Kay v KRM (Vic) Pty Ltd;; Classic Bet (NSW) Pty Ltd v Kay & Ors

MEAGHER JA: These reasons adopt the terminology used by White JA and assume a familiarity with the underlying facts as described by his Honour. For the reasons his Honour gives, the appeals of Classic and Best should be dismissed.

The question in Ryan Kay’s appeal is whether the promise given by Classicbet in cl 16.1.4 is to be understood as referring to Classic, Best and Ryan Kay “collectively” or to them severally and distributively, in the sense that the clause is to be read as applying separately to each only in respect of its or his betting activities that have generated commissions payable to KRM. Doing so, it is said that the obligation of any such entity under cl 16.1.4 is to pay only that part of the lump sum “buy out” amount referrable to commissions generated by its or his betting activities with Affiliate Clients.

That question arises because Classicbet is defined in the Affiliation Program Agreement (APA) to mean “collectively and individually, as the case may be,” Classic, Ryan Kay and Best. In that expression the qualifying words “as the case may be” indicate a choice between two bases of liability as promisor, which is to be resolved by reference to the context in which the defined term is used. On the face of it, those bases, joined by “and”, are not expressed as alternatives. If the words “as the case may be” are read as qualifying all of the words that precede them, they may have no work to do unless “collectively” and “individually” are treated as the relevant alternatives. That is the construction preferred by White JA at [99] below. However, the words “as the case may be” may be read as qualifying only the word “individually” so that the relevant alternatives become “collectively” and “collectively and individually”. Doing so gives effect to all the language of the definition and was the construction preferred by the primary judge: KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773 at [48], [49].

Ultimately, it is not necessary to resolve this question of construction because in my view a consideration of the text and purpose of the agreement shows that where used to describe payment obligations under cll 7 and 16, Classicbet means the three entities “collectively”.

By way of summary, under cl 7 Classicbet agreed to pay commission at a rate calculated from 1 January 2018 by reference to the turnover profit generated from all betting activities with Affiliate Clients, and to do so “in perpetuity” (cl 7.9(b)). The agreement does not contemplate that different commission rates apply depending on the outcome of betting activities of the individual entities with Affiliate Clients. Clause 16.1 conferred on KRM the right, in the event of a Change of Control of Classic or Best, to require Classicbet to “buy out” that ongoing liability to pay Commission. On the payment of the buy out amount, the Classicbet entities were released from that ongoing obligation and secured the benefit of KRM’s covenant not thereafter to market and promote betting or wagering services to any of the Affiliate Clients (cl 7.9, 16.2.1).

It is necessary to begin with a consideration of the nature of the APA, and the rights of the respective parties. It is an agreement between KRM, an introducer of prospective bettors described as “Clients”, and the three Classicbet entities, whose collective commercial activity (Classicbet Business) was described as a “gaming business of Classicbet in accepting bets for purposes permitted under” two bookmakers’ licences. Those bookmakers’ licences were issued to Classic and Ryan Kay by Harness Racing NSW and Greyhound Racing NSW, respectively.

Under the Betting and Racing Act 1998 (NSW) (B&R Act), a bookmaker includes any person who seeks to gain a livelihood “wholly or partly by betting or making wagers”. A “licensed bookmaker” is a person authorised by a “racing controlling body” – one of Racing NSW, Harness Racing NSW and Greyhound Racing NSW – to carry on bookmaking. Those racing controlling bodies are able to grant bookmaking licences to individuals or proprietary companies under their respective Acts: Thoroughbred Racing Act 1996 (NSW), s 14A; Harness Racing Act 2009 (NSW), s 19; and Greyhound Racing Act 2017 (NSW), s 52.

Under s 16 of the B&R Act, the Minister may authorise a licensed bookmaker to accept or make bets by telephone or electronically. If authorised by their licensing racing controlling body, that betting activity may be conducted on premises that are not on a licensed racecourse (s 16A). By s 18, the Minister may also prescribe an event other than a race (such as a sporting event) as a “declared betting event” and, on the application of a licensed bookmaker, grant authority to accept bets on such events (s 19).

A “betting service provider” includes a bookmaker, and a “licensed betting service provider” is a betting service provider who holds a licence or authority to carry out “its betting services” (whether under the B&R Act or other legislation). It is an offence for a person who is not a licensed betting service provider to publish any betting information (s 29), defined as any information or advice as to betting or betting odds on any race or declared betting event (s 27). It is also an offence to publish an advertisement for gambling services carried on by a person who is not a licensed bookmaker (s 30).

A betting service provider is prohibited by s 33 from using NSW race field information in connection with the making or accepting of a bet, or in the course of their business, unless authorised by the relevant racing control body under s 33A of the B&R Act. At the time the APA was executed, a betting service provider could receive an approval from Racing NSW (for instance) to use Thoroughbred Race Field information if they held an “Australian Wagering Licence”, defined in the approval conditions as a “licence, permit, approval or authority (however described) under the laws of any Australian State or Territory to conduct any form of wagering”, including bookmaking. Classic and Ryan Kay each held such approvals.

The effect of the foregoing is that under their bookmakers’ licences Classic and Ryan Kay were able to accept bets and make wagers by the internet, from premises which were not on a racecourse licensed by the relevant race controlling bodies, and in relation to races and other events not controlled by the body which issued their licences. Furthermore, the unlicensed Best could take bets, maintain betting accounts, and conduct business as a bookmaker only under the licence of another. It is plain that the APA contemplated that Best would engage in betting activities, and for that purpose maintain Betting Accounts, under Ryan Kay’s licence. Under the B&R Act, Ryan Kay would be the “licensed bookmaker” and “licensed betting service provider” with respect to those activities of Best. There remained the possibility that Ryan Kay might carry on that bookmaking activity directly, by his accepting bets or wagers from Affiliate Clients, rather than ‘through’ Best. On any view the APA did not contemplate that the Classicbet Business would involve only betting activities of Classic under its licence. Betting Accounts for Affiliate Clients could be opened and maintained by Classic, Best doing so under Ryan Kay’s licence, or Ryan Kay. That was the position when the APA was made and accordingly forms part of the context in which its meaning at that time is to be determined: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [322] (Campbell JA).

For its part, KRM agreed to promote Classicbet and to introduce Affiliate Clients (cll 4, 5). It was not thereby prevented from encouraging any Affiliate Client from doing business or placing bets with any competitor of Classicbet (cl 4.2, the internal reference being to cl 16.2). In return, Classicbet agreed to pay Commission calculated as a percentage of the Net Cash generated from betting activities with Affiliate Clients, defined to mean any client introduced by KRM who “opens, or where appropriate reactivates, an account for betting purposes with Classicbet”. The reference to the singular ‘account’ is to be taken to include the plural (cl 2(a)). By cl 6, Classicbet undertook to open Betting Accounts for New Clients and maintain a record of each Affiliate Client introduced by KRM, as well as of each Affiliate Client’s transactions. The reason for requiring that it do so, from KRM’s perspective, was to enable the reporting and determination of the Net Cash position for each Affiliate Client for each calendar month, as well as the monthly Turnover from all Affiliate Clients, in each case using a Betting Account or Betting Accounts maintained by or for a licensed entity.

The APA contained a ‘two-tiered’ Commission structure which applied from 1 January 2018 (cl 7.2(b)). The rate of Commission to which KRM was entitled depended on the overall return to Classicbet from all betting activities with all Affiliate Clients (Turnover Profit Percentage). If that return was less than 7% (Target Turnover Profit Percentage), the commission rate was 25% (Reduced Commission). If that percentage was 7% or more, the commission rate was 30% (Standard Commission) (cl 7.2(b)(i)).

The Turnover Profit Percentage was to be calculated by dividing gross client wagering losses (Net Cash) by gross client turnover (Turnover), each defined by reference to the wagering losses and turnover of all Affiliate Clients and irrespective of whether the relevant betting activity was undertaken by Classic, Best or Ryan Kay. Turnover as defined was the “total monthly amount in dollars of all bets wagered by all Affiliate Clients using their Betting Accounts”, and Net Cash was the amount equal to “all monies paid by an Affiliate Client... into the Affiliate Client’s Betting Account during a calendar month less any payment out of the Betting Account during such calendar month to Affiliate Clients as winnings or refunds or otherwise” (emphasis added). In this definition of Net Cash, the singular ‘Betting Account’ is to be taken to include ‘Betting Accounts’. The resulting monthly commission rates over the 12 months were then to be adjusted at year end by reference to the Turnover Profit Percentage for the year (cl 7.2). The “intention” of this provision, as stated in cl 7.2, was “for [KRM] to be paid the Standard Commission for the whole of a relevant year if the Turnover Profit Percentage for the whole of such relevant year achieves the Target Turnover Profit Percentage”.

The rate provided for by cl 7.2 was to be determined by reference to Classicbet’s collective activities. And the rate so derived was to be applied to the Net Cash generated by those same collective activities. Accordingly, the resulting sum was due from Classicbet collectively. From KRM’s perspective, it was introducing Affiliate Clients to Classicbet. It was agnostic as to the bookmakers’ licence under which any betting activity with an Affiliate Client occurred. Thus the two-tier commission rate structure treated the three entities as conducting one business with respect to their betting activities with Clients introduced by KRM.

Classicbet’s obligation described in cl 7.1, to provide various statements in respect of each Affiliate Client on a monthly basis, was also imposed with respect to the collective activities of the three entities. Those statements included a statement of “all betting activities” of each Affiliate Client (Reconciliation Statement); a statement of the Turnover, being the amount of “all bets wagered” for each Client (Turnover Statement); and a statement of the Net Cash for each Affiliate Client (Net Cash Statement).

Where only one Classicbet entity was transacting bets through Betting Accounts maintained for Affiliate Clients, the obligation under cl 7.1 could have been be satisfied by the provision of statements which related only to that entity. However, the obligation remained to provide statements for “each Affiliate Client” in respect of “all betting activities” of that Client. Where more than one of the entities was transacting bets, the obligation under cl 7.1 could not have been satisfied by the provision of separate statements in relation to the first entity only.

Clauses 7.3 to 7.6 dealt with two aspects of Classicbet’s obligation to pay monthly Commission. If that Commission was less than $100, that liability was to be carried forward rather than discharged by payment (cll 7.3, 7.4). More significantly for present purposes, during a 3 month period from the Commencement Date (22 May 2017), any negative Commission for the month was to be carried forward to the following calendar month. However, in calendar months after 22 August 2017, negative Commission was not to be carried forward and was to be “zeroed” (cl 7.6). The apparent purpose of this provision was to accommodate the possibility during the early period of the agreement that there might be imbalances in the monthly results due to a preponderance of higher turnover clients in the business first introduced. It applied to Commission determined in accordance with cl 7.2, and accordingly by reference to the Net Cash generated from all of the Betting Accounts of Affiliate Clients. It is not likely that the parties would have agreed to such an arrangement as applying to a negative turnover profit percentage based on wagering losses incurred by an individual entity without bringing to account wagering profits made by the other entity or entities in the same month.

Clause 14 provided for termination of the agreement for breach or, in particular circumstances or on the happening of specified events, by written notice. For the purpose of these termination provisions there are two parties – the party in breach, or Defaulting Party, and the other party, or Terminating Party. The events which entitled Classicbet as Terminating Party to bring the agreement to an end by giving written notice included it being of the reasonable opinion that it may be liable to lose one or other of the bookmakers’ licences as a consequence of actions of KRM (cl 14.3(b)). In these provisions the references to Classicbet must be to the entities “collectively”. The agreement did not contemplate that it should be terminated or “expire” in relation to one or more, but not all, of those entities.

Turning to cl 16, it addressed two events. The first is a Change of Control of Classic or Best, as Control is defined in the Corporations Act 2001 (Cth). The second is a sale, transfer or assignment by Classicbet of all or part of the Classicbet Business that includes “any Affiliate Clients” to a third party.

In the case of a sale of a book of business that includes any Affiliate Clients, the reference to Classicbet must be to the three entities collectively. The subject matter of the sale or transfer would be the benefit of the custom as bettors of those Clients. That customer connection was acquired by those entities collectively, and was subject to their collective obligation to pay Commission. In the event of such a sale, KRM could elect to take a lump sum payment from Classicbet or the third party purchaser, or to continue with the agreement. If it elected to continue with the agreement, the third party was to enter into a separate affiliate agreement under which it was to pay the Net Cash Share, a term which is not defined but which presumably refers to commission calculated as a percentage of the Net Cash generated by the third party from the “acquired” Affiliate Clients going forward. In that event, those Clients would cease to be Affiliate Clients under the APA, and become clients under the separate affiliate agreement. That would be so irrespective of whether they placed bets with one only of the three Classicbet entities.

In the case of a Change of Control of Classic or Best, KRM was granted an option either to “continue with this Agreement or have Classicbet ‘buy out the tail’ as set out in this clause 16.1” (cl 16.1.2). In the event that it elected to continue with the agreement, KRM remained entitled under cl 7 to Commission from Classicbet, including the same corporate entities although differently controlled, in perpetuity (cl 7.9).

If KRM elected “for the purchase of the Commissions payable” under the APA (cl 16.2), the lump sum to be paid under cl 16.1.4 was to be calculated by reference to a multiple derived from the price of the shares transferred or issued and resulting in the Change of Control. The greater of that multiple and a multiple of 5 was applied to historical commissions paid by Classicbet in the previous 12, or up to 24, months. The clause provided:

The amount thereby derived was required to be paid as a “lump sum” within 20 business days of the exercise of the option. The historical Commissions were those payable and paid under cl 7, and accordingly in respect of “all bets wagered by all Affiliate Clients using their Betting Accounts” (emphasis added). Upon the payment of that amount, KRM covenanted as follows (cl 16.2):

Thus, on the payment of the lump sum, each of the Classicbet entities secured both the release of the ongoing joint obligation to pay Commission as well as the benefit of one or both of the restrictive covenants. From that time, they were entitled jointly to the benefit of the customer connection of each of the Affiliate Clients.

This commercially sensible operation of cl 16 when Classicbet is construed “collectively” is to be contrasted with its application when construed distributively where two of the three entities have been engaged in betting activities at the time the option is exercised, and only one makes its “lump sum payment”. At least two difficulties arise. First, does the non-paying entity get the benefit of a release from its ongoing obligation to pay Commission under cl 7 in respect of the common and any exclusive Affiliate Clients of that entity? The terms of the option conferred by cl 16.1.2 suggest that it is not intended the agreement “continue” at all after Classicbet buys out the tail. Secondly, how does KRM’s covenant not to solicit or market and promote services to Affiliate Clients operate with respect to common Affiliate Clients, namely those who have conducted betting activities with both the paying and non-paying entities? That covenant is not qualified to exclude such clients, either generally or with respect to dealings with the non-paying entity. The result would appear to be that the non-paying entity would also secure the benefit of that covenant in respect of those common Affiliate Clients. Clause 16.2.2, which operates only where the amount of the “lump sum payment” equals or exceeds $5 million, raises further difficulties. Is that condition satisfied by the sum of the separate payments, or does each separately have to satisfy the condition? And if one entity satisfies the condition by its payment, does the other get the benefit of the covenant? Again it would seem so. All of these difficulties arise in relation to a construction of cl 16 which is inconsistent with the construction of the obligation to pay Commission that is the subject of the “purchase” brought about by cl 16.

The text, context and purpose of the APA make plain that the payment obligations under cll 7 and 16 are obligations of Classicbet “collectively”, meaning Classic, Ryan Kay and Best.

Accordingly, in appeal 2020/6311 (Ryan Kay v KRM (Vic) Pty Ltd) I propose the following orders:

I agree with the orders proposed by White JA in appeal 2020/12237.

GLEESON JA: As to the appeals of Classic and Best (2020/12237), I agree with the orders proposed by White JA, for the reasons his Honour gives.

As to the appeal of Ryan Kay (2020/6311), I agree with the orders proposed by Meagher JA, for the reasons his Honour gives.

WHITE JA: These appeals raise some intricate questions of construction of two commercial agreements.

In July 2017 a company called Classic Bet Pty Ltd was engaged in the business of providing on-line betting services. Mr Alexander Kay was the sole shareholder and director of Classic Bet Pty Ltd (“Classic”).

Bestbet.com.au Pty Ltd (“Best”) engaged in a similar business. Alex’s son, Mr Ryan Kay, was the sole director and shareholder of Best.

On 28 July 2017 Classic, Best and Ryan Kay entered into an agreement called an “Affiliation Program Agreement” (“APA”) with KRM (Vic) Pty Ltd (“KRM”).

In that agreement the term “Classicbet” was defined to mean:

The APA provided for Classicbet to pay a commission to KRM to be calculated monthly as a percentage of the Net Cash received by Classicbet from New Clients or Lapsed Clients introduced by KRM. The Net Cash was the difference between bets placed by such clients and the winnings paid out to them. (Capitalised terms were defined.)

The rate of commission was generally 30 per cent but could be reduced to 25 per cent. Provided a New Client or a Lapsed Client introduced by KRM continued to bet and continued to lose money, KRM was entitled to its commission.

The APA contained a clause (cl 16.1) headed “Buy Out – Change of Control or Sale). The clause concerns KRM’s rights if there were an actual or proposed Change of Control of Classic or Best or of the business of Classicbet.

In the case of a proposed or actual Change of Control of the business of Classicbet, Classicbet was required to give notice of the change to KRM who then had the option to commute its rights to future commissions for at least the equivalent of five times the historical average annual commission payable. KRM had the same right if there were an actual Change of Control of Classic or Best (as distinct from a Change of Control of their businesses). There is an issue (explained below) as to whether KRM had the same right if there were only a proposed, rather than an actual, change of control of Classic or Best.

Clause 16.1 of the APA provided:

On 23 March 2018 two agreements called Share Sale and Purchase Agreements (“SSPAs”) were entered into. One was made between Classic, Alex Kay and Fantasy Sports Australia Pty Ltd (which later changed its name to Playup Australia Pty Ltd (“Playup”)) and two other individuals as guarantors of Playup’s obligations. The other agreement was made between Playup, Ryan Kay, Best, and the guarantors of Playup’s obligations. The agreements were in materially identical terms. The Completion Date for the agreements was two business days after Playup received from the Northern Territory Racing Commission or Harness Racing (NSW) regulatory approval in writing to operate the Company’s Business under Playup’s existing NTRC bookmaker’s licence or such other date as the parties might agree in writing. That approval was obtained on 17 May 2018 (Judgment [16(6)] and [80]). The Completion Date was 22 May 2018.

Ryan Kay was informed of that approval sometime between 18 and 22 May 2018 (Judgment [80]).

Clause 6.1 of the SSPAs provided:

In the Classic SSPA the Seller was Alex Kay and the Company was Classic. In the Best SSPA the Seller was Ryan Kay and the Company was Best. The Buyer (Playup) was not a party to these proceedings.

Classic and Best submit that the obligation of the Seller under cl 6.1 was an obligation owed to them and not merely to Playup and that Alex and Ryan Kay were required to satisfy and discharge their liabilities to KRM under cl 16.1 of the APA, which, they say, were liabilities that had been incurred or accrued before the Completion Date.

Completion of the SSPAs did not occur on 22 May 2018. Completion occurred on 7 June 2018. Notwithstanding that the SSPAs provided that between the date of entry into the agreements (23 March 2018) and the Completion Date the Buyer and not the Seller was entitled to the benefit of all profits earned by the Business and would indemnify the Seller against all losses sustained in that period (cl 3.3), Classic and Best contend that Alex and Ryan Kay were obliged to them to discharge the liabilities to KRM that they say had been incurred or which had accrued to KRM prior to 22 May 2018. Classic and Best contend that those liabilities were incurred on entry into the APA. Alternatively, they say that emails sent by Ryan Kay to KRM on 11 and 26 April 2018 were written notices of a proposed change of control of those companies within the meaning of cl 16.1.3(a) of the APA and triggered a liability of each company to KRM to commute the companies’ obligations to pay future commission by payment of a lump sum unless within 14 days KRM elected to continue with the Agreements. Classic and Best submit that this means that Alex and Ryan Kay were required to discharge their liabilities to KRM.

KRM disputes that the emails of 11 and 26 April 2018 were notices of proposed change of control within the meaning of cl 16.1 of the APA. It says that the only notice given under cl 16.1 of the APA was a notice of change of control given on 12 October 2018.

KRM insisted that Classicbet (Classic, Best and Ryan Kay) were required to provide notices that stated explicitly whether a change of control was proposed or had occurred and which provided information that KRM would require to make an informed election. It contended that the first time it received such a notice was on 12 October 2018 (after strongly pressing for it). That notice was sent by the solicitors for Playup. On 15 October 2018 KRM elected to commute its entitlement to commission.

Ryan Kay does not dispute that the notice of 12 October 2018 triggered KRM’s right to elect to commute its rights to future commission. He says that on a proper construction of the APA he is not liable to pay any amount because he personally did not conduct the relevant business through which commissions were earned. He submits that the definition of Classicbet as meaning Classic, Best and himself “collectively and individually as the case may be” means that the obligation of Classicbet to pay a lump sum in commutation of KRM’s right to future commission was imposed on Classic and Best which were the companies that conducted the businesses that triggered the right to future commissions.

Classic and Best do not dispute that they are liable to pay a commuted sum to KRM. As indicated above they say that the liability arose not after 12 October 2018, but after 11 or 26 April 2018 when, they say, notice of a proposed change of control was given and KRM did not elect to continue with its agreement. Classic and Best submit that KRM’s entitlement to commuted sums should be calculated from an earlier date, 14 days after 11 or 26 April 2018. This would mean that KRM was not entitled to commission from such dates until October 2018. Classic and Best do not dispute that if this argument is unsuccessful, they are liable to pay KRM the commuted amount of the commission as found by the primary judge. They supported the primary judge’s finding that Ryan Kay was also liable for that amount.

The primary judge entered judgment against Classic, Best and Ryan Kay for $3,684,690.98 plus costs. His Honour declared that each of the defendants was entitled to equitable contribution in respect of that judgment and costs order. Classic’s and Best’s cross-claims against Ryan and Alex Kay were dismissed (Judgment [97]). A third cross-claim brought by Classic and Best against KRM was also dismissed (Judgment [95]).

Two appeals were brought from the orders of the primary judge. Ryan Kay appealed against the order that he was liable under cl 16.1 of the APA to pay a lump sum payable by Classicbet. Ryan Kay contended that the primary judge ought to have held that the expression “collectively and individually, as the case may be” did not mean “jointly and severally”, and that he did not have any liability to pay any sum to KRM under cl 16.1 of the APA to “buy out the tail”.

Classic and Best appealed against the orders against them in favour of KRM to the extent they were based on KRM’s entitlement to payment under cl 16.1 of the APA arising only after 12 October 2016. They also appealed against the dismissal of their cross-claims against Ryan and Alex Kay.

For the reasons which follow Ryan Kay’s appeal should be allowed and Classic’s and Best’s appeals should be dismissed.

Although not expressly named as such, it was common ground that the “Affiliate” under the APA was KRM. “Affiliate” was defined to mean “the individual or entity who agrees to introduce Affiliate Clients” on the terms and conditions of the agreement. It was common ground that KRM was that entity.

The APA included the following definitions.

Clause 4 provided:

There was no clause 16.3 and it is clear that the reference should have been to cl 16.2 set out below:

Clause 5.1 required the Affiliate to use reasonable efforts to advertise, market and promote Classicbet.

Clause 5.3 required the Affiliate to notify Classicbet as soon as practical of any New Client’s intention to register a Betting Account with Classicbet prior to the New Client commencing any betting with Classicbet. It was also required to notify Classicbet of any Lapsed Client’s intention to assume betting through the Lapsed Client’s Betting Account. “Betting Account” meant the betting account registered to any Affiliate Client with Classicbet.

The obligations of Classicbet in clause 6.1 included:

Classicbet was obliged to pay commission. Clause 7.1 provided:

A “Reconciliation Statement” was defined to mean “a Classicbet-generated statement of all betting activities by each Affiliate Client for a calendar month.”

A “Net Cash Statement” was defined as a Classicbet-generated statement of the Net Cash for each Affiliate Client each calendar month. Net Cash was an amount equal to all moneys paid by an Affiliate Client (or on their behalf) into the Affiliate Client’s Betting Account during a calendar month, less any payments out of the Betting Account as winnings or refunds or otherwise.

A Commission Statement meant a Classicbet-generated statement of the Commission payable to the Affiliate for each Affiliate Client each calendar month. A Turnover Statement meant a Classicbet-generated statement of the turnover for each Affiliate Client for each calendar month. Turnover meant the total monthly amount in dollars of all bets wagered by all Affiliate Clients using their Betting Accounts.

A Turnover Profit Percentage Statement meant a Classicbet-generated statement of the Turnover Profit Percentage for each Affiliate Client for each calendar month. Turnover Profit Percentage meant the Net Cash in a calendar month divided by Turnover. The agreement provided an example that if in a calendar month Net Cash was $20,000 and Turnover was $200,000, then Turnover Profit Percentage for such calendar month was 10 per cent.

Standard Commission was 30 per cent of the Net Cash exclusive of GST calculated on a calendar monthly basis. Reduced Commission was 25 per cent share of Net Cash exclusive of GST calculated on a calendar monthly basis.

The Target Turnover Profit Percentage was seven per cent.

Under cl 7.2 Classicbet was obliged to pay the Standard Commission to KRM up to 31 December 2017. From 1 January 2018 KRM was entitled to Standard Commission if Turnover Profit was at least seven per cent. If in any month Turnover Profit was less than seven per cent, then the commission payable was the Reduced Commission in that month. But if the Turnover Profit calculated over a calendar year was more than seven per cent, then there would be a retrospective adjustment of the commission payable for those months when the Turnover Profit had been calculated at a reduced rate. Clause 7.2 illustrated the operation of the clause by an example upon which counsel for KRM relied, which was as follows:

Clause 7.9(b) provided:

The critical clause is cl 16.1 which was headed “Buy Out – Change in Control or Sale” (at [41] above). (The APA did not contain a term that the heading could not be used to construe the Agreement.)

Change of Control was defined as follows:

“Control” was defined as having:

The Corporations Act 2001 (Cth) defines “Control” as:

In the present case there was a Change of Control of Classic and Best that it was agreed occurred on 7 June 2018. There was not a sale of the Classicbet Business to attract the operation of cl 16.1.5. Instead, cll 16.1.2 and 16.1.3 were engaged. On the giving of written notice by Classicbet under cl 16.1.3(a), KRM had the option of either continuing the agreement or taking a lump sum payment to be calculated in accordance with cl 16.1.4. In terms of cl 16.1.2 KRM elected to “buy out the tail”. Under cl 16.1.4 it was entitled to a payment of at least five times the amount equal to 12 times the average monthly commission.

Ryan Kay did not dispute that that option was available whether there was a Change of Control of either Classic or Best. If there were a Change of Control of either company then KRM had the option to be paid a lump sum in respect of 60 times the average monthly commission earned by both Classic and Best. Although not explained, I assume that this concession was based upon cl 16.1.2 that gave KRM the option to either continue with the Agreement or have Classicbet buy out the tail if there were a Change of Control of either Classic or Best. Under cl 16.1.3 if KRM elected to be paid a lump sum payment to be calculated in accordance with cl 16.1.4, then the payment was to be calculated on the average monthly Commission that had been paid by Classicbet, being a reference to both companies that paid Commission.

The primary judge accepted the submission of KRM that in the definition of “Classicbet” the phrase “collectively and individually, as the case may be”, meant “jointly and severally liable, as the case may be”. His Honour said:

KRM submitted that the words “as the case may be” were apt to refer to the imposing of obligations on all of Classic, Best and Ryan Kay and each of them. That is, when the phrase “collectively and individually” is read giving meaning to “and”, the reference to Classicbet was to the three entities considered separately and as a group.

KRM submitted that the obligation to pay commission was imposed on all of the entities making up Classicbet collectively. It submitted that on reading the definition of Classicbet into cl 7 (dealing with payment of commission) there was a promise by Classic, Ryan Kay and Best “collectively and individually, as the case may be” to pay commission depending upon the amount of Net Cash, being the difference between the moneys paid by an Affiliate Client into a Betting Account of any of the entities in Classicbet, less winnings or refunds, being a Betting Account held by any of the individual entities that were registered to an Affiliate Client.

KRM pointed to the fact that under cl 7.1 Classicbet was to provide at the end of each month to KRM in respect of each Affiliate Client “A reconciliation statement”, “A Net Cash statement”, “A Commission statement”, “A Turnover Statement”, and “A Turnover Profit Percentage statement”. The example quoted above (at [70]) in cl 7.2 for the calculation of submissions refers to the delivery by Classicbet of “a Turnover Statement” and “a Turnover Profit Statement”.

However, cl 2(a) provides that words importing the singular include the plural. Clauses 7.1 and 7.2 could equally be read as saying that Classicbet will provide the Affiliate in respect of each Affiliate Client, Reconciliation Statements, Net Cash Statements, Commission Statements, Turnover Statements, and Turnover Profit Percentage Statements. The example in cl 7.2 can also be read as saying that Classicbet will deliver to the Affiliate Turnover Statements and Turnover Profit Percentage Statements.

Ryan Kay submitted that the better construction is that the ordinary and natural meaning of the expression “as the case may be” is that either of two things, or one or two of three things, may be true, depending upon the actual situation. He cited McDonald v Hanselmann (1998) 28 ACSR 49; [1998] NSWSC 171 where Young J (as his Honour then was) said (at 52):

In Hooker v Foster 1 SW (2d) 276 (1928) (Texas, US) the statute provided that where there was a contest concerning the validity of an election, then:

Ryan Kay submits that this is the appropriate meaning of the words “as the case may be” in the definition of Classicbet. That is to say, the word “Classicbet” refers to either Classic, Best, or him, or some or all of them, depending upon what is appropriate for the provision concerned.

Ryan Kay did not himself carry on any business. Instead, he was the director of Best and Best carried on a business. (This court was not referred to any evidence as to whether the fact that Ryan Kay did not carry on business in his own right was known to all of the parties to the Agreement.)

The relevant words are “collectively and individually, as the case may be”, not “collectively or individually, as the case may be”. But the words “as the case may be” necessarily connote a choice between alternatives. Literally, the phrase “collectively and individually” refers to only one condition and allows no choice. But that would be to give the words “as the case may be” no work to do.

The construction contended for by Ryan Kay is to be preferred. As Mr Walker SC, who appeared with Mr Kabilafkas for Ryan Kay, submitted, the references to “Classicbet” in other parts of the Agreement show that such a differential application as contended for should be adopted. Thus “Betting Account” was defined to mean the Betting Account registered to any Affiliate Client with Classicbet. A single client would not have a single betting account registered with all three entities.

It is clear from the text of the APA that it was understood that at least Classic and Best conducted separate businesses. The definition of Classicbet Website referred to two separate website addresses: one for Classic and one for Best. Classic held a separate licence from the licence held by Ryan Kay. This was a known fact.

Mr Di Natale who was a business consultant and adviser retained by Mr Kevin McCrohan, the director of KRM, deposed that Ryan Kay and Alex Kay had “established the betting agencies known as ‘Classicbet’ and ‘Bestbet’”.

Mr Walker submitted that a single bet could not be placed under more than one licence. That is to say, a single bet could not be placed with more than one entity. I agree. In the definitions of Betting Account and Classicbet Business and Debt the reference to Classicbet must be to whichever is the entity with which the Affiliate Client placed bets. The obligation on Classicbet to monitor the wagering activity of each Affiliate Client so as to be able to generate accurate statements listed in cl 7.1 (cl 6.1(e)(iii)) would also have to be the obligation of the particular entity with which wagering activity was conducted by an Affiliate Client.

Ryan Kay submitted that cll 4 and 5, providing for the appointment of KRM to introduce New Clients and Lapsed Clients to Classicbet, encompassed the introduction of such clients to one of the entities conducting a business. Classicbet’s obligation under cl 6.1(e)(i) to open Betting Accounts for New Clients could only be performed by the entity with whom the New Client sought to open the account. The comprehensive reporting that Classicbet was required to provide under cl 6.2 in respect of Affiliate Clients’ activity including details of all betting , betting results etc, could only be performed by the individual entity with whom the Affiliate Client opened an account.

Clause 8 provided that if GST were payable on a taxable supply made under the Agreement (viz. the services provided by KRM) “the party providing the consideration for that taxable supply must also pay the amount of the GST payable in respect of it”. Taxable supply made by KRM, being the introduction of new or lapsed clients, would be provided to the individual entity with whom such a client opened a betting account. Clause 8.3 provided that “provision of consideration under this Agreement is not required until the Affiliate has provided a Tax Invoice or Adjustment Note as the case may be to Classicbet.” The reference there to Classicbet must be to the individual entity to whom the taxable supply was made by KRM. Clause 8.5 provided that:

Clause 9 contained a warranty by Classicbet that “it is the sole owner of all intellectual property in all matters supplied by Classicbet and used by KRM in connection with the promotion of Classicbet to potential or actual Affiliate Clients.” That warranty must have been given by the individual entity that owned the intellectual property.

Turning then to cl 16.1, Ryan Kay submits that the obligation of Classicbet to pay a lump sum in commutation of KRM’s right to future commission payments should be understood as the obligation of each of Classic and Best to pay a lump sum calculated by reference to each party’s average monthly commissions. Because Ryan Kay did not have any Affiliate Clients and was not required to pay commission he was not liable to pay the lump sums that were payable by Classic and Best.

Classic and Best did not dispute that they were both liable for a single judgment sum calculated under cl 16.1.4. They said that Ryan Kay was also liable for that single judgment sum. As noted above, they said that the sum should be recalculated on the basis that cl 16.1.2 and 16.1.3 had been triggered in April 2018, not in October 2018. But if that argument were unsuccessful, they did not challenge the judgment entered against both of them calculated on the commissions payable by both of them, rather than that there should be separate judgments calculated in respect of the commissions that had been paid by each of them.

The fact that Classic and Best took this stance, for good forensic reasons, does not preclude Ryan Kay’s contending to the contrary.

The primary judge’s orders included an order that Classic, Best and Ryan Kay were entitled to equitable contribution in respect of the judgment and costs orders that were made against all of them. [1]

Although the matter is not free from doubt, the better construction is that the words “collectively and individually, as the case may be” do not mean “jointly and severally”. They mean “individually or collectively as appropriate”. Ryan Kay’s appeal should be allowed.

Ryan Kay advanced a further argument that the primary judge erred in not granting him leave to amend his defence to plead that KRM was not entitled to have elected on 15 October 2018 that KRM was not entitled to exercise its option to commute its future entitlement to commission because it had elected “to ... continue with” the APA after having become aware of the change of control on 8 June 2018 and thereafter issuing tax invoices for continuing commission.

This ground was only faintly pressed on appeal. It was rejected by the primary judge on the basis that amendments proposed on the first day of the hearing (which were not confined to the amendment now in question) would, if allowed, have led to an adjournment of the hearing to allow KRM to consider and perhaps to adduce further evidence in relation to the amendments proposed.

A further basis for disallowing the amendments would be that KRM’s election under cl 16.1.3 arose only after the service of the requisite written notice under cl 16.1.3 and not merely after KRM’s being on notice that a change of control had occurred. KRM had sought to insist (to no avail) that it be given a notice under cl 16.1.3. Had the proposed amendment been allowed, perhaps on the basis that it was arguable that its election arose not merely on the provision of a written notice under cl 16.1.3, but its being on notice that a change of control had occurred, then a factual issue would have arisen as to whether it was open to Ryan Kay to take the point that KRM had elected to continue with the agreement when KRM had been pressing for the provision of a formal notice under cl 16.1 that had not been provided. But the short answer is that no election arose until written notice under cl 16.1.3 was provided. Inevitably, this point was conceded on the hearing of the appeal.

Clause 6.1 of the SSPAs has been quoted above at [44]. The primary judge held that the promise in cl 6.1 that the Seller would satisfy and discharge liabilities of the Company incurred or accrued before the Completion Date was not a promise made to Classic and Best, but to the Buyer. The primary judge also held that the liability of Classic and Best to pay the lump sum payment under cl 16.1 of the APA had not been incurred or accrued by the Completion Date.

Both conclusions were correct.

As to the first finding, the primary judge said (at [64]-[65]):

Here, the primary judge observed that Classic’s and Best’s contention was inconsistent with other provisions of cl 6. These are referred to below.

A particular feature of each SSPA was that cl 3.3 provided that all profits and losses of the corporate bookmaking business of each company was to the account of the Buyer from the date of exchange. Clause 3.3 provided:

The parties were agreed that, notwithstanding this clause, the Change of Control of Classic and Best for the purposes of cl 16.1 of the APA did not occur until completion on 7 June 2018.

Consistently with cl 3.3, the Buyer was required to pay to the Seller, unconditionally, a non-refundable payment of $2,450,000 in the case of Alex Kay (referable to Classic) and $1 million in the case of Ryan Kay (referable to Best) (cl 4.2). In the case of Classic, the Buyer was required to pay the Seller $100,000 on completion (this being described as the “Balance Completion amount”) (cl 4.3). In the case of Best, the amount payable on Completion was nil. There were however in each case deferred payments to be payable by equal monthly instalments for two years of $75,000 per month in the case of Classic and $25,000 per month in the case of Best (cl 4.3).

Clause 5.1 provided that Completion should take place on the Completion Date. Completion Date meant two business days after the Buyer received from the Northern Territory Racing Commission regulatory approval in writing to operate the Company’s Business under the Buyer’s existing NTRC bookmaker’s licence. The NTRC approval was granted on 17 May 2018 (Judgment [16(6)] and [80]). It was agreed that the Completion Date was 22 May 2018.

Clause 6 of the SSPAs is headed “Liabilities and Debtors on Completion”. But under the SSPA (in contrast to the APA) the headings are inserted for convenience only and do not affect the interpretation of the Agreement (cl 1.2.6).

Clause 6.1 has been quoted above at [44]. It is convenient to repeat that clause in the context of the balance of cl 6. Omitting its heading, cl 6 provided:

By cl 5.2 the Seller and the Buyer undertook to meet their obligations of Completion as set out in sch 9. Relevantly, in sch 9, it was agreed that at Completion the Seller must deliver to the Buyer an updated list of all liabilities owing at the date of Completion.

By cl 7.3 the Sellers provided the following indemnity:

Clauses 6.3 and 6.11 elucidate whether the promise made by the Seller in cl 6.1 was made only to the Buyer or whether it was also made to the Company. The effect of cll 6.3 and 6.11 was that if a liability that had been incurred and was payable on or before the Completion Date (that being the effect of the words “all money accrued up to the Completion Date, but not paid”), unless money for the payment of such liabilities had been paid into the Company’s bank account on Completion, the amount “attributed to such matters” (that is, the amount payable) would be adjusted on Completion from the Completion Amount. The Completion Amount was defined in the Classic SSPA as:

In the Best SSPA it was defined as:

The adjustment could result in a negative amount representing a debt owed by the Seller to the Buyer.

In the light of cll 6.3 and 6.11, cl 6.1 can readily be construed as a promise made by the Seller to the Buyer that the Seller would discharge “in the proper time” liabilities that had been incurred (or accrued) before the Completion Date. This is in conformity with (and would be accommodated by) an adjustment of the Completion Amount for liabilities that were payable but had not been paid, or for which money had not been provided in the Company’s bank account to make the payment. It would not be a commercially sensible construction of the provisions that a liability that had been incurred and which was payable, and for the satisfaction of which moneys had not been paid into the Company’s bank account, would both be adjusted as between Buyer and Seller, and that the Seller would be liable to the Company to discharge that liability.

I agree with the primary judge’s reasons at [64] and [65] quoted above.

I also agree with the primary judge’s conclusion that as at the Completion Date (or for that matter as at Completion), the Company had not incurred a liability to KRM to pay a lump sum, on the bases on which that contention was advanced below and on appeal. If such a liability had not been incurred, it would not have accrued.

Both below and on appeal Classic and Best submitted that Classic and Best had incurred liabilities within the meaning of cl 6.1 either on entering into the APA, or because Ryan Kay on behalf of both Classic and Best had given written notice of a proposed change of control of Classic and Best by emails sent by him on 11 April and 26 April 2018.

Neither before the primary judge (Judgment [53]), nor on appeal, did Classic and Best submit that a liability to KRM for the lump sum payment under cl 16.1 of the APA had been incurred on entry into the SSPAs on 23 March 2018.

Classic and Best submitted that they were exposed to the obligation to pay commission to KRM on entry into the APA. They relied on Hawkins v Bank of China (1992) 26 NSWLR 562 (particularly per Kirby P at 576) as applied in the Supreme Court of Victoria in Healthscope (Tasmania) Pty Ltd v Austrialian Hospital Care Pty Ltd [2011] VSC 132. They also relied on Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 and Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 per McHugh J at 52-53; [1999] HCA 59 at [136]-[140]. They submitted that their exposure to a monetary obligation to KRM arose from the time the APA was made, and it was from that time that they incurred a liability to KRM.

The liability in question to KRM which Classic and Best say they incurred prior to the completion date of the SSPAs was the liability to pay a lump sum on commutation of entitlement to future commission. Although the source of Classic and Best’s obligation to pay that lump sum was their entry into the APA, it does not follow that for the purposes of cl 6.1 of the SSPAs, that liability had been incurred on entry into the APA. There were multiple contingencies that had to be satisfied before such a liability crystallised.

First, KRM had to introduce New or Lapsed Clients to Classicbet.

Secondly, those clients had to place enough unsuccessful bets to generate positive Net Cash.

Thirdly, there had to be an actual or proposed change of control of the business of Classic and Best or a change of control of those companies (or arguably, a proposed change of control of those companies).

Fourthly, a notice of actual or proposed change of control had to be given.

Fifthly, KRM had either to elect to take a lump sum in commutation of its right to future commission, rather than electing to continue the agreement, or, it had to make no election.

I do not accept that for the purposes of cl 6.1 of the SSPAs that Classic and Best had incurred a liability to pay KRM a lump sum in commutation of its commission as at 22 May 2018 by reason of its entry into the APA. It is unnecessary to consider whether such a liability might have been incurred on entry into the SSPAs because no such argument was advanced.

The primary judge considered Hawkins v Bank of China and also Standard Chartered Bank of Australia Ltd v Antico (Nos. 1 and 2) (1995) 38 NSWLR 290. Both cases concerned s 556 of the Companies (NSW) Code or the Corporations Law. His Honour correctly held that the words “incurred or accrued” were to be construed not in the context of s 556, but in the context of the SSPAs. His Honour reasoned: (paras 59 and 60).

In Hawkins v Bank of China, a company executed a guarantee of debts owed by other companies to the Bank. The Bank alleged that directors of the company were liable for payment of a debt claimed to be owed under the guarantee because there were reasonable grounds to expect that the company was insolvent or would become insolvent if the company incurred the debt, when the debt was incurred (Companies (NSW) Code, s 556). A question was formulated for separate determination of whether by entering into the guarantee the company incurred a debt within the meaning of s 556(1) of the Companies (NSW) Code.

The primary judge answered that question in the affirmative and the appeal from that answer was dismissed.

Gleeson CJ said (at 568):

Gleeson CJ observed that “debt” in s 556 was capable of including a contingent liability and concluded (at 572) as follows:

Kirby P emphasised the statutory context in which the issue arose, observing that it would be absurd if an officer of an insolvent company could, with impunity, cause the company to enter into a guarantee of a liability which could immediately thereafter mature into an absolute obligation as a debt (at 577). It was in this context that Kirby P said (at 576):

Sheller JA agreed with the reasons of both Gleeson CJ and Kirby P in agreeing that the expression “incurs a debt” in s 556(1)(a) extended to including a contingent debt and held that such a debt was incurred on the execution of the guarantee. His Honour was careful to stipulate that that finding was applicable only to the circumstances in which the guarantee in the particular case was entered into and would not necessarily extend, for example, to a guarantee entered into before any financial accommodation was provided to the proposed borrower (at 578).

Hawkins v Bank of China does not assist Classic and Best. In entering into the APA Classic and Best did not incur an unavoidable obligation to pay a lump sum by way of commutation of KRM’s entitlement to future commission. They could have avoided that obligation by not entering into the SSPAs.

As the primary judge rightly observed, the context of cl 6.1 of the SSPAs is very different. There is no definition of “liability” that it include a contingent liability. There is no doubt that, depending on context, “liability” can include a contingent liability (Crimmins v Stevedoring Industry Finance Committee at [136]-[140] per McHugh J). But the primary judge did not err in applying the observations of Williams J in O’Keefe v Calwell (1949) 77 CLR 261 at 295-296 that “liable” ordinarily means actually liable, not potentially liable. The fact that that observation was made in a very different context does not mean that the primary judge erred in finding that in the context of cl 6 the reference to “liabilities” was to liabilities that had actually been incurred. Thus cl 6.3, which required moneys accrued but not paid in respect to liabilities to be adjusted, was referring to liabilities that had not only been actually incurred, but were payable, but not paid. Clause 6.11 required an adjustment of the Completion Amount for any liabilities that were not in the company’s bank account on completion. That must have been a reference to liabilities that had at least been actually incurred.

The primary judge correctly observed that in Standard Chartered Bank of Australia Ltd v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 Hodgson J (as his Honour then was) expressed agreement with the decision in Bans Pty Ltd v Ling [1995] NSW ConvR 55-739; (1995) 16 ACSR 404, that liability for interest on unpaid rent was not incurred until the failure to pay rent gave rise to the liability. That is, the liability to pay interest was not incurred on entering into the lease.

The issue in Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 was whether, when a corporate partner became subject to a joint liability in respect of a partnership debt, it was correct to say for the purposes of s 588G of the Corporations Act 2001 (Cth) that it thereby incurred a debt (at [9]). Barrett J (as his Honour then was) applied observations of Hodgson J in Standard Chartered Bank of Australia v Antico as follows:

This decision does not assist Classic and Best. It might be arguable that the act of Classic and Best through which they were exposed to the monetary obligation for which KRM sued was, as a matter of substance and commercial reality, their entry into the SSPAs. But as a matter of substance and commercial reality, that obligation was not incurred on entering into the APA.

Classic and Best also submitted that the primary judge was wrong in not applying what Kirby P said in Hawkins v Bank of China (at 576) that:

This statement was applied by Sifris J in the Supreme Court of Victoria in Healthscope (Tasmania) Pty Ltd v Australian Hospital Care Pty Ltd [2011] VSC 132 at [22]. The circumstances of the incurring of a liability in that case were far different from the present. The defendants did not suggest that no debt or liability had been incurred (at [28]).

As I have said above, Classic and Best did not, by entering into the APA, expose themselves contractually to an obligation to make a future payment to KRM under cl 16.1 in commutation of their liability to pay future commission. As a matter of substance they only incurred that liability after entering into the SSPAs.

Classic and Best’s alternative argument was that their liability to KRM was incurred prior to the Completion Date because of emails sent by Ryan Kay on behalf of both companies to KRM on 11 and 26 April 2018.

On 1 April 2018 Mr Di Natale, who was acting for KRM, wrote to Ryan Kay as follows:

Mr Di Natale slightly amended his email on 2 April 2018 but without changing its substance.

On 11 April 2018 Mr Di Natale wrote to Ryan Kay saying:

Ryan Kay replied later that day saying:

Mr Di Natale pressed Ryan Kay on 22 April. He sent an email on that day saying:

On 26 April 2018 Ryan Kay replied:

Classic and Best submitted that the emails from Ryan Kay of 11 and 26 April were a notice of proposed change of control within the meaning of cl 16.1.3 of the APA because Ryan Kay implicitly confirmed KRM’s understanding that a share sale agreement for at least one of the companies had been entered into that was subject to the approval of the Northern Territory Racing and Gaming Commission. Hence there was a potential change of control of Classic and Best, or at least Classic or Best.

There is an issue as to whether KRM’s option to either continue with the APA or have Classicbet “buy out the tail”, that is, commute its right to future commission, could be triggered only on a potential change of control. Clause 16.1.2 provides for KRM to have that option if there were a Change of Control of either Classic or Best. The definitions of “Change of Control” and “Control” are set out at [73] and [74] above.

It might have been arguable that on entry into the SSPAs there was an actual change of control and not merely a potential change of control because Playup became entitled to the profits of the Classicbet business from the date of entry into the SSPAs. It was submitted by Mr Walker SC that it could be inferred that Playup took over the management of the Classicbet business from entry into the SSPAs. The majority of the purchase price was payable on entry into those agreements.

However, this point was not argued either below or on appeal. On the assumption that there was no actual change of control on entry into the SSPAs, there is an issue of construction of cl 16.1.2 and 16.1.3 as to whether the option in cl 16.1.2 or 16.1.3 was triggered by the entry by Classic and Best into the SSPAs. Whereas cl 16.1.2 confers the option only in terms of there being a Change of Control, cl 16.1.3 states that the option referred to in cl 16.1.2 is to be exercised by Classicbet giving written notice of the Change of Control or proposed Change of Control.

The inconsistency in these provisions could be reconciled either by reading into cl 16.1.2 an implication that the option provided for by that clause was triggered either on a Change of Control or a proposed Change of Control. That would require reading words into cl 16.1.2. That construction would be harmonious with cl 16.5, dealing with a change of control of Classicbet’s business.

On the other hand, the inconsistency could be resolved by excising from cl 16.1.3(a) the words “or proposed Change of Control”.

It would only be necessary to resolve this issue if the emails sent by Ryan Kay on 11 and 26 April 2018 could be characterised as written notice of proposed Change of Control in Classic and/or Best for the purpose of that clause.

The primary judge was correct to conclude that the emails cannot be so regarded. They contain no such express statement. They did not provide the information that KRM would require in order to exercise its option under cl 16.1.2. Rather than being notices given under cl 16.1.3, they were purported explanations as to why Classic and Best were not giving notices under that clause.

For these reasons the primary judge was correct to conclude both that the promise under cl 6.1 of the SSPAs was not made by Alex or Ryan Kay to Classic and Best, but that, in any event, no liability had been incurred prior to the Completion Date to which cl 6.1 could apply on the basis of the arguments advanced at trial.

Classic and Best also contended that Alex Kay as a director of Classic, and Ryan Kay as a director of Best, breached their duties owed to those companies by not giving a proposed notice of change of control under cl 16.1.3 of the APA after those companies entered into the SSPAs for the sale of their shares to Playup. They were in a position of conflict between their duties to the Company of which they were the director and their personal interest because it was in their personal interest as Sellers under the SSPAs that the Company of which each was a director not incur a liability prior to the Completion Date of the SSPA.

Classic and Best did not plead a breach of the Kays’ fiduciary duties. They did plead a breach of their statutory duties to act in good faith in the best interests of each Company and for a proper purpose, and they pleaded breach of the statutory duty not to gain an advantage for himself or to cause detriment to the Company (Corporations Act 2001 (Cth), ss 181 and 182).

This allegation was made out in the case of Ryan Kay. This court was not taken to evidence which would justify a finding of breach of duty by Alex Kay. It is clear that Ryan Kay, who was apparently acting for both Best and Classic, was resisting giving a notice of proposed change of control. There was no credible explanation for that resistance, except that until 18 or 22 May 2018 approval of the change of control had not been given by the Northern Territory Racing Commissioner. There was clearly a proposed change of control, as KRM asserted, albeit one that was conditional on the Northern Territory Racing Commissioner’s approval.

Even after that approval was given, the Kays did not cause Classic and Best to give the requisite notices under cl 16.1.3 of the APA. Had notices been promptly given, there was still time for KRM to have elected to take a lump sum payment before Completion occurred, although not before the Completion Date.

The primary judge found that Classic and Best had not established that had a proposed notice of change of control been given, KRM would have elected to take the option of a lump sum payment. Mr Di Natale, who was the only witness called for KRM, was not asked about that matter.

But Mr Di Natale was not the decision-maker for KRM. The decision-maker for KRM was Mr McCrohan. KRM was suing Classic and Best. Classic and Best could not have been expected to call him in their own case.

I agree with the submission for Classic and Best that it should be inferred that had the proposed notice of change of control been issued to KRM, it is probable that KRM would have elected to take a lump sum payment. KRM was pressing for the issue of such a notice in order to trigger its right of election. Once it ultimately received a notice, it acted promptly to exercise its right to take the lump sum payment. It can be inferred that had notice been given by Classic and Best after March 2018, it would have made the same election as it ultimately made in October 2018.

But this part of Classic and Best’s cross-claim against Alex and Ryan Kay is a claim for damages for breach of Alex and Ryan Kay’s statutory duties as directors. The question is whether Classic and Best established any loss for which damages would be payable. (The same question would arise if their claim could properly be classified as a claim for equitable compensation for breach of fiduciary duty.)

Classic and Best incurred a liability to pay the lump sums payable under cl 16.1 of the APA. But they are relieved from their ongoing liability to pay indefinite future commissions under cl 7 of the APA. There was no evidence that the liability incurred was worth more than the burden relieved.

Recognising this, counsel for Classic and Best accepted that it would only be if Classic and Best had a liability under cl 6.1 of the SSPAs to pay the liability incurred that any damages could be recoverable from Alex and Ryan Kay for breach of their duties as directors for not causing notices of proposed change of control to be given. That concession was rightly made. For the reasons above, cl 6.1 did not make Alex and Ryan Kay liable to Classic and Best (as distinct from Playup) for not discharging Classic’s and Best’s liabilities.

For these reasons the appeal of Classic and Best should be dismissed.

In appeal 2020/6311 (Ryan Kay v KRM (Vic) Pty Ltd) I propose the following orders:

In appeal 2020/12237 (Classic Bet (NSW) Pty Ltd & Anor v Ryan Kay & Ors) I propose the following orders: