BBHF Pty Ltd v Sleeping Duck Pty Ltd - [2024] VSC 320

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2021 04359

BBHF PTY LTD	Plaintiff
v
SLEEPING DUCK PTY LTD & ORS (according to the Schedule)	Defendants

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JUDGE:	DELANY J
WHERE HELD:	Melbourne
DATE OF HEARING:	16-19 October 2023, 23-27 October 2023, 30 October-1 November 2023 and 30 November 2023
DATE OF JUDGMENT:	14 June 2024
CASE MAY BE CITED AS:	BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2024] VSC 320

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CORPORATIONS – Oppression proceeding – Turns on its facts – Allegations agreements and understandings made and not honoured – Legitimate expectations not fulfilled – Exclusion from management – Commercial unfairness to be assessed objectively and in context – Allegations not made out – Proceeding dismissed – Corporations Act 2001 (Cth) ss 232, 233 – Re SRW Nominees Pty Ltd [2019] VSC 547 applied; Skytraders Pty Ltd [2022] VSC 416 P/C – Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 288 ALR 310 [171], Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 683 [59], Re AJ Roberts Removals & Storage Pty Ltd [2017] NSWSC 1054 referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Borsky KC with Mr C Moller SC and Mr D Porteous	Corrs Chambers Westgarth
For the Second and Third Defendant	Mr J Peters KC with Mr N Walter	Clayton Utz
For the Fourth Defendant	Mr G Mukherji	Strongman & Crouch

TABLE OF CONTENTS

A.. Overview........................................................................................................................................ 1

B.. Oppression: the legislation and the principles.................................................................... 14

C.. The trial, the pleadings and the list of issues....................................................................... 20

D.. The witnesses.............................................................................................................................. 25

Dr Shiffman........................................................................................................................ 27
Mr Curry............................................................................................................................. 28
Mr Paluch............................................................................................................................ 28
Mr Sinnappan..................................................................................................................... 29
Mr Wijeyeratne.................................................................................................................. 31
Mr Bandopadhayay........................................................................................................... 32

E... The chronology........................................................................................................................... 33

E1.... The first issue: Initial negotiations (October 2017 to January 2018)........................... 33
E1.1.... The pleadings......................................................................................................... 33
E1.2.... The evidence and findings................................................................................... 33

E2.... Issues 2 and 3(a)-(b): the common understanding reached on 1 February 2018...... 40
E2.1.... The pleadings......................................................................................................... 40
E2.2.... The evidence and findings................................................................................... 42

E3.... Issue 3(c): the role of Dr Shiffman between 1 February 2018 – 19 June 2019............ 46
E3.1.... The pleadings......................................................................................................... 46
E3.2.... The evidence and findings: 1 February 2018 — 30 June 2018......................... 47
E3.3.... The evidence and findings: 30 June 2018 – February 2019.............................. 52
E3.4.... February/ March 2019 agreement for Mr Bandopadhayay to receive 10% of Sleeping Duck......................................................................................................................... 57
E3.5.... March 2019 meeting Dr Shiffman and the Founders....................................... 59
E3.6.... March – 18 June 2019............................................................................................. 62
E3.7.... The alleged 19 June 2019 meeting....................................................................... 66
E3.8.... 21 June 2019 – 30 June 2019.................................................................................. 67

E4.... Issues 4 and 5: the June/July 2019 common understanding....................................... 68
E4.1.... Pleadings................................................................................................................. 68
E4.2.... The evidence and findings................................................................................... 71

E5.... Issues 6 and 7: the early 2020 common understanding............................................... 75
E5.1.... The pleadings and the submissions.................................................................... 75
E5.2.... The evidence and findings................................................................................... 76

E6.... Issues 8-13: The issuing of share options to Mr Bandopadhayay.............................. 80
E6.1.... The Pleadings......................................................................................................... 80
E6.1.1. BBHF’s Opening.................................................................................................... 81
E6.2.... The evidence: 29 January 2020–31 December 2020........................................... 81
E6.3.... 20 October 2020 – 31 December 2020.................................................................. 94
E6.4.... Submissions concerning issues 8-13................................................................. 103
E6.5.... Findings concerning issues 8-13........................................................................ 105

E7.... Issues 14-16: the alleged 2 July 2020 common understanding, the SHA and the Call Option Deed................................................................................................................................... 111
E7.1.... Pleadings............................................................................................................... 111
E7.2.... Evidence and findings........................................................................................ 111
E7.3.... Findings................................................................................................................. 117

E8.... Issue 17: the first exercise of Mr Bandopadhayay’s options in April 2021............. 119
E8.1.... Agreed Facts......................................................................................................... 119
E8.2.... The Pleadings....................................................................................................... 119
E8.3.... The Call Option Deed......................................................................................... 121
E8.4.... Evidence relevant to issue 17............................................................................. 123
E8.5.... Findings concerning issue 17............................................................................. 136

E9.... Issues 18-19: the alleged exclusion of Dr Shiffman from November 2020.............. 141
E9.1.... Pleadings............................................................................................................... 141
E9.2.... The evidence and findings................................................................................. 142

E10.. Issues 20-21: the 5 May 2021 meeting, the alleged Exit Agreement and its alleged breach............................................................................................................................................ 151
E10.1.. The Pleadings....................................................................................................... 151
E10.2.. The 5 May 2021 meeting..................................................................................... 153
E10.3.. Evidence concerning the breach allegations.................................................... 162
E10.4.. Findings concerning the Exit Agreement and the Transition Passivity Agreement................................................................................................................................ 174
E10.5.. Findings concerning alleged breach................................................................. 175

E11.. Issue 22: the September 2021 exercise of Mr Bandopadhayay’s options................. 178
E11.1.. The Facts............................................................................................................... 178
E11.2.. The Pleadings....................................................................................................... 179
E11.3.. The Evidence........................................................................................................ 179
E11.4.. Findings concerning issue 22............................................................................. 181

E12.. Issues 23-26: the Call Option Deed and the draft SHA.............................................. 181
E12.1.. The Pleadings....................................................................................................... 182
E12.2.. The Evidence........................................................................................................ 183
E12.3.. Submissions.......................................................................................................... 187
E12.4.. Findings................................................................................................................. 188

E13.. Events during 2022.......................................................................................................... 191
E13.1.. Submissions by BBHF......................................................................................... 191
E13.2.. Mr Curry............................................................................................................... 191
E13.3.. Mr Bandopadhayay’s remuneration................................................................. 193
E13.4.. The US expansion and Financial Performance................................................ 194
E13.5.. Forty Winks.......................................................................................................... 197

E14.. 2023 Settlement Offers.................................................................................................... 200
E14.1.. March 2023 Settlement Offer and submissions............................................... 202
E14.2.. Settlement Offers: October 2023-November 2023........................................... 204
E14.3.. Findings concerning 2023 settlement offers.................................................... 208

E15.. Oppressive conduct alleged but not pleaded.............................................................. 209
E15.1.. Section 260A Corporations Act.......................................................................... 209
E15.2.. Preventing BBHF from realising the value of its investment (from 2020 to date) 210
E15.3.. October 2023 proposals....................................................................................... 211

F... Issue 27: Was there oppression?............................................................................................ 211

G.. Expert evidence of value......................................................................................................... 217

G1.... Standard of value............................................................................................................. 218
G2.... Maintainable EBITDA and the FY22 budget............................................................... 221
G3.... 10 October 2023 BBHF offer........................................................................................... 224

H.. Disposition................................................................................................................................ 224

HIS HONOUR:

A. Overview

Sleeping Duck Pty Ltd (‘Sleeping Duck’) was founded in 2014 by Selvam Sinnappan and Winston Wijeyeratne (‘the Founders’). The Founders are university graduates who have been friends for a number of years. Mr Sinnappan graduated in 2009 with degrees in commerce and engineering. Mr Wijeyeratne undertook a double degree in aerospace engineering and commerce between 2006 and 2010. The Founders combined at Sleeping Duck to apply their qualifications in engineering and commerce to mattress design and manufacture. Mr Wijeyeratne adopted primary responsibility for product and Mr Sinnappan filled the role of CEO.

After a somewhat rocky start, including a failed expansion into the United Kingdom, in more recent times the Sleeping Duck business has been very successful. In December 2018, the Sleeping Duck mattress was announced as Choice’s top-rated mattress. Sleeping Duck took out the same award in 2019 and 2020. The Sleeping Duck product offering has since expanded to include beds.
By March 2020 when the first COVID-19 lockdown began in Victoria, Sleeping Duck was a successful business, manufacturing and selling mattresses online. During the period of COVID‑19 restrictions, the business enjoyed rapid growth.
The Founders are the sole directors of Sleeping Duck. The second defendant, Energon Shield Pty Ltd, a company associated with Mr Wijeyeratne, and the third defendant S2 Ulysses Pty Ltd, a company associated with Mr Sinnappan, held 50% of the shares in Sleeping Duck from its incorporation (‘the Companies’). Through the Companies, each of the Founders currently hold 42.5% of the issued shares in Sleeping Duck.
The plaintiff, BBHF Pty Ltd (‘BBHF’), is a company associated with Dr Adir Shiffman. Dr Shiffman first came in contact with the Founders in late 2017. Dr Shiffman is a qualified medical doctor. He completed his degree in medicine in 1999. He has not practised medicine since mid-2001. Dr Shiffman describes himself as a ‘serial entrepreneur’ and an active investor with a track record of investing in start-up businesses and helping them grow. In 2017, after conducting research into online mattress businesses, Dr Shiffman sought out the Founders.
BBHF’s case is that while by 2017 the Founders had developed a good product, Sleeping Duck was struggling to gain market traction and to grow revenue. It was unable to generate $5m in revenue. It had gone through a dozen marketing agencies with no success. Staff had been retrenched. The Founders were trying to raise finance but could not interest investors. BBHF alleges the Founders had relatively little experience in running a business. They were looking not only for investors, they were looking for a mentor to guide them and the business. Enter Dr Shiffman. BBHF alleges from the outset, Dr Shiffman was clear he was ‘never a passive investor, not my style’.
BBFH does not contend Dr Shiffman was to ever be given ultimate control. It does not submit that Dr Shiffman was an equal partner whether in terms of equity promised or the extent of management influence and control.
BBHF alleges a common understanding between the Founders and Dr Shiffman, reached on 1 February 2018, affirmed in June/July 2019, that Dr Shiffman would have active involvement in management. It alleges by reason of the Understanding on shareholders agreement reached in July 2020, that Dr Shiffman held a legitimate expectation that any shareholder agreement (‘SHA’) entered into by Sleeping Duck would provide BBHF with the right to appoint a director to the board and that director would have an effective veto on any resolution concerning the business of Sleeping Duck.
It is common ground that in early 2018 Dr Shiffman reached an agreement with the Founders that in return for 10 months work he would receive 5% of the Founders’ shares in Sleeping Duck, shares held via the Companies, together with an option to acquire a further 5%. In June 2020, the Companies agreed to grant additional options over certain of their shares to BBHF, beyond the initial 5% with 5% options. That agreement was later documented in a call option deed between BBHF, the Companies and Sleeping Duck dated 14 April 2021 (‘Call Option Deed’).
From July 2019 until the end of September 2021, a company nominated by Dr Shiffman, Alia Group Pty Ltd, was paid $10,000 per month for his services.
There were other agreements or understandings between Dr Shiffman and the Founders concerning his involvement with Sleeping Duck. Some of those agreements or understandings and their terms are contentious.
BBHF currently holds 9.4% of the shares in Sleeping Duck. In addition, pursuant to clause 2.1 of the Call Option Deed, BBHF holds options to acquire a further 10,000 shares from the Companies.
Opening its case, BBHF submitted Dr Shiffman helped turn a struggling business into a successful one and that he did so via an active involvement in its management. Sleeping Duck grew from a loss-making ‘amateurish’ outfit to become profitable. After Dr Shiffman became involved, the business became successful with revenue close to $50m, valued at $462m and paying more than $20m in dividends between July 2020 and September 2021, all in a little under three years. Between June 2020 and October 2021 BBHF received approximately $2,143,311 in dividends.
BBHF alleges that despite Dr Shiffman’s role at Sleeping Duck and his contribution to the turnaround of its fortunes, from October 2020, the Founders began to exclude him from management. BBHF alleges that from about that time, Sleeping Duck’s success began to wane.
At a meeting in May 2021 with the Founders (‘5 May 2021 meeting’), Dr Shiffman put forward three alternatives for the future. The first alternative was agreed, although what that alternative entailed was very much in issue at the trial.
BBHF alleges that at the 5 May 2021 meeting Dr Shiffman told the Founders they had shut him out of the decision-making process at Sleeping Duck, and their recent initiatives, implemented without his input, had put the business on a course of decline. It alleges the Founders agreed they would take steps to enable BBHF to sell down at least part of its stake and Dr Shiffman would ’go passive’ (defined by BBHF as ‘the Exit Agreement’). While the Exit Agreement involved Dr Shiffman ‘going passive’, BBHF alleges that was only to occur if there was a ‘transaction’, a substantial sell-down of equity.
Between late 2020 and late 2021 there were various proposals from third parties for the purchase of shares in Sleeping Duck. The proposals received in the early part of that time period implied a market value of Sleeping Duck at between $325m and $400m.
BBHF alleges Dr Shiffman worked with others to secure a ‘transaction’. However, none of the transactions presented were taken up by the Founders. That is so even though Dr Shiffman considered at least some of the proposals favourable, in particular, and a CPE Capital Offer in October 2021, the rejection of which by the Founders BBHF contends to have been unreasonable.
None of BBHF’s shares or options have been sold down. BBHF alleges that from October 2021 the Founders insisted Dr Shiffman take a passive role without allowing him to sell down any of BBHF’s shares or options and that the Founders and the Companies have refused to buy out BBHF’s interest.
The relationship between Dr Shiffman and the Founders has deteriorated. While the timing of the deterioration in the relationship is difficult to pinpoint, on 19 November 2021, Dr Shiffman initiated this proceeding through BBHF, against Sleeping Duck, the Companies and the fourth defendant, Prateek Bandopadhayay.

Of critical importance to BBHF’s oppression case is the allegation that the Founders diluted BBHF’s shares by issuing new shares to Mr Bandopadhayay pursuant to an employee share option plan (‘ESOP’) dated 30 June 2020. BBHF alleges matters came to a head in May 2021. While the Companies agreed to grant options to BBHF over their shares, the ESOP provided for the issue of shares by Sleeping Duck. By May 2021, BBHF’s shareholding had been reduced from 10% to 9.09% as a result of the exercise by Mr Bandopadhayay of 3,000 of his options under the ESOP.
Like Dr Shiffman, Mr Bandopadhayay trained and worked as a medical doctor. In 2003 he completed his initial degree, a combined Bachelor of Medicine/Bachelor of Surgery and Bachelor of Laws. Later he completed a Master of Laws and a Fellowship of the Royal Australian College of General Practitioners. Mr Bandopadhayay maintains his medical registration by ‘working alongside other medical practitioners, and assisting surgical colleagues’.[1]
[1]Transcript of hearing on 16-19 October 2023, 23-27 October 2023, 30 October-1 November 2023 and 30 November 2023 in BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors (‘Transcript’), 1324.
Mr Bandopadhayay has been a hobbyist writer since his high school years and from around 2009 worked as a screenwriter and trainee director, including on the latest ‘Mad Max’ movie. From early 2019 Mr Bandopadhayay took on a substantive role at Sleeping Duck, a role he variously described as head of narrative, head of creative and head of marketing. He provides his services through a company, PTB Services Pty Ltd. Since 1 July 2022 Mr Bandopadhayay has provided his services in return for remuneration of $1.2m per year.
Mr Bandopadhayay holds 5.6% of the issued shares in Sleeping Duck. He acquired 6,000 shares in total pursuant to the 30 June 2020 ESOP. When Mr Bandopadhayay exercised his options, 3,000 in April 2021 and 3,000 in September 2021, funding to enable him to do so was provided via entities controlled by the Founders and their families in the form of long term interest free loans. $1.35m was lent in April 2021 and $1.35m was lent in September 2021. Mr Bandopadhayay also received dividends. In April 2021 he received dividends of $436,892.20 and on 9 September 2021 he received dividends of $360,000. Mr Bandopadhayay holds a further 4,000 options which vested under the ESOP on 30 June 2022. He has not exercised those options.
The exercise of options given to Mr Bandopadhayay pursuant to the ESOP has the effect of diluting BBHF’s interest in Sleeping Duck. BBHF allege the ESOP was entered into without Dr Shiffman’s knowledge and that its terms were commercially unreasonable. BBHF alleges the Founders acted in concert with Mr Bandopadhayay in April and September 2021 to enable him to exercise the options, making him a shareholder unbeknownst to Dr Shiffman and that the Founders did so for the purposes of prejudicing BBHF’s rights and entitlements under the Call Option Deed.
BBHF alleges the timing of arrangements in favour of Mr Bandopadhayay was significant because while the Call Option Deed imposes a duty of good faith in relation to a SHA, Mr Bandopadhayay, who is a shareholder, is not a party to the Call Option Deed. Dr Shiffman understood that shareholder agreement would be a condition to exercise of the options granted in BBHF’s favour by the Companies, but what was kept secret from him was that there was a third shareholder, Mr Bandopadhayay. He did not know that Mr Bandopadhayay’s agreement would also be required in order for BBHF to be able to exercise its options.
Mr Bandopadhayay was separately represented throughout the trial. In closing submissions it became clear BBHF no longer seeks any relief against him.
Through BBHF, Dr Shiffman contends he has been shut out from active participation in the business. No SHA has been agreed. BBHF alleges the draft SHA provided in December 2021, if signed, would mean it would not have an entitlement to appoint a director and Dr Shiffman would be excluded from playing any role in the management or strategic direction of Sleeping Duck, BBHF would have its rights under the Call Option Deed extinguished. BBHF alleges the Companies refused to mediate to resolve the dispute concerning the SHA and that it has been locked in as a minority shareholder.
In its capacity as a minority shareholder BBHF alleges the conduct of the affairs of Sleeping Duck has been oppressive, unfairly prejudicial and/or unfairly discriminatory to it within the meaning of s 232 of the Corporations Act 2001 (Cth) (‘the Act’).
The allegedly oppressive conduct is pleaded at paragraph 75 of the 18 February 2022 statement of claim. The matters complained of are cross-referenced to other paragraphs in the pleading. Inserting dates and brief descriptions in lieu of those cross-references, the conduct relied on by BBHF in support of its oppression claim is pleaded as follows:
a.Entering into the ESOP and/or granting the Bandopadhayay Options on uncommercial terms [on 29 June 2020 the value of an ordinary share was substantially more than $450. The options were granted to an independent consultant to subscribe for 10% of the issued capital which was itself uncommercial and unreasonable. The retrospective vesting of shareholdings was contrary to the terms of other share plans Sleeping Duck had entered into with other employees]; and/or
b.Acting in concert with the Founders and Bandopadhayay to the detriment of BBHF in respect to the exercise of the Bandopadhayay Options and entry into the Call Option Deed [dated 14 April 2021 at around the same date [on around 14 April 2021, the Founders provided a loan of $1.35 million for the purposes of Mr Bandopadhayay exercising 3000 options, and Sleeping Duck paid a dividend to shareholders including in respect of the 3000 shares of $145.63 for each share at the same time the options were being exercised]; and/or
c.Excluding Dr Shiffman from his role in the management of the Company contrary to the terms of the Second Understanding on Participation [reached on or around 19 June 2019], alternatively the Understanding on Sell Down [arrived at in around early 2020] and/or
d.Breaching the terms of the Exit Agreement [made in or around late May 2021]; and/or
e.Acting in concert with the Founders and Bandopadhayay to the detriment of BBHF in respect to the exercise of the Bandopadhayay Options [in September 2021, the Founders provided a loan of $1.35 million for the purposes of Mr Bandopadhayay exercising 3000 options, and Sleeping Duck paid a dividend to shareholders including in respect of the 3000 shares of $60 for each share at the same time the options were being exercised]; and/or
f.Refusing to participate in a mediation to negotiate the dispute concerning the draft Shareholders Agreement [dated 2 December 2021]; and/or
g.Breaching the terms of the Call Option Deed [dated 14 April 2021] in respect to the Shareholders Agreement [by failing to act in good faith when negotiating the terms of the Shareholders Agreement first provided by the company in draft on 2 December 2021 in purported compliance with the Call Option Deed].
In its opening, BBHF grouped the seven pleaded matters under three topic headings:
(a)the exclusion of Dr Shiffman from involvement in management;
(b)the issue of options and shares to Mr Bandopadhayay;
(c)breaches of the Call Option Deed.
In light of the way issues developed at trial, to these topics may be added a fourth, the alleged breaches of the May 2021 Exit Agreement, pleaded at paragraph 75(d) of the statement of claim.
In the course of the trial and in closing submissions, additional issues were raised and contended for by BBHF some of which do not form part of the pleaded case. At no time was there an application by any party to amend the pleadings. The disputed issues and whether or not there has been oppression are to be determined on the pleadings.
Concerning the first of the three key topics grouped together by BBHF, while not alleged to be a director, the first topic of concern is Dr Shiffman’s exclusion from ‘involvement in management’. BBHF submits Dr Shiffman’s contribution to management and to Sleeping Duck was valuable. Contemporaneous documents evidence his involvement in the business across a range of spheres — commercial strategy work, introducing financial controls and performance management, recruitment of new staff to key management roles, the introduction of commercial partners, sale and website performance analysis, organising and attending de facto board meetings (referred to as board meetings). It submitted Dr Shiffman’s value to the business went beyond those specific tasks. The Founders went looking for someone like Dr Shiffman to join them because they recognised they lacked extensive experience. They benefitted from Dr Shiffman’s guidance and work, and from leveraging his brand and reputation to give the business a mark of professionalism.
Although referred to in external investor presentations from late 2020 through to late 2021 as the ’Chairman’, Dr Shiffman is not and never has been a director of Sleeping Duck. At times it suited both the Founders and Dr Shiffman to portray him as ‘the Chairman’ or non-executive Chairman to potential investors.
However Dr Shiffman might have been portrayed, including as one of the Sleeping Duck ‘core team’, it would not take a potential investor more than a few minutes and a company search to appreciate that Dr Shiffman was not, and had never been, a director.
In a 2017 post on his LinkedIn account Dr Shiffman described a reference to him acting as ‘chair’ of another company not as a reference to acting as a chair of a board of directors in a formal or traditional sense. Instead, ’chair’ was a reference to him associating his name with a start-up, setting the overall strategy of the business in a holistic and sophisticated way, and being involved at an operational level, for example, identifying unit economics and margins for scaling and profitability.
BBHF alleges despite the success of the business, from late 2020 the Founders began to exclude Dr Shiffman from management. At the same time as they were excluding Dr Shiffman the Founders were not allowing him to realise his investment. BBHF submits that following Dr Shiffman’s exclusion and the frustration of his ability to realise the value of that investment the performance and value of business declined markedly.
Concerning the second topic as grouped together by BBHF, three of the seven matters pleaded in paragraph 75 concern the options granted in favour of Mr Bandopadhayay.
BBHF submits Dr Shiffman’s value to the business was recognised by the Founders who made agreements that led to the issue of shares and option rights to a 20% equity or to 20,000 shares in Sleeping Duck from the Companies in favour of BBHF. Some of the work Dr Shiffman did from late 2018 to mid-2019 was on trust that the Founders would ‘do the right thing’ and look after him. Dr Shiffman’s performance of that work without an agreed basis for remuneration until late June/early July 2019 is relied on by BBHF as confirmation that Dr Shiffman was effectively acting as a minority partner, prepared to do what was needed on trust.
BBHF submits Dr Shiffman was materially prejudiced by what it alleges was the secret arrangement for Mr Bandopadhayay to acquire shares. The documentary evidence shows the substance and commercial reality of the arrangement was that funds from Sleeping Duck were used to assist Mr Bandopadhayay to acquire shares. There were a series of loan agreements and what was described by Mr Curry, the Sleeping Duck CFO, as a ‘merry go round’ of funds. Although no contravention of s 260A of the Act was pleaded, BBHF submits what occurred involved Sleeping Duck’s funds being deployed to assist Mr Bandopadhayay to acquire shares.
Concerning the third topic as grouped together by BBHF, it alleges the Companies controlled by the Founders failed to act in good faith when negotiating the terms of the SHA and, because of that, breached the terms of the 14 April 2021 Call Option Deed. Clause 2.12(b) of the Call Option Deed provided that if a ’Partial Sell Down’ or a ’Qualifying Exit Event’ had not occurred by 31 July 2021, and none had occurred, the parties would negotiate a SHA in good faith which addressed among other things, customary transfer restrictions, pre‑emptive rights provisions, and drag and tag provisions.
Concerning the fourth topic, the 5 May 2021 meeting, the critical issues that separate the parties are:

(a) what was to occur regarding Dr Shiffman’s involvement in management if there was no sell-down of BBHF’s shares; and

(b) was it part of the Exit Agreement that the Founders and Sleeping Duck would provide reasonable assistance to BBHF to allow it to sell down its shares and options and not interfere with or frustrate any sell-down of BBHF’s shares or options as BBHF alleges occurred.

It is common ground that from its value highpoint in late 2020/early 2021 the value of Sleeping Duck has declined significantly. The causes of that decline are not common ground. BBHF alleges under, and as a result of the Founders’ poor management, the performance and value of Sleeping Duck plummeted.
The expert accounting witnesses agree that as at 30 June 2023 the value of Sleeping Duck had fallen to $43.6m (including $20m in cash) from a level of value of $121m – $196m, depending on whose expert opinion is preferred as at October 2021.
BBHF submits:
From his position of forced passivity, Dr Shiffman has been unable to stop the Founders making a series of bad decisions, such as dismissing key executives and managers and leaving their roles vacant, launching an overseas expansion without a budget and almost no planning; and increasing Mr Bandopadhayay’s retainer five-fold, such that he is paid more than a million dollars a year.
BBHF seeks the following relief:
(a)orders restoring BBHF to its position before Sleeping Duck entered the ESOP and the grant, and subsequent exercise, of options to Mr Bandopadhayay – specifically, orders that:
(i)Sleeping Duck issue, alternatively the Companies transfer to BBHF such number of shares in Sleeping Duck as necessary to make BBHF the holder of 10% of all the issued shares in Sleeping Duck; and
(ii)Sleeping Duck issue to BBHF sufficient such number of options to acquire shares in Sleeping Duck as necessary to make BBHF the holder of options to acquire a further 10% of all the issued shares in Sleeping Duck; and
(b)Sleeping Duck, alternatively the Companies purchase all BBHF’s shares and options in Sleeping Duck (including those issued or transferred under (a) above) at their ‘fair value’ as at October 2021, alternatively 19 November 2021, or such other date as the Court considers just.
BBHF submits that as relief from oppression is compensatory and seeks to put the oppressed plaintiff in position as if there had been no oppression, it is appropriate to value BBHF’s undiluted 20% interest at the time Dr Shiffman was prevented from realising it, 8 October 2021.
BBHF submits that to value its interest at 30 June 2023 would have the effect of ‘visiting the cost of the oppression on the oppressed…Dr Shiffman would be left to bear the costs of the decline in value, which he was made powerless to prevent, by reason of the very oppressive conduct itself’, including by his being prevented from realising the value of his investment in 2021.[2]
[2]Transcript, 14.
The Companies deny the allegations of oppression. They deny each of the allegations in paragraph 75 of the statement of claim. They contend the proceeding should be dismissed.
The Companies contend BBHF’s claims of oppression confront three fundamental problems. First, the understandings alleged by BBHF are not consistent with the contemporaneous documentary evidence or the commercial probabilities. Secondly, Dr Shiffman typically demanded ongoing payment in return for carrying out work. There was not an understanding that he was to perform work on an open-ended basis. Thirdly, and in any case, Dr Shiffman’s work did not amount to involvement in management. Dr Shiffman eschewed becoming a director of Sleeping Duck. His role was more limited. The Founders were the decision-makers.
The Companies deny the existence of the ‘common understandings’ which Dr Shiffman asserts gave rise to a legitimate expectation on his part to be involved in the management of Sleeping Duck. They dispute the nature and extent of the work Dr Shiffman performed. They allege the claims made by BBHF arise as part of Dr Shiffman’s repeated attempts to renegotiate the terms of his involvement and obtain a larger (and yet larger again) equity interest in Sleeping Duck.
In BBHF’s closing submissions the following conduct was relied on as oppressive:
(a)The grant of options to Mr Bandopadhayay under ESOP (June 2020);
(b)The provision of financial assistance to Mr Bandopadhayay to exercise his options and the prejudicial effect on BBHF (April 2021);
(c)Exclusion of Dr Shiffman from active involvement in Sleeping Duck’s business from around late 2020 and the prejudicial effect on BBHF;
(d)Preventing BBHF from realising the value of its investment (from 2020 to date);
(e)Preventing BBHF’s ability to exercise its options in Sleeping Duck; and
(f)The Founders’ failure to discuss Dr Shiffman’s buy-out proposal as recently as late 2023.
The conduct relied on by BBHF in support of the allegations in paragraph 75 of the statement of claim spans a number of years. The evidence relied on commences with events in late 2017 – early 2018. It continues through to the institution of the proceeding on 19 November 2021 and conduct after that, up to and including 2023. A number of the pleaded grounds relied on are interrelated. Some span across extended periods. I determined the appropriate manner in which to proceed was as far as practicable, to do so chronologically. I did so noting the importance of context when assessing whether particular conduct is commercially unfair, appreciating that expectations, once formed are not immutable, that mismanagement or poor management does not, of itself, constitute oppressive conduct, and that when assessing commercial unfairness, it is appropriate to consider the conduct of the alleged oppressor, as well as the conduct of the person alleging oppression.
I accept that because some of the issues on the pleadings overlap chronologically, to approach the contested issues in this way is a little cumbersome, on occasions bordering on repetitive. However, I consider to approach the issues and the evidence chronologically is the only practical way of doing justice to the cases advanced by the parties.
Section E of my reasons proceeds generally in a chronological manner, but by reference to the list of issues filed by the parties prior to trial, reproduced in section C. When introducing discussion of each of the issues, I have sought to anchor the issues in the pleadings and to identify the disputed matters by reference to the pleadings.
Having regard to my factual findings concerning contested events and issues, for the reasons discussed in section E and briefly stated in section F, I have found that none of the pleaded acts of oppression relied on by BBHF has been made out. For that reason, the oppression claim in the proceeding is dismissed.
In those circumstances, it is unnecessary for me to determine the date at which the value of BBHF’s shares should be valued for the purpose of a buy-out order. BBHF has no entitlement to a buy-out order. While unnecessary to determine the buy-out date, in case the matter should go on appeal and in case it becomes necessary to determine the buy-out date, I have made findings in relation to those aspects of the expert evidence where there was disagreement between the experts.

In addition to its oppression claims, BBHF separately alleges breaches of the 14 April 2021 Call Option Deed. For the reasons discussed in section E12.4, the separate allegation of breach of the April 2021 Call Option Deed is not made out. That aspect of BBHF’s claim is also dismissed.
B. Oppression: the legislation and the principles
Section 232 of the Act sets out the circumstances in which the Court has jurisdiction to grant relief pursuant to s 233, including if:
(a)the conduct of a company’s affairs; or
(b)….
is either:
(d)…
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Section 233(1) sets out the orders the Court may make, including:
The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)….
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company’s share capital;
…
In Campbell v Backoffice Investments Pty Ltd,[3] French CJ warned:[4]
ss 232 and 233 are to be read broadly. The imposition of judge-made limitation on their scope is to be approached with caution.
[3][2009] HCA 25; 238 CLR 304.
[4]Ibid [72] (French CJ).
Accepting the sections are to be read broadly, in Skytraders Pty Ltd,[5] Button J set out the principles to be applied to determine whether conduct falls within s 232 of the Act, including reproducing the discussion of the concept of ‘fairness’ by Robson J in Re SRW Nominees.[6] A number of the matters to which her Honour and to which Robson J referred in Re SRW Nominees are important to note. They are relevant to the disputed issues in this case and I have had regard to them when determining those issues.
[5][2022] VSC 416 [29] (Button J).
[6]Re SRW Nominees Pty Ltd [2019] VSC 547 [34]-[40] (Robson J).
First, the expression ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against’ in s 232(e) of the Act is a compound expression, concerned with commercial unfairness.[7] As is the manner in which BBHF has framed its case, a plaintiff may make its case by reference both to individual items of conduct and by reference to the cumulative effect of that conduct.[8]
[7]Knights Quest Pty Ltd v Daiwa Can Company (2018) 366 ALR 557, 588 [130] (Beach, Kyrou and Hargrave JJA), cited in Parker v Auswild (2022) 403 ALR 111, [128] (Ferguson CJ , Kennedy JA and Garde AJA).
[8]John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63; (1991) 9 ACLC 1372, 67 (Young J); Youlden Enterprises Pty Ltd v Health Solutions (WA)) Pty Ltd [2006] WASC 161; (2006) WAR 1, [29] (Martin CJ).
Second, the test under s 232(e) is objective. It ‘focuses on the impact of the conduct on the victim. There is no mental element required on the part of the fiduciary’.[9] It is not necessary for a plaintiff to demonstrate a lack of probity, want of good faith, or breach of contract.[10] The offending party’s motive is irrelevant.[11] It is the effect of the relevant acts that is material.[12] The presence, or absence, of a reasonable commercial justification for actions or behaviour is relevant in assessing commercial fairness.[13]
[9]Parker v Auswild and Others (2022) 403 ALR 111; [2022] VSCA 8, 112 (Ferguson CJ , Kennedy JA and Garde AJA).
[10]Knights Quest Pty Ltd v Daiwa Can Company [2018] VSCA 349; (2018) 366 ALR 557 [130] (Beach, Kyrou and Hargrave JJA).
[11]Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ).
[12]Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62 , [9] (Siopis, Rares and Davies JJ).
[13]Re Spargos Mining NL [1990] WASC 32; (1990) 3 ACSR 1, 44 (Murray J).
Third, fairness is not to be assessed in a vacuum. It is to be assessed in the context in which the conduct occurred and in relation to what is known at the time of the conduct and not in relation to what subsequently transpires.[14]
[14]Chase Corp (Aust) Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1; (1994) 12 ACLC 997, 26 (Cohen J).
Fourth, in assessing commercial unfairness, it is also appropriate to consider the behaviour of the person making the allegation of oppression.[15] The Court will balance competing interests rather than assessing the matter solely from one member’s point of view.[16]
[15]Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, [388] (Priestley JA), [676] (Fitzgerald JA); Hunter v Organic & Natural Enterprise Group Pty Ltd [2012] QSC 383; (2012) 92 ACSR 183, [105] (Dalton J); Exton v Extons Pty Ltd [2017] VSC 14; (2017) 53 VR 520, [50] (Sifris J), citing Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222, 706.
[16]Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222; Thomas v HW Thomas Ltd [1984] 1 NZLR 686.
Fifth, conduct relied on need not have occurred during the time the person was a member to be oppressive.[17] Section 234(a) provides that a member, in this case BBHF, can bring an application for an order under s 233. As is relied on by BBHF, pre-membership conduct may be taken into account in determining whether there has been oppressive conduct.[18]
[17]Re Spargos Mining NL [1990] WASC 32; (1990) 3 ACSR 1; 8 ACLC 1218; Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; (2016) 114 ACSR 1 [153] (Sifris J); Trafalgar West Investments Pty Ltd (as trustee for the Trafalgar West Investments Trust) v Superior Lawns Australia Pty Ltd (No 6) [2014] WASC 278; (2014) 102 ACSR 130; see also Lloyd v Casey [2002] 1 BCLC 454 [46]–[57] (Ch D).
[18]Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; 114 ACSR 1 [153] (Sifris J) (. To similar effect see Wenzel v Australian Stock Exchange Ltd [2002] FCA 95; (2002) 20 ACLC 433 (Sundberg J) and Trafalgar West Investments Pty Ltd as Trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2014] WASC 278; (2014) 102 ACSR 130 (Martin J).
Sixth, oppression may arise as a result of the exclusion or removal of a person from management of the company where that person has a legitimate expectation of being involved in management.[19] In the majority of such cases, exclusion or removal has been from a ’salaried position’ with the company, or a directorship. However, to be involved in ’management’ does not require a person to be a director.[20]
[19]Hogg v Dymock (1993) 11 ACSR 14 (Malcolm CJ); Yazbek v Aldora Holdings Pty Ltd [2003] NSWSC 330; (2003) 45 ACSR 53 (Austin J); Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136 (Wilcox , Marshall and Jacobson JJ); Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 (Brereton J) (‘Mopeke’); ; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 (French CJ, Gummow, Hayne, Heydon and Kiefel JJ); Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282 (Davies J); Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1,467; Re Hollen Australia Pty Ltd [2009] VSC 95; [2009] 27 ACLC 199 (Nettle , Ashley and Neave JJA); Supercar International Holdings Ltd v Sommers [2011] NSWSC 336; (2011) 84 ACSR 466 (White J); Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] QCA 048; (2018) 125 ACSR 227 (Gotterson , McMurdo JJA and Jackson J); Miao v I Need a Massage Pty Ltd [2019] FCA 1199; (2019) 138 ACSR 115 (Reeves J) Harrington v Sensible Funerals Pty Ltd [2007] SASC 66; (2007) 61 ACSR 359 (Duggan J); Re Dalkeith Investments Pty Ltd (1985) 9 ACLR 247; (1985) 3 ACLC 74 (McPherson J).
[20]Commissioner for Corporate Affairs (Vic) v Bracht [1989] VR 821, 830 (Ormiston J).
As Black J explained in Re AJ Roberts Removals & Storage Pty Ltd,[21] involvement in ’management’ of a company or its business involves ’an element of decision-making as to the company’s direction, which distinguishes managerial tasks from those of non-managerial staff’.[22]
[21][2017] NSWSC 1054 (Black J).
[22]Ibid [50].
The parties did not identify any case of oppression where the services of a ‘consultant’ were no longer considered required by the company. Only in Foody v Horewood[23] does a finding of oppression by reason of ’exclusion from management’ appear to have been made on the application of a non-officeholder.[24] However, just because no case directly comparable to the present has previously been decided does not mean the alleged conduct relied on by BBHF, if established, does not constitute oppressive conduct contrary to the Act.
[23][2007] VSCA 130; (2007) 62 ACSR 576.
[24]Ibid [37].
Seventh, the exclusion or removal of a person from a ’management role’ may constitute oppression where the exclusion or removal takes place otherwise than in accordance with ‘agreed processes by which minority shareholders were to participate in management’[25] and/or:
where it is inconsistent with a common understanding between members outside the company’s constitution which gave rise to a member’s legitimate expectation of participating in management.[26]
[25]Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd [2017] QSC 74; (2017) 121 ACSR 1.
[26]Re Treadtel International Pty Ltd (No 2) [2016] NSWSC 791 [103] (Robb J).
Following the decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd,[27] it has been held that the failure to meet the ‘legitimate expectations’ of a member or shareholder of a company formed as a ’quasi-partnership’ could amount to oppression. That is so in circumstances where the corporation was formed based upon such an understanding and where it would be inequitable to permit departure from the mutual understanding.
[27][1973] AC 360; [1972] 2 All ER 492; [1972] 2 WLR 1289.
BBHF’s statement of claim alleges four instances where by reason of different ‘understandings’ Dr Shiffman held ’legitimate expectations’.[28]
[28]Nassar v v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343;[76]-[79] (Barrett J).
There is some controversy concerning the use of ‘legitimate expectations’ in the oppression context.[29] In Tomanovic v Global Mortgage Equity Corporation Pty Ltd,[30] Campbell JA said:^[31]
Using the language of “legitimate expectations” might suggest, contrary to that proposition, that it is the subjective expectations of a party that are of importance for the oppression remedy. It should not be thought that by using the term I am doing any other than referring to the benefits or practices concerning the operation of a company that fail to materialise when there is conduct that meets the description in s 232(e) of the Corporations Act.
[29]Note that the language of ‘legitimate expectation’ has been subject to judicial and academic criticism: Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326; (2014) 88 NSWLR 689, 734 [201] (Barrett JA, Bathurst CJ and Beazley P agreeing) (‘The danger that reference to "legitimate expectation" may introduce an impermissible element of subjectivity is recognised in decided cases. Lord Hoffmann, … said (in O'Neill v Phillips [1999] 1 WLR 1092 at 1102) that it was probably a mistake to do so when the real inquiry is whether equitable principle makes it unfair for a party to exercise legal rights. PAML and Wambo correctly submit that denial of "legitimate expectation", of itself, does not attract the statutory jurisdiction and that an essential finding is that the impugned conduct was objectively oppressive, unfairly prejudicial or unfairly discriminatory in the way the legislation contemplates.’); S C B Brenker and I Ramsay, ‘“Legitimate expectations” and the oppression remedy’ (2020) 36 Australian Journal of Corporate Law 3.
[30][2011] NSWCA 104; (2011) 288 ALR 310Campbell JA was reluctant to use the language of ‘legitimate expectations’.
[31]Ibid, 352 [171].
Earlier, in Mopeke Pty Ltd v Airport Fine Foods Pty Ltd,[32] Brereton J considered that an applicant under s 232 does not have to show a breach of promise or unlawful conduct by the company or its directors; the denial of a legitimate expectation arising from the parties’ dealings may suffice.[33]
[32]Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 61 ACSR 395 (Brereton J).
[33]Ibid [45].
In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd,[34] Spigelman CJ said ’it may be that the longevity of a particular mode of decision-making will, of itself, create something in the nature of an expectation, the frustration of which may constitute oppression or unfair prejudice’. In Fexuto,[35] Priestley JA explained the way in which legitimate expectations will be assessed:[36]
1, the court looks at the constitution of the company to see if it founds a legitimate expectation claimed by a plaintiff;
2, even if nothing in the constitution supports the claimed legitimate expectation, the court will, in appropriate cases, look to the understandings of the parties when they entered into the corporate quasi-partnership;
3, the court looks at the question by considering the impact on the oppressed, not on the intention of the alleged oppressor;
4, the mere fact that a company is a quasi-partnership is not enough to raise a legitimate expectation that each partner will be able to take part in management;
5, mere failure to agree between the majority and the minority is not usually of itself sufficient to demonstrate oppression;
6, a legitimate expectation may be lost if it is no longer practicable for the right to the expectation to continue.
[34]Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672.
[35]Ibid.
[36]Ibid, 683 [59].
Understandings and legitimate expectations may change over time:[37]
[E]xpectations, once formed, are not immutable. … The most frequently cited statement of principle is the following statement of Austin J Tomanovic v Argyle HQ Pty Ltd:
[W]hile it is recognised that conduct may be oppressive if inconsistent with the “legitimate expectations” of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation
[37]Premier Aviation Holdings Pty Ltd v Mackay [2022] VSC 416 [33] (Button J).
Eighth, dilutive share issues[38] or the payment of excessive remuneration[39] can be oppressive.
[38]Territory Realty Pty Ltd v Garraway [2009] FCA 292 (Mansfield J) (appeal dismissed: Garraway v Territory Realty Pty Ltd [2010] FCAFC 9 (Ryan, Rares, and McKerracher JJ) ) (oppressive for the company’s controllers to have proposed a share issue for the purpose, in part, of diluting a minority shareholder’s holding and to have been paid excessive management and consultancy fees by the company); Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; (2016) 114 ACSR 1 (Sifris J) (oppressive for the company to undertake a capital raising and issue shares for the main purpose of diluting the shareholding of the minority shareholder).
[39]Territory Realty Pty Ltd v Garraway [2009] FCA 292 (Mansfield J). There is an analogy with sale of corporate assets at undervalue, which can be oppressive: e.g. Cassegrain v Gerard Cassegrain & Co Pty Ltd [2012] NSWSC 403; (2012) 88 ACSR 358 (Bergin CJ) (appeal dismissed: Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 97 ACSR 283 (Meagher, Ward and Emmett JJA); Stone v Glendyc Pty Ltd [2003] WASC 80 (Templeman J).
Ninth, noting BBHF’s allegations that, as the result of the Founders’ poor management the performance and value of Sleeping Duck has plummeted, the courts are cautious to conclude that business judgments amount to oppression.[40]
[40]Zephyr Holdings Pty Ltd v Jack Chia (Australia) Ltd (1988) 14 ACLR 30; (1989) 7 ACLC 239, 38 (Brooking J); Re Scientific Management Associates Pty Ltd [2019] NSWSC 1643; (2019) 141 ACSR 115, 159 [189(1)] (Rees J).
C. The trial, the pleadings and the list of issues
The oppression claim and BBHF’s claim for damages for breaches of the Call Option Deed are to be determined on the pleadings. The statement of claim is dated 18 February 2022. BBHF provided further and better particulars by letters dated 18 February 2022 and 14 April 2022. The Companies’ defence is dated 21 March 2022. The amended defence of Mr Bandopadhayay is dated 11 April 2022. The replies to those defences are dated 11 April 2022.
On 30 August 2023, the parties filed a joint list of issues pursuant to s 50 of the Civil Procedure Act 2010 (Vic) (‘CPA’). While the list of issues does not displace the pleadings, it provides both a convenient check list and framework for the consideration and determination of the many disputes that separate the parties. The issues listed are discussed chronologically in section E.
The list of issues is in the following terms:[41]
[41]Citations omitted.
Initial negotiations (October 2017 to January 2018)
1. During discussions and negotiations that took place between Dr Adir Shiffman (Dr Shiffman), Selvam Sinnappan (Mr Sinnappan) and Winston Wijeyeratne (Mr Wijeyeratne) between October 2017 and 1 February 2018, what was discussed about Dr Shiffman’s investment, role and participation in the Company?
Alleged common understanding reached on or about 1 February 2018
2. Was there a common understanding of the kind referred to in:
(a) paragraphs 18 to 20 of the Statement of claim; or
(b) paragraph 18 of the Founders’ defence?
3. If there was a common understanding of the kind referred to in paragraph 2(a) or 2(b) above:
(a) What were the terms of the common understanding?
(b) Having regard to the common understanding, did Dr Shiffman hold a legitimate expectation that he would participate in the management and strategic direction of Sleeping Duck Pty Ltd (Company)?
(c) What role did Dr Shiffman perform in the Company between 1 February 2018 and the end of June 2019?
Alleged common understanding reached in June or July 2019
4. Was there a common understanding of the kind referred to in:
(a) paragraphs 23 and 24 of the Statement of claim; or
(b) paragraph 23 of the Founders’ defence?
5. If there was a common understanding of the kind referred to in paragraph 4(a) or 4(b) above:
(a) When was the common understanding reached?
(b) What were the terms of the common understanding?
(c) Having regard to the common understanding, did Dr Shiffman hold a legitimate expectation that he would participate in the management and strategic direction of the Company?
(d) What role did Dr Shiffman perform in the Company between June or July 2019 and April 2021?
Alleged understanding on selling down reached in early 2020
6. Was there a common understanding of the kind referred to in:
(a) paragraphs 27 and 28 of the Statement of claim; or
(b) paragraph 27 of the Founders’ defence?
7. If there was a common understanding of the kind referred to in paragraph 6(a) or 6(b) above:
(a) What were the terms of the common understanding?
(b) Having regard to the common understanding and the terms of the Call Option Deed, did Dr Shiffman hold a legitimate expectation that:
(i) he would be involved in the management of the Company in respect to the identification and assessment of “sell down” opportunities?
(ii) the Company would take all commercially reasonable steps to pursue and advance the “sell down” opportunities?
The issuing of share options to Prateek Bandopadhayay
8. When was it agreed (and by whom) that Prateek Bandopadhayay (Mr Bandopadhayay) would be given an interest in the Company?
9. When did Mr Bandopadhayay enter an Employee Share Option Plan (the ESOP) with the Company?
10. Were the terms of the ESOP commercially unreasonable to the Company and to its existing shareholders?
11. What knowledge of the ESOP, including about its terms, did Dr Shiffman have before Mr Bandopadhayay and the Company entered the ESOP?
12. When did Dr Shiffman become aware of the existence and terms of the ESOP and the share options granted to Mr Bandopadhayay under it?
13. Did Dr Shiffman consent or acquiesce to:
(a) the granting of options to Mr Bandopadhayay and/or the ESOP?
(b) Mr Bandopadhayay's exercise of options granted to him?
(c) the dilutive effect of Mr Bandopadhayay's exercise of the options?
Alleged common understanding concerning a shareholders agreement, reached on or around 2 July 2020
14. Did Dr Shiffman, Mr Sinnappan and Mr Wijeyeratne (on behalf of BBHF, S2 Ulysses, Energon Shield and the Company) reach a common understanding on or around 2 July 2020 about the essential terms of a shareholders’ agreement between the shareholders and the Company?
15. If so:
(a) What were the terms of that common understanding?
(b) By reason of that common understanding, did Dr Shiffman hold a legitimate expectation that any shareholders’ agreement would give him a right to appoint a director to the Company’s board and that that director would have an effective veto over any resolution concerning the Company’s business?
16. Given the terms of the Call Option Deed, is Dr Shiffman entitled to rely on any such common understanding or legitimate expectation?
The first exercise of Mr Bandopadhayay’s options in April 2021
17. Did Mr Sinnappan, Mr Wijeyeratne and/or Mr Bandopadhayay act in concert and for the purpose of prejudicing BBHF’s rights and entitlements under the Call Option Deed when authorising, approving, entering or taking part in (as the case may be) the following transactions, which occurred in or around April 2021:
(a) the Company’s payment of a dividend to shareholders;
(b) the loan transaction by which entities associated with Mr Sinnappan and Mr Wijeyeratne agreed to loan $1,350,000 to Mr Bandopadhayay; and
(c) Mr Bandopadhayay’s exercise of 3,000 options granted to him under the ESOP?
The alleged exclusion of Dr Shiffman
18. From around November 2020, was Dr Shiffman excluded from a role in the Company’s management?
19. If so, was that exclusion contrary to the common understandings the subject of paragraphs 3 and 5 above?
Alleged oral agreement reached in May 2021
20. Was there an oral agreement reached of the kind referred to in:
(a) paragraph 56 of the Statement of claim; or
(b) paragraph 56 of the Founders’ defence?
21. If there was an agreement of the kind referred to in paragraph 20(a) or 20(b) above:
(a) Precisely when was the agreement reached?
(b) Was the Company a party to the agreement?
(c) What were the terms of the agreement?
(d) Have Mr Sinnappan, Mr Wijeyeratne or the Company breached the terms of the oral agreement by:
(i) failing to provide any assistance to BBHF to allow it to sell down its shareholdings or options in the Company?
(ii) taking steps to interfere with or frustrate any sell down of BBHF’s shareholdings or options in the Company?
The second exercise of Mr Bandopadhayay’s options in September 2021
22. Did Mr Sinnappan, Mr Wijeyeratne and Mr Bandopadhayay act in concert and for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed when authorising, approving, entering or taking (as the case may be) the following transactions, which occurred in or around September 2021:
(a) the Company's payment of a dividend to shareholders;
(b) the loan transaction by which entities associated with Mr Sinnappan and Mr Wijeyeratne agreed to loan $1,350,000 to Mr Bandopadhayay; and
(c) Mr Bandopadhayay’s exercise of a further 3,000 options granted to him under the ESOP?
The Call Option Deed and the draft Shareholders’ Agreement
23. Were there implied terms of the Call Option Deed made on 14 April 2021 between BBHF, the Company, Energon Shield and S2 Ulysses that:
(a) BBHF, the Company, Energon Shield and S2 Ulysses would do all things necessary to enable each other to secure the benefit of the Call Option Deed?
(b) neither BBHF, the Company, Energon Shield nor S2 Ulysses would hinder or prevent the fulfilment of the purpose of the express promises made in the Call Option Deed?
24. What is the effect of the draft Shareholders' Agreement proposed by the Company to BBHF on 2 December 2021?
25. By:
(a) proposing a draft shareholders agreement in the form given to BBHF on 2 December 2021; and
(b) refusing to participate in a meeting of nominees, or any mediation,
did any of the Company, Energon Shield and Ulysses:
(i) fail to act in good faith when negotiating the terms of the Shareholders’ Agreement?
(ii) thereby breach cl.2.12(b) of the Call Option Deed?
(iii) alternatively, breach the implied terms of the Call Option Deed?
26. If so, has BBHF suffered loss and damage and if so, in what amount?
Oppression
27. Has the conduct of the Company’s affairs been oppressive to, unfairly prejudicial to and/or unfairly discriminatory to BBHF within the meaning of s.232 of the Corporations Act 2001?
28. If so, should the Court exercise its discretion to grant relief to BBHF and, if so, what relief should follow?
Valuation
29. What was the value of the Company, and BBHF’s interest in it, as at:
(a) 16 August 2022?
(b) 8 October and 19 November 2021?
30. Supplementation of expert evidence concerning valuation at an alternative valuation date (e.g. the date of trial or judgment, as the Court determines) may be required, but only if liability is found.
D. The witnesses

The evidence relied on by the main protagonists, BBHF and Dr Shiffman on the one hand, and the Companies and the Founders on the other in support of their pleaded cases, is extremely detailed. The 4 volume Court Book comprises 11,606 pages. The documents that formed part of the evidence were less extensive. Following the completion of the trial the parties provided an agreed tender list comprising 971 separate documents.
BBHF called Dr Shiffman; Sean Curry (Sleeping Duck’s former CFO) and Yoni Paluch (Sleeping Duck’s director of Customer Experience between January 2020 and February 2022). Each of those persons was cross-examined. BBHF filed a witness outline from William Broughton. Mr Broughton was subpoenaed to give evidence. He declined to meet with or to otherwise cooperate with BBHF’s legal advisers. He was not called.
Mr Sinnappan, Mr Wijeyeratne and Mr Bandopadhayay filed witness statements. Each of them were cross-examined.
After the lay evidence had concluded a revised agreed chronology, signed by the practitioners for all parties, was filed (‘Agreed Chronology’). The Agreed Chronology comprises a statement of agreed facts for the purposes of the proceeding pursuant to s 191 of the Evidence Act 2008 (Vic) (‘Evidence Act’).
Consistent with the usual practice in oppression cases, early in the proceeding the Court ordered a current market valuation of Sleeping Duck. That valuation, prepared by Mr Meredith, valued Sleeping Duck at $45.32m at the date of his report, 16 August 2022. Mr Meredith‘s valuation formed part of the evidence.
Prior to trial, BBHF filed an expert valuation report dated 11 November 2022, prepared by Owain Stone, assessing the equity value of Sleeping Duck on two dates; on 8 October 2021 at between $170m and $196m; and on 19 November 2021 at between $158.9m and $182.9m. The Companies filed a responsive expert report dated 16 December 2022 prepared by Michael Potter. He valued Sleeping Duck at between $121.8m and $126m on 8 October 2021; and at between $98.1m and $101.3m on 19 November 2021.
Mr Stone and Mr Potter (‘the Experts’) prepared a joint expert report dated 15 September 2023 (‘Joint Report’). The Experts were instructed to provide their opinion as to the value of the shares in Sleeping Duck as at each of:
(i)8 October 2021 (‘First Valuation Date’); and
(ii)19 November 2021 (‘Second Valuation Date’);
(iii)the date of the Joint Report (30 June 2023).
Reproduced below is an extract from the Joint Report summarising the views of the Experts at each of the valuation dates in contention:
After completion of the Joint Report there were revisions to the 30 June 2023 accounts. In light of those revisions and other matters the Experts prepared a supplementary joint report dated 30 October 2023 (‘Supplementary Joint Report’). In the Supplementary Joint Report, the Experts agreed the EBITDA estimate for FY23 remain unchanged from the Joint Report. Their assessment of the value of 100% of the equity in Sleeping Duck as at 30 June 2023 remained unchanged.
The Experts gave concurrent expert evidence concerning the value of Sleeping Duck. Cross-examination was both targeted and confined.
Dr Shiffman
When giving evidence, Dr Shiffman presented as a highly intelligent and articulate person. He was careful and particular in his responses. He said, and I accept, that he was ‘trying to be completely precise in being truthful’.[42] In communications with the Founders and others concerning Sleeping Duck over the period of his involvement, Dr Shiffman did not shy away from expressing his views and feelings. At times, he was very effusive and enthusiastic, on other occasions he expressed concern for his mental health.
[42]Transcript, 378.
Mr Curry accepted that Dr Shiffman was not ‘backward in coming forward’ or expressing his displeasure at things that were of concern to him.[43]
[43]Transcript, 629-630.
In cross-examination, Dr Shiffman said from late 2020 there was a gradual process of him being shut out from decision-making. While different people will have a different perception of whether or not they are being shut out, I have no doubt Dr Shiffman genuinely believes that is what occurred to him. He believes he has been unfairly treated by the Founders.
While that is his belief, for the purposes of an oppression proceeding, commercial unfairness has an objective standard. It requires an assessment of whether objectively, in the eyes of a commercial bystander, there has been commercial unfairness.[44]
[44]Re SRW Nominees Pty Ltd [2019] VSC 547 [37] (Robson J).
Mr Curry
Mr Curry is a qualified chartered accountant. He was the CFO of Sleeping Duck between March 2019 and February 2022.
Mr Curry presented as a confident and experienced CFO who diligently carried out his role at Sleeping Duck. He was involved in financial analysis and in the further development of Sleeping Duck’s financial reporting systems. He worked closely with the external accountants, RSM Australia (‘RSM’), from whom on occasions he obtained advice. He was involved in the preparation of presentations to proposed external investors and was involved in preparing the revenue and other financial projections which were included in those presentations.
Mr Curry enjoys a very close business relationship with Dr Shiffman. At the time of trial he was providing CFO services to a number of companies with which Dr Shiffman is associated including Daily Blooms, Qualie, Global Reviews and Emma.
Although Mr Curry gave evidence on subpoena, there is no reason why his evidence could not have been presented via a witness statement. Before giving evidence he conferred with the solicitors and counsel for BBHF. He is a witness firmly in BBHF’s camp.
Mr Paluch

Mr Paluch was employed as Sleeping Duck’s director of customer experience from the beginning of 2020 to the beginning of 2022. He graduated with a Bachelor of Business Systems from Monash University in 2003. Mr Paluch is an experienced business analyst.

Mr Paluch was offered his role at Sleeping Duck after being introduced to the Founders by Dr Shiffman. Mr Paluch and Dr Shiffman were acquaintances.
When Mr Paluch commenced his role he initially reported to Mr Wijeyeratne but then reported to Mr Sinnappan. He said he felt like he had a ‘very good working relationship’ with Mr Sinnappan but that Mr Sinnappan was ‘learning his way through’ and sought guidance from Dr Shiffman, especially in the early stages of the business.[45]
[45]Transcript, 765-766.
Mr Paluch gave evidence he discussed the operations of the business with Mr Curry on most days, if not every day and would attend meetings with the core management team. He gave evidence he would see Dr Shiffman at Sleeping Duck’s offices once or twice a month.
Since November 2022, Mr Paluch has been advising the customer service team at Eva, one of Sleeping Duck’s competitors. Just as Dr Shiffman introduced Mr Paluch to the Founders of Sleeping Duck, Dr Shiffman introduced Mr Paluch to the founders of Eva where Dr Shiffman has an involvement.
Mr Sinnappan
Mr Sinnappan presented as an agreeable and non-confrontational witness, becoming a little less accepting of propositions as his lengthy cross-examination continued.
I found Mr Sinnappan to be a credible witness. He was careful not to speculate if he could not recall. When giving evidence he did not seek to frame his responses in a manner that might assist his own case or harm that of BBHF. He was not assertive.
Mr Sinnappan readily accepted Dr Shiffman made a very valuable contribution to the Sleeping Duck business from 2018 through to 2021. As he put it, there were ebbs and flows in the relationship, Dr Shiffman was involved in the ‘journey’ that helped Sleeping Duck get to a value, first of more than $100m and then, during the COVID-19 era, of more than $300m.
Mr Sinnappan acknowledged that during the period of Dr Shiffman’s involvement, Sleeping Duck enjoyed tremendous success. Revenue went from approximately $3.3m – $3.5m in 2018 to over $9m in FY19 and to approximately $45m in 2020. At the same time, profitability improved very substantially. In FY18, Sleeping Duck recorded a modest loss on an EBIT basis, in FY19 EBIT was more than $1m, in FY20, net profit was in the order of $12.6m.
In his witness statement Mr Sinnappan described Dr Shiffman’s work as an adviser to the Founders. He never considered Dr Shiffman had any right to manage or control Sleeping Duck. I accept that evidence.
In cross-examination Mr Sinnappan agreed that after the first few months of the 2021 calendar year Dr Shiffman’s views were given less weight. He rejected the proposition that he and Mr Wijeyeratne actively set out to reduce Dr Shiffman’s influence. I accept his evidence in that regard.
Mr Sinnappan was cross‑examined about profit margins and the part played by the COVID-19 pandemic and lockdowns on the turnover and profitability of the business.
In 2019, the business had a profit margin of around 20%. In the 2021 financial year, the overall margin was 27% on a month-to-month basis. Mr Sinnappan acknowledged the rate of 27% reflected extraordinary acceleration in the performance of the business in the months of March to June 2020. When asked to explain the reasons behind the rapid increase in profit margin, Mr Sinnappan gave the following evidence:[46]
[referring to the 27% increase] Does that mean that there was – if you like – a disproportionate increase to margin in those following months because you were at 21 per cent for the year to date as at the end of February and it ended up being 27 percent? --- yes, correct…
His Honour: so the COVID sort of sales period seemed to have a, was a more profitable period in terms of its contribution. Is that fair or am I wrong about that? – No that’s right. So COVID, overnight sales just went vertical…and therefore…by extension of that…the...margin benefitted as well.
[46]Transcript, 834-835.

While criticism was made by BBHF of the management of Sleeping Duck after Mr Curry’s departure, market conditions for the business in the 2022 and 2023 calendar years were markedly different to the heady days of late 2020/early 2021.

Mr Wijeyeratne

Mr Wijeyeratne was the second of the Founders to give evidence. He was not present when Mr Sinnappan gave his evidence.
While I have accepted and acted on parts of Mr Wijeyeratne’s evidence, overall his evidence was not always reliable. That is so first, because his evidence was based on a combination of his recollection and reference to contemporaneous notes and documents which he re-read in preparation for the trial. Second, because when responding to questions Mr Wijeyeratne had a tendency to answer before thinking through the question, later responding in a more considered way. This meant that on some occasions he gave a different answer, not always a satisfactory one, when pressed about his initial response. Third, at times during his evidence Mr Wijeyeratne did not readily agree with propositions which by reference to contemporaneous documents or other objective evidence, seemed uncontroversial.
An example of the first matter, Mr Wijeyeratne’s recollection of events, was his evidence concerning a May 2020 video call. Rather than responding directly to a question in cross-examination, he referred to having ‘that in my witness statement’.[47] Separately, Mr Wijeyeratne sought to check his witness statement when asked whether it was in February 2020 that, for the first time, the idea of an ESOP for Mr Bandopadhayay was raised by Dr Shiffman.
[47]Transcript, 1228.
As to the second matter, answering before thinking carefully about the question, one example involved Mr Wijeyeratne giving evidence about Dr Shiffman’s knowledge of transactions relating to the ESOP and his knowledge of those matters up to 14 April 2021. Initially, Mr Wijeyeratne said he was ‘not sure’ what Dr Shiffman knew. When told Mr Sinnappan had accepted the accuracy of Dr Shiffman’s evidence, he responded, ‘Ah, if – yeah, I mean, yeah, if Selvam accepted it, I’ll accept it’.[48] On another occasion when referred in general terms to evidence Mr Sinnappan had given on the subject of how the Founders would respond if an acceptable sell down opportunity was presented, Mr Wijeyeratne said he agreed with Mr Sinnappan’s evidence. He gave that answer even though he had not been present in Court when Mr Sinnappan gave evidence, and even though he had not read Mr Sinnappan’s witness statement. Another example concerned Mr Wijeyeratne’s evidence about the 2020 agreement for Dr Shiffman to identify a sell down opportunity. Asked whether if a favourable opportunity or commercially reasonable opportunity was presented he would proceed with it, Mr Wijeyeratne’s original response was ‘Ah, no. Like, I don’t know what reasonable means. Um, reasonable …’.[49] Pressed on his answer it was clear Mr Wijeyeratne had not properly focussed on the question when providing his initial response.
[48]Transcript, 1258.
[49]Transcript, 1201.
Mr Bandopadhayay
Generally, I found Mr Bandopadhayay to present as an honest and open witness. He was inclined to volunteer, rather than to seek to give answers that might be thought to assist his case or that of the Companies.
Mr Bandopadhayay was the ‘creative director’ and ‘head of marketing’ at Sleeping Duck. As Dr Shiffman wrote in an email to the Founders on 12 November 2020 ‘we all agree Prateek is very good’. I have no doubt Mr Bandopadhayay is very talented in his role. The Founders genuinely value the contribution he has made and continues to make to the marketing of Sleeping Duck’s products.
Mr Bandopadhayay has been and continues to be well remunerated for his work. He was initially engaged on an hourly rate, soon followed by an agreement in February/March 2019 that he be given a 10% interest in the business. I accept his evidence that from 2019 he was employed full-time in the Sleeping Duck business, working after hours and at night on other pursuits.
A consultancy agreement with Sleeping Duck dated 23 November 2020, prepared by Arnold Bloch Leibler (‘ABL’), solicitors acting on behalf of Sleeping Duck, is the only formal agreement relating to Mr Bandopadhayay’s engagement. That agreement was prepared for the purposes of legal due diligence. Prior to that date there was no written agreement.
The chronology of Mr Bandopadhayay’s remuneration and his requests for increases in his remuneration reveals a similar quest for remuneration and additional shares to the quest which Dr Shiffman pursued.
Mr Bandopadhayay gave evidence that following emails he sent to the Founders in November/December 2022, he receives remuneration of $100,000 per month through his company.
E.        The chronology
E1       The first issue: Initial negotiations (October 2017 to January 2018)
E1.1     The pleadings

BBHF alleges that between October 2017 and January 2018 discussions and negotiations took place between Dr Shiffman and the Founders concerning the basis and terms of Dr Shiffman’s investment, role and participation in Sleeping Duck. It alleges both parties proceeded on the basis Dr Shiffman would only be willing to invest in Sleeping Duck if he was able to play an active strategic ‘hands on’ role in its management.

The Companies deny those allegations. They allege discussions between Dr Shiffman and Mr Sinnappan during this period concerned potential services Dr Shiffman could offer. Discussions were on the basis Dr Shiffman would have no role in the management of Sleeping Duck and the Founders would retain control of management.
E1.2 The evidence and findings
Although the statement of claim refers to discussions and negotiations, during this period, apart from a meeting on 21 November 2017, communications between the parties were by email. Consistent with the defence, only Mr Sinnappan participated in those communications on behalf of the Founders.
Dr Shiffman was introduced to Mr Sinnappan on 4 October 2017. The introduction came via an email from one of Dr Shiffman’s associates who informed him the Founders were looking to raise funds for the business which they had previously self-funded or ‘bootstrapped’.
On 21 November 2017 Mr Sinnappan and Dr Shiffman had an initial meeting. Mr Sinnappan provided an overall introduction to Sleeping Duck. He said he was meeting to see if there were fundraising opportunities available and to try to obtain mentorship and advice. Dr Shiffman said Mr Sinnappan told him the business was basically running on a break even basis. When cross-examined, Mr Sinnappan initially disagreed such a statement was made. Later he said he could not recall using the specific term ‘break even basis’ but agreed the business needed to raise funds.
While he was not present at the 21 November 2017 meeting, he did not meet Dr Shiffman until February 2018, Mr Wijeyeratne accepted that before Dr Shiffman became involved, he and Mr Sinnappan were struggling to grow the business past $5m. He said based on the profit and loss statement, Sleeping Duck was not profitable, but that was because the business was trying to grow. Both of these statements were correct.
I accept Dr Shiffman’s evidence that at the time of his initial contact with Mr Sinnappan the business was running on a break even basis. The Founders were seeking funding to provide a buffer to enable Sleeping Duck to scale up marketing, hiring and sales.
On 22 November 2017, Mr Sinnappan emailed Dr Shiffman:
[f]undraising is one of our major focuses at the moment…I think it would be best to laser in on this first to and chat further about how [Dr Shiffman] can assist [on that issue].
On 23 November 2017 Dr Shiffman responded. He took a view of his potential involvement that was broader than funding:
I agree and disagree.
You definitely need funding, but also we need to make sure the machine is ready to scale.
But let me focus on the funding side in this email. Realistically I think I can provide the most value by:
·     Help you clearly articulate what you need to go to market – strategy, market sizing, uses, KPIs, modelling, etc. This is fundamental. You need clarity, and the right people to assist (eg: modelling).The above will all feed into a deck which we need to get right
·     Intros to the right VCs and investors. This is a massive job, but obviously easy for me. So I get a huge unfair advantage here – known them, friends with them, instant access and credibility.
·     On cap raising activity itself I do intros, talk about my involvement and why I love it, obviously am heavily involved in getting it done, but I don’t go to the presentations. You guys need to sell it.
·     Guidance with negotiation of terms, getting the deal closed, valuation, etc. You will still need a lawyer here obviously, I’ll make sure costs are kept down.
Let me be crystal clear about this – I am not a banker or capital advisor. I don’t want any of the money raised. I don’t do this for a living.
I’m interested in getting involved in a number of high-growth startups with NICE AND SMART FOUNDERS, and helping them grow very big, fast. It’s after the funds are raised that I can add way more value, as can Rohit.
Let me know your thoughts.
On 28 November 2017 Mr Sinnappan emailed Dr Shiffman. He suggested Dr Shiffman be involved in mentoring and advising in addition to fundraising. Noting that Dr Shiffman would not be seeking any part of money raised, he enquired about the type of ‘engagement model’ Dr Shiffman had in mind.
There was no reference in the 2017 emails and no discussion at the 21 November 2017 meeting to Dr Shiffman only being willing to ‘invest’ if he was to have a ’hands on’ role in management as alleged by BBHF. The Founders were looking for mentors/advisers to help them through the next phase of growth of the business. Dr Shiffman expressed interest in advising the Founders and articulating what he considered Sleeping Duck needed to do to ‘go to market’. Regarding capital raising, ’I don’t go to the presentations. You guys need to sell it’.

Concerning the allegation in paragraph 75(a), for the reasons referred to and discussed in section E6 concerning issues 8-13, including my findings in section E6.5 the allegation in paragraph 75(A) is not made out.

Concerning the allegations in paragraph 75(b) for the reasons discussed concerning issue 17 in section E7 including my findings in section E7.2 the allegation in paragraph 75(b) is not made out. Concerning the allegations in paragraph 75(b) for the reasons discussed concerning issue 17 in section E8 including my findings in section E8.5 the allegation in paragraph 75(b) is not made out. It is to be noted the allegation the Founders and Mr Bandopadhayay acted in concert was not the subject of closing submissions by BBHF.

A critical plank in BBHF’s oppression case is the allegation in paragraph 75(c) that Dr Shiffman was excluded from his role in management of the Company contrary to the terms of the Second Understanding on Participation, alternatively, the Understanding on Sell Down. The problem for BBHF is that for the reasons discussed in sections E4 and E5 including sections E4.2 and E5.2 I have found neither of those alleged understandings existed. It is also the case that while not relied on in paragraph 75 of the statement of claim, the allegation that is earlier in time that at a meeting on 1 February 2018 a common understanding was reached concerning Dr Shiffman’s investment, role and participation in Sleeping Duck (the First Understanding on Participation) was also not made out. That is also the case concerning the associated allegation that Dr Shiffman had a legitimate expectation to participate in management. That is so for the reasons discussed in section E2 concerning issues 2 and 3(a) and (b) including my findings in section E2.2. Dr Shiffman’s own description of his anticipated role in his 15 January 2018 email does not support BBHF’s participation in management case. The 15 January 2018 email and my findings in relation to it are found in section E1.2.

The Second Understanding on Participation is alleged to have been reached at a meeting on 19 June 2019. The allegation of a Second Understanding on Participation is accompanied by an allegation that the matters pleaded by BBHF concerning the period October 2017 to January 2018 gave rise to a legitimate expectation that Dr Shiffman would participate in the management and strategic direction of the Company. For the reasons discussed concerning the first issue in section E1.2, the events and communications that took place in the period October 2017–January 2018 did not give rise to the legitimate expectation alleged. For the reasons discussed in section E3.6 and E3.7 I do not accept Dr Shiffman’s account of what he says was agreed at the meeting ‘on or around 19 June 2019’.

For the reasons discussed in section E5 including the findings in section E5.2 the early 2020 Understanding on Sell Down alleged by BBHF was also not proved. Dr Shiffman’s own evidence does not support BBHF’s allegation that ‘when a commercially reasonable Sell Down Opportunity was identified they would each take steps to give effect to it’ or that Sleeping Duck would take all commercially reasonable steps to pursue and advance Sell Down Opportunities. Dr Shiffman’s evidence was that if an opportunity to sell down shares was presented it was a matter for the individual Founders to determine whether to accept or to reject the proposal. Each of the Founders had to find the proposal reasonable assessed by reference to their own subjective circumstances and preferences at the time.

The breach of the Exit Agreement alleged in paragraph 75(d) presupposes that BBHF has proved the terms of the Exit Agreement alleged to have been made in May 2021. The existence or otherwise of the Exit Agreement turns on what Dr Shiffman said at the 5 May 2021 meeting. Dr Shiffman presented three options for the Founders to choose between. There is no dispute that option 1 was later accepted by the Founders.

For the reasons discussed in section E10 concerning issues 20 and 21 including my findings in section E10.4 concerning the alleged Exit Agreement and the alleged Transition Passivity Agreement, there was no Exit Agreement containing the terms alleged in the statement of claim. Because there was no Exit Agreement there was no breach. In any case, for the reasons discussed in section E10.5, even if there was the Exit Agreement as alleged, the breach allegations are not made out.

The allegation in paragraph 75(e) that the Founders and Mr Bandopadhayay acted in concert to the detriment of BBHF in respect of the exercise of the Bandopadhayay Options is not made out. The first exercise of the options, in April 2021, and the reasons BBHF’s allegations concerning it are not made out are discussed in section E8 including the findings in section E8.5. The Second Exercise of the Options in September 2021 is discussed in section E11. Having regard to that discussion including my findings in section E11.4, the allegations in relating to the Second Exercise of the Options are not made out.

Paragraph 75(f) alleges a refusal on the part of the Founders and their Companies to participate in a mediation and to negotiate the dispute concerning the 2 December 2021 draft SHA. For the reasons discussed in section E12 including the findings in section E12.4 there is no substance to the allegation in paragraph 75(f).

The final pleaded allegation of oppressive conduct relied on paragraph 75(g), related to the allegation in paragraph 75(f), is the alleged breach of the terms of the Call Option Deed in respect of the 2 December 2021 SHA. For the reasons discussed in section E12 including the findings in section 12.4 I do not accept there was a breach of the good faith obligation in the Call Option Deed as alleged.

For the reasons discussed in section E13 and E14, it is also the case concerning the events of 2022 and 2023 of which BBHF made complaint, that Sleeping Duck and the Companies did not engage in oppressive conduct in 2022 or 2023 after the proceeding was issued.

As noted in the overview, in closing submissions BBHF relied on six categories of conduct as oppressive. Concerning each of those matters:

(a) For the reasons discussed in section E6 the grant of options to Mr Bandopadhayay under the ESOP was not oppressive.

(b) For the reasons discussed in section E8 the provision of financial assistance to Mr Bandopadhayay to enable him to exercise the first tranche of his options in April 2021 was not oppressive.

(c) Dr Shiffman agreed to ‘go passive’ in September 2021. Until September 2021 his role as adviser and mentor to the Founders and in relation to a potential sell down of shares in Sleeping Duck was respected and availed of by the Founders. He was not excluded.

(d) Dr Shiffman has not been ‘prevented’ from realising the value of his investment from 2020 to date. From 2020 until the proposed Adairs transaction failed to proceed in April 2021 he sought to pursue a transaction in which he and the Founders would participate which would have realised part of his and their investments, but no transaction was able to be achieved. In October 2021 the Founders rejected the CPE Capital Offer. They were entitled to do so in accordance with the third element of the Potential Sale Understanding arrived at in early 2020 discussed in section E5.2. Objectively the rejection of the CPE Capital Offer, a proposed loan transaction was reasonable for the reasons discussed in section E10.3.

(e) BBHF’s closing submissions relied on two matters in support of an allegation the Companies and the Founders prevented BBHF’s ability to exercise its options in Sleeping Duck. First, the failure to finalise (or even negotiate) the December 2021 SHA. Second, the failure to proceed with a sell down transaction in 2022. Concerning the first matter, for the reasons discussed in section E12 including the findings in section E12.4 there was no failure to negotiate by the Founders and the Companies. They put forward a draft SHA, BBHF responded with a Dispute Notice. The Dispute Notice proposed a mediation. The court had already made a mediation order. A court appointed mediation took place, it appears on three occasions. Second, the only potential transaction in 2022 involved Forty Winks. In accordance with the third element of the Potential Sale Understanding the Founders were not obliged to enter into a transaction, whether with Forty Winks or with anyone else. As discussed in section E13, the Forty Winks proposal never progressed beyond the initial stages. That the Founders did not pursue the proposal was not oppressive to BBHF.

(f) The asserted failure by the Founders ‘to discuss Dr Shiffman’s buy-out proposal as recently as late 2023 involves conduct that took place in the lead up to and during the course of the trial. For the reasons discussed in section E14 including my findings in section E14.3 I do not regard the Founder’s responses to Dr Shiffman’s proposals as evidence of or constituting oppressive conduct.

The allegations relied on by BBHF in its pleaded case and advanced in its closing submissions not being made out, the proceeding is dismissed.

That being the case, no issue concerning relief arises for determination. However, in case the matter should go on appeal and in deference to the parties and to the experts, I have included a short section dealing with the expert evidence. I have not made a finding as to the date to be adopted for any buy out order as I have found no basis exists to make such an order.

G Expert evidence of value

The experts gave evidence concurrently. Each of them adopted their reports and the opinions expressed in those reports, except to the extent their opinions were revised in the later Joint Report or Supplementary Joint Report.
The experts agree the value of Sleeping Duck as at 30 June 2023 was $43.6m for 100% equity value. The value was calculated by both experts using the same methodology, the capitalisation of future maintainable earnings (‘FME’). FME of $4.8m was agreed. The adopted EBITDA multiple of five times EBITDA was agreed.
As at the first valuation date, Mr Stone adopted a figure of $25.8m for FME. Mr Potter adopted a figure of $16.4m for FME. The EBITDA multiple to be applied, 6.65x was agreed. As at the second valuation date, Mr Stone adopted a figure of $23.8m for FME, Mr Potter adopted a figure of $12.7m. Both agreed on 6.65x as the multiple to be applied to EBITDA.
Cross-examination of the experts was economical and targeted. It was limited to matters upon which the experts had not previously agreed. There was one exception. It concerned whether a normalisation adjustment should be made on account of remuneration paid and payable to Mr Bandopadhayay of $1.2m per year. If so, whether those remuneration arrangements caused the experts to change their agreed view about the value of the business as at 30 June 2023. The experts agreed there was insufficient information upon which they could express an opinion about this issue.
It is important to record the experts were never asked to value BBHF’s options, whether at the first or second valuation date, as at 30 June 2023 or otherwise. An application was belatedly made by BBHF, just as the experts were to begin giving evidence to the effect that they should be either asked questions at trial or instructed to prepare a further joint report addressing the value of the options. The application was refused. The reasons for refusal included that to do so would be inconsistent with orders previously made for the conduct of the proceeding and with the obligations of parties and practitioners including the overarching obligation and the obligations concerning expert evidence in part 4.6 of the CPA.
In its closing submissions BBHF submitted the wide power to grant relief in s 233(1) is sufficient to extend to relief concerning options over shares. As part of its submissions, it put forward three methods of valuing the options. I agree with the Companies that reliance on the valuation methodologies put forward by BBHF in submissions is of no assistance without expert evidence. It was for BBHF to prove all relevant aspects of its case at trial. Had it been necessary to deal with the issue of the value of the options I would have declined to embark on an attempt to value the options in the absence of expert evidence.
Cross-examination of the experts concerned the following topics:
(a)the standard of value, ’fair value’ versus ‘true value’;
(b)maintainable EBITDA at the first and second valuation dates: use of the FY 22 budget;
(c)maintainable EBITDA at the first and second valuation dates: methodology;
(d)the 10 October 2023 BBHF offer concerning the business.
G1 Standard of value
At the first and second valuation dates, Mr Stone assessed the fair market value of the share capital of Sleeping Duck adopting the following methodology:
(a)assessing the indicative fair market value of the business (enterprise value) at the valuation date; and
(b)adjusting the enterprise value for the fair market value of Sleeping Duck’s interest bearing debt and net surplus assets at the valuation date.
In contrast, Mr Potter was instructed to use the ‘true value’ basis at valuation.
‘Fair market value’ was described by Mr Stone as equivalent to ‘market value’ as defined in the international valuation standards:
75. IVS 2017 defines market value as:
“… the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
76.This definition is also consistent (in substance) with guidance in the ATO Market Valuation Guidelines, which states:
“The term ‘market value’ has not been defined for the purposes of consolidation. The definition in current tax law does not specifically define market value. As a result, for the purposes of consolidation, the term takes on the meaning ordinarily applied to it when used on its own without any qualifications. Business valuers in Australia typically define market value as: The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length.”
Mr Potter was instructed to assume ‘true value’ means:
… that which lies between the most the buyer is willing to pay and the least the seller is willing to accept – the price which a hypothetical willing but not anxious vendor could reasonably expect to obtain and a hypothetical willing but not anxious purchaser could reasonably expect to pay after proper negotiations between them have been concluded.

Mr Potter continued regarding his instructions:

In assessing value as at a certain date, I have been instructed to note the following observations of Elliott J in Cargill Australia Ltd v Viterra Malt Pty Ltd [2022] VSC 13:
“[3919] … true or real value can be determined with reference to subsequent events insofar as they shed light on the true value of the asset at the relevant date. In Kizbeau Pty Ltd v W G & B Pty Ltd, the High Court stated that “although the value is assessed as at the date of the acquisition, subsequent events may be looked at insofar as they illuminate the value of the thing as at that date”.
[3920] Importantly, a distinction is drawn between subsequent events where the cause of loss is intrinsic and those where the cause of loss is extrinsic. The court must distinguish between causes of decline in value that are “intrinsic”, or “inherent”, in the thing itself, which should be taken into account, and causes that are “independent” or “extrinsic”, which should not be taken into account to determine the true value.
[3921] In Kizbeau Pty Ltd v W G & B Pty Ltd, the nature of this distinction was traversed. The High Court stated that subsequent events arising from the nature or use of the thing itself should be taken into account. For example, the takings of a business subsequent to purchase were generally relevant not only to prove a representation made before the acquisition, but also to prove the true value of the business as at the date of purchase. This is true even when some difference exists between the conditions under which the business was conducted before and after purchase, subject to allowance being made for differences in conditions. However, supervening events, such as a decline in takings caused by ineptitude or unexpected competition post-acquisition, should not be taken into account.”

Mr Potter described the impact the difference between his instructed approach based on ‘true value’ and the approach adopted by Mr Stone to ‘fair market value’ may have on value:
The extent to which hindsight is applied can, in some cases, cause a divergence between the fair market value and true value bases of valuation. This can occur where the information available at the valuation date does not include factors affecting or inherent in the assets that become known after the valuation date (e.g., a product warranty claim that became known after the valuation date but relates to products sold prior to the valuation date).
In cross-examination Mr Stone accepted that ‘true value’ which he described as a creature of law rather than of the market goes beyond what a willing buyer and a willing seller knew at the valuation date. He identified the issue as the extent to which a valuer is allowed to take into account factors that may not have been known at the date of valuation.
In cross-examination Mr Potter accepted there was no relevant value distinction between the approaches that he and Mr Stone had taken when it came to the valuation methodology in this case. As a result of that evidence, the difference in approaches may be put to one side.
There were, however, two differences between the experts concerning the information taken into account when forming their opinions which bear on whose opinions should be preferred. Mr Stone looked at the management accounts but did not refer to them for management commentary. Mr Potter referred both to the accounts and to the commentary. Mr Stone did not rely on budgets and did not turn his mind to whether or not Sleeping Duck had a good or bad track record of setting budgets that turned out to be accurate prior to November 2021.
G2 Maintainable EBITDA and the FY22 budget
Mr Stone chose a four month period, 1 July 2021 to 31 October 2021 upon which to base his estimate of EBITDA. He described the company’s financial performance during this period as ‘remaining strong’. In cross-examination he said he did not have information concerning the forward looking period that was reliable. The reason he did not take into account the period prior to 1 July 2021 was that it was impacted by the COVID-19 pandemic.[129]
[129]Transcript, 1444.
The $26m figure adopted by Mr Stone for EBITDA for October 2021 is a higher figure than Sleeping Duck’s budgeted figures of $24.083m as at 30 September 2021 and $23.627m as at 31 October 2021.
In contrast to Mr Stone’s approach, Mr Potter sought to take into account trends based on what was happening in the business at each valuation date. It was his evidence that from a peak in the middle of 2020 the EBITDA margin was gradually reducing as a general trend over time. Although Mr Potter did not use a mathematical approach to develop what the trend would be he had regard to the commentary in the management reports that suggested that operating costs were going up and sales were decreasing, both factors which he considered would affect EBITDA margin.
In cross-examination, Mr Potter gave the following explanation of his approach which resulted in his maintainable earnings at $20m for the first valuation date and $16m at the second valuation date:[130]
… the business is just emerging out of the COVID period and, um, we only have a few months of results, um, three months of results, if you like. I think the lockdowns were starting to end around the middle of 2021 from memory, so it's difficult - in that environment, it's difficult to arrive at a precise number. When I looked at October, the results in October and the results in November, the EBITDA margins which were, I think, 20.4 per cent it went back to and point something, were – were something which I saw as being relatively consistent with the trend that was occurring, and when I looked at the margin report commentary about what was happening with underlying costs in the business, um, I took a view that that is really about where a purchaser would likely land in terms of what could be forecast going forward. As it turned out, the position worsened …
[130]Transcript, 1484.

In the Supplementary Joint Report the experts agreed that:
in circumstances where the company was emerging from a period affected by the COVID-19 pandemic, a purchaser of the shares in the company would not, all else being equal, pay a price on a forecast based solely upon the prior twelve months EBITDA, knowing that exchange rates affect profit margins and were ”continuing to go against us”. The last twelve months earnings would not be considered as future maintainable earnings.
Consistent with that statement, in cross-examination Mr Stone agreed that future maintainable earnings would probably be less than the previous six months and that a knowledgeable, willing but not anxious purchaser would go into a bargain to purchase the business with that in mind. Further, that a hypothetical purchaser would be in a position to make enquiries as part of due diligence as to what the forecast was for the business and as to the basis of that forecast.
Notwithstanding that Mr Stone was provided with a budget, current at around the two valuation dates, including a budget that showed a reduced EBITDA both in monetary terms and in terms of margin when the 30 September 2021 and 31 October 2021 budgets were compared Mr Stone did not ‘directly use’ those budgets in his selection of future maintainable earnings. He said he did not take any forecasting into account because no forecasts were available. He said he did not take into account whether previous budgets prepared by Sleeping Duck were too optimistic because he was not able to investigate and enquire as to the basis on which such forecasts had been prepared.
In his report Mr Stone said he had not been provided with sufficient information supporting the budget and had not had access to Sleeping Duck’s management team to discuss the basis of preparation and underlying assumptions relating to budgets. For that reason, he did not consider it reasonable ‘to solely’ consider the FY22 budget in his selection of future maintainable EBITDA. In cross-examination, Mr Stone said he thought it was fair to say he did not take into account the FY22 budget at all.
I prefer Mr Potter’s approach to future maintainable EBITDA. It is an approach that draws on all of the available information that would be available to a well informed hypothetical purchaser. As put in the cross-examination of Mr Stone, he did not take into account the budget, nor did he take into account management commentary. His opinion was based on four month results notwithstanding the statement in his report that in selecting future maintainable EBITDA ‘the valuer should place greatest weight on near-term forecast financial results provided the valuer has confidence in the reasonableness of those forecasts’.[131]
[131]Transcript, 1444-1445.
A hypothetical purchaser who had made enquiries of management would know, as reflected in an email from Mr Curry’s email on 20 August 2021, that management considered it necessary to be ‘more circumspect’ in how projections are talked about for the year ahead. There was reported to be a need to take into account ‘the extraordinary impact’ that COVID-19 had on the first half of FY21 and that growth ‘is unlikely to be a straight line trajectory giving the ongoing pandemic’.[132] The peak in sales occurred around July 2020 and deteriorated from that point. In cross-examination Mr Stone accepted that a hypothetical purchaser would take note of the downward trend in EBITDA due in part to increased costs.
[132]Transcript, 1454-1456.
While Mr Stone agreed that the online retailers COVID-19 boom had reached its peak and was receding when proceeding by reference to the four month trading window from July 2021, I am not persuaded Mr Stone took that factor into account in his expectation of future maintainable earnings. I am also not persuaded that his calculation appropriately took into account what he agreed was a ’head wind’ for the business as a result of the falling exchange rate against the US dollar.
Given the downward trend following easing of COVID-19 restrictions, I consider the adoption by Mr Stone of $26m for FME, a figure which exceeded Sleeping Duck’s own budgeted expectations, budgeted expectations which in the past had been overly optimistic not to be realistic.
I accept that when seeking to value Sleeping Duck it was difficult to obtain information about companies that were truly competitors. While that is the case, I think it is not unfair to describe the information concerning industry more broadly in Appendix J to Mr Stone’s report and relied on at least in part by him as not sufficiently comparable to provide a reliable basis upon which to form opinions concerning Sleeping Duck.
While Mr Potter proceeded on the basis of a trend line over time, and did not use a mathematical approach when determining the figure to adopt for FME, I prefer his approach. That is the case at both the first and second valuation dates for which BBHF contends. Mr Potter’s approach is an approach which both takes into account and is consistent with the downward trend for the business evident in its own management reports and commentaries.
G3 10 October 2023 BBHF offer
The experts were asked whether awareness of the 10 October 2023 offer would cause them to change views they had previous expressed concerning the value of the business as at 30 June 2023. Given the terms of the letter, its timing in the context of an impending trial of the proceeding, neither expert considered the letter appropriate to take into consideration.
H Disposition
I will order the proceeding be dismissed.
I intend to order BBHF to pay the Companies and Mr Bandopadhayay’s costs of and incidental to the proceeding on a standard basis. If any party contends for a different costs order, that party should, in the first instance, provide a draft form of order for which that party contends to my chambers by 4:00 pm on 28 June 2024, together with an outline of no more than four pages. If a draft order is provided by any party, unless by consent, I will determine at that time how best to deal with outstanding costs issues.

CERTIFICATE

I certify that this and the 224 preceding pages are a true copy of the reasons for judgment of the Honourable Justice Delany of the Supreme Court of Victoria delivered on 14 June 2024.
DATED this fourteenth day of June 2024.

SCHEDULE OF PARTIES

BETWEEN:

BBHF PTY LTD

Plaintiff

– and –

SLEEPING DUCK PTY LTD

First Defendant

ENERGON SHIELD PTY LTD

Second Defendant

S2 ULYSSES PTY LTD

Third Defendant

PRATEEK BANDOPADHAYAY

Fourth Defendant