Birch v Bunbury

1. [1]

   MITCHELMORE JA: I agree with Ball JA.

2. [2]

   McHUGH JA: I agree with Ball JA.

3. [3]

   BALL JA: This is an appeal by the third defendant in the Court below, Mr Michael Birch, against the following order made by the primary judge (Black J) on 3 July 2025:

Background

1. [4]

   In 2021, the first respondent, Mr Luke Bunbury, established through the Companies a business using proprietary technology, and relying on a licence agreement with Mastercard, which, subject to regulatory approval, would permit particular businesses to provide branded debit and credit cards that had instalment and hybrid payment options. Mr Bunbury was a director and the chief executive officer of the Companies. He and his wife each held 17,500 shares in 1derful Group. A further 10,000,000 shares of the 13,130,540 shares issued by 1derful Group were held by the second respondent, St Jean CF Pty Ltd (St Jean). Mr Bunbury and his wife each owned 50% of the shares in St Jean. 1derful Group owned all the shares in 1derful.

2. [5]

   By mid-2023, the Companies were in serious financial difficulties. On 31 January 2023, 1derful had entered into a facility agreement and a general security deed with PI Lorica Pty Ltd (PIL) to borrow $322,000 for a period of two months at an interest rate of 36%. 1derful’s obligations under the agreement were guaranteed by 1derful Group and Mr Bunbury and the obligations of the Companies were secured by charges given by them over all their assets. By an amended loan agreement dated 2 March 2023, the amount of the loan was increased by $261,000. By 31 March 2023, 1derful had defaulted in repaying the increased loan amount.

3. [6]

   On 24 April 2023, Think Grow Pty Ltd (Think Grow), one of 1derful’s creditors, brought an application to wind up 1derful in the Supreme Court of Victoria (an earlier application by another creditor had been dismissed). The Companies had a number of other creditors who had not been paid including CK Advisory Group Pty Ltd in its own right and as trustee for CK Investment Trust trading as Fifo Capital Northern Beaches (FIFO Capital). The evidence suggests that FIFO Capital was owed approximately $700,000. That loan was apparently the subject of a second ranking security, although neither the relevant loan agreement nor the security appears to be in evidence.

4. [7]

   On 25 May 2023, Mastercard wrote to Mr Bunbury asserting that 1derful was operating in breach of the Mastercard rules and obligations of a principal member, which entitled Mastercard to take action, including termination of membership, and demanding payment of an outstanding amount of $871,000. Mastercard subsequently (on 31 July 2023) suspended the Mastercard agreement and outlined a “pathway” for 1derful to resume its principal membership activity with Mastercard.

5. [8]

   On 19 June 2023, Mr Birch, who had through a company in which he had an interest, MDC Trilogy, previously assisted the Companies to raise capital, advised Mr Bunbury that in view of the winding up application it would be impossible for the Companies to raise further capital. In that context, in late June 2023, Mr Birch and Mr Jack Dahan from Hennessey Capital Partners Pty Ltd, who Mr Birch had introduced to Mr Bunbury and who also had previously assisted the Companies to raise capital, approached Mr Craig Seymour, a management consultant, to develop a strategy to delay or to set aside the winding up process so that the Companies could complete a proposed capital raising. Mr Seymour and Mr Birch had been friends since childhood.

6. [9]

   The primary judge found that Mr Seymour and Mr Birch developed a plan, without Mr Bunbury’s knowledge, to acquire the Companies’ business. As the primary judge explained, the plan was developed and modified, and steps were added to it, over time. The primary judge described the plan in the following terms (PJ1[193]):

7. [10]

   Importantly for present purposes, in connection with his retainer, Mr Seymour had several discussions with Mr Mathias Kopp, a director of FIFO Capital, principally it seems to ensure that FIFO Capital would not seek to recover its own debt immediately. One of the conversations occurred on 16 August 2023. According to Mr Kopp, who was not cross-examined, during that conversation Mr Seymour outlined the plan to him, and told him that “$2 million would go into the SPV [special purpose vehicle]”, that Mr Seymour was meeting with Mastercard the following day and hoped to negotiate, if Mastercard received their payment of $1 million, repayment of the $1 million by way of “incentive payment”, and that there was “a $1.2 million R&D claim to be lodged [with the government] as well”.

8. [11]

   Mr Kopp and Mr Seymour had a further telephone conversation on 28 August 2023 in which Mr Seymour told Mr Kopp that he expected Fletch to acquire the PIL debt the following day. Mr Kopp asked whether that would cause a problem for FIFO Capital. Mr Seymour replied that the outcome for FIFO Capital would be no different than in a liquidation and that “The debt owing to [PIL] was $912,000. If the valuation comes back at $2 million, then there would be enough money to pay FIFO Capital”. The reference to a “valuation” here appears to have anticipated what became the sale price adjustment mechanism in the Business Sale Agreement referred to at [13(e)] below. Later the same day, they had another conversation in which Mr Seymour said in response to a statement by Mr Kopp that FIFO Capital would only get paid if the valuation of the assets were greater than $2 million that “Yes, that is correct. But the assets are worth at least $2 million every day of the week”. Mr Kopp says in his affidavit that later, in the same conversation, Mr Seymour said:

9. [12]

   Mr Kopp also said in his affidavit, in response to evidence given by Mr Seymour, that “Mr Seymour had made several statements to me during the months prior to October 2023, that FIFO Capital would be repaid and that 1derful was worth at least $2 million”.

10. [13]

    In accordance with the plan:

11. [14]

    By an originating process filed on 7 November 2023, Mr Bunbury and St Jean brought, with leave, a derivative action in the name of the Companies claiming a wide range of relief against Fletch, Mr Seymour and Mr Birch arising out of what had happened.

12. [15]

    In PJ1, the primary judge relevantly found that Mr Seymour (but not Mr Birch) had breached fiduciary duties he owed to the Companies (PJ1[231]) and that Fletch knowingly assisted in that breach (PJ1[242]). The primary judge also found that both Mr Seymour and Mr Birch engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL: PJ1[278], [288]. None of those findings is challenged on appeal.

13. [16]

    As his Honour observed, as a result of his conclusions, the Companies were required to elect between potentially inconsistent remedies, such as proprietary remedies in the form of a declaration that Fletch held the whole of the business transferred to it on a constructive trust in favour of the Companies or alternatively an injunction requiring a return of the business and compensation for the loss of value of the business while it had been in Fletch’s hands.

14. [17]

    Ultimately, the Companies elected for a remedy of an injunction requiring return of the business and compensation for the loss of value of the business. His Honour dealt with the precise form of orders that should be made in PJ2. As I have explained, the only order that is challenged on appeal is order 7, which is set out above.

The primary judge’s conclusion on damages

1. [18]

   Both the plaintiffs and the defendants at trial led evidence from experts on the calculation of the Companies’ loss. It was common ground between the experts, and accepted by the primary judge, that the business that was transferred to Fletch had no value by the time that it was transferred back to the Companies. The question was what the value of the business was at the time that it was transferred to Fletch – that is, on 3 October 2023.

2. [19]

   The plaintiffs led evidence from Mr Paul Davies who expressed the opinion that the then present value of the adjusted enterprise value was in excess of $29.7 million. The primary judge summarised Mr Davies’ approach in these terms at PJ1[40]):

3. [20]

   The defendants led evidence from Mr George Kompos. He valued the Companies’ business at $69,000, which in a second report was adjusted to $107,000 to take account of criticisms of his earlier report. In reaching the earlier figure, Mr Kompos applied a multiple, derived from comparable company data, to the Companies’ earnings to arrive at a figure of $343,126. He then discounted that figure by 80% to take account of the fact that the Companies were insolvent as at the date of valuation.

4. [21]

   The primary judge rejected both approaches. Both analyses depended on the application of a multiple to future maintainable earnings. In estimating the future maintainable earning of the business, Mr Davies relied on the contemporaneous projection made by a third party of 1derful’s future sales and revenue. However, there was no evidence that supported those projections and no evidence that would permit his Honour to make rational adjustments to the figure used by Mr Davies: PJ1[44]. On the other hand, Mr Kompos used 1derful’s recurring revenue at the valuation date without making any adjustment for expected future increases in revenue. The primary judge considered that that approach was particularly inappropriate when dealing with a startup company. But again, there was no information before his Honour that permitted him to make rational adjustments to the figures used by Mr Kompos: PJ1[52].

5. [22]

   The primary judge also thought that there were other problems with both reports. Mr Davies assumed that 1derful would be able to reinstate its agreement with Mastercard. However, the primary judge concluded that “the evidence does not provide a sufficient basis to find that relationship would be reinstated while the Companies retained the business, and were in real financial difficulty” (PJ1[44]). In addition, the valuation assumed that the Companies would remain in business “in circumstances that their substantial financial difficulties suggested a probability that it would fail in the short to middle term” and there was no basis to think that a discounted figure adopted by Mr Davies “was sufficient to adjust for the substantial risk that then existed in the Companies’ business”: PJ1[44].

6. [23]

   On the other hand, Mr Kompos’s analysis assumed that the Companies were insolvent. That assumption, however, had not been proved: PJ1[46]. Mr Kompos also assumed that key personnel had departed 1derful at the valuation date without explaining the significance of that fact and made other assumptions concerning 1derful’s existing customers that were not correct (although Mr Kompos did make adjustments in his second report to take account of the last of these points): PJ1[48]. The primary judge also thought that Mr Kompos’s valuation was inconsistent with what occurred at the time:

7. [24]

   Having rejected the reports of both experts, the primary judge thought that the view expressed by Mr Seymour to Mr Kopp, that the value of the business was at least $2 million, provided an adequate foundation for concluding that the value of the business was at least that amount. After referring to the well-recognised principle that “mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can” (quoting from the judgment of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 at [83], his Honour said (at PJ1[323]):

The appeal

1. [25]

   By his amended notice of appeal filed 24 July 2025, Mr Birch raises six grounds of appeal. The first five are all directed to the appropriateness of relying on Mr Seymour’s statements to Mr Kopp as a reliable indicator of value. Those grounds can be divided into three. First, Mr Birch contends that the plaintiffs could have called reliable expert evidence on the question of value. Consequently, this was not a case where the difficulties in assessing value entitled the primary judge to take the approach he did. Second, Mr Birch contends that the statements were not reliable because neither the assumptions on which they were based nor the knowledge, experience and expertise of Mr Seymour in relation to making assessments of value were established. Third, Mr Seymour did not make the statements for the purposes of expressing his opinion on value but rather for the purpose of ensuring the transaction would proceed. The sixth ground of appeal is in the following terms:

Consideration

1. [26]

   Ground 6 can be put to one side. The mechanism for adjusting the price was contained in the BSA. By order 2 of the orders made on 23 December 2024 by the primary judge, “[t]he Business Sale Agreement of 3 October 2023 between the Third Plaintiff and Fourth Plaintiff and the First Defendant is void and is set aside”. Consequently, it was irrelevant to the assessment of damages.

2. [27]

   The value of an asset is a question of fact: Payne v Commissioner of Taxation (Cth) (1934) 51 CLR 197 at 206-207 (Gavan Duffy CJ, Evatt and McTiernan JJ); [1934] HCA 7; Hall v Busst (1960) 104 CLR 206 at 220-221; [1960] HCA 84 (Fullagar J); Blacktown City Council v Concato (No 4) [2020] NSWSC 9 at [80] (Campbell J); Pages Property Investments Pty Ltd v Boros [2018] NSWSC 986 at [26] (Lindsay J). Generally speaking, the value of an asset is the price at which a willing but not anxious seller and a willing but not anxious buyer knowing all the facts relevant to their decision to sell and to buy would exchange the asset. As McHugh, Hayne and Callinan JJ said in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514; [1998] HCA 69, referring to the judgments of Griffiths CJ and Isaacs J in Spencer v The Commonwealth (1907) 5 CLR 418 at 431-2, 441; [1907] HCA 82:

3. [28]

   Where the value of an asset consists solely of its ability to generate income – such as a business – and there is no relevant market transaction by which value can be assessed, it will often be possible to approximate value by estimating the future cashflows of the business and determining the present value of those cashflows or by applying a multiple to estimated maintainable earnings. But they are not the sole or always necessarily the best methods of determining value in the sense stated earlier. In the case of start-up companies, for example, a better guide to the value of a business may be the amount that an informed investor is willing to invest in the business for a particular share of it, provided the investment occurred at a time close to when the question of value arises.

4. [29]

   There is considerable force in the points made by Mr Birch that the mere statement by a market participant about value ought to carry little if any weight. Statements of that type are statements of opinion that do not obviously satisfy the requirements of s 79 of the Evidence Act 2005 (NSW) (that is, that it is a statement based on the person’s specialised knowledge). Moreover, it is impossible to assess the weight of the opinion without knowing the facts on which it was based. Taken alone, the statements made by Mr Seymour to Mr Kopp fall into that category. Moreover, as Mr Birch points out, the statements made by Mr Seymour were not directed at informing Mr Kopp about the value of the Companies’ business but were directed at persuading Mr Kopp not to take any steps to prevent the sale of the business to Fletch from proceeding.

5. [30]

   That, however, is not the end of the matter. As at the date the value of the business is to be assessed, there were transactions consisting of the following:

6. [31]

   At least the first and second of those amount to market transactions, in the sense that they were at arm’s length between sufficiently informed participants. It is reasonable to infer from those transactions that the value of the business was at least $2 million reflecting the amount of the initial loan from Axiom. It is plain that the purpose of that loan was to enable Fletch, a special purpose vehicle, to acquire the business carried on by the Companies and to provide working capital for that business. Consequently, at the time that Axiom advanced the money, it must have thought that the loan could be repaid from the business. That is, Axiom invested in the business on the basis that it was worth at least $2 million (and probably more). Axiom is a publicly listed company that in acquiring shares in Fletch and making a loan to it was able to make its own assessment of the value of the Companies’ business. Moreover, both Mr Birch and Mr Seymour must have had extensive knowledge of the business, even if they did not know all the details of its operation. Mr Birch must have acquired that knowledge in the context of the capital raisings he had been involved in. Mr Seymour must have learned about the business in the course of formulating the plan with Mr Birch. Both were sophisticated businessmen who could make whatever enquiries they thought were appropriate for the purposes of pursuing the plan to acquire the Companies’ business. It is apparent from Mr Seymour’s discussions with Mr Kopp that he (Mr Seymour) at least met with Mastercard and consequently was in a good position to make an assessment of whether an agreement could be reached with Mastercard for it to continue to provide services in connection with the business. It was in that context that Mr Birch and Mr Seymour together with Axiom invested in Fletch and Axiom lent Fletch an initial amount of $2 million. That was a market transaction which provided a good indication of the minimum value of the Companies’ business.

7. [32]

   Mr Cheshire SC who appeared for Mr Birch, and Mr Birch in his written submissions, advanced several arguments against the conclusion of the previous paragraph.

8. [33]

   First, Mr Cheshire pointed out that the primary judge did not rely on a market transaction for the conclusion he reached. Rather, he relied on the statements made by Mr Seymour to Mr Kopp. Moreover, the respondents did not file a notice of contention seeking to support his Honour’s conclusion on the alternative basis.

9. [34]

   An argument based on the actual transactions was raised in the respondents’ written submissions (although not one that pointed specifically to the loan). In addition, the relevance of what actually happened to the question of value was debated in oral argument before this Court. It was not suggested that Mr Birch was prejudiced by the fact that the issue had not been raised previously. As Mr Cheshire accepted, in those circumstances, the absence of the notice of contention was not fatal.

10. [35]

    Moreover, although the primary judge did not rely specifically on what occurred as evidence of value, it is plain that he thought that what occurred and Mr Seymour’s involvement in what occurred were relevant to the question whether Mr Seymour’s statements about value should be accepted; and his Honour referred to the amount that Axiom, Mr Birch and Mr Seymour were willing to pay to acquire the debt owed to PIL as a reason for rejecting Mr Kompos’s valuation.

11. [36]

    Second, Mr Cheshire suggested that the fact that one person is willing to pay a particular amount for an asset does not necessarily determine value. That much may be accepted. But the fact that an informed person is willing (and does) pay a particular amount is a strong indication that the asset is worth at least that amount.

12. [37]

    Third, Mr Birch in his written submissions suggests that there was no evidence that Mr Seymour had any relevant expertise in valuation, of what assumptions he made in his assessment of value or of what analysis he undertook to arrive at his conclusions in relation to value. In addition, Fletch accepted under the BSA that there would be an adjustment in the purchase price for the business following a formal valuation.

13. [38]

    These points, of course, were directed at the primary judge’s reliance on the statements made by Mr Seymour, not at the relevance of the transaction itself. In relation to the transaction itself, the precise reasoning process engaged in by the participants is irrelevant to the question of value. What is relevant is the decisions they made, provided those decisions were based on full information. There is no evidence in this case that the decisions made by Axiom, Mr Birch and Mr Seymour were based on wrong or inadequate information relevant to the value of the business. Plainly, having regard to the nature of the business and the uncertainties associated with it, the investment was a speculative one. And the investment was a speculative one because of the uncertainties associated with the business, including the position that Mastercard would ultimately take. But that fact alone does not affect the question of value. “Full information” in this context does not mean perfect information. Rather, it means accurate information that the buyer and seller need to make a decision about what price to pay or to accept for the asset. Axiom, Mr Birch and Mr Seymour must have been aware of the risks involved in acquiring the business. Nonetheless, Axiom chose to lend $2 million to Fletch and Fletch chose to pay $700,000 to acquire control of the business. For the reasons I have explained, those transactions are a good indication of the minimum value of the business at the time.

14. [39]

    Nothing follows from the fact that the price for the business ($757,273 ex GST) was to be adjusted following a formal valuation. Under cl 7 of the BSA, the price could only increase if the formal valuation was greater than the price that Fletch paid. There was no possibility that part of the purchase price would be repaid to Fletch. In any event, the price paid by Fletch to the Companies for the business itself was not a reliable indication of value, since that price was essentially determined by Fletch.

15. [40]

    There is a suggestion in some of the submissions made on behalf of Mr Birch, that it would have been possible to determine a more accurate value of the business by adopting the approach to valuation used by Mr Davies but using appropriate assumptions. Whether that is so is open to some doubt. It would still have been necessary to make assumptions concerning future earnings of the business, which on any view would involve a substantial degree of guesswork. Depending on the assumptions that were made, it would also be necessary to discount the resulting figure for risks associated with the business, such as the risk that Mastercard would not reinstate its contract. Again, the selection of appropriate discounts would involve the Court taking a broadbrush approach that may amount to little more than guesswork. But in any event, the fact that there may have been some more reliable way for the respondents to prove their damages does not mean that that is the only way in which damages could be proved. For the reasons given, the actual transactions entered into by the parties provide an adequate foundation for the conclusion that the damages were at least $2 million.

Orders

1. [41]

   It follows that the appeal should be dismissed with costs.