Federal Court of Australia

Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314

ORDERS

THE COURT ORDERS THAT:

1.    There be judgment for the applicants against the respondents, jointly and severally, in the sum of $1,717,761.

2.    There be interest on the judgment sum in order 1 as prescribed under s 51A of the Federal Court of Australia Act 1976 (Cth) from 8 June 2021 until the date of judgment.

3.    The respondents, jointly and severally, pay the applicants’ costs of the proceeding.

4.    There be liberty to apply, limited to the relief in orders 2 and 3, by the filing and service of brief submissions within 14 days of the authentication of these orders.

5.    In the event that the liberty in order 4 is exercised by any party within the prescribed time, orders 2 and 3 not be entered until further order.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    This case arises from a fallout between two businesspeople following the sale of the shares in the business of one of them to the other. The share sale agreement (SSA) was concluded on 11 March 2021.

2    The companies comprising the business and whose shares were the subject of the SSA were Exelsuper Pty Ltd and Exelsuper Advice Pty Ltd (together, the Exelsuper companies). Exelsuper was a trading company which carried on a financial planning business in Adelaide. Exelsuper Advice held the Australian Financial Services Licence (AFSL) under which Exelsuper was authorised to provide financial services and advice to clients of the business and to invest clients’ money. In the words of its principal, the business “had grown substantially in the previous 10 years from a small average sized financial advice provider to become a large, specialised provider of self-managed super[annuation] services.”

3    Putting a minority shareholding to one side (being irrelevant for present purposes), prior to the SSA the shares in Exelsuper were owned by Self Directed Super Funds Pty Ltd (SDSF), the first respondent, and in Exelsuper Advice by Christopher Steven Harris, the second respondent. Mr Harris was the sole shareholder and director of SDSF. By the SSA, SDSF and Mr Harris agreed to sell their shares to Bridging Capital Holdings Pty Ltd (BCH), the first applicant, the sole shareholder and director of which was Ari Ben Moses, the second applicant. Mr Moses was a party to the SSA as the guarantor of BCH’s obligations.

4    The SSA provided for the shares to be paid for and transferred in two tranches. The price for the shares was calculated as a factor (x 6) of what was referred to as the adjusted earnings before interest and tax (ie, adjusted EBIT or AEBIT). The EBIT of a business reflects, in essence, the operating profit. The actual EBIT for the business from the preceding accounting period was adjusted (based on information provided by Mr Harris) for expected changes in the EBIT in the current accounting period arising from changes in the business, most notably from actual and expected sales and acquisitions. The adjustments led to an AEBIT of $1.56 million and hence a purchase price representing the value of the goodwill of the business of $9.36 million. The dispute centres on the accuracy of, and the reasonableness of the basis for, the adjustments to the EBIT that resulted from the information given by Mr Harris.

5    Payment of the first part of the purchase price, amounting to $2 million, and the transfer of the first tranche of shares, roughly 45% of the total issued shares in the Exelsuper companies, occurred on 8 June 2021. That was referred to in the SSA as First Completion. Under the terms of the SSA and a corresponding shareholders agreement (SHA), Mr Harris and Mr Moses then became joint directors of the Exelsuper companies until Second Completion when BCH would pay for and receive transfer of the balance of the shares and Mr Moses would gain exclusive control of the Exelsuper companies. The balance of the purchase price was approximately $7.36 million.

6    Second Completion, however, never occurred because shortly after First Completion the two protagonists fell into dispute. That led to BCH and Mr Moses, as minority interests in the companies, commencing an oppression suit on 14 October 2021. The originating process included final orders for the winding up of the companies, or alternatively for the purchase of BCH’s interests in the Exelsuper companies. That suit was resolved on the basis that SDSF and Mr Harris would buy back the shares that were the subject of First Completion at a market value to be determined by the Court. On 22 November 2021, orders were made by consent appointing a referee to undertake an inquiry and to report to the Court on the market value of the shares in the business as a going concern as at 8 November 2021. The referee was instructed to value the shares on two alternative bases, namely with and without a minority shareholding discount.

7    The referee appointed by the Court was Nicholas Stagno Navarra, a Chartered Accountant. Mr Navarra reported on 8 December 2021. On 20 December 2021, there was a hearing on the adoption of Mr Navarra’s report, and particularly on whether his valuation with or without a minority discount was the best reflection of fair market value. The parties on both sides of the case otherwise sought the adoption of the report without variation. On the following day, 21 December 2021, I delivered judgment adopting Mr Navarra’s report without variation and determining the fair market value of the shares to be Mr Navarra’s valuation without a minority discount: Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd [2021] FCA 1625; 396 ALR 415. That gave a value of $282,239 for the shares to be transferred back to SDSF and Mr Harris, being approximately only 14% of what BCH had paid for them six months earlier. Subsequently, the respondents acquired BCH’s shares in the Exelsuper companies and Mr Moses ceased to be a director of Exelsuper.

8    Having heavily overpaid for the first tranche of shares and being some $1.7 million out of pocket excluding wasted transaction costs, BCH and Mr Moses commenced the present proceeding on 2 November 2022. At the time of the adoption of the referee’s report in December 2021, they had indicated that they intended bringing the present claims in that proceeding, but on it being indicated by counsel for the respondents that no Anshun estoppel issue would be taken if the claims were brought in a fresh proceeding, and it clearly being neater and more convenient to do so, the applicants brought the claims in a new proceeding. The present proceeding nevertheless merely litigates a different component of the same underlying dispute between the parties, being the dispute that arises from their conclusion of the SSA. That was discussed in my reasons for judgment on the costs of the oppression suit: Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Costs) [2022] FCA 361 at [20]-[23]. As will be seen, that has significant consequences for the status of the referee’s report in the present proceeding.

9    Although the proceeding was filed in the NSW registry of the Court, the trial was held in Adelaide as a compromise in response to the respondents’ application for the matter to be transferred to the South Australian registry of the Court. The business of Exelsuper was centred in Adelaide and principally conducted in South Australia.

The pleaded claims

10    The applicants plead that Mr Harris made a number of representations to Mr Moses prior to the conclusion of the SSA which Mr Moses and, through him, BCH relied on in entering into the SSA. They say that but for one or more of those representations they would not have concluded the SSA. They say that the representations were misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth), s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 1041H of the Corporations Act 2001 (Cth) (Corporations Act). There is no dispute that those prohibitions against such conduct applied in the circumstances. The applicants also plead that the representations amounted to unconscionable conduct contrary to the prohibition against such conduct in s 12CB of the ASIC Act, although that claim was not pursued in closing submissions.

11    Separately, the applicants plead that the representations, and the failure to disclose certain matters in the lead-up to the conclusion of the SSA, were in breach of warranties in the SSA. I will identify those matters shortly. In the meantime, it is necessary to identify the pleaded representations.

12    First, there is the Recurring Revenue Representation by which it is pleaded that Mr Harris represented that the recurring revenue of the business would be no less than its current actual revenue. That representation is pleaded to have been made by Mr Harris at a meeting between Mr Harris and Mr Moses on Zoom on 11 November 2020 as well as in several email communications. The applicants allege that the recurring revenue was subsequently represented to be in the order of $2.361 million. Understood in context, the allegation is that the representation was as to recurring revenue in the form of fees that were payable to the business under an “ongoing fee arrangement” within the meaning of s 962A of the Corporations Act on an annualised basis in FY21 as compared with the actual recurring revenue in FY20. The representation is pleaded to be a continuing representation in that the respondents did not later retract or qualify it in circumstances where a reasonable person in the applicants’ position would have expected to have been informed if it became incorrect or required revision.

13    Secondly, there is the Future Revenue Representation by which it is pleaded that Mr Harris represented that the future annual revenue of Exelsuper would be worth approximately $3.5 million when future acquisitions that were planned by Mr Harris were completed, based on the current actual revenue of the business. That representation is pleaded to have been made by Mr Harris in the 11 November 2020 meeting. The representation is also pleaded to be a continuing representation which was not later qualified or retracted.

14    Thirdly, there is the AEBIT Representation by which it is pleaded that Mr Harris represented that the goodwill component of the purchase price for the business was to be determined on the basis that it would be six times the business’s adjusted earnings before interest and taxes (ie the AEBIT referred to above) and that for the purposes of calculating the goodwill component of the purchase price for the business, an AEBIT figure of approximately $1.5 million would be utilised. That representation is pleaded to have been made by Mr Harris in the 11 November 2020 meeting and in writing on numerous subsequent occasions, and that it was a continuing representation which was not later qualified or retracted. The representation has considerable overlap with the Recurring Revenue and Future Revenue Representations (which the applicants accepted), as an AEBIT of $1.5 million would not be an accurate measure of business performance to the extent that the recurring revenue or future revenues were not as represented. Nevertheless, the applicants agreed to use an AEBIT of $1.5 million to calculate the purchase price, so there is nothing misleading or deceptive in the respondents’ conduct in representing that that figure would be used – it was in fact used. The real question is whether the applicants were misled or deceived into agreeing to that figure. That is the subject of the other pleaded representations. For those reasons, it is not necessary to consider the AEBIT Representation separately. Counsel for the applicants accepted as much: T362:33-363:12.

15    Fourthly, there is the Compliance Representation by which it is pleaded that Mr Harris represented that the business was legally compliant with all requirements for the provision of financial services and in relation to the AFSL and had an excellent compliance history. It is pleaded that Mr Harris made that representation in an Information Memorandum (IM) provided by Mr Harris to Mr Moses, through a business sales broker, shortly before the 11 November 2020 meeting and on subsequent occasions, with the respondents failing to correct or qualify the representation by giving a fuller account of the business’s compliance issues.

16    The applicants plead that each of the Recurring Revenue, Future Revenue, AEBIT and Compliance Representations was false, inaccurate and misleading. In brief, the applicants say that Exelsuper’s performance as a business was substantially less than what was represented as part of the adjustments to the EBIT and that the specific representations made turned out to be false. As part of this, the respondents are said to have remained silent as to the existence of liabilities arising from the acquisition of certain businesses by Exelsuper. As for the Compliance Representation, the applicants say it is established by evidence of regulatory and legal breaches in the provision of advice by Exelsuper.

17    The applicants also plead that the Recurring Revenue, Future Revenue and AEBIT Representations were with respect to “future matters” within the meaning of s 4 of the ACL, s 12BB of the ASIC Act and s 769C of the Corporations Act. The effect of those provisions is that unless the respondents adduce evidence that there were reasonable grounds for making those representations (to the extent that they were in respect of future matters), the representations will be taken to be misleading, noting, however, that the overall onus as opposed to the evidentiary burden is not shifted to the respondents in the event that such evidence is adduced: Mills v Walsh [2022] NSWCA 255 at [93] per Brereton JA with whom Bell CJ and White JA agreed; see also Karpik v Carnival plc (The Ruby Princess) (Initial Trial) [2023] FCA 1280 at [722]-[723] and the cases cited there.

18    The applicants’ breach of warranties case is more complicated. They plead reliance on a substantial number of warranties in the SSA. In summary, each of the Recurring Revenue, Future Revenue, AEBIT and Compliance Representations referred to above is said to be reflected in the express warranties given in the SSA. As will become apparent, the conduct which grounds the applicants’ misleading or deceptive conduct case is also relied on to establish that the warranties were not true and accurate and were misleading or deceptive or likely to mislead or deceive. The applicants also point to the respondents’ alleged failure to disclose the adverse effect of issues arising between Exelsuper and Praemium, the supplier of separately managed account (SMA) technology, which ultimately led to the termination of the commercial arrangement between them, thus failing to comply with the disclosure obligations in cl 7.4 of the SSA (henceforth referred to as the Praemium issues).

19    The respondents dispute the falsity of any of the Recurring Revenue, Future Revenue, AEBIT and Compliance Representations. The statements giving rise to the Recurring Revenue Representation are said to concern what recurring revenue was at that time, rather than what future recurring revenue would be. Further, the respondents say that none of the line items relating to recurring revenue were mischaracterised as recurring revenue. The respondents also say that the Future Revenue Representation was not made, and that in any event, for the same reasons as the Recurring Revenue Representation, it was not erroneous. The AEBIT Representation is said to have been “merely expressions of a negotiating stance to which the applicants had to agree before any figure would actually be utilised”, and not a representation of a past or present fact or future matter. Finally, the Compliance Representation is said not to arise on the pleaded communications and that in any event the purported instances of non-compliance in the business would not materially establish the falsity of that representation.

20    The respondents also dispute that causation and reliance on the representations has been established. The applicants are said to have failed to prove that entry into the SSA caused them any loss, noting that the acquisition of shares occurred on 8 June 2021 (with entry into the SSA on 11 March 2021) and the applicants had “very broad rights” to terminate the SSA prior to First Completion in the event of a material breach or Material Adverse Effect, which was ultimately not exercised to stop the acquisition. Mr Moses is further said to have believed the value of the business was $5 million, rather than the $9.36 million which he agreed to pay, such that the applicants would have entered into the SSA regardless of whether the alternative figures described in the applicants’ case were represented at the time of transacting.

21    With respect to the breach of warranties claims, the respondents advanced a number of different arguments in defence in opening submissions. Some were subsequently abandoned by the respondents, and their entitlement to rely on the balance was disputed by the applicants having regard to the form of the pleadings. I made a ruling on that matter on 3 September 2024, such that the only specific argument available to the respondents on the SSA terms, aside from a general denial of breach, is that “each Warranty is given subject to and the Sellers have no liability in respect of any Claim arising in respect of any fact, matter, event or circumstance to the extent Disclosed (clause 1.2 of Sch 3); Buyer agrees it is aware / deemed to have actual knowledge of all matters Disclosed, including in the data room (clause 28.3)”: Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Issues Ruling) [2024] FCA 1016. The argument turns on whether or not information falsifying the representations was adequately disclosed in the due diligence process and in other communications.

22    Against that disclosure defence, the applicants further rely on cl 28.8 of the SSA which stipulates that limitations on the vendor’s liability in respect of warranties do not apply “to the extent that there has been fraud, dishonesty or wilful concealment” on the part of the respondents or their agents or advisers. The applicants allege only wilful concealment.

23    Aside from the SSA terms, the respondents assert that the applicants have not properly pleaded how their alleged loss has flowed from the specific breaches of warranty complained of. Instead, the respondents note the applicants have simply run a “no transaction” counterfactual in relation to the breach of warranties claims like they have done for the misleading or deceptive conduct claims, giving no particulars of the contractual measure of damages.

24    For completeness, I note that the respondents had asserted a cross-claim but it was discontinued on the second day of the trial.

The issues

25    The following key issues are in dispute (as formulated by the parties):

Misrepresentations

(1)    Whether each of the Recurring Revenue, Future Revenue, AEBIT and Compliance Representations was made by Mr Harris during the Zoom meeting on 11 November 2020, and whether any of those representations was repeated on subsequent occasions;

(2)    Whether those representations (or related conduct) were misleading or deceptive, or likely to mislead or deceive for the purposes of s 18 of the ACL, s 12DA of the ASIC Act or s 1041H of the Corporations Act (or, if taken as representations as to future matters, s 4 of the ACL, s 12BB of the ASIC Act and s 769C of the Corporations Act);

(3)    Whether the applicants relied on the representations when deciding to execute the SSA on 11 March 2021.

Praemium issues in contract

(4)    Whether the applicants were informed of, or could have learned of, the Praemium issues prior to around late-June 2021 and whether the respondents were aware of those issues from around June 2020;

(5)    Whether those issues could reasonably be considered relevant to the business of the Exelsuper companies and to have an adverse effect on the companies;

(6)    Whether the respondents failed to comply with cl 7.4 of the SSA in failing to notify the applicants of the Praemium issues.

Breach of warranty

(7)    Whether the respondents breached cll 28.1.1 and 28.1.2 of the SSA because the relevant warranties at Schs 1 and 2 were not true and accurate and were misleading or deceptive or likely to mislead or deceive;

(8)    Whether there has been any fraud, dishonesty or wilful concealment on the part of the respondents or their agents and advisers for the purposes of cl 28.8.

Entitlement to relief

(9)    Whether the applicants are ultimately entitled to damages in the form they seek, should contravention or breach of warranty be established.

The witnesses

26    The principal witnesses on each side of the case were Mr Moses and Mr Harris, respectively. They were the only witnesses who were required for cross-examination, and each was cross-examined at length.

27    Mr Moses (also referred to by his middle name, Ben) is a financial services professional specialising in wealth management, mergers and acquisitions, remediation, licensing and practice management projects. Born in Ghana in 1986, he emigrated to Australia in 2013. Since then, he has had extensive professional work experience in the financial services industry, having worked as a financial adviser both at firms owned by others and self-employed at his own businesses. As referred to above, Mr Moses is the sole shareholder and director of BCH, and is also the controller of several other vehicles used in his business ventures.

28    Mr Moses was, for the most part, an impressive witness. He gave straightforward answers. He was, on occasion, a little argumentative, or showed some frustration or impatience with the questions he was expected to answer. However, those factors do not detract from my overall impression of him as an honest witness with good recall of the material events, particularly noting that these often involved complex financial arrangements in respect of which perfect recollection could not be expected. He is apparently a big-picture person who left the finer details to his advisers, notably his accountants and lawyers. He was content to pay six times the AEBIT as the purchase price for the shares on the basis that the adjustments to EBIT were fair and reasonable. He did not concern himself with checking the figures that he was given by Mr Harris as he left that to his accountants as part of the financial due diligence process and he considered that his and BCH’s positions were protected by the terms of the SSA. It is that protection that Mr Moses called on in bringing this proceeding.

29    Mr Harris has also worked in the financial services industry, in his case for over 40 years, principally in management roles at financial planning businesses. In such roles, he has overseen many mergers and acquisitions of financial planning and advice businesses. He is the sole shareholder and director of SDSF and controlled (including through SDSF) the Exelsuper companies.

30    Unfortunately, I was not left with confidence in the honesty of Mr Harris’s evidence. It was established in evidence that he was dishonest in his presentation of key details about the Exelsuper companies in the IM that formed the basis for future discussion between him and Mr Moses. He admitted as much in cross-examination. His approach to dealing with Mr Moses and his advisers was, at least in part, to give some information directly and to simply put other material information that might detract from the soundness of his adjustments to the EBIT into the voluminous data room. That was apparently with the dual hope that its significance was not noticed and that if any issue of non-disclosure subsequently arose it would be sufficient for him to have disclosed it in the data room. Mr Harris had to change his evidence on occasion when it was pointed out that his self-serving answers were incorrect.

31    For instance, Mr Harris was questioned on why he failed to disclose contingent or actual liabilities of the business in answer to a direct query raised with him by Rasika Day, Mr Moses’s accountant, on 2 December 2020. Mr Harris’s initial answer in cross-examination was that he did not disclose such liabilities because he did not consider that there were any (T277:30). When shown that there were such liabilities, he changed his evidence to say that he had not disclosed them in answer to Mr Day’s inquiry because “the actual documents relating to those transactions were also uploaded to the due diligence data room” (T277:40). Also, as mentioned and as will be seen, Mr Harris made several false statements in the IM.

32    The result is that I must approach Mr Harris’s evidence with caution. Where there is a conflict between his evidence and Mr Moses’s evidence, unless there is some contemporaneous document or other objective evidence to support the contrary, Mr Moses’s evidence is to be preferred.

The key events

33    Between late-October 2020 and early-November 2020, Mr Moses decided he wanted to build a wealth management business. To this end, he contacted financial services business brokers, one of whom was Steve Prendeville of Forte Asset Solutions. Mr Prendeville became the go-between for Mr Moses and Mr Harris, conveying the former’s interest in the purchase of the Exelsuper business. On 3 November 2020, Mr Moses caused BCH to be incorporated for the purposes of undertaking the acquisition of the Exelsuper companies.

34    On 6 November 2020, Forte provided Mr Moses with the IM for review and comment ahead of a meeting with Mr Harris to further discuss “cultural alignment and fit.” Although it was dated May 2019, in cross-examination Mr Harris confirmed that the IM had been updated from an earlier draft in preparation for that November meeting.

35    The IM stated that in February 2020 Exelsuper commenced a project to increase its scale and profitability by acquiring other assets or businesses. It noted that “[t]o date Exelsuper has completed two transactions”, being the acquisition of Prism Financial Planning in September 2020 and Shortland Wealth Management in October 2020. The IM also mentioned the forthcoming acquisition of “QFP” for which “[a] full understanding of terms has been agreed” and completion anticipated in January 2021, as well as two more assets of “RV WM” and “MJ PL Mount Gambier” for which terms had not yet been agreed.

36    The Shortland acquisition was stated to have been funded using “existing Cash Reserves” thereby implying that the price had already been paid as was accepted by Mr Harris in cross-examination (T241:4-8). That was false because, in fact, payment was made on a vendor-finance basis such that the liability was paid from revenue over a period of time. Thus, the figures given for the projected revenue following the acquisition were misleading as they overstated the position to the extent of the outstanding liability. Mr Harris accepted as much (T278:1-2). The Navarra report discloses that the true position was that there would be no revenue received to the credit of Exelsuper for 24 months following the acquisition as the purchase consideration included 24 monthly payments equivalent to the previous month’s revenue.

37    As for the Prism acquisition, the business had not been acquired as a whole. Instead, Prism was brought on board as an “authorised representative” of Exelsuper. As explained by counsel for the respondents, an authorised representative (AR) is an external financial adviser in an arrangement with Exelsuper whereby the AR is able to make use of the “licensing umbrella” of Exelsuper’s AFSL. The fees earned by the AR are recorded as part of Exelsuper’s revenue, in exchange for commission and other overheads being paid by Exelsuper (ie, cost of sales) (T54:43-55:10). The consequence of Prism being an AR instead of an outright acquisition was that commission was still payable to Prism in exchange for the recurring revenue obtained with the net revenue being limited (T145:29-39, T147:10-13, 31-41).

38    In relation to the so-called completed transactions, the IM noted:

The Directors of Exelsuper understand that the historic Profit and Loss statements of Exelsuper are outdated, given the recent acquisitions. Despite this, the directors therefore wish to disclose that the AEBIT uplift of these acquisitions has been included in this IM. Terms of sales and all DD documents conducted prior to completion including sale agreements will be supplied during DD.

As these transactions have occurred part way through FY2021, the projected AEBIT will not be reflected in Exelsuper’s P&L’s on an annualized basis until FY2022. As such, Exelsuper has prepared detailed pro-forma profit and loss statements showing itemized income components and expense consolidation of each asset listed as a COMPLETED TRANSACTION, which is supplied with this IM.

39    The IM further provided the figures of “$3,800,000 plus” for recurring revenue and AEBIT of more than $1.75 million. It stated that the business had a “[f]ully operational AFSL with excellent compliance history and low risk activities.” The IM did not, when referencing the Prism and Shortland acquisitions, make reference to any extant liabilities. Rather, as mentioned, it stated that the acquisitions had been completed and that the liability on the Shortland acquisition had been paid. Mr Harris conceded in cross-examination that those statements were false (T237:33-41; 240:13-14; 241:4-8).

40    Elsewhere in the IM an AEBIT of $1,972,094 was projected for the 2021 calendar year, apparently on the assumption that other proposed acquisitions detailed in the IM were completed. That figure was calculated as the difference between the projected Gross Revenue of $4,217,237 and the projected Normalised Expenses of $2,245,143. It was not explained how the figure for Normalised Expenses was arrived at, although a list of Key Expenses adds up to $2,711,395. It does not include any acquisition expenses which leads to the inevitable inference that the lower figure for Normalised Expenses also did not include acquisition expenses. The same set of figures gives the Recurring Revenue as $4,193,237 for the 2021 calendar year, which is not dissimilar to the “$3,800,000 plus” figure given earlier for recurring revenue.

41    On 11 November 2020, Mr Moses participated in a Zoom video conference call with Mr Harris and others. Aspects of the information given in the IM were discussed in the meeting. Both Mr Moses and Mr Harris gave evidence that Mr Harris explained that the revenue of the business was lower in the previous financial year (FY20) and that Mr Harris was in the process of pursuing several acquisitions to increase revenue. He explained that the AEBIT on which the sale price of the business would be calculated was based on the annualised anticipated revenue in the current financial year (FY21) which would include the revenue from any completed acquisitions. Mr Harris addressed the figures contained in the IM, including confirming the AEBIT of $1.75 million increasing to $1.972 million if the planned acquisitions went ahead. I accept Mr Moses’s evidence that Mr Harris said that the future annual revenue of the business would probably be about $3.5 million when the anticipated business acquisitions were finalised. There was no revision of the information in the IM during the meeting.

42    On 17 November 2020, the parties executed a non-binding term sheet. The purchase price was expressed as being a 6-times multiple of AEBIT, less a deduction (which is presently not relevant). An “Estimated AEBIT” figure of $1.972 million was given, “assum[ing] the completion of proposed acquisitions as disclosed [in the IM]” where, if the acquisitions did not proceed, the estimated AEBIT would be $1.509 million. The term sheet envisaged that there would be two phases to due diligence; first, “AEBIT confirmation” by 27 November 2020 and “Legal Due Diligence” by 15 December 2020, with completion scheduled for 1 January 2021. Further Q&A between the parties occurred via email following the term sheet.

43    On 30 November 2020, the applicants’ legal and financial advisers were granted access to the due diligence data room. Mr Day and Dasun Kulatunge of the firm Australian Accountants acted for Mr Moses as his financial due diligence advisers on the transaction.

44    On 2 December 2020, Mr Day requested further information from Mr Harris including the details of acquisitions and demergers undertaken by the business since 2015 including any “legal issues or contingent or actual liabilities remaining or arising from these acquisitions”, and “[r]easons for not proceeding with the Malborne [sic] acquisition.”

45    Mr Harris confirmed in cross-examination that he prepared a table in answer to the request for details of acquisitions and demergers which he sent to Mr Day. The table referred to revenue figures from various acquisitions and contained some discussion of legal issues, including litigation arising from the “sale” of clients to Enva Advisory Pty Ltd. Other referenced transactions included the acquisition of Shortland and another business under the name of David Frost (previously an AR of Exelsuper). The table did not refer to any liabilities arising in relation to these transactions despite details of liabilities having been specifically requested. The significance of that omission will become apparent below.

46    On 4 December 2020, Mr Harris responded to further due diligence related queries sent by Mr Day on behalf of Mr Moses. One of the requested items was the profit and loss for 5 months to 30 November 2020. Mr Harris replied by referring to “the disclosed adjustments which have been articulated in the documents provided so far” and referred to further revenue “coming online” and still “to be transferred in full.” He did not refer to any corresponding liabilities.

47    Also on 4 December 2020, Mr Prendeville, on behalf of Mr Harris, requested that Mr Moses confirm that he was content with the AEBIT figure prior to the commencement of Legal Due Diligence, ie the second phase of due diligence. Mr Prendeville stated:

In order to assist you on this matter I have again attached Exelsuper’s AEBIT calc based on FY 2020 actuals which includes adjustments only for transactions that have completed since 30 June 2020 and ignores any acquisitions that are in the pipeline, but not yet complete. As such we have calculated AEBIT to be $1,560,591. Before we proceed to provide further DD Documents, please confirm that your accountant has confirmed that this figure is a fair representation of the future AEBIT. Our agreement is that the sale price is 6 X AEBIT, thus valuing the transaction at $9,363,456. [Second emphasis added.]

48    The attached spreadsheet prepared by Mr Harris (the AEBIT spreadsheet) was a profit and loss statement for the Exelsuper business for the financial year that ended on 30 June 2020 (ie FY20) with an additional column of figures reflecting the “Adjusted EBIT” as follows (insofar as income is concerned):

49    The line-items “Financial Planning & SMSF Admin Fees” and “Product Fee SMA” taken together amount to recurring revenue. (As will be seen, that is how Mr Navarra treated them.) Thus, it was represented that annualised recurring revenue for FY21, based on the actuals for FY20, would be $3,251,059 (ie $3,118,021 + $133,038 in the right hand column). It can also be observed that recurring revenue is the principal revenue source accounting for some 96% of income deriving from “Financial Advice”.

50    Adjacent to the “Adjusted EBIT” column were a number of notes explaining the adjustments. The adjustments included:

    +$42,000 in relation to income for “AR – Dealer Fees.” The note about this adjustment stated: “The intention is to complete the sale of Prism FP to Exelsuper by completions, however I f [sic] sale is not complete they will remain on board as an AR and pay dealer fees etc”;

    +$760,000 in relation to income for “Financial Planning & SMSF [Advice].” The note about this adjustment stated: “This includes Prism Revenue, Harris Shortland Revenue and David Frost Revenue recently acquired”; and

    -$314,000 in relation to “AR – Advisor Commissions.” The note about this adjustment stated: “Removes D Frost as his client base has ben [sic] pruchased [sic] by Exelsuper but includes payments to Doherty, Mills, and adds Prism FP who became an AR on 1/11.”

51    Later that day, Mr Moses responded with the following:

Please note we have not disagreed on the AEBIT and that was the premise of the initial discussion and also this transaction. At the moment, we are expecting final feedback from our private equity firm hopefully next week for us to move forward and give each other comfort.

…

We’re happy to perform limited DD so far as we are both protected by the contract upon exchange.

52    This prompted the following from Mr Harris:

Just for clarity, we insist that you do full DD on all aspects of the business, however we simply ask that you prioritise AEBIT DD to ensure that you are happy to proceed on the agreed purchase price.

53    Negotiations over the draft SSA occurred from early January 2021. During this time, it was understood that due diligence had virtually concluded.

54    On 25 January 2021, the parties participated in another Zoom video conference, discussing the AEBIT and the financials of the business. Mr Harris continued to note that all acquisitions had been completed, including the Shortland and David Frost acquisitions, and the revenue of Prism as an AR added. It was confirmed in that meeting that financial due diligence had been completed which carried the implication that Mr Harris’s AEBIT had been accepted by Mr Moses.

55    On 10 February 2021, Mr Harris emailed to his solicitor, copying Mr Moses, a communication containing the following passage:

Ben has expressly confirmed with me that he is happy with the clawback provisions, and that I have agreed that the baseline recurring revenue will be as per the document attached which clearly shows recurring revenue to 31/1/2021 as $2,361,382. This of course only includes 3 months Prism Revenue which when extrapolated over 12 months gives Ben substantially more revenue than disclosed. As per the Agreement, Prior to completion, we need to provide a final recurring revenue figure, which I have now done to 31/1/2021. I have uploaded this document to the DD Data Room.

(Emphasis added.)

56    The attached spreadsheet showed recurring revenue for each of the 12 months from February 2020 to January 2021 which, added together, came to the figure given, namely $2,361,382 (more precisely expressed as $2,361.381.20 in subsequent communications discussed below). That is the figure relied on by the applicants in their pleaded Recurring Revenue Representation and not the figure of $3,251,059 in the AEBIT spreadsheet discussed above (see [49] above). Significantly, that figure is given as at 31 January 2021 and not on an annualised basis. Expressing it on an annualised basis would require adding another five months’ revenue which should take it well over the figure of $3,251,059 that had been given on 4 December 2020.

57    Also on 10 February 2021, Australian Accountants completed their financial due diligence report in respect of Exelsuper. That report noted their reliance on the integrity of the information and data supplied to them by the respondents, and that independent verification did not occur unless otherwise stated. Their analysis based on actual revenue from July to November 2020, excluding recent acquisitions, resulted in a total valuation of $5 million.

58    On 15 February 2021, Mr Harris emailed Mr Moses the following:

As per our discussion re recurring revenue, so that you have absolute clarity re the recurring revenue figures the following information is provided in support of our disclosure

1)     As per the attached recurring revenue report, the recurring revenue to 31/1/2021 is $2,361,381.20 however this does not include acquisitions that came on board in October 2020, or Prism who came on Board in November 2020.

2)     As you can see, in October the purchase of Harris Shortland Wealth Management was completed and was added to our recurring revenue. This amount was $280,000 per annum

3)     In November Prism came onboard as an AR which added a further $550,000 to recurring revenue

4)     In December David Frost client base was acquired which contains $100,000 in recurring revenue

It is anticipated that total RR to 31/1/2022 should total about $2,900,000. However, as previously stated our only representation on this matter is what exists now, without any further acquisitions, etc.

59    The following day, in an internal email to Mr Harris from Chris Gill (a Chartered Accountant and adviser at Exelsuper), Mr Gill made a number of comments on the above email pointing out to Mr Harris that he had given inflated revenue figures to Mr Moses. Using the same numbering, his comments were:

(1)    “This is not correct – November 2020 onwards revenue figures include Harris Shortland Revenue and also from November 2020 onwards includes PRISM revenue (November contained part amounts from Infocus) – To be clear the figures in this report are GST inclusive as its gross cash receipts”;

(2)    “Average gross receipts for three months 31 January 2021 is $22,498 or $270k p.a (ex GST)”;

(3)    “Average gross receipts for two months 31 January 2021 is $43,555 or $522,660 p.a (ex GST) – only did two months as November only contained part month income from Infocus”; and

(4)    “Average gross receipts for three months 31 January 2021 is $5,646 or $67,762 p.a (ex GST).”

60    To be clear, Mr Gill was pointing out to Mr Harris that his email to Mr Moses wrongly represented the financial position of the business in the following respects:

(1)    Mr Harris’s figure for recurring revenue of $2,361,381.20 was overstated as:

(a)    it included GST without saying so;

(b)    it included the Shortland and Prism revenues from November 2020 onwards although Mr Harris stated that it did not;

(2)    Mr Harris gave an additional amount (ie, in addition to the $2,361,381.20 figure) of $280,000 for recurring revenue from Shortland which was wrong because part of the Shortland revenue (for three months) was already included in the first amount and the annualised amount was in any event overstated by Mr Harris by $10,000;

(3)    Mr Harris gave a further additional amount of $550,000 for recurring revenue from Prism which was wrong because part of the Prism revenue (for two months and part of a month) was already included in the first figure and the annualised amount was in any event overstated by Mr Harris by about $25,000; and

(4)    Mr Harris gave an additional amount of $100,000 for recurring revenue from David Frost which was overstated by about $32,000.

61    Mr Gill also commented, “we should also make it clear that we also pay out 100% of the average amount $337,762 to David Frost and Harris Shortland (no GST) as capital payments.” That is to say, the business was at that time receiving no revenue from David Frost and Shortland because that revenue was all being paid as the purchase price for those acquisitions.

62    Having noted these misstatements, Mr Gill advised that Mr Harris should make the true position “clear”. In his email response to Mr Gill, Mr Harris stated that he would upload Mr Gill’s email to the data room. Although that apparently occurred (T366:39-41), Mr Harris had no explanation for why he did not correct the position directly with Mr Moses which would have been the obvious and honest thing to do (T329:18-38). Instead, Mr Moses was left with the materially false position set out by Mr Harris in his email which was not corrected and would not have been corrected unless Mr Moses or his advisers found the proverbial needle in the haystack. Mr Harris’s conduct in that regard was deliberately deceptive.

63    Even aside from the misrepresentations of the true position by him, Mr Harris unequivocally stated that the recurring revenue to 31 January 2021 (ie for seven months) was $2,361,381.20. Even simply annualising that amount without taking account of the increasing revenue in later months would yield an annual recurring revenue of $4,048,082 (ie ($2,361,381.20 / 7) x 12).

64    The SSA was finally executed on and dated 11 March 2021. It provided for legal due diligence to complete in 7 business days from the date of execution. However, legal due diligence continued after this time, resulting in a number of variations to the SSA in order to extend the timeframe for legal due diligence.

65    The third variation deed to the SSA, on or about 22 April 2021, extended the First Completion Date to 30 April 2021. It also provided at cl 1.2 that the parties agreed that all conditions precedent to First Completion had been satisfied, and that the accounts annexed to the deed were accepted as the completion accounts for the purposes of the SSA terms. Clause 1.2.3 also provided that “[f]or the purposes of clause 16.3.2 of the [SSA], [BCH] accepts [SDSF]’s calculation of the Recurring Revenue as at First Completion in the amount of $2,361,381.20.” That was thus the figure to be used to calculate the second instalment amount (cl 16.2).

66    First Completion occurred as ultimately rescheduled on 8 June 2021. As explained at the outset, this led to the applicants paying $2 million and BCH acquiring a shareholding of 43.2% of Exelsuper and 45% of Exelsuper Advice, and Mr Moses becoming a director of Exelsuper.

67    On 27 June 2021, Mr Harris informed Mr Moses by email that Exelsuper had received notice that Praemium was “not wishing to continue with our SMA and Badged version of their product.” Notices of termination from Praemium were also attached dated 24 June 2021. Mr Harris responded by letter to those notices on 28 June 2021, stating “the understanding and agreement formed between Exelsuper and Praemium resulting from Exelsuper’s conversation with Michael Ohanessian [the CEO of Praemium] this time last year has now been abandoned.” The letter went on:

Exelsuper was informed 12 months ago … that it was Praemium’s desire to end our Model Manager relationship, and it was Praemium’s desire to terminate the Exelsuper Super Essentials Super SMA and ExelPrivate SMA agreements.

…

We discussed altering the terms of the agreement to ensure compliance with conflicted remuneration regulations, and Mr Ohanessian committed to ensure that the Praemium team would work with us to implement changes from an MER based Model Management fee to a Dealer Model Management fee.

…

In light of the above information, it is clear that it is in neither Exelsuper’s nor Praemium’s interest to continue a relationship based on past difficulties. I trust that we can conclude our relationship with sensible action and cooperation, and as such ask, that if you still intend to terminate the Agreements utilising the steps outlined in your recent correspondence, please provide information regarding the following in accordance with 8.5 of the Distribution Deed.

68    That was followed by a number of questions as to the transitional arrangements to occur between the parties following termination.

69    Although Mr Harris had known of Praemium’s intention to end its relationship with Exelsuper since mid-2020, Mr Moses was not advised of that until 27 June 2021, well after First Completion.

70    Following this time, Mr Moses and Mr Harris fell into dispute before subsequent steps required under the SSA could be completed in order to effect Second Completion and finalise the transaction. That was the subject of the oppression suit detailed above, leading to the applicants relinquishing their shares in the Exelsuper companies.

The status of the referee’s report

71    During the hearing, I heard submissions on the status of the referee’s report of Mr Navarra, which, as mentioned, was adopted by the Court pursuant to s 54A(3)(a) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and r 28.67(1)(a) of the Federal Court Rules 2011 (Cth) in the course of the earlier oppression proceeding. It was argued on behalf of the respondents that the report should be excluded from evidence on various bases, including relevance (including insofar as it commented on issues going beyond what was pleaded) (T96:37), hearsay (T110:15-17), that insufficient notice had been given of Mr Navarra as a witness in the event he was to be called (T110:17-23; 209:12-14), that if the report is to be given the status of a judgment or its findings given the status of findings of the Court then it is excluded by s 91 of the Evidence Act 1995 (Cth) (T207:31-33) and that it is unfairly prejudicial to the respondents and should be excluded under s 135 of the Evidence Act (noting in particular that the respondents would not be in a position to undertake proper cross-examination) (T107:19; 178:41-44; 209:14-15).

72    As mentioned, the Navarra report concludes that the Exelsuper shares in the hands of the applicants at 8 November 2021 (the date of agreement of repurchase) were worth $282,000, in contrast to the $2 million which had been paid at First Completion. The content of the report deals at length with why the value of the shares did not accord with what had been paid for them, including that the AEBIT figure which would have been appropriate for the business was different to the amounts that were presented as part of the accounts from which the purchase price was formulated. Annexed to the report are detailed exhibits which particularise the financial information of the business, as well as summaries of responses to Q&As conducted by Mr Navarra with Mr Harris.

73    On 4 September 2024, I made a ruling that admitted the Navarra report subject to what use the Court would make of it being subsequently addressed in closing submissions. The report is a historical document having been produced as a referee report. The report is relevant in the sense of s 55 of the Evidence Act, having a direct bearing on key matters in the present dispute, including the AEBIT calculation and the revenue-related representations pertinent to the valuation of the Exelsuper companies. Any prejudice to the respondents is outweighed by the utility of the report in disposing of the issues in dispute.

74    The claim of prejudice also fails because of the following considerations. The respondents participated in the referee’s inquiry that led to the report, they consented to its adoption by the Court without variation at a time when they were on notice of the applicants’ intention to claim damages including the difference between what they had paid and the value of the shares as determined by the referee, and they were on notice of the applicants’ intention to rely on the report long before the trial.

75    To the extent that the Q&As exhibited to the report might be captured and therefore excluded by r 28.67(2) of the Rules, I dispensed with that rule under r 1.34. I can see no reason why the recorded questions to and answers by Mr Harris and Mr Moses on matters pertinent to this dispute between them should not be admissible.

76    In any event, I do not consider the report to be witness evidence requiring Mr Navarra to be called and cross-examined; indeed, I would not have considered it appropriate for him to be cross-examined. The provenance of the Navarra report means it is a document recording findings of the Court that are relevant to the present proceeding. As noted by Lee J in Haswell v Commonwealth [2020] FCA 915 at [7] and [21], by adopting the report the Court, either explicitly or implicitly, made the findings of fact and law recorded in it. For the same reasons I do not consider the report to be inadmissible hearsay.

77    This does, however, raise (as the respondents did) the question of the effect of s 91 of the Evidence Act. Subsection (1) states “[e]vidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.” The section is not applicable unless there are two separate proceedings: King v Muriniti [2018] NSWCA 98; 97 NSWLR 991 at [14] per Basten JA with whom Gleeson JA agreed. National Mutual Life Association of Australasia Ltd v Grosvenor Hill (Qld) [2001] FCA 237; 183 ALR 700, which the respondents cite (relying in particular on [46] and [48]), is not to the point because it dealt with a separate proceeding. As already explained, the Navarra report was adopted in respect of the same matter (in the sense of justiciable controversy) as the matter in the present proceeding. That happened to have been in a different proceeding in the sense of being under a different case number and commenced by a separate originating process, but that was merely for convenience. In substance, it is the same proceeding and s 91 is therefore not engaged.

Statutory misleading or deceptive conduct claims

Whether the Recurring Revenue, Future Revenue, AEBIT and Compliance Representations were made

78    Unsurprisingly, the key point of difference between the parties is whether the impugned representations as pleaded were made at the meeting on 11 November 2020 and thereafter. The applicants’ case fails if this is not established.

Recurring Revenue Representation

79    Beginning with the Recurring Revenue Representation, although the respondents’ amended defence denies that the representation was made, it is notable that the respondents in closing submissions do not argue on the evidence that the express representation was not made by Mr Harris to Mr Moses in the meeting on 11 November 2020.

80    Mr Moses in his affidavit evidence deposed that Mr Harris told him that “the recurring revenue of the Exelsuper Business would be around the same as what was stated in the [IM]”. Mr Moses understood “recurring revenue” to mean “the fees payable to a financial planning practice or a sole financial advisor under an ongoing fee arrangement or commission payments.” Mr Harris in his affidavit evidence deposed to speaking to the figures contained in the IM and in particular the quantum of recurring revenue in the Exelsuper business. Although Mr Harris did not specifically depose to the Recurring Revenue Representation being made orally at that meeting, I accept Mr Moses’s evidence to that effect. It will be recalled that the figures given in the IM for recurring revenue were “$3,800,000 plus” and $4,193,237 (see [40] above).

81    On 10 February 2021, Mr Harris’s email reflected that he had agreed that “the baseline recurring revenue will be as per the document attached which clearly shows recurring revenue to 31/1/2021 as $2,361,382” (emphasis added). A subsequent email of 15 February 2021 from Mr Harris to Mr Moses (being the email discussed at [58] above) then contained the words “[a]s per the attached recurring revenue report, the recurring revenue to 31/1/2021 is $2,361,381.20”, that is, a quantum equivalent to being no less than the Exelsuper business’ current actual recurring revenue. This figure was repeated in subsequent versions of the AEBIT spreadsheets prepared by Mr Harris leading up to April 2021. The SSA at cl 25.1 of Sch 1 also repeated it in the form that “[t]he Recurring Revenue as at First Completion will be no less than $2,361,000.” It does not appear on the evidence that these statements were qualified by other statements from the respondents to contrary effect.

82    Against this evidence, the respondents say that the statements relied on do not give rise to the pleaded representation as they relate to past, rather than future, recurring revenue. In other words, the statements relied on as to recurring revenue make no assertion about what revenue would be in the future and are simply statements of current actual revenue (a backward-looking calculation). That cannot be correct where Mr Harris’s own email of 10 February 2021 noted that “baseline recurring revenue will be as per the document attached” (emphasis added), that document containing the $2,361,382 figure. Also, Mr Harris’s email of 15 February 2021 (see [58] above) spoke of “anticipated … total [recurring revenue] to 31/2/2022” (ie a year into the future). Indeed, the very concept of AEBIT is future looking – it provides for adjustments to the actual present EBIT on account of what the figures in the future are expected to be.

83    Hence, I find that the Recurring Revenue Representation was indeed made from time to time and was not withdrawn. I further find that the Recurring Revenue Representation, while initially expressed generally, ultimately became that the current actual recurring revenue of Exelsuper was $2,361,381.20 and that the recurring revenue on an annualised basis in FY21 would be at least that amount (a representation as to a future matter based on the former matter being true).

84    The difficulty for the applicants here is that the figure of $2,361,382 was taken as the actual recurring revenue as at 31 January 2021 at a time when entry into the SSA and First Completion were expected to follow soon thereafter. At that time, as explained, the annualised recurring revenue calculated from that figure would have been well in excess of $4 million. However, the same figure was ultimately used even though First Completion did not occur until 8 June 2021, which was only three weeks from the end of the financial year. To annualise the figure at that stage would not increase it by much. The result is that with the passage of time, what commenced as a grossly inflated recurring revenue figure became less so and, as will be seen, was ultimately not much different from the actual recurring revenue that was achieved.

Future Revenue Representation

85    As dealt with above (see [41]), the figures in the IM were discussed by Mr Moses and Mr Harris in their 11 November 2020 meeting, and the figures were not revised. Also, Mr Harris stated that the future revenue of the business would probably be about $3.5 million when the then anticipated business acquisitions were finalised.

86    The difficulty with this representation is that it is not clear on the finalisation of which anticipated business acquisitions it was conditioned. It would appear that at that time it may have been the “pending” acquisitions referred to in the IM, being “RV WM”, a Melbourne-based financial planning business, and “MJ PL Mount Gambier.” However, those acquisitions were not finalised so the condition was never fulfilled. It is possible that it was at that time a reference to the Prism, Shortland and QFP transactions notwithstanding that they were referred to in the IM under the heading of “Completed Transactions.” That is because it was stated in the IM that for Prism the “entire share transaction will complete by no later than 31 January 2021”, that Shortland was stated to have only recently been acquired and that the QFP transaction was not yet complete and still subject to due diligence.

87    Whatever the intended reference was, the evidence is not clear enough. It is simply not possible to say with any degree of confidence what “anticipated business acquisitions” were being referred to. In the circumstances, the Future Revenue Representation, as pleaded, fails.

88    For completeness, having addressed the Recurring Revenue and Future Revenue Representations and for the reasons discussed at [14] above, it is not necessary to address the AEBIT Representation.

Compliance Representation

89    Unlike the other representations concerning revenue, the Compliance Representation is pleaded as an implied representation arising from the IM’s description of Exelsuper having a “[f]ully operational AFSL with excellent compliance history and low risk activities”, combined with the assumed premise that the transaction would entail Exelsuper being compliant with the law and where Mr Harris did not qualify or retract such an assumption. More specifically, the representation is said to be repeated in the SSA warranties as to compliance by Exelsuper with “all laws and orders (including the Corporations Act, the Competition and Consumer Act 2010 (Cth) and fair trading legislation).”

90    Beginning with the IM, it is unclear that the description of a “fully operational AFSL” has much content to it other than stating that an AFSL is in place at the time of writing. It would not seem to rise to a representation that the business was “legally compliant with all requirements for the provision of financial services” in the terms pleaded by the applicants, which could have a broader meaning depending on the nature of the “financial services” to be provided. It cannot be assumed that the IM’s reference to “excellent” compliance history is in relation to that attaching to the provision of “financial services” in this broader sense. On that basis, the representation as pleaded in the form of the Compliance Representation is not made out on the content of the IM.

91    Nor does Mr Harris’s conduct throughout the commercial negotiations suggest on the evidence that the Compliance Representation was made in the form pleaded. If anything, the evidence on discussions between the parties as to compliance history was limited. There may be more to the argument that the Compliance Representation was made in the SSA warranties. However, the wording of the relevant warranty at cl 6.1 at Sch 1 of the SSA is limited to bare compliance with laws at time of warranty rather than anything approaching compliance with all requirements for the provision of financial services, or an excellent compliance history.

92    I therefore find the Compliance Representation was not made out.

Whether there was misleading or deceptive conduct

93    As noted before, the applicants’ case for each of the Recurring Revenue, Future Revenue and AEBIT Representations was put as both that of conventional misleading or deceptive conduct, and also misleading or deceptive conduct in respect of a future matter. With respect to those representations, the respondents accepted that if made out as pleaded, they would all be as to future matters. The Compliance Representation, by contrast, was not framed as a representation concerning a future matter. In the event, only the Recurring Revenue Representation has been made out. The evidentiary effect of s 4 of the ACL, s 12BB of the ASIC Act and s 769C of the Corporations Act must be applied to that representation.

94    It is unnecessary to set those provisions out in detail or to discuss their construction here (otherwise see above [17]). Suffice to say, the burden lies on the respondents to adduce at least some evidence of reasonable grounds for the Recurring Revenue Representation. It is the applicants’ submission that the respondents have failed to discharge their evidentiary burden in this respect, with the result that the representation made would be taken to be misleading.

95    As these reasons have already canvassed, a substantial volume of evidence was put before the Court by both sides concerning the quantum and derivation of the recurring revenue figures for the Exelsuper business from time to time, not least the matters recorded in the Navarra report on precisely this issue. It could not be said that there has been a bare failure by the respondents to discharge their evidentiary burden. It is necessary to evaluatively engage with the substance of that material, even if it might be true that the respondents have not squarely set out the reasonable grounds relied on for making the Recurring Revenue Representation. The overall onus, as stated at [17] above, remains on the applicants.

96    The applicants put their substantive case with regard to the Recurring Revenue Representation being misleading or deceptive in a variety of ways.

97    First, they submit that the issue was conclusively determined by Mr Navarra in his report. They refer to the conclusion that “there appears to be no reasonable basis on which I would consider the BCH Share Acquisition Projection … to be a reasonable representation/forecast of Exelsuper’s near term financial performance.” However, what Mr Navarra refers to as the “BCH Share Acquisition Projection” is what I have referred to as the AEBIT spreadsheet. It will be recalled that the projected, or adjusted, recurring revenue figure in that spreadsheet was $3,251,059 which is not the figure relied on in the pleaded and established representation, namely $2,361,381. Mr Navarra’s conclusions with regard to the larger figure are therefore not to the point for present purposes.

98    Secondly, the applicants go on to submit that in any event the impugned conduct was likely to mislead or deceive the applicants within the meaning of the statutory prohibition. They draw attention to many difficulties underlying Mr Harris’s projection of recurring revenue, and in particular with the adjustments recorded in the AEBIT spreadsheet. They also refer to Mr Navarra’s conclusion that a comparison of the FY21 actual results against the FY21 projected results showed a negative variance of $977,750, ie the business underperformed relative to the projected performance by that amount. Mr Navarra’s figures are relevantly presented as follows:

99    It can immediately be seen that the projected figures used by Mr Navarra are taken from the AEBIT spreadsheet. His figure for projected FY21 “Financial Planning Fees” is the same as annualised recurring revenue for FY21 represented in the AEBIT spreadsheet. His conclusion as to variance is therefore not the variance between the figure relied on in the Recurring Revenue Representation and actual performance. Actual performance was, as can be seen, $2,308,646 which, as against the representation of $2,361,381, shows a negative variance of only $52,735. That is a negligible difference. I am not satisfied that had Mr Moses known that the projection was out by that small amount he would have acted any differently.

100    As Mr Navarra’s report documents, the actual performance of the business fell very considerably short of what Mr Harris had projected in other respects. But that is not the case that the applicants pleaded, ran and established. Their pleaded Recurring Revenue Representation, which is the only one of the pleaded representations that I have found was made, is quite specific and narrow. It is founded on projected recurring revenue of approximately $2.361 million. As it happens, that is very nearly the actual recurring revenue achieved by the company. While that is not necessarily determinative of whether the Recurring Revenue Representation, pleaded as a future matter, was misleading or deceptive, it does focus attention on what the actual recurring revenue was at the time of the representation being made and whether that supplied reasonable grounds for doing so.

101    Mr Navarra’s report states that the actual recurring revenue in FY20 was $2,491,059. This aligns with the actual recurring revenue in FY20 that was recorded in the AEBIT spreadsheet provided by Mr Harris to Mr Moses. The adjustments noted in the AEBIT spreadsheet contemplated as affecting that recurring revenue figure included +$760,000 for acquisitions, including Prism, Shortland and David Frost. As mentioned at [37] above, Prism came onboard as an AR and added its revenues to that of Exelsuper. Shortland was funded by vendor finance, yet still represented recurring revenue for accounting purposes, even if they would not give a net benefit until 24 monthly payments had been made (ie, at the very least, the Shortland acquisition did not foreshadow a fall in recurring revenue). The David Frost revenues should indeed not have been added as an adjustment, since those revenues were already accounted for as David Frost was an existing AR. Yet that too, did not necessarily mean that there was reason to think the recurring revenue would fall below $2,361,381.20 when the actual for FY20 was $2,491,059 with other, genuine incremental streams of revenue incoming in the form of Prism.

102    The above analysis illustrates that there were doubtless many problems with the adjustments made to the EBIT in Mr Harris’s AEBIT spreadsheet. He failed to show a reasonable basis for the adjustments which led to the AEBIT of $1.5 million. As just mentioned, the reality was that there should not have been an upward adjustment for David Frost revenue since it was already an AR. The propriety of a specific upward adjustment for the Shortland revenue (feeding into the purchase price) may also be doubted in circumstances where it would have represented no net revenue for 24 months. And, strictly speaking, Prism had only come onboard as an AR and not as a full-fledged acquisition at the time such that it could not be regarded as unencumbered revenue for which the EBIT could be linearly adjusted. At the very least, these matters should have been noted in the AEBIT spreadsheet.

103    Of equal, if not greater, importance is the omission of any adjustment to recurring revenue in the AEBIT spreadsheet to reflect the loss of Enva revenue from the sale of clients to that firm. That is so despite the fact that Mr Harris had been aware of this transaction prior to the preparation of the AEBIT spreadsheet, and that client base had represented revenues of some $513,000 per year. This was also considered a significant factor in material declines in revenue of the business in FY20 and FY21 by Mr Navarra, accepted by Mr Harris in cross-examination (T323:34-324:25).

104    Yet, it bears repeating that that is not what has been pleaded by the applicants. Where they rely on the Recurring Revenue Representation and the figure of $2,361,381.20 framed within it, these matters do not go to whether there would have been reasonable grounds to represent that the projected recurring revenue of the business would exceed that amount. Even if the particulars of the forecast recurring revenue were overly optimistic (which they were), there was ample reason to think the target would be met – which it ultimately was, as shown in Mr Navarra’s report.

105    The deficiencies identified by Mr Gill as to projected recurring revenue on 15 February 2021 do not go to the case pleaded by the applicants. The instances of overstatement and double counting go largely to the falsity of the recurring revenue of $2,361,381.20 at that time. But, taken as an annual figure for FY21, or for FY21 to 8 June 2021, that figure was close to the mark, even if the other matters represented by Mr Harris in the email to Mr Moses were not correct and not subsequently qualified other than by way of upload to the data room.

106    Separately from the pleaded representations, the applicants in their submissions also put a misleading or deceptive conduct by silence case on the basis that there were ongoing liabilities relating to the Shortland and David Frost acquisitions which were not disclosed. This partly arises out of inaccuracies in the IM pertaining to the manner in which those acquisitions were carried out. It also relates to the capital payments to be made to Shortland and David Frost, as noted by Mr Gill (see [60] above). Be that as it may, this alternative case on silence does not go to whether the Recurring Revenue Representation was misleading or deceptive. That is what, on the applicants’ pleadings, forms the substance of their claim for misleading or deceptive conduct by silence. In other words, the applicants have not squarely pleaded this other basis for misleading or deceptive conduct by silence relying on undisclosed liabilities not tied to the Recurring Revenue Representation. Capital expenditures or extant liabilities for acquisitions would not on their own factor into the bases for recurring revenue as a matter of accounting practice, although it is possible that they could have affected any adjustments so as to result in a modified AEBIT. These were nevertheless material omissions. The significance of these undisclosed liabilities or capital expenditures will become relevant in the consideration of disclosure under the SSA warranties further below.

Whether there was reliance and causation

107    In light of the conclusion above on the Recurring Revenue Representation as pleaded not being misleading or deceptive, or likely to mislead or deceive, it is not strictly necessary to consider reliance and causation. However, in the event that I am wrong on the Recurring Revenue Representation, my conclusion on these matters is set out below, as whether or not the applicants relied on the representation is a question separate from its falsity or deceptiveness.

108    Reliance is an aspect of causation for statutory misleading or deceptive conduct. The relevant principles were recently summarised by Applegarth J in Davis v Perry O’Brien Engineering Pty Ltd [2023] QSC 243 at [218]-[219] (appeal dismissed in Davis v Perry O’Brien Engineering Pty Ltd [2025] QCA 18, where no error was identified in the approach his Honour took to causation: at [49] per Bradley J with whom Flanagan JA and Brown J agreed):

In a simple case in which a claimant alleges that it suffered loss “by”, by reason of, or because of a misleading representation that induced it to enter a loss-making transaction, a factual issue is whether the claimant relied on the representation in entering into the contract. …

The reliance issue in such a simple case is whether the relevant representation induced the claimant to enter into the contract which, in turn, caused the claimant to suffer loss. The reliance issue is determined by the application of general principles. It is sufficient if the claimant relied upon a misleading representation. That reliance need only be one of a number of factors that caused the claimant to enter into the contract. The fact that the claimant relied upon other matters, such as its own inquiries, does not mean that it did not also rely on the misleading representation. In other words, it is sufficient if the misleading conduct in making the pre-contractual representation was a cause of entry into a loss-making contract.

109    The applicants contend for a “no transaction” counterfactual. That is, the applicants would not have entered into the SSA but for the misleading or deceptive conduct which induced their entry into the transaction. The respondents, however, contend that the applicants would have entered into the transaction anyway, irrespective of reliance on the impugned Recurring Revenue Representation.

110    Mr Moses’s evidence of his reliance on the representations is as to be expected. He noted that he expected Mr Harris to be candid and accurate and otherwise had no reason to doubt the information provided by him. Mr Moses deposed that he signed the SSA having assessed the commerciality of the transaction in reliance on that information. Specifically, he explained that if the recurring revenue of the business “was meaningfully less than $2.36 million” he would not have agreed to the purchase price and he would not have proceeded with the SSA. Relatedly, on the basis of the accepted recurring revenue values, he stated that if the AEBIT of the business was “meaningfully less than $1.5 million, I would not have agreed to a purchase price of around $9 million”, nor if the adjustments to the EBIT “were inaccurate or did not reflect commercial reality.” In consequence, he would not have proceeded with the SSA.

111    The respondents submit that these “after-the-fact assertions of reliance” should be rejected by the Court. The principal reason advanced is that Mr Moses did not believe the business was worth around $9 million, but in fact believed the business was only worth $5 million. The corollary is that he would have entered into the SSA even if recurring revenue (and thus AEBIT) figures had been employed which reflected the true state of affairs, contrary to his evidence. The respondents point to Mr Moses’s email of 29 May 2021 to Mr Harris, in which he noted that following the provision of the particulars of the transaction to various financiers, “[t]he banks (Judo Bank, NAB and Macquarie) have identified that I am overpaying for the business.” By this time Mr Moses had received the Australian Accountants financial due diligence report, which valued the business based on actual revenue excluding recent acquisitions at approximately $5 million. This informed his belief at an early stage, deposed to in his affidavit, that the Exelsuper business was worth approximately $5 million. Cross-examined on this point, Mr Moses accepted that his view of the true value of the business based on actual revenue was $5 million (T156:32-38).

112    The proposition that Mr Moses considered $5 million a reasonable valuation of the Exelsuper business, based on the actual profit and loss figures provided to his accountant, Mr Day, and recorded in the financial due diligence report, can be accepted. That does not mean that Mr Moses considered that he was “overpaying” for the Exelsuper business by $4 million. He squarely rejected such a notion when it was put (T160:19-22). Valuations are not an expression of exactitude. Calculations can represent signposts along a spectrum of potential values. The accountant’s report contained another EBIT-derived valuation in the amount of $8,971,390 based on the directors’ projections. While the lower figure of $5 million was no doubt commercially preferable to Mr Moses, as it would be to any reasonable purchaser, the evidence does not suggest that Mr Moses rejected the validity of a higher valuation. In his affidavit, after acknowledging his awareness of a $5 million valuation, Mr Moses continued, “I was not necessarily opposed to considering a purchase price which accounted for Exelsuper Group’s future opportunities.” He also noted:

I considered Mr Harris’s proposed purchase price to be above market-value. Even so, the transaction might still have been commercial, for example depending on how quickly and by how much Exelsuper Group’s revenue could be increased. The information I had received from Mr Harris was that Exelsuper Group’s AEBIT was around $1.5 or $1.6 million. I wanted to know [from Mr Day] if that was a sufficient baseline to start from and whether it could be improved enough (and quickly enough) to justify the commerciality of the deal. I relied on the accuracy and reasonability of the AEBIT value which Mr Harris provided to me.

113    Mr Moses concluded that an AEBIT of $1.5 million was appropriate for his purposes, as demonstrated in his proceeding with the transaction. An inference which may be drawn, however, is that a lesser figure based on recurring revenue reflecting the true state of affairs may not have been appropriate for his purchasing parameters.

114    Mr Moses made the point in cross-examination that, whatever his reservations about the divergence in valuation between his accountant and Mr Harris, he nevertheless came to accept, based on Mr Harris’s assurances, that the latter’s valuation had a basis which could be relied on:

Counsel:    And you considered you were overpaying this business to the tune of $4 million?

Moses:     Well, I considered the adjustment that was made by Mr Harris to be relied on for the completion payment. So if the adjustments were to be accepted based on the representations made by him, then that’s the true value, because we expected those revenues to be true.

115    Mr Moses said he expected Mr Harris’s adjustments to recurring revenue and elsewhere to “feed through” and result in the $9 million purchase price reflecting true value. While a transaction based on actual revenue had been mooted, Mr Harris insisted on an AEBIT-based price instead, for which Mr Moses was in the position of having to accept his assurances as to recurring revenue. As Mr Moses concluded, “the actual revenue was irrelevant at this stage, because what we are looking at is the adjusted figures.”

116    Contrary to suggesting a lack of reliance, the evidence as to Mr Moses’s consideration of a $5 million valuation indicates he came to place significant reliance on the Recurring Revenue Representation which informed the AEBIT of the company. The fact that he knew that based on actual performance the business had a value of $5 million and yet he was prepared to pay $9 million for it based on projected performance demonstrates this. If the future performance of the business had not been projected in this way based on the recurring revenue figures, he would not have bought the business at a price of $9 million. There is no sensible reason why he would have agreed to overpay for the business by such a substantial margin other than because he considered that he could rely on Mr Harris’s projections. The alternative contention is simply fanciful.

117    The respondents submit that the “overpayment” is explicable on the basis that Mr Moses had a scheme to “exploit the clients’ funds under management” pursuant to a “business improvement plan.” I understand this to be a submission that Mr Moses intended to use the Exelsuper business as a vehicle or platform from which to obtain funds under management and generate incremental revenues in other businesses of his, rather than being concerned with what the projected recurring revenue was. Even if Mr Moses did have such a plan, that does not call into question his evidence as to having assessed the transaction “as a whole, including … its commerciality”, based on the information provided by Mr Harris. Had he known that the adjustments to the EBIT were inaccurate or without a reasonable basis, Mr Moses said he would not have proceeded. The recurring revenue figures provided by Mr Harris necessarily determined how the AEBIT was derived, as Mr Moses pointed out.

118    In the result, I reject the respondents’ proposition that the adjustments to EBIT, including as they did the recurring revenue figures, were irrelevant to Mr Moses. The purchase price was structured on and depended on the adjustments and the parties gave them substantial attention. I am comfortably satisfied that had Mr Moses known the true position he would not have entered into the transaction (assuming, since I have found to the contrary, that the true position was, in fact, materially different from that which was represented). Mr Moses’s reliance on the recurring revenue figures provided by Mr Harris also explains why he did not engage what the respondents describe as “very broad” termination rights in the SSA in the course of the due diligence phase leading up to First Completion. I therefore find that there was in fact reliance on the Recurring Revenue Representation when the applicants entered into the SSA.

The quantum of loss and the form of relief

119    Quantum must therefore be addressed as part of the analysis in the alternative. Under the statutory provisions, the applicants seek compensatory damages under s 236 of the ACL, s 12GF of the ASIC Act and s 1041I of the Corporations Act. The necessary inquiry on their “no transaction” case is how much better off they would have been if they had not entered into the transaction at all: Wyzenbeek v Australasian Marine Imports Pty Ltd [2019] FCAFC 167; 272 FCR 373 at [89] per Rares, Burley and Anastassiou JJ. It is not contended by the applicants that they would have entered into an alternative transaction had they not entered into the SSA. It is thus not necessary to enter into that hypothetical: see Wyzenbeek at [90]-[94]; Davis v Perry at [241]. It is, however, necessary to give some consideration to the novelty represented by the court-ordered share repurchase following the conclusion of the oppression suit between the parties.

120    Had the transaction completed in the ordinary course the applicants would have paid $9.36 million to the respondents in exchange for transfer of the shares in the Exelsuper companies. The applicants would not have entered into the transaction at all and avoided paying any money or acquiring any shares if the misleading or deceptive representations had not been made. The compensable loss would be the difference in value between what was (over-)paid and the “true” value of the shares, so as not to leave the applicants in a better position than if the misleading or deceptive conduct had not occurred. This approach to valuing loss in asset purchases is often described as the rule in Potts v Miller [1940] HCA 43; 64 CLR 282. Subject to what the High Court cautioned in Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 at [31] regarding its application to assessing damages in statutory misleading or deceptive conduct claims, it is an orthodox measure in the share sale context: see HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640 at [35]; Davis v Perry at [349].

121    However, in the event, the transaction did not fully complete. On First Completion, the applicants paid $2 million to the respondents to acquire approximately 45% of the issued share capital in the Exelsuper companies. Following the determination of the oppression proceeding, the shares were transferred back to the respondents for the sum of $282,239. The share repurchase meant that the applicants now have no Exelsuper shares but have the crystallised sum of $282,239. On a “no transaction” counterfactual, the applicants would not have paid the $2 million and avoided ending up with the diminished sum of $282,239. Thus, the face value of the compensation they are due is the difference between the $282,239 in their hands and the $2 million paid for the first tranche, which is $1,717,761. This accords with the applicants’ particulars of loss and damage detailed in a letter to the respondents’ solicitors on 5 February 2024.

122    The applicants would also ordinarily be entitled to pre-judgment interest on that sum under s 51A of the FCA Act from the date of First Completion which was 8 June 2021.

123    The applicants also claim their finance costs for loans arranged for the purposes of financing the acquisition. A court may award such costs in connection with money paid in consequence of misleading or deceptive conduct: see Sanrod Pty Ltd v Dainford Ltd [1984] FCA 170; 54 ALR 179 at 191 per Fitzgerald J.

124    Mr Moses’s evidence is that the $2 million paid on First Completion was funded by BCH entering into two loan agreements, one with Cha-May Loh for $850,000 and one with a lender referred to as “Brampton” for $810,000. The unchallenged evidence is that the interest costs on the Loh loan, which would not have been incurred but for the impugned misleading and deceptive conduct, were $510,000. There is also possibly a further unquantified amount referred to as 10% per annum for the final two years on the remaining principal amount.

125    On the Brampton loan, the applicants claim interest at the pre-judgment interest rate referred to in s 51A of the FCA Act. It is not apparent on the evidence what repayments were made on that loan, save that as at 25 July 2022 the amount outstanding was $715,000. For the present, I am not able to discern from when interest should run and on what amounts.

126    The parties did not make submissions on any of the details of pre-judgment interest and the finance costs of the loans referred to above. As I have indicated, there are aspects of those matters that remain unclear to me. Also, I am concerned that to award pre-judgment interest on the capital sum of compensation and the finance costs of that sum may be to overcompensate the applicants. That is because pre-judgment interest is directed at compensating for the loss of the use of the money, but since the money was borrowed the cost of the loss of its use is the financing costs. I am not sure that one can have both. If the question of quantum ever becomes a live one, these are matters which may have to be addressed further.

127    Further detailed in the applicants’ particulars of loss and damage is a claim for transaction costs in the sum of $201,652.50. These comprise amounts for the legal fees charged by the applicants’ solicitors and fees charged by the applicants’ accountants in connection with the purchase of the Exelsuper business (including for legal and financial due diligence respectively). As with the principal loss, the claimed transaction costs must be sufficiently connected with the misleading or deceptive conduct in question, so as to be “because of” that conduct: see, eg, ACL, s 236(1)(a). If incurred as a result of entry into the transaction, damages for such transaction costs may also be awarded alongside the usual measure of loss: see, eg, Frith v Gold Coast Mineral Springs Pty Ltd [1983] FCA 27; 47 ALR 547 at 567 per Fitzgerald J (affirmed in Gold Coast Mineral Springs Pty Ltd v Frith [1983] FCA 224; (1983) ATPR ¶40-394); All Fasteners (WA) v Caple [2007] FCA 1252 at [39]-[40] per Siopis J; and see generally in the negligent misstatement context L Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] [1981] HCA 59; 150 CLR 225 at 255 per Mason J.

128    There is no reason to doubt Mr Moses’s evidence as to the work for which invoices were issued by the solicitors and accountants (which otherwise have redacted narratives). That evidence shows that the work to which the invoices relate was exclusively the progression of the acquisition of the Exelsuper business between 1 December 2020 through to 30 September 2021. Thus, the applicants’ legal and accounting costs are very much connected with that transaction. It should be noted that the impugned representations were initially made at the 11 November 2020 Zoom meeting, with the execution of the first term sheet on 17 November 2020. The claimed legal and accounting costs are therefore not expenses which would have been incurred anyway as part of Mr Moses’s commercial evaluations, even if he had elected not to proceed. Rather, they are expenses attributable to the active progression of the acquisition, with the purchasers having relied on the representations made at the 11 November meeting.

129    I notice, however, that the costs have been claimed inclusive of GST whereas the applicants would presumably have had the benefit of GST input credits for the GST component of those costs which would accordingly have been neutral to them. Again, the parties did not address me on this issue so that is an unresolved matter.

130    The question of interest on the transaction costs is more complicated. The applicants would be entitled to pre-judgment interest under s 51A of the FCA Act from when the costs were paid until the date of judgment. However, it is not particularly clear when the costs were paid.

131    In respect of the solicitors’ charges, which amount to $177,452.50 inclusive of GST, each invoice records what previous invoices were still outstanding at the date of the invoice. The last invoice, dated 30 September 2021, reflects it and the previous invoice as outstanding on that date, leaving Mr Moses’s affidavit of 5 February 2024 in which he stated that they had been paid as the only evidence as to when those two invoices were paid. Assuming in the respondents’ favour that each invoice which was no longer reflected as outstanding was paid on the day of the first invoice thereafter which does not reflect the earlier one as outstanding, one can discern that pre-judgment interest runs as follows (noting that the amounts apparently have to have the GST components subtracted from them):

132    There is no evidence of when the accountants’ invoices were paid other than Mr Moses’s 5 February 2024 affidavit which states that they had been paid. Pre-judgment interest should accordingly run from that date on the sum of $24,200 (with GST once again apparently to be subtracted).

133    The applicants, if liable at all, would accordingly have been entitled to judgment in the following amounts:

(1)    $1,717,761 being the balance of the purchase price paid on First Completion;

(2)    $510,000 for interest on the Loh loan;

(3)    Pre-judgment interest on the Brampton loan but it being unclear, at least to me at this stage, on what amount and from when;

(4)    $201,652.50 for lawyers’ and accountants’ charges (less any GST component of that in the event that the applicants received or were entitled to GST input credits for it); and

(5)    Pre-judgment interest on the amount in (4) calculated as identified in [131] and [132] above.

134    The applicants also seek declarations that the respondents engaged in misleading and deceptive conduct contrary to the various statutory prohibitions. The parties did not address submissions on this relief. I would not have been inclined to grant it as I see no point in it in light of the damages assessed above.

Breach of contract claims

Whether there was breach by failure to disclose the Praemium issues

135    In their pleadings, the applicants allege there was a breach of the disclosure requirement in cl 7.4 of the SSA in failing to notify them of the Praemium issues. Clause 7.4 provides:

The Sellers must immediately notify the Buyer in writing of any matter or thing which arises or becomes known to it before First Completion which has either of the following effects:

7.4.1    Constitutes (or would after the lapse of time constitute) a misrepresentation or a breach of any of the Warranties or the undertakings or other provisions of this agreement.

7.4.2    Could have a Material Adverse Effect on the Business or the value of the First Tranche Sale Shares.

136    The Praemium issues as pleaded by the applicants turn on cl 7.4.2 and whether there was a Material Adverse Effect which needed to be disclosed, and not on cl 7.4.1. A “Material Adverse Effect” is defined at cl 38.1 as “a reduction in value of the Business or the Sale Shares by an amount of not less than $100,000.”

137    The Material Adverse Effect in question is said to be the diminution in SMA fees received from Praemium following the termination of its relationship with Exelsuper on 24 June 2021. The arrangement between Exelsuper and Praemium had prior to that point been one where Exelsuper would receive a 0.5% fee (inclusive of GST) per annum from the funds under managed investment on Praemium’s platform and Praemium would receive a 0.3% fee (with clients paying 0.8% in total) (T245-247, 266). Following the termination of this arrangement and the end of a transitional period, Exelsuper ceased receiving those fees. Mr Moses deposed that he only received notification of that on 27 June 2021 from Mr Harris’s email attaching the termination notices of 24 June 2021 and was hitherto unaware of the Praemium issues.

138    As detailed above at [69], the respondents had actually received notice of the forthcoming termination a year earlier. That is corroborated by a contemporaneous file note taken by Mr Harris of a meeting between him and Mr Ohanessian on 3 June 2020. The file note records that the Praemium Investment Committee had “rated the risk associated with maintaining Exelsuper as a Model Manager as ‘High’” such that Praemium was “seeking to work with Exelsuper to exit Exelsuper as a Model Manager.” One reason for that risk was “Key Man Risk associated with Chris Harris as head of the Exelsuper Investment Committee.” Mr Harris accepted that the risk would eventuate if he left the business in that no one else with his experience or skills would be able to direct the Investment Committee.

139    It is the applicants’ case that in light of this the respondents ought to have notified the applicants of the forthcoming termination before First Completion pursuant to cl 7.4.2 as the termination of the Praemium arrangement would have had a Material Adverse Effect on the Exelsuper business.

140    The Praemium issues, in the contractual disclosure sense outlined above, were not developed by the applicants in their written closing submissions, and nor were they addressed in their oral closing submissions. That prompted the respondents to consider them “a potential claim never ventilated.”

141    Just what is expected of the Court in relation to the Praemium claim is left in an unsatisfactory state. That may be because Mr Moses accepted in cross-examination that no loss was actually suffered as a consequence of the Praemium issues (T186-187). It was in any event not proved that the Praemium issues had a Material Adverse Effect as defined in cl 38.1 – in fact, the impact of the loss of revenue, if any, on the value of the business or the shares was not quantified at all. On that basis alone, the claim must fail.

Whether there were breaches of warranty by the representations

142    Turning to the principal part of the applicants’ alternative case on breach of warranty, cl 28.1.1 of the SSA provides:

[SDSF] represents, warrants and undertakes to [BCH] that as at the date of this agreement, and continuously from the date of this agreement to First Completion, each of the Company Share Warranties is true and accurate and not misleading or deceptive or likely to mislead or deceive in any respect.

143    The “Company Share Warranties” are set out at Sch 1 of the SSA. The applicants relevantly allege breach of the following:

2.6    All information contained in the Disclosure Documents is true and complete and not misleading.

2.7    All information set out in this agreement is true and complete and not misleading.

2.8    Each Seller has disclosed to [BCH] all information known to the Seller about the Business, the Company and the Company Sale Shares, and which would be material to a reasonable Buyer.

2.9    All forecasts and projections given by or on behalf of the Sellers to [BCH] or its advisers about the Business or the Company are based on reasonable assumptions and have been prepared with due care and skill and on a reasonable basis.

…

6.1    The Company and its officers and employees (past and present) have complied with all laws and orders (including the Corporations Act, the Competition and Consumer Act 2010 (Cth) and fair trading legislation).

…

25.1    The Recurring Revenue as at First Completion will be no less than $2,361,000.

144    Clause 28.1.2 mirrors the language in cl 28.1.1 of the SSA except that the promise is given by Mr Harris rather than SDSF in respect of the “Advice Share Warranties”, which are set out in Sch 2. As to those, the applicants claim breach of the warranties at cll 3.1, 3.2, 3.3, 3.4 and 7.1, which mirror the warranties extracted above from Sch 1 excluding cl 25.1, ie the applicants claim breaches by Mr Harris of warranties corresponding to cll 2.6, 2.7, 2.8, 2.9 and 6.1 extracted above.

145    For convenience, the warranties in Sch 1 will be considered together with their equivalents in Sch 2 where it is not possible to distinguish between the conduct of Mr Harris and SDSF in the circumstances (nor did the respondents ever suggest such a distinction to be meaningful). Mr Harris’s capacity as an agent and/or controlling mind of SDSF and his principal role in the events, means his knowledge and conduct form the basis for the warranties given in respect of SDSF in addition to himself. This means that his conduct also goes to cl 25.1 of Sch 1, despite that particular warranty only being given by BCH.

146    “Disclosure Documents” is defined at cl 38.1 as “the documents relating to the [Exelsuper companies] uploaded by the Sellers to the Due Diligence Data Room.”

147    The applicants allege that the conduct on the part of the respondents for the statutory contravention claims also constituted a breach of the warranties given by the respondents in the SSA at cll 28.1.1 of Sch 1 and 28.1.2 of Sch 2. The applicants do not point to conduct falling outside the scope of what has been discussed for the various representations pleaded for the above statutory claims. Hence, while I have concluded that none of the Future Revenue Representation, AEBIT Representation or Compliance Representation has been made out as a factual matter, it is necessary to see if the same conduct of the respondents comprising the Recurring Revenue Representation was in breach of the warranties contained in Schs 1 and 2 of the SSA.

148    The respondents deny any breaches of warranty on the same footing; that is, for the reasons in their defence to the statutory claims, it is said that none of the respondents’ conduct breached the SSA. However, the respondents further rely on the disclosure-related provisions in the SSA to limit their liability. Specifically, reliance is placed on cl 28.3 which provides:

The Buyer acknowledges and agrees that it is aware of and will be deemed to have actual knowledge of all matters Disclosed.

149    “Disclosed” is defined at cl 38.1 to include all matters that are:

(a)    described in this agreement;

(b)    accurately and fairly disclosed in the Disclosure Documents [ie the data room];

(c)    disclosed on any public record of ASIC, the PPSR or IP Australia 5 business days before the date of this agreement; or

(d)    within the actual knowledge of a party (or any of its representatives) as at the date of this agreement.

150    The respondents also invoke the express limitation in cl 28.2, which provides:

The liability of the Sellers under any Claim made in respect of a Warranty shall be reduced or excluded (as applicable) in accordance with Schedule 3.

151    The relevant provision in Sch 3 that is pleaded is cl 1.2 (“Limitation of Liability under Warranties”), which provides that:

Each of the Warranties is given subject to, and the Sellers shall have no liability in respect of any Claim if and to the extent that the Claim arises in respect of, each of the following:

…

1.2    Any facts, matters, events or circumstances to the extent that it has been Disclosed.

152    It is not in contest between the parties whether proper disclosure (as that term is defined in the SSA) has the effect of avoiding a breach of warranty; they agree that liability is avoided if the applicants are deemed to have had knowledge of relevant information such that they cannot complain of being misled as to the warranties in question, whether that is a consequence of either cll 28.2 or 28.3 (T380:2-30). However, as a qualification to this, the applicants rely on cl 28.8:

Any limitation on a Seller’s liability in respect of the Warranties does not apply to the extent that there has been fraud, dishonesty or wilful concealment on the part of the Seller or its agents or advisers.

153    The applicants rely solely on “wilful concealment” for present purposes. As the applicants accepted, cl 28.8 is only relevant if it is concluded that the above-mentioned disclosure limitations are applicable (T29:35-42; 380:30-35). The effect of cl 28.8 is to prevent the respondents from using those limitation clauses, even if they could establish proper disclosure of the matters complained of by the applicants, albeit only in the limited circumstances identified in the clause.

154    The first step is to consider the substance of the warranties themselves, before turning to disclosure operating as a limitation. I have already examined the conduct of the respondents in detail. I have found that the Recurring Revenue Representation was made by the respondents, but that this representation was not actually misleading or deceptive or likely to mislead or deceive.

155    Flowing on from this, the immediate conclusion is that there was no breach of cl 25.1 of Sch 1. As discussed in detail for the statutory claims and set out in the Navarra report, the recurring revenue of the business ended up being not less than $2,361,000 around the time of First Completion.

156    The “compliance with all laws” warranty at cll 6.1 of Sch 1 and cl 7.1 of Sch 2 can also be regarded as not having been breached. While the Compliance Representation was not made out on the evidence as already discussed, the insertion of the “compliance with all laws” warranty in the SSA effectively operates as a representation to similar effect as at the execution date of 8 June 2021. That does not mean that the Compliance Representation was given on 8 June 2021 in the form pleaded for the statutory contraventions. As alluded to at [91] above, all that the warranty does is give a warranty in terms of the words used there – that the Exelsuper companies and their officers and employees (past and present) have complied with the law. The defaults which are relied on by the applicants to the contrary are detailed in two reports of Cheyenne Walker, a compliance expert engaged by the applicants as part of the oppression proceeding. Those reports in summary determined that certain statements of advice provided by Exelsuper to some clients were inconsistent with regulatory requirements and that management fees charged by Exelsuper for its Praemium SMA portfolio raised conflict of interest concerns. The respondents say in answer that the alleged non-compliance in statements of advice was limited to four examples, in a business with hundreds of clients at any one time, drawn from an 8-9 year period spanning 2013 to 2021. This can be accepted. De minimis issues of technical non-compliance over such a span cannot be regarded as a breach of the “compliance with all laws” warranty.

157    Attention must then be given to what I would describe as the “no misleading information” warranties, at cll 2.6 and 2.7 of Sch 1 (mirrored at cll 3.1 and 3.2 of Sch 2). These warranties have the effect of promising that the information recorded in the data room and in the SSA itself is “true and complete and not misleading.” It is worth noting that cl 2.7 of Sch 1 and cl 3.2 of Sch 2, as pleaded by the applicants, have the effect of rendering the terms of the SSA misleading if any of the other warranties is breached. That necessitates scrutiny of whether the other warranties given are untrue, to which I will return for the balance of the warranties.

158    As for cl 2.6 of Sch 1 and cl 3.1 of Sch 2, their wording invites the question of whether the information disclosed in the data room was inaccurate or misleading. Mr Harris’s evidence was that he arranged for all relevant materials and correspondence to be uploaded to the data room, including, for example, Mr Gill’s correcting responses to the email of 15 February 2021. This included, according to the respondents, underlying materials which would have enabled the applicants to verify the actual financial performance of the company and have qualified any potentially misleading representations, if indeed they were misleading. This can be accepted. The applicants did not complain of the incorrectness of the information in the data room per se, and it is not unreasonable to conclude that the corpus of documents in the data room, taken as a whole, reflected an accurate picture of the business. On this footing, there was no breach of this warranty. Rather, the applicants’ complaint was that Mr Harris, under cover of all relevant information being accessible in the data room, consistently failed to point out material matters which the applicants should have been put on notice of in response to their due diligence queries.

159    This calls attention to cl 2.8 of Sch 1 and cl 3.3 of Sch 2, which can be described as the “all material information disclosure” warranty. Did the respondents’ conduct in this regard amount to the disclosure of all material information about the transaction? I note that “disclosed” in this warranty is not the defined term which is used elsewhere in the SSA, and thus the term ought to be construed in its ordinary sense. As the discussion of the statutory representations earlier in these reasons shows, the respondents failed to disclose in bilateral communication several material issues. These included the fact that authorised representative acquisitions such as Prism, or vendor financed acquisitions such as Shortland, did not represent unencumbered revenue which could be added to the EBIT figure without qualification; that there was overstated recurring revenue, particularly in light of the sale of clients to Enva for which no adjustment had occurred; and that certain acquisitions (ie Shortland and David Frost) had ongoing liabilities.

160    Despite this, there was what might be regarded as exceedingly “technical” disclosure through oblique allusions to information locatable in the data room, assuming to the respondents’ benefit that the information in the data room was complete as to these matters. Shortly put, the respondents rely on the myriad materials put in the data room in the legal due diligence phase of the transaction as evidencing the requisite disclosure under the SSA. Digital snapshots of the data room folder layout were tendered in evidence by the respondents, as well as a complete index to its contents. The index alone is some 417 pages. The folder layout employs nested sub-folders sometimes 20 layers deep. As Mr Harris himself accepted in cross-examination, email exchanges of material importance to the transaction were uploaded to the data room (T271:22-24), but this did not mean all correspondence was captured in the data room (T270:20-44). Further, not everything uploaded to the data room was specifically indicated to the applicants with commentary as to its significance (T271:1-9). Whatever may have been in the data room that was able to relevantly qualify the matters going to the falsity of the statements made, it is clear that it would have been difficult for the applicants to identify and flag such material where they were not otherwise on notice as to those matters (as noted in the consideration of the statutory contraventions above).

161    In his affidavit evidence, Mr Harris highlighted his provision of Exelsuper’s bank statements in the data room which would have enabled the applicants to verify the figures in recurring revenue spreadsheets. Mr Harris’s belief is that Mr Moses should have had regard to the bank statements and verified whether or not the headline recurring revenue figures were correct. Although Mr Harris’s evidence is that the recurring revenue spreadsheet figures were correct, in light of the errors identified by the applicants it may be said that the respondents’ position is really that the materials with which to verify contested matters of recurring and future revenue were all in the data room, but were not acted upon.

162    As I have already said for the second of the “no misleading information” warranties, it may be accepted that the data room contained the necessary source documentation on which a person, upon careful and deliberate scrutiny after having them brought to their attention, could have relied to correct any misapprehension as to the recurring revenue figures. However, this is not a realistic possibility in the context of a share sale transaction in which there was a heavily populated data room and where there were pre-existing representations made bilaterally to the applicants, sometimes at odds with the source documentation. Simply put, the applicants were not put on notice as to those matters when, due to their materiality and in light of the ongoing discussion of revenue as informing the AEBIT-based purchase price, they would have had a reasonable expectation of being put on notice.

163    This reality was recognised by Allsop J in DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1159. The case involved the sale of shares in a company called InterTAN Australia Ltd to DSE (Holdings) Pty Ltd, a wholly owned subsidiary of Woolworths Ltd. InterTAN Australia Ltd (ITAL) had an intercompany liability to Technotron Sales Corp Pty Ltd (TSC) of over $4 million, but the accounts for the transaction aggregated both the companies’ loan accounts eliminating any inter se liabilities. When the purchasers decided not to acquire TSC along with ITAL, that liability became an external liability capable of affecting the purchase price. As in the present case, the transaction underwent multiple phases of financial and legal due diligence facilitated by the provision of information in a data room. Yet, the intercompany liability was not appreciated until after execution of the sale agreement and the fixing of an unadjusted purchase price. The parties later fell into dispute over the adjustments once the error was realised.

164    It was a fact that “[t]here was undoubtedly material made available to Woolworths and DSE which stated the existence of the liability at various times and which, looked at separately, could be seen to put a reader of the document on notice as to whether such a liability existed as at 31 December 2000” (at [226]). Yet, the issue needed “to be judged in the whole human context in which the parties found themselves and in the context of the events that occurred” (at [227]). His Honour observed (at [230]):

There is an important distinction to be drawn in cases such as the present between, on the one hand, parties having a document physically before them and even reading it and in that sense being aware of it and its contents and, on the other hand, appreciating the contents of the document. Due diligence was carried out for a particular purpose. That purpose was to grapple with, and understand, the operations of a business.

165    Consequently (at [241]), his Honour concluded:

At the time the parties were undertaking these communications and these meetings, both before and after 9 March 2001, no relevant executive or adviser participating in the formulation of the terms of the arrangement had to his or her mind any liability of ITAL to TSC as at 31 December 2000. In those circumstances, it cannot be said, in my view, that the existence of the liability as at 31 December 2000 was disclosed to Woolworths or DSE for relevant purposes. The fact that it could be said to be able to be pieced together from pieces of information supplied for different purposes in the course of different aspects of due diligence investigations does not lead me to find that it was known or appreciated by Woolworths or DSE or that in the context that these business people were dealing with each other that it had been disclosed in any way that could be said by the business people concerned to have been made fairly known.

166    On a like basis, the mere fact of the bank statements and other verification-related documentation being in the data room, without more, in the circumstances of the present case does not lead to the conclusion that the information was disclosed in accordance with the “all material information disclosure” warranty, thereby constituting a breach.

167    Focusing alternatively on the liabilities relating to the Shortland and David Frost acquisitions mentioned earlier, Mr Harris accepted in cross-examination that these liabilities in respect of Shortland and David Frost existed, and he explained that he omitted to direct these to the attention of the applicants as “the actual documents relating to those transactions were also uploaded to the due diligence data room at the same time” (T277:34-43). To the extent the information was in a document in the data room with a 417-page index of folders of documents, the same DSE (Holdings) considerations would apply such that it could not be regarded as being adequately disclosed, particularly so where Mr Harris responded to due diligence inquiries by Mr Day by referring to revenue from those same acquisitions but omitting to mention the extant liabilities. This too constituted a breach.

168    This leaves the warranty in cl 2.9 of Sch 1 (mirrored in cl 3.4 of Sch 2) relating to the reasonableness of forecasts. I consider this warranty also to have been breached. Here, Mr Gill’s email commenting on the future revenue projections of 15 February 2021 provided by Mr Harris to Mr Moses clearly evidences that they were made without foundation. Even if the Recurring Revenue Representation was not, strictly speaking, incorrect, what was claimed in that email as constituting projected revenue for the business was either overstated or miscategorised. Despite this email being put in the data room, it again cannot be said that the applicants were ever pointed to its existence so as to supply a correction to what was said initially. Aside from the matters addressed by Mr Gill’s email, the AEBIT spreadsheet was also devoid of a reasonable basis for the adjustments and notations leading to the AEBIT of $1.5 million. In this more general sense, while recurring revenue may have been correctly forecasted, other matters were not, which led to the overall financial performance or position of the business being misrepresented.

169    With reference to the limitation clauses pleaded by the respondents, none of these matters could be considered as having been “accurately and fairly disclosed” (in the words of the definition of “Disclosed”) in the data room such that any potential breach of warranty could be cured. Put differently, the respondents are not assisted by their pleading of the limitation clauses at cll 28.2 and 28.3 when they have otherwise failed to comply with the disclosure required in the wording of the “all material information disclosure” warranty. There is nothing to suggest that the term “Disclosed” in the limitation clauses should be understood as being any broader than the ordinary definition of disclosure used in the warranty.

170    As no disclosure limitation is available to the respondents in respect of the breached warranties for the reasons discussed in relation to the “all material information disclosure” warranty, it is unnecessary to deal with the operation of cl 28.8 and the meaning of “wilful concealment.”

171    To summarise, there were breaches of the warranties in cll 2.8 and 2.9 of Sch 1 (and thus their equivalents in cll 3.3 and 3.4 of Sch 2). As a consequence, there can also be considered to have been a breach of cl 2.7 of Sch 1 and cl 3.2 of Sch 2 since certain representations made in the SSA were not true. The respondents are jointly and severally liable for the consequences of the breaches.

The quantum of loss and form of relief

172    With breach of some of the warranties having been established, and the respondents unable to rely on contractual limitations based on disclosure, the compensable loss arising must be quantified. The question of quantum was subject to sustained argument in the course of the hearing. Principally, this is because the respondents submit that a different form of damages calculation applies to breach of warranty claims for which a “no transaction” case would be incompatible. That is essentially the contractual measure of damages – the restoration of a person to the position they would be in had the contract been performed: Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17; 418 ALR 304 at [117] citing Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 per Parke B. This may be distinguished from the statutory (or tortious) measure – the restoration of a person to the position they would be in but for the impugned conduct: Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; 160 CLR 1 at 12, 14. As will be seen, the difference arises in how, as McHugh J noted in Henville v Walker [2001] HCA 52; 206 CLR 459 at [132], the prohibited wrong is “the making of, not the failure to honour, the false representation.”

173    Much of the debate turns on what the true value of the shares should have been had the warranties not been breached. The respondents argue that it is necessary for the applicants to expressly plead the quantum of the loss arising from the warranties being breached and seek that amount in damages. This is a reiteration of the rule in Potts v Miller and the necessity of ascertaining the true value of what was purchased in reliance on the warranties, considered earlier in these reasons in the discussion of statutory compensation (at [120]-[121]). Failure to adequately plead or particularise the “value of the shares, assuming the warranty is true, and the value of the shares without” would mean an entitlement only to nominal damages even if breach of warranty is accepted, in view of the principle articulated in cases such as Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; 61 CLR 286 at 305 per Latham CJ. How this actually plays out in practice is subject to some complexity.

174    I was directed to a number of authorities which consider quantification of loss arising from breach of warranty. However, those cases diverge in their approach. In Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208, where the warranties given included those as to ownership of certain intellectual property, among others, Ward CJ in Eq (at [522]) described the test as follows:

As to the damages for breach of the contractual warranties, the measure of loss is to place the plaintiffs in the position in which they would have been had the warranties proved to be correct. …

175    It was put in similar terms by Brereton J in Harris v Smith [2008] NSWSC 545; 14 BPR 26,223 (at [89]):

… for breach of warranty as distinct from misrepresentation, the measure of damages is the difference between the position in which the plaintiff would have been had the promise or warranty been correct, with that in which in fact the plaintiff is placed consequent on the breach.

176    For present purposes, this would mean the applicants would need to prove the value of the Exelsuper shares had the warranties given by the respondents been true (ie, where any false information given by the respondents purportedly in accordance with the warranties is assumed to be correct for valuation purposes) and also prove the true value of those shares on the basis of the information which they now know to be correct. This may be described as the first approach.

177    Another approach is illustrated in Lifehealthcare Distribution Pty Ltd v Nicholas [2011] NSWSC 661, where Hammerschlag J stated (at [156]), “[g]enerally, the measure of damages for breach of warranty is the amount representing the difference between the price paid for the shares and their true value at the time”, citing cases such as Astonland at [35]. In Davis v Perry, Applegarth J considered (at [452], with the Court of Appeal agreeing at [53]-[58]) that if the contract had been performed and accurate information had been disclosed in accordance with the warranties, “an appropriate measure of damages for breach of the warranties is the difference between the price paid for the shares and the shares’ true value.” This is the second approach.

178    The two approaches subtly differ in that the first requires claimants to not only quantify the true value of the shares they have acquired on the basis of actual, correct information, but also quantify the value of the shares had the matters warranted been true, including any incorrect information given as part of the warranties. The second requires only that claimants quantify the true value of the shares, and subtract that from the self-evident amount that was paid for them as the agreed contract price. The upshot is that on the first approach the contract price may not always be equivalent to the value of the shares had the information warranted been true. As the respondents submit, referring to what was said in Eastgate Group Ltd v Lindsey Morden Group Inc [2002] EWCA Civ 1446; [2002] 1 WLR 642 at [18] per Longmore LJ, it was open to argue that the buyers may have “made a bad bargain”, and that even as warranted the shares would not have been worth the agreed price of $9.36 million (or $2 million for the first tranche of shares). If so, the extent of damages available to the applicants would be less than the difference between that price and the true value. Truthfully, it may be said that the second approach is not really a distinct method of quantification on its own terms, but instead applies after it is concluded on the first approach that the contract price is an acceptable proxy for the true value had the warranties been true: see DTZ Worldwide Ltd v AIG Australia Ltd [2025] NSWSC 12 at [166] per Ball J (but cf Davis v Perry at [456]). In many cases the damages calculation may turn out to be the same on both approaches, as it was in Davis v Perry: at [458]-[460].

179    The relevance of all this is that the applicants have not pleaded the particulars of their loss in the contractual measure. They rely on the same particulars of loss provided for in the “no transaction” case, being in substance the difference between the first tranche payment and what they received in the repurchase. It can be assumed that, in the absence of evidence as to what the applicants would have paid had the misleading information supplied been true, the contract price is a fair estimate. This is so despite the alternative $5 million valuation based on the business’s actual past performance because, for the reasons discussed above, the higher value was based on the anticipated future performance as represented by the vendors. In that sense, it was not a “bad bargain” if the information warranted had turned out to be true. It is then the absence of a pleaded true value amount which could pose difficulty to the applicants on either of the above approaches.

180    A key principle of the common law is that the mere fact that damages cannot be assessed without difficulty and uncertainty does not relieve a court of the responsibility to estimate them as best it can: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 83 per Mason CJ and Dawson J, 102 per Brennan J, 125 per Deane J, 135 per Toohey J, 153 per Gaudron J. See also Fink v Fink [1946] HCA 54; 74 CLR 127 at 143 per Dixon and McTiernan JJ; Howe v Teefy (1927) 27 SR (NSW) 301 at 306 per Street CJ. In Edelman J, Varuhas J and Higgins A, McGregor on Damages (22nd ed, Sweet & Maxwell, 2024) at [13-004]ff, the learned authors note that there is a “paucity” of cases in which nominal damages have been awarded on the basis of insufficient evidence being led despite some loss being proved. The authors refer to an illustrative example in the form of Karim v Wemyss [2016] EWCA Civ 27, in which the Court of Appeal was required to assess loss for breach of warranty in a business sale not entirely dissimilar to the instant case. As Lewison LJ (with whom Kitchin and Longmore LJJ agreed) observed at [49]:

It seems to me to be self-evident that a person who buys a business with a warranted profit earning capacity of £120,000 suffers a substantial loss if the business in fact has a profit earning capacity of only £92,000. But how can the loss be measured? The profit earning capacity of a business is most usually reflected in its goodwill. As Swanwick J pointed out in Doyle v Olby (Ironmongers) Ltd [[1969] 2 QB 158] at 161 the value of goodwill is generally arrived at by applying a multiplier to the annual profit. We have the judge’s findings about the warranted profit and the actual profit. What we need is the appropriate multiplier. This could have been the subject of expert evidence but was not.

181    All this makes clear that in circumstances where the historical annual profit of the business (and other financial information) is available to the court, it cannot be the case that, as the respondents have asserted, the outcome must be nominal damages, proved breach notwithstanding. The absence of a quantitatively pleaded true value is not fatal to the applicants’ case for contractual damages.

182    There is also a notable difference in the assessment exercise between Karim v Wemyss and the present case. In the present case, the transaction failed to fully complete such that only the first tranche of shares was acquired by the plaintiffs in exchange for $2 million in consideration.

183    As to what the true value of those shares was, the Court has evidence before it on that specific question, avoiding the need to boot-strap its way to an approximate figure based on underlying profit. The Navarra report, which I accepted as evidence not precluded for use in this proceeding for the reasons explained earlier, determined that the mid-point of the market value range for the shares held by BCH in Exelsuper and Exelsuper Advice at 8 November 2021 (without any minority discount) was $236,173 and $46,066 respectively. Consequently, $282,239 was paid by the respondents to the applicants as part of the court-ordered repurchase. Having regard to the content of the Navarra report, content which was also adopted without qualification by both the applicants and the respondents to this dispute in the prior proceeding, I consider this to be a fair valuation of the shares that remained in the applicants’ hands until the repurchase. As was recently observed by the Western Australian Court of Appeal, it may ordinarily be presumed that market value is the true value where a market is considered to exist: see CH Leaman Investments Pty Ltd v Tuesday Enterprises Pty Ltd as trustee for the Steele Investment Trust [2024] WASCA 142 at [257]-[261]. Although the valuation in the Navarra report is necessarily point-in-time, it is nonetheless of a kind which the court may have regard to for the purposes of the damages assessment exercise on the general principles outlined above. There is nothing to suggest a material change in value of the shares between First Completion and the court-ordered repurchase.

184    Further, the fact of the matter is that had the representations warranted been true, upon First Completion the applicants would have paid $2 million in order to obtain (it can be reasonably assumed) $2 million worth of shares in the Exelsuper companies (noting here that I have previously rejected the contention that the transaction occurred on the premise of a “bad bargain”). I find that the relationship between the parties would have then deteriorated for the reasons that precipitated the prior shareholder oppression suit, so as to preclude Second Completion. The extent of the applicants’ loss would then be the difference between $2 million and the true value of the shares, for which, as explained above, the Navarra report has supplied a reasonable estimate. All this is to say that the quantum provided in the applicants’ particulars of loss for the “no transaction” case run under the statutory head of damages would ultimately be the same for the breach of warranties case run under the contractual head of damages, ie $1,717,761.

185    However, unlike on the statutory compensation case, the applicants would not be entitled to their transaction costs, being the lawyers’ and accountants’ fees and the financing costs, because those would have been incurred in any event had the contract been performed. In the result, there should be judgment for the applicants against the respondents, jointly and severally, in the sum of $1,717,761 only.

186    The parties did not make submissions on whether interest should run on that amount or from when. It seems to me that there should be interest under s 51A of the FCA Act from when the $2 million was paid, being when the applicants were out of pocket, until judgment.

Disposition

187    Taking stock, I have found that the respondents are liable to compensate the applicants for the latter’s loss and damage referable to breach of the warranties in the SSA in the sum of $1,717,761, and that statutory pre-judgment interest runs on that sum from 8 June 2021 until the date of judgment. I have not found the respondents to be liable on any of the pleaded representations on the statutory breach case. I have rejected the respondents’ defence to the breach of warranties claim that they disclosed all relevant information in the data room because the information was not “accurately and fairly disclosed” within the meaning of “Disclosed” as defined, or as ordinarily understood.

188    Having been substantially successful, the applicants should have the costs of the proceeding. Against the possibility that there is some matter of relevance to the question of costs on which evidence has not yet been adduced, and because the question of interest on the breach of warranty claim was not addressed, I will give the parties liberty to apply within 14 days of these orders to further agitate those matters if they should choose to do so.

Associate:

Dated:    4 April 2025