KSG Investments Pty Ltd v Open Markets Group Ltd
[2021] VSC 145
•31 March 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 00098
| IN THE MATTER of OPEN MARKETS GROUP LTD (ACN 159 661 453) (formerly Open Markets Online Trading Pty Ltd) KSG INVESTMENTS PTY LTD (ACN 155 386 413) | Plaintiff |
| v | |
| OPEN MARKETS GROUP LTD (ACN 159 661 453) (formerly Open Markets Online Trading Pty Ltd) | Defendant |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20, 21, 22, 23, 24, 27, 30 April and 4, 5, 11 May 2020 |
DATE OF JUDGMENT: | 31 March 2021 |
CASE MAY BE CITED AS: | KSG Investments Pty Ltd v Open Markets Group Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 145 |
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CONTRACT – Causation – Remoteness – Loss of opportunity – Whether breach of contract caused loss of opportunity – Standard of proof for determining whether breach caused loss of opportunity – Standard of proof for determining plaintiff’s hypothetical conduct for purposes of causation – Where no loss proven plaintiff is entitled only to nominal damages – Hadley v Baxendale (1854) 9 Ex 341 – Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 – Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 – Crown Insurance Services Pty Ltd v National Mutual Life Association of Australia Ltd (2005) 13 ANZ Insurance Cases 61-659.
CORPORATIONS – Oppression – Whether conduct in breach of shareholders agreement was oppressive, unfairly prejudicial or unfairly discriminatory – Whether plaintiff entitled to order for purchase of shares – Orders for purchase of shares compensatory in nature – Plaintiff to be placed in no better position than had the oppressive conduct not occurred –Wayde v New South Wales Rugby League (1985) 180 CLR 459 – Campbell v Backoffice Investments (2009) 238 CLR 304 – Wain v Drapac (No 2) [2013] VSC 381 – Donaldson v Natural Springs Australia Ltd [2015] FCA 498 – Corporations Act 2001 (Cth), ss 232, 233.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Clarke QC Ms K Wangmann | NOH Legal |
| For the Defendant | Mr J Evans QC Mr T Jeffrie | TPS&Co Lawyers |
TABLE OF CONTENTS
PART A – Introduction..................................................................................................................... 1
PART B – Factual Background........................................................................................................ 3
Open Markets’ commencement and structure......................................................................... 3
Open Markets’ process for issuing shares................................................................................. 6
Information about capital raising sent to shareholders........................................................... 7
Open Markets’ Need for Capital................................................................................................. 9
Kosmas Galtos’ employment and termination....................................................................... 10
Communications between Open Markets and KSG after August 2013.............................. 16
Part C: Breach of Contract Claim.................................................................................................. 21
Breaches of the Shareholders’ Agreement............................................................................... 21
Claim for damages...................................................................................................................... 27
KSG’s claim......................................................................................................................... 27
Governing principles........................................................................................................ 29
The logic of KSG’s damages claim.................................................................................. 37
What means did KSG have to acquire shares in Open Markets?............................... 39
Would KSG have acquired shares in Open Markets?.................................................. 45
Surrounding circumstances................................................................................ 46
KSG’s counterfactual case................................................................................... 49
Negotiations in mid-2013.................................................................................... 54
KSG’s response to information and opportunities to take up shares........... 58
Mr Galtos’ knowledge of need for capital raising by Open Markets........... 60
KSG’s “they should come to me” point............................................................ 62
Mr Galtos’ response to Open Markets’ publications....................................... 63
Conclusions – causation – purchase of shares........................................................................ 78
Sale of shares – KSG’s counterfactual case.............................................................................. 84
Opportunity to sell the shares and value................................................................................ 89
Conclusion – claim for damages............................................................................................... 91
PART D - Claim for relief under Corporations Act ss 232-233................................................ 91
Governing Principles - Oppression.......................................................................................... 92
Analysis – Oppression................................................................................................................ 94
Conclusions - Oppression........................................................................................................ 105
Schedule 1 – List of Share Issues and Sales of Open Markets’ Shares............................... 110
Schedule 2 – Relevant Clauses of the Shareholders’ Agreement......................................... 116
HER HONOUR:
PART A – Introduction
The plaintiff, KSG Investments Pty Ltd (KSG), is a minority shareholder in the defendant, Open Markets Group Ltd (Open Markets), which was established in 2012 and operates a digital platform for trading in Australian securities markets. Kosmas Galtos, KSG’s sole shareholder and director, was employed as Open Markets’ CEO during 2012 and 2013 and was, between July 2012 and April 2013, one of its directors.
In October 2012, Open Markets and its six original shareholders including KSG, entered into a shareholders agreement (SHA). The agreement contained terms governing the issue of new securities, to the effect that any proposed issue of shares must be the subject of a major shareholders’ resolution, that new securities must be first offered to existing shareholders in their respective shareholding proportions by the service of written notice, and that existing shareholders may “mop up” any shares not taken up by other existing shareholders according to the process set out in the SHA.
KSG alleges that between July 2013 and March 2016, Open Markets issued a number of ordinary shares without complying with those requirements. Open Markets’ alleged breaches of the SHA form the basis of KSG’s claim, which is in two parts.
First, KSG claims damages from Open Markets for breach of the SHA. KSG says it received no notice of the new allotments and was as a result, deprived of its rights to participate in those allocations. As at July 2013 KSG held 9.5% of Open Markets’ issued shares. The company’s failure to invite KSG to purchase shares in accordance with its proportionate entitlement caused KSG not to exercise its rights to take up shares which KSG would have exercised had it received offers in accordance with the SHA, each time new securities were issued. KSG’s pleaded case was that it would have purchased every share that it was entitled to purchase under the SHA, and would, in 2016, have sold the shares at a profit. Its loss is calculated as the difference between that profit and the costs that KSG would have incurred to purchase the shares.
Second, KSG alleges that the allotment of shares in breach of the SHA had the effect of diluting KSG’s shareholding, and was oppressive or unfairly prejudicial to, or discriminatory against, it within the meaning of s 232 of the Corporations Act 2001 (Cth), as was the failure by Open Markets to produce certain records sought by KSG. KSG seeks an order under s 233(1)(e) that Open Markets purchase its shares at fair value, with an appropriate reduction of the company’s share capital.[1]
[1]By its originating application KSG sought, but neither pressed at trial nor formally abandoned, additional or alternative relief, namely an order pursuant to s 233 of the Corporations Act that a receiver and manager be appointed over Open Markets. It also sought, and pressed, declarations that Open Markets has breached the terms of the Shareholders’ Agreement; that KSG was, in breach of the Shareholders Agreement, denied the opportunity to participate in capital raising and that pursuant to the Shareholders Agreement it was entitled to purchase shares in Open Markets between July 2013 and March 2016.
The alleged breaches of the SHA in connection with the issue of new securities were, at least by the end of the trial, substantially admitted by Open Markets. The principal issues in contention are, on the breach of contract claim, whether Open Markets’ breaches of the SHA (admitted or otherwise established) caused KSG to suffer any loss and whether KSG has proved that loss and, on the oppression claim, whether the conduct of the company’s affairs falls within s 232 in circumstances in which relief in the form of a buy-out order should be granted.
Open Markets contended that KSG has established neither that any breaches of the SHA caused loss to KSG, nor the existence of a loss, to the requisite standard of proof. It also says that its conduct in breach of the SHA ought not be considered as oppressive of or unfairly prejudicial to KSG, at least because there was no evidence that KSG was treated any differently to any other shareholder in relation to the provision of offers for the relevant share allocations, and because its conduct did not cause KSG to suffer any loss; its conduct was not damaging to KSG’s rights in a manner that was unjust or inequitable.
In order determine the oppression claim it is necessary to consider the circumstances in which the company’s issues of new shares occurred, notwithstanding the admitted breaches of the shareholders agreement.
There are 17 share allocations the subject of the claim.[2] They are set out in Schedule 1 to these reasons, which also sets out share sales (transfers) and allocations that occurred between 2013 and 2019.
[2]There were, in evidence, 17 separate “Change to Company Details” forms, recording the issue of shares, in the period 25 July 2013 to 3 March 2016. Those share issues occurred on 15 separate dates.
Kosmas (Kos) Galtos gave evidence for KSG. His father, Con Galtos, gave evidence on the subject of the funds available to Kosmas and KSG to purchase shares in Open Markets. Each was cross-examined. KSG’s solicitor, Omar El-Hissi, a principal at NOH Legal, produced documents on an application that occurred during the trial and gave evidence about communications between himself and Open Markets’ solicitor in the course of separate litigation between Kosmas Galtos and Open Markets, in 2013. He was not cross-examined.
Open Markets called two witnesses: Emlyn Scott, a founder and director of Open Markets, and Andrea Marani, who was until February 2020, the company’s Chief Executive Officer and Managing Director. Each was cross-examined. Both parties called forensic accounting evidence concerning KSG’s claim for damages.
PART B – Factual Background
Open Markets’ commencement and structure
The business idea that became Open Markets was developed by Emlyn Scott and Rick Klink. In early 2012, while he was Chief Executive Officer of the National Stock Exchange of Australia (NSX) Mr Scott, with NSX’s blessing, commenced developing an online stockbroker and engaged Mr Klink’s company, Paritech Pty Ltd (Paritech) to build a financial information exchange platform to enable electronic trading on the NSX. Mr Scott learned that there was little interest in connecting with the NSX, amongst existing online stockbrokers. He and Mr Klink then decided to build their own online broker which would connect with the NSX and began to establish the business and to commence capital raising. Mr Scott took responsibility for designing the trading platform and raising funds, and Mr Klink took charge of developing the platform. Mr Scott recruited Brian Price, the then Chairman of the Financial and Energy Exchange which owned the majority stake in NSX, who invested an initial $15,000. Mr Klink and Mr Scott decided that they would seek to acquire the necessary Australian Financial Services licences from a dormant company, in order to contain costs and streamline the licence acquisition process.
By about mid-2012 Emlyn Scott and Rick Klink were looking to engage someone to set up the company and other structures that would become the vehicle for the business. Mr Scott knew Mr Galtos through a mutual friend and, shortly after meeting him, engaged him to undertake a number of tasks on a part-time basis, including incorporating the company and engaging lawyers and accountants to prepare corporate documents, which Mr Galtos did.
Kosmas Galtos was also charged with acquiring financial services licences from a dormant stockbroker, Camerons Stockbrokers Limited (Camerons). Mr Klink had found the licences for sale and assigned Mr Galtos to handle the purchase negotiation with Camerons.
Open Markets was incorporated on 26 July 2012 with one ordinary share.[3] At its commencement, Mr Galtos was its sole director and KSG was its sole shareholder.
Open Markets was originally named Open Markets Online Trading Pty Ltd and is the holding company of other members of the “Open Markets Group”. The composition of the group is not material for present purposes.
When the company structure was formalised in October 2012, Open Markets appointed an additional director, Mark Darras (whom Mr Galtos had recruited), and issued 100,000 ordinary shares to a number of initial investors, fully paid to $100,000.
As at 20 October 2012, Open Markets had six shareholders (the original shareholders) as follows:
Member
Associated person
No of Shares
Percentage
Serpantine Ltd Emlyn Scott 28,500 28.5% Paritech Pty Ltd Rick Klink 9,500 9.5% Remgrid Pty Ltd Rick Klink 19,000 19% KSG Investments Pty Ltd Kosmas Galtos 9,500 9.5% Iron Mountain Pty Ltd Brian Price 28,500 28.5% Mauconla Holdings Pty Ltd Mark Darras 5,000 5% Total 100,000 100%
On 11 October 2012, Open Markets and the initial members entered into the shareholders agreement. The relevant provisions of the SHA are set out in Schedule 2 to these reasons.[4]
[4]A purported variation of the SHA in or about 28 April 2013 was initially put in issue on the plaintiff’s case but it was not ultimately pressed as an issue relevant to the plaintiffs’ claims, and both parties accepted that the SHA as executed in October 2012 was the governing agreement.
Further share allotments were made between November 2012 and July 2013, and as at July 2013, the shareholdings were as follows:
Member
Associated person
No of Shares
Percentage
Serpantine Ltd Emlyn Scott 34,981 31.46% Paritech Pty Ltd Rick Klink 9,500 8.54% Remgrid Pty Ltd Rick Klink 19,000 17.09% KSG Investments Pty Ltd Kosmas Galtos 10,564 9.5% Iron Mountain Pty Ltd Brian Price 31,685 28.5% Mauconla Holdings Pty Ltd Mark Darras 5,448 4.9% Total 111,178 100%
KSG maintained its shareholdings at 9.5% of the company’s issued capital during that period.
It is apparent from the transactions set out in schedule 1 that original shareholders Iron Mountain Pty Ltd (Iron Mountain), Paritech (Rick Klink’s company) and Serpantine Pty Ltd (Serpantine, Emlyn Scott’s company) took up shares in the July 2013 allocation but did not subsequently acquire shares in the relevant period. Mr Scott’s second company Beaupride Pty Ltd (Beaupride) acquired shares in the July 2013, as did entities owned by his brother and nephew. Entities owned by Mr Scott’s brother acquired shares in January and February 2014, in August 2014 and in June 2016. It is also apparent that numerous people and entities other than the original shareholders became shareholders during that period.
Open Markets’ process for issuing shares
Emlyn Scott’s evidence was that he did not believe that between July 2013 and March 2016 that Open Markets had sent out any “subscription notices” (that is, offers required by clause 11 of the SHA to be made by written notice to the original shareholders to take up new securities), to any shareholders. That evidence was consistent with the fact the company produced no documents evidencing compliance with clause 11 and was reflected in Open Markets’ admissions.
KSG relied on two documents by which it sought to establish Open Markets’ consciousness of the notice and offer requirements of the SHA, or a practice of sorts that reflected such an awareness.
The first was a draft proposed members circulating resolution dated in January 2013 concerning an issue of 31,484 new fully paid ordinary shares that, according to the document, had been made in December 2012. The resolution proposed retrospective approval of the share offer and also proposed an amendment to the shareholders agreement for the purposes of that offer, to the effect that the ‘re-offer’ provisions by which shortfall shares were to be offered to shareholders who had accepted shares offered to them (by clauses 11.5(3) and 11.6 of the SHA) were not to apply, and further that the Board may offer any shortfall remaining after the application of clauses 11.5(1) and (2) to any person on the terms of the offer and without a major directors resolution during a stated period. The document was signed only by Emlyn Scott for Serpantine and concerns a period prior to the relevant period. It is nonetheless instructive because it reveals that the processes for share offers adopted by Open Markets at the commencement of the relevant period expressly contemplated that the requirements of the shareholders agreement in respect of the issue of new securities must be complied with unless varied and also because, at that time, it anticipated that a resolution by all shareholders would include KSG, for which provision had been made on the signing clause of the document.
The second document was a proposed special majority shareholders resolution concerning the July 2013 share issue, likely dated at about 25 July 2013. The document was executed only by Mr Scott for Serpantine and Price for Iron Mountain, but had been prepared on the basis that it would be executed by Serpantine, Paritech, Remgrid and Iron Mountain – omitting Mauconla Holdings and KSG who were the remaining original shareholders. It stated that the participating shareholders held 85.6% of the issued shares, a proportion of shareholders sufficient to pass a major shareholders resolution. [5] It said in effect that the company was in need of urgent re-capitalisation and that the parties proposed to issue, and had in fact issued, shares to the persons named in the schedule. The schedule named those investors who in fact took up shares in July 2013. Like the resolution proposed in January 2013, this document, although it contemplated a different process, evidenced an appreciation by Open Markets at that time that the issue of shares required observance of the relevant provisions of the SHA.
[5]Shareholders Agreement, [1.1(34)].
Open Markets’ processes are considered further in Part D below in relation to the claim for relief under s 233 of the Corporations Act.
Information about capital raising sent to shareholders
Information about proposed new securities offers was sent to shareholders and prospective investors throughout the period. KSG’s case was that Open Markets’ provision of information to shareholders was relevant to its claim for relief under s 233 of the Corporations Act, essentially because it was unfairly deprived of information that other shareholders had received. KSG’s response to Open Markets’ publications that it did receive during the period is relevant to the causation element of KSG’s claim for damages for breach of the SHA, as discussed below in Part C.
Emlyn Scott did not become a director of Open Markets until December 2015, but was, from the inception of the company until around late 2015, the person mainly responsible for capital raising both internally and through external investors. He prepared or was involved in the preparation of financial forecasts, promotional documents called ‘pitch decks’ (investor-focused presentations, each pitching an offer of shares at an anticipated price) and related memoranda which were sent to, and used in communications with potential investors. He was also involved in the preparation of written shareholder updates which were periodically sent to existing shareholders. The shareholder updates included information about capital raisings and significant milestones reached by Open Markets. Mr Scott’s evidence was that it was unlikely that new shareholders would have invested without first receiving information of the kind contained in the information memoranda or pitch decks, but said that the company’s pitch for new investors was often made personally, including by Mr Scott and Mr Klink, and investors were brought into the company by their relationships with Mr Scott, Mr Klink and others.
The three original shareholders who took up new shares in July 2013 (Paritech, Serpantine and Iron Mountain) plainly had opportunity to invest in the company at that time. Neither they nor the remaining shareholders Remgrid (Mr Klink’s company) nor Mauconla Holdings (Mr Darras’ company) subsequently invested. Mr Scott said that he was always aware of what was going on within Open Markets because he was in constant dialogue with management and the board.
Mr Scott was closely involved with capital raisings in the period between July 2013 to March 2016. Communications to potential investors were sent via Open Markets’ customer management system, about which there was no substantive evidence. The process changed once Andrea Marani, who was appointed Chief Executive Officer in June 2016 (at the time at which he joined Open Markets’ board), appointed an external company secretary, Kim Clark, who assumed responsibility for communications with shareholders.
In September 2016 Ms Clark sent an email to existing shareholders asking them to update their information. Mr Marani said that he was informed at about that time that Kosmas Galtos had responded to Ms Clark’s email and complained that he had not received certain shareholder notices, and in response Mr Marani instructed Ms Clark to ensure that all communications directed to shareholders, including any notices, were sent to Mr Galtos in his capacity as director of KSG. He also instructed Genevieve Wood, Open Markets’ marketing manager, to ensure that all updates and notifications were sent to all shareholders. The exchanges between Mr Galtos and Open Markets at that time, are discussed below.
Throughout the period there was little interest among existing shareholders in taking up shares on offer. As Mr Scott put it, “no-one took up their allotments”. That was consistent with the documentary evidence of shareholdings in Open Markets during the relevant period (see schedule 1). Andrea Marani’s assessment of the company’s attempts at capital raising after July 2013 was that most existing shareholders would not respond to capital raising efforts and Open Markets was reliant on two or three major existing shareholders or forced to look outside the existing shareholders to increase capital investment.
The documentary record as to information memoranda, pitch decks and like materials concerning capital raising created by the company, was incomplete. Open Markets did not produce a comprehensive set of documents and nor did KSG proffer comprehensive evidence about what it did and did not receive. It is likely that promotional materials were produced and distributed for most, if not all, share allocations. Certain of those materials, of which there was evidence, and which KSG did receive, are discussed in Part C.
Open Markets’ Need for Capital
KSG’s oppression claim (which is considered in Part D below) focussed on the ‘dilution’ of its shares and the exclusion of the KSG from opportunities to invest. It was not established that Open Markets issued shares in order to dilute KSG’s shareholding. Throughout the period Open Markets engaged in fundraising because it was in need of working capital. Open Markets was, throughout the period, growing its business and attracting investment, but it remained a start-up enterprise.
The purpose of the July 2013 share issue was to fund the purchase of Camerons stockbrokers in order to acquire the licences necessary to operate, and to fund the establishment of a trading desk. Open Markets launched online equity trading including on the ASX and NSX in late September 2013. In a pitch to investors in October 2013, the company described itself as a new entrant in the online broking market which was, it said, substantially controlled by the four major banks. It aimed to take market share by offering lower prices, high automation, and integration of third party resources on its platform.
In October 2013, Open Markets was projecting it would ‘break even’ by May 2014 and that it would produce a positive EBIT by the final quarter of 2014, returning a profit of just over $200,000.
The company’s financial statements recorded net losses before tax, in each of the years 2014, 2015 and 2016.
Kosmas Galtos’ employment and termination
Open Markets formally engaged Kosmas Galtos as Chief Executive Officer in November 2012. He was to be paid gross remuneration of $175,000 per annum plus other un-specified performance-linked incentives. His letter of appointment noted that he owned approximately 9.5% of the issued capital of the company.
Mr Galtos’ remuneration, and the means by which he paid for the shares that were issued to KSG, were in issue on the question of KSG’s financial positon and its ability to have funded the acquisition of shares in Open Markets in and after mid-2013. That broader issue is considered later. Consideration for the shares issued to KSG was by given by Open Markets deducting moneys from amounts that were otherwise payable to KSG for services performed by Mr Galtos in accordance with his agreed remuneration, with Mr Galtos’ consent. As to the balance of his remuneration, Open Markets did not in fact pay Mr Galtos until about February 2013. Although the company’s letter appointing Mr Galtos was silent as to this fact, Emlyn Scott’s evidence, which was un-contradicted, was that it was agreed that Mr Galtos would not be paid until the business “went live”, which did not occur until 2014. However, Mr Galtos told Mr Scott in about February 2013 that he had run out of money and needed to be paid a salary, having not received an income since he had left his previous employment in late 2011. Thereafter, Open Markets paid Mr Galtos a salary, through KSG.
Mr Galtos’ position as CEO was terminated on 9 April 2013. From about February 2013 Emlyn Scott had had what he said were “major concerns” about Mr Galtos’ performance, specifically that he was not attending for work, was late for meetings and was not sufficiently familiar with the project management functions of his role. In about April 2013, Rick Klink, Mark Darras (the then Chairman of Open Markets) and Mr Scott met to discuss Galtos’ position and decided that he would be terminated. The financial terms of the termination were relevant, on Open Markets’ case, to the causation question on the claim for damages for breach of contract, which is considered in Part C below.
Mr Darras wrote to Mr Galtos[6] by email on 8 April 2013, referring to their discussion two days earlier (the content of which was not described, either in the email or by any witness), attaching a letter described as Mr Galtos’ letter of resignation as CEO of Open Markets and indicating that ‘financial amounts’ would be sent through in a subsequent email. The attached letter was dated 9 April 2013 from Open Markets and was signed by both Mr Galtos and Mr Darras. Although the letter was signed, it evidently expressed Mr Darras’ version of the terms on which Mr Galtos and Open Markets would part ways. The letter stated that it had been agreed that the contract for services between Open Markets and KSG would cease on 9 April 2013, on which date Mr Galtos would cease to be Chief Executive Officer of the company. The company would pay all accrued amounts owing to KSG and an additional amount said to represent three times the normal monthly fee, in the sum of $43,750. One half of that amount was to be paid ‘immediately’, and the balance on 20 May 2013, subject to KSG issuing tax invoices for those payments. Open Markets thanked Mr Galtos for his agreement to cooperate in handing over responsibilities and acknowledged and thanked him for his efforts in establishing the company and its business.
[6]References to Kosmas Galtos in this context include reference to KSG, which Mr Galtos controlled and which was the vehicle through which he contracted with the company in that KSG rendered invoices, received payment and was issued shares.
Mr Galtos responded at 6.14pm that day (8 April) by emailing Michael Wilton of Norton Rose Fulbright, Open Markets’ solicitors at that time, raising a number of matters. Relevantly, Mr Galtos said that,
KSGI has historically accepted payment of 50% of invoice in cash (15th of each month) and converted the remainder to take up shares during capital raisings.
KSGI will not accept shares in lieu of cash payment for March invoice or the settlement amounts. …
The proposed letter requires amendment to ….
·Clarify the precise quantum of payments due to be made … [including] $24,062.50 – 50% of settlement due for payment 12 April 2013; $24,062.50 – remaining 50% of settlement sum due for payment 20 May 2013;
·Confirm that shares that have not yet been issued (current capital raising), but for which deduction from invoiced payments has been made (amounting to $19,988.89), be issued by 12 April 2013; …
·Clarify that time is of the essence in the delivery of the specified payments, to alleviate concern at the potential for payment delays.
Later that day, Michael Wilton responded to Mr Galtos, saying, without prejudice, that Open Markets would look at proceeding on “this basis”, which I infer meant the basis set out in Mr Galtos’ earlier email, and asked him to identify the shares that had been issued to KSG or were to be issued and “the prices”, which I infer means the prices at which the shares had been issued or were to be issued.
Mr Galtos responded later again on 8 April 2013 (at 10.55 pm), and said relevantly that,
Records relating to $19,988.89 owing in shares, at the price contained in the Circulating resolution approved by all shareholders and printed in the office (file on server) to KSG Investments can be seen in the MYOB accounts (Share Capital account). … It appears that a new Director has been appointed, but as a Director and Shareholder, I have not yet received written notification or formal advise [sic] of this action. No discussion has taken place as to timings for the next Board meeting and am concerned, as a Director, to proper transitional and ongoing arrangements being defined, agreed to and put in place as and when this matter is concluded. …. Looking forward to … a speedy conclusion, so we may get on with bringing this business to market and getting things back onto the most positive footing possible.
Mr Galtos’ statements in these emails of his preference for cash in lieu of shares and in relation to shares not yet issued but to be issued for which the sum of $19,988.89 had been retained by Open Markets, is relevant to the issue of his interest more broadly in acquiring shares in Open Markets. Mr Galtos was cross-examined on this evidence, as discussed below.
On 12 April 2013, Mr Klink wrote to the other directors of Open Markets advising that Mr Darras had resigned that day as both Director and Chairman, indicating he would assume the interim Chairman role. Later the same day Mr Galtos wrote to Mr Klink saying that he had received no reply to his emails or voicemails to Mr Klink and Mr Darras regarding payments due that day and asking for confirmation that funds would be transferred by the close of business that day.
On 15 April 2013 (at 3.43pm), Mr Galtos wrote to Mr Klink, Mr Scott, Mr Price and Mr Darras (copied to his solicitor) saying, relevantly:
I also look forward to receiving the updates previously requested … on the status of the Cameron’s acquisition (particularly if the agreement has been executed), the $640k deposit of funds from an investor (referred to in mails) and notification of the date and time for a board meeting to appoint a new CEO (in accordance with the SHA). I look forward to prompt receipt of all information that Directors are entitle [sic] to under the Corporations Act and the Shareholders Agreement.
Again on 15 April 2013 (at 6.06 pm) Mr Galtos wrote to Mr Klink (copied to Mr Scott, Mr Darras, Mr Price and his solicitor) referring to a call from Mr Klink that afternoon. Mr Galtos said:
Per your call at 5.09pm, I anticipated a discussion about facilitating payment of the sum agreed on Wednesday, post return of all financial records to the company …
Having been totally surprised by your request for an immediate board meeting via telephone, I advised that I did not agree to a Board meeting without notice, but was willing to have a discussion. You conferenced me into a meeting with your brother (Paul), whom did not identify himself as present, and Michael Wilton (our lawyer).
In the discussion (lasting 40 seconds), you identified that Paul was now a Director (this has not been notified to Directors or ratified by a previous Board meeting) and that you wished to freeze the bank accounts as you have concerns as to company solvency. I advised that I required appropriate financial statements in order to facilitate informed decision making and appropriate time to consider them. You further went on to infer that the agreement signed by Mark Darras on Wednesday, facilitating my resignation as CEO, was without appropriate authority. I raised the initial purpose of the call … and you hung the phone up.
Accordingly, please be advised that I do not believe that this was a lawful board meeting. I do not acknowledge that you have been appointed as CEO or Chairman (see SHA), Paul Klink does not have legal status as a Director and that no decisions were made in the discussion, nor lawful vote taken.
KSGI reserves all it’s [sic] legal rights and I notify you that, as a Director, I shall be taking independent legal advise [sic] on this matter.
Please provide me with updated financial statements and all materials required under the Shareholders Agreement by return.
As at 15 April 2013, ASIC recorded the appointment of each of Rick Klink and his brother Paul Klink on 12 April 2013, on which date Mr Galtos was still a Director.
On 16 April 2013, KSG issued a statutory demand to Open Markets requiring payment of the sum of $45,718.68.
On 7 May 2013, Open Markets made application under s 459G of the Corporations Act to set aside the statutory demand. It made an offsetting claim, alleging that Mr Galtos’ lack of care in the management of the company and in the launching of Open Markets’ online brokerage service caused the company to incur costs, and to lose capital investment and to decrease in value, giving rise to a claim against Mr Galtos in the sum of $2,109,584.
Before the application to set aside the demand was heard, the parties negotiated and resolved the dispute on terms that they would release each other from all claims or liabilities arising from or touching upon the subject matter of the claim for removal of the statutory demand, in exchange for Open Markets making three payments to KSG: $35,000 to be paid immediately; $34,781.18 to be paid within 7 days of signing of the agreement; and $19,988,89 to be paid by 4 August 2013. Although neither party admitted liability, Open Markets had earlier agreed that it owed the sum of $19,988.89 to KSG.
Mr Galtos was removed as a director on 26 April 2013. Thereafter, he played no role in Open Markets and had no personal engagement with any of the original shareholders.
In evidence-in-chief, Mr Galtos described his termination from Open Markets as acrimonious. It is evident from his frequent reference, during cross-examination, to the fact that Open Markets did not pay moneys owed to him without numerous demands and until after he had issued proceedings, that the company’s failure to honour its agreement with him without delay or conflict was greatly troubling to him. He also considered that he had been poorly treated by Open Markets in what he regarded as a surprise move to appoint Paul Klink to the Board without engaging in the process contemplated by the shareholders agreement. Those concerns were evident, for example, in his email to Rick Klink of 15 April 2013 at 6.06pm (as set out above).
On the question of his parting ways with Open Markets (leaving to one side his shareholding), Mr Galtos gave the following evidence:
After 9 April 2013, save for a holding position as director … you had no role within Open Markets after that time, did you?
---No, not at all. No, except the handover which I tried to do as quickly as possible. I remembered immediately when concluding with some advice I was given by another CEO, there’s no dignity in stalking a company you used to run. You leave it to get on and let them do what they have got to do.
After that day, you had no involvement in the management of Open Markets?
---None whatsoever.
You had no insight, other than as might be published by Open Markets to you, or to others, as to what was going on within Open Markets and its activities?
---That’s correct. Not even a conversation with people, Facebook friends, that worked there. Not a single thing.
Subsequently, Mr Galtos took no steps to have himself reinstated as a director. He was aware at all times of the right of KSG to appoint a director under the SHA.[7]
[7]Clause 5.1 of the SHA.
After Mr Galtos’ termination Rick Klink was appointed Chief Executive Officer of Open Markets. Andrea Marani had been offered the position of Chief Operating Officer of Open Markets in May 2013. In about June 2016, Rick Klink resigned as Chief Executive Officer and Mr Marani was promoted into that position. At that time, Mr Marani also became a director of the company. Open Markets first appointed an external company secretary, Kim Clark, shortly after Mr Marani assumed the position of CEO.
The following people, then, held directorships during 2013 – 2016: Rick Klink, between 12 April 2013 until 20 April 2018; Paul Klink, between 14 April 2014 to 15 December 2015; Emlyn Scott, from 15 December 2015; Andrea Marani, from 8 June 2016; Fergus Scott, from 15 December 2015 to 22 December 2017; Lionel Brownsea, from 15 December 2015 to 13 September 2016; Belinda Darras, from 15 December 2015 until 9 February 2016; Songyu Gao, from 2 November 2016.
The Shareholders’ Agreement was terminated in April 2016, at which time Open Markets adopted a constitution as its governing instrument.
Communications between Open Markets and KSG after August 2013
After the termination of Mr Galtos’ employment, he and Open Markets communicated intermittently. The first record of any post-employment communication was an email sent by Genevieve Wood, Open Markets’ marketing manager, to Mr Galtos on 28 January 2014, attaching two shareholder updates that had been published during 2013. The content of the email suggests that it was likely sent in response to a communication from Mr Galtos but no such communication was in evidence. Ms Wood said, in the email, that she had spoken to Rick (evidently, Rick Klink) who was, she said, happy to provide Mr Galtos with what he needed and that he should contact Rick directly by email. Mr Galtos responded, saying,
Hi Gen, thanks for sending. What I’m after is in accordance with the law to receive exactly what all other shareholders have been sent and to be equally informed. As such will you please send me anything that is missing such as any other briefings and financial reports particularly the annual report. I will write to Rick directly to [sic] clarifying concerns on the company’s failures to comply with the shareholders agreement and the law.
Ms Wood responded, attaching three further updates, saying she would pass on Mr Galtos’ email to Rick Klink, but noting that Mr Galtos would be in touch with Mr Klink and that it would be faster if Klink received direct contact from Mr Galtos. Mr Galtos responded saying:
It may be best if you ask Rick to email me, providing such information as will bring the company into compliance with the shareholders agreement and its statutory obligations;
and
It’s really for the company to comply with its legal agreements, so I do hope it proactively contacts me to resolve outstanding matters. I appreciate what you have sent.
There was no evidence of Mr Galtos directly contacting Mr Klink until March 2016, in the email mentioned below.
On 3 February 2014 Ms Wood emailed Mr Galtos and other recipients a copy of a media release announcing the appointment of a new head of sales for Open Markets. On 1 May 2014 Mr Galtos emailed Ms Wood, forwarding a notice he had received about the expiry of a domain name registered by Open Markets and suggesting she change contact details for that service.
On 8 October 2014 Mr Marani sent a shareholders update dated 6 October 2014, to recipients including Mr Galtos. On 24 October 2014 Open Markets’ investor relations team sent to recipients, including Mr Galtos, a notice of annual general meeting for 2014 attaching the directors’ report and financial report for that year.
On 8 April 2015 Mr Marani sent to recipients, including Mr Galtos, a quarterly shareholders’ update for March 2015 and consolidated financial statements for the 6 months to December 2015, advising of the timeline for the publication of a further update and audited financial statements.
On 10 March 2016 Open Markets sent to shareholders a notice that the company was seeking to an urgent injection of capital and considered that it would benefit the company to cancel the existing shareholders agreement and adopt a new constitution. The email to Mr Galtos was addressed individually to him, and attached documents relating to the proposed changes. Mr Galtos responded to that email on 11 March 2016, copying Mr Scott and Rick Klink, seeking a list of the number of shares issued in Open Markets and information as to how much capital has been raised since the formation of the company, as well as whether each shareholder had signed the SHA.
On 7 September 2016, Open Markets wrote to Mr Galtos in an email that appeared to be a template communication. It asked that he provide his contact and entity details in order to assist the completion of the company’s annual requirements. Mr Galtos responded on 20 September 2016, saying that his details had not changed and,
Per my previous requests, which have not been responded to, would you please send me a copy of the Share Register and provide a list identifying all capital raisings (date, price, shares issued etc).
On 22 September 2016 Kim Clark responded, introducing herself as company secretary saying that she was newly appointed and that his email was the first she had been made aware of a request from Mr Galtos, and informing him as to what was required to support a request for the share register.
Mr Galtos responded on 26 September 2016 (copied to Mr Klink and Mr Scott), saying:
It would appear that Open Markets and its shareholders have failed to act in accordance with the binding obligations laid down in the Shareholders Agreement entered into at foundation of the company. All information that I have requested is contractually required to be provided to me under the terms of the agreement and should I not receive the information requested within 7 days, I shall have no alternative but to ask my legal representatives to engage on the matter, including a full audit of potential breeches [sic]. I look forward to receipt of the materials without further delay or hindrance.
On 27 September 2016, Ms Clark responded, attaching a copy of “the latest ASIC statement for your information” and apologising for the delays experienced, noting that she had recently been appointed as company secretary and asking that all like correspondence be directed to her going forward. On the same day, Galtos replied, noting that while the provision of the statement was “progress”, he had still not received “anything that identifies each capital raising that has occurred and the shares allocated”, and asked her to resolve that issue.
On 4 October 2016, Ms Clark wrote to Mr Galtos advising that his previous request had been referred to the Board and that she would advise further in due course. On the same day, Mr Galtos replied, saying:
I look forward to receiving prompt response, within the next few days, from the board and supply of the requested information, that the foundation shareholders and company are contractually bound to provide. Please note, that any share that may have been issued during the ‘life’ of the Shareholder Agreement in place at the time of the company formation, that do not have a fully executed Deed of Accession on file, are issued invalidly and in breach of that Shareholders Agreement. Any votes that those shareholders participated in are potentially voidable.
On 12 October 2016, Mr Galtos again wrote to Ms Clark (copied to Mr Marani, Mr Scott and Mr Klink), saying:
I have received no response from the Directors of Open Markets to my reasonable questions. As you may guess, this is now giving me concern that some wrong doing or conflict of interest may have occurred that the Directors are not keen to acknowledge or address. Can you please tell me why there is a delay in receiving a response? Does this require legal assistance to get resolved or should I just directly contact all the shareholders to advise them as to my concerns and potential risk to their investments?
Mr Marani wrote to Mr Galtos that same day, (copied to Mr Scott, Mr Klink and Ms Clark), referring to a conversation held that day (about which no evidence was given) and attaching what he described as a breakdown of shareholders, shares issued and accompanying dates. The information was correctly said to have been readily available on the ASIC website. Mr Marani asked that Mr Galtos let him know when he had worked through the information so that they could discuss Mr Galtos’ concerns.
On 18 October 2016, Open Markets sent its shareholders, including Mr Galtos, a “Shareholder Update”, noting, amongst other things, Mr Marani’s appointment as CEO of Open Markets on 1 August 2016.
Mr Marani and Mr Galtos met on 3 November 2016, to discuss Mr Galtos’ concerns. What was said at that meeting is considered below.
On 18 January 2017 Mr Galtos wrote to Mr Marani referring to a meeting held in November 2016 asking Mr Marani to come back to him about resolving the matters they had discussed. Correspondence between them continued in January, February and March 2017, in the course of which Mr Galtos said that if matters were not “resolved” he would take legal action. In late May 2017 KSG’s solicitors wrote to Open Markets alleging breaches of the shareholders agreement.
Those communications establish in summary that:
(a) During the seven month period from late June 2013 (when the parties executed the deed settling the termination dispute) until late January 2014 there was no communication between Mr Galtos and Open Markets. During that period Open Markets issued four shareholder updates. It had also issued one update in May 2013 (five in total). Those were not sent to Mr Galtos until January 2014. It is likely that Mr Galtos initiated contact with Open Markets which prompted it to respond by sending that material to him, but no such communication was in evidence.
(b) In January 2014 Mr Galtos told Open Markets that he wanted to receive exactly what other shareholders had been receiving, and first raised a concern that Open Markets had not complied with the shareholders’ agreement and the law. He said he would pursue those concerns with Rick Klink but he did not do so, until March 2016. He said it was for Open Markets to pro-actively communicate and “resolve” matters with him.
(c) During 2014, 2015 and until March 2016 Open Markets and Mr Galtos communicated without incident – Open Markets sent various shareholders’ publications to Mr Galtos and Mr Galtos made no complaint to Open Markets about any lack of communication, nor did he seek any additional material.
(d) Mr Galtos next raised his concerns about Open Markets’ issuing of shares in March 2016 (some 26 months after he first raised a concern in that regard) and then again in September 2016. In October 2016 Mr Galtos told Open Markets that in his view any shares issued without the provision of a deed of accession had been invalidly issued. He threatened legal action in early 2017 and by at least May 2017 had retained solicitors who commenced communications with Open Markets.
Part C: Breach of Contract Claim
Breaches of the Shareholders’ Agreement
It was alleged that Open Markets, in respect of each of the share allotments the subject of the claim, breached clauses 11.1, 11.2, 11.5(3), 11.16 and 18.1 of the shareholders agreement.
The relevant parts of the SHA are set out in schedule 2. Clauses 11.1 and 11.2 in substance require that where the shareholders resolve to make an issue or allotment of shares or other securities, the Board must first offer those new securities to all shareholders in their respective shareholding proportion and must make the offer by notice in writing in accordance with the requirement in clause 11.2.
Clauses 11.3 to 11.5 govern how the company and the shareholders are to deal with the making and receipt of offers to take up shares. Clause 11.5(3) stipulates that the Board must re-offer any shortfall to those shareholders who accepted offers made under clause 11.1. Clause 11.6 permits the Board to offer any remaining shares to other parties, subject to clause 18, which stipulates that no party may transfer or issue or grant any interest in or encumbrance over shares or new securities to a person not already a shareholder unless that person has executed and delivered to each shareholder and the company a deed of accession, the form of which was prescribed by the SHA.
Open Markets admits that it did not offer any of the shares the subject of the claim to KSG before they were issued. The extent of Open Markets’ admissions was the subject of discussion during the trial. In final submissions Open Markets, through its senior counsel, made clear that Open Markets conceded that it had breached clauses 11.1 and 11.2 in respect of each impugned share issue. It was accepted that no offers were made in respect of any ‘shortfall shares’ under clause 11.5, but the occasion for giving such notice did not arise, the process required by clause 11.1 not having been adopted. In that sense, the breach of clause 11.5(3) was derivative of the breach of clause 11.1 and 11.2, and might be described as hypothetical.
Open Markets accepted that clause 18.1 had not been complied with in respect of any of the share issues, save in respect of the allocation of shares to Chow Fah Thoo of 37,000 ordinary shares that occurred as part of the share issue made in July 2013.
All of Open Markets’ admissions were subject to a carve-out in respect of the allocation of shares to Chow Fah Thoo. It contended that that allocation was an issue of securities to which sub-clause 11.7(5) of the SHA applied. Clause 11 had no application to an issue of securities in respect of which the conditions stipulated in that sub-clause were satisfied. If clause 11 did not apply to the issue of shares to Chow Fah Thoo, then Open Markets was not required to have offered those shares to KSG, and KSG’s claim for loss insofar as it comprised an asserted loss of profit on the hypothetical sale of shares that KSG says it would have acquired if first offered to it and not to Chow Fah Thoo, falls away. Sub-clause 11.7(5) provides as follows:
11.7 This clause 11 does not apply to: …
(5)an issue of New Securities to a new major investor in the Company, a strategic business partner of the Company or in connection with the acquisition of a company, assets or technology, in each case as approved by a Major Shareholder Resolution and provided that the new shareholder or shareholders enter into a Deed of Accession prior to the issue that takes effect at the time of the issue.
In order to attract the operation of the provision it was necessary, then, for Open Markets to establish that Mr Thoo was a “new major investor”; that the issue of shares to him had been approved by major shareholder resolution, and that Mr Thoo had entered into a deed of accession prior to the share issue that took effect at the time of the issue. KSG said that none of the elements of sub-clause 11.7(5) was established. Because of the conclusions I have reached in respect of the breach of contract claim more generally, this point is immaterial to the outcome of the claim. However, given the attention paid to the issue in the parties’ submissions I will deal with the point briefly.
I accept that Chow Fah Thoo was a “new major investor”. It was not disputed that he was a new investor. The expression “new major investor” was not defined in the SHA. Open Markets submitted that in the absence of any objective evidence of the intention of the parties concerning the definition of the term, regard should be had to the ordinary meaning of the expression, which the Oxford English Dictionary defines as “important, large, serious, significant”. I accept that submission. Prima facie, words of a contract should be given their ordinary and natural meaning.[8] There was nothing in the context of the SHA that suggested or required a different reading. KSG did not put an alternative submission. Each of the exemptions in cl 11.7(5) is expressed broadly. The intent of the clause is, on its face, to facilitate the issue of new securities in a more streamlined fashion where an issue of shares would be of benefit to the company for the reasons set out in the clause. Mr Thoo was allocated 37,000 ordinary shares on 25 July 2013 at a cost of $750,000 which was two and a half times larger than the total amount of capital previously raised and as such, was the single largest capital investment made by any investor in Open Markets, at that point. At the time of the share allocation Mr Thoo’s shareholding and was the second largest in Open Markets and comprised 17.2% of its issued share capital.
[8]Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510.
However, Open Markets did not establish that the issue of shares to Chow Fah Thoo had been approved by major shareholder resolution.
“Major Shareholders Resolution” was defined in cl 1.1(34) of the SHA as -
a resolution passed by a majority of Shareholders representing not less than 75% of all votes capable of being cast at a general meeting of the Company attended by all Shareholders.
The SHA specified a process for the making of major resolutions. Clause 10 read as follows:
10Major Resolution[9] process
10.1The Secretary or any Director or Shareholder by notice to the Company, may propose a Major Shareholder Resolution in relation to a matter listed in clause 8.1…[10]
10.2On receipt of such a proposal the Company must expeditiously take the steps required under the Act,[11] Constitution and this Agreement to obtain a Decision on the matter.
[9]“Major Resolution” is defined in cl 1.1(33) of the SHA as a “Major Directors Resolution or a Major Shareholders Resolution”.
[10]Clause 8.1 enumerated the actions that the Company could only take with the authorisation of a prior Major Shareholders Resolution authorising it, including the issue of shares.
[11]Clause 1.12 defined “Act” as the Corporations Act 2001 (Cth).
A “Decision” was defined in cl 1.1(18) as:
(a)a Major Resolution is passed by the required majority with or without amendment; or
(b)a Major Resolution is considered, voted on, but fails to obtain the required majority.
The SHA did not specify any further requirements for the making of a decision. Open Markets did not have a constitution, at the time.
Open Markets tendered an undated document purporting to record a special majority shareholders resolution, relevantly proposing to issue shares to persons listed in an attached schedule, which included the shares that were in fact issued to Chow Fah Thoo in July 2013. The document did not purport to be a circulating resolution pursuant to s 249A of the Corporations Act. It identified the parties to the proposed resolution as Serpantine, Paritech, Remgrid and Iron Mountain and stated that between them those parties hold 85.6% of the shares on issue. The document was signed only by Emlyn Scott for Serpantine and Brian Price for Iron Mountain. Together, those entities held 60% of Open Markets’ issued shares at the time. The document contained unsigned execution blocks for Paritech and Remgrid.
Open Markets submitted that while there was no direct evidence of Paritech or Remgrid specifically agreeing to the resolution, on the relevant date the only two directors of Paritech, Rick Klink and Paul Klink, were also the only two directors of Open Markets, and in fact, Paritech itself purchased 14,808 shares in the July 2013 share issue. Rick Klink was also one of the two directors of Remgrid, the other being his wife Lisa Klink. Open Markets submitted that the July Share issue “must have been approved by the directors of OpenMarkets in order for it to have proceeded,” and on that basis it was open for me to infer that each of Paritech and Remgrid made the required resolution, noting that a resolution is “not a document recording a decision, but the decision itself”. Open Markets’ reliance upon Rick Klink and Paul Klink’s asserted implicit approval of the transaction was no more than an argument that a resolution must have been passed because the company proceeded to allocate the shares.
The evidence was insufficient to support an inference that a major shareholders resolution in respect of the July 2013 share issue (relevantly the issue of shares to Chow Fah Thoo) had been passed at all. A major shareholders resolution was required to be made in accordance with the process defined by clause 10. That process required the issue of a notice proposing the resolution.[12] The existence of the document tendered by Open Markets was an insufficient basis on which to conclude that notice of the resolution had been given. More significantly. It also required that the company take the steps required by the Act, any constitution and the SHA to obtain a Decision. The Corporations Act did not prescribe any step and there was no constitution. However, it is sufficiently clear from the language of clause 10 that a Decision was to be considered and voted upon. There was no evidence that any deliberative process or vote by shareholders had occurred, at a meeting or otherwise. Clause 10 did not itself expressly state that a vote must occur at a meeting (in this case, a meeting of shareholders). But it pre-supposed the existence of a forum within which a vote could occur. It is unnecessary to deal with the parties’ remaining arguments on this point, including as to whether clause 1.1(34) did or did not require a vote to be cast a meeting, for the purposes of a major shareholders resolution.
[12]Clause 38 of the SHA specified the manner in which notices were to be given.
Finally, KSG submitted that Open Markets did not establish that the deed of accession on which it relied had been entered into prior to the issue of Mr Thoo’s shares, as was required by clause 11.7(5). I accept that submission. The deed of accession relied upon by Open Markets was executed on 25 July 2013, the same day of the share issue. On that day Rick Klink sent a letter to Mr Thoo, enclosing an unexecuted copy of the deed of accession for Mr Thoo’s execution, noting that the shares had already been issued.
KSG also alleged that none of the other share issues were the subject of a major shareholders resolution as required by clause 8.1(1), and separately, that the original shareholders were obliged by clause 4.1 of the SHA to ensure that the company complied with its obligations under the SHA and that they did not do that, because they failed to ensure that Open Markets complied with the requirement to issue new securities only after passing a major shareholders’ resolution as required by clause 8.1, the notice and offer requirements of clause 11 and the deed of accession requirements in clause 18.
Open Markets accepted that neither the company nor, for that matter, the shareholders, complied with the major shareholder resolution requirements in clause 8.1 in respect of any of the share issues or the deed of accession requirements, save in respect of the 37,000 shares issued to Mr Thoo. Open Markets submitted that the alleged breach of clause 4.1 went nowhere because shareholders were not permitted to interfere with the management of the company and, unless as specifically provided by the SHA, were not to give directions to the company’s officers or employees.
KSG did not put the failure to observe those requirements as a separate ground giving rise to damages for breach of contract, its loss having arisen, on its case, by the company’s failure to offer shares to it. However, KSG said that the fact that all of the relevant share issues had occurred without the company and the original shareholders complying with the SHA was relevant to the characterisation of the conduct of the company’s affairs as oppressive within the meaning of s 232 of the Corporations Act. The characterisation of the conduct is considered below.
Claim for damages
KSG’s claim
KSG emphasised a loss of opportunity to have purchased additional shares. More carefully examined, the claim was premised on loss of the profit that KSG says it would have earned on the sale of shares it says it would have purchased, had the SHA been performed. The elements of the claim are apparent from KSG’s pleading, by which it said:[13]
[13]Amended statement of claim, [7]; particulars thereto and Schedules 1 and 2.
(a) As a result of the company’s breaches of the SHA KSG suffered loss, to be assessed on the basis of two alternative scenarios. Under “scenario 1” the claim was to be assessed on the basis that KSG would have participated in each relevant share issue, subscribing for all of the shares it was entitled to purchase under the SHA (that is, 9.5% of the total number of issued shares), and it also would have purchased any “shortfall shares”, namely all of the shares that Open Markets issued during the relevant period to new shareholders, on the premise that had Open Markets complied with the SHA all of those shares ought to have been first offered to existing shareholders, and as it happened, no existing shareholders in fact subscribed for them. The shares would therefore have been available to KSG in its counterfactual world, and it would have subscribed for them. Alternatively under “scenario 2”, the claim was to be assessed on the basis that KSG would have participated in each share issue in the same way, but would not have purchased any shortfall shares. On “scenario 1” it would have acquired 142,920 additional shares[14] by March 2016 and on “scenario 2” it would, by then, have acquired 16,205 additional shares.
[14]Meaning shares additional to the 10,564 shares it held as at July 2013, and still holds.
(b) On the termination of the SHA on 11 March 2016 KSG would have sold all of the shares it held in Open Markets. A price of $95.70 was adopted, by reference to an off-market sale of shares to BMY Group Ltd that in fact occurred on 29 August 2016 at that price. On an assumed sale price of $95.70 KSG would have received total consideration of the sale of its “total actual shares[15] and additional shares”, of $14,688.419 (on scenario 1) and $2,561,793 (on scenario 2).
(c) From the imputed consideration KSG deducted in each case the cost that it would have incurred to purchase the additional shares, calculated at the actual issue price for each bundle of shares, plus the interest KSG would have paid on funds borrowed to make the purchases (at ATO Division 7A interest rates, as a proxy for market rates).
(d) KSG therefore calculated its loss as the proceeds of the hypothetical sale of the shares it says it would have purchased (plus the proceeds from the sale of the shares it actually held), less the cost of acquiring those shares. On its scenario 1, KSG’s total claim amounted to $9,964,506 (plus interest). On its scenario 2, KSG’s total claim for loss amounted to $2,077,896 (plus interest).
[15]KSG includes in its calculation the loss of profit it says it would have made on the sale of all of the shares it would have purchased, and the shares it held as at July 2013. The inclusion of its original shares is erroneous. The fact that KSG did not sell those shares is not causally connected to any breach of contract by Open Markets.
KSG described its claim, in submissions, in various and at times, inconsistent ways. In its written opening KSG commenced with the statement that the damages sought “represent a loss of opportunity to have purchased shares that it ought to have been offered”. When pressed in oral submissions, senior counsel for KSG described the loss as a loss of “the opportunity to invest”[16] but later said that what had been lost was the “opportunity to have purchased [the shares] at [a] lower amount and sell them at higher amount.”[17] The latter characterisation is consistent with KSG’s pleaded case, and the manner in which the case was conducted. KSG did not plead or attempt to prove a case that by reason of Open Markets’ failure to offer shares to it in accordance with clause 11 of the SHA, it had suffered loss merely because it had not acquired shares it would otherwise have acquired, for example because those shares would have appreciated in its hands.
[16] T913.7 (Plaintiff’s Closing Submissions).
[17]T930.31-931.1 (Plaintiff’s Closing Submissions) (emphasis added).
KSG’s essential submission was that it was not required to prove on the balance of probabilities that KSG could and would have acquired shares in Open Markets, or that it would have sold the shares it would have purchased on its counterfactual hypothesis. Rather, once it was established that the offers that ought to have been made were not made (that is, once breach of contract was proved or admitted), it would follow readily that by reason of the breach of contract KSG had lost the opportunity to purchase shares (or to purchase and later sell). The task was then to assess the possibility of contingencies eventuating in KSG’s favour, those contingencies being the possibility that KSG would have acquired shares and sold them at a profit. If I determined that the prospect of those events occurring was more than merely speculative then KSG should be awarded damages, in an amount that reflected that assessment. As Mr Clarke QC put it,
What we need to establish … upon the balance of probabilities is that [the] opportunity was the foreseeable and probable result of the breach; that is, an opportunity would have arisen. That’s easy in this case, simple. The next question is would we have invested? An assessment has to be made on a percentage basis.[18]
[18]T914.18-24 (Plaintiff’s Closing Submissions).
As shall be seen, the evidence that KSG relied upon to substantiate its claim reflected the framing of its claim in that way.
Governing principles
KSG’s case did not appropriately distinguish between the requirements of causation and loss, or pay sufficient regard to what it was that the SHA promised – and of what, therefore, KSG was deprived by Open Markets’ breach. Before returning to the question of what KSG was required to establish to what standard of proof, it is convenient to recall some of the governing principles, although they are well understood.
Generally speaking, a party who has sustained loss by reason of breach of contract is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.[19] As Brennan J explained in Commonwealth v Amann Aviation, that measure “ensures that the parties to the contract are kept to the benefits and burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach. The measure of damages for breach of contract is governed by the contract itself.”[20]
[19]Robinson v Harman (1848) 1 Ex 850; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 98 (Brennan J) (Amann).
[20]Amann, 99 (Brennan J).
Absent any contrary contractual stipulation a plaintiff is entitled to be compensated only for loss or damage which is the result of the defendant’s breach. Causation is to be determined by application of the principles discussed in March v Stramare.[21]
[21]March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, 174-175 (McHugh J).
The rule in Hadley v Baxendale[22] prescribes the condition on which damages can be awarded,[23] namely that “[w]here two parties have made a contract which one of them has broken, the damages which the other party ought to receive … should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”[24] The rule is exclusionary; it marks out the boundary of liability for loss or damage caused by a breach of contract; it is not a ground of liability.[25]
[22](1854) 9 Ex 341 (Hadley v Baxendale).
[23]Amann, 98 (Brennan J).
[24]Hadley v Baxendale, 354 (Alderson B).
[25]Amann, 174 (McHugh J).
If breached, a contract to provide a commercial advantage or opportunity enables the innocent party to bring an action for loss of the advantage of that opportunity.[26] An action for breach of contract lies upon the occurrence of the breach and a plaintiff should be entitled to at least nominal damages for loss of a promised opportunity.[27]
[26]Amann, 102-3 (Brennan J).
[27]See, for example, Tabet v Gett (2010) 240 CLR 537, 559 [48] (Gummow A-CJ) (Tabet).
The existence of compensable loss (beyond nominal damages) and the relevant causal relationship may be established by reference to breach of an antecedent promise to afford an opportunity.[28] That proposition repays closer consideration. Damages will flow from the breach of contract (and a causal relationship will follow in that way) where the loss claimed corresponds sufficiently with the benefit or opportunity promised. It is necessary to properly identify what has been promised, in order to determine what has been lost by reason of the breach of promise.
[28]Sellarsv Adelaide Petroleum NL (1994) 179 CLR 332, 359 (Brennan J) (Sellars); Tabet, 559 [47]-[48] (Gummow J), 581 [123]-[124] (Kiefel J).
The point is illustrated by the decision in Fink v Fink.[29] There, a separated husband and wife agreed that for a period of a year the wife may remain in the matrimonial home and be maintained, during which time the husband would take proceedings for divorce. The wife sued for breach of contract on the grounds that during the 12 month period the husband did not allow her to remain in the home, interrupted her occupation of it and sued for divorce. The wife claimed by way of damage that she had been deprived of the opportunity of being reconciled to the husband and living with him in a normal married life, being supported as such during the rest of her life. The wife contended that those damages were a natural consequence of the breach of the agreement. That claim failed. Starke J assessed the issue in this way:
“[t]he agreement does not provide for nor contemplate any benefit to the appellant other than remaining in the matrimonial home with the children. The purpose of the agreement is not to give the appellant an opportunity of reconciliation or of living a normal married life with the respondent … the damages claimed by the appellant do not flow from any breach of the agreement alleged…”[30]
[29]Fink v Fink (1946) 74 CLR 127 (Fink).
[30]Fink, 138-139 (Starke J).
The causation requirement, then, cannot be avoided by characterising the claimed loss as a loss of opportunity of one kind or another and then simply assessing all potential subsequent events as contingencies that might follow, entitling the claimant to damages provided the prospect of their materialising is more than speculative.
The necessity of paying regard to the relationship between the claimed breach of promise and the claimed loss, also follows from the rule that in an action for breach of contract a defendant is not liable in damages for not doing that which they have not promised to do, recalling however, that by reference to the limit stated in Hadley v Baxendale, the defendant may be liable for damages that arise naturally from the breach.[31]
[31]Amann, 91-92 (Mason CJ and Dawson J).
On the question of proof of loss, where a plaintiff has been deprived of something of monetary value the tribunal of fact is not relieved of the duty of assessing the loss merely because the calculation is difficult or because the circumstances do not admit of the damages being assessed with certainty.[32] As Deane J said in Amann,
…[E]ven in an action for repudiation or breach of contract where damage is not an element of the cause of action, a plaintiff bears the onus of establishing the extent of his loss or injury on the balance of probabilities. … [T]here are … cases where considerations of justice or the limitations of curial method render ultimate findings, about what would have been or what will be, impracticable or inappropriate. In such cases, damages must be assessed on some basis other than findings about what would ultimately have happened if the repudiation or breach had not occurred or about the precise ultimate implications which exist after the repudiation or breach. In particular, it may be appropriate that the damages be assessed by reference to the probabilities or the possibilities of what would have happened or will happen rather than on the basis of speculation that probabilities would have or will come to pass and that possibilities would not have or will not.[33]
[32]McRaev Commonwealth Disposals Commission (1951) 84 CLR 377, 412 (Dixon and Fullagar JJ).
[33]Amann, 118-119 (Deane J).
It is important to recall that the well-established proposition that proof in such cases may be approached by an estimation of the chances of the relevant loss occurring, concerns the proof of damages, not the question of causation. So much is plain from the language and context in which these issues are discussed in the authorities, including those mentioned here. The assessment of damages is a question that arises subsequent to the issue of causation, and causation is to be determined on the balance of probabilities. That is so, whether the action is in contract or in tort.[34] It is also so, notwithstanding that competing hypotheses may be in play. As Brennan J said in Sellars (which concerned damages under s 82(1) of the then Trade Practices Act, but in which the reasoning in relation to causation is applicable also in contract cases),
Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges the onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities.[35]
[34]Sellars, 353, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ).
[35]Sellars, 368 (Brennan J).
A similar point was made in Sellars, where the plurality said (citing Hotson v East Berkshire Health Authority with approval) that where the issue of causation turns on what the plaintiff would have done, there is no reason to depart from the requirement that proof be established on the balance of probabilities, notwithstanding that the question is hypothetical.[36]
[36]Sellars, 353 (Mason CJ, Dawson, Toohey, and Gaudron JJ).
This issue was considered by the Court of Appeal in Crown Insurance Services, in which an insurer had sued an agent who had, it was alleged, breached duties in contract and tort in assisting the insured to complete proposal forms and failing to ask questions of the insured which, on the insurer’s case, would have revealed a scan and x-ray of the insured’s spine, that the insured had not disclosed. The insurer submitted that it was only required to establish on the balance of probabilities that the agent’s breaches had deprived it of an opportunity to impose a condition on the insurance excluding liability for back injury and thereafter all that was needed was to determine the value of the lost opportunity; that it was no answer to the claim that, on the balance of probabilities, it would not have imposed any conditions.[37] The insurer also submitted that proof on the balance of probabilities was only required where the issues concerned historical facts.
[37]That the insurer would not have imposed a condition on the policy had been established in the primary proceedings. The appeal concerned the third party proceedings brought by the insurer including against its employee, the agent.
Buchanan JA (which whom Warren CJ and Byrne AJA agreed) held that unless the insurer proved that it would have imposed a condition excluding liability for back injury if it had been informed of the scan and x-ray, it could not establish any loss caused by the agent’s wrongdoing, citing Sellars for the importance of the distinction between proof of causation and damages.[38] While it was true, Buchannan JA said, that courts have drawn a distinction between proof of historical facts on the one hand and hypothetical facts on the other, that distinction is drawn only in assessing damages after it has been established that the defendant’s breach of obligation caused loss.[39]
[38]Crown Insurance Services Pty Ltd v National Mutual Life Association of Australia Ltd (2005) 13 ANZ Insurance Cases 61-659, [9] (Crown).
[39]Crown, [11]-[12], citing Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 (Malec) and Sellars.
Buchanan JA drew attention to the observations of the plurality in Sellars, to the effect that when the issue of causation turns on what the plaintiff would have done, the ordinary civil standard of proof should apply, notwithstanding the question is hypothetical.[40]
[40]Crown, [9] (Buchanan JA); Sellars, 353 (Mason CJ, Dawson, Toohey and Gaudron JJ). Buchanan JA said that the observations of the plurality in Sellars were echoed by those of Lord Hoffman in Gregg v Scott [2005] 2 AC 176, where Hoffman LJ said at [83] that, “[t]he fact that one cannot prove as a matter of necessary causation that someone would have done something is no reason why one should not prove that he was more likely than not to have done it. So, for example, the law distinguishes between cases in which the outcome depends on what the claimant himself … or someone for whom the defendant is responsible … would have done, and cases in which it depends upon what some third party would have done. In the first class of case the claimant must prove on a balance of probability that he or the defendant would have acted as to produce a favourable outcome. In the latter class, he may recover for loss of the chance that the third party would have so acted. This apparently arbitrary distinction rests on grounds of policy”. In Allied Maples Group Ltd v Simmons & Simmons [1995] 1995 I WLR 1602, at 1609-11, Stuart-Smith LJ distinguished between the situation where proving that the defendant’s breach caused a loss requires the plaintiff to establish what they would have done in the hypothetical past and where proving that the defendant’s breach caused a loss requires the plaintiff to prove whether a third party would have conferred a benefit on the plaintiff, but for the defendant’s breach. In the former, Stuart-Smith LJ said that the plaintiff must prove what it would have done, hypothetically, on the balance of probabilities. In the situation where the plaintiff is required to prove what a third party would have done, Stuart-Smith LJ found that all that was required to be proven was that there was a “substantial chance rather than a speculative one” that the third party would have acted to confer a benefit on the plaintiff. That distinction was rejected by the High Court in Badenach v Calvert (2016) 257 CLR 440, at 255 [41] (French CJ, Kiefel and Keane JJ) and at 467 [98]-[99] (Gordon J), who found that it is always incumbent on the plaintiff to prove, on the balance of probabilities, that an alleged loss was caused by the defendant’s breach.
For the reasons set out in Part C above, I do not consider that the conduct of Open Markets’ affairs – its non-compliance with the shareholders’ agreement in the circumstances alleged – had the effect of causing KSG to lose the opportunity of making a profit on the sale of hypothetical shares that it says it would have purchased (and later sold) had the company complied with the agreement. KSG did not advance any other detrimental effect.
KSG submitted that because of Open Markets’ breaches of agreement its shareholding had been diluted. I reject that submission. For the reasons discussed in Part C, KSG has not established that its failure to acquire additional shares in KSG or to sell any shares, was caused by the conduct alleged. The SHA did not promise that any shareholder would maintain parity with other shareholdings in keeping with their original shareholding proportion. Performance of the agreement would not have had the result of KSG maintaining 9.5% of the issued shares in Open Markets. That result would have depended on KSG taking steps entirely within its control, had the agreement been performed.
I accept that Mr Galtos, for KSG, feels aggrieved that Open Markets did not comply with the shareholders agreement. However, in light of how KSG put its case, absent any proven effect on KSG, I do not find that Open Markets’ conduct was oppressive to, unfairly prejudicial to, or unfairly discriminatory against KSG.
Even if that conclusion were incorrect, for the above-mentioned reasons (and those set out in Part C above) it is inappropriate to order the relief sought by KSG.
KSG seeks what it describes as a buyout order, but at fair value assessed, “not on the basis of [the 10,564] shares actually held, but rather on the basis of what shares would have been held had there been no dilution” of KSG’s shareholding. KSG seeks payment for its 10,564 shares as though they were in fact a much greater number of shares (namely 153,484 shares on KSG’s scenario 1, or 26,769 shares on its scenario 2), and valued by reference to the profit it asserts it would have made on the sale it posits would have occurred in or shortly after March 2016.
KSG sought to rely on the observations of Ferguson J (as Her Honour then was) in Wain v Drapac (No 2) in relation to the price to be paid on a buy-out order, that,
What must not be forgotten is that it is the price to be paid that is being set, not how much the shares and units are worth on the open market. That price must be a fair price to redress the wrong done by the oppressive conduct. It is akin to paying the price for shares which had been diluted based on an assumption that there had been no dilution. [72] (emphasis added)
[72]Wain v Drapac (No 2) [2013] VSC 381, [46] (Ferguson J).
Unlike the applicant in Wain v Drapac (No 2),[73] KSG did not establish that any oppressive conduct had caused the dilution of its shares.
[73]See Wain v Drapac [2012] VSC 156, [251]-[256], [279] (Ferguson J).
An order on the basis put by KSG (whether or not characterised as a “buy-out” order) would place it in a better position than that which it would have been in, had the impugned conduct not occurred. It would not be a compensatory order. Even if the conduct were properly characterised as falling within s 232(e) there would be no occasion for the exercise of this Court’s powers to grant a remedy.
It is unnecessary to separately consider the further submission on which Open Markets relies, namely that a buy-out or other compensatory order would not be appropriate in circumstances in which the oppressive conduct ended some several years ago.[74]
[74]See Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, 389 [132] (Giles JA).
KSG’s pleaded claim in respect of access to Open Markets’ books and records does not advance its case. KSG alleged that the affairs of Open Markets had been conducted in a way that was oppressive to KSG (or contrary to the interests of the members as a whole) on the grounds that Open Markets did not respond to five written requests for documents, made by its solicitors. It is unnecessary to set out the documents requested or the sequence of correspondence. In short:
(a) The requests were made both shortly before and shortly after these proceedings were issued. The claim, when commenced, sought an order under s 247A of the Corporations Act for inspection of the company’s books and records.
(b) After negotiation between the parties, in September 2018 the Court ordered by consent that certain documents were to be produced. Open Markets produced documents pursuant to those orders in October 2018.
(c) KSG made no substantive submissions, in opening or in closing, about this aspect of its claim.
(d) KSG did not establish any basis for relief under s 233, in respect of the production of the company’s documents.
(e) It is unnecessary to address the arguments made by Open Markets about the absence of a general right in KSG to inspect or obtain its documents.
KSG’s claim for relief under s 233 of the Corporations Act fails.
Schedule 1 – List of Share Issues and Sales of Open Markets’ Shares
| Date | Type of transaction | No of shares | Price per share | Total Price | Purchaser | Original Shareholder Y/N | Associated person/entity |
| Share Issues and Sales during the Period the Subject of the Claim | |||||||
| 25/07/2013 or 31/07/2013 | Issue | 56,446 | $17.89 | $1,009,818.94 | Pratten Park Pty Ltd (559) | N | |
| Beaupride Pty Ltd (8,271) | N | Emlyn Scott | |||||
| Daniele and Ulla Infarianto (559) | N | ||||||
| GFK Pty Ltd (1,397) | N | ||||||
| Halicorp Management Pty Ltd (1,118) | N | ||||||
| Iron Mountain Pty Ltd (11,177) | Y | Brian Price | |||||
| Terebration Pty Ltd (19,560) | N | ||||||
| Chrysanthos Superannuation Fund (559) | N | ||||||
| Midchess Superannuation Fund (5,030) | N | Fergus Scott (brother of Emlyn Scott) | |||||
| Mitchell Scott (559) | N | Nephew of Emlyn Scott | |||||
| Paritech Pty Ltd (4,303) | Y | Rick Klink | |||||
| Robert MacLellan (1,677) | N | An "associate" of Emlyn Scott | |||||
| Serpantine Pty Ltd (1,677) | Y | Emlyn Scott | |||||
| 25/07/2013 or 31/07/2013 | Issue | 34,091 | $22.00 | $750,002.00 | Chow Fah Thoo (34,091) | N | |
| 25/07/2013 or 31/07/2013 | Issue | 13,409 | $0.01 | $134.09 | Paritech Pty Ltd (10,500) | Y | Rick Klink |
| Chow Fah Thoo (2,909) | N | ||||||
| 25/07/2013 | Sale | 4,804 | $17.90 | $86,003.00 | Beaupride Pty Ltd (4,804) | N | Emlyn Scott |
| 10/01/2014 | Issue | 2,857 | $35.00 | $99,995.00 | Fergus Scott (4,804) | N | Fergus Scott (brother of Emlyn Scott) |
| 7/02/2014 | Issue | 7,144 | $35.00 | $250,040.00 | Fergus Scott atf Midchess Super Fund (1,429) | N | Fergus Scott (brother of Emlyn Scott) |
| Midchess Pty Ltd (5,715) | N | Fergus Scott (brother of Emlyn Scott) | |||||
| 12/02/2014 | Issue | 2,000 | $35.00 | $70,000.00 | Alexander Bennett (2,000) | N | |
| 28/02/2014 | Issue | 3,500 | $35.00 | $122,500.00 | Christopher Byrne (1,000) | N | |
| Marsil Holding Pty Ltd (2,500) | N | ||||||
| 24/03/2014 | Issue | 3,500 | $35.00 | $122,500.00 | Kipri Holdings Pty Ltd (3,500) | N | |
| 13/03/2014 | Sale | 37,000 | $20.27 | $750,000 | Chen Yee Tham (37,000) | N | |
| 31/03/2014 | Issue | 1,000 | $35.00 | $35,000.00 | Andrew McArthur (1,000) | N | |
| 21/04/2014 | Issue | 2,150 | $16.40 | $35,260.00 | Stephen Timperley (2,150) | N | |
| 21/04/2014 | Issue | 1,000 | $35.00 | $35,000.00 | Christopher Powell (1,000) | N | |
| 20/08/2014 | Issue | 7,857 | $35.00 | $274,995.00 | Fergus Scott atf Midchess Super Fund (6,857) | N | Fergus Scott (brother of Emlyn Scott) |
| Catherine Sorrell (1,000) | N | ||||||
| 20/08/2014 | Sale | 16,173 | $29.68 | $480,010.00 | Midchess Pty Ltd (16,173) | N | Fergus Scott (brother of Emlyn Scott) |
| 5/06/2015 | Issue | 2,700 | $50.00 | $135,000.00 | Catherine Sorrell (700) | N | |
| Eagle Investments Group Pty Ltd (2,000) | N | ||||||
| 24/06/2015 | Issue | 2,500 | $50.00 | $125,000.00 | Stephen Timperley (2,500) | N | |
| 24/06/2015 | Issue | 9,881 | $50.00 | $494,050.00 | Midchess Pty Ltd (9,881) | N | Fergus Scott (brother of Emlyn Scott) |
| 30/06/2015 | Issue | 6,000 | $50.00 | $300,000.00 | Kipri Holdings Pty Ltd (4,000) | N | |
| Marsil Holdings Pty Ltd (2,000) | N | ||||||
| 22/01/2016 | Issue | 6,400 | $50.00 | $320,000.00 | HK RU Rong Yuan Investment Ltd (6,400) | N | |
| 2/03/2016 | Issue | 1,000 | $50.00 | $50,000.00 | Kipri Holdings Pty Ltd (1,000) | N | |
| 3/03/2016 | Issue | 7,142 | $35.00 | $249,970.00 | Financial Market Infrastructure Fund Pty Ltd (7,142) | N | |
| Share Issues and Sales After March 2016 | |||||||
| 29/08/2016 | Sale | 50,004 | $95.70 | $4,785,382.80 | BMY Group Pty Ltd (50,004) | N | |
| 10/03/2017 | Issue | 5,242 | $125.00 | $655,250.00 | Terebration Pty Ltd (5,242) | N | |
| 17/03/2017 | Issue | 200 | $125.00 | $25,000.00 | Faddiley Pty Ltd (200) | N | |
| 17/03/2017 | Issue | 4,000 | $125.00 | $500,000.00 | BMY Group Pty Ltd (4,000) | N | |
| 24/03/2017 | Issue | 4,000 | $125.00 | $500,000.00 | Vasco Investment Managers Ltd (4,000) | N | |
| 18/04/2017 | Issue | 2,800 | $125.00 | $350,000.00 | Terebration Pty Ltd (332) | N | |
| Beaupride Pty Ltd (221) | N | Emlyn Scott | |||||
| Midchess Pty Ltd (536) | N | Fergus Scott (brother of Emlyn Scott) | |||||
| BMY Group Ltd (911) | N | ||||||
| SC 2016 Pty Ltd (800) | N | ||||||
| 18/04/2017 | Sale | 2,000 | $55.00 | $110,000.00 | SC 2016 Pty Ltd (2,000) | N | |
| 3/05/2017 | Issue | 5,600 | $125.00 | $700,000.00 | BMY Group Pty Ltd (5,600) | N | |
| 13/06/2017 | Sale | 6400 | $55.00 | $352,000.00 | Terebration Pty Ltd (1,135) | N | |
| Midchess Pty Ltd (1,834) | N | Fergus Scott (brother of Emlyn Scott) | |||||
| Faddiley Pty Ltd (275) | N | ||||||
| Chris Powell (57) | N | ||||||
| Mitchell Scott (32) | N | Nephew of Emlyn Scott | |||||
| BMY Group Ltd (3,067) | N | ||||||
| 5/07/2017 | Issue | 1,200 | $125.00 | $150,000.00 | SC 2016 Pty Ltd (1,200) | N | |
| 18/07/2017 | Issue | 2,400 | $125.00 | $300,000.00 | BMY Group Ltd (2,400) | N | |
| 7/09/2017 | Issue | 16,402 | $87.50 | $1,435,175.00 | BMY Group Ltd (10,286) | N | |
| Makis Chrysanthos (286) | N | ||||||
| Steven Bond (286) | N | ||||||
| Crit Pty Ltd (286) | N | ||||||
| Australia China Investment Group (2,286) | N | ||||||
| George Halkiotis (286) | N | ||||||
| Gwenda Phillips (400) | N | ||||||
| Coree Investments (1,143) | N | ||||||
| Robert Pritchard (1,143) | N | ||||||
| 29/09/2017 | Issue | 2,857 | $175.00 | $499,975.00 | BMY Group Ltd (2,857) | N | |
| 5/10/2017 | Issue | 2,182 | $125.00 | $272,750.00 | BMY Group Ltd (2,182) | N | |
| 13/10/2017 | Issue | 2,857 | $175.00 | $499,975.00 | Value Up 905 Pty Ltd (2,857) | N | |
| 7/11/2017 | Issue | 200 | $125.00 | $25,000.00 | Crit Pty Ltd (200) | N | |
| 7/11/2017 | Sale | 4,210 | $60.50 | $254,705.00 | Bridget Scott (82) | N | |
| Beaupride Pty Ltd (82) | N | Emlyn Scott | |||||
| Mark McIntosh (330) | N | ||||||
| Samuel Gillespe (124) | N | ||||||
| M Cole Pty Ltd (661) | N | ||||||
| Kevin O’Hara (247) | N | ||||||
| Joseph Gillespe (124) | N | ||||||
| EVS Nominees (82) | N | ||||||
| Merilyn and Denis Cole (661) | N | ||||||
| Midchess Pty Ltd (1,652) | N | Fergus Scott (brother of Emlyn Scott) | |||||
| Mitchell Scott (165) | N | Nephew of Emlyn Scott | |||||
| 7/11/2017 | Sale | 790 | $60.50 | $47,795.00 | Global Skilled Link Pty Ltd (790) | N | |
| 16/11/2017 | Issue | 1,840 | $125.00 | $230,000.00 | Alexander Bennett (640) | N | |
| Faddiley Pty Ltd (1,200) | N | ||||||
| 22/11/2017 | Issue | 800 | $125.00 | $100,000.00 | Marketforce Once Business Strategies (800) | N | |
| 27/04/2018 | Issue | 200 | $125.00 | $25,000.00 | Steven Boyd (200) | N | |
| 13/12/2018 | Issue | 1,200 | $125.00 | $150,000.00 | Terebration Pty Ltd (1,200) | N | |
| 13/12/2018 | Issue | 2,640 | $125.00 | $330,000.00 | Terebration Pty Ltd (2,640) | N | |
| 26/02/2019 | Issue | 921 | $87.50 | $80,587.50 | Crit Pty Ltd (20) | N | |
| SC 2016 Pty Ltd (216) | N | ||||||
| Terebration Pty Ltd (685) | N | ||||||
| 28/02/2019 | Issue | 15 | $87.50 | $1,312.50 | Pratten Park Pty Ltd | N | |
| 2/10/2019 | Issue | 5,010 | $10.00 | $50,100.00 | SC 2016 Pty Ltd (5,000) | N | |
| Laurien and Richard Pease (10) | N | ||||||
| 23/10/2019 | Issue | 750 | $10.00 | $7,500.00 | Crit Pty Ltd (750) | N | |
| 28/10/2019 | Issue | 2,500 | $10.00 | $25,000.00 | Alexander Bennett (2,500) | N | |
Schedule 2 – Relevant Clauses of the Shareholders’ Agreement
1 Definitions and interpretation
1.1 Definitions
In this Agreement:
…
(19)Deed of Accession means a deed of accession in the form set out in Schedule 2 or as amended by the Company;
…
(33)Major Resolution means a Major Directors Resolution or a Major Shareholders Resolution;
(34)Major Shareholders Resolution means a resolution passed by a majority of Shareholders representing not less than 75% of all votes capable of being cast at a general meeting of the Company attended by all Shareholders;
…
3 Shareholders not to interfere with management
3.1 A Shareholder must not interfere with the management of the Company and, except as specifically stated in this Agreement, a Shareholder must not give directions to any of the Company’s officers or employees.
3.2 Nothing in clause 3.1 restricts the right of a Shareholder to:
(1) appoint Directors as provided in this Agreement; or
(2) grant its consent withhold its consent or vote as a Shareholder.
4 Protection of Shareholders
4.1Each Party must ensure that, subject to any express provision of this Agreement to the contrary:
(1)the Company complies with, and is able to perform its functions and obligations under this Agreement, the Constitution and the Act;
…
5Directors – appointment and voting
5.1Unless otherwise agreed by all Shareholders in writing:
(1)each of Serpantine, KSGI, Mauconla and Iron Mountain is entitled to appoint a Director;
(2)Paritech and Remgrid are entitled jointly to appointed a Director; and
(3)a Director may be appointed by more than one of these Shareholders.
5.2A person is not eligible to be appointed as a Director unless:
(1)they are of good character and high business integrity; and
(2)upon their appointment, a majority of the Directors are residents of Australia.
…
5.4At the date of execution of this Agreement, the sole Director is Mr Kosmas Galtos.
5.5A Shareholder entitled to appoint a Director under clause 5.1 is also entitled to remove and, if they so choose, to replace that Director.
…
8Matters requiring Major Shareholder Resolution[75]
[75]Clause 9 sets out the matters requiring a major directors resolution.
8.1Except as otherwise provided in this Agreement, a prior Major Shareholder Resolution is required for the Company to:
(1)securities issue: issue, allot, redeem, purchase or grant options over any Shares, issue debentures or other securities or re-organise its capital in any way;
(2)variation of rights: vary the rights or privileges attaching to any securities issued by the Company, including the Shares;
…
10Major Resolution process
10.1The Secretary or any Director or Shareholder by notice to the Company, may propose a Major Shareholder Resolution in relation to a matter listed in clause 8.1 or Major Directors Resolution in relation to a matter listed in clause 9.1.
10.2On receipt of such a proposal the Company must expeditiously take the steps required under the Act, Constitution and this Agreement to obtain a Decision on the matter.
11Issue of Securities
11.1Subject to clause 11.7, if the Shareholders resolve to make an issue or allotment of Shares, debentures or other securities pursuant to clause 8.1(1) (New Securities), the Board must first offer those New Securities to all Shareholders in their respective Shareholding Proportion (New Securities Offer).
11.2The Board must make the New Securities Offer to each Shareholder by notice in writing (Subscription Notice) stating:
(1)the total number of New Securities available for subscription and the number being offered to each Shareholder; and
(2)the type of New Securities being offered.
11.3Within 20 Business Days after receiving the New Securities Offer, each Shareholder must give notice to the Board stating:
(1)whether it accepts all or a specified number of New Securities contained in its New Securities Offer or rejects its New Securities Offer in full; and
(2)if it wants to subscribe for a greater number of New Securities than the number in its New Securities Offer, that it offers to subscribe for a specified number of additional New Securities not subscribed for by other Shareholders under their New Securities Offers.
11.4If a Shareholder does not give notice to the Board within the period specified in clause 11.3 of its acceptance or rejection of its New Securities Offer, the Shareholder is taken to have rejected its New Securities Offer.
11.5After the expiry of 20 Business Days from the date a New Securities Offer is made under clause 11.2, the Board must:
(1)upon receipt of payment, allot and issue the New Securities accepted under clause 11.3(1);
(2)upon receipt of payment, allot and issue additional New Securities applied for under clause 11.3(2) to the full extent of the New Securities Offer or, if the number of additional New Securities applied for exceed the number available, allocate them in the Shareholding Proportion of Shareholders that applied for additional New Securities. However, no Shareholder may be allotted and issued more New Securities than the number it applied for; or
(3)re-offer any shortfall to those Shareholders that accepted under clause 11.3(1) or clause 11.3(2) on the basis set out in clause 11.1 with any excess applications dealt with in accordance with clause 11.3(2).
11.6Subject to clause 18, if any shortfall remains after the process outlined in clauses 11.1 to 11.5 is complete, the Board may offer the shortfall to other parties approved by the Board by a Major Directors Resolution.
11.7This clause 11 does not apply to:
(1)an issue of New Securities with the written consent of all Shareholders;
(2)an issue of New Securities by way of an initial Public Offering;
(3)an issue of New Securities pursuant to a reorganisation of the capital of the Company;
(4)an issue of New Securities to an eligible person under a share or other scheme established under clause 9.1(8); or
(5)an issue of New Securities to a new major investor in the Company, a strategic business partner of the Company or in connection with the acquisition of a company, assets or technology, in each case as approved by a Major Shareholder Resolution and provided that the new shareholder or shareholders enter into a Deed of Accession prior to the issue that takes effect at the time of the issue.
12Disposal of Shares
12.1A Shareholder must not Dispose of any Shares except as specifically provided or permitted under this Agreement or the Constitution.
12.2Subject to clause 18, a Disposal with the written consent of all Shareholders is permitted (Permitted Disposal), and clause 13 does not apply.
12.3A Shareholder must not unreasonably withhold consent to another Shareholder transferring its Shares to an Affiliate who complies with clause 18 by signing and delivering a Deed of Accession.
13Proposed Share transfers
13.1An intending Seller must give notice in writing (Transfer Notice) to the Company and to each other Shareholder (excluding the intended purchaser if that person is a Shareholder), setting out full details of:
(1)the Shares it proposes to sell (Transfer Shares);
(2)the name of the proposed purchaser and of any person who Controls the proposed purchaser;
(3)the Price per Transfer Share (which must be payable on Completion in accordance with clause 17.4);
(4)the warranties (if any) the Seller proposes to give the proposed purchaser;
(5)all other terms of the proposed sale;
(6)if applicable, notice that the Seller is exercising its Drag Along Rights (Drag Along Notice); and
(7)whether Tag Along Rights apply.
13.2A Transfer Notice cannot be withdrawn until the processes in clauses 14 and 17 (to the extent relevant) are complete.
…
18New shareholders
18.1No party may transfer or issue, or grant any interest in or Encumbrance over, Shares or New Securities to a person not already a Shareholder unless that person has executed and delivered to each Shareholder and the Company a Deed of Accession.
18.2The Company must not register in its records or otherwise recognise any interest in or Encumbrance over Shares unless a Deed of Accession has been executed and delivered as required under clause 18.1, and unless all obligations of the Shareholder under this Agreement have been satisfied.
19The Constitution
19.1This Agreement overrides the provisions of the Constitution if there is any inconsistency.
19.2Each Shareholder undertakes to:
(1)exercise its Shareholder Control to give effect to the provisions and intentions of this Agreement; and
(2)observe and comply promptly with the provisions of the Constitution.
…
38Notices
38.1A notice or other communication connected with this Agreement (Notice) must be in writing.
38.2In addition to any other method of service provided by law, the Notice may be:
(1)sent by prepaid ordinary post to the address for service of the addressee, if the address is in Australia and the Notice is sent from within Australia;
(2)sent by prepaid airmail to the address for service of the addressee, if the address is outside Australia or if the Notice is sent from outside Australia;
(3)sent by facsimile to the facsimile number of the addressee;
(4)sent by electronic mail to the electronic mail address of the addressee; or
(5)delivered at the address for service of the addressee.
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