Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP (No 3)

1. [1]

   The sixth defendant, Coverforce Holdings Pty Ltd, is Australia’s largest unlisted insurance broker.

2. [2]

   In 1994, the first plaintiff, Mr James Angelis, established the business now carried on by Coverforce. Mr Angelis has been the managing director and chief executive of Coverforce, and its predecessors since then.

3. [3]

   Until 2012, the business was essentially an Angelis family business. To the extent that there were other shareholders, they held shares as valuable employees of the business.

4. [4]

   During this period, the business was operated by Mr Angelis through a group of companies which the parties referred to as the “Coverforce Group”.

5. [5]

   In late 2011, Mr Angelis received a proposal from a private equity investor, now known as Pemba Capital Partners Pty Ltd, to invest in the group.

6. [6]

   On 12 April 2012, the Coverforce Group was restructured to facilitate Pemba’s investment. The newly incorporated Coverforce Holdings Pty Ltd acquired the Coverforce Group. Pemba took an equity stake and became a shareholder in Coverforce along with Mr Angelis and other minority shareholders. Those parties entered a shareholders agreement that the parties referred to as the “2012 Shareholders Agreement”.

7. [7]

   Under the 2012 Shareholders Agreement, Pemba and Mr Angelis were each entitled to appoint two directors to the Coverforce board. Mr Angelis appointed himself and the second plaintiff, Mr Jitendra Dutt. Mr Dutt is also the Chief Financial Officer of Coverforce. Pemba’s current appointees are Mr George Georgiadis and Mr Mark Summerhayes. Mr Summerhayes is currently chairman of the board. The fifth director is Mr Ian Neal, appointed in April 2012 as a non-executive independent director.

8. [8]

   In July 2016, Pemba transferred its equity participation in Coverforce to the first defendant, Pemba Capital Partners Fund I Partnership, LP. The distinction between the Pemba entities is not significant and, for simplicity, I will refer simply to “Pemba”.

9. [9]

   By 29 November 2017, following a series of further share transfers, the shareholders in Coverforce were:

10. [10]

    Messrs Angelis, Dutt, Goldsmith and Brown are the plaintiffs. I will refer to them as the “Angelis Parties”.

11. [11]

    On 29 November 2017, the shareholders entered into an amended and restated shareholders agreement, which the parties referred to as the “2017 Shareholders Agreement”.

12. [12]

    Under each of 2012 and 2017 Shareholders Agreements, if Pemba wished to achieve an “Exit”, it was entitled to compel the remaining shareholders to sell the same proportion of their shares as Pemba was selling, and at the same price and on the same terms. The parties referred to this as Pemba’s “Drag Right”.

13. [13]

    The Drag Right gave Pemba, as a private equity investor in Coverforce, the ability to deliver to a prospective purchaser of its shares the entire shareholding and thus complete ownership of Coverforce. Mr Summerhayes agreed that the Drag Right was a drastic right. He said that it was “ultimate protection” for an equity investor like Pemba. Mr Summerhayes said that the right was only to be used on a “cold day in hell”. “Like today” he added.

14. [14]

    Coverforce was a party to each of the 2012 and 2017 Shareholders Agreements. Each provided that if there was any inconsistency between it and Coverforce’s constitution, “this agreement prevails to be extent of any inconsistency”. Accordingly, the parties directed their submissions to the relevant provisions of the shareholders agreements, rather than those in the constitution. For the same reason, I will not refer further to the constitution unless necessary.

15. [15]

    In the years up to 2018, Mr Angelis caused the Coverforce business to expand by acquiring a number of competing insurance broking businesses. Those businesses were identified and acquired by Coverforce on the recommendation of Mr Angelis.

16. [16]

    In April 2018, Mr Angelis identified the business conducted by Resilium Pty Ltd as another potential candidate for acquisition by Coverforce. Resilium was then a wholly-owned subsidiary of Suncorp Insurance Services Ltd. Resilium held an Australian Financial Services Licence (AFSL) and carried on business distributing insurance products such as business and personal insurance. Resilium operated through a network of authorised representatives. Those representatives had their own portfolio of clients and who operated using Resilium’s AFSL.

17. [17]

    For some months prior to April 2018, the managing director of Resilium, the third defendant, Mr Adrian Kitchin, and two senior employees of Resilium, Mr Benjamin Hastie and Mr Drue Castanelli, who are the fourth and fifth defendants, were in discussion with Suncorp about a possible management buyout (“MBO”) by them of the Resilium business. I will refer to those individuals as the “Kitchin Parties”.

18. [18]

    Evidently, developments at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had prompted Suncorp to contemplate the “divestment” of Resilium “given the risks associated with Suncorp continuing to own a vertically integrated general insurance broking business” (to adopt the language in an internal Suncorp document dated 20 July 2018).

19. [19]

    Mr Angelis raised the possibility of an acquisition of Resilium at a Coverforce board meeting on 25 June 2018.

20. [20]

    Between then and October 2018, Mr Angelis conducted negotiations with Mr Kitchin about the possibility of such an acquisition. Speaking broadly, those negotiations were conducted on the basis of Coverforce financing the Kitchin Parties’ MBO of Resilium, and the Kitchin Parties procuring that Coverforce acquire the Resilium business in exchange for a shareholding in Coverforce. I will set out the detail of those negotiations later in these reasons.

21. [21]

    During those negotiations, Mr Kitchin made clear to Mr Angelis that there could be no agreement unless Pemba agreed to surrender its Drag Right. That was because, first, Mr Kitchin did not wish to become a shareholder in Coverforce and then be forced to “exit” as a shareholder if Pemba chose to do so and, second, because Mr Kitchin understood that Suncorp would not agree to a transaction with a party one of whose shareholders had such a right.

22. [22]

    Ultimately, on 31 October 2018, Mr Angelis (for Coverforce) and Mr Kitchin executed a “Binding Term Sheet”. I will call that document the “31 October Term Sheet”.

23. [23]

    That document stated that “the proposed terms and conditions” for the acquisition of Resilium included that:

24. [24]

    The 31 October Term Sheet is to be contrasted with two other term sheets, executed by Mr Kitchin and Suncorp on 22 October 2018 and 12 December 2018, to which I will return.

25. [25]

    I shall refer to the shareholders agreement which was annexed to the 31 October Term Sheet as the “Purported 31 October Shareholders Agreement”.

26. [26]

    A central issue in these proceedings is whether, by reason of these documents, and in the events that happened, the Angelis Parties and Pemba agreed to vary the 2017 Shareholders Agreement to the effect of the Purported 31 October Shareholders Agreement.

27. [27]

    Pemba’s case is that the 2017 Shareholders Agreement has not been varied. It seeks a declaration to that effect as well as a declaration to the effect that the Purported 31 October Shareholders Agreement “was and is invalid, void and of no effect”.

28. [28]

    On 25 March 2019, Coverforce, the Kitchin Parties and Suncorp executed a suite of documents which purported to implement what the parties referred to as the “Resilium Transaction” and to have the effect that, on settlement on 31 May 2019:

29. [29]

    The result, according to the Angelis Parties and the Kitchin Parties, is that:

30. [30]

    Pemba, on the other hand, maintains that the 2017 Shareholders Agreement is still in force, that Mr Angelis had no authority to commit Coverforce to the Resilium Transaction and that the documents executed on 25 March 2019 were not effective.

31. [31]

    Pemba seeks a declaration that the purported issue of shares to Mr Kitchin, Mr Hastie and Mr Castanelli “was and is invalid, void and of no effect”.

32. [32]

    Pemba does not seek a declaration to the effect that the 25 March 2019 Resilium Transaction documents are ineffective. However, in response to the Kitchin Parties’ Cross-Claim, Pemba pleads that the Resilium Transaction documents were not authorised by the board of Coverforce and not validly entered into by Coverforce. That issue was at play throughout the hearing.

33. [33]

    On the basis that the Resilium Transaction documents were not effective, Pemba contracted to sell its shares in Coverforce to the former seventh defendant, AUB Group Ltd and, in purported exercise of its Drag Right, sought to compel the Angelis Parties to do the same.

34. [34]

    This transaction was subject to Pemba providing AUB with certain due diligence information, due last Friday, 6 December 2019, and the completion of due diligence by AUB by 31 December 2019. Pemba’s ability to require Coverforce and the Angelis Parties to provide it with such due diligence information depended on whether the 2017 Shareholders Agreement or the Purported 31 October Shareholders Agreement governs those parties’ obligations.

35. [35]

    For that reason, I was asked to deliver these reasons urgently.

36. [36]

    Early in the hearing, the Angelis Parties withdrew their claim against AUB.

37. [37]

    Yesterday, 9 December 2019, AUB announced to the market that it had terminated its contract with Pemba on the basis of Pemba’s failure to provide “as at the date agreed” that due diligence information.

Coverforce is not represented

1. [38]

   Because of this dispute, there is currently a deadlock on the Coverforce board. For that reason, the board has been unable to appoint legal advisors to represent Coverforce in these proceedings.

2. [39]

   No party sought any order appointing a party to represent Coverforce’s interests in the proceedings. It was common ground that, as the Coverforce business is active and highly profitable, it would have been commercially disastrous for a receiver or provisional liquidator to be appointed to Coverforce for this purpose.

3. [40]

   Each of the shareholders of Coverforce has actively participated in these proceedings. As was submitted on behalf the Kitchin Parties, all of the shareholders have a keen interest in acting in this litigation in a manner that does not prejudice the legitimate interests of Coverforce. Each has had every opportunity to identify and advance arguments that would serve Coverforce’s interests. Each has done so.

4. [41]

   I accept the submission made on behalf of both Pemba and the Kitchin Parties that the Angelis Parties are effective contradictors of their cases, so far as they affect Coverforce, and that the interests of Coverforce will not be adversely affected by its want of separate representation no matter what the outcome of these proceedings may be.

5. [42]

   And, as a practical matter, I saw no alternative than to proceed this way.

6. [43]

   The Angelis Parties drew attention to two particular matters in respect of which it was said Coverforce might wish to be heard. They were whether Coverforce might wish to exercise its rights under a dispute resolution clause in one of the Resilium transaction documents and to exercise its rights under the agreement by which it agreed to lend the Kitchin Parties the $20 million referred to at [28(a)] above. I deal with these questions below (see [585] to [586] and [507] respectively).

The issues

1. [44]

   A central issue is whether the shareholders of Coverforce are bound by the 2017 Shareholders Agreement or the Purported 31 October Shareholders Agreement.

2. [45]

   Pemba accepted that, if the shareholders of Coverforce are bound by the Purported 31 October Shareholders Agreement, or Pemba is estopped from asserting they are not, Pemba could not have proceeded with the sale of its shares in Coverforce to AUB.

3. [46]

   On the other hand, if the shareholders of Coverforce remain bound by the 2017 Shareholders Agreement, and if Pemba is not estopped from denying that this is so, then but for AUB’s announcement yesterday Pemba could have proceeded with the sale to AUB of its shares in Coverforce and, exercising its Drag Right, the Angelis Parties’ shares in Coverforce.

4. [47]

   There is also an issue as to whether Coverforce effectively entered the 25 March 2019 documents referable to the Resilium Transaction, particularly a Share Purchase Deed made between Coverforce, the Kitchin Parties and another entity pursuant to which, amongst other things, Coverforce purportedly issued shares in itself to the Kitchin Parties.

5. [48]

   There is a further issue as to whether, assuming Coverforce did effectively enter those documents, it had requisite board approval to complete the transactions envisaged by those documents; particularly the allotment of shares to the Kitchin Parties and the appointment of Mr Kitchin as a director of Coverforce.

Decision

1. [49]

   In substance, my conclusion is that:

   1. (1)

      the shareholders of Coverforce remain bound by the 2017 Shareholders Agreement;

   2. (2)

      Pemba is not estopped from asserting the contrary;

   3. (3)

      but for AUB’s announcement yesterday, Pemba would have been entitled to proceed with the sale to AUB;

   4. (4)

      Coverforce did have authority to enter, and did effectively enter, the 25 March 2019 Share Purchase Deed;

   5. (5)

      Coverforce did not have the requisite board approval to complete the transactions envisaged in the 25 March 2019 documents;

   6. (6)

      there has been no valid allotment of shares in Coverforce to the Kitchin Parties;

   7. (7)

      Mr Kitchin has not been validly appointed as a director of Coverforce;

   8. (8)

      the Kitchin Parties are accordingly entitled to elect either to:

Representation

1. [50]

   I have been greatly assisted by the efficient manner in which the proceedings were conducted by counsel for each of the parties.

2. [51]

   During final oral submissions, I was provided with extensive written submissions. Much of what follows, particularly in relation to uncontroversial background matters, is drawn with gratitude from those submissions.

The alleged “convention” as to the management and operation of Coverforce

1. [52]

   In his affidavit evidence, Mr Angelis explained how he had caused Coverforce to acquire “target businesses” over the years. He explained that those businesses were acquired on his recommendation and that he considered he was “able to bind Coverforce in the relevant transaction because no one ever told me otherwise”.

2. [53]

   In opening, the Angelis Parties submitted that in pursuing that strategy “the Coverforce Board and shareholders departed from the formal decision-making processes set out in the company’s constitution and shareholders agreements”.

3. [54]

   In my opinion, any such convention that may have been established in regard to the acquisition of businesses prior to the transactions with which these proceedings are concerned casts no light on the issues before me.

4. [55]

   This is for three reasons.

5. [56]

   First, none of the previous transactions to which Mr Angelis referred involved the need to make amendments to either the 2012 or the 2017 Shareholders Agreement.

6. [57]

   Second, the Angelis Parties only plead that “absent any indication to the contrary” did Mr Angelis have some kind of apparent authority to bind Coverforce “without formal resolution or formal acknowledgment of consent”. In this case, as I will describe below, there was clear “indication to the contrary” from Pemba in relation to the Resilium Transaction.

7. [58]

   Finally, the Angelis Parties proffered no estoppel or any other legal theory to suggest why Mr Angelis’s subjective understanding of the circumstances in which he was able to bind Coverforce should be given legal effect.

8. [59]

   These matters may explain why the Angelis Parties placed little weight on these matters in their final submissions.

Credit

1. [60]

   I heard evidence from Mr Angelis, Mr Neal, Mr Dutt, Mr Summerhayes, Mr Georgiadis and Mr Kitchin. Each was extensively cross-examined.

2. [61]

   The impression I gained was that each of these witnesses was doing his best accurately to recount the events with which these proceedings are concerned. I do not think that any of these men sought to give evidence before me which was not truthful.

3. [62]

   However, there are some instances, which I set out below, where the evidence that Mr Angelis gave cannot be correct.

4. [63]

   In this regard, I can do no better than to repeat McLelland CJ in Eq’s memorable words in Watson v Foxman (1995) 49 NSWLR 315 at 319:

5. [64]

   Mr Angelis’s evidence was, at times, affected by the considerations to which McLelland CJ in Eq referred.

The critical terms of the 2017 Shareholders Agreement

1. [65]

   Clause 5.5(a) of the 2017 Shareholders Agreement provided:

2. [66]

   As Pemba, at all times, held more shares than any other shareholder, a “Simple Majority Approval” thus required the vote of at least one Pemba director.

3. [67]

   Clause 5.6(a) provided:

4. [68]

   As the Angelis Parties, at all relevant times, held at least 30% of the shares in Coverforce, the effect of cl 5.6, when read with cl 5.5 was that, for there to be a “Special Majority Board Approval”, the vote of at least one Pemba director as well as the vote of Mr Angelis was required.

5. [69]

   The “Special Majority Board Approval” matters set out in Schedule 2 to the 2017 Shareholders Agreement included:

6. [70]

   The Resilium Transaction documents executed on 25 March 2019 purported to provide for:

7. [71]

   No Special Majority Board Approval was ever given to the Resilium Transaction.

8. [72]

   There is an issue as to whether Special Majority Board Approval was required before Coverforce entered the 25 March 2019 Resilium Transaction documents, and in particular, the Share Purchase Deed, as opposed to completing the transactions contemplated by those documents.

9. [73]

   This gives rise to a question of construction that I deal with at [517] to [533] below.

10. [74]

    In reply submissions, the Angelis Parties sought to draw a distinction between the “alteration of share capital” for the purposes of cl 5 of Schedule 2 and the “issue of shares”. It was submitted that the purported issue of shares in Coverforce pursuant to the 25 March 2019 Resilium Transaction documents to the Kitchin Parties “did not alter Pemba’s share capital; the Pemba parties retained exactly the same number of shares of exactly the same type following the share issue”.

11. [75]

    But that is not the point. Schedule 2 of the 2017 Shareholders Agreement does not speak of alteration to “Pemba’s share capital” but of “the alteration of the share capital of any member of the Group” and thus of Coverforce itself; it being a member of the “Group”. A decision to alter that share capital required Special Majority Board Approval.

12. [76]

    Clause 8.2(a) of the 2017 Shareholders Agreement provided that, subject to a number of provisions which are not relevant, “Pemba may Dispose of all or part of its Shares to a Third Party at any time”.

13. [77]

    Clause 9 dealt with “Exit” which was defined to mean “a Share Sale or IPO”.

14. [78]

    Clauses 9.1, 9.2 and 9.3 provided:

15. [79]

    The Drag Right is contained in cl 9.3(b)(2) and (3).

16. [80]

    An issue arose as to the proper construction of this clause and, in particular, whether the effect of cl 9.1 was to impose on Pemba an obligation to maximise shareholder value. I dealt with that issue as a separate question on 25 November 2019: see Angelis as trustee for the Angelis Family Trust v Pemba Capital Partners Fund I Partnership, LP [2019] NSWSC 1646.

17. [81]

    Clause 15.8 dealt with variation and provided:

18. [82]

    “Small Shareholder” was defined to mean a shareholder holding less than 5% of the total share capital of Coverforce. The Small Shareholders were thus, as at the date of the 2017 Shareholders Agreement, Messrs Dutt, Goldsmith and Brown.

The events leading to the 31 October Term Sheet

1. [83]

   Mr Angelis described his identification of Resilium as a potential acquisition target as follows:

2. [84]

   In April 2018, Mr Angelis spoke to a senior executive of a subsidiary of Suncorp about his interest in Resilium. That person suggested that Mr Angelis contact Mr Kitchin.

3. [85]

   Mr Angelis met with Mr Kitchin in May 2018. They had met earlier in unrelated circumstances.

4. [86]

   As I have mentioned, at that time Mr Kitchin, together with Mr Hastie and Mr Castanelli, was negotiating a possible MBO of Resilium from Suncorp. That process had started in late 2017.

5. [87]

   Mr Kitchin had been looking at various options to fund the MBO, including Macquarie Bank.

6. [88]

   In May 2018, Mr Kitchin told Mr Angelis that he was interested in “exploring how Coverforce could support my bid to acquire Resilium”.

7. [89]

   Mr Angelis replied:

8. [90]

   Discussions continued to the point where, at a board meeting on 25 June 2018, Mr Angelis informed his fellow directors of “the Resilium discussions to date”. Mr Angelis told the board:

9. [91]

   Mr Angelis said:

10. [92]

    Mr Georgiadis responded:

11. [93]

    Shortly after the meeting, Mr Georgiadis reported to Mr Summerhayes that at the meeting Mr Angelis had reported that Mr Kitchin “has raised some concerns re drag” but that Mr Georgiadis had been “very clear that we’ll need a full drag to make this work”.

12. [94]

    Mr Angelis accepted in cross-examination that he knew, at this stage, that any transaction whereby Coverforce would acquire Resilium was a matter which Pemba would be interested in and that it was important to keep Pemba directors informed once the negotiations got to the point of an offer. Mr Angelis agreed that although the acquisition of Resilium was embryonic at this time, it was always something that was going to require the approval of the Coverforce board.

13. [95]

    At this stage, both Mr Summerhayes and Mr Georgiadis saw the acquisition of Resilium as a potentially valuable opportunity, but considered that it needed to be verified by due diligence in due course.

14. [96]

    By August 2018, Mr Georgiadis, and thus Pemba, knew that any participation by Coverforce in an MBO of Resilium would involve Coverforce making a loan to the Kitchin Parties in consideration for the acquisition.

15. [97]

    What Mr Summerhayes and Mr Georgiadis did not know with certainty at this point was whether the proposed arrangement with Resilium was so valuable to Coverforce, and thus to Pemba as a shareholder in Coverforce, that its value outweighed the value of the Drag Right.

16. [98]

    By 23 August 2018, negotiations between Mr Angelis and Mr Kitchin had got to the stage where Mr Angelis sent Mr Kitchin a copy of the 2017 Shareholders Agreement.

17. [99]

    Shortly after Mr Kitchin received that email, he had a discussion with Mr Angelis in which he said:

18. [100]

    Mr Kitchin asked Mr Angelis whether it would assist if he spoke to Mr Summerhayes and Mr Georgiadis, to which Mr Angelis replied:

19. [101]

    In cross-examination, Mr Angelis agreed that it was his choice not to involve Pemba in the communications with Mr Kitchin from this point in time. In fact, Pemba had no direct contact with any of the Kitchin Parties at any time.

20. [102]

    On 28 August 2018, Mr Kitchin sent Mr Angelis an email stating that, having reviewed the agreement “without recourse to lawyers”:

21. [103]

    Mr Angelis replied:

22. [104]

    This comment misstated Pemba’s position. As I have said, at the 25 June 2018 board meeting, Mr Georgiadis had made clear that Pemba would “need a full drag to make this work”; that is, that Pemba’s position at this point was that it would insist on retaining the Drag Right were Resilium to be acquired.

23. [105]

    A few days later, on 31 August 2018, Mr Kitchin told Mr Angelis that he had “sent the Shareholders Agreement to my legal representatives for their review” but that Suncorp’s advisors, 333 Capital Pty Ltd:

24. [106]

    By this time, the relationship between Mr Angelis and the Pemba directors, Mr Summerhayes and Mr Georgiadis, had deteriorated. The poor relationship between these men, and the lack of trust between them, provides some context for later events.

25. [107]

    For that reason, when recounting the events leading to the execution of the 31 October Term Sheet, the Purported 31 October Shareholders Agreement and the Resilium Transaction documents, I will describe how those relationships deteriorated.

26. [108]

    An early indication in the evidence of the tension between Mr Angelis and Mr Summerhayes, in particular, is revealed in an email exchange a short time before the communications between Mr Angelis and Mr Kitchin to which I have just referred.

27. [109]

    On 7 August 2018, Mr Summerhayes suggested that Coverforce engage external consultants to give advice as to “how we should play Resilium”.

28. [110]

    Mr Angelis took offence at this suggestion.

29. [111]

    Thus, on 10 August 2018, he wrote to Mr Summerhayes:

30. [112]

    Mr Angelis then made some suggestions as to proposed “enforceable terms” that would protect him against a “forced trade sale”. Nothing came of those suggestions.

31. [113]

    The email shows that Mr Angelis regarded Coverforce as “an Angelis family business” and was anxious to regain “ownership and control” of it. Mr Angelis clearly wished to bring about a situation where Pemba ceased to be a shareholder in Coverforce. He certainly did not wish to be forced into a trade sale as a result of Pemba exercising its Drag Right, and thus to lose what he saw as being a family business.

32. [114]

    This led Mr Summerhayes to write to his colleague at Pemba, Mr Magnus Hildingsson:

33. [115]

    A short time later, Mr Summerhayes wrote to Mr Hildingsson:

34. [116]

    A further difficulty arose on 7 September 2018 when Mr Angelis wrote to Mr Tim Flower, a representative of the key investor in the fund management by Pemba, HarbourVest, communicating “my formal offer to purchase your [i.e. Pemba’s] shares in Coverforce”.

35. [117]

    This communication infuriated Mr Summerhayes.

36. [118]

    Thus, Mr Summerhayes gave this evidence:

37. [119]

    Mr Flower told Mr Angelis that he should deal with Pemba as it had “full discretion for the investment into Coverforce”. Mr Flower said that Pemba “continue to have our complete support so please could I encourage you to continue to work with them on an exit strategy that works for all parties”.

38. [120]

    Mr Angelis replied on 10 September 2018:

39. [121]

    Mr Flower replied that although he appreciated “that the situation is currently difficult”, it was “in everyone’s interest to find a way to move forward” and that Mr Angelis should work with Mr Summerhayes and Mr Georgiadis “to get a successful exit for everyone”.

40. [122]

    Nonetheless, Mr Angelis endeavoured to engage in further email negotiations with Mr Flower. Mr Flower insisted that Mr Angelis deal with Mr Summerhayes and Mr Georgiadis.

41. [123]

    That led Mr Angelis to write to Mr Summerhayes on 13 September 2018:

42. [124]

    Mr Summerhayes replied:

43. [125]

    On 21 September 2018, Mr Kitchin sent an email to Mr Angelis stating that he had “decided to proceed with the MBO on a standalone basis” and that he would not be proceeding with any deal with Coverforce.

44. [126]

    He explained:

45. [127]

    Mr Angelis circulated Mr Kitchin’s reply to the other directors of Coverforce later that day.

46. [128]

    That prompted Mr Neal to write to Mr Summerhayes to ask:

47. [129]

    The following email exchange then ensued:

48. [130]

    Mr Summerhayes agreed that his reference to Mr Angelis’s “mate” was a reference to Mr Kitchin and that he was meaning to convey that he believed that Mr Angelis was using Mr Kitchin’s position as stated in his email of 21 September 2018 to advance his own position as against Pemba.

49. [131]

    The matter was discussed at the Coverforce board meeting on 24 September 2018.

50. [132]

    Mr Angelis said that he told the board:

51. [133]

    The following day, 25 September 2010, Mr Georgiadis sent an email to Mr Angelis setting out what he said was a “summary of the principles” discussed at the 24 September 2018 board meeting including:

52. [134]

    Mr Angelis agreed that he understood Mr Georgiadis’s suggestion as being a compromise on Pemba’s part, and an attempt by Pemba to achieve a solution. However, Mr Angelis said that he believed that such a proposal would not be acceptable to Mr Kitchin.

53. [135]

    Hence Mr Angelis’s somewhat terse response:

54. [136]

    This caused Mr Georgiadis to send an email to Mr Summerhayes:

55. [137]

    Nonetheless, Mr Angelis read out Mr Georgiadis’s email to Mr Kitchin. Mr Kitchin said:

56. [138]

    Mr Angelis reported to his co-directors:

57. [139]

    Nonetheless, Mr Summerhayes wrote to Mr Angelis (and the other directors of Coverforce) on 27 September 2018:

58. [140]

    On 28 September 2018, Mr Angelis sent Mr Summerhayes and Mr Flower an email making a further offer to buy out Pemba.

59. [141]

    His email read:

60. [142]

    Pemba did not respond to this offer. Mr Summerhayes said in cross-examination that he thought the offer was for significantly less than Pemba’s shares were worth.

61. [143]

    On 10 October 2018, Mr Kitchin wrote to Mr Angelis stating that he was about to sign a non-binding “Term Sheet” with Suncorp. I will call this the “October Suncorp Term Sheet”. It was obviously necessary for Mr Kitchin to come to an arrangement with Suncorp, which owned Resilium, before coming to an arrangement with a prospective funder such as Coverforce. The October Suncorp Term Sheet was a step down that path.

62. [144]

    Mr Kitchin continued:

63. [145]

    Mr Kitchin attached a copy of the October Suncorp Term Sheet. The October Suncorp Term Sheet forms an important background to later events. It set out the manner in which the Suncorp and the Kitchin Parties then envisaged the Kitchin Parties’ MBO of Resilium would take place.

64. [146]

    It described the “Proposed Transaction” as the sale of 100% of the shares in Resilium to the Kitchin Parties for $20 million and “envisaged that further investigation of the Proposed Transaction will progress in two phases”.

65. [147]

    “Phase 1” included the Kitchin Parties approaching “potential sources of equity and/or debt financing” and, following the identification of “preferred financier” (ultimately this was Coverforce), Suncorp, the Kitchin Parties and that financier seeking “to agree a Stage 2 Term Sheet that details the key terms of a Proposed Transaction”.

66. [148]

    The document stated that in “Phase 2” the financier would undertake a due diligence of Resilium and that Suncorp, the Kitchin Parties and the financier “will seek to negotiate and execute definitive transaction documentation”.

67. [149]

    As will be seen, the 31 October Term Sheet also envisaged a further term sheet, which was described as the “Phase 2 Term Sheet”.

68. [150]

    As I describe below, a further term sheet executed by Suncorp and Mr Kitchin on 12 December 2018 constituted the “Phase 2 Term Sheet”, as contemplated by the 31 October Term Sheet, or the “Stage 2 Term Sheet”, as contemplated by the October Suncorp Term Sheet. For clarity, I will refer to this second term sheet as the “Stage 2 Suncorp Term Sheet”. These matters are relevant to the consequences for Coverforce of its entry into the 31 October Term Sheet. I return to this below.

69. [151]

    Under the heading “Change of Control”, the October Suncorp Term Sheet provided:

70. [152]

    Thus, under this document, it was envisaged that Suncorp would have what was in effect a right to veto any change of control of the Resilium business.

71. [153]

    Mr Georgiadis described this provision as a “show stopper” for Pemba, as it would have negated Pemba’s Drag Right.

72. [154]

    This position was altered in the Stage 2 Suncorp Term Sheet.

73. [155]

    On 16 October 2018, Mr Neal, the independent director, wrote to Mr Angelis and Mr Summerhayes:

74. [156]

    Mr Summerhayes wrote to Mr Georgiadis:

75. [157]

    Mr Georgiadis said of that email:

76. [158]

    Mr Georgiadis agreed that he thought it was possible that Mr Angelis, who was then in London, was engaging in a strategy “to force a deal with Pemba”.

77. [159]

    Mr Angelis replied to Mr Neal’s email by forwarding to him Mr Kitchin’s 10 October 2018 email and stating that the email was:

78. [160]

    Mr Neal then sent an email to Mr Summerhayes and Mr Georgiadis:

79. [161]

    Mr Summerhayes sent an email to Mr Georgiadis:

80. [162]

    Mr Georgiadis replied:

81. [163]

    Mr Georgiadis said in cross-examination that he understood that what Mr Summerhayes was suggesting was that Mr Angelis and Mr Kitchin were “in cahoots” and were “working together” to manufacture a dispute.

82. [164]

    Mr Georgiadis agreed that his reply showed that he “thought there was a distinct possibility” that Mr Summerhayes’s conjecture was correct.

83. [165]

    Mr Georgiadis agreed that he understood Mr Summerhayes’s reference to Mr Angelis trying “to buy us out for nothing” was a reference to the $47 million offer that Mr Angelis had made on 28 September 2018 (see [140] to [141] above).

84. [166]

    Mr Georgiadis said that his comment “potentially can make it work for everyone” demonstrated that this exchange “wasn’t relevant to how I continued to evaluate the transaction”. I accept that evidence.

85. [167]

    The following day, 17 October 2018, Mr Neal wrote to Mr Angelis:

86. [168]

    Mr Neal’s inquiry as to whether “we have a term sheet” prompted Mr Angelis, on 18 October 2018, to instruct Mr Jason van Grieken from Arnold Bloch Leibler (“ABL”) to:

87. [169]

    Mr Angelis did not inform Mr Summerhayes or Mr Georgiadis that he had given ABL these instructions.

88. [170]

    On 22 October 2018, Mr van Grieken sent Mr Angelis a draft term sheet between Coverforce and Mr Kitchin, together with suggested amendments to the 2017 Shareholders Agreement. I will call these documents the “ABL Draft Term Sheet” and the “ABL Draft Shareholders Agreement”.

89. [171]

    On the same day, Mr Kitchin signed the October Suncorp Term Sheet.

90. [172]

    Mr Angelis first showed his fellow directors a copy of the ABL Draft Term Sheet and the ABL Draft Shareholders Agreement at a meeting of the directors on 29 October 2018.

91. [173]

    The minutes of this board meeting cast no light on what was said at the meeting.

92. [174]

    Mr Angelis said he told the meeting:

93. [175]

    In his affidavit, Mr Georgiadis said that, during the meeting, he inquired as to the progress of the Resilium Transaction and that he said:

94. [176]

    Mr Summerhayes’s recollection of what Mr Georgiadis said was that he said:

95. [177]

    Mr Summerhayes said that Mr Angelis said:

96. [178]

    Mr Summerhayes recalled that, at one point, and as a compromise, Mr Angelis suggested the possibility of a “put option” and either he or Mr Georgiadis replied:

97. [179]

    This is the only evidence of what occurred at this meeting. It provides no foundation for the submission made in closing on behalf of the Angelis Parties that the majority of Coverforce’s directors, on this day, approved an issue of shares in Coverforce to Mr Kitchin. Nothing was agreed this day.

98. [180]

    Shortly after the meeting, Mr Angelis circulated by email a copy of the ABL Draft Term Sheet and ABL Draft Shareholders Agreement to Messrs Summerhayes and Georgiadis.

99. [181]

    Later on 29 October 2018, Mr Angelis sent Mr Kitchin copies of the same documents as attachments to an email which read: “Attached is the term sheet as amended between us”.

100. [182]

     The wording in the ABL Draft Term Sheet was adopted, without relevant alteration, as the wording of the 31 October Term Sheet. I will return to that wording below.

101. [183]

     The ABL Draft Shareholders Agreement included a note:

102. [184]

     The ABL Draft Shareholders Agreement relocated the provisions concerning “Disposal of Shares” from cl 8 to cl 7 and the “Exit” provision from cl 9 to cl 8.

103. [185]

     The ABL draft proposed a number of changes to the provisions in cl 7 concerning “Dispose of Shares”, none of which is presently relevant.

104. [186]

     The ABL draft made substantial changes to the “Exit” provisions (now in cl 8).

105. [187]

     In substance, the changes were to the effect that Pemba’s Drag Right was removed and that any “Exit” by Pemba as a shareholder of Coverforce required the agreement of the Angelis Parties.

106. [188]

     On 30 and 31 October 2018, Mr Georgiadis and Mr Angelis exchanged a series of emails. They also had a number of conversations. There is a critical dispute between Mr Angelis and Mr Georgiadis in respect of one of those conversations.

107. [189]

     According to Mr Angelis, in that disputed conversation, Mr Georgiadis said that Pemba agreed to proceed with the Resilium Transaction on the terms set out in the 31 October Term Sheet and agreed to the terms of the Purported 31 October Shareholders Agreement.

108. [190]

     For the reasons I set out below, I am not satisfied that this conversation took place in the terms to which Mr Angelis deposed.

109. [191]

     I accept Pemba’s submission that, under cross-examination, Mr Angelis revealed that he had difficulty remembering the specific conversations he had with Mr Georgiadis over these two days. He said that he was “not certain which conversations overlap and which ones are different conversations”. When asked about specific conversations he had with Mr Georgiadis for these days, Mr Angelis said that while he had a number of conversations, he could not specifically say which conversation was that in which Mr Georgiadis made the statements I have set out.

110. [192]

     Critically, my conclusion is that, contrary to Mr Angelis’s evidence, Mr Georgiadis:

     1. (1)

        did not convey Pemba’s unqualified approval to Coverforce proceeding with the Resilium Transaction; and

     2. (2)

        made clear that, although Pemba was content for Mr Angelis to continue discussions with Mr Kitchin, Pemba would not agree to any variation to the 2017 Shareholders Agreement until issues about its exit rights were resolved and, in particular, until Pemba and Mr Angelis agreed on an alternative to Pemba’s Drag Right.

111. [193]

     At 10.21 am on 30 October 2018, Mr Georgiadis sent Mr Angelis an email:

112. [194]

     Pemba’s “limited comments” on the ABL Draft Shareholders Agreement included:

113. [195]

     Shortly after Mr Angelis received Mr Georgiadis’s 10.21 am email, they had a conversation.

114. [196]

     According to Mr Georgiadis, Mr Angelis said:

115. [197]

     Mr Georgiadis said he replied:

116. [198]

     Mr Angelis’s recollection of the conversation was as follows:

117. [199]

     To the extent that there is any difference in Mr Angelis’s recollection of this conversation and that of Mr Georgiadis, I find the best guide of what was said to be what Mr Georgiadis set out in an email he sent to Mr Summerhayes shortly after the conversation. I find that in this, and in later emails, Mr Georgiadis had no reason to misreport to Mr Summerhayes what had been said between him and Mr Angelis.

118. [200]

     In any event, assuming the correctness of Mr Angelis’s recollection of what was said in this conversation, there was no final agreement on an alternative to Pemba’s Drag Right. All that can be said is that there was some discussion about the possibility of a put and call option between Pemba and Mr Angelis.

119. [201]

     That is confirmed in Mr Georgiadis’s email to Mr Summerhayes. At 11.58 am on 30 October 2018, Mr Georgiadis sent an email to Mr Summerhayes following his conversation with Mr Angelis. The email reads:

120. [202]

     The email confirms that, as Mr Georgiadis deposed, Mr Georgiadis had suggested the possibility of a put option between Pemba and Mr Angelis as an alternative to Pemba’s Drag Right and that Mr Angelis responded by suggesting that, were Pemba to have a put option, he would wish to have a call option to be exercised after three years and only if Pemba tried to sell its shares to the market. The email also records, as Mr Angelis had deposed, that Mr Angelis suggested that any put and call option could be recorded in a “side agreement”.

121. [203]

     Following that discussion, Mr Georgiadis sent Mr Angelis a further email at 1.40 pm suggesting an expanded “note” to be placed at the beginning of cl 7 of the Shareholders Agreement.

122. [204]

     He said:

123. [205]

     As indicated by my parenthetical note “[cl 7]” in the preceding paragraph, Mr Georgiadis’s reference to including the wording “in that section for now” was a reference to cl 7 of the ABL Draft Shareholders Agreement, under the heading “Disposal of Shares” at which point the “Pemba Note” referred to at [194(b)] above was in the current draft.

124. [206]

     Mr Angelis agreed that he understood from this email that he could put Mr Georgiadis’s proposed wording into the draft as a “Pemba Note” and that Mr Georgiadis was suggesting that Pemba, Coverforce and anyone else who needed to be involved could “work with the lawyers to provide a full mark-up” on the three dot points set out in Mr Georgiadis’s “Pemba Note”.

125. [207]

     Mr Angelis also agreed that, at this time, he understood Mr Georgiadis required that the “Pemba Note” be included in the version of the Shareholders Agreement to be provided to Mr Kitchin.

126. [208]

     At some time after Mr Georgiadis sent the email to Mr Angelis at 1.40 pm, they had a further conversation. Mr Georgiadis said to Mr Angelis:

127. [209]

     Again, Mr Angelis had a different recollection of the conversation. He described it as follows:

128. [210]

     I do not accept that Mr Angelis has an actual recollection of a conversation in these terms. He could not recall it at all until prompted in cross-examination.

129. [211]

     I do not accept that Mr Angelis said to Mr Georgiadis that “we can agree on the specific terms of the put and call option once the Resilium venture is completed”. If that had been said, it is likely that Mr Georgiadis would have referred to it in the account he gave to Mr Summerhayes in the email he sent following this conversation.

130. [212]

     In that email, sent at 2.01 pm, Mr Georgiadis said:

131. [213]

     Mr Georgiadis included in his email a copy of the provisions in the 2017 Shareholders Agreement dealing with “Fair Market Value”.

132. [214]

     As Pemba submitted, it is clear from this email that, whilst there was discussion between Mr Angelis and Mr Georgiadis about a proposed put and call option, there was no agreement as to its terms at this point.

133. [215]

     The email also points strongly to the conclusion that there was no agreement between Mr Georgiadis and Mr Angelis that the terms of the put and call option could be agreed “once the Resilium venture is completed”.

134. [216]

     Mr Georgiadis does refer, in his email, to the possibility of “defer[ring] the discussion” about the put and call option on the basis that it would need investment committee approval. However, Mr Georgiadis’s musings that this “might actually work against us” suggests that this was a matter which was not discussed with Mr Angelis.

135. [217]

     Mr Georgiadis denied in cross-examination that he told Mr Angelis that final agreement about the terms of any put and call option could be deferred until the Resilium Transaction had completed.

136. [218]

     Mr Georgiadis said that, from his point of view, the put and call option had to be agreed in advance of entering into the Resilium Transaction documents and that there was “no point deferring a negotiation about something so fundamental until it’s too late”.

137. [219]

     I accept Mr Georgiadis’s evidence. It is consistent with what Pemba had been saying all along about the importance to it of its Drag Right.

138. [220]

     It is also consistent with an email Mr Georgiadis sent Mr Summerhayes at 11.18 am on the following day, in which he reported that Mr Angelis “fully understands he has to reach agreement with us before we’ll sign up to the [Resilium] transaction”. I will return to that email below.

139. [221]

     Mr Angelis said that, later in the afternoon, he had the conversation with Mr Georgiadis to which I referred at [188] above and on which, in substance, Mr Angelis’s case against Pemba depends.

140. [222]

     Mr Angelis deposed to this conversation as follows:

141. [223]

     Mr Georgiadis denied that any such conversation occurred.

142. [224]

     Mr Georgiadis said that during this conversation he said:

143. [225]

     In his oral evidence, Mr Angelis maintained that this was the conversation “that finally gets the deal done”.

144. [226]

     But Mr Angelis’s evidence continued:

145. [227]

     Mr Angelis thus accepted that he came to no agreement with Mr Georgiadis about the price of any put and call option between him and Pemba. He asserted there was, instead, “an agreement to agree”.

146. [228]

     For the reasons that follow, I do not accept that matters even got this far (see my conclusion at [494] below).

147. [229]

     Later in the afternoon, at 4 pm, Mr Georgiadis sent a further email to Mr Summerhayes:

148. [230]

     Mr Georgiadis said that his reference to the “piece” that he was “pushing” not be necessary “to move the deal forward” was to a detailed resolution of the terms of any put and call option between Mr Angelis and Pemba. That is consistent with his recollection of his conversation with Mr Angelis set out at [224] above.

149. [231]

     Consistently with that, Mr Georgiadis said in cross-examination that he said to Mr Angelis words to the effect:

150. [232]

     While Mr Georgiadis agreed that he said to Mr Angelis that resolution of the put and call option could be left until after signing the term sheet with Mr Kitchin, he maintained firmly that he said to Mr Angelis that the terms of any put and call had to be agreed before, and not on, the signing of any transaction documents concerning the acquisition of Resilium or completion of any such transaction.

151. [233]

     I accept this evidence, particularly because it is consistent with what Mr Georgiadis said to Mr Summerhayes in his 11.18 am email the next day, 31 October 2018, to which I have already referred and to which I will return.

152. [234]

     Mr Georgiadis also recorded in this email Mr Angelis saying that he did not “want to highlight any shareholder issues”.

153. [235]

     Mr Angelis said he could not recall saying anything to this effect and that he thought he would recall saying such a thing.

154. [236]

     But there was no reason for Mr Georgiadis to misreport to Mr Summerhayes this part, indeed any part, of his conversation with Mr Angelis. I think it likely that Mr Angelis did say what Mr Georgiadis recorded.

155. [237]

     The “shareholder issues” to which Mr Angelis referred must have been the put and call option then under discussion between Mr Angelis and Mr Georgiadis. This was being discussed as an alternative “exit pathway” for Pemba for the Drag Right that Mr Kitchin would not tolerate and which was omitted from the Purported 31 October Shareholders Agreement then under discussion.

156. [238]

     Although Mr Georgiadis was reluctant to accept this, the party with whom Mr Angelis did not wish to “highlight” that “shareholder issue” must have been Mr Kitchin.

157. [239]

     Mr Georgiadis’s email also referred to the possibility of dropping “the whole option structure”. But that comment was made on the assumption that “we feel comfortable with the rights around unilateral sale of our shares only”. Mr Georgiadis said that this suggestion “received no traction”. Mr Summerhayes said he saw this comment as merely “brainstorming” and said it did not “go anywhere” as far as he knew.

158. [240]

     A short time later, at 4.19 pm, Mr Angelis sent an email to Mr Georgiadis:

159. [241]

     Mr Georgiadis sent a copy of Mr Angelis’s email to Mr Summerhayes with the note:

160. [242]

     Mr Georgiadis was referring to the fact that Mr Angelis was proposing, in his 4.19 pm email, a call option exercise price of 10 times EBITDA whereas, according to Mr Georgiadis’s recollection and 4 pm email to Mr Summerhayes, Mr Angelis had earlier suggested a price of 12 times EBITDA for any call option.

161. [243]

     Mr Georgiadis did not respond to Mr Angelis’s “put and call scenario” until the next morning, when he rejected it (see [253] below).

162. [244]

     Mr Kitchin gave this evidence of a conversation that, in his affidavit, he said occurred on 29 October 2018:

163. [245]

     Mr Kitchin’s reference to Mr Angelis having referred to “email exchanges” with Mr Georgiadis suggests that this conversation took place on 30 October 2018, rather than on 29 October 2018.

164. [246]

     Mr Angelis said that “following my correspondence and discussions with Mr Georgiadis” on 30 October 2018, he telephoned Mr Kitchin and had this conversation:

165. [247]

     But at this stage, as Mr Angelis knew, Pemba had not agreed to amend the 2017 Shareholders Agreement. There had been discussion about a possible put and call option between Mr Angelis and Pemba as a substitute for Pemba’s Drag Right. But there had been no agreement as to the terms, and in particular, no agreement about the price of any such option. Mr Angelis had made an offer in his 4.19 pm email to which there had been no response that day.

166. [248]

     Mr Kitchin gave evidence of a further conversation with Mr Angelis as follows:

167. [249]

     On this account, Mr Angelis’s statement as to the position that had been reached between he and Pemba was incomplete.

168. [250]

     It may have been correct for Mr Angelis to say that the idea of a put and call option in lieu of the Drag Right had been “discussed at length” with Mr Georgiadis and that it “addresses [Pemba’s] concerns” in that there was a prospect that, if agreement could be reached as to the terms of the put and call option, Pemba might agree to it in substitution for its Drag Right.

169. [251]

     It was also true that Mr Georgiadis had told Mr Angelis that he could proceed with discussions with Mr Kitchin pending further negotiation between Mr Angelis and Pemba as to a possible put and call option.

170. [252]

     But it was not true to say that “Pemba are now agreeable to the deal and are proceeding on that basis”.

171. [253]

     In his affidavit, Mr Georgiadis said that, on the morning of 31 October 2018, he had this conversation with Mr Angelis:

172. [254]

     In his oral evidence, Mr Georgiadis also said that, in this conversation, he agreed with Mr Angelis’s idea that, given that the put and call option had not been agreed, it could be removed from the version of the Shareholders Agreement that would be provided to Mr Kitchin.

173. [255]

     This had the result that the note placed under the heading “Disposal of Shares” in the version of the shareholders agreement sent to Mr Kitchin later on 31 October 2018 did not include the reference to a put option that Mr Georgiadis had proposed in his email at 1.40 pm on 30 October 2018 (see [203] to [204] above).

174. [256]

     Rather, the note to cl 7 in the version of the shareholders agreement sent to Mr Kitchin, that is the Purported 31 October Shareholders Agreement, read:

175. [257]

     In his oral evidence, Mr Georgiadis also said that he told Mr Angelis that, while the term sheet could be signed, the shareholders had to “agree some alternative to deal with the issue of exit rights” such as the put and call option in the Shareholders Agreement before the signing of formal documentation and the completion of the Resilium Transaction.

176. [258]

     Mr Angelis denied the conversation took place. He gave this evidence in cross-examination:

177. [259]

     This evidence from Mr Angelis cannot be right.

178. [260]

     At 11.18 am that morning, following his conversation with Mr Angelis, Mr Georgiadis sent the email to Mr Summerhayes to which I have earlier referred.

179. [261]

     In that email, Mr Georgiadis said:

180. [262]

     Mr Georgiadis’s reference to Mr Angelis stating that he would “remove the option piece from the doc” was a reference to Mr Angelis’s proposal, with which Mr Georgiadis agreed, that he remove any reference to a put and call option from the version of the shareholders agreement to be sent to Mr Kitchin.

181. [263]

     Mr Georgiadis’s report to Mr Summerhayes, in the passage I have emphasised, that Mr Angelis “fully understands that he has to reach agreement with us before we’ll sign up to the transaction” is vital, contemporaneous evidence, confirming that, as Mr Georgiadis deposed he had told Mr Angelis, Pemba had not then given its unqualified agreement to Coverforce entering the Resilium Transaction.

182. [264]

     Again, there was no reason for Mr Georgiadis to misreport to Mr Summerhayes what had passed between him and Mr Angelis.

183. [265]

     It is true that in the passage from his affidavit, Mr Georgiadis described what he said to Mr Angelis, whereas in his email report to Mr Summerhayes he set out what Mr Angelis “understands”. But, contrary to the submission made in reply by the Angelis Parties, I see no inconsistency between those two matters. Mr Georgiadis was plainly conveying to Mr Summerhayes what he understood Mr Angelis understood from what he said to him.

184. [266]

     Mr Georgiadis’s report to Mr Summerhayes is consistent with his account of his conversation with Mr Angelis earlier that morning and persuades me that the conversation did take place in the terms to which Mr Georgiadis deposed.

185. [267]

     It was also submitted on behalf of the Angelis Parties that Mr Georgiadis’s evidence at [253] above was inconsistent with the following passage in cross-examination:

186. [268]

     Thus, the Angelis Parties submitted:

187. [269]

     I see no inconsistency between the evidence Mr Georgiadis gave in cross-examination and the statement in his affidavit set out at [253] above.

188. [270]

     In cross-examination, Mr Georgiadis accepted that “[t]wo things had been agreed” in relation to an alternative to Pemba’s Drag Right, namely the “ROFO” and the cl 8 exit right. But Mr Georgiadis also made clear that what had not been agreed was the “valuation of the put and call”: the vital element of the vital component, from Pemba’s point of view, of an alternative to its Drag Right.

189. [271]

     Mr Georgiadis did not dispute that he agreed that Mr Angelis could sign the 31 October Term Sheet on behalf of Coverforce.

190. [272]

     However, Mr Georgiadis’s evidence, which I accept, is that he told Mr Angelis that Pemba’s consent to Coverforce signing the 31 October Term Sheet was on the basis that the terms of the put and call option had to be agreed before Pemba would approve the entry by Coverforce into formal documentation for acquisition of Resilium and the completion of such transaction.

191. [273]

     At 12.36 pm, Mr Angelis sent an email to Mr Kitchin, which was copied to Mr Summerhayes and Mr Georgiadis:

192. [274]

     Attached to that email was the 31 October Term Sheet, signed by Mr Angelis. Attached to that document was the Purported 31 October Shareholders Agreement which included the note to cl 7 to which I have referred at [256] above.

193. [275]

     There is no dispute that Mr Angelis had the authority of the Coverforce board, including Mr Summerhayes and Mr Georgiadis, to execute the 31 October Term Sheet on Coverforce’s behalf.

The 31 October Term Sheet

1. [276]

   The 31 October Term Sheet was expressed to be “binding” between Coverforce and Mr Kitchin. The document was stated to summarise “the proposed terms and conditions” between Coverforce and Mr Kitchin in relation to “the proposed acquisition of 100% of the shares of Resilium” which proposed acquisition was defined as the “Transaction”.

2. [277]

   The document continued:

3. [278]

   The document continued:

4. [279]

   The “further Term Sheet” referred to in cl 3 is defined as the “Phase 2 Term Sheet”.

5. [280]

   Clause 6 of the 31 October Term Sheet was entitled “Coverforce Shareholders Agreement” and provided:

6. [281]

   Clause 9 was headed “Formal documentation” and provided:

7. [282]

   As I explained above, the “Phase 2 Term Sheet” contemplated by this clause was the “Stage 2 Term Sheet” contemplated by the October Suncorp Term Sheet (see [150] above).

8. [283]

   The “Formal Documents” contemplated in the clause were stated to include:

   1. (1)

      a “Share Sale Agreement”, between Suncorp, Coverforce and Mr Kitchin “in respect of the acquisition of Resilium shares”;

   2. (2)

      a “Loan Agreement” in relation to the proposed loan from Coverforce to Mr Kitchin; and

   3. (3)

      an “Amended and Restated Shareholders Agreement in respect of Coverforce (in substantially the form attached in Annexure B)”.

9. [284]

   “Annexure B” is what I have called the Purported 31 October Shareholders Agreement.

10. [285]

    The 31 October Term Sheet made provision for due diligence and such other matters as exclusivity, confidentiality and publicity.

11. [286]

    Finally, the document stated:

The Purported 31 October Shareholders Agreement

1. [287]

   Annexed to the 31 October Term Sheet, as “Annexure B”, was the Purported 31 October Shareholders Agreement.

2. [288]

   This was the “Amended and Restated Shareholders Agreement” referred to in the “Formal documentation” clause in the 31 October Term Sheet.

3. [289]

   The Purported 31 October Shareholders Agreement comprised the marked up version of the 2017 Shareholders Agreement that ABL had prepared but also included the various “Pemba Notes” to which I referred at [194] and [204] to [207]; apart from the put option note that Mr Georgiadis suggested in his email at 1.40 pm on 30 October 2018 (see [204] above).

4. [290]

   As I have described, Mr Angelis and Mr Georgiadis agreed that Mr Angelis should omit that note from the document to be sent to Mr Kitchin (see [254] above).

The position as conveyed to Mr Kitchin

1. [291]

   On the face of the Purported 31 October Shareholders Agreement forwarded to Mr Kitchin, the position reached by Mr Angelis and Pemba was that:

2. [292]

   Otherwise, what was conveyed to Mr Kitchin was what Mr Angelis had said in the two conversations to which Mr Kitchin deposed.

3. [293]

   The true position between Mr Angelis and Pemba was, as Mr Georgiadis had repeatedly told Mr Angelis, that Pemba would not approve amending the 2017 Shareholders Agreement or surrender its Drag Right until “issues around [its] exit entitlements” were agreed.

4. [294]

   The Kitchin Parties contend that the failure of Mr Angelis and of Pemba to reveal that position to Mr Kitchin constituted misleading or deceptive conduct on their part. I will return to this.

Events after 31 October 2018

1. [295]

   On 7 December 2018, Mr Kitchin sent Mr Angelis a copy of a draft revision of the October Suncorp Term Sheet. When executed by Mr Kitchin on 12 December 2018, this became the Stage 2 Suncorp Term Sheet. As I have set out above at [150] and [282], this was the term sheet envisaged by both the October Suncorp Term Sheet and the 31 October Term Sheet.

2. [296]

   The Stage 2 Suncorp Term Sheet was, like the October Suncorp Term Sheet, described as “non-binding”.

3. [297]

   It provided that:

4. [298]

   The “Proposed Transaction” was described as:

5. [299]

   Thus, the Stage 2 Suncorp Term Sheet contemplated that Suncorp would sell the shares in Resilium to a Kitchin Parties’ entity. This was different to the 31 October Term Sheet which contemplated that Coverforce and Mr Kitchin would purchase Suncorp’s shares in Resilium on a 25:75 basis (see [278] above) and thus that Coverforce would directly acquire a 25% interest in Resilium.

6. [300]

   Suncorp’s requirements, as set out in the Stage 2 Suncorp Term Sheet, meant that the Resilium Transaction could not proceed in the manner contemplated in the 31 October Term Sheet.

7. [301]

   The Stage 2 Suncorp Term Sheet also recorded that the Kitchin Parties:

8. [302]

   The document continued:

9. [303]

   This evidently reflected Suncorp’s concern that the Kitchin Parties remain the owners of Resilium; at least for some time.

10. [304]

    The Stage 2 Suncorp Term Sheet provided, under the heading “Change of Control”:

11. [305]

    Clause 24.1 repeated the words of cl 24 in the October Suncorp Term Sheet.

12. [306]

    Clause 24.2 refined, and arguably narrowed, the circumstances in which Suncorp would withhold its consent. Its effect was that Suncorp agreed not unreasonably to withhold its consent to Coverforce acquiring control of Resilium or Coverforce proposing a material change in the capital structure of Resilium if such an acquisition or proposal took place as part of an IPO more than 24 months hence. As will be seen, the parties took this to mean that Suncorp would not agree to a trade sale of the Resilium shares.

13. [307]

    On 10 December 2018, Mr Dutt circulated a copy of the draft Stage 2 Suncorp Term Sheet for discussion at the Coverforce board meeting to take place later that day.

14. [308]

    The Resilium Transaction was discussed at some length at a meeting of the Coverforce directors held on 10 December 2018.

15. [309]

    The structural changes to the Resilium Transaction necessitated by Suncorp’s requirements as set out in the Stage 2 Suncorp Term Sheet were discussed.

16. [310]

    Thus, the board minutes stated:

17. [311]

    Mr Summerhayes said that, at this meeting, he said words to the effect:

18. [312]

    In his affidavit in reply, Mr Angelis denied that Mr Summerhayes said anything to that effect and stated that, based upon the events of 30 October 2018, he understood that:

19. [313]

    Again, this evidence cannot be right for a number of reasons.

20. [314]

    The first is the conversations that Mr Angelis had with Mr Georgiadis on 30 and 31 October 2018, and in particular the conversation on the morning of 31 October 2018 to which I have referred at [253] above.

21. [315]

    Second, the correspondence that immediately followed the board meeting shows that Mr Angelis could not have, at the time, thought that Pemba was “happy” for him to proceed in the manner he described.

22. [316]

    On 12 December 2018, Mr Kitchin sent Mr Angelis a copy of the Stage 2 Suncorp Term Sheet executed by Suncorp and Mr Kitchin. It was in the same terms as the draft that Mr Kitchin had sent to Mr Angelis on 7 December 2018.

23. [317]

    Mr Kitchin stated in his email to Mr Angelis:

24. [318]

    Mr Kitchin explained why he sent this email in one of his affidavits:

25. [319]

    I find Mr Kitchin’s email hard to reconcile with his stated belief that he had, at this stage, a binding agreement with Coverforce.

26. [320]

    Mr Kitchin’s email shows that one thing he sought to do was to point out to Mr Angelis what he saw as being the significance of the changes to cl 24 of the Stage 2 Suncorp Term Sheet.

27. [321]

    However, Mr Kitchin’s reference, in the passages I have highlighted, to the “reasonably urgent” need to “seek a resolution” of the issues raised in his emails of 28 August 2018 and 10 October 2018 (set out at [102] and [143] to [144] above) concerning Pemba’s Drag Right suggest that Mr Kitchin did not believe, as at 12 December 2018, that those issues had been finally resolved.

28. [322]

    Mr Kitchin agreed that he knew that Mr Angelis and Pemba did not see “eye to eye” and that he was:

29. [323]

    Mr Kitchin did not receive a written response to his email. He received an oral response the next day at a meeting with Suncorp’s advisors (see [339] below).

30. [324]

    Later on 12 December 2018, Mr Angelis sent to Mr Summerhayes and Mr Georgiadis a copy of Mr Kitchin’s email with a note:

31. [325]

    The question to which Mr Angelis sought an answer was that raised in Mr Kitchin’s email: that is, did Pemba agree to surrender its Drag Right?

32. [326]

    At 8.58 am the following day, 13 December 2018, Mr Summerhayes replied:

33. [327]

    In this email Mr Summerhayes raised, for the first time, a suggestion that Mr Angelis “regear the group to facilitate liquidity via special dividends”.

34. [328]

    On behalf of Mr Angelis, it was submitted that this represented an opportunistic effort by Pemba to “gouge” Mr Angelis and to exercise “leverage” in an effort to negotiate a new arrangement with Mr Angelis.

35. [329]

    Mr Summerhayes had certainly said to Mr Hildingsson, a few days earlier, that in light of the revised “Change of Control” provisions in the Stage 2 Suncorp Term Sheet:

36. [330]

    However that may be, what is more significant is what followed.

37. [331]

    At around this time, Mr Neal became involved as a conduit for communications between Mr Summerhayes and Mr Angelis.

38. [332]

    Thus, at 11.57 am on 13 December 2018, Mr Summerhayes sent an email to Mr Neal:

39. [333]

    At 1.51 pm, Mr Neal replied to Mr Summerhayes:

40. [334]

    In the passages that I have emphasised, Mr Neal reported to Mr Summerhayes about statements made to him by Mr Angelis.

41. [335]

    Mr Angelis was reluctant, in cross-examination, to agree that Mr Neal had accurately recorded his, Mr Angelis’s, position in this email.

42. [336]

    However, there was no reason for Mr Neal to misreport to Mr Summerhayes what Mr Angelis had said to him. The tone of Mr Neal’s email suggests that he was acting as an honest broker and endeavouring faithfully to pass on to Mr Summerhayes what Mr Angelis had told him.

43. [337]

    What is notable from Mr Neal’s account of what Mr Angelis said is the lack of any reported assertion by Mr Angelis of there being any agreement with Pemba of the kind now contended for.

44. [338]

    Mr Neal’s email referred to a meeting that Mr Angelis was having later that afternoon with Suncorp’s advisors.

45. [339]

    Mr Kitchin was also present at that meeting. As I have mentioned, Mr Kitchin had received no written response to his 12 December 2018 email to Mr Angelis. However, Mr Kitchin said that at that meeting Mr Angelis said:

46. [340]

    As Mr Angelis must have known, this was not an accurate statement about Pemba’s position.

47. [341]

    That very morning, in answer to Mr Angelis’s request for “an answer please” to the matters raised by Mr Kitchin in his 12 December 2018 email, Mr Summerhayes sent the email to which I have referred at [326] in which Mr Summerhayes raised the option of “special dividends” in exchange for Pemba “conceding the trade exit route”.

48. [342]

    Mr Angelis’s statement to Mr Kitchin at the meeting with Suncorp’s advisors was, in those circumstances, quite misleading.

49. [343]

    At 5.22 pm, Mr Summerhayes replied to Mr Neal’s 1.51 pm email:

50. [344]

    At 5.44 pm, Mr Summerhayes sent a further email to Mr Neal:

51. [345]

    At 6.44 pm, Mr Neal sent an email to Mr Summerhayes:

52. [346]

    A 6.56 pm, Mr Summerhayes replied:

53. [347]

    At 8 pm, Mr Neal replied:

54. [348]

    At 8.32 pm, Mr Summerhayes replied:

55. [349]

    At 9.24 pm, Mr Neal replied:

56. [350]

    At 10.03 pm, Mr Summerhayes replied:

57. [351]

    At 10.35 pm, Mr Summerhayes sent to Mr Angelis an email which he said represented “our final position”.

58. [352]

    That email said:

59. [353]

    Mr Summerhayes then set out details of Pemba’s proposed regearing and share class restructure.

60. [354]

    Mr Summerhayes concluded:

61. [355]

    One minute later, at 10.36 pm, Mr Summerhayes sent an email to Mr Angelis attaching a “[s]preadsheet with approx numbers” for a possible re-gearing of Coverforce to enable the payment of “special dividends” as proposed in his email earlier that day.

62. [356]

    At 10.38 pm, Mr Angelis replied to Mr Summerhayes by simply stating:

63. [357]

    At 10.44 pm, Mr Summerhayes replied:

64. [358]

    At 10.48 pm, Mr Angelis replied simply:

65. [359]

    As a result of this exchange, Mr Angelis could have had no doubt that there was no agreement from Pemba concerning Coverforce proceeding with the Resilium Transaction; let alone any agreement about varying the 2017 Shareholders Agreement to facilitate such a transaction by removing Pemba’s Drag Right.

66. [360]

    And Mr Angelis did not then assert the existence of any such agreement. Had he truly believed such an agreement existed, he would surely have said so at this point.

67. [361]

    At 7.36 am the next morning, Mr Neal replied to Mr Summerhayes’s email to him of 10.03 pm the previous evening (see [350] above):

68. [362]

    At 7.54 am, Mr Summerhayes replied:

69. [363]

    At 1.46 pm, Mr Neal replied:

70. [364]

    At 2.13 pm, Mr Summerhayes replied:

71. [365]

    At 3.02 pm, Mr Neal asked Mr Summerhayes to clarify what he meant.

72. [366]

    That led Mr Summerhayes to reply at 3.23 pm:

73. [367]

    Mr Neal forwarded Mr Summerhayes’s reply to Mr Angelis, who replied at 9.20 pm:

74. [368]

    Again, Mr Angelis’s response contains no suggestion of any belief on his part of the existence of an agreement with Pemba about the Resilium Transaction or amendment of the 2017 Shareholders Agreement. On the contrary, Mr Angelis said he was “prepared to discuss and resolve” the issues raised by Mr Summerhayes in his email sent the previous evening including by supporting a “dividend recapitalisation” on the basis set out in his final paragraph.

75. [369]

    On 22 December 2018, Mr Summerhayes sent an email to Mr Neal:

76. [370]

    There the matter rested.

77. [371]

    Thereafter, and without further reference to Pemba, Mr Angelis and Mr Dutt, together with their advisors including ABL and Ernst & Young, proceeded to conduct a due diligence of Resilium and to prepare formal documentation in respect of the proposed Resilium Transaction.

78. [372]

    Mr Dutt, with Ernst & Young, developed a document entitled “Project Harley Strawman Paper” which dealt with the structure of the proposed transaction.

79. [373]

    Mr Dutt did not provide this or any related materials to Pemba despite the fact that he knew that Pemba had a strong interest in the matter and knew, as at 22 December 2018, that matters to do with exit, dual track processes and the staged process to obtain control of Resilium were “all matters that were critical to Pemba and critical to discuss with Pemba if [Coverforce was] ever going to be able to agree some transaction documents”.

80. [374]

    ABL prepared a document entitled “Project Harley Due Diligence Report February 2019” and a further document entitled “Project Harley - Overview”. Neither document was provided to Pemba.

81. [375]

    ABL also prepared draft Resilium Transaction documents. None of these were shown to Pemba.

82. [376]

    On 21 February 2019, Mr van Grieken from ABL sent an email to Mr Kitchin, Mr Angelis, Mr Dutt and Ms Angelis attaching drafts of “key transaction documents” including a document called “Coverforce Shareholders Agreement (in mark-up to the current shareholders agreement)”.

83. [377]

    That document differed from the Purported 31 October Shareholders Agreement annexed to the 31 October Term Sheet. The notation at cl 7, to which I have referred at [256] above, had been replaced with a new cl 7.1(d) which stated:

84. [378]

    This clause reflected the fact that Mr Angelis and Pemba had not reached any agreement as to the terms of any put and call option in respect of the shares in Coverforce. So much must have been clear to Mr Kitchin.

85. [379]

    On 13 March 2019, Mr Scott Phillips from ABL, who was acting for Mr Kitchin in relation to the transaction, sent an email to Mr Kitchin, Mr Angelis, Mr Dutt and Ms Angelis and others attaching “our comments on the Coverforce Shareholders Agreement…in continuing mark-up (along with a PDF compare showing just the additional changes)”.

86. [380]

    On 18 March 2019, Mr Luke Jedynak from ABL sent an email to Mr Angelis, Mr Kitchin, Mr Dutt and Ms Angelis attaching “updated drafts of the Coverforce/Resilium transaction documents” including a “Coverforce Shareholders’ Agreement (cumulative mark-up against current shareholders’ agreement)”.

87. [381]

    The latter document was a marked-up version of the 2017 Shareholders Agreement and had been the subject of extensive and varied changes during the period 31 October 2018 to 18 March 2019.

88. [382]

    On 22 March 2019, Mr Dutt authorised Macquarie Bank to advance $2 million to ABL to hold on trust for Suncorp by way of bank transfer.

89. [383]

    Mr Dutt agreed under cross-examination that he did not raise this with Mr Summerhayes or Mr Georgiadis, despite knowing that he was required to obtain approval from a Pemba director by way of Special Majority Approval to any loan under the 2017 Shareholders Agreement.

90. [384]

    In the meantime, on 25 February 2019, Mr Summerhayes invited Mr Neal to a meeting at Pemba’s offices.

91. [385]

    In his affidavit, Mr Summerhayes deposed that he told Mr Neal:

92. [386]

    Mr Neal agreed that Mr Summerhayes “said something like there’s a train wreck going to happen here if it’s not all agreed”.

93. [387]

    Mr Neal then spoke to Mr Angelis and had this conversation:

94. [388]

    Mr Summerhayes said that Mr Neal contacted him a short time later and said:

95. [389]

    Mr Neal did not recall using those words but recalled saying to Mr Summerhayes:

96. [390]

    It is hard to see how Mr Summerhayes could have made Pemba’s position more clear. Mr Angelis could not possibly have had any doubt that Pemba did not approve Coverforce proceeding with the Resilium Transaction.

97. [391]

    Mr Angelis was asked in cross-examination about the steps he took to keep the Pemba representatives, and Mr Summerhayes in particular, informed of the progress being made in regard to the negotiation of the Resilium Transaction documents.

98. [392]

    The following exchange occurred in cross-examination:

99. [393]

    Mr Neal did not agree that he had kept Pemba informed. He gave this evidence in response to questions from me:

100. [394]

     Mr Angelis’s evidence that he thought Mr Neal was keeping Pemba informed of such progress cannot be right.

101. [395]

     Mr Angelis was, I find, determined to proceed with the Resilium Transaction come what may, without consultation with Pemba and in the full knowledge that Pemba did not approve and had not agreed to the changes to the 2017 Shareholders Agreement that would be necessary for the transaction to be effected.

102. [396]

     In the days leading up to the entry by Coverforce into the Resilium Transaction, Mr Summerhayes heard rumours that execution of those documents was nigh.

103. [397]

     Thus, on 19 March 2019, Mr Summerhayes sent an email to Mr Angelis, copied to Mr Neal and Mr Dutt:

104. [398]

     There was no reply.

105. [399]

     On Saturday 23 March 2019, Mr Summerhayes and Mr Georgiadis forwarded to Mr Angelis, Mr Dutt and Mr Neal “formal correspondence” as follows:

106. [400]

     Later that evening, Mr Angelis sent a copy of that letter to Mr Kitchin.

107. [401]

     Mr Kitchin, in his affidavit, said:

108. [402]

     Mr Angelis did not dispute saying something to this effect to Mr Kitchin.

109. [403]

     Mr Kitchin was closely cross-examined about his state of mind at this point.

110. [404]

     He gave this evidence:

111. [405]

     I think a fair reading of this evidence, notwithstanding Mr Kitchin’s response to the last question I have set out (which was directed to Mr Kitchin’s state of mind when he “signed up these transaction documents”), was that Mr Kitchin was saying no more than he understood from Pemba’s 23 March 2019 letter that there was a risk that Pemba’s approval to the matters contemplated by the Resilium Transaction documents would need to be obtained prior to completion of the transaction; hence his acceptance that “ultimately” Pemba’s approval of the transaction would be needed “[t]o complete the transaction”.

112. [406]

     In the meantime, Mr Summerhayes had received an “out of office” response from Mr Angelis in response to the 23 March 2019 letter.

113. [407]

     Mr Summerhayes sent a further email to Mr Angelis at 7.06 am on 25 March 2019 asking for him to “arrange a meeting ASAP to discuss Resilium”.

114. [408]

     Mr Angelis received that email. At 8.33 am on the same morning, he asked Mr Dutt to arrange for a board meeting to take place on 3 April 2019, knowing that the Resilium Transaction documents were to be executed later on 25 March 2019.

115. [409]

     The Resilium Transaction documents were executed on behalf of Coverforce by Mr Dutt and Ms Angelis.

116. [410]

     A central issue in the proceedings is the effect, if any, of the documents executed on 25 March 2019.

117. [411]

     The purported effect of the documents executed on 25 March 2019 was as depicted in the following diagram. The contentious aspects of the transaction, the purported issue of shares in Coverforce to the Kitchin Parties and the transfer by the Kitchin Parties of their shares in Resilium OpCo Pty Ltd to Coverforce, are depicted using broken red lines.

118. [412]

     Assuming the documents were effective, the result would be that, on completion:

     1. (1)

        the Kitchin Parties held the shares in Resilium BidCo Pty Ltd (“BidCo”) and Resilium OpCo Pty Ltd (“OpCo”);

     2. (2)

        BidCo acquired the Resilium shares from Suncorp for $20 million;

     3. (3)

        the Kitchin Parties borrowed $20 million from Coverforce for the purpose of funding the acquisition of the Resilium shares from Suncorp and gave Coverforce a charge over their shares in BidCo as security for the payment of those funds;

     4. (4)

        Resilium and OpCo entered a Management Services Agreement under which OpCo assumed the role of manager of the Resilium business with the right to receive and retain the revenues of that business;

     5. (5)

        the Kitchin Parties then transferred their shares in OpCo to Coverforce so that Coverforce had effective ownership of the Resilium revenues;

     6. (6)

        Coverforce issued shares in itself to the Kitchin Parties in return for the shares in OpCo;

     7. (7)

        the Kitchin Parties continued to hold the shares in BidCo so that, for some time, the Kitchin Parties retained ownership of Resilium but did not receive the revenues of the Resilium business which, by reason of the Management Services Agreement, went to Coverforce;

     8. (8)

        Suncorp was granted a call option for a period of two years (or less in the event of an IPO of Coverforce) under which it could call on BidCo (in effect the Kitchin Parties) to sell back the shares in Resilium to Suncorp (see the “Suncorp Call Option” in the diagram). Suncorp required that option because Resilium would continue to act as a distributor of Suncorp insurance products and thus remain a premium stream for Suncorp. Suncorp wished to ensure that this stream continued and remained stable for a nominated period. Suncorp could only exercise the Suncorp Call Option during an option period of 48 months and only if one of a number of identified events occurred in relation to the conduct of the Resilium business. If Suncorp exercised the Suncorp Call Option, the Kitchin Parties would be obliged to use the proceeds of sale they received from Suncorp to repay to Coverforce the $20 million loan;

     9. (9)

        Coverforce had a call option over the BidCo shares, being the “Coverforce Call Option” shown in the diagram. Coverforce was entitled to exercise that call option only after the Suncorp Call Option period had expired and, obviously, only if the Suncorp Call Option had not been exercised;

     10. (10)

         were Coverforce to exercise the Coverforce Call Option, the Kitchin Parties were obliged to transfer their shares in BidCo to Coverforce, in effect, transferring their shares in Resilium to Coverforce. Practically speaking, in that event, the liability of the Kitchin Parties to pay the $20 million to Coverforce would be expunged.

119. [413]

     The Resilium Transaction purportedly completed on 31 May 2019 and, if that purported completion was effective, the Resilium structure was as I have set out.

120. [414]

     A key document executed on 25 March 2019 was the Share Purchase Deed to which I have earlier referred (see [47] above).

121. [415]

     That document was purportedly made between Coverforce, the Kitchin Parties and OpCo.

122. [416]

     By cl 3 of that document:

123. [417]

     Clause 5.3 provided that:

124. [418]

     By that clause, the parties acknowledged the possibility that there may not have been requisite board approval for Coverforce’s acquisition of the shares in OpCo, the issue of shares in Coverforce to the Kitchin Parties or to the entry into the “Coverforce Shareholders Agreement”.

125. [419]

     The form of the proposed “Coverforce Shareholders Agreement” was to be annexed to the Share Purchase Deed “or such other form as agreed between Coverforce and Kitchin”.

126. [420]

     I will call that document the “Purported 25 March Shareholders Agreement”. The Purported 25 March Shareholders Agreement was a revised version of the Purported 31 October Shareholders Agreement.

127. [421]

     The extent of the revisions was extensive and reflected, amongst other things, the changes required by the form of the Stage 2 Suncorp Term Sheet and the fact that Pemba and the Angelis Parties had not agreed on the final terms of any put and call option to be entered in lieu of Pemba’s Drag Right. Hence it included cl 7.1(d) in the form I have set out at [377].

128. [422]

     Clause 5.6 of the Share Purchase Deed provided:

129. [423]

     Schedule 2 provided that Coverforce gave various representations and warranties, including that it:

130. [424]

     On 3 April 2019, Ms Angelis emailed a copy of the executed Resilium Transaction documents to members of the Coverforce board. That was the first time that Mr Georgiadis and Mr Summerhayes saw the documents.

131. [425]

     The Coverforce board met on 5 April 2019. There are differing accounts of what happened at the 5 April 2019 board meeting.

132. [426]

     What is clear is that the board did not approve entry into the Purported 25 March Shareholders Agreement as was required for Completion by cl 5.3(a)(iv) of the Share Purchase Deed.

133. [427]

     There never has been a board resolution of Coverforce to approve entry into the Purported 25 March Shareholders Agreement.

134. [428]

     Pemba did not sign the Purported 25 March Shareholders Agreement nor, for that matter, the Purported 31 October Shareholders Agreement annexed to the 31 October Term Sheet.

135. [429]

     On 8 April 2019, Mr Summerhayes wrote a long email to Mr Angelis and the other directors of Coverforce. He said:

136. [430]

     Mr Angelis forwarded a copy of this email to Mr Kitchin.

137. [431]

     Mr Kitchin telephoned Mr Angelis and they had this conversation:

138. [432]

     Mr Kitchin said that at this stage:

139. [433]

     On 11 April 2019, Coverforce’s solicitors, Mills Oakley, wrote to Mr Summerhayes and Mr Georgiadis outlining recent events and stating, amongst other things:

140. [434]

     Pemba then engaged Herbert Smith Freehills who, on 18 April 2019, wrote a long reply to Mills Oakley’s letter of 11 April 2019 to Mr Georgiadis. Herbert Smith Freehills concluded:

141. [435]

     On the same day, Mr Summerhayes sent an email to Messrs Angelis, Dutt and Neal, copied to Mr Georgiadis and Ms Angelis, stating:

142. [436]

     A 19 page schedule seeking further information and documents was attached.

143. [437]

     None of the information sought by Mr Summerhayes was provided. Mr Angelis said he thought that Mr Summerhayes and Mr Georgiadis were “gathering information to provide a third party with due diligence”.

144. [438]

     In the meantime, the exchange of correspondence between the solicitors continued.

145. [439]

     On 1 May 2019, Mills Oakley wrote to Herbert Smith Freehills stating:

146. [440]

     On 7 May 2019, Herbert Smith Freehills replied stating, amongst other things:

147. [441]

     On 9 May 2019, Mills Oakley replied:

148. [442]

     The Resilium Transaction purportedly completed on 31 May 2019.

149. [443]

     By then, Pemba had not received all the transaction documentation that it had sought.

150. [444]

     On 1 June 2019, Mr Angelis wrote to Messrs Neal, Summerhayes, Georgiadis and Dutt, copied to Ms Angelis, stating:

151. [445]

     Early on 1 June 2019, Mr Summerhayes wrote an email to Mr Grant Koch, a solicitor from DLA Piper, who had acted for Suncorp in relation to the Resilium Transaction.

152. [446]

     Mr Summerhayes said that his colleague, Mr Hildingsson, had had lunch the previous day with Mr Koch.

153. [447]

     Mr Summerhayes’s email read:

154. [448]

     In the meantime, on 27 May 2019, Pemba received an indicative proposal from AUB to purchase 100% of Coverforce’s issued capital.

155. [449]

     On 28 May 2019, Pemba sent a letter to the other shareholders and directors of Coverforce stating that it had received an offer from AUB to purchase 100% of Coverforce’s issued capital and giving a written notice of sale as required by cl 9.2 of the 2017 Shareholders Agreement.

156. [450]

     In its covering email, Pemba stated:

157. [451]

     Under cl 9.3(b)(1) of the 2017 Shareholders Agreement, upon Pemba giving the other shareholders written notice of its wish to undertake an “Exit”, other shareholders were obliged to cooperate with that sale and “provide all reasonable access and assistance required…including access to due diligence materials” (see [78] above).

158. [452]

     On 19 June 2019, Pemba sent a letter to Coverforce requesting information pursuant to that clause. It is not in dispute that Coverforce has not supplied that information. As I set out at [34] above, by reason of its arrangements with AUB, Pemba was obliged to provide AUB with all due diligence materials by 6 December 2019. There is a dispute as to whether, on the proper construction of the 2017 Shareholders Agreement, the Angelis Parties are obliged to “use their best endeavours to implement the Exit” for the purposes of cl 9.3(a) and to provide “access to due diligence material and personnel” for the purposes of cl 9.3(b)(1) of the Agreement. I deal with this below at [611] to [621].

159. [453]

     On 1 August 2019, Pemba entered into a Share Purchase Deed with AUB for the sale of Pemba’s shares in Coverforce.

160. [454]

     Clause 3.1 of the AUB Share Purchase Deed sets out the conditions precedent and provides in “Condition 2” that AUB’s purchase of Pemba’s shares is subject to Pemba exercising its Drag Right.

161. [455]

     Clause 3.3(b) of the AUB Share Purchase Deed provides that the Deed will automatically terminate if Pemba does not provide confirmation in writing by 31 December 2019 that it has taken steps to exercise its Drag Right.

162. [456]

     As I have said, on 9 December 2019, AUB announced to the market that it had terminated its agreement with Pemba.

Was there a binding agreement between Pemba and Coverforce?

1. [457]

   The agreement for which the Angelis Parties contend is said to arise from:

2. [458]

   Arising out of those emails and that conversation, the Angelis Parties contend in their Further Amended Commercial List Statement that:

3. [459]

   In closing submissions, the Angelis Parties put it this way:

4. [460]

   And:

5. [461]

   The Angelis Parties contend that they and Pemba entered this agreement with the intention that it be binding with immediate effect, whilst expecting to enter into a further agreement in substitution for the first, containing, by consent, additional terms. This agreement is said to fall within the fourth class of “subject to contract” cases: see Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628 (McLelland J), quoting Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317; [1929] HCA 34 (Knox CJ, Rich and Dixon JJ), relying on Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475 at 476.

6. [462]

   In my opinion, the Angelis Parties have failed to prove the existence of such an agreement.

7. [463]

   Pemba did authorise Mr Angelis to execute the 31 October Term Sheet. But, for the reasons I set out below, the 31 October Term Sheet did not bind:

8. [464]

   Further, for the reasons I set out above, I do not accept that Mr Angelis and Mr Georgiadis had the conversation upon which Mr Angelis relies, being the conversation set out at [222] above.

9. [465]

   Rather, I accept that Mr Georgiadis told Mr Angelis that, although Mr Angelis could “progress discussions with Mr Kitchin”, Pemba would not agree to vary the 2017 Shareholders Agreement unless and until there was final agreement about “Pemba’s exit entitlements” and, in particular, final agreement as to an alternative “exit right” for Pemba to its Drag Right.

10. [466]

    Mr Georgiadis’s agreement that the reference to a put and call option could be removed from the version of the shareholders agreement to be given to Mr Kitchin, that is from the Purported 31 October Shareholders Agreement, was expressly on that basis.

11. [467]

    I do not accept that there was an “agreement to agree” about a put and call option. Mr Angelis and Mr Georgiadis discussed the possibility of a put and call option being an adequate substitute for Pemba’s Drag Right, but no agreement was reached about price.

12. [468]

    On 30 October 2018, Mr Angelis made the offer I have set out at [240] above. Mr Georgiadis rejected that offer the next morning without making a counter offer (see [253] above).

13. [469]

    There the matter rested.

14. [470]

    Although cl 7.1(d) of the Purported 25 March Shareholders Agreement contained a provision to the effect that Mr Angelis and Pemba “must…negotiate in good faith” the terms of a put and call option, Pemba had not agreed to do this. Pemba did not know that such a clause was included in that document until 3 April 2019; after the Resilium Transaction documents were executed on 25 March 2019.

15. [471]

    In the meantime, Pemba clearly signalled to Mr Angelis, over and again, that its position remained that it would not agree to the Resilium Transaction or a variation to the 2017 Shareholders Agreement involving surrender of its Drag Right.

16. [472]

    Thus:

17. [473]

    The Angelis Parties contended that, because Pemba agreed to Coverforce entering into the 31 October Term Sheet, it thereby agreed to modify the 2017 Shareholders Agreement and to proceed with the Resilium Transaction.

18. [474]

    The 31 October Term Sheet is expressed to be “binding”.

19. [475]

    But the significance of that depends upon what, on its proper construction, the 31 October Term Sheet “bound” Coverforce to do.

20. [476]

    I do not accept that the terms of the 31 October Term Sheet obliged Coverforce to proceed with the “Transaction” referred to in it; the proposed acquisition of 100% of the shares in Resilium.

21. [477]

    Although cl 2 of the 31 October Term Sheet was headed “Term Sheet Binding”, the body of that clause stated that the term sheet set out the “proposed terms” of the Transaction (see [278] above).

22. [478]

    Under the heading “Background”, the 31 October Term Sheet referred to the October Suncorp Term Sheet and recited some of its terms (see [278] above). The parties must thereby be taken to have incorporated by reference the terms the October Suncorp Term Sheet into the 31 October Term Sheet.

23. [479]

    As I have set out above, the October Suncorp Term Sheet, which was expressed to be non-binding, envisaged that there would be a “Stage 2 Term Sheet” which would:

24. [480]

    In the 31 October Term Sheet, under the heading “Background”, the parties acknowledged that they too would enter into a “Phase 2 Term Sheet”; that is the “Stage 2 Term Sheet” referred to in the October Suncorp Term Sheet.

25. [481]

    Thus, the parties to the 31 October Term Sheet must be taken to have intended that the matters referred to in [479] above would be in this further “Phase 2” term sheet, and in particular that “details of the proposed timetable for…execution of definitive transaction documentation” would appear.

26. [482]

    This points strongly to the conclusion that the parties to the 31 October Term Sheet did not intend that it, alone, bound either party to the “Proposed Transaction”.

27. [483]

    As I have discussed, what was referred to in the October Suncorp Term Sheet and the 31 October Term Sheet as the “Stage 2 Term Sheet” or the “Phase 2 Term Sheet” was the Stage 2 Suncorp Term Sheet executed by Suncorp and Mr Kitchin on 10 December 2018. That term sheet was also expressed to be “non-binding”.

28. [484]

    This must have been contemplated by Mr Angelis and Mr Kitchin when they executed the 31 October Term Sheet. This is a further reason to conclude that the parties did not intend that the 31 October Term Sheet itself obliged them to proceed with the “Transaction”.

29. [485]

    Clause 9 of the 31 October Term Sheet provided that, after its execution, Coverforce and Mr Kitchin would commence to negotiate, in good faith, the terms of the “Phase 2 Term Sheet” as well as the “formal and binding documents in relation to the Transaction” and recited a list of what those “Formal Documents” would include (see [281] to [283] above).

30. [486]

    That clause provides a further indication that the parties did not regard the 31 October Term Sheet as itself being a “formal and binding document” in relation to the Transaction.

31. [487]

    Clause 6 of the 31 October Term Sheet provided that the parties agreed that Mr Kitchin “will become a party to the Coverforce Shareholders Agreement” which would “be amended and restated in substantially the form attached”; that is, in the form of the Purported 31 October Shareholders Agreement.

32. [488]

    But the clause continued by stating that, so far as concerned the issue of shares in Coverforce to Mr Kitchin, the issue of such shares was subject to “such other shareholder and board approvals required to issue the shares”.

33. [489]

    The issue of shares was thus subject to there being a Special Majority Board Approval for the purpose of cl 5.6(a) of the 2017 Shareholders Agreement (see [69] above) and thus subject to Pemba’s agreement; Pemba not being a party to the 31 October Term Sheet itself.

34. [490]

    Further, cl 9 recorded that one of the “Formal Documents” to be negotiated was such a shareholders agreement (see [283(3)] above).

35. [491]

    In any event, so far as Pemba is concerned, the 31 October Term Sheet could not bind it to a variation of the 2017 Shareholders Agreement as that agreement provided, in terms, that it could only be varied in writing signed by Coverforce “and all of the Shareholders other than the Small Shareholders” (see [81] above).

36. [492]

    No doubt, some provisions in the 31 October Term Sheet were intended to be binding, for example:

37. [493]

    For those reasons my conclusion is that there was no agreement between the Angelis Parties and Pemba that Coverforce would proceed with the Resilium Transaction and that, on completion, Pemba would execute a modified shareholders agreement.

38. [494]

    There was no such agreement between Mr Angelis and Mr Georgiadis during their communications on 30 and 31 October 2018. On the contrary, Mr Georgiadis made clear that Pemba did not agree to any such arrangement and would not do so until such time as there was final agreement between it and the Angelis Parties about an alternative exit pathway in lieu of its Drag Right.

39. [495]

    Further, Pemba’s agreement that Coverforce execute the 31 October Term Sheet did not constitute any such agreement.

40. [496]

    Pemba submitted that, alternatively, any purported agreement between it and the Angelis Parties was void for uncertainty.

41. [497]

    In view of the conclusions to which I have come, it is not necessary to deal with that submission.

42. [498]

    The Angelis Parties contended, alternatively, that Pemba was estopped from asserting their rights under the 2017 Shareholders Agreement because it represented that it agreed to the Purported 31 October Shareholders Agreement and to the Resilium Transaction.

43. [499]

    As I have already found, Pemba made no representation, or otherwise acted, such as to estop it from denying the existence of any such agreement.

44. [500]

    Pemba made clear, over and again, that it would not agree to proceed with the Resilium Transaction, or vary the 2017 Shareholders Agreement so as to accommodate that transaction, or at all, until an alternative to its Drag Right was agreed.

45. [501]

    The Angelis Parties’ case against Pemba fails.

46. [502]

    The Angelis Parties and Pemba remain bound by the 2017 Shareholders Agreement.

Consequences so far as concerns the Resilium Transaction

1. [503]

   The 25 March Resilium Transaction documents purported to provide for:

2. [504]

   By reason of cl 5.6(a) of the 2017 Shareholders Agreement (see [67] above), each of those matters required Special Majority Board Approval.

3. [505]

   No such approval was given. Indeed, no resolution of any kind was passed by the Coverforce board concerning entry into the Resilium Transaction documents.

4. [506]

   It follows that:

5. [507]

   As to the last point, Coverforce did in fact advance $20 million to the Kitchin Parties. The Kitchin Parties acknowledge that, in these circumstances, they “would be subject to an order to make restitution in relation to the loan funds, less any benefits derived by Coverforce from the OpCo revenues”.

6. [508]

   As to the purported issue by Coverforce of shares in itself to the Kitchin Parties, the Angelis Parties sought to call in aid s 125(1) of the Corporations Act. That section provides that “the exercise of power by a company is not invalid merely because the act is contrary to an express restriction or prohibition in the company’s constitution”.

7. [509]

   That section does not assist the Angelis Parties. Section 125 only applies where an exercise of power would be invalid “merely” because it is contrary to the company’s constitution. That is not this case. The purported share issue to the Kitchin Parties is invalid because it was not carried out in accordance with the 2017 Shareholders Agreement.

8. [510]

   It follows that the purported issue of shares in Coverforce to the Kitchin Parties was of no effect.

9. [511]

   It was contended on behalf of the Angelis Parties that the purported issue of shares to the Kitchin Parties was “voidable” rather than “void”.

10. [512]

    I do not accept that submission. As was submitted on behalf of the Kitchin Parties, the purported share issue was made in circumstances where Coverforce did not have any power to exercise. This was not a question of existing power being exercised incorrectly.

11. [513]

    The result is that the Kitchin Parties, in substance, remain owners of the Resilium business and seek appropriate restitutionary orders to “reverse” the Resilium Transaction.

12. [514]

    The Angelis Parties contend that there are insuperable practical problems associated with “undoing” the transaction. During submissions, frequent references were made to “unscrambling the egg”. I will deal with those matters after considering the alternative way in which the Kitchin Parties put their case.

13. [515]

    By that alternative case, the Kitchin Parties seek to exercise what they contend is their contractual entitlement under cl 5.6 of the Share Purchase Deed (set out at [422] above) to “reverse those actions” which occurred in the purported implementation of the Resilium Transaction.

14. [516]

    The Kitchin Parties’ entitlement to take this course depends on the answer to a number of questions to which I will now turn.

Can the Kitchin Parties compel Coverforce to “reverse” the Resilium Transaction under the Share Purchase Deed?

1. [517]

   The first question is whether Special Majority Board Approval was required for Coverforce to enter into, as opposed to complete, the 25 March 2019 Share Purchase Deed.

2. [518]

   As I have set out at [65] to [68] above, cl 5.6(a) of the 2017 Shareholders Agreement provides that “any decision of the Directors in relation to a matter set out in Schedule 2” “must be determined” by Special Majority Board Approval: that is, by a resolution of directors in which Mr Angelis and “at least 1 Pemba Director” joined.

3. [519]

   The matters in Schedule 2 included the alteration of Coverforce’s share capital and the acquisition of an interest in another company.

4. [520]

   The Share Purchase Deed contemplated each of those matters as it provided for the issue by Coverforce to the Kitchin Parties of shares in itself and for the purchase by Coverforce from the Kitchin Parties of their shares in OpCo.

5. [521]

   But the Share Purchase Deed did not commit Coverforce to either matter because, by cl 5.3 of that document, completion was conditional on Coverforce procuring that a duly convened meeting of directors resolve to agree to such share issue and acquisition.

6. [522]

   The question is whether, on the proper construction of cl 5.6(a) of the 2017 Shareholders Agreement, a decision to enter such a conditional agreement was a decision “in relation to” the acquisition of interest in a company and the alteration of Coverforce’s share capital.

7. [523]

   In one sense, the answer to this question is “yes” as there is a connection between such a conditional agreement and the relevant Schedule 2 matter.

8. [524]

   But when words like “in relation to” are used, considerations of degree are involved.

9. [525]

   As Hill J observed in Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472; [2001] FCA 1549 at [68] (albeit in a statutory context):

10. [526]

    I think it unlikely that the parties to the 2017 Shareholders Agreement intended that Special Majority Board Approval be required for any decision having any connection with a Schedule 2 matter, no matter how remote.

11. [527]

    For example, I think it unlikely the parties intended that Special Majority Board Approval would be required in respect of a decision to delegate to a sub-committee or an individual member of the board consideration of, say, the acquisition of a business. Indeed, according to Mr Angelis, in the years leading up to the events with which these proceedings are concerned, there was in effect delegated to him just such a responsibility; and without any consideration being given to any sort of board approval.

12. [528]

    As was submitted on behalf of the Kitchin Parties, the matters listed in Schedule 2 are cast as ultimate actions by Coverforce, rather than potential actions: see the words “alteration”, “acquisition” “decision” and “loan” set out at [69] above.

13. [529]

    In that context, my opinion is that reasonable businesspeople in the position of the parties to the 2017 Shareholders Agreement would understand the expression “any decision in relation to” a Schedule 2 matter to mean any decision actually to effect such matters.

14. [530]

    A decision to enter into a loan agreement in which Coverforce actually agreed to loan funds would be such a decision. The loan agreements between Coverforce and the Kitchin Parties on 25 March 2019 were such agreements. Indeed, by cl 4.3(b) in each of those agreements, Coverforce represented, in terms, that all relevant “approvals” to make the loans had been obtained.

15. [531]

    But the decision to enter a conditional agreement such as the 25 March 2019 Share Purchase Deed was not such a decision. That document contemplated the possibility that the relevant decision, that is actually to effect the acquisition of the OpCo shares from the Kitchin Parties and issue of the shares in Coverforce to the Kitchin Parties, had not been made. Thus, it made completion of the agreement conditional on such a decision being made at a duly convened meeting of the Coverforce board.

16. [532]

    Such a decision was one which still, under both the 2017 Shareholders Agreement and under the Share Purchase Deed, remained to be made; and was dependent on Pemba’s approval first being obtained.

17. [533]

    For those reasons, the absence of Special Majority Board Approval for entry into, as opposed to completion of, the Share Purchase Deed is not itself a reason to conclude that Coverforce had no authority to enter that agreement.

18. [534]

    The 25 March 2019 Resilium Transaction documents, including the Share Purchase Deed, were purportedly executed on behalf of Coverforce by Mr Dutt, in his capacity as a director, and Ms Angelis, in her capacity as company secretary.

19. [535]

    Mr Angelis was overseas on 25 March 2019 and asked Mr Dutt and Ms Angelis to execute the documents for Coverforce.

20. [536]

    During final submissions, no party made submissions as to whether this request by Mr Angelis was sufficient to clothe Mr Dutt and Ms Angelis with requisite authority or whether they otherwise had such authority.

21. [537]

    For that reason, I invited further written submissions on that topic.

22. [538]

    Pemba submitted that Mr Dutt and Ms Angelis had no such authority because:

    1. (1)

       there was no Special Majority Board Approval or any other board decision authorising them to execute the documents;

    2. (2)

       Mr Angelis, as Managing Director, did not have authority to authorise them to execute the documents;

    3. (3)

       the “convention” for which Mr Angelis contended, assuming it be established, did not provide such authority because, on the case of the Angelis Parties is only operated “absent any indication to the contrary” (see [57] above) and Pemba had given a clear “indication to the contrary” so far as concerns entry by Coverforce into the Resilium Transaction; and

    4. (4)

       the provisions of s 127(1)(b) of the Corporations Act (which provides that a company may execute a document without using its common seal if the document is signed by a director and company secretary) take the matter no further as, although the documents were executed in accordance with section, the section does not itself operate to confer authority if authority is otherwise absent.

23. [539]

    On the other hand, the Angelis Parties submitted that “as a matter of procedural fairness” I should make not any finding about Mr Dutt’s or Ms Angelis’s authority to execute the documents because:

    1. (1)

       Pemba had not pleaded that Mr Dutt and Ms Angelis lacked requisite authority;

    2. (2)

       had the issue been raised on the pleadings, “the Angelis Parties would have led further evidence relevant to the issue, including from Mr Dutt and Ms Angelis as to their authority”; and

    3. (3)

       it had not been put to Mr Dutt or Ms Angelis in cross-examination that they lacked authority.

24. [540]

    Otherwise, apart from submitting that the “convention” for which Mr Angelis contended he gave Mr Angelis authority to authorise Mr Dutt and Ms Angelis to execute the documents and repeating their submissions as to the effect of the 31 October Term Sheet, the Angelis Parties did not grapple with the substance of Pemba’s submissions.

25. [541]

    As to the pleading point, it is true that Pemba did not plead that there was an absence of the relevant authority in its response to the Angelis Parties’ case.

26. [542]

    However, in response to the Kitchin Parties’ case, Pemba pleaded the entry into the relevant documents was:

    1. (1)

       “not authorised by the Board of Coverforce”; and

    2. (2)

       that accordingly “the Share Purchase Deed was not validly entered into by Coverforce”.

27. [543]

    The second of those two allegations was, however, only included in Pemba’s pleading on 8 November 2019, by which time cross-examination of the witnesses called for the Angelis Parties was complete.

28. [544]

    As to the submission that further evidence would have been called, I find it hard to envisage what that evidence would be, and in particular, what evidence Mr Dutt and Ms Angelis could give as to their own authority.

29. [545]

    It is true that it was not put to either Mr Dutt or Ms Angelis that they lacked authority, or should have known they lacked authority, to execute the documents. All that was put to Mr Dutt was that he executed the documents at Mr Angelis’s request. Ms Angelis was not required for cross-examination.

30. [546]

    On reflection, and because of the conclusions to which I have come concerning Mr Kitchin’s entitlement to assume that the Share Purchase Deed was effectively executed for Coverforce, I find it unnecessary to express any opinion about this matter.

31. [547]

    That is because, even if Mr Dutt and Ms Angelis did not have authority to cause Coverforce to enter the Share Purchase Deed, by reason of s 129 of the Corporations Act, the Kitchin Parties were entitled to assume that they did.

32. [548]

    Section 129(1) of the Corporations Act provides that a person may assume that a company’s constitution has been complied with.

33. [549]

    As I have said, Pemba accepted that Mr Dutt and Ms Angelis executed the Share Purchase Deed in accordance with s 127(1)(b) of the Corporations Act and that, on the face of things, by reason of s 129(5) of the Corporations Act the Kitchin Parties were entitled to assume that the “document has been duly executed by the company”.

34. [550]

    However, Pemba submitted that “at the time of the dealings” Mr Kitchin, and thus the Kitchin Parties, “knew or suspected that the assumption was incorrect” and therefore, by reason of s 128(4) of the Corporations Act, were not entitled to make the assumption in s 129(5).

35. [551]

    Pemba contends that, by reason of the letters it wrote to Coverforce on 19 and 23 March 2019 and the conversation that Mr Kitchin had with Mr Angelis on 23 March 2019 (see [399]ff above), Mr Kitchin, and thus the Kitchin Parties, must have suspected that in fact Coverforce did not have authority to enter the Share Purchase Deed.

36. [552]

    That submission depends on the evidence given by Mr Kitchin that I have set out at [404] above, and in particular on the answer that Mr Kitchin gave to the last question there set out.

37. [553]

    However, as I have said at [405], I think a fair reading of that evidence is that Mr Kitchin was saying no more than that he understood from Pemba’s 23 March 2019 letter that “ultimately” Pemba’s approval of the transaction would be needed “to complete the transaction”. I do not read Mr Kitchin’s evidence as bespeaking a suspicion on his part that Coverforce had no authority to enter the Share Purchase Deed.

38. [554]

    In my opinion, Mr Kitchin was entitled to accept at face value the assurance given to him by Mr Angelis, as the managing director of Coverforce, and as a very senior, highly experienced and well regarded Chief Executive in insurance intermediary industry.

39. [555]

    This is particularly so:

    1. (1)

       in the absence of any direct contact from Pemba since 31 October 2018 (when Mr Kitchin saw that the Pemba directors had been copied in on the email that Mr Angelis sent him that day attaching the 31 October Term Sheet and the Purported 31 October Shareholders Agreement) and;

    2. (2)

       in the circumstance where Mr Kitchin’s attention had been drawn to Pemba’s correspondence at a “minute to midnight”: very late on the Saturday night or early on the Sunday morning before the Monday scheduled for the exchange of executed documents.

40. [556]

    In those circumstances, my conclusion is that Mr Kitchin was, and thus the Kitchin Parties were, entitled to assume that the provisions in Coverforce’s constitution concerning the execution of documents had been complied with; and that, accordingly, the Share Purchase Deed had been duly executed by Coverforce.

41. [557]

    In any event, as the Kitchin Parties have submitted, Coverforce expressly represented to them that it had authority to enter the Share Purchase Deed and that it would be binding as between it and the Kitchin Parties.

42. [558]

    It did so repeatedly through Mr Angelis, who was held out to the Kitchin Parties, including by Pemba, as the Coverforce representative on the transaction.

43. [559]

    It also did so, in terms, in the Share Purchase Deed itself in Schedule 2 (see [423] above).

44. [560]

    If the true position is that Coverforce did not have such authority, its representation to the contrary was misleading or deceptive conduct for the purposes of s 18 of the Australian Consumer Law, entitling the Kitchin Parties to such relief as is appropriate under s 237 of the Australian Consumer Law.

45. [561]

    There can be no doubt that Mr Kitchin, and thus the Kitchin Parties, relied on that representation.

46. [562]

    That is so even if, contrary to my conclusion, Mr Kitchin did on 23 March 2019, suspect that Coverforce did not have authority to enter the Share Purchase Deed.

47. [563]

    There is no requirement that reliance on a misleading or deceptive representation be reasonable: Sykes v Reserve Bank of Australia (1998) 158 ALR 710; (1998) 88 FCR 511 (Heerey and Sunberg JJ, Emmett J not deciding).

48. [564]

    This is because, where a representation is made for the purpose of inducing reliance against the very risk which eventually materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct: Travel Compensation Fund v Tambree t/as R Tambree & Associates (2005) 224 CLR 627; [2005] HCA 69 at [32] (Gleeson CJ). That is, of course, unless it is shown that the representee actually knew the true facts or disavowed any reliance on the misrepresentations: Gould v Vaggelas (1984) 157 CLR 215 at 238; [1984] HCA 68 (Wilson J).

49. [565]

    I see no basis to conclude that Mr Kitchin’s acceptance of what Mr Angelis said to him on 23 March 2019 was so unreasonable as to compel that his conduct in proceeding with the Resilium Transaction was not “because of” Coverforce’s representation.

50. [566]

    There is also no evidence that Mr Kitchin actually knew the true facts or disavowed any reliance on Mr Angelis’s (and thereby Coverforce’s) representations to him.

51. [567]

    The relief the Kitchin Parties seek in these circumstances is an injunction restraining Coverforce from asserting that it did not validly enter into the Share Purchase Deed. I am prepared to make such an order pursuant to s 237 of the Australian Consumer Law.

52. [568]

    The same conduct would also give rise to an estoppel in favour of the Kitchin Parties. Mr Kitchin relied on the representation. It would be unconscionable for Coverforce now to depart from the represented state of affairs. To do so would leave the Kitchin Parties without the enforceable contract that Coverforce assured them they had.

53. [569]

    The Kitchin Parties also contend that any lack of authority or consent by Pemba to the entry by Coverforce into the 25 March 2019 Resilium Transaction documents is overcome by Pemba’s ratification of them.

54. [570]

    The Kitchin Parties developed that submission in a number of ways, but primarily by reference to what they contended to be the proper construction of the AUB Share Purchase Deed of 1 August 2019 between Pemba and AUB.

55. [571]

    The Kitchin Parties made detailed submissions to the effect that, properly construed, that agreement provided for the sale to AUB of all of the shares in Coverforce on the basis that control of the Resilium business would pass to AUB with the total price payable by AUB to include an amount referable to the Resilium business. Thus, it was submitted, Pemba deliberately sought to take advantage of the 25 March 2019 Resilium Transaction documents and had thereby ratified them.

56. [572]

    In reply, Pemba also developed equally detailed submissions as to the proper construction of the AUB Share Purchase Deed and contended that, properly construed, its effect was that if the true position is that Coverforce has not acquired the Resilium business, then the price payable by AUB for what would otherwise have been Coverforce’s interest in Resilium would be “zero”.

57. [573]

    AUB is no longer a party to these proceedings. It has an interest in the proper construction of its contract with Pemba. It would not, in those circumstances, be appropriate that I express any opinion as to the proper construction of the contract without giving AUB an opportunity to be heard. This is especially so now that AUB has announced to the market that it has terminated this contract.

58. [574]

    Accordingly, unless it was necessary for me to do so, I would not deal with this aspect of the Kitchin Parties’ submissions.

59. [575]

    Because of the other conclusions which I have come, it is not necessary that I express any opinion about whether or not Pemba has ratified the 25 March 2019 Resilium Transaction documents.

60. [576]

    Accordingly, I will not consider this question further.

61. [577]

    My conclusion is that the Kitchin Parties are entitled to enforce the Share Purchase Deed in accordance with its terms.

The Kitchin Parties’ right under cl 5.6(a)(ii) of the Share Purchase Deed

1. [578]

   As I have found that Coverforce did validly enter the 25 March 2019 Share Purchase Deed but that, for the reasons I have set out, did not issue shares in itself to the Kitchin Parties, it follows that one of the “interdependent actions” required by the Share Purchase Deed to occur simultaneously did not occur at all (see [416] and [422] above).

2. [579]

   It follows that, on the face of things, the Kitchin Parties are entitled to exercise their right under cl 5.6(a)(ii) of the Share Purchase Deed to require Coverforce to “do everything reasonably required to reverse [the] actions” which did take place (see [422] above).

3. [580]

   The Kitchin Parties wish to elect between exercising their right under cl 5.6 of the Share Purchase Deed and claiming damages from Coverforce.

4. [581]

   They contend, correctly in my opinion, that they should not be required to make an election until such time as they are in a position to understand what damages might be available to them against Coverforce.

5. [582]

   What follows is an analysis of the position assuming that the Kitchin Parties elect to exercise their right under cl 5.6 (or I decide that the justice of the case requires that the Kitchin Parties take that course).

6. [583]

   A pleading point arises.

7. [584]

   The Angelis Parties submitted that the Kitchin Parties have not pleaded an entitlement to enforce cl 5.6. I do not accept that submission. The matter is the subject of an express claim at par 60 of the Kitchin Parties’ Second Further Amended Cross-Claim List Statement. It is there it contended that “Coverforce is obliged to transfer the shares back to the [Kitchin Parties] pursuant to clause 5.6(a)(ii) of the” Share Purchase Deed. Further, an order for a transfer of the OpCo shares from Coverforce to the Kitchin Parties is sought in the Kitchin Parties’ Further Amended Cross-Summons. The claim was expressly opened on both in writing and orally.

8. [585]

   The Angelis Parties also submitted that I should not permit the Kitchin Parties to agitate a claim for relief under cl 5.6 of the Share Purchase Deed because Coverforce might wish to be heard to invoke a dispute resolution clause in the Share Purchase Deed which requires that disputes under the deed be mediated.

9. [586]

   However, as was submitted on the behalf of the Kitchin Parties, the right of Coverforce to submit this dispute to mediation is not a substantive defence to any of the Kitchin Parties’ claims against Coverforce. The fact that Coverforce could have attempted to enforce a mediation clause does not mean that it has an answer to the Kitchin Parties’ claims. And as a practical matter, in the circumstances now before the Court, Coverforce cannot invoke the contractual mediation process. I think it clear that the Angelis Parties can be relied on to have advanced every argument that Coverforce could otherwise have advanced in relation to the Kitchin Parties’ case.

10. [587]

    Were the Kitchin Parties to elect to exercise their rights under cl 5.6, there are four categories of transaction documents which would remain.

11. [588]

    First, the Kitchin Parties accept that the loan contracts between them and Coverforce, under which Coverforce advanced $20 million to the Kitchin Parties, remain binding.

12. [589]

    Second, the Kitchin Parties accept that the charge that they have granted Coverforce over their shares in BidCo remains in force.

13. [590]

    Third, the Management Services Agreement between OpCo and the Resilium companies remains unaffected and could continue for so long as the parties wish it to. The only thing that would change is the underlying ownership of OpCo. But that has no bearing on the fact and operation of the Management Services Agreement itself.

14. [591]

    Fourth, the Suncorp Call Option Deed would remain in operation. The subject of the Suncorp Call Option is BidCo’s shareholding in Resilium. BidCo, which remains owned by the Kitchin Parties, is a party to the Suncorp Call Option and will remain bound by its terms to sell its Resilium shares back to Suncorp if the nominated events enlivening Suncorp’s entitlement to call occur during the option period. That will be a matter between BidCo and Suncorp.

15. [592]

    The Suncorp Call Option Deed imposes an obligation on Coverforce to pay to Suncorp $8 million “where an IPO” occurs at a future date. On the face of the Suncorp Call Option Deed, that obligation enures whether or not Coverforce owns the Resilium business. If the Kitchin Parties elect to exercise their rights under cl 5.6 of the Share Purchase Deed, that will be a matter between Coverforce and Suncorp. It is not an answer to the Kitchin Parties’ entitlement to exercise their cl 5.6 right. It is a consequence of Coverforce’s failure to fulfil its obligations under the Share Purchase Deed.

16. [593]

    The Coverforce Call Option Deed, under which Coverforce has the right to require the Kitchin Parties to sell to their shares in BidCo would, in theory, remain in operation.

17. [594]

    However, as I have found that Coverforce has not issued shares in itself to the Kitchin Parties, the question arises as to whether, as the Kitchin Parties contend, Coverforce should be restrained from exercising any rights under its call option deed by reason of an implied term that those rights could only be exercised if Coverforce had in fact issued shares in itself to the Kitchin Parties.

18. [595]

    In that regard, the Angelis Parties submitted that, on its face, the Coverforce Call Option Deed is a self-contained document into which it is not necessary to imply any term in order to give it business efficacy.

19. [596]

    In my opinion, that submission ignores the reality that the Coverforce Call Option Deed was one of a suite of documents executed on 25 March 2019 which, together, purported to effect the Resilium Transaction.

20. [597]

    It is unthinkable to suppose that the parties to the Coverforce Call Option intended that if Coverforce did not issue to the Kitchin Parties the shares contemplated by the Share Purchase Deed, that Coverforce could nonetheless call for the BidCo shares.

21. [598]

    In my opinion, for reasons of business efficacy and because it is so obvious it goes without saying, this is what the parties must have intended. Thus it is an implied term of the Coverforce Call Option Deed that it could not be exercised absent the share issue called for by the Share Purchase Deed.

22. [599]

    In any event, the point is moot because, as I have said, in the alternative, the Kitchin Parties have a claim against Coverforce for misleading or deceptive conduct arising from its representation that it had authority to enter the Share Purchase Deed and thereby issue shares in itself to the Kitchin Parties (see [560]ff above). To the extent necessary, I propose to make an order under s 237 of the Australian Consumer Law restraining Coverforce from exercising its call option.

23. [600]

    In the course of the hearing, the Angelis Parties contended that insurmountable practical difficulties would arise were I to accede to the Kitchin Parties’ submission that the transaction be “reversed” pursuant to cl 5.6 of the Share Purchase Deed. I have mentioned that references were made to the alleged impossibility of “unscrambling the egg”.

24. [601]

    However, the Angelis Parties did not respond to or dispute the following submissions made on behalf of the Kitchin Parties, other than to make the general submission that, assuming they were entitled to relief, the Kitchin Parties should be confined to a claim for damages.

25. [602]

    The Kitchin Parties pointed out that the fact that there may be practical difficulties associated with “reversing” the Resilium Transaction is not itself an answer to the claim. By cl 5.6 of the Share Purchase Deed, Coverforce gave the Kitchin Parties a contractual right to have the transaction “reversed” if, relevantly, Coverforce did not issue shares in itself to the Kitchin Parties. Coverforce must be taken to have understood that there may be practical difficulties associated with that exercise.

26. [603]

    In any event, I am not satisfied that transition of the ultimate ownership of Resilium back to the Kitchin Parties would be unduly difficult or burdensome on Coverforce.

27. [604]

    As was pointed out on behalf of the Kitchin Parties:

28. [605]

    The fact that the Kitchin Parties will be required to establish premises for the business and incur other costs is a matter for them.

29. [606]

    The Angelis Parties adduced evidence from Mr Dutt concerning the costs Coverforce incurred in contemplation of completion of the Resilium Transaction.

30. [607]

    To the extent that those costs would not have been incurred in any event, and will now be lost if the Kitchin Parties exercise their right to “reverse” the Resilium Transaction, that is a result of Coverforce’s failure to perform its obligations under the Share Purchase Deed; in particular, its failure to issue shares in itself to the Kitchin Parties. That share issue was a fundamental aspect of the bargain to which the Kitchin Parties and Coverforce agreed.

31. [608]

    If the Kitchin Parties elect to exercise their rights under cl 5.6, I will hear submissions as to the precise form of the orders that should be made.

Conclusions as to the rights of the Kitchin Parties

1. [609]

   The Kitchin Parties may enforce the Share Purchase Deed by exercising their rights under cl 5.6 or by seeking damages from Coverforce.

What is the consequence of these findings for the sale to AUB?

1. [610]

   It follows from these findings that there was no impediment to the sale by Pemba to AUB of its shares in Coverforce and, by reason of the Drag Right, the shares of the Angelis Parties.

2. [611]

   Whether such a sale would have carried with it the Resilium business would have depended on the Kitchin Parties’ election.

3. [612]

   Pemba’s entitlement to compel production of due diligence materials in respect of the Resilium business would also have depended on that election.

4. [613]

   These points may now be moot in view of AUB’s market announcement.

5. [614]

   As I have set out at [78] above, cl 9.3 provides that on receipt of a “Sale Notice” (Pemba sent such a notice on 28 May 2019 – see [449] above):

6. [615]

   An issue arose in this context about the nature of the obligations of the Angelis Parties. AUB’s announcement yesterday may also render this question moot. However, as the parties addressed it, I shall deal with it here.

7. [616]

   The Angelis Parties submitted that, as “Other Shareholders” they did not have an absolute obligation to provide AUB with access to due diligence materials by reason of cl 3.3 of the 2017 Shareholders Agreement which is in the following terms:

8. [617]

   The Angelis Parties submitted:

9. [618]

   I do not accept that submission.

10. [619]

    The Angelis Parties, as “Other Shareholders”, have an express obligation under cl 9.3(1)(b) to use their best endeavours to implement an Exit within the time period specified by Pemba. As Pemba submitted, that obligation is given content by cl 9.3(1)(b) and expressly includes the obligation to provide access to “due diligence materials” and “personnel”.

11. [620]

    Clause 9.3(b) sets out, without limitation, the scope of the obligation in cl 9.3(a).

12. [621]

    In any event, by cl 6.2(f) of the 2017 Shareholders Agreement, Coverforce itself is obliged:

13. [622]

    I do not see the broad statements in cl 3.3 of the 2017 Shareholders Agreement qualifying the specific obligations imposed on the Angelis Parties by cll 9.3(a) and 9.3(b)(1) and on Coverforce by cl 6.2(f).

14. [623]

    Clause 3.3, relevantly, obliges each shareholder “to take all reasonable steps” to “otherwise act” to ensure that Coverforce conducts its business in a proper and efficient manner which maximises its profit and efficient manner which maximises its profitability. I do not see that that obligation can affect the very precise obligations imposed by the clauses to which I have referred.

The Kitchin Parties’ misleading or deceptive conduct claims

1. [624]

   I have dealt with the Kitchin Parties’ claims that Coverforce engaged in misleading or deceptive conduct by representing that Coverforce was authorised to enter the 25 March 2019 Resilium Transaction documents (see [557] to [567] above).

2. [625]

   I will invite submissions from the Kitchin Parties as to what, if any, further findings or orders should be made.

3. [626]

   The Kitchin Parties allege that, on and after 31 October 2018, by silence, Pemba represented to them that it agreed:

4. [627]

   Silence can amount to misleading or deceptive conduct. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32, Black CJ said:

5. [628]

   Silence may constitute misleading or deceptive conduct if there is a reasonable expectation that the silence would be broken. This was the analysis in Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37, where the Full Court of the Federal Court said:

6. [629]

   The Kitchin Parties point to:

   1. (1)

      the email sent by Coverforce to Mr Kitchin on 31 October 2018 attaching the 31 October Term Sheet and the Purported 31 October Shareholders Agreement; and

   2. (2)

      the facts that:

7. [630]

   In those circumstances, it was submitted on behalf of the Kitchin Parties that “Mr Kitchin was led to believe…that Coverforce had committed itself to moving forward as his financier on terms set out in the [31 October Term Sheet], including with respect to the issue of shares in Coverforce to him, and that Pemba had approved this and, in the process, agreed to give up its drag rights”.

8. [631]

   One answer that both Mr Summerhayes and Mr Georgiadis gave to this complaint was that they thought that Mr Angelis would convey to Mr Kitchin the true state of the negotiations with Pemba; namely that there was discussion about the possibility of there being put and call option as a substitute for Pemba’s Drag Right, but that such discussions were ongoing for no agreement was yet reached.

9. [632]

   Thus Mr Georgiadis said that:

10. [633]

    Similarly, Mr Summerhayes said:

11. [634]

    As I have set out above, by the end of October 2018, the relationship between Mr Angelis, Mr Summerhayes and Mr Georgiadis was very poor.

12. [635]

    In that context, Mr Summerhayes gave this evidence:

13. [636]

    Mr Summerhayes’s reference to what occurred on “26 September” was a reference to Mr Angelis’s accurate account to Mr Kitchin of the outcome of the 24 September 2018 board meeting (see [137] to [138] above).

14. [637]

    Mr Summerhayes was, in this evidence, seeking to draw a distinction between Mr Angelis’s very poor relationship with Pemba and how Mr Summerhayes expected Mr Angelis would deal with a “new business partner” with whom he was seeking to establish a new business relationship.

15. [638]

    In the last passage of the evidence I have set out, Mr Summerhayes suggested that a statement by Mr Angelis to Mr Kitchin to the effect that there were “things we need to progress as shareholders but I’ve got them in hand” would be consistent with Mr Angelis’s stated position that he did not wish to “highlight” to Mr Kitchin the “shareholder issues” with Pemba.

16. [639]

    I do not agree.

17. [640]

    It must have been obvious to both Mr Summerhayes and Mr Georgiadis that Mr Angelis would not say anything to Mr Kitchin inconsistent with what was conveyed in the 31 October 2018 email.

18. [641]

    That email, and its attachments, conveyed the message to Mr Kitchin that Pemba had agreed to give up its Drag Right and had agreed to accept, in lieu of the Drag Right, the two matters the subject of the notation in cl 7.

19. [642]

    In those circumstances, Mr Kitchin had a reasonable expectation that if, as was the fact, Mr Summerhayes and Mr Georgiadis had a different understanding they would say so.

20. [643]

    In my opinion it was, for these reasons, misleading or deceptive for Mr Summerhayes and Mr Georgiadis to remain silent.

21. [644]

    It was submitted on half of Pemba that, in any event, the terms of Mr Kitchin’s 12 December 2018 email (see [316] to [317] above) showed that Mr Kitchin was not misled by such silence as he was still then seeking confirmation that there be “resolution to the issues raised” in his emails concerning Pemba’s Drag Right.

22. [645]

    But there is an anterior question arising from the evidence that Mr Kitchin gave about this matter in his affidavit where he said:

23. [646]

    Mr Kitchin’s point here was that, had he understood that arrangements between Mr Angelis and Pemba concerning Pemba’s Drag Right were not yet concluded, he would not have proceeded further with Coverforce.

24. [647]

    This evidence was not directly challenged and is, in any event, credible. It is consistent with the statements that Mr Kitchin had, on number of occasions, made prior to 31 October 2018 concerning his preparedness to proceed with the MBO of Resilium without any involvement from Coverforce.

25. [648]

    I will seek submissions from the Kitchin Parties as to what further relief, over and above that which will flow from my earlier findings, they contend follows from these findings.

Damages

1. [649]

   On 27 September 2019, Hammerschlag J directed the parties “to agree a single expert to provide a report on damages”.

2. [650]

   On 2 October 2019, the parties informed his Honour that they had agreed to appoint Dr Hung Chu of Lonergan Edwards & Associates Ltd.

3. [651]

   Dr Chu produced a report dated 2 December 2019 expressing opinions about, speaking broadly, the value of Coverforce shares as at 31 May 2019 and the value of the rights in respect of the Resilium business that Coverforce purportedly acquired on that date.

4. [652]

   Counsel for each of the Angelis Parties, Pemba, and the Kitchin Parties cross-examined Dr Chu in relation to his report on 4 and 5 December 2019.

5. [653]

   I have not yet received submissions from the parties in relation to Dr Chu’s evidence or the opinions expressed by him in his report.

6. [654]

   On 5 December 2019, I informed the parties that I proposed to deliver my reasons on all questions other than those arising from Dr Chu’s evidence.

7. [655]

   Whether further consideration of Dr Chu’s evidence will be required may depend on whether, in the light of these reasons, the Kitchin Parties make an election to exercise their rights under cl 5.6 of the Share Purchase Deed, rather than seek damages from Coverforce.

Conclusion

1. [656]

   I invite the parties to confer and agree on the orders necessary to give effect to these reasons and as to the directions that should be made to progress the matter.