawyers": "There is a degree of discomfort with the presence of Pemba on the share register. Suncorp and their advisors suspect that following any acquisition of [Resilium], Pemba would force an exit which would be problematic, given it is likely that there will be change of control provisions in any sale agreement … Naturally, if these concerns can be resolved, we can look to bring Resilium in to the Coverforce structure". 1. Mr Angelis replied: "I can confirm that Pemba is aligned to current managements objective to IPO the business at a time of managements choosing. Pemba's need to exit the business is therefore satisfied through an IPO". 1. This comment misstated Pemba's position. As I have said, at the 25 June 2018 board meeting, Mr Georgiadis had made clear that Pemba would "need a full drag to make this work"; that is, that Pemba's position at this point was that it would insist on retaining the Drag Right were Resilium to be acquired. 2. A few days later, on 31 August 2018, Mr Kitchin told Mr Angelis that he had "sent the Shareholders Agreement to my legal representatives for their review" but that Suncorp's advisors, 333 Capital Pty Ltd: "…have told me that they are aware of Pemba having a significant stake in the Coverforce share registry and have indicated that they and Suncorp are uncomfortable that a forced exit may be imposed on me and by extension Resilium, putting the Suncorp premium potentially at risk." The poor relationship between Mr Angelis and the Pemba directors 1. By this time, the relationship between Mr Angelis and the Pemba directors, Mr Summerhayes and Mr Georgiadis, had deteriorated. The poor relationship between these men, and the lack of trust between them, provides some context for later events. 2. For that reason, when recounting the events leading to the execution of the 31 October Term Sheet, the Purported 31 October Shareholders Agreement and the Resilium Transaction documents, I will describe how those relationships deteriorated. 3. An early indication in the evidence of the tension between Mr Angelis and Mr Summerhayes, in particular, is revealed in an email exchange a short time before the communications between Mr Angelis and Mr Kitchin to which I have just referred. 4. On 7 August 2018, Mr Summerhayes suggested that Coverforce engage external consultants to give advice as to "how we should play Resilium". 5. Mr Angelis took offence at this suggestion. 6. Thus, on 10 August 2018, he wrote to Mr Summerhayes: "I do not want us in conflict again but your current push to appoint advisors is dangerous for AFT shareholders because it could result in a forced exit that I may not want. Coverforce is an Angelis family business and the Angelis family has the largest shareholding. On this basis I am at the very least entitled to receiving an equal say in how an exit process is structured. I feel we need a transparent discussion to better understand each other's objectives and agree guidelines for your exit. My objectives in this regard are: 1. To regain as much ownership and control of Coverforce as possible; 2. To secure the future of my children as my successors in the business; and 3. To grow Coverforce to become the Australian leader in insurance broking. What I don't want is for you to drag me into a forced trade sale." 1. Mr Angelis then made some suggestions as to proposed "enforceable terms" that would protect him against a "forced trade sale". Nothing came of those suggestions. 2. The email shows that Mr Angelis regarded Coverforce as "an Angelis family business" and was anxious to regain "ownership and control" of it. Mr Angelis clearly wished to bring about a situation where Pemba ceased to be a shareholder in Coverforce. He certainly did not wish to be forced into a trade sale as a result of Pemba exercising its Drag Right, and thus to lose what he saw as being a family business. 3. This led Mr Summerhayes to write to his colleague at Pemba, Mr Magnus Hildingsson: "Fyi. Such a hard guy to deal with. We could not possibly have been more supportive yet he takes our help as pressure. Incredibly twisted man!" 1. A short time later, Mr Summerhayes wrote to Mr Hildingsson: "Read his email again…he would NEVER sell HIS family business… Need to pin our ears back and try for an IPO and hope we can garner trade bids along the way. He said in the meeting he would sell to trade at the right price. He just can't handle any kind of involvement of a 'partner' in moving things forward and he just gets paranoid which is what triggers this kind of email". 1. A further difficulty arose on 7 September 2018 when Mr Angelis wrote to Mr Tim Flower, a representative of the key investor in the fund management by Pemba, HarbourVest, communicating "my formal offer to purchase your [i.e. Pemba's] shares in Coverforce". 2. This communication infuriated Mr Summerhayes. 3. Thus, Mr Summerhayes gave this evidence: "Q. You regarded that as being inappropriate behaviour? A. My life is entirely dependent on Mr Flower and other people like that and for that to happen is extremely damaging to my reputation and my standing. Q. You believe Mr Angelis would appreciate that? A. Yes. Q. A fairly basic concept? A. Yes. Well [it would be like] me calling up Mr Angelis's supplier at Lloyds or something… Q. Yes. Your state of mind was if Mr Angelis in October 2018 wants to go to talk to Mr Flower, he will surely tell me first? A. Sure. Q. Yes, but he kept that from you? A. Mm-hmm." 1. Mr Flower told Mr Angelis that he should deal with Pemba as it had "full discretion for the investment into Coverforce". Mr Flower said that Pemba "continue to have our complete support so please could I encourage you to continue to work with them on an exit strategy that works for all parties". 2. Mr Angelis replied on 10 September 2018: "Appreciate your reply but the relationship with Pemba is completely broken and therefore there is little prospect of working with them to achieve anything. It's an unfortunate situation for all stakeholders including myself". (Emphasis added.) 1. Mr Flower replied that although he appreciated "that the situation is currently difficult", it was "in everyone's interest to find a way to move forward" and that Mr Angelis should work with Mr Summerhayes and Mr Georgiadis "to get a successful exit for everyone". 2. Nonetheless, Mr Angelis endeavoured to engage in further email negotiations with Mr Flower. Mr Flower insisted that Mr Angelis deal with Mr Summerhayes and Mr Georgiadis. 3. That led Mr Angelis to write to Mr Summerhayes on 13 September 2018: "Mark, I really want us to part ways. Please seriously consider providing me with a counter offer [to the offer Mr Angelis conveyed to Mr Flower] in a form capable of acceptance." (Emphasis added.) 1. Mr Summerhayes replied: "We understand very very clearly what you want. We won't be making a counter offer." Mr Kitchin decides to go it alone 1. On 21 September 2018, Mr Kitchin sent an email to Mr Angelis stating that he had "decided to proceed with the MBO on a standalone basis" and that he would not be proceeding with any deal with Coverforce. 2. He explained: "I have reviewed the [2017] Shareholders Agreement again and some of the provisions are in stark contradiction with the legal agreement I will be signing with Suncorp. I have previously outlined my concerns in this regard with you, in particular, the ability of the shareholders of Coverforce [i.e. Pemba] to force me out and compulsorily acquire any shares I might have. This would place me in breach of my obligations with Suncorp under the sale agreement." 1. Mr Angelis circulated Mr Kitchin's reply to the other directors of Coverforce later that day. 2. That prompted Mr Neal to write to Mr Summerhayes to ask: "What happened to this?" 1. The following email exchange then ensued: "[Mr Summerhayes]: Are you honestly surprised? [Mr Neal]: Yes, I thought this was a done deal. [Mr Summerhayes]: And now [Mr Angelis] ask[s] his mate to set it up to position it like it's our fault. It's so transparent. When is he going to realise that combining our strengths and working together we can be just [sic] an unstoppable force. The evidence as to what we have achieved across the board with other 'partners' is unequivocal. Or does he just enjoy treating us like shit?" 1. Mr Summerhayes agreed that his reference to Mr Angelis's "mate" was a reference to Mr Kitchin and that he was meaning to convey that he believed that Mr Angelis was using Mr Kitchin's position as stated in his email of 21 September 2018 to advance his own position as against Pemba. Coverforce board meeting on 24 September 2018 1. The matter was discussed at the Coverforce board meeting on 24 September 2018. 2. Mr Angelis said that he told the board: "It is in Coverforce's interest and the shareholders' interest to proceed with Coverforce participating in the Resilium deal. If we don't remove [Pemba's Drag Right] and meet [Mr Kitchin's] other requirements the deal is dead for Coverforce. If Coverforce is to participate we will need to agree to [Mr Kitchin's] terms, and that will mean that there will have to be a modified shareholders agreement that satisfies the requirements as stated in his email to me". 1. The following day, 25 September 2010, Mr Georgiadis sent an email to Mr Angelis setting out what he said was a "summary of the principles" discussed at the 24 September 2018 board meeting including: "In relation to dragging Resilium shareholders in to an exit, the affirmative vote of both [Mr Angelis] and Pemba would be required. This would not change any of the exit provisions in the current [shareholders agreement] at the Coverforce level". 1. Mr Angelis agreed that he understood Mr Georgiadis's suggestion as being a compromise on Pemba's part, and an attempt by Pemba to achieve a solution. However, Mr Angelis said that he believed that such a proposal would not be acceptable to Mr Kitchin. 2. Hence Mr Angelis's somewhat terse response: "This is not what we discussed and won't work". 1. This caused Mr Georgiadis to send an email to Mr Summerhayes: "As expected. He wants the 10x multiple to apply to himself too. Conflating all the issues and using the deal as a wedge for self-gain…frustrating to keep going through this pattern". 1. Nonetheless, Mr Angelis read out Mr Georgiadis's email to Mr Kitchin. Mr Kitchin said: "Both provisions are unacceptable. There is nothing here for us. I am going to go it alone, if that is the position." 1. Mr Angelis reported to his co-directors: "I spoke with [Mr Kitchin] this morning and communicated the below. As predicted he did not feel we had anything compelling to offer. He prefers to go it alone." 1. Nonetheless, Mr Summerhayes wrote to Mr Angelis (and the other directors of Coverforce) on 27 September 2018: "As discussed at the Board there is appetite to help you explore creative solutions to [Mr Kitchin's] issues in order for you to secure a deal with him." Mr Angelis's offer to buy out Pemba 1. On 28 September 2018, Mr Angelis sent Mr Summerhayes and Mr Flower an email making a further offer to buy out Pemba. 2. His email read: "Please refer [to] attached spreadsheet representing my best and very reasonable offer to purchase all Pemba shares for $47 million plus repayment of loans… I simply want all of you out of my life". (Emphasis added.) 1. Pemba did not respond to this offer. Mr Summerhayes said in cross-examination that he thought the offer was for significantly less than Pemba's shares were worth. The first Suncorp-Kitchin Term Sheet 1. On 10 October 2018, Mr Kitchin wrote to Mr Angelis stating that he was about to sign a non-binding "Term Sheet" with Suncorp. I will call this the "October Suncorp Term Sheet". It was obviously necessary for Mr Kitchin to come to an arrangement with Suncorp, which owned Resilium, before coming to an arrangement with a prospective funder such as Coverforce. The October Suncorp Term Sheet was a step down that path. 2. Mr Kitchin continued: "Whilst I am positive that Resilium and Coverforce could derive great benefits/synergies together in the market, as I have indicated to you previously, I would have great difficulty in agreeing to participate in the current Coverforce Shareholders Agreement. … I am in the process of structuring my debt and equity position moving imminently into Due Diligence with Suncorp. … Given your call today, I am prepared to share the Term Sheet with you for your thoughts – naturally, this is confidential and solely to allow you to confirm whether you can provide the requested concessions. Either way, I urgently need to understand your final position so I can move to finalise this sale." 1. Mr Kitchin attached a copy of the October Suncorp Term Sheet. The October Suncorp Term Sheet forms an important background to later events. It set out the manner in which the Suncorp and the Kitchin Parties then envisaged the Kitchin Parties' MBO of Resilium would take place. 2. It described the "Proposed Transaction" as the sale of 100% of the shares in Resilium to the Kitchin Parties for $20 million and "envisaged that further investigation of the Proposed Transaction will progress in two phases". 3. "Phase 1" included the Kitchin Parties approaching "potential sources of equity and/or debt financing" and, following the identification of "preferred financier" (ultimately this was Coverforce), Suncorp, the Kitchin Parties and that financier seeking "to agree a Stage 2 Term Sheet that details the key terms of a Proposed Transaction". 4. The document stated that in "Phase 2" the financier would undertake a due diligence of Resilium and that Suncorp, the Kitchin Parties and the financier "will seek to negotiate and execute definitive transaction documentation". 5. As will be seen, the 31 October Term Sheet also envisaged a further term sheet, which was described as the "Phase 2 Term Sheet". 6. As I describe below, a further term sheet executed by Suncorp and Mr Kitchin on 12 December 2018 constituted the "Phase 2 Term Sheet", as contemplated by the 31 October Term Sheet, or the "Stage 2 Term Sheet", as contemplated by the October Suncorp Term Sheet. For clarity, I will refer to this second term sheet as the "Stage 2 Suncorp Term Sheet". These matters are relevant to the consequences for Coverforce of its entry into the 31 October Term Sheet. I return to this below. 7. Under the heading "Change of Control", the October Suncorp Term Sheet provided: "Suncorp will have express approval rights in the event of a change of control, material recapitalisation or material change in the capital structure or other such event that has the same effect". 1. Thus, under this document, it was envisaged that Suncorp would have what was in effect a right to veto any change of control of the Resilium business. 2. Mr Georgiadis described this provision as a "show stopper" for Pemba, as it would have negated Pemba's Drag Right. 3. This position was altered in the Stage 2 Suncorp Term Sheet. Intervention of Mr Neal 1. On 16 October 2018, Mr Neal, the independent director, wrote to Mr Angelis and Mr Summerhayes: "I note from today's paper that Resilium is now on the market officially. How do we get this transaction back on track?" 1. Mr Summerhayes wrote to Mr Georgiadis: "This is so transparent. [Mr Angelis] needs a pretext to tell us he's actually got a deal to do now…". 1. Mr Georgiadis said of that email: "My understanding of what Mr Summerhayes was suggesting is that Mr Angelis was working with potentially media and/or Mr Kitchin to create some impetus for the transaction negotiations to continue". 1. Mr Georgiadis agreed that he thought it was possible that Mr Angelis, who was then in London, was engaging in a strategy "to force a deal with Pemba". 2. Mr Angelis replied to Mr Neal's email by forwarding to him Mr Kitchin's 10 October 2018 email and stating that the email was: "…self-explanatory as to what is needed to move the deal forward. I have the ability to close the deal if [Mr Kitchin's] issues could be resolved. I am currently in London and given communications with [Mr Summerhayes] have broken down anyway I'm happy for you to discuss it with him." 1. Mr Neal then sent an email to Mr Summerhayes and Mr Georgiadis: "I am not sure exactly what the matters of contention are that we need to resolve to make this happen, except I know that Suncorp and [Mr] Kitchin are concerned about the leaver conditions and anything that could disrupt the business and flow of premiums to Suncorp. I also know that [Mr Angelis] wants to get this deal done and set up an exit and he is concerned it is slipping through our hands." 1. Mr Summerhayes sent an email to Mr Georgiadis: "So predictable its almost sad. He caused a dispute, tried to buy us out for nothing before setting up a sweetheart exit for all of them. Talk about acting in the best interests of all shareholders… We called it George, well done". 1. Mr Georgiadis replied: "Yup they would have written the term sheet together. Shameless. But potentially can make it work for everyone". 1. Mr Georgiadis said in cross-examination that he understood that what Mr Summerhayes was suggesting was that Mr Angelis and Mr Kitchin were "in cahoots" and were "working together" to manufacture a dispute. 2. Mr Georgiadis agreed that his reply showed that he "thought there was a distinct possibility" that Mr Summerhayes's conjecture was correct. 3. Mr Georgiadis agreed that he understood Mr Summerhayes's reference to Mr Angelis trying "to buy us out for nothing" was a reference to the $47 million offer that Mr Angelis had made on 28 September 2018 (see [140] to [141] above). 4. Mr Georgiadis said that his comment "potentially can make it work for everyone" demonstrated that this exchange "wasn't relevant to how I continued to evaluate the transaction". I accept that evidence. Events leading to the 31 October Term Sheet 1. The following day, 17 October 2018, Mr Neal wrote to Mr Angelis: "What are the next steps to do this deal? I am thinking that maybe we assume co operation from [Mr Summerhayes] because it is also in his best interests to do this deal. Do we have a term sheet [for Mr Kitchin] to back him with our funds? I am thinking some paperwork to put in front of [Mr Summerhayes] to get his agreement on." 1. Mr Neal's inquiry as to whether "we have a term sheet" prompted Mr Angelis, on 18 October 2018, to instruct Mr Jason van Grieken from Arnold Bloch Leibler ("ABL") to: 1. prepare a "term sheet between Coverforce Holdings and Adrian Kitchin to support his MBO"; and 2. prepare draft amendments to the 2017 Shareholders Agreement to accommodate an acquisition of Resilium on terms including that the Kitchin Parties become shareholders in Coverforce, Mr Kitchin become a Chief Operating Officer of Coverforce and that the "Exit" provisions be amended so as to accommodate the concerns that Mr Kitchin had outlined about Pemba's Drag Right. 1. Mr Angelis did not inform Mr Summerhayes or Mr Georgiadis that he had given ABL these instructions. 2. On 22 October 2018, Mr van Grieken sent Mr Angelis a draft term sheet between Coverforce and Mr Kitchin, together with suggested amendments to the 2017 Shareholders Agreement. I will call these documents the "ABL Draft Term Sheet" and the "ABL Draft Shareholders Agreement". 3. On the same day, Mr Kitchin signed the October Suncorp Term Sheet. Coverforce board meeting on 29 October 2018 1. Mr Angelis first showed his fellow directors a copy of the ABL Draft Term Sheet and the ABL Draft Shareholders Agreement at a meeting of the directors on 29 October 2018. 2. The minutes of this board meeting cast no light on what was said at the meeting. 3. Mr Angelis said he told the meeting: "I am circulating a copy of the amendments to the current shareholders agreement and a term sheet, which if agreed, will mean that the Resilium venture is back on track and we can proceed with [Mr] Kitchin and his consortium. Get back to me if there are any difficulties with Coverforce agreeing with [Mr] Kitchin on those terms." 1. In his affidavit, Mr Georgiadis said that, during the meeting, he inquired as to the progress of the Resilium Transaction and that he said: "Pemba is open to supporting the transaction subject to Pemba retaining appropriate [e]xit mechanisms under the 2017 Shareholders Agreement" 1. Mr Summerhayes's recollection of what Mr Georgiadis said was that he said: "Pemba is generally supportive of continuing to pursue this transaction but any agreement cannot erode Pemba's exit rights under the 2017 Shareholders Agreement". 1. Mr Summerhayes said that Mr Angelis said: "Mr Kitchin requires amendments to the 2017 Shareholders Agreement, in particular for Pemba to give up its exit and drag rights, in order to progress with the Resilium Transaction". 1. Mr Summerhayes recalled that, at one point, and as a compromise, Mr Angelis suggested the possibility of a "put option" and either he or Mr Georgiadis replied: "Pemba will not agree to give up its exit and drag rights without a clear alternative pathway which might potentially include a put option but the terms of that would need to discussed and agreed first". 1. This is the only evidence of what occurred at this meeting. It provides no foundation for the submission made in closing on behalf of the Angelis Parties that the majority of Coverforce's directors, on this day, approved an issue of shares in Coverforce to Mr Kitchin. Nothing was agreed this day. 2. Shortly after the meeting, Mr Angelis circulated by email a copy of the ABL Draft Term Sheet and ABL Draft Shareholders Agreement to Messrs Summerhayes and Georgiadis. 3. Later on 29 October 2018, Mr Angelis sent Mr Kitchin copies of the same documents as attachments to an email which read: "Attached is the term sheet as amended between us". The ABL Draft Term Sheet and the ABL Draft Shareholders Agreement 1. The wording in the ABL Draft Term Sheet was adopted, without relevant alteration, as the wording of the 31 October Term Sheet. I will return to that wording below. 2. The ABL Draft Shareholders Agreement included a note: "ABL note 1: This mark-up has been prepared on the basis that it will be amended and restated at the time that Adrian Kitchin becomes a shareholder (and that the parties will also sign an amendment and restatement deed)". 1. The ABL Draft Shareholders Agreement relocated the provisions concerning "Disposal of Shares" from cl 8 to cl 7 and the "Exit" provision from cl 9 to cl 8. 2. The ABL draft proposed a number of changes to the provisions in cl 7 concerning "Dispose of Shares", none of which is presently relevant. 3. The ABL draft made substantial changes to the "Exit" provisions (now in cl 8). 4. In substance, the changes were to the effect that Pemba's Drag Right was removed and that any "Exit" by Pemba as a shareholder of Coverforce required the agreement of the Angelis Parties. 30 and 31 October 2018 1. On 30 and 31 October 2018, Mr Georgiadis and Mr Angelis exchanged a series of emails. They also had a number of conversations. There is a critical dispute between Mr Angelis and Mr Georgiadis in respect of one of those conversations. 2. According to Mr Angelis, in that disputed conversation, Mr Georgiadis said that Pemba agreed to proceed with the Resilium Transaction on the terms set out in the 31 October Term Sheet and agreed to the terms of the Purported 31 October Shareholders Agreement. 3. For the reasons I set out below, I am not satisfied that this conversation took place in the terms to which Mr Angelis deposed. 4. I accept Pemba's submission that, under cross-examination, Mr Angelis revealed that he had difficulty remembering the specific conversations he had with Mr Georgiadis over these two days. He said that he was "not certain which conversations overlap and which ones are different conversations". When asked about specific conversations he had with Mr Georgiadis for these days, Mr Angelis said that while he had a number of conversations, he could not specifically say which conversation was that in which Mr Georgiadis made the statements I have set out. 5. Critically, my conclusion is that, contrary to Mr Angelis's evidence, Mr Georgiadis: 1. did not convey Pemba's unqualified approval to Coverforce proceeding with the Resilium Transaction; and 2. made clear that, although Pemba was content for Mr Angelis to continue discussions with Mr Kitchin, Pemba would not agree to any variation to the 2017 Shareholders Agreement until issues about its exit rights were resolved and, in particular, until Pemba and Mr Angelis agreed on an alternative to Pemba's Drag Right. The 30 October 2018 emails and conversations 1. At 10.21 am on 30 October 2018, Mr Georgiadis sent Mr Angelis an email: "We've been through the [ABL Draft Term Sheet and ABL Draft Shareholders Agreement] with the lawyers and don't see any big issues. We have no comments on the term sheet. On the [Shareholders Agreement] as you say the main issue was around exit where we'll need to have some options given we'll no longer have a drag right. Our limited comments are included in the attached." 1. Pemba's "limited comments" on the ABL Draft Shareholders Agreement included: 1. a note, at the outset of the document that "[t]his document remains subject to further review and comment by Pemba"; 2. a note at the beginning of cl 7, which dealt with "Disposal of Shares": "Pemba Note: Given that Pemba is giving up its unilateral drag-along right, Pemba requires a clear pathway to exit. Elements of this could comprise a right of first offer in favour in management, the exit process set out in clause 8 (i.e. with other shareholder approval), and a backstop put option under which [Mr Angelis] would acquire Pemba's shares"; and 1. a note at the beginning of the clause dealing with "Exit", cl 8: "Pemba Note: see note at clause 7". 1. Shortly after Mr Angelis received Mr Georgiadis's 10.21 am email, they had a conversation. 2. According to Mr Georgiadis, Mr Angelis said: "The Resilium Transaction will not progress unless Pemba forfeits its unilateral drag right under the 2017 Shareholders Agreement". 1. Mr Georgiadis said he replied: "Pemba need[s] a clear pathway to exit. If we are going to agree to an amendment to the current exit and drag rights, this needs to be replaced with something else. If that something else is a put option in Pemba's favour, it needs to be on terms which Pemba agrees to. I understand you are keen to progress this deal but we need to resolve this before Pemba can provide its approval as a shareholder to any amendments needed to the Shareholders Agreement for the Resilium Transaction." 1. Mr Angelis's recollection of the conversation was as follows: "Mr Georgiadis: In order to advance the Resilium deal, Pemba is willing to consider a put option, but only on terms favourable to Pemba. Mr Angelis: I am happy to agree to a put option. I just need to consider the valuation behind this option. Further, I would need a call option in return. The put and call option can form a separate option deed between us. This will ensure that the Resilium deal can move forward without us getting caught up in the drafting of the put and call option. Mr Georgiadis: Let me get back to you." 1. To the extent that there is any difference in Mr Angelis's recollection of this conversation and that of Mr Georgiadis, I find the best guide of what was said to be what Mr Georgiadis set out in an email he sent to Mr Summerhayes shortly after the conversation. I find that in this, and in later emails, Mr Georgiadis had no reason to misreport to Mr Summerhayes what had been said between him and Mr Angelis. 2. In any event, assuming the correctness of Mr Angelis's recollection of what was said in this conversation, there was no final agreement on an alternative to Pemba's Drag Right. All that can be said is that there was some discussion about the possibility of a put and call option between Pemba and Mr Angelis. 3. That is confirmed in Mr Georgiadis's email to Mr Summerhayes. At 11.58 am on 30 October 2018, Mr Georgiadis sent an email to Mr Summerhayes following his conversation with Mr Angelis. The email reads: "[Mr Angelis] is happy with everything except the put option. He's open to it after a 3 year period but wants to be protected if he doesn't have the capital and will only agree if: 1. He has a call option too – though this can be at say a 20% premium to FMV while our put can be at a 20% discount to FMV[;] 2. It only comes in to effect after we try to sell to the market (this protects both of us). I think this isn't a bad outcome. Just need to feel confident on the valuation point. He initially suggested 10% premium / discount but 20% is safer. Thoughts? From a process point of view he said if we remove the put (which can still form a side agreement between us) or include the concept above, he'll be ok to move forward with Resilium without full drafting. Feel free to call if helpful." 1. The email confirms that, as Mr Georgiadis deposed, Mr Georgiadis had suggested the possibility of a put option between Pemba and Mr Angelis as an alternative to Pemba's Drag Right and that Mr Angelis responded by suggesting that, were Pemba to have a put option, he would wish to have a call option to be exercised after three years and only if Pemba tried to sell its shares to the market. The email also records, as Mr Angelis had deposed, that Mr Angelis suggested that any put and call option could be recorded in a "side agreement". 2. Following that discussion, Mr Georgiadis sent Mr Angelis a further email at 1.40 pm suggesting an expanded "note" to be placed at the beginning of cl 7 of the Shareholders Agreement. 3. He said: "Further to our most recent discussion, at this point you could include the following wording in [cl 7] for now. We can then work with the lawyers to provide a full mark-up on these points. Pemba Note: Given that Pemba is giving up its unilateral drag-along right, Pemba requires a clear pathway to exit. This can be achieved through the following: ● ROFO: A right of first offer in favour of management under which management has the opportunity to acquire Pemba's shares at a price set by Pemba, and if all of Pemba's shares are not sold as part of that process, then Pemba is free to sell all of its shares to a third party at a price no less than that offered to management; ● Exit: The exit process set out in clause 8; and ● Put option: If a Pemba exit has not eventuated through the above means within an agreed period of time, then Pemba has the right to require that [Mr] Angelis (or his nominee) acquires its shares. [Mr] Angelis will have a reciprocal right to acquire Pemba's shares. The process and valuation to be applied is to be agreed between [Mr] Angelis and Pemba." (Emphasis in original.) 1. As indicated by my parenthetical note "[cl 7]" in the preceding paragraph, Mr Georgiadis's reference to including the wording "in that section for now" was a reference to cl 7 of the ABL Draft Shareholders Agreement, under the heading "Disposal of Shares" at which point the "Pemba Note" referred to at [194(b)] above was in the current draft. 2. Mr Angelis agreed that he understood from this email that he could put Mr Georgiadis's proposed wording into the draft as a "Pemba Note" and that Mr Georgiadis was suggesting that Pemba, Coverforce and anyone else who needed to be involved could "work with the lawyers to provide a full mark-up" on the three dot points set out in Mr Georgiadis's "Pemba Note". 3. Mr Angelis also agreed that, at this time, he understood Mr Georgiadis required that the "Pemba Note" be included in the version of the Shareholders Agreement to be provided to Mr Kitchin. 4. At some time after Mr Georgiadis sent the email to Mr Angelis at 1.40 pm, they had a further conversation. Mr Georgiadis said to Mr Angelis: "Pemba will not agree to amendments to the Shareholders Agreement, without there being further negotiation and further consideration by [Mr Summerhayes] and I, including us seeking legal advice. This was the process we undertook the last time that amendments were made to the Shareholders Agreement in 2017." 1. Again, Mr Angelis had a different recollection of the conversation. He described it as follows: "Mr Georgiadis: Pemba agrees to you having a call option. We should define what fair market value means in terms of the put and call option. Mr Angelis: We can agree on the specific terms of the put and call option once the Resilium venture is completed. I want to do some calculations around the valuation multiple and the discounted valuation multiple. I will do some calculations around this and get back to you. Mr Georgiadis: Ok." 1. I do not accept that Mr Angelis has an actual recollection of a conversation in these terms. He could not recall it at all until prompted in cross-examination. 2. I do not accept that Mr Angelis said to Mr Georgiadis that "we can agree on the specific terms of the put and call option once the Resilium venture is completed". If that had been said, it is likely that Mr Georgiadis would have referred to it in the account he gave to Mr Summerhayes in the email he sent following this conversation. 3. In that email, sent at 2.01 pm, Mr Georgiadis said: "Gosh he's difficult. Lots of time on the phone today. He wants the mutual option to be available from 12 months in based on 20% premium/discount. He also wants it to be available at any time even if we haven't tried to sell our shares independently. I've copied the FMV process below. As we know, independent valuations can vary up and down 20% or more depending on which way the wind blows. But the 20% premium should protect us. It's hard to see anyone valuing Coverforce less than say 9x at the moment, so 20% premium would be almost 11x which presumably we'd be happy with. I think the problem with the call if we haven't tried to sell our shares already, is that he could exercise the call going in to an exit or e.g. a merger with AUB and take all the upside… We could go back agreeing to the 12 months but not agreeing to it being available until we've tried to sell our shares? Did you want to get involved in the discussion to help close it out? Other option is to tell him this needs IC [investment committee] approval and defer the discussion – but I think that might actually work against us as he'll insist if we want to do the deal there's either no put option or the option works on his terms. He seems eager to resolve this to move Resilium forward." 1. Mr Georgiadis included in his email a copy of the provisions in the 2017 Shareholders Agreement dealing with "Fair Market Value". 2. As Pemba submitted, it is clear from this email that, whilst there was discussion between Mr Angelis and Mr Georgiadis about a proposed put and call option, there was no agreement as to its terms at this point. 3. The email also points strongly to the conclusion that there was no agreement between Mr Georgiadis and Mr Angelis that the terms of the put and call option could be agreed "once the Resilium venture is completed". 4. Mr Georgiadis does refer, in his email, to the possibility of "defer[ring] the discussion" about the put and call option on the basis that it would need investment committee approval. However, Mr Georgiadis's musings that this "might actually work against us" suggests that this was a matter which was not discussed with Mr Angelis. 5. Mr Georgiadis denied in cross-examination that he told Mr Angelis that final agreement about the terms of any put and call option could be deferred until the Resilium Transaction had completed. 6. Mr Georgiadis said that, from his point of view, the put and call option had to be agreed in advance of entering into the Resilium Transaction documents and that there was "no point deferring a negotiation about something so fundamental until it's too late". 7. I accept Mr Georgiadis's evidence. It is consistent with what Pemba had been saying all along about the importance to it of its Drag Right. 8. It is also consistent with an email Mr Georgiadis sent Mr Summerhayes at 11.18 am on the following day, in which he reported that Mr Angelis "fully understands he has to reach agreement with us before we'll sign up to the [Resilium] transaction". I will return to that email below. 9. Mr Angelis said that, later in the afternoon, he had the conversation with Mr Georgiadis to which I referred at [188] above and on which, in substance, Mr Angelis's case against Pemba depends. 10. Mr Angelis deposed to this conversation as follows: "Mr Georgiadis: Pemba agrees to proceed with the Resilium Venture on the terms set out in the term sheet. Pemba also agrees to a modified shareholders agreement which will include a right of first offer, exit process and put and call option. We have not, as yet, agreed on the terms of the put and call option but that doesn't matter for the moment, we can agree on the terms of this option on the completion of the Resilium venture. [Mr Angelis]: I agree. I think any put and call option should include that: (A) I be granted a call option that can be exercised from 1 July 2019, at a call option exercise price of 10 times EBITDA less debt; and (B) Pemba be granted a put option that can be exercised from 1 July 2019, at a call [sic: put] option exercise price of 8 times EBITDA less debt. Mr Georgiadis: That sounds ok." 1. Mr Georgiadis denied that any such conversation occurred. 2. Mr Georgiadis said that during this conversation he said: "Pemba will need a clear pathway to exit. We need to agree on what that is and what the valuation is going to be before we go ahead and amend the Shareholders Agreement. I know you are keen to move this quickly and it is not necessary for us to agree the changes to the [Shareholders Agreement] right now for you to move the deal forward. However, ultimately Pemba will need to agree to any amendments to the Shareholders Agreement before the deal goes ahead". 1. In his oral evidence, Mr Angelis maintained that this was the conversation "that finally gets the deal done". 2. But Mr Angelis's evidence continued: "Q. Right. So when you say, "finally gets the deal done" you've already accepted on a number of occasions that you've never agreed the price; correct? A. To the put and call? Q. Yes. A. That's correct. Q. So in terms of getting the deal done, there's no universe is there in which you say that there was an agreement between you and Pemba on what the price of the put and the call would be to this day? A. There was - I agree there's an agreement to agree on the put and the call but it's a separate agreement to the term sheet." 1. Mr Angelis thus accepted that he came to no agreement with Mr Georgiadis about the price of any put and call option between him and Pemba. He asserted there was, instead, "an agreement to agree". 2. For the reasons that follow, I do not accept that matters even got this far (see my conclusion at [494] below). 3. Later in the afternoon, at 4 pm, Mr Georgiadis sent a further email to Mr Summerhayes: "He called a few times then I got back to him. He's obviously wanting to get it all wrapped up quickly. I'm pushing that he doesn't need this piece to move the deal forward. He's saying he doesn't want to highlight any shareholder issues. The problem is he sees our drag as already practically gone, so doesn't want to accept a put. He's backed down on the short term call option and willing to do a 3 yr put/call structure but only if the valuation is fixed so he knows he can fund. He's suggested a 8x put and 12x call. Problem for us is he may wait out 3 years and try making us put an 8x. Not a terrible outcome but not great. We could get protection on the call with a value true up if he realises value after say 6 or 12 months following the call, but for this to be in place he wants to be able to call after 12 months. We could just drop the whole option structure if we feel comfortable with the rights around unilateral sale of our shares only. We should make it clear that the obligation on management to help sell the shares (which currently applies to whole of company exit) should apply here. He also suggested a leveraged recap and buying us out. He proposed doing this incrementally which I don't think would work, but this could be a chance to lay down a valuation threshold under which we'd do this. It is basically the same thing as giving me a call but he can use the company balance sheet." 1. Mr Georgiadis said that his reference to the "piece" that he was "pushing" not be necessary "to move the deal forward" was to a detailed resolution of the terms of any put and call option between Mr Angelis and Pemba. That is consistent with his recollection of his conversation with Mr Angelis set out at [224] above. 2. Consistently with that, Mr Georgiadis said in cross-examination that he said to Mr Angelis words to the effect: "…look, we might not be able to agree this today, so why don't we move on without it, but on an understanding that we must agree it or some protection for Pemba's exit rights before supporting the transaction." 1. While Mr Georgiadis agreed that he said to Mr Angelis that resolution of the put and call option could be left until after signing the term sheet with Mr Kitchin, he maintained firmly that he said to Mr Angelis that the terms of any put and call had to be agreed before, and not on, the signing of any transaction documents concerning the acquisition of Resilium or completion of any such transaction. 2. I accept this evidence, particularly because it is consistent with what Mr Georgiadis said to Mr Summerhayes in his 11.18 am email the next day, 31 October 2018, to which I have already referred and to which I will return. 3. Mr Georgiadis also recorded in this email Mr Angelis saying that he did not "want to highlight any shareholder issues". 4. Mr Angelis said he could not recall saying anything to this effect and that he thought he would recall saying such a thing. 5. But there was no reason for Mr Georgiadis to misreport to Mr Summerhayes this part, indeed any part, of his conversation with Mr Angelis. I think it likely that Mr Angelis did say what Mr Georgiadis recorded. 6. The "shareholder issues" to which Mr Angelis referred must have been the put and call option then under discussion between Mr Angelis and Mr Georgiadis. This was being discussed as an alternative "exit pathway" for Pemba for the Drag Right that Mr Kitchin would not tolerate and which was omitted from the Purported 31 October Shareholders Agreement then under discussion. 7. Although Mr Georgiadis was reluctant to accept this, the party with whom Mr Angelis did not wish to "highlight" that "shareholder issue" must have been Mr Kitchin. 8. Mr Georgiadis's email also referred to the possibility of dropping "the whole option structure". But that comment was made on the assumption that "we feel comfortable with the rights around unilateral sale of our shares only". Mr Georgiadis said that this suggestion "received no traction". Mr Summerhayes said he saw this comment as merely "brainstorming" and said it did not "go anywhere" as far as he knew. 9. A short time later, at 4.19 pm, Mr Angelis sent an email to Mr Georgiadis: "Further to the discussion 10 minutes ago. The following put and call scenario is acceptable to me: 1. [Mr Angelis] to be granted a call option that can be exercised from 1/07/2019 2. Call option exercise price 10x LTM EBITDA less debt (EBITDA adjusted for Coverforce Victoria minority shareholding) 3. Pemba to be granted a put option that can be exercised from 1/07/2019 4. Put option exercise price 8x LTM EBITDA less debt (EBITDA adjusted for Coverforce Victoria minority shareholding)". 1. Mr Georgiadis sent a copy of Mr Angelis's email to Mr Summerhayes with the note: "Already going backwards from a discussion 10 minutes prior!" 1. Mr Georgiadis was referring to the fact that Mr Angelis was proposing, in his 4.19 pm email, a call option exercise price of 10 times EBITDA whereas, according to Mr Georgiadis's recollection and 4 pm email to Mr Summerhayes, Mr Angelis had earlier suggested a price of 12 times EBITDA for any call option. 2. Mr Georgiadis did not respond to Mr Angelis's "put and call scenario" until the next morning, when he rejected it (see [253] below). Conversations between Mr Angelis and Mr Kitchin 1. Mr Kitchin gave this evidence of a conversation that, in his affidavit, he said occurred on 29 October 2018: "[Mr Angelis]: I have had positive discussions and email exchanges with [Mr Georgiadis] on behalf of Pemba about replacing the drag right with a Put and Call option to give them another exit right. [Mr Georgiadis] is agreeable to this and we are working through the detail. [Mr Kitchin]: That is great news. [Mr Angelis]: I will ask Arnold Bloch Leibler acting for Coverforce to incorporate this change into the amended shareholders agreement that we will send you shortly. It will also incorporate your other key requirements for you to become a director of Coverforce and for you, [Mr Hastie] and [Mr Castanelli] to become shareholders of Coverforce from Completion. [Mr Kitchin]: That is great comfort. Thank you." 1. Mr Kitchin's reference to Mr Angelis having referred to "email exchanges" with Mr Georgiadis suggests that this conversation took place on 30 October 2018, rather than on 29 October 2018. 2. Mr Angelis said that "following my correspondence and discussions with Mr Georgiadis" on 30 October 2018, he telephoned Mr Kitchin and had this conversation: "[Mr Angelis]: Coverforce is prepared to proceed with the Resilium venture. Pemba have agreed to Coverforce proceeding with the Resilium venture on the terms set out in the term sheet. Pemba has also agreed to an amended the [sic] 2017 Shareholders Agreement which will take the form of the modified shareholders agreement previously circulated and also include further terms regarding a right of first offer, the exit process and a put option. … This can be entered into following the completion of the Resilium venture. [Mr Kitchin]: We have an agreement. Send me the signed term sheet." 1. But at this stage, as Mr Angelis knew, Pemba had not agreed to amend the 2017 Shareholders Agreement. There had been discussion about a possible put and call option between Mr Angelis and Pemba as a substitute for Pemba's Drag Right. But there had been no agreement as to the terms, and in particular, no agreement about the price of any such option. Mr Angelis had made an offer in his 4.19 pm email to which there had been no response that day. 2. Mr Kitchin gave evidence of a further conversation with Mr Angelis as follows: "On 30 October 2018, I telephoned Mr Angelis during which he and I had a discussion, part of which we exchanged words to the following effect: [Mr Kitchin]: Thanks for your email with the amended shareholders agreement. I think that this will work from my perspective and also from Suncorp's. It resolves the issues that I have previously raised. [Mr Angelis]: That's great, we will send the signed terms sheet to you shortly. [Mr Kitchin]: Does this now sort out Pemba's issues[?] [Mr Angelis]: The replacement of the drag right with the put and call option that I have discussed at length with [Mr] Georgiadis addresses their concerns. Pemba are now agreeable to the deal and are proceeding on that basis. [Mr Kitchin]: That is great news. We've got a deal. I look forward to getting the executed terms sheets." 1. On this account, Mr Angelis's statement as to the position that had been reached between he and Pemba was incomplete. 2. It may have been correct for Mr Angelis to say that the idea of a put and call option in lieu of the Drag Right had been "discussed at length" with Mr Georgiadis and that it "addresses [Pemba's] concerns" in that there was a prospect that, if agreement could be reached as to the terms of the put and call option, Pemba might agree to it in substitution for its Drag Right. 3. It was also true that Mr Georgiadis had told Mr Angelis that he could proceed with discussions with Mr Kitchin pending further negotiation between Mr Angelis and Pemba as to a possible put and call option. 4. But it was not true to say that "Pemba are now agreeable to the deal and are proceeding on that basis". 31 October 2018 1. In his affidavit, Mr Georgiadis said that, on the morning of 31 October 2018, he had this conversation with Mr Angelis: "You can continue to progress discussions with Mr Kitchin and make due diligence enquiries with respect to the Resilium Transaction. However, Pemba will require issues around Pemba's exit entitlements under the 2017 Shareholders Agreement to be resolved and agreed, prior to providing approval for any amendments to that agreement. Pemba does not agree to the put and call option you have proposed." 1. In his oral evidence, Mr Georgiadis also said that, in this conversation, he agreed with Mr Angelis's idea that, given that the put and call option had not been agreed, it could be removed from the version of the Shareholders Agreement that would be provided to Mr Kitchin. 2. This had the result that the note placed under the heading "Disposal of Shares" in the version of the shareholders agreement sent to Mr Kitchin later on 31 October 2018 did not include the reference to a put option that Mr Georgiadis had proposed in his email at 1.40 pm on 30 October 2018 (see [203] to [204] above). 3. Rather, the note to cl 7 in the version of the shareholders agreement sent to Mr Kitchin, that is the Purported 31 October Shareholders Agreement, read: "It is agreed that this clause 7 of the agreement will be amended to include the following: ● ROFO: A right of first offer in favour of management under which management has the opportunity to acquire Pemba's shares at a price set by Pemba, and if all of Pemba's shares are not sold as part of that process, then Pemba is free to sell all of its shares to a third party at a price no less than that offered to management; and ● Exit: The exit process set out in clause 8." 1. In his oral evidence, Mr Georgiadis also said that he told Mr Angelis that, while the term sheet could be signed, the shareholders had to "agree some alternative to deal with the issue of exit rights" such as the put and call option in the Shareholders Agreement before the signing of formal documentation and the completion of the Resilium Transaction. 2. Mr Angelis denied the conversation took place. He gave this evidence in cross-examination: "Q. One thing is clear, you didn't agree any of these prices [for the put and call option], correct? A. Correct. Q. Indeed, Mr Georgiadis called you on the morning of 31 October, and told you they weren't agreed. Correct? A. I don't recall any telephone conversation on 31 October. Q. You don't deny it, you just don't recall? A. I would remember if. Q. Would you? A. Yes. Q. What I want to suggest is that firstly…[h]e told you that Pemba didn't agree to the put and the call that you'd proposed? A. In an email? Q. In a telephone conversation? A. I had no such conversation. Q. He told you that from Pemba's perspective you could continue to progress the discussions with Mr Kitchin, and make due diligence inquiries with respect to the transaction? A. No. Q. He told you that Pemba needed the issues around Pemba's exit entitlements under the shareholders' agreement to be resolved and agreed, prior to them providing any approval for any amendments to that agreement. Correct? A. Absolutely not." 1. This evidence from Mr Angelis cannot be right. 2. At 11.18 am that morning, following his conversation with Mr Angelis, Mr Georgiadis sent the email to Mr Summerhayes to which I have earlier referred. 3. In that email, Mr Georgiadis said: "Okay as expected [Mr Angelis] got very jittery and wants to secure the deal, so will remove the option piece from the doc but fully understands he has to reach agreement with us before we'll sign up to the transaction. We should probably keep it moving though as the pressure plays both ways i.e. he'll line up the deal for execution then make us drop the option." (Emphasis added.) 1. Mr Georgiadis's reference to Mr Angelis stating that he would "remove the option piece from the doc" was a reference to Mr Angelis's proposal, with which Mr Georgiadis agreed, that he remove any reference to a put and call option from the version of the shareholders agreement to be sent to Mr Kitchin. 2. Mr Georgiadis's report to Mr Summerhayes, in the passage I have emphasised, that Mr Angelis "fully understands that he has to reach agreement with us before we'll sign up to the transaction" is vital, contemporaneous evidence, confirming that, as Mr Georgiadis deposed he had told Mr Angelis, Pemba had not then given its unqualified agreement to Coverforce entering the Resilium Transaction. 3. Again, there was no reason for Mr Georgiadis to misreport to Mr Summerhayes what had passed between him and Mr Angelis. 4. It is true that in the passage from his affidavit, Mr Georgiadis described what he said to Mr Angelis, whereas in his email report to Mr Summerhayes he set out what Mr Angelis "understands". But, contrary to the submission made in reply by the Angelis Parties, I see no inconsistency between those two matters. Mr Georgiadis was plainly conveying to Mr Summerhayes what he understood Mr Angelis understood from what he said to him. 5. Mr Georgiadis's report to Mr Summerhayes is consistent with his account of his conversation with Mr Angelis earlier that morning and persuades me that the conversation did take place in the terms to which Mr Georgiadis deposed. 6. It was also submitted on behalf of the Angelis Parties that Mr Georgiadis's evidence at [253] above was inconsistent with the following passage in cross-examination: "Q. And you knew that what would happen is the term sheet would be signed with a shareholders' agreement which would have no reference to the put and call, and it would be signed by Angelis for Coverforce and for Kitchin on behalf of the Resilium consortium? A. Yes. Q. And you agreed that that should happen? A. I did. Q. It's fair, isn't it, that drawing a line in the sand as at 30 October, the following things were obvious to you? If the Coverforce deal transaction was entered into and took its course, Kitchin would be a shareholder, as would his consortium team. Correct? A. Yes. Q. There was going to be an equivalent dilution of the shares of all existing shareholders. Correct? A. Yes. Q. Your expectation, based on the figures you had seen and the analysis you had done, would be the value that Resilium would bring to the Coverforce shareholding would more than offset the dilution. Correct? A. Potentially; to be confirmed. Q. The drag right would have to go because Kitchin was not going to live with the drag right. Correct? A. Partially at least. Q. Two things had been agreed in relation to the amendment of that drag right. They were the right of first offer and the-- HIS HONOUR: Clause 8 exit. CORSARO Q. Clause 8 exit process. Correct? A. Yes. I would say they were more alternatives rather than amendment to the drag rights. Q. Those two things had been discussed and agreed as forming part of the shareholders' agreement? A. Yes. Q. What hadn't been agreed is the valuation of the put and call? A. Yes. Q. And you had ever[y] confidence moving forward that it was likely you'd agree the valuation process. Correct? A. Or an alternative to protect Pemba's exit rights." 1. Thus, the Angelis Parties submitted: "Throughout the above exchange, it is plain that [Mr] Georgiadis did not seek to hedge his statement. He did not say that the 'two things' were agreed in principle or were subject to further negotiation and agreement. He accepted each of the propositions as to what was agreed. His candid evidence in cross-examination on this issue is likely to be more reliable than his affidavit evidence." 1. I see no inconsistency between the evidence Mr Georgiadis gave in cross-examination and the statement in his affidavit set out at [253] above. 2. In cross-examination, Mr Georgiadis accepted that "[t]wo things had been agreed" in relation to an alternative to Pemba's Drag Right, namely the "ROFO" and the cl 8 exit right. But Mr Georgiadis also made clear that what had not been agreed was the "valuation of the put and call": the vital element of the vital component, from Pemba's point of view, of an alternative to its Drag Right. 3. Mr Georgiadis did not dispute that he agreed that Mr Angelis could sign the 31 October Term Sheet on behalf of Coverforce. 4. However, Mr Georgiadis's evidence, which I accept, is that he told Mr Angelis that Pemba's consent to Coverforce signing the 31 October Term Sheet was on the basis that the terms of the put and call option had to be agreed before Pemba would approve the entry by Coverforce into formal documentation for acquisition of Resilium and the completion of such transaction. 5. At 12.36 pm, Mr Angelis sent an email to Mr Kitchin, which was copied to Mr Summerhayes and Mr Georgiadis: "On behalf of the Coverforce Board of Directors we thank you for choosing Coverforce as your MBO partner. We are looking forward to completing the acquisition of Resilium and also working with you in your future role as Coverforce's COO. Attached is a copy of the signed agreement for your records". 1. Attached to that email was the 31 October Term Sheet, signed by Mr Angelis. Attached to that document was the Purported 31 October Shareholders Agreement which included the note to cl 7 to which I have referred at [256] above. 2. There is no dispute that Mr Angelis had the authority of the Coverforce board, including Mr Summerhayes and Mr Georgiadis, to execute the 31 October Term Sheet on Coverforce's behalf. The 31 October Term Sheet 1. The 31 October Term Sheet was expressed to be "binding" between Coverforce and Mr Kitchin. The document was stated to summarise "the proposed terms and conditions" between Coverforce and Mr Kitchin in relation to "the proposed acquisition of 100% of the shares of Resilium" which proposed acquisition was defined as the "Transaction". 2. The document continued: "This Term Sheet and the Transaction is subject to and conditional on further structuring considerations and tax advice." 1. The document continued: "1. Parties ● Coverforce Holdings Pty Ltd ● Adrian Kitchin 2. Term Sheet binding This binding Term Sheet sets out the proposed terms of the Transaction as at October 2018. On 19 October 2018, [Mr Kitchin] entered into a Confidential and Non-binding Term Sheet with Suncorp Group Limited…(the 'Suncorp Term Sheet') in relation to the proposed sale of the Resilium Group. 3. Background Pursuant to Phase 1 of section 7.1 of the Suncorp Term Sheet, [Mr Kitchin] has approached Coverforce to act as a 'Financing Party' to secure funding for the Transaction. This Term Sheet sets out the terms and conditions pursuant to which Coverforce will provide funding for, and participate in, the acquisition of the Resilium Group. The parties acknowledge and agree that it is intended that Coverforce, [Mr Kitchin] and Suncorp will enter into a further Term Sheet reflecting the terms of this Term Sheet and any other agreed terms in relation to the Transaction ('Phase 2 Term Sheet'). Coverforce and [Mr Kitchin] propose to acquire the Resilium Group on the following terms: 4. Coverforce participation in Transaction ● Coverforce and [Mr Kitchin] will jointly (on a 25:75 basis) acquire Resilium for $20 million, calculated on a debt-free cash-free basis and adjusted for normal levels of working capital ('Purchase Price'). ● Coverforce will loan to [Mr Kitchin] the funds required by [Mr Kitchin] to acquire his 75% shareholding in Resilium on the terms set out in section 5. ● Immediately following the acquisition of the Resilium Group, [Mr Kitchin] must sell his Resilium shares to Coverforce in consideration for Coverforce issuing to [Mr Kitchin] 3,150,000 shares in Coverforce (representing 8.73% of the total issued capital in Coverforce). Coverforce will loan to [Mr Kitchin] an amount equal to 75% of the Purchase Price on the following terms: 5. [Mr Kitchin] loan terms ● the loan must be applied to pay 75% of the Purchase Price to Suncorp; ● the loan will be interest-free (subject to default interest in certain scenarios)". 1. The "further Term Sheet" referred to in cl 3 is defined as the "Phase 2 Term Sheet". 2. Clause 6 of the 31 October Term Sheet was entitled "Coverforce Shareholders Agreement" and provided: "The parties agree that [Mr Kitchin] will become a party to the Coverforce Shareholders Agreement, which will be amended and restated in substantially the form attached in Annexure B. The issuance of shares to [Mr Kitchin] will be subject to waiver by the Coverforce shareholders of all pre-emptive rights and the provision of such other shareholder and board approvals required to issue the shares." 1. Clause 9 was headed "Formal documentation" and provided: "As soon as practicable after the execution of this Term Sheet, the parties shall commence negotiating, in good faith, the terms of the Phase 2 Term Sheet and the formal and binding documents in relation to the Transaction (Formal Documents), which shall reflect the terms of this Term Sheet and shall contain such other terms as are agreed between Coverforce, [Mr Kitchin] and Suncorp under the Phase 2 Term Sheet". 1. As I explained above, the "Phase 2 Term Sheet" contemplated by this clause was the "Stage 2 Term Sheet" contemplated by the October Suncorp Term Sheet (see [150] above). 2. The "Formal Documents" contemplated in the clause were stated to include: 1. a "Share Sale Agreement", between Suncorp, Coverforce and Mr Kitchin "in respect of the acquisition of Resilium shares"; 2. a "Loan Agreement" in relation to the proposed loan from Coverforce to Mr Kitchin; and 3. an "Amended and Restated Shareholders Agreement in respect of Coverforce (in substantially the form attached in Annexure B)". 1. "Annexure B" is what I have called the Purported 31 October Shareholders Agreement. 2. The 31 October Term Sheet made provision for due diligence and such other matters as exclusivity, confidentiality and publicity. 3. Finally, the document stated: "This Term Sheet constitutes a legally binding agreement." The Purported 31 October Shareholders Agreement 1. Annexed to the 31 October Term Sheet, as "Annexure B", was the Purported 31 October Shareholders Agreement. 2. This was the "Amended and Restated Shareholders Agreement" referred to in the "Formal documentation" clause in the 31 October Term Sheet. 3. The Purported 31 October Shareholders Agreement comprised the marked up version of the 2017 Shareholders Agreement that ABL had prepared but also included the various "Pemba Notes" to which I referred at [194] and [204] to [207]; apart from the put option note that Mr Georgiadis suggested in his email at 1.40 pm on 30 October 2018 (see [204] above). 4. As I have described, Mr Angelis and Mr Georgiadis agreed that Mr Angelis should omit that note from the document to be sent to Mr Kitchin (see [254] above). The position as conveyed to Mr Kitchin 1. On the face of the Purported 31 October Shareholders Agreement forwarded to Mr Kitchin, the position reached by Mr Angelis and Pemba was that: 1. Pemba's unilateral Drag Right was removed; 2. Pemba had the "ROFO" set out at [256] above; 3. otherwise the Angelis Parties, Pemba and the Kitchin Parties could only dispose of their shares in accordance with the revised "Exit" regime in cl 8; that is, in effect, only by unanimous agreement. 1. Otherwise, what was conveyed to Mr Kitchin was what Mr Angelis had said in the two conversations to which Mr Kitchin deposed. 2. The true position between Mr Angelis and Pemba was, as Mr Georgiadis had repeatedly told Mr Angelis, that Pemba would not approve amending the 2017 Shareholders Agreement or surrender its Drag Right until "issues around [its] exit entitlements" were agreed. 3. The Kitchin Parties contend that the failure of Mr Angelis and of Pemba to reveal that position to Mr Kitchin constituted misleading or deceptive conduct on their part. I will return to this. Events after 31 October 2018 The Stage 2 Suncorp Term Sheet 1. On 7 December 2018, Mr Kitchin sent Mr Angelis a copy of a draft revision of the October Suncorp Term Sheet. When executed by Mr Kitchin on 12 December 2018, this became the Stage 2 Suncorp Term Sheet. As I have set out above at [150] and [282], this was the term sheet envisaged by both the October Suncorp Term Sheet and the 31 October Term Sheet. 2. The Stage 2 Suncorp Term Sheet was, like the October Suncorp Term Sheet, described as "non-binding". 3. It provided that: "The discussions remain early stage, confidential, non-binding and incomplete and the entirety of the Proposed Transaction terms remain subject to negotiation". 1. The "Proposed Transaction" was described as: "The sale of 100% of the shares in Resilium Pty Ltd to an entity owned and controlled by the [Kitchin Parties]". 1. Thus, the Stage 2 Suncorp Term Sheet contemplated that Suncorp would sell the shares in Resilium to a Kitchin Parties' entity. This was different to the 31 October Term Sheet which contemplated that Coverforce and Mr Kitchin would purchase Suncorp's shares in Resilium on a 25:75 basis (see [278] above) and thus that Coverforce would directly acquire a 25% interest in Resilium. 2. Suncorp's requirements, as set out in the Stage 2 Suncorp Term Sheet, meant that the Resilium Transaction could not proceed in the manner contemplated in the 31 October Term Sheet. 3. The Stage 2 Suncorp Term Sheet also recorded that the Kitchin Parties: "…have been in preliminary discussions with a financier codenamed Snowball [i.e. Coverforce] regarding financing…for the Proposed Transaction". 1. The document continued: "A key principle of the Proposed Transaction is maintenance of the integrity of the transaction as an MBO, as such it is not proposed that any financier obtain any equity interest, or influence consistent with an equity interest, in [Resilium] as part of the Proposed Transaction". 1. This evidently reflected Suncorp's concern that the Kitchin Parties remain the owners of Resilium; at least for some time. 2. The Stage 2 Suncorp Term Sheet provided, under the heading "Change of Control": "24.1 Suncorp will have express approval rights in the event of a change of control, material recapitalisation or material change in the capital structure or other such event that has the same effect. 24.2 For the purpose of this section, where [Coverforce] (or a wholly-owned subsidiary of [Coverforce]) proposes to acquire control of the Purchaser or proposes a material change in the capital structure of the Purchaser (as part of a transaction immediately preceding or occurring concurrently with a proposed IPO of [Coverforce] ('[Coverforce] Control Transaction')), Suncorp agrees that it will not unreasonably withhold its consent to the [Coverforce] Control Transaction where: 24.2.1 at least [24] months has elapsed since the date of completion of the Proposed Transaction; and…". 1. Clause 24.1 repeated the words of cl 24 in the October Suncorp Term Sheet. 2. Clause 24.2 refined, and arguably narrowed, the circumstances in which Suncorp would withhold its consent. Its effect was that Suncorp agreed not unreasonably to withhold its consent to Coverforce acquiring control of Resilium or Coverforce proposing a material change in the capital structure of Resilium if such an acquisition or proposal took place as part of an IPO more than 24 months hence. As will be seen, the parties took this to mean that Suncorp would not agree to a trade sale of the Resilium shares. 3. On 10 December 2018, Mr Dutt circulated a copy of the draft Stage 2 Suncorp Term Sheet for discussion at the Coverforce board meeting to take place later that day. The 10 December 2018 board meeting 1. The Resilium Transaction was discussed at some length at a meeting of the Coverforce directors held on 10 December 2018. 2. The structural changes to the Resilium Transaction necessitated by Suncorp's requirements as set out in the Stage 2 Suncorp Term Sheet were discussed. 3. Thus, the board minutes stated: "[Mr Angelis] discussed the changes to the [Suncorp Term Sheet]. [Mr Angelis] noted the following changes: (1) that ownership of Resilium would transfer to Coverforce from [the Kitchin Parties] after a specified period of time subject to certain requirements of Suncorp; and (2) there would be a contract signed with the [Kitchin Parties] that provides Coverforce with 100% of the economic benefits of Resilium. . [Mr Summerhayes] commented that as long as the economic benefits actually flowed to Coverforce then that type of agreement was acceptable." 1. Mr Summerhayes said that, at this meeting, he said words to the effect: "[I]t is important that in any transaction that Pemba's exit rights are protected. I am concerned about the complexity of the arrangements that are being discussed and any amendments to the shareholders agreement will need to be approved by Pemba before we enter into the transaction." 1. In his affidavit in reply, Mr Angelis denied that Mr Summerhayes said anything to that effect and stated that, based upon the events of 30 October 2018, he understood that: "a. Pemba was happy for me to proceed with the Resilium Venture on the terms set out in the [31 October] Term Sheet and the [Purported 31 October] Shareholders Agreement and that any further terms regarding the put and call option would be considered following the completion of the Resilium Venture; b. Pemba had authorised me to communicate this position to Mr Kitchin; and c. I was to proceed with the Resilium Venture in accordance with the usual way that other target businesses had been acquired by Coverforce." 1. Again, this evidence cannot be right for a number of reasons. 2. The first is the conversations that Mr Angelis had with Mr Georgiadis on 30 and 31 October 2018, and in particular the conversation on the morning of 31 October 2018 to which I have referred at [253] above. 3. Second, the correspondence that immediately followed the board meeting shows that Mr Angelis could not have, at the time, thought that Pemba was "happy" for him to proceed in the manner he described. Events thereafter 1. On 12 December 2018, Mr Kitchin sent Mr Angelis a copy of the Stage 2 Suncorp Term Sheet executed by Suncorp and Mr Kitchin. It was in the same terms as the draft that Mr Kitchin had sent to Mr Angelis on 7 December 2018. 2. Mr Kitchin stated in his email to Mr Angelis: "I understand that you are continuing to have discussions with your shareholders with regard to the final form of a Terms Sheet and supporting documentation as between Coverforce and myself. Any final agreement between us will need to reflect the provisions of this latest Terms Sheet (attached). In particular, Clause 24 refers to 'Change of Control'. You will see the preconditions stipulated in that clause envisage that the only method by which Change of Control in Resilium can occur is by way of IPO after the elapsing of 24 months… Any other method by which change of control is effected will cause me to be in conflict with this provision. Accordingly, my previous discussions with you requesting changes to the Coverforce Shareholders Agreement are now reasonably urgent. For the avoidance of doubt, a Trade Sale is not contemplated by this Terms Sheet. In agreeing to fund this transaction, Coverforce Shareholders need to understand that in potentially seeking an exit in 24 months, a Trade Sale cannot be a method considered for an exit. I request that you seek a resolution to the issues raised in my emails of 28/08/18 [see [102] above] and 10/10/18 [see [142] to [144] above] with your shareholders as a matter of priority. Time is now of the essence as my 2 month exclusivity period commenced yesterday, 11/12/18. Should your shareholders be unable to accommodate my requests, I would ask that you advise a matter of urgency." (Emphasis added.) 1. Mr Kitchin explained why he sent this email in one of his affidavits: "I forwarded that updated term sheet on to Mr Angelis on 12 December 2018 …I wanted to ensure that the contracts that the [31 October Term Sheet] contemplated were prepared on a consistent basis. If that was going to create any problems I wanted to know about it. I remained of the belief that the [31 October Term Sheet] was binding, but did want to understand if the updated term sheet was going to create any issues. If it was, I wanted to be able to attempt to address any concerns by way of a variation to the [31 October Term Sheet], or fine tuning with Suncorp, or both." 1. I find Mr Kitchin's email hard to reconcile with his stated belief that he had, at this stage, a binding agreement with Coverforce. 2. Mr Kitchin's email shows that one thing he sought to do was to point out to Mr Angelis what he saw as being the significance of the changes to cl 24 of the Stage 2 Suncorp Term Sheet. 3. However, Mr Kitchin's reference, in the passages I have highlighted, to the "reasonably urgent" need to "seek a resolution" of the issues raised in his emails of 28 August 2018 and 10 October 2018 (set out at [102] and [143] to [144] above) concerning Pemba's Drag Right suggest that Mr Kitchin did not believe, as at 12 December 2018, that those issues had been finally resolved. 4. Mr Kitchin agreed that he knew that Mr Angelis and Pemba did not see "eye to eye" and that he was: "…conscious that 31 December, when my exclusivity period with Coverforce [under the 31 October Term Sheet] was coming to an end, [and] I needed to know if - if there is some backward and forwards as between Pemba and Angelis, I need to know about it so that I could make some other arrangements." 1. Mr Kitchin did not receive a written response to his email. He received an oral response the next day at a meeting with Suncorp's advisors (see [339] below). 2. Later on 12 December 2018, Mr Angelis sent to Mr Summerhayes and Mr Georgiadis a copy of Mr Kitchin's email with a note: "Mark and George I need an answer please." 1. The question to which Mr Angelis sought an answer was that raised in Mr Kitchin's email: that is, did Pemba agree to surrender its Drag Right? The 13 December 2018 email communications 1. At 8.58 am the following day, 13 December 2018, Mr Summerhayes replied: "On reflection and without any alternative pathway for Pemba to achieve liquidity this compromises too many exit options - or the use of these options to create competitive tension. We have some ideas as to how this deal could be acceptable if it came with a commitment from you to regear the group to facilitate liquidity via special dividends but we can't see you accepting what we think would be a reasonable arrangement for us in conceding the trade exit route." 1. In this email Mr Summerhayes raised, for the first time, a suggestion that Mr Angelis "regear the group to facilitate liquidity via special dividends". 2. On behalf of Mr Angelis, it was submitted that this represented an opportunistic effort by Pemba to "gouge" Mr Angelis and to exercise "leverage" in an effort to negotiate a new arrangement with Mr Angelis. 3. Mr Summerhayes had certainly said to Mr Hildingsson, a few days earlier, that in light of the revised "Change of Control" provisions in the Stage 2 Suncorp Term Sheet: "Opportunity knocks. Creative solution to our [Angelis] dilemma. We have a lot of leverage right now". 1. However that may be, what is more significant is what followed. 2. At around this time, Mr Neal became involved as a conduit for communications between Mr Summerhayes and Mr Angelis. 3. Thus, at 11.57 am on 13 December 2018, Mr Summerhayes sent an email to Mr Neal: "We met as a team this am and have determined our final position and reviewed the numbers we sent you and are all fine with that. It's a FINAL POSITION. Non negotiable. We have no idea as to the urgency factor on [Mr Angelis's] side but if it is time sensitive and I'll leave it to you to get [Mr Angelis] to reach out to us". (Emphasis in original.) 1. At 1.51 pm, Mr Neal replied to Mr Summerhayes: "I have spoken with [Mr Angelis] and relayed your position and have discussed the re gearing idea. In particular I focused him on the risk that you are seeking to avoid - entering into an exit process over which you have no influence and then being given an ultimatum at the end to do an unacceptable deal. I have also relayed that you are not negotiable on this issue and that you will not tolerate a position where that risk is created. He remains hopeful that there may be some way that you and he can come to an agreed position that will allow this deal to proceed however he is thinking that is unlikely. [Mr Angelis] is meeting later this afternoon with [Suncorp's advisors] to progress the deal. His position is that he intends to continue working with [Mr Kitchin] and [Suncorp's advisors] and yourself to see if something that is acceptable to all can be put together - he is very reluctant to simply walk away from the deal because he sees a large value increase for all shareholders. [Mr Angelis's] view is that we are better off agreeing to Suncorp's conditions now [that is, no exit for 2 years except by an IPO] and once relationships have been established and the business is proven to perform under the new arrangements to chip away and get back to an acceptable profile for exit. I have told him that I do not see you agreeing to this - as it creates the very risk that you are seeking to avoid. He did not like the regearing idea. I intend to meet with [Mr Angelis] later this afternoon after his meeting with [Suncorp's advisers] to understand where we are and what next – and to talk though with him face to face the risk you are seeking to avoid and see if any ideas come out that may take the deal forward". (Emphasis added.) 1. In the passages that I have emphasised, Mr Neal reported to Mr Summerhayes about statements made to him by Mr Angelis. 2. Mr Angelis was reluctant, in cross-examination, to agree that Mr Neal had accurately recorded his, Mr Angelis's, position in this email. 3. However, there was no reason for Mr Neal to misreport to Mr Summerhayes what Mr Angelis had said to him. The tone of Mr Neal's email suggests that he was acting as an honest broker and endeavouring faithfully to pass on to Mr Summerhayes what Mr Angelis had told him. 4. What is notable from Mr Neal's account of what Mr Angelis said is the lack of any reported assertion by Mr Angelis of there being any agreement with Pemba of the kind now contended for. 5. Mr Neal's email referred to a meeting that Mr Angelis was having later that afternoon with Suncorp's advisors. 6. Mr Kitchin was also present at that meeting. As I have mentioned, Mr Kitchin had received no written response to his 12 December 2018 email to Mr Angelis. However, Mr Kitchin said that at that meeting Mr Angelis said: "It's all good. Pemba's fine with Suncorp's position on change of control". 1. As Mr Angelis must have known, this was not an accurate statement about Pemba's position. 2. That very morning, in answer to Mr Angelis's request for "an answer please" to the matters raised by Mr Kitchin in his 12 December 2018 email, Mr Summerhayes sent the email to which I have referred at [326] in which Mr Summerhayes raised the option of "special dividends" in exchange for Pemba "conceding the trade exit route". 3. Mr Angelis's statement to Mr Kitchin at the meeting with Suncorp's advisors was, in those circumstances, quite misleading. 4. At 5.22 pm, Mr Summerhayes replied to Mr Neal's 1.51 pm email: "Thanks Ian. As set out in previous email I have zero flexibility." 1. At 5.44 pm, Mr Summerhayes sent a further email to Mr Neal: "I understand all of that but the bottom line is we will NEVER approve the Resilium deal unless we can also agree on the deal set out in our email [Mr Summerhayes's email sent at 8.58 am that day]." 1. At 6.44 pm, Mr Neal sent an email to Mr Summerhayes: "I have just spoken to [Mr Angelis] who has just finished with [Suncorp's advisors] and Suncorp and [Mr Kitchin]. He put to them your wish to run a dual track as part of an IPO process to create tension and they are agreeable to this." 1. A 6.56 pm, Mr Summerhayes replied: "What does that mean?" 1. At 8 pm, Mr Neal replied: "I just spoke to [Mr Angelis] again to clarify. What it means is that Suncorp approve a dual track process and they are not opposed to a trade sale provided a period of two years has elapsed since completion. Their key concern is the two year period because they do not want to be embarrassed by us flipping the asset in that period. So I would say - problem solved." 1. At 8.32 pm, Mr Summerhayes replied: "Appreciate the sentiment but hard to know what that really means until we see it in writing in a term sheet." 1. At 9.24 pm, Mr Neal replied: "Understand, however it seems to present a way forward that has the potential to work". 1. At 10.03 pm, Mr Summerhayes replied: "There is no way forward unless we out [sic] in place what we put forwards [sic]". 1. At 10.35 pm, Mr Summerhayes sent to Mr Angelis an email which he said represented "our final position". 2. That email said: "For the reasons discussed at the Board [meeting of 10 December 2018] we are willing to support the Resilium deal but only if the a [sic] clear path to exiting Pemba is put in place that is not solely dependent on an IPO. What we can sign off on is the following, and as with your Resilium deal there is no room for negotiation on this: 1. A complete re-gearing…". 1. Mr Summerhayes then set out details of Pemba's proposed regearing and share class restructure. 2. Mr Summerhayes concluded: "If we can agree this package we will be open to: a. Supporting the Resilium deal unchanged as proposed at board… b. Support a one off increase in [Mr Angelis's] salary and bonus…". 1. One minute later, at 10.36 pm, Mr Summerhayes sent an email to Mr Angelis attaching a "[s]preadsheet with approx numbers" for a possible re-gearing of Coverforce to enable the payment of "special dividends" as proposed in his email earlier that day. 2. At 10.38 pm, Mr Angelis replied to Mr Summerhayes by simply stating: "Dream on". 1. At 10.44 pm, Mr Summerhayes replied: "If that's your answer then we won't approve the Resilium deal." 1. At 10.48 pm, Mr Angelis replied simply: "Noted". 1. As a result of this exchange, Mr Angelis could have had no doubt that there was no agreement from Pemba concerning Coverforce proceeding with the Resilium Transaction; let alone any agreement about varying the 2017 Shareholders Agreement to facilitate such a transaction by removing Pemba's Drag Right. 2. And Mr Angelis did not then assert the existence of any such agreement. Had he truly believed such an agreement existed, he would surely have said so at this point. The 14 December 2018 email communications 1. At 7.36 am the next morning, Mr Neal replied to Mr Summerhayes's email to him of 10.03 pm the previous evening (see [350] above): "I don't understand. Your issue is you want a dual track at exit to ensure price tension and [Mr Angelis] has got Suncorp to agree to this. So as I say – problem solved (subject to documentation saying this)." 1. At 7.54 am, Mr Summerhayes replied: "That's just the tip of the iceberg isn't it". 1. At 1.46 pm, Mr Neal replied: "Not sure what you mean, would you mind expanding?" 1. At 2.13 pm, Mr Summerhayes replied: "Come on Ian it should be completely obvious to you what is going on and why we need this in place". 1. At 3.02 pm, Mr Neal asked Mr Summerhayes to clarify what he meant. 2. That led Mr Summerhayes to reply at 3.23 pm: "It should be manifestly obvious why at this point in time we need what we have proposed OR there is no support for a deal that further compromises exit optionality[.] If we had a co-shareholder who collaborated with us and respected our rights and genuinely acted in the interests of all shareholders this would not be necessary but as you have seen this is manifestly not what we have. We were once again presented with a 'done deal' at the Board. No attempt was made to provide us with critical information on a timely basis for due consideration. The deal was represented to us with a very strong statement that there was ZERO possibility of the serious matters we raised at two consecutive board meetings being even raised with the seller. No effort was made to accommodate our concerns until we refused to consent and said we wouldn't sign up. It shouldn't be like that, it doesn't need to be but it is and THAT is very simply why we need what we put forwards [sic] put in place. Besides which we have seen no revised wording on Suncorp change of control consent and their first right of refusal…but as I'm making clear that change is a necessary but not sufficient reason for us dropping our objection to the deal. It's very simple from here. Work with us to put in place a re-gearing and IPO pathway that following the completion of a successful IPO results in the same economic value for all shareholders and we can continue with Resilium. But if you don't work with us to put the re-gearing in place then there is no point in wasting any more time on Resilium". 1. Mr Neal forwarded Mr Summerhayes's reply to Mr Angelis, who replied at 9.20 pm: "Firstly: I do not wish to debate [Mr Summerhayes's] views below. Other than to say he's completely mistaken and I'm prepared to discuss and resolve. I'm also prepared to admit that following my meeting with [Mr Kitchin], [Suncorp's advisors] and Suncorp yesterday I have misunderstood their position regarding exit options. The bottom line is Pemba do not lose exit options and I have asked ABL to provide me with an advice to confirm this. Secondly: The Resilium deal will not provide Pemba with the leverage to achieve a dividend recapitalisation with an inequitable dividend distribution. What is possible however is a dividend recapitalisation with equitable dividend distributions in accordance with each shareholders rightful entitlement. Finally: If [Mr Summerhayes] wants the dividend recapitalisation (the equitable version) then I'm happy to support it provided we incorporate an automatic mechanism to raise equity capital if the business needs it and is unable to take on any more debt." (Emphasis in original.) 1. Again, Mr Angelis's response contains no suggestion of any belief on his part of the existence of an agreement with Pemba about the Resilium Transaction or amendment of the 2017 Shareholders Agreement. On the contrary, Mr Angelis said he was "prepared to discuss and resolve" the issues raised by Mr Summerhayes in his email sent the previous evening including by supporting a "dividend recapitalisation" on the basis set out in his final paragraph. 22 December 2018 – the last word from Pemba 1. On 22 December 2018, Mr Summerhayes sent an email to Mr Neal: "Appreciate your efforts on this, [sic] It's hard to make any comment in the absence of what the changes are to the Suncorp position [with regards to] change of control approval, right of first refusal [sic: offer] and acceptability of the likely trade buyers. Secondly we would reiterate there is no approval of this deal without a Re-cap and a special dividend being put in place so we can debate what is needed in terms of split of proceeds to align positions at the IPO to ensure Pemba doesn't get the rough end of that event but we will all need to work together on the Re-gearing to make that happen in parallel. And as we pointed out time and again the credit markets aren't going to remain this positive forever. In fact we may already be at the tipping point given recent volatility." (Emphasis in original.) 1. There the matter rested. Drafting of the Resilium Transaction documents 1. Thereafter, and without further reference to Pemba, Mr Angelis and Mr Dutt, together with their advisors including ABL and Ernst & Young, proceeded to conduct a due diligence of Resilium and to prepare formal documentation in respect of the proposed Resilium Transaction. 2. Mr Dutt, with Ernst & Young, developed a document entitled "Project Harley Strawman Paper" which dealt with the structure of the proposed transaction. 3. Mr Dutt did not provide this or any related materials to Pemba despite the fact that he knew that Pemba had a strong interest in the matter and knew, as at 22 December 2018, that matters to do with exit, dual track processes and the staged process to obtain control of Resilium were "all matters that were critical to Pemba and critical to discuss with Pemba if [Coverforce was] ever going to be able to agree some transaction documents". 4. ABL prepared a document entitled "Project Harley Due Diligence Report February 2019" and a further document entitled "Project Harley - Overview". Neither document was provided to Pemba. 5. ABL also prepared draft Resilium Transaction documents. None of these were shown to Pemba. 6. On 21 February 2019, Mr van Grieken from ABL sent an email to Mr Kitchin, Mr Angelis, Mr Dutt and Ms Angelis attaching drafts of "key transaction documents" including a document called "Coverforce Shareholders Agreement (in mark-up to the current shareholders agreement)". 7. That document differed from the Purported 31 October Shareholders Agreement annexed to the 31 October Term Sheet. The notation at cl 7, to which I have referred at [256] above, had been replaced with a new cl 7.1(d) which stated: "Pemba and [Mr Angelis] must as soon as reasonably practicable following the date of this agreement negotiate in good faith the terms on which: (1) [Mr Angelis] will grant to Pemba a right to put its Shares to [Mr Angelis]; and (2) Pemba will grant to [Mr Angelis] the right to call Pemba's shares". 1. This clause reflected the fact that Mr Angelis and Pemba had not reached any agreement as to the terms of any put and call option in respect of the shares in Coverforce. So much must have been clear to Mr Kitchin. 2. On 13 March 2019, Mr Scott Phillips from ABL, who was acting for Mr Kitchin in relation to the transaction, sent an email to Mr Kitchin, Mr Angelis, Mr Dutt and Ms Angelis and others attaching "our comments on the Coverforce Shareholders Agreement…in continuing mark-up (along with a PDF compare showing just the additional changes)". 3. On 18 March 2019, Mr Luke Jedynak from ABL sent an email to Mr Angelis, Mr Kitchin, Mr Dutt and Ms Angelis attaching "updated drafts of the Coverforce/Resilium transaction documents" including a "Coverforce Shareholders' Agreement (cumulative mark-up against current shareholders' agreement)". 4. The latter document was a marked-up version of the 2017 Shareholders Agreement and had been the subject of extensive and varied changes during the period 31 October 2018 to 18 March 2019. 5. On 22 March 2019, Mr Dutt authorised Macquarie Bank to advance $2 million to ABL to hold on trust for Suncorp by way of bank transfer. 6. Mr Dutt agreed under cross-examination that he did not raise this with Mr Summerhayes or Mr Georgiadis, despite knowing that he was required to obtain approval from a Pemba director by way of Special Majority Approval to any loan under the 2017 Shareholders Agreement. Mr Neal's meeting with Mr Summerhayes 1. In the meantime, on 25 February 2019, Mr Summerhayes invited Mr Neal to a meeting at Pemba's offices. 2. In his affidavit, Mr Summerhayes deposed that he told Mr Neal: "We have heard that things may be going ahead with the Resilium Transaction. I want to be clear, Pemba is not going to approve the transaction. If [Mr Angelis] is going to press ahead with the transaction, we are heading for a train crash. You should make that clear to [Mr Angelis]." 1. Mr Neal agreed that Mr Summerhayes "said something like there's a train wreck going to happen here if it's not all agreed". 2. Mr Neal then spoke to Mr Angelis and had this conversation: "[Mr Neal]: Is there something [Mr Summerhayes] can do to get you to accept his position in relation to the Resilium deal? [Mr Angelis]: There is nothing you can do." 1. Mr Summerhayes said that Mr Neal contacted him a short time later and said: "There is an impasse. I think we have a problem." 1. Mr Neal did not recall using those words but recalled saying to Mr Summerhayes: "There is nothing I can do to help resolve the issues between you and [Mr Angelis]." 1. It is hard to see how Mr Summerhayes could have made Pemba's position more clear. Mr Angelis could not possibly have had any doubt that Pemba did not approve Coverforce proceeding with the Resilium Transaction. 2. Mr Angelis was asked in cross-examination about the steps he took to keep the Pemba representatives, and Mr Summerhayes in particular, informed of the progress being made in regard to the negotiation of the Resilium Transaction documents. 3. The following exchange occurred in cross-examination: "Q. You had kept [Mr Summerhayes] completely in the dark about the transaction since mid-December. A. We weren't on speaking terms throughout the period and he was kept informed, I understand, from Mr Neal. Q. Well, I want to suggest to you, you know Pemba was not made aware - you've already agreed that they hadn't had the opportunity to consider the final form of the transaction. A. They weren't made aware by - they weren't made aware from me but they were speaking to others. Q. You're just making that up, aren't you, Mr Angelis? A. I believe there's evidence of discussions with Mr Neal so I'm not making it up. Q. Right, what, in the period after 18 December? A. In the period leading up to this email. Q. What period are you talking about? A. I think around February - January, February." 1. Mr Neal did not agree that he had kept Pemba informed. He gave this evidence in response to questions from me: "Q. Around February were you keeping the Pemba representatives informed of the progress of the drafting of the Resilium transaction documents? A. No, I wasn't. Q. No one asked you to do that? A. No." 1. Mr Angelis's evidence that he thought Mr Neal was keeping Pemba informed of such progress cannot be right. 2. Mr Angelis was, I find, determined to proceed with the Resilium Transaction come what may, without consultation with Pemba and in the full knowledge that Pemba did not approve and had not agreed to the changes to the 2017 Shareholders Agreement that would be necessary for the transaction to be effected. Pemba communications on 19 and 23 March 2019 1. In the days leading up to the entry by Coverforce into the Resilium Transaction, Mr Summerhayes heard rumours that execution of those documents was nigh. 2. Thus, on 19 March 2019, Mr Summerhayes sent an email to Mr Angelis, copied to Mr Neal and Mr Dutt: "We have heard a number of rumours now that Coverforce is days away from signing a deal to finance the Resilium MBO vehicle. Clearly we all as Directors have obligations to properly conduct business and to consider any such transaction. Can you please confirm that you will not authorise or take any action to otherwise bind any Coverforce entity to any transaction in circumstances where Pemba…as a major shareholder in Coverforce has not been consulted and the Pemba…nominee Directors have had no opportunity to consider the final form of transaction and not been informed and approved any such transaction. Has there been any documentation or other information on the transaction circulated for approval as we have received nothing? Request your urgent response." 1. There was no reply. 2. On Saturday 23 March 2019, Mr Summerhayes and Mr Georgiadis forwarded to Mr Angelis, Mr Dutt and Mr Neal "formal correspondence" as follows: "Acquisition of an interest or provision of financial accommodation Following the email to the board from Mark Summerhayes on 19 March 2019, and the article in the Australian Financial Review today, regarding the Company potentially financing the Resilium MBO vehicle, we are writing to you to confirm the requisite process to be followed for the Company to take any action in relation to this under the Shareholders Agreement relating to Coverforce Holdings Pty Ltd dated 12 April 2012 (Company) as amended on 29 November 2017 (Shareholders Agreement). Undefined capitalised terms in this letter have the same meaning given to them in the Shareholders Agreement[.] In addition to obligations imposed on the Directors under the Corporations Act 2001 (Cth) (the Act), in accordance with clause 5.6 and schedule 2 of the Shareholders Agreement, the acquisition of any interest in any other company or business or any loan of money or provision of financial accommodation in excess of $50,000 requires the approval of the Directors, which requires the consent of at least 1 Pemba Director. Accordingly, we suggest that we urgently meet as a Board to discuss the status of any proposed refinancing of the Resilium MBO vehicle by the Company. Any attempt to enter into documentation relating to a financing of the Resilium MBO vehicle by the Company without any prior approval of the Directors (including an affirmative vote by a Pemba Director) would amount to a breach of the Shareholders Agreement and interference with that contractual arrangement, which could cause significant harm to the Company, its subsidiaries (as defined in the Act) and its shareholders. We encourage the Directors to follow due process in relation to this matter so that potential personal liability can be avoided. We reserve all our rights in respect of, and give notice of, potential claims available to Pemba against any person who breaches, or is involved in, or procures, a breach of, the Shareholders Agreement in connection with any financing of the Resilium MBO vehicle, including without limitation claims for breach of contract (in the capacity as a shareholder or director), tortious interference and/or breach of directors' duties. We look forward to discussing this with you all further at our next board meeting." (Emphasis in original.) 1. Later that evening, Mr Angelis sent a copy of that letter to Mr Kitchin. 2. Mr Kitchin, in his affidavit, said: "23 March 2019 was a Saturday. I spent the whole of that day in back to back meetings with solicitors and others on advancing the preparation of the Suncorp contracts, which remained incomplete at that time. I did not read that email at about the time it was sent to me because I was extremely busy dealing with Suncorp issues. I did read it quickly either very late Saturday night or early Sunday morning, and on reading it, saw that Pemba appeared to be setting out some of the approval processes in a shareholders agreement, and suggesting an urgent meeting of the Coverforce board to discuss the financing of the Resilium MBO. The letter did not make any sense to me. For the reasons I have already given, I understood that Coverforce had already committed itself to the financing, and that Pemba knew that and had been positively involved in that process. I therefore telephone Mr Angelis, who was in Japan on vacation and had a brief discussion with him, in words to the following effect: I said: 'What's this letter about? Coverforce is already committed.' [Mr] Angelis said: 'Yes I know, don't worry. This is just [Mr Summerhayes] being [Mr Summerhayes]. It's how he operates – always trying to flex his muscles. He looks for ways to create pressure on me so that I feel I have to give Pemba more. This is just another example, which is why he sends his letter to me on a Saturday knowing that the Resilium deal is being executed on Monday. I'll sort him out. Pemba knows we're all locked in under the [31 October Term Sheet].' I said: 'Okay. Whatever point scoring is going on between you is up to you. It's nothing to do with me'." 1. Mr Angelis did not dispute saying something to this effect to Mr Kitchin. 2. Mr Kitchin was closely cross-examined about his state of mind at this point. 3. He gave this evidence: "Q. I want to suggest to you that, from your perspective, you knew that a major shareholder, Pemba, wasn't agreeing with going ahead with this transaction at this point, correct? A. That they wanted to have a discussion, a board meeting, yes. Q. Yes, but they weren't approving it at this point, were they? A. They weren't approving it at that point, correct. Q. And you knew that this transaction involved a whole range of matters, under the November 2017 shareholders' agreement, that they would ultimately need to approve, correct? A. Ultimately, correct. Q. In order for those things to be effective, Pemba would need to agree, correct? A. To complete the transaction, yes. … Q. So, you knew that there was a risk, when these documents were signed, that they weren't going to be effective unless Pemba agreed to them, correct? A. I'm not sure that I agree with that. It seemed that they were trying to take a position with Mr Angelis, and Mr Angelis continued to give me the assurances that everything was fine. … Q. Notwithstanding your understanding of Pemba's position, you proceeded, did you not, to the signing of the transaction documents on 25 March? A. I did. Q. And you did that, knowing that there was a risk that Pemba would not agree to those transaction documents? A. I didn't believe there to be a risk. Q. You didn't believe there to be a risk? A. In hindsight, I can say that, but at the time I had the assurances that this was really just more of the same as between Pemba and Angelis. Q. When you say more of the same, according to you, you haven't really inquired at all about Pemba's position in the period from at least 12 December up until now; is that fair? A. I didn't think I needed to. Q. So when you say more of the same, you were, I want to suggest to you, proceeding to sign these documents in circumstances where the one thing you did know was that Pemba was not agreeing, correct? A. From reading that letter, no, it's not correct. If you read that letter, it is that they have some reservations they want to talk about at a board level. Q. And did that happen prior to 25 March, to your knowledge? A. I don't believe so, no. Q. So, is the answer to my question, yes, you signed up these transaction documents, knowing of the risk that Pemba did not agree? A. There's a risk." 1. I think a fair reading of this evidence, notwithstanding Mr Kitchin's response to the last question I have set out (which was directed to Mr Kitchin's state of mind when he "signed up these transaction documents"), was that Mr Kitchin was saying no more than he understood from Pemba's 23 March 2019 letter that there was a risk that Pemba's approval to the matters contemplated by the Resilium Transaction documents would need to be obtained prior to completion of the transaction; hence his acceptance that "ultimately" Pemba's approval of the transaction would be needed "[t]o complete the transaction". 2. In the meantime, Mr Summerhayes had received an "out of office" response from Mr Angelis in response to the 23 March 2019 letter. 3. Mr Summerhayes sent a further email to Mr Angelis at 7.06 am on 25 March 2019 asking for him to "arrange a meeting ASAP to discuss Resilium". 4. Mr Angelis received that email. At 8.33 am on the same morning, he asked Mr Dutt to arrange for a board meeting to take place on 3 April 2019, knowing that the Resilium Transaction documents were to be executed later on 25 March 2019. Execution of the Resilium Transaction documents 1. The Resilium Transaction documents were executed on behalf of Coverforce by Mr Dutt and Ms Angelis. 2. A central issue in the proceedings is the effect, if any, of the documents executed on 25 March 2019. 3. The purported effect of the documents executed on 25 March 2019 was as depicted in the following diagram. The contentious aspects of the transaction, the purported issue of shares in Coverforce to the Kitchin Parties and the transfer by the Kitchin Parties of their shares in Resilium OpCo Pty Ltd to Coverforce, are depicted using broken red lines. 1. Assuming the documents were effective, the result would be that, on completion: 1. the Kitchin Parties held the shares in Resilium BidCo Pty Ltd ("BidCo") and Resilium OpCo Pty Ltd ("OpCo"); 2. BidCo acquired the Resilium shares from Suncorp for $20 million; 3. the Kitchin Parties borrowed $20 million from Coverforce for the purpose of funding the acquisition of the Resilium shares from Suncorp and gave Coverforce a charge over their shares in BidCo as security for the payment of those funds; 4. Resilium and OpCo entered a Management Services Agreement under which OpCo assumed the role of manager of the Resilium business with the right to receive and retain the revenues of that business; 5. the Kitchin Parties then transferred their shares in OpCo to Coverforce so that Coverforce had effective ownership of the Resilium revenues; 6. Coverforce issued shares in itself to the Kitchin Parties in return for the shares in OpCo; 7. the Kitchin Parties continued to hold the shares in BidCo so that, for some time, the Kitchin Parties retained ownership of Resilium but did not receive the revenues of the Resilium business which, by reason of the Management Services Agreement, went to Coverforce; 8. Suncorp was granted a call option for a period of two years (or less in the event of an IPO of Coverforce) under which it could call on BidCo (in effect the Kitchin Parties) to sell back the shares in Resilium to Suncorp (see the "Suncorp Call Option" in the diagram). Suncorp required that option because Resilium would continue to act as a distributor of Suncorp insurance products and thus remain a premium stream for Suncorp. Suncorp wished to ensure that this stream continued and remained stable for a nominated period. Suncorp could only exercise the Suncorp Call Option during an option period of 48 months and only if one of a number of identified events occurred in relation to the conduct of the Resilium business. If Suncorp exercised the Suncorp Call Option, the Kitchin Parties would be obliged to use the proceeds of sale they received from Suncorp to repay to Coverforce the $20 million loan; 9. Coverforce had a call option over the BidCo shares, being the "Coverforce Call Option" shown in the diagram. Coverforce was entitled to exercise that call option only after the Suncorp Call Option period had expired and, obviously, only if the Suncorp Call Option had not been exercised; 10. were Coverforce to exercise the Coverforce Call Option, the Kitchin Parties were obliged to transfer their shares in BidCo to Coverforce, in effect, transferring their shares in Resilium to Coverforce. Practically speaking, in that event, the liability of the Kitchin Parties to pay the $20 million to Coverforce would be expunged. 1. The Resilium Transaction purportedly completed on 31 May 2019 and, if that purported completion was effective, the Resilium structure was as I have set out. The Share Purchase Deed 1. A key document executed on 25 March 2019 was the Share Purchase Deed to which I have earlier referred (see [47] above). 2. That document was purportedly made between Coverforce, the Kitchin Parties and OpCo. 3. By cl 3 of that document: 1. the Kitchin Parties agreed to sell their shares in OpCo to Coverforce; and 2. Coverforce agreed to allot and issue shares in itself to each of the Kitchin Parties. 1. Clause 5.3 provided that: "Obligations of Coverforce Unless otherwise agreed by [Mr] Kitchin in writing, at or before Completion Coverforce must: (a) to the extent it has not already done so prior to the date of this document, procure that a duly convened meeting of directors of Coverforce is held at which it is resolved, subject only to Completion occurring, that Coverforce: (i) agrees to purchase from each Seller the OpCo Shares in consideration for it allotting and issuing to the Seller the Coverforce Shares; (ii) approves the registration of each Seller as the holder of the Coverforce Shares in its register of members; (iii) approves delivery to each Seller of a new share certificate in the name of the Seller the Coverforce Shares; and (iv) approves entry into the Coverforce Shareholders Agreement; (b) allot and issue to each Seller [i.e. the Kitchin Parties] the Seller's Coverforce Shares". 1. By that clause, the parties acknowledged the possibility that there may not have been requisite board approval for Coverforce's acquisition of the shares in OpCo, the issue of shares in Coverforce to the Kitchin Parties or to the entry into the "Coverforce Shareholders Agreement". 2. The form of the proposed "Coverforce Shareholders Agreement" was to be annexed to the Share Purchase Deed "or such other form as agreed between Coverforce and Kitchin". 3. I will call that document the "Purported 25 March Shareholders Agreement". The Purported 25 March Shareholders Agreement was a revised version of the Purported 31 October Shareholders Agreement. 4. The extent of the revisions was extensive and reflected, amongst other things, the changes required by the form of the Stage 2 Suncorp Term Sheet and the fact that Pemba and the Angelis Parties had not agreed on the final terms of any put and call option to be entered in lieu of Pemba's Drag Right. Hence it included cl 7.1(d) in the form I have set out at [377]. 5. Clause 5.6 of the Share Purchase Deed provided: "5.6 Completion simultaneous (a) Subject to clause 5.6(b), the actions to take place as contemplated by this clause 5 are interdependent and must take place, as nearly as possible, simultaneously and will be taken to have occurred simultaneously. If one action does not take place, then without prejudice to any rights available to any party as a consequence: (i) there is no obligation on any party to undertake or perform any of the other actions; (ii) to the extent that such actions have already been undertaken, the parties must do everything reasonably required to reverse those actions; and (iii) each party must each return to each other party (as applicable) all documents delivered to it under this clause 5. (b) Completion is taken to have occurred when each party has performed its obligations under this clause 5." (Emphasis added.) 1. Schedule 2 provided that Coverforce gave various representations and warranties, including that it: "…has full legal capacity and power to…enter into and perform its obligations under this contract". Events leading up to completion of the Resilium Transaction 1. On 3 April 2019, Ms Angelis emailed a copy of the executed Resilium Transaction documents to members of the Coverforce board. That was the first time that Mr Georgiadis and Mr Summerhayes saw the documents. 2. The Coverforce board met on 5 April 2019. There are differing accounts of what happened at the 5 April 2019 board meeting. 3. What is clear is that the board did not approve entry into the Purported 25 March Shareholders Agreement as was required for Completion by cl 5.3(a)(iv) of the Share Purchase Deed. 4. There never has been a board resolution of Coverforce to approve entry into the Purported 25 March Shareholders Agreement. 5. Pemba did not sign the Purported 25 March Shareholders Agreement nor, for that matter, the Purported 31 October Shareholders Agreement annexed to the 31 October Term Sheet. 6. On 8 April 2019, Mr Summerhayes wrote a long email to Mr Angelis and the other directors of Coverforce. He said: "Reflecting on the difficult discussions last Friday and setting aside the emotion, personal comments and revisit of the history…we want to constructively find a way forward, that is in the best interests of all shareholders, but with proper consideration of all the issues. … We understand this transaction is an important opportunity for the Company. The bottom line is that there are two elements that need addressing in order to be able to obtain the required approvals in the proper form to progress the transaction. 1. Directors all being comfortable to pass a directors resolution ratifying the entry by the Company into the…suite of transaction documents; and 2. Identifying and obtaining all consents or approvals that need to be obtained from Shareholders. … …we would suggest that an appropriate delay to the Resilium transaction timetable be agreed between the Company, the Directors, the Shareholders and the transaction counterparties and that this timetable be communicated with all stakeholders to the transaction as a matter of priority." 1. Mr Angelis forwarded a copy of this email to Mr Kitchin. 2. Mr Kitchin telephoned Mr Angelis and they had this conversation: "[Mr Kitchin]: What is this latest correspondence about? Is this more of the same? [Mr Angelis]: Yes, Pemba is still trying to find a way of trying to extract more out of me, even though it's already approved this deal and wants it to go ahead. [Mr Kitchin]: As far as I'm concerned I have had a binding agreement with Coverforce, which Pemba knew about and approved. [Mr Angelis]: That's right. Like I've told you before, this is what [Mr Summerhayes] does, he applies leverage to try to get whatever concessions he can out of me. It's not your problem." 1. Mr Kitchin said that at this stage: "My position in relation to the deal I had with Coverforce remained as set out above. Further, I expected that Pemba was aware of the contracts given that they were a Coverforce shareholder and had representatives on the Coverforce board. I expected that they knew and understood the essence of the transactions, and that the transactions that were proceeding involved the rights of a large number of parties, including Suncorp, Resilium and me. Pemba did not take any legal action to attack the validity of the documents or prevent completion of the transaction from occurring, including contacting me directly to assert a position of its own that was harmful to me personally. I would have expected Pemba to have done so if it took the view that Coverforce had not validly entered into the transaction, and if it did not want the transaction to proceed on the agreed terms." 1. On 11 April 2019, Coverforce's solicitors, Mills Oakley, wrote to Mr Summerhayes and Mr Georgiadis outlining recent events and stating, amongst other things: "The Resilium transaction is due to complete in about late May 2019. … Given the above and your position as director of the Company, it is not open to you to…purport to delay or otherwise intervene in the orderly conduct of the Resilium Deal." 1. Pemba then engaged Herbert Smith Freehills who, on 18 April 2019, wrote a long reply to Mills Oakley's letter of 11 April 2019 to Mr Georgiadis. Herbert Smith Freehills concluded: "Having regard to the matters outlined above, please confirm by no later than 26 April 2019 that your client, prior to any resolution or decision by the Board, will not: ● carry out any further steps to progress the Resilium Transaction; and ● make any representations to third parties that the Resilium Transaction is proceeding… Having regard to the gravity of the matters outlined above, we have been instructed to engage counsel to consider what steps should be taken." 1. On the same day, Mr Summerhayes sent an email to Messrs Angelis, Dutt and Neal, copied to Mr Georgiadis and Ms Angelis, stating: "We have now had an opportunity to review the transaction documents and contemplate the deal further. As we have always said, we are disappointed to have been placed in a position where we have not had an opportunity to fully consider the documents prior to Coverforce signing. In order for us to complete our review can you please urgently arrange for the provision to us of the items in our request list set out in the attached Schedule 1." (Emphasis in original.) 1. A 19 page schedule seeking further information and documents was attached. 2. None of the information sought by Mr Summerhayes was provided. Mr Angelis said he thought that Mr Summerhayes and Mr Georgiadis were "gathering information to provide a third party with due diligence". 3. In the meantime, the exchange of correspondence between the solicitors continued. 4. On 1 May 2019, Mills Oakley wrote to Herbert Smith Freehills stating: "There is no capacity at law for [Coverforce] to take any step other than completion of the Resilium Transaction, honour its obligations and enforce its rights under the relevant suite of agreements. … For the avoidance of doubt, our client will take all steps and do all things to complete the Resilium Transaction in accordance with the suite of agreements." 1. On 7 May 2019, Herbert Smith Freehills replied stating, amongst other things: "…should your clients take any further steps to seek to effect the Resilium Transaction, your clients will be acting without the approval of the Board and in contravention of their duties. Those actions may also expose Coverforce to damage and loss and to claims by third parties including by other parties to the Resilium Transaction and Coverforce's shareholders. Accordingly, please confirm by no later than 9am, 9 May 2019, that your clients will not: ● carry out any further steps to progress or effect the Resilium Transaction; or ● make any representations to third parties that the Resilium Transaction is proceeding." 1. On 9 May 2019, Mills Oakley replied: "The company has binding obligations to third parties. As we have repeatedly said, the transaction is in the best interests of the shareholders and the company as a whole. This has been considered by your clients in correspondence. Accordingly, there is no basis at law for the transaction not to complete in the ordinary course." Completion of the Resilium Transaction 1. The Resilium Transaction purportedly completed on 31 May 2019. 2. By then, Pemba had not received all the transaction documentation that it had sought. 3. On 1 June 2019, Mr Angelis wrote to Messrs Neal, Summerhayes, Georgiadis and Dutt, copied to Ms Angelis, stating: "I am delighted to advise the completion of [the Resilium Transaction] occurred at 11.59pm last night. [Mr Summerhayes and Mr Georgiadis] please refer below from ABL regarding the requirement for both of you to sign the Amended and Restated Shareholders' Agreement." 1. Early on 1 June 2019, Mr Summerhayes wrote an email to Mr Grant Koch, a solicitor from DLA Piper, who had acted for Suncorp in relation to the Resilium Transaction. 2. Mr Summerhayes said that his colleague, Mr Hildingsson, had had lunch the previous day with Mr Koch. 3. Mr Summerhayes's email read: "Congrats to you and your team on getting Resilium over the line. Will hopefully be a great deal for Coverforce. I know you know Magnus [Hildingsson] well but as the Coverforce lead here I'd be keen to meet the team and see if there's more we can do together. Could you ask for whoever is putting the transaction bible together to send us a copy next week[?]" The sale to AUB 1. In the meantime, on 27 May 2019, Pemba received an indicative proposal from AUB to purchase 100% of Coverforce's issued capital. 2. On 28 May 2019, Pemba sent a letter to the other shareholders and directors of Coverforce stating that it had received an offer from AUB to purchase 100% of Coverforce's issued capital and giving a written notice of sale as required by cl 9.2 of the 2017 Shareholders Agreement. 3. In its covering email, Pemba stated: "Pemba understands that the Company has purported to bind itself to certain agreements in connection with a proposed transaction relating to the Resilium business (Resilium Transaction) and that those arrangements may be subject to a financing condition. Given receipt of the Offer from AUB and the desire of Pemba to exercise its rights under clause 9 of the Shareholders Agreement in relation to this, Pemba demands that the Company and its officers take no further steps to progress the Resilium Transaction and use all efforts to ensure that any ability to terminate the Resilium Transaction (to the extent binding at all) is maintained, including without limitation, for a failure to meet any financing condition. Pemba reserves its rights to the extent that the Company or its officers take any steps which may cause Pemba loss or damage as a result of being unable to exercise its rights." (Emphasis in original.) 1. Under cl 9.3(b)(1) of the 2017 Shareholders Agreement, upon Pemba giving the other shareholders written notice of its wish to undertake an "Exit", other shareholders were obliged to cooperate with that sale and "provide all reasonable access and assistance required…including access to due diligence materials" (see [78] above). 2. On 19 June 2019, Pemba sent a letter to Coverforce requesting information pursuant to that clause. It is not in dispute that Coverforce has not supplied that information. As I set out at [34] above, by reason of its arrangements with AUB, Pemba was obliged to provide AUB with all due diligence materials by 6 December 2019. There is a dispute as to whether, on the proper construction of the 2017 Shareholders Agreement, the Angelis Parties are obliged to "use their best endeavours to implement the Exit" for the purposes of cl 9.3(a) and to provide "access to due diligence material and personnel" for the purposes of cl 9.3(b)(1) of the Agreement. I deal with this below at [611] to [621]. 3. On 1 August 2019, Pemba entered into a Share Purchase Deed with AUB for the sale of Pemba's shares in Coverforce. 4. Clause 3.1 of the AUB Share Purchase Deed sets out the conditions precedent and provides in "Condition 2" that AUB's purchase of Pemba's shares is subject to Pemba exercising its Drag Right. 5. Clause 3.3(b) of the AUB Share Purchase Deed provides that the Deed will automatically terminate if Pemba does not provide confirmation in writing by 31 December 2019 that it has taken steps to exercise its Drag Right. 6. As I have said, on 9 December 2019, AUB announced to the market that it had terminated its agreement with Pemba. Was there a binding agreement between Pemba and Coverforce? 1. The agreement for which the Angelis Parties contend is said to arise from: 1. Mr Georgiadis's emails of 10.21 am and 1.40 pm on 30 October 2018 (see [193] and [203] to [204] above); and 2. the conversation to which Mr Angelis deposed and which I have set out at [209] above. 1. Arising out of those emails and that conversation, the Angelis Parties contend in their Further Amended Commercial List Statement that: "…an immediately binding agreement came into existence between Pemba and Coverforce, and through them, the 2017 Shareholders [i.e. the other shareholders of Coverforce at that time], by which it was agreed that: (a) Pemba agreed to Coverforce proceeding with the [Resilium Transaction] on the terms of the [31] October Term Sheet; (b) on completion of the [Resilium Transaction], the modified shareholders agreement that would regulate the dealings between the 2017 Shareholders and the [Kitchin Parties] was the [Purported 31 October Shareholders Agreement] plus the ROFO Right, the Exit Right, and a Put & Call Option with the exact numbers for the Put & Call Option to be further negotiated". 1. In closing submissions, the Angelis Parties put it this way: "On 30 October 2018, Pemba and [Mr] Angelis, and through him the other shareholders in Coverforce, agreed that: (a) Coverforce would proceed with the Resilium Transaction on the terms set out in the [31 October Term Sheet]; (b) on completion of the Resilium Transaction, a modified shareholders agreement would regulate the dealings between the shareholders in Coverforce, being an agreement in the marked-up form received from Pemba, including the ROFO and the exit right in clause 8; and (c) Pemba and [Mr] Angelis would continue to negotiate the put and call option, which would be documented in a side deed or, if agreed by all shareholders, as part of the modified shareholders agreement". 1. And: "…it was a legally binding agreement between Angelis and Pemba (on and from 30 October 2018) that Coverforce should proceed with the Resilium Transaction and that, upon completion, the parties would give effect to a modified [shareholders agreement] substantially in the form [of the Purported 31 October Shareholders Agreement]". 1. The Angelis Parties contend that they and Pemba entered this agreement with the intention that it be binding with immediate effect, whilst expecting to enter into a further agreement in substitution for the first, containing, by consent, additional terms. This agreement is said to fall within the fourth class of "subject to contract" cases: see Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 (McLelland J), quoting Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317; [1929] HCA 34 (Knox CJ, Rich and Dixon JJ), relying on Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475 at 476. 2. In my opinion, the Angelis Parties have failed to prove the existence of such an agreement. 3. Pemba did authorise Mr Angelis to execute the 31 October Term Sheet. But, for the reasons I set out below, the 31 October Term Sheet did not bind: 1. Coverforce to proceed with the Resilium Transaction; or 2. Pemba to execute a shareholders agreement in the form of, or even to the effect of, the Purported 31 October 2018 Shareholders Agreement (being the form of agreement annexed to the 31 October Term Sheet). 1. Further, for the reasons I set out above, I do not accept that Mr Angelis and Mr Georgiadis had the conversation upon which Mr Angelis relies, being the conversation set out at [222] above. 2. Rather, I accept that Mr Georgiadis told Mr Angelis that, although Mr Angelis could "progress discussions with Mr Kitchin", Pemba would not agree to vary the 2017 Shareholders Agreement unless and until there was final agreement about "Pemba's exit entitlements" and, in particular, final agreement as to an alternative "exit right" for Pemba to its Drag Right. 3. Mr Georgiadis's agreement that the reference to a put and call option could be removed from the version of the shareholders agreement to be given to Mr Kitchin, that is from the Purported 31 October Shareholders Agreement, was expressly on that basis. 4. I do not accept that there was an "agreement to agree" about a put and call option. Mr Angelis and Mr Georgiadis discussed the possibility of a put and call option being an adequate substitute for Pemba's Drag Right, but no agreement was reached about price. 5. On 30 October 2018, Mr Angelis made the offer I have set out at [240] above. Mr Georgiadis rejected that offer the next morning without making a counter offer (see [253] above). 6. There the matter rested. 7. Although cl 7.1(d) of the Purported 25 March Shareholders Agreement contained a provision to the effect that Mr Angelis and Pemba "must…negotiate in good faith" the terms of a put and call option, Pemba had not agreed to do this. Pemba did not know that such a clause was included in that document until 3 April 2019; after the Resilium Transaction documents were executed on 25 March 2019. 8. In the meantime, Pemba clearly signalled to Mr Angelis, over and again, that its position remained that it would not agree to the Resilium Transaction or a variation to the 2017 Shareholders Agreement involving surrender of its Drag Right. 9. Thus: 1. at the 10 December 2018 board meeting, Mr Summerhayes said that "any amendments to the shareholders agreement will need to be approved by Pemba before we enter into the transaction" (see [311] above); 2. on 13 December 2018, in response to Mr Angelis's request for an "answer" to the matters raised in Mr Kitchin's email of 12 December 2018, Mr Summerhayes said that Suncorp's proposed "Change of Control" requirements "compromises too many exit options" and proposed a regearing of Coverforce as a "reasonable arrangement for us in conceding the trade exit route" (see [326] above); 3. on the same day, Mr Summerhayes told Mr Neal that this was a "[n]on negotiable" position (see [332] above); 4. Mr Neal passed that on to Mr Angelis and told Mr Angelis that Pemba's position was "not negotiable on this issue" and that Pemba would not "tolerate a position" of being forced "into an exit process over which [Pemba had] no influence" (see [333] above); 5. later that day Mr Summerhayes told Mr Angelis that Pemba's "final position" was a "complete re-gearing" of Coverforce in response to which Mr Angelis said "[d]ream on", prompting Mr Summerhayes's retort "[i]f that's your answer then we won't approve the Resilium deal" (see [352] to [357] above); 6. on 22 December 2018, Mr Summerhayes told Mr Neal that "there is no approval of this deal without a Re-cap and a special dividend being put in place" (see [369] above); 7. on 25 February 2019, Mr Summerhayes asked Mr Neal to make clear to Mr Angelis that "Pemba is not going to approve the transaction" and that "we are heading for a train crash" if Mr Angelis pressed ahead with the transaction (see [385] above); 8. Mr Neal passed that on to Mr Angelis who responded that "[t]here is nothing you can do" (see [387] above); 9. On 19 March 2019, and again on 23 March 2019, Pemba sent to Mr Angelis and to Coverforce the communications I have set out at [397] and [399] above, which Mr Angelis explained to Mr Kitchin as being no more than Mr Summerhayes "trying to flex his muscles" and creating "pressure on me so that I feel I have to give Pemba more" (see [401] above). What is the effect of the 31 October Term Sheet? 1. The Angelis Parties contended that, because Pemba agreed to Coverforce entering into the 31 October Term Sheet, it thereby agreed to modify the 2017 Shareholders Agreement and to proceed with the Resilium Transaction. 2. The 31 October Term Sheet is expressed to be "binding". 3. But the significance of that depends upon what, on its proper construction, the 31 October Term Sheet "bound" Coverforce to do. Not an agreement binding Coverforce (or Mr Kitchin) to proceed with the Resilium Transaction 1. I do not accept that the terms of the 31 October Term Sheet obliged Coverforce to proceed with the "Transaction" referred to in it; the proposed acquisition of 100% of the shares in Resilium. 2. Although cl 2 of the 31 October Term Sheet was headed "Term Sheet Binding", the body of that clause stated that the term sheet set out the "proposed terms" of the Transaction (see [278] above). 3. Under the heading "Background", the 31 October Term Sheet referred to the October Suncorp Term Sheet and recited some of its terms (see [278] above). The parties must thereby be taken to have incorporated by reference the terms the October Suncorp Term Sheet into the 31 October Term Sheet. 4. As I have set out above, the October Suncorp Term Sheet, which was expressed to be non-binding, envisaged that there would be a "Stage 2 Term Sheet" which would: 1. include "the key terms of the Proposed Transaction"; 2. "detail the additional financing, operational and transactional considerations" relevant to the involvement of the "Financing Party" (that is, as it turned out, Coverforce); and 3. "include details of the proposed timetable for the conduct of due diligence and execution of definitive transaction documentation". 1. In the 31 October Term Sheet, under the heading "Background", the parties acknowledged that they too would enter into a "Phase 2 Term Sheet"; that is the "Stage 2 Term Sheet" referred to in the October Suncorp Term Sheet. 2. Thus, the parties to the 31 October Term Sheet must be taken to have intended that the matters referred to in [479] above would be in this further "Phase 2" term sheet, and in particular that "details of the proposed timetable for…execution of definitive transaction documentation" would appear. 3. This points strongly to the conclusion that the parties to the 31 October Term Sheet did not intend that it, alone, bound either party to the "Proposed Transaction". 4. As I have discussed, what was referred to in the October Suncorp Term Sheet and the 31 October Term Sheet as the "Stage 2 Term Sheet" or the "Phase 2 Term Sheet" was the Stage 2 Suncorp Term Sheet executed by Suncorp and Mr Kitchin on 10 December 2018. That term sheet was also expressed to be "non-binding". 5. This must have been contemplated by Mr Angelis and Mr Kitchin when they executed the 31 October Term Sheet. This is a further reason to conclude that the parties did not intend that the 31 October Term Sheet itself obliged them to proceed with the "Transaction". 6. Clause 9 of the 31 October Term Sheet provided that, after its execution, Coverforce and Mr Kitchin would commence to negotiate, in good faith, the terms of the "Phase 2 Term Sheet" as well as the "formal and binding documents in relation to the Transaction" and recited a list of what those "Formal Documents" would include (see [281] to [283] above). 7. That clause provides a further indication that the parties did not regard the 31 October Term Sheet as itself being a "formal and binding document" in relation to the Transaction. Not an agreement binding on Pemba to amend the 2017 Shareholders Agreement 1. Clause 6 of the 31 October Term Sheet provided that the parties agreed that Mr Kitchin "will become a party to the Coverforce Shareholders Agreement" which would "be amended and restated in substantially the form attached"; that is, in the form of the Purported 31 October Shareholders Agreement. 2. But the clause continued by stating that, so far as concerned the issue of shares in Coverforce to Mr Kitchin, the issue of such shares was subject to "such other shareholder and board approvals required to issue the shares". 3. The issue of shares was thus subject to there being a Special Majority Board Approval for the purpose of cl 5.6(a) of the 2017 Shareholders Agreement (see [69] above) and thus subject to Pemba's agreement; Pemba not being a party to the 31 October Term Sheet itself. 4. Further, cl 9 recorded that one of the "Formal Documents" to be negotiated was such a shareholders agreement (see [283(3)] above). 5. In any event, so far as Pemba is concerned, the 31 October Term Sheet could not bind it to a variation of the 2017 Shareholders Agreement as that agreement provided, in terms, that it could only be varied in writing signed by Coverforce "and all of the Shareholders other than the Small Shareholders" (see [81] above). An agreement binding in some respects 1. No doubt, some provisions in the 31 October Term Sheet were intended to be binding, for example: 1. Mr Kitchin's agreement in cl 11 to procure that Resilium management provide Coverforce with all assistance in relation to a due diligence; 2. Mr Kitchin's agreement in cl 12 that he would cause the Resilium group to operate its business in the ordinary course and on ordinary commercial terms; 3. Mr Kitchin's promise in cl 15 to engage exclusively with Coverforce until 31 December 2018 in relation to the Transaction; 4. the parties' agreement as to confidentiality in cl 16; and 5. the parties' agreement in cl 17 to not make any announcement in relation to the transaction contemplated by the term sheet. Conclusion concerning the alleged agreement between Mr Angelis and Pemba 1. For those reasons my conclusion is that there was no agreement between the Angelis Parties and Pemba that Coverforce would proceed with the Resilium Transaction and that, on completion, Pemba would execute a modified shareholders agreement. 2. There was no such agreement between Mr Angelis and Mr Georgiadis during their communications on 30 and 31 October 2018. On the contrary, Mr Georgiadis made clear that Pemba did not agree to any such arrangement and would not do so until such time as there was final agreement between it and the Angelis Parties about an alternative exit pathway in lieu of its Drag Right. 3. Further, Pemba's agreement that Coverforce execute the 31 October Term Sheet did not constitute any such agreement. Was any agreement void for uncertainty? 1. Pemba submitted that, alternatively, any purported agreement between it and the Angelis Parties was void for uncertainty. 2. In view of the conclusions to which I have come, it is not necessary to deal with that submission. No estoppel 1. The Angelis Parties contended, alternatively, that Pemba was estopped from asserting their rights under the 2017 Shareholders Agreement because it represented that it agreed to the Purported 31 October Shareholders Agreement and to the Resilium Transaction. 2. As I have already found, Pemba made no representation, or otherwise acted, such as to estop it from denying the existence of any such agreement. 3. Pemba made clear, over and again, that it would not agree to proceed with the Resilium Transaction, or vary the 2017 Shareholders Agreement so as to accommodate that transaction, or at all, until an alternative to its Drag Right was agreed. The result 1. The Angelis Parties' case against Pemba fails. 2. The Angelis Parties and Pemba remain bound by the 2017 Shareholders Agreement. Consequences so far as concerns the Resilium Transaction 1. The 25 March Resilium Transaction documents purported to provide for: 1. the issue by Coverforce to the Kitchin Parties of shares in Coverforce and thus "the alteration of the share capital" of Coverforce within the meaning cl 5 of Schedule 2 of the 2017 Shareholders Agreement; 2. the acquisition by Coverforce from the Kitchin Parties of their shares in OpCo and thus the "acquisition of any interest in any company or business" within the meaning of cl 6 of Schedule 2; 3. the appointment of Mr Kitchin as a director of Coverforce and thus a "change to the board composition rules" of Coverforce within the meaning of cl 8 of Schedule 2; and 4. the loan by Coverforce of $20 million to the Kitchin Parties to enable them to acquire Resilium from Suncorp and thus a "loan of money or provision of financial accommodation in excess of $50,000" by Coverforce within the meaning of cl 11 of Schedule 2. 1. By reason of cl 5.6(a) of the 2017 Shareholders Agreement (see [67] above), each of those matters required Special Majority Board Approval. 2. No such approval was given. Indeed, no resolution of any kind was passed by the Coverforce board concerning entry into the Resilium Transaction documents. 3. It follows that: 1. Coverforce did not issue shares in itself to the Kitchin Parties; 2. Coverforce did not acquire shares in OpCo; 3. Mr Kitchin was not appointed a director of Coverforce; 4. Coverforce did not agree to loan the $20 million to the Kitchin Parties. 1. As to the last point, Coverforce did in fact advance $20 million to the Kitchin Parties. The Kitchin Parties acknowledge that, in these circumstances, they "would be subject to an order to make restitution in relation to the loan funds, less any benefits derived by Coverforce from the OpCo revenues". 2. As to the purported issue by Coverforce of shares in itself to the Kitchin Parties, the Angelis Parties sought to call in aid s 125(1) of the Corporations Act. That section provides that "the exercise of power by a company is not invalid merely because the act is contrary to an express restriction or prohibition in the company's constitution". 3. That section does not assist the Angelis Parties. Section 125 only applies where an exercise of power would be invalid "merely" because it is contrary to the company's constitution. That is not this case. The purported share issue to the Kitchin Parties is invalid because it was not carried out in accordance with the 2017 Shareholders Agreement. 4. It follows that the purported issue of shares in Coverforce to the Kitchin Parties was of no effect. 5. It was contended on behalf of the Angelis Parties that the purported issue of shares to the Kitchin Parties was "voidable" rather than "void". 6. I do not accept that submission. As was submitted on behalf of the Kitchin Parties, the purported share issue was made in circumstances where Coverforce did not have any power to exercise. This was not a question of existing power being exercised incorrectly. 7. The result is that the Kitchin Parties, in substance, remain owners of the Resilium business and seek appropriate restitutionary orders to "reverse" the Resilium Transaction. 8. The Angelis Parties contend that there are insuperable practical problems associated with "undoing" the transaction. During submissions, frequent references were made to "unscrambling the egg". I will deal with those matters after considering the alternative way in which the Kitchin Parties put their case. 9. By that alternative case, the Kitchin Parties seek to exercise what they contend is their contractual entitlement under cl 5.6 of the Share Purchase Deed (set out at [422] above) to "reverse those actions" which occurred in the purported implementation of the Resilium Transaction. 10. The Kitchin Parties' entitlement to take this course depends on the answer to a number of questions to which I will now turn. Can the Kitchin Parties compel Coverforce to "reverse" the Resilium Transaction under the Share Purchase Deed? Was Special Majority Board Approval required for Coverforce to enter the Share Purchase Deed? 1. The first question is whether Special Majority Board Approval was required for Coverforce to enter into, as opposed to complete, the 25 March 2019 Share Purchase Deed. 2. As I have set out at [65] to [68] above, cl 5.6(a) of the 2017 Shareholders Agreement provides that "any decision of the Directors in relation to a matter set out in Schedule 2" "must be determined" by Special Majority Board Approval: that is, by a resolution of directors in which Mr Angelis and "at least 1 Pemba Director" joined. 3. The matters in Schedule 2 included the alteration of Coverforce's share capital and the acquisition of an interest in another company. 4. The Share Purchase Deed contemplated each of those matters as it provided for the issue by Coverforce to the Kitchin Parties of shares in itself and for the purchase by Coverforce from the Kitchin Parties of their shares in OpCo. 5. But the Share Purchase Deed did not commit Coverforce to either matter because, by cl 5.3 of that document, completion was conditional on Coverforce procuring that a duly convened meeting of directors resolve to agree to such share issue and acquisition. 6. The question is whether, on the proper construction of cl 5.6(a) of the 2017 Shareholders Agreement, a decision to enter such a conditional agreement was a decision "in relation to" the acquisition of interest in a company and the alteration of Coverforce's share capital. 7. In one sense, the answer to this question is "yes" as there is a connection between such a conditional agreement and the relevant Schedule 2 matter. 8. But when words like "in relation to" are used, considerations of degree are involved. 9. As Hill J observed in Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472; [2001] FCA 1549 at [68] (albeit in a statutory context): "It may be accepted that there will always be a question of degree involved where the issue is the relationship between two subject matters. The words 'in relation to' are wide words which do no more, at least without reference to context, than signify the need for there to be some relationship or connection between two subject matters... But the phrase is both 'vague and indefinite'... Like the phrase 'in respect of', the phrase 'in relation to' will not, at least normally, apply to any connection or relationship no matter how remote… The extent of the relationship required will depend upon the context in which the words are used." (Citations omitted.) 1. I think it unlikely that the parties to the 2017 Shareholders Agreement intended that Special Majority Board Approval be required for any decision having any connection with a Schedule 2 matter, no matter how remote. 2. For example, I think it unlikely the parties intended that Special Majority Board Approval would be required in respect of a decision to delegate to a sub-committee or an individual member of the board consideration of, say, the acquisition of a business. Indeed, according to Mr Angelis, in the years leading up to the events with which these proceedings are concerned, there was in effect delegated to him just such a responsibility; and without any consideration being given to any sort of board approval. 3. As was submitted on behalf of the Kitchin Parties, the matters listed in Schedule 2 are cast as ultimate actions by Coverforce, rather than potential actions: see the words "alteration", "acquisition" "decision" and "loan" set out at [69] above. 4. In that context, my opinion is that reasonable businesspeople in the position of the parties to the 2017 Shareholders Agreement would understand the expression "any decision in relation to" a Schedule 2 matter to mean any decision actually to effect such matters. 5. A decision to enter into a loan agreement in which Coverforce actually agreed to loan funds would be such a decision. The loan agreements between Coverforce and the Kitchin Parties on 25 March 2019 were such agreements. Indeed, by cl 4.3(b) in each of those agreements, Coverforce represented, in terms, that all relevant "approvals" to make the loans had been obtained. 6. But the decision to enter a conditional agreement such as the 25 March 2019 Share Purchase Deed was not such a decision. That document contemplated the possibility that the relevant decision, that is actually to effect the acquisition of the OpCo shares from the Kitchin Parties and issue of the shares in Coverforce to the Kitchin Parties, had not been made. Thus, it made completion of the agreement conditional on such a decision being made at a duly convened meeting of the Coverforce board. 7. Such a decision was one which still, under both the 2017 Shareholders Agreement and under the Share Purchase Deed, remained to be made; and was dependent on Pemba's approval first being obtained. 8. For those reasons, the absence of Special Majority Board Approval for entry into, as opposed to completion of, the Share Purchase Deed is not itself a reason to conclude that Coverforce had no authority to enter that agreement. The authority of Mr Dutt and Ms Angelis to execute the Resilium Transaction documents 1. The 25 March 2019 Resilium Transaction documents, including the Share Purchase Deed, were purportedly executed on behalf of Coverforce by Mr Dutt, in his capacity as a director, and Ms Angelis, in her capacity as company secretary. 2. Mr Angelis was overseas on 25 March 2019 and asked Mr Dutt and Ms Angelis to execute the documents for Coverforce. 3. During final submissions, no party made submissions as to whether this request by Mr Angelis was sufficient to clothe Mr Dutt and Ms Angelis with requisite authority or whether they otherwise had such authority. 4. For that reason, I invited further written submissions on that topic. 5. Pemba submitted that Mr Dutt and Ms Angelis had no such authority because: 1. there was no Special Majority Board Approval or any other board decision authorising them to execute the documents; 2. Mr Angelis, as Managing Director, did not have authority to authorise them to execute the documents; 3. the "convention" for which Mr Angelis contended, assuming it be established, did not provide such authority because, on the case of the Angelis Parties is only operated "absent any indication to the contrary" (see [57] above) and Pemba had given a clear "indication to the contrary" so far as concerns entry by Coverforce into the Resilium Transaction; and 4. the provisions of s 127(1)(b) of the Corporations Act (which provides that a company may execute a document without using its common seal if the document is signed by a director and company secretary) take the matter no further as, although the documents were executed in accordance with section, the section does not itself operate to confer authority if authority is otherwise absent. 1. On the other hand, the Angelis Parties submitted that "as a matter of procedural fairness" I should make not any finding about Mr Dutt's or Ms Angelis's authority to execute the documents because: 1. Pemba had not pleaded that Mr Dutt and Ms Angelis lacked requisite authority; 2. had the issue been raised on the pleadings, "the Angelis Parties would have led further evidence relevant to the issue, including from Mr Dutt and Ms Angelis as to their authority"; and 3. it had not been put to Mr Dutt or Ms Angelis in cross-examination that they lacked authority. 1. Otherwise, apart from submitting that the "convention" for which Mr Angelis contended he gave Mr Angelis authority to authorise Mr Dutt and Ms Angelis to execute the documents and repeating their submissions as to the effect of the 31 October Term Sheet, the Angelis Parties did not grapple with the substance of Pemba's submissions. 2. As to the pleading point, it is true that Pemba did not plead that there was an absence of the relevant authority in its response to the Angelis Parties' case. 3. However, in response to the Kitchin Parties' case, Pemba pleaded the entry into the relevant documents was: 1. "not authorised by the Board of Coverforce"; and 2. that accordingly "the Share Purchase Deed was not validly entered into by Coverforce". 1. The second of those two allegations was, however, only included in Pemba's pleading on 8 November 2019, by which time cross-examination of the witnesses called for the Angelis Parties was complete. 2. As to the submission that further evidence would have been called, I find it hard to envisage what that evidence would be, and in particular, what evidence Mr Dutt and Ms Angelis could give as to their own authority. 3. It is true that it was not put to either Mr Dutt or Ms Angelis that they lacked authority, or should have known they lacked authority, to execute the documents. All that was put to Mr Dutt was that he executed the documents at Mr Angelis's request. Ms Angelis was not required for cross-examination. 4. On reflection, and because of the conclusions to which I have come concerning Mr Kitchin's entitlement to assume that the Share Purchase Deed was effectively executed for Coverforce, I find it unnecessary to express any opinion about this matter. 5. That is because, even if Mr Dutt and Ms Angelis did not have authority to cause Coverforce to enter the Share Purchase Deed, by reason of s 129 of the Corporations Act, the Kitchin Parties were entitled to assume that they did. Assumptions under s 129 1. Section 129(1) of the Corporations Act provides that a person may assume that a company's constitution has been complied with. 2. As I have said, Pemba accepted that Mr Dutt and Ms Angelis executed the Share Purchase Deed in accordance with s 127(1)(b) of the Corporations Act and that, on the face of things, by reason of s 129(5) of the Corporations Act the Kitchin Parties were entitled to assume that the "document has been duly executed by the company". 3. However, Pemba submitted that "at the time of the dealings" Mr Kitchin, and thus the Kitchin Parties, "knew or suspected that the assumption was incorrect" and therefore, by reason of s 128(4) of the Corporations Act, were not entitled to make the assumption in s 129(5). 4. Pemba contends that, by reason of the letters it wrote to Coverforce on 19 and 23 March 2019 and the conversation that Mr Kitchin had with Mr Angelis on 23 March 2019 (see [399]ff above), Mr Kitchin, and thus the Kitchin Parties, must have suspected that in fact Coverforce did not have authority to enter the Share Purchase Deed. 5. That submission depends on the evidence given by Mr Kitchin that I have set out at [404] above, and in particular on the answer that Mr Kitchin gave to the last question there set out. 6. However, as I have said at [405], I think a fair reading of that evidence is that Mr Kitchin was saying no more than that he understood from Pemba's 23 March 2019 letter that "ultimately" Pemba's approval of the transaction would be needed "to complete the transaction". I do not read Mr Kitchin's evidence as bespeaking a suspicion on his part that Coverforce had no authority to enter the Share Purchase Deed. 7. In my opinion, Mr Kitchin was entitled to accept at face value the assurance given to him by Mr Angelis, as the managing director of Coverforce, and as a very senior, highly experienced and well regarded Chief Executive in insurance intermediary industry. 8. This is particularly so: 1. in the absence of any direct contact from Pemba since 31 October 2018 (when Mr Kitchin saw that the Pemba directors had been copied in on the email that Mr Angelis sent him that day attaching the 31 October Term Sheet and the Purported 31 October Shareholders Agreement) and; 2. in the circumstance where Mr Kitchin's attention had been drawn to Pemba's correspondence at a "minute to midnight": very late on the Saturday night or early on the Sunday morning before the Monday scheduled for the exchange of executed documents. 1. In those circumstances, my conclusion is that Mr Kitchin was, and thus the Kitchin Parties were, entitled to assume that the provisions in Coverforce's constitution concerning the execution of documents had been complied with; and that, accordingly, the Share Purchase Deed had been duly executed by Coverforce. Coverforce represented it had authority to enter the Share Purchase Deed 1. In any event, as the Kitchin Parties have submitted, Coverforce expressly represented to them that it had authority to enter the Share Purchase Deed and that it would be binding as between it and the Kitchin Parties. 2. It did so repeatedly through Mr Angelis, who was held out to the Kitchin Parties, including by Pemba, as the Coverforce representative on the transaction. 3. It also did so, in terms, in the Share Purchase Deed itself in Schedule 2 (see [423] above). 4. If the true position is that Coverforce did not have such authority, its representation to the contrary was misleading or deceptive conduct for the purposes of s 18 of the Australian Consumer Law, entitling the Kitchin Parties to such relief as is appropriate under s 237 of the Australian Consumer Law. 5. There can be no doubt that Mr Kitchin, and thus the Kitchin Parties, relied on that representation. 6. That is so even if, contrary to my conclusion, Mr Kitchin did on 23 March 2019, suspect that Coverforce did not have authority to enter the Share Purchase Deed. 7. There is no requirement that reliance on a misleading or deceptive representation be reasonable: Sykes v Reserve Bank of Australia (1998) 158 ALR 710; (1998) 88 FCR 511 (Heerey and Sunberg JJ, Emmett J not deciding). 8. This is because, where a representation is made for the purpose of inducing reliance against the very risk which eventually materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct: Travel Compensation Fund v Tambree t/as R Tambree & Associates (2005) 224 CLR 627; [2005] HCA 69 at [32] (Gleeson CJ). That is, of course, unless it is shown that the representee actually knew the true facts or disavowed any reliance on the misrepresentations: Gould v Vaggelas (1984) 157 CLR 215 at 238; [1984] HCA 68 (Wilson J). 9. I see no basis to conclude that Mr Kitchin's acceptance of what Mr Angelis said to him on 23 March 2019 was so unreasonable as to compel that his conduct in proceeding with the Resilium Transaction was not "because of" Coverforce's representation. 10. There is also no evidence that Mr Kitchin actually knew the true facts or disavowed any reliance on Mr Angelis's (and thereby Coverforce's) representations to him. 11. The relief the Kitchin Parties seek in these circumstances is an injunction restraining Coverforce from asserting that it did not validly enter into the Share Purchase Deed. I am prepared to make such an order pursuant to s 237 of the Australian Consumer Law. 12. The same conduct would also give rise to an estoppel in favour of the Kitchin Parties. Mr Kitchin relied on the representation. It would be unconscionable for Coverforce now to depart from the represented state of affairs. To do so would leave the Kitchin Parties without the enforceable contract that Coverforce assured them they had. Ratification by Pemba 1. The Kitchin Parties also contend that any lack of authority or consent by Pemba to the entry by Coverforce into the 25 March 2019 Resilium Transaction documents is overcome by Pemba's ratification of them. 2. The Kitchin Parties developed that submission in a number of ways, but primarily by reference to what they contended to be the proper construction of the AUB Share Purchase Deed of 1 August 2019 between Pemba and AUB. 3. The Kitchin Parties made detailed submissions to the effect that, properly construed, that agreement provided for the sale to AUB of all of the shares in Coverforce on the basis that control of the Resilium business would pass to AUB with the total price payable by AUB to include an amount referable to the Resilium business. Thus, it was submitted, Pemba deliberately sought to take advantage of the 25 March 2019 Resilium Transaction documents and had thereby ratified them. 4. In reply, Pemba also developed equally detailed submissions as to the proper construction of the AUB Share Purchase Deed and contended that, properly construed, its effect was that if the true position is that Coverforce has not acquired the Resilium business, then the price payable by AUB for what would otherwise have been Coverforce's interest in Resilium would be "zero". 5. AUB is no longer a party to these proceedings. It has an interest in the proper construction of its contract with Pemba. It would not, in those circumstances, be appropriate that I express any opinion as to the proper construction of the contract without giving AUB an opportunity to be heard. This is especially so now that AUB has announced to the market that it has terminated this contract. 6. Accordingly, unless it was necessary for me to do so, I would not deal with this aspect of the Kitchin Parties' submissions. 7. Because of the other conclusions which I have come, it is not necessary that I express any opinion about whether or not Pemba has ratified the 25 March 2019 Resilium Transaction documents. 8. Accordingly, I will not consider this question further. The Kitchin Parties are entitled to enforce the Share Purchase Deed 1. My conclusion is that the Kitchin Parties are entitled to enforce the Share Purchase Deed in accordance with its terms. The Kitchin Parties' right under cl 5.6(a)(ii) of the Share Purchase Deed 1. As I have found that Coverforce did validly enter the 25 March 2019 Share Purchase Deed but that, for the reasons I have set out, did not issue shares in itself to the Kitchin Parties, it follows that one of the "interdependent actions" required by the Share Purchase Deed to occur simultaneously did not occur at all (see [416] and [422] above). 2. It follows that, on the face of things, the Kitchin Parties are entitled to exercise their right under cl 5.6(a)(ii) of the Share Purchase Deed to require Coverforce to "do everything reasonably required to reverse [the] actions" which did take place (see [422] above). 3. The Kitchin Parties wish to elect between exercising their right under cl 5.6 of the Share Purchase Deed and claiming damages from Coverforce. 4. They contend, correctly in my opinion, that they should not be required to make an election until such time as they are in a position to understand what damages might be available to them against Coverforce. 5. What follows is an analysis of the position assuming that the Kitchin Parties elect to exercise their right under cl 5.6 (or I decide that the justice of the case requires that the Kitchin Parties take that course). 6. A pleading point arises. 7. The Angelis Parties submitted that the Kitchin Parties have not pleaded an entitlement to enforce cl 5.6. I do not accept that submission. The matter is the subject of an express claim at par 60 of the Kitchin Parties' Second Further Amended Cross-Claim List Statement. It is there it contended that "Coverforce is obliged to transfer the shares back to the [Kitchin Parties] pursuant to clause 5.6(a)(ii) of the" Share Purchase Deed. Further, an order for a transfer of the OpCo shares from Coverforce to the Kitchin Parties is sought in the Kitchin Parties' Further Amended Cross-Summons. The claim was expressly opened on both in writing and orally. 8. The Angelis Parties also submitted that I should not permit the Kitchin Parties to agitate a claim for relief under cl 5.6 of the Share Purchase Deed because Coverforce might wish to be heard to invoke a dispute resolution clause in the Share Purchase Deed which requires that disputes under the deed be mediated. 9. However, as was submitted on the behalf of the Kitchin Parties, the right of Coverforce to submit this dispute to mediation is not a substantive defence to any of the Kitchin Parties' claims against Coverforce. The fact that Coverforce could have attempted to enforce a mediation clause does not mean that it has an answer to the Kitchin Parties' claims. And as a practical matter, in the circumstances now before the Court, Coverforce cannot invoke the contractual mediation process. I think it clear that the Angelis Parties can be relied on to have advanced every argument that Coverforce could otherwise have advanced in relation to the Kitchin Parties' case. "Reversing the actions" – some documents unaffected 1. Were the Kitchin Parties to elect to exercise their rights under cl 5.6, there are four categories of transaction documents which would remain. 2. First, the Kitchin Parties accept that the loan contracts between them and Coverforce, under which Coverforce advanced $20 million to the Kitchin Parties, remain binding. 3. Second, the Kitchin Parties accept that the charge that they have granted Coverforce over their shares in BidCo remains in force. 4. Third, the Management Services Agreement between OpCo and the Resilium companies remains unaffected and could continue for so long as the parties wish it to. The only thing that would change is the underlying ownership of OpCo. But that has no bearing on the fact and operation of the Management Services Agreement itself. 5. Fourth, the Suncorp Call Option Deed would remain in operation. The subject of the Suncorp Call Option is BidCo's shareholding in Resilium. BidCo, which remains owned by the Kitchin Parties, is a party to the Suncorp Call Option and will remain bound by its terms to sell its Resilium shares back to Suncorp if the nominated events enlivening Suncorp's entitlement to call occur during the option period. That will be a matter between BidCo and Suncorp. 6. The Suncorp Call Option Deed imposes an obligation on Coverforce to pay to Suncorp $8 million "where an IPO" occurs at a future date. On the face of the Suncorp Call Option Deed, that obligation enures whether or not Coverforce owns the Resilium business. If the Kitchin Parties elect to exercise their rights under cl 5.6 of the Share Purchase Deed, that will be a matter between Coverforce and Suncorp. It is not an answer to the Kitchin Parties' entitlement to exercise their cl 5.6 right. It is a consequence of Coverforce's failure to fulfil its obligations under the Share Purchase Deed. The Coverforce Call Option Deed 1. The Coverforce Call Option Deed, under which Coverforce has the right to require the Kitchin Parties to sell to their shares in BidCo would, in theory, remain in operation. 2. However, as I have found that Coverforce has not issued shares in itself to the Kitchin Parties, the question arises as to whether, as the Kitchin Parties contend, Coverforce should be restrained from exercising any rights under its call option deed by reason of an implied term that those rights could only be exercised if Coverforce had in fact issued shares in itself to the Kitchin Parties. 3. In that regard, the Angelis Parties submitted that, on its face, the Coverforce Call Option Deed is a self-contained document into which it is not necessary to imply any term in order to give it business efficacy. 4. In my opinion, that submission ignores the reality that the Coverforce Call Option Deed was one of a suite of documents executed on 25 March 2019 which, together, purported to effect the Resilium Transaction. 5. It is unthinkable to suppose that the parties to the Coverforce Call Option intended that if Coverforce did not issue to the Kitchin Parties the shares contemplated by the Share Purchase Deed, that Coverforce could nonetheless call for the BidCo shares. 6. In my opinion, for reasons of business efficacy and because it is so obvious it goes without saying, this is what the parties must have intended. Thus it is an implied term of the Coverforce Call Option Deed that it could not be exercised absent the share issue called for by the Share Purchase Deed. 7. In any event, the point is moot because, as I have said, in the alternative, the Kitchin Parties have a claim against Coverforce for misleading or deceptive conduct arising from its representation that it had authority to enter the Share Purchase Deed and thereby issue shares in itself to the Kitchin Parties (see [560]ff above). To the extent necessary, I propose to make an order under s 237 of the Australian Consumer Law restraining Coverforce from exercising its call option. "Reversing the actions" – other aspects 1. In the course of the hearing, the Angelis Parties contended that insurmountable practical difficulties would arise were I to accede to the Kitchin Parties' submission that the transaction be "reversed" pursuant to cl 5.6 of the Share Purchase Deed. I have mentioned that references were made to the alleged impossibility of "unscrambling the egg". 2. However, the Angelis Parties did not respond to or dispute the following submissions made on behalf of the Kitchin Parties, other than to make the general submission that, assuming they were entitled to relief, the Kitchin Parties should be confined to a claim for damages. 3. The Kitchin Parties pointed out that the fact that there may be practical difficulties associated with "reversing" the Resilium Transaction is not itself an answer to the claim. By cl 5.6 of the Share Purchase Deed, Coverforce gave the Kitchin Parties a contractual right to have the transaction "reversed" if, relevantly, Coverforce did not issue shares in itself to the Kitchin Parties. Coverforce must be taken to have understood that there may be practical difficulties associated with that exercise. 4. In any event, I am not satisfied that transition of the ultimate ownership of Resilium back to the Kitchin Parties would be unduly difficult or burdensome on Coverforce. 5. As was pointed out on behalf of the Kitchin Parties: 1. the Resilium companies operate with their own AFSL; they do not need, and do not operate under, the Coverforce licenses; 2. the Resilium companies operate with their own employees, many of whom worked for Resilium when it was owned by Suncorp; 3. the Resilium companies have their own customers and operating authorised representatives; 4. the Resilium companies and OpCo each have their own bank accounts; 5. the Resilium companies and OpCo each have their own financial and management accounts; 6. the Resilium companies and OpCo each have their own files and records; and 7. if, and to the extent that, those files and records are housed within the electronic data storage systems of Coverforce, it is a matter of extracting that data from those systems and importing it into the system is that the Kitchin Parties will establish, which is what occurred when the Resilium business was sold by Suncorp. 1. The fact that the Kitchin Parties will be required to establish premises for the business and incur other costs is a matter for them. 2. The Angelis Parties adduced evidence from Mr Dutt concerning the costs Coverforce incurred in contemplation of completion of the Resilium Transaction. 3. To the extent that those costs would not have been incurred in any event, and will now be lost if the Kitchin Parties exercise their right to "reverse" the Resilium Transaction, that is a result of Coverforce's failure to perform its obligations under the Share Purchase Deed; in particular, its failure to issue shares in itself to the Kitchin Parties. That share issue was a fundamental aspect of the bargain to which the Kitchin Parties and Coverforce agreed. 4. If the Kitchin Parties elect to exercise their rights under cl 5.6, I will hear submissions as to the precise form of the orders that should be made. Conclusions as to the rights of the Kitchin Parties 1. The Kitchin Parties may enforce the Share Purchase Deed by exercising their rights under cl 5.6 or by seeking damages from Coverforce. What is the consequence of these findings for the sale to AUB? 1. It follows from these findings that there was no impediment to the sale by Pemba to AUB of its shares in Coverforce and, by reason of the Drag Right, the shares of the Angelis Parties. 2. Whether such a sale would have carried with it the Resilium business would have depended on the Kitchin Parties' election. 3. Pemba's entitlement to compel production of due diligence materials in respect of the Resilium business would also have depended on that election. 4. These points may now be moot in view of AUB's market announcement. 5. As I have set out at [78] above, cl 9.3 provides that on receipt of a "Sale Notice" (Pemba sent such a notice on 28 May 2019 – see [449] above): 1. "all Shareholders" were obliged to "use their best endeavours to implement" the share sale (cl 9.3(a)); and 2. the "Other Shareholders", that is the Angelis Parties, were obliged to "cooperate with, and provide all reasonable access and assistance required by the potential buyer" including "access to due diligence materials and personnel involved in the management of the Group and its Business" (cl 9.3(b)(1)). 1. An issue arose in this context about the nature of the obligations of the Angelis Parties. AUB's announcement yesterday may also render this question moot. However, as the parties addressed it, I shall deal with it here. 2. The Angelis Parties submitted that, as "Other Shareholders" they did not have an absolute obligation to provide AUB with access to due diligence materials by reason of cl 3.3 of the 2017 Shareholders Agreement which is in the following terms: "3.3 Exercise of powers Each Shareholder, acknowledging its commitment to the success of the Business, agrees to take all reasonable steps which are within its power and are necessary to procure that: (a) its voting rights as a Shareholder; and (b) the voting rights of Directors nominated by it to the Board, are exercised in a manner, and that it and they otherwise act, so as to ensure that: (1) the Company acts in conformity with this agreement; (2) the Directors nominated by it do not act inconsistently with this agreement; and (3) the Company, conducts the Business in a proper and efficient manner which maximises its profitability, and the value of the Company, in accordance with the Business Plan." 1. The Angelis Parties submitted: "The obligation in clause 3.3 is not an absolute obligation of the 'Shareholders' (as defined); rather, it requires that each 'Shareholder' take 'all reasonable steps … within its power'. The effect of sub-clause 3.3(3) shows that there is a qualifier to the obligation in sub-clauses 3.3(1) and (2) – unsurprisingly the best interests of the company are not to be ignored and necessarily qualify the obligation, as is given effect to by the reference to 'reasonable steps'. Put another way, an action which is objectively likely to harm the company is not a reasonable step. AUB is one of Coverforce's major competitors in the insurance brokerage market. In circumstances where a majority of Coverforce's directors considered that granting AUB access to due diligence materials would not be in the best interests of Coverforce, and that doing so may constitute a breach of the fiduciary obligations owed by those directors to Coverforce, requiring the 'Shareholders' to compel those directors to facilitate due diligence plainly is not a reasonable step within the power of the relevant 'Shareholders'." 1. I do not accept that submission. 2. The Angelis Parties, as "Other Shareholders", have an express obligation under cl 9.3(1)(b) to use their best endeavours to implement an Exit within the time period specified by Pemba. As Pemba submitted, that obligation is given content by cl 9.3(1)(b) and expressly includes the obligation to provide access to "due diligence materials" and "personnel". 3. Clause 9.3(b) sets out, without limitation, the scope of the obligation in cl 9.3(a). 4. In any event, by cl 6.2(f) of the 2017 Shareholders Agreement, Coverforce itself is obliged: "on request promptly [to] provide each…Shareholder with copies of the books and records of Coverforce…and such other information as they may request as to any matter relating to the Business or financial position of the Company". 1. I do not see the broad statements in cl 3.3 of the 2017 Shareholders Agreement qualifying the specific obligations imposed on the Angelis Parties by cll 9.3(a) and 9.3(b)(1) and on Coverforce by cl 6.2(f). 2. Clause 3.3, relevantly, obliges each shareholder "to take all reasonable steps" to "otherwise act" to ensure that Coverforce conducts its business in a proper and efficient manner which maximises its profit and efficient manner which maximises its profitability. I do not see that that obligation can affect the very precise obligations imposed by the clauses to which I have referred. The Kitchin Parties' misleading or deceptive conduct claims Against the Angelis Parties and Coverforce 1. I have dealt with the Kitchin Parties' claims that Coverforce engaged in misleading or deceptive conduct by representing that Coverforce was authorised to enter the 25 March 2019 Resilium Transaction documents (see [557] to [567] above). 2. I will invite submissions from the Kitchin Parties as to what, if any, further findings or orders should be made. Against Pemba 1. The Kitchin Parties allege that, on and after 31 October 2018, by silence, Pemba represented to them that it agreed: 1. to the issue of Coverforce shares to the Kitchin Parties; 2. to enter into the Purported 31 October Shareholders Agreement following completion of the Resilium Transaction; and 3. that it would not exercise its Drag Right under the 2017 Shareholders Agreement or any exit right inconsistently with the terms of the Purported 31 October Shareholders Agreement. 1. Silence can amount to misleading or deceptive conduct. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, Black CJ said: "Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive." 1. Silence may constitute misleading or deceptive conduct if there is a reasonable expectation that the silence would be broken. This was the analysis in Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37, where the Full Court of the Federal Court said: "The authorities recognise that the circumstances in which silence may support a finding of misleading or deceptive conduct are not properly subject to any unifying principle. Nonetheless, the authorities also acknowledge that, if the circumstances of a particular case would give rise to a reasonable expectation that, if a fact existed, it would be disclosed, then the failure to disclose that fact may give rise to an inference that the fact does not exist. In this situation (i.e., where there is such a reasonable expectation), a failure to disclose the existence of that fact could constitute misleading and deceptive conduct. See, e.g., Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 at 53,195; Demagogue v Ramensky at 32, 41; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114…; Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 at 405; and Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288 at 296-298. Inherent in this analysis is the proposition that the existence of a reasonable expectation depends on all the relevant circumstances of the case, including the relationships between the participants in the relevant conduct." (At [278] and [279] (Kenny, Stone and Logan JJ).) 1. The Kitchin Parties point to: 1. the email sent by Coverforce to Mr Kitchin on 31 October 2018 attaching the 31 October Term Sheet and the Purported 31 October Shareholders Agreement; and 2. the facts that: 1. Mr Summerhayes and Mr Georgiadis were copied in on that email; 2. the notation to cl 7 of the Purported 31 October Shareholders Agreement referred the proposed amendment of that clause to make provision for a right of first offer in favour of management and the exit process in cl 8 but did not refer to a possible put and call option between Mr Angelis and Pemba; 3. Pemba would not agree to surrender its Drag Right unless the Angelis Parties agreed to an alternative exit pathway satisfactory to Pemba; 4. although there was no agreement between Mr Angelis and Pemba about an alternative to Pemba's Drag Right, Mr Georgiadis agreed with Mr Angelis's suggestion that the "option piece" be removed from the form of shareholders agreement to be sent to Mr Kitchin so as not to "highlight any shareholder issues" to Mr Kitchin (see [238]) above); and 5. the fact that negotiations between Mr Angelis and Mr Georgiadis as to the terms of an alternative to Pemba's Drag Right, and in particular as to the terms of a put and call option were ongoing. 1. In those circumstances, it was submitted on behalf of the Kitchin Parties that "Mr Kitchin was led to believe…that Coverforce had committed itself to moving forward as his financier on terms set out in the [31 October Term Sheet], including with respect to the issue of shares in Coverforce to him, and that Pemba had approved this and, in the process, agreed to give up its drag rights". 2. One answer that both Mr Summerhayes and Mr Georgiadis gave to this complaint was that they thought that Mr Angelis would convey to Mr Kitchin the true state of the negotiations with Pemba; namely that there was discussion about the possibility of there being put and call option as a substitute for Pemba's Drag Right, but that such discussions were ongoing for no agreement was yet reached. 3. Thus Mr Georgiadis said that: "I thought that consistent with the pattern of dealing to this point, that Mr Angelis would keep Mr Kitchin up to date with the status of negotiations with Pemba." And that: "I expected that [Mr Angelis] would at least let Mr Kitchin know that the issue of Pemba's exit rights was still alive". 1. Similarly, Mr Summerhayes said: "I would have thought Mr Angelis would say, 'we've got some things that we've got to resolve, but…that shouldn't concern you'." 1. As I have set out above, by the end of October 2018, the relationship between Mr Angelis, Mr Summerhayes and Mr Georgiadis was very poor. 2. In that context, Mr Summerhayes gave this evidence: "Q. You had no confidence or trust in Mr Angelis at this time, did you? A. In his dealings with Mr Kitchin he'd been very clear and communicating to this point opposition. He actually allowed the deal to fall over back on 26 September because he relayed our position very clearly. Q. He was someone to your understanding who was prepared to act out of self-interest. Correct? A. In relation to our shareholding. Q. He was motivated by self-interest, is your understanding? A. In relation to our shareholding. Q. You knew he was determined to proceed with the Resilium deal? A. Yes. Q. You told me he had a history of withholding information from you? A. From us. Q. Including information that you regarded as important? A. Yes. Q. Doing so in circumstances where you expected he would have known full well that you would want to know about that information? A. Yes. Q. Yes. You had absolutely no confidence that Mr Angelis would tell Mr Kitchin the truth about the put and call option, did you? A. I think there are two different things here. One is his relationship with us and the dispute we were having in 2017 and the difficult relationship we have between us and the way he acted in that relationship. This is a different thing. It's in relation to a new business partner who he was looking to be in business with. He proved on 26 September to us that he was willing to be truthful about what our position was to the point where he'd let the deal fall over. It reasonable to conclude that he would have, you know, verbally highlighted that, 'There are some things we need to progress as shareholders but I've got them in hand.' That's consistent with not wanting to highlight shareholder issues as in issues that are unresolvable. These are issues that can be solved." 1. Mr Summerhayes's reference to what occurred on "26 September" was a reference to Mr Angelis's accurate account to Mr Kitchin of the outcome of the 24 September 2018 board meeting (see [137] to [138] above). 2. Mr Summerhayes was, in this evidence, seeking to draw a distinction between Mr Angelis's very poor relationship with Pemba and how Mr Summerhayes expected Mr Angelis would deal with a "new business partner" with whom he was seeking to establish a new business relationship. 3. In the last passage of the evidence I have set out, Mr Summerhayes suggested that a statement by Mr Angelis to Mr Kitchin to the effect that there were "things we need to progress as shareholders but I've got them in hand" would be consistent with Mr Angelis's stated position that he did not wish to "highlight" to Mr Kitchin the "shareholder issues" with Pemba. 4. I do not agree. 5. It must have been obvious to both Mr Summerhayes and Mr Georgiadis that Mr Angelis would not say anything to Mr Kitchin inconsistent with what was conveyed in the 31 October 2018 email. 6. That email, and its attachments, conveyed the message to Mr Kitchin that Pemba had agreed to give up its Drag Right and had agreed to accept, in lieu of the Drag Right, the two matters the subject of the notation in cl 7. 7. In those circumstances, Mr Kitchin had a reasonable expectation that if, as was the fact, Mr Summerhayes and Mr Georgiadis had a different understanding they would say so. 8. In my opinion it was, for these reasons, misleading or deceptive for Mr Summerhayes and Mr Georgiadis to remain silent. 9. It was submitted on half of Pemba that, in any event, the terms of Mr Kitchin's 12 December 2018 email (see [316] to [317] above) showed that Mr Kitchin was not misled by such silence as he was still then seeking confirmation that there be "resolution to the issues raised" in his emails concerning Pemba's Drag Right. 10. But there is an anterior question arising from the evidence that Mr Kitchin gave about this matter in his affidavit where he said: "I was not told, and did not understand, that Pemba's agreement and approval to the [31 October] Term Sheet was subject to it first reaching some further agreement with Mr Angelis about what else Pemba would receive in lieu of their drag right, or that Pemba was reserving for itself the right to completely change its position about the [31 October] Term Sheet and refuse to agree to surrender their drag right unless they obtained other concessions from Mr Angelis. If I had been told by Pemba or Mr Angelis that its agreement and approval was subject to this, I would have refused to proceed to purchase Resilium with Coverforce. I would have turned my attention to securing finance for the deal from other sources…I did not take these opportunities, because I believed that Pemba, Mr Angelis and Coverforce were committed to the position set out in the [31 October] Term Sheet." 1. Mr Kitchin's point here was that, had he understood that arrangements between Mr Angelis and Pemba concerning Pemba's Drag Right were not yet concluded, he would not have proceeded further with Coverforce. 2. This evidence was not directly challenged and is, in any event, credible. It is consistent with the statements that Mr Kitchin had, on number of occasions, made prior to 31 October 2018 concerning his preparedness to proceed with the MBO of Resilium without any involvement from Coverforce. 3. I will seek submissions from the Kitchin Parties as to what further relief, over and above that which will flow from my earlier findings, they contend follows from these findings. Damages 1. On 27 September 2019, Hammerschlag J directed the parties "to agree a single expert to provide a report on damages". 2. On 2 October 2019, the parties informed his Honour that they had agreed to appoint Dr Hung Chu of Lonergan Edwards & Associates Ltd. 3. Dr Chu produced a report dated 2 December 2019 expressing opinions about, speaking broadly, the value of Coverforce shares as at 31 May 2019 and the value of the rights in respect of the Resilium business that Coverforce purportedly acquired on that date. 4. Counsel for each of the Angelis Parties, Pemba, and the Kitchin Parties cross-examined Dr Chu in relation to his report on 4 and 5 December 2019. 5. I have not yet received submissions from the parties in relation to Dr Chu's evidence or the opinions expressed by him in his report. 6. On 5 December 2019, I informed the parties that I proposed to deliver my reasons on all questions other than those arising from Dr Chu's evidence. 7. Whether further consideration of Dr Chu's evidence will be required may depend on whether, in the light of these reasons, the Kitchin Parties make an election to exercise their rights under cl 5.6 of the Share Purchase Deed, rather than seek damages from Coverforce. Conclusion 1. I invite the parties to confer and agree on the orders necessary to give effect to these reasons and as to the directions that should be made to progress the matter. ********** 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: 10 December 2019