Taylor v Stav Investments Pty Ltd as trustee for the Stav Investments Family Trust; Taylor v LK Group Investments Pty Ltd

1. [1]

   MITCHELMORE JA: This is an appeal from the decision of Ward CJ in Eq (as her Honour then was) in two proceedings that were heard together: Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208. Her Honour ordered that the first and second appellants, Andrew Taylor and John Wilkinson, pay damages to Stav Investments Pty Ltd (atf the Stav Investments Family Trust), the first plaintiff in the first proceeding, and LK Group Investments Pty Ltd, the plaintiff in the second proceeding, for contraventions of s 1041I of the Corporations Act 2001 (Cth), s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law (NSW).

2. [2]

   Her Honour found that the appellants had engaged in misleading or deceptive conduct in the context of the respondents’ purchase of shares in Yatango Mobile Pty Ltd (Yatango Mobile). From 31 January 2013, Yatango Mobile operated a consumer telecommunications marketing website, web and mobile applications and an e-connect billing and provisioning system. Mr Taylor was a director and the Chief Executive Officer of Yatango Mobile, while Mr Wilkinson was the Chief Financial Officer and Company Secretary. On 20 October 2015, Yatango Mobile was placed in external administration. By 24 November 2015, it was in liquidation.

3. [3]

   Scott Stavretis was the principal of Stav Investments Pty Ltd (Stav Investments), and Larry Kestelman was the principal of LK Group Investments Pty Ltd (LK Group Investments). In 2013, they were approached to consider making an investment in Yatango Mobile. In late 2013, the respondent entities were incorporated and each entered into a share sale and purchase agreement with Yatango Mobile, pursuant to which each paid $750,000 for shares in the company (for convenience I will refer to these two agreements collectively as the First Contract). In 2014, following a request for further capital, each respondent entered into a further share sale and purchase agreement with Yatango Mobile, on this occasion for $262,500 (collectively referred to as the Second Contract). Each of the First Contract and Second Contract contained warranties given by Yatango Mobile and the appellants, including as to ownership of the intellectual property used in Yatango Mobile’s business.

4. [4]

   In the proceedings, the respondents claimed that the appellants had breached a number of the contractual warranties. They also relied on the provision of those warranties (and in the case of Stav Investments, on additional representations) as constituting misleading or deceptive conduct on the part of the appellants. The respondents sought damages on the basis that but for the misleading or deceptive conduct they would not have entered into the First Contract or the Second Contract; and the shares they had acquired were of no value given the falsity of the representations.

5. [5]

   The primary judge upheld the respondents’ respective claims for breach of contract in respect of a number of the warranties, and their claims for misleading or deceptive conduct. Her Honour concluded that the appellants had induced the respondents to invest “substantial sums into [the] Yatango Mobile business on the faith of representations (backed up by contractual warranties to the same effect) that Yatango … had an unique online platform with considerable value that differentiated itself from its competitors and, when asked directly as to the ownership of the intellectual property (underpinning that platform), they misrepresented the true position”: [550]. Her Honour awarded damages for misleading or deceptive conduct in the amounts that the respondents had paid under the First and Second Contracts, being $1,012,500 each. Her Honour would have awarded nominal damages for breach of the contractual warranties, although it was unnecessary finally to determine the issue.

6. [6]

   The appellants have filed an Amended Notice of Appeal in each proceeding, which are relevantly identical. There are 16 grounds of appeal, which in summary raise the following issues:

   1. (1)

      Did the primary judge err in concluding that but for the misleading or deceptive conduct, the respondents would not have entered into the First Contract and the Second Contract, and did her Honour give adequate reasons for reaching that conclusion (Grounds 1-6 and 10)?

   2. (2)

      Did her Honour rely on the correct scenario for the purposes of assessing damages, having regard to the expert evidence of Mr Potter (Ground 7)?

   3. (3)

      Did the primary judge err in accepting that both respondents had made good a claim that the appellants had engaged in misleading or deceptive conduct by a combination of oral and written email communications together with proffering the contractual warranties, when LK Investments had relied in its pleading on the contractual warranties alone (Ground 8)?

   4. (4)

      Was the representation in a warranty in the Second Contract, that the respondents’ shares in Yatango Mobile would be exchanged for shares in Yatango Holdings by a specified date, properly characterised as a representation about a future matter (Ground 9)?

   5. (5)

      Did the primary judge err in concluding that Yatango Mobile was not a concurrent wrongdoer and failing to apportion responsibility on that basis (Grounds 11-16)?

7. [7]

   In the event that the appellants are successful, each of the respondents relies on a Notice of Cross Appeal, the sole ground of which is that the primary judge erred in failing to find that the appellants were liable to pay damages in the amount of $1,012,500 on the breach of contractual warranties claim. Both respondents accepted that if the Court upheld Ground 7 of the Notices of Appeal, the cross-appeals could not succeed.

8. [8]

   For the reasons outlined below, the appellants have succeeded as to issue 1 in part, although not in a manner that relevantly changes the outcome. The appellants have also succeeded in their complaint regarding the evidence of Mr Potter (issue 2), and in relation to apportionment (issue 5), the effect of which is to reduce the amounts awarded to the respondents and to render the cross-appeals redundant. Issues 3 and 4, which were concerned with more peripheral matters, I have determined adversely to the appellants. It follows that the appeals should be allowed in part and the cross-appeals should be dismissed.

Background to the appeal

1. [9]

   The appellants did not give evidence and they did not call any witnesses in their case: [244]. Mr Stavretis and Mr Kestelman gave evidence for the respondents and were cross-examined. The primary judge declined to make adverse findings against either of Mr Stavretis or Mr Kestelman. Nonetheless, her Honour concluded that “more weight should be placed on contemporaneous documents than oral accounts some years later of events by persons who have a personal interest in the dispute”: [279].

2. [10]

   In addition to the evidence of Mr Stavretis and Mr Kestelman, the respondents relied on the evidence of Bradley Apps, who was the principal of a software development company known as Appscorp, to which I will turn shortly. Mr Potter was also called for the respondents as an expert on the issue of damages. As the primary judge noted at [243], the appellants did not challenge Mr Potter’s expertise, although they challenged his conclusions.

3. [11]

   In August 2012, Mr Taylor established the “Yatango” business, incorporating Yatango Mobile and Yatango Pty Ltd (which was subsequently renamed Yatango Holdings Pty Ltd). According to the primary judge, on or about 14 August 2012, Mr Taylor signed a proposal put forward by Appscorp: [25]. The proposal related to a generic software system, called ECSuite, which Appscorp had developed: [26]. ECSuite, which was used by other telecommunications companies, was described in the proposal as a web-based application, the software modules of which provided “the backbone and features needed to run a telecommunications company” and which could be customised to meet the needs of an individual company: [28].

4. [12]

   In September 2012, Yatango Mobile entered into an Intellectual Property Transfer Agreement with a company associated with Mr Apps, BJYP Pty Limited (“BJYP”). Mr Apps caused BJYP to be incorporated so as to acquire the “Base Code” from Appscorp; he described the Base Code as “the base source code that would be used to create the online platform for the Yatango Mobile business”. Pursuant to cl 1.1 of the agreement, which the primary judge defined as the “2012 BJYP Agreement”, Yatango Mobile was to establish a new entity, Yatango Mobile Labs, on or around the date that the last party signed the agreement. Clause 1.2 summarised the proposed business of Yatango Mobile Labs (which was referred to in the agreement as “YML”) as follows:

5. [13]

   The term “Intellectual Property” was defined in cl 15 to mean, relevantly, “all intellectual property used in the Code”, while “Code” was defined to mean “version 1 of the EC source code base, the specification for which is set out in Schedule 1 to this agreement”. Mr Apps’ evidence was that the “Base Code” performed the functions described in Schedule 1 of the 2012 BJYP Agreement: [283].

6. [14]

   Pursuant to cl 1.3 of the 2012 BJYP Agreement, BJYP agreed to transfer to Yatango Mobile Labs “a copy of the Intellectual Property”. As consideration for that transfer, cl 2(c) provided that Yatango Mobile would offer, and BJYP would accept, 20 per cent of the issued shares of Yatango Mobile Labs. The clause further provided that Yatango Mobile would hold the remaining 80 per cent of the issued shares in Yatango Mobile Labs, in consideration for which it was required “from time to time endeavour to contribute, at [its] cost, to [Yatango Mobile Labs’] ongoing research and development”.

7. [15]

   In that regard, cl 1.4 provided that Yatango Mobile Labs would, at its cost, engage ECConnect to provide services to customise and develop the Intellectual Property to the requirements of Yatango Mobile Labs; that arrangement was the subject of a separate agreement. Pursuant to cl 3 of the 2012 BJYP Agreement, Yatango Mobile Labs was then to exclusively license the “Developed Material” to Yatango Mobile and its subsidiaries at cost in accordance with market rates. “Developed Material” was defined in cl 15, in more detail than in cl 1.2(b), to mean:

8. [16]

   Clause 5.1 of the BJYP Agreement provided that all intellectual property rights in the Developed Material, with certain exclusions, was to vest in Yatango Mobile Labs. At the same time, however, cl 5.5 provided that the intellectual property rights the subject of the Agreement would revert to BJYP in certain circumstances, including if Yatango Mobile Labs became Insolvent as defined in the Agreement.

9. [17]

   The BJYP Agreement thus contemplated that the incorporated entity, Yatango Mobile Labs, would be the vehicle which held the Developed Material (as defined. Yatango Mobile Labs would then license the Developed Material to Yatango Mobile at market rates, in circumstances where Yatango Mobile would own 80 per cent of Yatango Mobile Labs, and BJYP 20 per cent.

10. [18]

    In cross-examination, Mr Apps elaborated upon the process of incorporating the base code into Yatango Mobile’s business as follows (in answering questions about the initial August 2012 proposal):

11. [19]

    When asked by the primary judge to explain what he meant by a “platform”, Mr Apps said:

12. [20]

    It was common ground that between the signing of the 2012 BJYP Agreement and September 2014, when a further agreement with BJYP was signed, Yatango Mobile Labs was not incorporated; that did not occur until 1 May 2015. In the absence of that entity, a number of provisions of the 2012 BJYP Agreement could not operate: Yatango Mobile Labs was the entity to which the Base Code was to be transferred, and which was then to license the Developed Materials (being the Base Code with whatever modifications might be made for the Yatango Mobile business) to Yatango Mobile.

13. [21]

    Notwithstanding that Yatango Mobile Labs was not incorporated, work proceeded in terms of developing the Yatango Mobile platform. Employees of Mr Apps’ companies worked in the offices of Yatango Mobile, including on customising the billing system and building what was described as a “client dashboard” according to design elements provided by Yatango Mobile. As Mr Apps said in cross-examination, the dashboard design “would be classed as customised code because it didn’t exist at the time of this proposal”.

14. [22]

    In their submissions on the appeal, the appellants described what remained outstanding under the 2012 BJYP Agreement as “administrative tasks”. They relied in this respect on the evidence of Mr Apps in his first affidavit affirmed on 16 April 2019. Mr Apps there recalled that in various phone calls with Mr Taylor and Mr Wilkinson during September 2012, he told them that everything was in place to transfer the Base Code and whatever else was necessary for BJYP to do under the 2012 BJYP Agreement. He then asked who was preparing the documents to effect the transfer of the Base Code and the licensing of any customised code from Yatango Mobile Labs to Yatango Mobile. The appellants submitted that this was significant when considering the question of what “if anything” the respondents lost when they purchased the shares and what they would have done had the true position been made known to them. The “true position” in this respect, they submitted, was that although the 2012 BJYP Agreement had not been completed, “the other party to it was pressing for it to be completed.”

15. [23]

    In 2014, Yatango Mobile entered into a second agreement with BJYP, titled “Intellectual Property Transfer and Licence Agreement” (the 2014 BJYP Agreement). The 2014 BJYP Agreement post-dated the transactions that were the subject of the proceedings. Relevantly, however, cl 1 of the Agreement, titled “Background”, contained the acknowledgement and agreement of the parties to the Agreement (being BJYP and Yatango Mobile) that “some obligations under the 2012 Agreement were not performed by the parties” (subcl (a)). Clause 1.1(b) also recorded the parties’ acknowledgement and agreement that “since about 2012, BJYP has licenced [sic] the Intellectual Property Rights in the Base Code and Customised Code to [Yatango Mobile]” (emphasis added). As the primary judge noted at [149], the term “Customised Code” was defined in the 2014 BJYP Agreement in similar terms to “Developed Materials” in the 2012 BJYP Agreement, albeit with some differences:

16. [24]

    Relevantly, the definition of “Customised Code” in the 2014 BJYP Agreement allowed for the fact that in the absence of the incorporation of Yatango Mobile Labs, Yatango Mobile had been working with ECConnect to develop and customise the Base Code, producing the Customised Code: [149]. Mr Apps gave the following evidence in this regard, when asked about cl 1.1(b):

17. [25]

    Mr Apps’ responses in this respect were consistent with the evidence he subsequently gave in relation to the customisation of the Intellectual Property as defined in the 2012 BJYP Agreement, parts of which I have set out above. The primary judge noted the respondents’ acceptance that although the 2012 BJYP Agreement had not been performed, Yatango Mobile had a licence by which it could use the Base Code and the Customised Code in its business: [322]. The existence of that licence took on particular significance in relation to Mr Potter’s evidence.

18. [26]

    Yatango Mobile was looking for additional capital, and an existing investor, Ryan O’Hare, approached Mr Stavretis and Mr Kestelman about a potential investment through a purchase of shares. Mr Stavretis and Mr Kestelman were sophisticated investors with significant experience in the telecommunications industry.

19. [27]

    The appellants provided the 2012 BJYP Agreement to Mr Stavretis as part of a suite of “due diligence” documents, the links to which were emailed to him on 17 September 2013 for the purpose of his consideration of the proposal. In an email dated 30 September 2013 to Mr O’Hare, Mr Stavretis indicated that he had “a very quick look at some [of] the DD material” and that of the risks in the business that he had identified “the main risk is the IP is not controlled by them which can lead to any input cost for licensing the IP of the platform”. Mr Stavretis’ evidence was that when he raised ownership of the intellectual property with the appellants in a phone call on or around 15 October 2013, there was an exchange in the following terms:

20. [28]

    By email dated 21 October 2013 at 9.43 am, Mr Stavretis followed up with Mr Wilkinson for “an updated corporate structure on how it will look.” By way of response later that morning, Mr Wilkinson sent an advice that the appellants had received from the Pinnacle Group on 9 October 2013. The advice presented two options in relation to whether to locate the “Group IP company” and any franchise companies in Australia or overseas. It is apparent from the structural diagrams for the two options that the “IP company” was to be owned as to 80 per cent by Yatango Mobile, and 20 per cent by “Brad [Apps]”, consistently with the arrangement contemplated in the 2012 BJYP Agreement for Yatango Mobile Labs (upon its incorporation).

21. [29]

    Approximately half an hour later, after Mr Wilkinson’s email response to Mr Stavretis, Mr Taylor sent an email to Mr Stavretis on which the primary judge placed significant weight. It stated relevantly:

22. [30]

    The respondents relied on the sentence I have emphasised and submitted that Mr Stavretis was told that the platform “was presently owned by an Australian subsidiary of Yatango Mobile”, and that “what was still ‘in motion’ was the transfer of that intellectual property from one subsidiary of Yatango Mobile to another”: [269]. The appellants, on the other hand, had submitted that particularly when read with the previous email attaching the Pinnacle advice, the 21 October 2013 email from Mr Taylor was necessarily forward looking: [78]. Her Honour accepted the respondents’ construction of the email, stating at [77]:

23. [31]

    The corporate structure of the group continued to be the subject of discussion between Mr Stavretis and the appellants. Thus, on 12 November 2013, Mr Stavretis emailed Mr Wilkinson asking for the corporate structure “and which entity has the software/IP”. In his reply of the same date, Mr Wilkinson stated:

24. [32]

    The linked diagram showed Yatango IP Ltd again being held by Yatango Mobile as to 80 per cent. By email dated 14 November 2013, Mr Taylor sent Mr Stavretis a further diagram showing the same structure. On 18 November 2013, Mr Stavretis sent an email to Mr Taylor (copying Mr Wilkinson) asking: “Is the IP in Yatango PI (Ireland) yet or is the plan it will be moved?”. Mr Taylor replied: “Not setup yet mate, in motion”, while Mr Wilkinson replied: “It’s in the process of being moved.” The primary judge emphasised that these emails did not suggest that the intellectual property was not already held by a subsidiary of Yatango Mobile “as had been previously advised”: [103].

25. [33]

    Also on 18 November 2013, Mr Stavretis had a conversation with Mr Taylor in which Mr Stavretis expressed the view that the intellectual property should stay in Australia, contrary to the advice that Mr Taylor said he had received from Yatango Mobile’s advisers. Mr Stavretis also recalled asking Mr Taylor, “What about the rest of the IP issues”, and that Mr Taylor responded: “There are no issues. Everything is sorted.”

26. [34]

    At this point in the chronology, the primary judge made the following observations at [107]:

27. [35]

    On the appeal, the appellants submitted that this paragraph erroneously built on a misreading of the 21 October 2013 email (extracted in [29]). What her Honour took from it was that “Mr Stavretis was pressing for reassurance as to where, ultimately, the IP was going to be (and what he was being told was that it was within the group)”: [312]. Her Honour also accepted that from the point at which Mr Taylor said of the intellectual property, on 18 November 2013, that “[e]verything is sorted”, Mr Stavretis believed that the intellectual property had been transferred to a subsidiary of Yatango Mobile: [313].

28. [36]

    Mr Stavretis’ belief was evidenced, the respondents submitted (and her Honour agreed), by amendments Mr Stavretis proposed to one of the contractual warranties, in cl 2.17(a) of the draft term sheet, the day after that conversation, inserting the words “or one of its subsidiaries”. An amendment was also made to another clause to clarify that if there was a Yatango entity registered in Ireland there were restrictions on the transfer of the shares in that entity: [313]. In speaking to Mr Taylor on 18 November 2013, after being told that everything was “sorted”, Mr Stavretis had foreshadowed checking if further amendments to the draft term sheet were needed “in case you end up going ahead with an Irish IP entity.”

29. [37]

    The First Contract took the form of a term sheet, the terms of which were the subject of negotiations between the parties before they were executed in final form. On 2 December 2013, Mr Stavretis received the fully executed First Contract for the first tranche of shares in Yatango Mobile for which the respondents respectively subscribed: [117]. Clause 2.17 of the First Contract was headed “Warranties”, (a) to (d) of which formed the basis of the respondents’ claims and provided as follows:

30. [38]

    The respondents submitted that by providing the executed First Contract containing these warranties, the appellants represented that Yatango Mobile or its subsidiaries owned the intellectual property and coding used by the business, including that constituting the platform: [314].

31. [39]

    On or about 2 April 2014, Mr Taylor approached Mr Stavretis about the need to raise additional funds, in the context of a “Pre IPO Funding Investment Round”: [124]. One of the options that was discussed was a “scrip for scrip” rollover, pursuant to which the shareholders in Yatango Mobile would exchange their shares in the company for shares in Yatango Pty Ltd: [126]. On 21 May 2014, Mr Stavretis sent an email to Mr Taylor, in which he asked about the rationale for transferring them into Yatango Pty Ltd, with which Mr Stavretis was not familiar and on which he had done no due diligence: [127]. The appellants relied on this in support of a submission that Mr Stavretis was resistant to the idea of the rollover: [126].

32. [40]

    The Second Contract was also in the form of a term sheet. The executed Second Contract for Stav Investments was dated 16 July 2014, while that for LK Investments was dated 18 July 2014. Mr Stavretis transferred the further funds on behalf of both respondents ($262,500 each) on 18 July 2014. The Second Contract included warranties to the same effect as had been in the First Contract, with minor amendments that are not material to the issues in dispute. The Second Contract contained an additional warranty, in cl 2.17(k), which was in the following terms and was referred to in the proceedings as the “roll-up representation”:

The findings of the primary judge

1. [41]

   Her Honour summarised the respondents’ claim at [298]:

2. [42]

   Both respondents relied on the contractual warranties as conveying a number of representations, but for which they would not have entered into the First Contract or the Second Contract. In addition, Stav Investments relied on pre-contractual representations said to have been made in the discussions and communications between Mr Stavretis and the respondents in the period preceding entry into the First Contract and entry into the Second Contract. LK Investments’ case did not include the pre-contractual representations.

3. [43]

   The primary judge concluded that the appellants breached the warranties in cll 2.17(a), (b) and (c). As to cl 2.17(a), her Honour held that at the time of the First Contract there was intellectual property being used in the Yatango Mobile business, being the code from Mr Apps’ company “with whatever degree of customisation had by then been necessary for the Yatango website to go ‘live’”: [504]. However, that code was not owned by Yatango Mobile, as was “obvious from the fact that there was an agreement on foot for it to be transferred and that had not happened”: [504].

4. [44]

   Her Honour concluded that by the time the First Contracts were entered into, the respondents were “on notice that the IP was in the process of being moved”. However, this did not assist the appellants “because the representation that had been made was to the effect that it was being moved from where it was then located (Yatango Mobile Labs) which was a subsidiary of Yatango Mobile” and that was “simply false”: [507]. It followed that there was a breach of the warranty in cl 2.17(a) in the First Contract: [508]. There was also a breach of the identical clause in the Second Contract, at which time “it was plain that ownership of the code or Base code had not earlier been assigned to Yatango Mobile or any of its subsidiaries”: [509]. The primary judge found that there was a corresponding representation that was misleading or deceptive: [508].

5. [45]

   In relation to cl 2.17(b), her Honour found that notwithstanding the past tense in which the warranty was formulated, there was no evidence of any Yatango Mobile employees having developed customised code that Yatango Mobile then used. There was evidence of Appscorp employees developing code for Yatango Mobile, but that code was never assigned to Yatango Mobile or any of its subsidiaries: there was only the agreement to assign the code in the 2012 BJYP Agreement (which had not been performed). An assignment provision in the 2014 BJYP Agreement did not include the Base Code or earlier modifications to it. It followed that there was a breach of this warranty, at the time of both the First Contract and the Second Contract. Further, the corresponding representation was misleading or deceptive: [512].

6. [46]

   As to cl 2.17(c), her Honour accepted that the evidence supported the conclusion that Yatango Mobile held a licence to use the intellectual property in the software it used for its business operations. However, there was “nothing to support the conclusion that it was a perpetual licence (and it is not clear that it was exclusive).” It followed that “strictly speaking” the appellants breached this contractual warranty (and the corresponding representation was misleading or deceptive). However, her Honour noted that “it may be difficult to establish loss flowing from this breach of warranty [as] it is accepted that there was a bare licence (and the fact that it was not expressed to be exclusive or perpetual does not necessarily establish that damage was suffered as a result)”: [514].

7. [47]

   In relation to cl 2.17(k) of the Second Contract, the primary judge concluded that the clause constituted a warranty that the appellants would action the roll-up that it described within the time stipulated: [519]. The appellants failed to discharge the evidentiary onus that there were reasonable grounds for making the representation that the roll-up would occur when it did not ultimately eventuate: [520]. Her Honour concluded that the appellants breached this contractual warranty at the time of the 2014 investments; and the corresponding representation was misleading or deceptive: [521]. This conclusion is the subject of Ground 9 of the Amended Notices of Appeal.

8. [48]

   In relation to the respondents’ claim for damages for breach of contractual warranties, the primary judge rejected their submission that the case was on all fours with McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79, in that what they had contracted to buy were shares in a company with a unique online platform and this did not exist: [523]. In her Honour’s view, by contrast with McRae, “the shares existed but the contractual warranties as to matters relating to the coding or software for the online platform on which the value of the business (and hence the shares) depended proved to be incorrect”. It followed that her Honour would have awarded no more than nominal damages for the breaches of contractual warranty relating to the software: [524]. Similarly, her Honour was in doubt as to what loss was ultimately suffered by reason of the fact that the roll-up did not occur: [525]. Her Honour’s conclusions on contractual damages are the subject of the respondents’ respective cross-appeals.

9. [49]

   In relation to the respondents’ claim for misleading or deceptive conduct arising from the representations in the contractual warranties, her Honour stated at [532]:

10. [50]

    In so far as the conclusion in this paragraph relates to LK Investments, it is the subject of Ground 8 of the Amended Notices of Appeal.

11. [51]

    The primary judge next made findings in relation to the pre-contractual representations that Stav Investments pleaded and LK Investments did not. Her Honour relevantly concluded that:

    1. (1)

       The appellants represented in conversations and emails that the intellectual property that Yatango Mobile used in relation to its business “was owned by, licensed to or controlled by Yatango Mobile”, which representations were misleading “at least insofar as they related to ownership or control by Yatango Mobile of the intellectual property used in the operation of its business (for the reasons set out above)”. However, her Honour did not accept that the representations in those communications regarding the licensing of the software were misleading: [534].

    2. (2)

       The appellants’ failure to disclose the true position regarding the ownership of the intellectual property (explained and defined in [182] as the “IP Ownership Position”) was misleading in circumstances where they were “obliged to disclose to the plaintiffs the true IP ownership position”. However, her Honour did not consider that this took the matter any further than the first of the pre-contractual representations regarding the status of Yatango Mobile’s rights to the intellectual property: [535].

    3. (3)

       The pre-contractual representations about the roll-up were made by the proffering of the contractual warranties and, so far as they were representations as to future intention, there was insufficient evidence to establish that there were reasonable grounds for making them: [538].

12. [52]

    Her Honour concluded that the respondents had established reliance on the representations that she found were made, “and indeed that they were intended to induce reliance by way of entry into the respective contracts”: [539].

13. [53]

    The primary judge had earlier noted that the appellants relied on the absence from the First Contract of a “rescission clause”, which would operate in the event that any one or more of the contractual warranties was or were incorrect. The appellants submitted in this respect that, inferentially, the respondents had bargained for a lower price for the shares in the event that the intellectual property was not where it was supposed to be, in which event they had a right to sue for damages for breach of warranty but not to recover their money: [95]. In rejecting that submission her Honour had stated at [95]:

14. [54]

    Coming to the issue of damages, although Yatango Mobile had gone into liquidation the respondents did not contend that their loss should be measured on the basis that the shares had proved to be worthless since or by reason of the liquidation. Rather, they contended that but for the misrepresentations on which they relied, they would not have invested in Yatango Mobile at all. In circumstances where the shares they purchased had no value without the intellectual property, they should recover the totality of their investment: [202]. Her Honour stated at [541]:

15. [55]

    Her Honour then turned directly to damages, stating at [542]:

16. [56]

    Of the three claims that the appellants made to which her Honour referred in the brackets at the conclusion of [542], the only one that remains in issue on the appeal is the claim for apportionment. The appellants had relied in this respect on the provisions of Part 4 of the Civil Liability Act 2002 (NSW), ss 1041H, 1041I and 1041L of the Corporations Act, s 87CD of the Competition and Consumer Act 2010 (Cth), and s 12GR of the ASIC Act: [546]. Her Honour was not satisfied that the claim that Yatango Mobile was a concurrent wrongdoer was made good: [549]. Her Honour concluded that it was “clear that the company was in effect the corporate emanation of the defendants”: [549].

Challenge to the finding of a “no transaction” case (Grounds 1-6 and 10)

1. [57]

   In his oral submissions, Senior Counsel for the appellants described her Honour’s conclusion on the “no transaction” case as lying at the heart of the appeal, together with her Honour’s treatment of the expert evidence. The representations on which the primary judge concluded that Yatango Mobile had engaged in misleading or deceptive conduct related to the intellectual property used in its online “platform”. In the appellants’ submission, the critical question for the purpose of the “no transaction” case was what the respondents would have done had the true position regarding the intellectual property been known. The appellants submitted that the respondents had failed to discharge their onus to establish, as a matter of objective fact, that they would not have entered into the First Contract or the Second Contract (or an alternative transaction). There was, in their submission, no reasonable basis on which to conclude that the respondents would not have proceeded if they had known that no formal transfer of the intellectual property had occurred but that the transfer was only a matter of completing what they described as “administrative” requirements.

2. [58]

   The appellants relied on Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282 (“Abigroup (No 3)”) at [57]-[59] for the proposition that it was for the Court to determine what would have been required for a defendant not to have engaged in conduct that was misleading or deceptive. In circumstances where the evidence supported a finding that Yatango Mobile controlled the intellectual property, immediately pursuant to a licence and otherwise pursuant to the executed but unperformed 2012 BJYP Agreement, the appellants submitted that the respondents had not established that if they had been told that the intellectual property had not been transferred, they would not have entered into the First Contract or Second Contract, as opposed to either:

   1. (1)

      insisting that the transfer of the intellectual property take place first (in which case they would not have suffered any loss); or

   2. (2)

      relying on the contractual warranties and suing for breach of contract.

3. [59]

   In relation to the first alternative, the appellants emphasised the existence of the warranties in the First and Second Contract and the absence of a rescission clause (noting that solicitors acted for Mr Stavretis and Mr Kestelman at all times). In their submission, if the respondents really did not intend to proceed in the event of non-transfer of the intellectual property, the agreements would have contemplated rescission as a possible remedy and would not have only provided for claims for contractual damages.

4. [60]

   In any event, the appellants submitted that the primary judge needed to engage with those alternatives, and had not done so. Instead, her Honour had reached the state of satisfaction recorded in [541] on the application of the “but for” test, without explaining her reasons for being so satisfied. The appellants accepted that there were other paragraphs that shed light on the reasoning in [541] but submitted that even with the benefit of those paragraphs the reasons in [541] were inadequate.

5. [61]

   As the respondents submitted, the decision of this Court in Abigroup (No 3) involved misleading or deceptive conduct constituted by a negative representation. The representation was made in tender documents and was to the effect that there were no plans for an outlet pipe when, in fact, there was such a plan. Upon learning of the plan, the successful tenderer contended that if it had been aware of the plan it would have entered into a contract for a different sum having regard to the additional work involved. Beazley JA (with whom Ipp and Tobias JJA agreed) observed, by reference to the reasoning of Gleeson CJ in Travel Compensation Fund v Tambree (2006) 224 CLR 627; [2006] HCA 69 at [30], that the question of causation “is to be found in the ‘purpose of the statute’ as ‘related to the circumstances of the particulars of the case’”: at [56].

6. [62]

   In Abigroup (No 3), which concerned a negative statement, Beazley JA observed that analysing the matter on the basis that nothing had been said “may have the effect of neutralising the contravening conduct”. That was not consistent with the purpose of the legal norm in question, which was “directed to preventing persons suffering detriment in the particular circumstances of the case”: at [57]. Instead, what had to be done was “to ascertain what would have occurred for the respondent not to have engaged in conduct which was misleading”. In the particular circumstances of Abigroup (No 3), her Honour’s opinion was that that would have required disclosing the existence of the plan: at [59]. The respondents in the present case submitted that the particular circumstances in Abigroup (No 3) meant that “a simplistic ‘but for’ analysis was inappropriate”. That was not so in relation to the claims before the primary judge, which concerned “positive misrepresentations as to the ownership of intellectual property and that a ‘roll up’ would be undertaken” to which applying the “but for” test was orthodox.

7. [63]

   The differing nature of the misrepresentations may be accepted, but the point the appellants sought to make from Abigroup (No 3) was not rendered redundant on that basis. That point, which has force, was that in circumstances where the respondents’ case was that they would not have entered into the First or Second Contract “but for” the misrepresentations, applying the “but for” test had to bring to account the respects in which the representations relied on were, in fact, false. The appellants did not take issue with the respondents’ submission that the “but for” test remains a permissible means of discharging that burden (see Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 at [42]). Rather, their submissions were directed to the application of that test.

8. [64]

   In [541], the primary judge referred to the decision of the Full Court of the Federal Court in Wyzenbeek v Australasian Marine Imports Pty Ltd (in Liq) (2019) 272 FCR 373; [2019] FCAFC 167 (“Wzyenbeek”). The Full Court there observed of s 82 of the Trade Practices Act 1974 (Cth), at [89]:

9. [65]

   In concluding in [541] that the respondents “would not have entered into the transaction, and so would not have suffered the loss”, the appellants submitted that the primary judge did not articulate how she reached that state of satisfaction in circumstances where, on her Honour’s findings, the “true position” was as follows:

   1. (1)

      Yatango Mobile did not own all of the intellectual property used in the “platform” (cl 2.17(a)), nor did it have an assignment of that intellectual property (cl 2.17(b)) or an exclusive or perpetual licence (cl 2.17(c)); but

   2. (2)

      Yatango Mobile did have, through the executed 2012 BJYP Agreement, an enforceable right to the assignment of the intellectual property (as her Honour found at [511]) and, pending performance of that Agreement, Yatango Mobile held a licence to use that intellectual property.

10. [66]

    In New South Wales Land and Housing Corporation v Orr (2019) 100 NSWLR 578; [2019] NSWCA 231, Bell P observed that “[i]n the context of appellate review of the adequacy of reasons, the function of an appellate court is to determine not the optimal level of detail required in reasons for a decision but rather the minimum acceptable standard”: at [66]. Read in isolation, the reasons at [541] do not identify or grapple with the issues that the appellant has raised, either by reference to the representations that her Honour found to be misleading collectively or individually: see Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [116]. However, as the respondents submitted, it is necessary to look at the primary judge’s reasons as a whole; and there are other passages in the reasons that shed light on her Honour’s conclusion, albeit not in relation to all of the representations, an issue to which I will come.

11. [67]

    Contrary to the respondents’ reliance on her Honour’s detailed summary of the parties’ respective submissions and the paragraphs that immediately precede [541], which addressed the issue of reliance, those parts of the reasons provide limited assistance. In terms of what immediately preceded [541], [539] contained a finding of reliance on the representations, without more; and [540] dealt with the respondents’ reliance on the appellants making the representations in their personal capacity. As to the recitation of the parties’ submissions, for the most part her Honour did not ultimately state which part of whose submissions she accepted or rejected.

12. [68]

    However, the findings in [312]-[313] are relevant to her Honour’s conclusion at [541], at least in relation to the representations constituted by cl 2.17(a) and (b), which concerned ownership of the intellectual property. The appellants accepted that these paragraphs were of possible relevance, even though no reference was made to them in [541]. In [312], her Honour accepted the respondents’ submission that Mr Stavretis was “looking for comfort in relation to subsidiary companies and in relation to the transfer of shares, so that Yatango Mobile will always have ownership or control in relation [to] the intellectual property”. In [313], her Honour accepted that following the conversation on 18 November 2013 (see [33] above), “Mr Stavretis believed that the intellectual property had been transferred to a subsidiary of Yatango Mobile”.

13. [69]

    The appellants emphasised her Honour’s description, in [312], of Mr Stavretis looking for comfort that Yatango Mobile would always have “ownership or control” in relation to the intellectual property, emphasising the reference to control. However, the reference to control needs to be considered in context of what was occurring at the time. I have addressed the course of discussions and email correspondence above. In the original email from Mr Stavretis, to which I referred in [27] above, it was indeed the case that the focus of his comments was control of the intellectual property. However, her Honour found that the appellants’ subsequent clarification of the position in correspondence was to the effect that Yatango Mobile already owned the intellectual property. On that understanding, Mr Stavretis’ focus shifted to questions of control in the event that Yatango Mobile transferred the intellectual property to an overseas subsidiary.

14. [70]

    The significance of ownership was reflected, as her Honour noted at [313], in Mr Stavretis amending the warranty in cl 2.17(a) to include the reference to any subsidiary of Yatango Mobile. This supported Mr Stavretis holding the belief, at the time of the First Contract, that Yatango Mobile owned the intellectual property and was contemplating transferring it to an overseas entity. Nothing relevantly changed between the respondents’ respective entries into the First Contract and the Second Contract.

15. [71]

    Other parts of her Honour’s reasons reflect the significance the respondents attributed to what was represented as ownership of the intellectual property. Thus, at [45], her Honour observed that what the appellants marketed at “considerable value” was “a business with a unique online platform”. Later in the same paragraph, her Honour referred to the promotion of Yatango Mobile as a business “that had the benefit of the intellectual property used in that online platform (and substantial value was certainly attributed to the billing system software in the consolidated balance sheet provided to the plaintiffs in connection with the proposed investment). Similarly, in [107], which I have set out in full above (at [34]), her Honour found the appellants must be taken to have understood that they were telling the respondents that “whatever that intellectual property comprised”, it “was then owned by Yatango Mobile Labs and was to be held by Yatango Mobile or a subsidiary of Yatango Mobile” (emphasis added).

16. [72]

    The focus in her Honour’s reasons on ownership as opposed to control was consistent with the contemporaneous documentary evidence, to which her Honour gave more weight than the evidence of Mr Stavretis and Mr Kestelman, noting both the passage of time between their evidence and the events in question and their personal interest in the dispute: [298]. That said, her Honour declined to make adverse credit findings and broadly accepted their account of events: [279], [298]. In rejecting the various respects in which the appellants sought to impugn the credibility of Mr Stavretis and Mr Kestelman, her Honour described the inconsistencies on which the appellants relied as “a hallmark of genuine recollection rather than the reverse”: [279].

17. [73]

    It was put to both Mr Stavretis and Mr Kestelman that it was sufficient for their purposes that Yatango Mobile controlled the intellectual property that it used in its business. In cross-examination Mr Stavretis denied that he was content to invest in Yatango Mobile, at the price paid under the First Contract, so long as the intellectual property used in the company’s business “including the platform”, was controlled by the company. When Mr Kestelman was asked about his thought processes when he invested in November 2013, he gave the following evidence:

18. [74]

    It was not put to either of Mr Stavretis or Mr Kestelman that it would have been sufficient for them to enter into the contract that, at the time of entry into the First and Second Contracts, Yatango Mobile had an agreement with the owner of the base code pursuant to which Yatango Mobile was to incorporate a subsidiary which it would own as to 80 per cent (with the base code owner taking the remaining 20 per cent); that the subsidiary was to hold the intellectual property in the Developed Materials and license them to Yatango Mobile; and that in the meantime Yatango Mobile was using the Developed Materials pursuant to a licence.

19. [75]

    The appellants sought to characterise the respondents’ oral evidence as “the self-interested claims of the directors to the respondents”, relying on authorities such as AVWest Aircraft Pty Ltd (as trustee for AVWest Aircraft Trust) v Clayton Utz (A Firm) (No 2) [2019] WASC 306 (“AVWest”) and BB Australia Pty Ltd v Danset [2017] NSWSC 1307 (“BB Australia”). In AVWest, for example, Vaughan J stated at [159]:

20. [76]

    As is implicit in the qualification in the last sentence, evidence of the persons involved as to what they would have done may be supported by contemporaneous evidence: see also BB Australia at [29] (McDougall J). In the present case, the evidence of Mr Stavretis and Mr Kestelman was supported by the course of correspondence on which her Honour placed more weight: at [279].

21. [77]

    The appellants also emphasised the absence of a rescission clause in either the First Contract or the Second Contract as supporting their submissions, noting that both Mr Stavretis and Mr Kestelman were at all times represented by solicitors. However, the absence of such a clause is neutral, if not supportive of the respondents’ case. An equally available explanation for its absence is that the respondents did not consider a clause of that nature was required because they had been told that the intellectual property issues were all sorted. What was of concern, and reflected in the amendments that Mr Stavretis made to the term sheet before execution, was the possibility of the intellectual property being “moved” to an overseas subsidiary.

22. [78]

    So far as the challenge to the adequacy of reasons is concerned, the primary judge provided sufficient reasons for concluding that in relation to the representations constituted by the warranties in cll 2.17(a) and (b) in the First and Second Contracts, the respondents had established that, if they had been told the true position at the time of entry, they would not have entered into either transaction. Having regard to the contemporaneous evidence, her Honour did not err in reaching that conclusion. The respondents had sufficiently established that they would not have taken either of the alternatives in [58(a) or (b)] above.

23. [79]

    The same cannot be said regarding the representation that her Honour found was conveyed by the warranty in cl 2.17(c). The focus of the respondents’ no transaction case was ownership of the intellectual property. This representation, however, was concerned with whether Yatango Mobile had a licence for the intellectual property, and the position at the time of entry into the First and Second Contracts was that Yatango Mobile was using the intellectual property pursuant to a licence, albeit not one that was perpetual and exclusive. There was nothing in the respondents’ evidence to support that they would not have entered into the transaction if they had known that while Yatango Mobile did not have a perpetual and exclusive licence, it did have a licence. Neither the reasons in [541] nor the balance of the reasons as a whole explain the basis on which the primary judge reached the contrary view in relation to this representation.

24. [80]

    A similar difficulty concerns the roll-up representation in cl 2.17(k) of the Second Contract, which is the subject of Ground 10. There is force in the appellants’ submission that the roll-up was not specifically requested by the respondents, but rather was proposed by the appellants at the request of another shareholder. The significance of this was that the mere existence of the contractual warranty did not prove that the respondents relied on it to the extent that they would have refused to enter into the Second Contract if they had known it was false.

25. [81]

    I would thus uphold Grounds 1 and 2 of the Amended Notices of Appeal in so far as those grounds related to the representations constituted by cl 2.17(c) in the First and Second Contract, and 2.17(k) in the Second Contract, and Ground 10, which related to cl 2.17(k) alone. However, given my conclusions on cl 2.17(a) and (b) of the First and Second Contracts, the result on cl 2.17(c) of both contracts and cl 2.17(k) in the Second Contract does not relevantly change the outcome of the respondents’ “no transaction” case. I would thus otherwise dismiss Grounds 1 to 6 of the Amended Notices of Appeal.

Whether Yatango Mobile was a going concern (Ground 7)

1. [82]

   The only expert evidence on damages was given by Mr Potter. He provided separate reports for Stav Investments and for LK Investments. As he reached the same conclusions for each respondent, for convenience, I will refer to the report for one of the respondents, Stav Investments, which was dated 18 April 2019. In that report, Mr Potter recorded that he was instructed to calculate the value of the loss and damage suffered by the respective respondents under the following alternative scenarios:

2. [83]

   The difference between the three scenarios in terms of the loss suffered can be seen from tables that Mr Potter inserted towards the conclusion of his report, setting out the assessed loss for each scenario, being the difference between the assessed value of the respondent’s shares (on the instructed assumptions for each scenario) and the price that the respondent paid. In relation to the shares purchased pursuant to the First Contract, Mr Potter’s assessment was as follows:

3. [84]

   For the shares purchased pursuant to the Second Contract, Mr Potter’s assessment was as follows:

4. [85]

   It is apparent from both tables that for Scenario 1, the assessed loss was the amount of the purchase price. Mr Potter expressed that opinion on the basis that Yatango Mobile was not a going concern and, as such, the assets should be assessed on their liquidation value. The liabilities of Yatango Mobile exceeded the value of the assets, from which it followed that the shares did not have any value.

5. [86]

   In the section of the report addressing his methodology, Mr Potter elaborated on the impact of Yatango Mobile not being a going concern, noting his instruction that “the underlying intellectual property in the billing system was not owned or the subject of a licence for use in favour of Yatango Mobile”. He continued:

6. [87]

   Later, Mr Potter referred to the adjusted net realisable asset method of valuation that he had used, which he described as involving “ascertaining the book value of actual assets and liabilities recorded in the entity’s accounts at the date of the valuation and adjusting for”:

   1. (1)

      assets and liabilities not recorded in the books of the entity; and

   2. (2)

      restatement of the value attributed to the assets and liabilities to adjust their book values to their net realisable value depending on the premise of value (being going concern, orderly sale or liquidation).

7. [88]

   For Scenario 1, Mr Potter assumed that Yatango Mobile was not a going concern and, accordingly, the asset-based approach involved “adjusting the asset and liability values to forced sale liquidation values to arrive at the net equity value available to shareholders”. By contrast, for Scenarios 2 and 3, Mr Potter assumed “the going concern premise of value to be appropriate for Scenarios 2 and 3 at each of the valuation dates, as the intellectual property is assumed to be a valuable asset of the company, notwithstanding trading losses [that] had been incurred (and would continue to occur) on an ‘as-usual’ basis.”

8. [89]

   Mr Potter considered that Scenario 1 was the most appropriate scenario to apply in assessing the loss, for the following reasons:

9. [90]

   In cross-examination, Mr Potter was challenged on the assumption that Yatango Mobile was not a going concern as follows:

10. [91]

    Subsequently, Mr Potter was asked whether, if the assumption he was given for Scenario 1 was wrong, Scenario 3 would be the most reliable. He replied:

11. [92]

    In re-examination, Mr Potter was reminded of the above exchange and was asked the following:

12. [93]

    The primary judge addressed the assessment of damages immediately after addressing the “no transaction” case, in [542]. I have set out the paragraph in [55] above. In support of Ground 7 of the appeal, the appellants submitted that the primary judge erred in her conclusion that Yatango Mobile was not a going concern. That conclusion, and Scenario 1 (on which it rested), was predicated on the assumption that Yatango Mobile was not a going concern because it did not have a licence to use the intellectual property that it used in its business operations, and that as a result “the revenues it earned were not legally permissible”: [292]. However, as noted above, Yatango Mobile did have a licence to use the “Developed Materials”.

13. [94]

    The appellants submitted that in concluding that Scenario 1 remained the applicable damages scenario her Honour had mischaracterised Mr Potter’s evidence. Mr Potter only raised whether the licence was perpetual in answering the question as to how his conclusion would change on the hypothetical scenario that was put to him, that Yatango Mobile held a licence. Additionally, they submitted that her Honour failed properly to account for the 2012 BJYP Agreement and the 2014 BJYP Agreement, which were enforceable and pursuant to which the relevant intellectual property was to be transferred to a Yatango Mobile subsidiary for Yatango Mobile’s benefit. Senior Counsel for the appellants submitted that having regard to the terms of these agreements, if a transfer had been effected the licence would have been perpetual.

14. [95]

    The appellants relied on the passage from Mr Potter’s cross-examination, to which I have referred above, in which he accepted that if the assumption on which Scenario 1 was based was wrong, then his conclusions were wrong; and his acceptance that the most appropriate measure of damages in that instance may be Scenario 3. In answer to the respondents’ contention that they had not established an error in the primary judge’s approach to valuation of the kind described in Tomanovic v One Australia Pty Ltd [2015] NSWCA 11, namely that it was “entirely erroneous”, the appellants submitted that they relied on the valuation evidence that Mr Potter gave in cross-examination. Their complaint related not to his evidence, but to the manner in which her Honour addressed it.

15. [96]

    I accept the appellants’ submission that in proceeding on the basis of Mr Potter’s Scenario 1, the primary judge misdescribed Mr Potter’s evidence. Mr Potter did not identify the extent by which his evidence would change if the assumption, that Yatango Mobile was not a going concern, was not correct. Rather he accepted that if the assumption he was given was wrong, then his conclusion was wrong and “it would change”. The extent to which it would change would depend on variables that Mr Potter could not comment upon, including “the terms of that arrangement, what’s the likelihood of a transfer occurring, what’s the term of the licence” and whether the licence was perpetual or limited to a period, and how secure it was.

16. [97]

    The respondents’ submission that in [542] the primary judge was paraphrasing Mr Potter’s evidence in re-examination is not made good upon an examination of what Mr Potter actually said. The respondents also relied on what Mr Potter said in re-examination, namely: “I doubt whether my opinion would change too much for [S]cenario 1”. However, that expression of doubt was based on the assumption that the relevant agreement contained a market provision for the licence which involved payment to a third party.

17. [98]

    As the appellants submitted, Mr Potter’s answer in re-examination did not assist the respondents because the question asked of him referred to Yatango Mobile as having to pay a licence fee “on market terms”. That was not what the 2012 BJYP Agreement contemplated. In oral submissions, Senior Counsel for the appellants referred to cl 2 of the 2012 BJYP Agreement (see [14] above) and observed that the licence related only to the Developed Materials, not the Base Code. The consideration for the Base Code was BJYP taking a 20 per cent interest in the company that was to be incorporated and would hold the intellectual property in the Developed Materials. Senior Counsel also observed that in so far as Yatango Mobile Labs (once incorporated) was to licence the Developed Materials to Yatango Mobile for a cost at market rates, as Yatango Mobile was to own 80 per cent of the share capital of Yatango Mobile Labs only 20 per cent of the licence fee was ultimately to be paid to a third party. This proposed structure was not put to Mr Potter.

18. [99]

    Contrary to the respondents’ submissions, the assumption underpinning Scenario 1 was affected by the evidence about Yatango Mobile’s licence to use the relevant intellectual property. In so far as the respondents relied on Mr Potter’s description of the potential impact as “possible” rather than “probable”, that does not gainsay that the basis for his assessment of loss in Scenario 1 was impacted in a manner that Mr Potter was unable precisely to articulate. Nor does the fact that Mr Potter used an asset-based valuation answer the difficulty that the appellants exposed in his evidence, in terms of Scenario 1 resting on an assumption that was incorrect (the respondents placed some reliance on this). As Mr Potter acknowledged in his 18 April 2019 report, the circumstances for the application of the asset-based approach were present in the three scenarios Mr Potter was asked to assume, including Scenarios 2 and 3, which rested on a going concern premise of value but required different adjustments. The appellants have established Ground 7.

19. [100]

    Turning then to a recalculation of the damages, as noted above Mr Potter agreed in cross-examination that Scenario 3 would be the most reliable of the three scenarios he considered if the assumption he was given in Scenario 1 was wrong. I have also noted above the qualification Mr Potter gave to his affirmative response, namely that Yatango Mobile owned all of the intellectual property. The appellants accepted that this was not the case at the time of entry into the agreement but, again, emphasised Yatango Mobile’s contractual entitlement to transfer of the intellectual property and contended that in that case it was the appropriate (and only) available scenario. Scenario 2 relied on accounts which were consolidated accounts and which Mr Potter considered to have what he described as “some strange entries”.

20. [101]

    Yatango Mobile’s position in relation to the intellectual property did not squarely coincide with the qualification that Mr Potter placed on his answer regarding Scenario 3. However, I do not accept the respondents’ submission that Scenario 3, being one of the scenarios they advanced in support of their claim, was “demonstrably inappropriate”. True it is that Scenario 3 proceeded on Yatango Mobile owning the intellectual property and that was not the reality as at the time of entry into the First Contract or the Second Contract; but there was a contractual mechanism in place by which ownership of the intellectual property (by a majority-owned subsidiary) could have been attained, with the outlay for the Base Code being the 20 per cent interest in the subsidiary and all customisations then available from the subsidiary under licence (as set out in the diagrams sent to Mr Stavretis before entry into the First Contract). Of the scenarios that the respondents proffered, Scenario 3 most closely approximated the reality of the arrangements that existed as between Yatango Mobile and BJYP, including the licence that subsisted in the meantime. Accordingly, I consider that Scenario 3 should govern the award of damages.

21. [102]

    The primary judge noted that when Mr Potter gave oral evidence, he made a correction to the table in relation to Scenario 3, “post-capitalised value was $16.5 million”: [377]. As her Honour went on to note, the respondents conceded that there needed to be an adjustment as follows:

22. [103]

    In circumstances where, on Scenario 3, the assessed value of the shares for the Second Contract exceeded the price paid for them, the upwards adjustment that Mr Potter made to the assessed value did not affect the loss (of nil), as the assessed value was already higher (before the adjustment) than the price the respondents paid pursuant to the Second Contract. However, the loss on the First Contract was reduced because the assessed value was higher, leading to a difference between the value and the price paid in the amount of $34,162.50. The appellants submitted that if her Honour’s conclusions as to the respondents’ “no transaction” case were undisturbed on appeal, damages should be limited to that amount. I accept that submission, subject to questions of apportionment to which I will come.

23. [104]

    I note that when Mr Ashhurst SC, for the appellants, was in reply, Mr Casselden SC, for the respondents, interjected to respond to a question that had been asked of him in the course of submissions. The transcript of the hearing erroneously records Mr Ashhurst SC as speaking, but it is apparent from the surrounding context that it was Mr Casselden (page 59.22). While on his feet, Mr Casselden stated that he had omitted to advance a submission in relation to Ground 7, namely, that “we [the respondents] would contend for scenario two as the appropriate calculation of loss” (page 59.25). The immediate response of Mr Ashhurst SC was to observe that this was the first time that there had been any reference to Mr Potter’s Scenario 2; and the respondents had not made written submissions in support of it, and had not filed a notice of contention (page 59.33). In circumstances where the entirety of the submission was as I have extracted it, and the submission was made without notice and thus there was no opportunity for responsive submissions, it is not appropriate to entertain it and I decline to do so.

The scope of LK Group Investments’ misleading or deceptive conduct claim (Ground 8)

1. [105]

   At [532], the primary judge held that the appellants’ misleading and deceptive conduct had been established by reference to “the combination of the representations made in oral conversations and email communications together with the final warranties in term sheets as executed”. The appellants accepted that this finding was open to her Honour in respect of the claim brought by Stav Investments. However, they contended that her Honour erred in reaching that conclusion with respect to both respondents, when LK Group Investment’s claim for misleading or deceptive conduct was based solely on the terms of the warranties, and no evidence was adduced on the issue of reliance other than in respect of the contract.

2. [106]

   I have set out [532] in [49] above. The respondents submitted that the paragraph should be construed as an assessment of the conduct constituted by the provision of the warranties “as a whole and in context”, in order to determine whether the impugned conduct had a sufficient tendency to lead a person exposed to the conduct into error: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [39]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25]. That the primary judge appreciated the more limited nature of LK Group Investments’ claim as compared to that of Stav Investments was evident, they submitted, from the various references to the distinction between the representations arising from pre-contractual negotiations and those arising from the contractual warranties themselves (only the latter of which were common to both proceedings).

3. [107]

   I agree with the respondents that her Honour dealt with Stav Investments’ claims regarding the pre-contractual representations separately from the contractual warranties at [534]ff, having earlier identified at [447] that the pleaded case on behalf of LK Group Investments was “limited to the representations said to have been made by the provision of the contractual warranties.” Her Honour’s conclusion in [532] was limited to consideration of that issue. It does not follow from her Honour’s reference in that paragraph to the context in which those warranties were given that her Honour expanded the claim that LK Group Investments made beyond what it pleaded. Accordingly, Ground 8 should be dismissed.

The characterisation of the roll-up representation as relating to a future matter (Ground 9)

1. [108]

   As the respondents pointed out in their submissions, this ground challenges only one of the misleading representations that the primary judge found had been made and relied on in their entering into the Second Contract. In circumstances where I have concluded that the respondents did not establish that they would not have entered into the transaction but for this representation (on the assumption that it was misleading), it is strictly unnecessary to consider the proper characterisation of the clause. I will consider it briefly.

2. [109]

   The appellants submitted that the primary judge erred in concluding that the reference to the shareholder roll-up in cl 2.17(k) was a representation as to a future matter. Instead, they submitted that properly construed, it was a contractual promise the breach of which would sound in contractual damages. Relying on Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154 (“Secure Parking”) at [95], they contended that the representation was as to a present intention to carry out a future obligation, and the present ability to do so. On that construction, there was no representation as to a future matter that operated to impose the evidentiary onus on the appellants to establish reasonable grounds for making it.

3. [110]

   The respondents submitted that in adopting this position on appeal, the appellants were resiling from a concession made in the proceedings below. However, the appellants did not make a clear concession. In the passages to which Senior Counsel for the respondents took this Court, counsel for the appellants initially submitted that it was common ground that the representation was as to a future matter. However, he immediately withdrew that submission. In what followed, counsel again appeared to submit that he was not disputing that it was a future matter, but again said he had withdrawn the submission and was “trying to be more precise because I misspoke”. The primary judge then asked him to “start again”, following which counsel made a submission regarding reliance, which proceeded on the assumption that, at its highest, the representation was as to a future matter. Counsel’s position ultimately was, first, that there was a contractual warranty, and no separate representation; secondly that the respondents had proved reliance, and, thirdly, that there was documentary evidence of a reasonable basis on which to make a representation as to future facts, “if it is a representation”: Tcpt 13/10/21, p 386(17).

4. [111]

   Of more force was the respondents’ submission in support of the primary judge’s characterisation of cl 2.17(k) by reference to Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 (“Futuretronics”) at 240-241. Ormiston J there stated that “if there be an unconditional promise which forms part of the contractual obligations, then it is proper to treat the giving of that promise, at least in the ordinary case, as the making of a representation as to a future matter, being either the doing of an act or the ‘refusing’ (sic) to do an act, being in each case the subject of the promise”: at 241. That is how the primary judge treated cl 2.17(k): it was “an assurance or warranty that the ‘roll-up’ there provided for would be effected by the defendants within the time stipulated”. In “that sense”, her Honour considered the appellants had warranted that it would occur in the future: [519]. The evidentiary provision was thus triggered.

5. [112]

   In their submissions in Reply, the appellants submitted that neither Futuretronics nor the second case the respondents relied on (Stone v Chappel (2017) 128 SASR 165; [2017] SASCFC 72 at [322]) contradicted Secure Parking. So much may be accepted. However, as I understood the submission, the respondents relied on Futuretronics specifically in relation to an obligation in a contract about future performance. Nothing of what Ormiston J said about the operation of the evidentiary provision in s 10A of the Fair Trading Act 1985 (Vic) (since repealed), which was the equivalent of s 51A of the Trade Practices Act, was inconsistent with what Meagher JA said in Secure Parking at [95]. Ground 9 should be dismissed.

Apportionment of damages (Grounds 11-16)

1. [113]

   As with the grounds on the “no transaction” case, the appellants addressed the grounds globally, submitting that the primary judge erred in failing to find that Yatango Mobile was a concurrent wrongdoer and should have apportioned the amount awarded accordingly. The issue raised by these grounds did not loom large in the appellants’ written or oral submissions; the conclusion I have come to on Ground 7 can only further reduce its significance.

2. [114]

   The appellants focused upon her Honour’s conclusion that Yatango Mobile should be treated as the emanation of the appellants, such that it was not a separate legal entity that gave separate contractual warranties and was therefore a concurrent wrongdoer. They submitted that her Honour’s reasoning was inadequate, was unsupported by authority, and could not merely be accepted based on the fact that the appellants held shares in Yatango Mobile. The appellants next submitted that her Honour gave insufficient weight to the fact that at the respondents’ request, the draft term sheet that became the First Contract was amended to ensure that the contractual warranties were provided not only by the appellants in their own right, but also by Yatango Mobile. The respondents had pleaded that each of the impugned representations was made jointly and severally by each of the appellants and Yatango Mobile, which reflected the importance of the joint and several warranty. Finally, the appellants submitted that Yatango Mobile derived the benefit, given it was the company’s shares that were purchased.

3. [115]

   The respondents submitted that it was necessary to read her Honour’s conclusion together with [496], where her Honour set out the respondents’ submissions in Reply on the question of whether Yatango Mobile was a concurrent wrongdoer and referred to Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 (“Robinson”) at [39]-[56]. In that paragraph, her Honour summarises the respondents’ submissions, although her Honour’s conclusion is consistent with the reasoning in Robinson, which involved an act by the director of a sole-director company which was sought to be apportioned as between the director and the company.

4. [116]

   The provisions of the Corporations Act, the Competition and Consumer Act, and the ASIC Act on which the appellants relied are cognate provisions which apply in relation to “apportionable claims”. By way of example, s 87CB of the Competition and Consumer Act, in Part VIA, provides:

5. [117]

   The operative provision is s 87CD(1) which provides:

6. [118]

   With respect to the position of Yatango Mobile, the trial judge concluded:

7. [119]

   In DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165; (2022) 405 ALR 70 (“Potts”), the Court observed that the operation of s 87CB(3) “has given rise to some difficulties of construction”, which is “created by drafting which incorporates four sets of alternatives within a single sentence”: at [437]. The Court in Potts further observed that some care must be taken when applying these provisions “to cases where a natural person and a corporate entity which is controlled by the natural person are each said to be concurrent wrongdoers”: [439].

8. [120]

   As noted above, Robinson concerned conduct of a director in a sole-director company. In the opinion of McKerracher and Markovic JJ, in circumstances where there was a single act carried out by the director which was also the act of the company, it was artificial to say that the director and the company were acting jointly. Potts expressed some doubts about this reasoning, having regard to the statutory language “which expressly contemplates the possibility that there is a single act or omission of two or more persons”: [440]. The present case, however, is in any event distinguishable from Robinson.

9. [121]

   The misleading and deceptive conduct that her Honour found in this case was constituted by the giving of the warranties in cl 2.17 of the First and Second Contracts to which I have referred above. True it is that Mr Taylor and Mr Wilkinson were the individuals who were engaged in the discussions and other communications which led to the giving of those warranties, on behalf of Yatango Mobile. However, when it came to the final terms of the First and Second Contracts, the warranties were expressly provided, “jointly and severally”, by Mr Taylor, Mr Wilkinson, and Yatango Mobile. In circumstances where the warranties were given in those terms, Yatango Mobile was a concurrent wrongdoer within the meaning of s 87CB(3). This was not a case in which the liability of the company was limited to its vicarious liability for the acts of its directors: cf Potts at [440].

10. [122]

    If, as the respondents submitted, the appellants needed to establish that the primary judge’s exercise of discretion as to the question of apportionment was “plainly wrong”, consistently with Smith v Zhang [2012] NSWCA 142; 60 MVR 525, they have satisfied that requirement. That said, I do not accept the appellants’ submission that 80 per cent of the liability should rest with Yatango Mobile. On one view, liability could be apportioned equally between the three actors. Having regard to the circumstances to which I have referred in detail above, the primary actors were the two directors and I consider that only 20 per cent of the liability should rest with Yatango Mobile.

The Cross Appeal

1. [123]

   By their respective Notices of Cross Appeal filed on 21 July 2022, the respondents argue that the primary judge erred in her assessment of damages in respect of their claim for breach of contract, in respect of which her Honour would have awarded only nominal damages. The respondents did not take issue with her Honour’s conclusion on reliance damages. However, they submitted that there were two further bases on which they contended that their loss was to be assessed, by reference to the difference between what their investment would have been worth at the date of breach if the warranties had been true, as compared to what the shares were worth, which the primary judge summarised at [371]-[373], but did not address:

   1. (1)

      First, the respondents relied on cl 2.15 in the First Contract, which recorded an agreed value of the company as $15 million (with an agreed post-capitalisation value of $16.5 million), and cl 2.15 in the Second Contract, which recorded the agreed value as $10 million. The respondents submitted that this was the correct measure of the worth of the shares if the warranties had been correct.

   2. (2)

      Second, the respondents contended that the loss could be assessed by reference to what they, as sophisticated investors, were willing to pay on the basis of the truth of the warranties (relying on Mr Potter’s evidence that the best evidence of value was evidence of what an informed, sophisticated investor was willing to pay).

2. [124]

   The difficulty for the respondents, as the appellants submitted, was the necessary counterfactual in assessing what the shares were actually worth. In their submissions below, the respondents contended that given the warranties were not true, the shares were worthless, noting that Mr Potter had assessed them as such in Scenario 1: [375]. For the reasons I have given in allowing Ground 7 of the Amended Notices of Appeal, Mr Potter’s evidence on Scenario 1 cannot be accepted. In their submissions in Reply, the respondents accepted that if the appellants succeeded on Ground 7, the cross-appeals would necessarily fail. Accordingly, the cross-appeals must be dismissed.

Conclusion

1. [125]

   Although I have determined a number of grounds of appeal against the appellants, given my determination of Ground 7 the orders of the primary judge must be varied, save for order 2, which dismissed Mr Stavretis’ claims and was not challenged in the Cross-Appeal brought by Stav Investments.

2. [126]

   In circumstances where the appellants have had a considerable measure of success but not complete success, it may be appropriate to make some apportionment of the costs payable. The parties should have an opportunity to make submissions on the costs of the appeals and cross-appeals, together with any amendment sought to the costs orders in the court below. Those submissions should be made in writing and the Court can then determine the appropriate orders on the papers.

3. [127]

   Accordingly, I propose the following orders:

   1. (1)

      Appeals allowed in part.

   2. (2)

      Vary order 1 made on 9 March 2022 to delete $1,012,500 and replace it with $27,330 (being 80 per cent of $34,162.50).

   3. (3)

      Vary order 3 made on 9 March 2022 to delete $1,012,500 and replace it with $27,330 (being 80 per cent of $34,162.50).

   4. (4)

      The appeals are otherwise dismissed.

   5. (5)

      The cross-appeals are dismissed.

   6. (6)

      With respect to the costs of the appeals, the cross-appeals and the costs order made below, the parties are to provide within 14 days of the date of these orders either-

4. [128]

   SIMPSON AJA: I agree with Mitchelmore JA.

5. [129]

   BASTEN AJA: I agree with Mitchelmore JA.