Sheehy v Nuix Pty Ltd

[2023] FCA 56

FEDERAL COURT OF AUSTRALIA

Sheehy v Nuix Pty Ltd [2023] FCA 56

File number(s):

NSD 1168 of 2020

Judgment of:

HALLEY J

Date of judgment:

7 February 2023

Catchwords:

CORPORATIONS – where applicant was granted options exercisable upon sale of respondent business – where respondent undertook share split pursuant to s 254H of Corporations Act 2001 (Cth) (Corporations Act) – where respondent conducted initial public offering (IPO) – where applicant sought to exercise options after IPO – whether consent judgment entered in prior proceedings in Supreme Court of New South Wales precludes applicant from advancing causes of action – whether applicant precluded by res judicata/cause of action estoppel, issue estoppel, Anshun estoppel or abuse or process –whether term implied into renegotiation of applicant’s remuneration package (2008 Option Agreement) that there was to be a proportionate adjustment to conversion ratio between options and shares in event of share split (Implied Term) – whether implication from express terms or to give business efficacy to agreement – whether changes in respondent shareholding constituted sale of business – whether respondent breached 2008 Option Agreement – whether respondent not accepting applicant’s notice to exercise options was oppressive contrary to s 232 of Corporations Act – whether respondent’s conduct was unconscionable contrary to s 21 of the Australian Consumer Law – where applicant precluded by doctrine of Anshun estoppel from pursuing causes of action – where not necessary to prove detrimental reliance as an additional element to establish Anshun estoppel – where respondent conduct was not unconscionable or oppressive – where Implied Term necessary to give business efficacy to 2008 Option Agreement – where respondent did not breach 2008 Option Agreement as sale of respondent business has not occurred – originating process dismissed

Legislation:

Corporations Act 2001 (Cth) ss 170, 175, 195, 232, 233, 254H, 708A

Competition and Consumer Act 2010 (Cth) sch 2, The Australian Consumer Law ss 2, 21

Trade Practices Act 1974 (Cth) ss 52, 53

Cases cited:

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) (2001) 119 FCR 1; [2001] FCA 1861

Accord Pacific Holdings Pty Ltd v Gleeson as Liquidator of Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 1021

Adamson v New South Wales Rugby League Limited (1991) 27 FCR 535; [1991] FCA 9

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57

Arthurson v Victoria [2001] VSC 244

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36

Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90

Beck v Weinstock [2012] NSWCA 289

Blair v Curran (1939) 62 CLR 464; [1939] HCA 23

Bofinger v Kingsway Group Pty Ltd (2009) 239 CLR 269; [2009] HCA 44

Boreland v Docker [2007] NSWCA 94

BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Bride v Shire of Katanning [2016] FCA 65

Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; [1988] HCA 21

Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245; [2010] NSWCA 33

Chaplin v Birdogan (1998) 146 FLR 243

Clayton v Bant (2020) 272 CLR 1; [2020] HCA 44

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24

Colliers Jardine (NSW) Pty Ltd v Balog Investments Pty Ltd & J Dan Pty Ltd [1996] ANZ Conv R 527

Commissioner of Taxation v Day (2007) 164 FCR 250; [2007] FCAFC 193

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17

CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345; [1997] HCA 33

Dick v Alan Powell Holdings and Ors [2009] QSC 184

Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185

Donnelly v Kempsey Local Aboriginal Land Council [2020] NSWSC 1548

Ehsman v Nutectime International Pty Ltd (No 2) [2009] NSWSC 1096

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Ekes v Commonwealth Bank of Australia [2014] NSWCA 336

Equitable Life Assurance Society v Hyman [2002] 1 AC 408

Foran v Wright (1989) 168 CLR 385; [1989] HCA 51

Forsayth Oil & Gas NL v Livia Pty Ltd (1985) 59 ALJR 746

French & Anor v NPM Group P/L [2008] QCA 217

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10

Goldsmith v Sperrings Ltd [1977] 1 WLR 478

Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231

Hardcastle v Mitch Enterprises Pty Ltd [2016] FCA 1569

Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15

Hearn v O’Rourke (2003) 129 FCR 64; [2003] FCAFC 78

Heimann v Commonwealthof Australia (1938) 38 SR (NSW) 691

Henderson v Henderson [1843] 67 ER 313

HNA Irish Nominees Ltd v Kinghorn (No 2) [2012] FCA 228

Honeywood v Munnings (2006) 67 NSWLR 466; [2006] NSWCA 215

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

In the Matter of Infinite Plus Pty Ltd (2017) 95 NSWLR 282; [2017] NSWSC 470

In the Matter of Tzavaras & Sons Pty Ltd [2022] NSWSC 359

Jackson v Goldsmith (1950) 81 CLR 446; [1950] HCA 22

John J Starr (Real Estate) Pty Limited v Robert R Andrew (Australasia) Pty Limited (1991) 6 ACSR 63

Joint v Stephens [2008] VSCA 210

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Kooee Communications Pty Ltd & Anor v Primus Telecommunications Pty Ltd [2008] NSWCA 5

Ku-Ring-Gai Council v Ichor Constructions Pty Ltd [2014] NSWSC 1534

Latimer Holdings Ltd v SEA Holdings NZ Ltd [2005] 2 NZLR 328; [2004] NZCA 226

Leadenhall Australia Ltd v Digicall Group Ltd (1996) 19 ACSR 141

Lee v Kim (2006) 68 NSWLR 433; [2006] NSWCA 384

Maggbury Pty Ltd v Hafele Aust Pty Ltd (2001) 210 CLR 181; [2001] HCA 70

Makhoul v Barnes (1995) 60 FCR 572

Martin v Tasmania Development and Resources [1999] FCA 593

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

MP Water Pty Limited in its capacity as Trustee for the MP Water Trust v Veolia Australia Pty Ltd [2022] NSWCA 127

Murphy v Westpac Banking Corporation [2014] FCA 1104

Newey v Westpac Banking Corporation [2014] NSWCA 319

NHB Enterprises Pty Ltd v Corry (No 7) [2021] NSWSC 741

O’Neill v Phillips [1999] 1 WLR 1092; [1999] UKHL 24

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35

Paciocco v Australian and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45

Preston v Nikolaidis [2021] NSWSC 36

Re Enterprise Gold Mines NL (1991) 9 ACLC 168

Re Golden Key Ltd [2009] EWCA Civ 636

Regreen Asset Holdings Pty Ltd v R [2015] VSCA 286

Re London School of Electronics Ltd [1986] Ch D 211

Re Ronim Pty Ltd [1999] 2 Qd R 172

Re South American and Mexican Co; ex parte Bank of England [1895] 1 Ch 37

Robinson v Deep Investments Pty Ltd [2018] FCAFC 232; (2018) 364 ALR

Rogers v The Queen (1994) 181 CLR 251; [1994] HCA 42

Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169; [1943] HCA 43

Scottish Navigation Co. Ltd. v W. A. Souter & Co [1917] 1 KB 222

Secured Income Real Estate v St Martin’s Investments Pty Limited (1979) 144 CLR 596; [1979] HCA 51

Sekisui Rib Loe Australia Pty Ltd v Rocla Pty Ltd [2012] SASCFC 21

Shelton v National Roads and Motorists Association Ltd [2004] FCA 1393

Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19

Somanader v Minister for Immigration and Multicultural Affairs [2000] FCA 1192

Spautz v Butterworth (1996) 41 NSWLR 1

Sydney City Council v Goldspar Australia Pty Ltd [2006] FCA 472

Tomlinson v Ramsey Food Processing Pty Limited (2015) 256 CLR 507; [2015] HCA 28

Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (In Liq) (1992) 36 FCR 406

UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45

Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631; [2018] FCAFC 155

Walker v Salomon Smith Barney Securities Pty Ltd [2003] FCA 1099

Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77

Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68

Westpac Banking Corporation v Wittenberg (2016) 242 FCR 505; [2016] FCAFC 33

Williams v Spaultz (1992) 174 CLR 509; [1992] HCA 34

Zaghoul v Woodside Energy Limited (No 7) [2019] FCA 818

Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457; [2005] NSWCA 438

Zetta Jet Pte Ltd v The Ship "Dragon Pearl" (No 2) (2018) 265 FCR 290

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

457

Date of last submission/s:

23 August 2022 (Respondent)
30 August 2022 (Applicant)

Date of hearing:

27-30 June 2022, 16 August 2022

Counsel for the Applicant:

Mr I Jackman SC with Mr O Jones and Ms M Parker

Solicitor for the Applicant:

Kardos Scanlan

Counsel for the Respondent:

Mr M Darke SC with Mr N Furlan and Ms A Campbell

Solicitor for the Respondent:

Gilbert + Tobin

ORDERS

NSD 1168 of 2020

BETWEEN:

EDWARD MAURICE SHEEHY

Applicant

AND:

NUIX PTY LTD ACN 117 140 325

Respondent

ORDER MADE BY:	HALLEY J
DATE OF ORDER:	7 FEBRUARY 2023

THE COURT ORDERS THAT:

1.The amended originating process is to be dismissed.

2.

Within 14 days of these orders, the parties provide, by email, to the Associate of

Halley J agreed or competing orders for costs.

3.In the event of competing orders, the parties also provide short written submissions and any affidavit evidence in support of their respective positions.

4.The making of costs orders be dealt with on the papers unless either party seeks an oral hearing, in which event that is to be communicated in the email referred to in Order 2.

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

TABLE OF CONTENTS

INTRODUCTION	[1]
EVIDENCE	[15]
Mr Sheehy	[15]
Nuix’s witnesses	[20]
Mr Standen	[21]
Mr Phillips	[28]
Mr Smith	[33]
Ms Rochay	[41]
Mr Egan	[45]
Expert witnesses	[48]
FACTUAL BACKGROUND	[54]
Establishment of Nuix	[54]
2006 Employment Contract	[56]
2008 Option Agreement	[65]
Failure to sell Nuix by 2010 and 2011 share acquisition by Macquarie	[73]
2016 payment to Mr Sheehy and his resignation	[77]
Share Split and resignation of Mr Sheehy	[80]
2018 Proceedings	[88]
Commencement of these proceedings	[93]
Initial Public Offering	[94]
Purported exercise of the Remaining 2008 Options	[101]
NUIX PRECLUSIONARY DEFENCES	[102]
Introduction	[102]
Res judicata/cause of action estoppel	[104]
Principles	[104]
Submissions of Mr Sheehy	[111]
Submissions of Nuix	[114]
Consideration	[123]
Issue estoppel	[130]
Principles	[130]
Submissions of Mr Sheehy	[136]
Submissions of Nuix	[138]
Consideration	[142]
Anshun estoppel and abuse of process	[145]
Principles	[145]
Anshun estoppel	[145]
Abuse of process	[150]
Submissions of Mr Sheehy	[153]
Requirements for Anshun estoppel	[153]
Relevance and reasonableness	[157]
Submissions of Nuix	[165]
Requirements for Anshun estoppel	[165]
Relevance and reasonableness	[168]
Consideration	[176]
Requirements for Anshun estoppel	[176]
Anshun estoppel and abuse of process	[189]
BREACH OF THE 2008 OPTION AGREEMENT	[213]
Introduction	[213]
Implication from express terms	[216]
Principles	[216]
Submissions of Mr Sheehy	[222]
Submissions of Nuix	[229]
Consideration	[233]
Implication necessary to give business efficacy	[239]
Principles	[239]
Submissions of Mr Sheehy	[245]
Business efficacy	[248]
Other BP Refinery factors	[253]
Reliance on post-contractual conduct	[255]
Submissions of Nuix	[257]
Business efficacy	[259]
Other BP Refinery criteria	[261]
Reliance on subsequent conduct	[266]
Consideration	[269]
Forsayth and Leadenhall	[272]
Business efficacy	[281]
Other BP Refinery factors	[290]
Relevance of post-contractual conduct	[299]
OPPRESSION	[310]
Introduction	[310]
Principles	[311]
Submissions of Mr Sheehy	[316]
Submissions of Nuix	[322]
Consideration	[330]
UNCONSCIONABILITY	[341]
Introduction	[341]
Principles	[342]
Trade or commerce	[344]
Acquisition of services	[348]
Unconscionable conduct	[349]
Submissions of Mr Sheehy	[352]
Submissions of Nuix	[356]
Consideration	[359]
EXERCISE OF OPTIONS	[364]
Introduction	[364]
Sale of the business of Nuix	[367]
Submissions of Mr Sheehy	[367]
Submissions of Nuix	[369]
Consideration	[371]
Alternative oppression claim	[385]
The submissions of Mr Sheehy	[385]
The submissions of Nuix	[387]
Consideration	[388]
QUANTUM	[392]
Introduction	[392]
Principles	[402]
Submissions of Mr Sheehy	[405]
Exercise of the 2008 Options	[405]
Issue of the Shares	[408]
Sale of the Shares	[414]
Blockage discounts	[415]
Submissions of Nuix	[416]
Exercise of the Remaining 2008 Options	[416]
Issue of the Shares	[417]
Sale of the Shares	[420]
Blockage discounts	[427]
Consideration	[430]
Exercise of the Remaining 2008 Options	[430]
Issue of the Shares	[438]
Sale of the Shares	[448]
Retention of the Shares	[448]
Blockage discounts	[451]
Most probable Scenario	[454]
DISPOSITION	[457]

REASONS FOR JUDGMENT

HALLEY J:

INTRODUCTION

1. Between 2006 and 2017, the applicant, Mr Edward Maurice Sheehy (Mr Sheehy), was the Chief Executive Officer (CEO) of the respondent, Nuix Pty Ltd (Nuix).

2. In 2008, as part of a renegotiation of his remuneration package, Mr Sheehy was granted options over shares in Nuix (2008 Options) that were exercisable upon the sale of the business of Nuix (2008 Option Agreement).

3. In late 2016, Nuix undertook a “share split” by which each of its existing shares was subdivided into 50 shares (Share Split).

4. During the same period in which Nuix undertook the Share Split, Macquarie Capital Group Limited (Macquarie) acquired a majority interest in Nuix, partly by purchasing and exercising approximately 20% of the 2008 Options from Mr Sheehy. Macquarie was able to exercise the 2008 Options it had acquired from Mr Sheehy because of a resolution of the Nuix board waiving any pre-conditions to the exercise of the options.

5. On 9 December 2016, Mr Sheehy received an amount of $10,354,467 from Macquarie from the sale of 20% of the 2008 Options and other options and resigned as the CEO of Nuix with effect from 27 January 2017.

6. In 2018, Mr Sheehy brought proceedings in the Supreme Court of New South Wales seeking a declaration that the 453,273 2008 Options that he had retained (Remaining 2008 Options) were exercisable in the event of a sale of the business of Nuix and for an order that the Nuix options register (Options Register) be corrected to record that the Remaining 2008 Options remained exercisable (2018 Proceedings). Nuix agreed to resolve the 2018 Proceedings on the basis that it would update the Options Register to record that the 453,273 Remaining 2008 Options were still capable of being exercised and that both parties pay their own costs. This agreement was recorded in a consent judgment entered on 26 November 2019 (Consent Judgment).

7. In December 2020, Nuix conducted an initial public offering (IPO) on the ASX which led to a significant reduction in Macquarie’s shareholding in Nuix.

8. In January 2021, Mr Sheehy provided Nuix with a notice seeking to exercise the Remaining 2008 Options on the basis that the IPO and the changes in the shareholding of Nuix constituted a sale of the business of Nuix (Option Exercise Notice). This contention was disputed by Nuix and it did not accept the Option Exercise Notice.

9. In these proceedings Mr Sheehy now seeks damages or compensation from Nuix arising from its refusal to accept the effect of the Share Split on the Remaining 2008 Options, the fact that they were exercisable and to issue shares in Nuix in accordance with those options. In refusing to accept the Option Exercise Notice, Mr Sheehy contends that Nuix has breached the 2008 Option Agreement, acted oppressively and engaged in unconscionable conduct.

10. Those contentions are rejected by Nuix and moreover, it contends that Mr Sheehy is precluded from raising those claims in this proceeding by reason of the Consent Judgment in the 2018 Proceedings.

11. These proceedings give rise to the following principal issues:

    (a)given the terms of the Consent Judgment, is Mr Sheehy precluded by reason of res judicata/cause of action estoppel, issue estoppel, Anshun estoppel or abuse of process from advancing the causes of action that he is seeking to pursue in these proceedings;

    (b)should a term be implied into the 2008 Option Agreement to the effect that, in the event of a share split, there is to be a proportionate adjustment to the conversion ratio between options and shares, either as an implication from the express terms of the agreement or because it is necessary to give business efficacy to the agreement;

    (c)are the changes in the shareholding of Nuix, effected by the IPO, sufficient to constitute a sale of the business of Nuix for the purpose of enlivening the preconditions in the 2008 Option Agreement for the exercise of the Remaining 2008 Options;

    (d)did Nuix breach the 2008 Option Agreement by not accepting the Option Exercise Notice;

    (e)was the conduct of Nuix in not accepting the Option Exercise Notice oppressive, contrary to s 232 of the Corporations Act 2001 (Cth) (Corporations Act);

    (f)was the conduct of Nuix in not accepting the Option Exercise Notice unconscionable contrary to s 21 of the Australian Consumer Law (ACL); and

    (g)if Mr Sheehy has established that Nuix has breached the 2008 Option Agreement or, has otherwise contravened s 232 of the Corporations Act, or has contravened s 21 of the ACL, what damages or compensation should be awarded to Mr Sheehy.

12. There are two fundamental and insurmountable hurdles to the claims that Mr Sheehy seeks to pursue in these proceedings. First, Mr Sheehy, after the Share Split had occurred, sought and obtained pursuant to the Consent Judgment, a declaration in the 2018 Proceedings that the 453,273 Remaining 2008 Options that he held were exercisable in accordance with the terms of the 2008 Option Agreement and the Options Register be corrected to reflect that declaration. Second, pursuant to the terms of the 2008 Option Agreement, the Remaining 2008 Options were only able to be exercised on a sale of the business of Nuix.

13. For the reasons that follow, I have concluded that Mr Sheehy is precluded by the doctrine of Anshun estoppel from pursuing the causes of action that he seeks to advance in these proceedings.

14. I am otherwise persuaded that the implied term that Mr Sheehy seeks should be implied into the 2008 Option Agreement but there has been no breach of that agreement because there has been no sale of the business of Nuix. I am not persuaded that the conduct of Nuix in not accepting the Option Exercise Notice was oppressive contrary to s 232 of the Corporations Act or unconscionable conduct contrary to s 21 of the ACL. If, contrary to these findings, Nuix had breached the 2008 Option Agreement or acted oppressively or unconscionably, I have determined that the value of the Nuix shares that Mr Sheehy would have been issued if the Option Exercise Notice had been accepted by Nuix for the purposes of determining the damages or compensation to which Mr Sheehy would have been entitled is best reflected in the valuation undertaken by Mr Michael Potter, the expert forensic accountant relied upon by Nuix, for the fourth scenario he was asked to consider.

    EVIDENCE

    Mr Sheehy

1. Mr Sheehy gave evidence of the circumstances in which he entered into the 2008 Option Agreement and the background to the incentives provided to him. This evidence included the growth of the business of Nuix, the transactions between Nuix and Macquarie in 2011 and 2016, the sale to Macquarie in December 2016 of 30,000 options that had been issued to him with a grant date of 13 June 2006 and an exercise price of $0.85 (2006 Options) and some 20% of the 2008 Options. Mr Sheehy gave further evidence regarding the circumstances of his resignation as the CEO of Nuix, his knowledge and participation in the Share Split and the commencement and settlement of the 2018 Proceedings.

2. Mr Sheehy was cross-examined. He found the task of directly answering questions challenging. He was prone to becoming argumentative and non-responsive as illustrated in the following exchange:

   Do you see that?---Yes, I see that.

   And those were the instructions that you had given to Deutsch Miller at the time about your understanding of the effect of the share split on your options and those of all other Nuix share and option holders; correct?---Yes, and no. I hate to be confusing, but Deutsch Miller - - -

   Let me just break it down for you, Mr – – –

   HIS HONOUR: Had you finished your answer?---I was trying to explain why I said yes and no.

   I think a yes and no answer probably does require an immediate explanation for it to be of any sense?---Deutsch Miller are a great law firm, but they didn’t understand the intricacies of options and shares, so hence the reason why – one of the reasons why I changed law firms by this case.

   Well, that’s not really an answer to the question that was asked of you?---Oh, okay, sorry. And the question then is – I apologise.

   MR DARKE: This paragraph, Mr Sheehy, reflects the instructions that you gave to Deutsch Miller about what you understood to be the effect of the share split on your options; correct?---Yes.

3. When pressed further by Mr Darke SC, who appeared for Nuix, as to how he gave instructions to his solicitors, Deutsch Miller, to state to Nuix that the number of the Remaining 2008 Options should be multiplied by 50 and the exercise price divided by 50, contrary to the position he was now advancing in these proceedings, he gave the following argumentative evidence:

   That statement of how the share split would apply to your options, accorded with your instructions to Deutsch Miller, didn’t it?---That’s how they wrote it up, yes.

   Yes. And - - -

   HIS HONOUR: That’s not an answer to the question?---Sorry.

   We are not interested in what they wrote up. We know what was written up; it’s in the letter. That wasn’t the question that was asked by Mr Darke. Answer Mr Darke’s question?---Yes, Mr Darke.

   MR DARKE: The words that appear in brackets:

   Our client’s options will be multiplied by 50 and the exercise price will be divided by 50.

   Accorded with your instructions to Deutsch Miller; correct?---Yes. Yes and no again. I mean, there was multiple ways it was described over the - - -

   I’m not asking you, Mr Sheehy, about how it was described?---Okay.

   I’m asking you about the instructions you gave to Deutsch Miller. And the instructions you gave to Deutsch Miller were that the number of your options will be multiplied by 50, and the exercise price would be divided by 50 as a result of the share split; correct?---Yes.

   And that was your state of mind at the time; correct?---I was of two states of mind because both – in my mind, both got to the same place. Whether you had 50 times the number of options then you had a one to one change, or you had a one to 50 share split and they both got to the same place.

   Mr Sheehy - - -?---So, you could say yes.

   If you had been in two states of mind at the time, as you just said, you would have instructed Deutsch Miller to describe the effect of the share split on your options in 35 those two alternative ways, wouldn’t you?---Sorry to be contrarian but no, I wouldn’t. Because they both ended up in the same place as having 22.X million shares. They – I wouldn’t have.

   Mr Sheehy, you gave Deutsch Miller explicit instructions about how you understood the share split to affect your options; correct?---I gave them instructions.

   Explicit instructions; correct?---I asked them to work out what happened. I wouldn’t have said – I didn’t sit down and give them a lecture on how share and option splits work. But, you know, I thought it was pretty obvious.

4. I accept that generally, Mr Sheehy was seeking to answer questions truthfully but at times his evidence was not only affected by the adversarial manner in which it was given but also by the extent to which it was inconsistent with the apparent logic of events or contemporaneous documents. This inconsistency was particularly evident in his evidence about his knowledge of the content of the capitalisation tables and option registers of Nuix, his knowledge of the Share Split and its likely impact on the Remaining 2008 Options and the reasons why he had not advanced in the 2018 Proceedings the claims he now seeks to raise in these proceedings.

5. In all the circumstances, I did not disregard but I treated with caution the evidence, both written and oral, given by Mr Sheehy in these proceedings.

   Nuix’s witnesses

6. The respondent relied on the following witnesses.

   Mr Standen

7. Mr David Standen is an Executive Director of Macquarie. In the period between June 2011 and November 2020 he was a non-executive director of Nuix.

8. Mr Standen gave evidence of his involvement with the co-founder of Nuix, Dr Tony Castagna, who had previously been a consultant to Macquarie, and the circumstances of Macquarie’s initial investment in Nuix, the Share Split and the October 2016 transaction whereby Macquarie acquired 20% of all shares and options held by participating Nuix employees, for approximately $20 million (Macquarie 2016 Transaction). In particular, Mr Standen gave evidence of his understanding as to whether, absent a waiver from Nuix, the options that Macquarie acquired from Mr Sheehy were exercisable and the relationship between the transaction and Mr Sheehy’s resignation from Nuix. He also gave evidence of his knowledge and involvement in the settlement of the 2018 Proceedings including the basis on which Nuix agreed to the terms of the Consent Judgment.

9. Mr Standen was cross-examined.

10. The principal focus of the cross-examination of Mr Standen by Mr Jackman SC (as his Honour then was), who appeared for Mr Sheehy, was a challenge to his evidence that although Macquarie had agreed to pay approximately $7 million for the 2008 Options from Mr Sheehy, Mr Standen believed at the time they were purchased that they could not be exercised because they had expired. The cross-examination included the following somewhat colourful exchange:

    Now, on your evidence, Mr Standen, Mr Sheehy’s options issued under the letter of 5 17 September 2008, in order to be exercised, required something to have happened by the end of 2010; correct?---Yes.

    And it was now 2016; correct?---Yes.

    Right. And, to your understanding, then, the options had expired or lapsed?---Yes.

    Right. And, in effect, they were dead. Yes?---I don’t know if that’s – whatever word you want to use. I mean, what can I say here.

    But among Macquarie’s many skills is the not the ability to bring the dead back to life, is it?---Look, again, I don’t know what word you want to use, but, yes.

11. Mr Standen otherwise gave evidence that the apparent contradiction was that the “real substance and intention” of Macquarie’s acquisition of 86,727 of the 2008 Options and the 2006 Options from Mr Sheehy was a “golden handshake” on an ex gratia basis so that he “would leave on good terms and support the business going forward in a productive way.” He explained that this was the commercial purpose of the transaction and that Macquarie had only agreed to proceed on the basis that Nuix would waive the preconditions to the exercise of the options, which included for the Remaining 2008 Options that there had been a sale of the business of Nuix.

12. I accept Mr Standen’s evidence, albeit that his subjective belief as to the status of the Remaining 2008 Options was at best of marginal relevance to the matters that I had to determine. It was consistent with the contemporaneous Nuix board minutes formally waiving any preconditions to the exercise of the options to be acquired by Macquarie from Mr Sheehy and the entries in Nuix’s capitalisation tables and option registers recording that the options had been exercised or surrendered. It was also consistent with the apparent logic of events, as Mr Sheehy resigned on the day he entered into the option sale agreement with Macquarie and Macquarie immediately exercised the options and acquired a majority interest in Nuix.

13. In the circumstances, the credit challenge to Mr Standen’s evidence did not cause me to doubt the accuracy or truthfulness of Mr Sheehy’s oral and written evidence.

    Mr Phillips

14. Mr Daniel Phillips is an executive director of Macquarie. He was appointed as a non-executive director of Nuix in 2011.

15. Mr Phillips gave evidence of Macquarie’s initial investment in Nuix in 2011, his understanding of the status of the 2008 Options, his involvement in the Macquarie 2016 Transaction, his knowledge of the “increasing friction” between Mr Sheehy and the Board of Nuix and the circumstances in which Macquarie agreed to purchase 2008 Options from Mr Sheehy. Mr Phillips also gave evidence of the reasons why Nuix agreed to a resolution of the 2018 Proceedings on the basis of the Consent Judgment and the time that would have been necessary for Mr Sheehy to have been issued with shares in Nuix and for the shares to then be sold, if Nuix had accepted the validity of his purported exercise of the Remaining 2008 Options on 27 January 2021.

16. Mr Phillips was cross-examined.

17. Much of the cross-examination of Mr Phillips was directed at his evidence concerning the Macquarie 2016 Transaction. It was clearly evident from the cross-examination of Mr Phillips that his knowledge of the status of the 2008 Options at the time of the Macquarie 2016 Transaction was very limited and that Mr Standen had principal carriage of the transaction for Macquarie.

18. The concessions made by Mr Phillips in the course of his cross-examination as to the extent of his knowledge of relevant events were readily provided. I am satisfied these concessions did not reflect on the reliability of other relevant evidence that he gave of matters in which he had direct knowledge. In particular, the reasons why Macquarie acquired 2008 Options from Mr Sheehy as part of the Macquarie 2016 Transaction and the basis on which Nuix agreed to the Consent Judgment.

    Mr Smith

19. Mr Damian Smith was the interim CEO of Nuix between June 2005 and June 2006 and a non-executive director of Nuix between 2005 and 2011. He resigned as a director of Nuix on 31 May 2011.

20. Mr Smith gave evidence about his involvement in the appointment of Mr Sheehy as the CEO of Nuix in 2006, Mr Sheehy’s 2006 employment contract, the background to and negotiation of the remuneration arrangements with Mr Sheehy that culminated in the 2008 Option Agreement and the initial investment by Macquarie in Nuix in 2011.

21. Mr Smith was cross-examined.

22. The principal focus of the cross-examination of Mr Smith was his statement in paragraph 6 of his affidavit that he had a conversation with Mr Sheehy at the time of the negotiation of the 2008 Option Agreement in which he stated words to the effect:

    The board wants to incentivise you to help find a sale of the entire business.

23. Prior to being taken to this paragraph in his cross-examination by Mr Jackman, Mr Smith gave the following evidence:

    You understood my questions to relate to the fact that words such as “whole” or “entire” or similar adjectives were not used by either you or Mr Sheehy in any correspondence in negotiating the option agreement?---In these documents; that’s correct.

    Yes. And you don’t remember any other document which used words such as  “whole” or “entire” in describing the sale of the business of Nuix?---I don’t recall any other documents that haven’t been shown to me regardless.

    And you don’t recall any conversation between you and Mr Sheehy in negotiating the option agreement in which words such as “whole” or “entire” were used in  relation to the sale of the business; correct?---I cannot specifically recall that phrase. Specifically, no.

24. Prior to this exchange with his cross-examiner, Mr Smith presented as an attentive, careful and responsive witness. It was therefore of some concern that immediately after being taken to paragraph 6 of his affidavit, he gave the following evidence:

    You don’t actually recall the word “entire” being used, do you?---Sorry, I misunderstood your previous question. You know, I recall – I don’t recall a document that used those words. I don’t recall any other documents that aren’t in these various folders.

    No?---I do recall that conversation, and, again, that’s certainly my recollection throughout, that that was my intention.

    Mr Smith, you understood my question a moment ago to relate to conversations between you and Mr Sheehy, not documents?---Sorry, I misunderstood.

    Is English your first language, Mr Smith?---It is. I’m sorry. I just misunderstood the question.

25. Given this evidence, I am not persuaded that Mr Smith has any specific recollection of using the word “entire business” in discussions with Mr Sheehy about the incentives he was being provided to sell the business of Nuix. There was no ambiguity in Mr Jackman’s questions. The use of the language of a sale of the “entire business”, given there was no suggestion that Nuix operated more than one business, appears strained and objectively unlikely to have been used. I accept that Mr Smith was discussing what he understood to be a sale of the whole of the business of Nuix but I do not accept that he used the specific words “whole of” or “entire” to describe the scope of the business to be sold. There was no contemporaneous document or testimonial evidence to the effect that any consideration was ever given at the time of the negotiation of the 2008 Option Agreement to any sale of anything other than the business as a whole, let alone the provision of any incentive to Mr Sheehy to sell less than the whole of the business. Hence, there would not appear to have been any reason to emphasise “whole of” or “entire” in discussions about the sale of the business of Nuix.

26. I otherwise accepted as truthful and reliable the evidence given by Mr Smith. It was of relatively limited compass and it was consistent with, and did not seek to travel materially beyond, the contemporaneous documents and the apparent logic of events.

    Ms Rochay

27. Ms Cassandra Rochay (née Bell, as she was at the time of affirming her affidavit) is the Head of Risk at Nuix. She gave evidence regarding the maintenance of the Options Register, maintained in the form of an excel spreadsheet entitled “Capitalisation Table”. She gave evidence that the Options Register was initially maintained by Mr Sheehy, who then delegated responsibility of that task to herself and another Nuix employee, Mr Stephen Doyle.

28. Ms Rochay also gave evidence in her affidavit regarding the Macquarie 2016 Transaction and her understanding of how this transaction affected Mr Sheehy’s options, her involvement in the Share Split, the provision of a version of the Options Register to Mr Sheehy in the course of the 2018 Proceedings, the resolution of the 2018 Proceedings culminating in the Consent Judgment and the Nuix “Employee Options Plans”.

29. Ms Rochay was cross-examined.

30. She directly answered the questions that were put to her in a considered and careful manner. Her answers in cross-examination and her affidavit evidence were consistent with both contemporaneous documents and the apparent logic of events. I had no reason to doubt the accuracy or truthfulness of her answers.

    Mr Egan

31. Mr Michael Egan is the company secretary of Nuix. He was appointed to that role on 9 October 2020.

32. Mr Egan gave evidence of the receipt by Nuix of the notice of the purported exercise by Mr Sheehy of the Remaining 2008 Options on 27 January 2021. He also gave evidence of the steps that Nuix would have had to take to issue Nuix shares to Mr Sheehy and arrange for them to be listed on the ASX, including the time it would likely take to complete each of those steps, if Nuix had accepted the exercise notice was valid.

33. Mr Egan was not required for cross-examination.

    Expert witnesses

34. Both Mr Sheehy and Nuix advanced expert evidence directed at the likely sale prices that Mr Sheehy could have expected to receive in various scenarios had Nuix accepted his purported exercise of the Remaining 2008 Options on 27 January 2021 and Mr Sheehy had then sold on the ASX the Nuix shares that he would have been issued.

35. Mr Sheehy relied on a report from Ms Julie Planinic, a forensic accountant and a director of Lonergan Edwards, dated 13 December 2021.

36. Nuix relied on a report from Mr Michael Potter, a forensic accountant and a director of Axiom Forensics, dated 14 April 2022.

37. The experts prepared a joint report and gave concurrent evidence in the course of the hearing in what has colloquially been referred to as a “hot tub”.

38. Both the joint report and the evidence given by the experts concurrently at the hearing, together with the comprehensive and detailed reports prepared by each of them, demonstrated that other than with respect to some ultimately minor matters of emphasis, particularly on “blockage discounts”, the only substantive  disagreements between them on the sale prices that Mr Sheehy could have expected to have achieved on the various scenarios that the experts were asked to consider were driven by assumptions as to the length of time it would take for the shares to be sold.

39. I consider in more detail the evidence given by the experts later in these reasons in addressing what damages Mr Sheehy might have expected to have been awarded had he otherwise been successful in establishing the causes of action that he seeks to advance in these proceedings.

    FACTUAL BACKGROUND

    Establishment of Nuix

40. Nuix was founded by Mr Jim McInerney. He died in 2004 and his wife, Agnes McInerney, inherited ownership of Nuix.

41. In late 2005, a group of six investors invested approximately $510,000 in Nuix (Angel Investors) to fund its recapitalisation and restructuring.

    2006 Employment Contract

42. On 12 June 2006, Mr Sheehy commenced employment with Nuix as its CEO. The Chairman of Nuix at that time was Mr Tony Castagna who remained the Chairman until 2021, apart from a period between 2013 and 2015 when the Chairman was Mr David Standen.

43. Mr Sheehy was employed pursuant to a written agreement in the form of a letter from Mr Castagna dated 12 April 2006 and signed by Mr Sheehy on 19 June 2006 (Employment Contract).

44. The total compensation package offered in the Employment Contract comprised a guaranteed cash component, an “at-risk” bonus and an equity participation. The “at-risk” bonus comprised a sales bonus and a separate profitability bonus.

45. The Employment Contract provided, under the heading “Equity participation”, that Mr Sheehy would be:

    …offered the opportunity to purchase 30,000 shares, or 3% of the issued capital in the company via an options scheme. The terms and conditions for these stock options will be provided to you in a separate document, but the essential terms will be:

    • Vesting over 36 months, commencing June 2006

    • 12-month “cliff” for vesting, such that should you leave prior to June 2007, no stock options would vest

    • 12 month “accelerated” vesting in the event of a change of control of the company

    • 90-day period after your departure from the company in which you may exercise these options …

46. Under the heading “Equity participation”, the Employment Contract also provided that Mr Sheehy may be granted an additional 25,000 fully-paid shares at the discretion of the Nuix Board.

47. The Employment Contract stated the compensation package “provides a strong incentive for [Mr Sheehy] to unlock the value inherent in the opportunity” available to Nuix.

1. Mr Sheehy subsequently received an “Offer to Take up Options Under the Employee Option Plan (EOP)” dated 23 July 2007 (2007 Offer). Mr Sheehy was invited to apply for the 2006 Options under the Employee Option Plan Rules of Nuix dated 17 July 2007 (EOP Rules) on the terms and conditions set out in the 2007 Offer. The options were stated to be otherwise subject to the EOP Rules. The options were exercisable for five years after the date on which they vested.

2. The EOP Rules provided:

   (a)for the accelerated vesting of options in the event of a “Change of Control event”, which “denotes an event where 51% of the company’s Shareholding changes ownership” (cl. 11); and

   (b)that in the event of a “reorganisation of the capital of the Company the terms of the Options shall be reorganised in accordance with the relevant re-organisation plan as at the date of reorganisation” (cl. 10.1).

3. On 23 July 2007, Mr Sheehy accepted the 2007 Offer.

   2008 Option Agreement

4. The Employment Contract was due to be reviewed at the end of the 2007 financial year.

5. On 17 September 2008, a further remuneration arrangement was ultimately agreed between Mr Sheehy and Nuix pursuant to the terms of the 2008 Option Agreement.

6. The 2008 Option Agreement was in the form of a letter from Mr Castagna and Mr Smith that Mr Sheehy signed as received and accepted on 17 September 2008.

7. The 2008 Option Agreement commenced by acknowledging the work that Mr Sheehy had done, in particular, the “growth and focus you have brought to the CEO role”.

8. It then relevantly provided as follows:

   The package we are proposing is one that unambiguously aligns your incentives with those of existing shareholders. In particular, it provides very strong incentives for you to look for a sale event for Nuix before the end of 2010; a sale event at particular valuations during this time will see you enjoy a significant reward.

   We are therefore pleased to offer you a new package as follows:

   l)An unrestricted stock grant of 75,000 shares, vesting immediately. I know you are aware that there will likely be tax consequences for you on this grant, and that you acknowledge these tax consequences will be borne by you.

   2) A series of “call options” over Nuix stock, exercisable in the event of a sale of the business at particular prices. Note that these options are only exercisable in the event of a sale; a valuation of the business in the context of an additional funding round will not trigger the call option. These call options will be structured as follows:

   Note that these stock options are both incremental and cumulative; meaning, by way of example, that a sale price of $10,000,000 would see you able to exercise options to purchase 40,000 shares at $0.85 PLUS 100,000 shares at $2.00.

   Please note that the $2.00 exercise price is in - place for all new option grants since 2007; however, given the time taken to negotiate this package, we acknowledge that you would have normally received an additional stock option grant on the 12-month anniversary of your employment in June 2007. This grant would have been at the previous $0.85 exercise price, and so this will prevail for the first 40,000 additional options.

   …

   3)You will also receive a cash bonus, in the event of a sale in excess of certain$ thresholds before certain nominated dates as follows:

   •For a sale in excess of $10,000,000 on or before 31 December 2009, you will receive a cash bonus (pre-tax) equivalent to 20% of the total cash gain (net of exercise price but pre-tax) you receive from the sale via your equity ownership.

   •For a sale in excess of $20,000,000 on or before 31 December 2010, you will receive a cash bonus (pre-tax) equivalent to 20% of the total cash gain (net of exercise price but pre-tax) you receive from the sale via your equity ownership.

   4) Please note that your equity position (unrestricted stock and options) has been expressed in absolute terms, not as a relative % of the company. Obviously, should additional financing rounds take place, and the total number of shares outstanding increase, your relative % ownership will decline, but the absolute number of shares & options held (and the $ thresholds for exercise) will remain constant.

9. The 2008 Option Agreement concluded:

   Eddie, let me again indicate the strong support you enjoy from the Board. We hope the package as outlined in this email [sic] reinforces that support and provides you with clear incentives to grow the business and achieve the sale event that the current shareholders seek.

10. The 2008 Option Agreement was not stated to be subject to the EOP Rules, including any provision linking the exercise of the options to a change of control or any provision for the reorganisation of the terms of the options upon reorganisation of Nuix’s share capital.

11. On 17 September 2008, Mr Sheehy was issued with the 2008 Options, being 540,000 call options issued pursuant to the terms of the 2008 Option Agreement.

    Failure to sell Nuix by 2010 and 2011 share acquisition by Macquarie

12. The business of Nuix was not sold by 31 December 2010.

13. On 18 May 2011, the Angel Investors, other than Ferodale Limited (Ferodale), entered into a subscription and share purchase agreement with Macquarie Group Capital Limited for the sale of all of their Nuix shares to Macquarie.

14. On 31 May 2011, Macquarie paid approximately $8 million in consideration for the transfer of the Nuix shares from the Angel Investors. Macquarie also invested a further $2.5 million in return for the issuance of new shares. At this point, Macquarie became the largest shareholder in Nuix.

15. On 9 June 2011, Mr Standen and Mr Phillips were appointed to the Nuix Board.

    2016 payment to Mr Sheehy and his resignation

16. In October 2016, Macquarie made an offer to acquire 20% of all shares and options held by Nuix employees, for approximately $20 million pursuant to the Macquarie 2016 Transaction.

17. On 18 October 2016, the Nuix board considered and approved the Macquarie 2016 Transaction. The Nuix board also passed a resolution at the board meeting held on that day waiving any option exercise conditions as part of its approval of the Macquarie 2016 Transaction.

18. As part of the Macquarie 2016 Transaction, Mr Sheehy sold all of the 2006 Options and 86,727 of the 2008 Options to Macquarie in exchange for a payment from Macquarie of $10,354,467. This sale left Mr Sheehy with the Remaining 2008 Options totalling 453,273 options. Macquarie immediately exercised the 2006 Options and the 2008 Options that it had purchased from Mr Sheehy and was issued with shares by Nuix in accordance with those options.

    Share Split and resignation of Mr Sheehy

19. On 29 November 2016, the directors of Nuix, including Mr Sheehy, formally passed a resolution to propose the Share Split to existing shareholders of Nuix for their approval. The Share Split provided for a division of the ordinary shares of Nuix pursuant to the mechanism contained in s 254H of the Corporations Act so that each ordinary share would be subdivided into 50 ordinary shares. This resolution formalised an agreement between the Nuix directors, including Mr Sheehy, in August 2016 that was recorded in a document entitled “Resolution by signed minute” and emailed to Nuix board members on 12 August 2016 (Share Split board resolution).

20. On 5 December 2016, Mr Sheehy signed the Share Split board resolution.

21. On 9 December 2016, Mr Sheehy received the payment of $10,354,467 from Macquarie and resigned from his employment with Nuix, with effect from 27 January 2017.

22. On 15 December 2016, the Share Split was approved by Nuix shareholders.

23. On 14 March 2017, the Share Split was completed.

24. The Share Split was implemented due to the high price of Nuix shares (at that time $100 per share), the impact of a high share price on the recruitment of staff and on the ability of Nuix to conduct an IPO.

25. In preparation for the Share Split, Mr Castagna appeared in a webinar to staff to explain its effect on their shares and options (Webinar). In the course of that Webinar he stated that:

    …we are going to do a 50 to 1 share split. Those of you who have already got options will get a letter from us saying - advising you of the split - and what that means is that, if I just use a very simple example; for every one option that you have, post-split – post the 50 to 1 split - you will have 50 share options. So, for every one share option that you have you will be able to translate that into 50.

    and

    but essentially applying the principle of fairness and equity nothing changes as a result of the split because what we are really saying is the size of the cake is the same instead of having fat - one fat slice you have got –you have got 50 slices that add up to the same one fat slice - they are just thinner slices - the addition of each of those 50 slices ends up being the same as the slice had you got only one.

26. Mr Castagna also gave a PowerPoint presentation at a series of Town Hall meetings relating to the Share Split (Town Hall Meetings). The slides for that presentation included two worked examples in which the number of options were multiplied by 50 and the equivalent price to exercise the options was divided by 50. The slides included statements that “the relative price ratio remains unchanged” as a result of the Share Split, and that “the pre & post split total price to exercise remains unchanged”.

    2018 Proceedings

27. On 22 May 2018, Mr Sheehy commenced the 2018 Proceedings in the Commercial List of the Supreme Court of New South Wales.

28. In the 2018 Proceedings, Mr Sheehy relevantly sought (in his Summons):

    1A declaration that 453,273 options granted over unissued shares of the defendant that the plaintiff holds (Options) are exercisable by the Plaintiff on the occurrence of a sale of the defendant’s business in accordance with the agreement between the plaintiff and the defendant made on or around 17 September 2008.

    2An order under section 175(1) of the Corporations Act 2001 (Cth) that the defendant correct its register to record the Options.

29. On 7 November 2019, Mr Sheehy made an offer to settle the 2018 Proceedings (Settlement Offer).

30. On 21 November 2019, Nuix accepted the Settlement Offer.

31. On 26 November 2019, the Supreme Court made declarations and orders in the terms of prayers 1 and 2 of Mr Sheehy’s Summons pursuant to the Consent Judgment.

    Commencement of these proceedings

32. On 26 October 2020, Mr Sheehy commenced these proceedings.

    Initial Public Offering

33. On 18 November 2020 Nuix issued a prospectus in relation to an IPO of its shares.

34. The total number of shares to be issued and transferred under the IPO was 179.5 million and the total number of shares in Nuix on completion would be 317.3 million.

35. As at the date that the prospectus for the IPO was issued, Macquarie held 76.2% of the shares in Nuix and 66.1% of the shares on a fully diluted basis (that is existing shares and shares to be issued on the exercise of options).

36. On completion, Macquarie would hold 30.1% of the shares in Nuix and 30.0% on a fully diluted basis. New investors in the IPO would hold 55.8% of the shares in Nuix and 55.4% of the shares on a fully diluted basis.

37. On 20 November 2020, Mr Sheehy’s solicitors sent a letter to Nuix's solicitors indicating that he intended to exercise the Remaining 2008 Options.

38. On 3 December 2020, Nuix’s solicitors stated in response to Mr Sheehy’s solicitors that there had not been a sale of Nuix for the purposes of his purported exercise of the Remaining 2008 Options, with the result that those options were not exercisable.

39. On 4 December 2020, the IPO proceeded and Nuix was listed on the ASX.

    Purported exercise of the Remaining 2008 Options

40. On 27 January 2021, Mr Sheehy provided Nuix with the Option Exercise Notice in relation to the Remaining 2008 Options. This was rejected by Nuix on 2 February 2021.

    NUIX PRECLUSIONARY DEFENCES

    Introduction

41. Nuix relies on res judicata/cause of action estoppel, issue estoppel, Anshun estoppel and abuse of process preclusionary defences that it alleges arise from the Consent Judgment in the 2018 Proceedings.

42. It is necessary to address the potential application of these defences before considering the substantive claims that Mr Sheehy seeks to advance in these proceedings. If Nuix can establish any of these defences, then the claims made by Mr Sheehy must be dismissed or, to the extent that the defences may be established with respect to some of the claims advanced by Mr Sheehy, then those claims must be dismissed.

    Res judicata/cause of action estoppel

    Principles

43. Res judicata/cause of action estoppel (or “claim estoppel”) requires both that a “claim to a right or obligation” was asserted in a prior proceeding and that the claim was finally determined in that proceeding. It operates “to preclude assertion in a subsequent proceedings of a claim to a right or obligation which was asserted in the proceeding and which was determined by the judgment”: Tomlinson v Ramsey Food Processing Pty Limited (2015) 256 CLR 507; [2015] HCA 28 (Tomlinson) at [22] (French CJ, Bell, Gageler and Keane JJ) (see also [20] regarding res judicata); Clayton v Bant (2020) 272 CLR 1; [2020] HCA 44 (Clayton) at [29] (Kiefel CJ, Bell and Gageler JJ).

44. Consent judgments attract the operation of the doctrine of res judicata/cause of action estoppel: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; [1988] HCA 21 (Chamberlain) at 505 (Brennan J), 508 (Deane, Toohey and Gaudron JJ), 512 (Dawson J); see also Somanader v Minister for Immigration and Multicultural Affairs [2000] FCA 1192 at [36] (Merkel J). So, too, do declarations: Spautz v Butterworth (1996) 41 NSWLR 1 at 20.

45. In Re South American and Mexican Co; ex parte Bank of England [1895] 1 Ch 37 (South American and Mexican Co), a matter where a consent order for financial provision was held to bar a further application by the former wife, Lord Herschell, LC stated at 50:

    The truth is, a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgment which results from the decision of the Court after the matter has been fought out to the end. And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought over again in a subsequent action.

46. The focus of cause of action estoppel is on “substance rather than form”: Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (In Liq) (1992) 36 FCR 406 (Trawl Industries) at 418 (Gummow J); cited with approval in Clayton at [34] (Kiefel CJ, Bell and Gageler JJ) and [68] (Edelman J). Absolute identity between the sources and incidents of rights asserted or capable of being asserted is not required. There need only be “substantial correspondence” or that the rights are “of a substantially equivalent nature and cover substantially the same subject matter”: Clayton at [34] (Kiefel CJ, Bell and Gageler JJ).

47. In Trawl Industries, Gummow J held that the dismissal of a claim for misleading or deceptive conduct under ss 52 and 53 of the Trade Practices Act 1974 (Cth) (TP Act) gave rise to a cause of action estoppel against a claim in negligence. The applicant had previously brought proceedings in negligence based on some of the same representations, and sought damages measured in the same way and in the same quantum as in the subsequent proceedings. Gummow J stated at 422:

    In my view, Effem has made out its case of cause of action estoppel against Trawl. This is so, even though no claim previously was made in negligence. The substance of the controversy embraces such a claim. The gist of the recovery sought both in negligence and for contravention of the TP Act is the same.

    …

48. To similar effect, in Zavodnyik v Alex Constructions Pty Ltd (2005) 67 NSWLR 457; [2005] NSWCA 438 (Zavodnyik) a builder’s claim in restitution was barred by cause of action estoppel by reason of the dismissal of the builder’s earlier claim in contract: [30], [31], [33] (Handley JA, Mason P and Latham J agreeing). And in Lee v Kim (2006) 68 NSWLR 433; [2006] NSWCA 384 (Lee), Handley JA (Beazley and Santow JJA agreeing) found that a cause of action estoppel arose where a party, having failed in a claim for defamation based on the publication of material in two issues of a newspaper, sought to later sue for the publication of other material in the same issues (said to convey the same defamatory implications): at [27]. That was so despite the fact that the causes of action were technically different: see [15]-[17].

49. In considering whether cause of action estoppel arises, it is irrelevant whether the plaintiff knew, when he brought the first action, the facts on which he relies in the second: Honeywood v Munnings (2006) 67 NSWLR 466; [2006] NSWCA 215 at [11]-[19] (Handley JA, Giles JA and Hislop J agreeing); French & Anor v NPM Group P/L [2008] QCA 217 at [47]-[54].

    Submissions of Mr Sheehy

50. Mr Sheehy submits that the “claim to a right or obligation” in the 2018 Proceedings was the claim that the Remaining 2008 Options continued to exist contrary to the contention by Nuix that they had expired.

51. More specifically, Mr Sheehy submits that the claim was that Nuix was in breach of contract because it had refused to recognise the continued existence of the options. He submits that claim was determined by the declaration in paragraph 1 of the Consent Judgment that the options “are exercisable by the plaintiff on the occurrence of a sale of the defendant’s business”. He submits that this declaration said nothing about the particular terms of the Remaining 2008 Options.

52. Mr Sheehy submits that his claim that the options had not expired and continued to exist was the claim that merged in the Consent Judgment. He submits that each of the breach of contract, oppression and unconscionability claims in the present proceedings are entirely different.

    Submissions of Nuix

53. Nuix relies on three matters to establish that Mr Sheehy’s claim in these proceedings that he is entitled to 22,663,650 shares is precluded by cause of action estoppel.

54. First, Nuix submits that Mr Sheehy’s claim to hold a particular number of options following the Share Split (the claim brought in the 2018 Proceedings) is substantively equivalent to his claim to be entitled to a particular number of shares on exercise of his options (the claim brought in these proceedings).

55. Nuix submits that the 2018 Proceedings dealt with one of the “two ways” the Share Split could be applied to Mr Sheehy’s Remaining 2008 Options. The 2018 Proceedings necessarily involved the effect of the Share Split on Mr Sheehy’s Remaining 2008 Options because one of the ways the Share Split could arguably affect those options was by multiplying their number and Mr Sheehy was seeking a declaration as to the number of options he held post the Share Split. It follows that the substantively equivalent claim Mr Sheehy now makes as to the effect of the Share Split on the Remaining 2008 Options - namely, that it multiplied the number of shares to which those options entitle him - was also part of that controversy.

56. It submits that this has the consequence that Mr Sheehy’s claimed entitlement to 22,663,650 shares is, as a matter of substance, the same as the claim determined by the 2018 Proceedings. The “substance of the controversy” litigated in the 2018 Proceedings “embrace[d]” the claim Mr Sheehy now makes. It submits that claim is thereby precluded by cause of action estoppel.

57. Second, Nuix submits that, by reason of Order 2 in the Consent Judgment (prayer 2 of Mr Sheehy’s Summons in the 2018 Proceedings), Nuix was required to rectify its Options Register to record that Mr Sheehy held 453,273 options (Rectification Order). Pursuant to s 170 of the Corporations Act, a company’s options register must contain particular information, including the number of shares over which the options were granted and the exercise price of the options: s 170(1)(d) and (h). It submits that as such, the Rectification Order required Nuix to specify these matters in its register with respect to the Remaining 2008 Options and must, therefore, have determined them. The order cannot have required Nuix to breach s 170 of the Corporations Act by including incomplete information on the Options Register.

1. Moreover, Nuix submits that the Consent Judgment must be understood in light of Mr Sheehy’s contentions in the Commercial List Statement in the 2018 Proceedings (CLS). In particular, that the Rectification Order encompassed details of Mr Sheehy’s options is reflected in the terms of the CLS at [14(b)], where Mr Sheehy stated that the order would require Nuix to record “accurate particulars of the Remaining Sheehy Options in Nuix’s register of options”.

2. Nuix submits that is reinforced by the fact that Mr Sheehy: (a) pleaded that he held 453,273 options (CLS at [9]); (b) particularised the 2008 Option Agreement in support of a term that those options existed and were exercisable (CLS at [5]); and (c) pleaded the requisite particulars of those options in the CLS at [5], by particularising cl 2 of the 2008 Option Agreement (excluding the final paragraph). That part of the 2008 Option Agreement recorded the exercise price for the options (in the third column of the table) and that one option entitled Mr Sheehy to one share (by the text at the bottom of the table, read together with the table itself).

3. Third, Nuix submits that the declaration made by the Consent Judgment stated that the Remaining 2008 Options were exercisable by him “on the occurrence of the sale of the defendant’s business in accordance with the agreement between the plaintiff and the defendant made on or around 17 September 2008”. By doing so, the declaration in the Consent Judgment determined that the 2008 Option Agreement: (a) contained the terms pleaded and particularised in the CLS at [5]; and (b) had terms which were express or implied by law only, as particularised in the CLS at [4].

4. Nuix submits that in view of these matters, the Court determined by the Consent Judgment, not only that Mr Sheehy’s options remained in existence, but also their number (453,273), exercise prices (being those set out in the third column of the table in the 2008 Option Agreement), and number of shares over which they were granted (one share for each option). As a matter of res judicata, Mr Sheehy’s claimed rights with respect to those matters therefore merged in the Consent Judgment. In terms of cause of action estoppel, Mr Sheehy’s claim in this proceeding to an entitlement to 22,663,650 shares upon exercise of his options is precluded or estopped.

   Consideration

5. The claim or right determined by the declaration in the Consent Judgment was whether the 453,273 options granted to Mr Sheehy remained exercisable by him on the sale of the business of Nuix in accordance with the terms of the 2008 Option Agreement. The order for the correction of the Options Register in the Consent Judgment was ancillary to that declaration. It did not expand or qualify the claim or right determined by the declaration.

6. The claims and rights the subject of these proceedings are directed not at the continued existence of the Remaining 2008 Options but rather at the number of shares over which the options can be exercised given the 50 for 1 share split and whether there had relevantly been a “sale of the business” of Nuix in late 2020. Unlike Trawl Industries, Zavodnyik and Lee this is not a case where an applicant is seeking to advance a new cause of action based on the same conduct that had been relied upon and determined in a prior proceeding.

7. There was no “substantial correspondence” between a right to exercise an option and the determination of a conversion ratio from options to shares following a share split. Nor are those discrete rights “of a substantially similar nature and cover substantially the same subject matter”. The substance of the controversy in the 2018 Proceedings was the continuing existence of the Remaining 2008 Options, not their conversion ratio into Nuix shares.

8. I accept that a method by which a share split might typically be addressed in order to prevent prejudice to an option holder would be to multiply the number of options they hold and to preserve the existing conversion ratio. I also accept that the Consent Judgment necessarily precluded Mr Sheehy from advancing any case in these proceedings that the number of options that he held following the Share Split could be multiplied by 50 to reflect the impact of the Share Split. I do not accept, however, that this incidental or consequential effect of the Consent Judgment on claims or rights that Mr Sheehy might subsequently pursue against Nuix had the consequence of expanding the controversy litigated in the 2018 Proceedings to the claims now advanced by Mr Sheehy in these proceedings.

9. Nor do I accept that the pleading and particularisation of the 2008 Option Agreement in the CLS can expand the controversy litigated in the 2018 Proceedings. An order to correct a register to reflect the specific claim or right the subject of a declaration cannot expand the controversy beyond the terms of the declaration. Nor can the identification in a declaration of the agreement under which options are to be exercised have that effect. The Consent Judgment necessarily by its terms determined the number of options that Mr Sheehy held following the Share Split. It did not determine their exercise price nor the number of shares over which they were granted. The controversy was limited to whether Mr Sheehy could still exercise the Remaining 2008 Options.

10. For these reasons, I am satisfied that the claims made by Mr Sheehy in these proceedings are not precluded by cause of action estoppel or the doctrine of res judicata.

    Issue estoppel

    Principles

11. Issue estoppel is a principle whereby “judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies”: Blair v Curran (1939) 62 CLR 464; [1939] HCA 23 at 531 (Dixon J) cited with approval in Tomlinson at [22] (French CJ, Bell, Gageler and Keane JJ). Issue estoppel can arise even where the causes of action in the two proceedings are entirely different: Jackson v Goldsmith (1950) 81 CLR 446; [1950] HCA 22 (Jackson) at 467 (Fullagar J). Issue estoppel similarly involves consideration of substance over form: see Ku-Ring-Gai Council v Ichor Constructions Pty Ltd [2014] NSWSC 1534 at [33] (Stevenson J); Tomlinson at [22] (French CJ, Bell, Gageler and Keane JJ); Clayton at [34] (Kiefel CJ, Bell and Gageler JJ).

12. Unlike res judicata where only the actual record is generally relevant, any material may be looked at which will show what issues were raised and decided: Jackson at 467 (Fullagar J).

13. Consent judgments can give rise to issue estoppel: Robinson v Deep Investments Pty Ltd [2018] FCAFC 232; (2018) 364 ALR (Robinson) at [137] (Jagot and Colvin JJ); Commissioner of Taxation v Day (2007) 164 FCR 250; [2007] FCAFC 193 at [15] (Spender J, Edmond J agreeing); Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) (2001) 119 FCR 1; [2001] FCA 1861 at [1148] (Goldberg J); Ekes v Commonwealth Bank of Australia [2014] NSWCA 336 (Ekes) at [111] (Bathurst CJ, Beazley P and Emmett JA agreeing); Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [186] (and the authorities cited therein) (McColl JA, Giles and Campbell JJA agreeing); Makhoul v Barnes (1995) 60 FCR 572 at 582 (Hill, Cooper and Branson JJ); and NHB Enterprises Pty Ltd v Corry (No 7) [2021] NSWSC 741 at [400], [402], [414] (Bell P).

14. In Robinson, Jagot and Colvin JJ observed at [137] that, when considering the extent to which a consent judgment may give rise to an issue estoppel:

    …there must be an inquiry as to the issues that were determined by the consent judgment and any issue estoppel only arises to the extent that the consent determined a particular issue.

15. In that case, the Court was directly concerned with the effect of a consent judgment (although ultimately decided the dispute on the basis that the subsequent proceedings were an abuse of process).

16. In considering the extent of issue estoppel arising from a consent judgment, the subjective motivations of the parties to the consent judgment are irrelevant and the question of its effect is objective (however regard can be had to the background leading up to the order): Ekes at [114]-[115] (Bathurst CJ, Beazley P and Emmett JA agreeing).

    Submissions of Mr Sheehy

17. Mr Sheehy submits that issue estoppel cannot exist without a full determination on the merits: Zetta Jet Pte Ltd v The Ship "Dragon Pearl" (No 2) (2018) 265 FCR 290 (Zetta) at [20] (Allsop CJ, Moshinsky and Colvin JJ). He submits that as there was no reasoned judgment on the merits underpinning the Consent Judgment, therefore, the doctrine of issue estoppel has no role to play in this case.

18. Mr Sheehy submits that, moreover, and in any event, it remains unclear from Nuix’s submissions what issue it contends was resolved in the 2018 Proceedings so as to give rise to an issue estoppel. He submits that the issues of how the 2008 Option Agreement is to operate in the event of a share split, how the Share Split affects his rights under the 2008 Option Agreement and whether the shares are exercisable were not considered or resolved at all in the 2018 Proceedings.

    Submissions of Nuix

19. Nuix submits that the 2019 Consent Judgment necessarily determined (a) the number of options Mr Sheehy held post Share Split (being 453,273) and (b) the number of shares Mr Sheehy was entitled to on exercise of his options (by reason of the matters that it relied upon to establish cause of action estoppel).

20. Nuix submits that it is clear that in making the Rectification Order, the Court must have decided the number of shares over which the options were granted and the exercise price of the options (as matters required to be specified pursuant to s 170(1)(d) and (h) of the Corporations Act).

21. Nuix submits that in considering the issues decided by the 2019 Consent Judgment, the Court should also give, if anything, greater weight to the terms of the CLS, including the allegations that:

    (a)the Rectification Order would require Nuix to record “accurate particulars of the Remaining Sheehy Options in Nuix’s register of options”: [14(b)]; he held 453,273 options (CLS at [9]);

    (b)the 2008 Option Agreement supported a term that those options existed and were exercisable (particulars to [5]); and

    (c)the requisite particulars of those options were those set out in cl 2 of the 2008 Option Agreement, which recorded the exercise price for the options (in the third column of the table) and that one option entitled Mr Sheehy to one share (by the text at the bottom of the table, read together with the table itself) (particulars to [5]).

22. Nuix submits that in circumstances where the Consent Judgment reflected identically all of the relief claimed by Mr Sheehy in the Summons, the CLS provides a strong indication of the issues that it determined.

    Consideration

23. The contentions advanced by Nuix in support of its issue estoppel case largely replicate those that it advances in support of its cause of action/res judicata case. Those contentions are no more persuasive for issue estoppel.

24. The making of the Rectification Order in the context of the specific requirements of ss 170(1)(d) and (h) of the Corporations Act did not carry with it any necessary implication that the issues determined in the 2018 Proceedings travelled beyond the Consent Judgment.

25. The declaration in the Consent Judgment was in the same terms as the declaration sought in the Summons. It addressed only the issue as to whether the Remaining 2008 Options held by Mr Sheehy remained exercisable in accordance with the terms of the 2008 Option Agreement. It did not address the question of the applicable conversion ratio post the Share Split. That was not an issue that was raised or sought to be litigated in the 2018 Proceedings.

    Anshun estoppel and abuse of process

    Principles

    Anshun estoppel

26. As the High Court explained in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45 (Port of Melbourne) at 598, what has become known as Anshun estoppel:

    …operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding.

27. The question of unreasonableness is derived significantly from the matter being “so relevant” to the subject matter of the first proceeding: Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245; [2010] NSWCA 33 (Champerslife) at [3] (Allsop P, as his Honour then was). The determination of unreasonableness in that sense involves at least two related assessments; namely, “was the matter so relevant that it can be said to have been unreasonable not to rely upon it in the first proceeding?”: Champerslife at [3] (Allsop P).

28. The broad merits-based or value judgment to which Allsop P referred in Champerslife is not at large. It is to be directed to the making of those two related assessments. Thus, a close connection between the facts in separate sets of proceedings may make it unreasonable not to have agitated the issue in the earlier proceedings: Accord Pacific Holdings Pty Ltd v Gleeson as Liquidator of Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 1021 at [137] (Ward J, as her Honour then was) and the cases cited therein.

29. In deciding the question, the onus is on the party asserting the estoppel to prove that the other party’s choice to refrain from asserting the claim or raising the issue, in the course of the first proceeding, was unreasonable: Clayton at [30] (Kiefel CJ, Bell and Gageler JJ); Preston v Nikolaidis [2021] NSWSC 36 at [271] (Williams J). To this end, “any facts which bear upon the reasonableness of the conduct in question are admissible”: Beck v Weinstock [2012] NSWCA 289at [73] (Campbell JA, McColl and Meagher JJA agreeing). As was said in Port of Melbourne at 603 (and recently cited with approval in Clayton at [31] (Kiefel CJ, Bell and Gageler JJ)):

    there are a variety of circumstances ... why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings eg expense, importance of the particular issue, motivations extraneous to the actual litigation, to mention but a few.

30. Anshun estoppel arises even where the omission in the earlier proceedings was due to negligence, inadvertence or even accident: Henderson v Henderson [1843] 67 ER 313 at 319; Port of Melbourne at 598. Relatedly, a deficiency in legal advice is not a matter that can be taken into account in determining whether an Anshun estoppel arises: Donnelly v Kempsey Local Aboriginal Land Council [2020] NSWSC 1548 at [98] (Williams J).

    Abuse of process

31. Abuse of process may be invoked in areas in which estoppels also apply, although it is “inherently broader and more flexible than estoppel”: Tomlinson at [22], [25] (French CJ, Bell, Gageler and Keane JJ). For example, the failure to make a claim or raise an issue in an earlier proceeding, which ought reasonably to have been made or raised in the earlier proceeding, can constitute an abuse of process even where the earlier proceeding might not have given rise to an estoppel: Tomlinson at [26] (French CJ, Bell, Gageler and Keane JJ); Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77 at 393 (Mason CJ, Deane and Dawson JJ) and the authorities cited therein.

32. The circumstances when the Court will have the power to stay proceedings as an abuse of the process of the Court are incapable of being distilled into closed categories. Rather, the Court’s power can be enlivened in circumstances “where the use of the court’s procedures occasion unjustifiable oppression to a party, or where the use serves to bring the administration of justice into disrepute”: UBS AG v  Tyne (2018) 265 CLR 77; [2018] HCA 45 at [1] (Kiefel CJ, Bell and Keane JJ); Tomlinson at [25].

33. The onus of satisfying the Court that there is an abuse of process is a “heavy one” and it falls on the party asserting the abuse of process: Williams v Spaultz (1992) 174 CLR 509; [1992] HCA 34 at 529 (Mason CJ, Dawson, Toohey and McHugh JJ); Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 498 (Scarman LJ).

    Submissions of Mr Sheehy

    Requirements for Anshun estoppel

34. Mr Sheehy submits that Anshun estoppel is a “true estoppel” and therefore, it can only apply if the party asserting the estoppel relied on the state of affairs giving rise to the estoppel to its detriment or it would be unconscionable for the other party to resile from an expectation that it had created: see Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 (Sidhu) at [1]-[2], [58], [61] and [77] (French CJ, Kiefel, Bell and Keane JJ). In this regard, Mr Sheehy submits that the use of the language of “true estoppel” in the context of Anshun estoppel in Tomlinson at [22] (French CJ, Bell, Gageler and Keane JJ) and in Rogers v The Queen (1994) 181 CLR 251; [1994] HCA 42 (Rogers) at 275 (Deane and Gaudron JJ) must have been intended to mean that some form of reliance is required to make good the estoppel.

35. Mr Sheehy submits that Nuix has not established any form of detrimental reliance sufficient to give rise to an Anshun estoppel.

36. Mr Sheehy submits that the Nuix decision-makers in the 2018 Proceedings were “plainly well-aware” that he did not intend to compromise his rights in relation to the Share Split. He points to the email sent by Mr Castagna on 27 November 2019 after Nuix entered into the Consent Judgment (Castagna November 2019 Email), and in particular, that the compromise for 1/50^th of the original amount was “most surprising” and “I have no doubt we will hear the screams of angst from Eddie in the fullness of time” and the response from Mr Krupczak, Nuix’s then general counsel, that it was “truly unbelievable”. He submits that none of the parties to these communications was called to give evidence in these proceedings and therefore, the Court should conclude that the true position was that Nuix was well aware that he was not intending to give up any rights in relation to the impact of the Share Split on the Remaining 2008 Options. Mr Sheehy submits that this conclusion would have been obvious to any reasonable person involved in the settlement of the 2018 Proceedings.

37. Mr Sheehy submits that, in the circumstances, it cannot be said that Nuix believed that he was electing not to proceed with his claims in relation to the Share Split at the time that he settled the 2018 Proceedings or relied on any such assumption. Hence for the purposes of Anshun estoppel there is no basis for Nuix to contend that it would be unreasonable for him to pursue his present claims.

    Relevance and reasonableness

38. Mr Sheehy submits that it was not unreasonable for him to have not raised the issue of the Share Split in the 2018 Proceedings for the following reasons.

39. First, the 2018 Proceedings were narrowly confined to the issue of whether the Remaining 2008 Options continued to exist or not and the present claims concern an “entirely different feature” of the 2008 Option Agreement.

40. Second, there was nothing to suggest to him that there could be any issue between him and Nuix about the application of the Share Split to the 2008 Options. He submits that during the 2018 Proceedings, Nuix disclosed extracts from the Options Register as it stood at a specific date in 2017 to him. He submits that in those extracts it was expressly noted that the Remaining 2008 Options, like the options of other option-holders, resulted in the number of shares associated with each option being multiplied by 50 post the Share Split in Column N, albeit those extracts wrongly recorded that the Remaining 2008 Options had been forfeited. He submits that these documents demonstrate that there was no dispute as to the shares associated with his options being multiplied by 50. He further submits that there was no reason for him to conclude that the Share Split was something that needed to be determined in the 2018 Proceedings.

1. Mr Sheehy submits that had Nuix accepted had been entitled to exercise the Remaining 2008 Options, he would have exercised them at the time of the IPO. He submits that this is not only consistent with his evidence, but also with the behaviour of virtually all other option-holders, who elected to cancel their options in return for cash at the time of the IPO. He submits that of the 40,339,623 options in existence immediately prior to the IPO, 38,961,508 options were cancelled for cash.

2. Mr Sheehy also submitted, by reference to the statement of Brennan J in Foran at 427, that properly understood, he had an obligation to deliver a notice of exercise of the Remaining 2008 Options and to tender the purchase price. He submits that he was relieved of that obligation because Nuix gave him an intimation by the time of the IPO that it would be “useless” for him to do so. He submits that as a result, Nuix is taken to have an absolute obligation which it has failed to perform and thereby breached the 2008 Option Agreement at that time.

3. Mr Sheehy submits that if the Court concludes that he would not have exercised the Remaining 2008 Options in December 2020, the latest point at which the Court should find that the notice of exercise would have been issued is 27 January 2021.

   Issue of the Shares

4. Mr Sheehy submits that on the assumption that the Remaining 2008 Options were exercisable, Nuix was then obliged to issue the Shares to him immediately upon exercise.

5. Mr Sheehy submits that the 2008 Option Agreement makes clear that the Remaining 2008 Options are exercisable on the sale of the business of Nuix and there is no provision affording to Nuix any reasonable period of time to issue the Shares.

6. Moreover, Mr Sheehy submits that Nuix cannot rely on the evidence of Mr Egan as to the steps necessary to issue the Shares because it was premised on the unproven assumptions that: (a) the Nuix board was aware that it was only contractually obliged to issue the Shares “within a reasonable period of time” in accordance with the case “now belatedly advanced by Nuix”; and (b) Nuix had received advice to the effect that the notice of exercise of the Remaining 2008 Options should be considered by the Board for “potential approval”.

7. Mr Sheehy submits that the reference to “potential approval” and the reference by Mr Egan to obtaining advice to “confirm that the options were exercisable in the manner required by Mr Sheehy” suggests that the Remaining 2008 Options may not in fact have been exercisable. He submits that even assuming that Nuix should be given a reasonable amount of time to issue the Shares, this could not include advice on this issue as if the Court is considering the value of the Shares it would have accepted the implication of the Implied Term. Therefore, he submits, Nuix should not be given time to determine whether it was contractually obliged to issue the Shares.

8. Mr Sheehy submits it was therefore unnecessary for him to challenge any of Mr Egan’s evidence in cross-examination.

9. Mr Sheehy also submits that: (a) Mr Egan did not address in his evidence whether Nuix board meetings could be held more frequently than monthly; (b) if Nuix was under an obligation to act reasonably it could not “simply sit on its hands and wait for months” until the next scheduled board meeting; (c) a period of 2 to 3 weeks to obtain advice was inconsistent with any contractual obligation to issue the Shares within a reasonable period of time if it is assumed that Nuix properly understood their contractual obligations; and (d) no evidence was led by Nuix from any lawyers as to how long it would take to provide the advice.

   Sale of the Shares

10. Mr Sheehy submits that the Court should accept his evidence that (a) if Nuix issued shares to him following his exercise of the Remaining 2008 Options, he would have sold those shares in the following month, prior to the announcement of Nuix’s half year results on 26 February 2021; and (b) he would not have waited a year to sell the Shares in order to realise the capital gains benefits that he would have received had he held the Shares for that period of time.

    Blockage discounts

11. Mr Sheehy submits that the selection by Ms Planinic of the mid-point of the range for blockage discounts is the approach that should be accepted by the Court. He submits that the selection of the high points of those ranges by Mr Potter for scenarios 2 to 5 to justify higher discounts is “double-counting” because the matters used to justify the higher discount have already been incorporated in the determination of each blockage discount range.

    Submissions of Nuix

    Exercise of the Remaining 2008 Options

12. Nuix submits that, irrespective of any dispute with Nuix, the earliest date by which Mr Sheehy would have exercised his options was 27 January 2021. It submits that not only was that Mr Sheehy’s express oral evidence, but that is when Mr Sheehy in fact exercised his options, even though he was in a position to do so much earlier.

    Issue of the Shares

13. Nuix submits that it was obliged only to issue the Shares in a reasonable time, with reasonableness informed by the steps Nuix was required to take to lawfully and prudently issue them.

14. Nuix submits by reference to the unchallenged evidence of Mr Egan that the steps that it would have to take to issue the Shares if Mr Sheehy had been permitted to exercise the Remaining 2008 Options would have meant that the Shares would not have been available for trading until at least after 12 April 2021, and there would have been a real possibility that they would not have been available until 11 May 2021. These steps included obtaining approval from the Nuix Board to seek legal advice on the notice of exercise of the Remaining 2008 Options received from Mr Sheehy. Mr Egan identified nine matters on which he considered legal advice was necessary, in particular, the number of shares to which the notice of exercise pertained and the steps necessary to ensure compliance with the ASX Listing Rules, including with respect to the issuing of a notice pursuant to s 708A(6) (typically referred to as a cleansing notice).

15. Nuix submits by way of summary that the evidence of Mr Egan establishes that:

    a.it is probable the Nuix Board would have considered the appropriate course of dealing with the notice and authorised the procurement of legal advice at its next scheduled meeting on 25 February 2021;

    b.legal advice would have been required on a variety of technical and complex issues, including the requirement for and content of a cleansing notice under s 708A of the Corporations Act. That advice may have taken 2-3 weeks, but likely would have taken longer. As a result of that advice, Nuix would have later issued a cleansing notice;

    c.the Board needed to approve the issuance of Mr Sheehy’s shares, which would not have occurred prior to its scheduled meeting on 18 March 2021 (and may have occurred at a later time, if legal advice was delayed); and

    d.it would have taken at least 27 business days (and very possibly longer) after Board approval for Nuix to complete the process required for the shares to be issued, quoted on the ASX and transferred such that they were available for trading by Mr Sheehy.

    Sale of the Shares

16. Nuix submits that Mr Sheehy would have held on the Shares for at least 12 months given: (a) the significant capital gains tax liability that would otherwise arise; (b) Mr Sheehy’s previous concerns about the taxation implications of any exercise of the 2008 Options; (c) the need to minimise blockage discounts; (d) Mr Sheehy had no real reason to believe that the Nuix share price would decline; (e) the evidence of Mr Sheehy that he would have sold the Shares as soon as possible is inevitably infected by hindsight bias; and (f) the decision by Mr Sheehy not to exercise his options until 27 January 2021, rather than at the time of the IPO, is inconsistent with his stated desire to sell the Shares as soon as possible.

17. Nuix makes the following further submissions if the Court is not persuaded that Mr Sheehy would have held on to the Shares for at least 12 months and if Scenarios 4 and 5 were not accepted by the Court.

18. First, Scenario 1 can readily be dismissed given Mr Sheehy’s evidence concerning when he would have sold the Shares in the absence of any dispute with Nuix.

19. Second, Scenario 3 is more probable than Scenario 2 because of the time it would take Nuix to issue the Shares following the exercise of the 2008 Options by Mr Sheehy on 27 January 2021.

20. Third, in both Scenario 2 and Scenario 3 a two month rather than a one month sale period is more appropriate.

21. As to Scenario 2, a two month sale period was more appropriate given (a) the unrealistic assumed start date of 28 January 2021 for the sale of the Shares given the steps that Nuix would have to take before the Shares were issued; (b) the experts’ agreed that the volume of Nuix shares traded in the month following 27 January 2021 was relatively low; and (c) it was inherently unlikely that institutional investors would have had much interest in acquiring large blocks of shares from a former Nuix CEO in the month leading up to the release of the half year results of Nuix.

22. As to Scenario 3, a two month sale period was more appropriate given the experts’ agreement that the interest of institutional investors would have declined after the release of Nuix’s half year results.

    Blockage discounts

23. Nuix submits that while both experts were able to agree on a range of blockage discounts for the Scenarios that they considered, Mr Potter, unlike Ms Planinic, was also able by reference to matters of degree also express an opinion, supported by cogent reasoning, as to which end of the range might be applicable.

24. It submits that Ms Planinic in adopting a mid-point for each blockage discount range had turned her mind to the appropriate range of discounts, not individual factors that would suggest that particular points within each range were more likely than other points.

25. Nuix submits that it is not exceptional and logically consistent for Mr Potter to have relied on the same matters to determine an appropriate range of blockage discounts and to determine where in that range the most probable discount lay.

    Consideration

    Exercise of the Remaining 2008 Options

26. I am satisfied that Mr Sheehy would have exercised the Remaining 2008 Options on 27 January 2021 irrespective of whether there had been any dispute with Nuix about his entitlements under the 2008 Option Agreement.

27. The evidence given by Mr Sheehy in the course of his cross-examination about when he would have exercised the Remaining 2008 Options in the absence of any dispute with Nuix needs to be carefully scrutinised.

28. Mr Sheehy initially provided the following explanations:

    I would have preferred to exercise [the options] when the IPO happened. We were just informed by Nuix’s lawyers that there – that was not going to be allowed. So that’s actually the date when – or the first time I would have wanted to exercise them first”.

    …

    My first preference would have been to do it [exercise the options] in early December 2020, and then we decided to do it in a more formal way in January 2021”.

29. The cross-examiner then returned to the likely timing of the exercise of the Remaining 2008 Options in the following exchange with Mr Sheehy:

    Mr Sheehy, you ultimately issued a notice of exercise in relation to your options; correct?---Correct.

    And you did that at the end of January 2021; correct?---Correct.

    And what I’m seeking to have you accept is that, absent the dispute with Nuix, you would have issued a notice of exercise in relation to your options at around the same time?---Correct.

    That is, some time towards the end of January, 2021; correct?---Sorry, I didn’t understand your previous question. My first preference would have been to do it in early December 2020, and then we decided to do it in a more formal way in January 2021.

30. After a series of questions that were objected to and rejected and an unresponsive answer from Mr Sheehy, Mr Darke then continued pressing Mr Sheehy as to when he would have exercised the Remaining 2008 Options in the absence of any dispute with Nuix:

    MR DARKE: I was asking you to explain, Mr Sheehy, why the fact – why you say the fact of the dispute between you and Nuix meant that you exercised your options later than you would have preferred to?---Nuix through Gilbert + Tobin told me –sorry, told me that I – they disputed my options were exercisable. In January, the share price of Nuix went – skyrocketed, and we thought it was a really good idea to exercise them as quickly as we could because we – you know, I – I really didn’t want to be a shareholder or an option holder in Nuix once the first results came out.

    Mr Sheehy, you commenced these proceedings on 26 October 2020; correct?---Correct.

    That was prior to the IPO. Correct?---Correct.

    And at that time, the only issue between you and Nuix was whether your 450,000 options entitled you to 22 million-odd shares; correct?---That’s what I understood.

    Yes. And were you sufficiently certain of your position in that regard to commence these proceedings in late October 2020; correct?--- Correct.

    On 20 November 2020, your lawyers wrote to Nuix lawyers asserting that your options were exercisable and that you intended to exercise them. Do you recall that?---Yes.

    And, again, at that time, 20 November 2020, you were sufficiently certain of your position on that issue to give your lawyers instructions to send that letter?---Correct. And on 18 December 2020, you served on Nuix your statement of claim in these proceedings, alleging that the IPO was the sale of the business of Nuix for the purposes of the 2008 option agreement. Correct?---Correct.

    I will hand up a copy of that document to you. If you go through to paragraph 8, you 5 see that you allege there that on the proper construction of the option agreement, the sale of Nuix – the respondent’s business would occur where there was an initial public offering on the ASX?---Mmm.

    And then if you travel through, please, to paragraph 24. You say that on 2020 – on 10 20 November 2020, your solicitors informed Nuix’ solicitors that you intended to exercise your options and that you expected to receive 22 million shares. Do you see that? And then, paragraph 25, you record the response of Nuix through its solicitors. Do you see that?---Yes.

    And then in paragraph 32, you allege that a sale of the respondent’s businesses for the purposes of the 2008 option agreement occurred either, in passing down to paragraph B, as a result of the IPO. B, as a result of Macquarie ceasing to hold more than 50 per cent of the issued shares in the respondent following the IPO or D, as a result of more than 50 per cent of the issued shares in the respondents coming to be 20 held by new investors in shares of the respondent following the IPO. Do you see that?---I do.

    And if you go down to paragraph 34, you allege, don’t you, that the denial by Nuix of your asserted right to exercise the options by reason of a sale of business was a 25 breach of the option agreement?---Correct.

    You were sufficiently certain by 18 December 2020 of your position on all of those matters to give instructions for this statement of claim to be served; correct?---Correct.

    Nothing more was needed, from your perspective, to decide to exercise your options at that time; correct?---Correct.

    But if you wanted to exercise your options, you could have done so at any time from at least 18 December 2020; correct?---Subject to the IPO actually occurring.

    Well, the IPO had occurred by that time, hadn’t it?---You said November. I think it actually happened on 5 December.

    I do apologise if I misspoke, Mr Sheehy. That happens often and it’s always entirely my fault. So my apologies. You had everything you needed by the time this statement of claim was served on 18 December 2020 to decide to seek to exercise your options; correct?---Correct.

    But you didn’t do so until 27 January 2021; correct?---Correct.

    And you would have waited until 27 January 2021 to exercise your options even if there had been no dispute with Nuix; correct?---Correct.

31. I do not accept, contrary to the position advanced by Mr Sheehy that the last answer he gave above could be explicable on the basis that it was the result of a misunderstanding of the question he was asked. The question was the culmination of a structured and careful line of questioning designed to challenge the earlier evidence given by Mr Sheehy as to the relevance of the dispute with Nuix as to when he would have exercised the Remaining 2008 Options.

32. Further, I do not accept that the right to exercise a call option can be construed as an obligation to issue a notice of exercise of an option and to tender the exercise price for the purposes of the dispensation with the performance principle stated by Brennan J in Foran. It is important to focus on substance not form in distinguishing between rights and obligations. Mr Sheehy was under no obligation to exercise the Remaining 2008 Options, they were call options. I do not accept that it is permissible to in effect recast a right as an obligation by characterising a right to exercise a call option as a right that is contingent on an obligation to deliver a notice of exercise and to tender the exercise price. Mr Sheehy was no more under an obligation to deliver a notice of exercise and to tender the exercise price than he was to exercise the option. Nor is it possible to discern any material distinction between a right to exercise an option and a right to have shares issued in a company if a call option is exercised. The right can only be enlivened by the delivery of a notice of exercise and the tender of the exercise price.

33. Moreover, the present case is not analogous to the position in Foran. In that case the purchaser was contractually under an obligation to attend settlement and pay the purchase price, Mr Sheehy had no contractual obligation to exercise the Remaining 2008 Options.

    Issue of the Shares

34. I accept that it is likely given the terms of the Consent Judgment, the extent of the dilutive impact on other Nuix shareholders of the exercise of the Remaining 2008 Options and the complexity and significance to Nuix of quoting in excess of 6% of its share capital on the ASX, that Nuix would have sought legal advice on most, if not all, of the following matters identified by Mr Egan in paragraph 15 of his affidavit, prior to issuing the Shares:

    (a)whether it was open to the company to issue the shares sought by Mr Sheehy in accordance with the ASX Listing Rules, the Corporations Act and any particular obligations assumed by the company during the course of the IPO;

    (b)whether, having regard to the terms of the grant of the Options, the Notice was a valid exercise and that the company was obliged to issue the claimed 22,663,650 shares in return for the number of options Mr Sheehy held;

    (c)the procedural steps that would have been necessary to cause the options register to be amended and the issuance of shares to occur (including any steps that would be necessary to be taken with ASIC and/or the ASX and whether such an issuance may require shareholder or other approvals);

    (d)the appropriate approach to engaging with the ASX in relation to the potential quotation of the shares, particularly having regard [to the ASX discretion to determine whether or not to quote an entity’s securities on the ASX in the context of the principle that securities “should be issued in circumstances, and have rights and obligations attaching to them, that are fair to new and existing security holders”];

    (e)whether there was any limitation on the company’s ability to issue the shares, including because of the company’s 15% placement capacity and whether there would be any need to seek shareholder approval for the issuance;

    (f)whether the company was in a position to give the requisite representations set out in Appendix 2A of the ASX Listing Rules to obtain ASX approval for the quotation of the shares (if issued), in particular, whether the possibility of Mr Sheehy selling the issued shares resulted in the company having to give notice under 708A of the Corporations Act (Cleansing Notice) in order to obtain such approval;

    (g)if a Cleansing Notice was required, the requirements necessary to issue the Cleansing Notice, including any requirements as to timing and the warranties and disclosures required to be given by the company under the relevant provision;

    (h)whether there were any restrictions on the company’s ability to issue shares arising from the Nuix Prospectus or the arrangements it made with underwriters of the IPO; and

    (i)any market disclosure requirements that may have been associated with the potential issuance of the shares.

1. I do not accept, however, that the decision to obtain legal advice on these matters could not be made until the next scheduled board meeting of Nuix on 25 February 2021. It is inherently implausible, given the self-evident significance and complexity of the exercise of the Remaining 2008 Options and any subsequent issue of the Shares that it would not have been considered necessary for Nuix to obtain the legal advice. If the current CEO of Nuix or Mr Egan did not believe that they had sufficient authority to seek the advice, informal board consultation could have addressed any concerns as to authority or alternatively formal approval could be expected to have been readily obtained pursuant to a circular board resolution. This could have been done well before 25 February 2021.

2. I otherwise accept the unchallenged evidence of Mr Egan that it would take two to three weeks to obtain advice on these legal issues, I note this advice did not impermissibly include advice on whether Nuix was contractually obliged to accept the exercise of the Remaining 2008 Options, given the evidence proceeded on the assumption that Mr Sheehy was entitled to exercise the Remaining 2088 Options.

3. On balance, I am also satisfied that Nuix board approval was required for the issue of the Shares.

4. Clause 5(a) of the Nuix constitution provides that:

   Subject to the Applicable Law and any rights and restrictions attached to a class of Shares or other securities, the Company may by resolution of the Board issue Shares, options to acquire Shares, and other securities with rights of conversion to Shares on any terms, to any person, at any time and for any consideration, as the Board resolves.

5. An option to acquire shares is distinct from the issue of shares. It gives rise to a contractual obligation on the part of the company to issue the shares but is not an issue of shares. Clause 5(a) of the Nuix constitution makes plain that the company may issue shares by resolution of the Board. A resolution to issue options to acquire shares does not extend to an issue of shares pursuant to an exercise of an option.

6. I am also satisfied that prior to issuing the Shares, Nuix would have undertaken the following steps identified by Mr Egan in paragraph 20 of his affidavit, most of which were directed at complying with the formal requirements of the ASX, in particular the issue of a cleansing notice pursuant to s 708A(5) of the Corporations Act:

   a)caused the personal cheque provided by Mr Sheehy and enclosed with the Notice to be processed. I am advised it can take around 2 to 3 business days for a personal cheque to be deposited with Nuix’s bank and then for Nuix to obtain confirmation that the relevant funds had been cleared;

   b)assuming the cheque cleared, seek to cause the options register to be updated to reflect the terms of the Notice which I estimate would have taken around 2 business days;

   c)prepare the necessary disclosure form required under the ASX Listing Rules in respect of the issuance of any shares to be issued and cause that to be sent to the ASX, which I estimate would have taken around 2 business days;

   d)conducting initial discussions with the ASX, preparation of information for ASX to consider including from the perspective of whether the proposed quotation of shares is fair to new and existing security holders and receive ASX determination, which I expect would have taken around 10 business days given the short time that had elapsed between the issuance and the Nuix IPO and the likelihood that the ASX would have required some time to consider the application and potentially seek any necessary additional information or clarifications;

   e)subject to the ASX determination, prepare the necessary disclosure form required under the ASX Listing Rules in respect of the issue and quotation of any shares to be issued and cause that to be sent to the ASX, which I estimate would have taken around 2 business days;

   f)if required, undertake the process to prepare a Cleansing Notice including by conducting due diligence with respect to that statement and the representations provided in Appendix 2A, and seek Board sign off on that cleansing statement, which I estimate would have added at least 10 business days to the process outlined above and could have been completed concurrently with other steps; and

   g)seek to cause the share register to be updated to reflect issue of Shares which I estimate would have taken around 2 business days given the need for me to liase with Nuix’s share register, Link and then obtain their confirmation that the register had been amended.

7. Mr Egan also gives unchallenged evidence in paragraph 21of his affidavit that as the Shares would have been issued on an SRN (an issuer sponsored account), Mr Sheehy would need to have the Shares transferred to a HIN (a broker sponsored account), which would take about 5 business days and include the posting of a holding statement required for completion.

8. Given his experience as a company secretary and the specific responsibilities he has had as the company secretary of Nuix since October 2020, I accept the unchallenged evidence of Mr Egan that it would have taken no less than 17 business days for the Shares to have been issued, quoted and transferred to a broker sponsored account and a further 10 business days for the preparation and issuing of a cleansing notice. That estimate of 27 business days was made by Mr Egan on the basis that the steps that he had identified were necessary to be undertaken, with the exception of the cleansing notice, could have been undertaken concurrently with the following steps, (a) clearance of Mr Sheehy’s cheque accompanying the notice of exercise of option (2 to 3 business days), (b) discussions with and provision of information to the ASX (10 days) and (c) the transfer of the Shares from an issuer sponsored account to a broker sponsored account (5 days).

9. Given my findings above, I have concluded that the most probable approximate start date for the sale of the Shares would have been 6 April 2021. That conclusion is based on the following timeline:

   (a)27 January 2021 – receipt of notice of exercise of the Remaining 2008 Options;

   (b)17 February 2021 – request and receipt of necessary legal advice (this is allowing 3 weeks rather than 2 weeks in order to accommodate any additional time to confirm that advice should be sought);

   (c)25 February 2021 – scheduled board meeting of Nuix at which the Board approved the issue of the Shares to Mr Sheehy pursuant to the exercise of the Remaining 2008 Options; and

   (d)6 April 2021 – issue of the Shares to Mr Sheehy, after allowing 27 business days (bearing in mind Easter public holidays) for the completion of the consequential steps identified by Mr Egan for the issue of the Shares.

   Sale of the Shares

   Retention of the Shares

10. I am satisfied that Mr Sheehy would have sought to sell the Shares as soon as possible. I do not accept that it is equally likely that he would have retained the Shares for at least 12 months or that he would not have acted with urgency to sell them.

11. It is of course always necessary to pay close regard to the inherent risk of hindsight bias in considering evidence of what a person may have done in different circumstances. I am not persuaded, however, that this provides a compelling basis not to accept Mr Sheehy’s evidence that he would have sought to sell the Shares as soon as possible given his concerns about the financial position of Nuix. Objectively, the significant deterioration in the financial position of Nuix was apparent as early as the release of its half year financial results in February 2021. Mr Sheehy may not have worked for Nuix for some four years by that time, but given this publicly available information and his knowledge of the business of Nuix that he had acquired as the CEO of Nuix, I accept that Mr Sheehy was in a positon to make a relatively considered assessment of the likely future prospects of the Nuix business. I accept his evidence that at he had formed the view, as he stated in re-examination, that the current board of Nuix was “selling the market vapour” given the announcements of unrealistic growth rates and that the share price of Nuix was “about to go off a cliff”.

12. I accept that the exposure to a significant capital gains tax liability if the Shares were not held for at least 12 months, Mr Sheehy’s previous concerns about the taxation implications of any exercise of the 2008 Options and the desirability of pursuing a gradual sale of the Shares to reduce the impact of blockage discounts would likely have been significant matters for Mr Sheehy to take into account. I do not accept, however, that weighed against his concerns about the likely future prospects of the Nuix business, they would cause him not to sell the Shares as soon as possible.

    Blockage discounts

13. I do not accept that it is double counting to take into account matters for the purpose of both identifying a range of blockage discounts and then determining a most likely point within that range. There is inevitably a significant degree of imprecision in the identification of blocking discounts that might arise if large parcels of shares are sought to be sold in a compressed time frame. It is not the case that if a range of likely blockage discounts is identified that it is equally likely that the most probable blockage discount is likely to be the mid-point of the range or that it is equally likely to be higher or lower than the mid-point.

14. In some circumstances, it may be the case that the most probable blockage discount might be the mid-point of the range, but in other cases an expert might well from the view that the most probable blockage discount would be at the lower or the higher end of the range. The objective matters taken into account by Mr Potter in determining a range of probable blockage discounts included the average volume of shares traded in Nuix, movements in the Nuix share price of Nuix and the anxiety of Mr Sheehy to sell the Shares. It is the relative degree or size of that data or concerns that may, as in the case of Mr Potter, inform a determination of a most probable point within a range of probable blockage discounts. In this regard the following opinions of Ms Planinic as recorded in the table in paragraph 21 of the Joint Expert Report with respect to the blockage discounts for Scenarios 2 and 3 are particularly apposite:

    (a)with respect to Scenario 2;

    Ms Planinic effectively adopts the mid point of the range (i.e. 15.0%) however acknowledges that if the sale period is extended to 2 months and the shares were not sold prior to the announcement of the half-year results then due to declining prices Mr Sheehy is likely to be a more anxious seller and the discount would move to the higher end of the range.

    (b)with respect to Scenario 3;

    Ms Planinic effectively adopts the mid point of the range (i.e. 17.5%) however acknowledges that if the sale period is extended to 2 months then due to declining prices Mr Sheehy is likely to be a more anxious seller and the discount would move to the higher end of the range.

15. I am otherwise satisfied that the blockage discount applied by Mr Potter for Scenarios 4 and 5 is appropriate. Both Scenarios 4 and 5 envisaged a sale of the Shares after the substantial continuing decline in the Nuix share price after the release of the poorly perceived results announcement on 26 February 2021. When this decline is combined with an extended likely sale period of 2 months, I accept that it would be appropriate for the blocking discount to be assessed at the higher end of the agreed blocking discount range for both Scenarios 4 and 5. Further, I note that the average daily trading in Nuix shares was relatively stable for each month from March 2021 to June 2021, fluctuating between a low of 3,881,711 in April 2021 and a high of 6,362,368 in June 2021. These volumes of Nuix shares represented between 17.13% and 28.07% of the postulated 22,630,650 Shares that would have been issued to Mr Sheehy had his exercise of the Remaining 2008 Options been accepted by Nuix.

    Most probable Scenario

16. I am satisfied that the Scenario that would best reflect the probable value of the Shares is Scenario 4. The commencement date of 12 April 2021 for that scenario is the closest commencement date to the date that I have determined would have been the most probable approximate date by which the Shares would have been issued to Mr Sheehy.

17. I am also satisfied that a two month sale period, rather than a one month sale period, would have been necessary in order to reduce the impact of blockage discounts given the size of the bundle of shares that Mr Sheehy would be seeking to sell in a short period of time and in the wake of the negative impact that the release of the half year financial results of Nuix had on its share price.

18. It follows that the damages or compensation that would have been awarded to Mr Sheehy, had he otherwise been successful in the proceedings, would be calculated having regard to Mr Potter’s valuations for Scenario 4A and 4B. In order to determine a final net figure it would be necessary to deduct the exercise price and related sale costs and determine whether the assumptions underpinning Option A or Option B were the more appropriate assumptions to make.

    DISPOSITION

19. For the foregoing reasons, the amended originating process is to be dismissed.

20. The parties will be given an opportunity to make short submissions on costs. In the absence of an agreed position on costs, the costs of the proceedings will be determined on the papers, unless a party seeks an oral hearing.

I certify that the preceding four hundred and fifty-seven (457) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

Associate:

Dated:       7 February 2023