United Petroleum Australia Pty Ltd v Herbert Smith Freehills - [2018] VSC 347

THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2017 00202

UNITED PETROLEUM AUSTRALIA PTY LTD & ORS	Plaintiffs
v
HERBERT SMITH FREEHILLS (A FIRM) & ANOR	Defendants

S CI 2017 00237

HERBERT SMITH FREEHILLS (A FIRM)	Plaintiff
v
UNITED PETROLEUM AUSTRALIA PTY LTD & ANOR	Defendants

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JUDGE:	ELLIOTT J
WHERE HELD:	Melbourne
DATES OF HEARING:	26-29 March, 9-12, 16-19, 23, 24, 30 April, 1, 3 May 2018
DATE OF JUDGMENT:	26 June 2018
CASE MAY BE CITED AS:	United Petroleum Australia Pty Ltd v Herbert Smith Freehills
MEDIUM NEUTRAL CITATION:	[2018] VSC 347	1^st Revision: 19 September 2018

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LEGAL PRACTITIONERS – Duties of solicitors – Fiduciary duties – Proposed initial public offering – No breach of duties – Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015, 9, 10, 11, 12; Wrongs Act 1958 (Vic) ss 48, 58.
CORPORATIONS – Directors’ duties – Due diligence process – Lack of information from company management – Non-executive directors – No breach of duties – Corporations Act 2001 (Cth) ss 180, 181, 182, 183, 1317S, 1318.
CORPORATIONS – Securities – Fundraising provisions – Misleading and deceptive statements, omissions and new circumstances – Draft prospectus – Whether appropriate to release to analysts – Corporations Act 2001 (Cth) ss 728, 729, 731, 732, 733.
CONTRACT – Conditional agreement – Applicable costs agreement – Terms of the retainer – Whether subsequent retainer may be entered into by “continuing to instruct” – Application of a provision for uplift, downlift or maintenance of 100 percent of legal fees.
DEBT – Proceeding to recover unpaid legal fees – Entitlement to interest – Calculation of interest – Legal Profession Uniform Law (Vic), s 195(1); LegalProfession Uniform General Rules 2015, r 75.
CIVIL PROCEDURE – List of real issues in dispute – Pleadings – Civil Procedure Act 2010 (Vic), s 7.

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APPEARANCES:	Counsel	Solicitors
In proceeding S ECI 2017 00202
For the Plaintiffs	Mr A Myers QC with Mr M Wyles QC, Ms G Gray and Mr T Barry	Gilbert + Tobin
For the 1^st Defendant	Mr P Crutchfield QC with Mr D Fahey	Clyde & Co
For the 2^nd Defendant	Mr J Slattery with Mr W Newland	Wotton Kearney
In proceeding S CI 2017 00237
For the Plaintiff	Mr P Crutchfield QC with Mr D Fahey	Herbert Smith Freehills
For the Defendants	Mr A Myers QC with Mr M Wyles QC, Ms G Gray and Mr T Barry	Gilbert + Tobin

TABLE OF CONTENTS

A.. Introduction.................................................................................................................................. 1

B.. The key persons............................................................................................................................ 3

B.1... United.................................................................................................................................... 3
B.2... Non-executive Directors..................................................................................................... 5
B.3... The Lead Managers............................................................................................................. 7
B.4... KPMG.................................................................................................................................... 8
B.5... Freehills................................................................................................................................. 9

C.. Background................................................................................................................................. 10

C.1... The first attempt................................................................................................................. 10
C.2... The second attempt........................................................................................................... 11
C.3... The third attempt............................................................................................................... 11

D.. Final foundation for the Public Offering.............................................................................. 12

D.1... Pre-incorporation............................................................................................................... 12
D.2... Matters formalised............................................................................................................. 15
D.3... Warning signs.................................................................................................................... 17
D.4... Early October 2016............................................................................................................. 24
D.5... Work intensifies................................................................................................................. 31
D.6... Still no satisfactory progress on financials..................................................................... 36
D.7... Updated timetable............................................................................................................. 38
D.8... Hudson demands reasonable time to review................................................................ 40
D.9... Daily meetings and further drafts................................................................................... 41
D.10. Thursday 20 October 2016................................................................................................ 49
D.11. Friday 21 October 2016..................................................................................................... 57
D.12. Saturday 22 October 2016................................................................................................. 71
D.13. Sunday 23 October 2016................................................................................................... 88
D.14. The aftermath................................................................................................................... 113
D.15. More recent events.......................................................................................................... 127

E... The conduct of the trial........................................................................................................... 129

F... Issues for determination – Freehills..................................................................................... 132

F.1... Was it the 2014 or 2016 engagement agreement that applied to Freehills’ engagement? 132
F.2... Given the terms of the engagement agreement, is United entitled to a 25 percent discount on Freehills’ fees?.................................................................................................................. 136
F.3... If the court concludes that the 22 August 2016 letter contains the relevant terms of the discount arrangement, and that United were not entitled to a 25 percent discount, then did Freehills breach its fiduciary duties by relying upon the 22 August 2016 letter to the detriment of United and failing to advise United of the consequences of the 22 August 2016 discount arrangement to United on or before 23 October 2016?.............................. 136
F.4... Did Levy and Ziegelaar, by their silence in respect of the discount arrangement, engage in misleading or deceptive conduct?................................................................................. 136
F.5... If the discount on Freehills’ fees is not applicable, has United suffered loss or damage?............................................................................................................................................ 137
F.6... Is Freehills entitled to interest on the various invoices the subject of its claim?.... 137
F.7... Did the conversations as alleged in paragraphs 17A, 17B, 19 and 21 of the United Statement of Claim occur?................................................................................................................ 139
F.7.1... Paragraph 17A..................................................................................................... 139
F.7.2... Paragraph 17B...................................................................................................... 140
F.7.3... Paragraph 19......................................................................................................... 140
F.7.4... Paragraph 21......................................................................................................... 142

F.8... Did Ziegelaar on behalf of Freehills represent to each of the United Parties that Freehills would provide and was providing all necessary legal services and advice to facilitate the Public Offering completing by Christmas 2016?......................................................... 142
F.9... Did Freehills, pursuant to its retainer, have legal obligations to each of the United Parties to perform the work alleged in paragraph 24 of the United Statement of Claim?..... 142
F.10. Did Freehills, in particular Ziegelaar, at all material times in the period June to October 2016, have a duty to perform the matters alleged so as to facilitate the completion of the Public Offering before Christmas 2016?................................................................................... 148
F.11. Did Freehills owe fiduciary obligations to each of the United Parties as alleged? 157
F.12. Did Ziegelaar breach the fiduciary duties alleged to be owed by Freehills?.......... 157
F.13. Were the financials for the draft prospectus behind schedule by reason of the matters alleged by Freehills?...................................................................................................................... 158
F.14. By 1.24 pm on 22 October 2016, was it unlikely that the financials would be completed and verified in sufficient time to enable United Holdings directors and advisers to have sufficient opportunity to approve the release of the final draft prospectus by 24 October 2016, as Freehills alleged?............................................................................................................. 159
F.15. Were the financials not completed by 3.00 pm on 23 October 2016, as Freehills alleged?............................................................................................................................................ 160
F.16. Alternatively to F.15, were the financials not completed and verified in sufficient time prior to 3.00 pm on 23 October 2016 to enable United Holdings directors and advisers to have sufficient opportunity to approve the release of the final draft prospectus by 24 October 2016, as Freehills alleged?......................................................................................................... 160
F.17. Was a decision made by Hudson or anybody else that the Public Offering could not proceed before Christmas 2016? When was that decision made?.......................................... 160
F.18. Were the Founders informed by Hudson at about 3.00 pm or 3.30 pm on 23 October 2016 that the directors would not agree to the Public Offering proceeding until March or April 2017?.................................................................................................................................. 161
F.19. Did Freehills or Ziegelaar breach duties owed by reason of the matters alleged in the United Statement of Claim?........................................................................................................ 161
F.20. Would reasonable solicitors in the position of Freehills and Ziegelaar be reasonably expected, within the meaning of ss 48 and 58 of the Wrongs Act 1958 (Vic), to perform the matters identified in the United Statement of Claim?................................................ 168
F.21. Would the consequences identified in the United Statement of Claim have occurred if Ziegelaar had performed the duties and acted as a reasonable solicitor in the circumstances set out?............................................................................................................................... 168
F.22. Did Freehills and Ziegelaar know, or ought they reasonably to have known, the matters identified in the United Statement of Claim?.............................................................. 172
F.23. Did the United Parties suffer the loss and damage alleged in the United Statement of Claim in consequence of Freehills’ failure to perform the duties alleged?......................... 174
F.24. Did Freehills, and in particular Ziegelaar, act in wrongful breach of the terms of the engagement agreement as alleged in the United Statement of Claim?................... 178
F.25. Did the United Parties suffer loss and damage as a result of any breach as alleged? 178
F.26. Did the United Parties fail to mitigate their loss as alleged?.................................... 178
F.27. Must any loss or damage be reduced by the United Parties’ concurrent wrongdoing or contributory negligence?................................................................................................ 179
F.28. Does the liability cap as alleged by Freehills apply?.................................................. 179
F.29. Are the United Parties, or any of them, entitled to set off against any order made against them in the Fees Proceeding, their claim for damages against Freehills in the negligence proceeding?...................................................................................................................... 179

G.. Issues for determination – Hudson...................................................................................... 179

G.1... Statutory provisions and relevant principles.............................................................. 179
G.1.1.. Section 180 – care and due diligence................................................................ 181
The business judgment rule............................................................................... 184
Requirements of the business judgment rule................................................. 185

G.1.2.. Section 181(1)(a) - good faith and best interests............................................. 186
Bestinterests of the company........................................................................... 186
In good faith........................................................................................................ 187

G.1.3.. Section 181(1)(b) - proper purpose.................................................................... 189
G.1.4.. Section 182 - not to gain an advantage or to cause a detriment.................... 190
Purposerequired................................................................................................ 190

G.1.5.. Section 183 - no improper use of information................................................. 191
G.1.6.. Sections 728 to 733 – fundraising....................................................................... 192
G.1.7.. Sections 1317S and 1318 – relief......................................................................... 193

G.2... Did Hudson know, by reason of his position as chairperson of United Holdings, or ought he to have known that, in the circumstances set out in the United Statement of Claim: 194
(1)....... It was in the best interests of United Holdings to complete the Public Offering by Christmas 2016 and to do so to approve the release of the Pathfinder at the board meeting scheduled for 23 October 2016?.......................................................... 194
(2)....... If the release of the Pathfinder to analysts was not approved at the board meeting scheduled for 23 October 2016, the Public Offering could not proceed to completion before Christmas 2016?....................................................................................... 194
(3)....... If the Public Offering did not proceed in 2016, it was likely that United Holdings would not achieve a Public Offering for a considerable time thereafter, if at all? 194
(4)....... There was no basis to rationally believe that it was in the best interests of United Holdings to not approve the release of the Pathfinder at the board meeting scheduled for 23 October 2016?............................................................................................ 194

G.3... Did Hudson breach each of his duties under ss 180, 181(1)(a), 181(1)(b), 182 and 183 of the Corporations Act owed to United Holdings by:........................................................... 203
(1)....... Failing to circulate the Script Email to the Founders, as executive directors of United Holdings, Brinkworth as chief executive officer of United Holdings, and Slack-Smith as a Non-executive Director of United Holdings, upon receipt of that email from Ziegelaar?.............................................................................................................. 203
(2)....... Failing to inform the Founders, Brinkworth and Slack-Smith (in the same capacities) by no later than the morning of 22 October 2016 that he had “serious concerns about giving the prospectus to analysts, and presenting to them on 24 October 2016? 203
(3)....... Failing to inform each of the Founders, Brinkworth and Slack-Smith (in the same capacities) by no later than the morning of 22 October 2016 that Hudson thought the Public Offering was about a week behind where it should be?................... 203
(4)....... Failing to inform each of the Founders, Brinkworth and Slack-Smith (in the same capacities) by no later than the morning of 22 October 2016 that Hudson was not comfortable to sign off on the financials and considered that he had not sufficient time to get comfortable enough to give the financials to the analysts?................ 203
(5)....... Failing to inform each of the Founders, Brinkworth and Slack-Smith (in the same capacities) by no later than the morning of 22 October 2016 that Hudson was not comfortable to sign off on the financials and considered United Holdings could not complete the Public Offering in 2016 and not before Christmas 2016?....... 203

G.4... Did Hudson breach each of his duties under ss 180, 181(a) and 181(b) owed to United Holdings by:..................................................................................................................... 205
(1)....... Failing to immediately convene a board meeting of United Holdings on 22 October 2016 to discuss each of the matters relied upon in the United Statement of Claim?................................................................................................................................ 205
(2)....... Refusing or failing to proceed with the board meeting scheduled to occur immediately after the meeting of the due diligence committee to be held at or about 3.30 pm on 23 October 2016, and thereby denying the Board the opportunity to approve and adopt the draft minutes prepared by Freehills for that board meeting, including the adoption of the resolution to distribute the Pathfinder to the analysts?................................................................................................................................ 205

G.5... Did the conduct of Hudson as alleged fall within the business judgment rule contained in s 180(2) and (3) of the Corporations Act?....................................................................... 206
G.6... If Hudson had performed each of his director’s duties and caused the Board to proceed with a board meeting scheduled to occur at approximately 3.30 pm on 23 October 2016, would each of the directors, including Hudson, have been compelled, in the proper performance of their duties to United Holdings, in the circumstances relied upon, to adopt the resolution and approve the release of the Pathfinder prospectus to the analysts.................... 207

G.7... Did Hudson’s decision not to release the draft prospectus to analysts on 24 October 2016 fall within the business judgment rule contained in s 180(2) and (3) of the Corporations Act?............................................................................................................................................ 207
G.8... Did a breach of Hudson’s director duties cause United Holdings loss or damage? 207
G.9... Have the United Parties failed to mitigate any loss by not proceeding with the Public Offering in the first half of 2017 or at any time after that?........................................ 208
G.10. Should Hudson be relieved, either in whole or in part of any liability he may otherwise have had to United Holdings pursuant to ss 1317S or 1318 of the Corporations Act?..... 208

H.. Other Matters............................................................................................................................ 208

I.... Conclusion................................................................................................................................. 230

I.1.... The Fees Proceeding........................................................................................................ 230
I.2.... The United Proceeding................................................................................................... 231

DEFINITIONS

DEFINED TERM	MEANING	PAR DEFINED
Antonie	Tim Antonie	29
Apson	Apson Pty Ltd (as trustee for the Apson Hirsch trust)	9
ASIC	Australian Securities and Investments Commission	71
Bajraszewski	Stephen Bajraszewski	33
the Board	The Founders, as executive directors, and the Non-executive Directors	66
Brinkworth	Gary Brinkworth	18
Burmeister	Mark Burmeister	33
Cattermole	Lyndsey Cattermole	64
Charles	Stephanie Charles	34
Cowan	Amanda Cowan	42
Credit Suisse	Credit Suisse (Australia) Ltd	32
Dickie	Laura Dickie	34
Earle	Andrew Earle	42
EBITDA	Earnings before interest tax depreciation and amortisation	93
Evans	Tristan Evans	33
the Fees Proceeding	Proceeding commenced by Freehills in January 2017	7
the Founders	Silver and Hirsch	4
Freehills	Herbert Smith Freehills (a firm)	7
Freehills’ Defence	Freehills’ defence to the United Statement of Claim	532
Hindle	James Hindle	39
Hirsch	Eddie Hirsch	4
Hudson	Martin Hudson	9
Kinlee	Kinlee Pty Ltd (as trustee for the Kinlee Silver trust)	9
Larsen	Peter Larsen	23
the Lead Managers	Morgan Stanley and Credit Suisse	32
Lennen	Adam Lennen	34
Levy	Rodd Levy	44
Mackinnon	Alex Mackinnon	42
Moen	Nicholas Moen	24
Mooney	Jim Mooney	20
Morgan Stanley	Morgan Stanley Australia Securities Ltd	32
the Non-executive Directors	Hudson, Antonie and Slack-Smith	29
O’Brien	Tom O’Brien	25
O’Connell	Neale O’Connell	21
Pathfinder	Draft prospectus to be provided to independent analysts	35
the Public Offering	Initial public offering scheduled for completion in December 2016	6
the Script Email	Email drafted by Ziegelaar setting out why he felt that United (or the due diligence committee and the Board) were not then in a position to proceed with the Pathfinder	280
Silver	Avi Silver	4
Slack-Smith	John Slack-Smith	29
Stockdale	Hayden Stockdale	19
Svinos	George Svinos	37
Szymczak	David Szymczak	22
United	United Australia and United Petroleum	7
United Australia	United Petroleum Australia Pty Ltd	7
United Holdings	United Petroleum Holdings Limited	9
the United Parties	United Australia, United Petroleum, United Holdings, Silver, Hirsch, Kinlee and Apson	9
United Petroleum	United Petroleum Pty Ltd	7
the United Proceeding	Proceeding, commenced in August 2017, in which the United Parties claim loss and damage by reason that the Public Offering did not proceed	9
the United Statement of Claim	the United Parties’ further amended statement of claim	447
United’s Offices	200 Hoddle Street, Abbotsford	111
Ziegelaar	Michael Ziegelaar	41

HIS HONOUR:

A. Introduction

The Corporations Act 2001 (Cth) contains provisions with respect to fundraising in order to protect the investment community.[1] Essentially, those provisions are there to seek to ensure that documents released to the market are complete, in the sense that they are accurate and contain no material omissions concerning the subject matter of the fundraising.
[1]Corporations Act, Part 6D, ss 710-742.

This case concerns the intended release of draft documents to independent analysts, as part of a complex process undertaken to list a private company on the Australian Securities Exchange in 2016. Experts were engaged to advise on the process. For a variety of reasons, documents prepared did not meet the recommended standard, and had not been checked and verified in accordance with established industry practise by the deadline set by the experts.

This is a paradigm case of independent directors being mindful of their responsibilities as directors in deciding not to approve the continuation of the process in 2016.

Avi Silver (“Silver”) and Eddie Hirsch (“Hirsch”) (together, “the Founders”) are successful business persons who, over more than 2 decades, established an independent fuel distribution business throughout Australia, which they continue to operate.

Having initially established a chain of stores in South Australia in 1993, the Founders expanded throughout Australia. The business evolved from conducting independent fuel retail outlets to a vertically integrated fuel distribution business. Essentially, the business acquires fuel from both domestic and international suppliers and transports it to its own terminals. Then, by means of third party transport or its own transport, the fuel is deposited at 9 fuel depots, and then transferred to the wholesale and retail outlets.

In late 2014, the Founders decided to make an initial public offering by which they would offer shares in a company (then yet to be incorporated) in which they would also hold substantial shareholdings. After various attempts, the Founders pursued an initial public offering with a scheduled completion date of 16 December 2016 (“the Public Offering”).

There are 2 proceedings that have been heard together. The first proceeding was commenced by Herbert Smith Freehills (a firm) (“Freehills”) in January 2017 (“the Fees Proceeding”). By the Fees Proceeding, Freehills sued for fees it claimed were outstanding. The defendants were United Petroleum Australia Pty Ltd (“United Australia”) and United Petroleum Pty Ltd (“United Petroleum”) (together, “United”). United counterclaimed in the Fees Proceeding, alleging they were entitled to a disappointment discount. It was further alleged that interest claimed by Freehills on invoices remitted to United was a penalty. Certain declarations were sought with respect to the disappointment discount, the fees and interest charged by Freehills, and certain alleged conduct of Freehills.

At trial in August 2017, United sought leave to amend their defence and counterclaim. Without going into detail, ultimately the trial was adjourned and a new proceeding was commenced, to be heard at the same time as the Fees Proceeding.

In the later proceeding, the plaintiffs are United Australia, United Petroleum, United Petroleum Holdings Limited (“United Holdings”), Silver and Hirsch, Kinlee Pty Ltd (as trustee for the Kinlee Silver trust) (“Kinlee”) and Apson Pty Ltd (as trustee for the Apson Hirsch trust) (“Apson”) (together, “the United Parties”).[2] The defendants are Freehills and Martin Hudson (“Hudson”), the former non-executive chairperson of United Holdings (“the United Proceeding”).
[2]The court was informed that there were “about” 9 companies in the “United Group”. When referring to the United Group, it is unnecessary to distinguish between United Australia, United Petroleum, United Holdings and the other companies within the United Group in these reasons.

The principal issues in the Fees Proceeding are quite narrow. There is no issue concerning the work performed by Freehills, or the amount charged for that work, subject to a dispute about the applicable retainer and its terms. United contends the terms of the retainer are to be found in an agreement made in 2014. Freehills alleges the operative agreement was reached in 2016. The fundamental difference between the 2 alleged agreements is whether Freehills’ fees ought to be the subject of a discount in circumstances where the Public Offering did not proceed.

By the United Proceeding, each of the United Parties claim loss alleged to have arisen by reason that the Public Offering did not proceed.

With respect to Freehills, it is alleged the Public Offering process ceased, on Sunday, 23 October 2016, because Freehills failed to perform its obligations and breached its duties, including by assisting the non-executive directors to bring the process to a halt. It is further alleged that Freehills failed to advise the Founders, or certain others, of certain matters by particular points in time.

As against Hudson, loss is claimed by reason that Hudson decided, either on 22 or 23 October 2016, not to proceed with further consideration and finalisation of documents required to be released to analysts with respect to the Public Offering.

For the reasons that follow:

(1)There will be judgment in favour of Freehills in the Fees Proceeding for the outstanding amounts claimed. The counterclaim will be dismissed.

(2) The United Proceeding will be dismissed.

B. The key persons

B.1 United

The Founders formed what Silver described as a partnership in 1980. They were engaged in business throughout the 1980s, and commenced the business now known as “United Petroleum” in approximately 1991.

Of the 2 Founders, Silver has taken more responsibility for financial matters. It was Silver who decided to commence the United Proceeding against Freehills and gave instructions accordingly. It has been Silver who has been conducting this litigation on behalf of the Founders.

Hirsch took a far less “hands-on” role with respect to preparation for the Public Offering. He basically relied on Silver to deal with the matters required for the Public Offering to be put in place.

The chief executive officer of United Holdings, Gary Brinkworth (“Brinkworth”), was not appointed to that position until 10 October 2016 (only 13 days before the last of the critical events which gave rise to this litigation). Immediately before this appointment, he was chief executive officer and managing director of Barristers Chambers Ltd, a position he had held since 2014. Brinkworth also had extensive Australian and international experience in retail and wholesale distribution, asset management, and retail and financial services, including 17 years with BP Oil.

Hayden Stockdale (“Stockdale”) was appointed, on an interim basis, as chief financial officer of United Holdings in May 2016, approximately 2 months before its incorporation. In 2016, Stockdale had 18 years’ experience as an investment banker and had been involved in approximately 40 to 50 initial public offerings. Stockdale had also been employed in senior financial roles in other large corporations. He was a partner at Goldman Sachs, where he ran the equity financing business for the natural resources sector, initially in Australia and then for Asia. Stockdale obtained undergraduate degrees with honours in law and commerce, and has a post-graduate diploma in applied finance and investment from the University of Melbourne.

Broadly speaking, with respect to the Public Offering, Stockdale took over from Jim Mooney (“Mooney”), who was the chief financial officer of United. Mooney had been appointed as United’s representative on the due diligence committee. Although different accounts were given as to why Mooney played a lesser role in relation to the Public Offering, the underlying fact is that from around May 2016, with Stockdale’s appointment, Mooney was less involved.

It was intended Stockdale would hold the position of chief financial officer until February 2017, when he was to be replaced by Neale O’Connell (“O’Connell”). O’Connell was employed full time elsewhere, and took no significant part in the events the subject of these proceedings.

David Szymczak (“Szymczak”) was the chief operating officer of United. He had worked at United for over 15 years in various roles. Prior to that time he had been employed by Shell Oil Company.

Peter Larsen (“Larsen”) was appointed senior general counsel and company secretary of United in July 2015. In September 2016, he was appointed group company secretary. As a corporate lawyer, Larsen had worked in the energy and resources sector over a number of years. Before that, Larsen worked in private practice, at the global law firm Ashurst. He holds a bachelor of laws (honours) and a bachelor of arts, both from Melbourne University. Larsen was the alternate for Mooney for meetings of the due diligence committee.

Nicholas Moen (“Moen”) was appointed as chief operating officer, for retail and strategy, in July 2016. Moen had previously worked for BP for 18 years. He ceased his involvement with United in around December 2016, after the decision not to proceed with the Public Offering had been made.

Tom O’Brien (“O’Brien”) was appointed as United’s chief executive officer in 2013, and established United’s permanent fuel trading operations in Singapore in 2016. O’Brien had extensive experience in the resources industry prior to joining United.

B.2 Non-executive Directors

In early 2016, Hudson was appointed as prospective chairperson of the soon-to-be-formed board of United Holdings. Upon its incorporation on 19 July 2016, he formally became chairperson and a non-executive director. He was not a member of the due diligence committee, but attended its meetings from time to time.

At the time of this appointment, Hudson had extensive commercial and legal experience.

From 1971 to 1995, Hudson was a partner of Freehills.[3] During that time, he was managing partner for the Melbourne office, chair of the Melbourne board and a member of the national board.
[3]A predecessor to the current firm.

In 1995, he left Freehills to join Pacific Dunlop Ltd to manage a piece of international product liability litigation with class actions in the United States, United Kingdom, Australia and Canada. In 2001, he joined Southcorp Ltd as company secretary and general counsel, ultimately becoming company secretary and general counsel of Foster’s Brewing Group in 2005. In 2007, he joined the board of NM Superannuation Pty Ltd, a trustee of the publicly listed AXA Australia Group’s superannuation funds. In 2009, Hudson left Foster’s Brewing Group and became a member of the board of Cleanaway Waste Management Ltd. He became chairperson of that publicly listed company in 2013, and resigned in 2016. Hudson also joined the board of AMP Superannuation Ltd upon AXA Australia Group being taken over. On the day of his appointment as chairperson of United Holdings, other non-executive directors were appointed, including Tim Antonie (“Antonie”) and John Slack-Smith (“Slack-Smith”) (the 3 non-executive directors together, “the Non-executive Directors”).

Antonie was a non-executive director of various other companies. His directorships included Premier Investments Ltd, Breville Group Ltd and Village Roadshow Group Ltd, all publicly listed companies. He also had many years’ experience in investment banking and corporate advice, having previously been managing director at UBS Investment Banking.

Slack-Smith was, and remains, the chief operating officer at Harvey Norman Holdings Ltd. Slack-Smith has worked for many years at Harvey Norman, including as an executive director for the last 17 years.

B.3 The Lead Managers

The joint lead managers for the Public Offering were Morgan Stanley Australia Securities Ltd (“Morgan Stanley”) and Credit Suisse (Australia) Ltd (“Credit Suisse”) (together, “the Lead Managers”).[4] Pursuant to their engagement, the Lead Managers agreed to provide the financial advice, analysis and assistance “customarily expected”, together with any additional assistance agreed in writing. Essentially their role was to manage the Public Offering process.[5]
[4]Initially UBS was also a lead manager, but its services were terminated by Silver in around late September 2016.
[5]For further details see par 100 below.

The managing director of equity capital markets for Morgan Stanley was Mark Burmeister (“Burmeister”). Burmeister was extensively involved in the preparation of relevant materials and critical discussions, and was a member of the due diligence committee, but was not called as a witness. Others involved from Morgan Stanley were Tristan Evans (“Evans”), vice president of the investment banking division and Stephen Bajraszewski (“Bajraszewski”), an analyst from the investment banking division.

The most senior person from Credit Suisse involved in the Public Offering was Adam Lennen (“Lennen”), who was the managing director of equity capital markets. Others involved from Credit Suisse were Laura Dickie (“Dickie”), vice president, Stephanie Charles (“Charles”), managing director of investment banking, and Harry Byrnes-Howe, an investment banking analyst. Charles was a member of the due diligence committee, with Lennen as her alternate.

The Lead Managers were not only involved in actively preparing the relevant documentation, but also employed independent analysts to consider the information proposed to be presented to the market by way of a draft prospectus (“Pathfinder”).[6] These in-house analysts were not involved in the formulation of draft documents prepared by the Lead Managers.

B.4 KPMG

[6]Pathfinder is an industry term: see par 81 below.

KPMG was another organisation heavily involved in preparations for the Public Offering. Its role was not straightforward.

George Svinos (“Svinos”) is now the chief financial officer of United. However, in 2016, he was a partner at KPMG, and head of retail consumer markets for Asia Pacific. Svinos was introduced to United in around 2007 or 2008, and, through KPMG, worked with United from that time. Silver gave evidence Svinos knew United’s business intimately.

Svinos gave evidence that, in 2016, he was the client liaison partner responsible for all services provided to United, and was acting as financial adviser to the Founders in relation to the Public Offering. He was also responsible for “coordinating many of the requests for information from external advisers of United”. He became more involved in the Public Offering process in September and October 2016. Towards the end of the process, Silver asked Svinos to dedicate himself full-time to the project. In that role, he “liaised closely” with Silver and kept him informed of the progress of the Public Offering. He was in contact with Silver during that period on many days, though not necessarily every day. Silver said he relied on Svinos, together with Mooney and Stockdale at different times, to keep him up to date with respect to the Public Offering and to communicate any information they learnt in relation to it. Svinos also gave instructions on behalf of United to its advisers.[7]
[7]See, for example, pars 74, 205, 220 below.

Another partner at KPMG, James Hindle (“Hindle”), performed a very different role. Hindle was retained by United to be the investigating accountant, and prepare an investigating accountant’s report. Hindle had experience in such a role in earlier capital raisings for other companies. He was a member of the due diligence committee.

The purpose of the investigating accountant’s report was to report on the relevant financial information. That report would be included in the proposed prospectus. In the lead up to preparing the report, Hindle was to be actively involved in considering information presented to the due diligence committee, to read and comment on successive drafts of the prospectus, and to generally ensure that a review of financial information was conducted in accordance with Australian auditing standards.

B.5 Freehills

The partner at Freehills responsible for work to be performed for the Public Offering was Michael Ziegelaar (“Ziegelaar”). Ziegelaar, a partner since 1999, is the co-head of the equity capital markets group at Freehills, having advised a large number of companies with respect to publicly listing. Ziegelaar was appointed chair of the due diligence committee.

Ziegelaar was assisted by others at Freehills, including Alex Mackinnon (“Mackinnon”), senior associate, and Amanda Cowan (“Cowan”) and Andrew Earle (“Earle”), both solicitors at that firm.

Mackinnon, who, together with Ziegelaar, gave evidence for Freehills, has been employed by Freehills in “equity capital markets” since 2010. He worked on all 4 transactions the subject of these proceedings. Further, Mackinnon has worked on more than 10 initial public offering transactions in addition to his work for United.

The managing partner at Freehills was Rodd Levy (“Levy”). Although Levy had some contact with officers at United, he had a minor role in relation to the relevant events.

C. Background

C.1 The first attempt

On 8 December 2014, Freehills sent an email to Mooney, the then chief financial officer of United Petroleum, attaching a proposed engagement letter. The draft letter was addressed to Silver and Hirsch, as directors of United Australia.[8] Silver, Hirsch and Mooney were listed as the contacts for United Australia. The proposed letter indicated fees would be invoiced monthly from January 2015 to June 2015, with a fee cap at $2 million.[9] Further, if there was no successful outcome to the initial public offering then contemplated,[10] Freehills agreed to charge 75 percent of their standard hourly rates. The letter also provided that if United Australia effected a trade sale or introduced a third party shareholder either before 31 December 2015 or within 2 months of the work on the initial public offering concluding, then Freehills would charge 100 percent of their standard hourly rates up to the applicable cap.
[8]United Australia was then known as United Petroleum Holdings Pty Ltd.
[9]That fee cap was on the assumption that the initial public offering occurred by 30 June 2015. If it occurred after that date the fee cap was raised to $2.25 million.
[10]At this time, it was expected the assets of the business the subject of the float would include properties owned by United Australia. Later, these properties were excluded.

The letter expressly provided that the scope of services did not include non-legal services, such as financial advice, and that the benefit of the advice provided was solely for United Australia. In that regard, Freehills’ advice was not to extend “to third parties (including any of your directors, employees or shareholders)”.

In December 2014, the engagement letter was executed by Silver on behalf of United Australia.

Freehills performed services pursuant to this retainer, including establishing a due diligence committee chaired by Ziegelaar. Meetings of the due diligence committee were held, and legal work was performed on an ongoing basis.

In February 2015, Mooney raised the fact that the work to be performed no longer included the possibility of seeking funds from the United States’ markets. He sought a reduction in the proposed fee. Freehills responded by stating they were happy to discuss this the following week.

At the end of March 2015, Mackinnon circulated an email instructing that no more work be performed by Freehills as “United has requested this while it considers the implications of the Caltex block trade”.[11]

C.2 The second attempt

[11]At this time, a significant shareholder of Caltex engaged in trading a large number of Caltex shares and United were concerned the demand for similar stock would be diminished.

In April 2015, work resumed. Freehills acceded to Mooney’s request and reduced the fee cap from $2 million to $1.78 million. Mooney responded by saying the revised fee cap was broadly what he expected. He inquired as to how to bring about the change. Freehills emailed Mooney stating that they acknowledged the revised cap by the emails exchanged and that it was not necessary to reissue their engagement letter.

In June 2015, Freehills sent a revised fee arrangement to take into account a property investment trust intended to be established. The intention at that time was to create a registered management investment scheme to hold the retail sites. Freehills was involved in advising on structures, and the means by which a responsible entity could obtain an Australian financial services licence. This was followed up in late July 2015 with an email from Ziegelaar to Mooney giving a further estimate of fees and the scope of works involved. However, this proposal was not pursued, as it was thought it would be better to utilise the services of a property group with a subsidiary holding an existing Australian financial services licence.

C.3 The third attempt

On 31 August 2015, Freehills sent an invoice to APN Funds Management Ltd, copied to Mooney, for legal services provided up to 26 August 2015. APN Funds Management Ltd was the property group under consideration at that time.

Freehills progressed the establishment of the property trust until 21 September 2015, when Mackinnon sent another email entitled “Pens down on United”. After referring to a sense of déjà vu, Mackinnon explained in a subsequent email that the Lead Managers wanted to sell at a higher yield, which meant the Founders would receive less money, and that the Founders would not agree to that at that time. In giving evidence, Mackinnon explained that the proposed property trust had to be comparable with other property trusts on the market if the offering were to be successful.

By 4 November 2015, a re-established due diligence committee met, with Ziegelaar again being a member of that committee. Larsen, United Australia’s company secretary, was the only person on behalf of United Australia to attend the meeting. During that meeting, it was noted that the target timetable for listing was to be around Easter 2016.[12]

D. Final foundation for the Public Offering

D.1 Pre-incorporation

[12]For completeness, the tendered documents included a document entitled “Proposed [Freehills] engagement terms”. It was suggested to Mooney in cross-examination that these were discussed with Ziegelaar and Levy in early 2016. Mooney had no specific recollection of the discussion. Ziegelaar gave no evidence directed to this document or the handwritten notes that appear on it.

As the United Group had been operating privately, with the Founders effectively making all significant decisions with respect to the business, the Founders decided to appoint experienced business persons to assist. This was done with the intention that those persons would become non-executive directors of the proposed corporate vehicle (ultimately United Holdings) in which shares would be issued for the purposes of the Public Offering. Silver gave evidence that “the whole board” was in place by March 2016, but it was not made official until a later time.

In May 2016, a document entitled “Project Diamond[13] Discussion Materials” was circulated by Larsen to the Non-executive Directors, amongst others, which provided some background to the equities market and set a new “high level” timetable for the Public Offering. This timetable provided that the initial draft of the financial section of the proposed prospectus would be complete by mid August 2016; with this section to be complete (including financials and updated forecasts for the 2016 financial year) by early October 2016. The new timetable anticipated that the prospectus would be lodged in mid November 2016, with pricing and the book build to be completed by early December and the final price announced to the market by around 7 December 2016.[14]
[13]Project Diamond was the name given to the project.
[14]Ziegelaar explained that on larger public offerings, a book build price was essentially an auction process where, after the offer commenced the institutions are approached and invited to make bids. The institutions will then indicate how many shares they are willing to take at particular prices “and so on and so forth”.

The new timetable extended the time for the various steps to be completed, as the consultants involved had asked the Founders for more time.

In mid June 2016, the timetable was further revised. Larsen’s covering email identified the main changes, including that the “back end execution has been pushed out approximately a month”.[15] The new timetable provided the prospectus drafting to be completed by late September 2016, with the financial section to be completed by the end of August.[16] Silver accepted he knew in June 2016 that this was the timetable “the board” was working to. Antonie gave evidence that he considered it a major change from the timetable previously contemplated. He said at this time that “[KPMG’s work] … plus the banking, the environmental review, the valuations; everything was just continually moving sideways”.
[15]Previously, it was intended that the final stages of the Public Offering would take place in early November 2016.
[16]It was specifically noted that the financial section would include the results for the 2016 financial year and updated forecasts for 2017 by this time.

In late June 2016, Mackinnon sent an email to Mooney providing a fee explanation that had been foreshadowed. The email inquired whether it was possible for Ziegelaar to meet with Silver to discuss the explanation in the coming 2 weeks.

The fee explanation recorded the difference between the work to be performed under the original proposed public offering in late 2014 and the public offering then being contemplated. It explained why Freehills’ fees were higher than the original cap. It also proposed a “discount/uplift arrangement”, and further provided that, if United decided not to proceed with the listing process, then Freehills would charge 100 percent of its standard hourly rates.

Mooney gave evidence that at this time, Freehills’ fees had not been resolved and discussion on the issue was continuing. He said that a meeting was held between Ziegelaar, Silver and himself in June or July 2016 at which Freehills’ outstanding invoices were discussed. According to Mooney, at prior meetings, in addition to issues being raised about invoicing, “the 25% uplift or downlift factor” was discussed and Silver stated in that regard, “That’s not negotiable Michael [Ziegelaar]. You need to go away and think about that”. Mooney also gave evidence that, at the “final fee meeting”,[17] Silver advised Ziegelaar not to deal with Mooney in respect of any fee matters.
[17]Precisely when this was said to have occurred was not clear.

Ziegelaar’s recollection was different to Mooney’s. He said there had been a lot of “toing and froing” about an aspect of the fee proposal. He further said that, after agreeing, at the behest of Silver, to a 10 percent discount on a particular item, Mooney asked Silver whether “he wanted the up and down arrangement”, to which Silver said he did. Ziegelaar further recalled a meeting on 21 July 2016, at which Silver said he would look at the fees and get back to Freehills.

On 1 July 2016, United Australia sent a letter to Hudson appointing him as chairperson and non-executive director of United Holdings.[18] The letter stated that United Holdings intended to undertake an initial listing and quotation of its fully paid ordinary shares later in 2016. The letter stipulated certain matters if the Public Offering proceeded, and also stated that, if the Public Offering did not proceed for any reason, Hudson agreed to resign as a director when requested. The letter recorded Hudson’s role and responsibilities as follows:

Your role as a non-executive director includes responsibility to monitor and review management processes aimed at ensuring the integrity of financial and other reporting, and satisfying yourself that [United Holdings’] financial controls and systems of risk management are robust and defensible. Your role will also include providing assistance to [United Holdings] on its intended initial listing on the Australian Securities Exchange.

The letter referred to Hudson’s fellow directors, being the Founders as non-independent directors, and Antonie, Slack-Smith and Lyndsey Cattermole[19] (“Cattermole”) as the independent directors. According to the letter, Antonie was to chair the audit and risk committee and Slack-Smith and Cattermole were also to be members of that committee.

[18]The appointment was said to take effect from the date of United Holdings’ registration: see par 66 below.

[19]Cattermole only served on the Board for a short period of time before she resigned for personal reasons.

On 15 July 2016, Mooney and Ziegelaar exchanged text messages by which Mooney cancelled a meeting to be held that day and sought to move it to the following Monday. As part of this exchange, Ziegelaar asked whether Mooney had given the new fee schedule to Silver. In response, Mooney stated that he had given it to Silver’s secretary the previous day.

D.2 Matters formalised

On 19 July 2016, United Holdings was incorporated. On the same day, the Founders, as executive directors, and the Non-executive Directors were appointed to the board of United Holdings (“the Board”), with Hudson as chairperson. From this time, the Board met regularly. Typically, the meetings commenced with Silver giving an oral presentation of the recent trading performance of the United business. Both Hudson and Antonie described these presentations as being given at “a high level”. Slack-Smith said they were relatively brief. No written materials were provided, something which was the subject of “a continued complaint” of Antonie’s.

The Board was never provided with monthly management accounts, a business plan or a budget. Further, no written analysis was provided at the board meetings to show how the United business was tracking against budget. At all times, the Founders, not the Board, remained in charge of all financial and operational matters affecting that part of the United business which was ultimately intended to become the business of United Holdings once the Public Offering was completed.

On 22 August 2016, Mackinnon sent an email to Mooney, copied to Larsen and others. The email attached an engagement letter for the Public Offering. The email stated that the fee was capped at $1.225 million and included a “25% discount and uplift arrangement and other agreed matters”. The letter included Freehills’ entitlement to 100 percent of its hourly rates if United decided not to proceed.[20] The email asked for the engagement letter to be signed and returned. The attached engagement letter, also dated 22 August 2016 and signed by Ziegelaar for Levy, stated that the offer could be accepted by returning a signed copy of the letter or by continuing to instruct Freehills on the matter.
[20]See par 61 above.

Although the letter was not sent directly to Silver, he saw it and read it shortly after it was sent. Silver said when he read it he concentrated on “the dollar bit”. He said the “plus and the minus 25 percent” was not highlighted and suggested he did not see the difference.[21] The letter expressly stated that the revised fee cap included work “relating to Dalby”.[22] Silver said he had asked this to be included, and the quote for the work was $125,000. Silver said he accepted the quote.
[21]To the extent Silver, soon after, appeared to resile from his evidence that he sighted and read the letter, I do not accept the later evidence.
[22]See fn 36 below.

On 7 September 2016, Larsen sent an email to the United Holdings directors and Brinkworth. At the time, it was proposed that Brinkworth would be the chief executive officer of United Holdings. Brinkworth was still employed elsewhere full time, but was being included in communication in anticipation of him starting in his position with United Holdings in October 2016.

The email attached a list of proposed dates for the due diligence committee and board meetings for September to December 2016. The proposed date for the Board to sign off on the financial section of the prospectus was 10 October 2016, and for the “Full final prospectus” on 14 October 2016. The references to the prospectus in this context were not references to a prospectus in its final form (for lodgement with the Australian Securities and Investments Commission (“ASIC”)), but rather to a Pathfinder for submission to market analysts.[23]
[23]See par 81 below.

On 9 September 2016, Freehills sent a tax invoice to Mooney entitled “United Petroleum IPO”.[24] The covering letter expressly referred to work done with respect to “the Dalby restructure”. At that time, no exception was taken to the invoice, which, in addition to the respective totals, identified the hourly rates of Ziegelaar and Mackinnon in accordance with rates quoted on 22 August 2016, and not those quoted in December 2014.[25] United made no suggestion that any difficulty existed with respect to the engagement letter forwarded on 22 August 2016 or the invoice.[26]

D.3 Warning signs

[24]IPO stands for “initial public offering”.

[25]See pars 45-47 above. The hourly rates of Ziegelaar, Mackinnon and Stephanie Wilkinson had all been increased. Further, different Freehills’ employees were included with their applicable hourly rates.

[26]See par 68 above. The invoice was paid, but not until 20 June 2017.

On 15 September 2016, Ziegelaar met with Silver, in the presence of Mooney.[27] At the meeting, Ziegelaar said that Silver needed to focus on the financials because United were not going to meet the timetable “if you don’t get a handle on this”. Mooney recalled Silver responding by telling Ziegelaar to “throw the resources at it”. Stockdale was called into the meeting by Silver.[28] Ziegelaar said Stockdale indicated he did not think the financials were an issue for United.[29] Ziegelaar then left the meeting.
[27]Ziegelaar recalled Brinkworth being there, but Brinkworth said he was not. He still had full-time employment elsewhere.
[28]Mooney did not recall this, but Silver’s telephone records corroborate Stockdale being called and being told to attend. Stockdale said the date meant nothing to him, but that he attended various such meetings.
[29]See also par 79 below.

Shortly after this meeting, Silver discussed this issue, amongst others, with Svinos. As a result of this discussion, Svinos called Ziegelaar and told him to stay out of the financials.

On 20 September 2016, Ziegelaar and the Lead Managers met with Silver and Svinos. Ziegelaar, Lennen and Burmeister all raised concerns about the ability to meet the timetable for the Public Offering to occur in 2016.

Silver gave evidence that in response he stated that “we have to make it”. He then gave conclusory evidence of what was agreed at the meeting, namely that “they” would engage additional persons for the project, as well as extending secondments. This evidence was not supported by any other person at the meeting.

Svinos acknowledged that the Lead Managers stated at this meeting that they did not think it would be possible to complete the Public Offering in 2016, because the preparation of the prospectus, including the financials, was behind schedule. Ziegelaar recalled a presentation by the Lead Managers about the then state of the process and the progress of particular work streams. Ziegelaar particularly recalled discussion about how the financials were behind.

Although Lennen could not state precisely when, he did recall telling the Founders around this time that he thought that the timetable was too tight for the Public Offering in 2016 and that “potential considerations to going in the first half of 2017 [might have been] more appropriate”. Lennen also recalled stating that he was concerned that the management appointments had taken a long time to come into effect and that towards the end of December the “management team weren’t going to be around, or [Brinkworth] was going to [have been] in the office for a very short period of time”.

On 22 September 2016, Stockdale sent an email to Silver entitled “Comfort on IPO timing”. In that email, Stockdale stated that he was personally very comfortable that things were on track for the Public Offering to happen in December as planned. He also stated that he was happy with the progress that was being made on the financials and would let Silver know if anything changed. Silver said, when he read this email, he was surprised that United were starting to catch up so quickly. In truth, United were not catching up such that the timetable was being achieved.[30]
[30]See also fn 40 below.

On 23 September 2016, Ziegelaar provided a status update. In that email, he noted that the prospectus was not in a state to begin the formal verification process. Ziegelaar stated he would be happy to reiterate to members of management what they would need to be doing to make the verification process more manageable.

As to the verification process, Mackinnon gave unchallenged evidence that the process usually undertaken prior to a draft prospectus being released to the analysts (known in the industry as a “Pathfinder”) was to verify sections 2, 3 and 4, respectively concerning industry overview, business overview, and the financial information relevant to the company about to be floated.[31]
[31]Cf par 351-352 below.

For the purposes of verification, Freehills would ordinarily be responsible for “boxing up” the prospectus. This involves drawing a box around every sentence, giving the sentence a number, and then creating a numerical table which identifies the person responsible for verifying each statement. The table also contains boxes in which the responsible person is required to provide evidence that supports the statement, including the material facts and figures, and then a final column where the responsible person can signify a request for any amendments to the proposed prospectus.

Mackinnon said Freehills assumes the responsibility of verifying the legal statements. As for commercial information, the verification is to be conducted by the company and Freehills receives those verifications once they are done. Mackinnon said that, in his experience, the majority of a prospectus needs to be verified before the Pathfinder is released to the analysts. Not only was this evidence not challenged, but the United Parties accepted that a Pathfinder was a necessary part of any public offering being able to proceed in 2016 (or at a later time).[32]
[32]Albeit, the United Parties contended it would be possible for an incomplete draft Pathfinder to be used: see par 86 below.

Mackinnon said there was no point in commencing the verification process until the document was finished. Otherwise, he said those involved would be verifying things that were not the final draft prospectus and the whole process would need to be re-completed when changes were made. He also said the verification process could take 2 days if a lot of resources were utilised, but that would be aggressive and that normally it would take 4 or more days.

As to the state of a prospectus to be used as a Pathfinder, there is no requirement that the Pathfinder be in the final form intended to be lodged with ASIC. Indeed, there is no legal requirement for a Pathfinder to be released to analysts or at all. However, Ziegelaar gave evidence that, in his experience, a Pathfinder is “99.9 percent of the version that’s lodged with ASIC”. When it was put to Ziegelaar that you could lodge a prospectus with ASIC before it was given to the analysts, he said that, on such a large Public Offering as proposed by United, practically no. He said it was necessary to do a price discovery exercise to determine what the price ought to be so any listing is “not a complete flop”. When it was suggested to Ziegelaar that you could conduct an initial public offering without analysts, although you might not get such a good price, Ziegelaar again rejected this. In so doing, he directed his answer to United’s circumstances and pointed out, correctly, that Silver was very keen on maximising the price.[33]
[33]See par 186 below.

Although United’s cross-examination of a number of witnesses was directed to the absence of a legal requirement for a Pathfinder, in closing submissions lead counsel for the United Parties indicated, consistent with the pleadings, that it was no part of the United Parties’ case that the alternative of pursuing the Public Offering without a Pathfinder was a viable option.[34]
[34]See further pars 686-690 below.

Also on 23 September 2016, a meeting of the Board was held. The directors who attended were Hudson, as chairperson, Silver and Antonie. Also in attendance were Brinkworth, Mooney and Svinos. Larsen attended as secretary. The directors discussed key dates and the progress of the Public Offering, noting that it was critical to avoid “further slippage” and that the “current aim” was to have the completed draft of the prospectus (including financials and the management discussion and analysis section) completed for circulation to the due diligence committee and directors at meetings to be held on 3 October 2016.

On 24 September 2016, a draft document prepared by KPMG entitled “Project Diamond 2 steps plan” was circulated to the Non-executive Directors, Brinkworth and others. The following day, Hudson thanked Larsen and noted that many of the restructure steps were at the United Australia level, and queried who was to be on the board of that company to approve the relevant transactions. He also asked how it was that United Holdings was to be satisfied that the appropriate assets were in the entities to be “slotted in under [United Australia]”, and that appropriate steps would be taken for United Australia to approve the relevant contracts. Whilst Hudson said he was sure there were simple answers, he said it was not disclosed in the paper. He asked for it all to be laid out at a meeting on 24 October 2016 on the basis that the meeting to “approve signing everything” looked like happening on 7 November 2016.

The following day, Larsen responded stating that he agreed that the matters raised should be laid out on 24 October 2016 and that he would talk to Freehills about it. The email continued:

The restructure work stream has been kept apart from Jim[35] and KPMG – with very little discussion of implementation or the who and how – which now needs to happen. I’ll start that process internally.

Ziegelaar was copied into this response and sent an email to lawyers at Freehills asking to talk about what had been raised.

[35]Presumably, a reference to Mooney rather than Hindle.

On 30 September 2016, a draft due diligence committee report was circulated by Hindle to a large number of persons, including each of the United Holdings directors and Ziegelaar. The covering email noted that the work was still in progress and that there were likely to be further changes to the financial model.

Further, Hindle stated that the report had not been reviewed in detail by management and was, accordingly, subject to change. The 159 page report essentially covered each of the matters that needed to be ultimately addressed by the due diligence committee. The contents page of the report read as follows: Introduction; Executive summary; Fuel trading group analysis; Retail analysis; Wholesale analysis; Imported Fuel; Dalby Group;[36] Other income; Overheads; Cash flow and balance sheet; Summary prospectus disclosures; Tax due diligence; and Appendices.
[36]Dalby Group relates to a refinery in Dalby, Queensland, the ultimate owners of which were the Founders.

The introduction to the report noted that it was incomplete in the following areas:

(1) The amendments to the financial model being used by Credit Suisse.
(2)Finalisation of the United terminals in New South Wales and Dalby 2016 financial year historical information, which was awaiting completion of audits.
(3)Outstanding support for some of the forecast assumptions in the 2017 financial year accounts, which were denoted by square brackets in the report.

The report listed the drivers for the 2017 financial year forecast, being management fees on property development, improvement in Dalby profitability, new store openings and the full year impact of distributors. The EBITDA[37] forecast, “after straight line impact of leases”, for the 2017 financial year was $111.6 million.
[37]Earnings before interest tax depreciation and amortisation.

According to the “Pro forma EBITDA bridge FY16 to FY17F”,[38] there were 13 key components from which the figure of $111.6 million was derived. This included $22.4 million primarily driven by new store openings and the full year impact of site openings in the 2016 financial year. The amount of $8.9 million was attributed to the gross margin for distributors, and $9.9 million was forecast for Dalby. The EBITDA base for the 2016 financial year was $83.5 million. The calculations were illustrated diagrammatically as follows:

EBITDA bridge as at 30 September 2016

[38]This was to signify a forecast for the 2017 financial year using the 2016 financial year EBITDA as the base.

The report also included 5 pages dedicated to the restructure to occur before the Public Offering. It recorded that the United Group would take steps to simplify its structure, with business units being divided according to the nature of their operations. It noted that phase 1 of the restructure had been implemented in June 2016. It stated that phase 2 was intended to create a single listed company, United Holdings, to hold the portfolio of the United Group entities. Various observations were made in relation to the tax consequences and risks with respect to the restructure.

Silver gave evidence that he was told at the end of September 2016, by Stockdale and Ziegelaar, that the process had “caught up and we’re absolutely back on track”. Svinos said he never attended a meeting in late September 2016 where Ziegelaar said the process, including the financials, was “back on track”. Ziegelaar said he had no recollection of ever saying such a thing. It was not put to Ziegelaar during cross-examination that he ever told Silver things were “back on track”.[39]
[39]Ziegelaar was only asked whether he recalled any discussions on this topic.

I do not accept Silver’s account. To state such a thing would have been to materially misrepresent the true situation.[40] There is no apparent reason why Ziegelaar would have done so. Further, Silver was a member of the Board, was aware of the timetable, and would have known himself that United were not meeting the timeline then in place. Furthermore, insofar as the alleged conversations concerned secondments,[41] in fact the secondments in place terminated around 23 September 2016, and were not extended. There was no complaint from Silver, or anyone else at United, that Freehills were acting contrary to what had only recently been agreed with Silver by terminating these secondments.
[40]In making this finding, I am not ignoring Stockdale’s email sent 22 September 2016: see par 79 above. That email stated United were on track for the Public Offering to occur in December, rather than saying things had “caught up”. Stockdale was not asked about this email when giving his evidence. There was no evidence from Stockdale that he ever told Silver the process had caught up to align with the agreed timetable.
[41]See par 76 above.

In conclusion, Silver plainly discussed the issue of timing with Ziegelaar and the Lead Managers, who each expressed their concern about meeting the deadlines for the Public Offering in 2016. Further, as a result of this discussion, Ziegelaar and the Lead Managers, in substance, gave assurances they would work very hard in an endeavour to meet the deadlines, and informed Silver that they could still be met. However, no guarantees or commitments were ever given to Silver that the deadlines would be met come what may. Under cross-examination, Silver accepted there was no guarantee, but on the basis “[t]here’s no guarantee for anything, but I was hoping”.

D.4 Early October 2016

At the start of October 2016, Brinkworth was still employed full time elsewhere. On Sunday, 2 October 2016, he sent an email to Svinos, copied to Silver, Hirsch and Hudson, referring to the recently circulated draft due diligence committee report. That email acknowledged that Brinkworth had not previously been to due diligence committee meetings, or been involved in discussions or decisions that had resulted in the approach as proposed. He stated that he was keen to make sure he understood the thinking behind those decisions and the implications for the business in the short term. The email listed a total of 16 questions and observations.

On 3 October 2016, the Founders, as directors of United Holdings, were provided with a draft engagement letter setting out the role of the Lead Managers. That draft letter, which was reviewed and later agreed to by Silver, recorded that Morgan Stanley and Credit Suisse were to be the Lead Managers and bookrunners for the Public Offering. The tasks to be performed by the Lead Managers included:

(1)Project managing the Public Offering process, including overall coordination of other advisers.
(2)Assisting United Holdings in the selection of other advisers (where necessary).
(3)Advising on developing the “equity story” for United Holdings and strategies to address potential investor concerns.
(4)Assisting with the preparation of the Public Offering prospectus and ancillary documentation, and participating in the due diligence process.
(5)Liaising with the “Investigating Accountant” in relation to the preparation of the accountant’s report.
(6)Advising on the most appropriate method of conducting the Public Offering.

With respect to subparagraph (4) above, the draft letter sought acknowledgement and agreement from United Holdings that the Lead Managers would not be making any statement in the prospectus, nor any statement upon which such a statement were based, and that whilst the Lead Managers were assisting with the drafting of the prospectus, United Holdings would be responsible for the prospectus (except to the extent that the law prevented the Lead Managers from excluding liability).

Also on 3 October 2016, a meeting of the due diligence committee was held. Mooney, Hindle, Ziegelaar, Lennen and Burmeister attended as members of that committee. Also in attendance were the Non-executive Directors, Brinkworth, Larsen, Stockdale, O’Connell and other representatives of Freehills, Credit Suisse and KPMG.

During the meeting, Morgan Stanley updated the committee on the status of the prospectus, stating that there had been several rounds of comments by management and that the drafting was closer to being finalised. The focus had been to complete and verify the material that was to go in the analysts’ presentation. There were several comments made on the draft as it then stood. The minutes included:

·It was noted generally that the key people section, particularly the management biographies and [Silver’s] and [Hirsch’s] roles, needed additional work.
·[Svinos] said he briefly discussed with [Silver] the roles of [Silver] and [Hirsch] post listing. Both would take executive roles and [Svinos] would discuss this further with [Silver] to provide some drafting to [Morgan Stanley].
·The [due diligence committee] noted that the risk section is in good shape.
·[Antonie] stated that the strategy of the business and the business narrative still needed to be better worked through the entire document. It needs to be apparent that there is a footprint strategy and a growth story.

Also during the course of the meeting, Lennen suggested that it would be a good idea for the committee to be provided with a trading update for the current financial year to ensure that the actual results achieved before lodgement were tracking with the forecast for the whole 2017 financial year.

On 4 October 2016, Ziegelaar inquired of others at Freehills as to whether or not Silver had been invited to the upcoming due diligence committee meeting. In response, Mackinnon said he had not been invited. He also stated that Freehills may have been told not to include him and that “someone at United” would pass things on to Silver. Ziegelaar replied, stating that he would like to talk to Mackinnon about asking Svinos to invite Silver when the next invitation was sent out to Svinos.

According to Ziegelaar, around this time he raised the issue of Silver’s non-attendance at the due diligence committee meetings. Neither Silver nor Hirsch had attended a due diligence committee meeting since the first meeting held on 18 May 2016. Ziegelaar gave evidence that, in response to his suggestion to Svinos that Silver should attend due diligence committee meetings, Svinos stated that Silver “does not do detail”. Svinos denied such a discussion ever took place.

Whatever was said on this issue, the fact is that neither of the Founders, who were the executives with the firsthand knowledge of the business to be the subject of the Public Offering, was a member of the due diligence committee. Why this was so was not explained. Ordinarily, it would be expected that at least 1 of the Founders would have assumed such a role. Hindle suggested that the non-participation of both the Founders was unusual. Antonie said it was highly unusual.[42] The position was exacerbated, presumably, as time went on and United’s representative on the committee, Mooney, played a lesser role in the preparation.
[42]United sought to lead no evidence to the contrary.

Also on 4 October 2016, a draft presentation for the analysts was forwarded by Evans to Larsen and Stockdale of United, together with Svinos, Brinkworth and Antonie, copied to various others, including Freehills. The draft anticipated the presentation being delivered by Silver and Brinkworth. There were no financials in the analysts’ presentation.

On 5 October 2016, Silver, Svinos and Nick Wormald of Freehills met to discuss the possibility of a trade sale. Exploration of this option was to run in parallel to preparing for the Public Offering. Ziegelaar’s contemporaneous note taken at the meeting includes the following: “Need to be able to pull IPO”. When cross-examined about this meeting, Silver stated he did not understand what this phrase meant.[43] However, he acknowledged that he was in discussions at the time for a possible trade sale, and that if the offer was sufficiently high, the Founders “would have gone with it”.
[43]Cf pars 368, 433 below

On 6 October 2016, Stockdale sent an email to Silver suggesting the reason Silver was “not more confident in an IPO” was that Silver thought there may be a trade buyer instead. Silver’s 1 word email in response was “Wrong”.

When cross-examined about his attitude to the Public Offering at this time, Silver stated he was keen to get on with it. Further, Hirsch said that he never discussed with Silver the possibility of not proceeding with the Public Offering. However, there was some uncertainty amongst others at the time. Lennen sent an email to Svinos on 7 October 2016, inquiring whether or not further work should proceed. In response, Svinos stated that the Founders were considering their position, but his instructions were that “we are still working towards” the Public Offering. He instructed Lennen to go ahead as scheduled.

Next, it was contended Freehills assumed the obligation of providing advice about the way the due diligence committee meetings and board meetings should be run as part of the process of the Public Offering. In support of this contention, reliance was placed upon a presentation made by Freehills during which it was represented that Freehills would undertake “the full scope of works” associated with an initial public offering, including assisting with “IPO logistics such as preparing board minutes and prospectus lodgement”. Freehills submitted this was after the time at which the United Parties alleged that the written retainer had been agreed upon,[585] and accordingly, anything that might have been said by Freehills subsequent to the terms of the agreement having been reached could not be relevant to its construction.[586] This submission was put based on an email sent by Mackinnon on 12 January 2015, attaching the presentation. However, the presentation itself is dated 12 November 2014, and other email correspondence suggests the presentation may have occurred in late November 2014.
[585]See pars 45-47 above.
[586]See, for example, Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582 [35] (Gummow, Hayne and Kiefel JJ); FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 350.6 (Brooking J, with whom Nathan and Eames JJ agreed).

Regardless of when the presentation actually occurred, the representation relied upon says nothing about facilitating an initial public offering occurring by Christmas 2016. As already discussed, the 2014 retainer was concerned with the possibility of an initial public offering by 30 June 2015 or the end of the 2015 calendar year.[587]
[587]See pars 45, 452, 493 above.

No alternate submission was made by the United Parties with respect to this presentation and a retainer in 2016.

Next, it was contended that a solicitor exercising due care and skill would have appreciated that it was not in the best interests of United Holdings for some of its directors to make a decision about the Public Offering outside of a properly convened directors’ meeting and in the absence of some of the directors. There are a number of responses to this. First, Freehills had no control over what 1 or more of the Non-executive Directors chose to do as directors acting in what they believed to be the best interests of United Holdings. Secondly, the United Holdings board charter permitted the Non-executive Directors to meet outside a board meeting.[588] In the circumstances, it made perfect sense for the Non-executive Directors to meet and discuss the situation in which they found themselves. Thirdly, any decision of some of United Holdings directors was not a decision of the Board. If any of the Non-executive Directors, or the Founders, had decided that it was appropriate for a board meeting to be convened and conducted, any meeting between Non-executive Directors outside the board meeting would not have precluded this from happening.
[588]See par 198 above.

Next, the United Parties contended Freehills breached its duty by failing to inform them of information that was of potential significance after the 5.00 pm meeting on 22 October 2016. However, nothing was finally resolved at that meeting.[589] It was decided to await delivery of the further materials overnight before any final decision was made.
[589]See par 299 above.

Next, it was contended that, in circumstances where the Founders were surprised by Hudson’s announcement of “his” decision to not support the Public Offering proceeding, it was no defence for Ziegelaar to say that the Founders could have themselves convened the board meeting to order, and commenced the meeting.[590] It was further contended that at no time did Ziegelaar take steps to disabuse the Founders “from that mistaken view” and inform them that the drop dead date for proceeding in 2016 was that aligned to statutory requirements, being lodgement of the final prospectus with ASIC on 17 November 2016. Finally, as part of this contention, it was alleged that a reasonable solicitor would have armed her or his clients with advice as to the situation that existed and the possible solutions or alternatives available and “then left it to them to sort it out”.
[590]As to which, see pars 726-727 above.

This contention revisits matters already raised concerning the possibility of alternate proposals. It is unnecessary to repeat what is stated above.[591]
[591]See pars 592, 688, 691-695, 713 above.

Next, it was contended that Ziegelaar’s actions and inactions were causative of loss because he provided advice to the Non-executive Directors by way of the Script Email and other communications on 22 and 23 October 2016, “which advice [led] to and caused the Non-executive Directors to form the view that the steps they took on Sunday in arriving at a decision in a meeting external to a board meeting was an appropriate way to proceed”.

There was no evidence that Ziegelaar advised Hudson or any of the Non-executive Directors that they should meet externally to the board meeting. In any event, this was something that was expressly permitted[592] and done at the Non-executive Directors’ initiative.[593] Further, the decision of the Non-executive Directors in the early afternoon of 23 October 2016 was a decision that each of them made both individually and collectively.[594] That decision was not “led to and caused” by any advice from Ziegelaar.
[592]See par 198, 731 above.
[593]See par 362 above.
[594]See pars 362-364, 543 above.

Next, it was contended that Kinlee and Apson lost the opportunity to earn a return of a 5 to 15 percent uplift that they would have enjoyed on the value of the shares in the Public Offering. This claim was put on the basis that there was a “timing” issue.[595] Further, it was contended that it was open for the court to infer that it was unlikely that an initial public offering of the United Fuel Business could realistically be pursued for another 2 to 3 years, being a period of approximately 5 years from the date of the alleged breach of Freehills’ duties.
[595]As, it was contended, Kinlee and Apson would receive an uplift from any future initial public offering.

The advice given to the Founders in October 2016 was that the Public Offering could successfully proceed in 2017.[596] Necessarily, such advice must have been given on the basis that United Holdings would have failed, or desisted with any attempt, to list on the Australian Securities Exchange in 2016.
[596]See pars 78, 121, 137, 297, 376, 384 above. See also pars 362, 421 above.

In closing submissions, when the court inquired as to how it could know that publicity concerning the failed attempt to list in 2016 would be detrimental for a potential subsequent initial public offering, the United Parties’ lead counsel stated that this could not be the subject of expert evidence. Further, the court was informed that the United Parties’ expert had made that assumption, and it could either accept it or reject it.

There was simply no evidence to suggest that the failure of the Public Offering to proceed in 2016, and any related publicity, would have meant, or now would mean, that an initial public offering could not proceed with viable prospects in the near future. The court simply does not have the relevant information to draw any such inference.

Next, it was contended that Mooney had no authority on behalf of United Australia to provide implied consent to the letter sent on 22 August 2016,[597] and that Freehills knew or ought to have known this.
[597]See par 68 above.

In circumstances where this matter was not pleaded, Mooney was not cross-examined about his evidence to the effect that he did not have authority.[598] Suffice to say, nothing turns on this issue in circumstances where the email enclosing the engagement letter dated 22 August 2016 was also forwarded to Larsen[599] and Silver saw the letter and read it (albeit, perhaps not as closely as he should have if his evidence is to be accepted on this issue).[600] Further, the basis upon which the terms of the 22 August 2016 letter have been found to be binding does not depend upon any act on the part of Mooney.[601]
[598]See par 62 above.
[599]See par 68 above.
[600]See pars 69, 453 above.
[601]See pars 452-458 above.

Next, in oral closing submissions, the United Parties submitted that the Non-executive Directors represented only the corporators, namely the Founders (or their related entities[602]),[603] and that it was their opinions and interests that “trump everything” because “they are the only corporators in this context”.[604] By reason of this, it was contended that if a director did not want to do what the corporators wanted, then they should resign.
[602]This is included given the ownership structure, though it was submitted: “Here, of course, there are only 2 corporators”.
[603]See pars 7, 9 above.
[604]In this context, Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, 291.3 (Evershed MR) was referred to: see further pars 748-749 below.

This issue was only explored at the margin during the evidence. It was put to Hudson that, at around 6.00 pm or 7.00 pm on the evening of 22 October 2016, he should have telephoned Silver to tell him that he needed to resign. Hudson said he did not do that because he had not formed that view. However, it was not put to Hudson that, after he received the further materials late on 22 October 2016 and early 23 October 2016, he ought to have resigned. Nor was it put to Hudson with respect to the point in time when, in the early afternoon of 23 October 2016, he formed the view that he would not approve the Pathfinder that afternoon that he should have resigned.

In addition, the United Parties never put to Antonie or Slack-Smith that either of them ought to have resigned in the events leading up to 23 October 2016. However, in response to a question asked by Hudson’s counsel, Antonie stated that on 22 October 2016 he was contemplating resignation in light of the position in which he had been put, and that he discussed this with Hudson.[605]
[605]See pars 266-267 above.

In light of the issue not being raised on the pleading, it having not been put to Hudson and the absence of any opposing submissions from Hudson’s counsel as a result, I am not willing to make any finding 1 way or the other about whether Hudson ought to have resigned at a particular point in time on 23 October 2016.

In any event, such a finding is unnecessary where the United Parties have failed to satisfy the court that there was any real possibility of the Public Offering proceeding in 2016 if such a resignation or resignations were to occur.[606] The United Parties submitted that it was “not necessarily unrealistic” that the Public Offering would have proceeded in 2016 in such circumstances. However, it was also properly acknowledged that the matter was not explored at trial. In light of the manner in which the case was conducted, leaving aside the absence of any pleaded issue, it is inappropriate for the court to discuss this matter any further.
[606]See also par 417 above.

However, before leaving this contention, it must also be noted that there is a serious issue as to whether or not the passage relied upon by the United Parties in Greenhalgh v Arderne Cinemas Ltd[607] represents the law. That passage reads:[608]

I think it is now plain that “bona fide for the benefit of the company as a whole” means not two things but one thing. It means that the shareholder must proceed upon what, in [her or his] honest opinion, is for the benefit of the company as a whole. The second thing is that the phrase, “the company as a whole”, does not (at any rate in such a case as the present) mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body.

In this context, “corporators” means shareholders.[609]

[607][1951] Ch 286.

[608]At 291.4.

[609]Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1, 533 [4392] (Owen J); Provident International Corporation v International Leasing Corporation Ltd [1969] 1 NSWR 424, 437.4 (Helsham J).

In more recent times, the view has been expressed that the general body of shareholders does not always, and for all purposes, embody “the company as a whole”.[610]
[610]See, for example, Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd (2015) 318 ALR 302, 316-317 [57] (Warren CJ, with whom Neave JA agreed); 348 [221] (Garde AJA, with whom Neave JA agreed), and at first instance [2013] VSC 543 [28] (Almond J), citing Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1, 533-534 [4392]-[4393], [4395]. See also par 627-628 above.

In light of the observations made above,[611] it is unnecessary to express any view on this issue.
[611]See par 743-747 above.

Next, in oral closing submissions, the United Parties submitted that “those who were the fee takers … did not want the trouble of going ahead”, whereas the Founders, being “the only persons whose financial interests [were] concerned”, did want to go ahead. When asked to clarify what was meant by this, it was submitted that the advisers would have had to work very hard at a directors’ meeting on 23 October 2016 and would have had to take the risk of being persuaded by the Founders that they should proceed. It was further submitted that the advisers would have had to work very hard to take steps that the Founders wanted them to take in order to get the Public Offering completed in 2016.

Based on the evidence, the possibility of the Founders persuading, on 23 October 2016, each of the Non-executive Directors, the Lead Managers and Hindle that the Public Offering ought to proceed in 2016 was so slight as to be almost non-existent.[612] For reasons already explained,[613] there were insurmountable obstacles to the Pathfinder being in a state that could be approved for release to the analysts the following day, being the drop dead date. Further, the suggestion that any of the Non-executive Directors, the Lead Managers, KPMG or Freehills were in some way motivated by a desire to avoid working very hard, is without foundation. Each of them had been working diligently, and in some instances, for extremely long hours, in a genuine attempt to achieve a successful Public Offering in 2016.[614]
[612]See pars 143, 362-364, 397, 401, 404-416, 554, 563-565, 662 above.
[613]See pars 554, 559-561, 565, 700 above.
[614]See, for example, pars 302, 384, 413, 422, 428(12), 662(5) above.

Next, it was contended that there was no potential liability under the Corporations Act for the approval of a Pathfinder. It was contended that because the Pathfinder is something that goes to people to write a report, to talk about liability was to talk “in the air”, and that it had nothing to do with the Corporations Act.

So much may be correct. However, this contention ignores the uncontroverted evidence that there is an expectation in the industry that if a Pathfinder is going to successfully attract interest it should closely resemble the final form of the prospectus ultimately lodged with ASIC.[615] Further, it also ignores the evidence that material changes to the Pathfinder could adversely affect United Holdings’ prospects of conducting a successful Public Offering, and significantly so.[616] Finally, it ignores the role the Pathfinder was intended to play, in the agreed-upon due diligence process, with respect to any due diligence defence in the future under s 731 of the Corporations Act.[617]
[615]See pars 85, 139-140, 231-232, 662(5) above. Indeed, this proposition formed part of the United Parties’ pleaded case: see, for example, par 524 above.
[616]See pars 222, 662(5) above.
[617]See pars 654 above.

In short, it is not to the point to focus only upon the provisions of Part 6D of the Corporations Act in determining the issues in this case. When considering what was in the interests of United Holdings on or around 23 October 2016, the relevant considerations for United Holdings’ directors went well beyond the also relevant consideration of the provisions concerned with liability if a prospectus, based on the Pathfinder, were to be lodged on 17 November 2016.[618]
[618]See pars 144, 690, 733 above.

On another issue, it was alleged that Ziegelaar demonstrated an unwillingness to directly answer questions put to him. It was further suggested he resorted to repeating “rote assertions”. Whilst I do not accept that Ziegelaar had prepared answers by rote, it is fair to suggest that, on occasion, Ziegelaar sought to expand some of his answers so as to go beyond directly answering the question. Perhaps this was because of a desire to protect his professional reputation. Whatever the reason, it does not follow that Ziegelaar’s evidence was anything other than credible. I found him to be a generally reliable witness.

Finally, in light of the fact that the United Parties have been entirely unsuccessful in their claims, it is unnecessary to consider whether, as contended by Freehills, Silver blaming Stockdale for the Public Offering not proceeding in 2016[619] amounted to an admission adverse to the United Parties’ interests.[620]
[619]See par 433 above.
[620]Evidence Act, s 81. See also par 434 above.

Conclusion
I.1 The Fees Proceeding

The parties provided the court with an agreed list of 5 invoices remitted by Freehills since 9 September 2016 with respect to the Public Offering. Leaving aside interest, the principal amount of $648,159.39 remains outstanding. As the court has found in favour of Freehills with respect to the terms contained in the 22 August 2016 letter,[621] there will be judgment for Freehills in this amount.
[621]See pars 452-458 above.

The agreed list of invoices also referred to another 11 invoices remitted by Freehills with respect to work other than that specifically concerned with the Public Offering. These invoices were also the subject of the Fees Proceeding, but were paid before trial, save for any amount attributable to a claim for interest.

With respect to all 16 invoices, there will be judgment in favour of Freehills with respect to the interest claimed in an amount to reflect these reasons.[622]
[622]See pars 470-471 above.

United’s counterclaim in the Fees Proceeding, which, in substance, sought relief to prevent Freehills recovering the outstanding fees and interest, will be dismissed.

I.2 The United Proceeding

The United Parties have failed in each of their claims against both Freehills and Hudson. Accordingly, the United Proceeding will be dismissed.

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CERTIFICATE

I certify that this and the 230 preceding pages, together with Annexure A, are a true copy of the reasons for judgment of Elliott J of the Supreme Court of Victoria delivered on 26 June 2018.
DATED this 26^th day of June 2018.

Associate

Annexure A

On the first day of trial, during the course of Freehills’ opening, senior counsel took exception to the United Parties’ opening, on the basis that something had been raised which was not pleaded. In direct response to this, without ruling about whether the matter was pleaded or not, I expressly stated that the parties would be confined to the pleadings. At the end of the first day of trial, I repeated that I would decide the case based on the pleadings. I also informed the parties that if anyone wanted to amend their pleading based on the openings, any application to amend should be made promptly.

On the second day of trial, Freehills raised an issue concerning the ability of the Founders to claim loss. I pointed out that the issue had not been raised by Freehills on the pleadings and that it should be raised. Freehills agreed to make an application to amend, and I agreed with that position stating the issue needed “to be formalised”.

On the third day of trial, the parties were invited to revisit the joint list of real issues in light of any amendments that were to be made to the pleadings. At that point in time, I reminded the parties that the list of issues should be used as a template for closing submissions, indicating that it would greatly assist the court if the parties dealt with the issues in the order of the list. The parties were directed to provide a revised list of issues and any proposed amended pleadings by a specified time.

On 9 April 2018, Freehills’ senior counsel suggested that something that was being put was not part of the United Parties’ pleaded case. That was rejected by the United Parties’ senior counsel. Without ruling on the issue, I repeated that the court would determine the issues on the pleadings “and nothing beyond that”.

On 11 April 2018, the court was asked to rule on a question put on the grounds that it was not relevant. In rejecting the objection, it was noted that lots of evidence had already been led on the topic, but also that “what’s in the pleadings is what’s in issue”.

On 12 April 2018, I inquired of the parties how the “pleadings list of issues” was being progressed. The parties informed the court they were still communicating with respect to the proposed amendments to the pleadings.

On 16 April 2018, the parties having resolved issues between them about any amendments to the pleadings, the court ordered a timetable for the pleadings to be filed.

On 30 April 2018, Hudson’s counsel suggested that the United Parties had moved away from the pleaded case against Hudson in important respects. Counsel observed that the court had made the point a number of times throughout the case that it was to be determined on the pleadings.

In oral closing submissions, the United Parties’ lead counsel took exception to some of the submissions of Freehills and Hudson to the effect that matters raised in the United Parties’ closing submissions had not been pleaded, and referred to matters pleaded by the United Parties in their reply to Freehills’ Defence. However, there was no suggestion that the case was to be conducted other than on the pleadings.

Towards the end of closing submissions, the court indicated that if a party considered there was an issue to be determined which was not the subject of the agreed list of issues, but was in the pleadings, then that issue would be determined by the court. Further, the court observed that if a party wanted to seek leave to amend, that was still something available to that party. However, the court reiterated that the case would be determined on the pleadings. A direction was then made for the parties to come to an agreed position about what was and what was not the subject of the pleadings, by reference to the closing submissions about which exception had been taken by Freehills and Hudson.

In addition to the matters set out above, during the trial many objections were made, and consequential rulings given, on the basis of what was in issue on the pleadings.[623]
[623]See also fn 525 above.

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