Findex Corporate Finance (Aust) Pty Ltd v Don Kyatt Spare Parts (Qld) Pty Ltd & Ors [2022] QSC 100 [2022] 22 QLR

SUPREME COURT OF QUEENSLAND CITATION: Findex Corporate Finance (Aust) Pty Ltd v Don Kyatt Spare Parts (Qld) Pty Ltd & Ors [2022] QSC 100 PARTIES: FINDEX CORPORATE FINANCE (AUST) PTY LTD ACN 010 508 363 (plaintiff) v DON KYATT SPARE PARTS (QLD) PTY LTD ACN 010 411 846 (first defendant) I KNOW PARTS AND WRECKING PTY LTD ACN 063 505 091 (second defendant) HE KNOWS TRUCK PARTS PTY LTD ACN 111 576 919 (third defendant) COMMERCIAL SPARE PARTS PTY LTD ACN 085 729 540 (fourth defendant) FILE NO/S: BS 7539 of 2019 DIVISION: Trial Division PROCEEDING: Claim ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 27 May 2022 DELIVERED AT: Brisbane HEARING DATE: 9, 10, 11 and 13 May 2022 JUDGE: Cooper J ORDER: 1. The plaintiff’s claim is dismissed. 2. The Court will hear the parties as to costs. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where the plaintiff was engaged to provide corporate advisory services to the defendants in respect of a potential sale of the defendant’s business – where the contract comprised an Engagement Letter and Terms of Business – where the terms of the Engagement Letter took precedence over the Terms of Business – where the Engagement Letter included that a “success fee would be payable from the sale proceeds on settlement of the transaction” – where the Engagement Letter provided that it was an “exclusive mandate -- 1 of 27 -- 2 for a period of 6 months from the date of acknowledgement” – where the Engagement Letter further provided that the success fee would be deemed to apply where the defendants completed a sale to “any party that discussions were held with as part of the sale process within twelve months from the end of the exclusivity period” – where the Terms of Business provided that upon termination of the contract the plaintiff’s “right to fees pursuant to the Engagement Letter will survive, including the Completion Fee where a sale of business assets or equity is completed within 12 months from termination of the Contract” – where initial sale negotiations between the defendants and a buyer were facilitated by the plaintiff but subsequent negotiations were recommenced by the defendants – where the defendants entered into an agreement for the sale of the business with the buyer more than twelve months after the end of the exclusivity period but within twelve months from termination of the contract – whether the contract was for a fixed term of six months from the date of acknowledgement – whether the plaintiff was entitled to payment of the success fee under the Terms of Business – whether the contract contains implied terms relied upon by the plaintiff concerning the liability of the defendants to pay the success fee – whether the defendants breached any implied duties of good faith and co- operation in terminating the contract PROFESSIONS AND TRADES – AUCTIONEERS AND AGENTS – REMUNERATION – EFFECTIVE CAUSE OF SALE – where the plaintiff was engaged to provide corporate advisory services to the defendants in respect of a potential sale of the defendant’s business – where the contract relevantly provided the plaintiff’s role included, inter alia, “to manage the sale process”, “managing a due diligence process” and “[a]ssisting in the negotiation process” – where initial sale negotiations between the defendants and a buyer were facilitated by the plaintiff but subsequent negotiations were recommenced by the defendants – where the defendants entered into an agreement for the sale of the business with the buyer – whether the sale of the defendant’s business was effected through the plaintiff or whether the plaintiff was an effective cause of that sale Aurizon Network Pty Ltd v Glencore Coal Queensland Pty Ltd (2019) 1 QR 392, cited Baker v Leonard Oades Pty Ltd (1964) NSWR 1745, cited Berben v Hedditch [1982] ANZ ConvR 535 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, applied Butt v M’Donald (1896) 7 QLJ 68, cited Byrne v Australian Airlines Ltd (1995) 185 CLR 410, cited Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2009] NSWCA 190, cited Commonwealth Bank of Australia v Barker (2014) 253 CLR -- 2 of 27 -- 3 169, applied Emmons Mount Gambier Pty Ltd v Specialist Solicitors Network Pty Ltd [2005] NSWCA 117, cited Insight Oceania Pty Ltd v Phillips Electronics Australia Ltd [2008] NSWSC 710, distinguished L.J. Hooker Ltd v W. J. Adams Estates Pty Ltd (1977) 138 CLR 52, cited Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534, cited Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351, cited Moore v Luxury Boat Holdings Pty Ltd [2020] WASCA 144, cited Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, cited Wolfe v Permanent Custodians Ltd [2013] VSCA 331, cited COUNSEL: C Jennings QC for the plaintiff S Couper QC with D Marckwald for the defendants SOLICITORS: Russells for the plaintiff Corrs Chambers Westgarth for the defendants Introduction [1] The plaintiff (Findex), which was known as Crowe Horwath Corporate Finance (Aust) Ltd prior to 1 April 2019, is in the business of providing corporate advice and accounting services in Australia. At all material times, it acted through its agents, David Ward and Liam Hawkswell. Mr Ward was partner at Findex who was responsible for the provision of mergers and acquisition services. Mr Hawkswell was a member of Findex’s Corporate Finance division. [2] From at least 2016 to 4 December 2018, the defendants (referred to collectively as the DKSP Group) were in the business of providing aftermarket truck and bus parts (DKSP Business) in Australia. Edwin Williams was a director of each of the DKSP Group entities. Robert Carpenter was a director of the second defendant. [3] Findex was engaged to provide corporate advisory services to the DKSP Group in respect of a potential sale of the DKSP Business and, in the period from January 2017 to 19 December 2017, facilitated negotiations between the DKSP Group and Bapcor Ltd (Bapcor) for Bapcor to purchase the DKSP Group or the DKSP Business. Those negotiations concluded without a sale to Bapcor being effected. [4] Some months later the DKSP Group recommenced negotiations with Bapcor. Those recommenced negotiations were not instigated or facilitated by Findex. Bapcor and the DKSP Group subsequently entered into a Share Sale Agreement for Bapcor to acquire the shares in the DKSP Group entities. That agreement was completed on 4 December 2018. [5] Findex now claims an amount of $1,386,000 as a success fee payable as a debt due and owing to it by the DKSP Group or, alternatively, as damages for breach of contract. The central issues in this proceeding are: -- 3 of 27 -- 4 (a) the proper construction of the contract between the parties and whether, or to what extent, that contract contains implied terms relied upon by Findex concerning the liability of the DKSP Group to pay the success fee; (b) whether the sale of the DKSP Group to Bapcor in December 2018 was effected through the efforts and agency of Findex or whether Findex was an effective cause of that sale; (c) as an alternative, whether the DKSP Group breached any implied duties of good faith and co-operation and that, but for the termination of the contract, Findex would have facilitated and effected the sale. Findex’s engagement by the DKSP Group [6] The subject of a potential sale of the DKSP Group was first raised with Mr Williams by Francis (Frank) Ramsay in early 2016. At that time Mr Ramsay was a partner in Findex’s financial services division. Mr Williams had known Mr Ramsay since 1990, and Mr Ramsay had previously provided services in relation to the management of Mr Williams’ superannuation fund. [7] In the initial discussion about a potential sale, Mr Ramsay informed Mr Williams that he knew of a company, Vanderfield Pty Ltd, that was potentially interested in purchasing the DKSP Group and that he could introduce Mr Williams to Greg Wanchap, one of the directors of Vanderfield Pty Ltd. Mr Wanchap was also a partner of Findex. [8] Findex then sent a letter dated 4 February 2016 to Mr Williams and Mr Carpenter setting out a proposal for Findex to prepare a pricing paper to assess a possible range of prices for the DKSP Business. That letter referred to Mr Wanchap being the Relationship Principal. [9] Mr Ramsay subsequently introduced Mr Williams to David Ward. From that time, Mr Wanchap ceased to have any involvement in Findex’s relationship with the DKSP Group. [10] On 26 April 2016, Mr Williams met with Mr Ward to discuss the potential sale of the DKSP Group. Prior to that meeting Mr Ward, with the assistance of Liam Hawkswell, had prepared a draft pricing paper. At the meeting it was agreed that Mr Ward would provide the pricing paper to Mr Williams to assist the DKSP Group in assessing a potential price range for the sale and to enable Mr Williams and Mr Carpenter to consider whether they were interested in selling the DKSP Business. [11] On 28 April 2016, Mr Ward sent an email to Mr Williams attaching: (a) a draft letter of engagement together with Findex’s Terms of Business; (b) the pricing paper discussed at the meeting; and (c) a document styled “Potential Acquirer List”. [12] Mr Ward accepted in cross-examination that Mr Williams had not asked for the draft engagement letter to be provided, but explained that he thought it was important that, -- 4 of 27 -- 5 in considering whether they should sell, the DKSP Group should understand what Findex’s role might be in assisting with a sale process. [13] The pricing paper set out Findex’s understanding of the structure of the DKSP Business and an overview of its financial performance. Section 3 of the paper then identified a pricing range of $45.0 million to $53.6 million. The calculation of those figures was explained in a table which set out Enterprise Value figures derived using a range of future maintainable earnings figures and a range of EBITDA multiples selected based on Findex’s analysis of comparable transactions. [14] The figure of $45.0 million at the lower end of the pricing range reflected future maintainable earnings of $9.0 million and an EBITDA multiple of 5.00. The figure of $53.6 million at the upper end of the pricing range reflected future maintainable earnings of $9.75 million and a multiple of 5.50. That pricing range was identified in the table within a box marked with a dotted line. Outside the identified pricing range, the table included a lowest Enterprise Value figure of $39.375 million (future maintainable earnings of $8.75 million and an EBITDA multiple of 4.50) and a highest Enterprise Value figure of $60.0 million (future maintainable earnings of $10.0 million and an EBITDA multiple of 6.0). [15] The Potential Acquirer List identified ten potential purchasers of the DKSP Business, including Bapcor (then named Burson Group Limited) and Vanderfield Pty Ltd. [16] Mr Ward gave evidence that, at or around the time Findex provided the pricing paper to the DKSP Group, he had a discussion with Mr Williams from which Mr Ward understood that $50 million or above would be a satisfactory price for the sale of the DKSP Business. [17] Mr Williams denied ever telling Mr Ward that the DKSP Group would be happy with a sale price of $50 million. His evidence was that he discussed the pricing paper with Mr Carpenter, who made it clear to Mr Williams that he was very reluctant to sell the DKSP Business. Mr Williams said that he and Mr Carpenter agreed that they would not consider selling the DKSP Business for anything less than $60 million and that he subsequently informed Mr Ward and Mr Ramsay of this fact. [18] In the course of closing submissions, counsel for Findex and the DKSP Group each agreed that it was unnecessary for me to resolve this apparent conflict in the evidence because, whatever Mr Williams might have said before Findex was engaged, it was common ground that he had made it clear to Mr Ward from around January 2017 that the DKSP Group were not interested in selling at a price below $60 million. [19] The DKSP Group did not execute the draft letter which Mr Ward had sent to Mr Williams on 28 April 2016. [20] In the period which followed, Mr Ward had discussions with Mr Ramsay concerning the prospect of Findex being engaged by the DKSP Group, and to attempt to prompt a response from Mr Williams and Mr Carpenter to the proposed engagement. [21] On 16 September 2016, Mr Ward received a text message from Mr Ramsay noting that Mr Williams had requested more time to consider whether to engage Findex. By that time, Mr Ramsay had ceased to be a partner at Findex. Mr Ramsay proposed that, if Findex agreed to pay him ten percent of its fee, he would pursue the matter -- 5 of 27 -- 6 vigorously with the DKSP Group. Mr Ward agreed to pay Mr Ramsay ten percent of Findex’s base success fee (capped at $85,000) if Mr Ramsay could get Mr Williams and Mr Carpenter to agree to proceed with Findex’s engagement for the sale process. [22] In late October 2016, Mr Ward initiated contact with representatives of Bapcor seeking to ascertain whether Bapcor was interested in a potential acquisition. Upon receiving confirmation that Bapcor was interested to know more about the DKSP Business, Mr Ward took steps to have Bapcor execute a confidentiality agreement as a precursor to entering into further discussions. [23] On 3 November 2016, Mr Ward informed Mr Ramsay of Bapcor’s interest in acquiring the DKSP Business and provided him a copy of the confidentiality agreement which had been executed by Bapcor. He also provided Mr Ramsay with a copy of the Engagement Letter, which had been updated since the draft engagement letter previously sent to Mr Williams, and the Terms of Business. [24] Mr Williams and Mr Carpenter, each acting on behalf of members of the DKSP Group, executed the Engagement Letter on 4 November 2016 and 10 November 2016 respectively and thereby agreed to the terms and conditions contained in the Engagement Letter and the Terms of Business attached to it (Contract). The Contract [25] The relevant parts of the Engagement Letter were as follows: “A. Background Further to our previous discussions and the recent Pricing Paper prepared by Crowe Horwath Corporate Finance, it is our understanding that you wish to explore the potential sale of the Business. Based on this interest in potentially pursuing a sale we have approached a strategic trade buyer Bapcor Limited (‘Bapcor’), to ascertain their interest in exploring an acquisition of Don Kyatt. Bapcor, an ASX listed public company, has confirmed an interest in the acquisition of Don Kyatt and have provided an executed Confidentiality Agreement as a precursor to progressing the discussions. This letter sets out the basis on which Crowe Horwath will act as your corporate advisor to facilitate the discussions with Bapcor (and any other party that has an interest in the Business) and to complete a sale of the Business. B. Our role Crowe Horwath Corporate Finance’s role will be to manage the sale process and provide corporate advisory services to you throughout. This will include: • Identification of potential purchasers; • Initiation, facilitation, liaison and management of discussions and negotiations with agreed potential purchasers; • Acting on behalf of Don Kyatt in regards to communication between the parties and/or their representatives and advisors; -- 6 of 27 -- 7 • Preparation of key messages for potential buyers including presentations that describe key facets of the Business and sets out the opportunity for potential buyers; • Acting on behalf of Don Kyatt in regards to communication between the parties and/or their representatives and advisors; • Assisting Don Kyatt in managing a due diligence process and disclosure of material requested, follow up and project management, liaison with all parties, and ensuring all requests and queries are responded to in an accurate and timely manner; • Assisting in the negotiation process in regards to establishing the contractual terms of the sale, condition precedents, warranties, guarantees, and the structure of the sale process; and • Providing advice in regards to the suggested offer price range and, if required, undertake financial analysis of offers made. … D. Fees and Disbursements Our fees for this engagement are structured to align our interests with yours in relation to achieving an outcome from the sale as follows: (i) A monthly retainer of $10,000 per month for the earlier of completion of a sale or 6 months; plus (ii) On completion of a sale a success fee of 1.75% of the Enterprise Value (EV) achieved up to an EV of $50m (being the midpoint of the Pricing Range outlined in the Pricing Paper) plus 3.5% of the excess EV over $50m. The success fee would be payable from the sale proceeds on settlement of the transaction. EV is as per section 3.1 of the Pricing Paper (i.e. the value of the whole of the Business excluding any assets and liabilities that are surplus to the operations of the Business). … E. Timing and Termination We envisage that the sale process will take 4-6 months to complete. This timeframe could be longer depending on the nature and circumstances of interested parties and the need to accommodate those circumstances as required to maximise the outcome from the sale. We will endeavour to meet your timeframes and deliver updates as required. -- 7 of 27 -- 8 This engagement is an exclusive mandate for a period of 6 months from the date of acknowledgement of this letter. It is further understood that should you complete a transaction with any party that discussions were held with as part of the sale process within twelve months from the end of the exclusivity period, the fees outlined under the heading ‘Fees’ above will be deemed to apply and will be payable to Crowe Horwath.” [26] The Terms of Business attached to the Engagement Letter contained the following relevant terms: “14.1 Term and Termination … (b) Subject to any statutory provisions that apply to the Services, either party may terminate this Contract at any time by giving at least 14 days written notice. On termination, you shall immediately pay on request all fees and expenses due in respect of the Services provided up to the date of termination and, unless the Contract is terminated for cause, you will pay our reasonable costs and expenses incurred in connection with the termination of the Contract. For the avoidance of doubt, the date of termination is the date on which any period of notice expires. … (d) If our engagement relates to work undertaken by Crowe Horwath Corporate Finance (Aust) Ltd, where either you or Crowe Horwath Corporate Finance terminates the Engagement, our right to fees pursuant to the Engagement Letter will survive, including the Completion Fee where a sale of business assets or equity is completed within 12 months from termination of the Contract. … 14.9 Conflicting terms (a) In the event of any conflict between the Engagement Letter and these Terms of Business … the Engagement Letter will take precedence.” Negotiations with Bapcor in 2017 [27] In the period from 4 November 2016 to 23 December 2016, Findex engaged in the process of fielding requests from Bapcor for information concerning the financial performance of the DKSP Business, gathering information from the DKSP Group and its accountants, analysing such information and providing responses to Bapcor’s requests for information. -- 8 of 27 -- 9 [28] On 20 January 2017, Mr Ward received an email from Mathew Cooper, Bacor’s Executive General Manager – Development, which attached an indicative, non- binding letter of offer to purchase the DKSP Business. The terms of this first non- binding offer relevantly included: (a) the purchase price was to comprise 6.0 times sustainable EBITDA. EBITDA was defined as sustainable Earnings before interest, tax, depreciation and amortization for the 12 months ending 31 December 2016, on a debt free, cash free basis. Bapcor required that the earnings shown in the financial statements for the 2015 and 2016 financial years, and the six months to 31 December 2016 be sustainable and include all costs associated with the operation of the DKSP Business; (b) the purchase price was to be paid as follows: (i) on completion – 70% of the estimated purchase price; (ii) 60 days after completion – payment of the “completion statement amount” was to be made, that being the difference between 70% of the estimated purchase price and 70% of the final purchase price as calculated through the “completion statement process”; (iii) 12 months post completion – 30% of the final purchase price. (c) a minimum of 70% of the payment on completion was to be settled by issuing Bapcor shares, with the DKSP Group to nominate the amount (70%-100%) that would be taken up through the issuance of shares. [29] Although it was not expressed in the non-binding offer, the terms reflected a proposed purchase price of $60 million. The EBITDA for the DKSP Business for the 2016 financial year had been $10 million. A multiple of 6 times EBITDA of $10 million would give a purchase price of $60 million. Mr Ward acknowledged in cross- examination that from the time the DKSP Group received the first non-binding offer, Mr Williams made it clear that the DKSP Group were not interested in selling for a price below $60 million. Mr Cooper, who gave evidence in answer to a subpoena, explained that Bapcor was aware throughout its negotiations to purchase the DKSP Business that Mr Williams had a purchase price of $60 million in mind. Mr Cooper described Mr Williams as having been “very firm on [a price of] $60 million”, and that he “had not budged” from that figure throughout the negotiations. [30] The DKSP Group did not accept the first non-binding offer. After discussing the first non-binding offer with Mr Williams, Mr Ward responded to Mr Cooper stating that the offer was acceptable subject to, inter alia, the minimum amount of the completion payment to be settled by issuing Bapcor shares being reduced to 50%. [31] On 24 January 2017, Mr Ward received an email from Mr Cooper which attached a second indicative, non-binding letter of offer to purchase the DKSP Business. That second non-binding offer contained terms as to the calculation and time for payment of the purchase price in terms relevantly similar to those of the first non-binding offer set out in [28](a) and [28](b) above. The minimum amount of the completion payment to be settled by issuing Bapcor shares was reduced to 50%. -- 9 of 27 -- 10 [32] The DKSP Group did not accept the second non-binding offer as a result, it seems, of disagreement between Mr Williams and Mr Carpenter about the merits of the offer. Although Mr Williams wished to proceed with the sale process, Mr Carpenter continued to express concern about any part of the purchase price being paid with Bapcor shares and did not agree with the conditions regarding stock ageing or devaluation of stock. [33] On 22 March 2017, Mr Ward received an email from Mr Cooper which attached a third indicative, non-binding letter of offer to purchase the DKSP Business. That third non-binding offer contained terms as to the calculation and time for payment of the purchase price in terms relevantly similar to those of the first non-binding offer set out in [28](a) and [28](b) above. The minimum amount of the completion payment to be settled by issuing Bapcor shares was reduced to 0%, although the DKSP Group could nominate an amount to be paid in shares if it wished to. Changes were also made to the valuation of inventory. [34] The DKSP Group accepted the third non-binding offer. [35] Findex then commenced taking steps to facilitate due diligence by Bapcor. In early April 2017, Findex engaged a third party provider, Ansarada, to set up an electronic data room to be used for the purpose of Bapcor carrying out due diligence on the DKSP Business. The transaction was given the name “Project Spanner” for the purpose of setting up the data room. [36] Mr Hawkswell was granted administrator privileges and was primarily responsible for granting access to third parties, uploading documents provided by the DKSP Group and reviewing any requests for further information or queries lodged by Bapcor through the data room. Throughout the due diligence process, Mr Hawkswell reviewed information which was provided to him by the DKSP Group, or its accountants, in response to requests or checklists submitted by Bapcor’s due diligence team to ensure that the information requested by Bapcor was provided and uploaded so that the due diligence process could progress. [37] As events transpired, the process of obtaining information requested by Bapcor and uploading documents to the data room progressed slowly. Findex did not make the data room available to Bapcor until on or about 5 July 2017. Thereafter, Bapcor and its advisers continued to make requests for further information to be provided. Mr Ward and Mr Hawkswell continued to liaise with the DKSP Group and its accountants to obtain the further information required to respond to these requests. [38] In August and September 2017, Findex facilitated representatives of Bapcor visiting different DKSP Group sites. [39] On 30 October 2017, Mr Williams was admitted to hospital and had triple bypass heart surgery. From that point, Rachel Williams, Mr Williams’ daughter became the primary point of contact with Findex concerning the negotiations with Bapcor. Mr Williams continued to be copied into relevant correspondence and remained the relevant decision maker in respect of his interest in the DKSP Group entities. [40] On 10 November 2017, Mr Ward sent an email to both Mr Williams and Ms Williams in which he stated that although Bapcor would like to acquire the DKSP Business they had identified two problems from their due diligence which they needed to take -- 10 of 27 -- 11 into consideration. The first problem concerned the financial performance of the DKSP Business. Gross margins had decreased from 52.5% in the 2016 financial year to 48% in the 2017 financial year. In the same period, EBITDA decreased from $10.1 million to $9.3 million. The second problem was that Bapcor had concluded that the DKSP Business was heavily reliant on Mr Williams and Mr Carpenter and there was no clear transition plan in place to lessen that reliance in the short to medium term. [41] As a consequence of those concerns, Bapcor had proposed that it would acquire 100% of the shares in the DKSP Group entities (including all cash on hand) for 6 times EBITDA on the following earn-out structure: (a) Initial payment: 60% based on 6 times FY17 EBITDA; (b) First earn-out payment: 20% based on 6 times actual FY18 EBITDA; (c) Second earn-out payment: 20% based on 6 times actual FY19 EBITDA. [42] Bapcor also proposed that Mr Williams and Mr Carpenter remain employed in the DKSP Business at the same level of active involvement for two years from completion. [43] Bapcor’s revised proposal was not acceptable to Mr Williams because it involved deferred payments of 40% of the purchase price over two years, which were dependent on the financial performance of the DKSP Group over two years after the sale and where Mr Williams would no longer have control over how the business was operated or the finalisation of the accounts. The proposal would also result in Bapcor receiving cash on hand in the amount of between $12 million and $13 million which had been excluded from the earlier non-binding offers. Mr Carpenter also informed Mr Williams that the Bapcor proposal was not acceptable to him. [44] The Bapcor proposal was then discussed at some length between Mr Ward and Scott Cutmore who was Mr Williams’ accountant. [45] On 24 November 2017, Mr Cutmore sent an email to Mr Ward stating that the DKSP Group’s final position was that the purchase price was $60 million, excluding cash. Their preference was for the full purchase price to be paid up front, but they would be prepared to consider staged payments with a modest interest component. [46] On 14 December 2017, Mr Ward received an email from Mr Cooper which attached a fourth indicative, non-binding letter of offer to purchase the DKSP Business. The terms of the fourth non-binding offer relevantly included: (a) staged payment of the purchase price as follows: (i) Initial payment on completion – 5.3 x historical sustainable EBITDA x 50% (where historical sustainable EBITDA was understood to be $9.3 million but remained subject to finalisation of due diligence – being EBITDA for the 2017 financial year); (ii) First earn out payment payable within 30 days after the date 12 months from completion – being, where “First Earn Out EBITDA” for the 12 months after completion: -- 11 of 27 -- 12 (A) is greater than $9.8 million – 6.0 x First Earn Out EBITDA x 10%; (B) is less than $9.8 million – 5.3 times First Earn Out EBITDA x 10%; (iii) Second earn out payment payable within 30 days after the date 24 months from completion being, where “Second Earn Out EBITDA” for the period 12 months from completion to 24 months after completion: (A) is greater than $10.5 million – 7.0 x Second Earn Out EBITDA x 40%; (B) is less than $10.5 million – 5.3 x Second Earn Out EBITDA x 40%; (b) the purchase price was to be paid on a cash free, debt free basis; (c) the purchase price was to be settled in cash; (d) the DKSP Group would grant Bapcor an option, exercisable at Bapcor’s sole discretion at any time up to 24 months from completion to pay a total purchase price of $60 million. [47] Mr Cooper explained in his evidence that the revised offer reflected two things which affected Bapcor’s view on the certainty of the earnings of the DKSP Business. The first was that Bapcor’s due diligence findings had shown that the EBITDA for the DKSP Business for the 2017 financial year was $9.3 million, rather than $10 million which Bapcor had previously understood. The second was that there were gaps in the information provided through the due diligence process. Those matters increased Bapcor’s assessment of the risk profile for the transaction. The revised offer reflected Bapcor’s concern to mitigate that increased risk profile by either paying less or structuring the transaction in a way which might achieve the purchase price the DKSP Group were seeking but also mitigating the risk of less certain future earnings. [48] The fourth non-binding offer was not acceptable to Mr Williams for the same reasons as the Bapcor proposal previously conveyed in Mr Ward’s email of 10 November 2017. Mr Carpenter also informed Mr Williams that the fourth non-binding offer was not acceptable to him. [49] On 19 December 2017, by email from Mr Cutmore to Mr Ward, the DKSP Group rejected Bapcor’s fourth non-binding offer and sought confirmation that negotiations with Bapcor for the sale of the DKSP Group were at an end and they were free to pursue other options. [50] On 21 December 2017, Mr Ward replied to Mr Cutmore’s email, conveying Bacor’s confirmation of the matters raised by Mr Cutmore and noting that when he indicated to Mr Cooper that the DKSP Group may look to pursue other options for a sale in the new year, Mr Cooper had responded by saying that he would be keen to stay in touch as Bapcor liked the business but could not get to the value the DKSP Group wished to sell at given the margin decline apparent in the latest financial information provided to Bapcor. -- 12 of 27 -- 13 Negotiations with other potential purchasers [51] On 11 December 2017, Mr Ward sent an email to Mr Cutmore, Mr Williams and Mr Carpenter (copied to others including Ms Williams) stating that GPC Asia Pacific (GPC), which owned the Repco business in Australia and New Zealand, had confirmed it was interested in acquiring the DKSP Business. [52] On 19 January 2018, GPC and the DKSP Group entered into a confidentiality agreement and, a short time later, GPC was provided with access to the data room set up by Findex, through Ansarada, for the purpose of its due diligence. Thereafter, Findex facilitated negotiations between GPC and the DKSP Group. [53] Ultimately, GPC declined to proceed with the transaction due to an issue with parallel importing which involved the DKSP Group buying genuine parts from Japan through an intermediary in China. [54] Between March 2018 and June 2018 (inclusive), Findex issued invoices for, and the DKSP Group paid, a $10,000 monthly retainer. [55] On 7 March 2018, Investco Services Pty Ltd (Investco) and the DKSP Group entered into a confidentiality agreement. Thereafter, Findex facilitated negotiations between Investco and the DKSP Group. [56] On 10 April 2017, Investco provided a term sheet setting out a non-binding proposal to purchase the DKSP Group at a valuation of $60 million, based on 6 times forecast EBITDA for the 2018 financial year of $10 million. The proposal was for a payment of $40 million on completion with an earn out payment calculated based on 6 times actual EBITDA for the 2018 financial year. The DKSP Group accepted the terms of Investco’s non-binding offer by executing the term sheet. [57] Ultimately, after further negotiations and due diligence, the DKSP Group and Investco were unable to reach a binding agreement. A significant issue involved the cost which Investco asserted would have to be incurred to restructure the DKSP Business after its acquisition. The transaction proposed by Investco would involve the DKSP Group making significant structural changes prior to the sale. [58] On 12 July 2018, Declan Sherman of Investco sent an email to Mr Ward in which he expressed the view that, based on the DKSP Group’s position at that stage of the negotiations, it was not possible for Investco to purchase the DKSP Group. [59] On 26 July 2018, Ms Williams sent an email to Mr Ward informing him that the DKSP Group considered that the negotiations with Investco had ceased and the transaction would not proceed. Recommencement of negotiations with Bapcor [60] In about April 2018, Mr Ramsay telephoned Mr Cooper and asked whether Bapcor would be interested in re-engaging in negotiations to purchase the DKSP Group. [61] By 23 July 2018, the DKSP Group had recommenced negotiations with Bapcor. Those recommenced negotiations were facilitated by Mr Ramsay. -- 13 of 27 -- 14 [62] On 24 July 2018, Mr Ramsay sent an email to Mr Cooper. The email stated that Mr Williams would be happy to present a sale proposal to the other directors of the DKSP Group on the basis of a total sale price of $71 million, inclusive of $10 million held in the DKSP Group’s bank accounts as undistributed profits. This would be equivalent to an asking price of $61 million on a cash free debt free basis. It was common ground between the parties that the increase in the asking price from $60 million in 2017 to $61 million was explained by the DKSP Group’s acquisition of a further business, the Japanese Commercial Spares business, for approximately $1 million since the earlier negotiations with Bapcor had concluded in December 2017. [63] Mr Williams’ evidence was that he does not recall having discussions with Mr Ramsay about such a proposal and that he was not aware that Mr Ramsay had sent the email. That evidence was not challenged in cross-examination. [64] After 10 August 2018, the DKSP Group pursued the sale of the DKSP Group or the DKSP Business to Bapcor. [65] On 13 August 2018, Ms Williams, acting on behalf of the DKSP Group, sent an email to Mr Ward which requested acknowledgement from Mr Ward that he had received the email referred to in [59] above and that he was aware that the matter covering the sale of the DKSP Business was closed upon receipt of that email. Mr Ward replied to Ms Williams’ email on 13 August 2018, acknowledging receipt of her email of 26 July 2018 and confirming that he had advised Investco of the DKSP Group’s position. Mr Ward then sent a further email to Ms Williams on 24 August 2018 in which he stated that he had met with Mr Sherman from Investco and confirmed to him that any discussions regarding the sale of the DKSP Business were closed. Thereafter, Findex did not undertake any further work in respect of the sale of the DKSP Group or the DKSP Business. [66] On 14 August 2018, Mr Williams and Ms Williams met with Mr Ramsay who presented them with an indicative non-binding offer from Bapcor. The relevant terms of that offer were: (a) the purchase price would be $61 million based upon there being, inter alia, EBITDA in excess of $9.0 million for the 12 months to 30 June 2018; (b) the purchase price was calculated on a cash free debt free basis, and would increase for any cash remaining in the DKSP Business upon completion up to a maximum of $15 million; (c) the purchase price (exclusive of any residual cash) would be settled as 85% cash and 15% equity in Bapcor. Half of the Bapcor shares issued to the vendors would be held in escrow for 12 months from completion and the remaining 50% would be held in escrow for 24 months from completion; (d) Mr Williams and Mr Carpenter would be required to remain in their operational roles for a period of up to 12 months (which could be reduced at Bapcor’s option) to engage in operating and transitioning the DKSP Business; (e) the cash component of the purchase price would be paid in two instalments, with an amount of $15 million being withheld during the transition period for up to 12 months after completion (or earlier at Bapcor’s option); -- 14 of 27 -- 15 (f) the transaction was to be structured as a purchase of the shares in each of the DKSP Group entities and Commercial Parts Pty Ltd (including Japanese Commercial Spares); (g) the offer was subject to completion of due diligence by Bapcor and negotiation of a formal sale agreement. [67] On 23 August 2018, Mr Ramsay sent an email to Mr Cooper raising several issues with the non-binding offer, including the amount of the purchase price withheld during the transition period of 12 months after completion and the length of the escrow period for the Bapcor shares paid as part of the purchase price. Bapcor would not reduce the amount of cash withheld during the transition period but agreed to reduce the escrow period for all of the Bapcor shares issued as payment to 12 months only. [68] That revision of the escrow period was set out in an updated indicative non-binding offer which Mr Cooper sent attached to an email to Mr Ramsay on 24 August 2018. The DKSP Group accepted the updated indicative non-binding offer on around 31 August 2018. [69] From around September 2018 to 26 November 2018, Bapcor was provided access to a data room established by the DKSP Group and carried out its due diligence in relation to the proposed sale. The data room was established in circumstances where Ms Williams had obtained from Mr Hawkswell a copy of all the information uploaded to the original data room maintained by Ansarada and directed Mr Hawkswell to remove any of Findex’s staff as administrators of that data room. Once Ms Williams had received the archived due diligence material from Mr Hawkswell she caused the DKSP Group’s accountants to upload the information to a new data room. Ms Williams became the administrator of that new data room. [70] During this further due diligence period, Ms Williams liaised with internal accounts staff of the DKSP Group, as well as external accountants, to gather documents and information for the purpose of responding to requests for information received from Bapcor. [71] On 26 November 2018, the DKSP Group entered into an agreement for Bapcor to acquire the DKSP Group (Bapcor Agreement). The terms of the Bapcor Agreement relevantly included: (a) the purchase price was the aggregate sum of: (i) a “Completion Payment” being $51.85 million less estimated “Employee Entitlements”, less “Debt at the Calculation Time”, plus “Cash at the Calculation Time”, less “Withheld Inventory Amount” and less the “First Deferred Payment”; (ii) the value of the “Completion Shares”, being $9.15 million; (iii) the “First Deferred Payment”, being $15 million payable 12 months after completion; and -- 15 of 27 -- 16 (iv) the “Second Deferred Payment”, being the “Withheld Inventory Amount” less the aggregate sum, based on the lower of the purchase cost and net realisable value, of the value of any inventory under four years old at the “Calculation Time” that has not been sold within three years of the “Calculation Time”, payable 30 days after the third anniversary of Completion. [72] Mr Ward became aware of the sale of the DKSP Group to Bapcor through an announcement Bapcor made to the ASX. On 30 November 2018 he sent an email to Mr Williams and Ms Williams congratulating them of the sale to Bapcor. [73] The Bapcor Agreement was completed on or about 4 December 2018. [74] On 17 December 2018, Mr Ward sent an email to Mr Williams and Mr Carpenter (copying Ms Williams) which attached a tax invoice to the DKSP Group dated 14 December 2018 for payment of a success fee of $1,386,000 following the completion of the sale of the DKSP Group to Bapcor. The DKSP Group have refused to pay Findex’s tax invoice. The term of the Contract [75] It is necessary to first consider a preliminary question of construction concerning the term of the Contract before addressing any entitlement Findex may have to payment of a success fee. The DKSP Group submit that, on its proper construction, the Contract was for a fixed term of six months from the date the DKSP Group signed the acknowledgement on page 4 of the Engagement Letter indicating their agreement to the terms and conditions set out in the Engagement Letter and the Terms of Business. If that submission is accepted Findex’s arguments as to the construction of the Contract would not matter because completion of the Bapcor Agreement would have occurred more than 12 months after the expiry of the Contract. [76] The DKSP Group’s proposed construction as to the term of the Contract is said to arise from the express statement in clause E of the Engagement Letter that: “This engagement is an exclusive mandate for a period of six months from the date of acknowledgement of this letter.” [77] It was submitted that the statement above specifies both the duration of the engagement (six months) and the fact that during that period the mandate is exclusive. That construction, it was submitted, is supported by that part of clause D of the Engagement Letter which specifies payment of a monthly retainer of $10,000 per month for the earlier of completion of a sale or six months, such that six months is the end date for payment of retainers. [78] For the reasons which follow, I do not accept that, on its proper construction, the Contract was for a fixed term of six months from the date of acknowledgement. [79] The first paragraph of clause E of the Engagement Letter records the parties’ mutual understanding, at the time the Contract was entered into, that a sale process might take longer than six months to complete. Although the submissions of the DKSP Group accurately described that statement as having a narrative character rather than being a statement of contractual obligation, it nevertheless forms part of the mutually -- 16 of 27 -- 17 known context in which the Contract was agreed and against which it must be construed. [80] The submissions of the DKSP Group addressed this issue by stating that clause E addresses the prospect that completion of the sale process might take longer than six months through the conferral of the entitlement to be paid the success fee if a sale was completed with a party with whom discussions had been held in the six month exclusivity period, and within 12 months of the end of that exclusivity period. While that submission addresses the right of Findex to recover a success fee after the term of the Contract had expired it does not address what authority Findex would have had to negotiate on behalf of the DKSP Group with Bapcor or any other potential purchaser after the Contract had expired and its engagement had ceased. In closing addresses Mr Couper QC, who appeared with Mr Marckwald for the DKSP Group, submitted that upon expiry of the six month fixed term Findex continues to hold an ad hoc authority outside the scope of the terms of the Contract. [81] In circumstances where the parties expressly contemplated that a sale process might not be completed within six months, it is unlikely that a reasonable businessperson would have understood clause E of the Engagement Letter to mean that the Contract would expire six months after the date of acknowledgement if the sale process was not then complete. The effect of the argument of the DKSP Group about the replacement of the Contract with an ad hoc authority would mean that if, after the end of the six month exclusivity period, Findex introduced a new potential purchaser with whom no discussions were held during the six month exclusivity period and subsequently effected a sale to that purchaser, Findex would not have any right to recover a success fee as clause D of the Engagement Letter would no longer be in effect. That seems to me to be an uncommercial construction. [82] That conclusion is fortified by the parties’ use of the term “engagement” in the first sentence of the second paragraph of clause E, and the different term “exclusivity period” in the following sentence when describing the event which triggers the commencement of the 12 month period when a success fee might be deemed to apply. If the Contract was for a fixed term of six months the parties would be expected to have used the term “engagement” in both places. The reference to a sale being completed within 12 months from the end of the “exclusivity period” suggests that, although Findex’s entitlement to act as the exclusive agent for the DKSP Group in seeking to negotiate a sale would end after six months, the engagement under the Contract would continue on a non-exclusive basis if the sale process had not been completed by that time. The loss of the exclusive right to act as agent, together with the cessation of the payment of the monthly retainer after six months, are best understood as consequences which would act as incentives to Findex to seek to complete the sale process within the six month timeframe it estimated, not as indicators that the Contract would expire after six months in the absence of a completed sale. Findex’s claim for payment of the success fee [83] Findex claims an entitlement to be paid the success fee pursuant to: (a) clause D of the Engagement Letter which provides for payment of a success fee upon completion of a sale of the DKSP Business; and -- 17 of 27 -- 18 (b) clause 14.1(d) of the Terms of Business which, Findex submits, has the effect that its right to payment of the success fee survived termination of the Contract where the sale was completed within 12 months of such termination. [84] Those express terms are said to operate subject to one of two alternative implied terms, each of which relevantly requires that the sale which triggers the entitlement to payment of a success fee be one for which Findex was an effective cause. The implication of a requirement that Findex be an effective cause of the sale is said to arise by one of three alternative means: as part of the proper construction of the Contract; by implication at law; or by implication in fact. [85] Findex submitted that clause 14.1(d) of the Terms of Business operated separately to clause E of the Engagement Letter and for the duration of Findex’s engagement to protect Findex’s right to be paid a success fee upon the completion of a relevant sale occurring within 12 months of the termination of the Contract. On the basis of the implied terms for which Findex contends, I understand the reference to a “relevant sale” to be a sale for which Findex was an effective cause. [86] I am unable to accept that submission. By its terms, clause 14.1(d) only operates to preserve rights to payment of fees which arise pursuant to the Engagement Letter. The clause does not operate to confer any right to payment of a fee separate to, and independently of, the terms of the Engagement Letter. [87] The Engagement Letter provides that Findex will be entitled to payment of a success fee in two circumstances. [88] The first circumstance, under clause D, is where a sale is completed. Construing clause D in the context of the Contract as a whole, that would be understood by the reasonable businessperson to mean a sale which Findex had effected by performing services of the type described in clause B of the Engagement Letter. On that basis, the entitlement to be paid a success fee pursuant to clause D could only arise during the term of the Contract. Once the Contract is terminated and Findex ceases providing services of the type described in clause B, Findex would no longer be in a position to effect a sale for the purposes of clause D. [89] The second circumstance, under clause E, is where Findex has not effected a sale itself but is deemed to be entitled to payment of a success fee where the conditions of that clause are met: that a sale is completed with a party with whom discussions had been held in the six month exclusivity period, and that such sale is completed within 12 months of the end of that exclusivity period. The entitlement to payment of a success fee might arise while the Contract remained in effect, in circumstances where a second agent is appointed and effects the sale to a party with whom discussions had been held during Findex’s six month exclusivity period. The entitlement to payment of the fee under clause E might also arise after the Contract had been terminated and a new agent had been appointed in Findex’s place. Indeed, the deeming provision in clause E provides the only basis, on the express terms of the Engagement Letter, that the success fee might become payable to Findex after the Contract is terminated. It also expressly limits the timeframe in which payment of a success fee might arise after termination of the Contract to the period of 12 months from the end of the exclusivity period. -- 18 of 27 -- 19 [90] The construction for which Findex contends would have the effect of expanding both the circumstances in which an entitlement to be paid a success fee might arise after termination of the Contract and the timeframe in which that entitlement might arise. The entitlement would arise whenever Findex could establish it is the effective cause of the sale, as distinct from effecting the actual sale itself,1 whether or not the purchaser is a party with whom discussions were held during the exclusivity period. As to the timeframe, Findex’s construction would result in a success fee becoming payable when a sale for which Findex was the effective cause occurred within 12 months of the termination of the Contract, even if that period extended more than 12 months beyond the end of the exclusivity period. [91] That analysis demonstrates an inconsistency between clause 14.1(d) of the Terms of Business and clause E of the Engagement Letter. That inconsistency is best identified by noting that the right to be paid the “Completion Fee” in clause 14.1(d) of the Terms of Business is described, by use of the word “including” in that clause, as a right which Findex has to fees under the Engagement Letter. For the reasons addressed earlier, the Engagement Letter does not confer a right on Findex to be paid a fee “where a sale of business assets or equity is completed within 12 months from termination of the Contract”, only a right to be paid where the requirements of clause D (effecting a sale) or clause E (completion of a sale to a party with whom discussions had been held in the six month exclusivity period, such completion occurring within 12 months of the end of the exclusivity period) are satisfied. To the extent that clause 14.1(d) of the Terms of Business provides to the contrary it is inconsistent with the Engagement Letter and in those circumstances, pursuant to clause 14.9(a) of the Terms of Business, the Engagement Letter is to take precedence. [92] To construe the Contract in this way does not, as Findex submitted, render clause 14.1(d) of the Terms of Business nugatory. If Findex were to effect a sale and become entitled to payment of a success fee under clause D of the Engagement Letter then clause 14.1(d) would operate to ensure that right would survive any subsequent termination of the Contract before the fee had been paid. The same could be said of an entitlement to a success fee arising under clause E of the Engagement Letter prior to termination of the Contract. Finally, clause 14.1(d) would be engaged so as to preserve Findex’s right to be paid a success fee under clause E if that entitlement arose after the Contract had been terminated, but within the deeming period ending 12 months from the end of the exclusivity period. What clause 14.1(d) cannot do is operate independently from the express terms of the Engagement Letter as a separate source of a right to recover a success fee, particularly where that right might arise in broader circumstances and over a longer timeframe than is contemplated by the Engagement Letter. [93] For those reasons I would not, as a matter of construction, imply either of the terms Findex seeks to imply concerning its entitlement to be paid a success fee upon completion of a sale for which it was an effective cause. [94] Nor is such a term to be implied as a matter of law. The authorities cited by Findex in support of its argument for implication of the term at law concern real estate agency contracts.2 There is intermediate appellate authority against the submission that, 1 A distinction explained in Moore v Luxury Boat Holdings Pty Ltd [2020] WASCA 144, [46] – [48]. 2 See for example Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 at 360, [27] – [29]. -- 19 of 27 -- 20 outside of the field of real estate agency contracts, an “effective cause” term is implied in agency contracts as a matter of law.3 Mr Jennings QC, who appeared for Findex, submitted that this view should be read in light of the subsequent observation in Commonwealth Bank of Australia v Barker4 that a term may be implied in law through repeated implications in fact, as a category of contract, and where, absent the implication, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless or be undermined or the contract deprived of its substance or drastically devalued. The submission made, based on that statement of general principle, was that in circumstances where real estate agency contracts are an accepted category of contracts where an “effective cause” term is implied at law, and the Contract was made in an analogous commercial situation where a commission is payable on achievement of an outcome but the necessary causal link between the outcome and the efforts of the agent are not clearly drawn, the court can now be satisfied that it is appropriate now to apply such a term into a broader category of commercial agency contracts. [95] I am not satisfied that, outside the category of real estate agency contracts, there has been repeated implication in fact of “effective cause” clauses in commercial agency contracts so as to warrant the extension of the implied term at law from real estate agency contracts to commercial agency contracts. [96] In any event, as the observation from Barker referred to in [94] above makes clear, the implication of a term into a particular class of contract as a matter of law is constrained by the requirement of necessity. That is, the implication of the term must be justified by reference to the effective performance of the class of contract to which the term is to apply. [97] Findex submitted the implied term was necessary in circumstances where the Contract does not expressly define the causal relationship that must exist between any act done by Findex, as agent, and the sale of the DKSP Group or the DKSP Business which enlivens the entitlement to be paid a success fee. Having regard to the construction set out in [87] to [89] above, I do not accept that submission. The Contract is capable of being performed effectively on the basis that Findex is entitled to be paid a success fee in the two circumstances described in those paragraphs. [98] Further, the fact that the entitlement to payment of a success fee under the proposed implied terms is, as discussed in [90] and [91] above, broader than, and therefore inconsistent with, the express terms of the Contract is a further basis for refusing to imply either of those terms as a matter of law.5 [99] These same considerations of necessity and inconsistency with the express terms of the Contract mean that the proposed implied terms do not meet the criteria specified for implication as a matter of fact in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.6 It cannot be said that the implication of either of the proposed implied terms is necessary to give business efficacy to the Contract such that the Contract is not effective without it. Nor can it be said that the proposed implied terms do not contradict any express term of the Contract. 3 Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2009] NSWCA 190, [77] – [78]. 4 (2014) 253 CLR 169 at 188-9, [28] – [29]. 5 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 449. 6 (1977) 180 CLR 266 at 283. -- 20 of 27 -- 21 [100] The consequence of my conclusion as to the proper construction of the Contract is that Findex is not entitled to be paid a success upon completion of the Bapcor Agreement. Findex did not effect that sale, it being common ground that the sale was completed (at least) several months after Findex’s engagement under the Contract was terminated. Accordingly, Findex had no entitlement to be paid the success fee under clause D of the Contract. Further, the completion of the sale to Bapcor in December 2018 occurred approximately 19 months after the end of the exclusivity period and therefore did not meet the requirements under clause E of the Engagement Letter for the success fee to be deemed payable to Findex. There being no right to any success fee payable under the Engagement Letter, clause 14.1(d) of the Terms of Business has no operation in the circumstances of this case. Whether Findex was the effective cause of the sale to Bapcor [101] In the event that the construction of the Contract set out above is not the proper construction, it is necessary to consider whether Findex was the effective cause of the sale to Bapcor. [102] In circumstances where the entitlement to be paid commission arises upon a sale, as is the case here, the agent is not entitled to recover commission simply because it expended considerable time and energy in the interests of the seller and found a person ready, willing and able to buy and indeed brought that person to the very brink of a sale. The agent must establish that a sale was made and that a causal relationship exists between its actions and the sale, or in other words, that the sale was brought about through its agency. This is ultimately a question of fact.7 [103] Where there is some particular impediment or difficulty in the way of a buyer who is otherwise willing to enter into a contract, such that there could be no sale until this impediment or difficulty is overcome, it will usually be the case that, unless the agent plays some part, even though a minor one, in overcoming the difficulty, it cannot be said to be an effective cause of the sale.8 [104] The concept of effective cause may be called in aid to entitle an agent to commission where the relation of buyer and seller is, in substance, brought about by the conduct of the agent, even though it has not effected the actual sale. It is not enough to establish that the transaction probably would not have occurred without the agent’s introduction of the purchaser. Instead, the agent’s efforts must have continued to influence the purchaser in the decision to buy or have flowed through to the purchaser so as to have caused the ultimate sale.9 This requires a consideration of all circumstances which may have had some causal relationship with the sale.10 [105] Findex, through Mr Ward, identified Bapcor’s interest in negotiating to purchase the DKSP Group or the DKSP Business by contacting Mr Cooper and providing him with relevant information. He then communicated Bapcor’s interest to Mr Ramsay as a means of encouraging the DKSP Group to engage Findex for the sale process. On 7 L.J. Hooker Ltd v W. J. Adams Estates Pty Ltd (1977) 138 CLR 52 at 67-68. 8 Baker v Leonard Oades Pty Ltd (1964) NSWR 1745 at 1746-1747. 9 Moore v Luxury Boat Holdings Pty Ltd [2020] WASCA 144 at [46] – [47]; Emmons Mount Gambier Pty Ltd v Specialist Solicitors Network Pty Ltd [2005] NSWCA 117 at [39], citing Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351. 10 Berben v Hedditch [1982] ANZ ConvR 535 at 536. -- 21 of 27 -- 22 that basis, it is clear that Findex introduced Bapcor to the DKSP Group as a potential purchaser. [106] Once Findex had been engaged, it was authorised by the DKSP Group to engage with Bapcor as a potential purchaser. Findex, through Mr Ward, acted on that authority, by acting as intermediary in negotiations for a sale between December 2016 and December 2017. Findex’s efforts succeeded in eliciting the first and second non- binding offers from Bapcor in January 2017, which were not accepted by the DKSP Group, and the third non-binding offer in March 2017 which was accepted. Findex thereafter facilitated the establishment of the data room and managed the DKSP Group’s response to requests for information during the due diligence undertaken by Bapcor. [107] The negotiations facilitated by Findex ceased because Bapcor formed the view that it could not justify a fixed purchase price of $60 million after a decline in the financial performance of the DKSP Business in the 2017 financial year. Mr Cooper’s evidence was that the risk associated with a sale at that price was not acceptable to Bapcor at that time. The EBITDA of the DKSP Business for the 2017 financial year was approximately $9.3 million and had reduced from approximately $10 million the previous financial year. Shortly before Bapcor sent the fourth non-binding offer referred to in paragraph [46] above, Mr Cooper sent an email to Mr Ward stating that the negotiations were at a point where Bapcor needed to outline a final offer and that if that offer was not acceptable to the DKSP Group the negotiation process would be at an end. That was the position reached after the rejection of the fourth non-binding offer by the DKSP Group. At that time, the DKSP Group’s asking price of $60 million was the impediment to a successful sale. [108] The relevant question is whether the work Findex performed pursuant to the Contract in attempting to negotiate a sale to Bapcor in 2017 continued to influence Bapcor’s subsequent decision in November 2018 to enter into the Bapcor Agreement. [109] Mr Cooper explained during his evidence that despite the negotiations coming to an end in 2017 without a sale Bapcor was still interested in purchasing the DKSP Business. At the conclusion of the 2017 negotiations, Mr Cooper told Mr Ward that Bapcor remained keen to stay in contact with the DKSP Group in 2018 because of its favourable view of the DKSP Business. Mr Ward communicated that position to the DKSP Group at the same time that he conveyed Bapcor’s confirmation that the sale discussions were at an end and the DKSP Group was free to explore whatever other options it wished to. [110] After Mr Ramsay contacted Mr Cooper in April 2018 to ascertain whether Bapcor was interested in re-engaging in negotiations with the DKSP Group, and in the course of the negotiations which occurred without Findex’s involvement in July and August 2018, the impediment of the fixed $60 million purchase price was overcome by Bapcor proposing a purchase price of $61 million (of which $1 million was related to the Japanese Spare Parts business purchased by the DKSP Group in 2018) provided the DKSP Business had EBITDA of $9 million for the 2018 financial year. [111] I do not accept Findex’s submission that, whilst the mechanism for the calculation of the purchase price for the DKSP Group changed between December 2017 and August 2018, the material benefits arising from the transaction proposed in December (including as regards prospective price) had not. The change to the calculation of the -- 22 of 27 -- 23 purchase price proposed by Bapcor in 2018 so that the price would not be dependent upon the future earnings of the DKSP Business meant that the terms of the Bapcor Agreement were materially different to the terms proposed by Bapcor in December 2017. It was this change which facilitated the parties’ entry into the Bapcor Agreement. Given the evidence concerning Mr Williams’ refusal to shift from an asking price of $60 million, there is no basis to think that agreement would have been reached if Bapcor had continued to propose terms in 2018 which included any part of the purchase price being made subject to the financial performance of the DKSP Business after a sale. [112] Although it was Mr Ramsay who renewed contact with Mr Cooper in 2018, the evidence does not support a finding that it was Mr Ramsay’s intervention that caused Bapcor to alter its position on price. Mr Ramsay informed Mr Cooper (see [62] above) that Mr Williams was prepared to present a sale proposal to the other directors of the DKSP Group at what was effectively the same purchase price as the DKSP Group had been seeking since January 2017. Mr Cooper was already aware of the purchase price Mr Williams was seeking. There is no evidence that anything done by Mr Ramsay had any effect on Bapcor’s willingness to pay the required price. [113] Mr Cooper’s evidence identified two changes which occurred between 2017 and 2018 which explain Bapcor’s preparedness to pay the DKSP Group’s asking price in 2018. [114] The first matter concerned the manner in which the due diligence process was conducted in 2018. [115] Although Mr Ward’s discussion with Mr Cooper (see [50] above) suggests an amicable end to the negotiations, it is apparent from the evidence that the due diligence process had proved frustrating for both sides of the proposed transaction. Bapcor was concerned about gaps in the information provided in response to its requests. Mr Cooper gave evidence that simple requests seemed to take a long time for Findex and the DKSP Group to answer. Mr Williams was concerned about the slow pace of the due diligence process and what he perceived to be unnecessary repetition of questions that had previously been answered. [116] Mr Cooper gave evidence that he had experienced this situation on a number of occasions where an unsophisticated seller doesn’t understand what information was being asked for during due diligence or why that information was being requested. He explained that it was the role of the adviser to make sure the seller understood why information was being requested and that it needs to be disclosed because otherwise the transaction wouldn’t proceed. Mr Cooper’s experience of the due diligence process caused him to form the view by the end of 2017 that Findex had failed to properly engage with the DKSP Group to understand the DKSP Business and to prepare it for sale, and that Findex had not provided sufficient clear and complete information through the process to enable a transaction to proceed at the $60 million purchase price expected by the DKSP Group. [117] Mr Cooper’s evidence about the further due diligence process undertaken in 2018 was that, although there were still some gaps, Bapcor received better information and the Bapcor team’s direct engagement with Ms Williams gave him confidence based on the quality of information provided and the timeliness of the responses. -- 23 of 27 -- 24 [118] In my view, the differences between the due diligence process conducted by Findex, and that subsequently conducted by the DKSP Group directly, had significantly less impact on Bapcor’s position on price than the second matter (addressed below). The non-binding offers made in August 2018, which included the proposal to pay a fixed purchase price of $61 million based on EBITDA of $9 million, were made before the further due diligence was undertaken in September and October 2018. [119] The second matter identified by Mr Cooper concerned Bapcor’s purchase of Hellaby Group, a New Zealand listed entity, in 2017 for more than $300 million. That transaction involved the acquisition of a significant automotive business that needed to be integrated with Bapcor’s existing business, as well as three non-core businesses that Bapcor needed to dispose of. The size of that transaction, and the risks associated with it, meant that Bapcor’s appetite to proceed quickly with more acquisitions was limited in 2017. By 2018, Bapcor had largely addressed the issues involved in the Hellaby Group acquisition and integrated the core business. For that reason, Mr Cooper said that Bapcor’s risk appetite had progressed, which I take to mean increased, and it was willing to pay a higher multiple for the DKSP Business because it was strategically important for Bapcor to expand its business into the truck parts market. It was this changed position of Bapcor, and specifically its greater appetite for risk following the bedding down of the issues involved in the acquisition of Hellaby Group, which had the most significant effect in altering Bapcor’s willingness to pay the DKSP Group’s asking price. [120] In those circumstances, nothing which Findex did in 2017 had any effect in overcoming the impediment to sale. On that basis, I am not satisfied that Findex’s efforts continued to influence Bapcor in its decision to enter into the Bapcor Agreement in 2018 or that such efforts flowed through so as to have caused the ultimate sale. [121] A further issue concerning the question of effective sale arose from Findex’s acceptance that, to succeed on that question, it was necessary for it to establish that, had it been given an opportunity to do so, it would have facilitated the final sale.11 That is, Findex would have to demonstrate, on the balance of probabilities, that, if given the opportunity, it would have overcome the impediment of price which led the initial negotiations to conclude without a sale in December 2017. [122] I have already found that it was a change in Bapcor’s risk appetite after the completion of the Hellaby Group acquisition which had the most significant effect in altering Bapcor’s position on price. Mr Cooper also gave evidence that Bapcor would still have recommenced negotiations with the DKSP Group in the event that the approach in 2018 had been made by Findex instead of Mr Ramsay. It seems then that the issue whether Findex would have overcome the impediment of price really turns upon a consideration of the likelihood that Findex would have devoted further resources to renewing negotiations with Bapcor in July 2018. [123] Mr Ward’s evidence-in-chief was that if Findex had continued to act as agent for the DKSP Group in July 2018, after negotiations with GPC and Investco had ended, he would have allowed some time to elapse before approaching Ms Williams to discuss the merits of reapproaching Bapcor. As to why he would have reapproached Bapcor, 11 Emmons Mount Gambier Pty Ltd v Specialist Solicitors Network Pty Ltd [2005] NSWCA 117 at [3]. -- 24 of 27 -- 25 Mr Ward said that it was always the most logical buyer and had previously expressed an interest in purchasing the DKSP Business. [124] That evidence does not address what, if any, basis Mr Ward might have had to believe that the price impediment which had ended the negotiations in 2017 might be overcome through further negotiations. [125] Findex’s efforts up to December 2017 had not secured an offer at the DKSP Group’s required price of $60 million. Mr Ward’s assessment at the conclusion of the negotiations in December 2017 was that the fourth non-binding offer which, as discussed above, was unacceptable to the DKSP Group, was the best way Bapcor could come up with to somehow bridge the gap on price. Mr Ward accepted during cross-examination that, as at December 2017, Findex was not going to achieve a sale price of $60 million from Bapcor. [126] On 28 February 2018, Mr Ward sent an email to Mr Cooper providing updated figures for the DKSP Business for the six months to 31 December 2017. Mr Cooper did not provide any response to that email. A couple of months after Mr Ward had sent that email, Ms Williams asked Mr Ward whether there was any further interest from Bapcor. In response, Mr Ward said words to the effect that he had sent the email to Bapcor setting out updated figures and had received no response and that was her answer. Mr Ward accepted during cross-examination that, in this conversation with Ms Williams, he was conveying his view that, at that point in time, there was no prospect of Bapcor coming back into the picture as a potential purchaser. [127] Finally, Mr Ward accepted during cross-examination that, in the period from August 2018 to November 2018 when he learned of the sale of the DKSP Group to Bapcor, there was nothing stopping him from going to the DKSP Group after some time had passed and expressing the view that they should be chasing up Bapcor. He also accepted that the true position at that time was that he had given up because his view was that the $60 million asking price the DKSP Group were seeking was unrealistic and wouldn’t get paid by Bapcor so he would be wasting his time pursuing further negotiations. [128] Findex submitted that this concession by Mr Ward about wasting his time must be considered in the context that he was being asked questions about the period of time after Findex’s engagement had been terminated. Although that was the context of the question, I do not consider that alters the nature of Mr Ward’s concession. Whether or not Findex continued to be engaged as agent ought not have had any effect on Mr Ward’s view about the likelihood that Bapcor would pay the price that the DKSP Group were seeking. Mr Ward’s response seems to me to be a frank and honest statement of his view, which he held from the conclusion of the negotiations in December 2017 until learning of the sale to Bapcor in November 2018, that Findex would be unable to overcome the difference on price. [129] In the end I am not persuaded that, in circumstances where he held that view, Mr Ward would have sought to recommence negotiations with Bapcor in July 2018 or thereafter if its engagement had continued. It follows that I am not satisfied that, had it been given an opportunity to do so, Findex would have facilitated the final sale to Bapcor. -- 25 of 27 -- 26 [130] For these reasons, were it necessary to do so, I would not find that Findex was an effective cause of the sale to Bapcor. Whether the DKSP Group breached the duty to cooperate or a duty of good faith [131] Findex’s alternative case, if it does not succeed on its claim for payment of the success fee, is that the DKSP Group breached duties of co-operation and good faith that are alleged to be implied by law into the Contract. [132] The implication of a contractual duty to co-operate and “to do all such things as are necessary … to enable the other party to have the benefit of the contract” is well established.12 The DKSP Group accepts the existence of that duty but submits, correctly, that the scope of the duty is defined by what has been promised under the Contract and does not amount to a general duty to ensure another party obtains an anticipated benefit.13 In the absence of a fiduciary relationship, there cannot be a duty to co-operate in bringing about something which the Contract does not require to happen.14 [133] The development of the law in relation to the implication of an obligation of good faith was described in detail by Jackson J in Aurizon Network Pty Ltd v Glencore Coal Queensland Pty Ltd.15 There is no binding decision of the Queensland Court of Appeal, or the High Court, that establishes that an obligation of good faith is implied by law into contracts, or all commercial contracts. The question is otherwise the subject of conflicting intermediate appellate authority. [134] In this case it is not necessary for me to attempt to resolve the question whether such an obligation should be implied at law into the Contract. That is because, even if I was prepared to imply such an obligation, I am not satisfied on the evidence that any conduct on the DKSP Group’s part breached the obligation. Nor did the DKSP Group breach the duty to co-operate. [135] Findex submitted that the implied terms were breached by the DKSP Group in circumstances where Mr Williams terminated Findex’s engagement at a time when negotiations with Bapcor had recommenced and he wished to avoid any obligation on the part of the DKSP Group to pay a success fee to Findex. [136] There is evidence that by the second half of July 2018, Mr Williams was aware that Bapcor was prepared to submit a further proposal to purchase the DKSP Group. On 20 July 2018, Ms Williams sent an email to Mr Cutmore with the subject line “Bapcor Deal” telling him that Mr Ramsay would be contacting him shortly. The email then set out in very brief terms what would be proposed. The following day, Mr Cutmore sent an email to Ms Williams, copied to Mr Williams, providing an explanation of one aspect of the proposal. On 23 July 2018, Ms Williams sent a further email to Mr Cutmore saying that she had sent his explanation to Mr Williams and that Mr Williams had some questions for Mr Cutmore on “both deals”, one of those deals being the new proposed offer expected to come from Bapcor. I accept the evidence of Ms Williams that she was directed by Mr Williams to send those emails to Mr 12 Butt v M’Donald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. 13 Wolfe v Permanent Custodians Ltd [2013] VSCA 331 at [28]. 14 Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534 at [134]. 15 (2019) 1 QR 392 at [219] – [245]. -- 26 of 27 -- 27 Cutmore. It follows that by 23 July 2018, Mr Williams was aware of a prospective new deal with Bapcor. [137] I accept Mr Williams’ evidence that, as at July 2018, he believed that the DKSP Group did not have any further obligation to Findex. His understanding was that the DKSP Group were only obliged to pay Findex a success fee if a sale to Bapcor was completed within 12 months from the end of the initial six month exclusivity period. In those circumstances I am unable to see how the duty of co-operation or any obligation of good faith could have operated to preclude the termination of Findex’s engagement. [138] It is clear from clause E of the Engagement Letter, and Findex accepts, that by July 2018 its engagement was on a non-exclusive basis. This means the DKSP Group was free at that time to pursue a sale to Bapcor either directly or through an agent other than Findex. In those circumstances, the Contract did not require that the DKSP Group notify Findex of the recommenced negotiations with Bapcor. Nor did the Contract require that the DKSP Group provide Findex with the opportunity to effect a sale to Bapcor. In those circumstances, I infer that the DKSP Group’s termination of Findex’s engagement reflected a decision by Mr Williams that, following Findex’s involvement in the unsuccessful negotiations with Bapcor in 2017, he did not want Findex involved when negotiations with Bapcor recommenced. Given the non- exclusive nature of the engagement, I can see no absence of good faith in such a decision. Nor, for the reasons given in [132] above, did the duty of co-operation prevent Mr Williams making such a decision or giving effect to it by causing the DKSP Group to terminate the Contract. [139] Findex’s written closing submissions referred to the case of Insight Oceania Pty Ltd v Phillips Electronics Australia Ltd16 which was said to be analogous to the present case. That decision concerned the purported termination of an agreement under which the plaintiff was appointed the exclusive distributor of certain diagnostic medical imaging products in Australia and New Zealand. The basis for the purported termination was the asserted failure of the plaintiff to meet its sales goal for one year and the fact that the parties had not agreed in writing to a reasonably achievable sales goal for the following year. I cannot see anything in that decision which supports Findex’s submission that termination of its engagement in the circumstances of this case breached either the duty of co-operation or any obligation of good faith. [140] In any event, if either the duty of co-operation or an obligation of good faith precluded the termination of the Contract, for the reasons set out in [121] to [129] above, I would not find that by reason of the termination Findex lost the commercial opportunity to act as the agent of the DKSP Group on its sale to Bapcor. Conclusion [141] The result is that Findex’s claim must be dismissed. On the proper construction of the Contract, it had no entitlement to be paid a success fee. Nor is Findex entitled to any damages because the termination of the Contract did not breach the duty of co- operation or any implied obligation of good faith. [142] I will hear the parties on the question of costs. 16 [2008] NSWSC 710. -- 27 of 27 --