MindChamps Preschool Limited v M & W Zaki Pty Limited ATF the Zaki Group Trust & Ors

1. [1]

   The plaintiff, MindChamps Preschool Limited (“MindChamps”), is a Singapore-based international provider of childcare services. The first defendant M & W Zaki Pty Limited as trustee for the Zaki Group Trust (“M & W Zaki”) and related entities operate childcare centres under the name “Little Zak’s Academy” or simply “Little Zak's” in New South Wales. On 1 September 2016 MindChamps executed an agreement entitled “Term Sheet”, to acquire nine of M & W Zaki’s NSW childcare centres for a consideration of $68,500,000 subject to agreed adjustments. The Term Sheet required the payment of a deposit of $500,000 and was subject to conditions precedent, including due diligence obligations which were to lead to the execution by 30 September of what was described in the Term Sheet as a Long Form Agreement.

2. [2]

   On 16 September 2016 MindChamps communicated to M & W Zaki that it had decided not to proceed with the purchase under the Term Sheet and gave notice of that decision to M & W Zaki. MindChamps contends it was induced to enter the Term Sheet by the misleading deceptive conduct of M & W Zaki and entities and persons related to it and that it is now entitled to rescind the Term Sheet pursuant to Australian Consumer Law, ss 237, 242 and 243 (“the ACL”) and have the $500,000 deposit returned to it. MindChamps further alleges it was entitled to terminate the purchase, because of M & W Zaki’s failure to satisfy the conditions precedent to the Term Sheet and because of its breaches of the Term Sheet. MindChamps claims the return of the deposit of $500,000 and recovery of some $16,655.34 in travel expenses it incurred in undertaking due diligence following entry into the Term Sheet.

3. [3]

   MindChamps executed the Term Sheet in its then corporate name, as a private company incorporated in Singapore, MindChamps Preschool (Worldwide) Pte. Limited. In November 2017 the plaintiff subsequently changed its status to that of a public company, also altering its name to its present title.

4. [4]

   The first, second and third defendants executed the Term Sheet as co-vendors. The fourth and fifth defendants are joined into the proceedings as persons said to have engaged in misleading and deceptive conduct, including on behalf of the other defendants. All defendants are members of the Zaki family, or are entities controlled by family members. The second and third defendants, Childcare Income Protection Pty Limited as trustee for KZ Trust and Mr Mark Zaki, the co-vendors with M & W Zaki under the Term Sheet did not otherwise feature significantly in the evidence. Mr Maged Zaki, the fourth defendant, and his son Kerelos (referred to in evidence as “Carlos”) Zaki, the fifth defendant together controlled and managed the day-to-day business operations of M & W Zaki and played the principal roles on behalf of the sellers in relevant events. The second defendant is a family company associated with Mr Carlos Zaki. These reasons refer to defendants as vendors collectively from time to time as M & W Zaki, or Little Zak’s; and members of the Zaki family are sometimes referred to as “the Zakis”

5. [5]

   MindChamps alleges the defendants, specifically Mr Maged Zaki and Mr Carlos Zaki engaged in misleading deceptive conduct during negotiations inducing it to sign the Term Sheet. It says that these defendants represented: (a) that due diligence documents required by MindChamps were fully ready so as to allow MindChamps to complete its due diligence process by 30 September 2016; (b) that the accounts for the childcare businesses owned by the defendants were audited by PwC or some other external accountant; (c) that the due diligence “data room” of the defendants was “complete” prior to MindChamps executing the Term Sheet; and (d) that there was another potential buyer of the childcare centres who had already commenced the due diligence process, and who was willing to pay a non-refundable deposit of AUD$1 million. The last of these was not ultimately pursued.

6. [6]

   The defendants contest the misrepresentation case. They allege that the representations were not made and if they were, when properly construed, they were either not misleading or were not relied upon.

7. [7]

   MindChamps also brings a case in contract. It alleges breach of the sellers’ obligations of due diligence, under Term Sheet, clause 9 and the sellers’ obligations to afford exclusive negotiations to MindChamps under Term Sheet, clause 12. As to the former, MindChamps alleges that in breach of clause 9 the sellers did not provide all the information reasonably required by it as the buyer to enable due diligence investigations. As to the latter, MindChamps alleges the sellers were continuing to conduct negotiations with at least one third-party after 1 September 2012 in breach of clause 12.

8. [8]

   The defendants contest MindChamps’ breach of contract case. They dispute MindChamps’ construction of the contract that founds MindChamps case of breach. But even if MindChamps construction is accepted, the defendants deny both claimed breaches of contract. As to clause 9, the defendants contend that they did provide all information reasonably required to enable MindChamps to conduct its diligence investigations. As to clause 12, they admit having had some contact with other potential purchases but submit that properly construed it was not a breach of clause 12.

9. [9]

   The defendants also develop a case that MindChamps decision to terminate the Term Sheet was not the result of the sellers’ breaches of the Term Sheet. Rather they submit MindChamps realised that it lacked the finances to complete its next contractual payment obligations required under the Term Sheet, being the payment of $20,000,000 on execution of the long form agreement on 30 September 2016 and $47 million on the completion date. MindChamps contend this is an irrelevant issue.

10. [10]

    The contest conveniently divides the narrative of the facts into two distinct time periods.

    1. (1)

       The alleged misleading deceptive conduct and the negligent misrepresentation claims identify conduct in August 2016 that predates the execution of the Term Sheet.

    2. (2)

       The alleged breach of contract case relates to the defendants’ compliance with their Term Sheet due diligence obligations and exclusivity obligations from 1 September to 16 September 2016.

11. [11]

    This matter was initially listed for a hearing of 5 days commencing on 12 July 2021. A combination of the need for video-link evidence from witnesses, and for video-link appearances and submissions from counsel meant that the proceedings went longer, and they were ultimately heard over eight days, 12, 13, 14, 15, 16, 29 & 30 July and 11 August 2021. Mr M. Izzo and Mr B. Hancock of counsel acted for the plaintiff, instructed by Dentons. Mr R. Newlinds SC and Ms A. Hovarth of counsel acted for the defendant, instructed by Hitch Advisory. In a case with finely tuned debates about interpretation of a commercial agreement and a relatively dense narrative of events, the Court was greatly assisted by the careful presentation of the case on both sides by counsel and solicitors.

12. [12]

    Shortly these reasons will commence a narrative of the Court’s relevant findings. But before commencing that narrative Court makes observations about credibility of various parties and witnesses. This was not an in-person hearing in the courtroom due to Covid 19 restrictions. The oral evidence on both sides of the proceedings was given by video-link, some from Singapore and some from within Australia. The fact that the witnesses were giving evidence remotely added a degree of caution to the Court’s assessment of them, but the Court was nevertheless generally able to form clear impressions of witness credibility and recorded them during the hearing.

13. [13]

    Mr David Chiem. Mr Phuan (‘David’) Chiem is the founder and chief executive officer of MindChamps. He gave evidence by video-link from Singapore. Mr Chiem was an honest and a reliable witness on most issues. He had a clear long-term vision and firm views about how the corporate group of which MindChamps is part would be run. He was very ambitious for its future expansion to realise that vision. He was intimately associated with all the detail of the company which he had founded, its transactions and its general business affairs.

14. [14]

    But Mr Chiem was well practised in putting MindChamps in the best light possible. As circumstances required, when giving evidence he could demonstrate studied vagueness, put the best face on events and be slow to answer the more difficult questions confronting him and when appropriate he could give lengthy explanations. His personal style was diplomatic tending to the formal rather than informal communication.

15. [15]

    Mr Chiem speaks of MindChamps very much as his own creation. He clearly constantly thinks about the company, is inspired by its future possibilities and readily grasps its potential for growth and improvement. His firm enthusiasm for the progress and future success of MindChamps had an evidentiary downside. He has some capacity to convince himself that his own memory of events concerning MindChamps consistent with his vision for it, must be correct. At times the quality of his recollection of events is to be doubted when compared with other contemporaneous events and objectively verifiable evidence. The Court cannot accept all his evidence about meetings and statements made to him: his memory was less reliable than some other witnesses with respect to certain crucial events.

16. [16]

    Ms Catherine Du. Ms Catherine Du is the executive director of MindChamps. She gave evidence by video-link from Singapore. She has worked for MindChamps since its inception. She came across to the Court as a highly competent businesswoman of deep skill and ability. She attempted to answer questions diligently. But in places her memory failed her, and the Court was not always confident as to its quality, particularly with respect to the claimed PwC representation. And the Court at times had the impression that she had convinced herself that some events and meetings had taken place in a particular way such that the Court was cautious about accepting all her evidence and instead preferred the evidence of other witnesses.

17. [17]

    Mr Nicholas Caswell. Mr Nicholas Caswell is the senior manager of business development at MindChamps Australia Pty Ltd (“MindChamps Australia”), a local subsidiary of MindChamps. He gave evidence in Sydney but by video-link due to the Covid-19 pandemic restrictions. He was a reasonably good witness who was present at some of the meetings at which other MindChamps witnesses say that they were present, but his role was somewhat subsidiary and his focus at those meetings was not upon the issues that have become central to these proceedings.

18. [18]

    Mr Wee-Jone Teo. Mr Teo is the chief financial officer of MindChamps. He gave evidence via video-link from Singapore. Mr Teo was a good witness, who was clearly across his financial brief in relation to this acquisition on behalf of MindChamps. He was answerable in the corporate hierarchy to Mr Chiem, followed instructions from Mr Chiem, and was closely attuned to Mr Chiem’s outlook for the future expansion of MindChamps, which influenced his outlook. He was very focused on this transaction because it was a substantial step up in the size of acquisitions that MindChamps was making at the time. His evidence was generally reliable. He confessed that he had “learned a lesson” from the failure of this transaction.

19. [19]

    Mr Chng Kwang (I-Ren or Lawrence) Tan. Mr Tan is the general manager of MindChamps. He gave evidence via video-link from Singapore. Mr Tan had been employed by MindChamps for about eight years prior to the events in question in these proceedings as general manager but prior to that he had worked for MindChamps holding company for about seven years. He was part of the management team at MindChamps that reviewed the potential acquisition of the Little Zak’s childcare centres. At the time of the hearing, he was no longer employed by MindChamps. Mr Tan came across as a precise person who was attempting to tell the truth. He took notes of some of the contentious meetings. Some of his answers could be indirect, he tended to avoid answering questions in relation to the more contentious meetings by talking of what was said in other meetings. His evidence is mostly accepted but like Ms Du he had an unreliable recall of some crucial disputed meetings.

20. [20]

    Mr David Willis. Mr Willis is a partner of KPMG Advisory in Sydney. He gave evidence via video-link due to the Covid-19 pandemic restrictions. Mr Willis is an accountant in the Transaction Services business unit of KPMG’s Deals, Tax and Legal Division. He has advised in respect of corporate and private equity transactions for over 20 years. He commenced work at KPMG in January 2006 and became a partner in July 2007. KPMG were engaged by MindChamps to inspect the information in the data room in the due diligence process for this proposed acquisition by MindChamps. He was a reliable witness who demonstrated sound and reasonable professional judgments in the events in which he was involved. He made appropriate concessions when required and stated the facts as he recalled them crisply and concisely. He was cognisant of but not overly defensive of his client’s interests. His answers were a direct and businesslike. His evidence is accepted.

21. [21]

    Mr Maged Zaki. Together with his wife, Wafaa, Mr Maged Zaki is one of two directors of the first defendant, M & W Zaki. He gave evidence from Sydney via video-link due to the Covid-19 pandemic restrictions. He was the founder of Little Zak's Academy. He came across to the Court as an honest and astute businessman. He was a reasonably good witness, who answered questions in cross-examination as fully as he could. He was prepared to make concessions about matters that he did not remember, and he consciously confined his evidence to material well within memory. Mr Maged Zaki genuinely did not remember the contested meeting that the MindChamps witnesses say took place about 15 or 16 August 2016.

22. [22]

    Mr Carlos Zaki. Mr Carlos Zaki is the sole director of the second defendant, Childcare Income Protection Pty Limited ATF the KZ Trust. He gave evidence via video-link due to the Covid-19 pandemic restrictions. Mr Carlos Zaki is the son of Mr Maged Zaki and has followed his father’s business leadership into the childcare industry. He came across to the Court as an honest, astute, intelligent, and insightful businessman. He had quite a good memory of the contested events, with a definite recollection of what was said. He could convey subtle linguistic distinctions about the contents of conversations. He had a good understanding of all financial aspects of this transaction and showed a competent mastery of accounts. He was prepared to make concessions when required by circumstances. His evidence is accepted.

23. [23]

    Mr Douglas Lilley. Mr Douglas Lilley helped introduce the parties to this transaction. He has been a licensed real estate agent and business broker since 1991. He and his wife Debbie operate Lilley Childcare Sales, a childcare centre brokerage, promoting the sale of leasehold and freehold childcare centres. He appeared via video-link from Christchurch, New Zealand. Mr Lilley and his wife have operated that business since about 2006. Mr Lilley was requested to give evidence for the defendants in 2018 but declined to do so because of an existing working relationship with MindChamps. But as the hearing approached, he decided he would give evidence and was called for the defendants. Mr Lilley was a generally credible witness. He appeared to be relaxed in style. He does not hold many formal meetings or take notes. He has an intuitive, spontaneous, and sales-oriented style of communication. He had a good recollection of contentious events, and his evidence is accepted.

24. [24]

    The following is a narrative of the relevant history. This narrative represents the Court’s findings on the matters covered, except to the extent that the context indicates that only the parties’ allegations are being recorded in these reasons. For reasons of economy this narrative does not always include reference to versions of the facts that have been rejected.

MindChamps, Little Zak’s and the Term Sheet: the Misrepresentation Case

1. [25]

   This section of these reasons deals with MindChamps misrepresentation case. It includes a narrative of findings covering the period prior to execution of the term sheet. Then it considers whether the misrepresentation case is made out. These reasons then proceed to the factual narrative and analysis for the breach of contract claims

2. [26]

   Mr Chiem is an Australian citizen currently residing in Singapore. Not only is he the chief executive officer of MindChamps, he is also the founder and Group CEO of MindChamps Holdings Pte Limited, which established MindChamps in Singapore in 2008. MindChamps is now a leading provider of preschool education in Singapore. Mr Chiem has long had a vision to bring MindChamps back to Australia and establish preschool operations in Mr Chiem’s home ground here in Australia.

3. [27]

   It was in pursuit of that vision that Mr Chiem authorised MindChamps staff to explore opportunities for the acquisition of childcare centres in Eastern Australia. They engaged with Lilley Childcare Sales, leading to an introduction to Mr Maged Zaki and Mr Carlos Zaki.

4. [28]

   MindChamps originally started in Sydney as both a learning idea and as a business entity. Due to circumstances its business later migrated to and developed in Singapore rather than in Sydney. The MindChamps concept began as a method of learning. Mr Chiem confirmed that it was focussed on “filling in the gaps of learning” for early childhood education and “engaging kids from [when they are] young”. But one of Mr Chiem’s ambitions has long been to bring the idea back to Australia.

5. [29]

   The wider corporate group of which MindChamps is a part does not play a significant role in these proceedings, except in relation to issues concerning mounting an initial public offering (“IPO”) of the group in late 2016. Based on evidence from this IPO the defendant say that MindChamps did not have the funds to complete the acquisition of the Little Zak’s childcare centres.

6. [30]

   MindChamps’ holding company is MindChamps Holdings Pty Limited (“MindChamps Holdings”). Many other companies in the group need not be mentioned by name, other than MindChamps Australia Pty Limited (“MindChamps Australia”) which in 2016 was planned to be the entity conducting MindChamps’ projected Australian operations. When the expression “MindChamps” is used in these proceedings it is a reference to the plaintiff rather than the MindChamps Group.

7. [31]

   Mr Maged Zaki and his wife Wafaa are the directors of the first defendant, M & W Zaki, the corporate vehicle for the ownership of several of their family conducted businesses. Mr Maged Zaki his wife and family migrated to Australia from Egypt in 1991. He came from a background of corporate management in Egypt and soon after arriving in Australia began investing in childcare centres. He judged that childcare was a growth sector would expand and he perceived there was a gap in the Australian market for high-quality childcare centres.

8. [32]

   From a single childcare centre in the 1993 M & W Zaki had expanded sufficiently by 2012 to sell seven of its 11 centres that year. In 2013 Mr Maged Zaki and his son Mr Carlos Zaki decided to start a new childcare brand together called “Little Zak's Academy”. The Zakis expanded this business in the following four years into a larger enterprise of childcare centres. And in 2016 they marketed that enlarged enterprise for sale to MindChamps.

9. [33]

   From the 1990s M & W Zaki and the Zaki family had essentially conducted a small to medium business with many of the characteristics of that type of enterprise. During most of their expansion they used their own internal bookkeeping staff and a single primary external accountant, Mr Sherif Michael of Sherif Dastur & Co. The Zaki family found that by 2015 that the demands of all the accounting work for M & W Zaki (not only in their Little Zak's business but in their other small businesses) was becoming unmanageable for Mr Maged Zaki and his son.

10. [34]

    So, in January 2016 to address these pressures across all of M & W Zaki’s businesses they decided to retain PwC as their accountants, to start overseeing aspects of their business, to help them foresee and avoid accounting issues, to reduce their tax burden, and to restructure their businesses to greater advantage. But they continued to retain both Mr Sherif Michael and PwC to perform their financial accounting, financial reporting and taxation lodgment and compliance.

11. [35]

    Mr Maged Zaki says, and the Court accepts, that M & W Zaki did not retain PwC to provide auditing services to audit M & W Zaki’s various companies, including Little Zak's. On 18 January 2016 PwC agreed in writing with various companies described as the “Zaki Group”, to provide services in accordance with a Statement of Work, describing the specific work for which PwC would be engaged by the Zaki Group and an Umbrella Engagement Agreement, describing the general terms applicable to the engagement.

12. [36]

    The terms of this agreement are significant for determining the content of any representations Mr Maged Zaki made to MindChamps about the quality of financial accounts that could be provided to MindChamps. Mr Maged Zaki signed the January 2016 PwC agreement. He was alert and astute and unlikely to have forgotten in August 2016 the nature of the services stipulated for between PwC and the Zaki group in this agreement.

13. [37]

    The January 2016 PwC agreement described the services in the covering letter to the agreement as “income tax compliance and consulting services”. In the Statement of Services these were divided into two parts. The first was a “detailed review of the current structure of the Zaki Group” which would include the following:

14. [38]

    The second part of the services was the provision of services to ensure that the Zaki group complied with its taxation obligations for FY 15,

15. [39]

    PwC defined services as including the examination of financial statements and trial balances prepared by an employee of the Zaki group “to identify material account balances that may give rise to tax adjustments” but the description disclaimed the kind of verification work that an auditor would ordinarily undertake:

16. [40]

    The Statement of Services provided that ATO “reviews and audits” may be conducted in relation to periods preceding PwC’s appointment, which PwC made clear was only for FY 15. But pre-FY 15 “reviews and audits” would be outside the agreed scope of works. It is clear from the Statement of Works that the only kind of audit that PwC could become involved in as part of its Statement of Works would have been an audit resulting from ATO intervention during the tax assessment process. Nothing in the January 2016 PwC agreement suggested PwC was engaged to undertake general auditing of any Zaki Group companies, which was not required by law.

17. [41]

    It is to be expected that if PwC had agreed to provide general auditing services they would have been clearly defined in the Statement of Work, to accommodate the declarations required of the client, the financial sampling of transactions, and the cross checking required in the delivery of auditing services. Moreover, auditing services are likely to have required a wholly different pricing structure from “income tax compliance and consulting services”.

18. [42]

    In his principal affidavit Mr Maged Zaki places a gloss on PwC’s role with respect to the Zaki Group’s accounts for FY 15. The Court accepts his evidence that at the time PwC had been retained Mr Sherif Michael had not finalised the FY 15 accounts. Mr Maged Zaki says that PwC made clear in their retainer letter “that they would not involve themselves in our 2014 - 2015 financial accounts”. That needs clarification. PwC did agree to prepare financial accounts and lodge income tax returns for FY 15. But it is equally clear that PwC did so, as it said, on the basis that the work task was functionally limited so it did not involve examination of individual transactions, such as might be undertaken by an auditor:

19. [43]

    The fact that the Zaki’s recognised that with businesses of their size and variety that they needed to engage PwC supports the judgment of astuteness in business that the Court makes about both Mr Maged Zaki and Mr Carlos Zaki. They foresaw that their accounting needs were growing beyond the capability of a single external accountant and so they went to PwC. But they had both been intimately involved in taking that important business step and in defining the boundaries between the scope of work to be undertaken in the future by their own in-house bookkeepers and by Mr Sherif Michael on the one hand, and PwC on the other.

20. [44]

    The Court also judges Mr Maged Zaki and Mr Carlos Zaki as both honest and as having reasonably sensitive business foresight. Apart from the Court’s preference for the general credibility of their version on this contested issue of the audited accounts representations, it is impossible to reconcile the making of such representations with the known facts and the character of each of Mr Maged Zaki and Mr Carlos Zaki. They were both aware that they could not produce PwC audited accounts to MindChamps before the transaction closed because in August 2016, they had not engaged PwC for that purpose for either FY 15 or FY 16. Neither of them was so clueless or dishonest that he would have said to Mr Chiem or other MindChamps representatives, something that he not only knew was incorrect, but which was likely to proven false quickly during the due diligence period.

21. [45]

    Other surrounding facts point to the same conclusion. But PwC’s engagement is a powerful foundation for rejecting this aspect of MindChamps’ case.

22. [46]

    Mr Maged Zaki and Mr Carlos Zaki decided in early 2016 that they would sell some eight of M & W Zaki’s then 15 Little Zak's childcare centres. This later became nine centres when the Belrose centre was added. They retained Mr Simon Johnson of Pitcher Partners Sydney Corporate Finance Pty Ltd (“Pitcher Partners”) to assist in brokering the sale of the centres. They knew that Mr Johnson had sold childcare centres on behalf of an acquaintance.

23. [47]

    With Mr Johnson’s assistance by May 2016 M & W Zaki had prepared and issued a confidential Information Memorandum for distribution to potential buyers to promote the proposed sale. The Information Memorandum introduced the sale proposal, gave an industry overview, described the business of the eight childcare centres, identified the management and key employees of the centres and provided financial information about their businesses. It was clear to the business reader of the information memorandum that the eight childcare businesses were being sold and that the financial information supplied described their local operations.

24. [48]

    The Information Memorandum gave a simplified breakdown of the major components of profit and loss for each centre, providing actual figures for FY15 and forecast figures for FY16. Those major components were revenue from which was deducted employee expenses, property expenses and administration costs to produce a figure for net profit before tax. Figures provided for each centre for FY15 were actual and given the Information Memorandum’s date of publication of May 2016, the figures for FY16 were in part a forecast. The forecast FY16 figures were consolidated for all eight centres to show the following:

25. [49]

    In early August 2016 Mr Johnson introduced Mr Maged Zaki and Mr Carlos Zaki to potential international buyers, Chiwayland and Eden Academy (“Eden”). On 15 August 2016 M & W Zaki received an expression of interest letter from a representative of Chiwayland. Mr Maged Zaki was satisfied that they had a potential buyer. But he was more doubtful than Mr Johnson about the experience of this buyer in running childcare centres, in what by 2016 he saw as an increasingly regulated environment. Moreover, he says, and the Court accepts, that he was unsure that that Chiwayland was dedicated to the same values as M & W Zaki and would be able to represent M & W Zaki’s name well, given that the terms of sale would allow the seller’s name to be used for an initial period after purchase.

26. [50]

    The signed expression of interest with Chiwayland, provided for an unconditional deposit of $300,000 which was fully refundable during a non-exclusive due diligence period. The expression of interest agreement provided that if the seller received a request from a third party unrelated to the seller for exclusive due diligence or received a formal offer to execute a sales agreement then M & W Zaki should immediately notify Chiwayland and give Chiwayland a 48-hour opportunity to secure exclusivity. Chiwayland had the right to secure exclusivity over any other third-party bidders within these 48 hours, provided it informed M & W Zaki in writing and its gross purchase price was greater than the highest bid from the third-party bidder. If Chiwayland chose to secure exclusivity and that was agreed by M & W Zaki then the deposit would become non-refundable subject to certain conditions, including some related to whether the due diligence resulted in revision of the projected performance of the business, as contrasted with the Information Memorandum. Discussions were also taking place with Eden. These are referred to later in these reasons.

27. [51]

    The signed 15 August 2016 expression of interest issued by Chiwayland and signed by Mr Maged Zaki provided for the due diligence process and included the following statement on that subject drafted by Chiwayland:

28. [52]

    Once Chiwayland had paid $300,000 into Mr Johnson’s trust account on 18 August 2016 its due diligence commenced. This included a Chiwayland representative making site visits to three M & W Zaki childcare centres on Monday, 22 August 2016, accompanied by Mr Maged Zaki. The timing of this site visit is significant, as both Maged and Carlos Zaki say that they did not meet anybody from MindChamps before that date but the MindChamps witnesses say that they first met with them on 16 August 2016.

29. [53]

    The Chiwayland EOI made an indicative offer of a "gross target purchase price of AUD$60 million and rents as indicated within IM” (clause [1.1]) and was based upon the future maintainable earnings for the combined group of AUD$9.68 million, as reflected in the Information Memorandum (clause 2.7)

30. [54]

    The Chiwayland EOI deposit was paid on 15 August 2016, and Chiwayland gained access to the data room on 16 August 2016. It had 25 days to complete due diligence on 9 September.

31. [55]

    Mr Lilley brought MindChamps and the Zakis together. His business Lilley Childcare Sales was experienced in facilitating childcare sales transactions as simple as for a single childcare centre and as complex as for multi-centre transactions. Lilley Childcare Sales was a substantial player in brokering the sale of childcare centres. For example, in FY21 the company introduced or serviced a total of 92 childcare centre transactions.

32. [56]

    In late July 2016 a representative of MindChamps approached Mr Lilley and informed him that they were an active buyer of childcare centres in Australia. He arranged to meet Mr Chiem at Ovolo Café in Woolloomooloo. He left that meeting with the clear impression that MindChamps were looking to acquire childcare centres in Australia.

33. [57]

    Mr Lilley heard that Mr Simon Johnson of Pitcher Partners had been marketing a portfolio of eight or nine childcare centres operated by the Zaki family. Having met the MindChamps representatives, he wanted to introduce them to members of the the Zaki family. He contacted Mr Carlos Zaki by text message on 2 August 2016 to enquire about the progress of the sale of the Zaki family childcare centres. But what meetings occurred between that text message and 23 August 2016 is a matter of hot dispute between the parties.

34. [58]

    These proceedings embed an unusual dispute: whether a business meeting involving at least six people took place in the Sydney suburb of Ryde on 16 August 2016. MindChamps says it did that several of the misrepresentations occurred at the meeting: about PwC auditing M & W Zaki accounts and about the data room being ready. The defendants deny such a meeting occurred. But they accept that two later meetings occurred on 23 and 26 August.

35. [59]

    It is intriguing that such a dispute could be debated in the digital age, in the internet rich environment of suburban Sydney. But the contest was not conducted using the internet of things, mobile phone data, electronic calendars, emails referring to the meeting, or other digital footprints. Rather it was a contest of old-fashioned competing recollections. The fact that it was waged as a nondigital contest in a digital world, points to the absence of a contemporaneous digital footprint to confirm that the meeting took place on 16 August. The lack of such evidence does not assist MindChamps’ case and strengthens the inference that a meeting did not occur between these parties that day.

36. [60]

    The Court’s approach to resolving this important dispute is first to look at such independent or objective evidence as there is about the meeting and then to analyse the competing witness evidence about the meeting.

37. [61]

    16 August: the independent evidence. Mr Lilley is an important independent starting point for analysis. As little had happened after his 2 August text Mr Lilley decided to follow it up to secure a face-to-face introduction of potential seller and buyer. On 23 August Mr Lilley sent Mr Carlos Zaki a text message;

38. [62]

    The content of this text is more compatible with a meeting not having taken place by that time between the MindChamps representatives and members of the Zaki family. If a meeting had taken place on 16 August, it would be the logical occasion for the potential buyer to organise to visit the premises. Indeed, that is what occurred shortly after the meeting on 23 August.

39. [63]

    Mr Lilley does not recall being present at a meeting on 16 August. And it is difficult to understand why the agent introducing seller and buyer would be present at the second meeting between the parties. It was in his financial interest to be present at the first meeting to get the relationship off to a good start. He recalls, and the Court accepts, that following this 23 August text message the first meeting in which he was involved was arranged for 5.00 pm the same day, at Little Zak's head office in Ryde.

40. [64]

    Mr Lilley recalls, and the Court accepts, that he and his wife arrived at the head office of Little Zak's a little before 5.00 pm, where a meeting took place in the boardroom. He recalls that apart from he and his wife present were Mr Maged Zaki, Mr Carlos Zaki, Mr Chiem, Ms Du, and Mr Tan. He was clear that he had not had any other meeting at which MindChamps representatives were present with members of the Zaki family before that. He recalls “the bulk of the meeting was spent with Mr Chiem describing his vision and philosophy for MindChamps. Mr Chiem has a powerful vision for MindChamps and Mr Lilley’s recollection of the event rings true.

41. [65]

    Mr Lilley does not recall any reference in conversation on 23 August to an earlier meeting having taken place between the parties. He does not recall any of the MindChamps personnel asking members of the Zaki family whether their accounts were audited by PwC, or members of the Zaki family claiming that their accounts had been so audited. And he does not recall either Mr Carlos Zaki or Mr Maged Zaki saying that M & W Zaki’s data room was “ready”, “fully ready” or any words to that effect. He does recall Mr Carlos Zaki saying that the data room had been opened and some information was available within it.

42. [66]

    If Mr Lilley had attended a meeting on 15 August with Mr Carlos Zaki and MindChamps’ representatives as Ms Du says he did Mr Lilley's text message to Mr Carlos Zaki the following day is jarring. At 10:34 a.m. on 17 August Mr Lilley emailed Mr Carlos Zaki saying:

43. [67]

    Not only does Mr Lilley not refer to the meeting two days before but he is writing on the basis that there has been no earlier contact with the “Asian buyers”. A little over an hour later the same day Mr Lilley emailed Mr Tan communicating to him some of the information which Mr Tan and Ms Du say they were told at the 15 and 16 August meetings but Mr Lilley says he obtained the information by telephone from Mr Carlos Zaki:

44. [68]

    Once again, Mr Lilley does not refer to the meeting in the days before. The next day, 18 August, Mr Lilley sends a further email to Mr Tan summarising a recent discussion with Mr Carlos Zaki, which refers to some of the subject matters that Ms Du and Mr Tan claim were discussed at the alleged 15 and 16 August meetings. Not only is there no reference to those meetings in Mr Lilley's email but it speaks upon the premise that Mr Lilley has acquired his information on a one-to-one basis from Mr Carlos Zaki rather than at a broader meeting, the opening words being “I had a chat to Carlos and the situation is as follows”. Even if he was not present at the meetings it might be expected that reference would be made to them.

45. [69]

    15/16 August: the Contested Evidence. Analysis of the competing evidence of the parties leads to the conclusion that no meeting took place on 15 or 16 August.

46. [70]

    Both Mr Maged Zaki and Mr Carlos Zaki deny meeting with MindChamps representatives before 23 August. They disagree with the evidence of the MindChamps witnesses that a meeting took place on 15 or 16 August at which Mr Maged Zaki made representations to representatives of MindChamps.

47. [71]

    Mr Maged Zaki recalls only two meetings with MindChamps representatives before signing of the Term Sheet together with a site visit to the Artarmon childcare centre. He does not have an exact recollection of their dates but is able to place them between other events.

48. [72]

    Mr Maged Zaki recalls and the Court accepts that the first meeting with MindChamps representatives occurred at the Little Zak's offices in Ryde. But he does recall that the first meeting occurred after the $300,000 deposit from Chiwayland had been received on 18 August and after he had undertaken site visits with representatives of Chiwayland.

49. [73]

    Mr Chiem does not claim to have been present at the first meeting between representatives of MindChamps and representatives of Little Zak's. But he says that he believes that meeting took place on either 15 or 16 August 2016. He says he had a conversation with MindChamps Executive Director, and CEO Australia, Ms Du following these meetings. He has a strong conviction that he was reported to about these meetings by Ms Du and others within MindChamps. But if those meetings did not take place, he must be mistaken about this.

50. [74]

    He does remember Ms Du reporting to him in what he believes was shortly after 16 August saying words to the following effect:

51. [75]

    Mr Chiem’s recollection as recorded through these words shows Ms Du communicating to him as early as 16 August the opportunity for MindChamps to acquire the Little Zak's childcare centres. It is his belief that this communication followed meetings with representatives of Little Zak's. But the content of the conversation he recalls does not include a statement from Ms Du that she has just recently met representatives of Little Zak's. And the Court is not persuaded that such a meeting took place.

52. [76]

    Some of what Mr Chiem says Ms Du reported to him before 23 August is indeed likely to have been reported. Mr Chiem did meet the Zakis on 23 August. It is undoubted that Ms Du was keen for Mr Chiem to meet the Zakis. And it is not unlikely that Ms Du had become aware of the general profile of Little Zak's offering. The Information Memorandum contains detailed information about what was being sold.

53. [77]

    Mr Lilley was a well-informed point of contact for MindChamps personnel. It can be accepted that Ms Du informed Mr Chiem that MindChamps needed “to act quickly on this deal”. Mr Chiem did act quickly and attended the meeting on 23 August. Her opinion about the need for rapid action was most likely informed by knowledge from Mr Lilley of the competing bid from Chiwayland. It is only a small step from that knowledge to infer that Ms Du was also aware that a data room had already been set up for Chiwayland. The idea of a data room being “ready” is an easy inference that is likely to have been drawn by Ms Du herself.

54. [78]

    It is also likely, because it reflected the facts: Ms Du had become aware by then that M & W Zaki had engaged PwC as its accountants. Whether she was also told, or whether she and others from MindChamps assumed, that PwC were also auditing M & W Zaki’s accounts is more contentious. It is probable that before 23 August she had only a very inchoate idea of PwC’s accounting involvement with Little Zak's, with PwC as auditor being just one of the possibilities.

55. [79]

    But in summary Mr Chiem’s evidence is not a basis to infer that MindChamps and Little Zak’s representatives met on 15 or 16 August 2016.

56. [80]

    Ms Du and Mr Tan and Mr Nicholas Caswell were the principal actors said to be present on behalf of MindChamps at the alleged meetings on 15 and 16 August. Their evidence about these meetings is advanced in support of MindChamps’ misrepresentation case. But the Court is not confident it can rely upon their evidence that any meetings took place on these days. The focus in this analysis is on the parts of Ms Du’s and Mr Tan’s evidence relating to the alleged misleading and deceptive conduct on 15 or 16 August.

57. [81]

    Ms Du says that at the meeting on 15 August Mr Carlos Zaki said to her words to the effect "our accounting records have been audited by PwC and they are all in order and ready to go". She says that at a meeting on 16 August, Mr Carlos Zaki also said to the MindChamps representatives words to the effect, "PwC are one of the four major accounting firms in Australia. They audited our accounts".

58. [82]

    But Ms Du’s evidence about these two alleged meetings is unsatisfactory at several levels. She is clearly a thorough and diligent corporate executive. She normally takes notes of meetings, but she took no notes of the alleged 15 and 16 August meetings. She explains that on the basis that "I did a lot of talking." But the thrust of her evidence is that she also did some important listening and took in information that she now relies upon about the PwC audit. In an executive of her competence such omission to note such essentials stands at odds with her declared practice, "I probably normally take my own notes, in addition to Mr Tan”. But even if she did not take notes at the meeting, there is no email from her to Mr Chiem or any other executive reporting on this meeting, as might be expected if it had taken place.

59. [83]

    But a troubling part of Ms Du’s evidence is that she could not coherently sequence how the important subject matter of the Little Zak’s PwC audit arose at this meeting. When the Court asked her how Mr Carlos Zaki’s statement about PwC audit accounts arose in the conversation, she said that someone mentioned PwC and she thought "this could be the deal that we are looking for because their accounts are audited." So, she says she then "spent a fair bit of time asking him… At least a couple of questions… To confirm that his accounts are being audited by PwC."

60. [84]

    But this does not explain the context in which a PwC audit was first raised. She said that she was trying to pin Mr Carlos Zaki down with several questions about a PwC audit. But she did not give an account of what those several questions were. When asked again to explain the context, the Court received vague answers that did not indicate the witness was drawing upon real memory of such a meeting, but rather trying to reconstruct what she thought must have happened.

61. [85]

    Mr Tan says that at a meeting on 16 August at the Little Zak’s offices with Ms Du and Mr Caswell, he heard Ms Du ask, "Who audited the accounts?” to which Mr Carlos Zaki replied "PwC audited the accounts". But the Court is not confident that Mr Tan witnessed any such statement to the MindChamps representatives at a meeting on or about 16 August for several reasons.

62. [86]

    First, Mr Tan is an assiduous notetaker, as is attested by his notes of the meeting he undoubtedly attended on 23 August. But he did not take any notes of meetings on 15 or 16 August 2016. Although it was his habit to take notes of "something that is of importance” at meetings, despite apparently hearing an important statement about accounts being audited by PwC, he took no note. Moreover, he did not report by email to any other executive about this alleged meeting and his notes of the next meeting of 23 August make no reference to any prior meetings.

63. [87]

    Second, his oral evidence diverged from his affidavit evidence on the central question of what questions Ms Du asked. In his oral evidence he has Ms Du asking the more fundamental question "Are the accounts audited?", not the secondary question "who audited the accounts?", as he deposed.

64. [88]

    Third, once again, like Ms Du, Mr Tan was not able to give a compelling narrative of how the statements about PwC auditing the accounts arose and became embedded in the wider conversation on the day.

65. [89]

    Mr Caswell’s evidence of his involvement in a 16 August meeting is no more compelling than Ms Du or Mr Tan. He was not confident in the date, saying it was "on or around" 16 August. He neither took notes during the meeting, nor emailed anyone about it afterwards. And he could not give any compelling explanation as to how he reached the date of 16 August, as distinct from a later date for the meeting, and he could not exclude the possibility that the meeting could have been 24 or 25 August. Like Ms Du and Mr Tan, Mr Caswell has very little convincingly to anchor meetings with Little Zak's personnel to the dates of 15 or 16 August.

66. [90]

    MindChamps and Little Zak’s were in active discussions by 18 August. Mr Lilley emailed Mr Tan on 18 August, passing onto him information he had recently received from Mr Carlos Zaki. Mr Tan was interested in Little Zak's dealings with Chiwayland. Mr Lilley reported that Mr Carlos Zaki had told Chiwayland of the MindChamps interest and indicated to Chiwayland that if it wanted exclusivity it would have to make its $300,000 deposit essentially non-refundable and meet certain conditions linking the outcome of the due diligence to the refundability of the deposit. These conditions were structured in a somewhat similar fashion to those ultimately found in the Term Sheet and were stated as follows:

67. [91]

    Thus, as early as 18 August Little Zak's were telling MindChamps that figures would be “provided by Price Waterhouse” but just what that meant was yet to be understood in clear terms. MindChamps began to think it meant audited accounts but Little Zak's always had in mind the actual arrangement they had with PwC. At the conclusion of his email Mr Lilley reported that Chiwayland had not agreed to the conditions Little Zak's had requested and therefore did not have exclusivity. Mr Lilley then set out Mr Carlos Zaki’s position at that time as follows:

68. [92]

    Mr Lilley and Mr Tan had a conversation the same day in which Mr Lilley elaborated to Mr Tan that Little Zak's had accepted a verbal $60,000,000 offer from Chiwayland and offered 30 days due diligence. But as at 18 August “no request for any due diligence rollout” had occurred. In an internal email that day Mr Tan calculated that the Chiwayland offer was 6.2 times forecast FY16 earnings of $9.681 million. Clearly MindChamps were pondering the right price-earnings multiple to apply to sustainable earnings to calculate an appropriate offer to Little Zak's.

69. [93]

    On the same day, 18 August, Little Zak’s were preparing internally and in consultation with their advisor, Mr Simon Johnson of Pitcher Partners. Mr Johnson advised Little Zak's that Chiwayland’s $300,000 deposit had been received that day. He also reported that although he had not yet spoken to KPMG and been given a list of what they wanted to inspect, he expected from his experience that MindChamps would want a “per centre” breakdown of 14 categories of information, including weekly occupancy, fortnightly or weekly billing deposits, payroll runs since opening and significantly for the issues in these proceedings the following:

70. [94]

    Mr Johnson’s reference to “if PwC has audited these please include”, does not indicate that Little Zak’s thought it was committed to providing PwC audited accounts. The idea is clearly expressed as an option only and is ambivalent on the issue of audited accounts.

71. [95]

    Mr Johnson made clear to his client, Little Zak’s, his professional attitude to being ready to provide the information that he expected would be requested:

72. [96]

    But what data needed to be made ready had not yet been discussed in the negotiations between the parties.

73. [97]

    The parties agreed that a meeting took place on 23 August at Little Zak’s Ryde offices at which Mr and Mrs Lilley, Mr Carlos Zaki, Mr Maged Zaki, Mr Chiem, Ms Du and Mr Tan were all present. They disagree about what was said. MindChamps’ witnesses say that the subject matter of accounts audited by PwC and the data room being “ready” were discussed at this meeting in the context of the 30-day due diligence period being “very tight”.

74. [98]

    The Court accepts Little Zak’s case that there was high level discussion at the 23 August meeting about the Chiwayland consortium undertaking due diligence and that if MindChamps wanted to make an offer they would need to proceed quickly, partly because the Chiwayland consortium was already ahead of them and partly because the Zaki family wanted to conclude the sale by the end of November and then go on holiday.

75. [99]

    Mr Maged Zaki says that apart from himself, present at this first meeting were his son Carlos, Mr Lilley, Debbie Lilley, Mr Chiem and Ms Du. He believes there were other attendees present from MindChamps but does not recall who they were.

76. [100]

    Much of the structure of his account of what was said at this first meeting can be accepted as consistent with the evidence of the MindChamps witnesses. At their first meeting MindChamps representatives explained their experience in running childcare centres, their desire to establish a childcare centre chain, why they were investing in childcare centres in Australia and how they would continue to live in Singapore but operated a business in Australia.

77. [101]

    The Court accepts Mr Maged Zaki told those present at the first meeting he says he had that he was selling the eight childcare centres to get a break from the business, the Zakis parties desire to close the deal before November that year, that four weeks of due diligence would be offered and then a further eight weeks to close the sale, that Chiwayland had paid a deposit and commenced due diligence, but the agreement with Chiwayland was non-exclusive at that time but MindChamps would need to proceed quickly.

78. [102]

    These statements were a reasonably accurate although incomplete account of the Zaki parties’ dealings with Chiwayland to that point.

79. [103]

    Mr Maged Zaki denies that either he or Mr Carlos Zaki ever said that PwC had provided M & W Zaki with audited accounts. Mr Maged Zaki explained accurately that M & W Zaki had retained PwC to provide high level advice and then as their accountants. He probably did say that the data room was ready to get started with due diligence in a general sense, as Mr Carlos Zaki says something like this was said. But for the reasons examined below such a statement is meaningless in this context and MindChamps did not rely upon it.

80. [104]

    Mr Chiem says that he complained on 23 August, “You are only giving us four weeks due diligence. We need to make sure the accounts are fully ready”, and that he asked for more time. But there was no offer from Little Zak’s prior to that date stipulating only four weeks for due diligence. The first offer during that period was made by MindChamps the following day, in the MindChamps EOI.

81. [105]

    Mr Tan says that Mr Carlos and Mr Maged Zaki said at this meeting, “the due diligence documents are fully ready. We have all of PwC’s audited accounts in our possession. PwC provided the accounts and its ready to go”.

82. [106]

    Ms Du says that she recalls Mr Carlos Zaki saying at this meeting about the data room, “It’s upstairs and ready. The Chinese have already started their due diligence. But we would prefer you over the Chinese”.

83. [107]

    By these statements MindChamps seek to support its case of representations being made that PwC audited Little Zak’s accounts and that the data room was “ready”. But there are many problems the quality of their recollections of this meeting. But the first observation to be made is that the Court must approach cautiously the assessment of the evidence of witnesses who claimed they were present or were told about meetings held on 15 or 16 August, when it turns out that the meetings did not take place.

84. [108]

    Mr Tan took detailed notes of the 23 August meeting. They say nothing about PwC audited accounts or about MindChamps’ anxiety about having only 30 days for due diligence. MindChamps says both these matters were important to them. But they were not important enough for Mr Tan to note them down. Mr Maged Zaki denies he said anything to the MindChamps representatives of the kind suggested by Mr Tan. The Court accepts Mr Maged Zaki’s account.

85. [109]

    Ms Du says that Mr Carlos Zaki said that the data room was “upstairs and ready”. The Court accepts Mr Carlos Zaki’s denial because of the Court’s preference of his evidence and because it accepts that there was no “upstairs” space in the Little Zak’s offices to which the statement could refer.

86. [110]

    Moreover, this meeting took place only seven weeks after the end of the FY16 financial year. Any Little Zak’s promise that it already had audited accounts from PwC so soon after the end of the financial year should either have been greeted with some scepticism or at least had been the subject of further questioning about which financial year’s accounts Little Zak’s were claiming had been audited. Neither of these matters was pursued on the MindChamps’ account of this meeting.

87. [111]

    The better explanation for any impression that Mr Chiem and Ms Du took away from this meeting is that they made assumptions based upon Singapore practice. In Singapore private companies have audited accounts. Because PwC were the accountants for Little Zak’s, they assumed that PwC were also likely to be the auditors. But they did not confirm their assumption with any representative of Little Zak’s.

88. [112]

    Mr Carlos Zaki did not say at this meeting that the due diligence documents in the data room were “fully ready” or that Little Zak’s had audited accounts from PwC. Mr Chiem did not complain at any length about the 30-day time frame for due diligence. And Mr Carlos Zaki did not tell him that he would need it.

89. [113]

    On Wednesday 24 August Ms Du submitted a letter of intent on behalf of MindChamps to Little Zak’s for the eight childcare centres. The letter of intent offered to pay $300,000 as an exclusivity fee for a three-month exclusivity period towards a purchase consideration of $60,000,000 calculated at 6.2 times the FY16 forecast EBIT figure of $9.681 in the Information Memorandum.

90. [114]

    The same day Chiwayland’s appointed due diligence advisor, KPMG (using a different KPMG partner from Mr Willis) indicated it was standing by for access to the data room. It should be noted at this point that the “data room” was in wholly electronic form and the preparation of an electronic data room for Chiwayland did not inhibit Little Zak’s making available and preparing a parallel electronic data room for MindChamps.

91. [115]

    Wednesday 24 August also saw Mr Teo communicating with Mr Tan, and another employee, Mr Yongky Widjaja and copying in Mr Chiem and Ms Du about MindChamps raising the funds for the acquisition. He said:

92. [116]

    Mr Chiem seems to already have suspected that to raise bank sourced funds for the acquisition that another level of due diligence on behalf of financiers would be required. The following day, 25 August, the MindChamps CFO, Mr Teo agrees with the tightness of the proposed due diligence period of 30 days and says in a reply email to Mr Chiem among others:

93. [117]

    This is consistent with MindChamps case that they were saying in meetings with Little Zak’s that they were worried by the shortness of a 30-day due diligence period. They had asked for three months.

94. [118]

    Back on 24 August and later in the day Mr Tan had emailed in reply to Mr Teo and Mr Widjaja, copying in Ms Du and communicating information that he appears to have picked up from discussions with Little Zak’s personnel:

95. [119]

    Mr Tan was clearly under some impression that Little Zak’s had engaged PwC for “accounts and audit”. But whether he is mistaken about the “and audit” he is at least uncertain enough to suggest that if MindChamps wants confirmation it should be asked for in writing. This tends to indicate that whatever was said to him he would prefer to have written confirmation before MindChamps relied upon his impression of the conversation. This uncertainty is confirmed by his conditional declaration “if their statements have been audited by PwC, would that…”

96. [120]

    On the same evening Mr Tan emailed Mr Teo, Mr Widjaja and copied in Ms Du under the title “information from Carlos – Little Zak’s”, listing arrangements information which is described as an “update from the meeting with Carlos, with Cath and I-Ren”. The email then lists information from a meeting with Mr Carlos Zaki in which he has set out his calculation of forecast calendar year 2017 EBIT as being $10,681,757 and that Little Zak’s had given a $1 million-dollar buffer in its Information Memorandum calculations. The email discusses issues of occupancy trends, the range of fee increases, staff to children ratios, pro-rating of expenses and leases among other variables.

97. [121]

    Between 24 and 26 August 2016, Little Zak’s sent MindChamps the data that was ultimately attached to the Term Sheet as Exhibit A.

98. [122]

    Another meeting was held between representatives of MindChamps and Little Zak’s on 26 August in the boardroom of Little Zak’s Ryde. Mr Caswell was at this meeting but not at the meeting on 23 August. Also present at the 26 August meeting were on the MindChamps side, Mr Chiem, Ms Du and Mr Tan and on the Little Zak’s side, Mr Carlos Zaki and Mr Maged Zaki.

99. [123]

    Mr Chiem says that he asked at this meeting, “Can we please have more time to do due diligence?” and that Mr Carlos Zaki said to him in reply, “Don’t worry. If you use KPMG, you can start tomorrow”. Mr Chiem also says that Mr Carlos Zaki continued in telephone calls after 26 August and before the signing of the Term Sheet, saying words to the effect:

100. [124]

     The Court prefers Mr Carlos Zaki’s evidence on this subject that he did not say that the data room was “fully ready” either at or after the meeting on 26 August, nor give advice about the appointment of KPMG. The Court accepts Mr Carlos Zaki’s evidence that much of the discussion on this occasion was about the rent for the childcare centres. It is quite likely that some advantages in MindChamps engaging KPMG may have been mentioned by Little Zak’s at this meeting, but only the most general terms.

101. [125]

     Mr Chiem’s recollection of raising the 30-day time frame for due diligence at this meeting is bolstered in his own mind by conversations he had with Mr Teo about the tight time frame for due diligence in the days afterwards. It can be accepted that there were some conversations between Mr Chiem and Mr Teo about how much time was available for due diligence and the need to plan for it, but the Court does not accept that these resulted in complaints to Little Zak’s about the time available under the proposed Term Sheet.

102. [126]

     Mr Tan and Ms Du both support MindChamps’ case about the meeting on 26 August. Ms Du says that the Zaki’s said to her, “the books are all ready and have been audited by PwC” at this meeting. Mr Tan says that Mr Carlos Zaki said, “the data room is ready. All the accounts were audited by PwC. There should be no issue with quality”. The Court has no more confidence in Ms Du’s account at this meeting then the meeting of 23 August. She made no contemporaneous note to the effect of these statements and did not report them as having been said.

103. [127]

     Mr Tan’s detailed note of this meeting does not refer to audited PwC accounts or the data room being ready. His notes do have however refer to PwC being Little Zak’s accountants. That subject was discussed at the 26 August meeting, as Mr Maged Zaki explained. He says that at this meeting the issue of PwC’s role came up and the Court accepts his evidence that the following conversation took place:

104. [128]

     Mr Maged Zaki says, and the Court accepts that Mr Chiem then turned his request into one for putting Little Zak’s accounts “on a PwC letterhead”. Mr Maged Zaki said he could not promise this could happen, but he would at least put the request to PwC. His version of how PwC came to be mentioned is consistent with Mr Tan’s notes.

105. [129]

     Mr Chiem says that he was repeatedly assured from the 26 August meeting that the due diligence documents were “fully ready” and that Little Zak’s had PwC audited accounts. But the repeating of such statements is an improbable course of events. Neither Mr Chiem nor Mr Carlos Zaki struck the Court as the kinds of businessmen who are likely to repetitively raise the same issue and make the same statements again and again. In context, the evidence of repeated assurances between 26 August and 1 September to this effect is implausible.

106. [130]

     By the last week of August Chiwayland had commenced due diligence in its Pitcher Partners–organised data room. MindChamps uses Chiwayland’s information requests during its due diligence process to show a forewarning to Little Zak’s as to what would be required of them when the Term Sheet was signed but also as corroboration of what a sensible buyer acting prudently and is own interests might require. MindChamps points to the common subject matter between what it and Chiwayland were requesting from Little Zak's.

107. [131]

     Chiwayland had only been in the data room a few days when on Saturday 27 August it made a request for further information through its due diligence advisor KPMG Advisory. When this came to Mr Johnson’s attention, he forwarded the communication on to Mr Carlos Zaki commenting that Chiwayland were “incredibly serious” and “will up their offer significantly if need be”.

108. [132]

     The Chiwayland information request included some 13 “workstream” financial items of “high” materiality. MindChamps points to four of these items as illustrating the kind of information a reasonable purchaser would expect to receive on due diligence for the potential acquisition described in the Information Memorandum. Set out below are the questions Chiwayland asked about the four items MindChamps relies upon:

109. [133]

     This set of requests indicates that Chiwayland does not appear to expect audited accounts. The reference to MYOB in the Chiwayland request and the absence of any reference to audited accounts would indicate that up to that point of time Chiwayland had not been told to expect audited PwC accounts by representatives of Little Zak’s.

110. [134]

     But it does indicate that to undertake due diligence to test a purchase price of $60,000,000 Chiwayland wanted to review a range of management accounts data and bank statements (P&L, balance sheets, reconciled closing bank statements and monthly working capital) back to the calendar year 2014.

111. [135]

     Chiwayland’s due diligence and discussions with Little Zak’s had proceeded intensely into the weekend of 27 and 28 August. But Mr Maged Zaki and Mr Carlos Zaki had developed a preference to deal with MindChamps.

112. [136]

     Very early on Monday 29 August Mr Chiem decided to cut through the corona of advisers and deal directly with Mr Carlos Zaki. He emailed Mr Carlos Zaki offering to “expedite things and save huge lawyers fees”. His aim was to talk about some of the commercial items in the draft Term Sheet before his lawyers responded. He suggested setting up a call at 1.00 pm Sydney time on 29 August.

113. [137]

     Mr Carlos Zaki responded at 9.40 am indicating that Chiwayland were pressuring Little Zak’s to finish the deal with them and that Chiwayland have “already been through a lot of” their due diligence using KPMG. He revealed that Chiwayland had increased their offer from $60 million to $65 million for the current eight centres without discussing the possibility of acquiring the ninth centre at Belrose; a matter which context indicates had already been discussed between MindChamps and Little Zak’s. Mr Carlos Zaki explained Belrose numbers in the final proposal as follows:

114. [138]

     Mr Zaki concluded by indicating that the Chiwayland offer was “very hard to say no to” as Chiwayland were happy to pay a $1 million deposit that day to secure the purchase. Disclaiming a desire “to put any pressure on you” Mr Carlos Zaki indicated his advice was to proceed with both parties non-exclusively “until one party is ready to execute contracts and pay the 30% deposit”.

115. [139]

     It is unclear whether a telephone call took place at 1.00 pm, 29 August between Mr Chiem and Mr Carlos Zaki but on receipt of the draft Term Sheet Mr Teo settled down to re-drafting it. He adjusted the purchase price from $60 million for eight businesses to $68.5 million for the nine businesses and amended the date of the Term Sheet to Thursday, 1 September, giving the advisers and wordsmiths two clear days to polish the draft into a final Term Sheet.

116. [140]

     Mr Teo communicated internally within MindChamps his clear impression of the main features of the draft Term Sheet that was proceeding: due diligence of one month, a further 14 days (to 14 October) for signing a Long Form Agreement, buyer risks losing $500,000 deposit on failure to complete, and sellers must sell at the agreed price if due diligence showed less than 5% variance and pro rata variance between 5% and 10%.

117. [141]

     Mr Teo says that on Tuesday, 30 August he attended in a telephone conversation held between Mr Carlos Zaki and Mr Chiem, in which Mr Chiem asked for longer than four weeks to conduct due diligence and Mr Carlos Zaki replied, “No we won’t agree to that. The data room is very ready, so there is no need for a longer period of time for the due diligence process”. A telephone call may have taken place that day but the Court does not accept that such statements were made. Moreover, such a blunt refusal is at odds with the very advanced negotiating stage that had been reached by then and the tone and content of Mr Teo’s own email correspondence that same day.

118. [142]

     Events during the period 31 August to 2 September, leading to the execution of the Term Sheet, are discussed later in these reasons in the context of the breach of contract case. The Term Sheet is dated 1 September but was only complete in executed form on Friday, 2 September.

119. [143]

     PwC’s close involvement in the preparation of the Term Sheet is to be inferred from the PwC logos and footers throughout the document. The Term Sheet defined the sellers as M & W Zaki, the second and third defendants and two related partnerships which in these reasons will be referred to as “the Sellers”, as they were defined in the Term Sheet. MindChamps was defined in the Term Sheet as the “Buyer”.

120. [144]

     The Background to the Term Sheet recites that the Buyers have agreed to purchase nine childcare centres of a number operated by the sellers. And the nine childcare centres being sold are described as “the Businesses” in the Term Sheet.

121. [145]

     The Term Sheet has a curious structure of binding and non-binding provisions. Term Sheet, clause 1 provides that only parts of the Term Sheet are to be regarded as legally binding. Clause 1 provides as follows:

122. [146]

     Term Sheet, clauses 2 and 3 provide for the sale of the business on the completion date and the setting of a completion date, no later than 30 November 2016, as follows:

123. [147]

     Term Sheet, clause 4(a) describes the assets and goodwill of each business as follows:

124. [148]

     The Term Sheet, clause 4(a) then identifies the final nine childcare centres being sold as centres in the Sydney suburbs of Artarmon, North Strathfield, Ryde, Meadowbank, Epping, Ingleburn, Dundas Valley, Jordan Springs and Belrose. Clause 4(b) grants a licence following completion of six months from the sellers to the buyer to use the brand name “Little Zak’s Academy” for six months before rebranding the business.

125. [149]

     Term Sheet, clause 5 excludes certain assets from the sale and is not material to the present issues.

126. [150]

     Term Sheet, clause 6 defines the purchase price as follows:

127. [151]

     Term Sheet, clause 7 defines the conditions precedent of the term sheet as follows. Parts of clause 7(a)(iv) and all (v) were inserted in handwriting before execution of the Term Sheet:

128. [152]

     Term Sheet, clause 8 contains mutual warranties of good faith and proper authority.

129. [153]

     Term Sheet, clause 9 gives the buyer the option of undertaking due diligence investigations and places information provision obligations on the sellers as follows:

130. [154]

     Term Sheet, clause 10 requires the buyer to pay a deposit of $500,000 to the sellers for them to hold it in escrow and to be repayable to MindChamps on certain conditions by 18 October 2016: clause 10(b)(iii). This clause confirms that the sellers were providing their calendar year 2017 internal management accounts and financial assumptions (in Annexure A to the Term Sheet) to the buyer which was to calculate its own 2017 EBIT by 30 September 2016 based upon those financial assumptions. The outcome of the buyer’s calculation of 2017 EBIT would determine whether the deposit could be retained by the sellers and execution of the long form agreement proceed or be repayable to the buyer. The buyer’s calculation would undoubtedly be informed by the due diligence process. An important threshold which of these courses was chosen was whether the buyer’s calculation of 2017 EBIT was more than 10% below $11,030,000. The rather complex provisions, set out in sub-clauses 10(a) to (f) were as follows:

131. [155]

     Clause 10 alone would appear to have placed a considerable discretion in the buyer, MindChamps to come up with its own calculation. But it is evident from clause 11 that there needed to be agreement about the amounts calculated under sub-clauses 10(e) and (f). If the parties failed to agree on the calculation the clause 11 expert process was engaged, which would result in a decision binding on the parties at least as to price, as is clear from clauses 11 (a) and (e):

132. [156]

     Term Sheet, clause 12 provides various provisions designed to ensure that upon the buyer paying the deposit that the sellers would give the buyer an exclusivity period. MindChamps complains that the Sellers breached clause 12(a) triggering repayment of the deposit under clause 12 (c). The clause provides as follows:

133. [157]

     The balance of the Term Sheet contains provisions which are not of special significance for the interpretation issues which have arisen between the parties. Clauses 13 to 20 deal with contract novation, employees of the business, the grant or assignment of leases over the childcare centres, a two-year noncompete clause near the childcare centres being sold, the management of debtors and creditors, confidentiality, GST and miscellaneous provisions.

134. [158]

     The last relevant document in the Term Sheet is annexure A, which comprises 300 pages of documents, including spreadsheets, weekly occupancy charts, wages expenses documents and rental rates. MindChamps’ case was that when the data room opened it contained nothing more or less than these Annexure A documents which had been attached to the Term Sheet.

135. [159]

     Annexure A includes a Summary which shows the Sellers calculation of 2017 EBIT to be $12,040,341. The Annexure A Summary shows that the EBIT in each childcare centre is arrived at in the same relatively simple way in the sellers’ calculation by subtracting rent, wages and expenses from turnover.

136. [160]

     One other later event after the making and commencement of performance of the Term Sheet is relevant to the misleading and deceptive conduct case. On 16 September 2016 KPMG wrote on behalf of MindChamps to Little Zak’s. The letter alleged a breach of Term Sheet, clause 12. To the extent that it mentioned and relied upon any precontractual representations the reference was limited to the following sentence:

137. [161]

     In the Court’s view the statement in this letter accurately represents the impression at its very highest that Little Zak’s conveyed to MindChamps in the precontractual negotiations, namely that the data room was ready to start the due diligence, not that it was complete with everything that could be needed for due diligence. Indeed, Mr Carlos Zaki says that before the execution of the Term Sheet at the most he said to Mr Chiem: that Chiwayland was presently conducting due diligence and there was sufficient information in the data room to get started. The account of the representation in this termination letter is surprisingly close to his understanding. And nothing was said in this termination letter about Little Zak’s accounts being audited by PwC. This was a baffling omission if repeated representations on that subject had been made to MindChamps.

138. [162]

     Finally, it could be expected that if representations had been made to MindChamps, which it regarded as significant, concerning Little Zak’s having PwC – audited accounts or the data room being fully stocked with information at the outset, that that impression would have been passed onto Mr Willis, MindChamps’ advisor at KPMG, and firmly grasped by him. But he was not informed of either of those matters.

139. [163]

     One of Little Zak’s defences is that MindChamps was not ready, willing and able to enter into a Long Form Agreement because it had not yet secured finance as at 16 September. This defence is not compelling for legal reasons and on the facts. As to the law, if Little Zak’s breached Term Sheet, clause 12(a), then clause 12(c) commands that the result of the breach is the return of the deposit. No issue of causation arises.

140. [164]

     But the defence would have otherwise failed on the facts. The defendants cannot establish that MindChamps was not in a financial position to enter into a Long Form Agreement by the time that was required under the Term Sheet, on 14 October.

141. [165]

     To proceed to a Long Form Agreement MindChamps would have needed to pay $20 million on 14 October and a further $48 million on 30 November. Before MindChamps signed the Term Sheet it had received an indicative finance offer from United Orient Capital Pte Ltd (“UAB”) on 31 August for up to SG$30 million, depending on the outcome of due diligence in relation to the borrower and the businesses being acquired as a term loan facility with a maturity of five years plus a mezzanine facility of up to US$20 million. UAB was prepared to increase the term loan to SG$40 million which Mr Teo estimated in total was about SG$65 million at that time. Mr Teo said, and the Court accepts, that was only "one of the few options that " for finance that MindChamps could have obtained. It is significant that the decision-makers at MindChamps were not prepared to sign the Term Sheet until the UOB indicative offer had come in. Mr Teo did not decline the UOB offer but to use his language "kept them warm". The Court accepts Mr Teo's evidence that UOB remained as a backup financier for MindChamps had it proceeded with the acquisition.

142. [166]

     But the Court accepts Mr Teo's evidence that MindChamps had other options as well. SPH Media Ltd (“SPH”), a Singapore listed entity with a market capitalisation of SG$3 billion had expressed interest in investing in a joint venture to take 40% with MindChamps in Little Zak’s. Some evidence suggests that on 15 September SPH had not given its mandate to invest. The Court accepts Mr Teo's evidence that SPH’s representative in this potential investment, Ms Janice Wu were still engaged in seeking information for SPH to pursue this opportunity.

143. [167]

     Subsequent events confirm the depth of MindChamps’ funding capacity consistent with the Court's judgment of their position as at September/October 2016. In 2017 MindChamps purchased 19 childcare centres in Australia for a total consideration of $78.35 million with a combination of loans from OCBC Bank Singapore, the third largest bank in Singapore, together with equity funding.

144. [168]

     No representation about Little Zak’s having PwC audited accounts was made, so other questions in relation to such a representation do not arise.

145. [169]

     Very general statements were made about the data room being "ready to start due diligence". It is objectively likely to be the kind of general reassurance that was given in the circumstances. But such a statement is so general as to be meaningless and incapable of verification or falsification.

146. [170]

     The primary definition of the word “ready” (Macquarie Dictionary) is “completely prepared or in due condition for immediate action or use”. A second meaning is “duly equipped, completed, adjusted, or arranged, as for the occasion or purpose”.

147. [171]

     Both meanings are applicable to the alleged use of the word in the present circumstance. But here, MindChamps’ own evidence is that its witnesses did not say to the Zaki parties’ witnesses anything like “what do you mean by ‘ready’?” In the absence of asking such a question to clarify what the Zaki parties meant by “ready”, it should be inferred that the MindChamps’ listeners were prepared to proceed on the basis either that they did not know what degree of preparedness or equipping of the data room was inferred by the Zaki parties’ use of this term, or they were not sufficiently interested to pin the Zaki parties witnesses down to find out.

148. [172]

     The Court infers that the use of the word “ready” was therefore so lacking in content that it did not amount to a representation of any factual situation the truth of which could ever be objectively verified. The Court also infers that the capable and intelligent MindChamps witnesses were aware of that and could not ever have seriously relied upon the use of the word by Mr Maged Zaki or Carlos Zaki.

149. [173]

     The word “ready” in most contexts is an expression implying a relationship between a state of preparedness and a particular task. The use of the word “ready” invites the further questions, “what is the task defining the scope of the preparation?” and “what level of preparedness for the task is indicated by the word ‘ready’?” What is the task here? What level of preparedness is implied? None of that was discussed here with any degree of certainty, so that the range of meanings of both concepts was still being debated in final submissions.

150. [174]

     MindChamps would have failed on issues of reliance in any event. Without greater definition and without more MindChamps enquiry about the content of the word “ready”, it is not a statement that the sophisticated business operators at MindChamps relied upon. They knew that a binding legal agreement would result from engaging lawyers to negotiate something like the Term Sheet.

151. [175]

     And if they took the statement “ready” to mean what they now say – a room already replete with all the information they wanted about the M & W Zaki childcare businesses – it is to be wondered why they did not either stipulate for that as a binding provision of the Term Sheet, or provide a list for the benefit of the Zaki parties before the Term Sheet was signed of what documents MindChamps expected to be available when the data room opened.

152. [176]

     MindChamps contends Mr Chiem made clear he was concerned about a tight 30-day timeline for due diligence and would not have signed the Term Sheet without representations about audited accounts and the readiness of the data room. MindChamps points to the evidence of Mr Caswell who the Court accepts reported to Mr Chiem that if MindChamps were going to do due diligence in a short period of time, "We need to make sure all the documents and information are ready in the data room."

153. [177]

     But as the chronology below shows MindChamps had a somewhat relaxed and uncoordinated approach to seeking information in the due diligence process, conduct which hardly bespeaks acting seriously upon Mr Caswell's admonition.

154. [178]

     This conclusion sits comfortably with Mr Zaki's evidence. Mr Zaki denied advising Mr Chiem that there was "no need for a longer period of time for the due diligence". Rather than advise Mr Chiem as to what he would need Mr Carlos Zaki said words to a similar effect that if Mr Chiem was "to act quickly" that "it was possible to do it in the four weeks". It can also be accepted that Mr Chiem wanted more than 30 days but by the time he came to sign the Term Sheet he believed it could be done within that period.

155. [179]

     Little Zak’s contended that if time was so critical as Mr Chiem claimed in evidence that he would have demanded to see the audited accounts before executing the Term Sheet or would have stipulated for a warranty about audited accounts in the Term Sheet.

156. [180]

     Mr Chiem dealt with this criticism by resorting to the diplomacy of the situation, saying from his perspective: "I have always practised respect and I would think that at that stage that would be in terms of building a relationship [and] that would say that ‘we don't trust you,' and that wouldn't have been very respectful to do that, especially if no terms have been finalised."

157. [181]

     But diplomacy is Mr Chiem's forte. He has consummate powers of communication. And it is not difficult to imagine how to couch such a request in a way that would not cause offence or imply lack of respect. It is simple enough for a party in MindChamps’ position to signal how important the audited accounts were and that as they had obviously already been done and were readily available could MindChamps have a copy? Alternatively, a simple request could have been made for them, as they existed, to be put straight into the data room, so they could be inspected upon its opening. None of this would have been particularly challenging for a diplomat as practised as Mr Chiem. Mr Teo also remembers Mr Chiem taking this position. But the best explanation for Mr Teo's evidence is that Mr Chiem convinced himself afterwards of this difficulty and Mr Teo absorbed it.

158. [182]

     Apart from reliance issues there were causation problems with the MindChamps misleading and deceptive conduct claim. MindChamps has been prepared to proceed with other purchases of childcare centres for very substantial sums after due diligence in which the target company did not have audited accounts.

159. [183]

     But one causation contest goes away. The Court accepts the evidence of Mr Carlos Zaki that he told MindChamps between 29 and 31 August before the Term Sheet was signed that if they needed more time for due diligence that he was open to discuss giving more time. This is a probable occurrence: Mr Willis explained such requests are commonplace. Mr Chiem decided not to make such a request, but to terminate the contract because of a loss of trust in the Zaki's. But Mr Chiem was entitled to abide by his contract and not try and renegotiate it. Moreover, since 31 August Little Zak’s had been less encouraging of the idea of granting more time.

160. [184]

     Finally, the claim for wasted airfare's can be independently dismissed. The claim is for various airfares and electronic tickets from Singapore to Sydney or Singapore to Adelaide and related fares. But none of the subject representations were made in Singapore before the MindChamps witnesses executives left. They were all said to be made in Australia. MindChamps’ executives were here to kick the tires of the Little Zak’s enterprise, whether they executed the Term Sheet or not. It is difficult to understand any connection between this claim and either the misleading and deceptive conduct or the contract claims. Indeed, when it was put to him Mr Teo conceded that the MindChamps executives were coming to Australia for reasons unconnected with the potential acquisition of the Little Zak’s childcare centres. Mr Teo was ultimately "not too certain" of the connection and this part of the case was left that way.

161. [185]

     For these reasons MindChamps’ Australian Consumer Law and negligent misrepresentation cases fail.

Contract Breach: The Due Diligence provisions of Clause 12(a)

1. [186]

   This section of these reasons considers MindChamps’ case of a breach of the due diligence obligations in Term Sheet clause 12(a)(i). It commences with a discussion of the construction of clause 12(a)(i). Then it sets out a narrative of relevant findings covering the period from execution of the Term Sheet until termination on 16 September. Finally, it considers the question of breach, applying the narrative of findings.

2. [187]

   Several provisions of the Term Sheet contemplate and regulate the conduct of the due diligence process: clauses 7(a)(i), 9 and 12(a)(i). Clause 7(a) and clause 9 are not legally binding. But clause 12(a)(i) is agreed under the Term Sheet to be legally binding: Term Sheet, clause 1(a).

3. [188]

   The parties are divided on how the Court should construe clause 12(a)(i). MindChamps submits that the focus is on clause 12(a)(i) itself, whereas Little Zak’s contends that the provision should be read harmoniously with the remainder of the Term Sheet and in particular clauses 7(c), 9(b) and 10.

4. [189]

   The Court approaches the construction of clause 12(a)(i) having regard to all the provisions of the Term Sheet, both legally binding and otherwise. The parties created a single commercial agreement, embedding binding and non-binding terms within it. Whilst the non-binding terms do not perform the function of recitals, they can be considered as matters known to both parties and, because it can readily be inferred that the intent of the parties was for the binding and non-binding provisions in the one document to work in harmony.

5. [190]

   The parties are in issue about the nature of the Sellers’ obligations to make information available to the buyer in the due diligence process. MindChamps submits that the Sellers’ obligation to "promptly make available to the buyerall information requested" is a strict obligation to respond with complete information, answering all requests made. Little Zak’s submits that the obligation of the Sellers to make information available to the Buyer is modified by the provision of clause 9 by the rule of reasonableness, that the Sellers are ultimately only required to provide "all information reasonably required" by the Buyer.

6. [191]

   Little Zak’s construction avoids absurdity and promotes the harmonious construction of the whole of the Term Sheet. If the MindChamps’ construction is correct and clause 9 is ignored, a strict reading of clause 12 would require the Sellers to make available "all information requested." Without the inclusion of the standard of reasonableness set by clause 9 unreasonably large or unreasonably short response time requests for information could be made, which if not met would lead to the immediate right to the return of the deposit to the Buyer. Such a construction would give MindChamps a practical discretion as to the return of its deposit, an unattractive construction of a commercial agreement.

7. [192]

   The better construction of clause 12(a)(i) is to treat the past fact of “all information requested” [emphasis added] as descriptive of a request made in accordance with Term Sheet, clause 9(b). Information “requested” under clause 12(a)(i) will always be information, “reasonably required by the Buyer” in accordance with clause 9(b). Another reason to construe clause 12(a)(i) in the setting of clause 9 is that clause 12(a)(i) is on its own an inadequate description of the true nature of the due diligence process. For example, clause 12(a)(i) gives no right of access to the business records of the Sellers. It merely requires the Sellers to make “all information requested available”. An ordinary feature of due diligence is to have reasonable access to records of a business to determine what information requests should be made. That access is only provided for expressly in clause 9(b). Clause 12(a)(i) and clause 9(b) also work in harmony to redress this balance such that the “due diligence investigations” in clause 12(a)(i) are given content by the permission in clause 9(b) for the Buyer to have “reasonable access to the records of the business” as one element of due diligence.

8. [193]

   In short, clause 12(a)(i) and clause 9(b) work in harmony, with clause 9(b) to give expanded content to the concepts of clause 12(a)(i).

9. [194]

   Two other concepts need closer focus. There is a judgment of reasonableness as to time in clause 12(a)(i), in the Sellers’ obligation to “promptly make available” [emphasis added] the requested information. This implies a speedy response to requests and is contractually expected. In context, the speed of the response will be modified by the content of the request and the contractual timetable. MindChamps needed to calculate its 2017 EBIT using the “assumptions” after testing them through the due diligence process and to do so by 30 September 2016: clause 10(e). Failure to do that may have the effect of requiring MindChamps to agree to a higher than commercial purchase price by default under clause 10(f)(i). Then MindChamps needed to make the further decision whether to enter into the Long Form Agreement by 14 October 2016, or the deposit would be released: clause 7(c).

10. [195]

    Despite Little Zak’s submission that MindChamps had until 14 October, MindChamps’ due diligence had to be sufficiently complete by 30 September for it to be able to take advantage of the commercial mechanisms in clause 10(f) of the Term Sheet. Any due diligence process that came in after that date would commercially disadvantage MindChamps. MindChamps’ submission should be accepted that the effective working period for due diligence was 30 days.

11. [196]

    The Term Sheet strongly implies that the due diligence process will be executed in parts: the first part is accessing, requesting, and gathering information followed by the analysis of the information by professional advisers. Clause 9(b) refers to “employees and advisers” and clause 12(a)(i) refers to the Buyer’s “professional advisers”. The Term Sheet also implies therefore that sufficient time must be made available in the due diligence process for the professional advisers to analyse the information and then to make recommendations to MindChamps as the decision-maker by 30 September.

12. [197]

    The Court’s construction of clause 12(a)(i) means that the Court will be involved in applying rules of reasonableness as described here. But the application of those rules will involve judgments about the timely provision of information to meet the requirements of advisers and decision makers on the side of the Buyer.

13. [198]

    The terms of clause 9(b) raise another important construction issue. Little Zak’s submit that to the extent clause 9(b) defines the nature of the clause 12(a)(i) obligation; together they only impose an obligation to give access to the accounts and records of the Business as they existed at the time of the request but there is no obligation under clause 9(b) and clause 12(a)(i) to create records and documents. Little Zak’s submissions liken the obligations in clause 9(b) to administering interrogatories (“must provide all information reasonably required”) and giving discovery (“reasonable access to the records of the Business”). But Little Zak’s submits that does not mean creating records. This issue arises in relation to MindChamps’ request for management accounts for individual childcare centres, which Little Zak’s said they did not keep because they were not required for the childcare centres the way that Little Zak’s ran them.

14. [199]

    But on this issue Little Zak’s argument is not persuasive. The concepts of providing “all information reasonably required” and giving “reasonable access to the records of the Business” readily embrace without any tension the idea of using underlying data of the Little Zak’s business as a resource to obtain reports of various kinds, be they balance sheets, profit and loss accounts, cash flow statements or any other report that can be extracted by computer programs from the underlying data. The underlying data are the “records of the Business” and obtaining “reasonable access” to those records readily embraces the idea of seeking electronic reports of different kinds from that data. Little Zak’s argument may have had some validity in a pre-digital age but in the era of data retrieval by computer programs the MindChamps construction should be preferred.

15. [200]

    The due diligence narrative of findings extends for exactly 2 weeks from 2 September upon MindChamps receipt of the Term Sheet, to 16 September 2016 when MindChamps terminated it. Whether Little Zak’s breached Term Sheet, clause 12(a)(i) depends upon the parties’ conduct in this 14-day period comprising just two weekends and 10 working days. This part of these reasons analyses the relevant events of those days.

16. [201]

    MindChamps received the executed Term Sheet from Mr Carlos Zaki on Friday, 2 September. Shortly after 9pm that day Mr Huy Pham, the assistant manager, corporate development at MindChamps emailed Mr Johnson seeking to set up a teleconference on Monday, 5 September at 10am Singapore time (12 noon Sydney time) to discuss the due diligence program in detail, stressing that the meeting should take place “the sooner the better due to the urgency of this project”. Shortly afterwards Mr Johnson confirmed the suitability of that time.

17. [202]

    Over the weekend of 3 - 4 September Mr Johnson of Pitcher Partners began to establish a data room and to populate it with the documents in Term Sheet, Annexure A. The parties had the scheduled introductory meeting at 12 noon on 5 September. At the conclusion of the meeting at about 2pm Mr Johnson emailed the other parties as follows:

18. [203]

    Two features of this record of the first meeting stand out. Mr Johnson is almost ready to give access to the data room. And he makes clear to MindChamps that PwC were only appointed early this year to verify the work of Little Zak’s internal accountants and there is "no audit". If the claimed representations had been made and relied upon by MindChamps as late as 30 August, here MindChamps was being told that the representations were false. The fact there is no immediate adverse MindChamps reaction to this information seriously undermines the case that the PwC audit representations were ever made.

19. [204]

    Early evening on 5 September Mr Pham provides MindChamps’s first request for information ("RFI") list for response. The RFI which was comprised of some 57 individual requests was attached. The contest between the parties is only concerned with a very limited number of these requests. The first request provided as follows:

20. [205]

    Little Zak’s submissions criticise this RFI as having been drafted by someone unfamiliar with the Term Sheet which identifies five of the centres, Artarmon, North Strathfield, Ingleburn, Jordan Springs and Belrose being owned by the Zaki Group Trust, of which M & W Zaki was the trustee, three of the centres (Ryde, Meadowbank and Epping) were jointly owned by the KZ Trust and one of the centres, (Dundas Valley) was jointly owned by Mr Maged Zaki and the KZ Trust. The request somewhat assumes that a homogenous set of accounts exists covering all the centres. But significantly it is accepting of the possibility that the audited accounts may not be available.

21. [206]

    On Tuesday, 6 September 2016 MindChamps is given access to the data room. At that time, the data contained the following information on a centre-by-centre basis:

    1. (1)

       Excel spreadsheets of each centre’s expenses from 1 January to 30 July 2016;

    2. (2)

       Excel spreadsheets for each centre’s fee income on a weekly basis from 11 January 2015 to 21 August 2016;

    3. (3)

       PDF schedules setting out the centres’ occupancy, downloaded from software used by the centres, QuikKids; and

    4. (4)

       Three copies of the operating licences for each of the centres.

22. [207]

    In addition, the data room at that stage contained summary documents prepared by Little Zak’s setting out the amounts paid for wages, superannuation, the rent paid for each centre, and the average occupancy and fees across the centres. But this information was only in “summary” form. It was not primary accounting information from which the testing and verification of Annexure A’s figures could be undertaken.

23. [208]

    Little Zak’s partly responded to MindChamps’ 5 September RFI the following day. On 6 September Mr Johnson reported to Mr Pham by email that “the majority of the items on your list are being attended to”, and initial commentary concerning the other items would be uploaded the following day. Mr Johnson explained further information co-ordinated by the vendor would be uploaded within 24-48 hours, based on the commentary. Later on 6 September Mr Johnson uploaded answers to the first 42 of the 57 requests. Many of those answers fully dealt with the questions asked which could be regarded as closed. But the important and contentious item 1 in the 5 September RFI received the following commentary in the response:

24. [209]

    Mr Carlos Zaki was working diligently to deal with these requests. But differing understandings of what should have been in the data room were beginning to emerge. After gaining data room access on 6 September Mr Teo wrote to Mr Chiem that the information in the data room was “the same as the Term Sheet, Appendix A” without extra information such as balance sheets and communications with the ATO.

25. [210]

    Mr Carlos Zaki considered item 1 of the 5 September RFI to be a reasonable request but was of the view that the limitations pressed in the 6 September response existed for Little Zak’s. He says, and the Court accepts, that Little Zak’s accounting history up to that time meant that they would have to separate out from the annualised accounts for FY16 and YTD FY17 into monthly accounts by centre, a task which would still have to be undertaken. He was initially unsure whether MindChamps would continue to insist on monthly management accounts for FY15 being extracted on the same basis. So, he took the view that Little Zak’s would initially work on the main task of extracting monthly centre management accounts for FY16 as the most relevant and complete financial year. Mr Zaki instructed Mr Michael, Little Zak’s accountant, to commence work on the requests.

26. [211]

    After reviewing the contents of the data room on 7 September Mr Teo emailed Mr Chiem pointing out that in a typical acquisition of this kind certain basic information should be made available to the buyer from the very start to conduct due diligence, including detailed audited financial statements and management accounts (including profit and loss statements, balance sheets and cash flow statements), customer information, manpower information (including employment contracts and employee lists) and tax assessment notices. Mr Teo expressed concern that this information was lacking in the data room.

27. [212]

    Mr Chiem forwarded Mr Teo’s email onto Mr Carlos Zaki commenting that he felt that Mr Teo had a “valued point” and then said the following:

28. [213]

    These general concerns were soon to be echoed by Mr Willis from KPMG Advisory.

29. [214]

    On 7 September 2016 Mr Willis, set out in correspondence the terms and conditions under which KPMG Advisory would provide due diligence assistance in connection with the acquisition of the nine Little Zak’s childcare centres. On the issue of timing the KPMG Advisory letter noted MindChamps’ instructions that a final report was required by 23 September 2016. This timetable was designed to give MindChamps enough time to digest KPMG's report and work with KPMG on the calculation of FY 17 EBIT for the purposes of Term Sheet, clause 10(e), for submission to Little Zak’s and in the event of disagreement to commence the expert determination process under Term Sheet, clause 11. But KPMG cautioned:

30. [215]

    It is to be wondered why MindChamps was still negotiating a retainer of KPMG on the third working day of due diligence rather than on Friday, 2 September. KPMG brought a more insightful perspective to the due diligence process than the initial RFIs. The same day, 7 September, Mr Pham coordinated the grant of KPMG access to the data room with Mr Johnson.

31. [216]

    KPMG Advisory were finally retained on Thursday, 8 September 2016 when Mr Chiem signed the letter of retainer. MindChamps also retained KPMG Legal on Friday, 9 September 2016.

32. [217]

    These retainers were late. Both parties had been ambivalent about retaining lawyers. But the Term Sheet itself contemplated that professional accountancy and financial services advisers would be retained. In simple terms, KPMG Advisory were being given a timetable to complete a task within three weeks of contract execution on 2 September. Of the three working weeks between execution of the Term Sheet and the target date for the KPMG final report of 23 September, one full week was occupied with finalising KPMG Advisory's retainer.

33. [218]

    Other activity was taking place on 8 and 9 September. The Zaki’s were adding more information to the data room, for example, the Belrose lease was also added on that day, Belrose being the only centre not owned by the Zaki interests and which had a lease from a third party. On 9 September Little Zak’s added the master staff list together with employment contracts for centre managers, although no other employees. The master staff list provided details of all staff employed at each centre, together with their qualifications. But as will be seen some aspects of staff structure were still being requested.

34. [219]

    At approximately 6 pm on 8 September 2016 KPMG were granted access to the data room to participate in conducting the due diligence process. Mr Willis logged in to ascertain the financial information in the data room. He quickly formed a judgment, in his words that “missing from the data room was much information which was necessary to the due diligence process”. He reached the view that what was missing was the following

    1. (1)

       individual management accounts for each centre, which includes monthly occupancy rates and average daily fees,

    2. (2)

       reconciliation of the centre information to group accounts/audited financial statements,

    3. (3)

       details of staffing, including data concerning the salaries of each staff member,

    4. (4)

       cash flow statements,

    5. (5)

       balance sheets including details of working capital accounts,

    6. (6)

       tax information.

35. [220]

    The opinion of Mr Willis about the adequacy of the contents of the data room has special value because of the references in Term Sheet, clause 9(b) and 12(a)(i) to “professional advisers”. The Term Sheet clearly assumes that the information in the data room will need to satisfy the analytical requirements of professional advisers such as Mr Willis. Little Zak’s did not adduce evidence from Mr Johnson, so in the end there was only one professional advisory opinion as to what was needed in the data room for the due diligence process. The Court wholly accepts Mr Willis’s opinion on this issue, and it can be summarised by reference to the above components.

    1. (1)

       Centre Management Accounts. These are the key part of conducting a financial due diligence assignment and were particularly important in this transaction because of the change in carer to child ratios which had come into effect on 1 January 2016. These changes increased the costs for childcare providers and childcare centres would either need to absorb the additional costs or pass them on to parents, potentially reducing occupancy rates. The cost of operating a childcare centre reduces as the average age of the children in the centre increases, because the educator to child ratio for younger children is higher. Monthly occupancy rates of each centre allow analysis of the mix of ages of children in each centre and verification of costs in running the centre.

    2. (2)

       Reconciliation of Centre Information to Group Accounts. Reconciliation from centre accounts to management accounts or audited accounts is an important check on the accuracy of the profit and loss statements prepared for each centre. With unaudited accounts such as those of Little Zak’s this crosschecking is done by obtaining bank reconciliations, enrolment reconciliations to revenue and checking that the profit and loss statements reconcile with the movement in retained earnings on the balance sheet.

    3. (3)

       Staffing and Salary Information. Mr Willis estimates that generally staff costs form between 50 to 60% of the cost of a childcare centre. Staff details are therefore important in understanding and checking how each centre manages its business, in particular the use of trainees. Obtaining a payroll summary by person per year for each centre and crosschecking that information back to the applicable employment award is a key due diligence check on the major cost component in childcare centres.

    4. (4)

       Cash Flow Statements. The provision of cash flow statements is particularly important in the context of unaudited accounts. Cash flow statements usually permit KPMG Advisory staff to ascertain the true nature of the cash flow of each childcare centre and to ensure that the movement in the cash represented in the balance sheet reconciles with the cash flow statement.

    5. (5)

       Balance Sheets & Working Capital Accounts. The provision of balance sheets is important for due diligence as most acquisitions are undertaken on a debt free or cash free basis with an average level of working capital. The provision of a balance sheet allows KPMG Advisory staff to calculate each centre’s average level of working capital and what items should be classified as debt or debt like items, or as cash. Because the Term Sheet defined what assets were Excluded Assets and identified them it was necessary for KPMG to ascertain the assets and liabilities which did not form part of the Excluded Assets. It was also important to obtain the balance sheet information to ensure that the appropriate assets and liabilities were being retained by each business on sale and whether certain liabilities were debt like in nature at completion and therefore to the cost of the vendor.

    6. (6)

       Tax Information. Mr Willis requested certain tax information to be available in the data room so that the KPMG tax team could undertake an appropriate level of taxation due diligence. As the transaction was to be completed by way of an asset acquisition detailed due diligence on individual companies and trusts was not required as their tax history was irrelevant. But the potential taxes applicable to individual assets, such as stamp duty and GST were still relevant.

36. [221]

    Going into the meeting on 9 September, to the extent that he could predict what KPMG would want in relation to staff matters at least, Mr Johnson advised the Zakis that “it is certain that we will need to give them this information”.

37. [222]

    A meeting was arranged for Friday afternoon 9 September between sellers and buyer and including for the first time both KPMG Advisory’s Mr Willis, some MindChamps personnel and Mr Johnson of Pitcher Partners. Before this meeting took place Mr Johnson explained to the Zakis that he expected that KPMG on behalf of MindChamps would be conducting a “mini audit” of the more critical information to verify the accuracy and integrity of Little Zak’s financial statements, including PAYG information, ATO balances, correct superannuation entitlement payments, leave accrued for all workers, proof of income revenue through bank statements, and proof of health food and safety records.

38. [223]

    Mr Johnson did prioritise these requests. Excel versions of the occupancy data for the 9 centres (from 5 January 2015 to 5 September 2016) were added to the data room on Sunday 11 September 2016.

39. [224]

    The consensus priority item was management accounts per centre. The unfolding course of events for that item deserves individual analysis. The first request for management accounts per centre was made after 7pm on 5 September. On 6 September MindChamps was told that management accounts per centre were being prepared and would be provided in the data room on a profit and loss basis. From 7 to 14 September the Zakis’ accountant Mr Carlos Zaki committed the significant resource of Mr Sherif Michael full time on preparing monthly management accounts for the 9 centres for FY 16. The management accounts on a profit and loss basis and general ledgers for all centres other than Belrose were uploaded to the data room on 13 September 2016, with Belrose being added on 14 September.

40. [225]

    Mr Willis was cross-examined about his opinion as to the speed with which Little Zak’s responded to some of these requests and acknowledged that they were “reasonably prompt”.

41. [226]

    Progress was made over the weekend of 10 and 11 September. On 10 September Mr Willis wrote to Mr Johnson saying that KPMG considered “that the information provided for the start of the due diligence period from 1 September “is inadequate and is not all the information that would be reasonably required for MindChamps and its advisers to properly review the business of the centres”. He then offered examples of three other acquisitions where better information from childcare centres had been provided, identified the six areas of required information set out earlier in these reasons and then expressed concern that information should not be provided “on a piecemeal basis in the coming week”, as there would be an inadequate time for KPMG to undertake due diligence and to perform the FY17 EBIT calculation by 30 September.

42. [227]

    Mr Johnson replied with frank directness a short while later:

43. [228]

    A consensus about priorities also quickly emerged between the professional advisers. Later the same afternoon Mr Willis replied:

44. [229]

    This should be interpreted as Mr Willis accepting that Mr Johnson needed to organise significant quantities of material and that the most useful analytical material should be provided first.

45. [230]

    On Monday 12 September 2016 Mr Pham sent Pitcher Partners an “updated” RFI, with additional questions posed by KPMG, questions 58 to 70, to the list of questions in the earlier MindChamps RFI. Little Zak’s complains with justification in final submissions that this second RFI was crafted with insufficient care and contained questions which overlapped with questions that had been asked previously, request 65 for example overlapping with request 1. Rather than a closely crafted request seeking to minimise unnecessary work on the part of the recipient, this second RFI asked for some information which had already been placed in the data room as early as 6 September, namely (without limitation) centre opening dates, occupancy rates, licensed places, data and fees (request 66). And to compound the burden on Little Zak’s this second RFI did not seek to prioritise one request over any other.

46. [231]

    The Zakis actions in response to this second RFI did produce some quick results. For example, on 12 September it was able to add details of price increases implemented in the nine childcare centres on 1 July 2015 and 1 January 2016 (request 69).

47. [232]

    Responding to Little Zak’s complaints of lack of prioritisation of requests on the evening of Monday 12 September 2016, MindChamps re-sent the second RFI to Pitcher Partners, clearly setting out the 17 items which MindChamps sought as a matter of priority. MindChamps asked that for these 17 requests, the Zakis commit to a date of availability for information in response to each question. The 17 requests prioritised: the original RFI (item 1) management accounts, breakdown of salary expenses and superannuation and bonuses and a headcount by function for FY 15, FY 16 and YTD 17 (item 7); relevant lease agreements including of office equipment (item 10); plans and layouts of the properties of the preschool centres (item 43); staff contracts, or samples of standard contracts (item 58); written employment policies (item 59); details of investigations or enforcement action by any regulatory authority (item 63); grievance appeals or warnings to any employees (item 64); one off income or expenses incurred in FY14, FY15, FY16 and YTD FY17 (item 67); a balance sheet showing prepayments by parents for each centre, government deposits, government grants received and parents deposits (item 58); and price increases implemented on 1 July 2015 at 1 January 2016 on a centre by centre basis (item 69).

48. [233]

    But MindChamps was becoming impatient. Mr Pham wrote to Mr Johnson in the early evening of 12 September stating that “the current status of the sellers’ data room is not conducive for KPMG to conduct its due diligence in any meaningful way” and this was resulting in MindChamps delaying its financial controller, Mr Widjaja flying to Sydney. Mr Johnson responded that the Zakis had been with their accountant all afternoon and “are proactively working on the requests”. And that action was beginning to bear fruit as the next day the management accounts (on a profit and loss basis) were uploaded for all centres other than Belrose, together with depreciation schedules for FY15, GST, PAYG accounts for 2016 and general ledgers for each centre.

49. [234]

    Little Zak’s responded to the updated RFI on 13 September. But the response box for the management accounts item 1 request gives no realistic timing commitment to MindChamps for the delivery of FY16 management accounts, beyond profit and loss and FY15 management accounts. The date 8 September was mentioned in the commentary on item 1 but that had already passed, so the commentary was already out of date and unreliable.

50. [235]

    Progress was still slow and the essential problem at the Little Zak’s end was revealed by an exchange between Mr Willis and Mr Johnson late on the afternoon of 14 September. Mr Willis tried to put in a phone call to Mr Johnson and then instead emailed the following:

51. [236]

    Mr Johnson replied shortly afterwards, offering to telephone in the morning and said:

52. [237]

    The same day Mr Willis reported to Mr Teo that he had been through the material that had been added into the data room and was disappointed that they had “really only provided the management accounts on a monthly basis for FY 16”. He voiced his opinion to his client that because of the change in educator to child ratios from 1 January 2016 and the ramp up in the number of centres, that management accounts for FY 15 and YTD FY 17 were required. He noted that management accounts so far were only profit and loss and that “the vendor has not provided any balance sheet or cash flow information to date”. An accompanying high-level audit by KPMG of the data room as at that date reflected what was in this email of advice but that staff headcount data for FY15 was missing.

53. [238]

    MindChamps’ patience ran out. In a conversation that appears to have been late on 14 September or early on 15 September Mr Willis spoke to Mr Chiem and advised him as follows about the contents of the data room:

54. [239]

    This conversation is in substance attested to in both the evidence of Mr Willis and Mr Chiem and represented the genuine opinion of Mr Willis at the time.

55. [240]

    As these tensions were reaching breaking point MindChamps arranged a meeting with Mr and Mrs Lilley. It took place at a café in Balmain on 15 or 16 September. Mr Chiem and Mr Tan were present from MindChamps. Mr Lilley and his wife Debbie were present. Mr Lilley recalls a non-technical discussion about MindChamps’ dissatisfaction with the level of data that had been provided in the data room to KPMG and a general disappointment with the flow of information from the Zakis to MindChamps by this time.

56. [241]

    Mr Lilley’s overall impression was that Mr Chiem was disgruntled about the process. But Mr Chiem’s dissatisfaction in part stemmed from the way he felt he had been treated in the transaction. He said to Mr and Mrs Lilley,

57. [242]

    Mr Lilley’s impression was that Mr Chiem did not see a resolution of the impasse. Mr Chiem then decided to end the deal and request the deposit back in accordance with the Term Sheet. He gave instructions to KPMG Legal who wrote a letter to that effect on 16 September.

58. [243]

    Subsequent correspondence occurred between the parties, but it need not be detailed in these reasons.

59. [244]

    The due diligence period commenced with a substantial mismatch in expectations between the Sellers and the Buyer under the Term Sheet. How did that arise? Several factors account for it. The main factor was the distracting intensity of the pre-contractual negotiations and multiple meetings, focused as they were on price, the rent negotiations for the centres other than Belrose, the number of centres requiring separate consideration, defining the Excluded Assets, the Long Form Agreement timetable, the FY17 EBIT calculation and cascading purchase price adjustments, the legal detail of the Term Sheet and most significantly the influence of active competition from Chiwayland and Eden. By the evening of Friday 2 September MindChamps was already suffering negotiation fatigue. Little Zak’s was equally exhausted.

60. [245]

    This situation promoted a mutual mindset of deferring due diligence planning until after Term Sheet execution and a mutual failure to think through in advance due diligence questions such as: what would be required on day one; were initial due diligence expectations aligned or not; and how the period from 2 September to 30 September would most efficiently be used.

61. [246]

    There is little evidence of comprehensive due diligence pre-planning on either side of this contract. The practical planning of due diligence appears only first to surface within MindChamps with Mr Pham’s 9 pm email on 2 September. Even that is only the lightest of touches on the subject, pushing the commencement of real planning into the following week. And the early email traffic between Mr Johnson and the Zakis after execution of the term sheet suggests that the Little Zak’s first attitude was “they are likely to ask us for a lot but let’s wait and see what they ask for and then we will react to it”. Particularly after Mr Willis came on board for MindChamps, Mr Johnson and Little Zak’s gave greater weight to MindChamps’ requests and accelerated their responsive efforts.

62. [247]

    The Court must judge this situation in hindsight, a perspective which should only be used with caution when applied to situations of the intensity of these negotiations and early due diligence. It is tempting to say that in the days leading up to signing the Term Sheet both parties should, for example, have listed their expectations of what should be in the data room and created points of contact on each side to begin to merge the parties’ expectations.

63. [248]

    But that did not happen. Moreover, it is a management solution in a legal vacuum. Clause 12(a)(i) did not bind either of these parties until the afternoon of 2 September. But such considerations are not irrelevant to the Court’s task in applying clause 12(a)(i) as they show each party’s capability, a factor which the Court can consider in making judgments as to the performance or breach of clause 12(a)(i).

64. [249]

    Deploying clauses 9(b) and 12(a)(i) as previously interpreted, here the Court must determine whether the sellers have “promptly” made available to the buyer and its professional advisers “all information requested as part of the due diligence investigations”. The information requested must be “reasonably required by the buyer”, who should be allowed “reasonable access to the records of the Business” to carry out due diligence.

65. [250]

    Applying the rule of reasonableness embedded in these clauses throws up content issues and timing issues. The threshold to the application of the clauses is a content issue which the Buyer must satisfy: was the content of the Buyer’s requests reasonable? Mr Willis answers that in the affirmative, for the reasons set out above. It does not matter that Mr Willis was not making the requests until 8 and 9 September: the content of all the main requests was reasonable.

66. [251]

    Another content issue was whether the Buyer had “reasonable access to the records of the Business”. Without these important words the due diligence process might resemble procedural tennis where the Buyer merely serves a request and the Sellers return serve with information until the process is exhausted. But due diligence was more than that in this case. When the Sellers assumed the obligation to give “reasonable access to the records of the Business” they took on an obligation greater than merely to put into the data room the Annexure A summary information. The important integers of the Information Memorandum and Annexure A, included revenue, employee expenses, property expenses and administration costs extracted from the underlying data of the business. Little Zak’s took on an obligation to open and admit the Buyer to their business records in the sense of their business data, which were accessible through the conventional language used to comprehend financial data, namely actual profit and loss statements, balance sheets, and cash flow statements.

67. [252]

    The Term Sheet, clause 4 made clear the Sellers were selling nine separate businesses situated in different geographic and socio-economic circumstances in suburban Sydney. Given that the extracted business information in Annexure A was already attached to the Term Sheet, to give any content to the Sellers’ obligation to give “reasonable access to the records of the business” implies access to the actual underlying management accounts for the nine individual centres being sold so that Annexure A could be tested by due diligence, rather than just accepted at face value. And Mr Johnson’s own correspondence to the Zakis during the due diligence period and Little Zak’s prompt reaction when the MindChamps request for management accounts was made, all indicate that there was no real contest about the reasonableness of MindChamps’ request for access to this information.

68. [253]

    Consideration of clause 10(e) leads to the same conclusion. It required MindChamps to undertake its own calculation of FY 17 EBIT. This was a meaningless exercise without MindChamps being put in the position to test the assumptions in Annexure A. That could only realistically be done by using management accounts of the kind requested and the other data that Mr Willis says was required.

69. [254]

    In the Court’s view there is no reason to interpret clause 9 “access to the records of the Business” as part of the due diligence process as anything other than access on day one of due diligence to the financial data for each of the centres and not access that needed to be gained by a process of request, consideration, and response.

70. [255]

    The second issue is the timing issue. Whether the Sellers obligation to “promptly make available” was met is a judgment to be made in specific circumstances related to the way that a request is made. A “prompt” response to poorly constructed and changing requests may take longer than a “prompt” response to a concise unvarying request. And embedded within the idea of “information reasonably required” in clause 9 is that information should be requested within a reasonable time, and sufficiently early within a closed due diligence period.

71. [256]

    The interrelationship of the conduct of the parties on timing issues was a fertile source of debate in the proceedings. If MindChamps had provided a complete list of what it wanted on 2 September Little Zak’s would have had a much better chance of meeting it earlier. If Mr Willis had been engaged on 2 September and not 9 September MindChamps could have refined its priority requests much better with his professional expertise. MindChamps has a greater challenge in establishing a breach of clause 12(a)(i), as it must also establish that the timing of its requests was sufficiently reasonable to give Little Zak’s adequate response time to meet the request. And its own delays and Little Zak’s ably resourced and committed response make that more difficult.

72. [257]

    But even on timing issues clause 12(a)(i) creates an obligation that Little Zak’s was required to meet but did not meet. In clause 12(a)(i) the obligation upon the Sellers to act “promptly” applies to all the words after “all information”. But these words, which qualify “all information”, should be read disjunctively, as either “requested as part of the buyer’s due diligence investigations” or “in connection with the proposed sale”. Properly construed clause 12(a)(i) requires the Sellers promptly to make available (in the data room) all information “in connection with the proposed sale”. Mr Willis’s evidence and the nature of the sale implied by Term Sheet, clause 4 shows that management accounts, showing profit and loss balance sheets and cash flow information, for each of the nine centres could readily be described as “information… in connection with the proposed sale” within clause 12(a)(i).

73. [258]

    Thus “promptly making available…all information” does not depend upon any nudge from MindChamps but will be measured by what the Term Sheet implies by way of a standard of promptness. The short answer to this is that Little Zak’s should have “promptly made available” in the data room at least as much information as they could reasonably have anticipated MindChamps would reasonably request. And it is evident from Mr Willis’s evidence and Mr Johnson’s conduct and his email correspondence and Mr Carlos Zaki’s response to it that at least FY 16 management accounts (including profit and loss, balance sheet and cash flow information) would have fallen into this category.

74. [259]

    But “promptly” does not meet immediately. Allowing for the fact that Little Zak’s did not have this information readily accessible when the Term Sheet was signed and accepting that it took Mr Carlos Zaki and Mr Michael approximately seven days from 7 to 14 September to produce information, “promptly” means fully resourcing the task from the time the decision was made to proceed with the sale to MindChamps. If the seven days is counted from the decision time of Thursday, 1 September the management accounts should have been available by no later than Thursday, 8 September. They were not available until 13 September and even then, only with the profit and loss elements but not with full balance sheet and cash flow information.

75. [260]

    This was a breach of clause 12(a)(i) entitling MindChamps without more to the return of the deposit under clause 12(c). No causation issue arises. The FY16 management accounts are only a fraction of the information the supply of which was debated between the parties. But a breach of clause 12(a)(i) may be established by the unavailability of any information that should have been made available given that the obligation was to make “all information” available.

76. [261]

    But although it is unnecessary it may nevertheless it be useful for the Court to indicate there are other categories of information that should have been in the data room within the very early part of the first working week of the due diligence period and no later, particularly given the currency of their use within Little Zak’s. These categories include the YTD FY17 management accounts for each centre, the master staff lists and employment contracts for all centre managers, evidence of current superannuation and leave balances for all employees, and reconciliations of centre information to group accounts. And because of the significant industry changes to carer to child ratios commencing on 1 January 2016 it was always reasonable for MindChamps to wish to look back as far as FY15 and ask for management accounts per centre. The Court accepts Mr Willis’s evidence that it was reasonable to request management accounts back to FY15 for this sale. But these should have been available at least some time in the second week of due diligence. Though requested they were not made available before termination.

77. [262]

    Little Zak’s argues that MindChamps should have sought an extension of time, partly on the basis that Mr Willis suggested it. But when the problem of inadequate information in the data room first became apparent Mr Chiem emailed Mr Carlos Zaki on 7 September about extending the due diligence time. But he did not get a clear response. Mr Willis made a similar suggestion on 10 September but did not get an answer. Mr Chiem was entitled to believe Little Zak’s were not keen on the idea. Moreover, MindChamps had no right to an extension of time for due diligence. It can be held to the contract it signed and it can take advantage of the contract it signed without any causation or contributory negligence issue arising. This point is not persuasive.

Contract Breach: The Exclusivity Provisions of Clause 12(a)

1. [263]

   This section of these reasons deals with MindChamps’ case that the exclusivity provisions of clause 12(a) were breached. It commences with a narrative of the Court’s findings followed by the relevant construction of clause 12(a) and its application to the facts as found. This narrative overlaps with the period covered by the due diligence contract breach case but it gathers material from that period relevant to the issue of exclusivity.

2. [264]

   As at 31 August 2016 Little Zak’s was dealing with two other bidders, Eden and Chiwayland. Both Eden and Chiwayland had submitted expressions of interest for eight childcare centres, had appointed KPMG to perform due diligence and had access to the data room. Mr Carl Wang of Platinum Gate, a financial advisory firm, represented Chiwayland. And Mr Chris Sacre was a financial adviser representing Eden.

3. [265]

   No doubt mindful of the terms of the provisions of Term Sheet, clause 12(a), on the afternoon of 31 August 2016 Mr Carlos Zaki called Mr Johnson and said to him words to the following effect:

4. [266]

   Mr Johnson’s email to Mr Maged Zaki and Mr Carlos Zaki on 31 August 2016 about mid-afternoon confirms this conversation and it can be accepted that it took place. But it is also clear that Mr Johnson immediately pushed back against the instructions. He had an intuition that Chiwayland, may upon hearing the news, make a stronger bid to ensure their pre-eminence in negotiations. Mr Johnson was also concerned about whether the binding provisions of the Chiwayland EOI may impede Little Zak’s granting exclusivity to MindChamps. In his 31 August reply under the heading “Some Things to Think About?” Mr Johnson suggested the following further ideas:

5. [267]

   The third point in this email was undoubtedly a reference to clause 1.5 of the Chiwayland EOI, which confers a somewhat inchoate right of exclusivity upon Chiwayland. But whether such a right was enforceable or not, or required Little Zak’s consent before exclusivity would be conferred, was an open question.

6. [268]

   The Zaki’s did not expressly disapprove Mr Johnson’s suggestions. The Court infers that Mr Johnson at least thought he had Little Zak’s tacit consent to proceed along the lines, “Some Things to Think About?”

7. [269]

   Perhaps with his instinct for the deal, Mr Johnson was reluctant to smother the Eden and Chiwayland negotiations. In a text message back to Mr Carlos Zaki during the evening of 31 August 2016 Mr Johnson pursued the first suggestion in his email and passed on to the Zakis communications from Chiwayland representatives that an increased offer in the range $69 to $75 million from Chiwayland was feasible.

8. [270]

   Even on the day that the Term Sheet was signed, 1 September 2016, Mr Johnson was acknowledging Mr Carlos Zaki’s preference for MindChamps but was advising him to maintain a fallback, saying by text message:

9. [271]

   On the afternoon the Term Sheet was signed a lack of decisiveness within Little Zak’s and its advisors on this issue was on display when a Chiwayland executive asked to inspect the Artarmon property. At 5.47pm on 1 September 2016 in response to a text message from Mr Carlos Zaki, “What time are you coming tomorrow?”, Mr Johnson sent a text back:

10. [272]

    Mr Carlos Zaki was happy enough to walk away from the other bidders. But Mr Johnson was urging him to stay engaged. This was evident from what happened with the proposed Chiwayland visit to the Artarmon centre on the afternoon of 2 September, which went badly. Mr Wang turned up with the Chiwayland executives, but the centre was not ready, and Mr Wang unsuccessfully tried to call Mr Maged Zaki and then eventually walked away. In a text message exchange that night between Mr Carlos Zaki and Mr Johnson the following was said:

11. [273]

    This was less than a command to Mr Johnson not to talk just to Singapore, but rather more of an exhortation. Shortly after midday on 2 September 2016 Mr Carl Wang, had conveyed further due diligence requests to Mr Johnson who forwarded his email on to Mr Carlos Zaki, stating “DD questions for filing”. With the implication that Chiwayland’s additional due diligence questions should be filed away for potential future use. Nothing in the email that Mr Johnson was forwarding indicates that the representative of Chiwayland had been informed about the signing of the Term Sheet or the provisions of clause 12(a).

12. [274]

    Chiwayland’s due diligence requests related to the subject of indirect costs incurred at the corporate level that are not shown at the centre level and the subject of price increases associated with the new intake of children that was due at about that time.

13. [275]

    Mr Wang followed up these requests about head office costs and new intake price increases on 9 September 2016, when he wrote once again about both subjects to Mr Johnson, “Any updates on this?”. Mr Wang continued to be concerned about these two subjects. He was concerned about the extent of "indirect costs not reflected in management accounts" and the reliability of predicted price increases in new intakes of students for 2017.

14. [276]

    When Mr Johnson received Mr Wang's reminder on 9 September, he drafted answers to the two queries the same day and forwarded them on to Mr Carlos Zaki with the message, "Carlos see my answers below for Chinese, are these okay? They are in red [and] need of approval". The two queries were as follows:

15. [277]

    The draft answers each comprised an explanation of between 150 and 200 words dealing with the two queries. On 9 September Mr Johnson also sent a text message to Mr Carlos Zaki about another subject and asking him, “can you check my answers on email to Chinese too? It is unclear just from emails whether between Friday 9 September and Monday 12 September 2016 Mr Johnson spoke to Mr Carlos Zaki about Mr Wang's queries and Mr Johnson’s draft answers.

16. [278]

    On Monday 12 September 2016 Mr Johnson emailed Mr Wang, forwarding him the same emails that he had sent on the Friday to Mr Carlos Zaki with the draft answers to Mr Wang's two questions. Mr Johnson’s covering email forwarding the email he had sent to Mr Carlos Zaki contained the following additional message to Mr Wang:

17. [279]

    The warning that these "should not be emailed", as Mr Johnson was awaiting "vendor approval" may indicate Mr Johnson had not spoken to Mr Carlos Zaki about this subject. But these communications were occurring at one remove from Little Zak’s. The communications reflect Mr Johnson doing what he thought was his job: keeping other bidders interested.

18. [280]

    Mr Wang understood that his communications with Mr Johnson needed to be kept close hold. Shortly after receiving Mr Johnson's email of 12 September 2016, he replied as follows:

19. [281]

    Mr Johnson’s email was calculated to maintain Mr Wang's interest in the Chiwayland purchase. Mr Wang apparently had a similar motivation. It could be inferred that these shadow communications would not have continued to take place unless they were regarded at least by Mr Johnson as potentially valuable.

20. [282]

    Mr Johnson was in text message communication with Mr Carlos Zaki on Monday, 12 and Tuesday, 13 September 2016. In one of those text messages, he communicates to Mr Johnson that "Chinese will do it as is". It is difficult to infer from this alone that any further communication has taken place between Mr Johnson and Mr Wang. Mr Johnson may have just been assessing Chiwayland's negotiating position from his existing accumulated information.

21. [283]

    These were the only text or email communications with Chiwayland during the life of the Term Sheet. But within hours of MindChamps notifying Little Zak’s that it would not proceed Mr Johnson reported to Mr Maged Zaki and Mr Carlos Zaki about their options. In an email that covered a range of subjects including repayment of the deposit to MindChamps Mr Johnson said the following was “in our favour”:

22. [284]

    Mr Johnson rounded out his opinion by suggesting that the best course was to spend a few days trying to exhaust the options with Chiwayland before turning to Eden.

23. [285]

    Mr Johnson’s statements, “I have been talking to them and keeping them close” resolve any ambiguities about his communications in the recent past. What Mr Johnson says can be accepted at face value: he had been continuing to talk to both Eden and Chiwayland, executing the objective of keeping them both interested.

24. [286]

    The defendants did not call Mr Johnson. There is no issue as to his availability. Mr Newlinds SC frankly conceded, not calling him was a “forensic choice”. Applying Jones v Dunkel principles the defendants’ failure to call him is a basis to infer that his evidence would not have assisted the defendants’ case and allows the Court to draw other inferences from the available evidence more confidently against Little Zak’s. In this case the Court can infer with greater confidence that Mr Johnson held discussions on behalf of Little Zak’s with Chiwayland between 1 and 16 September 2016 and that the principals of Little Zak’s, Mr Maged Zaki and Mr Carlos Zaki did not ban Mr Johnson from conducting those discussions, from which it may further be inferred that they at least had reason to believe that such discussions may be occurring. The Court accepts the Zaki’s evidence that they did not have direct communications with anyone from Chiwayland during the exclusivity period.

25. [287]

    Mr Johnson’s interest in continuing conversations with Chiwayland is unsurprising. He was on a fee calculated as a percentage of the purchase price of the deal ultimately struck. Mr Johnson’s success fee was not inconsiderable and is itself a basis to infer communications are likely to have taken place. Upon completion of the deal to sell the childcare centres for greater than $53 million his fee was $610,000 plus 10 per cent of any proportion above $48 million. The structure of his success fee made it particularly attractive for him to continue to promote Chiwayland to Little Zak’s up to a possible contract value of $75 million, in case the MindChamps transaction fell over.

26. [288]

    The defendants rely upon the exchange between Mr Johnson and Mr Maged and Mr Carlos Zaki in which they instructed him to tell Chiwayland and Eden “to finish up” and later “lets just deal with Singapore”. But the problem with these exchanges for the defendant’s case is that they delegated to Mr Johnson the performance of a contractual obligation which ultimately lay with the defendants themselves. Little Zak’s evidence amounts to no more than having instructed an agent to perform their contractual obligation by communicating notice of termination of discussions to the other bidder and then to cease further communications. But Little Zak’s has not called that agent to provide direct evidence that those instructions were carried out.

27. [289]

    Nor has anyone from Chiwayland been called to confirm the instructions were carried out. Mr Johnson’s incentive not to carry out the instructions was substantial. And he directly indicated to Maged Zaki and Carlos Zaki that he wanted to modify the instructions to continue communications inconsistent with the instructions given. Neither Mr Maged Zaki or Mr Carlos Zaki strongly countermanded Mr Johnson’s 31 August pushback, or importantly sought from him clear confirmation after 31 August that their instructions had been carried out. In the circumstances the Court infers the Johnson–Wang discussions continued. Moreover, the 16 September 2016 email confirms that a Chiwayland deposit was not returned, something which should have been obvious to the principals of Little Zak’s.

28. [290]

    As Chiwayland and Eden were holding discussions with Little Zak’s when the time sheet was signed, the relevant breach issue arises out of the first sentence of clause (a) after the word “exclusivity period”. The question is whether Little Zak’s complied with their obligation to “immediately notify that other person that those discussions are terminated” and “cease all further communications with that person”. There is no issue on the Court’s earlier construction of clause 12(a) that “that person” refers to “from any other person” earlier in the sentence, which is a reference to the existing expressions of interest of Chiwayland and Eden.

29. [291]

    The facts found demonstrate a breach of the exclusivity provisions of clause 12(a). There was no immediate indication to either Chiwayland or Eden that the existing discussions “are terminated”. Compliance with that part of clause 12(a) would require clear notice from either Little Zak’s or Mr Johnson that no more communications should take place, or would not be dealt with, or were inconsistent with Little Zak’s obligations under the Term Sheet. Neither the principals of Little Zak’s nor Mr Johnson under their authority initiated such communication. This itself was a breach of Term Sheet clause 12(a).

30. [292]

    But there was also a breach of the obligation to “cease all further communication”. Upon the proper construction of clause 12(a) that obligation lay not only upon Little Zak’s but “their advisors”, otherwise the clause 12(a) restraint would be meaningless. The words “such discussions” in clause 12(a) refers to discussions initiated by or through not only the sellers but “their advisers”. Properly construed the words “cease all communications with that person” must apply to communication through the advisors as well as the principals.

31. [293]

    Mr Johnson represented Little Zak’s to promote competitive bidders for the childcare centres and it was well within the scope of his authority to communicate for that purpose on behalf of Little Zak’s. And the lack of any responsive email of baffled surprise on the part of Mr Carlos Zaki or Mr Maged Zaki upon receipt of Mr Johnson’s email of 16 September 2016, indicates that they probably approved of such discussions having occurred. Analysis of Little Zak’s Construction and Breach Contentions

32. [294]

    The defendants advanced several contentions to resist this conclusion. First, they contend that the clause 12(a) exclusivity provisions set up an option deal for MindChamps. They submit that MindChamps has no interest one way or the other whether Little Zak’s keeps other bidders interested against the possibility that MindChamps does not enter into a Long Form Agreement. Characterising the Term Sheet as an option held by MindChamps would demote Chiwayland and Eden to no greater status than parties that Little Zak’s would be left to deal with if MindChamps decided not to exercise the legal rights arising from its option to purchase. If that were the true construction of the Term Sheet then Little Zak’s argument would have greater force, if it were compatible with the words of clause 12(a).

33. [295]

    But the Term Sheet does not give MindChamps an option to purchase. Rather it is by the payment of a deposit of $500,000 the acquisition of the right to negotiate exclusively for a period of six weeks from 1 September until the earlier of the execution of a Long Form Agreement or 14 October 2016. Once those events occur the deposit is released to the Sellers. The only legally binding provisions of the Term Sheet, clauses 10, 11 and 12, do not confer on MindChamps the right to compel Little Zak’s to execute a Long Form Agreement. And no Long Form Agreement which could become immediately binding is attached to the Term Sheet, as would be the case with an option. Nor are the other terms of a proposed Long Form Agreement sufficiently certain that the Term Sheet could constitute an option.

34. [296]

    If the Term Sheet is not an option, MindChamps has a strong commercial interest in seeing Eden and Chiwayland out of the negotiating arena during the six-week exclusivity period under the Term Sheet. For a potentially non-refundable $500,000 MindChamps only gets Little Zak’s exclusive negotiating attention during a period when it admittedly wants to sell quickly. The value of that negotiating attention would be seriously undermined if Little Zak’s could foster an alternative deal and have it waiting in the wings. Moreover, the essential commercial driver of the agreement in the Term Sheet is forcing Little Zak’s to isolate itself from other bidders to incentivise it to enter a Long Form Agreement with MindChamps. So, breaking down Little Zak’s isolation removes that essential driver. The structure of this agreement strongly points to MindChamps’ construction of the clause 12(a) exclusivity provisions.

35. [297]

    The defendants also argue that clause 12(c) supports their contention. They contend that the words that the sellers "enter into an agreement with any third party for the sale of all or any of the assets of the businesses to that third party" would be otiose if clause 12(a) applied to discussions with parties who had already submitted an expression of interest. This argument is not persuasive for at least three reasons.

36. [298]

    First, clause 12(c) fulfils, as no other binding part of the Term Sheet does, the function of commanding what will happen to the deposit. Second, clause 12(c) covers breach events after the signing of the Term Sheet, namely the entry into an agreement with a third party, a matter not covered in clause 12(a). Third, clause 12(c) performs an additional assurance function, to ensure that a potential agreement to sell Little Zak’s childcare centres is not indirectly undermined by Little Zak’s independently selling some of the assets of the Businesses, to make them unavailable for acquisition under a Long Form Agreement.

37. [299]

    The MindChamps construction does not make clause 12(c) otiose. Even if it did, the mere possibility of an overlap is more consistent with the parties repeating themselves out of abundance of caution, rather than leading to a different meaning: cf Strike Australia Pty Ltd v Data Based Corporate Pty Ltd (2019) 19 BPR 39,621 at [58].

38. [300]

    The defendants also contend that clause 12(c) refers to a breach of clause 12(a)(i) or (ii), relating to due diligence and is not a reference to the introductory chapeau exclusivity portion of clause 12(a). Any other construction is said by the defendants to render the second half of clause 12(c) as nugatory and commercially absurd. This submission is not persuasive. Without any straining of language clause 12(c) refers to the whole of the provisions of clause 12(c).

39. [301]

    Little Zak’s seeks to answer the exclusivity case by dividing its analysis into different time periods. The first period is the communications between 31 August and 2 September, it can be accepted that no communications between Little Zak’s and Eden or Chiwayland on 31 August or 1 September, before Little Zak’s had signed and returned the Term Sheet could be a breach of its terms. Nevertheless, the communications on those days set the pattern for later communications.

40. [302]

    The defendants also submitted that Mr Johnson’s receipt of the "further DD request" from Mr Wang on 2 September 2016, could not have been a breach itself because the executed Term Sheet was only being returned at the same time. This can be accepted as not being a breach of the second part of the exclusivity provisions in clause 12(a) but the receipt of the 2 September email highlights the need for compliance by Little Zak’s with the obligation to "immediately notify" Chiwayland that their discussions are terminated, in order to avoid further strained correspondence such as this.

41. [303]

    Little Zak’s liaised through Mr Carl Wang to bring the Chiwayland investors to the Artarmon centre on the afternoon of Friday, 2 September. The defendants’ submissions can be accepted that it is difficult to establish that this was a breach of Term Sheet, Clause 12(a) because the signed Term Sheet was only returned sometime in the afternoon or early evening of 2 September, possibly after this visit occurred. Nor can any text message exchange immediately after the visit count against the defendants as a breach of clause 12(a) for the same reason. But once again, such communications demonstrate the need for direct compliance by Little Zak’s itself with its obligation to "immediately notify" the termination of discussions.

42. [304]

    As to the Johnson – Carlos – Wang emails of 9-12 September, Little Zak’s’ submissions focus merely upon the interaction between Mr Johnson and Mr Carlos Zaki, to which Mr Carlos Zaki had not responded. But the analysis above shows that these email exchanges went much further than that, leading to breach because of the communication back to Mr Wang.

43. [305]

    Finally, in relation to Mr Johnson's post termination email to the Zakis on 16 September at 8:02p.m, the defendants characterised this as a basis to infer that Mr Johnson had spoken to Chiwayland and Eden "at some stage". But that is not correct. The analysis above shows that Mr Johnson’s communications with Chiwayland and Eden are likely to have been post 2 September 2016.

44. [306]

    The plaintiff, MindChamps, has been successful in its claims in contract, by the breach of the exclusivity and due diligence provisions of Term Sheet, clause 12(a) and as a result is entitled to the return of the deposit of $500,000 paid under Term Sheet, clause 10. MindChamps’ Amended Statement of Claim seeks declarations and orders to that effect and they are made below. But MindChamps was unsuccessful on its misleading deceptive conduct claim for compensation under Australian Consumer Law sections 236, 237, 242, 243 not only for the deposit but for $16,655.34 in travel expenses, together with the associated claim for damages in tort and all these claims will be dismissed.

45. [307]

    MindChamps is entitled to interest on the deposit up to the date of judgment in accordance with the rates prescribed from time to time under Civil Procedure Act 2005, s 100. No submissions have yet been made in relation to the proper calculation of interest, but MindChamps was probably entitled to interest on the deposit from at least as early as 14 October 2016, when it was payable in any event under the Term Sheet clause 10(b)(ii)(b). But MindChamps may wish to argue for the earlier date of termination of 16 September 2016. This can either be agreed or be dealt with by supplementary submissions.

46. [308]

    Costs would ordinarily follow the event. But MindChamps has been unsuccessful in a substantial evidentiary part of the case and Little Zak’s may wish to argue for a special costs order. Moreover, there may be Calderbank letters to consider. The Court will not make a costs order at this stage and will give leave for either party to apply by motion and affidavit for a special costs order within 28 days. If no such application is made the Court will order that the defendants pay the plaintiff’s costs.

47. [309]

    For these reasons the Court makes the following orders and directions:

    1. (1)

       Declare that upon the true construction of the Term Sheet made between the plaintiff as Buyer and the first, second and third defendants as Sellers on 1 September 2016 (the Term Sheet) and in the events which have occurred, the first, second and third defendants are obliged by clause 10 of the Term Sheet to return the deposit of $500,000 paid by the plaintiff;

    2. (2)

       Order the first, second and third defendants to pay the deposit of $500,000 to the plaintiff within 28 days;

    3. (3)

       Dismiss the plaintiff’s claims for relief made in prayers for relief 1 and 2 of the Amended Statement of Claim;

    4. (4)

       Dismiss the plaintiff’s claims for relief in tort made in prayer for relief 3 of the Amended Statement of Claim;

    5. (5)

       Reserve for further consideration the question of appropriate cost orders in the proceedings, noting that if no party takes up the leave granted pursuant to order (6) below, the Court is minded to make in chambers an order that the first second and third defendants pay the plaintiff’s costs of these proceedings on the ordinary basis;

    6. (6)

       If any party seeks a special costs order that party should file and serve a motion and affidavit in support within 28 days after consulting with the associate to Slattery J about a suitable return date after 12 September 2022; and

    7. (7)

       Grant liberty to apply.