FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 3) (substantive)

1. [1]

   HER HONOUR: This case concerns a share sale agreement. Fiona Lock worked for a private equity firm on its investment in “Pepperstone”, which is a foreign exchange and financial products trading platform. In 2018, the private equity firm decided to sell its investment. Ms Lock was interested. The private equity firm agreed to wholly fund Ms Lock’s purchase with vendor finance of some $150 million, to be repaid within five years from Pepperstone dividends. In turn, Ms Lock agreed that, after the vendor finance was repaid, she would split ‘super returns’ with the private equity firm, being profits in excess of $25 million, for four years. To maximise loan repayments and profit-sharing, Ms Lock would also procure a ‘dividend sweep’ at Pepperstone to the extent permitted by law, leaving an agreed buffer for capital retention purposes.

2. [2]

   The parties signed a Heads of Agreement, recording their bargain. A share sale agreement was prepared and executed, to give effect to the Heads of Agreement. Ms Lock incorporated the plaintiff, FX Group Holdings Pty Ltd, as purchaser. The first to fourth defendants were vendors. (The remaining defendants acquired shares through a management incentive scheme, after accepting an ‘invitation to tag’, and sold their shares on the same terms.)

3. [3]

   Once the vendor finance was repaid, however, Ms Lock maintained that she was entitled to offset not only $25 million, but the total principal and interest repayments of the vendor finance (being some $210 million) before splitting any ‘super returns’. As a consequence, the vendors have yet to receive any ‘super returns’. Further, Ms Lock asserted that she had always known that the share sale agreement operated in this way albeit acknowledging that this did not accord with the Heads of Agreement nor what she knew the vendors’ intentions to be. In short, Ms Lock regarded herself as the beneficiary of a $100 million drafting mistake, while the private equity firm viewed her actions as commercial treachery.

4. [4]

   The issues are:

5. [5]

   Much of what follows is concerned with the alternate rectification suit, professional negligence claim and the like. It may also be relevant to the commercial context against which the Share Sale Agreement may be construed: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. Consideration of the first issue begins at [213].

Credit and inferences

1. [6]

   The plaintiff called one lay witness, being Ms Lock. Strong competing submissions were made as to her credibility. The plaintiff submitted that Ms Lock was a candid witness who should be accepted as a witness of truth. KWM submitted that Ms Lock’s evidence was a concoction and her credibility was doubtful. The vendors went further and submitted that Ms Lock’s evidence gave rise to the “old conundrum, whether one should believe an habitual liar when he asserts that he is lying”: Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 379 per Wilcox J.

2. [7]

   Ms Lock’s evidence was relevant to whether there was a common mistake when the Share Sale Agreement was executed. Specifically, did Ms Lock think the Share Sale Agreement meant something different than the vendors when the document was executed? Or did Ms Lock only purport to have always thought that, when KWM proposed to tighten up their drafting two years later.

3. [8]

   As to demeanour, Ms Lock was intelligent, confident, attentive and careful. Ms Lock did look uncomfortable when maintaining her stance that she perceived that the vendors were proceeding on a misunderstanding as to the proper construction of the Share Sale Agreement but said nothing, including to her fellow investors and professional advisors. Ms Lock looked away when it was put to her that she was lying. Ms Lock looked increasingly unhappy in maintaining her asserted position in the face of contemporaneous documents which suggested otherwise. Ms Lock could not maintain eye contact. Ms Lock sought to distance herself from the ‘invitations to tag’ and insisted that she did not recall dealing with these, when there was an abundance of contemporaneous documents which suggested otherwise. Ms Lock’s position became increasingly untenable, particularly when taken through her contemporaneous spreadsheets, which documented her thinking at the time with precision.

4. [9]

   There is a limit to which a trial judge should rely on demeanour, as opposed to “contemporary materials, objectively established facts and the apparent logic of events”: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] per Gleeson CJ, Gummow and Kirby JJ. As Lander J observed in Brookfield v Yevad Products Pty Ltd [2004] FCA 1164 at [416]:

5. [10]

   There were a large number of contemporaneous documents in this case, which shed light on the accuracy of Ms Lock’s recollection. The evidentiary picture was not complete, however, as Ms Lock claimed privilege over her communications with her solicitors, Clifford Chance, when giving evidence in chief and during cross-examination. But, on leaving the witness box, Ms Lock waived privilege over an email to Clifford Chance, which led to waiver over related communications for a particular timeframe. On Ms Lock’s return to the witness box, limited further cross-examination took place and a small number of documents were tendered. But, having refrained from disclosing her communications with Clifford Chance in chief, Ms Lock’s evidence had some gaps. An important gap was what advice Ms Lock received from Clifford Chance as to the meaning of the ‘super return’ provisions of the Share Sale Agreement. I will return to this subject at [409]-[416].

6. [11]

   Overall, I have come to a conclusion which is somewhere between the positions advanced by the plaintiff, on the one hand, and the vendors and KWM on the other. Two observations may be made. First, Ms Lock was an imperfect historian to the extent that, perhaps innocently, she attributed a state of mind that she held in 2020 – as to what the vendors would argue the Share Sale Agreement meant – to her state of mind in 2018, before there was any hint of an argument. The contemporaneous documents do not consistently support this retrospectivity, for example, at [306], [330].

7. [12]

   Second, Ms Lock was a well prepared, intelligent witness with a clear eye to where her interests lay. Ms Lock was candid, on occasion, where I expect that she perceived that the contemporaneous documents before the Court meant there was nothing to be gained by denying the undeniable, or where she perceived that her candour was on a point that did not matter to her ultimate success. But I agree that Ms Lock was prepared to say what she thought would serve her interests, where she did not expect that there was any documentary evidence to contradict her: for example, at [407]. Ms Lock got into difficulty when further documents came to light, for example, at [278]-[288]. In the result, I have approached Ms Lock’s evidence with caution wherever it was not corroborated by contemporaneous documents or the evidence of another reliable witness.

8. [13]

   The vendors sought a Jones v Dunkel inference in respect of the plaintiff’s failure to call its largest shareholder and Pepperstone’s chief executive officer, Tamas Szabo, notwithstanding that he attended the trial. The plaintiff submitted that there was no reason to call Mr Szabo, as the issue was Ms Lock’s state of knowledge when she executed the Share Sale Agreement and not what she told Mr Szabo about it later.

9. [14]

   It is not necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490. On the pleadings, the issue was whether the plaintiff had a common understanding with the vendors at the time of execution of the Share Sale Agreement. Mr Szabo did not become a director and shareholder of the plaintiff until two months after the Share Sale Agreement was executed. But Ms Lock’s offer to acquire the Pepperstone investment – which became the Heads of Agreement – was put forward as a bid supported by Mr Szabo. Ms Lock and Mr Szabo communicated with reasonable frequency in respect of various iterations of the Heads of Agreement and the proposed Share Sale Agreement, before either document was signed: see [57], [62], [79], [139], [140] and [172].

10. [15]

    In parallel, Ms Lock and Mr Szabo were negotiating the terms of their investment in the plaintiff. If Ms Lock then understood the proposed Share Sale Agreement to operate in the manner for which she now contends, that would have put a different complexion on Mr Szabo’s proposed investment. Ms Lock’s understanding of how the ‘super return’ provisions of the Share Sale Agreement would work is something they likely discussed at the time. Mr Szabo was likely able to give evidence as to what Ms Lock said about the ‘super return’ provisions at the time of execution of the Share Sale Agreement. I do infer that the uncalled evidence of Mr Szabo would not have assisted the plaintiff’s case.

The investor

1. [16]

   The precise structure by which the Pepperstone investment was held and sold is slightly complex, but relevant to what the parties to the transaction understood, and the extent to which the knowledge of those further removed from the transaction can be attributed to those parties.

2. [17]

   “CHAMP Private Equity” is a private equity firm, now known as CPE Capital (the Investor). John Haddock is the chief executive officer of the Investor. (He gave evidence in a fair manner.) The Investor uses money invested with it by institutional and high net worth investors. These moneys, and the investments purchased with the moneys, are held by third-party trustees in various unit trusts or “funds”. The funds relevant to these proceedings are CHAMP IV Trust A, CHAMP IV Trust B, CHAMP IV Trust C and CHAMP IV Trust D (now known as CPEC 8 Trust A, CPEC 8 Trust B, CPEC 8 Trust C and CPEC 8 Trust D respectively) (the Funds). The term of the Funds ends on 15 January 2027, unless extended for up to three years: cl 1, trust deed.

3. [18]

   The third-party trustees of the Funds are Perpetual Trust Co Ltd, P.T Ltd, Perpetual Corporate Trust Ltd and The Trust Co (Aust) Ltd respectively (the Trustees). (As the holder of the Funds’ investments, the Trustees became the vendors in the Share Sale Agreement and, ultimately, the first to fourth defendants in these proceedings.) The Trustees are part of the Perpetual group of companies, and provide corporate trustee services to the funds management sector. Aaron Tran is a senior transaction manager employed by the Perpetual group of companies. Mr Tran was a meticulous, careful and impressive witness.

4. [19]

   Each Trustee appointed a manager to manage their respective Fund, being the fifth cross-claimant, CHAMP IV Management Pty Ltd (now called CPEC 8 Management) (the Manager). Mr Haddock is a director of the Manager. The Manager could exercise all powers of the Trustees under the trust deeds and management agreements: cl 18.3(a); cl 2.1, trust deed. Further, the Trustee could only act in accordance with a direction from the Manager, except to the extent that to do so would be contrary to law, result in a breach of the trust deed or the Trustee’s duties, or may result in the Trustee incurring costs or obligations without an indemnity backed by sufficient Property: cl 2.1(a).

5. [20]

   The Manager was obliged to make proposals to the Trustees for the investment of Trust assets and any alterations or disposals of investments: cl 2.2(a), Schedule 1, trust deeds. (As will be seen, the negotiations for the sale of the Fund’s investment in Pepperstone were conducted by the Manager, specifically, Mr Haddock and general counsel Jeremy Stevenson on behalf of the Trustees.) As long as the proposal contained the details and documentation required by the trust deed, the Trustee was obliged to effect the investment, alteration or disposal, unless prohibited by the trust deed: cl 2.2(c) and (d), Schedule 1.

6. [21]

   The Manager was obliged to establish an Investment Committee, to include the chairman, chief executive officer and two managing directors of the Investor: cl 26(a). Mr Haddock is a member of the Investment Committee. The Investment Committee was to review and approve all investments and divestments by the Trusts: cl 26(c). The Trustee could not make an investment or divestment without the approval of the Investment Committee: cl 19.2(j), cl 2.1.

7. [22]

   As Mr Tran put it, the Trustees held property on trust for those investing with the Investor. The Trustees were not involved in the day-to-day management of the assets held by the Funds. The Trustees did not investigate the merits of proposed transactions, but were responsible for the administration of the trust and to ensure compliance with the procedures prescribed in the trust deed before executing any transaction documents.

8. [23]

   By and large, the Investor, the Manager and the Trustees or vendors were simply referred to in the contemporaneous documents as “CHAMP” or, later, “CPE”. In this judgment, I have generally referred to the Investor, unless it is necessary to be more precise.

The employee

1. [24]

   Ms Lock was employed by CHAMP Group Services Pty Ltd (now known as CPEC Group Services Pty Ltd) as managing director: cl 3.1; Schedule 1 Item 1. Clause 6.2 of the Employment Agreement provided that Ms Lock was obliged to attend to the following duties:

2. [25]

   In addition, cl 7.5 provided that Ms Lock may be required, as part of her duties, to act as a director of one or more Group companies or a portfolio investment managed by CHAMP Group Services or another member of the Group. Group meant CHAMP Group Services and any related bodies corporate within the meaning of the Corporations Act 2001 (Cth): cl 1.1. This included the Manager.

The investment

1. [26]

   Pepperstone operates an online financial trading platform on which people can trade various instruments including foreign exchange, commodities, indices and contracts for difference. The business was founded by Joseph (Joe) Davenport and Owen Kerr. Pepperstone’s trading platform is available to be used by traders located in different countries around the world.

2. [27]

   In February 2016, the Investor acquired some 60% of Pepperstone from its founders, for which the Funds outlaid some $90 million. Ms Lock was working for the Investor at the time and led the ‘deal team’, together with colleagues Graham Brooke and Adam Gordon. The Investor established FX Holdco Pty Ltd (the Company) as the holding company of the corporate group forming the Pepperstone business. The Funds acquired shares in the Company, as did the founders. It is the Funds’ shares in the Company which were later sold via the Share Sale Agreement to the plaintiff.

3. [28]

   As to the formalities for the acquisition of the Pepperstone investment, on 1 March 2016, the Trustees executed an Investment Deed with the Company and the founders. The deed provided that the Pepperstone business was now owned and operated by the Company. The Trustees were entitled to appoint the majority of the board. Subject at all times to the duties of each Director at law, a Director was entitled to perform their duties as a Director having regard to the interests of the shareholder who appointed them and to act on the wishes of that shareholder: cl 4.3. Ms Lock and Mr Brooke became directors of the Company, representing the interests of the Investor. Mr Haddock also appointed Ms Lock as chair of the Pepperstone board.

4. [29]

   Also on 1 March 2016, the Company and the Manager executed the FX Trading Group Management Incentive Plan Deed. This became known as the Management Equity Plan (MEP). The Company could invite employees to participate in the plan and issue shares in the Company: cl 2.1.

5. [30]

   Relevantly, the Investment Deed and the MEP both provided that, if the Trustees wished to dispose of their shares to a third party, the Trustees or Manager were obliged to serve a notice (an Invitation to Tag) on other shareholders, providing details of the proposed transaction, including “material terms of the proposed sale”: cl 10.2, Investment Deed; cl 6.5(b)(iii), MEP. If the invitation was accepted, then that shareholder was entitled to sell their shares on the same terms. It is these Invitations to Tag which bring the fifth to thirteenth defendants into these proceedings.

6. [31]

   There was also a Financial Services Agreement relating to the Company dated 1 March 2016. The agreement is not in evidence. I infer from references to the agreement elsewhere that the Investor received fees under this agreement. As will be seen, as part of the negotiations, Ms Lock wanted to receive the fees payable under this agreement. This was agreed and allowed for in the ‘super return’ provisions.

7. [32]

   I digress to note that, as Pepperstone was (and is) involved in the market for derivatives, the Australian Securities and Investments Commission (ASIC) required Pepperstone to retain a portion of its net tangible assets (NTA) to satisfy its obligation to have adequate financial resources under s 912A(1)(d) of the Corporations Act. ASIC may declare that specific provisions of Part 7.6 of the Corporations Act apply to a person or financial product as if the provisions were modified as specified in the declaration: s 926A(2)(c), Corporations Act. ASIC Class Order [CO 12/752] modified Part 7.6 by adding s 912AB to the Corporations Act for Australian financial services licensees permitted to issue derivatives or make a market for derivatives: sub-s (1). Sub-sections 912AB(4) and (5) concerned net tangible assets. Sub-section (4) required the licensee to have at all times an NTA (the required NTA) of at least the greater of $1 million or 10% of average revenue of the licensee. Sub-section (5) required the licensee to hold at all times cash and cash equivalents in an amount that was at least 50% of the required NTA and liquid assets that were at least 50% of the required NTA.

8. [33]

   The extent to which Pepperstone could retain capital in excess of the required NTA, while the ‘dividend sweep’ was underway, formed part of the negotiations and is now an issue in these proceedings.

Deciding to sell

1. [34]

   In early 2018, several changes to the regulatory environment, both here and abroad, prompted the Investor to review Pepperstone’s activities in the jurisdictions in which it operated. In particular, Mr Haddock was concerned that Pepperstone could be breaking the law by conducting foreign exchange trading operations in China. He became concerned at Pepperstone’s attitude to regulatory risk. The Investor concluded that Pepperstone’s business model would need to materially change, which would take at least a year and have significant execution risk. The Investor decided to look to sell its investment instead.

2. [35]

   The Investor approached the founders of Pepperstone as to whether they were interested in acquiring the Investor’s stake, where Mr Davenport had expressed strong objection to exiting the China market as it would “hinder any sale process”. (The Investor, the founders and Ms Lock all had an eye to selling the Pepperstone business for a profit.) Pepperstone’s chief executive officer, Mr Szabo, chief financial officer Andrew Defina and Ms Lock expressed an interest in acquiring the Investor’s stake in Pepperstone.

3. [36]

   In July 2018, Mr Haddock spoke to Ms Lock. He said the Investor might lend her the money to fund the purchase price, which could be repaid out of cashflow from the Pepperstone business. Ms Lock was interested. Mr Haddock then left negotiations to Mr Stevenson and Mr Gordon. Mr Gordon also assisted Ms Lock to refine the terms of her proposal to purchase the Pepperstone business. During the period between Ms Lock expressing interest in purchasing the Investor’s stake in Pepperstone until completion of the transaction, Ms Lock remained an employee and a director representing the Investor on the Pepperstone Board.

4. [37]

   Mr Haddock told Mr Stevenson and Mr Gordon that it was important that the deal retain a ‘super return’ concept, being the ability of the Investor to share in amounts received by Ms Lock (or her special purpose vehicle) after repaying the loan. This would ensure that, if Ms Lock managed to sell the Pepperstone business for a large sum or if the business performed very well, then the Investor would share in the upside. Both the repayment of the loan and the ‘super return’ was to be supported by a covenant that the buyer was required to cause the Company to pay quarterly dividends to its shareholders in the maximum amount permitted by law. The ‘dividend sweep’ covenant would allow the loan to be repaid as quickly as possible and, after that, ensure that the buyer would receive the greatest dividends possible, which it was required to share with the Investor for a specified period.

5. [38]

   The Investor’s solicitors were KWM. On 20 June 2018, KWM sent a costs agreement to Mr Stevenson, proposing to act for the Manager as manager of the Funds. KWM proposed to provide legal advice in relation to the proposed exit of Pepperstone, noting that the Manager had appointed separate tax advisors from which it would be obtaining all tax advice. (Deloitte was engaged to provide tax advice.) Mark McNamara, being a partner and head of private equity at the firm, proposed to be assisted by partner Matthew Coull and solicitor Laura Edwards. The vendors tendered a portion of a witness statement made by Mr Coull, which shed some light on what the solicitor thought and did. No Jones v Dunkel inference was sought by the vendors in respect of Mr Coull’s failure to give evidence.

6. [39]

   But Mr Stevenson negotiated the heads of agreement (or term sheet) himself, to record the commercial terms of a deal. Mr Stevenson agreed that, although term sheets were typically done by the deal team, he drafted the term sheet in this case as they were dealing with an employee. He said the situation was “highly unusual and so as the senior lawyer for the business, I got more involved to assist.” Mr Stevenson agreed that it was obviously not appropriate for Ms Lock to prepare the term sheet on the Investor’s behalf.

7. [40]

   In tandem, Mr Stevenson instructed KWM to prepare transaction documents so that they were ready as soon as the Heads of Agreement were signed. Mr Stevenson said he relied upon KWM to draft the transaction documents in a way that reflected his instructions, and to tell him if there was a problem with a proposed amendment or a more advantageous way to make a given amendment. Mr Stevenson said that the key thing that he brought to the transaction was to try to bridge the commercial terms to the external lawyers. It does appear, however, that draft documents went through ‘two pairs of hands’ in the sense that KWM’s work was checked by Mr Stevenson, for example, at [105], [113].

8. [41]

   For her part, Ms Lock retained solicitors Clifford Chance and tax adviser PricewaterhouseCoopers (PwC). In what follows, I have focused on the negotiation of the ‘super return’, as it is that part of the Share Sale Agreement which has to be construed and, potentially, rectified.

Negotiating a term sheet

1. [42]

   Over some seven weeks, Mr Stevenson and Ms Lock thoroughly negotiated all aspects of the 'super return’. On 12 July 2018, Mr Stevenson provided Ms Lock with a first draft Heads of Agreement. The Investor proposed to fund Ms Lock’s acquisition “entirely by a secured term loan to the Buyer (Acquisition Loan).” The Acquisition Loan would have a three-year term, to be repaid from all distributions of any form from the Company. The Buyer (Ms Lock’s special purpose company, which the parties referred to as BidCo and, ultimately, became the plaintiff) would covenant to cause the Company to pay out dividends every quarter to the extent legally permitted to do so. In addition, the parties would use their best endeavours to agree Definitive Documentation as soon as possible, such documentation to include:

2. [43]

   That is, if Ms Lock sold the acquired interest in the Pepperstone group within three years, she would be obliged to pay one-third of any sales proceeds above and beyond the Acquisition Loan to the Investor. That evening, Mr Stevenson and Ms Lock spoke. Mr Stevenson reported to Mr Haddock that Ms Lock wanted at least five years to repay the Acquisition Loan and “wants this to be compelling on the basis of cashflow alone. Not going to base a decision on what she could sell it for.” Further, Ms Lock wanted a management fee and “would want some of the dividends stream – ie not all going to debt repayment.”

3. [44]

   On 14 July 2018, Ms Lock provided her comments on the Heads of Agreement to Mr Stevenson, Mr Gordon and Mr Haddock. Ms Lock requested six years to repay the Acquisition Loan. Ms Lock wanted a management fee that was being paid to the Investor to be paid to her after completion, which she assumed was $1 million per annum. Ms Lock deleted the reference to a deferred payment (reproduced above).

4. [45]

   On 15 July 2018, Mr Stevenson told Ms Lock that the Investor required some form of upside or profit-sharing arrangement to form part of any transaction with her. Ms Lock said she would accept an upside or profit-sharing arrangement if it included her making a fixed return before she shared receipts from the Pepperstone business with the Investor.

5. [46]

   Following their conversation, Mr Stevenson circulated a second draft of the Heads of Agreement to Mr Haddock, Mr Gordon and the Investor’s chief financial officer Barry Zuckerman. Mr Stevenson reported, “She is focussed on a minimum return to her from management fee [etc] … She is open to sharing windfall returns … prefers a sharing over a certain return to her”. Mr Stevenson agreed to a term of six years for the Acquisition Loan. He proposed a covenant which permitted annual payments to Ms Lock, to ensure an acceptable minimum return to her in a downside case. In respect of Definitive Documentation, Mr Stevenson now proposed:

6. [47]

   That is, if Ms Lock sold the acquired interest in the Pepperstone group within six years, she would be obliged to pay half of any sales proceeds above and beyond a fixed rate of return to the Funds. Mr Stevenson and Mr Gordon spoke. (Mr Stevenson was aware that Mr Gordon was also assisting Ms Lock.) On 16 July 2018, Mr Stevenson circulated a third draft of the Heads of Agreement to Mr Gordon. Mr Stevenson now proposed that, if Ms Lock sold the acquired interest in the Pepperstone group within six years, she would be obliged to share the proceeds in excess of $20 million with the Funds on a sliding scale, beginning at 50% and reducing to 10%. That is, the sharing of any ‘super return’ would not begin until Ms Lock received a minimum return of $20 million.

7. [48]

   Later on 16 July 2018, Mr Stevenson substantially revised this in a fourth Heads of Agreement circulated to Mr Haddock, Mr Gordon and Mr Zuckerman. The profit-sharing arrangement had now expanded from profits on sale of the acquired shares in the Pepperstone business to dividends received on those shares after the Acquisition Loan had been repaid. In either case, Ms Lock kept the first $20 million. The ‘super return’ was to be shared 50-50 until year four, and then to step down each year by 10%.

8. [49]

   Later that evening, Mr Gordon (on behalf of Ms Lock) emailed a fifth draft of the term sheet to Mr Haddock and Mr Stevenson. It was proposed to increase the threshold at which the ‘super returns’ were shared from $20 million to $25 million. Further, returns would only be shared 50-50 until the third anniversary (rather than the fourth anniversary) and then reduced by 10% each year until it reached zero.

9. [50]

   On 17 July 2018, Ms Lock made some notes on the proposed deal. Ms Lock noted that the $25 million “FL return” needed to be clarified to exclude her management fee. In addition, the timing of the “stepping down of the upside sharing” needed to align with the term of the Acquisition Loan. If the term of the loan was five years, it “needs to be 20% by then. If 6 year, 20% then.” Later that day, Mr Gordon circulated a sixth version of the Heads of Agreement to Mr Stevenson, for discussion with Mr Haddock. Ms Lock proposed to exclude management fees from the $25 million dollars threshold. Mr Stevenson accepted the exclusion of the annual management fee when providing the seventh draft of the Heads of Agreement to Ms Lock on 20 July 2018, for consideration by Clifford Chance.

10. [51]

    On 23 and 25 July 2018, Mr Stevenson circulated an eighth and ninth draft of the Heads of Agreement to Mr Haddock and Mr Gordon, addressing points raised by Ms Lock following her meeting with Clifford Chance. No issue was raised with the ‘super return’ portion of the term sheet. On 27 July 2018, Ms Lock proposed a minor amendment to the ‘super return’ provision, deducting transaction costs from sale proceeds before arriving at net proceeds. Mr Stevenson accepted this in an execution version, being version 10. Ms Lock signed the document on 28 July 2018.

11. [52]

    The Investor then sought a competing offer from the founders of Pepperstone. On 9 August 2018, Mr Stevenson emailed Mr Kerr and Mr Davenport, setting out the elements of the proposed deal with Ms Lock and inviting an alternate deal. Mr Stevenson explained that the proposed deal with Ms Lock was that she would acquire the Investor’s shares for $150 million, funded by a secured Vendor Note repaid from distributions out of Pepperstone. In addition, the Investor “would share in a material proportion of any upside accruing to [Ms Lock] on further dividends and/or sale of Pepperstone.”

12. [53]

    A competing proposal was submitted by the founders on 19 August 2018. The offer was not particularly attractive, offering to pay only $100 million for the Investor’s shares in the Company, and that funded by vendor finance but with no upside sharing. Mr Stevenson said that Ms Lock was not involved in discussing the offers submitted by the founders, as the offers were confidential and it was inappropriate as she was on the other side of the transaction.

13. [54]

    On 21 August 2018, Mr Stevenson provided the Heads of Agreement signed by Ms Lock and the founders’ offer to KWM. Mr Stevenson asked for work to begin on transaction documents, which were “likely to be broadly similar under the various scenarios”. As Mr Stevenson explained, two principal transaction documents would be involved. The first document was a share sale agreement, by which the Trustees would sell their shares in the Company to Ms Lock’s special purpose vehicle. The second document was a loan note deed poll (Loan Note), to be executed by Ms Lock’s company and by which it would issue loan notes to the Trustees in consideration for the shares acquired.

14. [55]

    At KWM, solicitors in the Corporate group began work on the Share Sale Agreement, while solicitors in the Banking & Finance group began work on the Loan Note. Negotiations continued between all parties. On 25 August 2018, Mr Stevenson instructed KWM, “Things heating up on Pepperstone – we are going to go exclusive with the best bid by [31 August 2018] and so we will need to move to sharing documents early next week (if not before)”.

15. [56]

    On 29 August 2018, Mr Kerr submitted a revised proposal. By 30 August 2018, KWM had prepared a draft Share Sale Agreement and Loan Note. Mr Stevenson also responded to Mr Kerr’s offer, noting “it contains neither a material upfront consideration … or sharing of the upside on any sale of the Acquired Shares (to compensate for the zero $ down). By way of guidance, we’d be looking for a 50-50 sharing of any upside.”

16. [57]

    Ms Lock was also improving her offer, which would have the additional attraction of being supported by Pepperstone’s chief executive officer, Mr Szabo. On 30 August 2018, Ms Lock emailed Mr Szabo, suggesting “tweaks” to proposed arrangements between them. Ms Lock recorded that the model she had sent Mr Szabo assumed 50% “upside sharing with CHAMP” at all values, but proposed a reduction in that percentage figure from Year 4 on.

17. [58]

    On 31 August 2018, Ms Lock provided a revised offer to buy the Investor’s interest in Pepperstone, supported by Mr Szabo. The proposal was said to contain improved terms, including a revised upside sharing arrangement increasing the Investor’s share in years five to eight, with economic sharing maintained for the life of the Funds. In addition, a covenant would be included that the Buyer would not trap cash in the Company, through a committed payout ratio mandating that the Buyer ensure more than 90% of net profit after tax (NPAT) was paid out quarterly by the Company. Ms Lock improved her offer by pausing the annual 10% step-down at 20% until the eighth anniversary.

18. [59]

    Later on 31 August 2018, KWM provided a further draft of the Share Sale Agreement and Loan Note to Mr Stevenson. KWM noted that the Share Sale Agreement did not include the ‘super return’ sharing concept contained in Ms Lock’s term sheet, but this could be included if her proposal was preferred. That evening, Mr Stevenson forwarded Ms Lock’s revised term sheet and accompanying letter to KWM, noting that it was the “clear front runner”.

19. [60]

    Negotiations continued over the weekend. On Saturday morning, 1 September 2018, KWM sought instructions from Mr Stevenson in respect of Ms Lock’s revised offer, “Have you agreed the ‘super return’ concept with [Ms Lock]? That is not currently included in the draft [Share Sale Agreement].” Mr Stevenson confirmed, “Super return is critical and will be improved in our favo[u]r but use the format in her latest offer.” That is, KWM was asked to begin drafting in respect of the ‘super return’, based on Ms Lock’s revised offer.

20. [61]

    Mr Coull prepared a first draft of the language to be used in the Share Sale Agreement to give effect to the ‘super return’ concept. Mr Coull said he did so by tracking the wording in the Heads of Agreement that had been provided by Mr Stevenson on Friday night. By Saturday afternoon, Mr Coull had prepared a draft ‘rider’ for the Share Sale Agreement in respect of the ‘super return’, comprising a proposed clause entitled “Uplift Payment” and additional defined terms including Buyer Net Equity Proceeds, Buyer Total Equity Proceeds and Equity Proceeds. This was the starting point of the contentious provisions which are the subject of these proceedings.

21. [62]

    On Saturday, Mr Haddock met with Mr Stevenson and Mr Gordon to discuss the offers from Ms Lock and Mr Kerr. Mr Haddock said he thought that Ms Lock’s offer was preferable as it included the ‘super return’ concept, whilst Mr Kerr’s offer did not. They discussed what improvements could be negotiated to Ms Lock’s terms. Mr Gordon and Mr Stevenson called Ms Lock. Ms Lock agreed that Mr Gordon told her that she needed to improve the profit-sharing arrangement to share profits with the Investor on a 50-50 basis for the life of the Funds, after the Acquisition Loan was repaid and the first $25 million was retained. Ms Lock reported to Mr Defina, Mr Davenport and Mr Szabo that it was “looking positive” but the Investor wanted “some more sharing of the upside (this will need to be moderated).”

22. [63]

    Mr Stevenson made amendments to the Heads of Agreement, which he circulated for comment to Mr Haddock and Mr Gordon. (By my count, this was the twelfth draft.) At 6.00 pm, Mr Stevenson provided the marked-up term sheet to KWM, asking that the draft documents be revised for his review on Sunday, with a view to providing Ms Lock with the documents on Monday. So far as the ‘super return’ was concerned, Mr Stevenson now proposed that returns in excess of $25 million (excluding the management fee) be shared 50-50 until the termination of the Funds. KWM prepared a second draft of the Share Sale Agreement and Loan Note, together with an Invitation to Tag. The ‘rider’ had now been incorporated into the Share Sale Agreement.

23. [64]

    Later that evening, Mr Stevenson provided Ms Lock with his revised term sheet (now the thirteenth draft), advising that this reflected the minimum needed, from the Investor’s perspective, to have Ms Lock’s offer accepted by Mr Haddock and the Investment Committee. Ms Lock agreed that it was now proposed that the profit-sharing arrangement would be 50-50 until the termination of the Funds. She understood that what was proposed was that there would be repayment of the Acquisition Loan, the Buyer would keep the next $25 million of returns, and profits would be shared equally after that date until the termination of the Funds.

24. [65]

    That night, Mr Stevenson spoke to Ms Lock about the revisions to the Heads of Agreement that he had sent through. Ms Lock said she agreed to the changes to the profit-sharing arrangement contained in his draft. Ms Lock also asked if the Investor would agree to a loan fee being paid directly to her, rather than to her special purpose vehicle. (The term sheets had, to this point, proposed payment of $4.5 million to Ms Lock for her role in ensuring the repayment of the Acquisition Loan.) Mr Stevenson said that this was acceptable. Mr Stevenson also provided the revised term sheet to KWM, which agreed to send revised documents to Mr Stevenson.

25. [66]

    Early on Sunday, 2 September 2018, KWM provided Mr Stevenson with another draft set of documents, being the Share Sale Agreement, Loan Note, an Invitation to Tag and an annotated Heads of Agreement “to help you reconcile provisions in the docs back to [the term sheet].” The annotated term sheet noted that cl 9 of the Share Sale Agreement addressed the ‘super return’, while “Net Proceeds” in the term sheet had been defined as “Buyer Net Equity Proceeds”. I will return to this draft at [80].

26. [67]

    Negotiations continued between Mr Stevenson and Ms Lock. Ms Lock sent a revised term sheet to Mr Stevenson and Mr Gordon, which she offered to execute when needed (the fourteenth draft). Ms Lock agreed that the only change which she then made was that the profit-sharing agreement would cease at the current end of the Funds, rather than any extended end. Ms Lock agreed that she proposed that, after repayment of the Acquisition Loan, the Buyer would retain the first $25 million of any returns from the Pepperstone business. Thereafter, profits would be shared 50-50 with the Investor until the termination of the Funds on their current end date.

Heads of Agreement

1. [68]

   On 2 September 2018, Ms Lock provided Mr Stevenson with a signed Heads of Agreement, being version 15. Mr Haddock did not sign the document but emailed Ms Lock, confirming that the document reflected their discussions.

2. [69]

   In its final form, the Heads of Agreement stated that it had been prepared in connection with the proposed transfer of the Funds’ controlling interest in Pepperstone by the sale of shares to Ms Lock’s special purpose vehicle (the Buyer). Except for certain provisions not presently relevant, the provisions of the Heads of Agreement “are not otherwise legally binding on the parties, however they form the basis on which the parties will, in good faith, negotiate the long form definitive transaction documents (collectively “Definitive Documents”) for the Transaction.” The parties acknowledged that the terms remained subject to review by legal, tax and accounting advisors.

3. [70]

   The Heads of Agreement then set out “Agreed Key Terms”. In short, the Funds would sell their shares in the Company to the Buyer for $150 million. The acquisition would be funded entirely by the Acquisition Loan. The term of the Acquisition Loan was 5 years from completion, “Repaid from all distributions of any form from [the Company] or another entity in the Pepperstone Group.” The Buyer was to provide various covenants, including to procure a ‘dividend sweep’: (emphasis added)

4. [71]

   As will be seen, the precise terms of this obligation proved to be the last commercial ‘sticking point’ negotiated by the parties before executing the Share Sale Agreement. As to ‘super returns’, the Definitive Documentation was to include the following:

5. [72]

   The Heads of Agreement noted that MEP participants may be able to “tag” into the Transaction, with “The treatment of MEP … to be agreed between the parties.”

6. [73]

   The Heads of Agreement then referred to a side letter regarding the Investor’s continuing relationship with Ms Lock. In short, Ms Lock agreed to continue to represent the Investor on various boards and to provide consultancy services in respect of new investment opportunities for the Funds. In addition, the side letter would provide for $4.5 million to be advanced to Ms Lock “in recognition of her personal contribution to ensuring the repayment of the … Acquisition Loan.” The Heads of Agreement further noted:

7. [74]

   Finally, the Heads of Agreement provided for Exclusivity. The vendors granted the Buyer eight days to complete the transaction documentation. When asked whether this timeframe reflected the urgency to sell the Pepperstone investment, Mr Haddock said “partly that and it's partly if you can drive a timetable, you drive it, and we were looking to drive the timetable. … We had momentum. We wanted to take advantage of the momentum and try and get the thing done as quickly as possible. It wasn't there was some ‘had to get it done’ by a certain date; it was more driven by the momentum.”

8. [75]

   Similarly, Mr Stevenson advised KWM that the Investor had “gone exclusive” on the basis of the attached Heads of Agreement and it was “Full steam ahead”. Mr Stevenson also advised that he would provide his comments on the documents later that day. Separately, Mr Stevenson emailed Deloitte, advising that the Investor was looking to sign binding documentation by the end of the week. A tax structure paper was sought, showing the likely outcomes for the Funds from the proposed transaction. Mr Stevenson apologised for the “compressed timeframe” but said “there is now a compelling commercial imperative to get this deal signed up as soon as possible.”

9. [76]

   In cross-examination, Mr Stevenson explained that, as the deal had gone exclusive with one party, they did not have the competitive tension of two bidders at that time, “so in these situations you want to move very rapidly to get to binding documentation”. That is, there was no actual urgency, albeit the Investor was certainly applying significant time pressure to its professional advisors.

10. [77]

    For her part, Ms Lock emailed Clifford Chance and PwC on Sunday afternoon, advising that the Investor was “serious about this timetable and I need to put the resources in to hit it. Please let me know if you think this will be an issue for either of you.” Ms Lock asked to meet with both Clifford Chance and PwC on Monday, 3 September 2018 at 9.00 am so that she could walk them through the term sheet and answer any questions with a view to meeting again later that day to “start talking issues / structure.”

11. [78]

    Ms Lock agreed that she then understood that the profit sharing agreement set out in the Heads of Agreement would be implemented in more detailed transaction documents. She intended at the time that the more detailed transaction documents would implement the profit sharing agreement as set out in the Heads of Agreement. Ms Lock agreed that she intended that the transaction documents would implement a profit sharing agreement whereby, after the Acquisition Loan was repaid, the returns from the Pepperstone business, including all dividends, would be shared 50-50 between her company and the Investor, after her company retained the first $25 million, and with a side letter concerning a further $4.5 million. Ms Lock assumed that the Investor also intended that the detailed transaction documents would implement a profit sharing agreement of that kind.

12. [79]

    At 4.00 pm on Monday, 3 September 2018, Clifford Chance emailed Mr Szabo and Mr Defina, noting that Ms Lock had requested that they be sent the key terms of the transaction, which were provided. These included a portion of the Heads of Agreement, albeit the provisions relating to the side letter and Loan Fees were not included. It did include the transaction overview, details of the Acquisition Loan, required covenants and details of the Definitive Documentation. Presumably, Ms Lock had met with Clifford Chance and PwC by this time, as she had endeavoured to arrange the day before.

Vendor prepares documents

1. [80]

   Meanwhile, Mr McNamara provided the KWM team with comments on the transaction documents, noting “A few things to talk to [Mr Stevenson] about.” Later on Sunday 2 September 2018, Mr Stevenson provided KWM with his initial comments on the transaction documents, thanking everyone for their work over the weekend, “With a big push we’ll have this signed by Friday.” KWM was asked to have someone double check that all of the questions and emails which had passed over the weekend had now been addressed.

2. [81]

   Clause 9 of the Share Sale Agreement then provided:

3. [82]

   In his comments, Mr McNamara suggested that “Buyer” be changed to “Purchaser” throughout. He suggested a number of amendments to cl 9 to ensure that Ms Lock could not “game” the clause by selling the shares to an affiliate or third party and thereby avoiding the uplift.

4. [83]

   For his part, Mr Stevenson suggested a number of amendments to ensure that calculation of the Uplift Amount was certified, reconciled to accounts, and secured. He also queried cl 9.5 in respect of the partial sale of shares, “We would want to continue to capture upside. The question is whether we would accept only the upside on retained shares or deem there to still be the full holding. I think the former is the fairer option.”

5. [84]

   As to whether the Buyer had received Equity Proceeds, and was thus obliged to calculate the Uplift Amount, this term was defined as follows:

6. [85]

   The text below sub-paragraph (f) and before sub-paragraph (g) was referred to by the parties as the ‘tail piece’. It is where the suggested drafting mistake was ultimately said to be. Mr Coull said that his understanding of the definition of Equity Proceeds as recorded in this draft was that before repayment of the Loan Note, any dividends, returns and distributions obtained by the Purchaser would be captured as Equity Proceeds. He inserted the tail piece to ensure that any dividends, returns and distributions obtained by the Purchaser following repayment of the Loan Note would still fall within that definition. It was his view that the drafting according with the wording in the then draft of the Heads of Agreement.

7. [86]

   Mr McNamara suggested several amendments to the definition of Equity Proceeds, including deleting “all” in the chapeau and suggesting amendments to better capture the different scenarios that could unfold under cl 9. He queried whether the effect was that, if Ms Lock had to contribute more capital in the future, she would have to share 50% of the return on that capital with the Investor, “not sure I can glean that answer from the [term sheet]”. He merged sub-paragraphs (c) and (d).

8. [87]

   Mr Stevenson made no comments on this definition.

9. [88]

   As to calculating the Uplift Amount, the formula in cl 9.2 utilised the following defined terms:

10. [89]

    In respect of the definition of Buyer Net Equity Proceeds, Mr McNamara queried the deduction of the amount outstanding under the Loan Note in sub-paragraph (b): “Is this just measuring what is left owing under the VLN at a trigger time or are we trying to account for the total value of the VLN (repaid and remaining outstanding)?”.

11. [90]

    For his part, Mr Stevenson also queried the deduction of the amount outstanding under the Loan Note in sub-paragraph (b):

12. [91]

    KWM had also circulated a draft Invitation to Tag, describing the material terms of the transaction as including the following:

13. [92]

    Mr McNamara made no comments on this portion of the Invitation to Tag, while Mr Stevenson commented in respect of the $25 million, “After repayment of the loan notes in full.”

14. [93]

    Mr McNamara organised a telephone conference on Monday, 3 September 2018 with Mr Stevenson, Mr Gordon and Mr Coull, for an internal review of Corporate documents. The meeting took one hour. Handwritten notes were taken of the meeting, although none of the matters noted appear presently relevant.

15. [94]

    Someone from KWM printed out both Mr McNamara and Mr Stevenson’s comments on the Share Sale Agreement and made further notes on both print-outs, apparently before and during the telephone conference, recording consideration of the comments before the meeting and further instructions and discussion during the meeting. It is likely that Mr Coull printed out these documents, as there are several emails from him to his secretary asking her to perform this task from time to time. From these print-outs, the following picture emerges:

16. [95]

    The last portion of the handwritten note of the telephone conference was reviewed and supplemented, apparently recording a review of the covenants contained in the Loan Note and the extent to which these covenants should be brought across to the Share Sale Agreement.

17. [96]

    Soon after the telephone conference, Mr Coull and Mr Stevenson spoke again. Mr Coull said they discussed the need to ensure that the definition of Equity Proceeds was broad. Mr Stevenson asked Mr Coull to add the word “all” at the beginning of the definition, which he agreed to do. Mr Coull did not recall discussing the specific wording of any other parts of the definition of Equity Proceeds.

18. [97]

    According to Mr Stevenson, he had concerns about the drafting and asked Mr Coull about the definition of “Equity Proceeds”. Mr Stevenson said that he was concerned that the ‘tail piece’ was unclear and possibly inconsistent with the idea that the Buyer “received” Equity Proceeds each time it received a dividend under the ‘dividend sweep’. Mr Coull said that the wording did not have that effect and that the wording was necessary to make sure that the Buyer applied all dividend amounts it received to pay down the Acquisition Loan while it remained outstanding. Mr Coull assured him that the drafting worked.

19. [98]

    Mr Stevenson said that he accepted Mr Coull’s explanation “and I did give comments like, ‘Well, I just want words like “all” in there. I want to make sure we're capturing everything here.’”. Mr Stevenson asked Mr Coull to amend the definition to make clear that “Equity Proceeds” operated so that the Buyer was taken to receive such proceeds every time it received any type of dividend or other form of distribution on and from completion. This included, among other comments, a request that he include the word “all” at the start of the definition. Mr Stevenson told Mr Coull that they needed to ensure there could be no leakage; every dollar the buyer received had to go to repay the loan and then, after the buyer retained $25 million, every dollar was to be split between them. Mr Coull said he would amend the definition of “Equity Proceeds”.

20. [99]

    Although Mr Stevenson made no file note of this conversation, he said it was a conversation which stuck in his mind. Mr Stevenson said “the thing I just kept banging on about is, ‘we have to capture the upside sharing’”. Whilst Mr Stevenson found the architecture of KWM’s drafting quite hard to follow, he emphasised that they needed to capture every single dollar that Ms Lock received so that, after she took her $25 million, “There can’t be anything leaking out any other way of getting money out. Everything goes 50-50.”

21. [100]

    Later that evening, Mr Coull provided Mr Stevenson, Mr Gordon and Deloitte with a further draft of the Share Sale Agreement “to reflect discussions today”. Clause 9 had been substantially amended. While cl 9.1 and cl 9.2 had minor changes, the balance was re-written. Clause 9.3 now provided for certification of the Uplift Amount. Clause 9.4 provided that the Purchaser would provide information in support of its calculation. Clause 9.5 was an anti-avoidance clause. Clause 9.6 obliged the Purchaser to provide undertakings set out in Schedule 3, to be replicated from the Loan Note, once settled. Clause 9.7 provided that the Purchaser’s obligations remained in force until the current end date of the Funds, defined as the Winding Up Date.

22. [101]

    The definition of Equity Proceeds had been amended as follows:

23. [102]

    Mr Stevenson added in cross-examination that “under the (iii) under (a), you know, the example there is we're trying to capture any kind of way that there could have been money coming out, that we were capturing it, so buybacks of any type. So just another example of the edits made as a result of the conversation.”

24. [103]

    The definitions of Buyer Net Equity Proceeds and Buyer Total Equity Proceeds had now become Purchaser Net Equity Proceeds and Purchaser Total Equity Proceeds respectively. Sub-paragraph (b) of the definition of Purchaser Net Equity Proceeds was clarified in light of both Mr McNamara and Mr Stevenson’s comments:

25. [104]

    The plaintiff submitted that it was these changes to the definition of Purchaser Net Equity Proceeds, in response to Mr Stevenson’s comment, that caused the drafting problem. Until then, the Heads of Agreement was consistent with the tail piece. When KWM added in “amounts paid under the Vendor Loan Note Deed Poll” in the definition of Purchaser Net Equity Proceeds, this was said to have the effect of deducting the whole of the amount paid under Loan Note for a second time. As a result, the provisions departed from the Heads of Agreement.

26. [105]

    By reply email, Mr Stevenson provided a first draft of the side letter with Ms Lock. Mr Stevenson also reviewed the revised Share Sale Agreement, “Nothing else left off [the] page on my quick review. It looks good and reflective of our discussion.” Mr McNamara and Deloitte were requested to confirm that there were no issues. Mr Stevenson said he would review the document with Mr Gordon and Mr Haddock in the morning.

27. [106]

    Mr Stevenson said that when he discussed the ‘tail piece’ with Mr Coull, “he had said that that was a critical connection with the vendor loan note deed and the documents, and I'd said, ‘Well, as long as we're capturing all the payments, I'm okay.’ And so on the basis that I'd had those conversations I didn't have anything else to add, because I thought the clause worked. For the record, I still think the clause works because of the use of the word "all" at the top and the wording "including" so … but that’s my view, it still works.”

28. [107]

    As to whether Mr Stevenson discussed the ‘tail piece’ with Mr Coull in the terms that Mr Stevenson described, he was precise and cautious when giving evidence. Mr Stevenson was emphatic that he recalled a conversation which took place seven years ago, of which he made no file note. Mr Stevenson first committed his recollection of the conversation to writing two years later. I place greater weight on what the contemporaneous documents may reveal.

29. [108]

    The word “all” was certainly added to the chapeau to the definition of Equity Proceeds. Beyond this, the handwritten notes on the print-out of Mr Stevenson’s comments, the print-out of Mr McNamara’s comments and the separate file note make no comment or reference to the ‘tail piece’. The only amendments to the ‘tail piece’ made by Mr Coull were consequential, in particular, changing the cross-referencing and changing “Buyer” to “Purchaser”.

30. [109]

    Whilst I do not doubt Mr Stevenson’s honesty, or that he emphasised the importance of capturing all upside – likely along the lines of his comment reproduced at [89] – I am not satisfied that there was a specific discussion with Mr Coull about the ‘tail piece’ in the terms described by Mr Stevenson. Mr Coull’s description of their conversation accords with Mr Stevenson’s focus and comments on the Uplift Payment provisions and embedded definitions, as recorded in the contemporaneous documents.

31. [110]

    I consider it more likely that Mr Stevenson’s recall reflected what he came to think about the tail piece as a result of subsequent events. That is, his recollection is most likely an example of what McLelland CJ in Eq described in Watson v Foxman (1995) 49 NSWLR 315 at 319:

32. [111]

    I should not be taken, however, as having accepted the stronger criticisms made by KWM of Mr Stevenson as a witness.

33. [112]

    In the wee hours of Tuesday, 4 September 2018, KWM’s banking team provided revised drafts of the Loan Note and Invitation to Tag, together with an annotated term sheet for the latest drafts of the Share Sale Agreement and Loan Note. The Invitation to Tag had been updated to include Mr Stevenson’s comment in respect of the Uplift Payment and now read:

34. [113]

    Mr Stevenson advised Mr Haddock that he was “checking the mark up now”.

First draft to Ms Lock

1. [114]

   Later in the evening of 4 September 2018, Mr Coull provided Clifford Chance with the first draft Share Sale Agreement. In the wee hours of 5 September 2018, KWM’s banking team provided Clifford Chance with the first draft Loan Note.

2. [115]

   Ms Lock’s usual practice at the time was to work from home on Wednesdays and Fridays. On the morning of Wednesday, 5 September 2018, after dropping her children at school, Ms Lock reviewed the draft Share Sale Agreement at home, including cl 9 and its definitions. Ms Lock said it became clear to her that, in ascertaining Equity Proceeds in the case of a dividend or other distribution, or by way of a return of capital, the amount was to be calculated by reference to the extent such dividends, distributions or returns of capital were retained by the Purchaser following repayment of the Loan Note. The aggregate amount of all Equity Proceeds was used to calculate the Purchaser Total Equity Proceeds. Purchaser Net Equity Proceeds was calculated by reference to Purchaser Total Equity Proceeds less the aggregate of all amounts paid under the Loan Note and amounts outstanding under the Loan Note less $25 million and third party advisory costs. This meant that amounts reflecting any repayment of the Loan Note would be excluded at the time of calculating Equity Proceeds and would then also be deducted in calculating the Purchaser Net Equity Proceeds.

3. [116]

   I think Ms Lock’s recollection of her understanding of the draft Share Sale Agreement on the morning of 5 September 2018 is, like that of Mr Stevenson, a little aspirational and likely reflects what she came to think or understand about the operation of the provisions. As will be seen, Ms Lock developed her understanding of these provisions over several days.

4. [117]

   At 2.12 pm on 5 September 2018, Clifford Chance emailed Mr Stevenson and Mr Coull, “What is the rational[e] for having debt-like restrictions on the business post repayment of the note?” (This email is part of a chain in which Clifford Chance ‘peppered’ KWM with initial questions, presumably on the first reading of the material rather than on client instructions). Mr Stevenson promptly replied, “Protection of our upside sharing and non negotiable.” Clifford Chance replied that they were meeting with Ms Lock that afternoon to “walk through it all with her”, out of which would come a list of issues.

5. [118]

   At 2.45 pm, Clifford Chance provided Ms Lock with a key issues list in respect of the transaction documents, which the solicitor would “run through … in this afternoon’s meeting with you, in addition to any other points you may have.” Ms Lock was asked to “review / confirm” the definitions of Equity Proceeds, Purchaser Net Equity Proceeds and Purchaser Total Equity Proceeds and to review clls 9.1 and 9.2 of the Uplift Payment Clause.

6. [119]

   Later that evening on 5 September 2018, Clifford Chance sent KWM and Mr Stevenson a “Transaction Documents – Key Issues List (Legal)” in respect of the Share Sale Agreement and Loan Note, having worked through the documents and discussed them with Ms Lock. Clifford Chance noted that PwC was reviewing the Share Sale Agreement and would separately provide their comments from a tax perspective. The key issues list referred to the term sheet four times, either seeking clarification as to where a particular matter was addressed in the transaction documents or identifying where the transaction documents did not conform to the term sheet. No issue of present relevance was raised.

7. [120]

   Ms Lock agreed that she wanted to ensure that the transaction documents accorded with the Heads of Agreement. She did not, in the key issues list, instruct Clifford Chance to identify as an issue that there was a change in the profit sharing agreement. But Ms Lock said that she would not share her discovery of a drafting error with the Investor, as it was on the other side of the transaction.

8. [121]

   More likely, Ms Lock had not then completed the task assigned to her by Clifford Chance. I say this because Ms Lock continued to work on that task the next day, preparing a spreadsheet to model how the provisions would work: see [131]. That it took Ms Lock some time to complete her assigned task is not surprising, where the Uplift Payment clause and its embedded definitions were complex and a little impenetrable, and Ms Lock was not a lawyer. The fact that any departure in the operation of these provisions from the term sheet did not feature in the key issues list is likely because this task remained a ‘work in progress’ when the list was sent to KWM.

Investment committee

1. [122]

   Mr Haddock said that, if the Investor proposed to sell its shares in a business, a “Gold Paper” was prepared for the Investment Committee. The paper contained background information on the proposed transaction and a summary of its key terms. Mr Stevenson said that Ms Lock was not involved in preparing the Gold Paper for the Investment Committee, as she was the potential counterparty.

2. [123]

   On 5 September 2018, Mr Haddock circulated “Gold Paper – Pepperstone” to his fellow directors, ahead of an Investment Committee meeting. The paper recommended accepting Ms Lock’s proposal, which was said to be the most attractive “given the upside sharing arrangement”. A key term of the deal was explained as follows:

3. [124]

   That is, Mr Haddock’s description of the ‘super returns’ provision accorded with the Heads of Agreement. On the morning of 6 September 2018, the Investment Committee met. The chairman of the committee enquired as to the need for the transaction to be approved by the Investor Advisory Committee, given the involvement of Ms Lock with the Buyer.

4. [125]

   I digress to note that the Trustee and Manager were obliged to maintain an Investor Advisory Committee, to which various matters had to be referred, including in the event of a Conflict: cl 27.4(a)(ii), trust deed. Clause 2.1 defined Conflict as follows:

5. [126]

   Mr Haddock agreed that the conflict arose from the fact that the transaction proposed was a transaction with an employee. He expected Ms Lock to act in what she perceived to be her own interests in proposing amendments to the Heads of Agreement. He did not expect Ms Lock to propose terms that were as favourable to the Investor’s interests as possible, “It was a negotiation, yes. … Ms Lock was acting for herself in that negotiation. We appreciated that. Yes, though, it is an unusual situation, as you alluded to earlier, about a person still being employed at the same time as they're negotiating an acquisition, yes.”

6. [127]

   The minutes of the Investment Committee meeting record:

7. [128]

   Subject to this, the Committee approved the sale subject to binding transaction documentation being to the satisfaction of Mr Haddock and Mr Stevenson. Mr Stevenson then emailed KWM in respect of Clifford Chance’s key issues list, adding:

8. [129]

   At 10.30 am on 6 September 2018, Mr Stevenson emailed a draft side letter to Ms Lock, Clifford Chance and KWM for Ms Lock’s review. The Loan Fees which appeared in the Heads of Agreement now appeared in the side letter, under the heading “Advance on future Pepperstone amounts”. The fees would be paid in recognition of Ms Lock’s personal contribution to ensuring the repayment of the amounts outstanding under the Loan Note. The side letter added:

9. [130]

   Again, the side letter reflected the contents of the Heads of Agreement. Ms Lock agreed that, when she read the side letter, she understood that this wording reflected what had been agreed in the Heads of Agreement and was consistent with the profit-sharing agreement there recorded.

Ms Lock’s spreadsheet

1. [131]

   On 6 September 2018, Ms Lock was back in the office. Ms Lock prepared a spreadsheet on her work computer, modelling how the uplift and profit-sharing would operate in various scenarios, based on the draft Share Sale Agreement. For convenience, cl 9.1 and 9.2 was then as follows:

2. [132]

   The embedded definitions were then as follows:

3. [133]

   Ms Lock modelled four scenarios:

4. [134]

   Presumably, Ms Lock thought that Equity Proceeds in the form of “proceeds from any sale or disposal of shares in the Company” (para (a)(iv) of the definition) and dividends (para (a)(i) of the definition) were most relevant, as Ms Lock expected to either sell the acquired shares in Pepperstone or receive dividends on those shares. By her spreadsheet, Ms Lock was presumably trying to identify how the Uplift Payment clause would operate for sale proceeds, dividends or both, with a view to understanding the clause and perhaps identifying which scenario might result in a more advantageous financial outcome. One point of differentiation between these types of returns was that dividends were referred to in the ‘tail piece’, but sales proceeds were not.

5. [135]

   In each scenario, Ms Lock assumed that Pepperstone would be sold for $500 million, which would result in her company receiving $300 million on an exit. It is sufficient to set out Ms Lock’s calculations for the third and fourth scenario. Ms Lock said the column for the final scenario had numerical errors, but these errors did not affect the ‘bottom line’: (numerical errors italicised)

6. [136]

   In the first portion of the spreadsheet, Ms Lock calculated Equity Proceeds by using sub-paragraph (a) of the definition as, effectively, an equation or formula. (I am not sure that I would have done this, as I read Equity Proceeds as descriptive rather than articulating a formula.) Ms Lock gave each sub-paragraph of the definition a row in the spreadsheet and, for each scenario, inserted any amount which corresponded with that sub-paragraph. Having done so, Ms Lock then made an adjustment in an additional row in respect of the ‘tail piece’, making a deduction in some cases before arriving at a net figure for Equity Proceeds. Specifically, to the extent that dividends were used to repay the Loan Note, those dividends were subtracted.

7. [137]

   The net figure was then used as Purchaser Total Equity Proceeds. The next portion of the spreadsheet calculated Purchaser Net Equity Proceeds, using the definition as a formula or equation. (I agree that this definition sets out a formula.) From Purchaser Total Equity Proceeds was deducted the amounts paid under the Loan Note and any amount outstanding under the Loan Note less $25 million. In the final row of the worksheet, Ms Lock calculated the Uplift Payment by halving the Purchaser Net Equity Proceeds. In the first and second scenario, the Uplift Payment was $62.5 million. There was no Uplift Payment in the third scenario. The Uplift Payment was $1.025 million in the final scenario. The point is: Ms Lock deducted the amount of the Loan Note twice, albeit this may not have been entirely clear to the reader given the numerical errors in the last column.

8. [138]

   Ms Lock printed the spreadsheet but did not save it on her work computer. Ms Lock knew that the Investor could access files saved on the computer in her office and could access her email address. Ms Lock said she did not want the Investor to find it before executing the Share Sale Agreement. The fact that Ms Lock acted in this secretive manner may suggest that she appreciated that she had discovered something that she did not want the Investor to become appraised of.

9. [139]

   As earlier mentioned, Ms Lock had retained PwC to ensure that the transaction was tax-effective. Ms Lock met with the accountants that day and continued her negotiations with the Investor. That evening at 9.00 pm, Ms Lock emailed Mr Defina and Mr Szabo, providing them with an update on the events of the day: (emphasis added)

10. [140]

    Ms Lock further advised that “CHAMP are very focussed on me being in control of voting of BidCo. They are going to put some requirements around me always being able to control the votes of BidCo (75.1%).” In reply, Mr Szabo queried whether the Investor could “still stipulate your control of BidCo after the loan note is paid out? In theory it should fall away but do they still really care given the 50% share of upside?”. Ms Lock replied the next morning, “in discussions yesterday they are very focussed on the upside and protecting it so I suspect while CHAMP is there I am there.”

11. [141]

    Ms Lock’s initial email suggests that she then understood that the Investor expected to see a sharing of ‘super returns’ as soon as the Acquisition Loan was repaid in 2023. Ms Lock agreed that, in his reply, Mr Szabo also linked the commencement of the profit-sharing to the payout of the Loan Note. Ms Lock agreed that she did not tell Mr Szabo that, after the Acquisition Loan had been repaid, the profit sharing arrangement would be deferred until BidCo had retained an amount equivalent to the loan payout, as modelled in her spreadsheet. Ms Lock denied that this was because she did not then believe that to be the case.

12. [142]

    The plaintiff submitted that the Court could attribute no significance to the fact that Ms Lock failed to correct Mr Szabo, as Ms Lock was not invited to explain why she failed to do so, as the rule in Browne v Dunn requires: AL v R (2017) 266 A Crim R 1; [2017] NSWCCA 34 at [193]. This was said to make it impossible to conclude, by reference to this exchange, that Ms Lock did not in fact believe that the profit-share operated as now contended. The difficulty was said not to be overcome by the fact that the plaintiff had the email available to it in advance of the hearing: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 23C-D.

13. [143]

    The rule in Browne v Dunn does not apply where the witness is on notice that their version of events is in contest: JD Heydon, Cross on Evidence (14th ed, 2023, LexisNexis) at [17445]. By their pleadings, the vendors assert that Ms Lock shared their understanding and intention, when executing the Share Sale Agreement, that it provided for the profit-sharing arrangement in the Heads of Agreement. The vendors put their evidence on first. None of their witness statements refer to the email chain, presumably, as it was not an email that passed between any of the vendors’ witnesses. Nor did Ms Lock refer to the email chain in her three witness statements served in response. As Hunt J also observed in Allied Pastoral at 22-3:

14. [144]

    Presumably, the plaintiff’s decision to say nothing about this email in Ms Lock’s witness statements was considered, that is, the plaintiff preferred for “quite legitimate tactical reasons” to let the vendors raise the matter. But the fact that Ms Lock would be cross-examined on this email would have come as no surprise. Fairly obviously, the email chain suggested an understanding on both Ms Lock and Mr Szabo’s part that the profit-sharing arrangement would operate in a way other than that advanced by the plaintiff in these proceedings. As Campbell J noted in West v Mead [2003] NSWSC 161, “Even when there has been an exchange of affidavits or statements, the rule in Browne v Dunn will require a cross-examining counsel to put to a witness the implications which counsel proposes to submit can be drawn from the evidence, if those implications are not obvious from the evidence, or from other pre-trial procedures, or the course of the case”: at [99]. I consider that the inference which the vendors sought to draw from the email chain was fairly put to the witness, who was given an opportunity to respond. Ms Lock did not seek to give a more expansive answer.

15. [145]

    The rule in Browne v Dunn is not absolute but must be applied with flexibility; where the central purpose of the rule is to secure fairness in the conduct of adversarial proceedings, that consideration provides the best guide to the practical requirements of the rule in a given case: R v Birks (1990) 19 NSWLR 677 at 688 (Gleeson CJ); Nankivell v Insurance Commission of Western Australia [2017] WASCA 143 at [54] per Buss P. Where a witness chooses not to deal with a damaging document in their affidavit or statement, I do not think the rule in Browne v Dunn requires the cross-examiner, when asking a witness about that document, to permit the witness to, effectively, give their evidence in chief in respect of that document. That would be unfair, but not to the witness.

16. [146]

    In any event, I think that what the surrounding events indicate is that, at the time of her email exchange with Mr Szabo, Ms Lock was continuing to think about how the Uplift Payment provisions operated and had yet to reach a concluded view. Ms Lock had been asked by Clifford Chance to review the provisions and was in the process of doing so, including by creating a spreadsheet to work out how the provisions may operate in different scenarios. But Ms Lock had yet to provide her thoughts to Clifford Chance. (Ms Lock did so the next day.) What Ms Lock did know was how the profit-sharing arrangement was expected to, and likely would, operate, which was in accordance with the Heads of Agreement. And it is that understanding which is displayed in her email exchange with Mr Szabo. Ms Lock had yet to reach a concluded view to the contrary.

PwC advice

1. [147]

   On the morning of Friday, 7 September 2018, Ms Lock was working from home again. PwC emailed Ms Lock and Clifford Chance, providing a paper, “Proposed acquisition step plans”, in light of their discussions the previous day. PwC gave an overview of the transaction, noting that the purchase price of the shares in the Company was expected to be $150 million and funded in full by a Vendor Loan. Further:

2. [148]

   PwC went through each of the steps in the transaction and considered the tax implications for Ms Lock, BidCo and her fellow investors, Mr Szabo and Mr Defina. PwC noted that BidCo’s cost base for the acquired shares was the initial purchase price plus incidental costs. This would reduce any net capital gain realised on a future disposal of the shares. Further:

3. [149]

   Where Ms Lock had met with PwC the day before the paper was circulated, PwC’s description of the “super return” likely emanated from a combination of the Heads of Agreement, the draft transaction documents and Ms Lock’s instructions. (Where Clifford Chance later noted, when providing comments to KWM on the draft Share Sale Agreement, that the document remained subject to review and comment by PwC, I infer that the document had been provided to PwC.)

4. [150]

   PwC sought Ms Lock’s comments on their paper. As mentioned, Ms Lock was working from home. Ms Lock requested a secretary at the office to scan the spreadsheet which she had prepared and printed the previous day, and email it to her at home. At 2.07 pm, the scanned spreadsheet was sent to Ms Lock’s personal email. At 2.10 pm, Ms Lock emailed the spreadsheet to Clifford Chance and asked:

5. [151]

   Providing the spreadsheet to Clifford Chance might be thought to serve two purposes: to complete the task assigned to her by Clifford Chance, in considering cl 9 and its defined terms; and to see whether Ms Lock’s thinking was right or wrong, so that accurate instructions could be given to PwC.

6. [152]

   At 3.25 pm, Mr Stevenson emailed a paper prepared by Deloitte to Clifford Chance and KWM, with a potential alternative structure for the Uplift Payment. Deloitte suggested characterising the Uplift Payment as interest on the Loan Note. Specifically, the profit-sharing arrangement should be characterised as additional interest “equal to 50% of any distributions received by [the Buyer] from [the Company], following the repayment of the … Loan Notes and satisfaction of a minimum return threshold to [the Buyer] has been met.” Mr Stevenson suggested that PwC speak with Deloitte and agree on an approach, before the Share Sale Agreement and Loan Note were amended. Clifford Chance forwarded the paper to PwC and asked them to discuss it with Ms Lock.

7. [153]

   At 3.47 pm, Clifford Chance provided Mr Stevenson, Mr Gordon and KWM with proposed amendments to the Share Sale Agreement, “While we have discussed this version with [Ms Lock], it does remain subject to her further review and comment.” The document also remained subject to review and comment by PwC from a tax perspective.

8. [154]

   I note that Clifford Chance circulated these proposed amendments an hour and a half after receipt of Ms Lock’s spreadsheet. Whether the solicitor had had time to digest Ms Lock’s spreadsheet is unknown but cannot be assumed. As such, the fact that Clifford Chance suggested no substantive amendments to the embedded definitions in the Uplift Payment provision is less noteworthy than it might otherwise be.

9. [155]

   On Saturday afternoon, 8 September 2018, Mr Gordon emailed Ms Lock, copied to Mr Stevenson, providing his further thoughts to address the ‘dividend sweep’ obligations. Later that evening, Mr Coull circulated a revised Share Sale Agreement to Clifford Chance. KWM’s banking team also circulated a further draft of the Loan Note in respect “Ongoing Buyer/CHAMP discussion on "Cash and Cash Equivalent" definition and $60m "Minimum Balance" …”. Relevantly:

10. [156]

    Later that evening, Ms Lock responded to Mr Gordon’s further thoughts, noting that she had been “tied up with tax and then on a call with [Clifford Chance] to work through some of the numbers below.” It is highly likely that Ms Lock had discussed her spreadsheet with Clifford Chance by now. Ms Lock’s communications from this point on likely reflect Clifford Chance’s advice.

11. [157]

    One of Mr Gordon’s further thoughts was in respect of the ‘dividend sweep’. Mr Gordon suggested that there should be a positive obligation on the Buyer “to use best endeavours to maximise cash distributions (whether by dividends, loans etc) if dividends are constrained by regulatory cap buffer … (that is, there is over $70m of cash and a dividend can’t be paid)”. Ms Lock replied to this suggestion as follows: (emphasis added)

12. [158]

    PwC had advised Ms Lock that franked dividends received by BidCo should not be subject to further tax in BidCo, while unfranked dividends would be subject to tax at 30%. Ms Lock was understandably concerned to ensure that only franked dividends were paid by the Company. Subject to this consideration, Ms Lock was prepared to entertain Mr Gordon’s proposal if it solved difficulties in giving effect to their agreement, which was “when we get equity proceeds, the Buyer shares with CHAMP”.

13. [159]

    Mr Gordon had made a further suggestion to protect the Investor if the Pepperstone business was not sold by the Winding Up Date. In that event, he proposed that there should be a payment from the Buyer to the Investor based on the following formula:

14. [160]

    Ms Lock replied, “I do not agree to a [Retained Earnings] calculation and this is a commercial re-trade. The concept was agreed that it was an equity proceeds sharing. …”. As I read Ms Lock’s response to both of Mr Gordon’s suggestions, she rejected any changes which did not support what “The agreement was …” or “The concept [that] was agreed”. Presumably, this was a reference to the Heads of Agreement. Changes which did not fall into this category were described as either a “new commercial point” that the Investor was “introducing very late” or a “commercial re-trade”. Beyond this, Ms Lock simply repeated that the deal was that the Buyer would share equity proceeds with the Investor.

15. [161]

    The precise wording of Ms Lock’s email is agnostic as to whether Clifford Chance had advised Ms Lock that her spreadsheet was right or wrong. But the clear import of Ms Lock’s email is that transaction documents should give effect to the parties’ agreement to that point, that is, the Heads of Agreement. I infer that this reflected Clifford Chance’s advice.

16. [162]

    There was no suggestion in Ms Lock’s email that the sharing of equity proceeds would be deferred until the amounts paid by the plaintiff to the vendors in repayment of the Loan Note had been deducted from dividends. Ms Lock rejected the suggestion that harbouring the notion that the Share Sale Agreement worked as set out in her spreadsheet was itself a “new commercial point … introduce[ed] very late” or a “commercial re-trade.”

17. [163]

    Ms Lock said keeping her understanding of the ‘true’ operation of the profit-sharing agreement to herself was “completely different”, as a “re-trade” involved negotiation “and I knew that that hadn’t been negotiated.” Ms Lock said that, as the profit sharing arrangement had not been openly negotiated in the Share Sale Agreement, it did not fall into the same category, albeit she recognised that the profit-sharing agreement had been negotiated as recorded in the term sheet. Where things were being openly negotiated, Ms Lock was trying to keep to the spirit of the term sheet.

18. [164]

    The vendors submitted that Ms Lock’s explanation was “strikingly cynical”. Ms Lock’s rationale for her different treatment of the vendors’ “re-trades” and her own suggested silence in the knowledge of a significant drafting error was certainly not easy to follow or accept.

19. [165]

    On Sunday morning, 9 September 2018, Ms Lock emailed Clifford Chance, complaining about the Investor’s late suggestions, in particular, requiring undertakings after the Loan Note had been repaid: (emphasis added)

20. [166]

    Importantly, Ms Lock’s email indicates that she then understood that the profit-sharing arrangement would likely result in the payment of dividends immediately after the Loan Note was repaid in year 5, and not some time later after the loan repayments had been offset against dividends. Clifford Chance replied soon afterwards:

21. [167]

    I think it is unlikely that Clifford Chance would have said this if the firm was aware that Ms Lock held a fundamentally different (and, in their view, correct) view as to how the profit-sharing arrangements would work, and was proceeding to keep this to herself and to execute documents which effected a substantially different arrangement to that recorded in the Heads of Agreement.

22. [168]

    Further, having spent the day “tied up with tax”, Ms Lock did not provide any comments to PwC on the “super return” portion of their paper. PwC’s description of the “super return” was different from Ms Lock’s thinking as to how the Uplift Payment clause may operate, as set out in her spreadsheet. As I understand PwC’s paper, the amounts paid by the plaintiff under the profit-sharing arrangement had implications for the cost base of the acquired shares and, thus, future capital gains tax. It appears to have been important to Ms Lock that the transaction was tax effective. It would have been obvious to Ms Lock that providing her accountant with accurate instructions was necessary to produce the most useful advice on that score. The fact that Ms Lock did not correct PwC is significant and suggests that Ms Lock did not ultimately disagree with the PwC’s description of the arrangement.

23. [169]

    Also on Sunday morning, PwC provided advice by email to Ms Lock and Clifford Chance, following from their discussions the day before. PwC agreed with Deloitte that there was some risk with the tax treatment of the earn-out arrangement. PwC suggested a “hybrid” structure, “Having Bidco acquire the shares for $150m plus an[y] Uplift amounts which includes distributions following the Vendor Loan Note repayment but not exit proceeds”, together with and an option to deal with exit proceeds.

24. [170]

    Ms Lock was amenable to PwC contacting Deloitte directly. The accountants conferred and agreed. There was no hint in the communications between the accountants that the ‘super return’ provisions would work in the manner suggested in Ms Lock’s spreadsheet.

25. [171]

    For her part, Ms Lock’s focus had moved elsewhere. Mr Stevenson reported to Mr Coull, “this is still moving at the moment … [Ms Lock] has become fixated on [the Share Sale Agreement] undertakings today but [Mr Gordon] has made it clear how critical we view them when our returns post loan repayment depend on cashflows back to shareholders.” Ms Lock asked Mr Defina to prepare a paper explaining the NTA Regulatory Capital test as it applied to Pepperstone, and what other cash was in the business outside of this requirement. Ms Lock explained to Mr Defina, “CHAMP are concerned there is a way accounting entries can be used to manipulate the NTA calculation, in effect to depress the Eligible NTA so we limit dividends”.

26. [172]

    At midnight, Mr Defina provided a paper, “Summary of NTA Regulatory Capital Test”, to Ms Lock, Mr Gordon, Mr Stevenson and Mr Szabo. Mr Defina described in detail how the NTA regulatory capital test was applied by Pepperstone. The required NTA was calculated using the average over a 3–year period. The NTA requirement had grown significantly, from $6 million in 2015 to $24 million in 2018, due to revenue growth. But the NTA requirement remained relatively stable within each financial year. The NTA requirement was increased at the start of each new financial year, as an historical year was dropped off the 3–year average revenue calculation and the current year forecast was added.

27. [173]

    Mr Defina provided financial information for the last three financial years, showing the amount of “headroom" that Pepperstone maintained above the NTA requirement, as well as the impact of dividends on that “headroom”. Mr Defina advised: (emphasis added)

28. [174]

    At 2.00 am, Ms Lock emailed Mr Stevenson, Mr Gordon and Clifford Chance in respect of outstanding commercial issues, attaching a marked-up version of the undertakings to be given by the purchaser after the Loan Note had been repaid. An outstanding commercial issue was the “Cash/Cash Equiv/ $70m Minimum Balance, subject to reg cap plus a buffer”. Ms Lock noted that this concept was across both the Loan Note and Share Sale Agreement and remained an open commercial discussion, with the matter “in CHAMP's court”, following Mr Defina’s paper. As for the profit-sharing arrangement, Ms Lock noted some “smaller new points” raised by the draft circulated by KWM on Sunday, including the further minor amendment proposed to Purchaser Net Equity Proceeds (as to advisory costs on a share sale): see [156].

29. [175]

    On the morning of Monday, 10 September 2018, Mr Stevenson forwarded Ms Lock’s email regarding outstanding commercial issues to KWM, noting that he and Mr Gordon would be discussing these with Ms Lock that morning. Later that day, Mr Stevenson emailed KWM again, proposing to the amend the transaction documents “to provide for a single test for payment of a dividend equal to $10m over minimum ASIC mandated regulatory capital for the AU business. Remove the $60m / 70m concept.”

Approval from the trustee

1. [176]

   At 1.54 pm on Monday, 10 September 2018, the Investor emailed the transaction documents to Mr Tran at Perpetual, apologising for the short notice. Mr Tran was asked to review the documents and provide any comments.

2. [177]

   At 4.30 pm on 10 September 2018, the Manager held a meeting, at which the Gold Paper was tendered, reviewed and discussed, together with the resolution passed by the Investment Committee on 6 September 2018. Mr Haddock noted that he had called all members of the Investment Advisory Committee to explain the transaction, given the involvement of Ms Lock with the Buyer and any perceived conflicts of interest. The Investment Advisory Committee members had no objection to the proposed transaction. The Manager resolved to approve the transaction on the terms in the Gold Paper.

3. [178]

   At 4.53 pm, Mr Tran provided his comments on the Share Sale Agreement to the Investor, including picking up a typographical error in cl 9.1(a): “‘Purchaser’ should be ‘Vendor’”. Mr Tran had obviously read the document carefully. Mr Tran did not undertake any independent assessment of the commercial merits of the proposed transaction. The Investor forwarded Mr Tran’s comments to KWM. Mr Coull printed the email and made handwritten annotations as each comment was addressed, including a note that he had corrected the typographical error in cl 9.1(a).

4. [179]

   At 5.34 pm, Clifford Chance circulated an updated draft of the Share Sale Agreement, subject to review by PwC and comment from Ms Lock.

5. [180]

   In respect of the definition of Equity Proceeds, the amendments proposed by KWM on 8 September 2018 were proposed to be accepted and further amendments made to add a new sub-paragraph after sub-paragraph (b):

6. [181]

   Clause 6.1(b)(i)(B) of the Loan Note then provided that, if a ‘dividend sweep’ could not be made, as it was not permitted by law or the dividend represented a Restricted Dividend, then the distribution would be advanced by a loan by the Company, being a Distribution Loan. As I read it, by these amendments, Clifford Chance was seeking to ensure that, if the plaintiff was unable to distribute a dividend to the vendors but advanced a Distribution Loan instead, then repayment of that loan was not Equity Proceeds.

7. [182]

   Further minor amendments were made to the definitions of Purchaser Net Equity Proceeds (in respect of transaction costs in sub-paragraph (d), as per Ms Lock’s comment) and Purchaser Total Equity Proceeds (grammatical correction).

8. [183]

   In addition, Clifford Chance proposed new drafting for the ‘dividend sweep’, proposing new definitions of Agreed Assets, Buffer Amount and NTA Requirements, re-drafting the ‘dividend sweep’ obligation to the form it presently takes, and adding an obligation to re-visit the Buffer Amount. The $60m minimum balance concept was deleted. Comments were also provided on the draft side letter and Loan Note. No substantive changes were proposed to the relevant portion of the side letter.

9. [184]

   KWM printed out Clifford Chance’s marked-up Share Sale Agreement and, in handwriting, addressed each proposed amendment. As to cl 9, the amendment suggested by Mr Tran was made to cl 9.1(a). As to the proposed amendments to cl 9.1(b), Mr Stevenson’s instructions were sought and noted, proposing to deduct 50% of any Fee Amount “+ need proviso that she [is] not otherwise receiving this fee”.

10. [185]

    As to the proposed amendment to the definition of Equity Proceeds, the amendment to sub-paragraph (a)(iv) was accepted (using the definition of Exit Event in respect of the proceeds of a share sale). The additional sub-paragraph (c) was rejected (in respect of Loan Repayment Dividends) as it was already addressed “via loans.” The amendments to the definition of Purchaser Net Equity Proceeds and Purchaser Total Equity Proceeds were, by and large, accepted. The new ‘dividend sweep’ drafting was accepted.

Exchange

1. [186]

   In the wee hours of Tuesday, 11 September 2018, Mr Coull circulated a further draft of the Share Sale Agreement, being version 11. The clauses had been re-numbered, such that the Uplift Payment Clause was now cl 10. The correction suggested by Mr Tran had been made. In cl 10.1(b), the Purchaser was now obliged to pay the Uplift Amount in respect of Equity Proceeds less 50% of any Fee Amount if the Purchaser was not otherwise receiving benefits for providing services equivalent to those for which the Fee Amount was applicable. The proposed amendment to input B in cl 10.2 was accepted. In the definitions, the proposed additional sub-paragraph (c) to the definition of Equity Proceeds was rejected. With one minor exception, the proposed revisions to the definition of Purchaser Net Equity Proceeds were accepted.

2. [187]

   At 7.00 am, Clifford Chance advised Mr Stevenson that the Loan Note was “pretty much done” and the Share Sale Agreement was being reviewed with some legal points remaining, “probably need a conversation with KWM to make sure we are understanding each other.” Mr Stevenson replied that Mr Coull was “at his desk” and suggested that the solicitors speak in respect of the Share Sale Agreement “rather than trading drafts and ensure understanding as you suggest”. Clifford Chance provided their mark-ups “which has not been reviewed by [Ms Lock] (although we have talked through the issues)”.

3. [188]

   Clifford Chance re-put its proposed amendments to cl 10.1(b): the Purchaser was only obliged to pay a proportion of the Uplift Amount that derived from “Equity Proceeds other than Exit Event proceeds … less any Fee Amount.” Clifford Chance noted that it was “unclear why the Company should start bearing 50% of the Fee Amount following re-payment of the VLN”. The new sub-paragraph (c) to the definition of Equity Proceeds was also re-put. No further amendment was proposed to the definition of Purchaser Net Equity Proceeds or Purchaser Total Equity proceeds.

4. [189]

   Sub-paragraph (a)(iv) of the definition of Equity Proceeds was amended to refer to simply “Exit Event Proceeds”. This was defined as all proceeds from an exit event to the extent that such proceeds were not captured by limbs (i)–(iii) or (v)–(vi) of the Equity Proceeds definition. Clifford Chance noted that this was to ensure that the concept did not capture pre-completion distributions as well as sales proceeds, thereby double counting.

5. [190]

   The lawyers spoke. KWM made a handwritten file note of the conversation (the note is undated but fits perfectly here):

6. [191]

   These were the last drafting changes proposed by Clifford Chance. Noteworthy, having by now most likely considered Ms Lock’s spreadsheet and told her whether they agreed with it or not, Clifford Chance did not propose any amendments to the ‘tail piece’ or to the definition of Purchaser Net Equity Proceeds which, in combination, are now said in these proceedings to entitle the purchaser to ‘double count’ the Loan Note repayments. This is so in circumstances where Clifford Chance was speaking to KWM to avoid other potential ‘double counting’ said to be caused by the drafting.

7. [192]

   Soon afterwards, the Investor provided Mr Tran with the latest version of the transaction documents in mark-up. Mr Tran had no comments on the updated document. Mr Tran was also provided with the minutes of the Investment Committee meeting and a direction letter signed by Mr Zuckerman and Mr Stevenson. Mr Tran said it was his practice to review and rely upon the final form of any direction letter issued by the Manager to ensure that he understood what the transaction involved and what the trustees were required to do. Mr Tran expects that he followed that practice in this case. The direction letter explained that the Funds were seeking to exit their investment in Pepperstone:

8. [193]

   According to the Direction Letter, the transaction documents had been completed to the satisfaction of the Manager and were in order for execution. The Manager confirmed that the transaction documents were in the best interests of unitholders. The Trustee was directed to sign the document.

9. [194]

   At 7.08 pm on 11 September 2018, Mr Stevenson advised Mr Tran that negotiations had been completed and KWM was preparing execution versions of the documents. Mr Tran requested marked-up versions of the documents. KWM obliged at 8.26 pm. Amendments were still being drafted in respect of the deduction of a Fee Amount from any Uplift Amount. At 8.52 pm, Mr Tran provided the signed pages to KWM.

10. [195]

    Mr Haddock and Mr Stevenson reviewed the final versions of the documents. Mr Stevenson told Mr Haddock that the Share Sale Agreement and Loan Note reflected the terms of the deal summarised in the Heads of Agreement signed by Ms Lock on 2 September 2018, including the ‘super return’ concept. At 10.00 pm, documents were exchanged, being the Share Sale Agreement and side letter.

11. [196]

    Ms Lock agreed that she knew, when signing the Share Sale Agreement, that the profit-sharing provisions were not intended by the Investor to operate as shown in her spreadsheet and that the parties to the Share Sale Agreement had not agreed that the provisions would operate in that way. When Ms Lock executed the side letter, she also thought that the Investor believed that it implemented the profit-sharing agreement set out in the Heads of Agreement.

Share Sale Agreement

1. [197]

   In its final form, the Share Sale Agreement was between the plaintiff as Purchaser and the Trustees as Vendors. It comprised 24 clauses and six schedules. Schedule 3 contained undertakings given by the Purchaser. Schedule 5 included a form of the Loan Note. Schedule 6 included a form of a Deed of Accession, to be executed by those accepting an Invitation to Tag.

2. [198]

   The Share Sale Agreement did not come into effect until, relevantly, the expiry of the exercise period of the Invitation to Tag and execution of the Deed of Accession by those who had accepted the invitation: cl 1. Completion was conditional on the Financial Conduct Authority of the United Kingdom giving its written approval to the transfer of the vendors’ shares in the Company to the Purchaser: cl 3. On completion, the Purchaser was to provide an executed Loan Note and security documents: cl 8.3.

3. [199]

   The Vendors agreed to sell their shares in the Company for the Purchase Price, being some $178 million plus any Uplift Payment payable by the Purchaser in accordance with clause 10: cls 1.1, 4.1, 5.1. Turning to the all-important ‘super return’ provisions, cl 10 begins:

4. [200]

   The Winding Up Date is 15 January 2027, being the end of the term of the Funds. The chapeau to cl 10.1 indicates that the Trigger Time for the Purchaser to calculate any Uplift Payment is on receipt of Equity Proceeds. Clause 1.1 includes the following definition:

5. [201]

   Embedded definitions are few and obvious. The Company is FX HoldCo Pty Ltd. An Affiliate of the Purchaser (or Company) is a person controlled directly or indirectly by, or in direct or indirect control of, the Purchaser (or Company): cl 1.1. An Exit Event meant the sale or disposal of shares in the Company or in any Affiliate of the Company. The Group means the Company and each of its subsidiaries.

6. [202]

   The defined term Distribution (see [209]) is not used in sub-para (a)(i) but simply “a dividend or other distribution”. It is expansive and descriptive. Also noteworthy, cl 1.2 provides:

7. [203]

   If the Uplift Amount is greater than zero, then the Purchaser is obliged to pay in cash “an amount equal to the Uplift Amount in respect of those Equity Proceeds (each, an “Uplift Payment”) less any Fee Amount within five business days (the Uplift Payment): cl 10.1(b). As to how the Uplift Amount is to be calculated, cl 10.2 provides:

8. [204]

   Purchaser Net Equity Proceeds is defined in cl 1.1 as:

9. [205]

   Further, cl 1.1 provides:

10. [206]

    Clause 10.3 provides that, by no later than 31 October in each calendar year following completion, the Purchaser is to provide a certificate signed by Pepperstone’s chief financial officer setting out the Purchaser Total Equity Proceeds, Purchaser Net Equity Proceeds and Uplift Amounts in respect of the financial year that had ended on 30 June, together with a reconciliation of the amounts to the Purchaser’s audited financial statements. The Vendors are entitled to have access to Pepperstone’s books and records to check the information: cl 10.4. Clause 10.5 provides:

11. [207]

    In cl 10.6, the Purchaser gave undertakings to the Vendors as set out in Schedule 3. Schedule 3 includes a general undertaking that the Purchaser cannot, without the Vendors’ consent, effect an Upstream Change of Control other than on arms’ length terms, for cash and having provided the Vendors with documents relating to the transaction beforehand.

12. [208]

    Schedule 3 also includes a number of undertakings that are given between the repayment of the Loan Note and the end of the term of the Funds. The Purchaser is obliged to provide the Vendors with information, including financial reporting, on a regular basis: cl 2.2. The Purchaser cannot, and is obliged to procure that the Company does not, dispose of any assets other than at market value and for cash consideration. Further, the Purchaser’s interest in the Company cannot fall below 50.1%: cl 2.4(j). The Purchaser is also obliged to procure that there was no Upstream Change of Control: cl 2.5.

13. [209]

    Nor can any Distributions be made other than Permitted Distributions: cl 2.4(o). The Share Sale Agreement uses the definition of Distribution in the Loan Note: cl 2.1(a), Schedule 3, Share Sale Agreement. Put shortly, Distribution is expansively drafted but focusses on the ‘dividend sweep’: cl 1, Schedule 1, Loan Note. In addition, cl 2.6 of Schedule 3 provides:

14. [210]

    Agreed Assets means the aggregate of the assets required to ensure that the Group complies with the NTA Requirements and the Buffer Amount: cl 1.1. NTA Requirements are the requirements set out in ss (4) and (5) of s 912AB of the Corporations Act 2001 (Cth), as declared in cl 4 of the ASIC Class Order [CO 12/752]. The Buffer Amount is $10 million cash as adjusted from time to time in accordance with the Share Sale Agreement: cl 1.1. The parties agreed, within a month following the end of each financial year, at the Purchaser’s request, to discuss, in good faith and acting reasonably, whether the Buffer Amount should be adjusted: cl 9.7.

15. [211]

    Finally, cl 10.7 provided that the Purchaser’s obligations under cl 10 remained in force until the end of the term of the Funds. Clause 22.11 also provided:

16. [212]

    The obligations and defined terms in the Share Sale Agreement were echoed in the Loan Note in Schedule 5. The Loan Notes were to be redeemed in full on the earlier of five years or an Exit (change of control or disposal of the Pepperstone investment) or an Upstream Change of Control (being Ms Lock ceasing to control the business): cl 6.1. In addition, the loan was to be partially repaid each quarter as provided in cl 6.1(b), being a ‘dividend sweep’ obligation comparable to cl 2.6 of Schedule 3 of the Share Sale Agreement.

Construction of Share Sale Agreement

1. [213]

   This brings me to the first issue: what is the proper construction of the Uplift Payment clause and its embedded definitions? The plaintiff sought a declaration that dividends and other distributions referred to in para (a) of the definition of Equity Proceeds only count as Equity Proceeds if they are received by the plaintiff after it has paid all amounts due under the Loan Note. The vendors sought a declaration that any amount received by the plaintiff in connection with the Company, including any Distribution, constitutes Equity Proceeds.

2. [214]

   In what follows, I have put to one side the evidence of what Ms Lock, Mr Haddock, Mr Stevenson or Mr Coull thought the clause meant or intended it to mean. Their subjective intentions are not relevant to the construction of the contract. Nor are communications between Mr Stevenson and KWM when preparing the first draft of the Uplift Provisions to be sent to Ms Lock, nor Mr Stevenson and KWM’s communications in respect of subsequent amendments to those provisions. Those communications did not include Ms Lock and thus are not surrounding circumstances known to both parties or receivable as an aid to construction: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 at 352. I have also put to one side post-contractual conduct.

3. [215]

   The parties’ submissions fell into four related topics, which I have endeavoured to address in a logical sequence. KWM broadly adopted the vendors’ submissions on this subject.

4. [216]

   The commercial context has been earlier described. The contest here was two-fold. First, can the Court have regard to the Heads of Agreement and the side letter, where the parties to those documents were not identical to the parties to the Share Sale Agreement? Second, at a level of principle, can the Court have regard to the context and extrinsic material in construing the Uplift Payment clause?

5. [217]

   Dealing with the first issue, there was no argument that multiple documents executed by the same parties to effect a transaction should be read together harmoniously. That principle is explained in the oft-cited John Shaw v Richard Jeffrey (1860) 15 ER 162 at 171:

6. [218]

   But the vendors further submitted that it did not matter that they were not a party to the Heads of Agreement or side letter: McVeigh v National Australia Bank Ltd (2000) 278 ALR 429; [2000] FCA 187 at [29]-[34] (Finkelstein J), [67]-[77] (Kenny J). The plaintiff submitted that McVeigh did not support that proposition, where Finkelstein J was in dissent. I disagree with the plaintiff in respect of McVeigh.

7. [219]

   In McVeigh, Finkelstein J strongly argued that the view expressed in English law – that several instruments representing a single transaction may only be read together if the documents were between the same parties – was “altogether too narrow” and should not be followed in Australia: at [31]-[34]. Kenny J agreed in a detailed and learned analysis: at [69]-[77]. It is true that the majority comprised Heerey and Kenny JJ, and Heerey J said nothing on the subject. But the judgments of Finkelstein and Kenny JJ have been widely cited, including with approval in JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd (No 2) [2020] WASCA 112 at [80] (Buss P, Beech and Vaughan JJA); Insurance Australia Ltd v MOS Beverages Pty Ltd (2021) 286 FCR 1; [2021] FCAFC 165 at [100(4)] (Besanko and McKerracher JJ, Derrington J agreeing) and Resolution Life Australasia Ltd v NM Superannuation Pty Ltd [2023] NSWSC 98 at [78] (Stevenson J).

8. [220]

   And that result is, I think, unremarkable when one considers the not uncommon facts of McVeigh. The transaction documents involved a loan agreement between a bank and a company, a guarantee provided by the directors of the company (husband and wife) and a mortgage over the couple’s home. The documents were executed within days of each other. Although the parties to the documents were not identical, it was appropriate to construe the mortgage having regard to whole of the arrangement, where “all the parties can be taken to have known the contents of all the relevant instruments”: at [77].

9. [221]

   Turning to the case at hand, Ms Lock signed the Heads of Agreement on 2 September 2018 in her personal capacity. (The plaintiff was not incorporated until eight days’ later.) The Heads of Agreement was to be signed by the Manager on behalf of the Funds, but Mr Haddock simply acknowledged acceptance by email.

10. [222]

    The Share Sale Agreement was executed nine days’ later, by the Trustees as vendors and the plaintiff as purchaser. Ms Lock executed the document as the sole director of the plaintiff. Mr Tran and Anthony Lee executed the document as attorneys for the Trustees.

11. [223]

    The side letter was executed on the same day by Ms Lock, the Manager and two other companies, being CHAMP Group Services Pty Ltd and CHAMP III Management Pty Ltd. (The side letter dealt with a number of topics, including termination of Ms Lock’s contract of employment with CHAMP Group Services and the provision of ongoing services to CHAMP III Management.) It will be recalled that the $4.5 million loan fee was moved from the Heads of Agreement to the side letter at Ms Lock’s request: see [65].

12. [224]

    Obviously enough, Ms Lock was a party to the three documents, either in her personal capacity or as the sole director and shareholder of the plaintiff. The plaintiff took no point on this account.

13. [225]

    The Manager was a party to the Heads of Agreement and the side letter, but not the Share Sale Agreement. That said, the Manager had authority to negotiate the divestment of the Pepperstone investment on behalf of the Trustees, as earlier described: see [19]-[22]. I think the position is akin to De L’Isle v Knight [2021] NSWSC 809, where conversations between a lender’s agent and a prospective borrower were admitted as background to the contract, being evidence of facts mutually known to both parties. Where the agent was negotiating the loan for the lender, the agent’s knowledge was imputed to the principal, irrespective of whether it was communicated to the principal: at [30]-[32] per Gleeson J. Here, the Manager’s knowledge is imputed to the Trustees, whether it communicated its knowledge to the Trustees or not. As it happened, the Trustees were also given a direction letter, which described the ‘super return’ in like terms to the Heads of Agreement: see [192]. Mr Tran said it was his practice to review and rely on the direction letter, and he expects that he followed that practice in this case.

14. [226]

    In the result, I consider that any differences between the parties to the Heads of Agreement, Share Sale Agreement and side letter do not matter, “where all the parties can be taken to have known of the contents of all the relevant instruments”: McVeigh at [77].

15. [227]

    That said, the Share Sale Agreement does not have to be read harmoniously with the Heads of Agreement. Although there was only nine days between the Heads of Agreement and the Share Sale Agreement, the documents were not executed contemporaneously in the relevant sense. The portion of the Heads of Agreement in respect of ‘super returns’ was stated in the document itself to be “not … legally binding on the parties”, but “form[ed] the basis on which the parties w[ould], in good faith, negotiate the long form definitive transaction documents (collectively “Definitive Documents”) for the Transaction.” It was anticipated that the Share Sale Agreement may depart from the Heads of Agreement, including as a consequence of the input of legal, tax and accounting advisers. The Heads of Agreement may be considered as commercial context, subject to the issue of principle to which I will turn shortly.

16. [228]

    The side letter was executed contemporaneously and should be construed harmoniously with the Share Sale Agreement. For ease of reference, the side letter stated:

17. [229]

    I think the side letter rises no higher than the Share Sale Agreement, stating only that Ms Lock’s $4.5 million was not included in the $25 million threshold “before the calculation of the Uplift Amount in the SSA”, and adopting the same defined terms as in the contract.

18. [230]

    This brings us to the question of principle. The plaintiff relied on the parol evidence rule as expounded in Codelfa at 352-353 (Mason J), together with the entire agreement clause. The plaintiff submitted that the Court should not have regard to the Heads of Agreement or side letter when construing the Share Sale Agreement.

19. [231]

    An entire agreement clause does not prevent regard being had to context: Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [130] Leeming JA (Ward and Emmett JJA agreeing). That argument may be put to one side.

20. [232]

    As Mason J observed in Codelfa at 352:

21. [233]

    These principles were restated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, where French CJ, Nettle and Gordon JJ noted that the process of construing a commercial contract requires reference to text, context and purpose; “That inquiry will require consideration of the language used, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract”: at [46]-[47]. Further, at [48]-[49]: (citations omitted)

22. [234]

    As to whether the Court should have regard to the commercial context only in the event that the contract is ambiguous, ambiguity may only be revealed once the surrounding circumstances are considered: Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [68]-[86] (Leeming JA, Gleeson and White JJA agreeing). That is, ambiguity is a conclusion, rather than a precondition to the admissibility of evidence of surrounding circumstances: Cherry v Steele-Park at [79]. As such, commercial context may be considered from the outset, as it was, for example, in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6 at [36].

23. [235]

    Heads of agreement have been considered when construing the final contract. In Campbell v Hamilton (2019) 19 BPR 39,181; [2019] NSWCA 22, a deed was construed having regard to the objective matrix of facts in which it was entered into, notably a heads of agreement: at [28], [56] per White JA (Beazley P and Gleeson JA agreeing). In Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2018] NSWSC 1586, Walton J observed that a heads of agreement formed part of the surrounding circumstances which could be used to construe a lease: at [97]. In Nemeth v Australian Litigation Funders Pty Ltd [2013] NSWSC 529, Sackar J considered that a heads of agreement was an important part of the context and surrounding circumstances in which the contract came into being: at [68], [70]. In Melbourne Yifang Group Pty Ltd v Guangao A Group Pty Ltd [2023] VSC 577, Tsalamandris J regarded a heads of agreement as objective background evidence to a contract of sale: at [156]-[157].

24. [236]

    There was no dispute that the Heads of Agreement recorded the deal in respect of the ‘super return’, at least as at 2 September 2018. In the extensive negotiations which followed, there was no further negotiation of the ‘super return’ arrangement, beyond peripheral details. The Heads of Agreement may be considered when construing the Share Purchase Agreement, albeit the use to which the document may ultimately be put will depend on the language of the contract. As Leeming JA observed in Mainteck, and repeated in Cherry v Steele-Park, “Very often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text. … The ultimate question is whether the written language of the contract, when considered in light of legitimately relevant surrounding circumstances, permits a constructional choice to be made between two different legal meanings”: at [74]-[75].

25. [237]

    At the outset, I note the Purchaser’s obligations of certification and the provision of supporting information in cll 10.3 and 10.4. Not to be forgotten is the sternly worded anti-avoidance provision in cl 10.5. Nor the extensive undertakings required to be made by the Purchaser in cl 10.6 and Schedule 3. These undertakings support the profit-sharing arrangement by restricting the Purchaser’s ability to effect an Upstream Change of Control or lose control of the Company. Nor can the Purchaser or the Company dispose of its assets for other than market value or cash. The Purchaser is further obliged to procure a ‘dividend sweep’, to the extent permitted by the law, subject to an agreed capital retention.

26. [238]

    All of this may be seen as ensuring the stability of the arrangement, together with ensuring that any sales proceeds or dividends are maximised and readily available to flow into the profit-sharing arrangement. No distinction is drawn in this regime between sales proceeds and dividends; both are sought to be maximised and captured.

27. [239]

    Focussing on sub-clauses 10.1 and 10.2 and their embedded definitions, the provisions are complex. Construing texts like this may involve a “reiterated circular process”, where any understanding of the text has to be repeatedly tested in what is sometimes referred to as the hermeneutic circle: Thomas v State of New South Wales (2008) 74 NSWLR 34; [2008] NSWCA 316 at [22] (Campbell JA); Campbell, “Why statutory interpretation is done as it is done”, (2014) 39 Australian Bar Review 1 at 15. Writing extra-judicially with Professor Richard Campbell, Campbell JA explained, albeit it in the context of statutory interpretation:

28. [240]

    The fact that the defined term “Equity Proceeds” is in respect of equity, as opposed to debt, may be noteworthy. The items in sub-paragraph (a) may be examples of what may be regarded as transactions which result in the Purchaser receiving something that might be regarded as equity rather than debt, although sub-para (a)(vi) may not meet this description. One way of reading the ‘tail piece’ to sub-paragraph (a) is that it seeks to make this clear in respect of items (i) and (iii). Item (i) is of particular interest. To the extent that the Purchaser receives dividends in respect of the Company, it is only Equity Proceeds to the extent that the Purchaser has retained the dividend and not to the extent that the dividend has been captured in the ‘dividend sweep’ and remitted to the Vendors in repayment of the Loan Note. To that extent, the dividend cannot be regarded as Equity Proceeds but is, in truth, repayment of debt. In that event, there is no Trigger Time under cl 10.1(a) and no need to calculate the Uplift Amount under cl 10.2.

29. [241]

    The plaintiff submitted that this was the correct construction, where the ‘tail piece’ qualified the breadth and inclusiveness of that which preceded it. The words "all" and "including" in the chapeau to cl 10.1(a) were thereby curtailed. Clause 1.2(l) did not advance matters, where a contrary intention appeared by virtue of the qualifying language of the tail piece. The plaintiff submitted that, as its construction was the only one open on the text of the definition of Equity Proceeds, the analysis ought to end there: Cherry v Steele-Park. I agree that it is certainly an available construction.

30. [242]

    Another way of reading the ‘tail piece’ is that it is further explanation or clarification, making plain that dividends received after the Loan Note has been repaid are still captured by sub-para (a)(i). That is, the definition of Equity Proceeds should be read as “all … amounts … received … by the Purchaser … in connection with the Company … including by way of a dividend or other distribution … and in the case of” a dividend or other distribution, “to the extent retained by the Purchaser following repayment of the … Loan Note”. That is, the ‘tail piece’ makes plain that dividends after the Loan Note is repaid are included.

31. [243]

    The vendors submitted that this was the correct construction. The chapeau to the definition of Equity Proceeds provided that it applies to “all … amounts … received … by the Purchaser … in connection with the Company”. Paragraph (a) of the definition contained a list which followed the word “including” at the end of the chapeau. Paragraph (a) contained examples of the types of amounts which the Purchaser might receive, which were within the scope of the definition of Equity Proceeds. As a non-exhaustive list of examples, para (a) did not limit the types of receipt to which the definition applies. That was said to be apparent on the face of the clause and from cl 1.2(l).

32. [244]

    The vendors and KWM submitted that the ‘tail piece’ contained words of further clarification for the avoidance of doubt. This was commonplace in commercial agreements and why the “presumption against surplusage” had little force in commercial contracts: Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34 at [16] per Mason P (Handley and Giles JJA agreeing); Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114 at [54]-[55] per Buss P, Beech and Pritchard JJA. To this, the plaintiff submitted that there was no foothold in the text to support the argument that the ‘tail piece’ was a clarification or explanation; such a construction would make the tail piece unnecessary.

33. [245]

    The parties were essentially saying the same thing in respect of surplusage. The presumption against surplusage was explained by Ball J (as his Honour then was) in AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985 at [13]: (citations omitted)

34. [246]

    This passage has been approved by the Court of Appeal, including in Fayad v B & G Properties Pty Ltd [2022] NSWCA 129, where Leeming JA noted Lord Hoffmann’s observation in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at 274, ““people often use superfluous words”, such that “the argument from redundancy is seldom an entirely secure one”: at [25]. Where this contract was drafted within a relatively short time frame and was the subject of input by several lawyers – at KWM, Mr Stevenson, and Clifford Chance – it is not surprising that some surplusage may have occurred.

35. [247]

    The vendors further submitted that, by contrast, para (c) was an express exception to the overall definition of Equity Proceeds. The use of the word “but” preceding para (c) stood in contrast to the word “including”, which preceded para (a). The terms of para (c) indicated that, where the parties sought to exclude certain types of receipt from the definition of Equity Proceeds, they did so explicitly, using language such as that in para (c). Had the parties intended for the ‘tail piece’ to limit the scope of the overall definition, it would be expected that they would have done so in para (c) or using similar language. By contrast, the ‘tail piece’ were not words of exclusion at all.

36. [248]

    The plaintiff rejoined that there was no reason why exclusions could only be put in para (c), or particular words of exclusion used. Paragraph (c) sought to exclude management fees, whenever received, whilst the ‘tail piece’ was only seeking to exclude dividends in particular circumstances, where the dividends were retained following repayment of the Loan Note. As a qualification to para (a), the exclusion was logically located. Further, para (c) was clarifying that something was not included, while the tail piece was clarifying what would otherwise be included. The provisions were said to perform different functions.

37. [249]

    The vendors submitted that the construction advanced by the plaintiff resulted in inconsistencies with the definition of Purchaser Net Equity Proceeds. That definition provides that the amount of Purchaser Net Equity Proceeds “at each relevant Trigger Time” is equal to the amount of “Purchaser Total Equity Proceeds”, minus the amounts paid and outstanding under the Loan Note minus $25 million and miscellaneous costs. The definition necessarily implied that Trigger Times occurred before all amounts due under the Loan Note were paid. Clause 10.1 provided that a Trigger Time occurred each time the Purchaser “receives Equity Proceeds on or before the Winding Up Date”. It followed that Equity Proceeds must include dividends received by the Purchaser before all amounts due under the Loan Note were paid.

38. [250]

    The plaintiff rejoined that the fact that the definition of Purchaser Net Equity Proceeds contemplated that amounts may count as Equity Proceeds prior to repayment of all amounts due under the Loan Note was explicable on the basis that amounts received by the plaintiff which did not fall within the tail piece would be Equity Proceeds whether received before or after the Loan Note was repaid.

39. [251]

    The parties’ competing constructions of sub-clauses (a) are available and contestable. Their submissions in respect of sub-para (c) and the definition of Purchaser Net Equity Proceeds are each viable. To test which of these constructions is correct, one proceeds to deploy the definition of Equity Proceeds, on each construction, to calculate the Uplift Amount in cl 10.2. On either construction, if the Purchaser has retained dividends, and not remitted the dividends to the Vendors in repayment of the Loan Note, then you have a Trigger Time. The Purchaser needs to calculate the Uplift Amount under cl 10.2. Two inputs are needed:

40. [252]

    Input “B” is straightforward and requires only a calculator. Input “A” is more complicated and requires recourse to the definition of Purchaser Net Equity Proceeds. Before one gets to Purchaser Net Equity Proceeds, one starts with Purchaser Total Equity Proceeds, which is the aggregate of all Equity Proceeds received by the Purchaser at this and all previous Trigger Times. Applying the first potential construction of cl 10.1(a)(i), this would be the total of all dividends received by the Purchaser which have not been used to repay the Loan Note.

41. [253]

    Having calculated Purchaser Total Equity Proceeds, the definition of Purchaser Net Equity Proceeds requires the following to be deducted from this sum:

42. [254]

    But here the plaintiff’s construction becomes uncomfortable. It is just not obvious why one would deduct Loan Note repayments and any amount outstanding from Purchaser Total Equity Proceeds, in order to arrive at Purchaser Net Equity Proceeds. To the extent that dividends have been used to repay the Loan Note, then that has already been factored in. To do so again would be to double-count the Loan Note repayments / obligation. The definition of Purchaser Net Equity Proceeds then requires a further deduction of $25 million, before a final deduction which is not presently relevant.

43. [255]

    It is this initial reading of the text which, I think, is represented in Ms Lock’s spreadsheet. The plaintiff submitted that, effectively, the task of interpretation should stop there. But in construing a commercial contract, the first reading of the text may need to be re-visited and re-thought where there is an obvious incoherence or anomaly produced on an initial reading.

44. [256]

    If one applies the vendors’ construction of sub-para (a)(i) of the definition of Equity Proceeds, that is, including all dividends, whether received by the Purchaser before or after the payment of the Loan Note, then there is a Trigger Time each time the Purchaser receives dividends, whether the Loan Note has been paid or not. Similarly, Purchaser Total Equity Proceeds is the total of all Equity Proceeds received by the Purchaser to that point, being all dividends, whether used to repay the Loan Note or not. This works easily in the calculation of Purchaser Net Equity Proceeds, where the amounts paid, or payable, in respect of the Loan Note are then deducted. If the Loan Note has not been repaid when this calculation is performed, there will be nothing left. No Uplift Payment need be made. If there is something left, then it is halved, that is, shared equally with the Vendors, after deducting any Uplift Amounts already paid. This is logically coherent and straightforward.

45. [257]

    Where the language is ambiguous or susceptible of more than one meaning, the Heads of Agreement may be used to identify the commercial purpose of the contract or to determine the proper construction where there is a constructional choice: Codelfa at 352; Mount Bruce Mining at [49]. For ease of reference, the Heads of Agreement provided that the parties agreed, in good faith, to negotiate Definitive Documentation to include the following:

46. [258]

    The vendors’ construction of the Share Sale Agreement is consistent with the Heads of Agreement and the plaintiff’s construction is not. Nor are there any other commercial circumstances or matters of context which support the plaintiff’s construction.

47. [259]

    To use Ms Lock’s turn of phrase, this brings us to the “sense check”. The Court is entitled to approach the task of construction on the assumption that the parties intended to produce a commercial result, construing the contract so as to avoid making commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd at [35] (per French CJ, Hayne, Crennan and Kiefel JJ), citing Codelfa at 350 (per Mason J). As observed in Onley v Catlin Syndicate Ltd (as the underwriting member of Lloyd’s Syndicate 2003) (2018) 360 ALR 92; [2018] FCAFC 119, “It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit”: at [33] (per Allsop CJ, Lee and Derrington JJ).

48. [260]

    The plaintiff’s construction leads to different Uplift Payments if the Equity Proceeds are sales proceeds or dividends. If the plaintiff sells its shares in the Company, these are “proceeds from any Exit Event” under para (a)(iv) and, thus, Equity Proceeds even if received while the Loan Note has not been repaid. If the plaintiff receives dividends on those shares, then these may or may not be Equity Proceeds, depending on whether the Loan Note has been repaid.

49. [261]

    The vendors submitted that there was no commercial or logical justification for the profit-sharing arrangement resulting in different Uplift Amounts in these scenarios. The Purchaser could manipulate the amount of profit to be shared. If the Purchaser was selling shares in the Company, the sale could be structured to minimise the Uplift Amount by providing for the Purchaser to be paid a pre-completion dividend. The dividend would not constitute Equity Proceeds if received while amounts were outstanding under the Loan Note, but would have the effect of lowering the amount paid for the shares. The Purchaser could thereby reduce the amount of Equity Proceeds and, therefore, the Uplift Amount. No commercial purpose was served by a profit-sharing arrangement which could be manipulated by one of the parties.

50. [262]

    The plaintiff submitted that there was no foundation in the text or elsewhere for an assumption that all amounts received by the plaintiff, whether dividends or the proceeds of a sale, were to be treated the same so far as profit-sharing was concerned. Nor could it be said that the different treatment of dividends to the sales proceeds led to Ms Lock being able to manipulate the profit-sharing agreement by declaring dividends before selling the Pepperstone shares. The ‘dividend sweep’ obligation was said to counter this. The vendors rejoined that the ‘dividend sweep’ obligation did not prevent this, including because it did not address the position of a sale within a quarter.

51. [263]

    I disagree with the plaintiff. The tenor of cl 10, which includes the undertakings given by the Purchaser in Schedule 3, is to ensure that all sales proceeds or dividends are maximised and captured, to be fed into the profit-sharing arrangement. Construing clause 10 in a way which gives dividends and sales proceed differing treatment does render the profit-sharing arrangement vulnerable to manipulation. If dividends received before the repayment of the Loan Note are not Equity Proceeds, whilst the proceeds of sale of the Pepperstone shares are, then there is a clear incentive to funnel equity into the former rather than the latter. As earlier noted, by her spreadsheet, Ms Lock was presumably trying to identify how the Uplift Payment clause would operate for sale proceeds, dividends, or both with a view to understanding the clause and perhaps identifying which scenario might result in a more advantageous financial outcome. The strongly worded “No avoidance” cl 10.5 counsels against such a construction. This consideration strongly points in favour of the vendors’ construction.

52. [264]

    The vendors further submitted that the plaintiff’s proposed construction had the consequence that, contrary to the proceeds of the Pepperstone business being used to pay the Loan Note, the parties would actually share the profits of the business 50-50 in respect of the Loan Note amount. This was because the Purchaser would be able to retain the amount of the Loan Note in profits before the 50-50 profit sharing began. Put another way, the cost of the Purchaser acquiring the shares in the Company was the principal and interest it paid under the Loan Note. The plaintiff’s construction had the effect of double‑counting this cost when determining the “profit” to be shared with the vendors. There was no commercial or logical basis for counting its cost base twice.

53. [265]

    The plaintiff rejoined that the contract conferred a substantial commercial benefit on the vendors, providing that they would be paid a minimum of some $178 million for the shares. Nor could it be said that, at the time of the contract, the plaintiff’s construction led to the profit-share arrangement being redundant. Ms Lock’s spreadsheet showed substantial payments would be made to the vendors on three of the four scenarios modelled. The vendors’ submissions as to context and commercial purpose should be rejected, as appeals to commercial rationality cannot supplant the language used in the contract: The J & P Marlow (No 2) Pty Ltd v Joseph Hayes & Andrew McCabe (2023) 112 NSWLR 29; [2023] NSWCA 117 at [76]–[80] (Bell CJ).

54. [266]

    As Moshinsky, Derrington and Colvin JJ observed in Star Entertainment Group Limited v Chubb Insurance Australia Ltd (2022) 400 ALR 25; [2022] FCAFC 16, “reasoning by reference to commerciality has its limits”: at [11]. This is because what is "business commonsense" is itself a topic on which minds may differ and in respect of which an imputed consensus is impossible: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 at [43]. Nor are judges best placed to assess the commerciality or otherwise of a particular construction: Cirrus Real Time Processing Systems Pty Limited v Jet Aviation Australia Pty Limited (2023) 113 NSWLR 80; [2023] NSWCA 280 at [87]-[88] (Leeming JA, who also noted that the High Court was divided as to whether a construction accorded with commercial commonsense in Ecosse). As the Full Court cautioned in Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance (2020) 282 FCR 561; [2020] FCACF 228 at [56]:

55. [267]

    I agree with the plaintiff that the vendors receive a substantial sum for the Funds’ shares in the Company. Further, the Funds may still receive an Uplift Payment, as Ms Lock apprehended when preparing her spreadsheet in September 2018. But why would anyone ‘double count’ an input into a formula? The very fact that, on a particular construction, a formula will involve ‘double counting’ suggests that the construction is a nonsense.

56. [268]

    The matter is put beyond doubt when one looks to the commercial purpose that was sought to be achieved, being that documented in the Heads of Agreement and not re-negotiated before the Share Sale Agreement was executed. The deal was that the Purchaser acquired the shares, wholly funded by the Acquisition Loan. The Acquisition Loan would be repaid within five years by the ‘dividend sweep’ and / or by the sale of the shares. On repayment of the Acquisition Loan, the Purchaser kept the first $25 million and then shared further equity – whether dividends or sales proceeds – with the vendors 50-50 for some four years.

57. [269]

    In sum, the plaintiff and the vendors both strongly argued differing, and available constructions of the Uplift Payment provisions. The definition of Equity Proceeds is susceptible of more than one meaning and, thus, ambiguous. I disagree with the plaintiff that the provisions are susceptible of only one, plain meaning. The Heads of Agreement may be considered as part of the “events, circumstances and things external to the contract which are known to the parties”, which facilitated “an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’”: Mount Bruce at [49]-[50]; Codelfa at 352 per Mason J. Here, the Heads of Agreement may also be used to resolve the ambiguity. That document points emphatically in favour of the vendors’ construction.

58. [270]

    As the Court of Appeal observed in Coveney v Asbestos Injuries Compensation Fund Ltd [2024] NSWCA 317, “Like most contestable questions of construction, the considerations do not all point in the same direction”: at [97] (Ward P, Leeming and Payne JJA). I agree that the vendors’ construction may result in some surplusages in the ‘tail piece’. But ignoring any surplusages is, I think, a small price to pay to ensure that the commercial purpose of the contract is achieved. I agree that the plaintiff’s construction also literally works, but decidedly uncomfortably so with the whole of cl 10 and the undertakings. The proper construction is that contended for by the vendors, who are entitled to the declaration sought.

59. [271]

    It is not strictly necessary to consider the vendors’ alternative submissions in respect of correction by construction. I will do so briefly. The vendors submitted that, if the Court concluded that the literal words of the definition of Equity Proceeds operated as the plaintiff contended, then the Court should construe the Share Sale Agreement in a way which corrects the obvious error embodied in the definition of Equity Proceeds. The plaintiff submitted that the Court could not so correct as the literal meaning of the text was not absurd or inconsistent. Nor was it obvious on the face of the Share Sale Agreement what the parties should be taken to have meant instead.

60. [272]

    The Court may correct obvious mistakes made by a draftsperson which produce an absurdity, including by reading the text as if words mistakenly omitted are present, to properly reflect the intentions of the parties: Westpac Banking Corporation v Tanzone Pty Ltd (2000) 113 NSWLR 73; [2000] NSWCA 25 at 79 per Priestley and Fitzgerald JJA, Foster AJA. It is not enough that the clause will work better, make more sense or have a more commercial or businesslike operation if so construed: Jireh International Pty Ltd t/as Gloria Jean’s Coffee v Western Export Services Inc [2011] NSWCA 137 at [55]-[56] per Macfarlan JA (Young JA and Tobias AJA agreeing). Nor is it possible to resolve obvious errors by construction if it is unclear how the absurdity is to be resolved: QBT Pty Ltd v Wilson [2024] NSWCA 114 at [74] per Leeming JA (Bell CJ and Ward P agreeing). As Kirk JA summarised the position in Zhong v Guan [2024] NSWCA 300 at [38]:

61. [273]

    If one’s gaze is fixed on the Share Sale Agreement and does not stray wider to, say, the Heads of Agreement, then the plaintiff’s construction is available. But the commercial purpose of the Uplift Payment clause and its embedded definitions, ascertained objectively by reference to “permissible evidence”, is clear: all dividends received by the plaintiff after repayment of the Loan Note are to be shared equally with the vendors, after the plaintiff has received the first $25 million.

62. [274]

    Increasing the threshold at which the profit-sharing arrangement would begin by some $200 million is absurd, not only having regard to the commercial implications but to the fact that proceeding in this manner involves an inexplicable ‘double counting’ of a benefit conferred by the vendors on the plaintiff (being vendor finance) then counted against the vendors to delay them from receiving a benefit (being a half share of ‘super returns’).

63. [275]

    The position intended to be agreed is also clear, displayed in the Heads of Agreement and elsewhere in cl 10 and the undertakings in Schedule 3, as I have endeavoured to explained. I would correct by construing the ‘tail piece’ as follows:

Invitations to tag

1. [276]

   It remains necessary to consider whether the ‘dividend sweep’ obligation was observed. Further, in the event that I am wrong about the proper construction of the Share Sale Agreement, then the vendors sought rectification on the basis of common mistake or, alternatively, unilateral mistake. To establish common mistake, the vendors relied on post-contractual conduct, to which this judgment now turns.

2. [277]

   The morning after the Share Sale Agreement was executed, 12 September 2018, attention turned to the Invitations to Tag. The tag notices would initially be sent to employees who held shares through the MEP. The significance of the tag notices for present purposes is that the notices contained a description of the profit-sharing arrangement which is at odds with that for which Ms Lock now contends. These tag notices were provided to Ms Lock in draft and as circulated but evoked no comment from her.

3. [278]

   At 5.30 pm on 12 September 2018, Mr Szabo made an announcement to staff in respect of the transaction. On 13 September 2018, Mr Defina asked Ms Lock to address various matters in the tag notice, given the questions he had been getting from management. Ms Lock forwarded Mr Defina’s comments to Mr Stevenson and Mr Gordon, asking to discuss the tag notice generally and to address Mr Defina’s questions.

4. [279]

   On 17 September 2018, KWM sent Ms Lock and Clifford Chance the draft tag notices to be sent to the founders and management. Comments were sought. The draft tag notices to be sent to MEP participants summarised the material terms of the proposed transaction as set out in the Share Sale Agreement including:

5. [280]

   On 18 September 2018, Clifford Chance provided its comments on the draft tag notices for the MEP participants and founders, “We also note that [Ms Lock] has provided some feedback separately to [Mr Stevenson] on the drafts.” No edits were suggested in respect of the description of the Uplift Payment in the tag notice to be sent to MEP participants.

6. [281]

   On 24 September 2018, KWM provided Ms Lock and Clifford Chance with the tag notices to be sent to the managers; any final comments were sought. Ms Lock provided no comments.

7. [282]

   On 27 September 2018, the Company approved the proposed transaction. On Friday, 28 September 2018, KWM sent Mr Defina a tag notice, copied to Ms Lock. The Invitation to Tag included the portion in respect of the Uplift Payment. Two more tag notices were sent to eighth defendant, Sheldon Chapman, and ninth defendant, Toby Tan, copied to Ms Lock. Ms Lock tendered her text messages, to demonstrate that she did not speak to Mr Chapman or Mr Tan in respect of the notices. The text messages show that, an hour after receipt of the tag notices, Ms Lock went for a walk.

8. [283]

   On receipt of the Invitation to Tag, the solicitor for the founder, Mr Kerr, posed various questions. KWM proposed to address these matters by an Amending Deed to the Share Sale Agreement. On 2 October 2018, Ms Lock met with Clifford Chance. Later that day, Clifford Chance advised KWM that they had discussed the proposed Amending Deed and changes to the transaction documents with Ms Lock. Ms Lock wished to reserve her position on some points “until she knows the number / identi[t]y of the taggers, as under this new arrangement, the more taggers there are, the more that will need to be repaid in the first 3 years in order to ensure the outstanding amount at 3 years is no greater than $100m”. On 3 October 2018, Ms Lock texted Mr Defina, asking him to call, as “more managers [are] thinking about tagging in”.

9. [284]

   On 12 October 2018, Ms Lock circulated a draft email to Mr Stevenson, Mr Gordon and Mr Szabo for comment. The draft email was to be sent to an employee in the China office, being the thirteenth defendant Daniel Poon, as to whether he wanted to accept the Invitation to Tag. Ms Lock’s draft email explained the ‘tag’ process to Mr Poon, albeit, I accept, not accurately.

10. [285]

    On 16 October 2018, Mr Stevenson advised Ms Lock that “we’re ready to go on tag notices for the China team.” The Invitation to Tag was attached, which included the portion of the letter in respect of the Uplift Payment. Ms Lock replied that she was happy for the tag notices to be sent. On 17 October 2018, KWM sent an Invitation to Tag to Mr Poon, copied to Ms Lock.

11. [286]

    On 26 October 2018, Clifford Chance informed Mr Stevenson and KWM that they understood from Ms Lock that three MEP participants based in China were electing to tag. Ms Lock proposed to alter the arrangements in order to keep these employees incentivised to complete their plans for China, including deferring completion of their ‘tag’ until a later date. On 30 October 2018, Clifford Chance advised that they had discussed this further with Ms Lock, and it had been decided not to pursue the matter. On 20 November 2018, the Amended Deed was executed. Each tagger executed a Deed of Accession to the Share Sale Agreement.

12. [287]

    Ms Lock said she did not engage with the tag notices or suggest any comments, “I don’t recall being bothered by the process. I saw it as a CHAMP process, not my process.” Ms Lock then said that she was interested in the tag notices issued to China MEP participants but “was not close to the earlier arrangement.” Ms Lock ultimately accepted that she was aware of cl 2.5(f) in the tag notices issued to the China MEP participants but did not make any comments at the time to suggest that it was not accurate.

13. [288]

    The contemporaneous documents indicate that Ms Lock was interested and involved in the Invitations to Tag. I do not accept her evidence to the contrary. Ms Lock was aware at the time as to how the profit-sharing arrangement in the Share Sale Agreement was being described to invitees. Ms Lock took no issue with the explanation at the time. Most likely, this was because she agreed with that explanation.

Sharing PwC advice

1. [289]

   After signing the Share Sale Agreement, Ms Lock sought accounting advice from PwC on setting up a family trust to hold her investment in BidCo. On 17 September 2018, PwC provided an updated “Proposed Acquisition Steps Plan”, reflecting the final changes to the transaction. Ms Lock’s comments were sought. The contents of the paper in respect of the “super return” payments to sellers remained relevantly the same: see [148].

2. [290]

   Ms Lock advised PwC, “I am reviewing now.” No comments were made on the “super return” portion of the paper. Ms Lock agreed that she understood that PwC was giving advice to her on the basis of their description of the profit sharing arrangement, and she did not tell PwC that their understanding of that arrangement was incorrect. This is consistent with Ms Lock then agreeing with PwC’s summary of the profit-sharing arrangement.

3. [291]

   Attention also turned to preparing a constitution and shareholders deed for BidCo. On 23 September 2018, Ms Lock shared PwC’s “Proposed Acquisition Steps Plan” with Mr Defina and Mr Szabo, as updated on 21 September 2018. The portion in respect of “super return” remained as earlier described.

4. [292]

   Ms Lock agreed that she sent Mr Szabo and Mr Defina a document that (on her professed understanding) incorrectly described the profit-sharing agreement. Where Ms Lock was about to embark on a substantial business venture with Mr Szabo and Mr Defina, I consider it unlikely that Ms Lock would have sought to mislead her colleagues at the outset in respect of an important feature of their shared endeavour. It is more likely that Ms Lock then agreed with PwC’s description of how the profit-sharing agreement worked at the time.

5. [293]

   In November 2018, a problem arose when Mr Szabo and Mr Defina learned that Ms Lock was receiving $4.5 million via the side letter. This had implications for when the plaintiff would be able to withhold $25 million and when the profit-sharing arrangement with the vendors would begin. On 8 November 2018, Mr Defina emailed Mr Szabo, setting out his understanding of what Ms Lock had told him about the arrangement and how it should be dealt with in the Shareholders Deed for BidCo:

6. [294]

   On 12 November 2018, Mr Szabo’s solicitor, Minter Ellison, complained that the proposed terms in the Shareholder Deed were not fair or equitable having regard to the side letter, noting:

7. [295]

   Ms Lock agreed she did not reply to Minter Ellison that the profit-sharing would not, in fact, begin until BidCo had retained the whole amount of the Loan Note. Ms Lock disagreed that this was because she did not then believe that that was the arrangement.

8. [296]

   On 13 November 2018, Mr Szabo emailed Ms Lock, setting out his understanding of the arrangements in respect of the $4.5 million:

9. [297]

   Mr Szabo did not agree that he and Mr Defina should pay Ms Lock their share of the $4.5 million. Later that day, Mr Szabo emailed Ms Lock again, in advance of a call, to set out his and Minter Ellison’s understanding of how the $4.5 million would be dealt with in the Shareholders Deed: Ms Lock would get the first $4.5 million after the Loan Note was repaid, then $25 million would be shared between the plaintiff’s shareholders before “we start paying CHAMP their uplift payment (ie 50% of Equity Proceeds) ….”

10. [298]

    Although Ms Lock was then speaking to Mr Szabo about his understanding of the profit sharing agreement, Ms Lock did not tell him that the profit sharing only began once the Loan Note was repaid and BidCo had further retained the loan amount, “I did not tell anyone.”

11. [299]

    I divert to address the Investor’s suggestion in these proceedings that KWM should have included a formula or spreadsheet in the Share Sale Agreement to avoid the suggested drafting error. This was attempted, unsuccessfully, in relation to the Shareholders Deed. Mr Szabo and Mr Defina were unclear on how the Shareholders Deed would work in respect of the $4.5 million to be paid by the side letter. Mr Szabo requested a worked example from Ms Lock, which was duly provided. This does not appear to have assisted greatly.

12. [300]

    On 20 November 2018, Minter Ellison provided comments on the proposed Shareholder Deed, but expressed concern whether the definitions “actually achieve the number that [Ms Lock] and [Mr Szabo] have discussed. … Is it easier to include a spreadsheet which shows the cash waterfall … as an example as to how the clause operates?”. Ms Lock provided a spreadsheet, which Minter Ellison endeavoured to put into a drafted formula and, on 22 November 2018, sought confirmation from Clifford Chance that “this is the way it is intended to work”. Ms Lock replied, “I have tried to match the spreadsheet back to [your formula] and I don’t think it works”. That is, whilst using a formula or spreadsheet may be one way of documenting a complicated agreement, it is not necessarily a cure.

13. [301]

    On 28 November 2018, the Shareholders Deed was executed by the plaintiff and the corporate vehicles of Ms Lock, Mr Szabo and Mr Defina. The plaintiff also gave the Loan Note in favour of each Trustee as Noteholder, and granted a General Security Deed to P.T. Ltd as security trustee. As a consequence of the side letter, Ms Lock ceased to be an employee on 28 November 2018.

14. [302]

    For completeness, Ms Lock continued to represent the Investor on the board of various companies for the next three years. On 22 January 2019, Ms Lock signed a consultancy agreement with CHAMP III Management and the Manager, supplementing the terms of the side letter. Ms Lock’s company, FX Lock Pty Ltd, was engaged to provide services, with Ms Lock to be made available to carry out those services. Ms Lock continued to represent CHAMP III on a board until early 2020. Ms Lock continued to be a director for a CHAMP IV investment on two boards until mid-2021.

Getting tax advice

1. [303]

   Attention turned to working through various Pepperstone tax issues with Ernst & Young. On 5 December 2018, Ms Lock provided a further draft of PwC’s report to Mr Defina and Ernst & Young. Again, Ms Lock did not suggest, either to Ernst & Young or Mr Defina, that the description in the PwC report of the “super return” was inaccurate.

2. [304]

   On 25 February 2019, Ms Lock sent Mr Defina her comments on a spreadsheet which estimated the value of Uplift Payments using a discounted cashflow model. Ms Lock had “toned down the assumptions in outer years” before discounting. Ms Lock asked Mr Defina to “sense check” the model. Ms Lock agreed that the model showed Uplift Payments beginning as soon as the Loan Note was repaid and after $29.5 million. That it, the Uplift Payments were not deferred until after the plaintiff had retained the whole amount of the Loan Note in addition to $29.5 million.

3. [305]

   Mr Defina provided his input on 1 March 2019. Ms Lock replied, “Agree with all those changes. … will send across to [Ernst & Young] now”. Ms Lock emailed the spreadsheet to Ernst & Young, described as “our valuation model on the Uplift Payment”, for review and comment.

4. [306]

   Ms Lock agreed that she did not suggest that the profit sharing would not begin until after further retention of the Loan Note amount. Ms Lock agreed that she did this in the context of seeking tax advice from Ernst & Young and that it was important that the accountant was given accurate information about her valuation of the Uplift Payment. Ms Lock said that she provided Ernst & Young with a model of the uplift valuation that she knew was incorrect but did not tell Ernst & Young of this at the time. Nonetheless, Ms Lock said “I sought to model the uplift payment per CHAMP’s construction because I thought there’d be a negotiation in future years that might result in that construction.”

5. [307]

   More likely, Ms Lock modelled how she thought the transaction documents operated, and would operate, in the years which followed. Ms Lock did so as accurately as possible, in order to provide Ernst & Young with accurate information on which it could base its tax advice.

Re-negotiating the Buffer Amount

1. [308]

   Separately, Ms Lock sought to renegotiate certain aspects of the Share Sale Agreement and Loan Note. On 15 September 2018, that is, four days after executing the Share Sale Agreement, Ms Lock raised concerns that the Buffer Amount was not enough.

2. [309]

   In March 2019, Ms Lock complained that some of the drafting of the Loan Note was “a result of a very stressful 24-48 hours proceeding the CHAMP signing deadline where a number of significant things moved around and changed. … I think this has resulted in the signed agreement not reflecting what people believed to be the final position on a few points.” Ms Lock further advised, “It is not my intention to profit from these errors or problems, I just want to address all of them in a discussion between CHAMP and Pepperstone.” If the sentiment there expressed was genuine, it stood in stark contrast to Ms Lock then being aware of a drafting error in the Share Sale Agreement, which she intended to keep secret and from which she intended to profit. It suggests Ms Lock was not then aware of such an error.

3. [310]

   Mr Stevenson was not interested in re-negotiating the provisions about which Ms Lock complained. Nonetheless, Ms Lock provided Mr Stevenson and Mr Gordon with a paper, “VLND Discussion” on 29 March 2019, seeking to renegotiate various aspects of the deed, including the Buffer Amount. The parties met on 29 April 2019. Ms Lock provided further information in support of her position on 3 May 2019.

4. [311]

   The parties met again on 5 August 2019. Ms Lock circulated a proposed email to be sent to the Investor, for comment by Mr Szabo and Mr Defina, including “Through its 50% upside sharing, CHAMP is the largest individual stakeholder exposed to the equity value and has more at stake than [the founders]. So yes, I think CHAMP should wear its proportional share of this additional capital required to protect equity value.” There is no evidence that this email was sent to the Investor. But there was no suggestion in Ms Lock’s draft email that the “50% upside sharing" would be deferred in the manner now suggested.

5. [312]

   In November 2019, Ms Lock sent a further presentation to Mr Haddock and Mr Stevenson, seeking to increase the Buffer Amount. The parties met for a third time. Ms Lock asked Mr Szabo whether he had a copy of work completed by financial advisory firm, Rochford Capital, in 2018, which might support their request to increase the Buffer Amount to $15 million. Mr Szabo suggested that Rochford be retained.

6. [313]

   On 27 November 2019, Rochford enquired what was needed. Pepperstone chief financial officer, Gordon Buchanan, advised that a three to five page document “which passes the private equity test, ie mounts a convincing argument, was required”. The objective was to “scientifically ascertain an appropriate level of capital buffer for the directors of the business to withhold in addition to the ASIC current requirement [where the] current arrangements with [the Investor] demands that all reserves above buffer are dividended quarterly. … We … want to discuss increasing the $10 million to [the Investor].”

7. [314]

   In February 2020, Ms Lock provided an update to Mr Haddock and Mr Stevenson, advising that Pepperstone had engaged Rochford to assess the correct capital base. On 13 March 2020, Mr Szabo emailed Ms Lock, expressing concern that the $10 million buffer was “wholly inadequate and I actually think that $40mil is closer to the level that makes me comfortable”. Mr Szabo wanted to push this strongly with the Investor, “I guess I’m suggesting a bit of a fight”. Mr Szabo also noted that he was aware of a party who was interested in providing funding, “I bet CHAMP would jump at the opportunity to get paid out in the current environment.”

8. [315]

   On 17 March 2020, Ms Lock reported to Mr Haddock, Mr Gordon and Mr Stevenson, “We have been working internally and with Rochford to re-design our risk management policy and capital requirements, given the growth in the business and volatility. Quick summary is that we will need more capital.”

9. [316]

   Rochford issued its “Pepperstone Stress Test” on 15 April 2020. Rochford noted that Pepperstone “has carried an arbitrary net tangible asset buffer of AUD 10 million over regulatory capital requirements. As neither the regulatory capital nor the AUD 10 buffer are derived from a risk calculation connected to trading volumes … the board is concerned that this could potentially leave the company materially undercapitalised in the event of a significant market event or a period of sustained trading losses.” Rochford noted that Pepperstone was “running a significantly leaner balance sheet than its listed peer group.” Rochford recommended that Pepperstone carry a liquidity buffer of USD 33 million. Although Pepperstone had maintained an AUD 10 million buffer over Australian regulatory capital requirements, volumes had increased since CHAMP’s exit.

10. [317]

    The Rochford report had been amended multiple times with the input of Ms Lock, Mr Szabo and their colleagues and, in Mr Szabo’s words, “paints a very useful picture”. Ms Lock provided the report to the Investor. Ms Lock agreed that she had the Rochford report prepared in order to seek to persuade the Investor to increase the Buffer Amount.

11. [318]

    On 22 April 2020, Mr Szabo emailed his colleagues, noting that a dividend payment to the Investor was due in a few weeks, “I am assuming we are going to withhold payment of the recommended dividend given we will be undertaking a negotiation of increasing the buffer to the much more reasonable amount, namely USD 33mil as recommended by the Rochford work.” Ms Lock replied that she would give him a call to “have a chat about tactics. I agree there is no way we should pull our buffer back to $10m …”. Ms Lock emailed the Investor again, following up her request for a meeting. Mr Stevenson’s reply indicates that he was in no rush. In light of this, Ms Lock reported to Mr Szabo that she considered the best approach was to advise the Investor that they would defer the payment of the dividend to allow time to finalise discussions.

12. [319]

    On 27 April 2020, Ms Lock proposed to the Investor that the dividend be deferred to allow time to discuss the matter “and commercially agree the new buffer amount”. Mr Stevenson replied, “we’d prefer to stay with the current contracts and payment frequency please.” Ms Lock reported to her colleagues that the Investor was “not being very co-operative.” Ms Lock proposed to pay a dividend of $15 million and withhold $16.5 million as, in Mr Buchanan’s words, “an effective increase to the buffer”.

13. [320]

    Ms Lock spoke to Mr Stevenson, who said withholding a dividend payment was unacceptable to the Investor. If the Company wanted to raise capital to increase its regulatory capital reserves, any such capital could be excluded (or “ring fenced”) from the dividend sweep under the Share Sale Agreement and Loan Note. On 2 May 2020, Mr Stevenson followed up their conversation with an email in firm terms, seeking a written explanation of the decision of the board to hold back some of the dividend, including why Ms Lock, as the representative of the Company on the board (with majority voting control), did not cause a vote in line with her contractual obligations under the Loan Note.

14. [321]

    Of this, Mr Szabo suggested to Ms Lock that they seek to buy the Investor out with debt finance, “raising funds may be hard but … if we pay more interest it’s better than the scenario we are in now – get rid of the upside share, [the Investor] and we get the flexibility we want”.

15. [322]

    Ms Lock called Mr Haddock. On 4 May 2020, Mr Haddock proposed that the full dividend be paid. He would hold the funds until the earlier of a commercial agreement being reached regarding the Buffer Amount and funding, or 18 May 2020. If agreement had not been reached, Mr Haddock would not release the funds until a way forward had been discussed. Ms Lock agreed.

16. [323]

    Mr Szabo maintained the view that “we should focus on financing out [the Investor] over the next 6 months if possible … living with this for 7 years is not great”. Ms Lock called on her fellow shareholders to advance loans to the Company. Mr Szabo thought they may do better borrowing funds from the Investor.

17. [324]

    On 1 June 2020, Mr Stevenson advised Ms Lock that the Investor was prepared to adjust the Share Sale Agreement and Loan Note to change the capital retention and calculation of dividends. The Investor’s proposal was detailed, suggesting that the NTA Requirement be replaced with a concept of Global Regulatory Capital, to reflect the regulatory capital held to support licences where Pepperstone traded worldwide. Global Regulatory Capital could be fixed at an initial cap of $33.6 million but increased up to $40 million, provided that some 60% of the increase was added to the principal outstanding under the Loan Note. Reductions below $33.6 million would form part of a distribution.

18. [325]

    As for the Buffer Amount, the Investor offered to permit a portion of the distribution be held back to ensure that the $10 million Buffer Amount was maintained if, 35 days after the end of a quarter, it was evident that payment for distribution would make the buffer drop below $10 million on top of the Global Regulatory Capital (that is, using a “Look Back Test”). Any amount held back would remain as a debt owing by the business, to be paid when trading profits restored the buffer back to $10 million. As an alternative, the Company could request an increase in the buffer up to $50 million, provided that some 60% of the increase was added to the principal outstanding under the Loan Note.

19. [326]

    Ms Lock regarded the proposal as “unreasonable”. Further negotiations ensued. Mr Szabo suggested that they speak to the founders to see if they were interested in selling down their stakes through raising debt, and using those funds to buy equity and gain control.

Modelling a buy-out

1. [327]

   On 10 June 2020, Ms Lock replied to Mr Szabo, “My brain works in spreadsheets so I have modelled 3 scenarios” including “1. Stay with the CPE arrangements as is”, Mr Szabo’s suggestion or refinancing to pay out the Investor. Ms Lock noted that her modelling “does show that staying with [the Investor] is not a bad option”. Importantly, Ms Lock’s spreadsheet in respect of “1. Stay with the CPE arrangements as is” indicated that Ms Lock then understood the Share Sale Agreement to operate as contended for by the vendors in these proceedings.

2. [328]

   Specifically, Ms Lock modelled the dividends that the Company would declare each year until the end of the profit-sharing arrangement in January 2027. The Loan Note was expected to be repaid by the end of the 2023 financial year. In the 2024, 2025 and 2026 financial years, together with the six months to January 2027, Ms Lock modelled the projected dividend available to shareholders, from which the plaintiff’s Retention Amount ($29.5 million) was deducted before the resulting Uplift Payment to the Investor was calculated.

3. [329]

   Unlike Ms Lock’s initial spreadsheet shared with Clifford Chance on 7 September 2018, she did not deduct the Acquisition Loan from the available dividend before determining whether any Uplift Payment was owing. The Uplift Payments began to flow to the Investor immediately after the Loan Note was repaid. In the first year in which Uplift Payments were made, $29.5 million was retained by the plaintiff before the balance of available dividends were shared equally with the Investor. In subsequent years, the available dividend was shared 50:50.

4. [330]

   By contrast, Ms Lock maintained in cross-examination that she was modelling the Investor’s construction of the Share Sale Agreement. Although Ms Lock said in the cover email that she was modelling the arrangements “as is”, “They’re the words I’ve used. My intention was that this is the negotiated outcome we’re going to have to get to with [the Investor].” Ms Lock agreed that she did not tell Mr Szabo that this was the basis of her modelling in their email “but we were having constant dialogue through this time.” Ms Lock said that, at this point in time, Mr Szabo knew the way the Share Sale Agreement worked, “I have a recollection of telling Tamas that the SSA worked one way, in my understanding, and that [the Investor] understood it a different way. I recall it being at a high level. I’m not sure what he knew.” More likely, the model simply reflected how Ms Lock expected the profit-sharing arrangement to unfold given the terms of the Share Sale Agreement.

5. [331]

   By 12 June 2020, agreement had been reached on a change in the Buffer Amount. On 30 June 2020, Ms Lock circulated proposed amendments to the Share Sale Agreement, Loan Note and Amending Deed to give effect to this agreement.

A memory jogged

1. [332]

   On 1 July 2020, KWM began reviewing the proposed documents prepared by Clifford Chance, to effect the agreement on a change in the Buffer Amount. In the course of working through the proposed amendments, KWM identified other amendments to the transaction documents, specifically, to the definition of Equity Proceeds and cl 10.

2. [333]

   The vendors submitted that KWM discovered a problem with the drafting when they used a worked example, pointing to an entry in KWM’s invoice. I do not consider that there is a sufficient basis to draw that inference, where the detailed invoice describes a number of occasions on which drafting problems may have been identified, before and after a worked example was prepared. A drafting deficiency may equally have been identified in a conference with the senior partners from both the Corporate and Banking teams at the outset.

3. [334]

   In any event, on 28 July 2020, Mr Coull distributed the revised documents to Mr Stevenson. Mr Stevenson asked Mr Coull why he proposed to amend the definition of “Equity Proceeds”. Mr Coull said that it was to tidy up the drafting and to ensure that the definition operated as intended; the amendment was in abundance of caution and should not be controversial. Mr Stevenson said, “KWM were not telling us there were any concerns with this drafting.”

4. [335]

   Mr Stevenson understood that the amendments proposed by KWM were “tidy ups”, which were common in commercial agreements. He did not believe that the Share Sale Agreement and Loan Note operated other than in accordance with the Heads of Agreement. Mr Stevenson did not think that the Share Sale Agreement needed to be amended in order to give effect to the profit-sharing arrangement recorded in the Heads of Agreement. Nor did Mr Stevenson have any reason to doubt that Ms Lock shared his understanding of the profit-sharing arrangement. He did not expect that the changes proposed would be controversial or problematic.

5. [336]

   On 6 August 2020, KWM provided Ms Lock and Clifford Chance with comments on the proposed documents and proposed additional amendments. In particular, KWM proposed to delete the ‘tail piece’ to paragraph (a) of the definition of Equity Proceeds, to delete the definition of Purchaser Net Equity Proceeds and to make further amendments to cl 10.

6. [337]

   This prompted Ms Lock to recall her initial thoughts as to how the Uplift Payment clause worked. On 12 August 2020, Ms Lock emailed Mr Defina, attaching the spreadsheet which she had sent to Clifford Chance two years earlier: see [150]. Ms Lock agreed that this was the first time that she had shared this model with anyone else at the plaintiff. Ms Lock agreed that she was only prompted to do so by KWM’s proposed amendments.

7. [338]

   On 18 August 2020, Ms Lock emailed Mr Defina again, this time attaching a new spreadsheet, “Uplift valuation” and asked him to check her calculations “and see if you agree under the 2 approaches”. The spreadsheet had two sheets:

8. [339]

   On 19 August 2020, Ms Lock circulated a second version of the “Uplift valuation” spreadsheet to Mr Szabo and Mr Defina, “showing the value of the Uplift Payment to CPE … shown from CPE’s perspective and from what the VLN actually says. … My view is if we deal with CPE reasonably, we may [get] early engagement around a refinance and get an outcome. What is reasonable? Something around $20-30m for the uplift payment?”. These spreadsheets modelled both the “CPE View” and the “Documented View” on low, base and high projected profits.

9. [340]

   Ms Lock agreed that she was seeking to use the “Documented View” to put a lower value on the Uplift Payment for the purposes of negotiating a buy-out with the Investor, “I saw that [the Investor] had an issue in the document and I was going to point that out to them. … it would be one of the things we negotiated.”

10. [341]

    On 20 August 2020, Mr Szabo responded with enthusiasm, noting “The material error in the uplift payment that [Ms Lock] has pointed out is our most powerful negotiating chip … they desperately want to correct it in the redraft. … As [Ms Lock] has mentioned we cannot agree to the proposed redraft and should make that clear.” Ms Lock agreed that she called the double-counting of the loan repayment an error, “At times I would have called it an error, yes.” Ms Lock agreed that this was because she knew that the double-counting meant that the profit-sharing agreement did not reflect what had been agreed in the Heads of Agreement.

A ‘low-ball’ offer

1. [342]

   Mr Szabo and Ms Lock looked to refinance the Investor out of Pepperstone. On 28 August 2020, Ms Lock raised the subject with Mr Haddock. Mr Stevenson enquired whether, in the circumstances, Ms Lock intended to finalise the proposed amendments to the Share Sale Agreement and Loan Note. There was no reply.

2. [343]

   On 14 September 2020, Ms Lock sent a draft email to Mr Defina, proposing to advise a potential financier:

3. [344]

   Ms Lock said that she did not propose to tell the financier the “Documented View” as “I was proposing to keep it at a high level because I didn’t think it was their business.” Ms Lock did not propose to tell the financier of the “Documented View”, not the “ins and outs, no.” More likely, I consider that Ms Lock was minded to give a prospective financier an accurate picture of how she understood the arrangements with the existing financier to work. And that was not the “Documented View”.

4. [345]

   On 20 October 2020, Mr Stevenson followed up Ms Lock, noting that he had left her a message the previous week and was keen to get an update on how things were progressing with the refinance, “Also, are we reverting to the original documents or will you be providing comments/confirming we are agreed on the amendments? I am conscious that the Sept quarter payment and calculation is coming up.” They spoke. Ms Lock said that she would prefer to leave the transaction documents as they were while she continued to develop a proposed tax restructure. Mr Stevenson was a little surprised as, earlier that year, Ms Lock had appeared anxious to agree to increase the Buffer Amount.

5. [346]

   By November 2020, Ms Lock had a finance offer from a Hong Kong investment company. Another offer was imminent. Neither were attractive. Ms Lock considered that it may be better to proceed with the amendments already negotiated with the Investor. Ms Lock knew that, in that event, she would have to accept KWM’s amendments to the profit-sharing provisions; the Investor would insist on it, as it was their understanding of the deal. Ms Lock suggested to her colleagues that, on obtaining term sheets from potential financiers, they approach the Investor “and lay out 3 options – cash out for $90m, fix their debt at $100m or accept the ‘new current’ deal … (but accept we are going to change the upside clause)”.

6. [347]

   On 3 December 2020, Ms Lock finally replied to Mr Haddock and Mr Stevenson, offering to refinance the Investor out of Pepperstone for $85 million, including “$20m to extinguish the future Uplift obligation.” As I read Ms Lock’s modelling, this was somewhere between the base and high models of her “Documented View”. Ms Lock agreed that she valued the uplift using her “Documented View” as a negotiating tactic. Perhaps noteworthy, Ms Lock did not disclose to the Investor how she thought the Uplift Payment clause worked, nor share her “Documented View”, at the time.

7. [348]

   Mr Haddock regarded the offer as unacceptable, as it undervalued the amount that the Investor was likely to receive under the ‘super return’ arrangement, based on Pepperstone’s historical performance. That does appear to have been a fair assessment, if Ms Lock’s modelling of the “CPE View” is any guide. On 8 December 2020, Mr Stevenson replied to Ms Lock, “Unfortunately the offer to extinguish the Uplift is materially under what we would consider a fair value for that future cashflow stream.” Mr Stevenson suggested that they go back to amending the transaction documents as earlier discussed. He offered to look at alternative structures, like exchanging the Uplift Amount for an increase in the Loan Note, albeit “that would require reaching agreement on a value of the future uplift.”

8. [349]

   Ms Lock was displeased, emailing her colleagues on 9 December 2020 that the Investor would not agree to the restructure “unless we agree to changing the VLN/Uplift payment” and enquiring whether they should “go back with a full mark-up of the VLN with everything we want changing/accepting we give-up the Uplift Payment to get those things”. Ms Lock expected that the Investor would insist on KWM’s amendments to the uplift provisions.

9. [350]

   On 10 December 2020, Ms Lock replied to Mr Stevenson, feigning surprise that the Investor valued the Uplift Payment at a multiple of what had been proposed. Mr Stevenson was asked to provide a number for what he was expecting “in terms of full cash out so there is no ambiguities.” Ms Lock indicated that the urgency with the restructure, changing the Buffer Amount and regulatory capital had now gone and they had decided to stay with the current agreement, “Furthermore the additional changes included in the [Investor] mark-up which were not raised in the initial commercial agreement are not acceptable, including changes to … uplift wording … ”. As Mr Buchanan remarked, “Game on”.

10. [351]

    Mr Stevenson and his colleagues prepared an analysis of what the Uplift Payment was expected to be and formulated a figure which the Investor was prepared to accept to be ‘bought out’. These emails – of which there are many – do not refer to any apprehension on the Investor’s part that the Uplift Payment clause operated other than as contended by the vendors in these proceedings. Nor is there evidence that Mr Stevenson or his colleagues apprehended that Ms Lock had a different view of the operation of the profit-sharing arrangements at the time.

11. [352]

    On 15 December 2020, Mr Stevenson emailed Ms Lock and Mr Szabo, providing their analysis of the potential Uplift Payment, forecast at between $85 million and $150 million. Mr Stevenson added that, if Ms Lock’s genuine view was that the value of the total Uplift Payments was worth $20 million, then Pepperstone’s EBITDA would need to reduce immediately and substantially, in which case “we are probably a buyer of your stake and would be open to exploring such scenarios.” Ms Lock replied on 17 December 2020 that there was no point continuing discussions at that time, as it was clear that they had different views “on the outlook of the business and the uplift valuation approach”. There matters lay for three months.

“Game on”

1. [353]

   On 8 March 2021, Mr Stevenson followed up Ms Lock for the annual certification required by cl 10.3 of the Share Sale Agreement. Ms Lock provided the certificate, confirming that, for the 2020 financial year, no Equity Proceeds had been retained by the Buyer, nor was there any Uplift Amount. In performing this calculation, payments under the Loan Note had been deducted twice before determining the Uplift Payment. Ms Lock knew that the Investor would disagree with this calculation.

2. [354]

   It appears to have taken the Investor some time to work out what Ms Lock had done and why, with Mr Gordon noting that if the definition of Equity Proceeds had been interpreted in this way “that would not be consistent with the commercial understanding of the parties.” Mr Stevenson proposed to provide Ms Lock with the Investor’s certification “to flush out if she is being cute or just misinterpreted the text.” Mr Stevenson noted that the key thing was to draw Ms Lock out on whether she was going to argue that Equity Proceeds excluded amounts paid on the Loan Note, “It’s nonsense to think it does.”

3. [355]

   On 2 June 2021, Mr Stevenson emailed Ms Lock, noting that it was not correct to say that there were no Equity Proceeds retained, “This is not the correct interpretation of the definition … If Equity Proceeds excluded amounts used to repay the [Loan Note] then effectively we would have to repay 2 x of the face value of the [Loan Note] before sharing in any upside – clearly not what was agreed or intended) … The legal drafting is a bit clunky in parts but the commercial deal was at its heart quite simple – once the [Loan Notes] are repaid, you get the next $25m of dividends/return and after that we split all dividends, capital returns, proceeds from sale etc 50-50.” Ms Lock was asked to have the certificate re-issued. Mr Stevenson followed up Ms Lock, twice.

4. [356]

   On 7 July 2021, Ms Lock replied disingenuously, “Sorry I have been pretty snowed and to be honest your e-mail got a bit lost in my inbox.” A month later, Ms Lock finally replied, noting that she did not agree with Mr Stevenson’s interpretation of Equity Proceeds. Mr Stevenson reported to Mr Haddock, “Your sniffer was right”.

5. [357]

   Mr Stevenson said that he discussed with Mr Haddock and Mr Gordon what steps they should take next, given that it seemed that they were not going to convince Ms Lock to retract her interpretation of the Share Sale Agreement nor amend the certificate. Mr Stevenson prepared a draft response for Mr Haddock’s consideration, to the effect that Ms Lock’s view was not correct. Whilst the drafting “could be better”, her interpretation would lead to a result that was “directly and materially at odds with the commercial deal central to the transaction” as set out in the term sheet. They decided to wait and see what Ms Lock would do once the plaintiff had repaid all amounts owing under the Loan Note. The draft response was not sent to Ms Lock. Mr Stevenson stopped communicating with Ms Lock on the subject.

6. [358]

   In October 2021, Mr Buchanan provided a certification for the 2021 financial year, proceeding on the same basis as the 2020 certification.

7. [359]

   As the final repayment of the Loan Note drew near, Ms Lock prepared to repay the $4.5 million that the Investor had ‘loaned’ her since the first dividend distribution, and to implement the agreement made with Mr Szabo and Mr Defina in the Shareholders Deed in respect of this amount. On 2 November 2021, Ms Lock sent a further spreadsheet to Mr Defina in respect of “FL Costs”. This was prepared to address a dispute with founder, Mr Kerr, and to “Start cross-checking the modelling of truing up the $4.5m paid to me by [the Investor], that will need paying back out of our first FXGH distribution.” Ms Lock also provided the spreadsheet to Ernst & Young, explaining “This attached spreadsheet is how it was documented in our FXGH Shareholders Agreement.”

8. [360]

   The spreadsheet contained three sheets, “FL Costs”, “FXGH Cashflow – no 4.5m” and “FXGH Cashflow – with 4.5m”. In the two cashflow sheets, Ms Lock forecast that the Loan Note would be repaid in August 2022. After this, dividends paid by the Company were forecast to be paid to the Investor as Uplift Payments. The cashflow sheets contained rows setting out “CPE Uplift Payment Working”, calculating the amounts available to be shared with the Investor after $25 million, then the Investor’s 50% amount. Uplift Payments were forecast to be paid from May 2023 to February 2027, totalling $88.3 million, but discounted to a net present value of $71.9 million. That is, in calculating the Uplift Payment, Ms Lock did not offset the payments made under the Loan Note before calculating the Uplift Payment to be made to the Investor.

9. [361]

   Ms Lock agreed that this model reverted to calculating the profit sharing agreement as she had done before KWM circulated its amendments in August 2020. Ms Lock agreed that she used the “CPE View” rather than the “Documented View” for the plaintiff’s internal workings.

10. [362]

    On 16 December 2021, Ms Lock emailed Mr Szabo, noting that the Loan Note would soon be repaid and the $4.5 million would need to be dealt with in accordance with the Shareholders Deed, “once the 50/50 arrangement kicks in, I claw back $2.25m (because the 50/50 sharing was pushed out to 29.5m because of this arrangement ie 25+4.5)”. Ms Lock set out how the $4.5 million would be ‘trued up’ with Mr Szabo and Mr Defina, depending on whether “the 50% sharing has kicked in”. The spreadsheet set out how the first $4.5 million would go to Ms Lock to repay the Investor, then the “Next 25 strip”, followed by the “Next 50% shared strip”. The spreadsheet did not forecast that the 50% profit sharing would be deferred until the plaintiff had retained the amount of the Loan Note. Ms Lock sent the same material to Mr Defina.

11. [363]

    Ms Lock agreed that she was addressing the matter at that time, as repayment of the Loan Note was imminent. The profit sharing arrangement was due to begin, “In this model yes.” Ms Lock agreed that she did not say that the 50-50 profit sharing only kicked in after retention of the $29.5 million as well as the whole of the Loan Note. Ms Lock agreed that her model was based on the “CPE view”, not the “Documented View”. Ms Lock denied that the reason why she did this was because she knew the way that the profit share agreement operated was to begin after retention of $29.5 million. Ms Lock disagreed that the profit sharing arrangement in the Share Sale Agreement actually operated in that manner.

12. [364]

    In February 2022, Ms Lock sent a spreadsheet to Mr Defina, projecting dividend distributions for the plaintiff under a proposed share issue. Ms Lock also modelled the existing distributions under the Shareholders Deed, including the initial payment of $4.5 million to Ms Lock, followed by $25 million shared amongst the plaintiff’s shareholders. The spreadsheet showed that, whilst the $25 million was progressively paid to the plaintiff (depicted in increments of $500,000), none of this was distributed to the vendors. The spreadsheet then moved to “Normal Sharing (post 50% kicking in)”. The spreadsheet continued to show the distribution of dividends in $500,000 increments, of which half was paid to the vendors. Again, there was no suggestion that the 50:50 profit share with the vendors was delayed by offsetting the amounts repaid on the Loan Note.

13. [365]

    On 1 May 2022, Ms Lock emailed her colleagues, noting that the Loan Note would soon be repaid and “we need to now focus on the conditions of the Share Sale Conditions (where the Uplift Payment is governed).” Mr Szabo mused as to how nice it would be to get rid of the Investor, noting that they needed to do some maths to work out what it was worth to them. Ms Lock advised that she had updated the modelling that she did 12 months earlier “valuing the Uplift Payment under the documented view and the CPE view.” Ms Lock agreed that, in the months which followed, she again considered the possibility of buying-out the Investor. In doing so, Ms Lock used her earlier modelling, valuing the Uplift Payment on the basis of the “Documented View”.

14. [366]

    That is, when it mattered to Ms Lock to be accurate – either to her colleagues or advisers – she described the profit-sharing arrangements as set out in the “CPE View”. When Ms Lock was endeavouring to negotiate a better outcome with the Investor, she used the “Documented View”. I consider that this reflected that Ms Lock actually thought that the profit-sharing arrangement operated in the same way as the Investor.

15. [367]

    On 5 May 2022, the Loan Note was repaid in full, following the dividend distribution for the quarter ending 31 March 2022. The total amount paid in principal and interest was $211,686,064.50. As the Loan Note had been paid out, the plaintiff’s obligations in respect of the ‘dividend sweep’ were now governed by the Share Sale Agreement, in particular, cl 2.6(a) of Schedule 3.

16. [368]

    On 10 May 2022, Ms Lock emailed a Notification of Uplift Amount to Mr Stevenson, which was calculated on her asserted interpretation of the definition of Equity Proceeds. Mr Stevenson remarked to his colleagues, “This looks to me like she thinks we repay the [Loan Note] twice … ie she is actually going to go for that crazy interpretation.”

17. [369]

    On 13 May 2022, Mr Stevenson emailed Ms Lock, pointing to a “material error”. Ms Lock disagreed, “Perhaps it’s time to have a chat across all the issues?”. Fairly transparently, Ms Lock was seeking to use this issue as a negotiating point, for the arrangements overall, including to potentially buy out the Investor. Ms Lock agreed that her calculation of the Uplift Amount was going to form part of the negotiations, to try and improve her position.

18. [370]

    Mr Haddock discussed with Mr Stevenson and Mr Gordon how they should proceed, given that Ms Lock appeared to be continuing to press an interpretation of the deal that was fundamentally different to what they had all agreed to. It was thought that Ms Lock was pushing this interpretation as a way to exert some leverage over the Investor in relation to one or more other issues that Ms Lock was focussing on. Mr Haddock said he was very open to negotiating amendments to the Share Sale Agreement if there was good reason to do it and it was in the interests of the Funds. Mr Haddock thought that Ms Lock wanted to put something to the Investor and may want to make another offer to buy out the Investor. He agreed that Mr Gordon should meet with Ms Lock, to see what she wanted. Mr Gordon was chosen as he had a friendly relationship with Ms Lock and had worked closely with her on the Pepperstone investment.

19. [371]

    On 25 May 2022, Mr Gordon offered to meet with Ms Lock, noting “I’m keen to make sure things don’t get out of hand unnecessarily.” They met. On 15 June 2022, Ms Lock emailed Mr Gordon, noting that they were “modelling the CPE perspective of the deal and not what the contract says.” Ms Lock wished to see “if we could negotiate a reasonable exit fee for CPE rather than see this escalate”. Ms Lock agreed that the reason she was adopting her view of the profit sharing arrangement was to improve her prospects of exiting that arrangement.

20. [372]

    On 22 June 2022, Mr Stevenson responded at length, expressing surprise and disappointment that Ms Lock continued to press an incorrect interpretation of the contract, “we cannot be any clearer in saying at a variety of levels you are incorrect.”

21. [373]

    Ms Lock issued a further Notice of Uplift Amount on 1 August 2022, calculated in accordance with her asserted interpretation of the Share Sale Agreement. On 11 August 2022, however, Mr Defina emailed Ms Lock, attaching the spreadsheet which Ms Lock had earlier prepared and sent to Ernst & Young on 1 March 2019 in connection with Pepperstone tax issues: see [305]. Mr Defina warned:

22. [374]

    Obviously enough, Mr Defina could see the inconsistency between how Ms Lock had explained the operation of the Uplift Payment to Ernst & Young in 2019, and what she was now asserting that she understood it to mean. Ms Lock agreed that Mr Defina was warning her that the approach to the profit sharing arrangement that she was putting forward at the time was different to the approach she had earlier sent to Ernst & Young.

23. [375]

    Mr Stevenson patiently repeated the problem with the Notice of Uplift on 11 August 2022, requesting that the notice be reissued correctly. On 19 August 2022, Ms Lock replied that she would be in further communication in relation to the points made in respect of the Notice of Uplift Amount. On 30 September 2022, the Manager sent a letter of demand. The plaintiff’s solicitor rejoined on 5 October 2022. On 7 October 2022, Ms Lock emailed her colleagues, noting that she had gone through the Rochford report “and I think it has exactly what we need, we just need to update the data.”

These proceedings

1. [376]

   On 18 October 2022, the plaintiff commenced these proceedings against the Trustees and those who had accepted an Invitation to Tag, seeking declaratory relief in respect cl 10 of the Share Sale Agreement and its embedded definitions. The same day, Ms Lock emailed her colleagues regarding updating a risk capital paper to the Pepperstone board, to increase the buffer to $50 million.

2. [377]

   It is difficult to see these two events as unrelated. Perceptively, I think, founder Mr Davenport cautioned Ms Lock, Mr Szabo and Mr Defina on 25 October 2022 from seeking an additional cash buffer at this time:

3. [378]

   Ms Lock then spoke to Mr Davenport, who confirmed on 2 November 2022, “we’re on the same page on this”. The result was that a Risk Capital Review paper was submitted to the Pepperstone group board, recommending that the analysis be externally reviewed and validated as expeditiously as possible. Rochford was retained to evaluate the Risk Capital Review.

4. [379]

   On 9 November 2022, Ms Lock provided Mr Stevenson with a Notice of Uplift amount for the 2022 financial year, using the same methodology as previously. On 1 December 2022, the Trustees and the Manager filed a Cross-Summons, seeking declaratory relief in respect of the Share Sale Agreement or, alternatively, rectification.

5. [380]

   In January 2023, Ms Lock provided comments on a draft Rochford report, which was finalised on 27 January 2023, entitled “Pepperstone Capital Adequacy Review 2023.” Rochford had evaluated the internal Risk Capital Review paper and determined Pepperstone’s appropriate liquidity buffer to ensure compliance with regulatory capital requirements and sufficient liquidity to tolerate market losses and price gap risks, as well as liquidity for operating expenses and trapped cash at clearing brokers. Rochford recommended that Pepperstone create a Total Liquidity Requirement (TLR) Stack, in addition to regulatory capital, of between $29.2 million and $64.5 million.

6. [381]

   A report was prepared for the Pepperstone board meeting on 31 January 2023. The meeting was chaired by Ms Lock and attended by fellow directors Mr Szabo and Mr Davenport. The Company resolved to engage a second external specialist firm to consider the matter but, pending receipt of that report, to maintain a minimum total liquidity requirement (TLR) of $29.2 million. As a consequence, on 3 February 2023, the dividend declared by the Company was reduced to a mere $848,408. This was recorded in the Notice of Uplift Amount issued by Ms Lock on 8 February 2023 to Mr Stevenson, who was suitably unimpressed. Presumably, all of this was intended to bring pressure to bear on the Investor.

7. [382]

   In March 2023, Ms Lock engaged KPMG to provide a second report for the Pepperstone group. KPMG was asked to validate the models and TLR Stack, in addition to regulatory capital, that had been recommended in the Rochford report. In May 2023, the Company declared reduced dividends for the same reasons. The meeting was chaired by Ms Lock and attended by fellow directors Mr Szabo and Mr Davenport. Ms Lock also issued a Notice of Uplift Amount to Mr Stevenson, based on her previous methodology.

8. [383]

   By June 2023, KPMG had produced its Capital Adequacy Review, recommending that the buffer be increased to between $32 million and $69.9 million. On 4 July 2023, the Company resolved to increase the TLR to a minimum of $32 million, having regard to KPMG’s report. The meeting was chaired by Ms Lock and attended by Mr Davenport. On 2 August 2023, the Pepperstone board resolved to declare a dividend, which was accordingly modest.

9. [384]

   In November 2023, Pepperstone issued an uplift certificate for the 2023 financial year. Ms Lock issued a Notice of Uplift Amount as earlier calculated. The Company declared dividends, taking into account the retention of an additional buffer as recommended by KPMG. This process was repeated in February 2024 and May 2024. Given the retention of additional cash, based on KPMG’s report, together with the progressive off-setting of the Loan Note amount against any remaining dividend, no Uplift Amount has been paid to the Funds.

Rectification

1. [385]

   If I am wrong about the correct construction of the Share Sale Agreement, then the vendors sought rectification of the definition of Equity Proceeds, to delete the ‘tail piece’. Rectification was sought on the basis of common mistake or, alternatively, unilateral mistake.

2. [386]

   As to common mistake, there were two issues. First, accepting that the Manager intended the profit-sharing arrangement to operate as set out in the Heads of Agreement, can that intention be attributed to the Trustees as vendors? Second, accepting that the plaintiff’s understanding, when the Share Sale Agreement was executed, was that of Ms Lock, can the Court be satisfied to the requisite standard that Ms Lock had the same understanding as the vendors?

3. [387]

   As to the first issue, the plaintiff submitted that the Manager’s understanding could not be attributed to the Trustees. While SSABR Pty Ltd v AMA Group Ltd [2024] NSWCA 175 said otherwise, that decision was said to be wrong and obiter, where the authorities relied upon in SSABR did not, in fact, support that conclusion. The vendors begged to differ.

4. [388]

   I am bound by SSABR which, in any event, agreed with me at first instance on this point. In that case, the board of directors of the company approved a deal negotiated by management. The Court of Appeal summarised the principles at [152]:

5. [389]

   The Court of Appeal in SSABR agreed with McDonald J in Fonterra Brands (Australia) Pty Ltd v Bega Cheese Ltd (2021) 159 IPR 494; [2021] VSC 75, where his Honour undertook an extensive review of Australian case law before concluding at [86]:

6. [390]

   Whilst SSABR and Fonterra Brands concern the state of mind of a corporation, Hawksford Trustees Jersey Limited v Stella Global UK Limited [2012] EWCA Civ 55 is closer to the facts at hand. There, a professional corporate trustee was trustee of a discretionary trust established for the benefit of Mr Begg and his family. Mr Begg founded a company which operated a network of travel agencies. Shares in the company were held by the trust. Mr Begg negotiated the sale of the shares. The trustee executed the share sale agreement. Mr Begg did not have any formal authority to negotiate on behalf of the trustee, and was not an agent of the trustee.

7. [391]

   The trial judge found that, in fact, the trustee authorised Mr Begg to negotiate the deal. Proceeding in this manner was not inconsistent with the trust deed. The trustee did not exercise any independent commercial judgement; the trustee’s decision to execute the contract was largely a formality as long as the deal was acceptable to Mr Begg. The Court of Appeal concluded that the beneficiary’s role as negotiator was “critical both to his own willingness to see the shares sold on the terms he had agreed and to the trustee’s decision to sell them on that basis”: at [41]. Further, at [43]:

8. [392]

   The position is even clearer here, where the arrangements between the Trustees and the Manager are well documented. There is no doubt that the Manager was authorised to negotiate the sale of the Pepperstone investment. The Manager was the negotiator and decision-maker in respect of the transaction. The Trustees were contractually required under the trust deed and Management Agreement to contract on terms that had been negotiated by the Manager. The Manager’s state of mind is, therefore, to be attributed to the vendors.

9. [393]

   The plaintiff further submitted that the Trustees’ understanding was not known. Only one of the attorneys of the vendors who signed the Share Sale Agreement gave evidence, being Mr Tran. The other attorney, Mr Lee, did not. Nor did Mr Tran give evidence of his intention, where the commercial merits of the transaction were a matter of indifference to him. There was no evidence that Mr Tran received the Heads of Agreement. The direction letter did not record his intention either, but the Manager’s understanding of the effect of the transaction. Mr Tran simply acted on the direction given.

10. [394]

    This does not matter, where the Manager’s understanding is to be attributed to the Trustees. Further, what Mr Tran intended was to give effect to the deal which the Manager had negotiated. The Trustees would not have been prepared to sell the Pepperstone shares on any other terms. While the precise commercial terms negotiated by the Manager were a matter of indifference to Mr Tran, what mattered was that the transactions documents gave effect to the commercial terms which had been negotiated. The Manager’s understanding of how the ‘super returns’ aspect of the deal work was set out in the direction letter. Having read the direction letter, Mr Tran likely understood the Share Sale Agreement was intended to so operate. He decided to execute the transaction documents on the basis of that understanding. I am satisfied that Mr Tran intended, when executing the Share Sale Agreement, that the profit-sharing arrangement would operate as described in the direction letter.

11. [395]

    Mr Lee did not give evidence. What is in evidence are several emails from Mr Lee in relation to other aspects of the transaction, being the Invitations to Tag and the Amending Deed. Mr Lee appears to have been a competent, diligent person. Presumably, Mr Lee did his job properly when executing the Share Sale Agreement too. From their job titles, Mr Tran appears to have been senior to Mr Lee. It is likely that Mr Lee reviewed the direction letter and transaction documents himself or relied on Mr Tran having done so. Either way, it is likely that Mr Lee intended, when executing the Share Sale Agreement, that the 'super return’ provisions in the contract gave effect to the terms which the Manager had negotiated and would not have agreed to sell the Pepperstone shares on other terms.

12. [396]

    As to the second issue, the plaintiff submitted that the heavy onus on the vendors had not been discharged. The vendors and KWM submitted that the Court should reject Ms Lock’s evidence as self-serving and dishonest. A mass of contemporaneous documents was said to suggest otherwise. The only evidence of Ms Lock’s purported understanding was her spreadsheet, which she apparently disregarded until prompted to re-consider it by the proposed amendments to the Share Sale Agreement circulated in August 2020. The fact that Ms Lock’s spreadsheet was shared with Clifford Chance to “see if [they] agree[d]” with her calculations, yet no evidence was led to establish that Clifford Chance agreed with her construction, was said to be telling.

13. [397]

    Rectification is granted only upon clear and convincing proof, being not only that the written document does not correctly record the common intention of the parties, but what the common intention of the parties actually was: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [451]. As such, rectification in equity is a departure – albeit one which is circumscribed by the insistence on cogent proof – from the objective theory of contract: Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [15].

14. [398]

    In establishing what the actual intentions of the parties were, there is no requirement for communication of that common intention by express statement, but it must at least be the parties’ actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party: Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [104] (per Gageler, Nettle and Gordon JJ). As Kiefel J observed in Simic at [42]-[43]:

15. [399]

    As Tipping J also observed in Westland Savings v Hancock (1987) 2 NZLR 21, “the fact that a party has acted as if the document stood in the form into which it is sought to be rectified is strong evidence of the existence of an intention of the part of that party to contract in those terms”: at 32. This was followed in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65, where Tobias JA (with whom Mason P and Campbell JA agreed) added, “Such conduct is obviously of significance but, depending on other evidence, if any, it is not necessarily conclusive although in the absence of any such evidence it may be”: at [184].

16. [400]

    Where an agreement has been reduced to writing through a process of negotiation between solicitors over a period of months and is clearly a matter of great commercial significance to the parties, that situation is itself a factor that tends to make it less likely that the parties have recorded their common intention incorrectly: Franklin v Metcash at [460]. However, Campbell JA noted “we know that sometimes even experienced solicitors take or are given inadequate instructions, or misunderstand their instructions, and in consequence misrecord their client’s intention, so these matters are no more than reasons for caution in making the factual findings upon which a rectification order is based”: at [461]. Likewise, in Queenfield Pty Ltd v Gordon Finance Pty Ltd (2019) 60 VR 118; [2019] VSC 857, a case involving a drafting error by a solicitor, Riordan J observed, “It is the common mistake which enlivens the doctrine of rectification and to deprive the party of the remedy on the basis that it was party to the mistake, would be to substantially deny the remedy of utility”: at [85].

17. [401]

    I have approached Ms Lock’s evidence on this subject with caution, wherever it was not corroborated by contemporaneous documents or the evidence of another reliable witness. I infer that Mr Szabo’s evidence would not have assisted the plaintiff.

18. [402]

    I did not accept Ms Lock’s recollection of her understanding of the draft Share Sale Agreement on the morning of 5 September 2018. Rather, her evidence likely reflected what she came to think or understand about the operation of the provisions. The key issues list circulated by Clifford Chance that evening likely did not refer to the fact that profit-sharing provisions departed from the Heads of Agreement, not because Ms Lock knew this but was concealing a drafting error, but because Ms Lock was still reviewing the provisions.

19. [403]

    It is the case that, on 6 September 2018, Ms Lock prepared a spreadsheet which indicates that she then understood that the ‘tail piece’ had the effect that dividends captured in para (a)(i) of the definition of Equity Proceeds only counted as such if they were received after the plaintiff had repaid the Loan Note. Ms Lock deducted the amount of the Loan Note twice, albeit it may not have been entirely clear to the reader given the numerical errors in the last column. The fact that Ms Lock did not save the spreadsheet on her work computer is consistent with her appreciation that she had discovered something that she did not want the Investor to become appraised of. But Ms Lock emails with Mr Szabo later that evening and the next morning indicate that she was continuing to think about how the Uplift Payment provisions operated. Ms Lock knew that the profit-sharing arrangement was expected to, and likely would, operate, in accordance with the Heads of Agreement. Ms Lock had yet to reach a concluded view to the contrary.

20. [404]

    On receiving PwC’s paper on the morning of 7 September 2018, which described the “super return” arrangement in the same terms as the vendors’ construction, Ms Lock sent her spreadsheet to Clifford Chance, asking whether the solicitor agreed with “how the Net Equity Proceeds calculation was working”. Where Ms Lock expressly sought advice from Clifford Chance in respect of her spreadsheet, it was likely given. But there is no direct evidence as to what that advice was.

21. [405]

    This gave rise to an interesting conundrum as to who should have asked Ms Lock about what Clifford Chance told her and what inference (if any) ought be drawn. This arose in slightly unusual circumstances. When cross-examined, Ms Lock claimed privilege in respect of questions which may have elicited her communications with Clifford Chance. Ms Lock did not suggest that her understanding of the Uplift Payment provision was referable to advice given by Clifford Chance, nor even that she maintained her view on what the Share Sale Agreement meant in the face of advice from Clifford Chance to the contrary. Ms Lock did not refer to Clifford Chance at all.

22. [406]

    It was put to Ms Lock repeatedly in cross-examination that the spreadsheet was not prepared at the time but fabricated some years later. At the conclusion of cross-examination, Ms Lock waived privilege over the email to Clifford Chance, presumably to corroborate her account as to when she created the spreadsheet. Orders were made for short service of a subpoena on Clifford Chance and a notice to produce to Ms Lock for the production of further communications between Ms Lock and Clifford Chance. There was a two-day adjournment, while documents in answer to the subpoena and notice to produce were produced and considered. In the result, there was no written record of any advice which Clifford Chance gave Ms Lock in response to her email.

23. [407]

    Ms Lock returned to the witness box. Cross-examination continued. Ms Lock said she created the spreadsheet “to clarify the way the SSA worked in my head and to make sure my lawyers thought the same, and then I kept that copy because I thought I’d like to reference it in the future.” The suggestion that Clifford Chance did, in fact, think the same is not corroborated by any contemporaneous documents.

24. [408]

    The plaintiff submitted that no inference could be drawn as to what advice Clifford Chance gave Ms Lock, as there was no obligation to disclose the advice in chief and the vendors never asked Ms Lock about it in cross-examination. The vendors submitted that, if Ms Lock wished to give evidence that she acted on the basis of legal advice, it was a matter for her to raise in chief. Any inference should be drawn against Ms Lock. Further, it was said to be highly unlikely that Clifford Chance would have advised Ms Lock to proceed with the transaction in the circumstances which she described. It was unthinkable that the firm would have done so without reducing the matter to writing in order to ‘cover themselves’. The fact that there was nothing in writing to that effect was consistent with Clifford Chance advising Ms Lock, and Ms Lock ultimately accepting, that the provisions operated consistently with the Heads of Agreement.

25. [409]

    I draw no adverse inference on account of Ms Lock’s claim of privilege when giving evidence in chief: Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87 at 93 (Hodgson J), citing Wentworth v Lloyd (1864) 10 HL Cas 589. But, having waived privilege, if Ms Lock wished to suggest that her understanding of the operation of the Uplift Payment clause was not only held by her, but endorsed by Clifford Chance, then the onus of proof was on Ms Lock to prove what that advice was. The proper way to adduce evidence on that subject would have been to seek leave to adduce further evidence in chief. That was not done. Ms Lock was keen to allude to what that advice was when she returned to the witness box, but the cross-examiner did not give Ms Lock occasion to give that evidence during cross-examination. Nor did the plaintiff ask Ms Lock about it in re-examination. The reason given by the plaintiff’s senior counsel was that objection would have been taken to such a question. Where a wide-ranging approach was taken to the re-examination of Ms Lock, that submission was not particularly persuasive. In the circumstances, I consider that any inference that may be drawn on this subject should be drawn against Ms Lock, where the onus of proof was ultimately on her.

26. [410]

    But a more reliable guide as to what Clifford Chance’s advice was is what Ms Lock did next. As an intelligent person, Ms Lock most likely acted in accordance with the advice she was given. Even if Ms Lock had maintained her claim for privilege, “if there is other evidence from which the court may draw an inference as to the content of legal advice …, the court may be able to draw that inference on the balance of probabilities in the absence of contrary evidence from the person claiming the privilege”: Standard Chartered v Antico at 94 (Hodgson J).

27. [411]

    Ms Lock spent Saturday, 8 September 2018, with PwC and then Clifford Chance, by which time it is highly likely that Ms Lock had received advice on her spreadsheet. Ms Lock’s communications with Mr Gordon after this likely reflected any advice that Ms Lock was given. Ms Lock’s response to Mr Gordon’s late suggestions was to hark back to the Heads of Agreement and decline to engage on “new commercial points” or “commercial re-trades”. I infer that this reflected Clifford Chance’s advice to Ms Lock, that is, her initial reading of the Uplift Payment provisions produced a result that bore no resemblance to the deal as there recorded and the provisions should be read as giving effect to that deal.

28. [412]

    Ms Lock’s email exchange with Clifford Chance on 9 September 2018 confirms this, revealing both an understanding that the profit-sharing arrangement would likely result in the payment of dividends immediately after the Loan Note was repaid in year five – “I am not doing this for the 50% of dividends between year 5-7” – coupled with Clifford Chance’s confirmation that Ms Lock had “stayed consistent with the term sheet throughout the negotiations”. Nor do I accept Ms Lock’s rationalisation that keeping a drafting error to herself was not itself a “new commercial point” or “commercial re-trade” if she did not disclose it to the counterparty.

29. [413]

    Thereafter, Ms Lock’s spreadsheet sank without trace for two years. Nor did Ms Lock provide any comments to PwC on the “super return” portion of their paper, where it would have been obvious to Ms Lock that providing her accountant with accurate instructions was necessary to produce the most useful advice. Ms Lock also agreed to PwC conferring directly with the Deloitte as to the most tax-effective structure. This suggests that Ms Lock did not think she had anything to hide from the Investor’s tax advisors, such as a fundamentally different view as to how the profit-sharing arrangement would work.

30. [414]

    Subsequent amendments suggested by Clifford Chance or Ms Lock were in respect of peripheral matters and did not suggest any amendment to the ‘tail piece’, even when the solicitors were speaking directly to make final drafting changes to “avoid double counting”.

31. [415]

    Two possibilities present themselves. First, Clifford Chance did not consider that amendments were necessary, as they formed the view that KWM’s drafting gave effect to the profit-sharing agreement described in the Heads of Agreement. In that event, Clifford Chance likely told Ms Lock that they did not agree with the modelling of how the provisions would work, in her spreadsheet.

32. [416]

    Second, Clifford Chance agreed with Ms Lock’s spreadsheet and formed the view that the drafting was faulty but did not raise this with KWM, either because Clifford Chance did not think it was necessary to do so or because Ms Lock specifically instructed them not to do so. I consider it unlikely that a solicitor would advise their client to execute transaction documents which contained a major mistake. By taking this step, a client may hope to acquire a significant commercial advantage but attended by a significant risk of dispute and litigation. If a solicitor was going to advise such a step, or oversee their client taking such a step notwithstanding advice to the contrary, I would expect that the solicitor would document the advice given in respect of the risks of going down that path and record the client’s instructions to proceed nonetheless. There is no such document. This scenario is less likely.

33. [417]

    Turning to post-contractual conduct, the Invitations to Tag contained the description of the Uplift Payment arrangement that was consistent with the vendors’ construction. Ms Lock took no issue with the explanation at the time, most likely, because she agreed with that construction. PwC re-circulated their paper to Ms Lock, which she reviewed but made no comment on the “super return” portion of the paper, consistently with her then agreeing with that summary. Ms Lock shared the paper with Mr Szabo and Mr Defina, as they negotiated the terms of a Shareholders Deed for the plaintiff. This is consistent with Ms Lock then agreeing with PwC’s description of how this important component of the business venture would work. I doubt that Ms Lock would have sought to actively mislead her colleagues as they embarked on a shared endeavour. Nor did Ms Lock set her fellow investors or their solicitor, Minter Ellison, straight as to how the profit-sharing arrangement would work, when they described that arrangement consistently with the vendors’ construction and the Heads of Agreement.

34. [418]

    In December 2018, Ms Lock provided the PwC report to Ernst & Young but did not suggest that the description of the “super return” in the paper was inaccurate. Likely, this is because Ms Lock considered that the description was accurate at the time. Ms Lock then prepared various spreadsheets with Mr Defina in February 2019, which demonstrate beyond doubt that Ms Lock then understood that the Uplift Payments would operate in the manner that the vendors’ contended in these proceedings. In June 2020, Ms Lock prepared further spreadsheets when considering “Stay with the CPE arrangements as is” or refinancing. Ms Lock’s spreadsheet clearly demonstrates an understanding of the profit-sharing arrangements which is the vendors’ understanding: [327]-[329].

35. [419]

    It was not until KWM proposed amendments to the Share Sale Agreement in August 2020, to give effect to an agreement to increase the Buffer Amount, that Ms Lock was reminded of her initial spreadsheet. It is perfectly clear that Ms Lock then circulated the spreadsheet to her fellow investors for the purposes of negotiating a buy-out with the Investor on most favourable terms. Mr Szabo referred to the issue identified by Ms Lock as a “material error”; Ms Lock agreed that she called it an error as well.

36. [420]

    While Ms Lock deployed that “error” in her negotiations with the Investor, she continued to describe the profit-sharing arrangement to others in the same terms as the vendors, including to potential financiers in September 2020 (at [343]) and her fellow investors in November 2021, December 2021 and February 2022 (see [359]-[366]). This reflected that Ms Lock actually thought that the profit-sharing arrangement operated in the same manner as the Investor. Indeed, Ms Lock was warned in August 2022, by Mr Defina, of the risk she was taking in asserting to the Investor that she understood the profit-sharing arrangement to mean one thing, while she was telling tax advisers that it meant something else.

37. [421]

    When Ms Lock’s post-contractual conduct is added to the picture, the conclusion is obvious. I find that, on Ms Lock’s initial review of the first draft of the Share Sale Agreement, Ms Lock thought that the Uplift Payment provisions may work in the manner contended by the plaintiff in these proceedings but that view was not endorsed by Clifford Chance. Ms Lock deferred to Clifford Chance’s view, as self-evidently shared by KWM, and thought no more about it. That Ms Lock came to think that the Uplift Payment provisions effected the deal recorded in the Heads of Agreement was an unremarkable, unsurprising and entirely comfortable conclusion; Ms Lock would have expected the drafting to achieve just that.

38. [422]

    When executing the Share Sale Agreement, Ms Lock shared a common understanding with the vendors as to how the Uplift Payment provisions were intended to work. I do not accept Ms Lock’s evidence that she continued to hold her initial views on the operation of the Uplift Payment provisions at the time she executed the Share Sale Agreement.

39. [423]

    The circumstances in which equity may rectify a written contract were described by Campbell JA in Franklins v Metcash at [444]:

40. [424]

    Ms Lock agreed that the commercial deal had always been in the Heads of Agreement. I have found that Ms Lock shared a common understanding with the vendors, when executing the Share Sale Agreement, as to how the Uplift Payment provisions were intended to work. Ms Lock has since, opportunistically, dug out her earlier spreadsheet and used it as a bargaining chip in an effort to achieve a substantial financial advantage, at the expense of the Funds. I consider that it would be unconscientious for the plaintiff to now assert that the Uplift Provisions mean something other than what the plaintiff and the vendors commonly intended at the time of execution of the Share Sale Agreement. I would have made orders for rectification as sought by the vendors.

41. [425]

    If I am wrong about this, then it is necessary to consider rectification for unilateral mistake. The plaintiff submitted that rectification was not available where the vendors were mistaken as to the effect of an agreement, not merely its contents: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336.

42. [426]

    In Maralinga, there was no mistake as to the terms of the contract. Rather, the successful bidder at auction signed a contract knowing of its contractual terms but thinking that the auctioneer’s oral offer of different terms gave rise to a collateral oral contract or modified the written contract. It was in that context that Mason J observed that the purchaser was mistaken as to the legal effect of the contract, but not as to its contents: at 349, 351. Obiter Mason J noted that there were cases in which rectification may be granted for unilateral mistake: 350, 351.

43. [427]

    As to when rectification may be granted for unilateral mistake, the touchstone is whether it is unconscionable for one party knowingly to take advantage of another party’s mistake: Tutt v Doyle (1997) 42 NSWLR 10 at 12, following Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 at 432–3. As Brereton J summarised the position, “Rectification is also available in a case of unilateral mistake, but in such a case at least knowledge on the part of the defendant of the plaintiff’s mistake, coupled with silence amounting to sharp practice, is required”: Harris v Smith [2008] NSWSC 545 at [27].

44. [428]

    Varying views have been expressed on the extent to which a business person’s conduct may be described as “sharp practice”. For example, in Deputy Commissioner of Taxation v Chamberlain (1990) 26 FCR 221; (1990) 93 ALR 729, Wilcox J granted rectification for unilateral mistake in the form of a transcription error, noting “No-one would deny the right of a businessman … to take advantage of another businessman's error of judgment, and so obtain a “bargain” for himself. … But no contest of business judgment is involved where one party unwittingly makes a clerical or arithmetical error and the other party takes advantage of it. This is just a shabby trick and indubitably unconscionable:” at 233. By contrast, in George Wimpey UK Ltd v VI Construction Ltd [2005] EWCA Civ 77, Gibson LJ considered it was not sharp practice where a weaker party failed to draw the attention of the stronger party to its own oversight: at [65]-[67].

45. [429]

    For my part, if Ms Lock’s version of events is accepted, then I do not agree with the vendors’ submission that Ms Lock’s conduct can be described as “thoroughly dishonest” but I do consider that her conduct may be described as “sharp practice”.

46. [430]

    On one view of it, the plaintiff may be regarded as a weaker party, where Ms Lock was an employee negotiating with a well-resourced employer. But any weakness on that account was, I think, negated by the fact that Ms Lock was advised by Clifford Chance and PwC. Further, there are two features of the negotiations which, in fact, gave Ms Lock an advantage.

47. [431]

    First, Ms Lock knew Pepperstone and the intricacies of its business far better than the Investor, having been on the ‘deal team’ when the Funds initially acquired the investment and having sat as chair of the Pepperstone board for two years. Second, there is a theme in the contemporaneous communications that the Investor was prepared to assist their senior employee to access this investment opportunity, including with “zero $ down”. Obviously, if the deal went ahead, then the Funds were compensated by “sharing the upside”. But the Investor did have an eye to what was fair to Ms Lock in their negotiations.

48. [432]

    In these circumstances, Ms Lock executed a contract which she considered contained a significant drafting error that the counterparty had not perceived. Ms Lock agreed that she did not suggest to anyone, between signing the Heads of Agreement and executing the Share Sale Agreement, that the profit-sharing arrangement would not begin until after the buyer had retained an amount equivalent to the loan repayment. Ms Lock believed that the Investor understood that the profit sharing arrangement in the Heads of Agreement was implemented in the Share Sale Agreement, but she knew better. Whilst Ms Lock recognised that the Share Sale Agreement documented a profit sharing agreement other than what had been negotiated, “I understood what it meant. I thought it was … a mistake on CHAMP’s behalf, yes.” Mr Lock appreciated that the value of that mistake to her company was “many tens of millions of dollars”.

49. [433]

    The effect of such a contract was a massive departure from the deal struck with the counterparty. That effect was not the product of further negotiation after the Heads of Agreement was signed but an unintended consequence of drafting which, according to Ms Lock’s initial spreadsheet, benefited her in the millions of dollars. Ms Lock’s conduct was akin to “snapping up an offer”: Tamplin v James (1880) 15 Ch D 215 at 221 per James LJ; Hartog v Colin & Shields [1939] 3 All ER 566. I consider that the element of unconscionability is present. I would have made orders for rectification on this basis.

Amount owing to the vendors

1. [434]

   As the vendors are correct as to the proper construction of the Share Sale Agreement, the question is what the plaintiff is obliged to pay the vendors under cl 10, following repayment of the Loan Note. As to how much the vendors were owed for ‘super returns’, the vendors relied on forensic accountant Dawna Wright, while the plaintiff relied on forensic accountant Owain Stone. The accounting experts agreed on the mathematics; the only difference between them was the assumptions that they were given. If the Uplift Payment was calculated based on the dividends declared by the Company until May 2024, then the experts agreed that the total Uplift Payment was $39.875 million.

2. [435]

   A further question arose, however, as to whether the plaintiff had complied with its ‘dividend sweep’ obligations in cl 2.6(a) of Schedule 3 to the Share Sale Agreement, given that the Company has withheld an additional cash buffer to reflect, initially, the Rochford report and then a further buffer to reflect the KPMG report. The vendors contended that the plaintiff thereby failed to comply with this obligation. The vendors sought contractual damages, being the difference between the amount payable to the vendors in accordance with the Share Sale Agreement and the amount actually paid.

3. [436]

   Three issues arose. First, what are the legal requirements that inform the plaintiff’s obligation to distribute dividends “to the extent permitted by law”? Second, what was an appropriate capital retention, when the dividends were declared? Third, in light of these matters, did the plaintiff breach its contractual obligation?

4. [437]

   It will be recalled that cl 2.6 of Schedule 3 requires: (emphasis added)

5. [438]

   FX Holdco Group is the Company and its subsidiaries, and FX Holdco Group Member means any of such entities: cl 1, Schedule 1, Loan Note. The language of para 2.6(a) points to the plaintiff maximising Distributions. This is to be achieved indirectly. The plaintiff is obliged “to the extent permitted by law” to maximise dividends declared by another, being a company controlled by the plaintiff. The plaintiff is thereby obliged to ensure that the Company declares dividends “to the extent permitted by law”.

6. [439]

   As earlier mentioned, Agreed Assets are the aggregate of the assets required to ensure that the Group complies with the NTA Requirements and the Buffer Amount: cl 1.1. The Buffer Amount remains $10 million, where there has been no agreement to adjust that amount.

7. [440]

   As to NTA Requirements, ASIC Class Order [CO 12/752] was due to expire in October 2022. ASIC re-made the order as a legislative instrument in September 2022, being ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705. The reference to ASIC Class Order [CO 12/752] in the Share Sale Agreement should be treated as a reference to its replacement or re-enactment: cl 1.2, Share Sale Agreement. The required NTA in the replacement instrument is unchanged.

8. [441]

   Based on these definitions and Ms Wright’s calculations, the amount available for distribution for each quarter from February 2023 until May 2024 was as follows:

9. [442]

   In addition, the plaintiff contended that Pepperstone was entitled to withhold a further $6 million for regulatory capital in respect of new licences: cl 2.4(h)(i), Share Sale Agreement; cl 8.3(a)(i), Loan Note. Schedule 1 of the Loan Note contained Loan Note Conditions, of which cl 8.3 provided:

10. [443]

    A comparable undertaking was given by the plaintiff in cl 2.4(h)(i) of Schedule 3 to the Share Sale Agreement:

11. [444]

    Where a New Licence is acquired by a subsidiary of the Company, the Purchaser must procure that the subsidiary distributes amounts available for distribution to the Company for the purposes of cl 2.6(a): cl 2.6(d), Share Sale Agreement.

12. [445]

    As to what New Licences the Company has acquired, the plaintiff pointed to the email signature of Mr Davenport, in June 2018, which noted that “Pepperstone” meant Pepperstone Group Ltd which was regulated by ASIC (AFSL 414530), and Pepperstone Ltd, which was registered in the UK and regulated by the Financial Conduct Authority (FRN 684312). The plaintiff also pointed to an email from Ms Lock to Mr Haddock in March 2020 in which Ms Lock noted that Pepperstone had been granted a licence in Cyprus, Dubai and Kenya, and expected to have a licence in the Bahamas and Germany shortly.

13. [446]

    The licence granted by the Financial Conduct Authority was not a New Licence. It will be recalled that completion of the Share Sale Agreement was conditional on that authority approving the transfer of Company shares to the plaintiff. Approval was given on 16 November 2018. Completion occurred on 28 November 2018.

14. [447]

    I agree that the combined effect of these provisions is that the Company is entitled to acquire New Licences with regulatory capital requirements and buffer amounts of up to $6 million. I do not agree that the Company is entitled to withhold an additional $6 million on that account, whether the Company holds New Licences or not.

15. [448]

    Nor is it entirely clear whether the Company is entitled to withhold up to $6 million beyond the Buffer Amount to meet the requirements of New Licences. I did not have the benefit of submissions of this subject from the vendors. The contractual regime tightly constrains the Company’s ability to acquire New Licences, with their associated requirements to retain cash. Otherwise, the plaintiff’s obligation to repay the Loan Note and share ‘super returns’ with the vendors would be eroded. On one view of it, the Buffer Amount is self-evidently sufficient to cover requirements associated with New Licences, particularly where there is a mechanism to review and increase the Buffer Amount each year, having regard to inter alia the regulatory capital requirements and buffer amounts associated with New Licences. Where the parties sought to make further submissions on the precise amount payable to the vendors, I would be assisted by submissions on this aspect.

16. [449]

    As to other legal requirements which may restrict the Company’s ability to declare dividends in the amounts in the table above, the vendors pointed to s 254T(1) of the Corporations Act 2001 (Cth), which provides:

17. [450]

    As to s 254T(1)(a), Ms Wright was asked to consider whether the net assets of the Company were positive at the end of each quarter, from March 2021 on. Ms Wright calculated that it was, with surplus assets ranging from some $85 million to $122.5 million on each balance sheet date. Mr Stone did not consider this. It would thus appear that the requirement of s 254T(1)(a) was satisfied and permitted a dividend to be paid. Andrew Brown also considered the requirements of s 254T(1) of the Corporations Act in respect of appropriate amount of capital retention, to which I will return.

18. [451]

    The plaintiff pointed to two other legal restrictions, being s 912A(1)(h) of the Corporations Act and director’s duties under s 180. The vendors submitted that the contractual obligation was not framed by reference to what the plaintiff’s board thought was the extent permitted by law. If s 254T(1) permitted a greater distribution of dividends than the Company resolved to distribute, there was a breach of cl 2.6(a) of Schedule 3 even if there was no breach of s 180 of the Corporations Act.

19. [452]

    Looking first at s 912A(1)(h) of the Corporations Act, the sub-section provides that a financial services licensee must have adequate risk management systems. The obligation was considered in Australian Securities and Investments Commission v RI Advice Group Pty Ltd (2022) 160 ACSR 204; [2022] FCA 496, in the context of providing adequate protection for investors from the consequences of cyber-attack. Rofe J observed at [54]:

20. [453]

    Her Honour earlier adopted what was said by Allsop CJ in Australian Securities and Investment Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170; [2019] FCAFC 187, albeit in respect of related provision s 912(A)(1)(a), at [173]:

21. [454]

    Turning to director’s duties, s 180(1) of the Corporations Act provides:

22. [455]

    The intersection between directors’ duties and s 254T was considered in the “Dick Smith” case, where directors were said to have breached their duties by approving a dividend without properly considering the requirements of s 254T. At first instance, Ball J (as his Honour then was) noted in DSHE Holdings (Receivers & Managers Appointed) (In Liquidation) v Nicholas Abboud (No 3); National Australia Bank Limited v Nicholas Abboud (No 4) [2021] NSWSC 673 at [448]:

23. [456]

    The Court of Appeal also noted in DSHE Holdings Ltd (receivers and managers apptd) (in liq) v Potts (2022) 405 ALR 70; [2022] NSWCA 165 at [112]-[113] (Leeming and Kirk JJA, Basten AJA):

24. [457]

    Pepperstone Group Ltd is subject to the obligation in s 912A(1)(h) of the Corporations Act to have adequate risk management systems. The directors of the Company, and each of its subsidiaries, are obliged to discharge their duties in accordance with s 180(1) of the Corporations Act, that is, to discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director “in the corporation's circumstances”. Those circumstances included the fact that Pepperstone, by the control of its majority shareholder, is obliged to distribute dividends “to the extent permitted by law”, that is, maximising dividends where possible.

25. [458]

    This brings me to the second issue, being the appropriate capital retention at the time when dividends were declared. The evidence on this issue was in two tranches. First, as to the appropriate capital retention, the vendors relied on the expert evidence of Mr Brown, while the plaintiff relied on the expert evidence of Huseyin Sahin. Second, as to how the capital retention factored into any increased dividend that should have been paid, the parties again relied on forensic accountants Ms Wright and Mr Stone.

26. [459]

    Mr Brown was asked to ascertain the amount of capital that Pepperstone was required to hold in order to comply with s 254T(1) of the Corporations Act 2001. Mr Brown requested, but had not been provided with, information relating to Pepperstone’s margin requirements. Absent that information, Mr Brown estimated the margin posted by Pepperstone and its clients by relying on regulatory margin requirements, information on Pepperstone’s website, terms and conditions, risk management policy and “Prime Broker Initial Review”. As the information available on the Pepperstone website was not as at the date when dividends were declared, Mr Brown assumed that the information on the website had not changed since the dates when dividends were declared.

27. [460]

    Mr Brown explained that capital required equalled exposure multiplied by variation. Exposure represented the amount of money exposed to market risk. The Net Open Position (NOP) was usually used, being the sum of all open positions in one direction (for example, a “long" position) netted against all positions in the opposite direction bracket (for example, a “short" position). Variation, or movement, represented the amount that an index price may fluctuate for a given time period. A statistical analysis process called Value at Risk (“VaR") quantified the extent of possible price movements for a given confidence level bracket (for example, 99%) and time period (for example, 10 days).

28. [461]

    Using this approach, Mr Brown analysed Pepperstone’s two client trading books, being the “S-Book” and the “X-Book”. Pepperstone’s S-Book is immediately 100% externally hedged. Pepperstone’s X-Book is not externally hedged and 100% of trades are internalised, with trades matched against each other where possible. The residual NOP is managed within risk limits; any excess above risk limits moved into the S-Book. Whilst the accumulation and netting of client positions in the X-Book may permit Pepperstone to reduce the exposure to be hedged, the gap before that hedge is effected may present greater risk given volatility in the gap, being the VaR. Mr Brown noted that the portfolio appeared quite balanced, given the low VaR numbers on average historically.

29. [462]

    In his first report, Mr Brown calculated a minimum capital requirement for both the S–Book and X–Book of between $13 million and $20 million when dividends were declared in February, May and August 2023. He did not include a cash buffer for operating expenses. Whilst $13 million had historically proven to be an adequate buffer against extreme price gap events for Pepperstone, Mr Brown considered that the same may not be true on a forward-looking basis, if the business underwent change. He concluded that an appropriate amount of cash was a minimum of $16 million with an upper range of $20 million.

30. [463]

    Mr Sahin did not undertake his own calculations but reviewed the reports of Rochford, KPMG and Mr Brown, indicating which portions of each report he considered preferable. He noted that the authors adopted similar methodologies but reached different conclusions, driven by different data sets, assumptions and judgements in respect of the S-Book calculation, and applying different confidence levels to the VaR methodology for the X-Book.

31. [464]

    So far as the S-Book was concerned, Mr Sahin considered it more reasonable and appropriate to use a maximum NOP of USD $200 million. For the X-Book, Mr Sahin opined that Pepperstone should hold capital closer to the top end of the confidence level range, at 99%. Mr Sahin also considered that it was appropriate to hold four weeks of 'fixed' operating expenses, being $8.3 million. In total, Mr Sahin considered that an appropriate risk capital buffer was between $23.4 million and $33.8 million, and it would be reasonable for Pepperstone to be closer to the high end of that range.

32. [465]

    Mr Sahin was also asked to look at the performance of Pepperstone in the September 2023 quarter and noted that, if the Company had only held $10 million in risk capital, this would not have been enough. Mr Brown considered that Mr Sahin’s retrospective analysis did not assist as, when making a decision in respect of appropriate capital to hold, Pepperstone would not have the benefit of retrospection. The exercise undertaken by Mr Sahin also rearranged the financial performance of Pepperstone over a specific period in a scenario that did not occur, where Mr Sahin used a 30-day cumulative P&L position, not cash, to assess different risk capital amounts. I agree. This is no criticism of Mr Sahin; he simply did what he was instructed to do.

33. [466]

    In his second report, Mr Brown defended the ‘data set’ used in his analysis of the S-Book. He had analysed the data over the lengthier period than that used by Rochford and KPMG. That data indicated that the Pepperstone business had materially changed, such that the more recent data set was more appropriate. (Mr Sahin broadly agreed with this). Mr Brown set out in detail how he had analysed the X-Book and remained of the view that his analysis was appropriate and Mr Sahin’s was not superior, particularly given that Mr Sahin had not got into the data.

34. [467]

    Following a conclave, and allowing for Pepperstone’s operating expenses, Mr Brown considered that the appropriate risk capital requirement for Pepperstone at the dividend declaration dates was between $16.3 and $21.4 million. This figure was not in addition to the regulatory capital amount. Mr Sahin considered the appropriate risk capital requirement was $22.8 to $32.1 million. That was in addition to the regulatory capital amount.

35. [468]

    As to which of the capital retention experts to accept, Mr Brown gave precise, measured evidence and made reasonable concessions. Mr Sahin was a solid and experienced witness. There are three factors which, I think, favour Mr Brown’s views. First, Mr Brown had the advantage of having undertaken the data analysis himself, whilst Mr Sahin completed, effectively, a ‘desk-top’ review of Mr Brown’s report, together with the previous reports of Rochford and KPMG.

36. [469]

    Second, I think that two of the three reports examined by Mr Sahin, being Rochford and KPMG, cannot be said to be independent. That is not to criticise the authors, but to note the basis on which they were commissioned. It will be recalled that the Rochford report was initially prepared in April 2020, before being updated and relied on by the Company in February 2023. As earlier described at [313]-[315], the contemporaneous emails between Ms Lock, Mr Szabo and their Pepperstone colleagues in relation to the Rochford report indicate that the report was prepared to support a case to the Investor to increase the Buffer Amount substantially. As a document was prepared with that end in mind, I do not think that the instructions and assumptions provided by Pepperstone to Rochford can be assumed to be conservative or objective but, rather, focussed on a particular purpose. As such, I consider that the original Rochford report should be approached with some circumspection.

37. [470]

    As also noted at [375]-[380], the updated Rochford report, on which the board of the Company relied in February 2023, was commissioned the same day as the plaintiff commenced these proceedings. It is difficult to see that these two events were unrelated. Likely, the updated Rochford report was commissioned, at least in part, to bring pressure to bear on the vendors to increase the Buffer Amount and, perhaps, more widely. While the Company then retained KPMG to provide a second report, that firm was instructed to validate the models and TLR Stack that had been recommended by Rochford. Perhaps it is not surprising that Mr Sahin arrived at a capital retention amount which was lower than both Rochford and KPMG.

38. [471]

    Third, in reaching his figure, Mr Sahin took a conservative approach at several junctures. From having read a great deal of Pepperstone emails and reports in the course of preparing this judgment, the business appears to have had a significant risk appetite. That is, I do not think that the Pepperstone is as conservative as Mr Sahin.

39. [472]

    But Mr Sahin arrived at a capital retention amount which was higher than Mr Brown. Both experts used a risk-based framework. Mr Sahin exercised his professional judgement, as did Mr Brown. There is no right or wrong answer for a correct capital retention amount. Mr Brown concluded, effectively, that the Buffer Amount was still pretty close to the mark. If I look at the table above, then the Agreed Assets for February, May and August 2023 (being the dates on which Mr Brown focused in his first report) were between $19.5 million and $22 million. I accept that hindsight is not a fair benchmark, but I apply it nonetheless. This suggests that Mr Brown's range of $16.3 million to $21.4 million was slightly low. The average Agreed Assets for all six dividend declaration dates in the table is $18.4 million, which is comfortably within Mr Brown's range.

40. [473]

    In the result, I see no reason to depart from Mr Brown’s views, albeit making some allowance for the possibility that his calculations may be slightly low. The mid-point of Mr Brown’s range was $19 million, which includes the regulatory capital amount. I consider that a figure of $20 million is appropriate.

41. [474]

    The plaintiff submitted that failing to hold the TLR as recommended by Rochford, and then KPMG, would have resulted in a contravention of s 912A(1)(h) and directors’ duties. Whether or not, by reference to the expert evidence now before the Court, there would in fact have been a breach of s 254T was irrelevant. The Company’s directors would have been in breach of their duties if they had disregarded the conclusions reached by Rochford and KPMG without an obvious basis for doing so.

42. [475]

    The vendors submitted that neither Rochford nor KPMG report provided independent advice on the appropriate amount of capital to retain. Rochford was simply engaged to review the board’s approach. KPMG was engaged to review and ‘sense check’ Rochford’s approach. Neither Rochford nor KPMG were considering the position where the plaintiff was under a contractual obligation to maximise dividends, as in fact was the case. Neither of their analyses provided a proper foundation for the directors to form a view about the appropriate level of capital to retain.

43. [476]

    This case is not about whether Pepperstone Group Ltd complied with its obligation under s 912A(1)(h), nor whether the directors of the Company performed their duties in accordance with s 180(1). The issue is whether the plaintiff performed its contractual obligation under cl 2.6(a) of Schedule 3 to the Share Sale Agreement. Whether a party’s performance fulfils its obligations is a mixed question of fact and law: Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 1 QB 300 at 318 (per Roskill J). The onus of proving breach is on the promisee: Hart v MacDonald (1910) 10 CLR 417 at 428. The parties must perform as and when promised, in precise compliance with the contract. An obligation is not discharged by ‘substantial performance’ unless the contract so provides: Nick Seddon and Rick Bigwood, Cheshire & Fifoot Law of Contract (11th Australian ed, 2022, LexisNexis) at [9.5].

44. [477]

    As to the legal question, the language of cl 2.6(a) is mandatory – “must” – and points to the plaintiff maximising Distributions by ensuring that the Company declares dividends “to the extent permitted by law." I repeat my observation at [457].

45. [478]

    As to the factual question, I have the reports obtained from Rochford and KPMG, together with minutes of the Company's meetings at which it was resolved to increase the capital retention amount in light of these reports. Redactions to the board minutes of the Company on 31 January 2023 indicate that the Company likely had the benefit of legal advice when considering the Rochford report. The minutes of the board meeting certainly refer to each of the legal obligations relied on by the plaintiff in submissions, as well as the contractual obligation to distribute dividends to “the extent permitted by law.” The same references are repeated in the Company’s board minutes on 3 May 2023 and 4 July 2023.

46. [479]

    But the consultants’ reports and minutes of meeting were drafted after this litigation was underway. That is, these documents were not created in circumstances “where parties do not expect the documents to surface in a trial" but rather, where the plaintiff may expect or hope that the documents will surface: Brookfield v Yevad Products at [416]. I repeat my concerns about the independence of the Rochford and KPMG reports.

47. [480]

    In addition, I have the evidence of one lay witness, Ms Lock, who chaired the three Company meetings. For the reasons earlier given, I have deferred to the contemporaneous documents in preference to what Ms Lock may have said on the subject. I have also placed greater weight on the contemporaneous documents prepared before these proceedings were in view than the documents that have been prepared since.

48. [481]

    I have a large number of contemporaneous business records, in particular, Ms Lock and Mr Szabo's emails from September 2018 on, complaining about the Buffer Amount. It is hardly surprising that the Buffer Amount was uncomfortable. Mr Defina's paper, describing how the NTA regulatory capital requirements were applied at Pepperstone, showed that the lowest “headroom" maintained by Pepperstone in the previous three years was $9.4 million. The Buffer Amount was set at the minimum level, presumably with a view to maximising loan repayments and, in due course, the sharing of 'super returns’. This was much less than the $44 million “headroom" maintained by Pepperstone in 2018. But that was the deal.

49. [482]

    This became the source of discontent within days of the Share Sale Agreement being executed: see [308]. A sustained campaign followed to increase the Buffer Amount. The vendors did agree to change the Buffer Amount, but KWM's proposed amendments to the Share Sale Agreement to give effect to that agreement, together with “tidy ups" to the Uplift Payment provisions, prompted Ms Lock to recall her initial thoughts as to how those provisions worked. Ms Lock thought this presented an opportunity to buy-out the vendors at a low price.

50. [483]

    To pursue that possibility, Ms Lock abandoned efforts to increase the Buffer Amount in favour of obtaining finance to fund a buy-out. In October 2020, Ms Lock told Mr Stevenson that she preferred to leave the transaction documents as they were. In December 2020, Ms Lock told Mr Stevenson that there was no urgency in changing the Buffer Amount. But Ms Lock was unable to secure finance, or to persuade the vendors to accept a ‘low-ball’ offer. Nor did Ms Lock re-engage with the agreement to increase the Buffer Amount, as that would have required her to relinquish the opportunity presented by the perceived drafting error.

51. [484]

    Two years passed between when Ms Lock told Mr Stevenson that she no longer wanted to change the Buffer Amount and when the plaintiff commenced these proceedings. There was no attempt by Ms Lock, within a month following the end of the 2021 or 2022 financial years, to request to discuss, in good faith and acting reasonably, whether the Buffer Amount should be adjusted: cl 9.7, Share Sale Agreement. The plaintiff simply commissioned the Rochford report in conjunction with commencing legal proceedings. These actions were likely intended, in combination, to bring pressure to bear on the vendors to re–negotiate the arrangements between the parties or, as Ms Lock may have put it, “to have a chat across all issues".

52. [485]

    As a matter of fact, I am satisfied on the balance of probabilities that the plaintiff has not performed its contractual obligation under cl 2.6(a) of Schedule 3 to the Share Sale Agreement. Ms Lock's proposal to increase the buffer to $50 million on the same day that these proceedings were commenced does, using Mr Davenport's words, appear “contrived". When subsequently resolving to increase the capital retention amount, Ms Lock had competing considerations: the plaintiff’s contractual obligation to maximise dividend distributions, on the one hand, and Pepperstone’s wish to retain more “headroom” on the other. In making that choice, I have no doubt that Ms Lock put the obligation to maximise dividends as the lowest priority.

53. [486]

    In calculating what the total Uplift Payments would have been if the plaintiff complied with its ‘dividend sweep’ obligations, Ms Wright was asked to assume that the Company was required to hold cash equal to the greater of:

54. [487]

    The forensic accountants agreed that the total Uplift Payments calculated on this basis to May 2024 was $46.630 million. The parties asked for an opportunity to re-calculate the appropriate capital retention amount and monies payable to the vendors in light of my findings. I would be grateful for their assistance in this regard.

Further alternative claims

1. [488]

   The vendors made further claims in the alternative, in the event that they did not succeed on construction or rectification. Each claim raised a number of complex issues, which I do not propose to address given the length of this judgment already. I have set out all relevant findings of fact, should it become necessary to consider any of these alternative claims in the future. I will record the issues raised on these claims and any additional observations.

2. [489]

   KWM did not dispute the retainer or duty owed. The issue was whether KWM breached their retainer or duty of care when drafting of the profit-sharing arrangement in the Share Sale Agreement. As matters presently stand – to use Mr Stevenson’s words – I have concluded that the “drafting is a bit clunky in parts” but “it still works.” I do not consider it appropriate to make findings in respect of professional negligence, given my conclusions thus far.

3. [490]

   I do note that the transaction was complicated. So too were the documents which recorded it. This case focussed on a tiny sub-set of the provisions drafted. I also note that the multiplicity of emails and draft documents would have presented challenges to the lawyers on both sides in keeping track of comments, proposed amendments and the implications of both for the transaction at large. KWM appears to have done a thorough job in this regard, including printing off significant drafts and instructions, including in colour (where needed), and marking off, by hand, when each matter had been attended to, with comments on the views of those interested and thoughts as to how any change made was appropriate.

4. [491]

   I note that, although there was no actual urgency, the Investor pushed this transaction at breakneck speed, in the interests of maintaining commercial momentum. The contemporaneous documents reveal that the parties’ advisors, both legal and tax, worked 24-7 – literally – to meet their clients’ demands. KWM sought no allowance on this account but noted this as a factual circumstance against which any breach of duty must be considered. I agree that, where KWM did not raise with the client that they considered that they were unable to perform their retainer to a reasonable standard given the demands being placed upon them, then KWM’s submission on this factor was appropriate.

5. [492]

   As to causation, Mr Haddock said the interpretation of the Share Sale Agreement proffered by the plaintiff did not reflect the commercial terms that he discussed with Ms Lock, was inconsistent with the deal structure contained in the Heads of Agreement. It was not consistent with what was contained in the Gold Paper, or what he described to the Investment Committee or the members of the Investment Advisory Committee. He would not have agreed to a deal in those terms, which entirely undermined the ‘super return’ concept. I accept this.

6. [493]

   The other side of the equation is whether Ms Lock would have signed a Share Sale Agreement which provided for ‘super returns’ as described in the Heads of Agreement. Before Ms Lock received the first draft of the Share Sale Agreement, Ms Lock had no notion of any departure from the commercial terms that had been agreed in the Heads of Agreement. Had the drafting error been corrected before execution of the documents, Ms Lock could not have (and would not have) resisted such an amendment.

7. [494]

   As to what loss or damage the vendors suffered by reason of any breach, Mr Haddock said the difference between the deal recorded in the Heads of Agreement and that for which the plaintiff contended was some $100 million. The vendors also claimed their costs of these proceedings. In the event that the vendors were entitled to costs as damages, the vendors and KWM agreed that determination of the quantum of costs would be addressed as part of any future cost assessment and need not be determined by me. In the event that the vendors succeeded in respect of the proper construction of the Share Sale Agreement, then no costs were sought as damages from KWM. That was entirely sensible.

8. [495]

   The fiduciary relationship was said to arise from Ms Lock's employment and her role as a director representing the Investor on the Pepperstone board, while the Heads of Agreement and Share Sale Agreement were negotiated. There were three issues: did a fiduciary duty exist; did the vendors give their informed consent to Ms Lock acting in her own interests; and what remedy should be granted.

9. [496]

   The misleading and deceptive conduct claim which relied on the same facts as the fiduciary duty claim. There were several issues. First, did Ms Lock or the plaintiff engage in misleading or deceptive conduct by silence? Second, was this contravening conduct causative of loss, or was it the vendors’ (or KWM’s) failure to take reasonable care to protect their own interests? Third, if so, what if any loss did the vendors suffer? Fourth, should liability for the loss be apportioned as between the plaintiff and/or Ms Lock, on the one hand, and KWM on the other, pursuant to s 87CD of the Competition and Consumer Act 2010 (Cth)? Finally, should damages be reduced pursuant to s 137B of the Competition and Consumer Act 2010, or is the plaintiff and/or Ms Lock precluded from relying on this provision by intention or fraud.

Orders

1. [497]

   The parties asked for an opportunity to confer and, if necessary, make further submissions on the appropriate capital retention amount in light of my findings. The plaintiff sought to be heard on the question of interest on any debt amount. The vendors sought to be heard on the form of orders to be made, including as to costs and interest. I will make directions to accommodate this. For these reasons, I make the following orders:

   1. (1)

      Dismiss the Amended Summons filed on 2 November 2022.

   2. (2)

      Declare that, in respect of the Share Sale Agreement entered into between the plaintiff and the first to fourth defendants on 11 September 2018 (SSA):

   3. (3)

      Subject to making further directions and orders in respect of amounts to be paid by the plaintiff to the defendants under the SSA, interest and costs, otherwise dismiss the Further Amended Cross-Claim Cross-Summons filed on 20 April 2023.

   4. (4)

      Direct the parties to notify any errors or omissions within 14 days.