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
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
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
Bofinger v Kingsway Group Pty Ltd (2009) 239 CLR 269; [2009] HCA 44
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- AGLC
- Sheehy v Nuix Pty Ltd [2023] FCA 56
- Case
- [2023] FCA 56
- Decision Date
CaseChat Overview and Summary
The court found that Mr Sheehy was precluded by the doctrine of Anshun estoppel from pursuing his claims. The Anshun estoppel applied because Mr Sheehy had previously sought and obtained a declaration in the 2018 Proceedings that his share options were exercisable, and he had not appealed that decision. The court also determined that while an implied term regarding the adjustment of the conversion ratio between options and shares in the event of a share split was necessary to give business efficacy to the 2008 Option Agreement, there had been no breach of that agreement as there had been no sale of Nuix's business. Additionally, the court found that Nuix's conduct in not accepting Mr Sheehy's notice to exercise his options was neither oppressive nor unconscionable.
The court dismissed the amended originating process brought by Mr Sheehy against Nuix. The parties were directed to provide agreed or competing orders for costs within 14 days of the orders, with the opportunity for an oral hearing if necessary.
This case highlights the complexities of share option agreements and the estoppel doctrines that can preclude parties from advancing certain claims in subsequent litigation, particularly where the issues have already been determined in prior proceedings.
Orders
Orders of the court
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]
Background
Background to the litigation
Evidence
Evidence Before The Court
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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. 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. 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. 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.EVIDENCEMr Sheehy