DSE (Holdings) Pty Ltd v InterTAN Inc - [2004] FCA 1159

FEDERAL COURT OF AUSTRALIA
DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1159
CONTRACT – interpretation and construction of commercial contracts – sums due under post-completion adjustment clause - breach of warranty.
TRADE PRACTICES – misleading or deceptive conduct – estoppel – rectification for unilateral mistake.
Corporations Act 2001 (Cth) ss 995, 1005, 1325
A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555 referred to
Antaios Compania Naviera SA v Salen Rederiena AB [1985] AC 191 applied
Australian Broadcasting Commission v Australian Performing Right Association Ltd (1973) 129 CLR 99 applied
Bank of New Zealand v Simpson [1900] AC 182 applied
Codelfa Construction Pty Ltd v State Rail Authority (1982) 149 CLR 337 applied
Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 referred to
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 referred to
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 referred to
Hillas & Co Ltd v Arcos Ltd [1932] LT 513 applied
Johnson Matthey v A C Rochester Overseas (1990) 23 NSWLR 190 referred to
Johnstone v Commerce Consolidated Pty Ltd [1976] VR 463 referred to
Lam v Austintel Investments Australia Pty Ltd (1990) 97 FLR 458 referred to
Lee Kong Nelder Nominees Pty Ltd v John Holland Construction & Engineering Pty Ltd WA Supreme Court Full Court 27 May 1998 referred to
Macdonald v Longbottom (1859) 1 E & E 977; 120 ER 1177 applied
Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 applied
Pacific Carriers Limited v BNP Paribas [2004] HCA 35 applied
Re Freehouse Pty Ltd (1997) 26 ACSR 662 referred to
Riverlate Properties v Paul [1975] Ch 133 referred to
Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; 186 ALR 289 applied
South Sydney Council v Royal Botanic Gardens and Domain Trust [1999] NSWCA 478referred to
Taylor v Johnson (1983) 151 CLR 422 applied
The Nai Genova [1984] 1 Lloyd’s Rep 353 referred to
Thomas Bates and Son v Wyndham’s (Lingerie) Limited [1981] 1 WLR 505 referred to
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 applied
DSE (HOLDINGS) PTY LIMITED v INTERTAN INC & ANOR
N 3011 of 2002
ALLSOP J
9 SEPTEMBER 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 3011 of 2002

BETWEEN:

DSE (HOLDINGS) PTY LTD
APPLICANT

AND:

INTERTAN INC
FIRST RESPONDENT

INTERTAN CANADA LIMITED
SECOND RESPONDENT

JUDGE:

ALLSOP J

DATE OF ORDER: 9 SEPTEMBER 2004

WHERE MADE:

SYDNEY

THE COURT:
1.Declares that upon the proper construction of the written agreement entitled “Share Acquisition Agreement” and executed on 10 April 2001, the expression “December Accounts” means or refers to the document entitled:
“Corporate Pack – InterTAN Australia
Subsidiary/Division for the period ending December 2000”
and referred to by the parties in these proceedings as the “December Corporate Pack”.

2.Orders that within seven days the applicant file and serve a draft minute of judgment providing for a judgment sum, including interest, on the basis of order 1 and on the basis of the set off of the sums owing to the applicant by the respondents with the sums owing by InterTAN Australia Limited to Technotron Sales Corp Pty Limited.
3.Subject to order 4 below, orders that the respondents pay the applicant’s costs of the proceedings, including the costs of the cross-claim, any reserved costs, including the costs of the third party discovery against Salomon Smith Barney.
4.Orders that the proceedings stand over to a date to be fixed for the making of final orders dealing with judgment, the final disposal of the cross-claim and any debate about costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 3011 of 2002

BETWEEN:

DSE (HOLDINGS) PTY LTD
APPLICANT

AND:

INTERTAN INC
FIRST RESPONDENT

INTERTAN CANADA LIMITED
SECOND RESPONDENT

JUDGE:

ALLSOP J

DATE:

9 SEPTEMBER 2004

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Index
Introduction  [2] – [18]
The Facts  [19] – [209]
Some Important Contested Factual Issues  [210] – [268]
The Contract Claim  [269] – [294]
The Respondents’ Contractual Arguments  [295] – [299]
The Balance of the Arguments  [300] – [341]
Estoppel  [302] – [313]
Rectification  [314] – [317]
Misleading or Deceptive Conduct  [318] – [327]
Breach of Warranty  [328] – [341]
Aspects of Relief   [342] – [357]

Introduction
This matter concerns the adjustment payments said to be due and payable arising from the sale of shares in a company called InterTAN Australia Limited (“ITAL”). The applicant (“DSE”) is a wholly owned subsidiary of Woolworths Limited (“Woolworths”).
Prior to the purchase of the shareholding in ITAL, DSE carried on a business under the name “Dick Smith Electronics”, selling consumer electronic products and services. In 2000, ITAL carried on a business of the same kind in Australia, under the name “Tandy Electronics”. I will refer to this as the Tandy business. I will refer to Woolworths’ like business as the Dick Smith business. ITAL was owned by two overseas companies InterTAN Inc and InterTAN Canada Limited. I will refer to these companies as InterTAN Inc and InterTAN Canada. Sometimes, I will refer to the interests associated with them simply as InterTAN. InterTAN Inc wholly owned all the ordinary shares in ITAL. InterTAN Canada owned $10 million dollars of preference shares in ITAL.
The Tandy business was carried on by ITAL, though, as will become important, another company, Technotron Sales Corp Pty Limited (“TSC”) had, prior to 1 July 2000, a role to play in connection with that business. Prior to the introduction of the Goods and Services Tax, TSC operated as a wholesale company for the purposes of sales tax, purchasing foreign sourced goods and supplying them to ITAL. This role ceased on 30 June 2000. Thereafter, TSC was dormant in terms of commercial activity. There was, however, an intercompany liability between ITAL and TSC (owed by the former to the latter) of over $4 millions dollars, the precise amount varying at different times after 1 July 2000. It is that intercompany liability (though not its precise amount) which is central to the controversy between the parties.
The purchase price for the shares in ITAL was calculated by reference to a simple arrangement agreed between senior officers of the respective companies. The sale was to be for $108 million on an “ungeared” or “unleveraged” or “unlevered” basis. This meant that the negotiated price of $108 million was for the business and assets supporting the operations and earnings of the business. Seen as separate from the assets and liabilities supporting the operations and earnings of the business were surplus cash, cash equivalents and debt. The commercial price bargained was struck for the operating business: $108 million. How the parties came to that was a matter for them; though, Woolworths viewed the worth of the business primarily by reference to maintainable earnings. The negotiated price was sometimes referred to as the “enterprise value”.
The applicant’s claim is based on two steps being taken in relation to the negotiated price or enterprise value. First, from it a contract price would be struck by use of the notion that the price was “ungeared”. Cash, cash equivalents and debt would be added to and subtracted from the $108 million. Obviously, for this exercise a balance sheet as at a particular date was needed from which these items could be extracted. This balance date had to be chosen and was necessarily as at a time when the business was controlled by the vendor. The second step was to provide for an adjustment or payment one way or the other (that is, to or by the purchaser) depending upon a comparison of the net asset position shown in the balance sheet used to calculate the contract price (in the first step referred to above) and the net asset position as at the date of completion.
The applicant’s case was based on the proposition that once one used a particular balance sheet as at the relevant balance date to identify the cash, cash equivalents and debt for the calculation of the contract price one must use the same balance sheet in the net asset comparison between that balance date and the completion date in order to ensure uniformity in treatment in working out the contract price and the adjustment.
The enterprise value or negotiated price was agreed between senior executives of Woolworths and InterTAN Inc on or about 1 March 2001 after a period of financial investigation or “due diligence” in January and February 2001. During this due diligence process, which took place from late January to mid-February 2001, management accounts for the month and quarter ending 31 December 2000 were made available to those acting for DSE and Woolworths. The accounts were entitled and headed as follows:
Corporate Pack – InterTAN Australia
Subsidiary/Division for the period ending: December 2000
These accounts were, as a matter of fact, an aggregated set of accounts of ITAL and TSC; that is, they reflected the accounts of both companies as one economic unit, eliminating entries relating to transactions or circumstances between the two companies such as, relevantly here, any liabilities inter se. Nowhere in the accounts was the fact of aggregation stated to be the basis of the accounts. The accounts contained month-to-date, quarter-to-date and year-to-date income figures for the present year and the previous year, and the budget and variations therefrom, in Australian and United States dollars; it contained schedules of assets, liabilities and equity as at 31 December 2000 in both currencies; it contained schedules of operating expenses of selling and general and administration expenses for the month, quarter and year-to-date in both currencies; it contained a schedule of income from outside sales, intercompany sales and other income for the month and year-to-date in the current year and the previous year in both the currencies; it contained a detailed schedule of gross profits for the month and year-to-date in the current and previous year in both currencies; it contained a schedule of sundry asset accounts for the current and previous year in both currencies; it contained a schedule of liability accounts for the current and previous year in both currencies; and it contained a schedule of intercompany payables and investments. I will refer to these accounts as the “December Corporate Pack”.
I have annexed as annexures 1A, 1B, 1C and 1D parts of these accounts, being the Australian dollar part of the schedule of assets (1A), the Australian dollar part of the liabilities and equity (1B), the sundry liability accounts (1C) and the schedule of intercompany receivables, payables and investments (1D). (The initials “LCU” sometimes appearing stands for “local currency unit”.)
It will be noted that the schedule of intercompany receivables, payables and investments has lines for TSC and ITAL which are blank. It should also be noted that in the schedule of outside sales, intercompany sales and other income there is a line for TSC under a heading “Detail of Intercompany Sales” and no amount is shown for the “current year” or the “last year”.
It is tolerably clear from the evidence that the purchase price that was defined in the agreement as executed of $114,139,649 was arrived at, to the knowledge of both parties, by, in the first instance, adding to $108 million the two items of cash and short term investments (cash and cash equivalents) of $2,748,099 and $4,500,000 (totalling $7,248,099) referred to in annexure 1A, and, later, by subtracting a sum of a little over $1,000,000 said by Mr Sweetman, an officer of DSE’s retained investment banker, UBS Warburg (“UBS”), to average down the cash holding, calculated as it was in the Christmas period, and by Mr Gingerich, the Vice President Finance and Administration and Chief Financial Officer of the InterTAN Group, substantially to be a bargained reduction. There was no deduction for debt. All the liabilities listed in annexure 1B when read with annexure 1C were trade or business liabilities; none was in the nature of financing, whether equity or debt. There was no debt apparent in Annexure 1D apart from a “payable” (as opposed to a “loan payable”) owing to InterTAN Canada in the sum of $92,891.
The first distributed draft of the sale and purchase agreement (distributed on 6 March 2001), identified as the property the subject of the sale all the shares (ordinary and preference) in ITAL and TSC that were held by InterTAN Inc and InterTAN Canada. That had been the basis upon which Deloitte Touche Tomatsu (“Deloittes”), who were appointed on behalf of Woolworths and DSE to do the financial due diligence, approached the matter. (It will be important, for reasons that will become apparent, to keep distinct the aspects of due diligence that can be described as “financial”, “tax” and “legal”.) It was the basis upon which some of Woolworths’ officers approached the matter up to early March 2001. It was not how other advisers of Woolworths approached the matter, in particular Mr Sweetman (of UBS) and Mr Brewster of Gilbert + Tobin (“G+T”), the latter being Woolworths’ and DSE’s solicitors on the transaction.
On or shortly before 9 March 2001, it was decided on behalf of Woolworths and DSE not to purchase the shares in TSC. This had the consequence of transforming the liability owed by ITAL to TSC into an external liability of the one company being purchased; whereas, up to 9 March 2001, the loan was an intercompany liability of ITAL and asset of TSC which could be ignored as long as both companies were being purchased.
No adjustment was made to the purchase price of $114,139,649 consequent upon this change. With the exception of Mr Gingerich (from 4 April 2001), no one prior to execution (on 10 April 2001) appreciated the potential importance of the excision of TSC.
When it came time to calculate adjustment payments, if any, owed between the parties by the comparison of the net assets at 31 December 2000 and at completion, DSE sought a payment referable to the reduction in net assets by comparing the balance sheet in the December Corporate Pack (which had net assets calculated without regard to the debt to TSC) and the otherwise agreed completion date accounts of ITAL on a stand-alone basis (which had net assets calculated with regard to – and so reduced by – the debt to TSC). Thus, there was, by this method, a direct dollar for dollar picking up of the indebtedness to TSC which otherwise had to be discharged. The debt and the net asset adjustment cancelled each other out.
The respondents denied the entitlement of the applicant to an adjustment based on that comparison. They also demanded repayment of the liability.(The respondents sue for this debt in the cross-claim.)
The controversy, in its various pleaded forms, centres upon how the liability of ITAL to TSC as at 31 December 2001 of over $4 million is to be treated in connection with the setting of the purchase price and the net asset adjustment under the agreement.
The Facts
The resolution of the controversy requires a close attendance to the events of late 2000 and the first quarter of 2001. Whilst in the final analysis the facts may reduce to some simplicity, an appreciation of that simplicity is to be gained by an understanding of the whole of the relevant events. Not all the facts will be such as to be legitimately taken into account in the construction or interpretation of the contract in question. Nevertheless, a full understanding of what happened is important in order to resolve all aspects of the matter. In this section, I set out what I see to be the important chronology for understanding the resolution of the controversy, not only at its primary contractual level, but also at the alternative levels of representation, estoppel and rectification. From time to time in this largely chronologically arranged section, I have dealt with and resolved some of the factual disputes raised between the parties. I have done this where it does not unduly impede an understanding of the chronological flow of events. There are some disputed factual issues, however, best dealt with outside the chronology, and I have dealt with these in the next section.
From about mid-2000, and until the first quarter of 2001, InterTAN Inc was attempting to sell the Tandy business in Australia and its Canadian business. InterTAN retained Salomon Smith Barney (“SSB”), the investment banking firm, as its adviser. The negotiations regarding the disposal of the Australian and Canadian businesses involved discussions between InterTAN officers and representatives of two North American entities referred to in the evidence as “Radio Shack” and “Future Shop”, in North America, and Woolworths in Australia.
UBS (then known as Warburg Dillon Read) was a well-known merchant bank in Australia, which, in early 2000, was advising Woolworths in relation to the possible acquisition of the Tandy business. Mr Bain, who was the Vice President of Mergers and Acquisitions at UBS had spoken to Mr Levy, the CEO and president of InterTAN Inc, about the possibility of a purchase by an interested party in Australia of the Australian Tandy business. By April 2000, UBS was collecting and collating publicly available information on InterTAN and providing preliminary advice to Woolworths. In May 2000, Mr Wavish, the Chief Financial Officer of Woolworths met Mr Levy and Mr Gingerich. Various possibilities were discussed, including InterTAN buying the Dick Smith business.
By 13 October 2000, UBS had prepared, for discussion with Woolworths, a paper concerning possible dealings with the owners of the Tandy business. Various commercial possibilities were, at this time, under discussion. These possibilities involved a scrip acquisition of DSE by InterTAN, a cash acquisition of the Tandy business by Woolworths, subject to an acceptable price, and a possible joint venture. At the time, UBS was of the view that only a cash acquisition by Woolworths would be an attractive alternative for Woolworths. The preliminary evaluation analysis in this paper undertaken by UBS suggested a value for the Tandy business in the order $150-170 million, which included values for synergies arising from the combination of the Dick Smith and Tandy businesses. This valuation was qualified in a number of respects. The valuation analysis was said to have been undertaken by UBS based on information provided by management of InterTAN, UBS research and other publicly available financial information. It is unnecessary to set out any of the details of this valuation.
This recommendation of UBS to Woolworths made in October 2000 was prepared by Mr Sweetman, with Mr Mackay’s involvement. It was not directed to the legal form of the contemplated transaction, it was directed to the commercial essential: the acquisition of the business.
Mr Sweetman was cross-examined as to his knowledge of the two relevant companies from October 2000. He knew of the existence of the (dormant) TSC from October 2000. The cross-examiner attempted to extract a concession from him that he understood at all times until 9 March 2001, when the shares in TSC were excised as subject matter of the sale, that the transaction was to be for the shares in two companies (ITAL and TSC). Thus, it was put to him that he knew that the December accounts in the December Corporate Pack were aggregated accounts of those two companies, and as such would not be expected to reveal the intercompany position between the two companies. From all of Mr Sweetman’s evidence, which I accept as truthful, I conclude that Mr Sweetman approached the transaction from the commercial perspective of the purchase of the Tandy business, which he understood on the basis of information supplied in October 2000 by SSB, to be carried on by ITAL. He also understood from the same source that TSC had had an involvement up to 30 June 2000 as a wholesaler and that as at October 2000 was owed over $4 million by ITAL. Mr Sweetman was generally unconcerned with form, and concentrated upon the substance of the operating business, which, in fairness to him, was after 30 June 2000 carried on by ITAL only. Thus, his focus was on the operating business and its earnings, as the foundation for his view, about what Woolworths should offer to pay.

At some stage in October 2000, (I infer prior to the preparation of the discussion paper referred to above) UBS received from SSB a document entitled “Stage 1 Due Diligence Information”. The document was dated 5 October 2000. The document was entitled “Project Nissan”, which was the codename given by the parties to the sale of the Tandy business. In the corporate and business overview at the beginning of the document the relevant InterTAN corporate structure and ownership was explained. ITAL was said to be a wholly owned subsidiary of InterTAN Inc, a company incorporated in Delaware and listed on the New York Stock Exchange, though located in Canada. The introduction to the document dealing with the corporate structure also pointed out the relationship between InterTAN Inc and TSC and the then existing debt between ITAL and TSC, in the following terms:
InterTAN Inc also wholly owns [TSC], which has operated as the wholesaler of overseas products for Intertan Australia. From July 1^st 2000, [TSC] is no longer operational and lays dormant and [ITAL] now purchases all overseas products direct.
There is no inter company debt between Intertan Inc and [ITAL]. There is an inter-company payable of just over $4.0m by [ITAL] to [TSC].
This material (the Stage 1 Due Diligence Information) included the 2000 annual accounts of InterTAN Inc. Consolidated financial information was contained in those accounts. One of the notes to the accounts made clear that the group’s business was managed along geographic lines and references in the notes to the various countries in which the group conducted business, including Australia, referred to the reportable segments in those countries.
Mr Sweetman (of UBS) read this material and appreciated, in October 2000, that, as at October 2000, ITAL owed TSC a debt of over $4 million. Mr Sweetman said that he later came to believe that this debt had been repaid based on his examination of the December Corporate Pack in early March 2001. However, given that he understood the Deloittes’ due diligence report to be based on his understanding of the transaction (that the purchase was of ITAL – and not two companies), his belief of the lack of any debt owed by ITAL must have been based, and I so find, also on the contents of the Deloittes’ due diligence report distributed on 16 February 2001.
On about 21 or 22 November 2000, Mr Sweetman was given management accounts (in like form to the December Corporate Pack which he was later given) for the period ending, and as at, 30 September 2000. These included a list of intercompany payables and loans payable showing a nil adjacent to TSC. Mr Sweetman was not asked how he understood (if he had any view) how this was to be reconciled with the information in the “Stage 1 Due Diligence Information”.
Discussions took place in October 2000 between representatives of Woolworths, InterTAN, SSB and UBS at which various alternatives were discussed for combining the Tandy and Dick Smith businesses.
By mid-November 2000, the discussions with InterTAN and SSB had reached the point where InterTAN and SSB preferred that Woolworths make a cash offer for the Tandy business in Australia. At this time, there was the possibility of another trade buyer. Some discussion had taken place as to the possibility of a “management buy-out”. By mid-November 2000, however, it would appear that Woolworths was being told that if it wished to further its interest in the Tandy business it should make some form of cash offer.
The desire of InterTAN Inc for a sale of the Tandy business to Woolworths was in significant part a product of the desire to sell the much larger Canadian business (or the shares in the controlling company) with the Australian business liquified into either cash or a binding offer for sale as part of that Canadian sale. The Canadian business was three to four times the size of the Australian business. Neither Radio Shack nor Future Shop was interested in purchasing or running the Australian business. Mr Gingerich said that Future Shop had indicated that it was not interested in buying the holding company if it directly or indirectly ran the Australian business. Thus, to maximise the chance of selling the shares in the Canadian holding company and to maximise the price of those shares, it was important to liquify the value of the Australian operation by a sale.
It is not unimportant to appreciate this commercial background, because in the crucial months in January to April 2001 Woolworths was the only bidder for the Australian business. So, it can be inferred, the successful implementation of the sale was vital to InterTAN Inc and to the InterTAN interests.
On Friday, 17 November 2000, UBS forwarded by email to Woolworths a document entitled “Update and Discussion Paper” concerning the project. In this document, UBS expressed the view that it appeared from discussions with SSB that “Nissan Australia” was for sale and that other alternative structures were unachievable. In the summary section of the document UBS stated as follows:
Having regard to an estimated stand alone value for Nissan of between $115 million and $135 million (excluding synergies) and an implied value to [Woolworths] of between $185 m – $245 m (including Synergies) [UBS] recommends that [Woolworths] make a non-binding (value accretive) offer of at least $150m.
The document went on to explain the stand-alone valuation as having been reached by a capitalisation of earnings method of valuation based on historic and forecast information provided by SSB. (A valuation approach based on discounted cash flow method was rejected because of what were seen to be the “aggressive” earnings forecast of the business.) The document contained a “synergy analysis”. The document identified an “implied value to Woolworths” of between $185 to $247 million based on stand-alone values of $115 to $135 million and assessed value of synergies of $70 to $112 million. Thus, UBS was coming to a view, at this time, of a higher value to Woolworths of the Tandy business than had been expressed in the preliminary valuation of October 2000.
This recommendation to make such an offer to InterTAN was apparently accepted by Woolworths. On 23 November 2000, UBS sent a letter to SSB making a formal offer by Woolworths for a cash acquisition for a sum of $150 million. The introductory paragraph to the letter containing the offer was in the following terms:
Further to our recent discussions, [UBS] is pleased to confirm that our client [Woolworths] is interested in a cash acquisition of Tandy Australia (“Tandy”) from InterTAN Inc (InterTAN). Based on the information currently available to Woolworths, Woolworths would be interested in purchasing 100% of Tandy for a sum of $150 million (the “Transaction”). Woolworths believes this price reflects at least the ungeared, stand-alone value of Tandy and a generous sharing of the value of synergies expected to be released from integrating Tandy with Dick Smith Electronics (DSE). This price is subject to Woolworths’ satisfaction that the forecast margins for Tandy are achievable given the margin decline experienced in the September 2000 quarter and significant difference to budget.
Woolworths’ interest is subject to satisfactory due diligence review and other matters set out in this letter.
The letter then went on to deal with anticipated due diligence, the entry into a definitive agreement and other matters.
In early December 2000, SSB told UBS that InterTAN was of the view that the price offered of $150 million was too low. In mid-December, Mr Andrew Cox and Ms Karen Fox of SSB met with Mr Anthony Sweetman and Mr Adam Ross of UBS. Various points were made in conversation, which included the possibility of a higher non-binding indicative offer in order to commence due diligence. The substance of these conversations was passed on by UBS to Woolworths.
By the end of December 2000, there had been an important development in North America. By 22 December, Radio Shack had completed its due diligence and had provided a letter with indicative offers for the shares in the holding company on the basis that the Australian business was sold and liquified. At the InterTAN Inc Board meeting on 26 December 2000, at which SSB officers attended, SSB was instructed to move forward with the sale to Woolworths and to achieve an agreement in principle as soon as possible.
Mr Cox’s evidence and notes make it plain that on 21 December 2000 he had been told by Mr Gingerich and Mr Levy that the $150 million offer from Woolworths was acceptable, without any representations or warranties.
It can be safely concluded that by the end of 2000 the sale of the Australian business was a matter of vital concern to InterTAN Inc and those interested in it, since a failure to sell it risked placing a serious impediment in the way of the sale of the North American business.
Woolworths was not prepared in December 2000 to make a higher non-binding indicative offer, and on 2 January 2001 Mr Cox (of SSB) sent an email to Mr Mackay (of UBS) stating, amongst other things, that in order to progress discussions Woolworths would be provided with access to due diligence information to enable it to reduce the conditionality of its offer. Woolworths was to undertake its own due diligence review and submit a revised offer by 19 January 2001 on the basis of this review. Woolworths was prepared to proceed on this basis.
Woolworths then retained Deloittes to review due diligence information provided and to prepare a due diligence report.
After InterTAN Inc’s board meetings of 3 and 11 January 2001, Mr Levy and Mr Gingerich travelled to Australia for the purpose, amongst others, of dealing with the sale of the Tandy business to Woolworths.
On 8 January 2001, Mr Ross (of UBS) sent an email to Mr Cox (of SSB) indicating that he expected Deloittes to be appointed shortly to assist in the due diligence. In the meantime, Mr Ross sent an attached document which was entitled “Project Nissan Due Diligence List”. This document had been apparently prepared by UBS and contained a list of information and material which would be required.
On 11 January 2001, Mr Sweetman (of UBS) sent to Mr Cox (of SSB) an information request list which had by that time been prepared by Deloittes.
The respective responsibilities of those who might be said to be in the Woolworths’ “team” included the following. UBS was responsible for the overall project co-ordination, including interaction with Woolworths, G+T, Deloittes and SSB. Deloittes were responsible for “financial due diligence”. DSE, Deloittes and UBS were together responsible for assessment of such things as sustainability of existing earnings and growth prospects. Deloittes and UBS were together responsible for financial analysis. Deloittes were primarily responsible for tax investigation.
For the purpose of the due diligence being undertaken, a data room was created at the offices of Allen Allen and Hemsley (“Allens”) the solicitors for the InterTAN interests.
On or about Monday 15 January 2001, Mr Sweetman (of UBS) spoke to Mr Cox (of SSB) concerning the pending due diligence. There was to be a short delay. Rather than starting the following day, it would start on or about Wednesday, 17 January 2001. Apparently, Mr Levy had arrived in Australia and final instructions were awaited from him before allowing due diligence to commence. It was anticipated at this point that there would be two weeks “in the data room” and another week to submit an offer. Some extension of time was said to be possible to this anticipated timetable. Also in this conversation between Mr Sweetman and Mr Cox it was confirmed that a share sale should be assumed unless there was notification to the contrary.
What was referred to as “financial due diligence” proceeded from 17 January to 15 February 2001.
Protocols for use of the data room were formulated and circulated by Allens. Mr Lawrance of Allens was given the overall responsibility for assembling, collating, copying and indexing the documents in the data room. He was known as the “due diligence officer”. The data room was to be made initially available in the Sydney offices of Allens. The material within the data room was to be indexed and, according to a letter from Allens to Mr Sweetman of 16 January 2001, was to be “updated on a regular basis to include additional documents placed in the data room from time to time”. The common understanding of all concerned was that the due diligence had a degree of formality to its execution and that the data room was the repository of disclosed information.
Mr Kim Slaminka (of UBS) acted as the “due diligence coordinator” on behalf of UBS and Woolworths in relation to the project. Mr Slaminka was a recent graduate and did not have any analytical or advisory role in the transaction. He made a number of notes of meetings. He was an apparently intelligent person (having a first class honours degree in Commerce from the University of Sydney) and his notes appear to be a careful recording of meetings attended by him.
The data room opened on Wednesday, 17 January 2001.
Deloittes had been retained by Woolworths to provide a “due diligence report”. Mr Griffiths, the relevant partner at Deloittes, understood this to be so that an offer to purchase the Tandy business could be made with the benefit of such a report. Mr Griffiths was assisted by Mr Woosnam, his junior in years, experience and position in Deloittes. From early in their work, both Mr Griffith and Mr Woosnam understood that the purchase of the business would be by the purchase of two companies, that is, the shares in two companies, ITAL and TSC. Mr Griffiths could not recall how he learnt this. Mr Woosnam was probably told by Mr Griffiths. Given the terms of the introductory section of the Stage 1 Due Diligence Information, it is not surprising that Mr Griffiths came upon this information early. The matter is of some importance because when Mr Griffiths and Mr Woosnam came to examine the December Corporate Pack, they both appreciated these accounts to be aggregated in the sense I have described.
Mr Griffiths attended the data room on only a few occasions. It was Mr Woosnam’s task to undertake the detailed analysis of the information in the data room.
Mr Sweetman (of UBS) gave evidence that he did not understand the December Corporate Pack to be accounts of other than ITAL. I accept his evidence in that regard. To the extent it is necessary so to find, I conclude that Mr Griffiths’ knowledge that the structure of the transaction involved buying two companies was not derived from being told as much by Mr Sweetman.
On 17 January 2001, soon after commencing work, Deloittes requested the “December numbers”, meaning relevant financial information for the most recent month. The written request on 17 January 2001 asked for amongst other things:
Management accounts for the current and last two financial periods. It is essential that we receive P & L and balance sheets to December ASAP.
On 18 January 2001, Ms Fox (of SSB) told Mr Slaminka (of UBS) that the December figures were still being worked on. Also on that day UBS made a written data request for “December financials, soft copy”. On that day a response was given “in preliminary form (hard copy)”.
On Friday 19 January, Ms Fox (of SSB) informed Mr Slaminka of (UBS) by email that the December financial information would be available the following week in hard copy. It is not clear when the December Corporate Pack was placed in the data room. It was certainly placed there by 24 January 2001. At this point, it is to be noted that the December Corporate Pack was not entered on the index kept by Allens of what was placed in the data room. On the evidence, it is clear that this omission was an oversight, whether of Mr Lawrance (of Allens) or one of his colleagues. The likelihood is that it was placed in the data room during the period when Mr Lawrance’s colleague was in charge of the data room. The relevance of this matter will become evident in due course.
At this point, it is appropriate to say something as to terminology as to the December Corporate Pack and related matters. The agreement that was executed on 10 April 2001 used the phrase “December Accounts”. Earlier drafts used the word “Accounts”. It is unnecessary to be precise about the timing of that change. The parties in the litigation and the participants in the events also used the phrase “December accounts”, that is, as a general expression not specifically referring to any form of agreement. In this sense I have used the word “accounts” not capitalised. Sometimes the phrase “reference accounts” was used. In these reasons, I have attempted to use the phrase “December Accounts” when referring to the content of the final agreement or the drafts preceding it in which the phrase was used and I have attempted to use the phrase “December accounts” when referring to discussion by people or when referring to accounts for December in a generic way.
On the evening of Wednesday, 24 January 2001, a meeting took place at Allens. Those in attendance (in person or over the telephone) were Mr John Winstanley (the managing director of ITAL), Mr Levy, Mr Gingerich, representatives of SSB, of Woolworths and of UBS (probably only Mr Slaminka in respect of UBS) and Mr Griffiths and Mr Woosnam (of Deloittes). At the meeting, someone said that in connection with draft statutory accounts for the period ending and as at 30 June 2000:
We still need similar accounts for December 2000
to which someone on the InterTAN side said:
all we can provide you with is what is sent to the parent entity on a monthly basis.
This made clear to all relevant parties that there were and could only be one set of December accounts – the form of management accounts sent monthly to the parent from Australia. There was no dispute that the December Corporate Pack was an example of “what [was] sent to the parent entity on a monthly basis”.
On 25 January 2001, Mr Slaminka sent an email to Ms Fox making a request for information in connection with the operational expenses of the business and possible overlapping expenses, as follows:
There should be an inter-connecting sheet/analysis between the monthly Corporate Packs and the summary sheets that were provided. I’ll discuss this in more detail over the phone, but we are trying to get our heads around lower level expense items (eg within advertising), so as to determine exactly where any expense overlaps exist between Nissan and DSE in order to construct more precise synergistic estimates.
On Tuesday, 30 January 2001, the request made the previous week for “interconnecting sheet/analysis” was repeated in virtually identical terms. This request was repeated, again, in the same terms the following day, 31 January 2001. The response at this time was that it would be discussed with Mr Gingerich on Thursday, 1 February 2001, during a conference call.
Also on 31 January 2001, Mr Slaminka sent an email to Ms Fox enclosing, amongst other requests the following request:
Detailed Profit & Loss Reports
…
2.Please provide an adequate interpretation of the following Account Codes and a description of what transactions are accounted for in these accounts.
A/C No.              A/C Name
5789  CSO Expenses
3834                   Interest I/C WH
3835                   Interest I/C ST
3603                   Other Income TSC
3603                   C.M.A. 50% GL
The request for an “interconnecting sheet/analysis” was repeated, once again, on Thursday, 1 February 2001, by email. The response given was, again, that it would be discussed with Mr Gingerich during a conference call, this time on the following day, Friday, 2 February 2001.
There was a conference call on Friday, 2 February 2001. In attendance were representatives of InterTAN (including Mr Gingerich), of SSB, of Woolworths and Mr Slaminka (of UBS). Mr Slaminka made notes, as follows:
Detailed Profit and Loss Reports
1.See administration P & L
2.First 4 intercompany accounts that cancel out on consolidation.
5836-50% gain or loss
+ American Express fraud case.
+ what costs go to each department?
→ Chris Avery will put together summary sheet.

Apparently, Mr Avery went through the matters listed in question 2 in these notes of Mr Slaminka and said that he would provide a summary sheet. Mr Avery could not recall what he said at this meeting. He did, however, explain in his affidavit that account 3603 “Other Income TSC” was an ITAL account relating to the administration of the amounts payable by ITAL to TSC for the wholesale role played by TSC up to 30 June 2000. Mr Avery said the following in [28] of his affidavit as to what he knew at the time about the accounts listed under 2 at [65] above:
I knew that the first four accounts were intercompany accounts (either between ITA and Technotron or between 1 Tandy store and another) and that, given that they were intercompany accounts, any amounts to which those accounts referred would in effect “disappear” when the accounts of ITA and Technotron were aggregated.
Mr Avery was not cross-examined.
Mr Slaminka gave evidence in [45] of his first affidavit about what is adjacent to 2. in his notes set out at [66] above, as follows:
Avery said words to the effect of “the first four inter company accounts cancel each other out” which I recorded in my notes referred to in paragraph 44 above. In those notes I also made reference to account 5836 which does not appear on the document entitled “Questions to be put to ITN by DSE” … I cannot now recall how that specific account number came up. In my notes, I also recorded that a question was asked, “what costs go to each department?”. I cannot now recall who asked this question but I recall Avery’s response was words to the effect of “I will put together a summary sheet rather than explain it item by item which would be difficult as the accounts are rather complex.”
I accept Mr Slaminka’s evidence, and I think it more likely that Mr Avery did not orally detail all that he knew about account numbered 3603 – though he did say something about “50% gain/loss”. I think it more likely that he agreed to put together a summary sheet, rather than explaining things item by item, which, as Mr Slaminka recalled, Mr Avery said would be “rather complex”. This is supported by what Mr Gingerich said in [46] of his affidavit: that towards the end of the meeting Mr Avery said:
It would be easier for me to prepare a document that visually shows how the various departments’ expenses roll up into the consolidation.
Thus, I am not satisfied that there was anything, or at least anything of clarity, said about account numbered 3603 at the conference call, or that Woolworths’ representatives were told that it was an ITAL account relating to an administration fee payable by ITAL to TSC.
It is clear that at this meeting (at which Mr Sweetman was not present) elimination of certain accounts on consolidation was discussed. The discussion was directed to understanding expenses of the business, that is the current trading operations of the business, and it took place at a time when Deloittes representatives (who were not present) and Woolworths’ officers, such as Mr Dowsett (who may have been present), understood that both ITAL and TSC (that is, the shares in both) were to be purchased.
Also, it is important to understand what Mr Slaminka meant by consolidation. At this time, he and others on behalf of Woolworths were not directing themselves to de-consolidation or de-aggregation of related company accounts, but rather they were concerned with understanding what were internal departmental charges that would net-off when examining the business as a whole in trying to understand the business’ current external outflows and inflows. In connection with the due diligence report distributed on 16 February 2001 and in connection with an introductory passage in that report dealing with consolidation, Mr Griffiths said the following in [8.2] of his second affidavit (which I accept):
The phrase “net off on consolidation” was, to my mind, a reference to the aggregation of the various departmental profit and loss statements. It was a reference to internal recharges between departments and stores within the one company. My understanding and intention at the time I participated in the preparation of the Deloitte Due Diligence Report was that these internal charges were a reference to profit and loss recharges between departments and stores. Neither I nor the Deloitte employees involved in the preparation of the Deloitte Due Diligence Report were able to verify that all internal charges between departments and stores netted out on consolidation and relied upon management representations on the matter. My understanding, based upon my involvement in the financial due diligence in February 2001, is that it was precisely this difficulty which led to the request in response to which Exhibit N-19 was provided in the data room.
I will come to Exhibit N19 directly. It is sufficient to conclude this discussion with a finding that the notion of consolidation and netting-off being discussed on 2 February 2001 was as described above by Mr Griffiths. It concerned an attempt to understand the operations of the business and current inflows and expenditures from and to the outside world.
After the meeting of 2 February 2001, Mr Avery prepared a document which became identified in the data rooms index as document N19.
On Monday, 5 February 2001, Mr Lawrance (of Allens) sent Mr Slaminka (of UBS) an email that attached an updated index of the data room – version 9. The new additions contained the document prepared by Mr Avery and labelled N 19. Section N was entitled: “Responses to Requests for Further Information”.
Document N 19 was listed as follows:
Elimination Entries, Indirect and Direct Expenses
Questions raised by DSE personnel – question 2 – 020201
From this description document N 19 could be seen to be, as it was, the summary sheet that Mr Avery said at the conference call on Friday, 2 February he would provide as part of the answer to question 2 referred to at [66] above.
Document N 19 commenced with a page of explanation, drafted by Mr Avery, as follows:
Intertan Australia Ltd
Elimination entries
I attempted to prepare a spreadsheet explaining the various elimination entries, however I think that may well of [sic] proved more difficult then [sic] the reading of book one.
Attached is our detailed balance sheet and expense groupings to December 31^st, which show all accounts listed under their relevant SG&A heading. Reading this in conjunction with the Book One P&L should provide sufficient clarification.
Internal allocations fall broadly into the following categories:
Indirect Expenses
These are allocations between stores and departments, which eliminate on consolidation, and appear on the all store P&L after the Profit Contribution line. They serve internal purposes only and have no external financial effect.
Direct Expenses
The majority of Direct Expenses are just that, direct external financial expenses. However, there are some Direct Expenses where we allocate on an estimated basis and then pay and charge direct to one department P&L. The majority of these fall under the Insurance and Taxation areas and P&L’s. For example, Payroll Tax. All stores and departments are charged one percentage across the board for payroll tax and occupational superannuation. These charges are then credited to our Taxation P&L (P90) and the payment is then charged to the Taxation P&L. The across the board allocation and credit eliminate, the payment then representing the true expense.
Head Office Expenses
Head Office expenses for Rent, Electricity, Switchboard/Telephone and IS Services are allocated on a pro rata type basis. Income on the Building Department for Rent, Telephone and Electricity eliminate on consolidation and the real expenses for Electricity and Switchboard are recorded on the building P&L. There is no expenses for Rent. IS allocate their expenses and their income is eliminated on consolidation.
Again, by referring to the attached balance sheet groupings when reading the Book One P&L, it will act as a guide to follow.
Perhaps any further, specific questions can be forwarded through after further review. A more detailed explanation can be provided, however will take another day or two.
Enclosed with this explanation were seventeen pages of a trial balance, including a document which was headed: “Intertan Australia Ltd/Technotron Sales Corp Balance Sheet”. Because of its importance it is annexed as annexure 2.
Mr Slaminka’s affidavit stated, and I accept, that nothing was given or said to him (as UBS “Due Diligence Co-ordinator”) by anyone at any time to indicate that document N 19 was provided for a purpose other than the answering the request set out at [62] above, in the context of the discussion that took place on 2 February 2001.
On Tuesday, 6 February 2001, Mr Slaminka sent to Ms Fox further questions of Mr Woosnam (of Deloittes) for an anticipated meeting the following day, Wednesday, 7 February 2001. These requests apparently arose out of document N 19 and were as follows:
Questions from Steve Woosnam (DTT) to with [sic] Chris Avery, for meeting on 7 Feb ’01.
1.Per exhibit N-19 – Profit & Loss page 8 – there is a $700,000 credit to cost of sales re inventory obsolescence. Does this relate to the provision re old mobile phones? I thought the entry to reverse this provision was Dr. Provision, Cr. Stock?
2.Account 4017 (on the same page) refers to Price Layering – can we discuss this please?
3.Account 4115 – Cost Adjustment $14,996,460 – I am still unclear as to what this is made up of – is there a breakdown of how it is made up? What is the other side of the entry.
4.Can you advise in detail what costs get capitalised in the ICPE reserve.
5.Have bonuses been accrued for in salary costs to date or is this a year end adjustment?
6.Gross margins appear to fall in the last 3 months of 2000 (Oct, Nov, Dec) – is there are reason for this – please see attached spreadsheet – these numbers come from monthly corporate packs.
7.This a sales tax debtor of $168,000 at December (per N21) – is this a refund re adaptors/booklets? – If so how does this reconcile to $70,000 received in the year per exhibit N-20.
8.Why did payroll costs as a percentage of sales fall so significantly in FY 2000 compared to FY 1999. – Analysis also included on spreadsheet attached.
9.Contract managed stores are charged central cost based on certain percentages – can I confirm my understanding of the percentages charged please.
These were enquiries as to expense and revenue items.
There was some debate as to the extent to which Mr Woosnam read document N19. It is sufficient to say (and I find) that it is probable that he looked at all of it, in particular given the detail of the questions sent on 6 February 2001. Once again, however, it should be emphasised that he was directing himself to gaining an understanding of the true external revenue and outgoing considerations of the business.
A conference call took place on the following day, Wednesday, 7 February 2001. Mr Slaminka made notes at the meeting. Most of the notes deal with the answers to the question posed by Mr Woosnam. It is unnecessary to set out the notes or the answers.
I will deal with the question of what can be said to have been disclosed about the ITAL and TSC receivable in due course. It suffices to say at this point that Mr Woosnam, probably because he believed that both ITAL and TSC were the subject of the sale, was not concerned to appreciate the extent of any outstanding liability or asset between the two. Rather he was seeking to understand the relevant operating expenses and returns of the business and to this end he needed to understand what was eliminated within divisions or parts of the business and in that sense what was not external.
Mr Sweetman gave evidence in his affidavit that by early February 2001 (that is after about two weeks of due diligence) and as a result of the due diligence investigations, UBS (which I take to mean him and others at UBS to his knowledge, such as Mr Mackay) formed the view that the Tandy business was worth significantly less than the indicative offer made by Woolworths in November 2000 of $150 million and that the stand-alone value of the business was in the order of $75 to $80 million. This was significantly less than the stand-alone values set out in the UBS memorandum of 17 November 2000, whether at the higher or lower end of the range – $115 to $135 million.
On Friday, 16 February 2001, Deloittes finished and distributed their due diligence report. In the introductory section of the “Executive Summary” the following was stated:
The lack of direct access to accounting personnel has proved a significant limitation in carrying out our work. In particular, the management accounts of Nissan include numerous internal recharges which net off on consolidation. Given the lack of access to accounting personnel we have been unable to verify that all internal charges net out on consolidation and have relied on management representations on this matter. We have however found no reason to suggest that the consolidated accounts are incorrect.
This was the paragraph referred to by Mr Griffiths in [82] of his affidavit: see [73] above.
Section 7 of the report set out balance sheets for “Nissan” as at 30 June 1999, 31 December 1999, 30 June 2000 and 31 December 2000 the source of which information was said on page 29 of the report to be the “June 2000 and December 2000 Corporate packs”. Under the line items “Inter-company payables” and “Inter-company loans payable” as at 31 December 2000 there appeared “(91,000)” and “-”, respectively. The same page recorded the net assets of “Nissan” as at 31 December 2001 as $53,979,000.
Deloittes were aware, as was Mr Dowsett of Woolworths, that the due diligence report dealt with both companies and that the proposed transaction involved the sale of shares in both companies.
Nowhere in the Deloittes’ due diligence report was there any statement of liabilities between ITAL and TSC. During the due diligence there had been no request for individual accounts for ITAL and TSC. On the basis of Deloittes’ understanding of the transaction involving both ITAL and TSC that is perfectly understandable.
The Deloittes’ due diligence report contained a discussion of each of the material line items in the balance sheet as at 31 December 2000. In this discussion, on each occasion, there was a reference as follows:
“Source: Corporate Pack – InterTAN Australia”
The due diligence report was given to Woolworths and UBS on Friday, 16 February 2001.
The following can be stated, and are facts that I find, about the circumstances of the due diligence investigation:
(a)The due diligence procedure had a degree of formality. It was conducted in accordance with the agreements recorded in a document known as the Data Room Protocols.
(b)Paragraph 1(b) of these protocols identified the responsibilities of Mr Lawrance, the Allen’s solicitor who was involved in the operation of the data room in the period from 15 January to mid February 2001. Mr. Lawrance was responsible for the maintenance of up-to-date indices recording the various documents which had been disclosed by InterTAN to the Woolworths’ interests through the data room process. Mr Lawrance was responsible for ensuring that each and every document that was physically placed in the data room (by Allens) as part of the due diligence process during January and February 2001 found its way on to a data room index.
(c)The December Corporate Pack was placed in the data room. It should have found its way on to an index. The fact that this did not happen was, on the evidence, an oversight. Documents could not be taken out of the data room without the express permission of those controlling the data room. Everyone who entered the data room was required sign a schedule to the Data Room Protocols recognising the confidentiality terms expressed therein.
(d)Mr Lawrance was away from the data room during the period 22 – 25 January inclusive. Ms Conde took over from him during this period. Mr Lawrance instructed Ms Conde that she was to place on an index any documents put into the data room in his absence. Ms Conde was not called. This period (22-25 January 2001) is the time in which it is likely that the December Corporate Pack was placed in the data room.
(e)Ms Fox agreed that the December Corporate Pack was placed in the data room not later than 31 January 2001. Her notes suggest that Mr Lawrance asked for her permission to allow Mr Woosnam to take the December Corporate Pack out of the data room to enable him (Woosnam) to speak to Mr Gingerich in the conference call planned for 1 February 2001 and she agreed that it was possible that this occurred.
By the following Monday, 19 February 2001, Woolworths and UBS had come to a view as to a further offer. On that day, UBS sent a letter, signed by Mr Mackay (of UBS) on behalf of Woolworths to Mr Cox of SSB (on behalf of InterTAN). The letter contained the following:
Further to our recent discussions, [UBS] is pleased to confirm that our client [Woolworths] is interested in a cash acquisition of Tandy Australia (“Tandy”) from InterTAN Inc (“InterTAN”). Based on the information currently available to Woolworths and its due diligence investigations to date, Woolworths would be interested in purchasing 100% of Tandy for a sum of $100-105 million (the “Transaction”). Woolworths believes this price reflects a value of above the ungeared, stand-alone value of Tandy and includes a generous sharing of the value of synergies expected to be realised from integrating Tandy with Dick Smith Electronics (“DSE”).
We have discussed with you the earnings disappointments of Tandy and the significant issues confronting Tandy in attempting a turnaround. Our client is willing to talk directly with representatives of your client should this need further clarification.
Woolworths’ interest is subject to: the review of individual store profitability information; interview with Tandy management at levels below the Chief Executive Officer and Chief Financial Officer, a satisfactory legal due diligence review; and other matters set out in this letter.
The letter made no further explanation of the term “ungeared”. The letter contained no other details about the precise nature of the subject matter of the sale.
The board of InterTAN Inc met the next day, 20 February 2001, by telephone. I am satisfied, and I find, that at this meeting the board authorised Mr Levy to sell the Tandy business (that is, the Australian business) for $105 million.
The position as at 20 February 2001 was recognised by Mr Gingerich in his evidence to be, and I otherwise find it to be, as follows:
(a)If a sale of the Tandy business in Australia was to be done at this time, the only realistic buyer was Woolworths.
(b)The sale of the Tandy business in Australia was critical to the success of the proposed sale in North America.
(c)This was because cash from the sale of the Tandy business in Australia would form part of the assets indirectly held by the holding company whose shares were being offered for sale in North America.
(d)If the North American operations, through the holding company, were to be sold, it was commercially highly desirable to sell the Australian operations, that is, to liquify the business in effect into a cash asset capable of being reflected fully in any purchase price in the northern hemisphere.
(e)Woolworths had offered $150 million and was now suggesting the value of the business had dropped to a price of between $100 - $105 million.
(f)The figure of $105 million was acceptable to the board of InterTAN Inc if it could not be improved upon.
(g)It was proposed that principals of the two sides meet in order to reach agreement – fundamentally on price.

At this time, Mr Gingerich also recognised the other imperatives to sell the Tandy business – the business was deteriorating (a matter not lost on Woolworths after the detailed financial due diligence, as was evident from the offer of 19 February 2001) and there were rumours “floating around” about a transaction. It was plainly of real commercial significance to InterTAN Inc and its interests to sell the Tandy business quickly.
By 23 February 2001, SSB had indicated to UBS that InterTAN would not consider selling at below $120 million. At least outwardly, the parties were apart on price.
As at 22 February 2001, InterTAN Inc anticipated an agreement shortly; and to that end a conference call was arranged on 23 February 2001 involving Messrs Losch and Gingerich in Canada and the Allens’ solicitors, Messrs McCulloch and Lawrance, in Sydney. In this call, there was detailed discussion for the purpose of aiding the preparation of a detailed first draft of the sale and purchase agreement. The discussion covered a number of matters including the deterioration of the business, Woolworths’ knowledge of this, the intention to give minimal representations, the position of TSC as an old sales tax company with assets being a receivable from ITAL and the need for Radio Shack to approve Woolworths’ use of the “Tandy” name. As will become apparent, the existence of a receivable between ITAL and TSC was not appreciated as of any significance by anyone, until 4 April 2001, when Mr Gingerich appreciated the full significance of the issue. That it was a matter of no significance at this point is only to be expected given that the shares in both ITAL and TSC were the proposed subject of sale.
After 19 February 2001, Mr Sweetman was of the view that the value to Woolworths of the Tandy business was $175 million or more. He and others at UBS saw the business as a “good or value accretive acquisition.” He thought that an acquisition of the Tandy business by Woolworths for $100 to $105 million would be highly advantageous.
At least Mr Corbett, the Chief Executive Officer of Woolworths, had some reluctance as at Friday, 23 February 2001 to accept $120 million as the appropriate price. The reluctance of Mr Corbett to deal at $120 million was conveyed to SSB.
Meanwhile, by 22 February 2001, G+T, the corporate solicitors for Woolworths, were beginning to consider the progress of the matter. On that day, Mr Lawler the partner who usually dealt with Woolworths sent an email to his partner, Mr Brewster (who in fact took carriage of the transaction), stating the following:
Brent [Mr Dowsett] thinks that there is a good chance that the parties will reach agreement on price. If so the next step will be 3 weeks of legal and commercial due diligence in which Gilbert & Tobin will be intimately involved.
As part of this process the corporate structure of the Tandy Electronics business will need to be carefully looked at. Woollies have been told that from Intertan’s point of view the transaction must proceed as a corporate acquisition. The question here is the extent of warranties and indemnities.
On 27 February 2001, UBS gave a slide presentation to senior management of Woolworths. The presentation was given by Mr Sweetman and Mr Mackay to, amongst others, Mr Corbett and Mr Wavish. I infer that this presentation took place in order that the UBS officers might present their views (which were in favour of an acquisition at the $120 million price identified by SSB) to the most senior executive of Woolworths who would, if the transaction were to proceed, take responsibility for taking any recommendation to the board of Woolworths.
It is unnecessary to deal with the presentation in any detail. It is fair to say that the UBS officers were enthusiastic in their recommendation of the proposal. The slide presentation under the heading “conclusions” contained, amongst other statements, the following:
·Stand alone value of Tandy is $80-$90 million
·Value to WOW of Tandy is $175-210 million when combined with DSE
·Market would highly regard an acquisition at any price below $175 million.
Mr Mackay and Mr Sweetman were, however, speaking to experienced and highly competent businessmen (in particular Mr Corbett and Mr Wavish) who would be expected (as the senior executives to take responsibility for the purchase) to make up their own minds about whether to purchase the business and at what price (more accurately, given the sums involved, whether to recommend to the board of Woolworths the purchase, and at what price). In making that decision one would not expect them to follow and adopt, uncritically, the advice of UBS; and one would expect that they would draw heavily on their own experience and intuition in assessing what this business was worth, and, perhaps more importantly what should be paid for it.
I find that the presentation of UBS on 27 February 2001 was in favour of, if necessary, buying the Tandy business for $120 million.
One aspect noted in the presentation as an “issue” was the following:
·Potential WST and GST issues in Tandy’s business dealings.
This can be taken as a reference to wholesale sales tax and the arrangement which involved TSC, as well as to the goods and services tax legislation.
After the presentation, Mr Mackay (of UBS) discussed the matters with Mr Cox (of SSB). Mr Cox recounted the following about this in an email to Mr Thom (the senior SSB adviser to InterTAN Inc):
Mackay indicated that, following detailed analysis and discussion in the meeting, the conclusion was that WOW would not pay more than A$105m for InterTAN Australia. WOW agreed to move from its range of A$100-$105m to a fixed price of A$105m.
The conclusion was based on a strong view that the standalone value of the business if no more than A$80m and that a price of A$105m represents a “generous sharing” of the synergies. Some members of the WOW executive team argued that the business worth less than A$80m on a stand alone basis and that no premium should be paid for synergies. However, the conclusion of the group prevailed; and the offer was confirmed at A$105m.
The offer of A$105m is subject to WOW board approval, which is expected to be forthcoming on the basis of a management recommendation. Mackay indicated that past experience with WOW suggests that executive management is more difficult to deal with than the board.
The offer is subject to “confirmatory due diligence” on the following matters:
·legal due diligence. This would be done simultaneously with negotiation of the sale and purchase agreement
·individual store profitability review. This would be done following negotiation of a sale and purchase agreement and immediately prior to execution
·access to the next level of management at InterTAN Australia. This would be done following negotiation of a sale and purchase agreement and immediately prior to execution
·Radioshack consent to assignment of its agreements with InterTAN to benefit WOW. This would be a condition precedent to completion, which would be reflected in the executed sale and purchase agreement. It would not be a condition precedent to execution of an agreement.
…
He indicated that WOW has a strong impetus to do the deal, and is keen to proceed quickly and to devote the necessary resources to do so.
…
A telephone call was arranged between Mr Wavish and Mr Stegall, the Chairman of InterTAN Inc, to attempt to reach agreement, the parties being, outwardly, $15 million apart.
On or about 1 March 2001, Mr Wavish had a telephone conversation with Mr Stegall. Mr Wavish gave oral evidence as to this conversation with Mr Stegall. He stated the following:
The conversation to me took three parts – … The first part of the conversation related to where we stood and what we had to agree in this conversation . The second part of the conversation related to the nature of the contract and, in particular, the lack of representations and warranties that the other side were seeking, and then the third part of the conversation related to price and matters related to that.
…
I said, “Our parties are somewhat apart on price. This is the last opportunity that we have to agree a price. If in this phone call we don’t agree a price, then we should each go our separate ways.”
…
So point 1, we have to agree a price or we go our separate ways. Mr Stegall said, “If we are to agree a price, I want there to be an absolute minimum of representations and warranties in this agreement. We’re going to go on our own way, probably sell other parts of the business, and I want to have a minimum amount left over in relation to representations and warranties”, to which I said, “I’m happy to go along with that. In broad terms we’ll be looking for a broad brush warranties rather than repetitious, what I’d call, belt and braces type warranties”, and it was no more specific than that, but it was an understanding between us that I would – I undertook to minimise the representations and warranties.
That having been established, we then got on to a discussion on price. I can’t recall precisely where we both started off on price, but from memory we were in the $100m to $105m range Australian and he was in the $115m range, and we relatively quickly agreed a price of $108m on an unleveraged basis
His Honour: Q: Was that the wording used?
A.To the best of my knowledge, yes.
Mr Smith: Q: Is that the extent of your recollection?
A.Yes, I suppose there were some pleasantries at the beginning, and that sort of thing.
Mr Wavish could not recall any discussion by way of elaboration of the word “unleveraged”. It is likely that there was no detailed elaboration of the phrase; though later events and discussions amongst InterTAN officers and advisers would indicate that there was probably discussion of the reference date being 31 December 2000 and completion on 31 March 2001.
Mr Stegall did not give evidence. I accept the above evidence of Mr Wavish. I find that there was no limitation upon what would be deducted by reference to “bank debt”, as some hearsay evidence of what Mr Gingerich said Mr Stegall told him seemed to indicate.
Mr Cox summarised the agreement in an email to his colleagues on Friday 2 March 2001 as follows:
·Purchase price A $108MM, on an unlevered basis
·Woolworths board approval required pre-execution, but not expected to be an issue
·Confirmatory due diligence, to start next week, is required pre-execution on:
·   legal due diligence
·   individual store profit and loss statements
·   interviews with senior management of both ITA and DSE to determine best person for each role
·   discussion with RadioShack in relation to change of control clauses in its agreements
·   discussion with Telstra, Vodafone, Optus and Hutchinson in relation to change of control clauses in their agreements.
·Confirmatory due diligence of this nature is standard practice in transactions of this nature
·We have been assured by UBSW and WOW that this due diligence will not affect price
·Execution of agreements and announcement on 15 March
·Completion on 31 March
On 1 March 2001, after the agreement between Mr Wavish and Mr Stegall, Mr Cox spoke first to Mr Thom (the senior SSB adviser in North America), and then to Mr Levy and Mr Gingerich. In the latter conversation Mr Cox was asked what balance sheet had been used to base the Woolworths’ offer. Mr Cox told Mr Levy and Mr Gingerich that it was the balance sheet as at 31 December 2000. This reflected precisely what Mr Gingerich said Mr Stegall had told him – that Mr Stegall and Mr Wavish had agreed that 31 December 2000 was the relevant date for the balance sheet. Messrs Cox, Levy and Gingerich also discussed the fact that 100% of the “effective value” would be paid on completion on 31 March 2001, at which time Woolworths’ interests would take control of the business; and they discussed that there would be an audit after that date and that “they [would] pay [the] profit from 31/12-31/3”. (See Mr Cox’s notes.)
At this point, it is necessary to interrupt the flow of the chronology to appreciate a number of fundamental facts. The balance sheet from the December Corporate Pack was before the parties. The accounts for and as at December had been requested by Woolworths’ advisers early in the due diligence. Mr Cox realised, as must have been evident to all involved on both sides, that the December Corporate Pack contained the latest balance sheet available, at least in January and early February. The parties negotiated an “unleveraged” or “unlevered” or “ungeared” purchase price – the “enterprise value”. Leaving aside any debate that there may have been about any particular amount, all the businesspeople and advisers (subject to one oversight made by Ms Fox of SSB, to which I will come) understood that “unleveraged” or “unlevered” or “ungeared” meant that to and from the negotiated price ($108 million) one added and subtracted cash, cash equivalents and debt, that to identify these matters one needed a balance sheet and thus it was not possible to identify a contract sum payable on completion (subject to post-completion adjustments) without identifying a particular balance sheet. Hence, it was important for Mr Levy and Mr Gingerich to understand what balance sheet Mr Cox understood Woolworths was using in framing its offer. Once they understood what balance sheet was being used, they understood what sums needed to be added to and subtracted from the $108 million to identify the amount to be received at settlement as the contract price, subject to post-completion adjustments.
Further, the following structural matters about this type of transaction were well understood by all relevant participants who were either experienced commercial people or experienced legal practitioners. First, there was a need for a balance sheet at a particular date to stand as the balance date or reference accounts. Secondly, that balance sheet would be used to derive the price payable under the contract. Thirdly, that balance sheet would be used to compare with the balance sheet as at the completion date. Fourthly, as to the commercial purpose of this asset comparison, a reliable set of accounts, in particular a balance sheet, was required at a time when the vendor was in control and running the business in the ordinary course. That was the reference point against which the position as at the time the purchaser took possession of the subject matter of the sale was to be compared. Thus, if the business had been run down or profits or assets taken out of the business after the reference date, an adjustment in terms could be made by comparing to the position at the two dates. As will be seen in due course, the comparator was net assets. Essential to this task was a clearly nominated set of accounts at the earlier point (or reference date) with which the purchaser could familiarise itself. Fifthly, to use a different balance sheet for the earlier balance date for the latter task of comparison with the balance sheet as at completion than was used in identifying the cash, cash equivalents and debt in order to identify the contract price payable would risk one or other of the parties paying more or receiving less than the negotiated enterprise value. This was so because if different balance sheets were used as at the reference date (here 31 December 2000) they might contain different figures for cash, cash equivalents and debt and so lead to a disconformity between the contract price (assessed by reference to one balance sheet as at the reference date) and the post-completion net asset adjustment (assessed using another balance sheet as at the same reference date). Sixthly, this use of a reference date balance sheet and a post completion adjustment comparing net assets as at the reference date and as at completion was a well known and understood mechanism in sale transactions of this kind and all participants were familiar with it. The understanding of all concerned as to this structural approach to a sale of this kind was clear in the evidence. It was made clear in the cross-examination of the respondents’ witnesses.
Returning to the chronology, also on 1 March 2001, after talking to his colleagues, Mr Cox (of SSB) spoke to Mr Sweetman (of UBS). From the notes made by Mr Cox of that meeting I am satisfied that it was agreed at that meeting that the 31 December 2000 balance sheet would be used as the reference accounts. This discussion between Mr Sweetman and Mr Cox on or about 1 March 2001 was as to whether the 30 June 2000 or 31 December 2000 balance sheet would be the accounts for the purposes of comparison with the completion accounts. I find that in this conversation, or shortly afterwards, Mr Cox told Mr Sweetman that the reference date would be 31 December 2000. At this time, the parties had been using the December Corporate Pack as the reference accounts or December accounts; and at this time no balance sheet was before the parties which could answer the description of a balance sheet as at 31 December 2000, other than that contained in the December Corporate Pack.
On 2 March 2000, a conference call took place between Messrs Losch and Gingerich (InterTAN), Mr Cox and Ms Fox (SSB) and Messrs McCulloch and Lawrance (Allens). From Mr Lawrance's notes it is clear that Allens were told that the balance date to calculate the price in the contract was 31 December 2000 and that to and from the $108 million should be added cash of $7,248,099 and subtracted an inter-company payable of $91,073. Clearly, these figures were derived from the December Corporate Pack. (See annexure 1A: cash and short term investments and annexure 1B: intercompany payables – see also annexure 1D.) There was also reference in Mr Lawrance’s notes to “intra-group debt as at 31/12” being paid. Also, from Mr Lawrance’s notes it can be concluded that there was a discussion that there was no relevant external debt; and that there was a discussion as to whether Woolworths would “take” TSC. It was said that it (TSC) would be included (in the sale) for the present.
Allens set about putting together the first draft of the agreement. This first draft reflected the instructions given in the conference all of 2 March: the phrase “Balance Date” was defined as 31 December 2000, the “Purchase Price” was defined as “$108m plus Cash less External Debt less Intra-Group Debt, all figures as at 31 December 2000”.
I find that that formula (reflected as it is in Mr Lawrance’s notes, in Mr Cox’s and Mr Gingerich’s recollections of instructions to Allens on 2 March and in Mr Lawrance’s recollection of what his instructions were at that meeting) reflects what Mr Stegall told Mr Gingerich. It is unclear whether the conversation between Mr Wavish and Mr Stegall descended from the generality of “unleveraged” or “unlevered” or “ungeared” to the slightly greater particularity of the formula, but that was Mr Stegall’s understanding and given the simplicity of the concepts, I find that it was consistent with Mr Wavish’s, or the essential content of Mr Wavish’s, understanding of what had been agreed by him with Mr Stegall.
I reject such parts of Mr Gingerich’s evidence that appeared to limit the conversation between Mr Stegall and Mr Wavish to a reduction of the $108 million by reference to bank debt. It is inconsistent with the objective evidence, including Ms Fox’s notes of the “key terms” of the “deal”, Mr Lawrance’s notes of 2 March and the evidence of Mr Cox and Mr Lawrance about the instructions on 2 March 2001.
On 2 March 2001, G+T sent a legal due diligence list to Allens which was described by Mr Losch as a “kitchen sink list”. Mr Gingerich described it in an email on 5 March 2001 as “completely unacceptable at this stage.” Mr Gingerich saw a risk of delay and further protracted investigation. Under the heading “2.8 Agreements with related entities and the Radioshack Corporation Group”, the following request, amongst others, appeared:
(c) Please provide details of all transactions and arrangements between the Company and Technotron Pty Limited (Technotron) or otherwise relating to Technotron.

In the light of all the circumstances, including in particular the conduct and communications which took place in March, in particular the clear identification of the December Corporate Pack as, or as containing, the December accounts for the transaction, that is as the reference accounts, the mutually understood dormancy of the TSC and the lack of any direct and informed response to G+T’s enquiry about the position between ITAL and TSC, I think that the more relevant part of Gleeson CJ’s reasons in Lam here is the last sentence of the relevant paragraph: whether the circumstances led to the requirement to speak so as not to mislead if a position contrary to that previously announced was to be relied upon.
In my view, there was a degree of unconscionability revealed sufficient to enliven the principles of estoppel. Mr Gingerich had, in one sense, understandable commercial reasons for remaining quiet. InterTAN was in a poor bargaining position. It suffered at the hands of Radio Shack to the tune of $6 million. He anticipated some final bargaining, with Woolworths, which came in relation to the $1 million. Nevertheless, it was plain to him that Woolworths were proceeding upon an assumption which had been mutual and express at meetings of commercial and legal advisers, at which he attended, on 14 and 15 March. It was plain to him that everyone had overlooked a simple consequence of the excision of TSC. It was plain to him that, hitherto, no one had taken the excision of TSC as in any way commercially important. It was plain to him that no one understood or anticipated that the formal removal of TSC would change the consideration by $4 million or thereabouts. It was plain to him that he had no commercial defence to a requirement to readjust the purchase to remove this anomaly. He remained quiet for this reason. Whilst I do not think that he can be described as fraudulent in remaining silent, I think there was a level of commercial unconscionability. He rationalised it (and I so find) by a view which he had that stand-alone accounts of ITAL were in the data room (though there was no reliable foundation for this view). In these circumstances, it was, he thought, a matter for the well-advised purchaser to look after itself. This was so especially since he thought there might be an attempt to “squeeze” him in a final negotiation on price. He was “horrified” when he found out that the stand-alone accounts were not in the data room.
Looking at all the facts, in my view, though this was an exercise undertaken between commercial parties of independence, competence and skill, given the degree of communication and co-operation between the parties and given the plain and mutually communicated foundation upon which the parties had been acting in relation to the December Corporate Pack, the representatives of Woolworths were entitled to feel sharply treated by the attitude adopted upon disclosure of the issue of the ITAL accounts at the time of working through the completion adjustment. In my view, there was a sufficient degree of unconscionability in resiling from a position taken in relation to a sufficiently clear common assumption and representation as to the identity and function of the December Accounts as to warrant, in a commercial context, the operation of the principle of estoppel.
It was submitted by the respondents that the applicant had not shown any real prejudice by the reliance. It was said that hypothetical evidence as to what may have occurred in the past here was unreliable and that it was far from clear that an adjustment of the purchase price would have been required. The respondents submitted that the evidence did not enable one to conclude that the enterprise value bargain struck, that is, $108 million would have been changed. Various of the witnesses said they would have recommended that the price (that is, the purchase price in the agreement) be reduced by a corresponding sum. See the affidavit evidence of Messrs Sweetman, Wavish and Dowsett, and also the cross-examination of Mr Wavish. However, what is plain is that the transaction was negotiated on the basis of the irrelevance of TSC. Everyone (except Mr Gingerich after 4 April) understood TSC to be dormant and irrelevant as to the present operation. The bargain was based on the operating business. TSC had ceased to be part of the operating business. The receivable played no part in the bargaining process. If the relevant persons had appreciated the significance of the receivable I have no doubt that Woolworths’ representatives would have sought the rectification of the position. No party thought that the removal of TSC had the slightest commercial impact (until Mr Gingerich realised to the contrary on 4 April). I have no doubt that Mr Gingerich’s silence was important, as he understood at the time. If he had spoken there is no doubt that Woolworths would have required a rearrangement of the transaction to reduce the consideration in the amount of the liability. Any other conclusion flies in the face of a commonsense commercial appreciation of what had happened up to April. The conduct of Mr Gingerich plainly prejudiced Woolworths in a real and tangible way.
Whether or not in such a commercial context an estoppel will operate contrary to the contract is a matter which need not be the subject of any discussion by me in this judgment. There is a debate about this. I refer in particular to what I wrote in Branir v Owston Nominees (No 2) [2001] FCA 1833; 117 FCR 424 at [444]-[448]. I do not characterise the conduct of Mr Gingerich as fraudulent for the purposes of the application of the views of McLelland J in Johnson Matthey v A C Rochester Overseas (1990) 23 NSWLR 190, 195-96.
It is unnecessary for me to express a view as to the effect of clauses 11.5 and 11.6 upon the operation of the principles of estoppel, whether at common law or in equity or as a unified coherent principle. It is sufficient for me to say that subject to the contractual operation of clauses of 11.5 and 11.6 and of the principle in cases such as Johnson Matthey referred to in Branir, I would conclude that the parties had so conducted themselves in words and deed in relation to a common understanding as to what accounts were the reference accounts for the transaction and what accounts met and would meet the description of the “Accounts” and the “December Accounts” in the draft agreement and the agreement as executed as to be sufficient to invoke principles of estoppel by way of common assumption and representation in order to prevent an unconscientious departure from that common understanding, conduct and representation, which would be the case if the InterTAN interests were to be permitted to resile from the postion that they had adopted and represented in Februry and March, in particular, that the December Corporate Pack was or contained the December Accounts for the purpose of the agreement and the reference accounts for the purpose of the post-completion adjustment.
Rectification
The claim for rectification is one for unilateral mistake. Reliance was placed by the applicant on Thomas Bates and Son v Wyndham’s (Lingerie) Limited [1981] 1 WLR 505, 516 and Taylor v Johnson (1983) 151 CLR 422, 431-433.
The facts that I found to this point are sufficient in my view to found relief on these principles as an alternative to estoppel. I need not conclude whether clauses 11.5 and 11.6 contractually disentitle the applicant to make the claim. However, for the reasons that lead me to the view that the elements of an estoppel are made out a similar conclusion arises in relation to unilateral rectification.
It was submitted by the respondents that the rectification claim would create disconformity in the contract because the parties were said to be intending to compare like with like, that is the completion accounts being the stand-alone accounts required an identical form of accounts to be the reference accounts. This misunderstands the nature of the fundamental considerations which were common ground between the parties. I will not repeat the importance of the reference accounts to the two stages of the assessment of the consideration in the contract. What was overwhelmingly plain in this case was that all relevant persons (except Mr Gingerich after 4 April) understood the December Corporate Pack to be the reference accounts and the “December Accounts” as referred to in the agreement.
I will deal with the precise form of relief shortly.
Misleading or deceptive conduct
The misleading or deceptive conduct claim arises from the same facts as the estoppel claim and the claim for rectification. It is based on an alleged contravention of s 995 of the Corporations Act 2001 (Cth), with relief sought under ss 1005 and 1325 of that Act, as those provisions stood in 2001.
The conduct which lies at the foundation of the estoppel and rectification claim also amounts to misleading or deceptive conduct. In the circumstances in which the parties found themselves and with the mutual communications that had taken place, Mr Gingerich knew that at the meetings of 14 and 15 March he and his colleagues had, at the very least, confirmed the Woolworths’ representatives in their belief that the December Corporate Pack was, or contained, the reference accounts, defined in the draft agreement then in existence as the “Accounts”. Mr Gingerich knew that Woolworths’ representatives were acting on this foundation. He said nothing. He said nothing in order that the Woolworths’ representatives would not change their (to his knowledge, mistaken) understanding of the position, which understanding, to his knowledge, had been fostered by him and his colleagues at the meetings in mid-March. In my view, this is not a case resting purely on silence. There was a body of conduct of a character which was of sufficient clarity as to require Mr Gingerich to bring to the attention of those with whom he had spoken of a misapprehension that they had all previously entertained and which misapprehension had been the subject of discussion amongst them, if he was to act contrary to the earlier statements.
At the meetings of 14 and 15 March there was no misleading or deceptive conduct in the sense that no one said anything, which to his or her knowledge, was false given that all believed at the time that the December Corporate Pack was or contained the reference accounts. Once, however, Mr Gingerich became aware or appreciated that there was an apparent disconformity between the contractual terms and what people understood the effect of the contractual terms to be and that the December Corporate Pack was not or did not contain the reference accounts, and that the Woolworths’ representatives were working upon a misapprehension as to the relevance of the December Corporate Pack, with the consequent lack of appreciation of the receivable (a position which he and others on the InterTAN side had fostered at the mid-March meetings) he came, for the reasons I have earlier identified, under a duty to remedy and correct what had passed between the parties, at meetings which he had attended, as to an important financial provision in the contract.
Two other bases for misleading or deceptive conduct were relied upon by the applicant: InterTAN Inc’s failure to disclose the liability and nature of arrangements between TSC and ITAL after 9 March 2001 in response to the enquiry made in G+T’s due diligence questions; and the falsity of the warranty given.
I do not think that these two aspects should be viewed distinctly and severally from the totality of the conduct of the parties. Each is a factor which is to be taken into account in assessing whether or not InterTAN engaged in misleading or deceptive conduct up to the execution of the agreement. I have already indicated that, in my view, it did by reason of Mr Gingerich’s failure to speak and to make clear, at the very least, that the December Corporate Pack was not the reference accounts or December accounts for the transaction, but rather the stand-alone accounts of ITAL were such. That conduct of Mr Gingerich is to be seen in the light of the fact that Woolworths’ solicitor was asking for information concerning transactions between ITAL and TSC and that the agreement contained the relevant warranties. The requests of the solicitor were plainly not only for current transactions. The parties mutually understood TSC to be dormant. No proper answer was given to these requests, as Mr Gingerich accepted in his evidence. The fact that for quite different purposes there had been disclosed during the course of the due diligence process information which could be said to have put the Woolworths side on notice of the existence of a liability does not, it seems to me, amount to sufficient facts upon which one could conclude that there had been any real disclosure of the receivable.
Looking at the events of January, February, March and April 2001 in the light of all the information that was before the parties, a reasonable person in the position of Woolworths being told later in 2001 that the December Corporate Pack was not the December Accounts for the purpose of the agreement, but that the December Accounts were some stand-alone accounts that were not in the data room and that had not been before the parties in any way during pre-contractual discussions, and who was told that the InterTAN representatives knew at the time of the execution of the contract of a $4 million receivable which was revealed in those stand-alone accounts and those representatives, at that time, intended that the receivable would be dealt with as the respondents seek to do in these proceedings, would be entitled to take the view, as an honest commercial person, that he or she had been misled. If that honest and reasonable person were told that it was true that the parties had discussed the December Corporate Pack as the reference accounts, that the parties had taken the December Corporate Pack as the foundation for the identification of the purchase price, that the parties had excised TSC from the agreement without any discussion and without any expression of appreciation of any commercial significance but as a mutually understood dormant relic of the historical relationship between the parties, but that a sum of over $4 million was owed to TSC by ITAL and this would have to be repaid, though it had never been exposed in the net asset position in the December Corporate Pack, he or she could reasonably take the view that he or she had been misled by InterTAN. The above is the commercial foundation of the conclusion of the misleading or deceptive conduct. It is the commercial foundation for the estoppel claim and the rectification claim. It is made more clear when one sees the failure to identify with any precision, other than references to “refer data room”, a plain answer to the questions asked by the solicitors.
It was said by the respondents that the real, essential, substantial, direct or effective cause of any loss or damage was the failure by the applicant properly to examine or cause to be examined the material that was made available to it in the data room. I reject this submission. In all the circumstances in the unfolding of the events as I have described them, in my view, there was no such neglect by Woolworths or by any of its advisers. There was an oversight, which was made by both sides to the transaction (until 4 April). Each reinforced the other in the view that the December Corporate Pack was the fundamentally relevant document it had always appeared to be. The flow of events directed the parties and in particular Woolworths and its representatives away from any possible view that the December Corporate Pack was or may not be, or contain, the reference accounts or the December accounts. Only Mr Gingerich came to a contrary conclusion. For the reasons I have expressed his failure to speak in the light of all the circumstances was unconscientious and misleading or deceptive.
Clause 11.7 of the executed Agreement is in the following terms:
11.7Statutory Actions
To the extent permitted by law, the Purchaser agrees not to make and waives any right it may have to make any claim against the Vendor or any of its officers, employees, agents or advisers under s 995 of the Corporations Law, s 52 of the Trade Practices Act 1974, s 12DA of the Australian Securities and Investments Commission Act 1989 or s 42 of the Fair Trading Act 1987 (NSW) or any corresponding or similar provision of any Australian State or Territory legislation for any statement or representation, whether in a Warranty or not, made concerning the Share, the Company or the business.
To the extent that is necessary to assess, for the purpose of the contractual release of the statutory actions, whether DSE would have entered the agreement had there been no misleading or deceptive conduct, I accept Mr Wavish’s evidence that he would not have permitted (to the extent that it was within his control) the agreement to be entered by DSE unless there was an adjustment to the sum payable under the contract to deal with the liability, in an amount substantially equivalent to the liability. If Mr Wavish had been against the contract being executed, I find that it would not have been executed.
It is unnecessary for me to express a concluded view upon the effectiveness of clause 11.7 in relation to misleading or deceptive conduct under s 995 of the Corporations Act. It is sufficient for me to say that, in my view, in circumstances such as the present where the misleading or deceptive conduct is before the contract, unknown to the representee and consciously known to the representor and causally important to the entry into the contract, clauses such as 11.7 are unlikely to be sufficient (especially limited by the words “to the extent permitted by law”) to deprive a contracting party of statutory relief. Given that this issue does not strictly arise, debate can take place before the Full Court, if I am wrong about the contract.
Breach of Warranty
Under Schedule 5 cll 1.2 and 1.3 of the Agreement the Vendors (InterTAN Inc and InterTAN Canada) made the following warranties.
1.2 Data Room
As at the date of this agreement, the Vendors are not aware of any information in the Data Room which is inaccurate or misleading whether by inclusion of misleading or inaccurate information or omission of material information or both (at the date at which such information is expressed to be given) and which if inaccurate or misleading would have a material adverse impact on the Company.
1.3Material Information
The Vendors have not knowingly withheld any information from the Purchaser concerning the Shares or the Company which is material to be known to a buyer of the Shares or Company.
The warranty in clause 1.3 of Schedule 5 was subject to clause 11.4 of the agreement which is in the following terms:
11.4Disclosures
Each Warranty is subject to any matter or transaction that:
(a)is specifically provided for or disclosed in this agreement;
(b)is fairly and accurately described in schedule 7 to this agreement in relation to the warranty;
(c)is fairly and accurately disclosed in the Data Room; or,
(d)is fairly and accurately disclosed in the Stage 1 Due Diligence Information.
The claim for the breach of the above warranties rests on the following propositions. First, Mr Gingerich failed to disclose a category of relevant information being the stand-alone accounts of ITAL. Secondly, Mr Gingerich failed to disclose his intention that the stand-alone accounts would constitute the December Accounts for the purposes of the executed agreement. Thirdly, the failure to disclose that ITAL owed TSC the receivable in question.
The stand-alone accounts of ITAL were not provided to Woolworths or DSE. On the basis that the Vendors, through Mr Gingerich, appreciated at the time of execution that they were, or would be propounded in due course by the Vendors as, the December Accounts, the stand-alone accounts constituted information concerning the Company material to be known to a buyer of the Shares or the Company. Mr Gingerich said that he believed that the stand-alone balance sheet was in the data room; he said that he had no reason to believe “anything other”. He did agree that he did not know one way or the other and that he made no enquiries to satisfy himself that the stand-alone accounts had been disclosed to Woolworths (that is, relevantly for the agreement, to DSE). The only basis that he had for a belief that the stand-alone accounts had been put in the data room was that he knew that they existed. He accepted that the existence of the accounts did not provide a reasonable basis for concluding that the accounts had been placed in the data room. These findings flow from Mr Gingerich’s cross-examination. However, the fact that ITAL did not supply the stand-alone accounts and that (which I find from the above facts) Mr Gingerich had no reasonable basis to conclude that the accounts were in the data room does not amount to a knowingly withholding of the stand-alone accounts. I therefore reject the first way of putting the warranty case.

Mr Gingerich did, however, knowingly, indeed deliberately, withhold information from Woolworths and DSE, that being his view and intention that the stand-alone accounts would stand as the December Accounts in the post-completion adjustment process. I do not, however, accept that that was information “concerning the Shares or the Company”. It was information concerning the operation of the agreement and its terms, the subject matter of which was the “Shares”. I therefore reject the second way of putting the warranty case.
The third way of putting the warranty claim has more force. Mr Gingerich knew that the Woolworths and DSE representatives did not appreciate the existence of the receivable. He said that he did not know this with certainty, but I find that on all of his evidence he must have known this to be the case – were it otherwise, he knew an adjustment would have been requested. He consciously withheld from them his realisation of the significance of excising TSC from the agreement and the identity of the stand-alone accounts, as the December Accounts. In that sense, he consciously withheld from them the information about the existence of the receivable.
The question which arises here is whether the liability was fairly and accurately disclosed in the data room or in the Stage 1 Due Diligence Information.
One needs to assess what is “fair and accurate” by using the common sense of the honest and reasonable business person aided by competent legal and financial advisers. I have earlier expressed my view that Woolworths’ advisers did not act carelessly. The context and content of such revelations as there were in the 30 June 2000 accounts, the December Corporate Pack, documents N 19 and V11 were not such as in my view fairly and accurately disclosed the liability as at 31 December 2000. The conduct of the parties was such as to cause any reasonable person involved to focus on the relevant reference accounts. To the extent that there was material in the data room which can be said to have placed Woolworths and DSE on enquiry as to the existence of the receivable as at 31 December 2000, the persons involved were directed away from conducting an analysis of the individual accounting pieces of information by the parties’ common view reinforced by conduct and communications that there was a set of accounts, the December Corporate Pack, which provided all relevant information.
Mr Gingerich, a highly experienced businessman, thought that the appropriate way to disclose the receivable was by placement of the stand-alone accounts in the data room. Bearing in mind the nature of the transaction, the role of the reference accounts in the transaction, the importance of the data room and the conduct and communications concerning the December Corporate Pack, I accept Mr Gingerich’s views. They reflect my own. Fairness and accuracy called for disclosure of such a liability to be made in the nominated relevant set of accounts. The disembodied piecing together of pieces of accounting information undertaken by the respondents in this case in support of their position is not a fair or accurate commercial response.
I do not think that this question is to be answered by the expert evidence of Messrs Bryant and Dunlop. Where necessary I have referred to that evidence earlier. The fairness and accuracy of the disclosure can only be judged against the background and flow of events, and in particular the focus of the parties upon the December Corporate Pack as the reference accounts. In these circumstances, whilst I have had recourse to both the evidence of Mr Bryant and Mr Dunlop, it is unnecessary to resolve any particular conflict between them.
Looking at the events in the way they unfolded and the accounting information in the various ways and contexts in which it was provided I find that the existence of the receivable as at 31 December 2000 was not fairly and accurately disclosed in the Data Room or the Stage 1 Due Diligence Information.
The respondents pleaded a time bar in the contract. Clauses 11.2, 11.9, 11.10 and 11.11(a) and (c) of the agreement are in the following terms:
11.2Indemnity
The First Vendor and the Second Vendor jointly and severally indemnify the Purchaser against any claim, loss, liability, cost or expense, direct or indirect, which the Purchaser of the Company pays or is liable for arising from:
(a)a Warranty being false or misleading when made or regarded as having been made under this agreement;
(b)a breach by either or both the First Vendor and Second Vendor of this agreement;
(c)the ACCC Dispute; or
(d)an Executive Termination Commitment.
11.9     Dealing with Warranty breach after Completion
If the Purchaser becomes aware after Completion of any circumstance which constitutes a breach of any Warranty, including (without limitation) a claim against a Company which if satisfied would result in a claim for breach of any Warranty, the Purchaser must do each of the following:
(a)promptly give the Warrantor full details of the circumstances and any further related circumstances of which the Purchaser becomes aware;
(b)take reasonable steps to mitigate any loss which may give rise to a claim against the Warrantor for the breach of any Warranty; and
(c)following written notice to the Purchaser give the Warrantor and its professional advisers reasonable access during business hours to:
(i)the personnel and premises of the Purchaser or the Company; and
(ii)relevant documents and records within the power, possession or control of the Purchaser of the Company,
to enable the Warrantor and its professional advisers to examine the circumstances documents and records and to take reasonable copies or photographs of them at their own expense.
11.10   Proceedings in respect of a claim
Any claim by the Purchaser for a breach of any Warranty will (if not previously satisfied, settled or withdrawn) be taken to be waived or withdrawn and will be barred and unenforceable on the first anniversary of the date the claim is made unless proceedings in respect of the claim have been commenced against the Warrantor. Proceedings will not be taken to be commenced unless they have been both issued and served on the Warrantor.
11.11   Limitation on liability
Despite any other provision of this agreement, each of the following applies.
(a)(Maximum liability) Subject to paragraph (b) the maximum aggregate liability of the Vendors for any breach of this agreement is $12 million (with a maximum aggregate liability of all breaches of this agreement other than breaches of Tax Warranties of $8 million). If a claim for breach of a Tax Warranty is notified to the Vendors after 9 months from the Completion Date then the maximum liability of the Vendors for a breach of such Tax Warranty is $4 million.
…
(c) (Notice of Claims) Subject to paragraph (d), the Vendors shall not have any liability in respect of any claim under the Warranties unless the Purchaser has notified the Vendor of the claim within 9 months after the Completion Date.
…
On 29 January 2002, Woolworths sent to InterTAN Canada a three-page document entitled “notice of claim”. For convenience it is annexed and marked 4.
The respondents submitted that the notice was for an indemnity under clause 11.2 not for the claim being made. I reject the submission. A reading of annexure 4 makes plain that the very warranty claim propounded here was made in time.
Aspects of Relief
A number of matters need be dealt with in connection with relief which may be available on the assumption that I am wrong in relation to the contract claim.
As to estoppel, it might be said that if relief is to be given, the minimum appropriate is to recompense the applicant by limiting the estoppel to circumstances in which the respondents are not prepared to pay a sum of money representing the value of the applicant’s lost opportunity to renegotiate and recover its position if told, before execution of the agreement, that the December Corporate Pack was not the December Accounts or reference accounts, but that the stand-alone accounts were such.
The worth or value of that lost opportunity is to be measured as a past hypothetical event. On the basis of the primary facts as I have found them, in particular Mr Gingerich’s view as to the commercial indefensibility of InterTAN’s bargaining position, Mr Wavish’s evidence, which I accept, that he would not have recommended that the purchase go forward at a sum not adjusting in Woolworths’ favour for the full value of the intercompany liability, the objectively assessed weak negotiating position of InterTAN and the lack of evidence as to what others at InterTAN would have argued had the question arisen, I would value the lost opportunity as worth nearly the full amount. Some contingency is perhaps appropriate. If it be necessary to place a figure on it, I would assess the likelihood of adjustment at 90% of the full value of the liability, if the correct approach is to take that percentage of the receivable as at the completion date.
The respondents placed great weight on the fact that in truth the liability was sourced in trade, albeit at an intercompany level. It had the historical attributes and origin described by Mr Avery. TSC was the wholesale importer. Until products were required they would be stored in a warehouse. Once required, the goods were shipped from the warehouse to the ITAL retail store. At this point of shipment the goods were sold to ITAL at a 10% mark up. ITAL would pay overseas invoices on behalf of TSC and charge a management and administration fee. These sums would be set off against the 10% mark up. After June 2000, TSC’s assets and staff were transferred to ITAL and after various adjustments the liability of over $4 million remained. Thus, the liability can be seen to be sourced in trade, but as an outstanding intercompany mark up. Mr Wavish was clear in his view that he would have expected an equivalent adjustment. Mr Sweetman did not accept that as a long outstanding intercompany liability he would have accepted it as a trade debt. Mr Gingerich, a man of considerable business experience, who was at the centre of negotiations for InterTAN, who was fully apprised of what had passed between the parties at all levels and of the context and the commercial humanity of the situation, appreciated that InterTAN was in a commercially indefensible position. Further, it should be noted that in his affidavit in chief Mr Gingerich said that he would have had no personal objection to a reduction of the price by the amount payable by ITAL to TSC; though, in this context, he also said that he would not have given the reduction of $1 million to which I earlier referred, if he had to give this adjustment for the liability. No one from InterTAN gave evidence that he or she would have resisted any claimed adjustment on any particular basis.
Whatever might have been the sum negotiated between Mr Stegall and Mr Wavish on 1 March 2000 had the stand-alone accounts of ITAL been before Woolworths from the end of January and had they formed the basis of the due diligence report, is not to the point. The facts unfolded as they did. Had Mr Gingerich spoken after 4 April there is little doubt what would have happened. If the matter had arisen earlier, but after the 9 March excision of TSC, on the evidence there is nothing to found a conclusion that InterTAN would have been in any different bargaining position to that in which it would have found itself after 4 April. InterTAN had negotiated this transaction at $108 million enterprise value giving away, within that sum, the receivable. No one gave evidence that there was any perceived financial burden in retaining TSC; no one gave evidence that he or she would have perceived such a burden and put that in argument to Woolworths.
The value of the lost opportunity at 90% of the face value of the liability gives some recognition to the possibility that Mr Gingerich’s view that allowing the reduction for the liability at its full face value may have had an effect on his willingness to agree to the $1 million reduction. Even accepting that, it should be recognised that there was undoubted force in Mr Sweetman’s position that some of the Christmas trading cash should be viewed as stock and that InterTAN was in a weak bargaining position.
As to whether the appropriate relief in estoppel is one linked to the value of the lost opportunity or whether the respondents should simply be estopped from denying that the December Corporate Pack is the December Accounts, in my view, when a party such as the applicant, in reliance at least in part on a common assumption and on representations to the effect that a contract has a certain attribute or incident and that was the fair commercial basis of the bargain, there is every reason to conclude that the minimum relief to avoid the unconscientious resiling is to enforce the assumption or representation. One asks rhetorically, why should the applicant be forced to accept the monetary worth of the lost opportunity? The applicant bargained for this agreement in circumstances which make it just and equitable for it to have its bargain on the basis that I have identified.
Similar considerations apply to s 1325 of the Corporations Act and the flexible relief available thereunder; cf s 87 of the Trade Practices Act 1974 (Cth). The appropriate relief would be as the applicant claims: to vary the agreement to provide that the expression “December Accounts” mean the December Corporate Pack.
To the extent that damages are the remedy for the breach of warranty, the position is to be assessed by reference to the position that would have obtained had there been a fair and accurate disclosure of the receivable. That, in substance, is the value of the loss of opportunity that I have discussed above.
As to rectification, it was submitted by the respondents that since there was no mistake as to the words used there could be no rectification. The submission tended towards the view expressed by Denning LJ in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450, 461 to the effect that rectification is limited to an error in writing down the parties agreement. As Sheller JA said in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 336:
…[T]he availability of relief depends upon disconformity between the form or effect of the document executed and the intention of the parties or party who executed it.
See also Mahoney AP at 431 and McLelland AJA 345.
This is, of course, not a claim for rectification based on the common mistake of the parties: that is, the mistake of the parties that was held or made by both. It is a claim for relief based on unilateral mistake, since Mr Gingerich on and after 4 April appreciated (on this hypothesis as to the proper construction of the agreement) the error under which the Woolworths representatives were labouring. It is an application of the equitable principles discussed and applied in Taylor v Johnson (1983) 151 CLR 422, which are based on unconscionable conduct. Justice in these circumstances can be completely done between the parties by bringing the written agreement into conformity with what, until 4 April, was the view held by all participants to the negotiation that the December Corporate Pack was, or contained, the “December Accounts”, and what, after 4 April, was the mistaken view held by one side in respect of which Mr Gingerich said nothing.
To this end an order that would bring the agreement into conformity with the above intention would be as follows:
That the agreement be rectified so that the definition of the phrase “December Accounts” be amended so as to read:
The accounts entitled “Corporate Pack – InterTAN Australia Subsidiary/Division for the period ending December 2000” as at and for the period to the Balance Date, copies of which were included in the Data Room.
Nothing in Pukallus v Cameron (1982) 180 CLR 447 is contrary to the above approach. The above approach conforms to the availability of rectification in circumstances at least where there is actual knowledge of the other party of the mistake of the innocent party, a contribution to the creation of that mistake by the other party, the importance of the mistake and the unconscionability of the other party in allowing by its conduct the mistake to go unappreciated: see A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555, 570; Riverlate Properties v Paul [1975] Ch 133, 140; Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 503, 514-5; The Nai Genova [1984] 1 Lloyd’s Rep 353; Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259; Johnstone v Commerce Consolidated Pty Ltd [1976] VR 463; Re Freehouse Pty Ltd (1997) 26 ACSR 662; Lee Kong Nelder Nominees Pty Ltd v John Holland Construction & Engineering Pty Ltd WA Supreme Court Full Court 27 May 1998; and Taylor v Johnson at 431-32.
The above is sufficient to dispose of the controversy. My view on the contract and the willingness of the parties to view the set-off of the adjustment sum and the repayment of the receivable means that the orders that need to be made are to the effect that one money judgment should be entered in favour of the applicant setting off the post-completion adjustment using the December Corporate Pack as the December Accounts for the agreement with the loan repayment with interest as provided for the agreement.
Once the correct amount of the judgment with interest on this basis is calculated and judgment ordered is that sum the amended cross-claim can be dismissed. The applicant should bring in a draft judgment for this money sum with interest calculated to the date of the judgment.
I see no reason why the applicant should not have its costs, including reserve costs. These should include the costs of the third party discovery application. Should either party wish to raise any particular questions of costs I will hear the parties.

I certify that the preceding three hundred and fifty-seven (357) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.
Associate:
Dated: 9 September 2004

Counsel for the Applicant: Mr R M Smith SC with Mr P R Whitford

Solicitor for the Applicant: Clayton Utz

Counsel for the Respondent: Mr R B S Macfarlan QC with Mr T G R Parker

Solicitor for the Respondent: Allens Arthur Robinson

Date of Hearing: 7, 13, 14, 15, 16, 19, 21, 22, 23 and 27 April and 3, 4 and 5 May 2004

Date of Judgment: 9 September 2004

1A

1B

1C

1D

Annexure 2

Annexure 3

Annexure 4

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3011 of 2002

BETWEEN:	DSE (HOLDINGS) PTY LTD APPLICANT
AND:	INTERTAN INC FIRST RESPONDENT INTERTAN CANADA LIMITED SECOND RESPONDENT
JUDGE:	ALLSOP J
DATE OF ORDER:	9 SEPTEMBER 2004
WHERE MADE:	SYDNEY

JUDGE:	ALLSOP J
DATE:	9 SEPTEMBER 2004
PLACE:	SYDNEY

Counsel for the Applicant:	Mr R M Smith SC with Mr P R Whitford
Solicitor for the Applicant:	Clayton Utz
Counsel for the Respondent:	Mr R B S Macfarlan QC with Mr T G R Parker
Solicitor for the Respondent:	Allens Arthur Robinson
Date of Hearing:	7, 13, 14, 15, 16, 19, 21, 22, 23 and 27 April and 3, 4 and 5 May 2004
Date of Judgment:	9 September 2004