DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1159 (9 September 2004)

CONTRACT – interpretation and construction of commercial contracts – sums due under post-completion adjustment clause - breach of warranty.

TRADE PRACTICES – misleading or deceptive conduct – estoppel – rectification for unilateral mistake.

Antaios Compania Naviera SA v Salen Rederiena AB [1985] AC 191 applied
Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 applied
Bank of New Zealand v Simpson [1900] AC 182 applied
Codelfa Construction Pty Ltd v State Rail Authority [1982] HCA 24; (1982) 149 CLR 337 applied

Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 referred to
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 referred to

First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 referred to
Hillas & Co Ltd v Arcos Ltd [1932] LT 513 applied
Johnson Matthey v A C Rochester Overseas (1990) 23 NSWLR 190 referred to

Lee Kong Nelder Nominees Pty Ltd v John Holland Construction & Engineering Pty Ltd WA Supreme Court Full Court 27 May 1998 referred to

Macdonald v Longbottom (1859) 1 E & E 977; 120 ER 1177 applied
Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 applied
Pacific Carriers Limited v BNP Paribas [2004] HCA 35 applied

Re Freehouse Pty Ltd (1997) 26 ACSR 662 referred to
Riverlate Properties v Paul [1975] Ch 133 referred to

Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; 186 ALR 289 applied
South Sydney Council v Royal Botanic Gardens and Domain Trust [1999] NSWCA 478 referred to
Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 applied

Thomas Bates and Son v Wyndham’s (Lingerie) Limited [1980] EWCA Civ 3; [1981] 1 WLR 505 referred to
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 applied

DSE (HOLDINGS) PTY LIMITED v INTERTAN INC & ANOR
N 3011 of 2002

ALLSOP J
9 SEPTEMBER 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3011 of 2002

BETWEEN:	DSE (HOLDINGS) PTY LTD APPLICANT
AND:	INTERTAN INC FIRST RESPONDENT INTERTAN CANADA LIMITED SECOND RESPONDENT
JUDGE:	ALLSOP J
DATE OF ORDER:	9 SEPTEMBER 2004
WHERE MADE:	SYDNEY

and referred to by the parties in these proceedings as the "December Corporate Pack".

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3011 of 2002

BETWEEN:	DSE (HOLDINGS) PTY LTD APPLICANT
AND:	INTERTAN INC FIRST RESPONDENT INTERTAN CANADA LIMITED SECOND RESPONDENT

JUDGE:	ALLSOP J
DATE:	9 SEPTEMBER 2004
PLACE:	SYDNEY

2 This matter concerns the adjustment payments said to be due and payable arising from the sale of shares in a company called InterTAN Australia Limited ("ITAL"). The applicant ("DSE") is a wholly owned subsidiary of Woolworths Limited ("Woolworths").

3 Prior to the purchase of the shareholding in ITAL, DSE carried on a business under the name "Dick Smith Electronics", selling consumer electronic products and services. In 2000, ITAL carried on a business of the same kind in Australia, under the name "Tandy Electronics". I will refer to this as the Tandy business. I will refer to Woolworths’ like business as the Dick Smith business. ITAL was owned by two overseas companies InterTAN Inc and InterTAN Canada Limited. I will refer to these companies as InterTAN Inc and InterTAN Canada. Sometimes, I will refer to the interests associated with them simply as InterTAN. InterTAN Inc wholly owned all the ordinary shares in ITAL. InterTAN Canada owned $10 million dollars of preference shares in ITAL.

4 The Tandy business was carried on by ITAL, though, as will become important, another company, Technotron Sales Corp Pty Limited ("TSC") had, prior to 1 July 2000, a role to play in connection with that business. Prior to the introduction of the Goods and Services Tax, TSC operated as a wholesale company for the purposes of sales tax, purchasing foreign sourced goods and supplying them to ITAL. This role ceased on 30 June 2000. Thereafter, TSC was dormant in terms of commercial activity. There was, however, an intercompany liability between ITAL and TSC (owed by the former to the latter) of over $4 millions dollars, the precise amount varying at different times after 1 July 2000. It is that intercompany liability (though not its precise amount) which is central to the controversy between the parties.

5 The purchase price for the shares in ITAL was calculated by reference to a simple arrangement agreed between senior officers of the respective companies. The sale was to be for $108 million on an "ungeared" or "unleveraged" or "unlevered" basis. This meant that the negotiated price of $108 million was for the business and assets supporting the operations and earnings of the business. Seen as separate from the assets and liabilities supporting the operations and earnings of the business were surplus cash, cash equivalents and debt. The commercial price bargained was struck for the operating business: $108 million. How the parties came to that was a matter for them; though, Woolworths viewed the worth of the business primarily by reference to maintainable earnings. The negotiated price was sometimes referred to as the "enterprise value".

6 The applicant’s claim is based on two steps being taken in relation to the negotiated price or enterprise value. First, from it a contract price would be struck by use of the notion that the price was "ungeared". Cash, cash equivalents and debt would be added to and subtracted from the $108 million. Obviously, for this exercise a balance sheet as at a particular date was needed from which these items could be extracted. This balance date had to be chosen and was necessarily as at a time when the business was controlled by the vendor. The second step was to provide for an adjustment or payment one way or the other (that is, to or by the purchaser) depending upon a comparison of the net asset position shown in the balance sheet used to calculate the contract price (in the first step referred to above) and the net asset position as at the date of completion.

7 The applicant’s case was based on the proposition that once one used a particular balance sheet as at the relevant balance date to identify the cash, cash equivalents and debt for the calculation of the contract price one must use the same balance sheet in the net asset comparison between that balance date and the completion date in order to ensure uniformity in treatment in working out the contract price and the adjustment.

8 The enterprise value or negotiated price was agreed between senior executives of Woolworths and InterTAN Inc on or about 1 March 2001 after a period of financial investigation or "due diligence" in January and February 2001. During this due diligence process, which took place from late January to mid-February 2001, management accounts for the month and quarter ending 31 December 2000 were made available to those acting for DSE and Woolworths. The accounts were entitled and headed as follows:

9 These accounts were, as a matter of fact, an aggregated set of accounts of ITAL and TSC; that is, they reflected the accounts of both companies as one economic unit, eliminating entries relating to transactions or circumstances between the two companies such as, relevantly here, any liabilities inter se. Nowhere in the accounts was the fact of aggregation stated to be the basis of the accounts. The accounts contained month-to-date, quarter-to-date and year-to-date income figures for the present year and the previous year, and the budget and variations therefrom, in Australian and United States dollars; it contained schedules of assets, liabilities and equity as at 31 December 2000 in both currencies; it contained schedules of operating expenses of selling and general and administration expenses for the month, quarter and year-to-date in both currencies; it contained a schedule of income from outside sales, intercompany sales and other income for the month and year-to-date in the current year and the previous year in both the currencies; it contained a detailed schedule of gross profits for the month and year-to-date in the current and previous year in both currencies; it contained a schedule of sundry asset accounts for the current and previous year in both currencies; it contained a schedule of liability accounts for the current and previous year in both currencies; and it contained a schedule of intercompany payables and investments. I will refer to these accounts as the "December Corporate Pack".

10 I have annexed as annexures 1A, 1B, 1C and 1D parts of these accounts, being the Australian dollar part of the schedule of assets (1A), the Australian dollar part of the liabilities and equity (1B), the sundry liability accounts (1C) and the schedule of intercompany receivables, payables and investments (1D). (The initials "LCU" sometimes appearing stands for "local currency unit".)

11 It will be noted that the schedule of intercompany receivables, payables and investments has lines for TSC and ITAL which are blank. It should also be noted that in the schedule of outside sales, intercompany sales and other income there is a line for TSC under a heading "Detail of Intercompany Sales" and no amount is shown for the "current year" or the "last year".

12 It is tolerably clear from the evidence that the purchase price that was defined in the agreement as executed of $114,139,649 was arrived at, to the knowledge of both parties, by, in the first instance, adding to $108 million the two items of cash and short term investments (cash and cash equivalents) of $2,748,099 and $4,500,000 (totalling $7,248,099) referred to in annexure 1A, and, later, by subtracting a sum of a little over $1,000,000 said by Mr Sweetman, an officer of DSE’s retained investment banker, UBS Warburg ("UBS"), to average down the cash holding, calculated as it was in the Christmas period, and by Mr Gingerich, the Vice President Finance and Administration and Chief Financial Officer of the InterTAN Group, substantially to be a bargained reduction. There was no deduction for debt. All the liabilities listed in annexure 1B when read with annexure 1C were trade or business liabilities; none was in the nature of financing, whether equity or debt. There was no debt apparent in Annexure 1D apart from a "payable" (as opposed to a "loan payable") owing to InterTAN Canada in the sum of $92,891.

13 The first distributed draft of the sale and purchase agreement (distributed on 6 March 2001), identified as the property the subject of the sale all the shares (ordinary and preference) in ITAL and TSC that were held by InterTAN Inc and InterTAN Canada. That had been the basis upon which Deloitte Touche Tomatsu ("Deloittes"), who were appointed on behalf of Woolworths and DSE to do the financial due diligence, approached the matter. (It will be important, for reasons that will become apparent, to keep distinct the aspects of due diligence that can be described as "financial", "tax" and "legal".) It was the basis upon which some of Woolworths’ officers approached the matter up to early March 2001. It was not how other advisers of Woolworths approached the matter, in particular Mr Sweetman (of UBS) and Mr Brewster of Gilbert + Tobin ("G+T"), the latter being Woolworths’ and DSE’s solicitors on the transaction.

14 On or shortly before 9 March 2001, it was decided on behalf of Woolworths and DSE not to purchase the shares in TSC. This had the consequence of transforming the liability owed by ITAL to TSC into an external liability of the one company being purchased; whereas, up to 9 March 2001, the loan was an intercompany liability of ITAL and asset of TSC which could be ignored as long as both companies were being purchased.

15 No adjustment was made to the purchase price of $114,139,649 consequent upon this change. With the exception of Mr Gingerich (from 4 April 2001), no one prior to execution (on 10 April 2001) appreciated the potential importance of the excision of TSC.

16 When it came time to calculate adjustment payments, if any, owed between the parties by the comparison of the net assets at 31 December 2000 and at completion, DSE sought a payment referable to the reduction in net assets by comparing the balance sheet in the December Corporate Pack (which had net assets calculated without regard to the debt to TSC) and the otherwise agreed completion date accounts of ITAL on a stand-alone basis (which had net assets calculated with regard to – and so reduced by – the debt to TSC). Thus, there was, by this method, a direct dollar for dollar picking up of the indebtedness to TSC which otherwise had to be discharged. The debt and the net asset adjustment cancelled each other out.

17 The respondents denied the entitlement of the applicant to an adjustment based on that comparison. They also demanded repayment of the liability.(The respondents sue for this debt in the cross-claim.)

18 The controversy, in its various pleaded forms, centres upon how the liability of ITAL to TSC as at 31 December 2001 of over $4 million is to be treated in connection with the setting of the purchase price and the net asset adjustment under the agreement.

19 The resolution of the controversy requires a close attendance to the events of late 2000 and the first quarter of 2001. Whilst in the final analysis the facts may reduce to some simplicity, an appreciation of that simplicity is to be gained by an understanding of the whole of the relevant events. Not all the facts will be such as to be legitimately taken into account in the construction or interpretation of the contract in question. Nevertheless, a full understanding of what happened is important in order to resolve all aspects of the matter. In this section, I set out what I see to be the important chronology for understanding the resolution of the controversy, not only at its primary contractual level, but also at the alternative levels of representation, estoppel and rectification. From time to time in this largely chronologically arranged section, I have dealt with and resolved some of the factual disputes raised between the parties. I have done this where it does not unduly impede an understanding of the chronological flow of events. There are some disputed factual issues, however, best dealt with outside the chronology, and I have dealt with these in the next section.

20 From about mid-2000, and until the first quarter of 2001, InterTAN Inc was attempting to sell the Tandy business in Australia and its Canadian business. InterTAN retained Salomon Smith Barney ("SSB"), the investment banking firm, as its adviser. The negotiations regarding the disposal of the Australian and Canadian businesses involved discussions between InterTAN officers and representatives of two North American entities referred to in the evidence as "Radio Shack" and "Future Shop", in North America, and Woolworths in Australia.

21 UBS (then known as Warburg Dillon Read) was a well-known merchant bank in Australia, which, in early 2000, was advising Woolworths in relation to the possible acquisition of the Tandy business. Mr Bain, who was the Vice President of Mergers and Acquisitions at UBS had spoken to Mr Levy, the CEO and president of InterTAN Inc, about the possibility of a purchase by an interested party in Australia of the Australian Tandy business. By April 2000, UBS was collecting and collating publicly available information on InterTAN and providing preliminary advice to Woolworths. In May 2000, Mr Wavish, the Chief Financial Officer of Woolworths met Mr Levy and Mr Gingerich. Various possibilities were discussed, including InterTAN buying the Dick Smith business.

22 By 13 October 2000, UBS had prepared, for discussion with Woolworths, a paper concerning possible dealings with the owners of the Tandy business. Various commercial possibilities were, at this time, under discussion. These possibilities involved a scrip acquisition of DSE by InterTAN, a cash acquisition of the Tandy business by Woolworths, subject to an acceptable price, and a possible joint venture. At the time, UBS was of the view that only a cash acquisition by Woolworths would be an attractive alternative for Woolworths. The preliminary evaluation analysis in this paper undertaken by UBS suggested a value for the Tandy business in the order $150-170 million, which included values for synergies arising from the combination of the Dick Smith and Tandy businesses. This valuation was qualified in a number of respects. The valuation analysis was said to have been undertaken by UBS based on information provided by management of InterTAN, UBS research and other publicly available financial information. It is unnecessary to set out any of the details of this valuation.

23 This recommendation of UBS to Woolworths made in October 2000 was prepared by Mr Sweetman, with Mr Mackay’s involvement. It was not directed to the legal form of the contemplated transaction, it was directed to the commercial essential: the acquisition of the business.

24 Mr Sweetman was cross-examined as to his knowledge of the two relevant companies from October 2000. He knew of the existence of the (dormant) TSC from October 2000. The cross-examiner attempted to extract a concession from him that he understood at all times until 9 March 2001, when the shares in TSC were excised as subject matter of the sale, that the transaction was to be for the shares in two companies (ITAL and TSC). Thus, it was put to him that he knew that the December accounts in the December Corporate Pack were aggregated accounts of those two companies, and as such would not be expected to reveal the intercompany position between the two companies. From all of Mr Sweetman’s evidence, which I accept as truthful, I conclude that Mr Sweetman approached the transaction from the commercial perspective of the purchase of the Tandy business, which he understood on the basis of information supplied in October 2000 by SSB, to be carried on by ITAL. He also understood from the same source that TSC had had an involvement up to 30 June 2000 as a wholesaler and that as at October 2000 was owed over $4 million by ITAL. Mr Sweetman was generally unconcerned with form, and concentrated upon the substance of the operating business, which, in fairness to him, was after 30 June 2000 carried on by ITAL only. Thus, his focus was on the operating business and its earnings, as the foundation for his view, about what Woolworths should offer to pay.

25 At some stage in October 2000, (I infer prior to the preparation of the discussion paper referred to above) UBS received from SSB a document entitled "Stage 1 Due Diligence Information". The document was dated 5 October 2000. The document was entitled "Project Nissan", which was the codename given by the parties to the sale of the Tandy business. In the corporate and business overview at the beginning of the document the relevant InterTAN corporate structure and ownership was explained. ITAL was said to be a wholly owned subsidiary of InterTAN Inc, a company incorporated in Delaware and listed on the New York Stock Exchange, though located in Canada. The introduction to the document dealing with the corporate structure also pointed out the relationship between InterTAN Inc and TSC and the then existing debt between ITAL and TSC, in the following terms:

26 This material (the Stage 1 Due Diligence Information) included the 2000 annual accounts of InterTAN Inc. Consolidated financial information was contained in those accounts. One of the notes to the accounts made clear that the group’s business was managed along geographic lines and references in the notes to the various countries in which the group conducted business, including Australia, referred to the reportable segments in those countries.

27 Mr Sweetman (of UBS) read this material and appreciated, in October 2000, that, as at October 2000, ITAL owed TSC a debt of over $4 million. Mr Sweetman said that he later came to believe that this debt had been repaid based on his examination of the December Corporate Pack in early March 2001. However, given that he understood the Deloittes’ due diligence report to be based on his understanding of the transaction (that the purchase was of ITAL – and not two companies), his belief of the lack of any debt owed by ITAL must have been based, and I so find, also on the contents of the Deloittes’ due diligence report distributed on 16 February 2001.

28 On about 21 or 22 November 2000, Mr Sweetman was given management accounts (in like form to the December Corporate Pack which he was later given) for the period ending, and as at, 30 September 2000. These included a list of intercompany payables and loans payable showing a nil adjacent to TSC. Mr Sweetman was not asked how he understood (if he had any view) how this was to be reconciled with the information in the "Stage 1 Due Diligence Information".

29 Discussions took place in October 2000 between representatives of Woolworths, InterTAN, SSB and UBS at which various alternatives were discussed for combining the Tandy and Dick Smith businesses.

30 By mid-November 2000, the discussions with InterTAN and SSB had reached the point where InterTAN and SSB preferred that Woolworths make a cash offer for the Tandy business in Australia. At this time, there was the possibility of another trade buyer. Some discussion had taken place as to the possibility of a "management buy-out". By mid-November 2000, however, it would appear that Woolworths was being told that if it wished to further its interest in the Tandy business it should make some form of cash offer.

31 The desire of InterTAN Inc for a sale of the Tandy business to Woolworths was in significant part a product of the desire to sell the much larger Canadian business (or the shares in the controlling company) with the Australian business liquified into either cash or a binding offer for sale as part of that Canadian sale. The Canadian business was three to four times the size of the Australian business. Neither Radio Shack nor Future Shop was interested in purchasing or running the Australian business. Mr Gingerich said that Future Shop had indicated that it was not interested in buying the holding company if it directly or indirectly ran the Australian business. Thus, to maximise the chance of selling the shares in the Canadian holding company and to maximise the price of those shares, it was important to liquify the value of the Australian operation by a sale.

32 It is not unimportant to appreciate this commercial background, because in the crucial months in January to April 2001 Woolworths was the only bidder for the Australian business. So, it can be inferred, the successful implementation of the sale was vital to InterTAN Inc and to the InterTAN interests.

33 On Friday, 17 November 2000, UBS forwarded by email to Woolworths a document entitled "Update and Discussion Paper" concerning the project. In this document, UBS expressed the view that it appeared from discussions with SSB that "Nissan Australia" was for sale and that other alternative structures were unachievable. In the summary section of the document UBS stated as follows:

34 The document went on to explain the stand-alone valuation as having been reached by a capitalisation of earnings method of valuation based on historic and forecast information provided by SSB. (A valuation approach based on discounted cash flow method was rejected because of what were seen to be the "aggressive" earnings forecast of the business.) The document contained a "synergy analysis". The document identified an "implied value to Woolworths" of between $185 to $247 million based on stand-alone values of $115 to $135 million and assessed value of synergies of $70 to $112 million. Thus, UBS was coming to a view, at this time, of a higher value to Woolworths of the Tandy business than had been expressed in the preliminary valuation of October 2000.

35 This recommendation to make such an offer to InterTAN was apparently accepted by Woolworths. On 23 November 2000, UBS sent a letter to SSB making a formal offer by Woolworths for a cash acquisition for a sum of $150 million. The introductory paragraph to the letter containing the offer was in the following terms:

36 The letter then went on to deal with anticipated due diligence, the entry into a definitive agreement and other matters.

37 In early December 2000, SSB told UBS that InterTAN was of the view that the price offered of $150 million was too low. In mid-December, Mr Andrew Cox and Ms Karen Fox of SSB met with Mr Anthony Sweetman and Mr Adam Ross of UBS. Various points were made in conversation, which included the possibility of a higher non-binding indicative offer in order to commence due diligence. The substance of these conversations was passed on by UBS to Woolworths.

38 By the end of December 2000, there had been an important development in North America. By 22 December, Radio Shack had completed its due diligence and had provided a letter with indicative offers for the shares in the holding company on the basis that the Australian business was sold and liquified. At the InterTAN Inc Board meeting on 26 December 2000, at which SSB officers attended, SSB was instructed to move forward with the sale to Woolworths and to achieve an agreement in principle as soon as possible.

39 Mr Cox’s evidence and notes make it plain that on 21 December 2000 he had been told by Mr Gingerich and Mr Levy that the $150 million offer from Woolworths was acceptable, without any representations or warranties.

40 It can be safely concluded that by the end of 2000 the sale of the Australian business was a matter of vital concern to InterTAN Inc and those interested in it, since a failure to sell it risked placing a serious impediment in the way of the sale of the North American business.

41 Woolworths was not prepared in December 2000 to make a higher non-binding indicative offer, and on 2 January 2001 Mr Cox (of SSB) sent an email to Mr Mackay (of UBS) stating, amongst other things, that in order to progress discussions Woolworths would be provided with access to due diligence information to enable it to reduce the conditionality of its offer. Woolworths was to undertake its own due diligence review and submit a revised offer by 19 January 2001 on the basis of this review. Woolworths was prepared to proceed on this basis.

42 Woolworths then retained Deloittes to review due diligence information provided and to prepare a due diligence report.

43 After InterTAN Inc’s board meetings of 3 and 11 January 2001, Mr Levy and Mr Gingerich travelled to Australia for the purpose, amongst others, of dealing with the sale of the Tandy business to Woolworths.

44 On 8 January 2001, Mr Ross (of UBS) sent an email to Mr Cox (of SSB) indicating that he expected Deloittes to be appointed shortly to assist in the due diligence. In the meantime, Mr Ross sent an attached document which was entitled "Project Nissan Due Diligence List". This document had been apparently prepared by UBS and contained a list of information and material which would be required.

45 On 11 January 2001, Mr Sweetman (of UBS) sent to Mr Cox (of SSB) an information request list which had by that time been prepared by Deloittes.

46 The respective responsibilities of those who might be said to be in the Woolworths’ "team" included the following. UBS was responsible for the overall project co-ordination, including interaction with Woolworths, G+T, Deloittes and SSB. Deloittes were responsible for "financial due diligence". DSE, Deloittes and UBS were together responsible for assessment of such things as sustainability of existing earnings and growth prospects. Deloittes and UBS were together responsible for financial analysis. Deloittes were primarily responsible for tax investigation.

47 For the purpose of the due diligence being undertaken, a data room was created at the offices of Allen Allen and Hemsley ("Allens") the solicitors for the InterTAN interests.

48 On or about Monday 15 January 2001, Mr Sweetman (of UBS) spoke to Mr Cox (of SSB) concerning the pending due diligence. There was to be a short delay. Rather than starting the following day, it would start on or about Wednesday, 17 January 2001. Apparently, Mr Levy had arrived in Australia and final instructions were awaited from him before allowing due diligence to commence. It was anticipated at this point that there would be two weeks "in the data room" and another week to submit an offer. Some extension of time was said to be possible to this anticipated timetable. Also in this conversation between Mr Sweetman and Mr Cox it was confirmed that a share sale should be assumed unless there was notification to the contrary.

49 What was referred to as "financial due diligence" proceeded from 17 January to 15 February 2001.

50 Protocols for use of the data room were formulated and circulated by Allens. Mr Lawrance of Allens was given the overall responsibility for assembling, collating, copying and indexing the documents in the data room. He was known as the "due diligence officer". The data room was to be made initially available in the Sydney offices of Allens. The material within the data room was to be indexed and, according to a letter from Allens to Mr Sweetman of 16 January 2001, was to be "updated on a regular basis to include additional documents placed in the data room from time to time". The common understanding of all concerned was that the due diligence had a degree of formality to its execution and that the data room was the repository of disclosed information.

51 Mr Kim Slaminka (of UBS) acted as the "due diligence coordinator" on behalf of UBS and Woolworths in relation to the project. Mr Slaminka was a recent graduate and did not have any analytical or advisory role in the transaction. He made a number of notes of meetings. He was an apparently intelligent person (having a first class honours degree in Commerce from the University of Sydney) and his notes appear to be a careful recording of meetings attended by him.

53 Deloittes had been retained by Woolworths to provide a "due diligence report". Mr Griffiths, the relevant partner at Deloittes, understood this to be so that an offer to purchase the Tandy business could be made with the benefit of such a report. Mr Griffiths was assisted by Mr Woosnam, his junior in years, experience and position in Deloittes. From early in their work, both Mr Griffith and Mr Woosnam understood that the purchase of the business would be by the purchase of two companies, that is, the shares in two companies, ITAL and TSC. Mr Griffiths could not recall how he learnt this. Mr Woosnam was probably told by Mr Griffiths. Given the terms of the introductory section of the Stage 1 Due Diligence Information, it is not surprising that Mr Griffiths came upon this information early. The matter is of some importance because when Mr Griffiths and Mr Woosnam came to examine the December Corporate Pack, they both appreciated these accounts to be aggregated in the sense I have described.

54 Mr Griffiths attended the data room on only a few occasions. It was Mr Woosnam’s task to undertake the detailed analysis of the information in the data room.

55 Mr Sweetman (of UBS) gave evidence that he did not understand the December Corporate Pack to be accounts of other than ITAL. I accept his evidence in that regard. To the extent it is necessary so to find, I conclude that Mr Griffiths’ knowledge that the structure of the transaction involved buying two companies was not derived from being told as much by Mr Sweetman.

56 On 17 January 2001, soon after commencing work, Deloittes requested the "December numbers", meaning relevant financial information for the most recent month. The written request on 17 January 2001 asked for amongst other things:

57 On 18 January 2001, Ms Fox (of SSB) told Mr Slaminka (of UBS) that the December figures were still being worked on. Also on that day UBS made a written data request for "December financials, soft copy". On that day a response was given "in preliminary form (hard copy)".

58 On Friday 19 January, Ms Fox (of SSB) informed Mr Slaminka of (UBS) by email that the December financial information would be available the following week in hard copy. It is not clear when the December Corporate Pack was placed in the data room. It was certainly placed there by 24 January 2001. At this point, it is to be noted that the December Corporate Pack was not entered on the index kept by Allens of what was placed in the data room. On the evidence, it is clear that this omission was an oversight, whether of Mr Lawrance (of Allens) or one of his colleagues. The likelihood is that it was placed in the data room during the period when Mr Lawrance’s colleague was in charge of the data room. The relevance of this matter will become evident in due course.

59 At this point, it is appropriate to say something as to terminology as to the December Corporate Pack and related matters. The agreement that was executed on 10 April 2001 used the phrase "December Accounts". Earlier drafts used the word "Accounts". It is unnecessary to be precise about the timing of that change. The parties in the litigation and the participants in the events also used the phrase "December accounts", that is, as a general expression not specifically referring to any form of agreement. In this sense I have used the word "accounts" not capitalised. Sometimes the phrase "reference accounts" was used. In these reasons, I have attempted to use the phrase "December Accounts" when referring to the content of the final agreement or the drafts preceding it in which the phrase was used and I have attempted to use the phrase "December accounts" when referring to discussion by people or when referring to accounts for December in a generic way.

60 On the evening of Wednesday, 24 January 2001, a meeting took place at Allens. Those in attendance (in person or over the telephone) were Mr John Winstanley (the managing director of ITAL), Mr Levy, Mr Gingerich, representatives of SSB, of Woolworths and of UBS (probably only Mr Slaminka in respect of UBS) and Mr Griffiths and Mr Woosnam (of Deloittes). At the meeting, someone said that in connection with draft statutory accounts for the period ending and as at 30 June 2000:

61 This made clear to all relevant parties that there were and could only be one set of December accounts – the form of management accounts sent monthly to the parent from Australia. There was no dispute that the December Corporate Pack was an example of "what [was] sent to the parent entity on a monthly basis".

62 On 25 January 2001, Mr Slaminka sent an email to Ms Fox making a request for information in connection with the operational expenses of the business and possible overlapping expenses, as follows:

63 On Tuesday, 30 January 2001, the request made the previous week for "interconnecting sheet/analysis" was repeated in virtually identical terms. This request was repeated, again, in the same terms the following day, 31 January 2001. The response at this time was that it would be discussed with Mr Gingerich on Thursday, 1 February 2001, during a conference call.

64 Also on 31 January 2001, Mr Slaminka sent an email to Ms Fox enclosing, amongst other requests the following request:

65 The request for an "interconnecting sheet/analysis" was repeated, once again, on Thursday, 1 February 2001, by email. The response given was, again, that it would be discussed with Mr Gingerich during a conference call, this time on the following day, Friday, 2 February 2001.

66 There was a conference call on Friday, 2 February 2001. In attendance were representatives of InterTAN (including Mr Gingerich), of SSB, of Woolworths and Mr Slaminka (of UBS). Mr Slaminka made notes, as follows:

67 Apparently, Mr Avery went through the matters listed in question 2 in these notes of Mr Slaminka and said that he would provide a summary sheet. Mr Avery could not recall what he said at this meeting. He did, however, explain in his affidavit that account 3603 "Other Income TSC" was an ITAL account relating to the administration of the amounts payable by ITAL to TSC for the wholesale role played by TSC up to 30 June 2000. Mr Avery said the following in [28] of his affidavit as to what he knew at the time about the accounts listed under 2 at [65] above:

69 Mr Slaminka gave evidence in [45] of his first affidavit about what is adjacent to 2. in his notes set out at [66] above, as follows:

70 I accept Mr Slaminka’s evidence, and I think it more likely that Mr Avery did not orally detail all that he knew about account numbered 3603 – though he did say something about "50% gain/loss". I think it more likely that he agreed to put together a summary sheet, rather than explaining things item by item, which, as Mr Slaminka recalled, Mr Avery said would be "rather complex". This is supported by what Mr Gingerich said in [46] of his affidavit: that towards the end of the meeting Mr Avery said:

71 Thus, I am not satisfied that there was anything, or at least anything of clarity, said about account numbered 3603 at the conference call, or that Woolworths’ representatives were told that it was an ITAL account relating to an administration fee payable by ITAL to TSC.

72 It is clear that at this meeting (at which Mr Sweetman was not present) elimination of certain accounts on consolidation was discussed. The discussion was directed to understanding expenses of the business, that is the current trading operations of the business, and it took place at a time when Deloittes representatives (who were not present) and Woolworths’ officers, such as Mr Dowsett (who may have been present), understood that both ITAL and TSC (that is, the shares in both) were to be purchased.

73 Also, it is important to understand what Mr Slaminka meant by consolidation. At this time, he and others on behalf of Woolworths were not directing themselves to de-consolidation or de-aggregation of related company accounts, but rather they were concerned with understanding what were internal departmental charges that would net-off when examining the business as a whole in trying to understand the business’ current external outflows and inflows. In connection with the due diligence report distributed on 16 February 2001 and in connection with an introductory passage in that report dealing with consolidation, Mr Griffiths said the following in [8.2] of his second affidavit (which I accept):

74 I will come to Exhibit N19 directly. It is sufficient to conclude this discussion with a finding that the notion of consolidation and netting-off being discussed on 2 February 2001 was as described above by Mr Griffiths. It concerned an attempt to understand the operations of the business and current inflows and expenditures from and to the outside world.

75 After the meeting of 2 February 2001, Mr Avery prepared a document which became identified in the data rooms index as document N19.

76 On Monday, 5 February 2001, Mr Lawrance (of Allens) sent Mr Slaminka (of UBS) an email that attached an updated index of the data room – version 9. The new additions contained the document prepared by Mr Avery and labelled N 19. Section N was entitled: "Responses to Requests for Further Information".

78 From this description document N 19 could be seen to be, as it was, the summary sheet that Mr Avery said at the conference call on Friday, 2 February he would provide as part of the answer to question 2 referred to at [66] above.

79 Document N 19 commenced with a page of explanation, drafted by Mr Avery, as follows:

80 Enclosed with this explanation were seventeen pages of a trial balance, including a document which was headed: "Intertan Australia Ltd/Technotron Sales Corp Balance Sheet". Because of its importance it is annexed as annexure 2.

81 Mr Slaminka’s affidavit stated, and I accept, that nothing was given or said to him (as UBS "Due Diligence Co-ordinator") by anyone at any time to indicate that document N 19 was provided for a purpose other than the answering the request set out at [62] above, in the context of the discussion that took place on 2 February 2001.

82 On Tuesday, 6 February 2001, Mr Slaminka sent to Ms Fox further questions of Mr Woosnam (of Deloittes) for an anticipated meeting the following day, Wednesday, 7 February 2001. These requests apparently arose out of document N 19 and were as follows:

84 There was some debate as to the extent to which Mr Woosnam read document N19. It is sufficient to say (and I find) that it is probable that he looked at all of it, in particular given the detail of the questions sent on 6 February 2001. Once again, however, it should be emphasised that he was directing himself to gaining an understanding of the true external revenue and outgoing considerations of the business.

85 A conference call took place on the following day, Wednesday, 7 February 2001. Mr Slaminka made notes at the meeting. Most of the notes deal with the answers to the question posed by Mr Woosnam. It is unnecessary to set out the notes or the answers.

86 I will deal with the question of what can be said to have been disclosed about the ITAL and TSC receivable in due course. It suffices to say at this point that Mr Woosnam, probably because he believed that both ITAL and TSC were the subject of the sale, was not concerned to appreciate the extent of any outstanding liability or asset between the two. Rather he was seeking to understand the relevant operating expenses and returns of the business and to this end he needed to understand what was eliminated within divisions or parts of the business and in that sense what was not external.

87 Mr Sweetman gave evidence in his affidavit that by early February 2001 (that is after about two weeks of due diligence) and as a result of the due diligence investigations, UBS (which I take to mean him and others at UBS to his knowledge, such as Mr Mackay) formed the view that the Tandy business was worth significantly less than the indicative offer made by Woolworths in November 2000 of $150 million and that the stand-alone value of the business was in the order of $75 to $80 million. This was significantly less than the stand-alone values set out in the UBS memorandum of 17 November 2000, whether at the higher or lower end of the range – $115 to $135 million.

88 On Friday, 16 February 2001, Deloittes finished and distributed their due diligence report. In the introductory section of the "Executive Summary" the following was stated:

This was the paragraph referred to by Mr Griffiths in [82] of his affidavit: see [73] above.

89 Section 7 of the report set out balance sheets for "Nissan" as at 30 June 1999, 31 December 1999, 30 June 2000 and 31 December 2000 the source of which information was said on page 29 of the report to be the "June 2000 and December 2000 Corporate packs". Under the line items "Inter-company payables" and "Inter-company loans payable" as at 31 December 2000 there appeared "(91,000)" and "-", respectively. The same page recorded the net assets of "Nissan" as at 31 December 2001 as $53,979,000.

90 Deloittes were aware, as was Mr Dowsett of Woolworths, that the due diligence report dealt with both companies and that the proposed transaction involved the sale of shares in both companies.

91 Nowhere in the Deloittes’ due diligence report was there any statement of liabilities between ITAL and TSC. During the due diligence there had been no request for individual accounts for ITAL and TSC. On the basis of Deloittes’ understanding of the transaction involving both ITAL and TSC that is perfectly understandable.

92 The Deloittes’ due diligence report contained a discussion of each of the material line items in the balance sheet as at 31 December 2000. In this discussion, on each occasion, there was a reference as follows:

93 The due diligence report was given to Woolworths and UBS on Friday, 16 February 2001.

94 The following can be stated, and are facts that I find, about the circumstances of the due diligence investigation:

95 By the following Monday, 19 February 2001, Woolworths and UBS had come to a view as to a further offer. On that day, UBS sent a letter, signed by Mr Mackay (of UBS) on behalf of Woolworths to Mr Cox of SSB (on behalf of InterTAN). The letter contained the following:

96 The letter made no further explanation of the term "ungeared". The letter contained no other details about the precise nature of the subject matter of the sale.

97 The board of InterTAN Inc met the next day, 20 February 2001, by telephone. I am satisfied, and I find, that at this meeting the board authorised Mr Levy to sell the Tandy business (that is, the Australian business) for $105 million.

98 The position as at 20 February 2001 was recognised by Mr Gingerich in his evidence to be, and I otherwise find it to be, as follows:

99 At this time, Mr Gingerich also recognised the other imperatives to sell the Tandy business – the business was deteriorating (a matter not lost on Woolworths after the detailed financial due diligence, as was evident from the offer of 19 February 2001) and there were rumours "floating around" about a transaction. It was plainly of real commercial significance to InterTAN Inc and its interests to sell the Tandy business quickly.

100 By 23 February 2001, SSB had indicated to UBS that InterTAN would not consider selling at below $120 million. At least outwardly, the parties were apart on price.

101 As at 22 February 2001, InterTAN Inc anticipated an agreement shortly; and to that end a conference call was arranged on 23 February 2001 involving Messrs Losch and Gingerich in Canada and the Allens’ solicitors, Messrs McCulloch and Lawrance, in Sydney. In this call, there was detailed discussion for the purpose of aiding the preparation of a detailed first draft of the sale and purchase agreement. The discussion covered a number of matters including the deterioration of the business, Woolworths’ knowledge of this, the intention to give minimal representations, the position of TSC as an old sales tax company with assets being a receivable from ITAL and the need for Radio Shack to approve Woolworths’ use of the "Tandy" name. As will become apparent, the existence of a receivable between ITAL and TSC was not appreciated as of any significance by anyone, until 4 April 2001, when Mr Gingerich appreciated the full significance of the issue. That it was a matter of no significance at this point is only to be expected given that the shares in both ITAL and TSC were the proposed subject of sale.

102 After 19 February 2001, Mr Sweetman was of the view that the value to Woolworths of the Tandy business was $175 million or more. He and others at UBS saw the business as a "good or value accretive acquisition." He thought that an acquisition of the Tandy business by Woolworths for $100 to $105 million would be highly advantageous.

103 At least Mr Corbett, the Chief Executive Officer of Woolworths, had some reluctance as at Friday, 23 February 2001 to accept $120 million as the appropriate price. The reluctance of Mr Corbett to deal at $120 million was conveyed to SSB.

104 Meanwhile, by 22 February 2001, G+T, the corporate solicitors for Woolworths, were beginning to consider the progress of the matter. On that day, Mr Lawler the partner who usually dealt with Woolworths sent an email to his partner, Mr Brewster (who in fact took carriage of the transaction), stating the following:

105 On 27 February 2001, UBS gave a slide presentation to senior management of Woolworths. The presentation was given by Mr Sweetman and Mr Mackay to, amongst others, Mr Corbett and Mr Wavish. I infer that this presentation took place in order that the UBS officers might present their views (which were in favour of an acquisition at the $120 million price identified by SSB) to the most senior executive of Woolworths who would, if the transaction were to proceed, take responsibility for taking any recommendation to the board of Woolworths.

106 It is unnecessary to deal with the presentation in any detail. It is fair to say that the UBS officers were enthusiastic in their recommendation of the proposal. The slide presentation under the heading "conclusions" contained, amongst other statements, the following:

107 Mr Mackay and Mr Sweetman were, however, speaking to experienced and highly competent businessmen (in particular Mr Corbett and Mr Wavish) who would be expected (as the senior executives to take responsibility for the purchase) to make up their own minds about whether to purchase the business and at what price (more accurately, given the sums involved, whether to recommend to the board of Woolworths the purchase, and at what price). In making that decision one would not expect them to follow and adopt, uncritically, the advice of UBS; and one would expect that they would draw heavily on their own experience and intuition in assessing what this business was worth, and, perhaps more importantly what should be paid for it.

108 I find that the presentation of UBS on 27 February 2001 was in favour of, if necessary, buying the Tandy business for $120 million.

This can be taken as a reference to wholesale sales tax and the arrangement which involved TSC, as well as to the goods and services tax legislation.

110 After the presentation, Mr Mackay (of UBS) discussed the matters with Mr Cox (of SSB). Mr Cox recounted the following about this in an email to Mr Thom (the senior SSB adviser to InterTAN Inc):

111 A telephone call was arranged between Mr Wavish and Mr Stegall, the Chairman of InterTAN Inc, to attempt to reach agreement, the parties being, outwardly, $15 million apart.

112 On or about 1 March 2001, Mr Wavish had a telephone conversation with Mr Stegall. Mr Wavish gave oral evidence as to this conversation with Mr Stegall. He stated the following:

113 Mr Wavish could not recall any discussion by way of elaboration of the word "unleveraged". It is likely that there was no detailed elaboration of the phrase; though later events and discussions amongst InterTAN officers and advisers would indicate that there was probably discussion of the reference date being 31 December 2000 and completion on 31 March 2001.

114 Mr Stegall did not give evidence. I accept the above evidence of Mr Wavish. I find that there was no limitation upon what would be deducted by reference to "bank debt", as some hearsay evidence of what Mr Gingerich said Mr Stegall told him seemed to indicate.

115 Mr Cox summarised the agreement in an email to his colleagues on Friday 2 March 2001 as follows:

116 On 1 March 2001, after the agreement between Mr Wavish and Mr Stegall, Mr Cox spoke first to Mr Thom (the senior SSB adviser in North America), and then to Mr Levy and Mr Gingerich. In the latter conversation Mr Cox was asked what balance sheet had been used to base the Woolworths’ offer. Mr Cox told Mr Levy and Mr Gingerich that it was the balance sheet as at 31 December 2000. This reflected precisely what Mr Gingerich said Mr Stegall had told him – that Mr Stegall and Mr Wavish had agreed that 31 December 2000 was the relevant date for the balance sheet. Messrs Cox, Levy and Gingerich also discussed the fact that 100% of the "effective value" would be paid on completion on 31 March 2001, at which time Woolworths’ interests would take control of the business; and they discussed that there would be an audit after that date and that "they [would] pay [the] profit from 31/12-31/3". (See Mr Cox’s notes.)

117 At this point, it is necessary to interrupt the flow of the chronology to appreciate a number of fundamental facts. The balance sheet from the December Corporate Pack was before the parties. The accounts for and as at December had been requested by Woolworths’ advisers early in the due diligence. Mr Cox realised, as must have been evident to all involved on both sides, that the December Corporate Pack contained the latest balance sheet available, at least in January and early February. The parties negotiated an "unleveraged" or "unlevered" or "ungeared" purchase price – the "enterprise value". Leaving aside any debate that there may have been about any particular amount, all the businesspeople and advisers (subject to one oversight made by Ms Fox of SSB, to which I will come) understood that "unleveraged" or "unlevered" or "ungeared" meant that to and from the negotiated price ($108 million) one added and subtracted cash, cash equivalents and debt, that to identify these matters one needed a balance sheet and thus it was not possible to identify a contract sum payable on completion (subject to post-completion adjustments) without identifying a particular balance sheet. Hence, it was important for Mr Levy and Mr Gingerich to understand what balance sheet Mr Cox understood Woolworths was using in framing its offer. Once they understood what balance sheet was being used, they understood what sums needed to be added to and subtracted from the $108 million to identify the amount to be received at settlement as the contract price, subject to post-completion adjustments.

118 Further, the following structural matters about this type of transaction were well understood by all relevant participants who were either experienced commercial people or experienced legal practitioners. First, there was a need for a balance sheet at a particular date to stand as the balance date or reference accounts. Secondly, that balance sheet would be used to derive the price payable under the contract. Thirdly, that balance sheet would be used to compare with the balance sheet as at the completion date. Fourthly, as to the commercial purpose of this asset comparison, a reliable set of accounts, in particular a balance sheet, was required at a time when the vendor was in control and running the business in the ordinary course. That was the reference point against which the position as at the time the purchaser took possession of the subject matter of the sale was to be compared. Thus, if the business had been run down or profits or assets taken out of the business after the reference date, an adjustment in terms could be made by comparing to the position at the two dates. As will be seen in due course, the comparator was net assets. Essential to this task was a clearly nominated set of accounts at the earlier point (or reference date) with which the purchaser could familiarise itself. Fifthly, to use a different balance sheet for the earlier balance date for the latter task of comparison with the balance sheet as at completion than was used in identifying the cash, cash equivalents and debt in order to identify the contract price payable would risk one or other of the parties paying more or receiving less than the negotiated enterprise value. This was so because if different balance sheets were used as at the reference date (here 31 December 2000) they might contain different figures for cash, cash equivalents and debt and so lead to a disconformity between the contract price (assessed by reference to one balance sheet as at the reference date) and the post-completion net asset adjustment (assessed using another balance sheet as at the same reference date). Sixthly, this use of a reference date balance sheet and a post completion adjustment comparing net assets as at the reference date and as at completion was a well known and understood mechanism in sale transactions of this kind and all participants were familiar with it. The understanding of all concerned as to this structural approach to a sale of this kind was clear in the evidence. It was made clear in the cross-examination of the respondents’ witnesses.

119 Returning to the chronology, also on 1 March 2001, after talking to his colleagues, Mr Cox (of SSB) spoke to Mr Sweetman (of UBS). From the notes made by Mr Cox of that meeting I am satisfied that it was agreed at that meeting that the 31 December 2000 balance sheet would be used as the reference accounts. This discussion between Mr Sweetman and Mr Cox on or about 1 March 2001 was as to whether the 30 June 2000 or 31 December 2000 balance sheet would be the accounts for the purposes of comparison with the completion accounts. I find that in this conversation, or shortly afterwards, Mr Cox told Mr Sweetman that the reference date would be 31 December 2000. At this time, the parties had been using the December Corporate Pack as the reference accounts or December accounts; and at this time no balance sheet was before the parties which could answer the description of a balance sheet as at 31 December 2000, other than that contained in the December Corporate Pack.

120 On 2 March 2000, a conference call took place between Messrs Losch and Gingerich (InterTAN), Mr Cox and Ms Fox (SSB) and Messrs McCulloch and Lawrance (Allens). From Mr Lawrance's notes it is clear that Allens were told that the balance date to calculate the price in the contract was 31 December 2000 and that to and from the $108 million should be added cash of $7,248,099 and subtracted an inter-company payable of $91,073. Clearly, these figures were derived from the December Corporate Pack. (See annexure 1A: cash and short term investments and annexure 1B: intercompany payables – see also annexure 1D.) There was also reference in Mr Lawrance’s notes to "intra-group debt as at 31/12" being paid. Also, from Mr Lawrance’s notes it can be concluded that there was a discussion that there was no relevant external debt; and that there was a discussion as to whether Woolworths would "take" TSC. It was said that it (TSC) would be included (in the sale) for the present.

121 Allens set about putting together the first draft of the agreement. This first draft reflected the instructions given in the conference all of 2 March: the phrase "Balance Date" was defined as 31 December 2000, the "Purchase Price" was defined as "$108m plus Cash less External Debt less Intra-Group Debt, all figures as at 31 December 2000".

122 I find that that formula (reflected as it is in Mr Lawrance’s notes, in Mr Cox’s and Mr Gingerich’s recollections of instructions to Allens on 2 March and in Mr Lawrance’s recollection of what his instructions were at that meeting) reflects what Mr Stegall told Mr Gingerich. It is unclear whether the conversation between Mr Wavish and Mr Stegall descended from the generality of "unleveraged" or "unlevered" or "ungeared" to the slightly greater particularity of the formula, but that was Mr Stegall’s understanding and given the simplicity of the concepts, I find that it was consistent with Mr Wavish’s, or the essential content of Mr Wavish’s, understanding of what had been agreed by him with Mr Stegall.

123 I reject such parts of Mr Gingerich’s evidence that appeared to limit the conversation between Mr Stegall and Mr Wavish to a reduction of the $108 million by reference to bank debt. It is inconsistent with the objective evidence, including Ms Fox’s notes of the "key terms" of the "deal", Mr Lawrance’s notes of 2 March and the evidence of Mr Cox and Mr Lawrance about the instructions on 2 March 2001.

124 On 2 March 2001, G+T sent a legal due diligence list to Allens which was described by Mr Losch as a "kitchen sink list". Mr Gingerich described it in an email on 5 March 2001 as "completely unacceptable at this stage." Mr Gingerich saw a risk of delay and further protracted investigation. Under the heading "2.8 Agreements with related entities and the Radioshack Corporation Group", the following request, amongst others, appeared:

125 Meanwhile, on 2 March 2001, there was a board meeting of InterTAN Inc, by telephone. There was discussion of the possibility of difficulties being caused by Radio Shack in relation to agreements regarding operating agreements. There was a concern that if Radio Shack were unsuccessful in buying the Canadian operations, it could cause trouble in relation to the Australian sale by being difficult in relation to giving consent to Woolworths to assume the operating agreements. This difficulty in fact eventuated. Radio Shack declined to proceed with the northern hemisphere sale, was reluctant to make changes to the operating agreements requested by Woolworths and DSE, and demanded a $6 million fee (from InterTAN Inc) to give its consent to Woolworths. After initially refusing to pay this $6 million, InterTAN Inc, reluctantly, in early April 2001, agreed to do so because, as Mr Gingerich recognised and accepted, Radio Shack had InterTAN "over the barrel". (Mr Gingerich said that "it was a concept with which [he] was familiar in dealing with Radio Shack".)

126 On or about 5 March 2000, Mr Cox (of SSB) and Mr Sweetman (of UBS) spoke again about the subject of the completion accounts. I accept Mr Sweetman’s account of the conversation that Mr Cox said:

127 At this point, Ms Fox began to calculate the contract purchase price based on the formula in the 2 March draft and the December Corporate Pack. She advised Mr Lawrance by email on 5 March 2001 that the price should be $110,748,000. This calculation reflected a lack of understanding in Ms Fox that "cash" included the cash equivalent of short term investments: see annexure 1A, or it may simply have been an oversight by her. Mr Gingerich advised the following day of this error. There is no doubt that Mr Gingerich and Ms Fox were both calculating the price based on the balance sheet in the December Corporate Pack.

128 Also on 5 March 2000, Allens responded to G+T’s due diligence request, but made no reply to request 2.8(c), which is set out at [124] above. The following day, 6 March, G+T sent an email to Allens about the latter’s response and, amongst other things, said that they (G+T) were looking forward to receiving written responses to request 2.8(c).

129 On Tuesday, 6 March 2001, Allens sent to G+T, the first exchanged draft of the sale and purchase agreement. It was immediately circulated amongst the relevant people on the Woolworths’ side of the transaction. This first exchanged draft identified the subject of the sale in clause 5. By that clause, InterTAN Inc was obliged to sell and Woolworths was obliged to purchase all the ordinary shares in both ITAL and TSC held by InterTAN Inc. By the same clause, InterTAN Canada was obliged to sell all the A class redeemable preference shares it held in ITAL to Woolworths. Thus, it was clear that all the shares in both companies were the subject of the sale.

130 There was a definition of the phrase "Purchase Price" in this first circulated draft. The definition was as follows:

131 None of the words or phrases capitalised inside the brackets in this definition of the purchase price was defined in this first exchanged draft. From the use of the brackets and the otherwise undefined terms it was clear that what was included in the definition of purchase price at this point by Allens was an explanation as to how a figure to be arrived at and inserted was to be made up.

132 Mr Lawrance, meanwhile, was attempting to obtain information to provide answers to G+T’s legal due diligence requests, including request 2.8(c). He made enquiries of a number of people at InterTAN and SSB. On 6 March 2001 at 7.23 pm, Mr Lawrance received an email from Ms Whiteside of ITAL giving him an annotated copy of the G+T request. Adjacent to the request in 2.8(c) was the phrase "Refer Data Room." Sometime that evening, Mr Lawrance put a copy of this annotated G+T request, together with some further annotations of his into the data room as exhibit P1.

133 On the following morning, Wednesday, 7 March 2001, at 9.17 am Mr Lawrance sent an email to Ms Whiteside and Mr Winstanley of ITAL, copied to Messrs Losch, Gingerich and McCulloch, about the responses to the legal due diligence in which he said the following about request 2.8(c):

134 After 7 March 2001, Mr Lawrance placed in the data room a one-page document which had been provided by Ms Whiteside and which Mr Lawrance viewed as a partial answer to request 2.8(c) and as something which, he thought, prevented exhibit P1 being misleading. This document stated:

135 This document, together with oral assurances from Ms Whiteside to the effect that "There’s nothing to disclose; it’s dormant" led Mr Lawrance to the view that the "refer data room" answer to request 2.8(c) was accurate, as long as there was a document in the data room stating what Ms Whiteside had told him. Hence, his desire to have document Q8 placed in the data room.

136 Meanwhile, on or about 6 March 2001, Ms Fox (of SSB) sent a facsimile to Mr Sweetman (of UBS) enclosing the December Corporate Pack. Mr Sweetman said in his first affidavit that this was the first time that he saw this document which he knew and referred to during the transaction as the December Corporate Pack. I accept that evidence. It is a reflection of the fact that he was not involved in the fine detail of the due diligence process concerning the financial state of the business. That was the task of Deloittes. Mr Cox had no recollection of telling Ms Fox to send the December Corporate Pack to Mr Sweetman. Mr Gingerich said that it was probable that the December Corporate Pack was sent to Sweetman with his (Mr Gingerich’s) authority. I so find. There was a dispute as to whether the December Corporate Pack was sent to Mr Sweetman as the proposed reference accounts. It plainly was. The conversations with Mr Cox on 1 and 5 March 2001 make that clear.

137 On 8 March 2001, Mr Sweetman (of UBS) sent a facsimile to Mr Dowsett (of Woolworths) being seven pages of the December Corporate Pack which had been sent to him by facsimile by Ms Fox two days earlier. Mr Dowsett, was the "Group Development Manager" of Woolworths who had responsibility for acquisitions. He had accounting training, but his experience had been substantially to do with the engineering, commercial and management side of the businesses with which he had been associated. The pages sent by Mr Sweetman to Mr Dowsett did not include the pages dealing with income and expenses. Rather, they comprised the statement of assets, the statement of liabilities and equity, the pages being the sundry asset accounts, the page being the sundry liability accounts and the page being the schedule of intercompany receivables, payables and investments.

138 Mr Dowsett made specific reference to the parts of the December Corporate Pack to ascertain the state of intercompany debt. He specifically noted that there was a zero balance between ITAL and TSC. The reconciliation of this approach with Mr Dowsett’s recognition that the subject of sale at this point was the shareholding in the companies carrying on the business is made by recognising a lack of precision in Mr Dowsett’s thinking in this regard.

139 On 9 March 20001, Mr Sweetman gave Mr Brewster a copy of the December Corporate Pack and told Mr Brewster, in substance, that the December Corporate Pack was or contained the 31 December accounts for the purpose of the agreement. I find that he did this on the basis of his conversation with Mr Cox on 1 and 5 March and from all that had occurred to this point. Mr Brewster then reviewed the December Corporate Pack. Mr Brewster thought the December Corporate Pack related only to ITAL.

140 In the days leading up to 9 March 2001, a decision was made within the Woolworths’ camp not to purchase TSC. Discussion had taken place amongst some of Woolworths’ indirect tax advisers as to the possible risk involved in buying TSC. It was thought to be wiser not to buy TSC. The decision was conveyed to Mr Brewster of G+T. This change was the genesis of the controversy. Up to this point, InerTAN had been prepared to sell all the shares in ITAL and TSC to Woolworths for a price based on a formula agreed between Mr Stegall and Mr Wavish and set out in the first draft agreement, subject to adjustments based on net assets. Included within that sale, as is clear in the first exchanged draft agreement, was ownership and control of TSC. This inclusion had not been discussed as a matter of commercial importance. TSC was viewed as a dormant company; a piece of history: see the exchange between Mr Lawrance and Ms Whiteside. What was negotiated between Mr Wavish and Mr Stegall was a price for the business – the assets and operations supporting, and reflected by, the earnings of the business.

141 The excision of TSC from the transaction was not the subject of any debate or discussion between Woolworths and InterTAN, or their respective advisers. It was treated as a matter of no commercial moment by the parties. Its consequences being confined to the need for drafting changes. Ms Whiteside had told Mr Lawrance that TSC was dormant. It was. Dormancy was assumed by everyone until 4 April 2001 (when Mr Gingerich appreciated the existence of the debt or at least the size of the debt) to be synonymous with irrelevance.

142 Mr Sweetman was told of the change. At about this time he received his copy of the December Corporate Pack, relevant parts of which he sent off to Mr Dowsett. Mr Sweetman was of the view that the December Corporate Pack contained the accounts of ITAL only. Mr Sweetman accepted in cross-examination that if after learning of the excision of TSC, he had learnt that the December Corporate Pack was an aggregated set of accounts of ITAL and TSC he would have recognised, and expressed, the need for a "stand-alone set of accounts for InterTAN Australia", and he would have examined them and ensured that they were the accounts to be the reference point for any price adjustment based on net assets. This evidence was given with the benefit of the appreciation of the importance of the liability of over $4 million at the centre of this case.

143 On Saturday, 10 March 2001, Mr Brewster (of G+T) sent an email to Mr Lawrance (of Allens) enclosing a marked-up copy of the first exchanged draft with various changes. In the covering email Mr Brewster noted that the tax advisers were still undertaking their due diligence. He also noted that the purchaser did not wish to acquire TSC.

144 Clause 5 and the relevant schedule to the draft agreement were amended to take account of the excision of TSC. The word "Companies" was removed and replaced by the word "Company", whenever appearing to reflect the excision of TSC.

145 The definition of the term "Purchase Price" was amended by G+T. In its amended form as sent to Allens on 10 March 2001 it was as follows:

146 The capitalised terms in this definition of Purchase Price: "Balance Date", "Balance Date Cash and Cash Equivalents", "Balance Date External Debt" and "Balance Date Intra-Group Debt" were defined in this amended first exchanged agreement and such definitions were placed in clause 1.1. These definitions were as follows:

149 The term "Related Body Corporate" was defined as having a meaning given to that term in the Corporations Law.

150 Mr Gingerich became aware immediately that TSC had dropped out of the sale. Until about 4 April 2001 the significance of that fact that did not strike him. From 9 March 2001, Mr Gingerich and all persons dealing with the transaction on both sides continued to be of the view that the December Corporate Pack contained the relevant balance sheet, being the reference accounts for the transaction, that is, the "Accounts" for the purposes of the agreement then in draft.

151 One matter of concern in the G+T amended draft was the extent and terms of the warranties. Mr Gingerich spoke to Mr Wavish about this. They discussed keeping warranties to a minimum and Mr Wavish spoke about a requirement of warranting a balance sheet.

152 Legal due diligence continued. On Sunday, 11 March 2001, Mr Brewster sent an email to Mr Lawrance attaching an up-dated schedule of outstanding due diligence enquiries. Adjacent to 2.8 the following appeared.

153 Mr Lawrance sought instructions about this request. He received none. He thus did not answer the request. Despite some diary notes of 22 February 2001, which might appear to be a basis for a conclusion that Mr Lawrance knew there to be money owing from ITAL to TSC, (see [101] above) Mr Lawrance said he did not know that fact. I accept him. I find that if he had thought that there was a not immaterial debt from ITAL to TSC he would have taken steps of some kind (which he did not take) to seek to ensure that InterTAN did not deliberately mislead Woolworths.

154 Mr Gingerich, a highly experienced and intelligent businessman, who had responsibility for much of the carriage of the transaction for the InterTAN interests, said the following in cross-examination about the original request 2.8(c) and the reformulated request 2.8 on 11 March and the debt from ITAL to TSC.

Q. Do you agree that, if there was to be a fair and accurate answer to the question posed in 2.8(c), there would, to your mind, need to be disclosed the intercompany payable of $4.368m recorded in the balance sheet, being schedule D, volume 17, tab 589?

Q. Could I take to volume 12, tabs 415 and 416, particularly the material headed at 416 "2.8", and just read that to yourself. You agreed with me that you more probably than not received and read the document at tab 416; do you agree?

Q. And would you agree with me that if there was to be a fair and accurate answer to that question, there would need to be disclosed the existence of the intercompany payable of $4.368m recorded in the stand-alone balance sheet of InterTAN Australia Limited at Volume 17, tab 589, schedule D; do you agree?

155 By Monday, 12 March 2001, some six days after Allens had forwarded the first draft agreement to G+T, Mr Gingerich sent an email to Mr Dowsett (of Woolworths) expressing some dissatisfaction with the progress of the matter. Mr Gingerich and Mr Dowsett had apparently spoken either that morning or on the weekend. The terms of Mr Gingerich’s email were, relevantly, as follows:

156 Mr Dowsett understood the reference in Mr Gingerich’s email to the "Balance Sheet (from the December 31, 2000)" to be the December Corporate Pack. That was plainly how it was intended to be understood.

157 Two hours later, on Monday, 12 March 2001, Mr Dowsett sent an email to Mr Gingerich in reply. In the meantime, Mr Dowsett had had a conversation with Mr Wavish. The email from Mr Dowsett to Mr Gingerich set out the essence of what Mr Dowsett understood from his discussion with Mr Wavish. The email in reply was as follows:

158 On the same day, Monday, 12 March 2001, Mr Sweetman, having received Mr Gingerich’s email, considered the question of the purchase price. He sent an email to Mr Dowsett and Mr Wavish in the following terms:

159 In his first affidavit, Mr Sweetman said that the references in this email to "31 December 2000 Balance Sheet" and the "Balance Sheet as at 31 December 2000" were intended by him as references to the December Corporate Pack. I accept this evidence.

160 On 15 March 2001, the Woolworth’s board gave approval for the transaction to proceed. UBS had submitted a written presentation to the board on 13 March 2001. The "overview" at the commencement of this UBS presentation emphasised the low multiple of cost to earnings before interest and tax (EBIT) of 4 that was being paid (based on EBIT of $10 million per annum and synergies of $17 million per annum). The value to Woolworths was stated to be in the order of $175 million - $210 million "if identified synergies are achieved." Page 24 of the report recorded funds employed by Tandy as $53 million. Mr Wavish said that one of the factors he took into account in agreeing to a purchase price of $108 million was what he understood to be the net asset position of ITAL of $53 million. I accept that evidence.

161 Mr Wavish had his own views about the business. Plainly he saw Woolworths as not buying just assets, but an operating business with earning and "synergies". As he said in cross-examination:

Q. What did you understand to be the nature of this transaction, and I’m speaking here about the year 2000 and January and February 2001? Was it an asset purchase, a corporate purchase, or some other sort of transaction, as you saw it?

A. We were making an acquisition that the purchase price was primarily calculated on the basis of earnings, but with reference to the underlying assets of the business.

Q. But you weren’t simply buying the assets from the company or companies concerned, were you?

A. Yes, we were seeing it as buying a business that generated profit and had assets and trading liabilities relating to that business that were needed and would be needed in generation of that profit. That then formed the basis of the unleveraged business. We didn’t see it as being buying shares, we saw it as buying the profit stream and the assets attached to that profit stream, and that, to my mind, constituted the $108m that we paid.

162 The asset position was not of primary importance to him, but it was not merely incidental. The earning were of primary importance.

163 Mr Wavish was of the view that $108 million was "good value". That is not to say that he would have paid substantially more, despite the advice of UBS, the officers of which, no doubt, wished Woolworths to go ahead and be happy in that decision. Mr Wavish had his conversation with Mr Stegall (having discussed the matter with Mr Corbett) on the basis of the December Corporate Pack embodied in Deloittes due diligence report. At the time of his discussion with Mr Stegall, Mr Wavish appreciated that the $108 million was the price for a business with net assets of $53 million and no debt. The due diligence report, which Mr Wavish no doubt read carefully (and I so find), apart from $91,000 in inter-company payables, identified all liabilities of $44,305,000 as trade or business liabilities: trade creditors, accounts payable, accrued expenses, store manager deposits, retirement and service contract liabilities.

164 Mr Wavish from the information before him understood that the $108 million ungeared on the 31 December 2000 balance sheet would translate into a contract price of about $115 million, with post completion adjustments based on "starting" net assets (that is, net assets as at the reference date) of $53 million. That was his understanding of what he had bargained for with Mr Stegall. It was what all the InterTAN officers and advisers including Mr Stegall (with the exception of Mr Gingerich after 4 April 2001) thought had been bargained for given the content of the words "unlevered" or "ungeared" or "unleveraged".

165 Whilst no doubt it is the case that the Woolworths’ board was the decision making organ, the views of Mr Corbett, as CEO, and Mr Wavish, as CFO, were fundamental. Mr Wavish said that Mr Corbett generally followed his advice on financial questions of the kind here. I accept that. Mr Wavish said that he would not have supported the acquisition at $114 million had he known of the intercompany receivable of $4 million, of the necessity of paying it and of a lack of countervailing adjustment. I accept that evidence. Mr Corbett was not called. It was said by the respondents that that failure was important and led to a lacuna in the evidence. I disagree. I infer from the evidence that had Mr Wavish had a negative view as to the transaction, that would have been decisive. There was nothing in the evidence to lead to the inference that Mr Corbett had or was likely to have a different view of the transaction to that held by Mr Wavish. Further, if the CEO and CFO of Woolworths had negative views about the transaction, I see no basis on the evidence to infer that anyone at Woolworths would have wished to press on with the transaction or , if he or she wished to, would have had the influence to carry it forward.

166 Meanwhile, Mr Brewster (of G+T) continued to repeat his request of 11 March for legal due diligence information seen by him as not yet answered. Mr Brewster sent emails to Allens on 13, 14 and 20 March 2001. On 20 March 2001, Mr Lawrance sent Mr Brewster an email saying that there was no further responses to G+T’s requests of 11 and 13 March 2001. Mr Brewster took Allens’ reply of 20 March as indicating that there were no intercompany liabilities to TSC. His expectation was that he would have expected those liabilities to be expressly identified in response to G+T’s enquiry. On the material before him, I find his conduct to have been reasonable. Significant support for this is to be found in Mr Gingerich’s evidence referred to at [154] above.

167 On Wednesday, 14 and Thursday, 15 March 2001, the parties’ representatives meet and had detailed discussions about the form of the sale and purchase agreement. On 14 March the discussions were held at the offices of G+T, and on 15 March at those of Allens. Consecutive drafts were prepared dealing with various clauses which were the subject of discussion at the meetings, the detail of which clauses it is unnecessary to consider.

168 The attendees at the 14 March 2001 meeting were Messrs Sweetman (of UBS), Dowsett (of Woolworths), Brewster (of G+T), Cox (of SSB), Gingerich (of InterTAN) and McCulloch and Lawrance (of Allens). One of the matters discussed at this meeting was the clause in the draft agreement dealing with the completion accounts for the purposes of the net asset adjustment. There was discussion as to whether the December Corporate Pack had been prepared on the basis of Australian or United States Generally Accepted Accounting Principles (GAAP) and of the fact that the December Corporate Pack contained accounts and a balance sheet that had not been audited. Mr Brewster recalled that the December Corporate Pack was on the table around which the parties were seated. I accept that evidence. He said no other document, accounts or balance sheet, other than the December Corporate Pack, was referred to as the December accounts at this meeting. I accept that evidence. I find that there was discussion at the meeting using the phrase "December accounts", which could be reasonably understood as referring to the December Corporate Pack as, or as containing, the reference accounts or the "Accounts" as they were called in the existing draft agreements.

169 At the meeting on 15 March 2001, at Allens’ offices, Mr Breden, who was assisting Mr Brewster at G+T, and Ms Fox (of SSB) also attended. The participants at the previous day’s meeting attended. Mr Brewster recalled that the December Corporate Pack was once again on the table during the discussion and that once again it was referred to by those present as the "December accounts". I accept that evidence. Once again there was a discussion of Australian and US GAAP.

170 Mr Breden had some recollection of the meeting. He was tested in cross-examination. Mr Breden said that he could not recall precisely what was said at the meeting, but he recalled a discussion about the difference between US GAAP and Australian GAAP and the impact that would have on the accounts required under the agreement. In his affidavit, he stated the following, which I admitted over objection:

171 In his cross-examination, Mr Breden said that the accounts were "tabled" by a single person and then reviewed by people representing Woolworths or DSE. By "tabled" he said that the accounts were "placed on the table for review by representatives of Woolworths". He recognised the document as a set of accounts. He did not pick the document up and review it. He recalled that the document was reviewed by, in particular, Mr Sweetman.

173 Mr Gingerich agreed that it was obvious to him at the meetings of 14 and 15 March that those representing Woolworths were proceeding on the basis that the December Corporate Pack, which was physically present in the room, contained the balance sheet and accounts that would stand as the reference accounts or December accounts for the purpose of the agreement. It was plain at those meetings, and I so find, that the relevant representatives of the contracting parties charged with the responsibility of formulating the terms of the sale including a senior officer of InterTAN with responsibility for the sale (Mr Gingerich) had a common belief of this fact and by their words and conduct on 14 and 15 March mutually expressed to each other that the December Corporate Pack was, or contained, the December accounts, being the "Accounts" contemplated by the terms of the agreement, then in draft, to be the reference accounts against which the completion accounts would be compared to ascertain the movement in net assets for the purposes of the adjustment.

174 In the draft agreement sent by Mr Lawrance to Mr Brewster on the morning of 14 March 2001, in preparation for the meeting that day, the definition of "Purchase Price" was as follows:

175 On the afternoon of 14 March 2001, after the meeting of that day and in preparation for the following day’s discussion Mr Breden sent an annotated draft agreement to Allens which contained the following adjacent to "Purchase Price".

176 To the extent that explanation was necessary, I have no doubt that it was given on 15 March 2001 as substantially being derived from the December Corporate Pack which was physically before the participants at the meeting. The sums referred to above reflect the $108 million plus the two sums in annexure A as "cash" and "short term investments" of $2,748,099 and $4,500,000, respectively: totalling $115,248,099. There was no deduction at this point for any intercompany payable or any other sum.

177 I will return in due course to the debate between the parties about the reduction to the eventual contract price of $114,139,649. There is no doubt, however, and I so find, that all parties were aware by what had been said and done between them – by the provision of the December Corporate Pack, by the words and conduct leading up to 14 and 15 March, by the words and conduct at the 14 and 15 March meetings, and by the common understanding of the nature of the transaction by both the commercial and legal people involved – that the December Corporate Pack had been used as the fundamental reference point to set the amount of the price in the contract document from the negotiated or enterprise value. This was not merely an aspect of pre-contractual negotiation, it was a mutually understood, and mutually recognised foundation of the operation and implementation of a commercial transaction of this kind.

178 Whilst the Woolworths’ representatives no doubt obtained their view of the importance of the December Corporate Pack before 14 March 2001, indeed before 9 March 2001 in respect of some of them (for instance, Mr Brewster was initially told by Sweetman), the discussion and conduct, including what was not said, which took place at the meetings of 14 and 15 March embedded, reinforced and restated what no doubt had been understood previously. By their respective discussions and conduct at these meetings, each side represented to each other that the relevant December accounts for the anticipated agreement were, or were contained in, the December Corporate Pack. This was both a representation of present fact and a representation about a future matter.

179 Mr Gingerich recognised that Woolworths’ representatives’ understanding about the December Corporate Pack being or containing the reference accounts never changed prior to completion.

180 Mr Brewster did not appreciate that the December Corporate Pack was aggregated. He looked at it to see whether there were any intercompany liabilities. No doubt, and I so find, this was reinforced by the answers received to request 2.8, in particular 2.8(c) of his legal due diligence request.

181 The discussion and uncertainty as to the accounting standards continued after 15 March 2001. Eventually, the matter was dealt with by cl 9.1(b) which provided as follows:

provided that in the case of any difference between the above principles and practices the accounting principles and practices which governed the preparation of the June accounts shall prevail.

182 Meanwhile, from early March, some further due diligence was continuing. Deloittes had presented their due diligence report to Woolworths on 16 February 2001. Within that report was, as appendix 10, a summary of the tax issues identified from preliminary tax due diligence. Mr Osborne, the direct tax partner at Deloittes, described this as a "high level review". After 16 February 2001, Mr Osborne and others at Deloittes undertook detailed investigations concerning the taxation aspects of the transaction. This can be described as the detailed tax due diligence. There was also consultation with an indirect tax adviser from another firm. The in-house tax manager at Woolworths was also involved. Mr Griffiths, who was the Deloittes’ partner in charge of what might be called the financial due diligence and who was responsible for the preparation of the due diligence report of 16 February 2001, did not understand that he or his firm was retained for what might be termed continuing financial due diligence. Nevertheless, Mr Woosnam, his subordinate, who had done much of the work on the due diligence report (under Mr Griffiths’ supervision) continued to do work on the matter. He was provided with various material including drafts of the agreement when they became available. Mr Brewster (of G+T) assumed Deloittes were still retained and was interested in Deloittes’ views in particular in relation to certain warranties. Mr Wavish assumed that all relevant matters were being checked by those competent to do so.

183 In the course of performing the tax due diligence in early March 2001, probably around 7 March 2001, Mr Osborne, or those working with him, sent a five page request for information under the following heading:

184 There were various questions under six headings. The request under the second to fifth headings was said to be as follows:

185 The third heading was "DIRECT TAX". Question 15 under this heading was in the following terms:

186 This request was part of 22 requests made about "Corporate Tax" under the heading "Direct Tax". Mr Osborne gave evidence that intercompany loans were relevant to taxation issues, especially where there was a foreign parent in respect of which there might be tax consequences of cross-border debt and transactions.

187 In exhibit V-1 placed in the data room, this question was answered in the following terms:

188 Attached to that response (and so also in the data room) was exhibit V-11 which was ten pages containing a listing of accounts, one page of which (the second page) listed an account as follows: "A/c 2006 ACCOUNT PAYABLE – TSC". Precisely what the document conveyed was a matter of dispute. Because of its importance to the respondent’s arguments, I set out the page on which this account appears as annexure 3.

189 This information was probably seen by Mr Osborne, and I find that it was. His reconstructed view of it (which I accept) was that its contents would not have changed his views as to tax since whatever else was displayed, there appeared to be a domestic intercompany loan. Also, he would not necessarily have assumed it to be a loan. In any event, charged as he was with dealing with tax questions, Mr Osborne did not appreciate any significance in the entry.

190 No person brought to the attention of anyone acting on behalf of Woolworths at the levels of the persons considering or drafting relevant agreements that as at 31 December 2000 ITAL owed TSC a sum exceeding $4 million. None of the relevant actors in this category knew of the loan as at 31 December 2000. The December Corporate Pack, being the document that the parties had been treating as the reference accounts as at 31 December 2000 did not disclose it. To the extent that any of the Deloittes’ employees or Mr Osborne read annexure 3, none had any inkling of the significance of the document and of its content adjacent to the number "28".

191 In the evening of 15 March 2001, Mr Lawrance (of Allens) sent a facsimile, the cover page of which was handwritten by him, to Mr Dowsett (of Woolworths), Mr Sweetman (of UBS), Mr Thorpe (of G+T) and Ms Fox (of SSB). The facsimile was said to have attached "draft February accounts". The enclosure was a set of accounts for the period ending and as at 28 February 2001, in similar form to the December Corporate Pack with the same headings and structure. In his affidavit, Mr Sweetman said that he took from the form and content of the February Corporate Pack as the "February accounts", that the December Corporate Pack was the December accounts for the purposes of the agreement. I accept this evidence.

192 A few minutes later, on the same evening of Thursday, 15 March 2001, Mr Lawrance (of Allens) sent an email to Mr Thorpe and Mr Brewster (of G+T), Mr Sweetman (of UBS), Mr Dowsett (of Woolworths), Ms Fox and Mr Cox (of SSB), Mr McCulloch (of Allens) and Mr Gingerich (of InterTAN). Attached to that email were a number of documents. The email also stated that:

193 On Monday, 19 March 2001, Mr Sweetman sent an email to Mr Dowsett (of Woolworths) attached to which was an analysis of the profit and loss and balance sheet since December 1999. Figures in the document for December 2000 were obtained by Mr Sweetman from the December Corporate Pack.

194 By 5 April 2001, InterTAN’s commercial position was under threat. On 5 April 2001, there was a board meeting of InterTAN Inc which Mr Gingerich attended by telephone. Mr Gingerich agreed that the commercial position at this time was as follows:

195 Mr Gingerich was authorised by the InterTAN Inc board to negotiate whatever amendments and modifications were necessary to get the agreement done. That remained the position in the period from 5 to 10 April.

196 With these storm clouds appearing over the deal, and having lost a further $6 million off the deal by way of payment to Radio Shack, Mr Gingerich, it might be said, stumbled on the obvious. He, along with everyone else, knew from 9 March 2001 that TSC was to be external to the transaction. On 22 February 2001, he had discussed the question of a receivable between ITAL and TSC (see [101] above). However, like everyone else, until 4 April he had placed no significance on the removal from the transaction of the dormant shell, TSC; he had continued to view the December Corporate Pack (which he knew to be an aggregated set of accounts) as the reference accounts, recognising that the Woolworths’ representatives were doing likewise.

197 On 4 April 2001, he received a settlement sheet for the completion of the transaction and realised that the receivable from ITAL to TSC had to be paid and was over $4 million. At this time he said, and I accept him, he realised the inappropriateness of the December Corporate Pack balance sheet as the December Accounts for the agreement. He decided that he would not tell Woolworths of his realisation about the inappropriateness of the December Corporate Pack as the December Accounts on this hypothesis. He knew that Woolworths were proceeding on the basis of the December Corporate Pack being, or containing, the reference accounts or the December Accounts referred to in the draft agreement then in existence. He knew that Woolworths did not appreciate the significance of removing TSC and the size of the loan. He knew this because he realised that if Woolworths had appreciated this, further concessions would have been requested of InterTAN by Woolworths by way of equivalent price reduction.

198 Mr Gingerich’s knowledge can be summarised in the following findings which I make and which, in large part, derive from his evidence in cross-examination:

199 This last finding (italicised above) was heavily contested by the respondents. It was said that Mr Gingerich was suffering from the stress of a bereavement, that after a torrid cross-examination he was less than clear, and that I should have permitted certain re-examination.

201 When Mr Gingerich gave the evidence referred to at [198(k)] above, he was, to my observation, under no apparent stress or disability at all. Though the cross-examination of him was forceful, it was always fair and was conducted, mutually between counsel and witness, in a civilised, ordered and lucid way. At the time the evidence was given, at the time of considering and in significant part writing my reasons for judgment during and shortly after the hearing of the case, and in completing these reasons, I had and have no doubt whatsoever that his was a clear, measured and considered answer. This accords with the flow of events. I will not rehearse the commercial pressures and circumstances that I have outlined. There may have been many things that could conceivably have been put about the liability to TSC – it was the result of business operation and so would not be classed as debt for the purpose of an "unlevered" purchase, TSC might have tax difficulties and to leave it behind with InterTAN might be seen to come at a price to Woolworths. But the reality was (as Mr Gingerich fully appreciated) InterTAN was content to sell this business for $108 million (indeed $105 million, though this had not been communicated to Woolworths) without the benefit of the receivable. TSC had been viewed and discussed as dormant. The excision of TSC and the residual liability of ITAL to TSC had not been a relevant commercial consideration for anyone. The excision of TSC, on this hypothesis, effectively increased the price by over $4 million. Mr Gingerich knew Woolworths would, if they appreciated the existence of the liability (given that he knew Woolworths’ representatives were working off the December Corporate Pack) have demanded a price reduction. He knew his bargaining position or leverage was such as to make resistance commercially indefensible. That was his view at the time. That was why he said nothing.

202 Before leaving this part of the facts, it should be noted that Mr Gingerich said that, in about September 2001, when he learnt that there were no stand-alone accounts of ITAL or TSC in the data room, he was "horrified". He was not taxed on this in cross-examination. I conclude, significantly because I think that Mr Gingerich was an honest man, that he then (in September 2001) appreciated how his conduct might be viewed. He was prepared to assume, without any real foundation, that the ITAL accounts were in the data room, in part, I find, because it justified a position he wished to take in the interests of InterTAN, which, by 4 April 2001, was coming under significant pressure in and about this transaction. If such stand-alone accounts were in the data room, he could rationalise his conduct by the obligation of Woolworths to do its own due diligence competently. In the circumstances that there were no stand-alone accounts of ITAL in the data room he knew that Woolworths had approached the matter (as he had up to 4 April) without an appreciation of the liability of over $4 million as at 31 December 2000 and without stand-alone accounts in the data room to reveal it in the relevant reference accounts. As a tough, but honest, businessman, in these circumstances, and given his own central involvement in events, he was horrified.

203 The position of the credit of Mr Gingerich is troubling. Whilst I am of the view that that he was an honest man and generally speaking during the course of his evidence he attempted to be truthful, it should be said that he was rarely forthcoming. He answered questions asked of him, and no more, though he cannot be criticised for that. He did not seek to hide behind non-recollection. The only occasion in which he sought to amplify or clarify in an important respect was his evidence about being horrified in September 2001 when he learnt that the stand-alone accounts were not in the data room. He was cross-examined, if I may so, thoughtfully, thoroughly and logically. Generally speaking, he answered questions truthfully. I think, however, to a degree, he was prepared in his affidavit material to go beyond what he, under the directness of cross-examination, was prepared to say. I do not agree that that reflects any lapse in concentration during the course of his oral evidence. Though, as I understand it from Mr Macfarlan QC, Mr Gingerich had suffered a personal loss not long before giving evidence, he was evidently an intelligent and thoughtful man of some capacity and personality. I saw no evidence whatsoever in looking at him in giving his evidence that he was ever in any way distracted or lacking in the most careful concentration.

204 The best example of the conflict between affidavit evidence and oral evidence was his statement that if Woolworths or DSE had come back to him about the TSC liability he said in his affidavit that he would have approached Mr Shepherd as to whether he and Mr Shepherd could see any objection to a reduction. In his oral evidence he agreed, after careful thought, that had Woolworths or DSE come back to him in that fashion he could not have resisted that request. It may be that others may have suggested something to him at the time. No one gave that evidence. Mr Gingerich was an experienced businessman well able to look after himself in negotiations. He appreciated in the witness box the nature of the question. He truthfully said that he did not think that he would have been able to resist that request. In all the circumstances of the transaction, I do not see any real alternative to that proposition. InterTAN had been prepared to sell both companies (with the embedded receivable) for $108 million ungeared. The hiving off of TSC (as an assumed dormant and irrelevant aspect of history) in fact gave the InterTAN a $4 million receivable. It is true that it had its origins in connection with trade, but it was a dormant intercompany receivable, a residue of a sales tax arrangement. I have no doubt on the evidence that Mr Gingerich’s concession in this respect was deliberate, considered and founded in his intimate contemporaneous knowledge of the course of events and of the respective positions of InterTAN and Woolworths, including his knowledge of the human context of the negotiations.

205 To the extent that Mr Gingerich’s oral evidence in cross-examination conflicts with his affidavit evidence, I prefer his oral evidence.

206 However, I should say one more thing about Mr Gingerich’s evidence. He did concede in cross-examination that his affidavit evidence in part was untruthful. The question was not objected to. I considered rejecting it nevertheless. There was an element of ambiguity in it. That ambiguity was similar to a question often asked as to whether a statement is "false". Such a question can be taken to mean inaccurate or knowingly inaccurate. Mr Gingerich denied that he knew at the time he swore his affidavit that it was false. He indicated that he had gone through the affidavit carefully with his solicitors. Examining the whole of the relevant affidavit of Mr Gingerich, I do not think that he was, in swearing the affidavit, intending to be overly forthcoming; however, I do not accept that he was deliberately swearing a false affidavit.

207 The share sale agreement was executed on 10 April and completed on 30 April 2001.

208 When the agreement was executed Woolworths’ representatives and its advisers believed that the December Corporate Pack was, or contained, the reference accounts being defined in the agreement as the "December Accounts" .

209 None of the Woolworths’ representatives knew or believed that ITAL owed TSC over $4 million as at 31 December 2000.

210 It is necessary to resolve some disputes about facts. Some of these have already been touched on.

211 The respondents in their written submissions on factual matters posited a number of propositions and subjects. I will deal with these topics largely in the way they were organised and dealt with in the submissions of the parties.

Proposition 1: DSE and its advisers knew or ought to have known that the December Corporate Pack represented an aggregation of the accounts of ITAL and TSC.

212 It is first necessary to enquire of the context, both legal and factual, in which this proposition is being posited. Different considerations may attend the assessment of the underlying facts depending upon the context of the enquiry. In due course, I will deal with the proper way to analyse what might be said to be the matrix of fact in which the agreement is to be construed. Other considerations attend the answering of the question as to whether the warranties given were breached or whether there was an estoppel or misleading or deceptive conduct. Nevertheless, it is convenient to deal with such matters as are put by the respondents under this heading and resolve the contested issues of fact.

213 It is undoubted that some relevant participants on the Woolworths side understood the December Corporate Pack to relate to the aggregated financial position of ITAL and TSC. In this category can be placed Messrs Dowsett, Griffiths and Woosnam.

214 Mr Sweetman (of UBS) gave evidence that he was not told that the December Corporate Pack was an aggregation of the accounts of ITAL and TSC. A challenge to this evidence was made at a number of levels by the respondents. First, it was said that there was nothing in the circumstances in which he received it to suggest to him that it was the stand-alone accounts of ITAL. He accepted in his cross-examination that when he received the December Corporate Pack from Ms Fox he had reason to believe that it related to such companies as were involved in the Australian business or that it related to the Australian business. To a degree this answer reflects Mr Sweetman’s concerns during the whole transaction. At all times, he viewed what was being purchased and the subject matter of the transaction as the operating business. He was less than precise in his thinking about corporate form. In reality, he left it to others to bring to his attention any significant consequence of any particular corporate form that was being adopted in the transaction. Mr Sweetman had undoubtedly become aware at the early due diligence stage, before Deloittes were involved, that there were two companies involved in the Tandy business in Australia. But he was also aware that one was dormant. Thus, Mr Sweetman approached the matter by reference to the purchase of the business which he understood on the basis of information supplied in October to be carried on by ITAL, with TSC a dormant related company previously having been an interposed wholesale supplier. At the time he was considering the December Corporate Pack, he was of the view that there was no on-going trading relationship between ITAL and TSC. At this time (March 2001) he thought, and was correct in thinking, that TSC was dormant. Mr Sweetman also expressed the view that it did not necessarily follow that because accounts were aggregated that one would not see any transactions between the two companies.

215 The respondents asked me to conclude that Mr Sweetman was aware at the time that he received the December Corporate Pack in early March 2001 that it related to both ITAL and TSC. Mr Sweetman gave contrary evidence. I accept his evidence. I gained the impression during the giving of his evidence that whilst he was careful, and not unmindful of potential complaints as to the role played by UBS (a position that I sensed many of the advisers appreciated about their own positions), I think that Mr Sweetman was generally attempting to assist me. I accept him as an honest witness whose recollection was generally to be relied on. Whether Mr Sweetman was entirely careful in the conclusion he drew about the December Corporate Pack is not the issue. He did not appreciate that the December Corporate Pack was an aggregated set of accounts.

216 As I said, this question as to knowing that the December Corporate Pack was an aggregated set of accounts must be viewed in its proper context. What is clear from the chronology is that those engaged in the discussions and negotiations about the transaction: Messrs Gingerich, Cox, Sweetman, Dowsett and the solicitors all engaged in conversations and conduct to the effect that the December Corporate Pack was, or contained, the reference accounts or the December accounts. That is what the parties understood. The relevance of the December Corporate Pack as, or as containing, the reference accounts was an underlying assumption to the negotiations and agreement between Mr Wavish and Mr Stegall. This commonly held view of the relevance of the December Corporate Pack may well have deflected the attention of the parties from considering and investigating whether or not there was any significance in the apparently administrative, and otherwise commercially irrelevant, excision of TSC from the transaction. Nevertheless, for all concerned (except Mr Gingerich after 4 April 2001) the December Corporate Pack provided the relevant information as the reference accounts for the transaction as at 31 December 2000. In those accounts, which all understood had formed the basis of the derived contract price from the negotiated price, there was no entry by way of liability or receivable between ITAL and TSC which might otherwise have affected the derivation of the contract price, or which might otherwise have affected the comparison of balance sheets for the post completion adjustment.

218 Before turning to Mr Dunlop’s evidence, I should deal with one aspect of Mr Dowsett’s evidence heavily relied upon by the respondents. Mr Dowsett said that he knew as a result of his communications with Mr Sweetman on 8 March 2001 that the December Corporate Pack was to be used for the purposes of the agreement and he continued to believe that to be the case until after the execution of the agreement. As at 8 March 2001 there were, as Mr Dowsett knew, two companies being purchased and that in that sense it was in that context that Mr Dowsett was told by Mr Sweetman that the December Corporate Pack was to be used. In his cross-examination, Mr Dowsett accepted that his belief did not have anything to do with anything done by InterTAN representatives after 8 March. But Mr Dowsett did say that had Mr Gingerich told him after 8 March that the December Corporate Pack would not stand as the December Accounts for the agreement, because they were not the stand-alone accounts of ITAL, he would not have continued in that belief. Also, it is somewhat unrealistic to expect a witness to be able to identify any reinforcement (conscious or subconscious) which may have occurred by the meetings such as those of 14 and 15 March in circumstances where Mr Dowsett had formed the belief that the December Corporate Pack was the relevant reference accounts or the December accounts and in circumstances where everything that occurred at the 14 and 15 March meetings was to the same effect. In a sense, it is correct to say that those meetings and the discussion and conduct at those meetings did not have anything to do with the belief in that it was not in anyway altered. Nevertheless, the discussion at those meetings can be seen as conduct, including what was not said, that did not change the view that Mr Dowsett held. The fact is, as I have found in the chronological findings, for anyone paying any attention at the meetings of 14 and 15 March 2001, which no doubt Mr Dowsett was, the views of the representatives of both sides were made plain. Each expressed to the other that the December Corporate Pack was, or contained, the December accounts for the agreement. The discussion reinforced the then mutually held view that the December Corporate Pack was, or contained, the reference accounts to be used in the post-completion adjustment.

219 Mr Dunlop’s evidence about the December Corporate Pack was, to a degree, artificial and disembodied. He expressed the professional view that based on a review of the December Corporate Pack alone a reasonably competent and experienced accountant would have been unable to conclude whether it comprised the accounts of ITAL alone or the combined accounts of ITAL and TSC, and in those circumstances, such an accountant would make further enquiries as to what entity or entities it represented. To a degree that much can be accepted. At the time Deloittes were examining the December Corporate Pack up to 16 February 2001 they understood it was the aggregated set of accounts of two companies. It is largely beside the point to understand what a reasonably competent and experienced accountant would have understood from the December Corporate Pack alone, unless one posits the relevant enquiry. I have already identified in the chronology what the parties were communicating to each other. In due course, I will discuss what the parties communicated and understood in terms of the relevant legal frameworks made relevant by the pleadings. If a relevant question in the proceedings was what a competent accountant would have understood by the December Corporate Pack I would be prepared to accept the analysis of Mr Dunlop just referred to. Mr Dunlop also gave evidence that a reasonably competent and experienced accountant, who was reviewing materials made available in connection with the transaction including document N19, the Stage 1 Due Diligence Information and exhibit V11, would have come to the view that the December Corporate Pack was the aggregated accounts of ITAL and TSC. Both Mr Griffiths and Mr Bryant gave professional opinions which differed from him as to what could be drawn from the December Corporate Pack in the all the circumstances.

220 As I have said, this case is not about what a professional accounting adviser would or should have identified. The ebb and flow of this due diligence was a distinct and unique set of factual circumstances. Whether or not the respondents should have made further disclosure and what should be taken to be before the parties for the purposes of the construction of this contract does not in my view depend upon the resolution of the competing views of accountants as to what these documents showed.

221 A significant reason for what I see as the lack of assistance in the expert evidence can be gleaned from the basis on which Mr Dunlop’s evidence was put forward. The framework for his analysis was what a reasonably competent accountant should have appreciated in a due diligence exercise in connection with the sale of the shares in ITAL alone. That, of course, was not the due diligence undertaken by Deloittes up to 16 February.

222 The December Corporate Pack did not state that it was an aggregated set of accounts. However, a number of people acting for Woolworths understood it to be aggregated. More importantly, they also understood it to be the reference accounts. They understood it to be the reference accounts at a time when TSC had been excised from the transaction. That was a view shared by the respondents and their representatives and mutually made known between the parties at the meetings in mid-March. With the benefit of hindsight, of course it would have been advisable to enquire specifically as to the financial consequences of the removal of TSC from the transaction. However, notwithstanding some available material which it might be said should have alerted people to the question, until 4 April 2001, no one appreciated the consequences of the change. In that light, and given the mutual communications about the December Corporate Pack and its central relevance in those mutual communications to the transaction, what a competent accountant would or would not have understood from the terms of the December Corporate Pack either alone or in the light of other documents is not to the point.

223 It may be that the note made by Mr Lawler of G+T reflected an appreciation by Mr Lawler, whether from his experience with Woolworths or for other reasons, of the importance of examining the consolidation. However, the position of Mr Brewster who had carriage of the matter was clear. He had a limited involvement in January and did not really become involved in the sale transaction until late February. He in effect came into the transaction at time when the respondents were distributing the December Corporate Pack (Ms Fox to Mr Sweetman) as the December accounts. He did ask about the relationship between ITAL and TSC. He received no coherent answer other than "refer data room", which he reasonably thought was no answer at all. He examined the accounts which the respondents themselves were propounding as the reference accounts or December accounts which showed no liability of ITAL to TSC and otherwise no intragroup debt.

224 Mr Dowsett of course understood until 9 March that the transaction would involve two companies. Whilst Mr Dowsett accepted that it would not have been a sensible exercise for him to examine the December Corporate Pack to see whether there were any inter-company balances between ITAL and TSC, in circumstances where he understood the December Corporate Pack to be the aggregated accounts of both, he still understood, as did others on the Woolworths side, that the December Corporate Pack was being propounded by the respondents as or as containing the reference accounts or December accounts. In that light, and given the understood role of the December Corporate Pack in assessing contract price and as being the reference accounts involved in the post completion adjustment, he was not obliged to ignore the contents of the accounts. He did and could in the circumstances rely on those accounts as revealing the relevant matters for the purposes for which they were being propounded: the identification of cash, cash equivalents and debt to identify the contract price from the negotiated price and to stand as one of the balance sheets for the net asset comparison and post-completion price adjustment.

225 Therefore, it can be accepted that DSE and Woolworths understood through various persons that the December Corporate Pack was aggregated. It can also be accepted, and I find, that some did not appreciate that. However, the fundamental matter to appreciate was that all thought that the December Corporate Pack was, or contained, the reference accounts or December accounts and contained all the relevant information for the two tasks for which the reference accounts or December accounts were relevant. All were of the view that TSC was dormant.

Proposition 2: There was disclosure of the $4 million dollar liability from ITAL to TSC

226 The second proposition was that there had been disclosure of the liability between ITAL and TSC of over $4 million. Once again one needs to exercise care in understanding the context in which this is approached. There was undoubtedly material made available to Woolworths and DSE which stated the existence of the liability at various times and which, looked at separately, could be seen to put a reader of the document on notice as to whether such a liability existed as at 31 December 2000.

227 The question, however, needs to be judged in the whole human context in which the parties found themselves and in the context of the events that occurred.

228 It is incontestable that the Stage 1 Due Diligence Information booklet disclosed the existence of a liability of over $4 million, as at 5 October 2000.

229 During the course of the financial due diligence the parties did not direct themselves to any analysis (since it was irrelevant) of the position between ITAL and TSC except to the extent, as I have explained, that Mr Woosnam and others sought to understand what matters of revenue and outgoings could be ignored as either departmental or otherwise within the business. This did not require any understanding or appreciation of the asset and liability positions of ITAL and TSC inter se.

230 There is an important distinction to be drawn in cases such as the present between, on the one hand, parties having a document physically before them and even reading it and in that sense being aware of it and its contents and, on the other hand, appreciating the contents of the document. Due diligence was carried out for a particular purpose. That purpose was to grapple with, and understand, the operations of a business. Both sides understood that that is what the professional advisers and officers of DSE and Woolworths were doing. Both sides understood that until the excision of TSC from the sale the position as between ITAL and TSC was irrelevant except to the extent that it should be understood to bear upon the operational revenue and expenditure items and if necessary so that these could be excluded from consideration of the operating earnings of the business.

231 The Stage 1 Due Diligence Information did not disclose the existence of a liability as at 31 December 2000. At best, it can be said that that Stage 1 Due Diligence Information put a reader of that document on notice of the possibility that the liability may have continued to subsist until 31 December 2000.

232 The discussion in early February involving Mr Avery did not deal with the liability between ITAL and TSC. As I have said, it dealt with expenditure and revenue items of the business as an operating entity.

233 Document N19 which was put in the data room was prepared for the same purpose as the discussions that took place on 2 February: that is, to explain the revenue and expenditure position of the business. It is true, as annexure 2 reveals, that a balance sheet entitled "InterTAN Australia limited/Technotron Sales Corp" was provided. There was debate as to what that showed to an accountant. I think that it is plainly a document which, to someone with accounting training who was interested in understanding the asset and liability position between ITAL and TSC, either told such a person or at least put him or her on notice of the possibility of the existence of a receivable between ITAL and TSC. However, as I have said, that is not what people were looking for. Both sides to the transaction understood that Mr Woosnam and Deloittes and the DSE officers were interested in: getting to the bottom of the expenditure and revenue of the business to assess the business’ worth and the reliability of its earnings.

234 It is also important to recall that the financial due diligence, which both parties understood was in relation to the business as a whole, ceased in mid-February. The offer of 19 February 2001 was specifically subject to certain matters including a satisfactory legal due diligence review. The discussion between Mr Wavish and Mr Stegall was also expressed to be subject to legal due diligence. Neither party, however, contemplated further detailed financial due diligence. That financial due diligence had occurred. It had been sufficient to allow Woolworths to appreciate the earnings of the business. The financial due diligence investigation had been on the basis of, to the knowledge of persons on both sides, ITAL and TSC being the subject of the sale as the corporate entities underlying the business. The parties had identified and thereafter made clear the relevant balance sheet by reference to which the agreement between Mr Wavish and Mr Stegall had been made and upon which the parties would proceed. That is, the context in which one needs to understand what can be taken from these documents.

235 At or about the time TSC was being excised from the transaction because of doubts or concerns by the indirect tax advisers as to the wisdom of taking this dormant corporate shell, Mr Osborne was examining material for the purposes of his direct tax investigation. It is in this context that exhibit V11 should be understood. The context of the provision of exhibit V11 was, in one sense, more closely relevant to the issues. The request which was made was for details of all liabilities including intercompany loans. Mr Avery prepared a document which did not identify the position as at 31 December 2000. Rather, it was part of the general ledger reconciliation, which did not identify the balance of account as at 31 December 2000. Indeed, Mr Dunlop agreed that looking at exhibit V11 one would not know what the balance was as at 31 December 2000, and indeed movements in the account could have been such that as at 31 December 2000 the balance was zero. He indicated, however, and I accept him, that if one looks at V11 in conjunction with N19 one would arrive at a different conclusion. He agreed, nevertheless, that looking at V11 alone that document does not tell one anything about what the balance was at 31 December 2000.

236 The context of exhibit V11 should be noted. It was provided after a request to Mr Lawrance (of Allens) by Mr Thorpe (of G+T) under an email on 7 March 2001, that is before TSC was excised. The email of Mr Thorpe attached a memorandum from Deloittes entitled "Tax Due Diligence Review/Information Request" and was in the following terms:

237 One can see from the last paragraph of this email that TSC was still part of the transaction. From the enclosed questionnaire it is clear that for the purposes of taxation considerations it was necessary to understand the corporate structure and liabilities including intercompany loans. The information in exhibit V11, which did not purport to state the position as at 31 December 2000, was provided for the purposes of analysis by the tax advisers of Woolworths. That said, it found its way into the data room. It is clear from the Deloittes’ copy of V1, that is the request dated 8 March, that Deloittes recognised the answer to question 15 under the heading direct tax was V11.

238 Thus, it can be said that the agents of Woolworths and DSE who were retained to undertake a tax due diligence investigation and who had been retained to undertake a financial due diligence were provided with a document in answer to a request about taxation which disclosed the existence of an intercompany liability owed by ITAL to TSC as at 1 August 2000 and as at 31 January 2001. There was no disclosure, as was submitted by the respondents, by V11 of the existence of an intercompany liability owed by ITAL to TSC for the period 1 August 2000 to 31 January 2001. There was no disclosure from exhibit V11 of the intercompany liability as at 31 December 2000.

239 Mr Sweetman did not see exhibit V11. Mr Griffiths did not see exhibit V11. Mr Griffiths was cross-examined on exhibit V11. The respondents submitted that Mr Griffiths accepted that exhibit V11 showed that as at December 2000 at least $4.2 million and perhaps as high as $5.8 million or any other number in between was owed. Whilst it could be said that at one point in his cross-examination Mr Griffiths acceded to that, there then followed a qualification and I am not prepared to accept from the whole of Mr Griffiths’ evidence that that is what he said unequivocally. Nor am I prepared to accept that to be the proper interpretation of exhibit V11. Looking at the material I think that Mr Dunlop’s evidence in cross-examination as accounting evidence is more reliable.

240 If the relevant question posed for determination was whether or not the Woolworths’ and DSE interests should have conducted further investigation to ascertain the consequences of the excision of TSC and whether there was sufficient information in the data room to alert them to the fact that there was, or may be, a receivable of a not immaterial amount or a receivable of over $4 million, owed by ITAL to TSC it would not be an irrational conclusion to answer those questions, "yes" and "yes". However, one must look at this in the real world. A careful analysis of the earnings and performance of the business was made by Deloittes. Deloittes prepared a careful due diligence report on the basis of their instructions. An offer was made. Further negotiations took place. The excision of a company thought by both sides to be dormant and irrelevant was made. The parties then continued to meet and talk expressly on the basis that the document that both sides knew had been used to formulate the offer and that was being used to formulate the contract price would continue to be used as the relevant set of accounts for the purposes of the execution and operation of the agreement. In those circumstances, whilst careful tax and legal due diligence was being undertaken, no specific accounting investigation was made of the consequence of the excision of TSC. Mr Brewster, however, did ask a question and repeated it on a number of occasions which if directly answered would have thrown up the answer as to the receivable. It was not directly answered. It was answered by the phrase "refer data room". The data room contained a letter specifically placed in the data room to be an answer to this question that simply stated that TSC was dormant.

241 I will return to this subject matter of disclosure in dealing with the warranties, but in my view, in the circumstance of the mutually understood development of the transaction and what each party understood the other was doing, there was no disclosure of the $4 million liability as at 31 December 2000 of ITAL to TSC that in all the circumstances could fairly be said to have been made to Woolworths or DSE. The parties were directing their attention mutually in the presence of each other to the December Corporate Pack as containing the relevant balance sheet to understand the subject matter of the sale. This was done both before and after 9 March 2001, by both sides in the presence of each other and in communication with each other. At the time the parties were undertaking these communications and these meetings, both before and after 9 March 2001, no relevant executive or adviser participating in the formulation of the terms of the arrangement had to his or her mind any liability of ITAL to TSC as at 31 December 2000. In those circumstances, it cannot be said, in my view, that the existence of the liability as at 31 December 2000 was disclosed to Woolworths or DSE for relevant purposes. The fact that it could be said to be able to be pieced together from pieces of information supplied for different purposes in the course of different aspects of due diligence investigations does not lead me to find that it was known or appreciated by Woolworths or DSE or that in the context that these business people were dealing with each other that it had been disclosed in any way that could be said by the business people concerned to have been made fairly known.

Proposition 3: The Stage 1 Due Diligence Information independently provided disclosure.

242 Clause 11.4 of the final agreement provided that each warranty given (to which I will come in due course) was subject to any matter or transaction that:

243 The Stage 1 Due Diligence Information plainly disclosed the liability as at October 2000. It did not disclose the liability as at 31 December 2000.

244 Mr Brewster gave evidence that it was not only common but almost universal that intercompany debts would be moved around significantly prior to the sale of the subsidiary. Whilst the information about the liability in the Stage 1 Due Diligence Information might be seen to be relevant to put a person on enquiry as to what might be the position 3 months later, the fact is that the Stage 1 Due Diligence Information, to the extent that the exception to the warranty operates, does not refer to the debt as at 31 December 2000.

245 I do not repeat the context in which the parties found themselves by execution of the agreement. It is sufficient to say that (with the exception of Mr Gingerich after 4 April) all parties thought TSC was an irrelevant shell and that the relevant accounting information for the purposes of the agreement was to be found in the December Corporate Pack.

246 The development of the negotiations as to price has been set out in the chronology. It may be, and indeed it is likely, that neither Woolworths nor InterTAN were entirely open and frank about their own views about what each would pay or accept when engaging either directly or through their advisers in negotiations. Such is hardly surprising; indeed it would be startling if the contrary were the case.

247 The purchase price in the executed version of the agreement was $114,139,649. Hitherto, I have dealt with the first two stages in identifying the contractual price: the negotiation of the $108 million on an ungeared basis, and secondly, the translation of the ungeared negotiated price into a proposed purchase price of $115,248,099 million in early March through the addition of cash and cash equivalents.

248 Further discussion and negotiations took place in March and April. Before I come to the difference in recollection of Mr Sweetman and Mr Gingerich as to how the contract price was reduced it is necessary to say something about submissions put by the respondents about Mr Wavish’s views as to the worth of the business. It was undoubted, as I have said, that UBS expressed views about the worth of the Tandy business well in excess of what was paid. However, Mr Wavish and Mr Corbett were experienced businessmen who no doubt had their own views. It is also the case that the primary consideration for both UBS and Mr Wavish was the earnings of the business. What was being bought was not the assets on a break-up basis, but the operations producing relevant earnings. That is not to say, that assets were not relevant. Mr Wavish recognised the subsidiary importance of the precise level of net assets compared to earnings.

249 In an effort to demonstrate that had this receivable been disclosed it would not necessarily have led to a price reduction, one matter to which the respondents point is what they asserted was the recognition by Mr Wavish of Woolworths getting a bargain. I do not propose to examine each of the factual assertions made by the respondents in this regard. As I have said earlier in dealing with Mr Gingerich’s evidence, there may have conceivably been arguments able to be put that the receivable between ITAL and TSC should not be deducted from the enterprise value as it was not in the nature of debt (on this hypothesis) but in the nature of an operating liability similar to a liability to trade creditors.

250 Mr Wavish gave evidence that he would have viewed debt in the context of ungeared to mean any form of financing which included a loan from a related company such as TSC. He said that if he had learnt of the $4 million liability he would have sought an adjustment of the purchase price if it had been by way of loan or financing, or if it had been a trade liability, he would have made a claim on the basis of the representations and warranties. He said that had he known about the $4 million liability and been informed that TSC had ceased trading he would have regarded it as debt and sought an adjustment on that basis. He said that he would not have supported the transaction at $114 million had he known about the $4 million receivable. I accept this evidence of Mr Wavish.

251 No one gave evidence on behalf of the respondents as to what arguments they would have put forward in any negotiation.

253 I do not accept that Mr Wavish was of the view that he was getting such a bargain by way of a transaction that he would have given away $4 million. I accept his evidence that he would have sought a corresponding reduction and his evidence about not being prepared to support the transaction with another $4 million or thereabouts to pay. I accept Mr Gingerich’s evidence that in his view it was commercially indefensible to resist a demand for a corresponding reduction. It will be necessary in due course to return to this issue.

254 The respondents did rely upon part of an email written by Ms Fox on 6 March 2001, in which Ms Fox (incorrectly) calculated the contract price as only adding the cash (and not cash equivalent). Relevantly for present purposes, she did not subtract any debt. She said in the email:

255 Ms Fox was not referring to the intercompany receivable between ITAL and TSC. She was working off the December Corporate Pack. The items to which she was referring were plainly business liabilities other than debt and this comment does not assist in any characterisation of the liability between ITAL and TSC.

256 There was a dispute as to how the purchase price was reduced from the amount nominated in the early March draft agreement of $115,248,099 to the price which appears in the executed agreement: $114,139,649.

257 As to the price reduction from the early March figure in the draft agreement, Mr Sweetman said that there was no deduction in respect of intercompany payables in amount of $91,073 because he believed that that was included effectively in the reduction of about $1 million which was an approximation for cash in the tills at Christmas. On this basis there was a reduction of the figure for cash that was to be added to the ungeared price by reference to the operations of the business and the high trading conditions, and sale of stock, at Christmas. On this basis, some of the cash in the tills could better be seen as stock on hand. Mr Gingerich, on the other hand, gave evidence in his affidavit that Mr Dowsett came to him on 9 April 2001 with a demand from Mr Wavish to reduce the price by $1 million. His evidence was that he agreed subject to Woolworths "taking all of the other outstanding issues off the table".

258 This flat reduction of $1 million left a further reduction of $108,000 in the calculation of the final contract price from the price inserted in the March draft.

259 It is unnecessary to trace precisely the source of this further reduction. Nor is it necessary to reconcile the evidence of Mr Sweetman and Mr Gingerich. It is quite possible that both matters occurred as recalled by them. Mr Gingerich’s recollection of the last minute negotiation was clear. As I have indicated, I accept the honesty of his oral evidence. It may be, however, that at the same time a commercial rationale of the kind referred to by Mr Sweetman was put forward as underlying or justifying the last minute demand. It is logical that UBS and Woolworths would want to shave the purchase price by reference to the high level of cash caused by Christmas trading. Further, there were contemporaneous notes supporting Mr Sweetman’s recollection. Whatever may be the explanation, I do not find that any aspect of this reduction demonstrates on the part of Woolworths or DSE a recognition that the liability of ITAL to TSC would not go to reduce the price.

260 There was also an attempt to show in submission that those acting on behalf of Woolworths had no appreciation of the relationship between the figures in the December Corporate Pack and the price in the contract. I reject those submissions. The parties understood the dual role of the December Corporate Pack. It was before the parties in the meetings on 14 and 15 March. There was a note in the G+T draft for explanation of the $115 million inserted purchase price. The fact that the final price was the result of some negotiation and unaccounted for variation does not detract from the fact, which I find, that by mid-March, if not before, those negotiating this agreement well understood the dual role of the December Corporate Pack as the document in which information was present to convert the negotiated price into a contract price (subject to any further negotiations) and as one of the two balance sheets to be used in the post completion asset adjustment. It was also clear, and understood, as Mr Gingerich agreed, that those two tasks had a direct relationship.

261 The respondents also pointed to clause 4.4 of the agreement concerning the payment of dividends prior to completion. This, it was said, was antithetical to DSE’s contention that all aspects of the purchase price were calculated by reference to the December Corporate Pack. However, the presence of clause 4.4 does not deny the important aspect of the December Corporate Pack to the conversion of the negotiated price into a contract price. To the knowledge of the relevant parties negotiating this agreement the December Corporate Pack had that relevance and importance. It may not have been the totality of the universe of factors relevant to the assessment of the consideration, but it was the fundamental starting point by reference to which the contract price was calculated and it bore a direct relationship to the other connected operation in relation to the finalisation of the price: the post completion asset adjustment.

262 The respondents made detailed submissions about the circumstances of the decision to excise TSC from the sale transaction.

263 The fact that there was some consideration given to the position of TSC in particular by the indirect tax advisers of Woolworths in mid-February does not change the position that no one on either side viewed the excision as commercially relevant, except to the extent that the advisers of Woolworths saw no necessity in adopting what might be a risk, if it was unnecessary to do so. Given that the company was dormant, it was claimed that it was not necessary to take and in those circumstances it was considered wiser not to take it. It is plain that TSC was viewed only as a piece of unnecessary history.

264 The position of Deloittes after 16 February was somewhat confused. I accept Mr Griffiths’ evidence that he saw his and his partnership’s position as to financial due diligence as ceasing as at 16 February. However, it is clear that Mr Woosnam stayed in touch with the events and that Mr Brewster in particular was keen to have such input as Mr Woosnam was able to provide. Mr Woosnam appears to have given advice to Mr Dowsett on the draft agreement after the excision of TSC. However, at no time was there a resumption of full scale financial due diligence. Deloittes was involved in the tax due diligence.

265 The fact of the continued involvement of Deloittes through Mr Woosnam and Mr Osborne does not advance the matter substantially.

Issue 7: The meeting of 9 March and Mr Brewster’s receipt and review of the December Corporate Pack

266 Submissions were put as to Mr Brewster’s evidence and that I should find that he appreciated that the December Corporate Pack was not the stand-alone accounts of ITAL and that after excision of TSC he must have understood that they were not the relevant December accounts.

267 Mr Brewster was a careful and precise witness. I do not accept that during the course of his cross-examination that he in any way withdrew from the view he expressed in his affidavit that he was of the view that the December Corporate Pack contained the reference accounts being the "Accounts", and later "December Accounts" for the purposes of the agreement. In his affidavit, Mr Brewster made clear (which I accept) that from the discussions which occurred at the 14 and 15 March meetings he understood that the December Corporate Pack was the December accounts for the purposes of the agreement and that that was in effect stated at those meetings.

268 I have dealt with this subject matter in the chronological section of these reasons. It was put by the respondents that no one at these meetings referred to the December Corporate Pack as constituting the accounts of ITAL alone. This was based on Mr Gingerich’s evidence in his affidavit. It was said that the discussion GAAP would have occurred whether the stand-alone accounts or aggregated accounts had been made available to Woolworths. This latter proposition can be accepted. However, what is relevant to understand is that the December Corporate Pack was on the table at the meeting; that it was referred to by people at the meeting in the context of discussing the reference accounts and completion accounts (that is, the December accounts) for the agreement; and that the December Corporate Pack was by words and conduct plainly identified as the December accounts for the agreement at this meeting.

269 Clause 9 of the executed agreement calls for the creation within 60 days of the defined Completion Date of draft Completion Accounts, for agreement as to their contents, otherwise for resolution of disputes about them and then, relevantly for these proceedings, in clause 9.4, the payment by either the Purchaser or the Vendors of the Net Asset Correction as defined. Clause 9.4 was in the following terms:

272 There is no dispute as to the identity of the "Completion Accounts". They are the accounts of ITAL alone which reveal net assets of $46,292,768. This figure included what was described as an intercompany a/c payable to TSC in the sum of $4,151,548 in a figure of $4,041,479 for all intercompany a/c payables owed by ITAL. Thus the ITAL/TSC liability reduced the completion date net assets by $4,151,548.

277 Somewhat curiously, the phrase "Data Room" was defined in terms of information, rather than in terms of a geographical space, as follows:

278 The crucial question of construction in this case is to which document, if any, the phrase "December Accounts" refers, I say "if any" because the first proposition of the respondents is that there were no documents which answer the description given by the definition of the phrase. Thus, it was said by the respondents that there were no December Accounts for the purposes of the agreement and so DSE is not entitled to any Net Asset Correction payment. The startling nature of this primary submission of the respondents puts one in mind of the passage of Steyn LJ (as his Lordship then was) in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194, 196 (cited with approval by Handley JA in Saad v TWT Ltd [1998] NSWSC 282):

279 In interpreting a contract between commercial parties a narrow or pedantic approach is not to be taken. The instrument is to be read fairly and broadly. One is not to be astute or subtle to find defects. This is so especially if a narrow or pedantic approach renders meaningless or empty an otherwise apparently important provision of an agreement. To the extent that the words of a contract are open to more than one construction, a construction will be preferred which will avoid consequences that appear to be capricious, unreasonable, inconvenient or unjust, even if such a construction is not the most obvious or the most grammatically accurate, and a construction will be preferred which more accords with business commonsense. It is also permissible to depart from the ordinary meaning of the words of one provision to the extent that it is necessary to avoid an inconsistency between that provision and the rest of the instrument. These principles, thus expressed, are derived, in terms and by paraphrasing, from cases of long standing or high authority: Hillas & Co Ltd v Arcos Ltd [1932] LT 513, 514 per Lord Wright; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 436-37 per Barwick CJ; Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109, 110 per Gibbs J; Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676, 682 per Lord Diplock; and Antaios Compania Naviera SA v Salen Rederiena AB [1985] AC 191, 201 per Lord Diplock.

280 The process of construction is to be determined by what a reasonable person in the position of the parties would have understood the contract to mean. That requires consideration not only of the text of the contract, but also the surrounding circumstances known to the parties and to the purpose and object of the transaction: Pacific Carriers Limited v BNP Paribas [2004] HCA 35 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; and see Codelfa Construction Pty Ltd v State Rail Authority [1982] HCA 24; (1982) 149 CLR 337; and Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; 186 ALR 289 at [9] and [10].

281 It was submitted that evidence of surrounding circumstances is admissible only if the language of the contract is ambiguous or susceptible of more than one meaning: Codelfa at 352. However, as Spigelman CJ said in South Sydney Council v Royal Botanic Gardens and Domain Trust [1999] NSWCA 478 at [35], the notion of ambiguity here is not restricted to linguistic ambiguity. It extends to circumstances where, for whatever reason, the intention of the parties is doubtful. To an extent one cannot know that unless one at least understands the context, beyond the linguistic context, of the words in question: see also the joint judgment in the High Court in Royal Botanic Gardens at [10] and Pacific Carriers at [22].

282 As was made plain by the judgment of the High Court in Pacific Carriers, it is always relevant to understand the context and mutually known position of the parties, not as evidence of the subjective intention of the parties, but as explaining the context in which one reads the words of the contract.

283 Here, the task is to ascertain what document, if any, answers the description found in the contract by the use of the phrases making up the definition of "December Accounts".

284 It is not so much a case of first finding ambiguity in the phrase "accounts of InterTAN Australia Limited (ACN 002 511 944)", but identifying a document external to the contract which answers the description in the definition. One thus cannot answer the relevant question without going to the surrounding circumstances, because one needs to go to the events in question and find a document answering the description of the clause, or which it was the parties’ objective intention to answer the description of the clause. That task may throw up a substantial doubt as to the parties’ intentions, because it may throw up alternative possibilities, some more commercially sensible than others. The surrounding circumstances here are the objective framework of facts within which the contract came into existence, the mutually known facts evident before the parties concerning the transaction, the facts disclosing the aim or genesis of the transaction and the circumstances (mutually known to or expressed between the parties) with reference to which the words in question were used. From these circumstances, the objectives which the parties had in view can be discerned: Codelfa at 352-3; Royal Botanic Gardens at [9] and [10]; and Pacific Carriers at [22].

285 Mason J in Codelfa recognised that it is legitimate to receive evidence of the communications of the parties as revealing the subject matter of a contract, not as evidence of the subjective intentions of the parties, but as evidence of the objectively manifested subject matter of the contract: Codelfa at 349; Macdonald v Longbottom (1859) 1 E & E 977; 120 ER 1177: and Bank of New Zealand v Simpson [1900] AC 182. The same must be so of the admissibility of evidence of the mutually known facts and communications as revelatory of the objectively manifested subject matter of an important provision of a contract.

286 Here, the parties identified in the contract the net assets of the company as disclosed in the "December Accounts". The definition of the phrase "December Accounts" presupposed a document which can be copied. Copies of the accounts, encompassing a balance sheet ("as at") and a profit and loss or trading account ("for the period to"), were to be located in the data room and placed on an index. The accounts were to be as at, and for the period to, 31 December 2000.

287 To give a strict and absolutely literal meaning to the words making up the definition of the phrase "December Accounts" can be seen to lead to the conclusion that no such accounts existed. First, if "accounts of the Company means" accounts of, and only of, the company (ITAL) there were no such accounts as at and for the period to 31 December 2000. Secondly, there were no such accounts physically in the data room. Thirdly, there were no accounts of ITAL listed on the index to the data room.

288 That consequence (being the primary submission of the respondents) renders ineffective, inoperative and empty an important, indeed central, clause in the determination of the consideration for the sale: the post-completion adjustment, clause 9.4.

289 This meaning is not the only construction available. The phrase the "accounts of the Company" may refer to accounts of the company (ITAL) intermingled with the affairs of a related and dormant entity. That may still answer the description, more broadly, of the accounts of ITAL. If that approach is taken, and if the December Corporate Pack is taken as answering the broad description of the accounts of ITAL, one avoids a construction which renders inoperative an important provision of an agreement and thus prevents a construction which leads to a commercially capricious, unreasonable and inconvenient result and which offends commercial commonsense. This is so recognising that to permit the December Corporate Pack to fit the description of the accounts of ITAL is not the most obvious or grammatically accurate use of the words.

290 The December Corporate Pack was in the data room; that is, it was in the physical space answering that description as used by the parties. The definition, however, of the phrase "Data Room" is in terms of information compiled and made available and which is described in the initialled data room index. The December Corporate Pack was not listed on that index. It would depart from commonsense and be capricious and unreasonable to construe the existence of the document on the index as central or governing the composite definition. This is especially so when one understands that the December Corporate Pack was in the data room. The existence on the index can be seen as evidential in respect of the important matter, which was that the document was placed in the data room. I would not construe that part of the definition of "Data Room" as refers to description on the index as other than part of the adjectival description of the central consideration of the definition that the document in question, the accounts, had to be in the data room as part of the due diligence information – as the December Corporate Pack was.

291 The appropriateness of this construction of the definition of "December Accounts" is evident when one recognises the consequences of a narrow construction, especially of "Accounts of the Company", to produce textual inconsistency by the rendering ineffective or inoperative clause 9.4 and to produce the commercial inconvenience of depriving the parties of the operation of the clause fundamental to bring about the payment of what was bargained for – the negotiated price or "enterprise value" of the business.

292 The appropriateness of this construction is confirmed when one appreciates the facts and circumstances which form the context and mutually known surrounding circumstances against which the words are to be read. I have dealt with these facts in the chronological factual section above; but it is important at this point to remind oneself of the relevant facts admissible on construction and interpretation which underpin and make compelling the broader construction that I favour.

293 The appropriateness of this construction is also evident when one realises that it leads to a result, in commercial terms, conformable with the negotiated arrangement for the sale of the business through the sale of shares in ITAL and TSC and with the excision of TSC as an event of a mutually understood lack of moment. If the December Corporate Pack is used in the net asset comparison the difference in net assets is such as to pick up the amount of the receivable that needs to be paid because of the excision of TSC. That accords with the commercial understanding of the parties of the arrangement. No one intended or understood (until Mr Gingerich on 4 April) that the excision of a dormant company would increase the price of the operating business by over $4 million.

295 For the reasons set out above, I reject the primary submissions of the respondents that there was no document answering the description of the "Accounts of the Company".

296 Alternatively, the respondents submitted that the maxim falsa demonstratio non nocet applied to enable the "false" part of the definition, that is that the accounts are in the Data Room and recorded on the index, to be ignored. It was submitted that the essential element which could not be ignored was that the accounts were of the company, that is ITAL, alone.

297 I reject these submissions. When one has regard to the context one sees the importance the parties gave to the accounts being in the data room and one also sees, quite plainly, the objectively manifested intention as to the subject matter of the clause.

298 Alternatively, it was submitted that one had regard to the December Corporate Pack, but amended by such financial information as was otherwise in the data room, in particular documents N19 and V-11, to amend the balance sheet in the December Corporate Pack.

299 I reject these submissions. The "December Accounts" as defined were plainly intended to be a set of accounts, not a body of information able to be drawn from a number of documents not otherwise comprising a set of accounts. Further, the surrounding circumstances make clear that the set of accounts, as a reference document, was to be used to calculate the contract price. This was done. Reference was made to the December Corporate Pack. For the reasons earlier expressed that made the December Corporate Pack the reference point or reference accounts for the contract. Whilst it may be thought curious that a comparison would be made between completion accounts which were stand-alone accounts of ITAL and accounts which did not precisely conform in character being the accounts of ITAL and TSC, it must be recognised that a more fundamental consideration is the necessity to use the same balance sheet in the assessment of the contract price in the working out of the contract price in the contract and in the operation of the completion date correction.

300 The above reasons are sufficient to dispose of the controversy between the parties. They entitle the applicant to judgment for a money sum based on the completion accounts being compared with the December Corporate Pack in order to assess the difference in the net asset position.

301 However, lest I be wrong in relation to my conclusions about the contract, I propose to deal with such parts of the balance of the arguments as require findings of fact. If I be wrong in relation to the contract, there may also be legal issues which need to be resolved. In large part it is unnecessary for me to undertake, as a single judge, entirely obiter, any extensive discussion of legal principles, which can otherwise be dealt with adequately by a Full Court, if necessary.

302 The applicant claims that InterTAN Inc is estopped from denying that the December Corporate Pack constitutes the "December Accounts" within the meaning of the agreement.

303 In large part I have dealt with the relevant facts concerning the estoppel. It is appropriate, however, to identify salient matters of a factual nature which underpin the claim. First, I accept that it was the common assumption of the parties that the agreed offer price of $108 million on an ungeared or unleveraged basis would be converted into the purchase price substantially by adopting a formula of adding to that sum surplus cash and cash equivalents and subtracting debt. Secondly, the purchase price for the purpose of the agreement was to be calculated, to the knowledge of both parties, by reference to a balance sheet, which was understood by the parties to be the December Corporate Pack. Thirdly, in the light of the fact that the December Corporate Pack was used as the primary mechanism to calculate the purchase price in the contract (though subject to some negotiation), it was understood by the parties that that made the December Corporate Pack necessarily relevant for the post-completion adjustment process in the contract, and that the December Corporate Pack would thereafter stand as the reference accounts for that purpose. This understanding by the parties reflected an understanding of the dual structural role that the reference accounts played in the identification of the contract price and the assessment of the completion date adjustment calculation. Fourthly, the parties mutually understood and communicated with each other in each other’s presence the fact that the December Corporate Pack would stand as the reference accounts. Fifthly, the December Corporate Pack was provided to Mr Sweetman by Ms Fox as the balance date accounts, Mr Sweetman having had a conversation with Mr Cox shortly prior to the receipt of the December Corporate Pack to that effect. The only person who had a view as to the lack of identity of the December Corporate Pack as the December Accounts was Mr Gingerich, and he had this view only after 4 April 2001. Sixthly, after the meetings of 14 and 15 March 2001 it was plain that both Woolworths and the InterTAN interests were working on the basis that the December Corporate Pack would stand as the reference accounts or December accounts for the purpose of the agreement. This was plain to Mr Gingerich. He was aware of this after 4 April. Seventhly, the belief in Woolworths that the December Corporate Pack was the reference accounts, that is the "December Accounts" for the purpose of the agreement as executed, was contributed to by the conduct of InterTAN representatives, in particular at the meetings of 14 and 15 March 2001 in the context in which they occurred.

304 The respondents stressed what they referred to as the "obliquity of the bargaining process". They stressed that the parties were commercial parties not being expected to "lay all their cards on the table". Reliance was placed by the respondents on what Gleeson CJ said in Lam v Austintel Investments Australia Pty Ltd (1990) 97 FLR 458 at 475 where his Honour said:

305 Reference should also be made to the following two sentences of the paragraph of Gleeson CJ’s reasons:

306 It was said that in the context here, where there was a data room for the purpose of disclosure in the manner that I have described and where, as here, there was a responsibility upon the parties to inform themselves of the terms and underlying subject matter of the agreement, it could never be the position that Mr Gingerich was obliged to speak in relation to what he appreciated after 4 April. Further, the notion of estoppel in this case is said to be foreign where careful professional accountants and lawyers have undertaken a detailed due diligence. Some emphasis was also placed on the clauses in the contract, in particular clauses 11.5 and 11.6, which acknowledge the independent positions of the parties. Clauses 11.5 and 11.6 were in the following terms:

any representation, warranty, promise or forecast except those referred to in clause 11.1; and

307 Whilst it can be readily accepted that the December Corporate Pack was supplied in the context of the agreement being in relation to the purchase of two companies, its importance was reinforced and restated in the meetings in mid-March, by which time TSC had been excised from the transaction. It is plain from the evidence that both sides were working on the assumption that the December Corporate Pack was or contained the reference accounts and was or would be the Accounts or December Accounts for the purposes of the agreement. It was submitted that the conduct of the parties was wholly consistent with the parties later relying upon stand-alone accounts of ITAL. I reject this submission. The findings I have made are to the effect that at the meetings in mid-March the parties, including the InterTAN representatives, identified the December Corporate Pack as the December accounts, that is, as the accounts to be used in the post completion adjustment. The question really is whether or not there is unconscionability in withdrawing from that position without telling the other side in circumstances where the parties as independent commercial entities had engaged in the due diligence and self reliant enquiry in the circumstances here.

308 In the light of all the circumstances, including in particular the conduct and communications which took place in March, in particular the clear identification of the December Corporate Pack as, or as containing, the December accounts for the transaction, that is as the reference accounts, the mutually understood dormancy of the TSC and the lack of any direct and informed response to G+T’s enquiry about the position between ITAL and TSC, I think that the more relevant part of Gleeson CJ’s reasons in Lam here is the last sentence of the relevant paragraph: whether the circumstances led to the requirement to speak so as not to mislead if a position contrary to that previously announced was to be relied upon.

309 In my view, there was a degree of unconscionability revealed sufficient to enliven the principles of estoppel. Mr Gingerich had, in one sense, understandable commercial reasons for remaining quiet. InterTAN was in a poor bargaining position. It suffered at the hands of Radio Shack to the tune of $6 million. He anticipated some final bargaining, with Woolworths, which came in relation to the $1 million. Nevertheless, it was plain to him that Woolworths were proceeding upon an assumption which had been mutual and express at meetings of commercial and legal advisers, at which he attended, on 14 and 15 March. It was plain to him that everyone had overlooked a simple consequence of the excision of TSC. It was plain to him that, hitherto, no one had taken the excision of TSC as in any way commercially important. It was plain to him that no one understood or anticipated that the formal removal of TSC would change the consideration by $4 million or thereabouts. It was plain to him that he had no commercial defence to a requirement to readjust the purchase to remove this anomaly. He remained quiet for this reason. Whilst I do not think that he can be described as fraudulent in remaining silent, I think there was a level of commercial unconscionability. He rationalised it (and I so find) by a view which he had that stand-alone accounts of ITAL were in the data room (though there was no reliable foundation for this view). In these circumstances, it was, he thought, a matter for the well-advised purchaser to look after itself. This was so especially since he thought there might be an attempt to "squeeze" him in a final negotiation on price. He was "horrified" when he found out that the stand-alone accounts were not in the data room.

310 Looking at all the facts, in my view, though this was an exercise undertaken between commercial parties of independence, competence and skill, given the degree of communication and co-operation between the parties and given the plain and mutually communicated foundation upon which the parties had been acting in relation to the December Corporate Pack, the representatives of Woolworths were entitled to feel sharply treated by the attitude adopted upon disclosure of the issue of the ITAL accounts at the time of working through the completion adjustment. In my view, there was a sufficient degree of unconscionability in resiling from a position taken in relation to a sufficiently clear common assumption and representation as to the identity and function of the December Accounts as to warrant, in a commercial context, the operation of the principle of estoppel.

311 It was submitted by the respondents that the applicant had not shown any real prejudice by the reliance. It was said that hypothetical evidence as to what may have occurred in the past here was unreliable and that it was far from clear that an adjustment of the purchase price would have been required. The respondents submitted that the evidence did not enable one to conclude that the enterprise value bargain struck, that is, $108 million would have been changed. Various of the witnesses said they would have recommended that the price (that is, the purchase price in the agreement) be reduced by a corresponding sum. See the affidavit evidence of Messrs Sweetman, Wavish and Dowsett, and also the cross-examination of Mr Wavish. However, what is plain is that the transaction was negotiated on the basis of the irrelevance of TSC. Everyone (except Mr Gingerich after 4 April) understood TSC to be dormant and irrelevant as to the present operation. The bargain was based on the operating business. TSC had ceased to be part of the operating business. The receivable played no part in the bargaining process. If the relevant persons had appreciated the significance of the receivable I have no doubt that Woolworths’ representatives would have sought the rectification of the position. No party thought that the removal of TSC had the slightest commercial impact (until Mr Gingerich realised to the contrary on 4 April). I have no doubt that Mr Gingerich’s silence was important, as he understood at the time. If he had spoken there is no doubt that Woolworths would have required a rearrangement of the transaction to reduce the consideration in the amount of the liability. Any other conclusion flies in the face of a commonsense commercial appreciation of what had happened up to April. The conduct of Mr Gingerich plainly prejudiced Woolworths in a real and tangible way.

312 Whether or not in such a commercial context an estoppel will operate contrary to the contract is a matter which need not be the subject of any discussion by me in this judgment. There is a debate about this. I refer in particular to what I wrote in Branir v Owston Nominees (No 2) [2001] FCA 1833; 117 FCR 424 at [444]- [448]. I do not characterise the conduct of Mr Gingerich as fraudulent for the purposes of the application of the views of McLelland J in Johnson Matthey v A C Rochester Overseas (1990) 23 NSWLR 190, 195-96.

313 It is unnecessary for me to express a view as to the effect of clauses 11.5 and 11.6 upon the operation of the principles of estoppel, whether at common law or in equity or as a unified coherent principle. It is sufficient for me to say that subject to the contractual operation of clauses of 11.5 and 11.6 and of the principle in cases such as Johnson Matthey referred to in Branir, I would conclude that the parties had so conducted themselves in words and deed in relation to a common understanding as to what accounts were the reference accounts for the transaction and what accounts met and would meet the description of the "Accounts" and the "December Accounts" in the draft agreement and the agreement as executed as to be sufficient to invoke principles of estoppel by way of common assumption and representation in order to prevent an unconscientious departure from that common understanding, conduct and representation, which would be the case if the InterTAN interests were to be permitted to resile from the postion that they had adopted and represented in Februry and March, in particular, that the December Corporate Pack was or contained the December Accounts for the purpose of the agreement and the reference accounts for the purpose of the post-completion adjustment.

314 The claim for rectification is one for unilateral mistake. Reliance was placed by the applicant on Thomas Bates and Son v Wyndham’s (Lingerie) Limited [1980] EWCA Civ 3; [1981] 1 WLR 505, 516 and Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422, 431-433.

315 The facts that I found to this point are sufficient in my view to found relief on these principles as an alternative to estoppel. I need not conclude whether clauses 11.5 and 11.6 contractually disentitle the applicant to make the claim. However, for the reasons that lead me to the view that the elements of an estoppel are made out a similar conclusion arises in relation to unilateral rectification.

316 It was submitted by the respondents that the rectification claim would create disconformity in the contract because the parties were said to be intending to compare like with like, that is the completion accounts being the stand-alone accounts required an identical form of accounts to be the reference accounts. This misunderstands the nature of the fundamental considerations which were common ground between the parties. I will not repeat the importance of the reference accounts to the two stages of the assessment of the consideration in the contract. What was overwhelmingly plain in this case was that all relevant persons (except Mr Gingerich after 4 April) understood the December Corporate Pack to be the reference accounts and the "December Accounts" as referred to in the agreement.

318 The misleading or deceptive conduct claim arises from the same facts as the estoppel claim and the claim for rectification. It is based on an alleged contravention of s 995 of the Corporations Act 2001 (Cth), with relief sought under ss 1005 and 1325 of that Act, as those provisions stood in 2001.

319 The conduct which lies at the foundation of the estoppel and rectification claim also amounts to misleading or deceptive conduct. In the circumstances in which the parties found themselves and with the mutual communications that had taken place, Mr Gingerich knew that at the meetings of 14 and 15 March he and his colleagues had, at the very least, confirmed the Woolworths’ representatives in their belief that the December Corporate Pack was, or contained, the reference accounts, defined in the draft agreement then in existence as the "Accounts". Mr Gingerich knew that Woolworths’ representatives were acting on this foundation. He said nothing. He said nothing in order that the Woolworths’ representatives would not change their (to his knowledge, mistaken) understanding of the position, which understanding, to his knowledge, had been fostered by him and his colleagues at the meetings in mid-March. In my view, this is not a case resting purely on silence. There was a body of conduct of a character which was of sufficient clarity as to require Mr Gingerich to bring to the attention of those with whom he had spoken of a misapprehension that they had all previously entertained and which misapprehension had been the subject of discussion amongst them, if he was to act contrary to the earlier statements.

320 At the meetings of 14 and 15 March there was no misleading or deceptive conduct in the sense that no one said anything, which to his or her knowledge, was false given that all believed at the time that the December Corporate Pack was or contained the reference accounts. Once, however, Mr Gingerich became aware or appreciated that there was an apparent disconformity between the contractual terms and what people understood the effect of the contractual terms to be and that the December Corporate Pack was not or did not contain the reference accounts, and that the Woolworths’ representatives were working upon a misapprehension as to the relevance of the December Corporate Pack, with the consequent lack of appreciation of the receivable (a position which he and others on the InterTAN side had fostered at the mid-March meetings) he came, for the reasons I have earlier identified, under a duty to remedy and correct what had passed between the parties, at meetings which he had attended, as to an important financial provision in the contract.

321 Two other bases for misleading or deceptive conduct were relied upon by the applicant: InterTAN Inc’s failure to disclose the liability and nature of arrangements between TSC and ITAL after 9 March 2001 in response to the enquiry made in G+T’s due diligence questions; and the falsity of the warranty given.

322 I do not think that these two aspects should be viewed distinctly and severally from the totality of the conduct of the parties. Each is a factor which is to be taken into account in assessing whether or not InterTAN engaged in misleading or deceptive conduct up to the execution of the agreement. I have already indicated that, in my view, it did by reason of Mr Gingerich’s failure to speak and to make clear, at the very least, that the December Corporate Pack was not the reference accounts or December accounts for the transaction, but rather the stand-alone accounts of ITAL were such. That conduct of Mr Gingerich is to be seen in the light of the fact that Woolworths’ solicitor was asking for information concerning transactions between ITAL and TSC and that the agreement contained the relevant warranties. The requests of the solicitor were plainly not only for current transactions. The parties mutually understood TSC to be dormant. No proper answer was given to these requests, as Mr Gingerich accepted in his evidence. The fact that for quite different purposes there had been disclosed during the course of the due diligence process information which could be said to have put the Woolworths side on notice of the existence of a liability does not, it seems to me, amount to sufficient facts upon which one could conclude that there had been any real disclosure of the receivable.

323 Looking at the events of January, February, March and April 2001 in the light of all the information that was before the parties, a reasonable person in the position of Woolworths being told later in 2001 that the December Corporate Pack was not the December Accounts for the purpose of the agreement, but that the December Accounts were some stand-alone accounts that were not in the data room and that had not been before the parties in any way during pre-contractual discussions, and who was told that the InterTAN representatives knew at the time of the execution of the contract of a $4 million receivable which was revealed in those stand-alone accounts and those representatives, at that time, intended that the receivable would be dealt with as the respondents seek to do in these proceedings, would be entitled to take the view, as an honest commercial person, that he or she had been misled. If that honest and reasonable person were told that it was true that the parties had discussed the December Corporate Pack as the reference accounts, that the parties had taken the December Corporate Pack as the foundation for the identification of the purchase price, that the parties had excised TSC from the agreement without any discussion and without any expression of appreciation of any commercial significance but as a mutually understood dormant relic of the historical relationship between the parties, but that a sum of over $4 million was owed to TSC by ITAL and this would have to be repaid, though it had never been exposed in the net asset position in the December Corporate Pack, he or she could reasonably take the view that he or she had been misled by InterTAN. The above is the commercial foundation of the conclusion of the misleading or deceptive conduct. It is the commercial foundation for the estoppel claim and the rectification claim. It is made more clear when one sees the failure to identify with any precision, other than references to "refer data room", a plain answer to the questions asked by the solicitors.

324 It was said by the respondents that the real, essential, substantial, direct or effective cause of any loss or damage was the failure by the applicant properly to examine or cause to be examined the material that was made available to it in the data room. I reject this submission. In all the circumstances in the unfolding of the events as I have described them, in my view, there was no such neglect by Woolworths or by any of its advisers. There was an oversight, which was made by both sides to the transaction (until 4 April). Each reinforced the other in the view that the December Corporate Pack was the fundamentally relevant document it had always appeared to be. The flow of events directed the parties and in particular Woolworths and its representatives away from any possible view that the December Corporate Pack was or may not be, or contain, the reference accounts or the December accounts. Only Mr Gingerich came to a contrary conclusion. For the reasons I have expressed his failure to speak in the light of all the circumstances was unconscientious and misleading or deceptive.

326 To the extent that is necessary to assess, for the purpose of the contractual release of the statutory actions, whether DSE would have entered the agreement had there been no misleading or deceptive conduct, I accept Mr Wavish’s evidence that he would not have permitted (to the extent that it was within his control) the agreement to be entered by DSE unless there was an adjustment to the sum payable under the contract to deal with the liability, in an amount substantially equivalent to the liability. If Mr Wavish had been against the contract being executed, I find that it would not have been executed.

327 It is unnecessary for me to express a concluded view upon the effectiveness of clause 11.7 in relation to misleading or deceptive conduct under s 995 of the Corporations Act. It is sufficient for me to say that, in my view, in circumstances such as the present where the misleading or deceptive conduct is before the contract, unknown to the representee and consciously known to the representor and causally important to the entry into the contract, clauses such as 11.7 are unlikely to be sufficient (especially limited by the words "to the extent permitted by law") to deprive a contracting party of statutory relief. Given that this issue does not strictly arise, debate can take place before the Full Court, if I am wrong about the contract.

328 Under Schedule 5 cll 1.2 and 1.3 of the Agreement the Vendors (InterTAN Inc and InterTAN Canada) made the following warranties.

329 The warranty in clause 1.3 of Schedule 5 was subject to clause 11.4 of the agreement which is in the following terms:

330 The claim for the breach of the above warranties rests on the following propositions. First, Mr Gingerich failed to disclose a category of relevant information being the stand-alone accounts of ITAL. Secondly, Mr Gingerich failed to disclose his intention that the stand-alone accounts would constitute the December Accounts for the purposes of the executed agreement. Thirdly, the failure to disclose that ITAL owed TSC the receivable in question.

331 The stand-alone accounts of ITAL were not provided to Woolworths or DSE. On the basis that the Vendors, through Mr Gingerich, appreciated at the time of execution that they were, or would be propounded in due course by the Vendors as, the December Accounts, the stand-alone accounts constituted information concerning the Company material to be known to a buyer of the Shares or the Company. Mr Gingerich said that he believed that the stand-alone balance sheet was in the data room; he said that he had no reason to believe "anything other". He did agree that he did not know one way or the other and that he made no enquiries to satisfy himself that the stand-alone accounts had been disclosed to Woolworths (that is, relevantly for the agreement, to DSE). The only basis that he had for a belief that the stand-alone accounts had been put in the data room was that he knew that they existed. He accepted that the existence of the accounts did not provide a reasonable basis for concluding that the accounts had been placed in the data room. These findings flow from Mr Gingerich’s cross-examination. However, the fact that ITAL did not supply the stand-alone accounts and that (which I find from the above facts) Mr Gingerich had no reasonable basis to conclude that the accounts were in the data room does not amount to a knowingly withholding of the stand-alone accounts. I therefore reject the first way of putting the warranty case.

332 Mr Gingerich did, however, knowingly, indeed deliberately, withhold information from Woolworths and DSE, that being his view and intention that the stand-alone accounts would stand as the December Accounts in the post-completion adjustment process. I do not, however, accept that that was information "concerning the Shares or the Company". It was information concerning the operation of the agreement and its terms, the subject matter of which was the "Shares". I therefore reject the second way of putting the warranty case.

333 The third way of putting the warranty claim has more force. Mr Gingerich knew that the Woolworths and DSE representatives did not appreciate the existence of the receivable. He said that he did not know this with certainty, but I find that on all of his evidence he must have known this to be the case – were it otherwise, he knew an adjustment would have been requested. He consciously withheld from them his realisation of the significance of excising TSC from the agreement and the identity of the stand-alone accounts, as the December Accounts. In that sense, he consciously withheld from them the information about the existence of the receivable.

334 The question which arises here is whether the liability was fairly and accurately disclosed in the data room or in the Stage 1 Due Diligence Information.

335 One needs to assess what is "fair and accurate" by using the common sense of the honest and reasonable business person aided by competent legal and financial advisers. I have earlier expressed my view that Woolworths’ advisers did not act carelessly. The context and content of such revelations as there were in the 30 June 2000 accounts, the December Corporate Pack, documents N 19 and V11 were not such as in my view fairly and accurately disclosed the liability as at 31 December 2000. The conduct of the parties was such as to cause any reasonable person involved to focus on the relevant reference accounts. To the extent that there was material in the data room which can be said to have placed Woolworths and DSE on enquiry as to the existence of the receivable as at 31 December 2000, the persons involved were directed away from conducting an analysis of the individual accounting pieces of information by the parties’ common view reinforced by conduct and communications that there was a set of accounts, the December Corporate Pack, which provided all relevant information.

336 Mr Gingerich, a highly experienced businessman, thought that the appropriate way to disclose the receivable was by placement of the stand-alone accounts in the data room. Bearing in mind the nature of the transaction, the role of the reference accounts in the transaction, the importance of the data room and the conduct and communications concerning the December Corporate Pack, I accept Mr Gingerich’s views. They reflect my own. Fairness and accuracy called for disclosure of such a liability to be made in the nominated relevant set of accounts. The disembodied piecing together of pieces of accounting information undertaken by the respondents in this case in support of their position is not a fair or accurate commercial response.

337 I do not think that this question is to be answered by the expert evidence of Messrs Bryant and Dunlop. Where necessary I have referred to that evidence earlier. The fairness and accuracy of the disclosure can only be judged against the background and flow of events, and in particular the focus of the parties upon the December Corporate Pack as the reference accounts. In these circumstances, whilst I have had recourse to both the evidence of Mr Bryant and Mr Dunlop, it is unnecessary to resolve any particular conflict between them.

338 Looking at the events in the way they unfolded and the accounting information in the various ways and contexts in which it was provided I find that the existence of the receivable as at 31 December 2000 was not fairly and accurately disclosed in the Data Room or the Stage 1 Due Diligence Information.

339 The respondents pleaded a time bar in the contract. Clauses 11.2, 11.9, 11.10 and 11.11(a) and (c) of the agreement are in the following terms:

(ii) relevant documents and records within the power, possession or control of the Purchaser of the Company,

340 On 29 January 2002, Woolworths sent to InterTAN Canada a three-page document entitled "notice of claim". For convenience it is annexed and marked 4.

341 The respondents submitted that the notice was for an indemnity under clause 11.2 not for the claim being made. I reject the submission. A reading of annexure 4 makes plain that the very warranty claim propounded here was made in time.

342 A number of matters need be dealt with in connection with relief which may be available on the assumption that I am wrong in relation to the contract claim.

343 As to estoppel, it might be said that if relief is to be given, the minimum appropriate is to recompense the applicant by limiting the estoppel to circumstances in which the respondents are not prepared to pay a sum of money representing the value of the applicant’s lost opportunity to renegotiate and recover its position if told, before execution of the agreement, that the December Corporate Pack was not the December Accounts or reference accounts, but that the stand-alone accounts were such.

344 The worth or value of that lost opportunity is to be measured as a past hypothetical event. On the basis of the primary facts as I have found them, in particular Mr Gingerich’s view as to the commercial indefensibility of InterTAN’s bargaining position, Mr Wavish’s evidence, which I accept, that he would not have recommended that the purchase go forward at a sum not adjusting in Woolworths’ favour for the full value of the intercompany liability, the objectively assessed weak negotiating position of InterTAN and the lack of evidence as to what others at InterTAN would have argued had the question arisen, I would value the lost opportunity as worth nearly the full amount. Some contingency is perhaps appropriate. If it be necessary to place a figure on it, I would assess the likelihood of adjustment at 90% of the full value of the liability, if the correct approach is to take that percentage of the receivable as at the completion date.

345 The respondents placed great weight on the fact that in truth the liability was sourced in trade, albeit at an intercompany level. It had the historical attributes and origin described by Mr Avery. TSC was the wholesale importer. Until products were required they would be stored in a warehouse. Once required, the goods were shipped from the warehouse to the ITAL retail store. At this point of shipment the goods were sold to ITAL at a 10% mark up. ITAL would pay overseas invoices on behalf of TSC and charge a management and administration fee. These sums would be set off against the 10% mark up. After June 2000, TSC’s assets and staff were transferred to ITAL and after various adjustments the liability of over $4 million remained. Thus, the liability can be seen to be sourced in trade, but as an outstanding intercompany mark up. Mr Wavish was clear in his view that he would have expected an equivalent adjustment. Mr Sweetman did not accept that as a long outstanding intercompany liability he would have accepted it as a trade debt. Mr Gingerich, a man of considerable business experience, who was at the centre of negotiations for InterTAN, who was fully apprised of what had passed between the parties at all levels and of the context and the commercial humanity of the situation, appreciated that InterTAN was in a commercially indefensible position. Further, it should be noted that in his affidavit in chief Mr Gingerich said that he would have had no personal objection to a reduction of the price by the amount payable by ITAL to TSC; though, in this context, he also said that he would not have given the reduction of $1 million to which I earlier referred, if he had to give this adjustment for the liability. No one from InterTAN gave evidence that he or she would have resisted any claimed adjustment on any particular basis.

346 Whatever might have been the sum negotiated between Mr Stegall and Mr Wavish on 1 March 2000 had the stand-alone accounts of ITAL been before Woolworths from the end of January and had they formed the basis of the due diligence report, is not to the point. The facts unfolded as they did. Had Mr Gingerich spoken after 4 April there is little doubt what would have happened. If the matter had arisen earlier, but after the 9 March excision of TSC, on the evidence there is nothing to found a conclusion that InterTAN would have been in any different bargaining position to that in which it would have found itself after 4 April. InterTAN had negotiated this transaction at $108 million enterprise value giving away, within that sum, the receivable. No one gave evidence that there was any perceived financial burden in retaining TSC; no one gave evidence that he or she would have perceived such a burden and put that in argument to Woolworths.

347 The value of the lost opportunity at 90% of the face value of the liability gives some recognition to the possibility that Mr Gingerich’s view that allowing the reduction for the liability at its full face value may have had an effect on his willingness to agree to the $1 million reduction. Even accepting that, it should be recognised that there was undoubted force in Mr Sweetman’s position that some of the Christmas trading cash should be viewed as stock and that InterTAN was in a weak bargaining position.

348 As to whether the appropriate relief in estoppel is one linked to the value of the lost opportunity or whether the respondents should simply be estopped from denying that the December Corporate Pack is the December Accounts, in my view, when a party such as the applicant, in reliance at least in part on a common assumption and on representations to the effect that a contract has a certain attribute or incident and that was the fair commercial basis of the bargain, there is every reason to conclude that the minimum relief to avoid the unconscientious resiling is to enforce the assumption or representation. One asks rhetorically, why should the applicant be forced to accept the monetary worth of the lost opportunity? The applicant bargained for this agreement in circumstances which make it just and equitable for it to have its bargain on the basis that I have identified.

349 Similar considerations apply to s 1325 of the Corporations Act and the flexible relief available thereunder; cf s 87 of the Trade Practices Act 1974 (Cth). The appropriate relief would be as the applicant claims: to vary the agreement to provide that the expression "December Accounts" mean the December Corporate Pack.

350 To the extent that damages are the remedy for the breach of warranty, the position is to be assessed by reference to the position that would have obtained had there been a fair and accurate disclosure of the receivable. That, in substance, is the value of the loss of opportunity that I have discussed above.

351 As to rectification, it was submitted by the respondents that since there was no mistake as to the words used there could be no rectification. The submission tended towards the view expressed by Denning LJ in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450, 461 to the effect that rectification is limited to an error in writing down the parties agreement. As Sheller JA said in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 336:

352 This is, of course, not a claim for rectification based on the common mistake of the parties: that is, the mistake of the parties that was held or made by both. It is a claim for relief based on unilateral mistake, since Mr Gingerich on and after 4 April appreciated (on this hypothesis as to the proper construction of the agreement) the error under which the Woolworths representatives were labouring. It is an application of the equitable principles discussed and applied in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422, which are based on unconscionable conduct. Justice in these circumstances can be completely done between the parties by bringing the written agreement into conformity with what, until 4 April, was the view held by all participants to the negotiation that the December Corporate Pack was, or contained, the "December Accounts", and what, after 4 April, was the mistaken view held by one side in respect of which Mr Gingerich said nothing.

353 To this end an order that would bring the agreement into conformity with the above intention would be as follows:

354 Nothing in Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447 is contrary to the above approach. The above approach conforms to the availability of rectification in circumstances at least where there is actual knowledge of the other party of the mistake of the innocent party, a contribution to the creation of that mistake by the other party, the importance of the mistake and the unconscionability of the other party in allowing by its conduct the mistake to go unappreciated: see A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555, 570; Riverlate Properties v Paul [1975] Ch 133, 140; Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 503, 514-5; The Nai Genova [1984] 1 Lloyd’s Rep 353; Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259; Johnstone v Commerce Consolidated Pty Ltd [1976] VR 463; Re Freehouse Pty Ltd (1997) 26 ACSR 662; Lee Kong Nelder Nominees Pty Ltd v John Holland Construction & Engineering Pty Ltd WA Supreme Court Full Court 27 May 1998; and Taylor v Johnson at 431-32.

355 The above is sufficient to dispose of the controversy. My view on the contract and the willingness of the parties to view the set-off of the adjustment sum and the repayment of the receivable means that the orders that need to be made are to the effect that one money judgment should be entered in favour of the applicant setting off the post-completion adjustment using the December Corporate Pack as the December Accounts for the agreement with the loan repayment with interest as provided for the agreement.

356 Once the correct amount of the judgment with interest on this basis is calculated and judgment ordered is that sum the amended cross-claim can be dismissed. The applicant should bring in a draft judgment for this money sum with interest calculated to the date of the judgment.

357 I see no reason why the applicant should not have its costs, including reserve costs. These should include the costs of the third party discovery application. Should either party wish to raise any particular questions of costs I will hear the parties.

I certify that the preceding three hundred and fifty-seven (357) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.

Counsel for the Applicant:	Mr R M Smith SC with Mr P R Whitford

Solicitor for the Applicant:	Clayton Utz

Counsel for the Respondent:	Mr R B S Macfarlan QC with Mr T G R Parker

Solicitor for the Respondent:	Allens Arthur Robinson

Date of Hearing:	7, 13, 14, 15, 16, 19, 21, 22, 23 and 27 April and 3, 4 and 5 May 2004

Date of Judgment:	9 September 2004

•	Stand alone value of Tandy is $80-$90 million
•	Value to WOW of Tandy is $175-210 million when combined with DSE
•	Market would highly regard an acquisition at any price below $175 million.

•	legal due diligence. This would be done simultaneously with negotiation of the sale and purchase agreement
•	individual store profitability review. This would be done following negotiation of a sale and purchase agreement and immediately prior to execution
•	access to the next level of management at InterTAN Australia. This would be done following negotiation of a sale and purchase agreement and immediately prior to execution
•	Radioshack consent to assignment of its agreements with InterTAN to benefit WOW. This would be a condition precedent to completion, which would be reflected in the executed sale and purchase agreement. It would not be a condition precedent to execution of an agreement.

•	Purchase price A $108MM, on an unlevered basis
•	Woolworths board approval required pre-execution, but not expected to be an issue
•	Confirmatory due diligence, to start next week, is required pre-execution on:

•	Confirmatory due diligence of this nature is standard practice in transactions of this nature
•	We have been assured by UBSW and WOW that this due diligence will not affect price
•	Execution of agreements and announcement on 15 March
•	Completion on 31 March

(a)	The agreement was that, Representations & Warranties ("R & W") would be kept to a minimum, not that there would be no other R & W.
(b)	He understands that because of other transactions in USA, liabilities from R & W cannot flow back to ITA, or ITC. He therefore wishes to know whether you can now advise us who will warrant these liabilities. Until we can know, we will want some of the proceeds of the sale to be "set aside".
(c)	We have now ascertained that a high proportion Nissan leases have a change of control provisions in them, requiring landlord consent prior to assigning them. Whilst we would generally be regarded more highly as a tenant, because of Woolworths standing in Australia, this does present another risk to us.

2.	Orders that within seven days the applicant file and serve a draft minute of judgment providing for a judgment sum, including interest, on the basis of order 1 and on the basis of the set off of the sums owing to the applicant by the respondents with the sums owing by InterTAN Australia Limited to Technotron Sales Corp Pty Limited.
3.	Subject to order 4 below, orders that the respondents pay the applicant’s costs of the proceedings, including the costs of the cross-claim, any reserved costs, including the costs of the third party discovery against Salomon Smith Barney.
4.	Orders that the proceedings stand over to a date to be fixed for the making of final orders dealing with judgment, the final disposal of the cross-claim and any debate about costs.

(b)	The Preliminary Completion Accounts must be prepared in accordance with:
•	the accounting principles and practices that governed the preparation of the December Accounts; and
•	the accounting principles and practices that governed the preparation of the June Accounts,

(a)	Radio Shack was not going to buy the holding company shares in North America.
(b)	Radio Shack was refusing to agree to Woolworths’ terms in relation to the Radio Shack operational agreements affecting the Tandy business in Australia.
(c)	Woolworths had attempted unsuccessfully to negotiate terms acceptable to it directly with Radio Shack.
(d)	Woolworths was apparently so dissatisfied with the discussion with Radio Shack that Woolworths was proposing to terminate purchase discussions if the matters had not been satisfactorily resolved by 6 April.
(e)	InterTAN Inc was in an unsatisfactory commercial position and was reluctantly forced to pay Radio Shack $6 million to secure its agreement to Woolworths’ terms as to the licensing agreement.

(c)	is fairly and accurately disclosed in the Data Room;
(d)	is fairly and accurately disclosed in the Stage 1 Due Diligence Information

(a)	If the Net Asset Correction is greater than zero, the Purchaser must pay that amount to the Vendors [defined as InterTAN Inc and InterTAN Canada] within 14 days of finalisation of the Completion Accounts, together with interest on such amount at the Bank Bill Rate from the Completion Date to the date of payment.
(b)	If the Net Asset Correction is less than zero, the Vendors must pay that amount to the Purchaser within 14 days of finalisation of the Completion Accounts, together with interest on such amount at the Bank Bill Rate from the completion Date to the date of payment.

(a)	First, the December Corporate Pack was the only set of accounts in the data room containing both profit and loss account and balance sheet for the period ending and as at 31 December 2000.
(b)	Secondly, the negotiated price of $108 million "ungeared" or "unlevered" or "unleveraged", to the knowledge of both parties, required the addition and subtraction of sums being cash, cash equivalents and debt from a balance sheet as at a particular date.
(c)	Thirdly, the parties agreed upon that balance date: 31 December 2000.
(d)	Fourthly, within the confines of a formal due diligence process requiring relevant documents to be placed in the data room, the December Corporate Pack was provided, placed in the data room and contained a balance sheet relating to ITAL as at 31 December 2000.
(e)	Fifthly, to the knowledge of both parties and discussed between the representatives of the parties, the December Corporate Pack was the basis of the identification of the contract price.
(f)	Sixthly, the December Corporate Pack was provided to Mr Sweetman on the basis that it was to be, or contained, the reference accounts (though before the excision of TSC).
(g)	Seventhly, the December Corporate Pack was (after the excision of TSC) discussed between representatives of the parties as the reference accounts.
(h)	Eighthly, to the extent that there was mutually objectively manifested understanding in conduct and words undertaken and exchanged by and between the representatives of the parties in the presence of each other, it was that the December Corporate Pack was the "Accounts" or "December Accounts" in the various draft agreements and would be the "December Accounts" in the agreement: that is, for the purposes of the transaction, the December Corporate Pack was or contained the reference accounts.
(i)	Ninthly, the representatives of the parties understood from their experience in dealing with a commercial subject matter of this kind, that there were two elements necessary to identify precisely the consideration payable for the sale of the business once a negotiated price or enterprise value was struck on an ungeared basis: the identification from a balance sheet of cash, cash equivalents and debt and the comparison of net assets contained in a completion date balance sheet with the net assets in the balance sheet used to derive the contract price from the negotiated price. The representatives understood that to use different balance sheets at the reference date for the two purposes risked introducing financial disconformity and risked amending (up or down) the negotiated enterprise value which was intended to remain a constant.
(j)	Tenthly, no one understood that the excision of TSC was to have any financial effect. The conduct of the parties manifested a mutual view as to its dormancy and irrelevance

(a)	it has had before the date of this agreement the opportunity to examine all information or material in the Data Room;
(b)	it has had before the date of this agreement the opportunity to interview senior management personnel of InterTAN Australia;
(c)	it has knowledge and experience in financial and business matters and in matters relating to the retail electronics industry in Australia and is capable of evaluating the merits associated with entering into and performing its obligations under this agreement,

(b)	no other statements or representations:
i.	have induced or influenced the Purchaser to enter into this agreement or agree to any or all of its terms;
ii.	have been relied on in any way as being accurate by the Purchaser;
iii.	have been warranted to the Purchaser as being true; or
iv.	have been taken into account by the Purchaser as being important to the Purchaser’s decision to enter into this agreement or agree to any or all of its terms.

(a)	is specifically provided for or disclosed in this agreement;
(b)	is fairly and accurately described in schedule 7 to this agreement in relation to the warranty;
(c)	is fairly and accurately disclosed in the Data Room; or,
(d)	is fairly and accurately disclosed in the Stage 1 Due Diligence Information.

(a)	a Warranty being false or misleading when made or regarded as having been made under this agreement;
(b)	a breach by either or both the First Vendor and Second Vendor of this agreement;
(c)	the ACCC Dispute; or
(d)	an Executive Termination Commitment.

Federal Court of Australia

DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1159 (9 September 2004)