Federal Court of Australia

Butler v Total Tools Holdings Pty Ltd [2025] FCA 1225

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding be dismissed.

2.    The Plaintiff pay the Defendant’s costs of the proceeding, to be assessed if not agreed.

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

REASONS FOR JUDGMENT

ANDERSON J:

INTRODUCTION

1    This proceeding is concerned with the proper construction of a resolution passed by members of the defendant, Total Tools Holdings Pty Ltd, in a general meeting on 24 October 2018 (Shareholders’ Resolution). The central issue to be determined is whether the Shareholders’ Resolution required Total Tools to create and allot to the plaintiff, Mr Michael Roy Butler, 1.29% of the shares in Total Tools (representing 30 ordinary shares of the 2,318 issued shares in the company as at 30 September 2018) in the event of a successful financial close of a trade sale of Total Tools.

2    The Shareholders’ Resolution was in the following terms:

(a)    THAT the Board of the Company is authorised to create and allot to Michael Butler or his nominee, at a time of the Board’s choosing, an equity-based instrument in the Company or a successor entity of the Company, provided that:

(i)    the value of that equity-based instrument shall be equivalent to the value attributed to 30 ordinary shares in the Company (based on the number of issued shares in the Company as at 30 September 2018) in any future initial public offering or trade sale of the Company;

(ii)    the allotment of any such instrument is conditional upon the successful financial close of a trade sale of the Company or an initial public offering of the Company or a successor entity of the Company; and

(iii)    disposal or dealing in the equity-based instrument by Michael Butler in the event of an initial public offering is escrowed for two years from the date of listing of the Company.

3    Total Tools is a retailer of professional tools that has operated for over 30 years.

4    On 26 July 2020, Total Tools entered into a Share Sale Agreement (SSA) with Mitre 10 Australia Pty Ltd (a wholly owned subsidiary of Metcash Limited) and each of the then shareholders in Total Tools, pursuant to which Mitre 10 was initially to acquire 70% of the shares in Total Tools, with an option to purchase the remaining 30%. On 1 September 2020, Mitre 10 acquired the initial 70% of Total Tools’ shares. On 26 July 2021, Mitre 10 acquired a further 15% of the shares in Total Tools, and on 30 November 2023, Mitre 10 acquired the remaining shares in Total Tools.

5    Mr Butler alleges that, from 1 September 2020, Total Tools has been contractually bound — pursuant to cl 4.6 of its constitution (the TT Constitution), which deals, inter alia, with the remuneration of directors — to issue 39,467 shares in it (being 1.29% of the issued shares at that time) to Mr Butler. He claims that Total Tools has wrongly failed and refused to issue those shares to him.

ISSUES TO BE DETERMINED AT TRIAL

6    The parties agreed that the issues to be determined at trial may be stated as follows:

7    Issue 1: Upon its proper construction, did the Shareholders’ Resolution bind Total Tools to create and allot to Mr Butler (or his nominee) 39,467 shares in Total Tools upon the successful financial close of a trade sale? The parties agree that there was a successful financial close of a trade sale within the terms of the Shareholders’ Resolution on 1 September 2020.

8    Issue 1 has been broken down into the following five sub-issues:

(a)    As a matter of construction, did the Shareholders’ Resolution merely authorise, or did it require, the board of Total Tools (the Board) to act?

(b)    Was the Shareholders’ Resolution made under cl 11.1(b)(v) of the TT Constitution (which outlines the circumstances in which the Board may issue shares without complying with the requirements relating to the pre-emption rights of existing members)?

(c)    In any event, can Mr Butler enforce the provisions of the TT Constitution or the Shareholders’ Resolution itself?

(d)    Is Mr Butler’s claim barred because he seeks to interfere with the internal management of Total Tools?

(e)    Even if Mr Butler succeeds on issues (a)–(d) above, does the Shareholders’ Resolution give rise to an obligation to issue shares (rather than other rights) in Total Tools (and not a successor) from 1 September 2020?

9    Issue 2: What would have happened if Total Tools was obliged under the Shareholders’ Resolution to issue an equity-based instrument to Mr Butler?

(a)    Would Mr Butler have received substantially the same rights on substantially the same terms that Mr Stephen Michael Heath received for his “Class A” shares?

(b)    If the answer to 2(a) is yes, would Mr Butler’s rights have been acquired by Total Tools for nominal consideration before the financial close of the trade sale?

(c)    Would Mr Butler (or his nominee) have sold, or have been required to sell, to Mitre 10:

(i)    on or about 28 June 2021 — 20,245 shares at the same price per share at which “TT Shareholders” (as defined in the SSA) sold shares to Mitre 10 at that time; or

(ii)    in November 2023 — 20,245 shares at the same price per share at which TT Shareholders sold shares to Mitre 10 at that time; or

would his shares have been sold at the same time and in the same proportions as Mr Heath’s Class A shares and for a lesser price per share?

10    Issue 3: On the claim for specific performance, should the court refuse specific performance because:

(a)    damages are an adequate remedy;

(b)    Mr Butler has delayed in bringing his claim; and/or

(c)    specific performance would cause prejudice to third parties?

11    Issue 4: On rectification of Total Tools’ share register:

(a)    Does Mr Butler maintain a claim for rectification of Total Tools’ share register?

(b)    If so, should the share register be rectified to reflect the ownership that Mr Butler says he should have had?

EVIDENCE

12    None of the witnesses for either party was challenged as to their credibility. I accept the evidence of each witness as they did their best to recall, in cross-examination, events which took place more than eight years ago. There was no substantive conflict on the evidence relevant to the events leading up to the making of the Shareholders’ Resolution on 24 October 2018.

13    In the period after the making of the Shareholders’ Resolution and the decision in February 2019 to pause “Project Special Tiara” (described and defined at paragraphs 23–24 below), there was a degree of conflict in the evidence between Mr Butler, on the one hand, and Total Tools’ witnesses (namely, Mr Heath, Mr Warren David Jones and Mr Ian Selwyn Chambers), on the other hand, as to the reasons why Project Special Tiara was paused. Those conflicts, however, are not relevant to the factual background which provides the context to the making of the Shareholders’ Resolution.

Mr Butler’s witnesses

Mr Butler

14    Three affidavits of Mr Butler were read and tendered in evidence, being affidavits affirmed on 30 September 2024, 10 April 2025 and 17 July 2025.

15    Mr Butler has over 30 years’ experience as a non-executive director of both ASX-listed and non-listed companies across a broad range of different industries including financial services, tourism, logistics, resources and retailing. Mr Butler’s professional background is as an investment banker.

16    In June 2016, Mr Butler was approached by an executive recruitment firm that asked him whether he would be prepared to take on a role as a non-executive director of Total Tools. Mr Butler met with the Board which, at the time, was made up of Mr Jones, Mr Chambers and Mr Craig McDonald. These directors were also franchisees who operated their own Total Tools stores. Mr Butler said that the tenor of the discussion at these initial meetings was that Total Tools was growing and the Board believed that the business was operating in a growing retail category, being the sale of tools to tradespeople for commercial use. From the initial meetings with the directors, Mr Butler understood that a significant part of his role would involve improving financial controls and putting in place reporting systems and governance controls to help bring Total Tools to a point where it could grow and potentially contemplate listing on the ASX.

17    On 26 July 2016, Mr Butler received a letter from the chairman of Total Tools, Mr Jones, confirming his appointment as a non-executive director, effective 1 August 2016. The letter specified a base annual fee and minimum superannuation contributions payable by Total Tools. It also stated that the remuneration was subject to annual review by the Board and that any change in the aggregate amount of remuneration was subject to shareholder approval.

18    Mr Heath was also appointed as a non-executive director at the same time as Mr Butler, and he was recruited for similar reasons. Mr Heath had specific experience with franchise businesses from his work as a general manager and franchisee at Harvey Norman Limited, as well as experience with public companies in the discretionary retail sector.

19    Mr Butler said that in the months that followed his and Mr Heath’s appointments, they worked together to propose and implement a variety of measures to improve Total Tools’ corporate governance and financial reporting.

20    In October 2017, Mr Butler began to formulate a view that there was a viable plan to raise equity to fund the acquisition of interests in existing stores (which were very profitable), fund the development of new stores, inventory and working capital, and provide liquidity options for some Total Tools shareholders to sell their shares if they desired to do so. Mr Butler saw a unique opportunity to structure the business as two separate businesses, where Total Tools (as franchisor) would operate as the buyer and wholesale distributor of trade tools, and the physical Total Tools stores would be owned by franchisees.

21    Mr Butler said that looking at the year-to-year growth in the number of stores up to that time, he formed the view that if Total Tools were to consider a liquidity event, shareholders would be much better off if Total Tools could first acquire a significant number of Total Tools stores from franchisees because the stores were very profitable. Mr Butler’s rationale was that the stores would be more valuable rolled up as part of a profitable growing business than they would be in the hands of franchisees, and that rolling up the businesses would enable a higher earnings before interest and tax (EBIT) multiple to be obtained.

22    By about October or November 2017, Mr Butler had prepared a discussion paper which was referred to as the “end game” paper. That paper recorded Mr Butler’s consideration of the potential value of Total Tools acquiring businesses from franchisees and preparing for an initial public offering (IPO) or a trade sale to an entity such as Metcash, among other options.

23    In December 2017, Mr Butler worked on a draft board paper entitled “Special Tiara Board Paper” which set out his proposal for the future of Total Tools. Mr Butler was the primary author of this paper, but it was prepared with Mr Heath, Mr Darren Callahan (the newly appointed chief financial officer (CFO) of Total Tools) and Mr Tim Cockayne (the chief executive officer (CEO) of Total Tools). The paper recommended that Total Tools pursue a transaction that would allow the company to access public equity markets, raise capital for the acquisition of company-owned stores and provide liquidity for shareholders. In the paper, Mr Butler assumed that a substantial number of franchisees would be happy to sell their stores to Total Tools at a price approximately eight times estimated EBIT with some adjustments. Mr Butler expected that this would be attractive to franchisees as this was a substantially higher multiple than would otherwise apply to their business if they were selling it as a franchise business. On 31 January 2018, Mr Butler attended a board meeting chaired by Mr Jones (January 2018 meeting). At this meeting, Mr Butler presented the “Special Tiara Board Paper”, which was reviewed by the Board. Other than Mr Butler and Mr Heath, all of the Board members owned stores. Mr Butler said in evidence that the Board members were enthusiastic about the potential of the proposed project to generate a large amount of wealth for them.

24    At the January 2018 meeting, the Board resolved to proceed with the recommendation set out in the board paper, and to brief two potential joint lead managers and seek “pitch” submissions regarding a potential IPO. The project was given the name “Special Tiara”, an anagram of the phrase “Capital Raise” (Project Special Tiara). The Board also resolved that Mr Jones would select a “Steering Committee” to oversee Project Special Tiara.

25    Between February and June 2018, while arranging presentations, meetings and newsletters for Total Tools’ shareholders and franchisees, Mr Butler played a leading role in obtaining proposals from, and negotiating with, potential key advisers, including:

(a)    Citibank as financial advisor;

(b)    Goldman Sachs, Citibank and UBS as joint lead managers (JLMs), with Citibank and UBS ultimately appointed as JLMs;

(c)    Herbert Smith Freehills (HSF) (as it then was) and Gilbert + Tobin as legal advisers, with HSF ultimately being appointed; and

(d)    Deloitte as remuneration and tax advisor, investigating accountant and franchisee auditor.

26    By the end of March 2018, Mr Butler had been appointed chair of the Steering Committee for Project Special Tiara. After the advisors were appointed, as part of managing Project Special Tiara, Mr Butler attended and generally chaired “all hands” meetings on at least a weekly basis with Deloitte, HSF, Citibank and UBS. Mr Butler said that the work he was doing throughout this period was work that would more commonly be undertaken by a company CEO and/or CFO. However, Mr Butler deposed that neither Mr Cockayne as CEO, nor Mr Jones as the then interim CEO, nor Mr Callahan as CFO had sufficient experience or expertise to take on these roles.

27    Mr Cockayne’s exit and Mr Jones’ appointment as interim CEO were finalised in May 2018. Mr Butler deposed that Mr Cockayne negotiated an exit with Mr Heath (acting as chair of the “Remuneration Committee”) which involved Mr Cockayne resigning and retaining his 108 employee shares, notwithstanding that, as an employee, the vesting of his shares had been conditional upon ongoing service. The 2019 financial accounts in the annual report stated that Total Tools bought the shares back from Mr Cockayne for $1,223,640 on 30 August 2019 and then cancelled those shares.

28    On 23 May 2018, the Board appointed Mr Butler as chairman of Total Tools.

29    Mr Butler deposed that, by around May/June 2018, his workload at Total Tools had increased from an average of half a day per week prior to the commencement of Project Special Tiara, to two days per week after its commencement. Mr Butler deposed that, around this time, Mr Jones, the interim CEO, was saying to him and to Mr Heath that they would be “looked after” for all the additional work that they were doing. Mr Butler deposed that these comments were made during meetings relating to the project, and sometimes during discussions regarding equity incentives for the executive team. Mr Butler said he understood Mr Jones’ comments to mean that he and Mr Heath would receive additional remuneration in some form of equity.

30    In May 2018, the Board appointed Spencer Stuart, an executive recruitment agency, to assist with recruiting a new CEO. Mr Butler asked Spencer Stuart to include Mr Paul Lakeland Dumbrell on the list of potential CEO candidates. Mr Butler had worked with Mr Dumbrell following the acquisition by Metcash of Autobarn from the Dumbrell family when Mr Butler was a non-executive director of Metcash and Mr Dumbrell was the CEO of Autobarn. Mr Butler had also worked with Mr Dumbrell on the subsequent sale of Autobarn to Bapcor Limited when he was a non-executive director at Metcash.

31    On 5 June 2018, Mr Jones and Mr Butler reviewed three detailed CEO candidate reports, including that of Mr Dumbrell. In early June 2018, Mr Butler approached Mr Dumbrell about the role of CEO at Total Tools and “pitched” that there was an opportunity to lead the “Special Tiara” transaction and participate in a value accretive deal process. The Board subsequently appointed Mr Dumbrell.

32    On 9 July 2018, Mr Butler received an email from Mr Jones attaching a draft board paper entitled “TTH Board Paper – Ned Equity 170618”. The board paper included a draft resolution allowing each of Mr Butler and Mr Heath to purchase 54 employee class shares in Total Tools for a total consideration of $514,512 each. Mr Butler’s evidence was that he understood the email and the draft paper to represent Mr Jones’ plan to “look after” Mr Butler and Mr Heath for their work on Project Special Tiara. The purpose of the offer, as expressed in the draft paper, was to align the economic interests of the Board and shareholders as the company worked towards a liquidity event.

33    The draft board paper provided the following:

Draft Resolutions:    

That the Board approves and recommends to Shareholders to invite the Non Executive Directors, Michael Butler and Stephen Heath to purchase 54 shares each in Total Tools Holdings Limited for $9,528 per share for a total consideration of $514,512 each.

That the Board approves the Company to provide a Limited Recourse Loan to each of the Non Executive Directors, Michael Butler and Stephen Heath, in the amount of $514,512 each, to purchase Shares in the Company subject to the terms and conditions of a Loan Agreement.

…

Proposed Invitation to Purchase Shares in TTH

To ensure alignment with the Shareholders, it is proposed that the Board invite both Michael and Stephen to purchase shares in the Company at the current share price via a loan provided by the Company subject to terms and conditions contained within a Loan Agreement.

The terms of the invitation provided to each of Michael and Stephen would be as follows:

…

Recommendation

It is recommended that[:]

1.    The Board approves making a recommendation to Shareholders that an invitation is extended to both Michael and Stephen to purchase shares in the Company as per the terms above.

2.    The Board seeks Shareholder approval prior to the approval of the annual accounts.

3.    Subject to Shareholder approval, the invitations are provided to Michael and Stephen prior to the approval of the annual accounts.

34    Mr Butler said that, shortly after, a revised draft board paper was circulated which contained draft resolutions to the effect that each of Mr Butler and Mr Heath would be issued with equity in the form of 25 shares in Total Tools for $9,528 per share for a total purchase price of $238,200 each, which could be funded with a limited recourse loan made by Total Tools. This revised draft board paper appears to have been provided in or around August 2018.

35    Mr Butler said that he did not know why the number of shares to be issued to him and Mr Heath had been reduced from 108 total (54 each) in the previous draft paper to 50 (25 each) in the revised draft board paper. Mr Butler said that he assumed that some of the other shareholders had said to Mr Jones that they thought 25 shares was a sufficient reward for his and Mr Heath’s contribution.

36    Between 10 August 2018 and 17 September 2018, Mr Butler went overseas for a holiday and missed two board meetings on 22 August 2018 and 4 September 2018. During this time, in late August 2018, Mr Dumbrell’s appointment as CEO was announced with a commencement date in October 2018 (although Mr Dumbrell attended board meetings in September 2018 as a guest). The minutes of the board meeting on 4 September 2018 relevantly record the following:

4. Independent Director Equity

Mr Stephen Heath left the meeting.

Mr Darren Callahan re-joined the meeting.

Mr Warren Jones referred to the document tabled at the previous Board meeting regarding the issue of employee class shares to the Independent Directors, Mr Michael Butler and Mr Stephen Heath. As requested at the previous Board meeting, Mr Warren Jones obtained further independent advice, benchmarking the proposed share issue to other organisations of similar size looking to undertake an IPO. This analysis confirmed that the proposed issue of 30 employee class shares to Mr Michael Butler and 20 employee class shares to Mr Stephen Heath was relative to the benchmarked companies.

Each employee class share will be valued at $9,528. Mr Michael Butler and Mr Stephen Heath will have the option to purchase the shares via a 5 year interest free loan from Total Tools Holdings Pty Ltd.

It was resolved that the Board will invite Mr Michael Butler to purchase 30 employee class shares in Total Tools Holdings at a value of $9,528 per share. The Board will also invite Mr Stephen Heath to purchase 20 employee class shares in Total Tools Holdings at a value of $9,528 per share. Both invitations are subject to shareholder approval at the Annual General Meeting to be held on 24 October 2018.

(Original emphasis.)

37    Mr Butler, shortly after his return from holidays on 17 September 2018, reviewed these board minutes and asked Mr Heath to put in place the machinery that would give effect to this resolution.

38    On 23 September 2018, Mr Heath sent an email to Mr Butler and Mr Jones which said:

I’ve come up with some words for a resolution (see below) that I believe will provide the Board the flexibility required to do what is necessary to complete the equity issue to Mike and myself subject to advice. There will be 2 resolutions, 1 for Mike and 1 for me. The resolutions will need some explanation to shareholders to ensure they are clear on the need to be flexible. Note that there is no need to resolve to do the Company Loan, if indeed that is relevant to the final structure, as that is within the Board’s delegated authority.

Let me know your thoughts.

39    The words for the resolution proposed by Mr Heath in his email were as follows:

The Shareholders approve and instruct the Board to issue Michael Butler, or an entity related to Michael Butler, 30 shares in Total Tools Holdings Pty Ltd (Company) (x% of the issued shares in the Company) for $9,528 per share (the current share price) or at the absolute discretion of the Board, any other amount of shares or derivatives over shares in Total Tools Holdings Pty Ltd or any other entity created to facilitate the sale of shares or assets in Total Tools Holdings Pty Ltd so long as the intrinsic value of those shares or derivatives is relative to the proportion of shares offered in the Company as at October 26, 2018.

40    At the board meeting of Total Tools on 26 September 2018, Mr Heath said that, in his view, it was not good governance to have non-executive directors and employees on the same equity plans and the same vesting conditions, and that the Board needed to ensure flexibility of the form of the equity issue while the form of the liquidity event was still unknown. The unsigned minutes of the meeting record that a resolution that Mr Callahan had prepared, regarding offering financial assistance to Mr Butler and Mr Heath for their purchase of shares, was not put to the directors.

41    At 2:37pm on 27 September 2018, Mr Jones and Mr Butler were copied into an email from Mr Heath to Mr Callahan which stated:

As mentioned at the Board Meeting;

1. It’s not good governance to have NED’s and Employees on the same Equity Plans and vesting conditions.

2. The Board needs to create the flexibility necessary to ensure that it can put the most appropriate structure in place once it knows what the sale structure and vehicle will be.

I’ve already spoken to David McGuigan at Deloitte and given the long weekend he’ll get started on a draft paper on a proposed equity plan for the Board’s consideration next week. I’ll be sending him a confirming note this afternoon with a cc to you but in the mean time you can go ahead and finalise the resolutions for the Notice of Meeting.

…

On the basis of wanting to meet the principles of points 1 & 2 above, the proposed resolutions are[:]

Resolution 1

TTH shareholders hereby RESOLVE to authorise the Board:

•    to create and allot to Michael Butler or his nominated related party, at a time of the Board’s choosing, an equity based instrument in TTH or a successor entity; provided

•    the value of that equity based instrument shall be equivalent to the value attributed to 30 ordinary TTH shares (based on the number of issued TTH shares as at 30/9/2018) in any future IPO or trade sale of TTH; and

•    allotment of any such instrument is conditional upon the successful financial close of a trade sale of TTH or an IPO of TTH or a successor entity; and

•    disposal or dealing in the equity base instrument by Michael Butler in the event of an IPO is escrowed for two years from the date of listing of the company.

…

42    A second resolution was then set out in the same form, but as to the 20 shares to be allocated to Mr Heath.

43    Later in the afternoon on 27 September 2018, Mr Callahan, Mr Jones and Mr Butler were copied on an email from Mr Heath to Mr McGuigan of Deloitte seeking advice on the form of equity issue. In that email, Mr Heath said the following:

Further to our discussion earlier today, I just wanted to confirm the points discussed.

1. As part of our Sale Process, the Board is asking shareholders to approve an allotment of equity in the company to 2 Non Executive Directors, Michael Butler (Chairman) and myself, Stephen Heath.

2. The guiding principle is that the equity allotment will be equivalent to 30 shares to Michael Butler and 20 Shares to Stephen Heath of the equity in the company as at Sept 30, 2018 at the then share price $9,528 per share.

3. The equity can be an instrument to be determined (potentially Nil Priced Rights) over the shares in the same proportion of issued capital as at Sept 30, 2018, in either TTH or a subsequent entity that may be created as part of an IPO at the discretion of the Board.

4. The vesting condition will be the successful sale of the Company, either through IPO or Trade Sale.

5. In the case of a Trade Sale the shares will vest immediately and sold into the Trade Sale.

6. In the case of an IPO, the shares will vest but be escrowed by Holding Lock or similar for a period of 2 years post the Listing Date.

7. The Board will need discretion to release the shares from the Holding Lock to cover such instances as financial hardship, death or other such events deemed appropriate by the Board.

8. Any structure proposed should be done so in consideration of the provisions contained within SECT 83A.130 (Takeovers and Restructures) to ensure that the IPO doesn’t trigger any taxing point and that Tax to be deferred and CGT discount applicable until the sale of the Shares after the escrow period [sic].

9. Plus any other terms and conditions that you recommend for consideration to ensure compliance with and survival of IPO DD and the ASX Listing Rules.

The Resolution [to be] put [to] the Shareholders to vote on provides the flexibility required to deal with the structural uncertainty that we have at this stage.

The board would like Deloitte to provide advice as to a suitable Equity Plan and documented Rules including compliant Invitation Letters as part of our Sale Advisory Agreement. Let’s discuss further next week. Enjoy the long weekend.

44    On 28 September 2018, Mr Jones and Mr Butler were copied into an email exchange between Mr Callahan and Mr Heath. In the exchange, Mr Callahan raised a number of questions regarding the form of the resolutions which Mr Heath had circulated the day before. Mr Callahan’s questions and Mr Heath’s responses are extracted below, with Mr Heath’s responses identified in italics:

The minutes from the Board meeting held at the Gold Coast state that the Directors passed a resolution to invite Mike to purchase 30 employee class shares and yourself 20 employee class shares. These shares are to be valued at $9,528 per share and an interest free loan will be provided to fund the purchase. Both invitations to purchase the shares are subject to shareholder approval at the upcoming AGM.

As Non-Executive Directors (as distinct from employees), the issue of an interest free loan is classified as Financial Assistance. To satisfy the legal requirements of providing Financial Assistance, a complex set of documents needs to be prepared and lodged with ASIC.

The first step in this process was the resolution I tabled at the Board meeting Wednesday. Upon tabling the resolution, you suggested we should investigate other means by which to have shares (equity) issued to Non-Executive Directors. The resolution was not presented, instead the action from the meeting was for you and I to investigate other options.

SH - Yes, and we will do this, however the first step is to get a Resolution passed that gives the Board the flexibility to do what is necessary once the outcome of those investigations is known.

We have since commenced looking at other options and more recently you have proposed the resolutions set out below which I now refer to[:]

•    The resolution below refers to Ordinary shares. The previous resolution passed by the Directors refers to Employee Class shares. Please confirm this is an intended change.

SH - The resolution refers to Ordinary Shares in the context of the value of the equity based instrument to be offered to the independent directors being equal to the value of [30/20] Ordinary Shares (based on the issued capital of TTH as at 30/9/2018) at the IPO or trade sale financial close. It does not imply that the instrument ultimately decided upon would be Ordinary Shares. Indeed it is highly likely not to be Ordinary Shares.

•    The resolution below makes no reference to the requirement to pay for the shares at market value. This is also a change from the previous resolution. Please confirm this is an intended change.

SH - The resolution makes no reference to any payment for shares, because since the Gold Coast meeting it has become apparent that in the event of an IPO the issued securities will not be shares in TTH but some successor security (for example shares in an IssueCo which would be inserted above TTH). The proposed resolutions give clarity to the shareholders of the value of the equity offer being made to the independent directors, and gives the board the flexibility and authority to structure and issue whatever equity based instrument is ultimately found to be most appropriate (performance rights, ZEPOs, options, shares etc) and in whichever IssueCo is most appropriate. So, yes this is a deliberate change in order to give the board flexibility to deal with what was an unforeseen issue at the time of the Gold Coast meeting.

•    There is no reference to the value of the shares in the resolution, for shareholding understanding this is important.

SH - The resolution quite explicitly deals with the issue of the value of the equity offer.

•    Shareholders will not have a good understanding of what “equity based instrument” means. To this extent we should provide some clarity. Did you want me to follow this up?

SH - The concept of an equity based instrument can be dealt with in a short explanatory statement, and in an AGM Q&A.

•    The notice of meeting should include an explanatory memorandum of what the shareholders are being asked to vote on so they can make an informed decision.

SH - Yes, Agree.

…

I suggest you and I work together to finalise the content of the resolution and explanatory memorandum with an aim to have it circulated amongst the Directors on Monday.

SH - Yes, I have no problem doing this, however I feel the Resolutions as presented are suitable to the cause. And the Shareholders will understand the need for the flexibility given the number of outcomes possible from the dual track process. This should be easily enough to explain in a Note supporting the resolution. I’m available in the morning if you want to have a call.

45    It is relevant to note that, before Mr Heath responded to Mr Callahan’s email dated 28 September 2018, Mr Butler separately emailed Mr Heath to provide him with suggested responses to Mr Callahan’s queries. A comparison between Mr Butler’s suggested responses and Mr Heath’s subsequent email to Mr Callahan shows that Mr Butler was, in effect, the source of the responses given to Mr Callahan. This included the statement in response to Mr Callahan’s second query that the resolution gave the Board flexibility to “structure and issue whatever equity based instrument is ultimately found to be most appropriate (performance rights, ZEPOs, options, shares etc)”.

46    Mr Callahan responded to Mr Heath’s responses on 29 September 2018, confirming that he would leave the wording of the resolutions as proposed by Mr Heath.

47    On 2 October 2018, Mr Butler, along with each of the other directors of Total Tools, received an email from Mr Callahan attaching a circular resolution setting out the following resolutions:

We, being all the directors of the Company, pass the following resolutions in accordance with clause 6.1 of the Constitution of the Company:

1.    THAT the special resolutions set out in the Notice of AGM are approved and be put to the Members;

2.    THAT all directors of the Company unanimously recommend to the Members that each special resolution set out in the Notice of AGM be approved;

3.    THAT the Notice of AGM is approved to be sent to the Members; and

4.    THAT the Notice of AGM contains all information necessary for the Members to make an informed decision on the proposed resolutions set out in the Notice of AGM.

48    On 3 October 2018, the circular resolution of directors was passed, which authorised dispatch of a notice of annual general meeting (AGM) of Total Tools.

49    By 3 October 2018, a notice of AGM of Total Tools to be held on 24 October 2018 was sent to shareholders. The notice included, as an agenda item, the proposed Shareholders’ Resolution as follows:

Creation and allotment of equity-based instrument for Michael Butler and Stephen Heath

All Members to consider, and if thought fit, pass the following resolutions by at least 75% majority of Members in accordance with clause 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement:

(a)    THAT the Board of the Company is authorised to create and allot to Michael Butler or his nominee, at a time of the Board’s choosing, an equity-based instrument in the Company or a successor entity of the Company, provided that:

(i)    the value of that equity-based instrument shall be equivalent to the value attributed to 30 ordinary shares in the Company (based on the number of issued shares in the Company as at 30 September 2018) in any future initial public offering or trade sale of the Company;

(ii)    the allotment of any such instrument is conditional upon the successful financial close of a trade sale of the Company or an initial public offering of the Company or a successor entity of the Company; and

(iii)    disposal or dealing in the equity-based instrument by Michael Butler in the event of an initial public offering is escrowed for two years from the date of listing of the Company.

(b)    THAT the Board of the Company is authorised to create and allot to Stephen Heath or his nominee, at a time of the Board’s choosing, an equity-based instrument in the Company or a successor entity of the Company, provided that:

(i)    the value of that equity-based instrument shall be equivalent to the value attributed to 20 ordinary shares in the Company (based on the number of issued shares in the Company as at 30 September 2018) in any future initial public offering or trade sale of the Company;

(ii)    the allotment of any such instrument is conditional upon the successful financial close of a trade sale of the Company or an initial public offering of the Company or a successor entity of the Company; and

(iii)    disposal or dealing in the equity-based instrument by Stephen Heath in the event of an initial public offering is escrowed for two years from the date of listing of the Company.

50    An “Explanatory Memorandum” was attached to the notice of AGM and included an explanation of the resolutions. Given its importance in the context of this proceeding, the relevant section of the Explanatory Memorandum is extracted in full below:

Resolution 4: Issue of equity based instrument to Michael Butler and Stephen Heath

Michael Butler and Stephen Heath are to be offered the equity based instrument as described in Resolution 4.

The Board appointed Michael Butler and Stephen Heath as Non-Executive Independent Directors to the Board of Total Tools Holding Pty Ltd (TTH) in August 2016 with the primary goals of setting the strategic, financial, operational, and governance frameworks required to maximise shareholder value and to create a liquidity event for Shareholders.

Maximum shareholder valuation creation most often occurs when true alignment exists between Shareholders, Board and Management and it is recognised that within the TTH structure, the Independent Directors, recruited to assist in the processes required to maximise shareholder wealth are non-shareholders.

At the time that Michael and Stephen joined the Board, the valuation of TTH, according to the valuation undertaken by the Independent Valuer, was $17.2M on maintainable EBIT of $3.4M.

Michael and Stephen were appointed to assist the Board in maximising shareholder value and to create a liquidity event for the Shareholders that might otherwise have not been achieved and they will drive the sale process including preparing the governance frameworks required to meet ASX Listing Rules and Recommendations.

The proposed corporate structure leading into the sales process is forecast to deliver an EBIT in the range of between $40M - $50M and a valuation on sale in the range of between $400M - $500M. Assuming a valuation mid-point of $450M, this forecast would deliver to shareholders an improved value from the 2016 valuation of $17.2M of approximately $226M.

As a result of the “Dual Track Process” for the proposed sale of the Company, the final structure of the sale and whether that will ultimately lead to a sale of TTH or a successor entity, has yet to be determined. That being the case, the Board is seeking approval from shareholders to have the discretion to allot an Equity Based instrument in either TTH or a successor entity to both Michael Butler and Stephen Heath or their nominated related parties at a time determined by the Board subject to professional advice.

The vesting of the Equity Based Instrument will be conditional upon the successful completion of either a Trade Sale of TTH or an IPO of TTH or a successor entity. Further, any subsequent dealing in the Equity Based Instrument in the event of an IPO will be escrowed for a period of two years from the date of listing the company on the ASX.

The value of the Equity Based Instrument for Michael Butler or his nominate related party will be equivalent to the value attributed to 30 TTH shares, proportionate to the number of shares on issue in TTH as at 30 September 2018 in any future IPO or trade sale of TTH or successor entity. For example, based on the underlying valuation metrics included in the presentation given to the Shareholders at the 14 May 2018 meeting where a parcel of 108 TTH shares were valued at $10.5M, and assuming an IPO or Trade sale in June 2019, the value of 30 TTH shares would be approximately $2.9M.

The value of the Equity Based Instrument for Stephen Heath or his nominate related party will be equivalent to the value attributed to 20 TTH shares, proportionate to the number of shares on issue in TTH as at 30 September 2018 in any future IPO or trade sale of TTH or successor entity. For example, based on the underlying valuation metrics included in the presentation given to the Shareholders at the 14 May 2018 meeting where a parcel of 108 TTH shares were valued at $10.5M, and assuming an IPO or Trade sale in June 2019, the value of 20 TTH shares would be approximately $1.9M.

For the purposes of this Resolution, Equity Based Instrument means either Shares, Options, Rights or any other derivative so advised and agreed by the Board.

It is noted that Michael Butler and Stephen Heath, as directors of the Company, have an interest in the outcome of Resolution 4. The other directors of the Company have no interest in the outcome of Resolution, other than as existing shareholders of the Company. Each of the directors of the Company recommend that the Members vote in favour of the above resolutions.

51    On 24 October 2018, at the Total Tools AGM, the Shareholders’ Resolution was passed unanimously by the shareholders.

52    On 30 October 2018, Mr Butler was copied to an email from Mr Heath to Mr Callahan in which Mr Heath stated that Total Tools should engage Mr McGuigan of Deloitte to commence preparing the necessary letters of invitation and agreements to give effect to the Shareholders’ Resolution.

53    Mr Butler deposed that, between November and December 2018, Project Special Tiara started to fall behind the agreed timetable, which had targeted the completion of a transaction by June 2019. The principal cause of the delay was said to be the audit of franchisees’ stores which was being conducted by Deloitte. The audit had uncovered deficiencies in the accounting practices of store owners, some of whom were shareholders, such as failures to record rebates and stocktakes, and failures to correctly record tax-deductible expenses, fringe benefits tax, goods and services tax (GST) and payroll tax.

54    During November and December 2018, Mr Dumbrell (the new CEO of Total Tools) identified that the business of Total Tools was performing below budget, and that stocktake losses of approximately $2.6 million had been discovered for the 2018 financial year. Mr Butler also deposed that a number of other issues had arisen, including delays in negotiations with store owners due to owners’ failure to complete requests for information.

55    By 8 February 2019, Mr Butler said he formed the view that it was not possible to achieve an IPO by June/July 2019 and that Project Special Tiara needed to be paused until the various problems with the business had been resolved. On 8 February 2019, he sent an email to Mr Heath setting out the significant issues that Total Tools was dealing with at the time, and stated that, in light of those challenges, his view was that “[t]he IPO is dead in the water”.

56    Between 11 and 16 February 2019, the Board convened a series of emergency board meetings to discuss the nature of the issues that had been identified in reports from the audit process that was being undertaken. Draft minutes of the meeting on 11 February 2019 relevantly record the following:

3. SPECIAL TIARA IMPLICATIONS

The Chairman and CEO confirmed that the large number of material financial issues still being identified and the time and effort to resolve all of these satisfactorily meant the IPO process needs to be paused. While the recommendation to the Board is to continue the store purchase program, the proposed next step is to make an offer to the Jones/Assad group. If the Company is unable to purchase that group of stores on reasonable terms and conditions management will recommend that the store purchase program also be paused.

57    The status of these matters was further discussed at board meetings on 14, 15 and 16 February 2019. The draft minutes of the meeting on 16 February 2019 relevantly record as follows:

1.2 Whether to pause Special Tiara?

Paul Dumbrell referred to the note circulated to directors on Friday evening (Doc ID: Directors Meeting 16 Feb 2019) which had summarised the matters discussed on calls with Directors and at Board meetings over the past week.

Directors NOTED the three key drivers for a recommendation to pause Special Tiara - the decline in the equity markets, the material decline in the company’s short term earnings outlook relative to previous inaccurate budgets and the increase in the expected cost of buying stores.

The Chairman explained that potential communication to Shareholders and Franchisees could be framed as a recommendation from the Board and summarised potential key messages. These would be prepared over the coming week and circulated to Directors for comment on Wednesday, prior to planned meetings on Thursday 21 February.

Following discussion highlighting the need to move quickly to avoid further time and adviser costs being incurred by the Company or Franchisees and the inevitable disappointment and potential cost recovery claims of the network, Directors RESOLVED to recommend a 12 month pause of both the capital event and store purchase aspects of the Special Tiara project.

58    On 21 February 2019, the Board met with the shareholders and franchisees to discuss the Board’s decision to pause Project Special Tiara. Mr Butler deposed that this announcement was met with significant criticism from shareholders.

59    On 24 February 2019, Mr Dumbrell forwarded an email to Mr Butler which had originally been sent by Mr Greg Heath on behalf of the PwC committee representing the franchisees. The email relevantly stated the following:

There are a large number of frustrated, angry and emotional Franchisees post Monday’s announcement and Thursday’s presentation.

Thursday’s presentation didn’t hit the mark; it didn’t talk in straight language to the audience and appeared to present an over weighting of balance for the defence of the whole process.

Most feel there was initially insufficient understanding of the business, preparedness for the process and due diligence for both TTH and the Franchise network by the Board preceding the initial announcement by Michael Butler.

There appeared an evident air of arrogance from some through the process; accompanied with a self-defined expertise that many Franchisees feel drove the exercise and the expectation.

…

The immediate Franchisee fall out appears to be a sharp drop in trust, confidence and reputation of the Board; disappointed in the capacity for TTH and SO to undertake and manage this process.

Many Franchisees feel they have expended large amounts of physical and financial resources for no outcome; some appear to have lost focus and faith in their own businesses and the Support Office; and the feeling among some is running deep. Many Franchisees are concerned for the external reputation for the group. Furthermore, there was a requirement to advise staff, many of whom continue to ask questions and remain unsettled. A suitable communication needs to be prepared by TTH to address these concerns.

…

Many Franchisees are seeking a response to the announcement this last week through a new CEO direction that will take the group forward in a positive and focused approach addressing our clearly defined areas of weakness.

…

60    On 26 February 2019, an emergency board meeting was convened. The Board resolved to hold an extraordinary general meeting (EGM) at which:

(a)    all shareholder directors would resign and offer themselves up for re-election (with the exception of Mr McDonald, who wished to retire as a director);

(b)    Mr Butler would resign as chairman effective at the conclusion of the meeting, but he and Mr Heath would remain as non-executive directors; and

(c)    the new Board would meet at the conclusion of the meeting and appoint a chairman.

61    On 8 March 2019, a notice of meeting was issued for the EGM. The notice confirmed that Mr Butler would step down as chairman at the conclusion of the meeting and that he intended to seek re-election upon the reconstitution of the Board.

62    Subsequent to the notice of meeting being sent to shareholders, Mr Butler received phone calls from both Mr Chambers and Mr Heath who told Mr Butler that they had spoken to other directors and shareholders who said they wanted Mr Butler to resign. Mr Chambers told Mr Butler that there was a unanimous view of the franchisee board members that Mr Butler should resign as chairman and as a director of Total Tools. Mr Butler resigned as a non-executive director on 1 April 2019. His view was that he had effectively taken the heat of the issues which arose in Project Special Tiara on the Board’s behalf.

63    On 7 May 2019, Mr Butler sent an email to Mr Heath asking, “[d]id you ever receive your ‘equity instrument’ letter?”. The communications between Mr Butler and Mr Heath following Mr Butler’s email are outlined in further detail below in the context of Mr Heath’s evidence.

64    On 1 September 2020, Metcash acquired 70% of Total Tools for approximately $57 million. On 28 June 2021, Metcash announced that it had acquired a further 15% of Total Tools for $59.4 million.

65    On 28 October 2022, Mr Butler met with Mr Mark Laidlaw, the then executive chair of Total Tools. Mr Butler gave Mr Laidlaw a copy of the Shareholders’ Resolution and asked him to look into the issuing to Mr Butler of an equity instrument. Mr Laidlaw said that he would have Mr Chambers look into it.

66    On 10 January 2023, Mr Dumbrell and Mr Chambers met with Mr Butler at Mr Butler’s house. Mr Dumbrell told Mr Butler during this meeting that Mr Butler was supposed to be issued employee class shares, which required Mr Butler to be employed by Total Tools at the time of the liquidity event. Mr Butler said he disputed this and would send Mr Dumbrell the Shareholders’ Resolution and other materials which made clear that it was not for employee shares. Mr Dumbrell said that he would look into it.

67    On 2 March 2023, Mr Butler received a letter from Ms Julie Hutton, the chief legal, risk and compliance officer and company secretary of Metcash. The letter said, inter alia:

I refer to your correspondence and discussions with the CEO of Total Tools Holdings Pty Ltd (TTH), Mr Paul Dumbrell, asserting that you may have been entitled to be issued 30 shares in the capital of TTH that was the subject of discussion at TTH board meetings in 2018 and a resolution put to TTH shareholders at the annual general meeting held on 24 October 2018. Mr Dumbrell has asked me to review the relevant documentation and consider your assertion.

…

Based on my review of the above documentation and the assumptions noted above, I am satisfied no such entitlement exists.

The power to issue shares is, under clause 11.1 (a) of the TTH Constitution, vested in the board of directors of TTH (Board). Under that clause, the Board may issue or dispose of shares to any person at any time and on any terms and conditions and having attached to them any preferred, deferred or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise, as the Board thinks fit.

The documentation reviewed does not show that the Board ever passed a resolution to issue you any shares or other securities of any class in the capital of TTH.

… [I]t is very telling that the terms of the 20 Class A shares ultimately issued to Mr Stephen Heath provided that:

•    they would only vest and convert to ordinary shares if at the time of vesting Mr Heath was employed by TTH; and

•    if Mr Heath ceased to be an employee of the TTH group, TTH could redeem or require the transfer of some or all of the Class A shares that had not vested for $0.01 per share.

It defies logic that the Board would have imposed these terms on the securities issued to Mr Heath but would not have imposed equivalent terms on the securities issued to you (if they had ever been issued).

…

Given my conclusion, Mr Dumbrell does not propose to engage in discussions with you further on this topic. …

68    On 13 November 2023, Metcash announced that it had acquired the remaining 15% of Total Tools for $101.5 million.

69    On 3 July 2024, Mr Butler commenced this proceeding against Total Tools.

Mr Osmond

70    A single affidavit of Mr Anthony Osmond dated 20 July 2025 was read and tendered into evidence.

71    Mr Osmond is a managing director at Citigroup Global Markets Australia Pty Ltd with over 30 years’ experience advising on large and complex mergers, acquisitions and capital market transactions in Australia.

72    Mr Osmond led a team at Citi working on Project Special Tiara from mid-2018 to February 2019. Mr Osmond had previously worked with Mr Butler at Bankers Trust when Mr Butler was the head of its Melbourne office.

73    Mr Osmond’s evidence was that, in about 2018, Mr Butler told him that he had been appointed to the role of chairman of Total Tools to assist with either an IPO or a trade sale process. Mr Osmond said that Mr Butler’s skill set and background in investment banking made him a logical candidate as a non-executive director to assist Total Tools to prepare for and manage a dual track process of seeking either an IPO or a trade sale.

74    Mr Osmond’s evidence was that the process of preparing Total Tools for a potential IPO was paused in around February 2019 as a result of a deterioration in IPO market conditions and in the forecasted earnings of the business. Mr Osmond advised Total Tools at the time that these factors would impact the price that could be achieved on an IPO, which may not support the earnings multiple that franchisees were expecting to receive on the sale of their stores.

75    Mr Osmond accepted in cross-examination that an IPO was the main focus of the dual track process that was being undertaken by Project Special Tiara. Citi advised the Board that the company was too small to list on the ASX in its present form, and that Total Tools needed to grow its business by purchasing franchise stores to increase its EBIT to a level which was large enough to justify listing on the ASX300. Mr Osmond said that the dual track process was designed to create competitive tension to maximise the potential outcomes.

Mr Callahan

76    Mr Callahan was Mr Butler’s third lay witness. No affidavit of Mr Callahan was tendered as Mr Callahan’s evidence in chief was given orally.

77    Mr Callahan was the CFO and company secretary of Total Tools from about January 2017 until 31 March 2019.

78    Mr Callahan was present at the AGM of Total Tools on 24 October 2018. Mr Callahan’s evidence in chief appeared to be primarily directed to the fact that there were no minutes of the meeting recording that the Shareholders’ Resolution was passed. Ultimately, as the parties accept that the Shareholders’ Resolution was passed, and was passed in the form provided to shareholders in the notice of AGM, little appears to turn on this.

79    Mr Callahan worked with Mr Butler on Project Special Tiara. Mr Callahan agreed in cross-examination that, in late November 2018, a number of financial issues began to emerge in the business of Total Tools. Some of the franchisee stores were not trading well and there was concern about the value that could be realised from Project Special Tiara.

Total Tools’ evidence

Mr Jones

80    Mr Jones is a former director of Total Tools and continues to own a number of Total Tools franchise stores. Mr Jones was chairman of Total Tools from 2013 to 2018 and from 2019 to 1 September 2020.

81    Three affidavits of Mr Jones were read and tendered, dated 13 March 2025, 24 June 2025, and 11 July 2025.

82    In mid-2018, Mr Jones became aware that Mr Butler and Mr Heath were expending considerable time on Project Special Tiara, which was beyond the scope and expectation of their roles as non-executive directors. Mr Jones started to consider an arrangement which could compensate Mr Butler and Mr Heath for the additional time they were expending on Project Special Tiara and which would provide an incentive for them to deliver a result that was good for shareholders by tying the arrangement to the magnitude of the liquidity event.

83    In late May to early June 2018, Mr Jones had conversations with Mr Butler and Mr Heath to discuss the potential issue of equity in Total Tools to them, both to make sure they would be properly compensated for their work and to provide an incentive to achieve a successful liquidity event. Mr Jones said that the incentive should be relative to the workload that Mr Butler and Mr Heath were undertaking in relation to the liquidity event, such that Mr Butler would receive relatively more than Mr Heath given that Mr Butler was leading the project.

84    In the period July and August 2018, Mr Jones was party to a number of emails with Mr Butler and Mr Heath in which the form of an equity proposal was discussed. Mr Jones’ evidence regarding the series of events and emails leading up to the AGM on 24 October 2018 is largely consistent with the evidence given by Mr Butler, which is outlined in detail above.

85    On 22 August 2018, Mr Jones attended a board meeting of Total Tools and tabled a board paper which discussed the terms for “Non-Executive Director equity participation”. Mr Jones was directed by the Board to seek further independent advice regarding the equity proposal.

86    On 30 August 2018, Mr Jones and Mr Callahan met with Mr Andrew Holland, a senior manager at KPMG, to obtain advice about the equity proposal that had been tabled at the board meeting on 22 August 2018.

87    On 31 August 2018, Mr Jones received an email from Mr Holland, which was also sent to Mr Callahan, confirming that KPMG had been engaged to provide advice to the Board on the equity proposal for non-executive directors. On 4 September 2018, Mr Jones chaired a board meeting at which the equity proposals for Mr Butler and Mr Heath were discussed. As has been noted above in the context of Mr Butler’s evidence, the Board resolved to invite Mr Butler to purchase 30 employee class shares in Total Tools and Mr Heath to purchase 20 employee class shares, with both invitations being at a value of $9,528 per share and subject to shareholder approval at the AGM to be held on 24 October 2018. Mr Jones said that, at the board meeting, the directors discussed the rationale for this invitation, which was to incentivise Mr Butler and Mr Heath to deliver a good payday for the shareholders and to offer an employee class share (which was the standard mechanism used by Total Tools to provide an incentive for its executives whilst they remained at the business).

88    On 23 September 2018, Mr Jones received the email from Mr Heath, which was also sent to Mr Butler, in which Mr Heath proposed the wording for two resolutions intended to “provide the Board the flexibility required to do what is necessary to complete the equity issue to Mike and [him]self subject to advice”.

89    On 26 September 2018, Mr Jones attended the board meeting in which the minutes record that Mr Callahan tabled a circular resolution of directors regarding an offer of financial assistance to Mr Butler and Mr Heath for the purchase of employee class shares in Total Tools. Mr Jones’ evidence, which was consistent with that of Mr Butler, was that at this meeting, Mr Heath said to the Board that it was not good corporate governance for the non-executive directors to be issued with shares on the same terms as employees. Mr Butler said to the Board that there was not a clear path forward towards any particular outcome (being an IPO or a trade sale) and that the nature of the issue of equity needed to be more flexible to accommodate this uncertainty. The outcome of the board meeting was that the proposed circular resolution was not put to the directors at that meeting, and Mr Callahan was directed to work with Mr Heath on “alternative equity instruments”.

90    On 27 September 2018, Mr Jones and Mr Butler were copied into an email from Mr Heath to Mr Callahan. Again, the substance of this email has been outlined above. In the email, Mr Heath said that “[t]he Board needs to create the flexibility necessary to ensure that it can put the most appropriate structure in place once it knows what the sale structure and vehicle will be” and that Deloitte would be engaged on a draft paper regarding the proposed equity plan for the Board’s consideration. This was also the email in which Mr Heath proposed new language for the proposed resolutions to be put forward to Total Tools’ shareholders at the AGM on 24 October 2018, and which largely reflected the final wording of the resolutions.

91    On 28 September 2018, Mr Jones was copied into the email from Mr Heath in which he responded to a number of questions from Mr Callahan. Again, the email is extracted in detail above, but it is sufficient to note that, in the email, Mr Heath noted the intention to give the Board “the flexibility and authority to structure and issue whatever equity based instrument is ultimately found to be most appropriate (performance rights, ZEPOs, options, shares etc) and in whichever IssueCo is most appropriate”.

92    On 2 October 2018, Mr Jones received the email from Mr Callahan attaching the proposed circular resolution. Again, the detail of the circular resolution and the attached notice of AGM have been outlined above.

93    On 24 October 2018, Mr Jones attended the AGM. Mr Jones’ evidence was also that, at the AGM, the shareholders passed the Shareholders’ Resolution.

94    Around the start of November 2018, following the AGM on 24 October 2018, Mr Dumbrell assumed his position as CEO of Total Tools and Mr Jones stepped down as interim CEO.

95    Mr Jones’ evidence was that on 11, 14, 15 and 16 February 2019, a number of emergency board meetings took place in which the Board discussed significant issues about Total Tools’ financial position, which had been discovered by Mr Dumbrell and resulted in the Board deciding to pause Project Special Tiara.

96    On 21 February 2019, the Board separately met with Total Tools’ shareholders and franchisees to announce its decision to pause Project Special Tiara. Mr Jones’ evidence was that shareholders and franchisees were shocked and upset at this outcome.

97    On 26 February 2019, Mr Jones attended a board meeting at which Mr Chambers stated that he had provided the negative feedback from shareholders to Mr Butler in respect of their view that Mr Butler was responsible for the pause of Project Special Tiara. Mr Jones said that, at the meeting, Mr McDonald and Mr Jeremy Sean Atkinson also stated that they had received negative feedback from shareholders and franchisees regarding the pause of Project Special Tiara.

98    During March 2019, Mr Jones had conversations with a number of board members to the effect that Mr Butler had lost the support and respect of the senior leadership team at Total Tools and was out of favour with shareholders.

99    On 1 April 2019, Mr Jones received a letter from Mr Butler confirming his resignation as chairman and director of Total Tools.

Mr Chambers

100    Mr Chambers is a former director of Total Tools and a current part-owner of two Total Tools stores in Braeside and Carrum Downs, Victoria. Two affidavits of Mr Chambers dated 13 March 2025 and 10 July 2025 were read and tendered into evidence.

101    His evidence was that, in early 2018, the Board resolved to proceed with pursuing a trade sale or IPO for Total Tools which the then CFO, Mr Callahan, named “Project Special Tiara”.

102    Mr Chambers deposed that, throughout 2018, he had discussions with other directors and attended a number of board meetings in which the Board discussed Project Special Tiara as well as a proposal to provide an incentive to Mr Butler and Mr Heath for being involved in the event of a successful liquidity event. Mr Chambers said that he did not have a specific recollection of the details of those discussions. While Mr Chambers said he had attended the AGM on 24 October 2018, he did not recall the Shareholders’ Resolution being passed.

103    Mr Chambers’ evidence was that, in early 2019, the Board decided to pause Project Special Tiara due to financial issues that had been discovered by the then CEO, Mr Dumbrell. Mr Chambers deposed that the Board met with Total Tools’ shareholders to announce the decision to pause Project Special Tiara. He said that the shareholders were visibly angry after the announcement and that they had asked Mr Butler why the Board did not know about the issues that led to the pause of Project Special Tiara before making the decision to proceed with the project and expend funds on the project.

104    Mr Chambers provided evidence that, some years after Mr Butler’s resignation, he and Mr Dumbrell attended Mr Butler’s house where Mr Butler said words to the effect that he had an entitlement from Total Tools. Mr Chambers said that this was the first time that he recalled becoming aware of Mr Butler’s views about the issue following his resignation. Mr Chambers stated that he could not understand why Mr Butler would have any entitlement in Total Tools when he resigned, as Project Special Tiara was not successful.

Mr Dumbrell

105    Mr Dumbrell was formerly the CEO of Total Tools and held that role from around November 2018 until March 2024. Mr Dumbrell affirmed two affidavits on 13 March 2025 and 11 July 2025. Mr Dumbrell also swore one affidavit on 24 July 2025. Mr Dumbrell was not required for cross-examination and his affidavits were read and tendered in evidence.

106    Mr Dumbrell commenced his role as CEO of Total Tools in around November 2018. He began working on Project Special Tiara primarily with Mr Butler and, at times, with Mr Heath and other advisors to Total Tools.

107    In November and December 2018, Mr Dumbrell started to investigate the financials of Total Tools and the strategy for Project Special Tiara. Mr Dumbrell became concerned about the performance of the business and various issues with Project Special Tiara.

108    By early 2019, Mr Dumbrell had formed the view that there were a multitude of issues which, when viewed as a whole, impacted the prospects of successfully completing Project Special Tiara. Such issues included the fact that the design of Project Special Tiara failed to incorporate a transitional period for the corporatisation of the franchise network. The plan was that Total Tools would acquire 100% ownership of all the stores and immediately take on management upon completion of the liquidity event. The project plan failed to account for the magnitude of that task.

109    Mr Dumbrell was also concerned that the Total Tools business was financially underperforming against its budget, that it was not going to meet its budget for 2018/19 and that there were losses caused by inventory and stock-take issues in the franchisee store network. There were also delays in the due diligence and store audit processes for the store network. Mr Dumbrell considered this a key issue because the store negotiations and due diligence processes formed the foundations of Project Special Tiara; calculating store earnings and completing this process was critical to Total Tools’ value to prospective buyers, and poor quality of information would be inadequate to support an IPO. There were also issues involving the calculation of GST on gift cards purchased by customers and on Total Tools’ loyalty points program, which meant that the business had overpaid on GST in a manner that had negatively impacted the quality of earnings of the business.

110    Mr Dumbrell’s investigations also revealed that the calculation of the franchise royalties had been overstated for a number of years, resulting in a significant overcharging of administration fees to franchisees and GST overpayments by the stores.

111    In February 2019, Mr Dumbrell attended a number of emergency board meetings for Total Tools. The purpose of the meetings was primarily to discuss whether the business would proceed with Project Special Tiara. At this time, the financial issues of which Mr Dumbrell had become aware were persisting and, despite the steps taken to try to fix them, Mr Dumbrell formed the view that Project Special Tiara had to be stopped. At these board meetings, Mr Dumbrell informed the Board that the cumulative effect of the multitude of financial, operational and strategic issues in the business over the course of late 2018 and early 2019, and the fundamental flaws in the design of Project Special Tiara itself, meant that the project had to be stopped.

112    On 21 February 2019, Mr Dumbrell attended two meetings for the purpose of announcing that Project Special Tiara had been paused. One meeting was with Total Tools’ shareholders, and the other was with Total Tools franchisees. The presentations given at each of these meetings provided an operational overview of Total Tools for the first half of financial year 2019 and summarised the issues identified in the business which supported the Boards’ decision to pause Project Special Tiara.

113    Mr Dumbrell’s evidence was that the shareholders and franchisees at these meetings were visibly aggrieved when the announcement was delivered. Project Special Tiara was meant to deliver a liquidity event that would generate a significant return on investment for the shareholders and franchisees. The decision to pause the project meant that this economic outcome would not be delivered to the shareholders and franchisees. Mr Dumbrell’s evidence was that the shareholders and franchisees’ disappointment was directed to all members of the Board, but especially to Mr Butler as the person who was the architect of Project Special Tiara.

114    Mr Dumbrell’s evidence was that, from May 2019, Total Tools met with Miles Advisory, a new strategic advisor, on several occasions to develop a proposal for a new liquidity event after the failure of Project Special Tiara. This new project was known as “Project Levels”.

115    Mr Dumbrell’s evidence was that the structure of the Project Levels transaction was fundamentally different from that of Project Special Tiara. Instead of Total Tools acquiring a 100% interest in the store network, the transaction used a joint venture structure whereby Total Tools would partner with the owners of certain stores (JV Stores) and acquire a 60% interest in each of those JV Stores, with put and call options enabling Total Tools to acquire the remaining 40% over subsequent years. The put conditions included that the franchisee had to be removed from the day-to-day operations of the business by the time the put option was exercised. This addressed one of the major problems that Mr Dumbrell had identified in the design of Project Special Tiara.

116    Mr Dumbrell also terminated Citi’s involvement with Total Tools.

117    Following the progression of Project Levels through 2019, a sale to Quadrant was confirmed in February 2020, with an expected close on 1 April 2020. However, in March 2020, Quadrant decided not to proceed with the transaction. Following the failure of the transaction with Quadrant, Miles Advisory re-engaged with Metcash on a proposed transaction structure.

118    On 26 July 2020, the SSA was executed with Mitre 10 (which, as mentioned above, is a wholly owned subsidiary of Metcash). The sale proceeded to completion on 1 September 2020. On the same day, Mr Dumbrell sent an email to the shareholders of Total Tools with an update announcing the completion. In that email, Mr Dumbrell stated:

It is with great pleasure that I can announce that we have just completed the Project Levels transaction with Metcash Limited.

…

Whilst Special Tiara didn’t go to plan, causing much pain within the business, it also highlighted several “hygiene” factors within the business which needed to be addressed if there was ever to be a successful sales process. This painful process was undertaken in early 2019. A clean slate, with a fresh approach from Tim Miles & Lloyd Way from Miles Advisory Partners we kicked off Project Levels in June last year.

The negotiation and signing of 17 Joint Ventures agreements and then ultimate successful signing of an agreement with Quadrant Private Equity in February we had thought that our direction was set. A global pandemic and global recession awaiting us, which ultimately put a line through our plans with shockwaves being experienced throughout financing markets.

…

The Board of Directors and Shareholders would have been forgiven to put their “cues in the rack” and not move forward with another sales process, but their commitment and sheer determination has to be acknowledged to support our strategy to go again.

…

(Original emphasis.)

119    Mr Dumbrell’s affidavit evidence was not the subject of cross-examination, such that his evidence concerning the reasons for Total Tools’ poor financial performance and operational difficulties which resulted in the pausing of Project Special Tiara was not the subject of challenge. I therefore accept Mr Dumbrell’s evidence as to such matters.

Mr Heath

120    Mr Heath affirmed three affidavits dated 13 March 2025, 16 June 2025 and 4 July 2025, all of which were read and tendered in evidence.

121    Mr Heath commenced as a non-executive director of Total Tools on 1 August 2016 and held that role until around September 2020. Mr Heath has worked in retail and consumer goods for over 30 years and has over 20 years’ professional experience in executive roles for retailing and consumer goods companies.

122    Mr Heath’s role as non-executive director at Total Tools involved preparing for and attending the Total Tools board meetings around once per month. Mr Heath also attended other key meetings, including the AGM of shareholders, shareholder update meetings and strategy days. Mr Heath was chairman of Total Tools’ Remuneration Committee from its establishment in July 2016 until around September 2020. The Remuneration Committee was an important part of the Board’s decision-making process in relation to director remuneration and the establishment and implementation of remuneration initiatives, including equity incentive schemes.

123    The Remuneration Committee oversaw Total Tools’ employee share scheme. Mr Heath deposed that, in January 2017, he and Mr Butler considered issuing employee class shares to Ms Nicole Bemelmans and Mr Anthony Cavanagh, and that the issue of any such employee class shares was to be conditional on continued employment, such that the shares would have to be sold back to the company if the employees were to leave the company. Mr Heath deposed that this was also a condition of the employee class shares that had been issued to the then CEO, Mr Cockayne. On 19 January 2017, Mr Heath emailed Mr Butler, Mr Jones and Mr Cockayne, attaching board papers which included a recommendation that Total Tools offer shares to Ms Bemelmans and Mr Cavanagh pursuant to the employee share scheme. On 24 January 2017, the Board agreed to proceed with the employee share scheme and the offer of shares to Ms Bemelmans and Mr Cavanagh, and agreed that it should be put to shareholders for a vote.

124    On 28 March 2017, at a general meeting of shareholders, the shareholders approved a resolution that: (i) Total Tools may issue up to an additional 100 Class A “other shares” to be allocated for the purpose of the “Employee Retention Incentive Scheme”; and (ii) 25 Class A “other shares” would be offered to each of Ms Bemelmans and Mr Cavanagh subject to their approval of a shareholders’ agreement (the Shareholders’ Agreement) and execution of a deed of accession.

125    In 2017 and 2018, Total Tools pursued Project Special Tiara. Mr Heath’s evidence was that Mr Butler was the key person driving the project and the initial discussions regarding a potential IPO. Mr Heath’s recollection was that the Board was considering a dual track process involving either an IPO or a trade sale to seek to maximise the value for shareholders.

126    Mr Heath said that his memory of the day-to-day work done on Project Special Tiara was limited; his primary focus was working on getting Total Tools’ governance in order in case Project Special Tiara led to an IPO and working on a strategy to grow the business by applying the experience he had gained at major retailers.

127    Mr Heath’s evidence was that, in 2018, there were Board-level discussions about a potential equity issue to Mr Butler and himself. The purpose of the proposal was to incentivise Mr Butler and Mr Heath to put in the work and the special exertion required to maximise shareholder value in a liquidity event. Mr Heath’s evidence was that he understood at the time that the forfeiture conditions of the share scheme would be aligned to the service conditions applicable to other employees at Total Tools.

128    On 26 May 2018, Mr Heath sent an email to Mr Butler containing a draft email to Mr Jones regarding the equity proposal. The draft sought Mr Butler’s thoughts on the draft email, which read as follows:

Further to our discussion on framing up an offer of equity to the Independent Directors (ID’s) Mike and myself, I offer up the following for your consideration.

•    Valuation of TTH at time of joining according to the valuation undertaken by the independent valuer was $17.2M on maintainable EBIT of $3.4M

•    The ID’s were appointed to assist the Board to maximise valuation and create a liquidity event for the shareholders that might otherwise might not be fully realised.

•    The ID’s will drive the sale process including preparing the governance frameworks required to achieve a listing on the ASX.

•    The proposed corporate structure is forecasted to deliver EBIT of circa $40 - $50M.

•    F’casted & desired valuation on sale to be circa $400M-$500M (F’casted improved value to shareholders on the mid point of $450M will be circa $430M.

•    Proposal would be to offer the ID’s (or entities related to the ID’s) to purchase 54 Ordinary Share each at the current valuation of $9,528 per share for total consideration of $238,200 each. The Company would provide a loan to each of the Directors under the terms of a Loan Agreement.

•    If the forecasted mid-point valuation is achieved on sale, each ID would benefit by approximately 1% of the increased value created.

129    Mr Heath subsequently sent the proposed email to Mr Jones, who responded on 28 May 2018 saying that he would “probably sit on this for a couple of weeks and then begin preparing a document for the shareholder directors to consider”.

130    On 17 June 2018, Mr Heath emailed to Mr Butler a draft board paper he had written regarding non-executive director equity for Mr Butler and himself. The draft board paper proposed shareholder resolutions in respect of employee class shares (rather than ordinary shares, as previously referred to in Mr Heath’s email extracted above). Mr Heath said that this was because he understood that in order to receive an employee class share, the person had to be an employee at the time the shares were issued (whereas the receipt of ordinary shares did not have that same requirement). Mr Heath said that this requirement was important, given the purpose of the proposed equity issue. Mr Heath said that, on the basis of precedent in the form of Mr Cockayne’s employee class shares and the buy back terms of his arrangement, it made sense to him that the same condition would apply to Mr Butler and himself. The draft board paper prepared by Mr Heath and sent to Mr Butler on 17 June 2018 appears to be, in effect, the same document which was later circulated by Mr Jones on 9 July 2018 and discussed in the context of Mr Butler’s evidence above.

131    Mr Heath deposed that, at a subsequent board meeting, the Board discussed and voted on Mr Butler receiving 30 shares and Mr Heath receiving 20 shares. Mr Heath stated that he thought that Mr Butler was to receive additional shares in recognition of his additional contribution to the project.

132    Mr Heath deposed that, following the Board passing resolutions to invite Mr Butler and himself to purchase shares subject to shareholder approval, he (Mr Heath) was responsible, in his capacity as chairman of the Remuneration Committee, for preparing the relevant shareholder resolutions.

133    Mr Heath sent a draft of the proposed resolution to Mr Butler and Mr Jones on 23 September 2018, stating that there was a need to retain flexibility. Mr Heath deposed that he thought this was important, given the uncertainty surrounding the ultimate sale structure or sale vehicle for Total Tools. The draft resolution prepared by Mr Heath is extracted in Mr Butler’s evidence above.

134    Mr Butler responded to Mr Heath on 27 September 2018 in an email that was not copied to Mr Jones. This email also did not form part of Mr Butler’s evidence in chief. The email proposed alternative language for the resolution and stated as follows:

I think that we should be putting forward a resolution along following lines:

TTH shareholders hereby RESOLVE to authorise the Board:

•    to create and allot to [Michael Butler/Stephen Heath] or parties related to them, at a time of the Board’s choosing, an equity based instrument in TTH or a successor entity; provided

•    the value of that equity based instrument shall be equivalent to the value attributed to [30/20] ordinary TTH shares (based on the number of issued TTH shares as at 30/9/2018) in any future IPO or trade sale of TTH; and

•    allotment of any such instrument is conditional upon the successful financial close of a trade sale of TTH or an IPO of TTH or a successor entity; and

•    disposal or dealing in the equity base instrument by [Michael Butler/Stephen Heath] in the event of an IPO is escrowed for two years from the date of listing of the company.

We don’t want to get tangled up in loans, share price, structures etc etc

…

135    On 27 September 2018, Mr Heath emailed Mr Callinan, copying Mr Butler and Mr Jones. The email proposed new language for the resolutions which effectively adopted the language proposed by Mr Butler in his email extracted above. Again, the detail of Mr Heath’s email has already been outlined in the context of Mr Butler’s evidence above.

136    On or around 9 October 2018, Mr Heath engaged Deloitte on behalf of the Board to give advice in relation to the proposed equity issue at the AGM in October 2018, so that the Board could consider that advice if shareholders approved the proposed resolutions. Mr Heath did not specifically recall attending the AGM on 24 October 2018.

137    On 25 October 2018, Mr Heath emailed Mr Butler and Mr McGuigan at Deloitte, confirming that the Shareholders’ Resolution was approved. On 26 November 2018, Mr McGuigan emailed Mr Callahan and Mr Heath (and others at Deloitte), attaching a draft template “Rights to Shares Agreement” and inviting discussion over the draft.

138    On 13 December 2018, Mr Heath emailed Mr McGuigan and Ms Sandra Buth at Deloitte, copying Mr Callahan and Mr Butler, with comments on the draft template Rights to Shares Agreement. One of Mr Heath’s comments was as follows: “I feel the preferred architecture would be to carry the Rights with a Service Condition”, by which comment Mr Heath said he meant that he and Mr Butler would need to have continuing tenure at Total Tools at the time of vesting of the shares.

139    On 31 January 2019, Mr Heath received a further draft template Rights to Shares Agreement from Deloitte. Mr Heath’s evidence was that he did not follow up this further draft template agreement or otherwise do anything more in relation to the proposed equity issue until later in 2019 because he was focused on addressing the issues that had arisen with Project Special Tiara.

140    In early 2019, emergency board meetings were held to discuss the issues that had arisen with Project Special Tiara. Ultimately, the Board resolved to pause Project Special Tiara and hold a shareholders’ meeting to inform the shareholders of the decision.

141    Mr Heath’s evidence was that, at the shareholders meeting in February 2019, Mr Butler told the shareholders that Project Special Tiara would be paused and the reason for the pause. Mr Heath said that, from his observation of the shareholders, they did not receive the decision well.

142    After the shareholders meeting in February 2019, Mr Heath formed the view that Mr Butler needed to resign. Mr Heath deposed that he did not think that Project Special Tiara failed due to Mr Butler’s management of the project but considered that his conduct at the meeting did not show good leadership and that his resignation would keep shareholders happy. Mr Heath said that, around this time, he also had telephone calls with other directors who told him that they thought Mr Butler should resign. Mr Heath had a conversation with Mr Butler in March 2019, in which he said to Mr Butler that Mr Butler did not have the Board’s support. Mr Heath said that Mr Butler stated that if his resignation would be best for the company, then he would resign.

143    On 7 May 2019, Mr Butler emailed Mr Heath and asked, “Did you ever receive your ‘equity instrument’ letter? Did you finalise wording with Deloitte/HSF?”.

144    On 8 May 2019, Mr Heath attended a board meeting. The minutes record that Mr Heath provided the following update:

In relation to Mike Butler’s query about any entitlement to the equity instrument which shareholders approved at the 2018 AGM but which had not been formally approved by the Board, directors NOTED their understanding that for any equity to vest (a) the capital event flagged in the AGM notice of meeting would have to occur and (b) Mr Butler would need to be employed by the Company at that time.

145    Mr Heath and Mr Butler had the following text message exchange on 8 May 2019:

MR HEATH: Mike, just back from Board dinner. I raised the intent of the equity for you and I and the feedback was that it was definitely contingent upon us being employed at the time of the transaction and effort related. That was the primary reason why you were allocated 30 shares and me 20. View of the Board was that you would have exerted the majority of effort to complete a transaction justifying the additional shares. I hope that helps. If you feel differently might be worth discussing with Warren, Ian and Geoff tomorrow night. I won’t be there as I need to be back in Sydney for a 8:00am Meeting the next morning.

MR BUTLER: What does the actual instrument say?

MR HEATH: … I haven’t had a chance to review yet. That being said the Board still need to approve the final draft anyway. I’ll let you know.

146    On 10 May 2019, Mr Heath sent the following email to Mr Butler:

Re: Equity Instrument

Having discussed the situation with the Board at the Meeting on Wednesday, Warren, Ian and Jeremy were all [very] clear that the spirit of the agreement with you and me was that the equity was offered on the basis of being employed and having completed (or substantively completed a transaction or until such time as the Board or the Independent Directors were no longer required as a result of the sale process or a phasing of the sale process).

They were able to illustrate this point through the proposed allocation of 30 shares to you v the 20 shares to me as this imbalance was presupposing the volume of work that you would complete v the volume that I would complete as part of the future sale process.

For the record, when Warren spoke to me about my shares I was never led to believe that I would be entitled to them unless a sale transpired and I was a Director at the time of a transaction that either completed the sale or substantively led to the sale. However I acknowledge that Warren spoke to you and I separately as a result of the decision to give you more shares so I am not alert to any verbal agreement that you may feel that you entered into with Warren (on behalf of the Board) subject to the completion and approval of written invitations.

Whilst the agreements are in draft until such time as they are approved by the Board, if you feel that the spirit of your verbal agreement with the Board, which is a separate agreement to mine, was that you should be entitled to the Rights over 30 shares regardless of the status of your employment, you should forward that request to me so that I can formally table it with the Board.

Let me know how you’d like to proceed.

147    On 28 May 2019, Mr Heath attended a board meeting. The minutes note that Mr Heath reported to the Board the contents of his email to Mr Butler on 10 May 2019:

Stephen Heath explained he had advised Mr Butler did not have a vested interest in any equity in the Company because Directors had not approved the allocation of equity, having been authorised to do so by shareholders at the AGM. He further noted that the draft offer terms required the employee (in this instance Butler) to be employed by the Company at the point a capital event was completed in order to have shares vest.

RESOLUTION OF ISSUES FOR DETERMINATION

148    The first issue for determination is the following:

Issue 1: Upon its proper construction, did the Shareholders’ Resolution bind Total Tools to create and allot to Mr Butler (or his nominee) 39,467 shares in Total Tools upon the successful financial close of a trade sale?

149    As noted above, Issue 1 has been broken down into five sub-issues.

150    In respect of Issue 1, Mr Butler, in effect, makes the following contentions:

(a)    on the proper construction of the Shareholders’ Resolution, the shareholders did not merely authorise the Board to issue Mr Butler an “equity based instrument” in its discretion but required it to issue shares upon the successful financial close of a trade sale;

(b)    the Shareholders’ Resolution “binds” Total Tools or is a “binding instrument”;

(c)    he is entitled to specific performance as against Total Tools because the TT Constitution operates as a contract between the members and the company, and the directors and the company, pursuant to s 140 of the Corporations Act 2001 (Cth) (the statutory contract) and cll 4.6 and 11.1(b)(v) of the TT Constitution; and

(d)    he is entitled to the issue of 1.29% of Total Tools’ issued shares as at 30 September 2018, being 39,467 ordinary shares on 1 September 2020.

Issue 1(a): As a matter of construction, did the Shareholders’ Resolution merely authorise, or did it require, the Board to act?

151    Mr Butler submits that the principles of proper corporate governance and an “application of the orthodox principles of interpretation, which require consideration of context and purpose” applied to commercial documents dictate a construction of the Shareholders’ Resolution which seeks to give effect to the members’ directions to the company, where the members were authorised to bind the company in the terms of that resolution: Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514 at 527 [18] (Kiefel CJ, Gageler, Nettle and Gordon JJ); Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at 116 [46]–[47] (French CJ, Nettle and Gordon JJ).

152    Mr Butler submits that those orthodox principles of interpretation require focus on the text of the resolution, read in the circumstances of the Explanatory Memorandum (which accompanied the proposed resolution), the TT Constitution and the extant Shareholders’ Agreement as at October 2018.

153    Mr Butler submits that Total Tools seeks to create a false binary, where the term “authorised” is framed as being in opposition to the term “require”. Rather, Mr Butler submits, “authorise” in the context of the Shareholders’ Resolution must mean “to give legal force to; to make legally valid”.

154    Mr Butler contends that the words “authorised to create and allot to Michael Butler or his nominee” cannot be understood as an authorisation of the shareholders for Total Tools to enter into an agreement to be negotiated with Mr Butler. Rather, the authorisation was to create and allot shares, a right to shares, or an option over shares. Mr Butler submits that the “commercial result”, which the directors of Total Tools can be inferred to have intended to produce by the recommendation that shareholders approve the resolution, was the ability for Total Tools to immediately issue shares to Mr Butler in the event of either a successful financial close of a trade sale or an IPO.

155    Mr Butler submits that Total Tools’ construction of the resolution, as not requiring or obliging Total Tools to do anything, renders the resolution meaningless. He contends that the construction is not supported by the text of the resolution and is contrary to commercial and corporate reality. Mr Butler also submits that Total Tools’ framing ignores the formal and commercial context in which the word “authorise” appears — namely, that the shareholders were voting to approve the issue of shares to Mr Butler if there was a trade sale or an IPO. In Mr Butler’s submission, to suggest that the shareholders were merely authorising the Board to do something (and not obligating Total Tools to issue shares if a trade sale or IPO occurred) is inconsistent with the purpose and object of the Shareholders’ Resolution.

156    Mr Butler contends that it would be inconsistent with good corporate governance to go to shareholders to seek permission for something that the Board has not decided to do in the future if a transaction occurred. He submits that legally meaningless resolutions passed by members in general meetings are undesirable and antithetical to good corporate governance. Mr Butler further contends that a resolution that never required Total Tools to do anything at all if there was a trade sale or IPO was of no benefit to Mr Butler and was inconsistent with the purpose of the Shareholders’ Resolution being to align the interests of Mr Butler and the shareholders.

157    I accept that the principles which govern the interpretation of commercial contracts provide a useful guide to the proper interpretation of the Shareholders’ Resolution, although there are some important points of emphasis that arise from the different intention, nature and effect of resolutions, as opposed to commercial contracts.

158    The principles for interpreting resolutions were explained in Griffiths v Martinez [2019] NSWSC 664 at [486]–[502] (Robb J). Those principles include recognising the informality and brevity of a resolution, giving effect to the clear meaning (when present) of the words of the resolution, considering the context and purpose of the resolution, and interpreting it with strictness to ensure that all parties with an interest in the matter agree on the single meaning and effect of the resolution. The observations of Beach J in Aveo Group Limited v State Street Australia Ltd [2015] FCA 1019 at [59]–[61] are also relevant.

Text and context

159    I accept Total Tools’ submission that the text of the Shareholders’ Resolution and the Explanatory Memorandum are inconsistent with anything but an authorisation of certain acts by the Board. The language deployed is not that of obligation. It is significant that the text of the Shareholders’ Resolution expressly uses the word “authorised”.

160    The non-mandatory or non-obligatory nature of the Shareholders’ Resolution is reinforced by the grant of: (i) a temporal discretion (“at a time of the Board’s choosing”); and (ii) a discretion as to the form of the chose in action granted (being “an equity-based instrument in the Company or a successor entity of the Company”), which, as Mr Butler himself pointed out in his email to Mr Heath on 28 September 2018, could be “performance rights, ZEPOs, options, shares etc” and was “highly likely not to be Ordinary Shares”.

161    The Shareholders’ Resolution also places limits on the Board’s discretion in relation to: (i) the value of the instrument; (ii) the requirement that there be a successful financial close of a trade sale or IPO; and (iii) the instrument provided to Mr Butler being escrowed for two years in the event of an IPO. I accept Total Tools’ submission that, properly construed, each is a restriction or limitation on the discretion otherwise conferred on the Board, rather than a condition precedent to an extant obligation or the only conditions the Board may impose.

162    The Explanatory Memorandum is wholly consistent with an authorisation that grants to the Board a discretion. The Explanatory Memorandum:

(1)    reiterates that, in view of the uncertainty of the dual track process of Project Special Tiara, “the Board is seeking approval from shareholders to have the discretion to allot an Equity Based instrument in either TTH or a successor entity … at a time determined by the Board subject to professional advice” (emphasis added); and

(2)    reinforces the breadth of the discretion and the need for further Board action to define any instrument and its terms by saying that Mr Butler and Mr Heath “are to be offered the equity based instrument”, which it expressly defines as follows: “For the purposes of this resolution, Equity-Based Instrument means either Shares, Options, Rights or any other derivative so advised and agreed by the Board”.

163    The role of the Explanatory Memorandum is also crucial to the context in which the Shareholders’ Resolution was put to shareholders. The information disclosed in the Explanatory Memorandum was necessary to enable members to judge for themselves whether to attend a meeting and vote for or against the proposal. It is apparent from the Board’s resolution dated 3 October 2018 that one purpose of the Shareholders’ Resolution was to obtain shareholders’ fully informed consent, with the Board resolving “THAT the Notice of AGM contains all information necessary for the Members to make an informed decision on the proposed resolutions set out in the Notice of AGM”. The proper construction of the Shareholders’ Resolution cannot be considered separately and must be read in light of the content of the Explanatory Memorandum.

Governance context

164    I accept Total Tools’ submission that the Shareholders’ Resolution was an internal procedural mechanism to authorise the Board to act in the future if appropriate and to ensure such action was lawful. It preserved to the Board flexibility as to the type of equity-based instrument it could issue and the time at which it could allot the equity-based instrument, and it facilitated the Board’s transactional readiness to grant such an instrument if thought appropriate.

Contrast to other resolutions

165    It is also relevant to note that, alongside the resolution regarding the issue of an equity instrument to Mr Butler and Mr Heath, a further resolution was passed to amend the Shareholders’ Agreement. The proposed resolution was as follows:

Amendment to Shareholders’ Agreement

All Members to consider, and if thought fit, pass the following by at least 75% majority of Members:

THAT the definition of “Independent Director” in clause 1.1 of the Shareholders’ Agreement of the Company be amended in accordance with clause 9.3 and item 4 of Schedule 3 of the Shareholders’ Agreement by removing the current definition and replacing it with the following definition:

“Independent Director means an individual appointed as a director of the Company purely on merit in accordance with clause 6.3(c) and who is not an executive of the Company or a director of a Shareholder that owns and operates a Total Tools retail store pursuant to a Total Tools Franchise Agreement”.

166    The Explanatory Memorandum provided the following:

If Michael Butler and Stephen Heath are to acquire shares in the Company, the definition of “Independent Director” in clause 1.1 of the Shareholders’ Agreement of the Company must be amended as set out in Resolution 2 in order to:

•    remove the requirement that an Independent Director must not be a shareholder of the Company; and

•    confirm that an Independent Director must not be a director of a Shareholder that owns and operates a Total Tools retail store.

167    I accept Total Tools’ submission that a comparison of the proposed resolution extracted above as against the Shareholders’ Resolution shows that the text of the former resolution made it clear that a decision of shareholders was being sought for something that was to occur (whereas the Shareholders’ Resolution sought authorisation for something to occur upon the exercise of the Board’s discretion).

The commercial purpose

168    The Explanatory Memorandum advised shareholders that the commercial purpose of the Shareholders’ Resolution was to incentivise Mr Butler and Mr Heath to work towards and achieve a liquidity event, relevantly as follows:

Maximum shareholder valuation creation most often occurs when true alignment exists between Shareholders, Board and Management and it is recognised that within the TTH structure, the Independent Directors, recruited to assist in the processes required to maximise shareholder wealth are non-shareholders.

…

Michael and Stephen were appointed to assist the Board in maximising shareholder value and to create a liquidity event for the Shareholders that might otherwise have not been achieved and they will drive the sale process including preparing the governance frameworks required to meet ASX Listing Rules and Recommendations.

(Emphasis added.)

169    The differing values of the equity-based instruments proposed to Mr Butler (30 shares) and Mr Heath (20 shares) reflected the expectation that Mr Butler would do more than Mr Heath to achieve a trade sale or IPO. That commercial purpose would be defeated if Total Tools was, by the Shareholders’ Resolution, bound to issue shares to Mr Butler and Mr Heath if a trade sale or IPO occurred, irrespective of their involvement.

170    On Mr Butler’s case, he would be entitled to the “equity-based instrument” if he had resigned the day after the Shareholders’ Resolution and Total Tools concluded a trade sale or an IPO any time thereafter. That demonstrates the commercial absurdity of the construction contended for by Mr Butler. It would, in effect, be a gift that diluted other shareholders for no reciprocal benefit.

171    I accept Total Tools’ submissions that materials beyond the Shareholders’ Resolution and Explanatory Memorandum are irrelevant to the questions of construction, since the shareholders were not all party to the prior or subsequent dealings, such that those dealings cannot logically bear on how a reasonable shareholder would understand the Shareholders’ Resolution.

172    For the reasons given above, the answer to Issue 1(a) is that, as a matter of construction, the Shareholders’ Resolution merely authorised the Board to exercise a discretion to act, which the resolution reserved to the Board.

Issue 1(b): Was the Shareholders’ Resolution made under clause 11.1(b)(v) of the TT Constitution?

173    The Shareholders’ Resolution put to members on 24 October 2018 was said to be “in accordance with clause 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement”.

174    Clause 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement provided as follows:

9.3 Decisions by Special Resolution

In addition to any matter stipulated herein or required by the Corporations Act 2001 (Cth), Special Resolution shall be required prior to the Company authorising or doing, or causing, suffering or permitting to be done any of the acts, matters or things specified in Schedule 3.

…

SCHEDULE 3

MATTERS FOR SPECIAL RESOLUTION

1.    Creating or issuing any shares (of any type or kind) or any other equity securities or securities with rights of conversion into equity securities or options over unissued shares in the Company.

175    Clause 4.2 of the Shareholders’ Agreement provided that, in the event of any inconsistency between it and the TT Constitution, the Shareholders’ Agreement prevailed and required the shareholders, in that circumstance, to do all things necessary to give effect to cl 4.2 of the Shareholders’ Agreement.

176    Therefore, the need to obtain shareholders’ approval via a special resolution under the Shareholders’ Agreement was one reason the resolution was put to shareholders.

177    The other reason was that the fully informed consent of shareholders to any conflict/gain and dilution of shareholders’ interests required the directors of Total Tools “to make a full and fair disclosure of all matters within their knowledge which would enable the members to make a properly informed judgment on the matters in question”: see Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94 at 96 (McClelland J), applying Bulfin v Bebarfald’s Ltd (1938) 38 SR (NSW) 423 at 440 (Long Innes CJ in Eq). As a consequence, the Board resolved on 3 October 2018 for the notice of AGM to contain all information necessary for members to make informed decisions about the proposed resolutions, and the Explanatory Memorandum noted that Mr Butler and Mr Heath had an interest in the outcome, while other directors had no interest in the outcome of the resolution (other than as existing shareholders).

178    Insofar as Mr Butler submitted that the Shareholders’ Resolution was not one which the members could make if all it sought to do was give an authorisation to the Board, I reject that submission. That a special resolution was required is plain in light of the terms of cl 9.3, item 1 of Schedule 3, and cl 4.2 of the Shareholders’ Agreement.

179    Under cl 11.1(a) of the TT Constitution, only the Board, not the members in a general meeting, may issue shares or any other equity interest in Total Tools. It was not for the members, even in a general meeting, to exercise powers reserved to the directors: John Shaw and Sons (Salford), Limited v Peter Shaw and John Shaw [1935] 2 KB 113 at 134 (Greer LJ); see also Kraus v JG Lloyd Pty Ltd [1965] VR 232 at 236–237 (Hudson J).

180    On Mr Butler’s construction of the Shareholders’ Resolution, in requiring or binding Total Tools to issue shares, not merely authorising it, the shareholders were doing something that they had no power to do. They were deciding to issue shares when that power was vested exclusively in the Board under the TT Constitution, subject to the permission of a special resolution being obtained under the Shareholders’ Agreement.

Clauses 4.6(a) and 11.1(b)(v) of the TT Constitution

181    To the extent there is any contention by Mr Butler that the Shareholders’ Resolution was a determination of remuneration under cl 4.6(a) of the TT Constitution (which deals with the remuneration of directors), it is factually and legally wrong. The Shareholders’ Resolution was not put to shareholders on that basis. Rather, the Shareholders’ Resolution refers expressly to, and only to, being put on the basis of cl 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement. There is no evidence which suggests that the shareholders ever considered, or had raised for their consideration at the AGM on 24 October 2018, cl 4.6(a) of the TT Constitution.

182    Clause 11.1(b) of the TT Constitution deals with pre-emption rights for existing members on the issue of shares. Clause 11.1(b)(v) provides that members, by resolution in general meeting, may authorise the Board to make a particular issue of shares without complying with the requirements as to pre-emption rights under cll 11.1(b)(i)–(iv). In Mr Butler’s closing submissions, he submitted that the Shareholders’ Resolution should be construed having regard to the powers allocated to shareholders in a general meeting under the TT Constitution, which includes cl 11.1(b)(v). He contended that, in the circumstances, the question of whether the Shareholders’ Resolution can be said to have been made “under” a particular clause of the TT Constitution is not a meaningful question as it is sufficient that the proper construction of the Shareholders’ Resolution is consistent with the context of the TT Constitution and the Shareholders’ Agreement.

183    The evidence establishes that cl 11.1(b)(v) of the TT Constitution was not put to shareholders at the AGM on 24 October 2018. It was not mentioned in either the Shareholders’ Resolution or the Explanatory Memorandum, the former only referring expressly to cl 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement. That was the resolution that was put to shareholders. Additionally, I accept Total Tools’ submission that there was no need to address the pre-emptive rights at the time of the Shareholders’ Resolution. Indeed, the issue of pre-emptive rights may not have arisen at all if a new class of shares or a different type of equity was ultimately issued.

184    For the reasons given, the answer to Issue 1(b) is that the Shareholders’ Resolution was not made under cll 4.6(a) or 11.1(b)(v) of the TT Constitution. The resolution was put to shareholders because cl 9.3 and item 1 of Schedule 3 of the Shareholders’ Agreement, which prevails over the TT Constitution, required a special resolution to authorise or permit the issue of various forms of equity instruments.

Issue 1(c): In any event, can Mr Butler enforce the provisions of the TT Constitution or the Shareholders’ Resolution itself?

185    Mr Butler submits that he is plainly privy to the terms of his retainer with Total Tools, including the terms of his remuneration. Furthermore, Mr Butler submits that he was a party to the TT Constitution when the Shareholders’ Resolution was made, including by operation of s 140(1) of the Corporations Act, which relevantly provides that a company’s constitution has effect as a contract between the company and each director, under which each person agrees to observe and perform the constitution so far as it applies to that person.

186    It is well established that the statutory contract does not confer any rights on outsiders, that is, on those who are not members or, since 1985, officers of a company.

187    In Marketing Advisory Services (MAS) v Football Tasmania Ltd [2002] FCAFC 165; (2002) 42 ACSR 128 at 129–130 [3]–[4] and 136 [36]–[37], Sackville, Kenny and Allsop JJ held that an outsider could not enforce the constitution of a company (which provided for it to assume the liabilities of a predecessor entity) and that the result could only be achieved if there was another independent legal basis by which liability was incurred. A resolution under a statutory contract (such as a constitution) can confer no greater right than the statutory contract itself.

188    Mr Butler was a director of Total Tools, but he resigned on 1 April 2019. Mr Butler is presently a stranger to Total Tools. As a stranger to the contract (i.e. the TT Constitution), statutory or otherwise, Mr Butler cannot enforce it by specific performance or otherwise, for want of privity.

189    In Clarence City Council v Commonwealth (2020) 280 FCR 265, Jagot, Kerr and Anderson JJ, having examined the general rule that a non-party may not sue or be sued on or upon a contract, said the following at 298 [90]:

The restriction on a third party from suing “on” or “upon” a contract under the general rule [of privity of contract] … refers to the direct enforcement of obligations arising under the contract pursuant to a right of action derived from that contractual relationship. The “enforcement” of such obligations for these purposes entails that the enforcer will obtain a judgment capable of being judicially enforced by execution, which is otherwise known as an “executory judgment”. …

190    The High Court upheld the Full Court decision in Clarence in Hobart International Airport Pty Ltd v Clarence City Council (2022) 276 CLR 519, where Gageler and Gleeson JJ said the following at 553 [71]:

The doctrines of privity and consideration will ordinarily prevent a person who is not a party to a contract being able to establish standing to seek a declaration about the content of a contractual obligation on the basis of a legal interest. …

191    In Community and Public Sector Union v UniSuper Ltd (2020) 64 VR 108, Delaney J applied the doctrine of privity, as explained in Clarence, to a corporate constitution. His Honour held that there was no principled distinction between a private contract and a statutory contract as regards the issue of standing, and concluded as follows at 126:

[63]    Ordinarily, proceedings involving a question of the proper construction of the constitution of a company would be brought by a member of the company or by one of its directors, and not by a stranger to its constitution. Section 140(1) of the Corporations Act 2001 (Cth) creates a deemed contract for the benefit only of the company and its members. In addition, officers of the company, as well as members can be bound to the company and have rights against it under the deemed contract. However, s 140(1) denies enforcement rights to outsiders.

[64]    The defendants did not identify any authority that dealt specifically with the distinction between private contracts and the s 140(1) statutory contract in support of the proposition that a different approach should be adopted to the question of third party standing where declaratory and other relief is sought. The cases upon which the defendants placed reliance, do not advance the position.

[65]     I do not consider the difference in the two types of contract provides a reason to distinguish between or to diverge from the approach to standing adopted by the Full Court in Clarence. Both forms of contract preclude outsiders from bringing enforcement claims. In the case of a private contract, to permit such claims would be to engage the doctrine of privity. In the case of s 140(1) of the Corporations Act 2001 (Cth) it would be to permit an outsider to the statutory contract to seek enforcement when the statute does not permit it. …

(Citations omitted.)

192    Mr Butler’s claim seeks to enforce directly the Shareholders’ Resolution, to which he is not, and has never been, a party. Mr Butler seeks an order that Total Tools issue shares to him on specified terms, which he says reflects the effect of the Shareholders’ Resolution. I accept Total Tools’ submission that, irrespective of the proper construction of the Shareholders’ Resolution, Mr Butler’s claim to enforce it must fail because he is an outsider. In any event, the Shareholders’ Resolution is not, and it has not been suggested to be, a contract. As stated, the Shareholders’ Resolution could give Mr Butler no greater rights than those provided by the TT Constitution under which the resolution was made.

193    The analysis is the same if Mr Butler seeks to reframe his claim as one to enforce the TT Constitution. Mr Butler has not identified any obligation in the TT Constitution that Total Tools has breached or must perform. I accept Total Tools’ submission that Mr Butler is no longer party to the statutory contract and, as an outsider, cannot sue upon the TT Constitution.

194    For the reasons given, the answer to Issue 1(c) is that Mr Butler is a stranger and may not enforce the statutory contract (being the TT Constitution) or the Shareholders’ Resolution. Therefore, even if Mr Butler had succeeded on Issues 1(a)–(b), his claim would have failed for this independent reason.

Remaining issues

195    As I have determined the answers to Issues 1(a), (b) and (c) against Mr Butler, his claim must fail. It is unnecessary to determine the answer to each of the remaining issues.

DISPOSITION

196    The proceeding will be dismissed. Mr Butler will pay Total Tools’ costs of the proceeding as agreed or as assessed.

Associate:

Dated:    9 October 2025