Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Kay v KRM (Vic) Pty Ltd;; Classic Bet (NSW) Pty Ltd v Kay & Ors [2020] NSWCA 92 Hearing dates: 7 April 2020 Decision date: 12 May 2020 Before: Meagher JA at [1]; Gleeson JA at [30]; White JA at [32] Decision: In appeal 2020/6311 (Ryan Kay v KRM (Vic) Pty Ltd) order that: (1) the appeal be dismissed. (2) the appellant pay the respondent's costs of the appeal. In appeal 2020/12237 (Classic Bet (NSW) Pty Ltd & Anor v Ryan Kay & Ors) order that: (1) the appeal be dismissed. (2) the appellants pay the respondents' costs of the appeal. Catchwords: CONTRACTS — Construction — Interpretation –whether proper construction required that when a liability was incurred under the clause it was incurred collectively by all three promisees regardless of the promisees' contribution to that liability – whether proper construction of the phrase 'collectively and individually, as the case may be' was akin to joint and several liability – where value of the liability was contingent on calculating the commissions earned by each promisee individually - where the promisees' dealings resulted in an unequal contribution to the total size of the liability incurred CONTRACTS — Construction — Interpretation – whether promise by seller to indemnify the buyer against liabilities incurred by the company prior to completion was also a promise to the company – where liability potentially incurred prior to completion but not acquitted in final settlement calculations CONTRACTS — Construction — Interpretation – whether a contract to pay commission on Net Cash generated by introduced clients created a liability upon entry into the contract – where at the time of entry no clients had been introduced – where numerous contingencies must eventuate for a liability to crystallise CONTRACTS — Construction — Interpretation – whether email correspondence amounted to a Notice of Proposed Change of Control pursuant to the contract – where emails not expressed to be such a notice – where context in which the emails were sent militated against the conclusion that they were contractual notices CORPORATIONS — Directors and officers — Directors' duties — Duty to act in good faith in the best interests of company – whether failure to cause company to issue a contractual notice to defer the incurrence of a liability was a breach of duty – whether company sustained loss for the purposes of a statutory action for damages Legislation Cited: Corporations Act 2001 (Cth), ss 181, 182, 588G Cases Cited: Bans Pty Ltd v Ling [1995] NSW ConvR 55-739; (1995) 16 ACSR 404 Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 per McHugh J at 52-53; [1999] HCA 59 Hawkins v Bank of China (1992) 26 NSWLR 562 Healthscope (Tasmania) Pty Ltd v Australian Hospital Care Pty Ltd [2011] VSC 132 Hooker v Foster 1 SW (2d) 276 (1928) (Texas, US) McDonald v Hanselmann (1998) 28 ACSR 49; [1998] NSWSC 171 O'Keefe v Calwell (1949) 77 CLR 261 Standard Chartered Bank of Australia Ltd v Antico (Nos. 1 and 2) (1995) 38 NSWLR 290 Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 Category: Principal judgment Parties: 2020/6311 Ryan Kay (Appellant) KRM (Vic) Pty Ltd (Respondent) 2020/12237 Classic Bet (NSW) Pty Ltd (First Appellant) Best Bet (NSW) Pty Ltd (Second Appellant) Ryan Kay (First Respondent) Alexander Kay (Second Respondent) KRM (Vic) Pty Ltd (Third Respondent) Representation: Counsel: B Walker SC with N Kabilafkas (Kays) I Pike SC with E Walker (Classic Bet (NSW)/Best Bet (NSW)) J Clarke SC with A Harding (KRM (Vic)) Solicitors: Price & Company (Kays) Yates Beaggi Lawyers (Classic Bet (NSW)/Best Bet (NSW)) K & L Gates (KRM (Vic)) File Number(s): 2020/6311;2020/12237 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2019] NSWSC 1773 Date of Decision: 29 November 2019 Before: Rein J File Number(s): 2018/314837 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] These proceedings concerned two appeals from a decision of a judge of the Equity Division regarding two commercial agreements. Messrs Ryan Kay and Alexander Kay were respectively the sole director and shareholder of Bestbet.com.au Pty Ltd ("Best") and Classic Bet Pty Ltd ("Classic"). On 28 July 2017 Classic, Best and Ryan Kay entered into an agreement called an "Affiliation Program Agreement" ("APA") with KRM (Vic) Pty Ltd ("KRM"). In that agreement the term "Classicbet" was defined to mean: "collectively and individually, as the case may be, Classic Bet Pty Ltd ACN 167 422 406, Ryan Kay and Bestbet.com.au Pty Ltd 607 108 645." The APA provided for the payment of commission to KRM calculated monthly as a percentage of the Net Cash received from clients introduced by KRM in accordance with the agreement. The APA also provided that should a 'change of control' or 'proposed change of control' take place with respect to Classicbet, KRM could at its election proceed with the APA or bring the agreement to an end by requiring Classicbet to make a payment to "buy out the tail" of the commissions payable under the APA. On 23 March 2018 two agreements called Share Sale and Purchase Agreements ("SSPAs") were entered into. One agreement was made between Classic, Alexander Kay and Playup Australia Pty Ltd ("Playup") and the other agreement was made between Playup, Ryan Kay, Best. The agreements were in materially identical terms with the completion date set as two business days after Playup received from the Northern Territory Racing Commission or Harness Racing (NSW) regulatory approval in writing to operate the Company's Business under Playup's existing licence. The approval was obtained on 17 May 2018 with the completion date being 22 May 2018. After the settlement of the SSPAs a dispute arose between Ryan Kay and KRM as to whether he was liable to buy out the tail in accordance with the APA or whether that obligation rested with Classic and Best. That was the subject of the dispute in 2020/6311. A dispute also arose before the primary judge as to whether Ryan Kay ought to have been granted leave to raise an alternative defence. A second dispute arose between Classic and Best, and Ryan and Alexander Kay concerning the construction of the APA and the SSPAs regarding the liability of the latter to the former and whether certain emails between Ryan Kay and KRM constituted a Notice of Proposed Change of Control. Disputes also arose as to whether by their conduct the Kay's had breached their directors duties. Those were the disputes in 2020/12237. In relation to 2020/6311, the issues on appeal were: (i) whether the proper construction of cl 16.1 and the term "Classicbet" in the APA imposes a liability on the appellant (Ryan Kay) to the respondent (KRM) to "buy out the tail". (ii) whether the primary judge erred in not granting the appellant leave to amend his defence to raise issues of waiver and election. In relation to 2020/12237, the issues on appeal were: (i) whether the promise in cl 6.1 of the SSPAs to satisfy the liabilities of the appellants (Classic and Best, respectively) was a promise made by the first and second respondents (Alexander and Ryan Kay) to the appellants. (ii) whether the appellant's incurred a liability to KRM within the meaning of cl 6.1 of the SSPAs upon entry into the APA. (iii) whether the emails between the first respondent (Ryan Kay) and the third respondent (KRM) constituted notice of a change of control or proposed change of control at a time earlier than found by the trial judge resulting in the appellant's incurring a liability to KRM prior to completion of the SPAAs. (iv) whether the first and second respondent's breached their statutory directors duties to the appellants by failing to provide a notice of proposed change of control to the third respondent prior to the completion date. The Court of Appeal (Meagher, Gleeson and White JJA) unanimously dismissed the appeal in 2020/12237 and by majority dismissed the appeal in 2020/6311 Per White JA (Meagher JA and Gleeson JA agreeing at [29] and [30] respectively) regarding 2020/12237: As to issue (i): The obligation in cl 6.1 on the first and second respondents is owed to the Buyer under the SSPAs alone; it is not owed to the appellants: [118], [161]. Clauses 5.2, 6.3, 6.7, 6.8, 6.11 and 7.3, which inform the construction of cl 6.1, demonstrate that the promise cannot be owed to the appellants [113], [115], [119]. As to issue (ii): No obligation was incurred by the appellants upon entry into the APA: [130]. There was no liability incurred upon entry to the APA as there were too many contingencies that had to be satisfied before such a liability crystallised: [124], [125], [126], [127], [128], [129]. The proper construction of the SSPAs was that they applied to liabilities that were actually incurred: [139], [145]. O'Keefe v Calwell (1949) 77 CLR 261 at 295-296: applied. Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616; Standard Chartered Bank of Australia Ltd v Antico (Nos. 1 and 2) (1995) 38 NSWLR 290; Hawkins v Bank of China (1992) 26 NSWLR 562: referred to. As to issue (iii): The emails from the first respondent cannot be construed as a notice under cl 16.1 of the APA as they were not styled as such and they lacked the necessary information for KRM to assess whether to make its election under the clause. Further, the emails were provided as purported explanations as to why Classic and Best were not giving notices of a change of control: [160]. As to issue (iv): The first respondent breached his statutory duties duty not to gain an advantage for himself or to cause detriment to the appellants by failing to cause the appellant's to provide a notice under cl 16.1 of the APA: [164]. However, as the relief sought was by way of damages it falls to the appellant's to establish loss: [169]. There is no evidence to support a finding that the appellant's have suffered loss: [170]. Corporations Act 2001 (Cth), ss 181 and 182: applied. There was no evidence which would justify a finding of breach of duty by the second respondent: [164]. Per Meagher JA (Gleeson JA agreeing at [31]) regarding 2020/6311: As to issue (i): The issue of the proper construction of the defined term "Classicbet" does not arise for determination as, on any available construction, the text and purpose of cl 16.1 require that the term operate "collectively'": [4]. When the balance of the clauses in the APA are considered: [14], [18], [19], [24], [25] it is apparent that the commercially sensible operation of the payment obligation in cl 16 is that Classicbet "collectively", meaning Classic, Ryan Kay and Best, incurs the obligation and has the benefit of its satisfaction: [26], [27]. The rate and amount of commission payable under the APA was to be calculated with respect to Classicbet's collective activities and therefore was payable "collectively", and that obligation to pay commission was the subject of the "buy out" under cl 16.1. That analysis is supported by the licensing regime against which the APA operated, which suggests the APA contemplated betting activities being conducted by Ryan Kay, either through Best or directly, in addition to Classic: [11], [12]. Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407: referred to. Per White JA (dissenting) regarding 2020/6311: As to issue (i): The defined term 'Classicbet' derives its meaning from the context in which it appears in each clause of the APA: [83], [84], [85]. Should 'collectively and individually' be construed to mean jointly and severally in all circumstances the words 'as the case may be' would have no work to do: [87], [99]. The nature of the parties betting business was such that a single bet could not be placed with more than one entity and the balance of clauses in the agreements reflects the inaptitude of joint and several liability, the term "collectively and individually, as the case may be" means "individually or collectively as appropriate": [89], [91], [93], [95], [96], [99]. As the appellant did not take bets from the relevant clients he was excluded from incurring liability upon the tail being bought out: [86], [99]. McDonald v Hanselmann (1998) 28 ACSR 49; [1998] NSWSC 171; Hooker v Foster 1 SW (2d) 276 (1928) (Texas, US): referred to. As to issue (ii): The primary judge was correct to refuse leave as it would have led to an adjournment: [101]. In light of Ryan Kay's conduct it may have been doubtful that the point could have been validly taken in any event: [102]. Judgment 1. MEAGHER JA: These reasons adopt the terminology used by White JA and assume a familiarity with the underlying facts as described by his Honour. For the reasons his Honour gives, the appeals of Classic and Best should be dismissed. 2. The question in Ryan Kay's appeal is whether the promise given by Classicbet in cl 16.1.4 is to be understood as referring to Classic, Best and Ryan Kay "collectively" or to them severally and distributively, in the sense that the clause is to be read as applying separately to each only in respect of its or his betting activities that have generated commissions payable to KRM. Doing so, it is said that the obligation of any such entity under cl 16.1.4 is to pay only that part of the lump sum "buy out" amount referrable to commissions generated by its or his betting activities with Affiliate Clients. 3. That question arises because Classicbet is defined in the Affiliation Program Agreement (APA) to mean "collectively and individually, as the case may be," Classic, Ryan Kay and Best. In that expression the qualifying words "as the case may be" indicate a choice between two bases of liability as promisor, which is to be resolved by reference to the context in which the defined term is used. On the face of it, those bases, joined by "and", are not expressed as alternatives. If the words "as the case may be" are read as qualifying all of the words that precede them, they may have no work to do unless "collectively" and "individually" are treated as the relevant alternatives. That is the construction preferred by White JA at [99] below. However, the words "as the case may be" may be read as qualifying only the word "individually" so that the relevant alternatives become "collectively" and "collectively and individually". Doing so gives effect to all the language of the definition and was the construction preferred by the primary judge: KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773 at [48], [49]. 4. Ultimately, it is not necessary to resolve this question of construction because in my view a consideration of the text and purpose of the agreement shows that where used to describe payment obligations under cll 7 and 16, Classicbet means the three entities "collectively". 5. By way of summary, under cl 7 Classicbet agreed to pay commission at a rate calculated from 1 January 2018 by reference to the turnover profit generated from all betting activities with Affiliate Clients, and to do so "in perpetuity" (cl 7.9(b)). The agreement does not contemplate that different commission rates apply depending on the outcome of betting activities of the individual entities with Affiliate Clients. Clause 16.1 conferred on KRM the right, in the event of a Change of Control of Classic or Best, to require Classicbet to "buy out" that ongoing liability to pay Commission. On the payment of the buy out amount, the Classicbet entities were released from that ongoing obligation and secured the benefit of KRM's covenant not thereafter to market and promote betting or wagering services to any of the Affiliate Clients (cl 7.9, 16.2.1). 6. It is necessary to begin with a consideration of the nature of the APA, and the rights of the respective parties. It is an agreement between KRM, an introducer of prospective bettors described as "Clients", and the three Classicbet entities, whose collective commercial activity (Classicbet Business) was described as a "gaming business of Classicbet in accepting bets for purposes permitted under" two bookmakers' licences. Those bookmakers' licences were issued to Classic and Ryan Kay by Harness Racing NSW and Greyhound Racing NSW, respectively. 7. Under the Betting and Racing Act 1998 (NSW) (B&R Act), a bookmaker includes any person who seeks to gain a livelihood "wholly or partly by betting or making wagers". A "licensed bookmaker" is a person authorised by a "racing controlling body" – one of Racing NSW, Harness Racing NSW and Greyhound Racing NSW – to carry on bookmaking. Those racing controlling bodies are able to grant bookmaking licences to individuals or proprietary companies under their respective Acts: Thoroughbred Racing Act 1996 (NSW), s 14A; Harness Racing Act 2009 (NSW), s 19; and Greyhound Racing Act 2017 (NSW), s 52. 8. Under s 16 of the B&R Act, the Minister may authorise a licensed bookmaker to accept or make bets by telephone or electronically. If authorised by their licensing racing controlling body, that betting activity may be conducted on premises that are not on a licensed racecourse (s 16A). By s 18, the Minister may also prescribe an event other than a race (such as a sporting event) as a "declared betting event" and, on the application of a licensed bookmaker, grant authority to accept bets on such events (s 19). 9. A "betting service provider" includes a bookmaker, and a "licensed betting service provider" is a betting service provider who holds a licence or authority to carry out "its betting services" (whether under the B&R Act or other legislation). It is an offence for a person who is not a licensed betting service provider to publish any betting information (s 29), defined as any information or advice as to betting or betting odds on any race or declared betting event (s 27). It is also an offence to publish an advertisement for gambling services carried on by a person who is not a licensed bookmaker (s 30). 10. A betting service provider is prohibited by s 33 from using NSW race field information in connection with the making or accepting of a bet, or in the course of their business, unless authorised by the relevant racing control body under s 33A of the B&R Act. At the time the APA was executed, a betting service provider could receive an approval from Racing NSW (for instance) to use Thoroughbred Race Field information if they held an "Australian Wagering Licence", defined in the approval conditions as a "licence, permit, approval or authority (however described) under the laws of any Australian State or Territory to conduct any form of wagering", including bookmaking. Classic and Ryan Kay each held such approvals. 11. The effect of the foregoing is that under their bookmakers' licences Classic and Ryan Kay were able to accept bets and make wagers by the internet, from premises which were not on a racecourse licensed by the relevant race controlling bodies, and in relation to races and other events not controlled by the body which issued their licences. Furthermore, the unlicensed Best could take bets, maintain betting accounts, and conduct business as a bookmaker only under the licence of another. It is plain that the APA contemplated that Best would engage in betting activities, and for that purpose maintain Betting Accounts, under Ryan Kay's licence. Under the B&R Act, Ryan Kay would be the "licensed bookmaker" and "licensed betting service provider" with respect to those activities of Best. There remained the possibility that Ryan Kay might carry on that bookmaking activity directly, by his accepting bets or wagers from Affiliate Clients, rather than 'through' Best. On any view the APA did not contemplate that the Classicbet Business would involve only betting activities of Classic under its licence. Betting Accounts for Affiliate Clients could be opened and maintained by Classic, Best doing so under Ryan Kay's licence, or Ryan Kay. That was the position when the APA was made and accordingly forms part of the context in which its meaning at that time is to be determined: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [322] (Campbell JA). 12. For its part, KRM agreed to promote Classicbet and to introduce Affiliate Clients (cll 4, 5). It was not thereby prevented from encouraging any Affiliate Client from doing business or placing bets with any competitor of Classicbet (cl 4.2, the internal reference being to cl 16.2). In return, Classicbet agreed to pay Commission calculated as a percentage of the Net Cash generated from betting activities with Affiliate Clients, defined to mean any client introduced by KRM who "opens, or where appropriate reactivates, an account for betting purposes with Classicbet". The reference to the singular 'account' is to be taken to include the plural (cl 2(a)). By cl 6, Classicbet undertook to open Betting Accounts for New Clients and maintain a record of each Affiliate Client introduced by KRM, as well as of each Affiliate Client's transactions. The reason for requiring that it do so, from KRM's perspective, was to enable the reporting and determination of the Net Cash position for each Affiliate Client for each calendar month, as well as the monthly Turnover from all Affiliate Clients, in each case using a Betting Account or Betting Accounts maintained by or for a licensed entity. 13. The APA contained a 'two-tiered' Commission structure which applied from 1 January 2018 (cl 7.2(b)). The rate of Commission to which KRM was entitled depended on the overall return to Classicbet from all betting activities with all Affiliate Clients (Turnover Profit Percentage). If that return was less than 7% (Target Turnover Profit Percentage), the commission rate was 25% (Reduced Commission). If that percentage was 7% or more, the commission rate was 30% (Standard Commission) (cl 7.2(b)(i)). 14. The Turnover Profit Percentage was to be calculated by dividing gross client wagering losses (Net Cash) by gross client turnover (Turnover), each defined by reference to the wagering losses and turnover of all Affiliate Clients and irrespective of whether the relevant betting activity was undertaken by Classic, Best or Ryan Kay. Turnover as defined was the "total monthly amount in dollars of all bets wagered by all Affiliate Clients using their Betting Accounts", and Net Cash was the amount equal to "all monies paid by an Affiliate Client... into the Affiliate Client's Betting Account during a calendar month less any payment out of the Betting Account during such calendar month to Affiliate Clients as winnings or refunds or otherwise" (emphasis added). In this definition of Net Cash, the singular 'Betting Account' is to be taken to include 'Betting Accounts'. The resulting monthly commission rates over the 12 months were then to be adjusted at year end by reference to the Turnover Profit Percentage for the year (cl 7.2). The "intention" of this provision, as stated in cl 7.2, was "for [KRM] to be paid the Standard Commission for the whole of a relevant year if the Turnover Profit Percentage for the whole of such relevant year achieves the Target Turnover Profit Percentage". 15. The rate provided for by cl 7.2 was to be determined by reference to Classicbet's collective activities. And the rate so derived was to be applied to the Net Cash generated by those same collective activities. Accordingly, the resulting sum was due from Classicbet collectively. From KRM's perspective, it was introducing Affiliate Clients to Classicbet. It was agnostic as to the bookmakers' licence under which any betting activity with an Affiliate Client occurred. Thus the two-tier commission rate structure treated the three entities as conducting one business with respect to their betting activities with Clients introduced by KRM. 16. Classicbet's obligation described in cl 7.1, to provide various statements in respect of each Affiliate Client on a monthly basis, was also imposed with respect to the collective activities of the three entities. Those statements included a statement of "all betting activities" of each Affiliate Client (Reconciliation Statement); a statement of the Turnover, being the amount of "all bets wagered" for each Client (Turnover Statement); and a statement of the Net Cash for each Affiliate Client (Net Cash Statement). 17. Where only one Classicbet entity was transacting bets through Betting Accounts maintained for Affiliate Clients, the obligation under cl 7.1 could have been be satisfied by the provision of statements which related only to that entity. However, the obligation remained to provide statements for "each Affiliate Client" in respect of "all betting activities" of that Client. Where more than one of the entities was transacting bets, the obligation under cl 7.1 could not have been satisfied by the provision of separate statements in relation to the first entity only. 18. Clauses 7.3 to 7.6 dealt with two aspects of Classicbet's obligation to pay monthly Commission. If that Commission was less than $100, that liability was to be carried forward rather than discharged by payment (cll 7.3, 7.4). More significantly for present purposes, during a 3 month period from the Commencement Date (22 May 2017), any negative Commission for the month was to be carried forward to the following calendar month. However, in calendar months after 22 August 2017, negative Commission was not to be carried forward and was to be "zeroed" (cl 7.6). The apparent purpose of this provision was to accommodate the possibility during the early period of the agreement that there might be imbalances in the monthly results due to a preponderance of higher turnover clients in the business first introduced. It applied to Commission determined in accordance with cl 7.2, and accordingly by reference to the Net Cash generated from all of the Betting Accounts of Affiliate Clients. It is not likely that the parties would have agreed to such an arrangement as applying to a negative turnover profit percentage based on wagering losses incurred by an individual entity without bringing to account wagering profits made by the other entity or entities in the same month. 19. Clause 14 provided for termination of the agreement for breach or, in particular circumstances or on the happening of specified events, by written notice. For the purpose of these termination provisions there are two parties – the party in breach, or Defaulting Party, and the other party, or Terminating Party. The events which entitled Classicbet as Terminating Party to bring the agreement to an end by giving written notice included it being of the reasonable opinion that it may be liable to lose one or other of the bookmakers' licences as a consequence of actions of KRM (cl 14.3(b)). In these provisions the references to Classicbet must be to the entities "collectively". The agreement did not contemplate that it should be terminated or "expire" in relation to one or more, but not all, of those entities. 20. Turning to cl 16, it addressed two events. The first is a Change of Control of Classic or Best, as Control is defined in the Corporations Act 2001 (Cth). The second is a sale, transfer or assignment by Classicbet of all or part of the Classicbet Business that includes "any Affiliate Clients" to a third party. 21. In the case of a sale of a book of business that includes any Affiliate Clients, the reference to Classicbet must be to the three entities collectively. The subject matter of the sale or transfer would be the benefit of the custom as bettors of those Clients. That customer connection was acquired by those entities collectively, and was subject to their collective obligation to pay Commission. In the event of such a sale, KRM could elect to take a lump sum payment from Classicbet or the third party purchaser, or to continue with the agreement. If it elected to continue with the agreement, the third party was to enter into a separate affiliate agreement under which it was to pay the Net Cash Share, a term which is not defined but which presumably refers to commission calculated as a percentage of the Net Cash generated by the third party from the "acquired" Affiliate Clients going forward. In that event, those Clients would cease to be Affiliate Clients under the APA, and become clients under the separate affiliate agreement. That would be so irrespective of whether they placed bets with one only of the three Classicbet entities. 22. In the case of a Change of Control of Classic or Best, KRM was granted an option either to "continue with this Agreement or have Classicbet 'buy out the tail' as set out in this clause 16.1" (cl 16.1.2). In the event that it elected to continue with the agreement, KRM remained entitled under cl 7 to Commission from Classicbet, including the same corporate entities although differently controlled, in perpetuity (cl 7.9). 23. If KRM elected "for the purchase of the Commissions payable" under the APA (cl 16.2), the lump sum to be paid under cl 16.1.4 was to be calculated by reference to a multiple derived from the price of the shares transferred or issued and resulting in the Change of Control. The greater of that multiple and a multiple of 5 was applied to historical commissions paid by Classicbet in the previous 12, or up to 24, months. The clause provided: ... then Classicbet must, within 20 business days of such exercise, pay to the Affiliate a lump sum payment equal to X times the greater of: (a) an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate in the period of 24 months immediately preceding the date that the option by the Affiliate is exercised (or if the option is exercised by the Affiliate before the Agreement has been in force for a period of less than 24 months, then an amount equal to 12 times the average monthly Commission paid by Classicbet to Affiliate during such period); or (b) an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate during the 12 months immediately preceding the date that the option is exercised by the Affiliate. 1. The amount thereby derived was required to be paid as a "lump sum" within 20 business days of the exercise of the option. The historical Commissions were those payable and paid under cl 7, and accordingly in respect of "all bets wagered by all Affiliate Clients using their Betting Accounts" (emphasis added). Upon the payment of that amount, KRM covenanted as follows (cl 16.2): the Affiliate must thereafter not solicit, canvass , poach or market and promote services (in relation to betting or wagering services) to any of the Affiliate Clients that contribute to and form part of the Commissions so purchased; if the lump sum payment is an amount of $5,000,000 or more, the Affiliate must not, and must ensure that Kevin Mccrohan must not, for a period of 3 years from the date that the lump sum payment is paid to the Affiliate, conduct (either alone or with another person or entity) a business as an affiliate with any other bookmaker in Australia without the prior written consent of Classicbet. 1. Thus, on the payment of the lump sum, each of the Classicbet entities secured both the release of the ongoing joint obligation to pay Commission as well as the benefit of one or both of the restrictive covenants. From that time, they were entitled jointly to the benefit of the customer connection of each of the Affiliate Clients. 2. This commercially sensible operation of cl 16 when Classicbet is construed "collectively" is to be contrasted with its application when construed distributively where two of the three entities have been engaged in betting activities at the time the option is exercised, and only one makes its "lump sum payment". At least two difficulties arise. First, does the non-paying entity get the benefit of a release from its ongoing obligation to pay Commission under cl 7 in respect of the common and any exclusive Affiliate Clients of that entity? The terms of the option conferred by cl 16.1.2 suggest that it is not intended the agreement "continue" at all after Classicbet buys out the tail. Secondly, how does KRM's covenant not to solicit or market and promote services to Affiliate Clients operate with respect to common Affiliate Clients, namely those who have conducted betting activities with both the paying and non-paying entities? That covenant is not qualified to exclude such clients, either generally or with respect to dealings with the non-paying entity. The result would appear to be that the non-paying entity would also secure the benefit of that covenant in respect of those common Affiliate Clients. Clause 16.2.2, which operates only where the amount of the "lump sum payment" equals or exceeds $5 million, raises further difficulties. Is that condition satisfied by the sum of the separate payments, or does each separately have to satisfy the condition? And if one entity satisfies the condition by its payment, does the other get the benefit of the covenant? Again it would seem so. All of these difficulties arise in relation to a construction of cl 16 which is inconsistent with the construction of the obligation to pay Commission that is the subject of the "purchase" brought about by cl 16. 3. The text, context and purpose of the APA make plain that the payment obligations under cll 7 and 16 are obligations of Classicbet "collectively", meaning Classic, Ryan Kay and Best. 4. Accordingly, in appeal 2020/6311 (Ryan Kay v KRM (Vic) Pty Ltd) I propose the following orders: 1. Appeal dismissed. 2. Order that the appellant pay the respondent's costs of the appeal. 1. I agree with the orders proposed by White JA in appeal 2020/12237. 2. GLEESON JA: As to the appeals of Classic and Best (2020/12237), I agree with the orders proposed by White JA, for the reasons his Honour gives. 3. As to the appeal of Ryan Kay (2020/6311), I agree with the orders proposed by Meagher JA, for the reasons his Honour gives. 4. WHITE JA: These appeals raise some intricate questions of construction of two commercial agreements. 5. In July 2017 a company called Classic Bet Pty Ltd was engaged in the business of providing on-line betting services. Mr Alexander Kay was the sole shareholder and director of Classic Bet Pty Ltd ("Classic"). 6. Bestbet.com.au Pty Ltd ("Best") engaged in a similar business. Alex's son, Mr Ryan Kay, was the sole director and shareholder of Best. 7. On 28 July 2017 Classic, Best and Ryan Kay entered into an agreement called an "Affiliation Program Agreement" ("APA") with KRM (Vic) Pty Ltd ("KRM"). 8. In that agreement the term "Classicbet" was defined to mean: "collectively and individually, as the case may be, Classic Bet Pty Ltd ACN 167 422 406, Ryan Kay and Bestbet.com.au Pty Ltd 607 108 645." 1. The APA provided for Classicbet to pay a commission to KRM to be calculated monthly as a percentage of the Net Cash received by Classicbet from New Clients or Lapsed Clients introduced by KRM. The Net Cash was the difference between bets placed by such clients and the winnings paid out to them. (Capitalised terms were defined.) 2. The rate of commission was generally 30 per cent but could be reduced to 25 per cent. Provided a New Client or a Lapsed Client introduced by KRM continued to bet and continued to lose money, KRM was entitled to its commission. 3. The APA contained a clause (cl 16.1) headed "Buy Out – Change of Control or Sale). The clause concerns KRM's rights if there were an actual or proposed Change of Control of Classic or Best or of the business of Classicbet. 4. In the case of a proposed or actual Change of Control of the business of Classicbet, Classicbet was required to give notice of the change to KRM who then had the option to commute its rights to future commissions for at least the equivalent of five times the historical average annual commission payable. KRM had the same right if there were an actual Change of Control of Classic or Best (as distinct from a Change of Control of their businesses). There is an issue (explained below) as to whether KRM had the same right if there were only a proposed, rather than an actual, change of control of Classic or Best. 5. Clause 16.1 of the APA provided: 1. In this clause 16.1, 'X' means the greater of:- (a) 5 times, and (b) (i) if clause 16.1.2 applies, then the multiple used by the Third Party to determine the price of the shares purchased by, or issued to, the Third Party or as the Third Party directs: (ii) if clause 16.1.5 applies, then the multiple used by the Third Party to determine the price of all or part of the Business purchased by the Third Party and/or nominee of the Third Party. 2. If, there is a Change of Control of Classicbet Pty Ltd or Bestbet.com.au Pty Ltd (or both) due to either or both:- (a) the purchase of issued shares in either of them by a third party (being a person or entity who as at the date of this Agreement is not a shareholder of Classicbet Pty Ltd and Bestbet.com.au Pty Ltd) ('Third Party'), other than for reconstruction or amalgamation as referred to in the definition of 'Change of Control' in clause 1; (b) the issue of further shares in either Classicbet Pty Ltd and Bestbet.com.au Pty Ltd Then Affiliate has the option to either continue with this Agreement or have Classicbet 'buy out the tail' as set out in this clause 16.1. 3. The option referred to in clause 16.1.2 shall be exercised as follows:- (a) Classicbet must give written notice to Affiliate ('Classicbet Notice') of the Change of Control or proposed Change of Control in Classicbet Pty Ltd and/or Bestbet.com.au Pty Ltd; (b) Within 14 days of the receipt by the Affiliate of the Classicbet Notice, the Affiliate may give written notice to Classicbet ('Affiliate Notice') that:- (i) Affiliate wishes Classicbet to pay to Affiliate the lump sum payment referred to and calculated in accordance with Clause 16.1.4; or (ii) Affiliate wishes to continue with this Agreement. 16.1 Buy Out – Change in Control or Sale If the Affiliate does not give written notice to Classicbet in response to the Classicbet Notice, then Affiliate shall be deemed to have exercised its option to be paid the lump sum referred to and calculated in accordance with clause 16.1.4. 4. If Affiliate exercises its option to be paid the lump sum payment or if the option to be paid the lump sum payment is deemed to be exercised in accordance with Clause 16.1.3(b) then Classicbet must, within 20 business days of such exercise, pay to the Affiliate a lump sum payment equal to X times the greater of: (a) an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate in the period of 24 months immediately preceding the date that the option by the Affiliate is exercised (or if the option is exercised by the Affiliate before the Agreement has been in force for a period of less than 24 months, then an amount equal to 12 times the average monthly Commission paid by Classicbet to Affiliate during such period); or (b) an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate during the 12 months immediately preceding the date that the option is exercised by the Affiliate. 5 (a) If Classicbet transfers, sells or assigns (collectively referred to as 'Sells', 'Sale' or 'Sold', as the case may be), or proposes to Sell all or any part of the Classicbet Business that includes any Affiliate Clients to a Third Party, Classicbet shall promptly:- (i) give a written notice to Affiliate of the Sale or proposed Sale ('Sale Notice'); (ii) within 14 days of the receipt by Affiliate of the Sale Notice, Affiliate may give written notice to Classicbet that:- (A) The Affiliate wishes Classicbet and/or Third Party to pay to Affiliate the lump sum payment referred to and calculated in accordance with Clause 16.1.5(b); or (B) The Affiliate wishes to continue with this Agreement. If the Affiliate agrees to continue with this Agreement, Classicbet must ensure that the transferee of the Classicbet Business acknowledges and agrees to take a transfer or assignment of this Agreement or enter into an agreement that is substantially the same as this Agreement in order for the transferee to continue to pay the Net Cash Share to the Affiliate. Alternatively, the transferee may make an offer to purchase the Affiliate's Clients outright which the Affiliate can accept or decline at its discretion. If the Affiliate does not give written notice to Classicbet in response to the Sale Notice, then Affiliate shall be deemed to have exercised its option to be paid the lump sum referred to and calculated in accordance with clause 16.1.5(b). (b) If Affiliate exercises its option to be paid the lump sum payment or if the option to be paid the lump sum payment is deemed to be exercised in accordance with Clause 16.1.5(a)(ii), then Classicbet must, and if appropriate must ensure that the Third Party must, pay to the Affiliate, contemporaneously with the completion of the Sale occurring, a lump sum payment equal to X times the greater of: (i) an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate in the period of 24 months immediately preceding the date that the option by the Affiliate is exercised (or if the option is exercised by the Affiliate before the Agreement has been in force for a period of less than 24 months, then an amount equal to 12 times the average monthly Commission paid by Classicbet to the Affiliate during such period); or (ii) an amount equal to 12 times the average monthly commission paid by Classicbet to the Affiliate during the 12 months immediately preceding the date that the option is exercised by the Affiliate. ... 1. On 23 March 2018 two agreements called Share Sale and Purchase Agreements ("SSPAs") were entered into. One was made between Classic, Alex Kay and Fantasy Sports Australia Pty Ltd (which later changed its name to Playup Australia Pty Ltd ("Playup")) and two other individuals as guarantors of Playup's obligations. The other agreement was made between Playup, Ryan Kay, Best, and the guarantors of Playup's obligations. The agreements were in materially identical terms. The Completion Date for the agreements was two business days after Playup received from the Northern Territory Racing Commission or Harness Racing (NSW) regulatory approval in writing to operate the Company's Business under Playup's existing NTRC bookmaker's licence or such other date as the parties might agree in writing. That approval was obtained on 17 May 2018 (Judgment [16(6)] and [80]). The Completion Date was 22 May 2018. 2. Ryan Kay was informed of that approval sometime between 18 and 22 May 2018 (Judgment [80]). 3. Clause 6.1 of the SSPAs provided: "The Seller agrees to satisfy and discharge in the proper time all liabilities of the Company and the Business incurred or accrued before and on the Completion Date and agrees to indemnify, and to keep indemnified, the Buyer with respect to all claims in relation to those pre Completion Date liabilities. 1. In the Classic SSPA the Seller was Alex Kay and the Company was Classic. In the Best SSPA the Seller was Ryan Kay and the Company was Best. The Buyer (Playup) was not a party to these proceedings. 2. Classic and Best submit that the obligation of the Seller under cl 6.1 was an obligation owed to them and not merely to Playup and that Alex and Ryan Kay were required to satisfy and discharge their liabilities to KRM under cl 16.1 of the APA, which, they say, were liabilities that had been incurred or accrued before the Completion Date. 3. Completion of the SSPAs did not occur on 22 May 2018. Completion occurred on 7 June 2018. Notwithstanding that the SSPAs provided that between the date of entry into the agreements (23 March 2018) and the Completion Date the Buyer and not the Seller was entitled to the benefit of all profits earned by the Business and would indemnify the Seller against all losses sustained in that period (cl 3.3), Classic and Best contend that Alex and Ryan Kay were obliged to them to discharge the liabilities to KRM that they say had been incurred or which had accrued to KRM prior to 22 May 2018. Classic and Best contend that those liabilities were incurred on entry into the APA. Alternatively, they say that emails sent by Ryan Kay to KRM on 11 and 26 April 2018 were written notices of a proposed change of control of those companies within the meaning of cl 16.1.3(a) of the APA and triggered a liability of each company to KRM to commute the companies' obligations to pay future commission by payment of a lump sum unless within 14 days KRM elected to continue with the Agreements. Classic and Best submit that this means that Alex and Ryan Kay were required to discharge their liabilities to KRM. 4. KRM disputes that the emails of 11 and 26 April 2018 were notices of proposed change of control within the meaning of cl 16.1 of the APA. It says that the only notice given under cl 16.1 of the APA was a notice of change of control given on 12 October 2018. 5. KRM insisted that Classicbet (Classic, Best and Ryan Kay) were required to provide notices that stated explicitly whether a change of control was proposed or had occurred and which provided information that KRM would require to make an informed election. It contended that the first time it received such a notice was on 12 October 2018 (after strongly pressing for it). That notice was sent by the solicitors for Playup. On 15 October 2018 KRM elected to commute its entitlement to commission. 6. Ryan Kay does not dispute that the notice of 12 October 2018 triggered KRM's right to elect to commute its rights to future commission. He says that on a proper construction of the APA he is not liable to pay any amount because he personally did not conduct the relevant business through which commissions were earned. He submits that the definition of Classicbet as meaning Classic, Best and himself "collectively and individually as the case may be" means that the obligation of Classicbet to pay a lump sum in commutation of KRM's right to future commission was imposed on Classic and Best which were the companies that conducted the businesses that triggered the right to future commissions. 7. Classic and Best do not dispute that they are liable to pay a commuted sum to KRM. As indicated above they say that the liability arose not after 12 October 2018, but after 11 or 26 April 2018 when, they say, notice of a proposed change of control was given and KRM did not elect to continue with its agreement. Classic and Best submit that KRM's entitlement to commuted sums should be calculated from an earlier date, 14 days after 11 or 26 April 2018. This would mean that KRM was not entitled to commission from such dates until October 2018. Classic and Best do not dispute that if this argument is unsuccessful, they are liable to pay KRM the commuted amount of the commission as found by the primary judge. They supported the primary judge's finding that Ryan Kay was also liable for that amount. 8. The primary judge entered judgment against Classic, Best and Ryan Kay for $3,684,690.98 plus costs. His Honour declared that each of the defendants was entitled to equitable contribution in respect of that judgment and costs order. Classic's and Best's cross-claims against Ryan and Alex Kay were dismissed (Judgment [97]). A third cross-claim brought by Classic and Best against KRM was also dismissed (Judgment [95]). 9. Two appeals were brought from the orders of the primary judge. Ryan Kay appealed against the order that he was liable under cl 16.1 of the APA to pay a lump sum payable by Classicbet. Ryan Kay contended that the primary judge ought to have held that the expression "collectively and individually, as the case may be" did not mean "jointly and severally", and that he did not have any liability to pay any sum to KRM under cl 16.1 of the APA to "buy out the tail". 10. Classic and Best appealed against the orders against them in favour of KRM to the extent they were based on KRM's entitlement to payment under cl 16.1 of the APA arising only after 12 October 2016. They also appealed against the dismissal of their cross-claims against Ryan and Alex Kay. 11. For the reasons which follow Ryan Kay's appeal should be allowed and Classic's and Best's appeals should be dismissed. Ryan Kay's appeal 1. Although not expressly named as such, it was common ground that the "Affiliate" under the APA was KRM. "Affiliate" was defined to mean "the individual or entity who agrees to introduce Affiliate Clients" on the terms and conditions of the agreement. It was common ground that KRM was that entity. 2. The APA included the following definitions. "Affiliate Client means a New Client or a Lapsed Client who is introduced to Classicbet by the Affiliate or its Associates or its Sub Affiliates, and includes prospective clients who are introduced to Classicbet by any New Client or Lapsed Client, who opens, or where appropriate reactivates, an account for betting purposes with Classicbet. Betting Account means the betting account registered to any Affiliate Client with Classicbet. Classicbet means collectively and individually, as the case may be, Classicbet Pty Ltd ACN 167 422 406, Ryan Kay and Bestbet.com.au Pty Ltd ACN 607 108 645. Classicbet Business means the gaming business of Classicbet in accepting bets for purposes permitted under the Licence. Classicbet Website means www.classicbet.com.au or www.bestbet.com.au or both, as the case may be. Debt means any monies owed by an Affiliate Client to Classicbet as a result of wagering activity using the Betting Account of the Affiliate Client. Licence means collectively and individually, as the case may be:- - the Bookmakers Licence no. 1 issued to Classicbet Pty Ltd by Harness Racing NSW - the Bookmakers Licence issued to Ryan Kay by Greyhound Racing NSW." 1. Clause 4 provided: 1 Classicbet appoints the Affiliate as an affiliate to: (a) advertise, market and promote the Classicbet Website and 4. Appointment of Affiliate (b) introduce to Classicbet:- (i) New Clients; and (ii) Lapsed Clients, 2 Subject to clause 16.3 and provided that the Affiliate Client is not at the relevant time an Affiliate Debt Client, nothing in this Agreement prevents the Affiliate from marketing to any client, including an Affiliate Client, or from encouraging any Affiliate Client from doing business or placing bets with any other person, including a competitor of Classicbet. 1. There was no clause 16.3 and it is clear that the reference should have been to cl 16.2 set out below: If Classicbet (and/or the Third Party, if applicable)pays the lump sum payment to the Affillate pursuant to clause 16.1of this Agreement for the purchase of the Commissions payable to the Affiliate under this Agreement:- 16.2 Buy Out­ Ownership of Affiliate Clients & Restrictive Covenant 1. the Affiliate must thereafter not solicit, canvass , poach or market and promote services (in relation to betting or wagering services) to any of the Affiliate Clients that contribute to and form part of the Commissions so purchased; 2. if the lump sum payment is an amount of $5,000,000 or more, the Affiliate must not, and must ensure that Kevin Mccrohan must not, for a period of 3 years from the date that the lump sum payment is paid to the Affiliate, conduct (either alone or with another person or entity) a business as an affiliate with any other bookmaker in Australia without the prior written consent of Classicbet. 1. Clause 5.1 required the Affiliate to use reasonable efforts to advertise, market and promote Classicbet. 2. Clause 5.3 required the Affiliate to notify Classicbet as soon as practical of any New Client's intention to register a Betting Account with Classicbet prior to the New Client commencing any betting with Classicbet. It was also required to notify Classicbet of any Lapsed Client's intention to assume betting through the Lapsed Client's Betting Account. "Betting Account" meant the betting account registered to any Affiliate Client with Classicbet. 3. The obligations of Classicbet in clause 6.1 included: 1. ... ... (e) Diligently, and promptly upon receipt of notices from the Affiliate received in accordance with Clause 5: (i) Open Betting Accounts for New Clients, provided the Affiliate has provided Classicbet with all information and documents necessary to lawfully open a Betting Account; 6. Classicbet Obligations (ii) To the extent necessary, reactivate the Betting Account of any Lapsed Client; and (iii) Commence monitoring wagering activity of each Affiliate Client for the purposes of generating accurate Statements listed in Clause 7.1 below. ... (g) Provide quality, professional services to Affiliate Clients. ... (i) Comply with all laws, regulations and its License conditions in relation to its affiliate arrangement with the Affiliate pursuant to this Agreement and specifically, without limitation, when creating accounts for Affiliate Clients. 1. Classicbet was obliged to pay commission. Clause 7.1 provided: 1. Classicbet will within seven (7) days after the end of each calendar month, provide the Affiliate, in respect of each Affiliate Client introduced by the Affiliate: (a) A Reconciliation Statement; 7. Commission (b) A Net Cash Statement; (c) A Commission Statement; (d) A Turnover Statement; and (e) A Turnover Profit Percentage Statement. (Blue 574) 1. A "Reconciliation Statement" was defined to mean "a Classicbet-generated statement of all betting activities by each Affiliate Client for a calendar month." 2. A "Net Cash Statement" was defined as a Classicbet-generated statement of the Net Cash for each Affiliate Client each calendar month. Net Cash was an amount equal to all moneys paid by an Affiliate Client (or on their behalf) into the Affiliate Client's Betting Account during a calendar month, less any payments out of the Betting Account as winnings or refunds or otherwise. 3. A Commission Statement meant a Classicbet-generated statement of the Commission payable to the Affiliate for each Affiliate Client each calendar month. A Turnover Statement meant a Classicbet-generated statement of the turnover for each Affiliate Client for each calendar month. Turnover meant the total monthly amount in dollars of all bets wagered by all Affiliate Clients using their Betting Accounts. 4. A Turnover Profit Percentage Statement meant a Classicbet-generated statement of the Turnover Profit Percentage for each Affiliate Client for each calendar month. Turnover Profit Percentage meant the Net Cash in a calendar month divided by Turnover. The agreement provided an example that if in a calendar month Net Cash was $20,000 and Turnover was $200,000, then Turnover Profit Percentage for such calendar month was 10 per cent. 5. Standard Commission was 30 per cent of the Net Cash exclusive of GST calculated on a calendar monthly basis. Reduced Commission was 25 per cent share of Net Cash exclusive of GST calculated on a calendar monthly basis. 6. The Target Turnover Profit Percentage was seven per cent. 7. Under cl 7.2 Classicbet was obliged to pay the Standard Commission to KRM up to 31 December 2017. From 1 January 2018 KRM was entitled to Standard Commission if Turnover Profit was at least seven per cent. If in any month Turnover Profit was less than seven per cent, then the commission payable was the Reduced Commission in that month. But if the Turnover Profit calculated over a calendar year was more than seven per cent, then there would be a retrospective adjustment of the commission payable for those months when the Turnover Profit had been calculated at a reduced rate. Clause 7.2 illustrated the operation of the clause by an example upon which counsel for KRM relied, which was as follows: "For purposes of clarity and by way of example only:- ● Assume that the Relevant Year is the calendar year 1 January 2018 to 31 December 2018; ● By 7 January 2019, Classicbet will deliver to the Affiliate a Turnover Statement and a Turnover Profit Percentage Statement for the whole of 2018; ● The Turnopver Profit Percentage for the whole of 2018 is 8.5% and therefore it is greater than the Target Turnover Profit Percentage; ● During 2018, the Affiliate did not achieve the Target Turnover Profit Percentage in May 2018 and in September 2018 so for those two months, Classicbet paid to the Affiliate the Reduced Commission of 25% of Net Cash for each such month namely;:- - $10,000 (example) plus GST in May 2018 (assume that the Net Cash for May 2018 is $40,000, so 25% of $40,000), and - [$]20,000 (example) plus GST in September 2018 (assume that the Net Cash for [September] 2018 is $80,000, 25% of $80,000) ● The amount of the commission for May 2018 and for September 2018 at the Standard Rate of 30% of Net Cash for each such month would have been:- - $12,000 plus GST in May [2018], being 30% of $40,000, and - $24,000 plus GST in September 2018, being 30% of $80,000 ● The difference in the Commission for each month is therefore $2,000 for May 2018 and $4,000 plus GST for September 2018, making a total of $6,000 plus GST; ● Classicbet will pay to the Affiliate amount [of] $6,000 plus GST by 30 January 2019." 1. Clause 7.9(b) provided: "Upon the termination (for whatever reason) or expiry of this Agreement:- ... (b) Classicbet must continue to pay to the Affiliate the Commission per calendar month for each calendar month after such termination for each Affiliate Client in perpetuity in accordance with this clause 7." 1. The critical clause is cl 16.1 which was headed "Buy Out – Change in Control or Sale" (at [41] above). (The APA did not contain a term that the heading could not be used to construe the Agreement.) 2. Change of Control was defined as follows: "Change of Control occurs, in respect of an entity when: (a) a person who did not have Control of the entity at the date of this Agreement acquires Control of the entity; or (b) a person who did have Control of the entity at the date of this Agreement ceases to have Control of the entity, but does not include a change due to an amalgamation or reconstruction of the shareholding of the entity as at the date of this Agreement involving an Associated Entity of the shareholder as at that date." 1. "Control" was defined as having: "the meaning given in the Corporations Act 2001 (Cth)." 1. The Corporations Act 2001 (Cth) defines "Control" as: (1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies. (2) In determining whether the first entity has this capacity: (a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and (b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust). (3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies. (4) If the first entity: (a) has the capacity to influence decisions about the second entity's financial and operating policies; and (b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members; the first entity is taken not to control the second entity. 1. In the present case there was a Change of Control of Classic and Best that it was agreed occurred on 7 June 2018. There was not a sale of the Classicbet Business to attract the operation of cl 16.1.5. Instead, cll 16.1.2 and 16.1.3 were engaged. On the giving of written notice by Classicbet under cl 16.1.3(a), KRM had the option of either continuing the agreement or taking a lump sum payment to be calculated in accordance with cl 16.1.4. In terms of cl 16.1.2 KRM elected to "buy out the tail". Under cl 16.1.4 it was entitled to a payment of at least five times the amount equal to 12 times the average monthly commission. 2. Ryan Kay did not dispute that that option was available whether there was a Change of Control of either Classic or Best. If there were a Change of Control of either company then KRM had the option to be paid a lump sum in respect of 60 times the average monthly commission earned by both Classic and Best. Although not explained, I assume that this concession was based upon cl 16.1.2 that gave KRM the option to either continue with the Agreement or have Classicbet buy out the tail if there were a Change of Control of either Classic or Best. Under cl 16.1.3 if KRM elected to be paid a lump sum payment to be calculated in accordance with cl 16.1.4, then the payment was to be calculated on the average monthly Commission that had been paid by Classicbet, being a reference to both companies that paid Commission. 3. The primary judge accepted the submission of KRM that in the definition of "Classicbet" the phrase "collectively and individually, as the case may be", meant "jointly and severally liable, as the case may be". His Honour said: "48 Mr Clarke [Counsel for KRM] submits that: (1) The phrase 'collectively and individually liable, as the case may be' is akin to 'jointly and severally liable, as the case may be'. The use of these words does not relieve any of the three parties from obligations for performance under the APA but, rather, indicates that there may be obligations which each would have individually, such as providing net cash statements. (2) The construction of the clause should not be undertaken with reference to how the parties conducted themselves under the contract: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603. The argument whether Bestbet and Mr Kay received any commissions is irrelevant. (3) Clause 16.1 specifically distinguishes between Classicbet and Bestbet on the one hand and 'Classicbet', as defined, on the other. It enables, for example, KRM to elect to terminate the APA even if it is only one of Classicbet and Bestbet that is the subject of a change of control. 'Classicbet["] is used on many occasions in the contract but in two provisions a distinction is drawn: Ryan is specifically mentioned in cl 1 in the definition of 'Licence', and the definition of 'Classicbet Website' includes both Classicbet and Bestbet. (4) There is nothing surprising in Ryan being liable for the amount that Classicbet and Bestbet were required to pay under cl 16.1.4. (5) Ryan is not a surety for the obligations of Classicbet and Bestbet. 49 I accept Mr Clarke's submissions at [48](1)-(5) above. It does not assist Ryan to establish that he is individually liable to pay the lump sum as opposed to collectively liable with Bestbet and Classicbet. If Classicbet or Bestbet had paid the lump sum then Ryan would not have had to pay any further amount to KRM (although there may then have been an issue of contribution as between Classicbet/Bestbet and Ryan). ... 51 In my view, because cl 16.1 permitted KRM to terminate the APA whether or not control had changed in Bestbet if it had changed in Classicbet (and vice versa), the distinction used between 'Classicbet' and Classicbet and Bestbet in the same clause, and the fact that the clause is dealing with an option to bring the APA to an end with a consequential requirement for money to be paid to it, cl 16.1, properly construed, makes all of Classicbet, Bestbet and Ryan jointly and severally liable to pay the lump sum if KRM elects to terminate. Ryan was the owner of Bestbet and was later to receive $1.6 million in the sale of Bestbet to Playup – it does not seem to me to be surprising that he would be liable to pay his share of the lump sum whether or not he had conducted a betting business in his own name for KRM introduced clients. KRM had no control over how Classicbet, Bestbet or Ryan dealt with referrals. On the 'contra proferentem issue' there is no evidence as to who prepared the APA or this particular provision, and nor do I think there is any ambiguity in the clause, but even assuming that KRM was responsible for the wording, I do not think the true effect of the clause is to make Ryan a surety – rather, he was to be jointly liable for a payment due to be made to KRM. In any event, cl 2(m) of the APA provides: 'No provision of this Agreement will be construed adversely to a party solely on the ground that the party was responsible for the preparation of this agreement or that provision…'" 1. KRM submitted that the words "as the case may be" were apt to refer to the imposing of obligations on all of Classic, Best and Ryan Kay and each of them. That is, when the phrase "collectively and individually" is read giving meaning to "and", the reference to Classicbet was to the three entities considered separately and as a group. 2. KRM submitted that the obligation to pay commission was imposed on all of the entities making up Classicbet collectively. It submitted that on reading the definition of Classicbet into cl 7 (dealing with payment of commission) there was a promise by Classic, Ryan Kay and Best "collectively and individually, as the case may be" to pay commission depending upon the amount of Net Cash, being the difference between the moneys paid by an Affiliate Client into a Betting Account of any of the entities in Classicbet, less winnings or refunds, being a Betting Account held by any of the individual entities that were registered to an Affiliate Client. 3. KRM pointed to the fact that under cl 7.1 Classicbet was to provide at the end of each month to KRM in respect of each Affiliate Client "A reconciliation statement", "A Net Cash statement", "A Commission statement", "A Turnover Statement", and "A Turnover Profit Percentage statement". The example quoted above (at [70]) in cl 7.2 for the calculation of submissions refers to the delivery by Classicbet of "a Turnover Statement" and "a Turnover Profit Statement". 4. However, cl 2(a) provides that words importing the singular include the plural. Clauses 7.1 and 7.2 could equally be read as saying that Classicbet will provide the Affiliate in respect of each Affiliate Client, Reconciliation Statements, Net Cash Statements, Commission Statements, Turnover Statements, and Turnover Profit Percentage Statements. The example in cl 7.2 can also be read as saying that Classicbet will deliver to the Affiliate Turnover Statements and Turnover Profit Percentage Statements. 5. Ryan Kay submitted that the better construction is that the ordinary and natural meaning of the expression "as the case may be" is that either of two things, or one or two of three things, may be true, depending upon the actual situation. He cited McDonald v Hanselmann (1998) 28 ACSR 49; [1998] NSWSC 171 where Young J (as his Honour then was) said (at 52): "The expression 'as the case may be' has been analysed in the authorities on a few occasions. In Bluston & Bramley Ltd v Leigh [1950] 2 KB 548 at 557, Morris J said that the construction of these words is by no means easy. However, in most situations the words will have the effect of meaning whichever alternative is applicable: see eg, Hooker v Foster 1 SW (2d) 276 (1928) (Texas, US)." 1. In Hooker v Foster 1 SW (2d) 276 (1928) (Texas, US) the statute provided that where there was a contest concerning the validity of an election, then: "... the county attorney of the county, or if there is no county attorney, the district attorney of the district, or the mayor of the city, town or village, or the officer who declared the official result of said election, or one of them, as the case may be, shall be made the contestee ...". It was held that this provision meant that the appropriate contestee depended upon the nature of the contest, that is, whether it was held in any county or part of a county or precinct of a county or in any incorporated city, town or village and contemplated that the appropriate contestee should be the one peculiarly concerned with the proceeding. "The language of article 3070 'as the case may be' can have no other significance". 1. Ryan Kay submits that this is the appropriate meaning of the words "as the case may be" in the definition of Classicbet. That is to say, the word "Classicbet" refers to either Classic, Best, or him, or some or all of them, depending upon what is appropriate for the provision concerned. 2. Ryan Kay did not himself carry on any business. Instead, he was the director of Best and Best carried on a business. (This court was not referred to any evidence as to whether the fact that Ryan Kay did not carry on business in his own right was known to all of the parties to the Agreement.) 3. The relevant words are "collectively and individually, as the case may be", not "collectively or individually, as the case may be". But the words "as the case may be" necessarily connote a choice between alternatives. Literally, the phrase "collectively and individually" refers to only one condition and allows no choice. But that would be to give the words "as the case may be" no work to do. 4. The construction contended for by Ryan Kay is to be preferred. As Mr Walker SC, who appeared with Mr Kabilafkas for Ryan Kay, submitted, the references to "Classicbet" in other parts of the Agreement show that such a differential application as contended for should be adopted. Thus "Betting Account" was defined to mean the Betting Account registered to any Affiliate Client with Classicbet. A single client would not have a single betting account registered with all three entities. 5. It is clear from the text of the APA that it was understood that at least Classic and Best conducted separate businesses. The definition of Classicbet Website referred to two separate website addresses: one for Classic and one for Best. Classic held a separate licence from the licence held by Ryan Kay. This was a known fact. 6. Mr Di Natale who was a business consultant and adviser retained by Mr Kevin McCrohan, the director of KRM, deposed that Ryan Kay and Alex Kay had "established the betting agencies known as 'Classicbet' and 'Bestbet'". 7. Mr Walker submitted that a single bet could not be placed under more than one licence. That is to say, a single bet could not be placed with more than one entity. I agree. In the definitions of Betting Account and Classicbet Business and Debt the reference to Classicbet must be to whichever is the entity with which the Affiliate Client placed bets. The obligation on Classicbet to monitor the wagering activity of each Affiliate Client so as to be able to generate accurate statements listed in cl 7.1 (cl 6.1(e)(iii)) would also have to be the obligation of the particular entity with which wagering activity was conducted by an Affiliate Client. 8. Ryan Kay submitted that cll 4 and 5, providing for the appointment of KRM to introduce New Clients and Lapsed Clients to Classicbet, encompassed the introduction of such clients to one of the entities conducting a business. Classicbet's obligation under cl 6.1(e)(i) to open Betting Accounts for New Clients could only be performed by the entity with whom the New Client sought to open the account. The comprehensive reporting that Classicbet was required to provide under cl 6.2 in respect of Affiliate Clients' activity including details of all betting , betting results etc, could only be performed by the individual entity with whom the Affiliate Client opened an account. 9. Clause 8 provided that if GST were payable on a taxable supply made under the Agreement (viz. the services provided by KRM) "the party providing the consideration for that taxable supply must also pay the amount of the GST payable in respect of it". Taxable supply made by KRM, being the introduction of new or lapsed clients, would be provided to the individual entity with whom such a client opened a betting account. Clause 8.3 provided that "provision of consideration under this Agreement is not required until the Affiliate has provided a Tax Invoice or Adjustment Note as the case may be to Classicbet." The reference there to Classicbet must be to the individual entity to whom the taxable supply was made by KRM. Clause 8.5 provided that: "5. For the purpose of satisfying the requirements of the GST Law and any additional requirements as determined by the Commissioner of Taxation from time to time, Classicbet and the Affiliate agree that: (a) Classicbet may issue a Recipient Created Tax Invoice in respect of any Specified Supply by the Affiliate to Classicbet under this Agreement; ..." Again, the reference to Classicbet was to the individual entity to whom the supply was made. 1. Clause 9 contained a warranty by Classicbet that "it is the sole owner of all intellectual property in all matters supplied by Classicbet and used by KRM in connection with the promotion of Classicbet to potential or actual Affiliate Clients." That warranty must have been given by the individual entity that owned the intellectual property. 2. Turning then to cl 16.1, Ryan Kay submits that the obligation of Classicbet to pay a lump sum in commutation of KRM's right to future commission payments should be understood as the obligation of each of Classic and Best to pay a lump sum calculated by reference to each party's average monthly commissions. Because Ryan Kay did not have any Affiliate Clients and was not required to pay commission he was not liable to pay the lump sums that were payable by Classic and Best. 3. Classic and Best did not dispute that they were both liable for a single judgment sum calculated under cl 16.1.4. They said that Ryan Kay was also liable for that single judgment sum. As noted above, they said that the sum should be recalculated on the basis that cl 16.1.2 and 16.1.3 had been triggered in April 2018, not in October 2018. But if that argument were unsuccessful, they did not challenge the judgment entered against both of them calculated on the commissions payable by both of them, rather than that there should be separate judgments calculated in respect of the commissions that had been paid by each of them. 4. The fact that Classic and Best took this stance, for good forensic reasons, does not preclude Ryan Kay's contending to the contrary. 5. The primary judge's orders included an order that Classic, Best and Ryan Kay were entitled to equitable contribution in respect of the judgment and costs orders that were made against all of them. [1] 6. Although the matter is not free from doubt, the better construction is that the words "collectively and individually, as the case may be" do not mean "jointly and severally". They mean "individually or collectively as appropriate". Ryan Kay's appeal should be allowed. 7. Ryan Kay advanced a further argument that the primary judge erred in not granting him leave to amend his defence to plead that KRM was not entitled to have elected on 15 October 2018 that KRM was not entitled to exercise its option to commute its future entitlement to commission because it had elected "to ... continue with" the APA after having become aware of the change of control on 8 June 2018 and thereafter issuing tax invoices for continuing commission. 8. This ground was only faintly pressed on appeal. It was rejected by the primary judge on the basis that amendments proposed on the first day of the hearing (which were not confined to the amendment now in question) would, if allowed, have led to an adjournment of the hearing to allow KRM to consider and perhaps to adduce further evidence in relation to the amendments proposed. 9. A further basis for disallowing the amendments would be that KRM's election under cl 16.1.3 arose only after the service of the requisite written notice under cl 16.1.3 and not merely after KRM's being on notice that a change of control had occurred. KRM had sought to insist (to no avail) that it be given a notice under cl 16.1.3. Had the proposed amendment been allowed, perhaps on the basis that it was arguable that its election arose not merely on the provision of a written notice under cl 16.1.3, but its being on notice that a change of control had occurred, then a factual issue would have arisen as to whether it was open to Ryan Kay to take the point that KRM had elected to continue with the agreement when KRM had been pressing for the provision of a formal notice under cl 16.1 that had not been provided. But the short answer is that no election arose until written notice under cl 16.1.3 was provided. Inevitably, this point was conceded on the hearing of the appeal. Classic and Best's appeal 1. Clause 6.1 of the SSPAs has been quoted above at [44]. The primary judge held that the promise in cl 6.1 that the Seller would satisfy and discharge liabilities of the Company incurred or accrued before the Completion Date was not a promise made to Classic and Best, but to the Buyer. The primary judge also held that the liability of Classic and Best to pay the lump sum payment under cl 16.1 of the APA had not been incurred or accrued by the Completion Date. 2. Both conclusions were correct. 3. As to the first finding, the primary judge said (at [64]-[65]): "64 Mr McInerney [counsel for Ryan and Alex Kay] submits (at KCS 106) that the fact that any undischarged liabilities of Classicbet are to be deducted on Completion by way of the 'adjustment' mechanism in cl 6.11 (between Playup as Buyer and Alex/Ryan as Sellers) indicates that the first promise in cl 6.1 is made to Playup not to Classicbet. I accept this submission. Clause 6.1 is a single sentence and, although it contains two distinct promises (the second of which, Mr Pike [counsel for Classic and Best] and Mr McInerney agree, is made to Playup), it does not read as though they were made to two different parties. Whilst the first promise in cl 6.1 is not explicitly phrased in terms of 'the Seller will ensure that the Company satisfies and discharges its liabilities', the context indicates that cl 6.1 is intended to operate in such a manner. I cannot accept that the first promise in cl 6.1 should be understood as a promise by the Kays to Classicbet and Bestbet to personally pay Classicbet and Bestbet's pre-Completion Date liabilities out of their own pockets without recourse to Company resources. Such an interpretation is inconsistent with the arrangements countenanced in the other sections quoted at [61] above, such as 6.7 (in relation to the Company's outstanding liabilities to employees, which the clause expressly provides are to be paid out of Company resources), and the adjustment clause in 6.11, which envisages the money for any outstanding liabilities needing to be 'in the Company's bank account' on Completion. 65 When cl 6.11 is construed together with cls 6.3, 6.7, 6.8 and 7.3, the context makes it clear that the first promise in 6.1 is part of a multilayered promise by the Kays to Playup rather than to the Company, designed to shield Playup from pre-Completion Date liabilities. The first layer is a promise to Playup as the Buyer that the Seller will discharge the Company's pre-Completion Date liabilities, the second layer being the promise to permit offset of any undischarged liabilities through the adjustment mechanism in cl 6.11, and the third layer being the indemnity. Contrary to the suggestion in Mr Pike's submissions that Playup is adequately protected by the indemnity, in my view all three layers of protection make commercial sense for Playup as they each shield Playup from loss in slightly different ways. The first promise to Playup contractually requires the Kays to take action to ensure the Company's existing liabilities are paid before the Completion Date. The adjustment mechanism provides a practical means of enforcing that obligation in the event that the Kays fail to discharge the promise to Playup, but the adjustment is not in itself a complete shield because the pre-Completion Date liabilities could potentially amount to more than the contract price, which is why the indemnity is commercially necessary as a further layer of protection." 1. Here, the primary judge observed that Classic's and Best's contention was inconsistent with other provisions of cl 6. These are referred to below. 2. A particular feature of each SSPA was that cl 3.3 provided that all profits and losses of the corporate bookmaking business of each company was to the account of the Buyer from the date of exchange. Clause 3.3 provided: "The Buyer shall be entitled to the benefit of all profit earned by the Business from the date hereof until the earlier of either the Completion Date or termination. The Buyer shall be liable for and shall indemnify the Seller from and against all losses sustained by the Business from the date hereof until the earlier of either the Completion Date or termination of this Agreement." 1. The parties were agreed that, notwithstanding this clause, the Change of Control of Classic and Best for the purposes of cl 16.1 of the APA did not occur until completion on 7 June 2018. 2. Consistently with cl 3.3, the Buyer was required to pay to the Seller, unconditionally, a non-refundable payment of $2,450,000 in the case of Alex Kay (referable to Classic) and $1 million in the case of Ryan Kay (referable to Best) (cl 4.2). In the case of Classic, the Buyer was required to pay the Seller $100,000 on completion (this being described as the "Balance Completion amount") (cl 4.3). In the case of Best, the amount payable on Completion was nil. There were however in each case deferred payments to be payable by equal monthly instalments for two years of $75,000 per month in the case of Classic and $25,000 per month in the case of Best (cl 4.3). 3. Clause 5.1 provided that Completion should take place on the Completion Date. Completion Date meant two business days after the Buyer received from the Northern Territory Racing Commission regulatory approval in writing to operate the Company's Business under the Buyer's existing NTRC bookmaker's licence. The NTRC approval was granted on 17 May 2018 (Judgment [16(6)] and [80]). It was agreed that the Completion Date was 22 May 2018. 4. Clause 6 of the SSPAs is headed "Liabilities and Debtors on Completion". But under the SSPA (in contrast to the APA) the headings are inserted for convenience only and do not affect the interpretation of the Agreement (cl 1.2.6). 5. Clause 6.1 has been quoted above at [44]. It is convenient to repeat that clause in the context of the balance of cl 6. Omitting its heading, cl 6 provided: "6.1 The Seller agrees to satisfy and discharge in the proper time all liabilities of the Company and the Business incurred or accrued before and on the Completion Date and agrees to indemnify, and to keep indemnified, the Buyer with respect to all claims in relation to those pre-Completion Date liabilities. 6.2 The Buyer will be solely responsible to all creditors of the Business for debts and liabilities incurred by the Buyer from and after the Completion Date and agrees to indemnify, and to keep indemnified, the Seller against all claims, actions, suits and demands in relation to those debts and liabilities. 6.3 On Completion, the Seller must ensure that all money accrued up to the Completion Date, but not paid, in respect to liabilities (including but not limited to payments to creditors; client funds balance, statutory liabilities, GST, PAYG, payroll tax) will be adjusted on the Completion Date. 6.4 It is agreed, that the aggregate amount of the debtors of the Company, have been taken into account in determining the Purchase Price for the Sale Share. 6.5 The Seller must give the Buyer notice of all the debtors that the Seller considers are recoverable in respect of the Business at Completion, including details of: 6.5.1 the name and address of the debtor; 6.5.2 the amount payable; and 6.5.3 the date the debt becomes payable. 6.6 The Buyer will take over all debtors. 6.7 Without limiting any other provision of this agreement, the Seller will ensure that, by Completion, the Company will have settled all outstanding liability for employee entitlements, unpaid wages, salary, remuneration, superannuation contributions, compensation and benefits; redundancy or termination payments and all other outstanding employee entitlements of any nature (if any) by either direct payment to the particular Employee on or before Completion or by adjustment to the Completion Amount. 6.8 Employee entitlements will be allowed for as follows: 6.8.1 100% of leave entitlements calculated in accordance with the relevant rate, including loading where paid by the Seller. 6.8.2 Pro-rata long service leave entitlements calculated in accordance with the relevant rate for employees with over five (5) years' service. 6.8.3 Pro-rata entitlements to wages and superannuation for the period between their last payment date and the Date of Completion. The Seller indemnifies the Buyer in respect to all liabilities incurred by the Buyer or the Company with respect to any unpaid Superannuation; entitlements or other claims made by any former employee or Employee or action taken by a Government Agency in connection with any employee of the Company in respect to the period before the Completion Date. 6.9 The Seller agrees to ensure that, by Completion, all player funds required to be held by the Company in an account separate to its Business accounts, is held in an account in the name of the Company separate to its Business bank accounts. 6.10 The parties irrevocably agree that: 6.10.1 All and any monies held in the TAB account and any bookmaker accounts are hereby expressly excluded from this agreement and shall be retained by the Seller. 6.10.2 The Buyer shall pay the balance of the TAB account to the Seller on the Completion Date. 6.11 It is agreed, that if the money for any liabilities of the Company and the Business and the Player Funds (and any other matter contemplated under this agreement) are not in the Company's bank account on Completion, the amount attributed to such matters will be adjusted on Completion, from the Completion Amount. 6.12 for the purposes of the cash balance of the Company's bank account at Completion, the cash balance will be equivalent to the balance of all client accounts with a credit balance. Any surplus cash amount in the bank account over and above that Client account credit balance at Completion shall be [sic] remain at all times the property of the Seller and shall be retained by the Seller. 6.13 Following Completion, the parties will use their best endeavours to obtain all of the Required Consents under the change of control provisions in the Material Contracts." 1. By cl 5.2 the Seller and the Buyer undertook to meet their obligations of Completion as set out in sch 9. Relevantly, in sch 9, it was agreed that at Completion the Seller must deliver to the Buyer an updated list of all liabilities owing at the date of Completion. 2. By cl 7.3 the Sellers provided the following indemnity: "Subject to Completion, the Seller indemnifies the Buyer in respect of all damages, costs, losses and liabilities whatsoever suffered or incurred by the Buyer after Completion as a consequence of: 7.3.1 The breach of any of the Seller Warranties; 7.3.2 Failure by the Seller ot discharge all debts due and payable by the Company, which were incurred prior to Completion. ..." 1. Clauses 6.3 and 6.11 elucidate whether the promise made by the Seller in cl 6.1 was made only to the Buyer or whether it was also made to the Company. The effect of cll 6.3 and 6.11 was that if a liability that had been incurred and was payable on or before the Completion Date (that being the effect of the words "all money accrued up to the Completion Date, but not paid"), unless money for the payment of such liabilities had been paid into the Company's bank account on Completion, the amount "attributed to such matters" (that is, the amount payable) would be adjusted on Completion from the Completion Amount. The Completion Amount was defined in the Classic SSPA as: "Completion Amount means the amount of $2,559,000 less or plus any Adjustment, payable as follows: (i) a non-refundable payment of $2,450,000 on the date hereof; and (ii) a further payment on Completion of $100,000 subject to any adjustment pursuant to clause 6.11." 1. In the Best SSPA it was defined as: "Completion Amount means the amount of $1,000,000 less or plus any Adjustment, payable as follows: (i) a non-refundable payment of $1,000,000 on the date hereof; and (ii) a further payment on Completion of $Nil subject to any adjustment pursuant to clause 6.11." 1. The adjustment could result in a negative amount representing a debt owed by the Seller to the Buyer. 2. In the light of cll 6.3 and 6.11, cl 6.1 can readily be construed as a promise made by the Seller to the Buyer that the Seller would discharge "in the proper time" liabilities that had been incurred (or accrued) before the Completion Date. This is in conformity with (and would be accommodated by) an adjustment of the Completion Amount for liabilities that were payable but had not been paid, or for which money had not been provided in the Company's bank account to make the payment. It would not be a commercially sensible construction of the provisions that a liability that had been incurred and which was payable, and for the satisfaction of which moneys had not been paid into the Company's bank account, would both be adjusted as between Buyer and Seller, and that the Seller would be liable to the Company to discharge that liability. 3. I agree with the primary judge's reasons at [64] and [65] quoted above. 4. I also agree with the primary judge's conclusion that as at the Completion Date (or for that matter as at Completion), the Company had not incurred a liability to KRM to pay a lump sum, on the bases on which that contention was advanced below and on appeal. If such a liability had not been incurred, it would not have accrued. 5. Both below and on appeal Classic and Best submitted that Classic and Best had incurred liabilities within the meaning of cl 6.1 either on entering into the APA, or because Ryan Kay on behalf of both Classic and Best had given written notice of a proposed change of control of Classic and Best by emails sent by him on 11 April and 26 April 2018. 6. Neither before the primary judge (Judgment [53]), nor on appeal, did Classic and Best submit that a liability to KRM for the lump sum payment under cl 16.1 of the APA had been incurred on entry into the SSPAs on 23 March 2018. 7. Classic and Best submitted that they were exposed to the obligation to pay commission to KRM on entry into the APA. They relied on Hawkins v Bank of China (1992) 26 NSWLR 562 (particularly per Kirby P at 576) as applied in the Supreme Court of Victoria in Healthscope (Tasmania) Pty Ltd v Austrialian Hospital Care Pty Ltd [2011] VSC 132. They also relied on Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 and Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 per McHugh J at 52-53; [1999] HCA 59 at [136]-[140]. They submitted that their exposure to a monetary obligation to KRM arose from the time the APA was made, and it was from that time that they incurred a liability to KRM. 8. The liability in question to KRM which Classic and Best say they incurred prior to the completion date of the SSPAs was the liability to pay a lump sum on commutation of entitlement to future commission. Although the source of Classic and Best's obligation to pay that lump sum was their entry into the APA, it does not follow that for the purposes of cl 6.1 of the SSPAs, that liability had been incurred on entry into the APA. There were multiple contingencies that had to be satisfied before such a liability crystallised. 9. First, KRM had to introduce New or Lapsed Clients to Classicbet. 10. Secondly, those clients had to place enough unsuccessful bets to generate positive Net Cash. 11. Thirdly, there had to be an actual or proposed change of control of the business of Classic and Best or a change of control of those companies (or arguably, a proposed change of control of those companies). 12. Fourthly, a notice of actual or proposed change of control had to be given. 13. Fifthly, KRM had either to elect to take a lump sum in commutation of its right to future commission, rather than electing to continue the agreement, or, it had to make no election. 14. I do not accept that for the purposes of cl 6.1 of the SSPAs that Classic and Best had incurred a liability to pay KRM a lump sum in commutation of its commission as at 22 May 2018 by reason of its entry into the APA. It is unnecessary to consider whether such a liability might have been incurred on entry into the SSPAs because no such argument was advanced. 15. The primary judge considered Hawkins v Bank of China and also Standard Chartered Bank of Australia Ltd v Antico (Nos. 1 and 2) (1995) 38 NSWLR 290. Both cases concerned s 556 of the Companies (NSW) Code or the Corporations Law. His Honour correctly held that the words "incurred or accrued" were to be construed not in the context of s 556, but in the context of the SSPAs. His Honour reasoned: (paras 59 and 60). "59 The words 'incurred or accrued' must be seen in the context of the requirement in the SPAs that the Seller (i.e. Ryan or Alex) agrees to satisfy and discharge in the proper time all liabilities of the Company that have been incurred or accrued. As was pointed out in O'Keefe v Calwell (1949) 77 CLR 261, 295-296 per Williams J, 'liable' ordinarily means actually liable not potentially liable. As at the date of entry into the APA, the conditions for exercise of the option did not exist and, as a matter of substance and reality, Classicbet and Bestbet were not thereby rendered liable for a debt. Even as at the Completion Date (i.e. 22 May 2018), or even as at 7 June 2018, no liability capable of being satisfied or discharged existed because KRM had not received a notice and had not elected to take the lump sum or been deemed to have done so pursuant to cl 16.1.3. I do not think that any liability to pay the lump sum was incurred until KRM had exercised its right to elect or the deeming provision took effect. I therefore conclude that as at the Completion Date or the date of completion, no debt had been incurred or accrued. 60 It follows that the Kays are not liable by reason of cl 6.1 of the SPAs to discharge the liability of Classicbet and Bestbet to KRM." 1. In Hawkins v Bank of China, a company executed a guarantee of debts owed by other companies to the Bank. The Bank alleged that directors of the company were liable for payment of a debt claimed to be owed under the guarantee because there were reasonable grounds to expect that the company was insolvent or would become insolvent if the company incurred the debt, when the debt was incurred (Companies (NSW) Code, s 556). A question was formulated for separate determination of whether by entering into the guarantee the company incurred a debt within the meaning of s 556(1) of the Companies (NSW) Code. 2. The primary judge answered that question in the affirmative and the appeal from that answer was dismissed. 3. Gleeson CJ said (at 568): "Where a debt results from a guarantee, the sequence of events is commonly as follows. At the time of the execution of the guarantee, the guarantor undertakes a contingent liability. The contingencies normally include, although they are not necessarily limited to, default on the part of the principal debtor, and the making of demand upon the surety by the creditor. At the time of executing the guarantee, such a liability would not normally be shown as, or included in, a liability in the company's balance sheet, but it would be referred to in a note to the accounts. Of course, the circumstances of any individual case may require special consideration, and I refer only to the usual position. ... Guarantees are sometimes executed in advance of any principal debt coming into existence. A person may execute a guarantee in favour of a bank in a case in which the bank has not yet made an advance to its customer. In such circumstances it is not normally said that the guarantor, upon the execution of the guarantee, incurs a debt. Nor would it normally, and apart from some special context, be said that a person who gives a guarantee in respect of a debt incurred by another thereupon himself incurs a debt, at least if the principal debtor is apparently solvent and not in default. Equally, however, on any use of language, in the events that have occurred in a case such as the present, there ultimately comes a time when the guarantor would be said to be indebted to the creditor. In the present case, a guarantee was executed, the principal debtors became insolvent and went into default, and demand was made by the creditor under the guarantee. In those circumstances it seems difficult to deny that at some stage Equiticorpincurred a debt to the Bank." 1. Gleeson CJ observed that "debt" in s 556 was capable of including a contingent liability and concluded (at 572) as follows: "Similarly, the word 'incurs' takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that 'debt' may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time. This is such a case." 1. Kirby P emphasised the statutory context in which the issue arose, observing that it would be absurd if an officer of an insolvent company could, with impunity, cause the company to enter into a guarantee of a liability which could immediately thereafter mature into an absolute obligation as a debt (at 577). It was in this context that Kirby P said (at 576): "The expression 'incurs a debt' in s 556(1) is, in isolation, entirely apt to describe an act on the part of a corporation whereby it renders itself liable to pay a sum of money in the future as a debt. The act of 'incurring' happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt. The mere fact that such sum of money will only be paid upon a future contingency does not make the assumption of the obligation any less 'incurring' a 'debt'." 1. Sheller JA agreed with the reasons of both Gleeson CJ and Kirby P in agreeing that the expression "incurs a debt" in s 556(1)(a) extended to including a contingent debt and held that such a debt was incurred on the execution of the guarantee. His Honour was careful to stipulate that that finding was applicable only to the circumstances in which the guarantee in the particular case was entered into and would not necessarily extend, for example, to a guarantee entered into before any financial accommodation was provided to the proposed borrower (at 578). 2. Hawkins v Bank of China does not assist Classic and Best. In entering into the APA Classic and Best did not incur an unavoidable obligation to pay a lump sum by way of commutation of KRM's entitlement to future commission. They could have avoided that obligation by not entering into the SSPAs. 3. As the primary judge rightly observed, the context of cl 6.1 of the SSPAs is very different. There is no definition of "liability" that it include a contingent liability. There is no doubt that, depending on context, "liability" can include a contingent liability (Crimmins v Stevedoring Industry Finance Committee at [136]-[140] per McHugh J). But the primary judge did not err in applying the observations of Williams J in O'Keefe v Calwell (1949) 77 CLR 261 at 295-296 that "liable" ordinarily means actually liable, not potentially liable. The fact that that observation was made in a very different context does not mean that the primary judge erred in finding that in the context of cl 6 the reference to "liabilities" was to liabilities that had actually been incurred. Thus cl 6.3, which required moneys accrued but not paid in respect to liabilities to be adjusted, was referring to liabilities that had not only been actually incurred, but were payable, but not paid. Clause 6.11 required an adjustment of the Completion Amount for any liabilities that were not in the company's bank account on completion. That must have been a reference to liabilities that had at least been actually incurred. 4. The primary judge correctly observed that in Standard Chartered Bank of Australia Ltd v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 Hodgson J (as his Honour then was) expressed agreement with the decision in Bans Pty Ltd v Ling [1995] NSW ConvR 55-739; (1995) 16 ACSR 404, that liability for interest on unpaid rent was not incurred until the failure to pay rent gave rise to the liability. That is, the liability to pay interest was not incurred on entering into the lease. 5. The issue in Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 was whether, when a corporate partner became subject to a joint liability in respect of a partnership debt, it was correct to say for the purposes of s 588G of the Corporations Act 2001 (Cth) that it thereby incurred a debt (at [9]). Barrett J (as his Honour then was) applied observations of Hodgson J in Standard Chartered Bank of Australia v Antico as follows: "14 The concept was further elucidated by Hodgson J in Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290, particularly in the following passage: 'In my opinion, a company incurs a debt when, by its choice, it does or omits something which, as a matter of substance and commercial reality, renders it liable for a debt for which it otherwise would not have been liable. This formulation has three aspects which could cause difficulty in particular cases: first, as to whether the company has a choice whether to do (or omit) the Act or not; secondly, as to whether it is the act or omission, or something else, which renders the company liable for the debt; and thirdly, as to whether the company would otherwise (in any event) have been liable for the debt.' 15 These approaches, while they may present difficulties in particular cases, are clear. 'Incurring' is the act or omission of the company through which exposure of it to a monetary obligation arises." 1. This decision does not assist Classic and Best. It might be arguable that the act of Classic and Best through which they were exposed to the monetary obligation for which KRM sued was, as a matter of substance and commercial reality, their entry into the SSPAs. But as a matter of substance and commercial reality, that obligation was not incurred on entering into the APA. 2. Classic and Best also submitted that the primary judge was wrong in not applying what Kirby P said in Hawkins v Bank of China (at 576) that: "The expression 'incurs a debt' ... is, in isolation, entirely apt to describe an act on the part of a corporation whereby it renders itself liable to pay a sum of money in the future as a debt. The act of 'incurring' happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt. The mere fact that such sum of money will only be paid on a future contingency does not make the assumption of the obligation any less 'incurring' a 'debt'." 1. This statement was applied by Sifris J in the Supreme Court of Victoria in Healthscope (Tasmania) Pty Ltd v Australian Hospital Care Pty Ltd [2011] VSC 132 at [22]. The circumstances of the incurring of a liability in that case were far different from the present. The defendants did not suggest that no debt or liability had been incurred (at [28]). 2. As I have said above, Classic and Best did not, by entering into the APA, expose themselves contractually to an obligation to make a future payment to KRM under cl 16.1 in commutation of their liability to pay future commission. As a matter of substance they only incurred that liability after entering into the SSPAs. 3. Classic and Best's alternative argument was that their liability to KRM was incurred prior to the Completion Date because of emails sent by Ryan Kay on behalf of both companies to KRM on 11 and 26 April 2018. 4. On 1 April 2018 Mr Di Natale, who was acting for KRM, wrote to Ryan Kay as follows: "Hi Ryan, It was good to catch up with you last Monday (26 March 2018). We note your advice that you (your family's interests) have agreed to sell out of Classicbet. Whilst we note that you advised that it will be the shares that are being sold, we are unsure whether this means the shares in both Classicbet Pty Ltd and Bestbet.com.au Pty Ltd. Since meeting with you, we have reviewed the signed Affiliation Program Agreement which of course outlines what occurs in these circumstances. So that there is no misunderstanding or confusion, we request that the procedure outlined in the Agreement be followed, in particular clause 16.1. This therefore means that we need to receive written notice of the proposed sale of shares. Kevin's (KRM (Vic) Pty Ltd) period of 14 days to make a decision under clause 16.1.3(b) will not commence until KRM has received such written notice. According, could you please provide us such written notice, including the following information which is important to enable KRM to make a decision under clause 16.1.3(b):- 1. Are all the shares in both Classicbet Pty Ltd and Bestbet.com.au Pty Ltd being sold; 2. What was the multiple used in order to determine the price of the shares purchased. This is relevant for purposes of clause.16.1, in order to determine the multiple to be applied to determine/calculate the lump sum payable to KRM. Please also provide us with:- 1. The monthly commission statements for January 2018, February 2018 and March 2018. As March concludes tomorrow, please also provide us with the March 2018 statement; 2. The monthly amount paid for January 2018 and the monthly amount paid for February 2018; 3. Your calculation of the lump sum payment in accordance with clause 16.1.4 of the Agreement. In line and consistent with our emails below, KRM expressly continues to reserve and maintain its position in relation to the disputed carryforward negative commission for September 2017, which is relevant in this situation. We therefore look forward to the written notice to trigger the provisions of clause 16." 1. Mr Di Natale slightly amended his email on 2 April 2018 but without changing its substance. 2. On 11 April 2018 Mr Di Natale wrote to Ryan Kay saying: "We haven't received your written notice yet regarding the sale, have you sent it?" 1. Ryan Kay replied later that day saying: "Hi Jack, Sorry for the delay, I have been waiting for the approval from NT authorities. It should come through Friday. Are you available to meet Friday? The crown or somewhere that suits you better? Kind Regards Ryan" 1. Mr Di Natale pressed Ryan Kay on 22 April. He sent an email on that day saying: "When can we expect to receive the written notice of the share sale as set out below, we were fine to receive it at the proposed dinner last week but with that not occurring can you please arrange to have it forwarded to us (on behalf of (KRM (Vic) Pty Ltd) ASAP. Thanks, wait to hear from you." 1. On 26 April 2018 Ryan Kay replied: "Hi Jack, The transaction has yet to be approved by NT regulators. I will let you know progress. Did you want to pencil in lunch or dinner next Wednesday? Kind Regards, Ryan" 1. Classic and Best submitted that the emails from Ryan Kay of 11 and 26 April were a notice of proposed change of control within the meaning of cl 16.1.3 of the APA because Ryan Kay implicitly confirmed KRM's understanding that a share sale agreement for at least one of the companies had been entered into that was subject to the approval of the Northern Territory Racing and Gaming Commission. Hence there was a potential change of control of Classic and Best, or at least Classic or Best. 2. There is an issue as to whether KRM's option to either continue with the APA or have Classicbet "buy out the tail", that is, commute its right to future commission, could be triggered only on a potential change of control. Clause 16.1.2 provides for KRM to have that option if there were a Change of Control of either Classic or Best. The definitions of "Change of Control" and "Control" are set out at [73] and [74] above. 3. It might have been arguable that on entry into the SSPAs there was an actual change of control and not merely a potential change of control because Playup became entitled to the profits of the Classicbet business from the date of entry into the SSPAs. It was submitted by Mr Walker SC that it could be inferred that Playup took over the management of the Classicbet business from entry into the SSPAs. The majority of the purchase price was payable on entry into those agreements. 4. However, this point was not argued either below or on appeal. On the assumption that there was no actual change of control on entry into the SSPAs, there is an issue of construction of cl 16.1.2 and 16.1.3 as to whether the option in cl 16.1.2 or 16.1.3 was triggered by the entry by Classic and Best into the SSPAs. Whereas cl 16.1.2 confers the option only in terms of there being a Change of Control, cl 16.1.3 states that the option referred to in cl 16.1.2 is to be exercised by Classicbet giving written notice of the Change of Control or proposed Change of Control. 5. The inconsistency in these provisions could be reconciled either by reading into cl 16.1.2 an implication that the option provided for by that clause was triggered either on a Change of Control or a proposed Change of Control. That would require reading words into cl 16.1.2. That construction would be harmonious with cl 16.5, dealing with a change of control of Classicbet's business. 6. On the other hand, the inconsistency could be resolved by excising from cl 16.1.3(a) the words "or proposed Change of Control". 7. It would only be necessary to resolve this issue if the emails sent by Ryan Kay on 11 and 26 April 2018 could be characterised as written notice of proposed Change of Control in Classic and/or Best for the purpose of that clause. 8. The primary judge was correct to conclude that the emails cannot be so regarded. They contain no such express statement. They did not provide the information that KRM would require in order to exercise its option under cl 16.1.2. Rather than being notices given under cl 16.1.3, they were purported explanations as to why Classic and Best were not giving notices under that clause. 9. For these reasons the primary judge was correct to conclude both that the promise under cl 6.1 of the SSPAs was not made by Alex or Ryan Kay to Classic and Best, but that, in any event, no liability had been incurred prior to the Completion Date to which cl 6.1 could apply on the basis of the arguments advanced at trial. 10. Classic and Best also contended that Alex Kay as a director of Classic, and Ryan Kay as a director of Best, breached their duties owed to those companies by not giving a proposed notice of change of control under cl 16.1.3 of the APA after those companies entered into the SSPAs for the sale of their shares to Playup. They were in a position of conflict between their duties to the Company of which they were the director and their personal interest because it was in their personal interest as Sellers under the SSPAs that the Company of which each was a director not incur a liability prior to the Completion Date of the SSPA. 11. Classic and Best did not plead a breach of the Kays' fiduciary duties. They did plead a breach of their statutory duties to act in good faith in the best interests of each Company and for a proper purpose, and they pleaded breach of the statutory duty not to gain an advantage for himself or to cause detriment to the Company (Corporations Act 2001 (Cth), ss 181 and 182). 12. This allegation was made out in the case of Ryan Kay. This court was not taken to evidence which would justify a finding of breach of duty by Alex Kay. It is clear that Ryan Kay, who was apparently acting for both Best and Classic, was resisting giving a notice of proposed change of control. There was no credible explanation for that resistance, except that until 18 or 22 May 2018 approval of the change of control had not been given by the Northern Territory Racing Commissioner. There was clearly a proposed change of control, as KRM asserted, albeit one that was conditional on the Northern Territory Racing Commissioner's approval. 13. Even after that approval was given, the Kays did not cause Classic and Best to give the requisite notices under cl 16.1.3 of the APA. Had notices been promptly given, there was still time for KRM to have elected to take a lump sum payment before Completion occurred, although not before the Completion Date. 14. The primary judge found that Classic and Best had not established that had a proposed notice of change of control been given, KRM would have elected to take the option of a lump sum payment. Mr Di Natale, who was the only witness called for KRM, was not asked about that matter. 15. But Mr Di Natale was not the decision-maker for KRM. The decision-maker for KRM was Mr McCrohan. KRM was suing Classic and Best. Classic and Best could not have been expected to call him in their own case. 16. I agree with the submission for Classic and Best that it should be inferred that had the proposed notice of change of control been issued to KRM, it is probable that KRM would have elected to take a lump sum payment. KRM was pressing for the issue of such a notice in order to trigger its right of election. Once it ultimately received a notice, it acted promptly to exercise its right to take the lump sum payment. It can be inferred that had notice been given by Classic and Best after March 2018, it would have made the same election as it ultimately made in October 2018. 17. But this part of Classic and Best's cross-claim against Alex and Ryan Kay is a claim for damages for breach of Alex and Ryan Kay's statutory duties as directors. The question is whether Classic and Best established any loss for which damages would be payable. (The same question would arise if their claim could properly be classified as a claim for equitable compensation for breach of fiduciary duty.) 18. Classic and Best incurred a liability to pay the lump sums payable under cl 16.1 of the APA. But they are relieved from their ongoing liability to pay indefinite future commissions under cl 7 of the APA. There was no evidence that the liability incurred was worth more than the burden relieved. 19. Recognising this, counsel for Classic and Best accepted that it would only be if Classic and Best had a liability under cl 6.1 of the SSPAs to pay the liability incurred that any damages could be recoverable from Alex and Ryan Kay for breach of their duties as directors for not causing notices of proposed change of control to be given. That concession was rightly made. For the reasons above, cl 6.1 did not make Alex and Ryan Kay liable to Classic and Best (as distinct from Playup) for not discharging Classic's and Best's liabilities. 20. For these reasons the appeal of Classic and Best should be dismissed. 21. In appeal 2020/6311 (Ryan Kay v KRM (Vic) Pty Ltd) I propose the following orders: 1. appeal allowed. 2. orders 1, 2 and 3 made on 18 December 2019 be set aside insofar as those orders apply to the appellant (third defendant in the court below); 3. in lieu thereof order: 1. judgment for the third defendant on the plaintiff's statement of claim; and 2. the plaintiff pay the third defendant's costs of the statement of claim. 1. the respondent pay the appellant's costs of the appeal. 1. In appeal 2020/12237 (Classic Bet (NSW) Pty Ltd & Anor v Ryan Kay & Ors) I propose the following orders: 1. appeal dismissed. 2. order that the appellants pay the respondents' costs of the appeal. ********** Endnote 1. The order as entered includes a typographical error in that it refers to "equitable compensation" rather than "equitable contribution". 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: 12 May 2020