MindChamps Preschool Limited v M & W Zaki Pty  
Limited ATF the Zaki Group Trust & Ors [2022]  
NSWSC 881 (1 July 2022)  
Last Updated: 5 July 2022  
Supreme Court  
New South Wales  
Case Name:  
MindChamps Preschool Limited v M & W Zaki Pty Limited ATF the Zaki  
Group Trust & Ors  
Medium  
Neutral  
Citation:  
[2022] NSWSC 881  
Hearing  
Date(s):  
12, 13, 14, 15, 16, 29 & 30 July and 11 August 2021  
Date of Orders: 1 July 2022  
Decision Date:  
Jurisdiction:  
Before:  
1 July 2022  
Equity  
Slattery J  
Decision:  
Misleading and deceptive conduct case dismissed. Plaintiff successful on  
case in contract. Order for the return of the deposit of $500,000.  
Directions made for the calculation of interest and determination of  
issues of costs.  
Catchwords:  
MISLEADING AND DECEPTIVE CONDUCT – plaintiff executes an  
agreement on 1 September 2016 for the acquisition of nine childcare  
centres from the first, second and third defendants – plaintiff alleges the  
fourth and fifth defendants engaged in misleading and deceptive conduct  
on behalf of themselves and other defendants inducing the plaintiff to  
execute the agreement – plaintiff terminates agreement and seeks  
recovery of the deposit – whether the fourth and fifth defendants  
represented to the plaintiff before execution of the agreement that a) due  
diligence documents required by the plaintiff were fully ready to allow  
the plaintiff to complete due diligence by 30 September 2016 (b) the  
accounts for the childcare businesses were audited by PwC (c) the due  
diligence ‘data room’ of the defendants was complete; and (d) there was  
another potential buyer of the childcare centres who had already  
commenced the due diligence process, and who was willing to pay a non-  
refundable deposit of AUD$1 million – whether any representations  
made by the fourth and fifth defendants were misleading – whether the  
plaintiff relied upon any representations made – what loss was caused  
by any misleading deceptive conduct of the defendants and what relief  
should be given, including return of the deposit. Alternatively, whether  
the circumstances occasion relief for negligent misrepresentation.  
CONTRACT – breach of contract – interpretation of contract terms –  
agreement for the acquisition of nine childcare centres – conditions  
precedent – deposit held in escrow – provisions of the agreement  
requiring due diligence before entry into a long form agreement on 30  
September 2016 – a term of the agreement provides for the return of the  
deposit, if the sellers breached their obligations with respect to the due  
diligence process, or if the seller breaches certain obligations in relation  
to exclusive dealing with the plaintiff – whether the sellers have  
breached either their due diligence process obligations or their  
exclusivity obligations under the agreement – whether the sellers are  
required to the return of the deposit.  
Legislation  
Cited:  
Australian Consumer Law  
Civil Procedure Act 2005, s 100  
Cases Cited:  
Strike Australia Pty Ltd v Data Based Corporate Pty Ltd (2019) 19 BPR  
39,621; [2019] NSWCA 205  
Category:  
Parties:  
Principal judgment  
Plaintiff: MindChamps Preschool (Worldwide) Pty Ltd  
First Defendant: M & W Zaki Pty Ltd ATF the Zaki Group Trust ABN  
99233987815  
Second Defendant: Child Care Income Protection Pty Ltd ATF The KZ  
Trust ABN 94358741310  
Third Defendant: Mark Zaki  
Fourth Defendant: Maged Zaki  
Fifth Defendant: Kerelos Zaki  
Representation:  
Counsel:  
Plaintiff: M. Izzo SC; B. Hancock  
First to Fifth Defendants: R. Newlinds SC; A. Horvath  
Solicitors:  
Plaintiff: Dentons Australia Ltd  
First to Fifth Defendants: Hitch Advisory  
File Number(s): 2017/00063546  
Publication  
Restriction:  
No  
JUDGMENT  
1. The plaintiff, MindChamps Preschool Limited (“MindChamps”), is a Singapore-based  
international provider of childcare services. The first defendant M & W Zaki Pty Limited  
as trustee for the Zaki Group Trust (“M & W Zaki”) and related entities operate childcare  
centres under the name “Little Zak’s Academy” or simply “Little Zak's” in New South  
Wales. On 1 September 2016 MindChamps executed an agreement entitled “Term  
Sheet”, to acquire nine of M & W Zaki’s NSW childcare centres for a consideration of  
$68,500,000 subject to agreed adjustments. The Term Sheet required the payment of a  
deposit of $500,000 and was subject to conditions precedent, including due diligence  
obligations which were to lead to the execution by 30 September of what was described  
in the Term Sheet as a Long Form Agreement.  
2. On 16 September 2016 MindChamps communicated to M & W Zaki that it had decided  
not to proceed with the purchase under the Term Sheet and gave notice of that decision  
to M & W Zaki. MindChamps contends it was induced to enter the Term Sheet by the  
misleading deceptive conduct of M & W Zaki and entities and persons related to it and  
that it is now entitled to rescind the Term Sheet pursuant to Australian Consumer Law,  
ss 237, 242 and 243 (“the ACL”) and have the $500,000 deposit returned to it.  
MindChamps further alleges it was entitled to terminate the purchase, because of M & W  
Zaki’s failure to satisfy the conditions precedent to the Term Sheet and because of its  
breaches of the Term Sheet. MindChamps claims the return of the deposit of $500,000  
and recovery of some $16,655.34 in travel expenses it incurred in undertaking due  
diligence following entry into the Term Sheet.  
3. MindChamps executed the Term Sheet in its then corporate name, as a private company  
incorporated in Singapore, MindChamps Preschool (Worldwide) Pte. Limited. In  
November 2017 the plaintiff subsequently changed its status to that of a public company,  
also altering its name to its present title.  
4. The first, second and third defendants executed the Term Sheet as co-vendors. The  
fourth and fifth defendants are joined into the proceedings as persons said to have  
engaged in misleading and deceptive conduct, including on behalf of the other  
defendants. All defendants are members of the Zaki family, or are entities controlled by  
family members. The second and third defendants, Childcare Income Protection Pty  
Limited as trustee for KZ Trust and Mr Mark Zaki, the co-vendors with M & W Zaki  
under the Term Sheet did not otherwise feature significantly in the evidence. Mr Maged  
Zaki, the fourth defendant, and his son Kerelos (referred to in evidence as “Carlos”) Zaki,  
the fifth defendant together controlled and managed the day-to-day business operations  
of the M & W Zaki and played the principal roles on behalf of the sellers in relevant  
events. The second defendant is a family company associated with Mr Carlos Zaki. These  
reasons refer to defendants as vendors collectively from time to time as M & W Zaki, or  
Little Zak’s; and members of the Zaki family are sometimes referred to as “the Zakis”  
5. MindChamps alleges the defendants, specifically Mr Maged Zaki and Mr Carlos Zaki  
engaged in misleading deceptive conduct during negotiations inducing it to sign the  
Term Sheet. It says that these defendants represented: (a) that due diligence documents  
required by MindChamps were fully ready so as to allow MindChamps to complete its  
due diligence process by 30 September 2016; (b) that the accounts for the childcare  
businesses owned by the defendants were audited by PwC or some other external  
accountant; (c) that the due diligence “data room” of the defendants was “complete”  
prior to MindChamps executing the Term Sheet; and (d) that there was another  
potential buyer of the childcare centres who had already commenced the due diligence  
process, and who was willing to pay a non-refundable deposit of AUD$1 million. The last  
of these was not ultimately pursued.  
6. The defendants contest the misrepresentation case. They allege that the representations  
were not made and if they were, when properly construed, they were either not  
misleading or were not relied upon.  
7. MindChamps also brings a case in contract. It alleges breach of the sellers’ obligations of  
due diligence, under Term Sheet, clause 9 and the sellers’ obligations to afford exclusive  
negotiations to MindChamps under Term Sheet, clause 12. As to the former,  
MindChamps alleges that in breach of clause 9 the sellers did not provide all the  
information reasonably required by it by the buyer to enable due diligence  
investigations. As to the latter, MindChamps alleges the sellers were continuing to  
conduct negotiations with at least one third-party after 1 September 2012 in breach of  
clause 12.  
8. The defendants contest MindChamps’ breach of contract case. They dispute  
MindChamps’ construction of the contract that founds MindChamps case of breach. But  
even if MindChamps construction is accepted, the defendants deny both claimed  
breaches of contract. As to clause 9, the defendants contend that they did provide all  
information reasonably required to enable MindChamps to conduct its diligence  
investigations. As to clause 12, they admit having had some contact with other potential  
purchases but submit that properly construed it was not a breach of clause 12.  
9. The defendants also develop a case that MindChamps decision to terminate the Term  
Sheet was not the result of the sellers’ breaches of the Term Sheet. Rather they submit  
MindChamps realised that it lacked the finances to complete its next contractual  
payment obligations required under the Term Sheet, being the payment of $20,000,000  
on execution of the long form agreement on 30 September 2016 and $47 million on the  
completion date. MindChamps contend this is an irrelevant issue.  
10. The contest conveniently divides the narrative of the facts into two distinct time periods.  
(1) The alleged misleading deceptive conduct and the negligent misrepresentation  
claims identify conduct in August 2016 that predates the execution of the Term  
Sheet.  
(2) The alleged breach of contract case relates to the defendants’ compliance with  
their Term Sheet due diligence obligations and exclusivity obligations from 1  
September to 16 September 2016.  
11. This matter was initially listed for a hearing of 5 days commencing on 12 July 2021. A  
combination of the need for video-link evidence from witnesses, and for video-link  
appearances and submissions from counsel meant that the proceedings went longer, and  
they were ultimately heard over eight days, 12, 13, 14, 15, 16, 29 & 30 July and 11 August  
2021. Mr M. Izzo and Mr B. Hancock of counsel acted for the plaintiff, instructed by  
Dentons. Mr R. Newlinds SC and Ms A. Hovarth of counsel acted for the defendant,  
instructed by Hitch Advisory. In a case with finely tuned debates about interpretation of  
a commercial agreement and a relatively dense narrative of events, the Court was greatly  
assisted by the careful presentation of the case on both sides by counsel and solicitors.  
12. Shortly these reasons will commence a narrative of the Court’s relevant findings. But  
before commencing that narrative Court makes observations about credibility of various  
parties and witnesses. This was not an in-person hearing in the courtroom due to Covid  
19 restrictions. The oral evidence on both sides of the proceedings was given by video-  
link, some from Singapore and some from within Australia. The fact that the witnesses  
were giving evidence remotely added a degree of caution to the Court’s assessment of  
them, but the Court was nevertheless generally able to form clear impressions of witness  
credibility and recorded during the hearing.  
Credibility of Parties and Witnesses  
13. Mr David Chiem. Mr Phuan (‘David’) Chiem is the founder and chief executive officer of  
MindChamps. He gave evidence by video-link from Singapore. Mr Chiem was an honest  
and a reliable witness on most issues. He had a clear long-term vision and firm views  
about how the corporate group of which MindChamps would be run. He was very  
ambitious for its future expansion to realise that vision. He was intimately associated  
with all the detail of the company which he had founded, its transactions and its general  
business affairs.  
14. But Mr Chiem was well practised in putting MindChamps in the best light possible. As  
circumstances required, when giving evidence he could demonstrate studied vagueness,  
put the best face on events and be slow to answer the more difficult questions  
confronting him and when appropriate he could give lengthy explanations. His personal  
style was diplomatic tending to the formal rather than informal communication.  
15. Mr Chiem speaks of MindChamps very much as his own creation. He clearly constantly  
thinks about the company, is inspired by its future possibilities and readily grasps its  
potential for growth and improvement. His firm enthusiasm for the progress and future  
success of MindChamps had an evidentiary downside. He has some capacity to convince  
himself that his own memory of events concerning MindChamps consistent with his  
vision for it, must be correct. At times the quality of his recollection of events is to be  
doubted when compared with other contemporaneous events and objectively verifiable  
evidence. The Court cannot accept all his evidence about meetings and statements made  
to him: his memory was less reliable than some other witnesses with respect to certain  
crucial events.  
16. Ms Catherine Du. Ms Catherine Du is the executive director of MindChamps. She gave  
evidence by video-link from Singapore. She has worked for MindChamps since its  
inception. She came across to the Court as a highly competent businesswoman of deep  
skill and ability. She attempted to answer questions diligently. But in places her memory  
failed her, and the Court was not always confident as to its quality, particularly with  
respect to the claimed PwC representation. And the Court at times had the impression  
that she had convinced herself that some events and meetings had taken place in a  
particular way such that the Court was cautious about accepting all her evidence and  
instead preferred the evidence of other witnesses.  
17. Mr Nicholas Caswell. Mr Nicholas Caswell is the senior manager of business  
development at MindChamps Australia Pty Ltd (“MindChamps Australia”), a local  
subsidiary of MindChamps. He gave evidence in Sydney but by video-link due to the  
Covid-19 pandemic restrictions. He was a reasonably good witness who was present at  
some of the meetings at which other MindChamps witnesses say that they were present,  
but his role was somewhat subsidiary and his focus at those meetings was not upon the  
issues that have become central to these proceedings.  
18. Mr Wee-Jone Teo. Mr Teo is the chief financial officer of MindChamps. He gave  
evidence via video-link from Singapore. Mr Teo was a good witness, who was clearly  
across his financial brief in relation to this acquisition on behalf of MindChamps. He was  
answerable in the corporate hierarchy to Mr Chiem, followed instructions from Mr  
Chiem, and was closely attuned to Mr Chiem’s outlook for the future expansion of  
MindChamps, which influenced his outlook. He was very focused on this transaction  
because it was a substantial step up in the size of acquisitions that MindChamps was  
making at the time. His evidence was generally reliable. He confessed that he had  
“learned a lesson” from the failure of this transaction.  
19. Mr Chng Kwang (I-Ren or Lawrence) Tan. Mr Tan is the general manager of  
MindChamps. He gave evidence via video-link from Singapore. Mr Tan had been  
employed by MindChamps for about eight years prior to the events in question in these  
proceedings as general manager but prior to that he had worked for MindChamps  
holding company for about seven years. He was part of the management team at  
MindChamps that reviewed the potential acquisition of the Little Zak’s childcare centres.  
At the time of the hearing, he was no longer employed by MindChamps. Mr Tan came  
across as a precise person who was attempting to tell the truth. He took notes of some of  
the contentious meetings. Some of his answers could be indirect, he tended to avoid  
answering questions in relation to the more contentious meetings by talking of what was  
said in other meetings. His evidence is mostly accepted but like Ms Du he had an  
unreliable recall of some crucial disputed meetings.  
20. Mr David Willis. Mr Willis is a partner of KPMG Advisory in Sydney. He gave evidence  
via video-link due to the Covid-19 pandemic restrictions. Mr Willis is an accountant in  
the Transaction Services business unit of KPMG’s Deals, Tax and Legal Division. He has  
advised in respect of corporate and private equity transactions for over 20 years. He  
commenced work at KPMG in January 2006 and became a partner in July 2007. KPMG  
were engaged by MindChamps to inspect the information in the data room in the due  
diligence process for this proposed acquisition by MindChamps. He was a reliable  
witness who demonstrated sound and reasonable professional judgments in the events  
in which he was involved. He made appropriate concessions when required and stated  
the facts as he recalled them crisply and concisely. He was cognisant of but not overly  
defensive of his client’s interests. His answers were a direct and businesslike. His  
evidence is accepted.  
21. Mr Maged Zaki. Together with his wife, Wafaa, Mr Maged Zaki is one of two directors of  
the first defendant, M & W Zaki. He gave evidence from Sydney via video-link due to the  
Covid-19 pandemic restrictions. He was the founder of Little Zak's Academy. He came  
across to the Court as an honest and astute businessman. He was a reasonably good  
witness, who answered questions in cross-examination as fully as he could. He was  
prepared to make concessions about matters that he did not remember, and he  
consciously confined his evidence to material well within memory. Mr Maged Zaki  
genuinely did not remember the contested meeting that the MindChamps witnesses say  
took place about 15 or 16 August 2016.  
22. Mr Carlos Zaki. Mr Carlos Zaki is the sole director of the second defendant, Childcare  
Income Protection Pty Limited ATF the KZ Trust. He gave evidence via video-link due to  
the Covid-19 pandemic restrictions. Mr Carlos is the son of Mr Maged Zaki and has  
followed his father’s business leadership into the childcare industry. He came across to  
the Court as an honest, astute, intelligent, and insightful businessman. He had quite a  
good memory of the contested events, with a definite recollection of what was said. He  
could convey subtle linguistic distinctions about the contents of conversations. He had a  
good understanding of all financial aspects of this transaction and showed a competent  
mastery of accounts. He was prepared to make concessions when required by  
circumstances. His evidence is accepted.  
23. Mr Douglas Lilley. Mr Douglas Lilley helped introduce the parties to this transaction.  
He has been a licensed real estate agent and business broker since 1991. He and his wife  
Debbie operate Lilley Childcare Sales, a childcare centre brokerage, promoting the sale  
of leasehold and freehold childcare centres. He appeared via video-link from  
Christchurch, New Zealand. Mr Lilley and his wife have operated that business since  
about 2006. Mr Lilley was requested to give evidence for the defendants in 2018 but  
declined to do so because of an existing working relationship with MindChamps. But as  
the hearing approached, he decided he would give evidence and was called for the  
defendants. Mr Lilley was a generally credible witness. He appeared to be relaxed in  
style. He does not hold many formal meetings or take notes. He has an intuitive,  
spontaneous, and sales-oriented style of communication. He had a good recollection of  
contentious events, and his evidence is accepted.  
24. The following is a narrative of the relevant history. This narrative represents the Court’s  
findings on the matters covered, except to the extent that the context indicates that only  
the parties’ allegations are being recorded in these reasons. For reasons of economy this  
narrative does not always include reference to versions of the facts that have been  
rejected.  
MindChamps, Little Zak’s and the Term Sheet: the Misrepresentation Case  
25. This section of these reasons deals with MindChamps misrepresentation case. It  
includes a narrative of findings covering the period prior to execution of the term sheet.  
Then it considers whether the misrepresentation case is made out. These reasons then  
proceed to the factual narrative and analysis for the breach of contract claims  
MindChamps – Some Background  
26. Mr Chiem is an Australian citizen currently residing in Singapore. Not only is he the  
chief executive officer of MindChamps, he is also the founder and Group CEO of  
MindChamps Holdings Pte Limited, which established MindChamps in Singapore in  
2008. MindChamps is now a leading provider of preschool education in Singapore. Mr  
Chiem has long had a vision to bring MindChamps back to Australia and establish  
preschool operations in Mr Chiem’s home ground here in Australia.  
27. It was in pursuit of that vision that Mr Chiem authorised MindChamps staff to explore  
opportunities for the acquisition of childcare centres in Eastern Australia. They engaged  
with Lilley Childcare Sales, leading to an introduction to Mr Maged Zaki and Mr Carlos  
Zaki.  
28. MindChamps originally started in Sydney as both a learning idea and as a business  
entity. Due to circumstances its business later migrated to and developed Singapore  
rather than in Sydney. The MindChamps concept began as a method of learning. Mr  
Chiem confirmed that it was focussed on “filling in the gaps of learning” for early  
childhood education and “engaging kids from [when they are] young”. But one of Mr  
Chiem’s ambitions has long been to bring the idea back to Australia.  
29. The wider corporate group of which MindChamps is a part does not play a significant  
role in these proceedings, except in relation to issues concerning mounting an initial  
public offering (“IPO”) of the group in late 2016. Based on evidence from this IPO the  
defendant say that MindChamps did not have the funds to complete the acquisition of  
the Little Zak’s childcare centres.  
30. MindChamps’ holding company is MindChamps Holdings Pty Limited (“MindChamps  
Holdings”). Many other companies in the group need not be mentioned by name, other  
than MindChamps Australia Pty Limited (“MindChamps Australia”) which in 2016 was  
planned to be the entity conducting MindChamps’ projected Australian operations.  
When the expression “MindChamps” is used in these proceedings it is a reference to the  
plaintiff rather than the MindChamps Group.  
Little Zak's – Some Background  
31. Mr Maged Zaki and his wife Wafaa are the directors of the first defendant, M & W Zaki,  
the corporate vehicle for the ownership of several of their family conducted businesses.  
Mr Maged Zaki his wife and family migrated to Australia from Egypt in 1991. He came  
from a background of corporate management in Egypt and soon after arriving in  
Australia began investing in childcare centres. He judged that childcare was a growth  
sector would expand and he perceived there was a gap in the Australian market for high-  
quality childcare centres.  
32. From a single childcare centre in the 1993 M & W Zaki had expanded sufficiently by  
2012 to sell seven of its 11 centres that year. In 2013 Mr Maged Zaki and his son Mr  
Carlos Zaki decided to start a new childcare brand together called “Little Zak's  
Academy”. The Zakis expanded this business in the following four years into a larger  
enterprise of childcare centres. And in 2016 they marketed that enlarged enterprise for  
sale to MindChamps.  
33. From the 1990s M & W Zaki the Zaki family had essentially conducted a small to  
medium business with many of the characteristics of that type of enterprise. During  
most of their expansion they used their own internal bookkeeping staff and a single  
primary external accountant, Mr Sherif Michael of Sherif Dastur & Co. The Zaki family  
found that by 2015 that the demands of all the accounting work for M & W Zaki (not only  
in their Little Zak's business but in their other small businesses) was becoming  
unmanageable for Mr Maged Zaki and his son.  
34. So, in January 2016 to address these pressures across all of M & W Zaki’s businesses  
they decided to retain PwC as their accountants, to start overseeing aspects of their  
business, to help them foresee and avoid accounting issues, to reduce their tax burden,  
and to restructure their businesses to greater advantage. But they continued to retain  
both Mr Sherif Michael and PwC to perform their financial accounting, financial  
reporting and taxation lodgment and compliance.  
The January 2016 PwC agreement  
35. Mr Maged Zaki says, and the Court accepts, that M & W Zaki did not retain PwC to  
provide auditing services to audit M & W Zaki’s various companies, including Little  
Zak's. On 18 January 2016 PwC agreed in writing with various companies described as  
the “Zaki Group”, to provide services in accordance with a Statement of Work,  
describing the specific work for which PwC would be engaged by the Zaki Group and an  
Umbrella Engagement Agreement, describing the general terms applicable to the  
engagement.  
36. The terms of this agreement are significant for determining the content of any  
representations Mr Maged Zaki made to MindChamps about the quality of financial  
accounts that could be provided to MindChamps. Mr Maged Zaki signed the January  
2016 PwC agreement. He was alert and astute and unlikely to have forgotten in August  
2016 the nature of the services stipulated for between PwC the Zaki group in this  
agreement.  
37. The January 2016 PwC agreement described the services in the covering letter to the  
agreement as “income tax compliance and consulting services”. In the Statement of  
Services these were divided into two parts. The first was a “detailed review of the current  
structure of the Zaki Group” which would include the following:  
“Provide high-level commentary on debt/equity funding;  
Identify key risks and opportunities with regard to income tax, asset protection  
and general commercial exposure; and  
Provide initial recommendations regarding structuring options.”  
38. The second part of the services was the provision of services to ensure that the Zaki  
group complied with its taxation obligations for FY 15,  
“we will review your statement of taxable income, prepare financial accounts and  
lodge income tax returns in respect of the year ended 30 June 2015 as required for  
the following members of the Zaki group”  
39. PwC defined services as including the examination of financial statements and trial  
balances prepared by an employee of the Zaki group “to identify material account  
balances that may give rise to tax adjustments” but the description disclaimed the kind  
of verification work that an auditor would ordinarily undertake:  
“In performing our services we will rely on the account descriptions in your  
financial records, and any account analyses and verbal representations provided to  
us to deter to determine the account balances and amounts that may require a tax  
adjustment.”  
40. The Statement of Services provided that ATO “reviews and audits” may be conducted in  
relation to periods preceding PwC’s appointment, which PwC made clear was only for FY  
15. But pre-FY 15 “reviews and audits” would be outside the agreed scope of works. It is  
clear from the Statement of Works that the only kind of audit that PwC could become  
involved in as part of its Statement of Works would have been an audit resulting from  
ATO intervention during the tax assessment process. Nothing in the January 2016 PwC  
agreement suggested PwC was engaged to undertake general auditing of any Zaki Group  
companies, which was not required by law.  
41. It is to be expected that if PwC had agreed to provide general auditing services they  
would have been clearly defined in the Statement of Work, to accommodate the  
declarations required of the client, the financial sampling of transactions, and the cross  
checking required in the delivery of auditing services. Moreover, auditing services are  
likely to have required a wholly different pricing structure from “income tax compliance  
and consulting services”.  
42. In his principal affidavit Mr Maged Zaki places a gloss on PwC’s role with respect to the  
Zaki Group’s accounts for FY 15. The Court accepts his evidence that at the time PwC  
had been retained Mr Sherif Michael had not finalised the FY 15 accounts. Mr Maged  
Zaki says that PwC made clear in their retainer letter “that they would not involve  
themselves in our 2014 - 2015 financial accounts”. That needs clarification. PwC did  
agree to prepare financial accounts and lodge income tax returns for FY 15. But it is  
equally clear that PwC did so, as it said, on the basis that the work task was functionally  
limited so it did not involve examination of individual transactions, such as might be  
undertaken by an auditor:  
“Our work will include examining the financial statements and/or trial balances  
prepared by Ms Brooke Gilmour to identify material account balances that may  
give rise to tax adjustments. We will also make enquiries through correspondence  
or discussions regarding the nature of the balances to determine the appropriate  
tax treatment.”  
43. The fact that the Zaki’s recognised that with businesses of their size and variety that they  
needed to engage PwC supports the judgment of astuteness in business that the Court  
makes about both Mr Maged Zaki and Mr Carlos Zaki. They foresaw that their  
accounting needs were growing beyond the capability of a single external accountant and  
so they went to PwC. But they had both been intimately involved in taking that  
important business step and in defining the boundaries between the scope of work to be  
undertaken in the future by their own in-house bookkeepers and by Mr Sherif Michael  
on the one hand, and PwC on the other.  
44. The Court also judges Mr Maged Zaki and Mr Carlos Zaki as both honest and as having  
reasonably sensitive business foresight. Apart from the Court’s preference for the  
general credibility of their version on this contested issue of the audited accounts  
representations, it is impossible to reconcile the making of such representations with the  
known facts and the character of each of Mr Maged Zaki and Mr Carlos Zaki. They were  
both aware that they could not produce PwC audited accounts to MindChamps before  
the transaction closed because in August 2016, they had not engaged PwC for that  
purpose for either FY 15 or FY 16. Neither of them was so clueless or dishonest that he  
would have said to Mr Chiem or other MindChamps representatives, something that he  
not only knew was incorrect, but which was likely to proven false quickly during the due  
diligence period.  
45. Other surrounding facts point to the same conclusion. But PwC’s engagement is a  
powerful foundation for rejecting this aspect of MindChamps’ case.  
Pitcher Partners and the Information Memorandum – May to July 2016  
46. Mr Maged Zaki and Mr Carlos Zaki decided in early 2016 that they would sell some eight  
of M & W Zaki’s then 15 Little Zak's childcare centres. This later became nine centres  
when the Belrose centre was added. They retained Mr Simon Johnson of Pitcher  
Partners Sydney Corporate Finance Pty Ltd (“Pitcher Partners”) to assist in brokering  
the sale of the centres. They knew that Mr Johnson had sold childcare centres on behalf  
of an acquaintance.  
47. With Mr Johnson’s assistance by May 2016 M & W Zaki had prepared and issued a  
confidential Information Memorandum for distribution to potential buyers to promote  
the proposed sale. The Information Memorandum introduced the sale proposal, gave an  
industry overview, described the business of the eight childcare centres, identified the  
management and key employees of the centres and provided financial information about  
their businesses. It was clear to the business reader of the information memorandum  
that the eight childcare businesses were being sold and that the financial information  
supplied described their local operations.  
48. The Information Memorandum gave a simplified breakdown of the major components  
of profit and loss for each centre, providing actual figures for FY15 and forecast figures  
for FY16. Those major components were revenue from which was deducted employee  
expenses, property expenses and administration costs to produce a figure for net profit  
before tax. Figures provided for each centre for FY15 were actual and given the  
Information Memorandum’s date of publication of May 2016, the figures for FY16 were  
in part a forecast. The forecast FY16 figures were consolidated for all eight centres to  
show the following:  
Revenue  
$23,000,732.68  
Employment Expenses $8,698, 069  
Property Expenses  
Administration Costs  
Net Profit Before Tax  
$654,756  
$698,027  
$9,681,526  
49. In early August 2016 Mr Johnson introduced Mr Maged Zaki and Mr Carlos Zaki to  
potential international buyers, Chiwayland and Eden Academy (“Eden”). On 15 August  
2016 M & W Zaki received an expression of interest letter from a representative of  
Chiwayland. Mr Maged Zaki was satisfied that they had a potential buyer. But he was  
more doubtful than Mr Johnson about the experience of this buyer in running childcare  
centres, in what by 2016 he saw as an increasingly regulated environment. Moreover, he  
says, and the Court accepts, that he was unsure that that Chiwayland was dedicated to  
the same values as M & W Zaki and would be able to represent M & W Zaki’s name well,  
given that the terms of sale would allow the seller’s name to be used for an initial period  
after purchase.  
50. The signed expression of interest with Chiwayland, provided for an unconditional  
deposit of $300,000 which was fully refundable during a non-exclusive due diligence  
period. The expression of interest agreement provided that if the seller received a  
request from a third party unrelated to the seller for exclusive due diligence or received a  
formal offer to execute a sales agreement then M & W Zaki should immediately notify  
Chiwayland and give Chiwayland a 48-hour opportunity to secure exclusivity.  
Chiwayland had the right to secure exclusivity over any other third-party bidders within  
these 48 hours, provided it informed M & W Zaki in writing and its gross purchase price  
was greater than the highest bid from the third-party bidder. If Chiwayland chose to  
secure exclusivity and that was agreed by M & W Zaki then the deposit would become  
non-refundable subject to certain conditions, including some related to whether the due  
diligence resulted in revision of the projected performance of the business, as contrasted  
with the Information Memorandum. Discussions were also taking place with Eden.  
These are referred to later in these reasons.  
51. The signed 15 August 2016 expression of interest issued by Chiwayland and signed by Mr  
Maged Zaki provided for the due diligence process and included the following statement  
on that subject drafted by Chiwayland:  
“We are willing and able to commence full due diligence investigations. We, our  
financiers, and our advisors are experienced in completing transactions and  
propose to commence the due diligence within 30 days from commencement.  
Assuming all of the due diligence materials that the purchaser would reasonably  
require are readily available in an electronic data room or equivalent with  
appropriate assistance from management.”  
52. Once Chiwayland had paid $300,000 into Mr Johnson’s trust account on 18 August  
2016 its due diligence commenced. This included a Chiwayland representative making  
site visits to three M & W Zaki childcare centres on Monday, 22 August 2016,  
accompanied by Mr Maged Zaki. The timing of this site visit is significant, as both  
Maged and Carlos Zaki say that they did not meet anybody from MindChamps before  
that date but the MindChamps witnesses say that they first met with them on 16 August  
2016.  
53. The Chiwayland EOI made an indicative offer of a "gross target purchase price of  
AUD$60 million and rents as indicated within IM” (clause [1.1]) and was based upon the  
future maintainable earnings for the combined group of AUD$9.68 million, as reflected  
in the Information Memorandum (clause 2.7)  
54. The Chiwayland EOI deposit was paid on 15 August 2016, and Chiwayland gained access  
to the data room on 16 August 2016. It had 25 days to complete due diligence on 9  
September.  
Mr Lilley Introduces the Parties – Late July to Early August 2016  
55. Mr Lilley brought MindChamps and the Zakis together. His business Lilley Childcare  
Sales was experienced in facilitating childcare sales transactions as simple as for a single  
childcare centre and as complex as for multi-centre transactions. Lilley Childcare Sales  
was a substantial player in brokering sale of childcare centres. For example, in FY21 the  
company introduced or serviced a total of 92 childcare centre transactions.  
56. In late July 2016 a representative of MindChamps approached Mr Lilley and informed  
him that they were an active buyer of childcare centres in Australia. He arranged to meet  
Mr Chiem at Ovolo Café in Woolloomooloo. He left that meeting with the clear  
impression that MindChamps were looking to acquire childcare centres in Australia.  
57. Mr Lilley heard that Mr Simon Johnson of Pitcher Partners had been marketing a  
portfolio of eight or nine childcare centres operated by the Zaki family. Having met the  
MindChamps representatives, he wanted to introduce them to members of the the Zaki  
family. He contacted Mr Carlos Zaki by text message on 2 August 2016 to enquire about  
the progress of the sale of the Zaki family childcare centres. But what meetings occurred  
between that text message and 23 August 2016 is a matter of hot dispute between the  
parties.  
A Disputed Meeting - 16 August 2016  
58. These proceedings embed an unusual dispute: whether a business meeting involving at  
least six people took place in the Sydney suburb of Ryde on 16 August 2016.  
MindChamps says it did in that several of the misrepresentations occurred at the  
meeting: about PwC auditing M & W Zaki accounts and about the data room being  
ready. The defendants deny such a meeting occurred. But they accept that two later  
meetings occurred on 23 and 26 August.  
59. It is intriguing that such a dispute could be debated in the digital age, in the internet rich  
environment of suburban Sydney. But the contest was not conducted using the internet  
of things, mobile phone data, electronic calendars, emails referring to the meeting, or  
other digital footprints. Rather it was a contest of old-fashioned competing recollections.  
The fact that it was waged as a nondigital contest in a digital world, points to the absence  
of a contemporaneous digital footprint to confirm that the meeting took place on 16  
August. The lack of such evidence does not assist MindChamps’ case and strengthens the  
inference that a meeting did not occur between these parties that day.  
60. The Court’s approach to resolving this important dispute is first to look at such  
independent or objective evidence as there is about the meeting and then to analyse the  
competing witness evidence about the meeting.  
61. 16 August: the independent evidence. Mr Lilley is an important independent starting  
point for analysis. As little had happened after his 2 August text Mr Lilley decided to  
follow it up to secure a face-to-face introduction of potential seller and buyer. On 23  
August Mr Lilley sent Mr Carlos Zaki a text message;  
“Hi Mate, Sorry to bug you but these buyers are desperate to get through the  
centres as the big chief is going back to Singapore.”  
62. The content of this text is more compatible with a meeting not having taken place by that  
time between the MindChamps representatives and members of the Zaki family. If a  
meeting had taken place on 16 August, it would be the logical occasion for the potential  
buyer to organise to visit the premises. Indeed, that is what occurred shortly after the  
meeting on 23 August.  
63. Mr Lilley does not recall being present at a meeting on 16 August. And it is difficult to  
understand why the agent introducing seller and buyer would be present at the second  
meeting between the parties. It was in his financial interest to be present at the first  
meeting to get the relationship off to a good start. He recalls, and the Court accepts, that  
following this 23 August text message the first meeting in which he was involved was  
arranged for 5.00 pm the same day, at Little Zak's head office in Ryde.  
64. Mr Lilley recalls, and the Court accepts, that he and his wife arrived at the head office of  
Little Zak's a little before 5.00 pm, where a meeting took place in the boardroom. He  
recalls that apart from he and his wife present were Mr Maged Zaki, Mr Carlos Zaki, Mr  
Chiem, Ms Du, and Mr Tan. He was clear that he had not had any other meeting at  
which MindChamps representatives were present with members of the Zaki family  
before that. He recalls “the bulk of the meeting was spent with Mr Chiem describing his  
vision and philosophy for MindChamps. Mr Chiem has a powerful vision for  
MindChamps and Mr Lilley’s recollection of the event rings true.  
65. Mr Lilley does not recall any reference in conversation on 23 August to an earlier  
meeting having taken place between the parties. He does not recall any of the  
MindChamps personnel asking members of the Zaki family whether their accounts were  
audited by PwC, or members of the Zaki family claiming that their accounts had been so  
audited. And he does not recall either Mr Carlos Zaki or Mr Maged Zaki saying that M &  
W Zaki’s data room was “ready”, “fully ready” or any words to that effect. He does recall  
Mr Carlos Zaki saying that the data room had been opened and some information was  
available within it.  
66. If Mr Lilley had attended a meeting on 15 August with Mr Carlos Zaki and MindChamps’  
representatives as Ms Du says he did Mr Lilley's text message to Mr Carlos Zaki the  
following day is jarring. At 10:34 a.m. on 17 August Mr Lilley emailed Mr Carlos Zaki  
saying:  
"Hi Mate. You still interested in me running your centres past those Asian buyers?  
Cheers Doug”.  
67. Not only does Mr Lilley not refer to the meeting two days before but he is writing on the  
basis that there has been no earlier contact with the “Asian buyers”. A little over an hour  
later the same day Mr Lilley emailed Mr Tan communicating to him some of the  
information which Mr Tan and Ms Du say they were told at the 15 and 16 August  
meetings but Mr Lilley says he obtained the information by telephone from Mr Carlos  
Zaki:  
"By the way, I just got off the phone from Carlos Zaki. The reason for his delay in  
getting back to me was because he had been approached by a Chinese consortium,  
who have apparently made an offer of $60 million."  
68. Once again, Mr Lilley does not refer to the meeting in the days before. The next day, 18  
August, Mr Lilley sends a further email to Mr Tan summarising a recent discussion with  
Mr Carlos Zaki, which refers to some of the subject matters that Ms Du and Mr Tan  
claim were discussed at the alleged 15 and 16 August meetings. Not only is there no  
reference to those meetings in Mr Lilley's email but it speaks upon the premise that Mr  
Lilley has acquired his information on a one-to-one basis from Mr Carlos Zaki rather  
than at a broader meeting, the opening words being “I had a chat to Carlos and the  
situation is as follows”. Even if he was not present at the meetings it might be expected  
that reference would be made to them.  
69. 15/16 August: the Contested Evidence. Analysis of the competing evidence of the parties  
leads to the conclusion that no meeting took place on 15 or 16 August.  
70. Both Mr Maged Zaki and Mr Carlos Zaki deny meeting with MindChamps  
representatives before 23 August. They disagree with the evidence of the MindChamps  
witnesses that a meeting took place on 15 or 16 August at which Mr Maged Zaki made  
representations to representatives of MindChamps.  
71. Mr Maged Zaki recalls only two meetings with MindChamps representatives before  
signing of the Term Sheet together with a site visit to the Artarmon childcare centre. He  
does not have an exact recollection of their dates but is able to place them between other  
events.  
72. Mr Maged Zaki recalls and the Court accepts that the first meeting with MindChamps  
representatives occurred at the Little Zak's offices in Ryde. But he does recall that the  
first meeting occurred after the $300,000 deposit from Chiwayland had been received  
on 18 August and after he had undertaken site visits with representatives of Chiwayland.  
73. Mr Chiem does not claim to have been present at the first meeting between  
representatives of MindChamps and representatives of Little Zak's. But he says that he  
believes that meeting took place on either 15 or 16 August 2016. He says he had a  
conversation with MindChamps Executive Director, and CEO Australia, Ms Du following  
these meetings. He has a strong conviction that he was reported to about these meetings  
by Ms Du and others within MindChamps. But if those meetings did not take place, he  
must be mistaken about this.  
74. He does remember Ms Du reporting to him in what he believes was shortly after 16  
August saying words to the following effect:  
“We need to act quickly on this deal, there are also Chinese buyers interested and  
they have already commenced their due diligence. The data room is already to go.  
They have had their accounts audited by PwC. I think you should come and meet  
the Zakis.”  
75. Mr Chiem’s recollection as recorded through these words shows Ms Du communicating  
to him as early as 16 August the opportunity for MindChamps to acquire the Little Zak's  
childcare centres. It is his belief that this communication followed meetings with  
representatives of Little Zak's. But the content of the conversation he recalls does not  
include a statement from Ms Du that she has just recently met representatives of Little  
Zak's. And the Court is not persuaded that such a meeting took place.  
76. Some of what Mr Chiem says Ms Du reported to him before 23 August is indeed likely to  
have been reported. Mr Chiem did meet the Zakis on 23 August. It is undoubted that Ms  
Du was keen for Mr Chiem to meet the Zakis. And it is not unlikely that Ms Du had  
become aware of the general profile of Little Zak's offering. The Information  
Memorandum contains detailed information about what was being sold.  
77. Mr Lilley was a well-informed point of contact for MindChamps personnel. It can be  
accepted that Ms Du informed Mr Chiem that MindChamps needed “to act quickly on  
this deal”. Mr Chiem did act quickly and attended the meeting on 23 August. Her  
opinion about the need for rapid action was most likely informed by knowledge from Mr  
Lilley of the competing bid from Chiwayland. It is only a small step from that knowledge  
to infer that Ms Du was also aware that a data room had already been set up for  
Chiwayland. The idea of a data room being “ready” is an easy inference that is likely to  
have been drawn by Ms Du herself.  
78. It is also likely, because it reflected the facts: Ms Du had become aware by then that M &  
W Zaki had engaged PwC as its accountants. Whether she was also told, or whether she  
and others from MindChamps assumed, that PwC were also auditing M & W Zaki’s  
accounts is more contentious. It is probable that before 23 August she had only a very  
inchoate idea of PwC’s accounting involvement with Little Zak's, with PwC as auditor  
being just one of the possibilities.  
79. But in summary Mr Chiem’s evidence is not a basis to infer that MindChamps and Little  
Zak’s representatives met on 15 or 16 August 2016.  
80. Ms Du and Mr Tan and Mr Nicholas Caswell were the principal actors said to be present  
on behalf of MindChamps at the alleged meetings on 15 and 16 August. Their evidence  
about these meetings is advanced in support of MindChamps’ misrepresentation case.  
But the Court is not confident it can rely upon their evidence that any meetings took  
place on these days. The focus in this analysis is on the parts of Ms Du’s and Mr Tan’s  
evidence relating to the alleged misleading and deceptive conduct on 15 or 16 August.  
81. Ms Du says that at the meeting on 15 August Mr Carlos Zaki said to her words to the  
effect "our accounting records have been audited by PwC and they are all in order and  
ready to go". She says that at a meeting on 16 August, Mr Carlos Zaki also said to the  
MindChamps representatives words to the effect, "PwC are one of the four major  
accounting firms in Australia. They audited our accounts".  
82. But Ms Du’s evidence about these two alleged meetings is unsatisfactory at several  
levels. She is clearly a thorough and diligent corporate executive. She normally takes  
notes of meetings, but she took no notes of the alleged 15 and 16 August meetings. She  
explains that on the basis that "I did a lot of talking." But the thrust of her evidence is  
that she also did some important listening and took in information that she now relies  
upon about the PwC audit. In an executive of her competence such omission to note such  
essentials stands at odds with her declared practice, "I probably normally take my own  
notes, in addition to Mr Tan”. But even if she did not take notes at the meeting, there is  
no email from her to Mr Chiem or any other executive reporting on this meeting, as  
might be expected if it had taken place.  
83. But a troubling part of Ms Du’s evidence is that she could not coherently sequence how  
the important subject matter of the Little Zak’s PwC audit arose at this meeting. When  
the Court asked her how Mr Carlos Zaki’s statement about PwC audit accounts arose in  
the conversation, she said that someone mentioned PwC and she thought "this could be  
the deal that we are looking for because their accounts are audited." So, she says she  
then "spent a fair bit of time asking him... At least a couple of questions... To confirm  
that his accounts are being audited by PwC."  
84. But this does not explain the context in which a PwC audit was first raised. She that she  
was trying to pin Mr Carlos Zaki down with several questions about a PwC audit. But she  
did not give an account of what those several questions were. When asked again to  
explain the context, the Court received vague answers that did not indicate the witness  
was drawing upon real memory of such a meeting, but rather trying to reconstruct what  
she thought must have happened.  
85. Mr Tan says that it at a meeting on 16 August at the Little Zak’s offices with Ms Du and  
Mr Caswell, he heard Ms Du ask, "Who audited the accounts?” to which Mr Carlos Zaki  
replied "PwC audited the accounts". But the Court is not confident that Mr Tan  
witnessed any such statement to the MindChamps representatives at a meeting on or  
about 16 August for several reasons.  
86. First, Mr Tan is an assiduous notetaker, as is attested by his notes of the meeting he  
undoubtedly attended on 23 August. But he did not take any notes of meetings on 15 or  
16 August 2016. Although it was his habit to take notes of "something that is of  
importance” at meetings, despite apparently hearing an important statement about  
accounts being audited by PwC, he took no note. Moreover, he did not report by email to  
any other executive about this alleged meeting and his notes of the next meeting of 23  
August make no reference to any prior meetings.  
87. Second, his oral evidence diverged from his affidavit evidence on the central question of  
what questions Ms Du asked. In his oral evidence he has Ms Du asking the more  
fundamental question "Are the accounts audited?", not the secondary question "who  
audited the accounts?", as he deposed.  
88. Third, once again, like Ms Du, Mr Tan was not able to give a compelling narrative of how  
the statements about PwC auditing the accounts arose and became embedded in the  
wider conversation on the day.  
89. Mr Caswell’s evidence of his involvement in a 16 August meeting is no more compelling  
than Ms Du or Mr Tan. He was not confident in the date, saying it was "on or around" 16  
August. He neither took notes during the meeting, nor emailed anyone about it  
afterwards. And he could not give any compelling explanation as to how he reached the  
date of 16 August, as distinct from a later date for the meeting, and he could not exclude  
the possibility that the meeting could have been 24 or 25 August. Like Ms Du and Mr  
Tan, Mr Caswell has very little convincingly to anchor meetings with Little Zak's  
personnel to the dates of 15 or 16 August.  
Activity Escalates – Thursday, 18 August  
90. MindChamps and Little Zak’s were in active discussions by 18 August. Mr Lilley emailed  
Mr Tan on 18 August, passing onto him information he had recently received from Mr  
Carlos Zaki. Mr Tan was interested in Little Zak's dealings with Chiwayland. Mr Lilley  
reported that Mr Carlos Zaki had told Chiwayland of the MindChamps interest and  
indicated to Chiwayland that if it wanted exclusivity it would have to make its $300,000  
deposit essentially non-refundable and meet certain conditions linking the outcome of  
the due diligence to the refundability of the deposit. These conditions were structured in  
a somewhat similar fashion to those ultimately found in the Term Sheet and were stated  
as follows:  
“(1) If the figures as provided by Price Waterhouse varied 5% from the IM you have  
been provided then the sale price would not vary and if the buyer withdrew then  
the deposit would not be refunded.  
(2) If the figures provided by Price Waterhouse varied by between 5 and 10 % a pro  
rata discount would be made to the sale price to reflect this and if the buyer pulled  
out the deposit would not be refunded.  
(3) If the figures provided by Price Waterhouse varied by more than 10% from the  
IM then the buyer could pull out and the deposit would be refunded.”  
91. Thus, as early as 18 August Little Zak's were telling MindChamps that figures would be  
“provided by Price Waterhouse” but just what that meant was yet to be understood in  
clear terms. MindChamps began to think it meant audited accounts but Little Zak's  
always had in mind the actual arrangement they had with PwC. At the conclusion of his  
email Mr Lilley reported that Chiwayland had not agreed to the conditions Little Zak's  
had requested and therefore did not have exclusivity. Mr Lilley then set out Mr Carlos  
Zaki’s position about time as follows:  
“This being the case Carlos said if you were okay with that and pay the deposit with  
those conditions, he would tell the other buyers that he had another buyer he was  
dealing with exclusively and thus cut the Chinese buyers out of the deal was  
prepared to let Chiwayland go.  
92. Mr Lilley and Mr Tan had a conversation the same day in which Mr Lilley elaborated to  
Mr Tan that Little Zak's had accepted a verbal $60,000,000 offer from Chiwayland and  
offered 30 days due diligence. But as at 18 August “no request for any due diligence  
rollout” had occurred. In an internal email that day Mr Tan calculated that the  
Chiwayland offer was 6.2 times forecast FY16 earnings of $9.681 million. Clearly  
MindChamps were pondering the right price-earnings multiple to apply to sustainable  
earnings to calculate an appropriate offer to Little Zak's.  
93. On the same day, 18 August, Little Zak’s were preparing internally and in consultation  
with their advisor, Mr Simon Johnson of Pitcher Partners. Mr Johnson advised Little  
Zak's that Chiwayland’s $300,000 deposit had been received that day. He also reported  
that although he had not yet spoken to KPMG and been given a list of what they wanted  
to inspect, he expected from his experience that MindChamps would want a “per centre”  
breakdown of 14 categories of information, including weekly occupancy, fortnightly or  
weekly billing deposits, payroll runs since opening and significantly for the issues in  
these proceedings the following:  
4) Employment contracts including casuals and their files to support police checks,  
working with children, qualifications etc  
5) All General ledgers per centre for at least current and last financial years  
6) P&L statement and Balance Sheet for same period per centre (last FY and this  
FY) if PwC has audited these please include  
94. Mr Johnson’s reference to “if PwC has audited these please include”, does not indicate  
that Little Zak’s thought it was committed to providing PwC audited accounts. The idea  
is clearly expressed as an option only and is ambivalent on the issue of audited accounts.  
95. Mr Johnson made clear to his client, Little Zak’s, his professional attitude to being ready  
to provide the information that he expected would be requested:  
“I would prefer to be proactive and have the data ready rather than waiting for  
them to ask for it. We can turn items on/off in the data room for access according  
to your preferences. We also like to review all information before making it  
available to them.”  
96. But what data needed to be made ready had not yet been discussed in the negotiations  
between the parties.  
The Meeting of 23 August  
97. The parties agreed that a meeting took place on 23 August at Little Zak’s Ryde offices at  
which Mr and Mrs Lilley, Mr Carlos Zaki, Mr Maged Zaki, Mr Chiem, Ms Du and Mr Tan  
were all present. They disagree about what was said. MindChamps’ witnesses say that  
the subject matter of accounts audited by PwC and the data room being “ready” were  
discussed at this meeting in the context of the 30-day due diligence period being “very  
tight”.  
98. The Court accepts Little Zak’s case that there was high level discussion at the 23 August  
meeting about the Chiwayland consortium undertaking due diligence and that if  
MindChamps wanted to make an offer they would need to proceed quickly, partly  
because the Chiwayland consortium was already ahead of them and partly because the  
Zaki family wanted to conclude the sale by the end of November and then go on holiday.  
99. Mr Maged Zaki says that apart from himself, present at this first meeting were his son  
Carlos, Mr Lilley, Debbie Lilley, Mr Chiem and Ms Du. He believes there were other  
attendees present from MindChamps but does not recall who they were.  
100. Much of the structure of his account of what was said at this first meeting can be  
accepted as consistent with the evidence of the MindChamps witnesses. At their first  
meeting MindChamps representatives explained their experience in running childcare  
centres, their desire to establish a childcare centre chain, why they were investing in  
childcare centres in Australia and how they would continue to live in Singapore but  
operated a business in Australia.  
101. The Court accepts Mr Maged Zaki told those present the first meeting he says he had  
that he was selling the eight childcare centres to get a break from the business, the Zakis  
parties desire to close the deal before November that year, that four weeks of due  
diligence would be offered and then a further eight weeks to close the sale, that  
Chiwayland had paid a deposit and commenced due diligence, but the agreement with  
Chiwayland was non-exclusive at that time but MindChamps would need to proceed  
quickly.  
102. These statements were a reasonably accurate although incomplete account of the Zaki  
parties’ dealings with Chiwayland to that point.  
103. Mr Maged Zaki denies that either he or Mr Carlos Zaki ever said that PwC had provided  
M & W Zaki with audited accounts. Mr Maged Zaki explained accurately that M & W  
Zaki had retained PwC to provide high level advice and then as their accountants. He  
probably did say that the data room was ready to get started with due diligence in a  
general sense, as Mr Carlos Zaki says something like this was said. But for the reasons  
examined below such a statement is meaningless in this context and MindChamps did  
not rely upon it.  
104. Mr Chiem says that he complained on 23 August, “You are only giving us four weeks due  
diligence. We need to make sure the accounts are fully ready”, and that he asked for  
more time. But there was no offer from Little Zak’s prior to that date stipulating only  
four weeks for due diligence. The first offer during that period was made by  
MindChamps the following day, in the MindChamps EOI.  
105. Mr Tan says that Mr Carlos and Mr Maged Zaki said at this meeting, “the due diligence  
documents are fully ready. We have all of PwC’s audited accounts in our possession. PwC  
provided the accounts and its ready to go”.  
106. Ms Du says that she recalls Mr Carlos Zaki saying at this meeting about the data room,  
“It’s upstairs and ready. The Chinese have already started their due diligence. But we  
would prefer you over the Chinese”.  
107. By these statements the MindChamps seek to support its case of representations being  
made that PwC audited Little Zak’s accounts and that the data room was “ready”. But  
there are many problems the quality of their recollections of this meeting. But the first  
observation to be made is that the Court must approach cautiously the assessment of the  
evidence of witnesses who claimed they were present or were told about meetings held  
on 15 or 16 August, when it turns out that the meetings did not take place.  
108. Mr Tan took detailed notes of the 23 August meeting. They say nothing about PwC  
audited accounts or about MindChamps’ anxiety about having only 30 days for due  
diligence. MindChamps says both these matters were important to them. But they were  
not important enough for Mr Tan to note them down. Mr Maged Zaki denies he said  
anything to the MindChamps representatives of the kind suggested by Mr Tan. The  
Court accepts Mr Maged Zaki’s account.  
109. Ms Du says that Mr Carlos Zaki said that the data room was not “upstairs and ready”.  
The Court accepts Mr Carlos Zaki’s denial because of the Court’s preference of his  
evidence and because it accepts that there was no “upstairs” space in the Little Zak’s  
offices to which the statement could refer.  
110. Moreover, this meeting took place only seven weeks after the end of FY16 financial year.  
Any Little Zak’s promise that it already had audited accounts from PwC so soon after the  
end of the financial year should either have been greeted with some scepticism or at least  
had been the subject of further questioning about which financial year’s accounts Little  
Zak’s were claiming been audited. Neither of these matters was pursued on the  
MindChamps’ account of this meeting.  
111. The better explanation for any impression that Mr Chiem and Ms Du took away from  
this meeting is that they made assumptions based upon Singapore practice. In Singapore  
private companies have audited accounts. Because PwC were the accountants for Little  
Zak’s they assumed that PwC were also likely to be the auditors. But they did not confirm  
their assumption with any representative of Little Zak’s.  
112. Mr Carlos Zaki did not say at this meeting that the due diligence documents in the data  
room were “fully ready” or that Little Zak’s had audited accounts from PwC. Mr Chiem  
did not complain at any length about the 30-day time frame for due diligence. And Mr  
Carlos Zaki did not tell him that he would need it.  
MindChamps Makes an Offer – Wednesday 24 August  
113. On Wednesday 24 August Ms Du submitted a letter of intent on behalf of MindChamps  
to Little Zak’s for the eight childcare centres. The letter of intent offered to pay  
$300,000 as an exclusivity fee for a three-month exclusivity period towards a purchase  
consideration of $60,000,000 calculated at 6.2 times the FY16 forecast EBIT figure of  
$9.681 in the Information Memorandum.  
114. The same day Chiwayland’s appointed due diligence advisor, KPMG (using a different  
KPMG partner from Mr Willis) indicated it was standing by for access to the data room.  
It should be noted at this point that the “data room” was in wholly electronic form and  
the preparation of an electronic data room for Chiwayland did not inhibit Little Zak’s  
making available and preparing a parallel electronic data room for MindChamps.  
115. Wednesday 24 August also saw Mr Teo communicating with Mr Tan, and another  
employee, Mr Yongky Widjaja and copying in Mr Chiem and Ms Du about MindChamps  
raising the funds for the acquisition. He said:  
‘Hello Yiren [Mr Tan]  
Spoke to D [Mr Chiem] this pm, for such large sum the bank is lending us, they will  
not depend on our usual internal d [due diligence].  
Big 4 accountants and lawyers will be engaged there in Au.  
30 days for these people to do the job for eight centres is a stretch.”  
116. Mr Chiem seems to already have suspected that to raise bank sourced funds for the  
acquisition that another level of due diligence on behalf of financiers would be required.  
The following day, 25 August, the MindChamps CFO, Mr Teo agrees with the tightness  
of the proposed due diligence period of 30 days and says in a reply email to Mr Chiem  
among others:  
“Hello D  
we spoke abut [sic] 30 days due d  
it is definitely a stretch but we will start the whole process now now [sic]”  
117. This is consistent with MindChamps case that they were saying in meetings with Little  
Zak’s that they were worried by the shortness of a 30-day due diligence period. They had  
asked for three months.  
118. Back on 24 August and later in the day Mr Tan had emailed in reply to Mr Teo and Mr  
Widjaja, copying in Ms Du and communicating information that he appears to have  
picked up from discussions with Little Zak’s personnel:  
“Hi WJ and Yongky [Mr Widjaja],  
They engaged PWC for their accounts and audit.  
Disclaimer: we did not see the audited statements by PWC.  
So, if you need, we can confirm by asking them in writing.  
They mentioned about the 30 days for the DD.  
If their statements have been audited by PWC, would that reduce the duration of  
the DD?  
Please let us know if you have any questions to clarify  
Cath [Ms Du] has updated that Carlos will prepare the Agreement with the  
attached documents for our signature and transfer of the $300K. For more details  
you may speak to David/Catherine.”  
119. Mr Tan was clearly under some impression that Little Zak’s had engaged PwC for  
“accounts and audit”. But whether he is mistaken about the “and audit” he is at least  
uncertain enough to suggest that if MindChamps wants confirmation it should be asked  
for in writing. This tends to indicate that whatever was said to him he would prefer to  
have written confirmation before MindChamps relied upon his impression of the  
conversation. This uncertainty is confirmed by his conditional declaration “if their  
statements have been audited by PwC, would that...”  
120. On the same evening Mr Tan emailed Mr Teo, Mr Widjaja and copied in Ms Du under  
the title “information from Carlos – Little Zak’s”, listing arrangements information  
which is described as an “update from the meeting with Carlos, with Cath and I-Ren”.  
The email then lists information from a meeting with Mr Carlos Zaki in which he has set  
out his calculation of forecast calendar year 2017 EBIT as being $10,681,757 and that  
Little Zak’s had given a $1 million-dollar buffer in its Information Memorandum  
calculations. The email discusses issues of occupancy trends, the range of fee increases,  
staff to children ratios, pro-rating of expenses and leases among other variables.  
121. Between 24 and 26 August 2016, Little Zak’s sent MindChamps the data that was  
ultimately attached to the Term Sheet as Exhibit A.  
The Meeting on 26 August  
122. Another meeting was held between representatives of MindChamps and Little Zak’s on  
26 August in the boardroom of Little Zak’s Ryde. Mr Caswell was at this meeting but not  
at the meeting on 23 August. Also present at the 26 August meeting were on the  
MindChamps side, Mr Chiem, Ms Du and Mr Tan and on the Little Zak’s side, Mr Carlos  
Zaki and Mr Maged Zaki.  
123. Mr Chiem says that he asked at this meeting, “Can we please have more time to do due  
diligence?” and that Mr Carlos Zaki said to him in reply, “Don’t worry. If you use KPMG,  
you can start tomorrow”. Mr Chiem also says that Mr Carlos Zaki continued in telephone  
calls after 26 August and before the signing of the Term Sheet, saying words to the effect:  
“The data room is fully ready. Why do you need extra time? The Chinese are  
already doing due diligence. You appoint KPMG and you can start tomorrow.”  
124. The Court prefers Mr Carlos Zaki’s evidence on this subject that he did not say that the  
data room was “fully ready” either at or after the meeting on 26 August, nor give advice  
about the appointment of KPMG. The Court accepts Mr Carlos Zaki’s evidence that  
much of the discussion on this occasion was about the rent for the childcare centres. It is  
quite likely that some advantages in MindChamps engaging KPMG may have been  
mentioned by Little Zak’s at this meeting, but only the most general terms.  
125. Mr Chiem’s recollection of raising the 30-day time frame for due diligence at this  
meeting is bolstered in his own mind by conversations he had with Mr Teo about the  
tight time frame for due diligence in the days afterwards. It can be accepted that there  
were some conversations between Mr Chiem and Mr Teo about how much time was  
available for due diligence and the need to plan for it, but the Court does not accept that  
these resulted in complaints to Little Zak’s about the time available under the proposed  
Term Sheet.  
126. Mr Tan and Ms Du both support MindChamps’ case about the meeting on 26 August. Ms  
Du says that the Zaki’s said to her, “the books are all ready and have been audited by  
PwC” at this meeting. Mr Tan says that Mr Carlos Zaki said, “the data room is ready. All  
the accounts were audited by PwC. There should be no issue with quality”. The Court has  
no more confidence in Ms Du’s account at this meeting then the meeting of 23 August.  
She made no contemporaneous note to the effect of these statements and did not report  
them as having been said.  
127. Mr Tan’s detailed note of this meeting does not refer to audited PwC accounts or the  
data room being ready. His notes do have however refer to PwC being Little Zak’s  
accountants. That subject was discussed at the 26 August meeting, as Mr Maged Zaki  
explained. He says that at this meeting the issue of PwC’s role came up and the Court  
accepts his evidence that the following conversation took place:  
“Mr Chiem: Can you provide us with your accounts as audited by PwC?  
Mr Maged Zaki: No because PwC have not provided us with audited accounts. They  
have only been retained to give us tax advice and to prepare our accounts for FY16”  
128. Mr Maged Zaki says, and the Court accepts that Mr Chiem then turned his request into  
one for putting Little Zak’s accounts “on a PwC letterhead”. Mr Maged Zaki said he could  
not promise this could happen, but he would at least put the request to PwC. His version  
of how PwC came to be mentioned is consistent with Mr Tan’s notes.  
129. Mr Chiem says that he was repeatedly assured from the 26 August meeting that the due  
diligence documents were “fully ready” and that Little Zak’s had PwC audited accounts.  
But the repeating of such statements is an improbable course of events. Neither Mr  
Chiem nor Mr Carlos Zaki struck the Court as the kinds of businessmen who are likely to  
repetitively raise the same issue and make the same statements again and again. In  
context, the evidence of repeated assurances between 26 August and 1 September to this  
effect is implausible.  
Chiwayland Requests Due Diligence Information – Saturday 27 August  
130. By the last week of August Chiwayland had commenced due diligence in its Pitcher  
Partners–organised data room. MindChamps uses Chiwayland’s information requests  
during its due diligence process to show a forewarning to Little Zak’s as to what would be  
required of them when the Term Sheet was signed but also as corroboration of what a  
sensible buyer acting prudently and is own interests might require. MindChamps points  
to the common subject matter between what it and Chiwayland were requesting from  
Little Zak's.  
131. Chiwayland had only been in the data room a few days when on Saturday 27 August it  
made a request for further information through its due diligence advisor KPMG  
Advisory. When this came to Mr Johnson’s attention, he forwarded the communication  
on to Mr Carlos Zaki commenting that CHW were “incredibly serious” and “will up their  
offer significantly if need be”.  
132. The Chiwayland information request included some 13 “workstream” financial items of  
“high” materiality. MindChamps points to four of these items as illustrating the kind of  
information a reasonable purchaser would expect to receive on due diligence for the  
potential acquisition described in the Information Memorandum. Set out below are the  
questions Chiwayland asked about the four items MindChamps relies upon:  
1. P&L Please provide updated file for the period Jan-16 to Jul-16 (or latest  
available date). Additionally, can monthly P&L information be extracted from  
MYOB for the periods 1Jan 14 to 31 Jul 16 for all eight childcare centres in the  
same format as the data room document “1.1 PL all centres’.  
3. Balance Sheet Please provide balance sheets from MYOB for the periods Dec-15  
and Jun-16 for all eight childcare centres.  
4. Balance Sheet Please provide closing bank statements for periods ending 31  
Dec-14/15 and 31 Jul-16 for all eight childcare centres, ensuring that they reconcile  
with the closing balance sheets provided for these respective periods.  
5.Working Capital Please provide monthly working capital and cash flows for the  
periods 1 Jan-14 to 31 Jul-16 for all eight childcare centres.”  
133. This set of requests indicates that Chiwayland does not appear to expect audited  
accounts. The reference to MYOB in the Chiwayland request and the absence of any  
reference to audited accounts would indicate that up to that point of time Chiwayland  
had not been told to expect audited PwC accounts by representatives of Little Zak’s.  
134. But it does indicate that to undertake due diligence to test a purchase price of  
$60,000,000 Chiwayland wanted to review a range of management accounts data and  
bank statements (P&L, balance sheets, reconciled closing bank statements and monthly  
working capital) back to the calendar year 2014.  
Changed Acquisition: from 8 Childcare Centres to 9 – Monday, 29 August  
135. Chiwayland’s due diligence and discussions with Little Zak’s had proceeded intensely  
into the weekend of 27 and 28 August. But Mr Maged Zaki and Mr Carlos Zaki had  
developed a preference to deal with MindChamps.  
136. Very early on Monday 29 August Chiwayland decided to cut through the corona of  
advisers and deal directly with Mr Carlos Zaki. He emailed Mr Carlos Zaki offering to  
“expedite things and save huge lawyers fees”. His aim was to talk about some of the  
commercial items in the draft Term Sheet before his lawyers responded. He suggested  
setting up a call at 1.00 pm Sydney time on 29 August.  
137. Mr Carlos Zaki responded at 9.40 am indicating that Chiwayland were pressuring Little  
Zak’s to finish the deal with them and that Chiwayland have “already been through a lot  
of” their due diligence using KPMG. He revealed that Chiwayland had increased their  
offer from $60 million to $65 million for the current eight centres without discussing the  
possibility of acquiring the ninth centre at Belrose; a matter which context indicates had  
already been discussed between MindChamps and Little Zak’s. Mr Carlos Zaki explained  
Belrose numbers in the final proposal as follows:  
However as discussed with you last week we do prefer to work with you on this  
deal as you will also be our tenants. I have attached all the info for the Belrose  
centre for your viewing, we have worked the EBIT to be for 2017 assuming we are  
calculating on an average of 95% occupancy to be about $1.35 mil. The rental for  
this centre is also very very reasonable at about $3,000 a child and still has about  
21 years remaining on it.  
We are happy to finish the deal with you today and enter into exclusivity with you  
if we could reach the following today. Increase the offer from 60 to $68.5 mil to  
include Belrose with it and also increase the non refundable deposit to $500,000.  
138. Mr Zaki concluded by indicating that the Chiwayland offer was “very hard to say no to”  
as Chiwayland were happy to pay a $1 million deposit that day to secure the purchase.  
Disclaiming a desire “to put any pressure on you” Mr Carlos Zaki indicated his advice  
was to proceed with both parties non-exclusively “until one party is ready to execute  
contracts and pay the 30% deposit”.  
139. It is unclear whether a telephone call took place at 1.00 pm, 29 August between Mr  
Chiem and Mr Carlos Zaki but on receipt of the draft Term Sheet Mr Teo settled down to  
re-drafting it. He adjusted the purchase price from $60 million for eight businesses to  
$68.5 million for the nine businesses and amended the date of the Term Sheet to  
Thursday, 1 September, giving the advisers and wordsmiths two clear days to polish the  
draft into a final Term Sheet.  
140. Mr Teo communicated internally within MindChamps his clear impression of the main  
features of the draft Term Sheet that was proceeding: due diligence of one month, a  
further 14 days (to 14 October) for signing a Long Form Agreement, buyer risks losing  
$500,000 deposit on failure to complete, and sellers must sell that the agreed price if  
due diligence showed less than 5% variance and pro rata variance between 5% and 10%.  
A Telephone call on 30 August  
141. Mr Teo says that on Tuesday, 30 August he attended in a telephone conversation held  
between Mr Carlos Zaki and Mr David Chiem, in which Mr Chiem asked for longer than  
four weeks to conduct due diligence and Mr Carlos Zaki replied, “No we won’t agree to  
that. The data room is very ready, so there is no need for a longer period of time for the  
due diligence process”. A telephone call may have taken place that day but the Court  
does not accept that such statements were made. Moreover, such a blunt refusal is at  
odds with the very advanced negotiating stage that had been reached by then and the  
tone and content of Mr Teo’s own email correspondence that same day.  
142. Events during the period 31 August to 2 September, leading to the execution of the Term  
Sheet, are discussed later in these reasons in the context of the breach of contract case.  
The Term Sheet is dated 1 September but was only complete in executed form on Friday,  
2 September.  
The Term Sheet – 1 September 2016  
143. PwC’s close involvement in the preparation of the Term Sheet is to be inferred from the  
PwC logos and footers throughout the document. The Term Sheet defined the sellers as  
M & W Zaki, the second and third defendants and two related partnerships which in  
these reasons will be referred to as “the Sellers”, as they were defined in the Term Sheet.  
MindChamps was defined in the Term Sheet as the “Buyer”.  
144. The Background to the Term Sheet recites that the Buyers have agreed to purchase nine  
childcare centres of a number operated by the sellers. And the nine childcare centres  
being sold are described as “the Businesses” in the Term Sheet.  
145. The Term Sheet has a curious structure of binding and non-binding provisions. Term  
Sheet, clause 1 provides that only parts of the Term Sheet are to be regarded as legally  
binding. Clause 1 provides as follows:  
1. Term Sheet  
(a) The parties agree that the contents of this Term Sheet reflect their proposed  
course of dealing only and:  
(i) other than any terms as to confidentiality (clause 18), Deposit (clause 10),  
Expert determination in the event of Deposit or Purchase Price dispute (clause 11)  
and exclusivity (clause 12), this Term Sheet is not intended to be legally binding  
upon them; and  
(ii) no further legally binding obligations will be created between the parties unless  
and until formal legal documentation expressed to be legally binding is entered  
into between them.  
(b) The parties will use their reasonable endeavours to enter a long form legally  
binding business sale agreement that more fully and precisely sets out the  
agreement reached in this Term Sheet (Long Form Agreement) on or before 14  
October 2016.”  
146. Term Sheet, clauses 2 and 3 provide for the sale of the business on the completion date  
and the setting of a completion date, no later than 30 November 2016, as follows:  
2. Sale of the Businesses  
Subject to satisfaction of the Conditions Precedent set out in clause 7 of this Term  
Sheet, on the Completion Date, the Sellers agrees to sell the Businesses as a going  
concern to the Buyer, and the Buyer agrees to buy it, for the Purchase Price as set  
out in clause 6.  
3. Completion Date  
Subject to satisfaction of the Conditions Precedent contemplated in clause 7 of this  
Term Sheet completion of the Sale (Completion) is to take place no later than 30  
November 2016, or any other date agreed in writing between the parties  
(Completion Date).”  
147. Term Sheet, clause 4(a) describes the assets and goodwill of each business as follows:  
4. Assets and Goodwill  
(a) The parties agree that the Sale of each Business will be comprised of all those  
assets used in the operation of each Business, including the plant and equipment  
and goodwill of each Business (including the exclusive right of a person to  
represent itself as carrying on that Business in succession to the Seller), being the  
childcare centres at the following locations:  
...  
however does not include the Excluded Assets as set out in Clause 5.”  
148. The Term Sheet, clause 4(a) then identifies the final nine childcare centres being sold as  
centres in the Sydney suburbs of Artarmon, North Strathfield, Ryde, Meadowbank,  
Epping, Ingleburn, Dundas Valley, Jordan Springs and Belrose. Clause 4B grants a  
licence following completion of six months from the sellers to the buyer to use the brand  
name “Little Zak’s Academy” for six months before rebranding the business.  
149. Term Sheet, clause 5 excludes certain assets from the sale and is not material to the  
present issues.  
150. Term Sheet, clause 6 defines the purchase price as follows:  
6. Purchase Price  
The price payable by the Buyer for the Businesses will be $68,500,000 (Purchase  
Price), as adjusted in accordance with this Term Sheet, and will be comprised as  
follows:  
(a) the Deposit as described at clause 10;  
(b) $20,050,000 payable on execution of the Long Form Agreement; and  
(c) $47,950,000 payable on the Completion Date.”  
151. Term Sheet, clause 7 defines the conditions precedent of the term sheet as follows. Parts  
of clause 7(a)(iv) and all (v) were inserted in handwriting before execution of the Term  
Sheet:  
7. Conditions Precedent  
(a) The following will be conditions precedent to completion of the Sale  
(Conditions Precedent) on or before the Completion Date:  
(i) execution of the Long Form Agreement (which execution is subject to  
satisfactory due diligence by the Buyer);  
(ii) the Buyer having made all notifications necessary to the Australian Foreign  
Investments Review Board in relation to the transaction subject of this Term Sheet,  
and having received a letter of no objection in response, with:  
(A) no conditions; or  
(B) with the standard tax conditions; and/or  
(C) other conditions which are not unduly onerous on the Buyer;  
(iii) consent by any financier of the Sellers to the release of assets included in the  
Businesses that may be subject to a charge or other encumbrance;  
(iv) new leases are entered into with the Buyer with respect to each of the premises  
listed in clauses 4(a)(i)-4(a)(viii) and assignment of the lease listed in 4(a)(ix);  
(v) notwithstanding clause 8(b), the parties agree that the completion of the Sale is  
conditional upon the Buyer holding all statutory approvals required to operate the  
Business listed in clause 8(b), and the Completion Date shall be delayed until the  
above has occurred.  
(b) The parties may agree in writing to waive any or all of the Conditions  
Precedent.  
(c) For the avoidance of doubt, if the Long Form Agreement has not been executed  
on or before 14 October 2016, this Term Sheet is terminated and the Deposit will  
be released in accordance with clause 10.”  
152. Term Sheet, clause 8 defines  
153. Term Sheet, clause 9 gives the buyer the option of undertaking due diligence  
investigations and places information provision obligations on the sellers as follows:  
9. Due Diligence  
(a) On and from the date of this Term Sheet, the Buyer may undertake due  
diligence investigations in respect of the Business.  
(b) The Sellers must provide all information reasonably required by the Buyer in  
the course of the Buyer's due diligence investigations and must allow the Buyer, its  
employees and advisers reasonable access to the records of the Business for the  
purpose of the Buyer carrying out its due diligence investigations.”  
154. Term Sheet, clause 10 requires the buyer to pay a deposit of $500,000 to the sellers for  
them to hold it in escrow and to be repayable to MindChamps on certain conditions by  
18 October 2016: clause 10(b)(iii). This clause confirms that the sellers were providing  
their calendar year 2017 internal management accounts and financial assumptions (in  
Annexure A to the Term Sheet) to the buyer which was to calculate its own 2017 EBIT by  
30 September 2016 based upon those financial assumptions. The outcome of the buyer’s  
calculation of 2017 EBIT would determine whether the deposit could be retained by the  
sellers and execution of the long form agreement proceed or be repayable to the buyer.  
The buyer’s calculation would undoubtedly be informed by the due diligence process. An  
important threshold which of these courses was chosen was whether the buyer’s  
calculation of 2017 a bit was more than 10% below $11,030,000. The rather complex  
provisions, set out in sub-clauses 10(a) to (f) were as follows:  
10. Payment of Deposit  
(a) On or before the date of this Term Sheet, the Buyer must pay a $500,000  
deposit (Deposit) to the Sellers.  
(b) The Sellers must hold the Deposit in escrow, and must:  
(i) pay the Deposit into an interest bearing account with all accrued interest being  
paid by the Sellers to the party to which the Deposit is ultimately released; and  
(ii) release the Deposit (plus any interest earned on it) to the Sellers upon the  
earlier of:  
(A) execution of the Long Form Agreement; and  
(B) 14 October 2016;  
At which time and notwithstanding any other clause in this Term Sheet, the  
Deposit is released to the Sellers and not refundable under any circumstances,  
or  
(iii) refund part or all of the Deposit to the Buyer in accordance with clause 10(f)  
no later than 18 October 2016, and release the balance (if any) of the Deposit to the  
Sellers at which time and notwithstanding any other clause in this Term Sheet, that  
part of the Deposit released to the Sellers is not refundable under any  
circumstances.  
(c) The Sellers have provided to the Buyer the information set out in Annexure A,  
which includes the Seller’s internal management forecasts of the Business’  
earnings before interest and tax for the period from 1 January 2017 to 31 December  
2017 (2017 EBIT). This information has been generated for the Sellers’ internal  
purposes only, and is not a guarantee or representation of the future earnings of  
the Businesses (Management Accounts).  
(d) Annexure A also includes the historical information and assumptions used to  
prepare the Management Accounts (Assumptions).  
(e) The Buyer must no later than 30 September 2016 calculate the 2017 EBIT using  
the Assumptions. If the Buyer fails to calculate the 2017 EBIT on or before that  
date, the 2017 EBIT is deemed to have been at least the amount set out in clause  
10(f)(i) below.  
(f) In the event that the Buyer’s calculation of 2017 EBIT, using the Assumptions,  
is:  
(i) $11,030,000 or higher, there is no change to the Purchase Price and the Deposit  
will be released in accordance with clause 10(b)(ii);  
(ii) 0 – 5% lower than $11,030,000, there is no change to the Purchase Price and  
the Deposit will be released in accordance with clause 10(b)(ii);  
(iii) 5% - 10% lower than $11,030,000, the Purchase Price and the Deposit will be  
adjusted pro rata to the variance, (and the Sellers must return to the Buyer that  
part of the Deposit); and  
(iv) more than 10% lower than $11,030,000 and the parties are unable to agree on  
an amended Purchase Price for the purposes of the Long Form Agreement, the  
Seller must release to the Buyer all of the Deposit (plus any interest earned on it)  
no later than 18 October 2016.  
By way of example, if the Buyer’s calculation of 2017 EBIT, using the Assumptions,  
is:  
(v) $10,478,500 or higher, there is no change to the Purchase Price and the  
Deposit will be released in accordance with clause 10(b)(ii);  
(vi) between $9,927,000 and $10,478,499:  
(A) the Deposit will be adjusted by the amount (and the Sellers must return to the  
Buyer that part of the Deposit that equals)  
$500,000 – ($500,000 x $11,030,000 – x)  
where x is the Buyer’s calculation of 2017 EBIT using the Assumptions; and...”  
155. Clause 10 alone would appear to have placed a considerable discretion in the buyer,  
MindChamps to come up with its own calculation. But it is evident from clause 11 that  
there needed to be agreement about the amounts calculated under sub-clauses 10(e) and  
(f). If the parties failed to agree on the calculation the clause 11 expert process was  
engaged, which would result in a decision binding on the parties at least as to price, as is  
clear from clauses 11 (a) and (e):  
“(a) If there is a dispute of any amount calculated under clause 10(e) and/or 10(f),  
then unless the parties otherwise agree, a party may submit that dispute in writing  
to an Expert that has been appointed jointly by the parties (Expert). That Expert  
must have no less than five years of professional audit experience and must have  
no personal interest in the outcome of the decision or determination that he or she  
is requested to make.  
...  
(e) The Expert must act as an independent expert and not an arbitrator. Every  
decision or award. Every decision or award by the Expert is final and binding on  
the parties. The parties must comply with and undertake all steps to give effect to  
any decision or award without delay.”  
156. Term Sheet, clause 12 provides various provisions designed to ensure that upon the  
buyer paying the deposit that the sellers would give the buyer an exclusivity period.  
MindChamps complains that the Sellers breached clause 12(a) triggering repayment of  
the deposit under clause 12 (c). The clause provides as follows:  
“(a) In consideration of the payment of the Deposit by the Buyer, the Sellers agree  
that they and/or their advisers must not seek expressions of interest from any  
other person in relation to the sale of the Businesses or any of the assets of the  
Businesses by the Sellers for the period up to 5.00pm on 14 October 2016  
(Exclusivity Period), and if such discussions have commenced, on execution of  
this Term Sheet the Sellers must immediately notify that other person that those  
discussions are terminated, and cease all further communication with that person.  
In particular the Sellers must:  
(i) (i) promptly make available to the Buyer and its professional advisors all  
information requested as part of the Buyer’s due diligence investigations, or in  
connection with the proposed Sale; and  
(ii) use all reasonable endeavours to ensure that execution of the Long Form  
Agreement takes place no later than 14 October 2016.” [underlining added]  
(a) the Buyer must notify the Sellers no later than 30 September 2016 whether they  
intend to execute the Long Form Agreement.  
(b) If the Sellers breach the terms of clause 12(a), or within the Exclusivity Period  
the Sellers enter into an agreement with any third party for the sale of all or any of  
the assets of the Businesses to that third party (except for the sale of assets in the  
ordinary course of business), the Sellers must return the Deposit to the Buyer.”  
157. The balance of the Term Sheet contains provisions which are not of special significance  
for the interpretation issues which have arisen between the parties. Clauses 13 to 20 deal  
with contract novation, employees of the business, the grant or assignment of leases over  
the childcare centres, a two-year noncompete clause near the childcare centres being  
sold, the management of debtors and creditors, confidentiality, GST and miscellaneous  
provisions.  
158. Last relevant document in the term sheet is annexure A, which is comprises 300 pages of  
documents, including spreadsheets, weekly occupancy charts, wages expenses  
documents and rental rates. MindChamps’ case was that when the data room opened it  
contained nothing more or less than these Annexure A documents which had been  
attached to the Term Sheet.  
159. Annexure A includes a Summary which shows the Sellers calculation of 2017 EBIT to be  
$12,040,341 [CB586]. The Annexure A Summary shows that the EBIT in each childcare  
centre is arrived at in the same relatively simple way in the sellers’ calculation by  
subtracting rent wages and expenses from turnover.  
The Termination Letter – 16 September 2016  
160. One other later event after the making and commencement of performance of the Term  
Sheet is relevant to the misleading and deceptive conduct case. On 16 September 2016  
KPMG wrote on behalf of MindChamps to Little Zak’s. The letter alleged a breach of  
Term Sheet, clause 12. To the extent that it mentioned and relied upon any  
precontractual representations the reference was limited to the following sentence:  
“Our clients’ execution of the Time Sheet was dependent on the Sellers  
representing to our client data rooms all ready for it and its advisors KPMG and  
KPMG Law to start due diligence.”  
161. In the Court’s view the statement in this letter accurately represents the impression at its  
very highest that Little Zak’s conveyed to MindChamps in the precontractual  
negotiations, namely that the data room was ready to start the due diligence, not that it  
was complete with everything that could be needed for due diligence. Indeed, Mr Carlos  
Zaki says that before the execution of the Term Sheet at the most he said to Mr Chiem:  
that Chiwayland was presently conducting due diligence and there was sufficient  
information in the data room to get started.” The account of the representation in this  
termination letter is surprisingly close to his understanding. And nothing was said in  
this termination letter about Little Zak’s accounts being audited by PwC. This was a  
baffling omission if repeated representations on that subject had been made to  
MindChamps.  
162. Finally, it could be expected that if representations had been made to MindChamps,  
which it regarded as significant, concerning Little Zak’s having PwC – audited accounts  
or the data room being fully stocked with information at the outset, it is to be expected  
that that impression would have been passed onto Mr Willis, MindChamps’ advisor at  
KPMG, and firmly grasped by him. But he was not informed of either of those matters.  
Financing the MindChamps Bid  
163. One of Little Zak’s defences is that MindChamps was not ready, willing and able to enter  
into a Long Form Agreement because it had not yet secured finance as at 16 September.  
This defence is not compelling for legal reasons and on the facts. As to the law, if Little  
Zak’s breached Term Sheet, clause 12(a), then clause 12(c) commands that the result of  
the breach is the return of the deposit. No issue of causation arises.  
164. But the defence would have otherwise failed on the facts. The defendants cannot  
establish that MindChamps was not in a financial position to enter into a Long Form  
Agreement by the time that was required under the Term Sheet, on 14 October.  
165. To proceed to a Long Form Agreement MindChamps would have needed to pay $20  
million on 14 October and a further $48 million on 30 November. Before MindChamps  
signed the Term Sheet it had received an indicative finance offer from United Orient  
Capital Pte Ltd (“UAB”) on 31 August for up to SG$30 million, depending on the  
outcome of due diligence in relation to the borrower and the businesses being acquired  
as a term loan facility with a maturity of five years plus a mezzanine facility of up to  
US$20 million. UAB was prepared to increase the term loan to SG$40 million which Mr  
Teo estimated in total was about SG$65 million at that time. Mr Teo said, and the Court  
accepts, that was only "one of the few options that " for finance that MindChamps could  
have obtained. It is significant that the decision-makers at MindChamps were not  
prepared to sign the Term Sheet until the UOB indicative offer had come in. Mr Teo did  
not decline the UOB offer but to use his language "kept them warm". The Court accepts  
Mr Teo's evidence that UOB remained as a backup financier for MindChamps had it  
proceeded with the acquisition.  
166. But the Court accepts Mr Teo's evidence that MindChamps had other options as well.  
SPH Media Ltd, a Singapore listed entity with a market capitalisation of the SG$3 billion  
had expressed interest in investing in a joint venture to take 40% with MindChamps in  
taking in Little Zak’s. Some evidence suggests that on 15 September SPH had not given  
its mandate to invest, the Court accepts Mr Teo's evidence that SPH’s representative in  
this potential investment, Ms Janice Wu were still engaged in seeking information for  
SPH to pursue this opportunity.  
167. Subsequent events confirm the depth of MindChamps’ funding capacity consistent with  
the Court's judgment of their position as at September/October 2016. In 2017  
MindChamps purchased 19 childcare centres in Australia for a total consideration of the  
$78.35 million with a combination of loans from OCBC Bank Singapore, the third largest  
bank in Singapore, together with equity funding.  
Misleading and Deceptive Conduct,  
168. No representation about Little Zak’s having PwC audited accounts were made, so other  
questions in relation to such a representation do not arise.  
169. Very general statements were made about the data room being "ready to start due  
diligence". It is objectively likely to be the kind of general reassurance that was given in  
the circumstances. But such a statement is so general as to be meaningless and incapable  
of verification or falsification.  
170. The primary definition of the word “ready” (Macquarie Dictionary) is “completely  
prepared or in due condition for immediate action or use”. A second meaning is “duly  
equipped, completed, adjusted, or arranged, as for the occasion or purpose”.  
171. Both meanings are applicable to the alleged use of the word in the present circumstance.  
But here, MindChamps’ own evidence is that its witnesses did not say to the Zaki parties’  
witnesses anything like “what do you mean by ‘ready’?” In the absence of asking such a  
question to clarify what the Zaki parties meant by the “ready”, it should be inferred that  
the MindChamps’ listeners were prepared to proceed on the basis either that they did  
not know what degree of preparedness or equipping of the data room was inferred by the  
Zaki parties’ use of this term, or they were not sufficiently interested to pin the Zaki  
parties witnesses down to find out.  
172. The Court infers that the use of the word “ready” was therefore so lacking in content that  
it did not amount to a representation of any factual situation the truth of which could  
ever be objectively verified. The Court also infers that the capable and intelligent  
MindChamps witnesses were aware of that and could not ever have seriously relied upon  
the use of the word by Mr Maged Zaki or Carlos Zaki.  
173. The word “ready” in most contexts is an expression implying a relationship between a  
state of preparedness and a particular task. The use of the word “ready” invites the  
further questions, “what is the task defining the scope of the preparation?” and “what  
level of preparedness for the task is indicated by the word ‘ready’?” What is the task  
here? What level of preparedness is implied? None of that was discussed here with any  
degree of certainty, so that the range of meanings of both concepts was still being  
debated in final submissions.  
Reliance and Causation  
174. MindChamps would have failed on issues of reliance in any event. Without greater  
definition and without more MindChamps enquiry about the content of the word  
“ready”, it is not a statement that the sophisticated business operators at MindChamps  
relied upon. They knew that a binding legal agreement would result from engaging  
lawyers to negotiate something like the Term Sheet.  
175. And if they took the statement “ready” to mean what they now say – a room already  
replete with all the information they wanted about the M & W Zaki childcare businesses  
– it is to be wondered why they did not either stipulate for that as a binding provision of  
the Term Sheet or provide a list for the benefit of the Zaki parties before the Term Sheet  
was signed of what documents MindChamps expected to be available when the data  
room opened.  
176. MindChamps contends Mr Chiem made clear he was concerned about a tight 30-day  
timeline for due diligence and would not have signed the Term Sheet without  
representations about audited accounts and the readiness of the data room.  
MindChamps points to the evidence of Mr Caswell who the Court accepts reported to Mr  
Chiem that if MindChamps were going to do due diligence in a short period of time, "We  
need to make sure all the documents and information are ready in the data room."  
177. But as the chronology below shows MindChamps had a somewhat relaxed and  
uncoordinated approach to seeking information in the due diligence process, conduct  
which hardly bespeaks acting seriously upon Mr Caswell's admonition.  
178. This conclusion sits comfortably with Mr Zaki's evidence. Mr Zaki denied advising Mr  
Chiem that there was "no need for a longer period of time for the due diligence". Rather  
than advise Mr Chiem as to what he would need Mr Carlos Zaki said words to a similar  
effect that if Mr Chiem was "to act quickly" that "it was possible to do it in the four  
weeks". It can also be accepted that Mr Chiem wanted more than 30 days but by the time  
he came to sign the Term Sheet he believed it could be done within that period.  
179. Little Zak’s contended that if time was so critical as Mr Chiem claimed in evidence that  
he would have demanded to see the audited accounts before executing the Term Sheet or  
would have stipulated for a warranty about audited accounts in the Term Sheet.  
180. Mr Chiem dealt with this criticism by resorting to the diplomacy of the situation, saying  
from his perspective: "I have always practised respect and I would think that at that  
stage that would be in terms of building a relationship [and] that would say that ‘we  
don't trust you,' and that wouldn't have been very respectful to do that, especially if no  
terms have been finalised."  
181. But diplomacy is Mr Chiem's forte. He has consummate powers of communication. And  
it is not difficult to imagine how to couch such a request in a way that would not cause  
offence or imply lack of respect. It is simple enough for a party in MindChamps’ position  
to signal how important the audited accounts were and that as they had obviously  
already been done and were readily available could MindChamps have a copy?  
Alternatively, a simple request could have been made for them, as they existed, to be put  
straight into the data room, so they could be inspected upon its opening. None of this  
would have been particularly challenging for a diplomat as practised as Mr Chiem. Mr  
Teo also remembers Mr Chiem taking this position. But the best explanation for Mr  
Teo's evidence is that Mr Chiem convinced himself afterwards of this difficulty and Mr  
Teo absorbed it.  
182. Apart from reliance issues there were causation problems with the MindChamps  
misleading and deceptive conduct claim. MindChamps has been prepared to proceed  
with other purchases of childcare centres for very substantial sums after due diligence in  
which the target company did not have audited accounts.  
183. But o this ne causation contest goes away. The Court accepts the evidence of Mr Carlos  
Zaki that he told MindChamps between 29 and 31 August before the Term Sheet was  
signed that if they needed more time for due diligence that he was open to discuss giving  
more time. This is a probable occurrence: Mr Willis explained such requests are  
commonplace. Mr Chiem decided not to make such a request, but to terminate the  
contract because of a loss of trust in the Zaki's. But Mr Chiem was entitled to abide by  
his contract and not try and renegotiate it. Moreover, since 31 August Little Zak’s had  
been less encouraging of the idea of granting more time.  
184. Finally, the claim for wasted airfare's can be independently dismissed. The claim is for  
various airfares and electronic tickets from Singapore to Sydney or Singapore to  
Adelaide and related fares. But none of the subject representations were made in  
Singapore before the MindChamps witnesses executives left. They were all said to be  
made in Australia. MindChamps’ executives were here to kick the tires of the Little Zak’s  
enterprise, whether they executed the Term Sheet or not. It is difficult to understand any  
connection between this claim and either the misleading and deceptive conduct or the  
contract claims. Indeed, when it was put to him Mr Teo conceded that the MindChamps  
executives were coming to Australia for reasons unconnected with the potential  
acquisition of the Little Zak’s childcare centres. Mr Teo was ultimately "not too certain"  
of the connection and this part of the case was left that way.  
185. For these reasons MindChamps’ Australian Consumer Law and negligent  
misrepresentation cases fail.  
Contract Breach: The Due Diligence provisions of Clause 12(a)  
186. This section of these reasons considers MindChamps’ case of a breach of the due  
diligence obligations in Term Sheet clause 12(a)(i). It commences with a discussion of  
the construction of clause 12(a)(i). Then it sets out a narrative of relevant findings  
covering the period from execution of the Term Sheet until termination on 16  
September. Finally, it considers the question of breach, applying the narrative of  
findings.  
Construction of Clause 12(a)(i) and (ii)  
187. Several provisions of the Term Sheet contemplate and regulate the conduct of the due  
diligence process: clauses 7(a)(i), 9 and 12(a)(i). Clause 7(a) and clause 9 are not legally  
binding. But clause 12(a)(i) is agreed under the Term Sheet to be legally binding: Term  
Sheet, clause 1(a).  
188. The parties are divided on how the Court should construe clause 12(a)(i). MindChamps  
submits that the focus is on clause 12(a)(i) itself, whereas Little Zak’s contends that the  
provision should be read harmoniously with the remainder of the Term Sheet and in  
particular clauses 7(c), 9(b) and 10.  
189. The Court approaches the construction of clause 12(a)(i) having regard to all the  
provisions of the Term Sheet, both legally binding and otherwise. The parties created a  
single commercial agreement, embedding binding and non-binding terms within it.  
Whilst the non-binding terms do not perform the function of recitals, they can be  
considered as matters known to both parties and, because it can readily be inferred that  
the intent of the parties was for the binding and non-binding provisions in the one  
document to work in harmony.  
190. The parties are in issue about the nature of the Sellers’ obligations to make information  
available to the buyer in the due diligence process. MindChamps submits that the  
Sellers’ obligation to "promptly make available to the buyer... All information requested"  
is a strict obligation to respond with complete information, answering all requests made.  
Little Zak’s submits that the obligation of the Sellers to make information to the Buyer is  
modified by the provision of clause 9 by the rule of reasonableness, that the Sellers are  
ultimately only required to provide "all information reasonably required" by the Buyer.  
191. Little Zak’s construction avoids absurdity and promotes the harmonious construction of  
the whole of the Term Sheet. If the MindChamps’ construction is correct and clause 9 is  
ignored, a strict reading of clause 12 would require the Sellers to make available "all  
information requested." Without the inclusion of the standard of reasonableness set by  
clause 9 unreasonably large or unreasonably short response time requests for  
information could be made, which if not met would lead to the immediate right to the  
return of the deposit to the Buyer. Such a construction would give MindChamps a  
practical discretion as to the return of its deposit, an unattractive construction of a  
commercial agreement.  
192. The better construction of clause 12(a)(i) is to treat the past fact of “all information  
requested” [emphasis added] as descriptive of a request made in accordance with Term  
Sheet, clause 9(b). Information “requested” under clause 12(a)(i) will always be  
information, “reasonably acquired by the Buyer” in accordance with clause 9(b). Another  
reason to construe clause 12(a)(i) in the setting of clause 9 is that clause 12(a)(i) is on its  
own an inadequate description of the true nature of the due diligent process. For  
example, clause 12(a)(i) gives no right of access to the business records of the Sellers. It  
merely requires the Sellers to make “all information requested available”. An ordinary  
feature of due diligence is to have reasonable access to records of a business to  
determine what information requests should be made. That access is only provided for  
expressly in clause 9(b). Clause 12(a)(i) and clause 9(b) also work in harmony to redress  
this balance such that the “due diligence investigations” in clause 12(a)(i) are given  
content by the permission in clause 9(b) for the Buyer to have “reasonable access to the  
records of the business” as one element of due diligence.  
193. In short, clause 12(a)(i) and clause 9(b) work in harmony, with clause 9(b) to give  
expanded content to the concepts of clause 12(a)(i).  
194. Two other concepts need closer focus. There is a judgment of reasonableness as to time  
in clause 12(a)(i), in the Sellers’ obligation to “promptly make available” [emphasis  
added] the requested information. This implies a speedy response to requests and is  
contractually expected. In context, the speed of the response will be modified by the  
content of the request and the contractual timetable. MindChamps needed to calculate  
its 2017 EBIT using the “assumptions” after testing them through the due diligence  
process and to do so by 30 September 2016: clause 10(e). Failure to do that may have the  
effect of requiring MindChamps to agree to a higher than commercial purchase price by  
default under clause 10(f)(i). Then MindChamps needed to make the further decision  
whether to enter into the Long Form Agreement by 14 October 2016, or the deposit  
would be released: clause 7(c).  
195. Despite Little Zak’s submission that MindChamps had until 14 October, MindChamps’  
due diligence had to be sufficiently complete by 30 September for it to be able to take  
advantage of the commercial mechanisms in clause 10(f) of the Term Sheet. Any due  
diligence process that came in after that date would commercially disadvantage  
MindChamps. MindChamps’ submission should be accepted that the effective working  
period for due diligence was 30 days.  
196. The Term Sheet strongly implies that the due diligence process will be executed in parts:  
the first part is accessing, requesting, and gathering information followed by the analysis  
of the information by professional advisers. Clause 9(b) refers to “employees and  
advisers” and clause 12(a)(i) refers to the Buyer’s “professional advisers”. The Term  
Sheet also implies therefore that sufficient time must be made available in the due  
diligence process for the professional advisers to analyse the information and then to  
make recommendations to MindChamps as the decision-maker by 30 September.  
197. The Court’s construction of clause 12(a)(i) means that the Court will be involved in  
applying rules of reasonableness as described here. But the application of those rules will  
involve judgments about the timely provision of information to meet the requirements of  
advisers and decision makers on the side of the Buyer.  
198. The terms of clause 9(b) raise another important construction issue. Little Zak’s submit  
that to the extent clause 9(b) defines the nature of the clause 12(a)(i) obligation; together  
they only impose an obligation to give access to the accounts and records of the Business  
as they existed at the time of the request but there is no obligation under clause 9(b) and  
clause 12(a)(i) to create records and documents. Little Zak’s submissions liken the  
obligations in clause 9(b) to administering interrogatories (“must provide all  
information reasonably required”) and giving discovery (“reasonable access to the  
records of the Business”). But Little Zak’s submits that does not mean creating records.  
This issue arises in relation to MindChamps’ request for management accounts for  
individual childcare centres, which Little Zak’s said they did not keep because they were  
not required for the childcare centres the way that Little Zak’s ran them.  
199. But on this issue Little Zak’s argument is not persuasive. The concepts of providing “all  
information reasonably required” and giving “reasonable access to the records of the  
Business” readily embrace without any tension the idea of using underlying data of the  
Little Zak’s business as a resource to obtain reports of various kinds, be they balance  
sheets, profit and loss accounts, cash flow statements or any other report that can be  
extracted by computer programs from the underlying data. The underlying data are the  
“records of the Business” and obtaining “reasonable access” to those records readily  
embraces the idea of seeking electronic reports of different kinds from that data. Little  
Zak’s argument may have had some validity in a pre-digital age but in the era of data  
retrieval by computer programs the MindChamps construction should be preferred.  
Due Diligence – 2 to 16 September  
200. The due diligence narrative of findings extends for exactly 2 weeks from 2 September  
upon MindChamps receipt of the Term Sheet, to 16 September 2016 when MindChamps  
terminated it. Whether Little Zak’s breached Term Sheet, clause 12(a)(i) depends upon  
the parties’ conduct in this 14-day period comprising just two weekends and 10 working  
days. This part of these reasons analyses the relevant events of those days.  
201. MindChamps received the executed Term Sheet from Mr Carlos Zaki on Friday, 2  
September. Shortly after 9pm that day Mr Huy Pham, the assistant manager, corporate  
development at MindChamps emailed Mr Johnson seeking to set up a teleconference on  
Monday, 5 September at 10am Singapore time (12 noon Sydney time) to discuss the due  
diligence program in detail, stressing that the meeting should take place “the sooner the  
better due to the urgency of this project”. Shortly afterwards Mr Johnson confirmed the  
suitability of that time.  
202. Over the weekend of 3 - 4 September Mr Johnson of Pitcher Partners began to establish  
a data room and to populate it with the documents in Term Sheet, Annexure A. The  
parties had the scheduled introductory meeting at 12 noon on 5 September. At the  
conclusion of the meeting at about 2pm Mr Johnson emailed the other parties as  
follows:  
So the questions they will want answered quickly are:  
Income tax return. For entities and as best as possible itemised for businesses represented  
within them.  
BAS. For same as above.  
Depreciated value of fixtures so they can understand what is the current value of fixtures  
and assets and also the depreciation expense to be modelled in the EBITDA.  
Payroll detail for each centre and staffing levels.  
Legal Structure for each centre so they can understand the liability of taking over staff and  
also contribution of each centre to the whole group ITR and BAS.  
I am almost ready to grant them access to the dataroom.  
I have explained that PWC only appointed early this year and the centres’ financial created  
by yourselves and an internal accountant for verification, no audit.  
Huy is going to be sent to Australia for 3 months to manage this transaction, I am meeting  
them this week in person, and we will need to co-ordinate visits.”  
203. Two features of this record of the first meeting stand out. Mr Johnson is almost ready to  
give access to the data room. And he makes clear to MindChamps that PwC were only  
appointed early this year to verify the work of Little Zak’s internal accountants and there  
is "no audit". If the claimed representations had been made and relied upon by  
MindChamps as late as 30 August, here MindChamps was being told that the  
representations were false. The fact there is no immediate adverse MindChamps  
reaction to this information seriously undermines the case that the PwC audit  
representations were ever made.  
204. Early evening on 5 September Mr Pham provides MindChamps his first request for  
information ("RFI") list for response. The RFI which was comprised of some 57  
individual requests was attached. The contest between the parties is only concerned with  
a very limited number of these requests. The first request provided as follows:  
Please provide the audited financial statements of the 9 target preschools (the " Target  
Preschools" ) for the following financial periods:  
- 1 July 2014 to 30 June 2015 (" FY2015" )  
- 1 July 2015 to 30 June 2016 (" FY2016" )  
- 1 July 2016 to the latest available period (" YTD2017" )  
If the audited reports are not available, please provide the detailed management  
accounts (income statement and balance sheet) for FY2015, FY2016 and  
YTD2017. Please provide the information by months and in excel format.”  
205. Little Zak’s submissions criticise this RFI as having been drafted by someone unfamiliar  
with the Term Sheet which identifies five of the centres, Artarmon, North Strathfield,  
Ingleburn, Jordan Springs and Belrose being owned by the Zaki Group Trust, of which  
M & W Zaki was the trustee, three of the centres (Ryde, Meadowbank and Epping) were  
jointly owned by the KZ Trust and one of the centres, (Dundas Valley) was jointly owned  
by Mr Maged Zaki and the KZ Trust. The request somewhat assumes that a homogenous  
set of accounts exists covering all the centres. But significantly it is accepting of the  
possibility that the audited accounts may not be available.  
206. On Tuesday, 6 September 2016 MindChamps is given access to the data room. At that  
time, the data contained the following information on a centre-by-centre basis:  
(1) Excel spreadsheets of each centre’s expenses from 1 January to 30 July 2016;  
(2) Excel spreadsheets for each centre’s fee income on a weekly basis from 11  
January 2015 to 21 August 2016;  
(3) PDF schedules setting out the centres’ occupancy, downloaded from software  
used by the centres, QuikKids; and  
(4) Three copies of the operating licences for each of the centres.  
207. In addition, the data room at that stage contained summary documents prepared by  
Little Zak’s setting out the amounts paid for wages, superannuation, the rent paid for  
each centre, and the average occupancy and fees across the centres. But this information  
was only in “summary” form. It was not primary accounting information from which the  
testing and verification of Annexure A’s figures could be undertaken.  
208. Little Zak’s partly responded to MindChamps’ 5 September RFI the following day. On 6  
September Mr Johnson reported to Mr Pham by email that “the majority of the items on  
your list are being attended to”, and initial commentary concerning the other items  
would be uploaded the following day. Mr Johnson explained further information co-  
ordinated by the vendor would be uploaded within 24-48 hours, based on the  
commentary. Later on 6 September Mr Johnson uploaded answers to the first 42 of the  
57 requests. Many of those answers fully dealt with the questions asked which could be  
regarded as closed. But the important and contentious item 1 in the 5 September RFI  
received the following commentary in the response:  
“The company does not undertake an audit process, accounts are verified by third  
party accountant. Management accounts per centre will be provided in the  
dataroom, these will be on a Profit & Loss basis. The balance sheet for each centre  
does not currently exist per se due to the group entity structures and other  
business interests. The centres were only separated within the management  
accounts from July 2015 (FY16). The vendor is preparing month by month  
breakdowns and will be uploaded to the dataroom by 8th September. YTD  
management accounts for FY2017 will be uploaded a day after this.”  
209. Mr Carlos Zaki was working diligently to deal with these requests. But differing  
understandings of what should have been in the data room were beginning to emerge.  
After gaining data room access on 6 September Mr Teo wrote to Mr Chiem that the  
information in the data room was “the same as the Term Sheet, Appendix A” without  
extra information such as balance sheets and communications with the ATO.  
210. Mr Carlos Zaki considered item 1 of the 5 September RFI to be a reasonable request but  
was of the view that the limitations pressed in the 6 September response existed for  
Little Zak’s. He says, and the Court accepts, that Little Zak’s accounting history up to  
that time meant that they would have to separate out from the annualised accounts for  
FY16 and YTD FY17 into monthly accounts by centre, a task which would still have to be  
undertaken. He was initially unsure whether MindChamps would continue to insist on  
monthly management accounts for FY15 being extracted on the same basis. So, he took  
the view that Little Zak’s would initially work on the main task of extracting monthly  
centre management accounts for FY16 as the most relevant and complete financial year.  
Mr Zaki instructed Mr Michael, Little Zak’s accountant, to commence work on the  
requests.  
211. After reviewing the contents of the data room on 7 September Mr Teo emailed Mr Chiem  
pointing out that in a typical acquisition of this kind certain basic information should be  
made available to the buyer from the very start to conduct due diligence, including  
detailed audited financial statements and management accounts (including profit and  
loss statements, balance sheets and cash flow statements), customer information,  
manpower information (including employment contracts and employee lists) and tax  
assessment notices. Mr Teo expressed concern that this information was lacking in the  
data room.  
212. Mr Chiem forwarded Mr Teo’s email onto Mr Carlos Zaki commenting that he felt that  
Mr Teo had a “valued point” and then said the following:  
On a few occasions, you did represent to me that your data room (with KPMG) was  
ready, since due diligence has already started with a Chinese buyer.  
You also expressed that if we appointed an auditor, they could start “tomorrow”,  
which we have found through your representative Simon of Pitcher and Partners is  
not possible as the data room is not fully ready.  
Can you please let us know when both the e-data room and physical data room will  
be fully ready. I hope that with our trusting relationship you agree to commence  
the 30 days from then.  
213. These general concerns were seen to be echoed by Mr Willis from KPMG Advisory.  
214. On 7 September 2016 Mr Willis, set out in correspondence the terms and conditions  
under which KPMG Advisory would provide due diligence assistance in connection with  
the acquisition of the nine Little Zak’s childcare centres. On the issue of timing the  
KPMG Advisory letter noted MindChamps’ instructions that a final report was required  
by 23 September 2016. This timetable was designed to give MindChamps enough time to  
digest KPMG's report and work with KPMG on the calculation of FY 17 EBIT for the  
purposes of Term Sheet, clause 10(e), for submission to Little Zak’s and in the event of  
disagreement to commence the expert determination process under Term Sheet, clause  
11. But KPMG cautioned:  
"We are committed to meeting this timetable, however our ability to do so will be  
subject to the availability of the information we necessarily require and access to  
relevant Little Zak’s management accounts”  
215. It is to be wondered why MindChamps was still negotiating a retainer of KPMG on the  
third working day of due diligence rather than on Friday, 2 September. KPMG brought a  
more insightful perspective to the due diligence process than the initial RFIs. The same  
day, 7 September, Mr Pham coordinated the grant of KPMG access to the data room with  
Mr Johnson.  
216. KPMG Advisory were finally retained on Thursday, 8 September 2016 when Mr Chiem  
signed the letter of retainer. MindChamps also retained KPMG Legal on Friday, 9  
September 2016.  
217. These retainers were late. Both parties had been ambivalent about retaining lawyers. But  
the Term Sheet itself contemplated that professional accountancy and financial services  
advisers would be retained. In simple terms, KPMG Advisory were being given a  
timetable to complete a task within three weeks of contract execution on 2 September.  
Of the three working weeks between execution of the Term Sheet and the target date for  
the KPMG final report of 23 September, one full week was occupied with finalising  
KPMG Advisory's retainer.  
218. Other activity was taking place on 8 and 9 September. The Zaki’s were adding more  
information to the data room, for example, the Belrose lease was also added on that day,  
Belrose being the only centre not owned by the Zaki interests and which had a lease from  
a third party. On 9 September Little Zak’s added the master staff list together with  
employment contracts for centre managers, although no other employees. The master  
staff list provided details of all staff employed at each centre, together with their  
qualifications. But as will be seen some aspects of staff structure were still being  
requested.  
219. At approximately 6 pm on 8 September 2016 KPMG were granted access to the data  
room to participate in conducting the due diligence process. Mr Willis logged in to  
ascertain the financial information in the data room. He quickly formed a judgment, in  
his words that “missing from the data room was much information which was necessary  
to the due diligence process”. He reached the view that what was missing was the  
following  
(1) individual management accounts for each centre, which includes monthly  
occupancy rates and average daily fees,  
(2) reconciliation of the centre information to group accounts/audited financial  
statements,  
(3) details of staffing, including data concerning the salaries of each staff member,  
(4) cash flow statements,  
(5) balance sheets including details of working capital accounts,  
(6) tax information.  
220. The opinion of Mr Willis about the adequacy of the contents of the data room has special  
value because of the references in Term Sheet, clause 9(b) and 12(a)(i) to “professional  
advisers”. The Term Sheet clearly assumes that the information in the data room will  
need to satisfy the analytical requirements of professional advisers such as Mr Willis.  
Little Zak’s did not adduce evidence from Mr Johnson, so in the end there was only one  
professional advisory opinion as to what was needed in the data room for the due  
diligence process. The Court wholly accepts Mr Wallis’s opinion on this issue, and it can  
be summarised by reference to the above components.  
(1) Centre Management Accounts. These are the key part of conducting a financial  
due diligence assignment and were particular important in this transaction  
because of the change in carer to child ratios which had come into effect on 1  
January 2016. These changes increased the costs for childcare providers and  
childcare centres would either need to absorb the additional costs or pass them on  
to parents, potentially reducing occupancy rates. The cost of operating a childcare  
centre reduces as the average age of the children in the centre increases, because  
the educator to child ratio for younger children is higher. Monthly occupancy rates  
of each centre allow analysis of the mix of ages of children in each centre and  
verification of costs in running the centre.  
(2) Reconciliation of Centre Information to Group Accounts. Reconciliation from  
centre accounts to management accounts or audited accounts is an important  
check on the accuracy of the profit and loss statements prepared for each centre.  
With unaudited accounts such as those of Little Zak’s this crosschecking is done by  
obtaining bank reconciliations, enrolment reconciliations to revenue and checking  
that the profit and loss statements reconcile with the movement in retained  
earnings on the balance sheet.  
(3) Staffing and Salary Information. Mr Willis estimates that generally staff costs  
form between 50 to 60% of the cost of a childcare centre. Staff details are therefore  
important in understanding and checking how each centre manages its business, in  
particular the use of trainees. Obtaining a payroll summary by person per year for  
each centre and crosschecking that information back to the applicable employment  
award is a key due diligence check on the major cost component in childcare  
centres.  
(4) Cash Flow Statements. The provision of cash flow statements is particularly  
important in the context of unaudited accounts. Cash flow statements usually  
permit KPMG Advisory staff to ascertain the true nature of the cash flow of each  
childcare centre and to ensure that the movement in the cash represented in the  
balance sheet reconciles with the cash flow statement.  
(5) Balance Sheets & Working Capital Accounts. The provision of balance sheets is  
important for due diligence as most acquisitions are undertaken on a debt free or  
cash free basis with an average level of working capital. The provision of a balance  
sheet allows KPMG Advisory staff to calculate each centre’s average level of  
working capital and what items should be classified as debt or debt like items, or as  
cash. Because the Term Sheet defined what assets were Excluded Assets and  
identified them it was necessary for KPMG to ascertain the assets and liabilities  
which did not form part of the Excluded Assets. It was also important to obtain the  
balance sheet information to ensure that the appropriate assets and liabilities were  
being retained by each business on sale and whether certain liabilities were debt  
like in nature at completion and therefore to the cost of the vendor.  
(6) Tax Information. Mr Willis requested certain tax information to be available in  
the data room so that the KPMG tax team could undertake an appropriate level of  
taxation due diligence. As the transaction was to be completed by way of an asset  
acquisition detailed due diligence on individual companies and trusts was not  
required as their tax history was irrelevant. But the potential taxes applicable to  
individual assets, such as stamp duty and GST were still relevant.  
221. Going into the meeting on 9 September, to the extent that he could predict what KPMG  
would want in relation to staff matters at least, Mr Johnson advised the Zakis that “it is  
certain that we will need to give them this information”.  
222. A meeting was arranged for Friday afternoon 9 September between sellers and buyer  
and including for the first time both KPMG Advisory’s Mr Willis, some MindChamps  
personnel and Mr Johnson of Pitcher Partners. Before this meeting took place Mr  
Johnson explained to the Zakis that he expected that KPMG on behalf of MindChamps  
would be conducting a “mini audit” of the more critical information to verify the  
accuracy and integrity of Little Zak’s financial statements, including PAYG information,  
ATO balances, correct superannuation entitlement payments, leave accrued for all  
workers, proof of income revenue through bank statements, and proof of health food and  
safety records.  
223. Mr Johnson did prioritise these requests. Excel versions of the occupancy data for the 9  
centres (from 5 January 2015 to 5 September 2016) were added to the data room on  
Sunday 11 September 2016.  
224. The consensus priority item was management accounts per centre. The unfolding course  
of events for that item deserves individual analysis. The first request for management  
accounts per centre was made after 7pm on 5 September. On 6 September MindChamps  
was told that management accounts per centre were being prepared and would be  
provided in the data room on a profit and loss basis. From 7 to 14 September the Zakis’  
accountant Mr Carlos Zaki committed the significant resource of Mr Sherif Michael full  
time on preparing monthly management accounts for the 9 centres for FY 16. The  
management accounts on a profit and loss basis and general ledgers for all centres other  
than Belrose were uploaded to the data room on 13 September 2016, with Belrose being  
added on 14 September.  
225. Mr Willis was cross-examined about his opinion as to the speed with which Little Zak’s  
responded to some of these requests and acknowledged that they were “reasonably  
prompt”.  
226. Progress was made over the weekend of 10 and 11 September. On 10 September Mr  
Willis wrote to Mr Johnson saying that KPMG considered “that the information  
provided for the start of the due diligence period from 1 September “is inadequate and is  
not all the information that would be reasonably required for MindChamps and its  
advisers to properly review the business of the centres”. He then offered examples of  
three other acquisitions where better information from childcare centres had been  
provided, identified the six areas of required information set out earlier in these reasons  
and then expressed concern that information should not be provided “on a piecemeal  
basis in the coming week”, as there would be an inadequate time for KPMG to undertake  
due diligence and to perform the FY17 EBIT calculation by 30 September.  
227. Mr Johnson replied with frank directness a short while later:  
Hello David,  
Whilst I’ve raised the difference between these three transactions you mentioned  
which were of a much more sophisticated corporatised nature, and entity’s I  
believe, I have communicated to the vendors the need for more information to  
enable MindChamps to satisfy themselves of the past, current and future  
performance of the business.  
The focus being management accounts per centre as priority.  
I’ll have a better understanding from the vendors on timing and quantum of the  
information requested Monday and will communicate with all promptly.  
Enjoy your weekend.  
228. A consensus about priorities also quickly emerged between the professional advisers.  
Later the same afternoon Mr Willis replied:  
“Yes, monthly management accounts for each centre are the priority including  
monthly occupancy and ADF.  
This will allow us to advise MindChamps as to the current performance of the  
business and the run rate.”  
229. This should be interpreted as Mr Willis accepting that Mr Johnson needed to organise  
significant quantities of material and that the most useful analytical material should be  
provided first.  
230. On Monday 12 September 2016 Mr Pham sent Pitcher Partners an “updated” RFI, with  
additional questions posed by KPMG, questions 58 to 70, to the list of questions in the  
earlier MindChamps RFI. Little Zak’s complains with justification in final submissions  
that this second RFI was crafted with insufficient care and contained questions which  
overlapped with questions that had been asked previously, request 65 for example  
overlapping with request 1. Rather than a closely crafted request seeking to minimise  
unnecessary work on the part of the recipient, this second RFI asked for some  
information which had already been placed in the data room as early as 6 September,  
namely (without limitation) centre opening dates, occupancy rates, licensed places, data  
and fees (request 66). And to compound the burden on Little Zak’s this second RFI did  
not seek to prioritise one request over any other.  
231. The Zakis actions in response to this second RFI did produce some quick results. For  
example, on 12 September it was able to add details of price increases implemented in  
the nine childcare centres on 1 July 2015 and 1 January 2016 (request 69).  
232. Responding to Little Zak’s complaints of lack of prioritisation of requests on the evening  
of Monday 12 September 2016, MindChamps re-sent the second RFI to Pitcher Partners,  
clearly setting out the 17 items which MindChamps sought as a matter of priority.  
MindChamps asked that for these 17 requests, the Zakis commit to a date of availability  
for information in response to each question. The 17 requests prioritised: the original  
RFI (item 1) management accounts, breakdown of salary expenses and superannuation  
and bonuses and a headcount by function for FY 15, FY 16 and YTD 17 (item 7); relevant  
lease agreements including of office equipment (item 10); plans and layouts of the  
properties of the preschool centres (item 43); staff contracts, or samples of standard  
contracts (item 58); written employment policies (item 59); details of investigations or  
enforcement action by any regulatory authority (item 63); grievance appeals or warnings  
to any employees (item 64); one off income or expenses incurred in FY14, FY15, FY16  
and YTD FY17 (item 67); a balance sheet showing prepayments by parents for each  
centre, government deposits, government grants received and parents deposits (item  
58); and price increases implemented on 1 July 2015 at 1 January 2016 on a centre by  
centre basis (item 69).  
233. But MindChamps was becoming impatient. Mr Pham wrote to Mr Johnson in the early  
evening of 12 September stating that “the current status of the sellers’ data room is not  
conducive for KPMG to conduct its due diligence in any meaningful way” and this was  
resulting in MindChamps delaying its financial controller, Mr Widjaja flying to Sydney.  
Mr Johnson responded that the Zakis had been with their accountant all afternoon and  
“are proactively working on the requests”. And that action was beginning to bear fruit  
has the next day the management accounts (on a profit and loss basis) were uploaded for  
all centres other than Belrose, together with depreciation schedules for FY15, GST, PAYG  
accounts for 2016 and general ledgers for each centre.  
234. Little Zak’s responded to the updated RFI on 13 September. But the response box for the  
management accounts item 1 request gives no realistic timing commitment to  
MindChamps for the delivery of FY16 management accounts, beyond profit and loss and  
FY15 management accounts. The date 8 September was mentioned in the commentary  
on item 1 but that had already passed, so the commentary was already out of date and  
unreliable.  
235. Progress was still slow and the essential problem at the Little Zak’s end was revealed by  
an exchange between Mr Willis and Mr Johnson late on the afternoon of 14 September.  
Mr Willis tried to put in a phone call to Mr Johnson and then instead emailed the  
following:  
“Just tried to call to discuss the status of the RFIs.  
We have been through the data room and note the receipt of the management  
accounts for each centre for FY16. Per our RFI we also require FY 15 and YTD  
FY17.  
Would you please provide an update on the other RFI items.”  
236. Mr Johnson replied shortly afterwards, offering to telephone in the morning and said:  
“The reconstruction of management accounts from before the time period of them  
being separated in MYOB was proving a large task, I won’t have an update till the  
morning on timeframes.”  
237. The same day Mr Willis reported to Mr Teo that he had been through the material that  
had been added into the data room and was disappointed that they had “really only  
provided the management accounts on a monthly basis for FY 16”. He voiced his opinion  
to his client that because of the change in educator to child ratios from 1 January 2016  
and the ramp up in the number of centres, that management accounts for FY 15 and YTD  
FY 17 were required. He noted that management accounts so far were only profit and  
loss and that “the vendor has not provided any balance sheet or cash flow information to  
date”. An accompanying high-level audit by KPMG of the data room as at that date  
reflected what was in this email of advice but that staff headcount data for FY15 was  
missing.  
238. MindChamps’ patience ran out. In a conversation that appears to have been late on 14  
September or early on 15 September Mr Willis spoke to Mr Chiem and advised him as  
follows about the contents of the data room:  
The information is in piecemeal form. We do not even have enough to start the  
process in a meaningful way as there is not sufficient information.  
239. This conversation is in substance attested to in both the evidence of Mr Willis and Mr  
Chiem and represented the genuine opinion of Mr Willis at the time.  
240. As these tensions were reaching breaking point MindChamps arranged a meeting with  
Mr and Mrs Lilley. It took place at a café in Balmain on 15 or 16 September. Mr Chiem  
and Mr Tan were present from MindChamps. Mr Lilley and his wife Debbie were  
present. Mr Lilley recalls a non-technical discussion about MindChamps’ dissatisfaction  
with the level of data that had been provided in the data room to KPMG and a general  
disappointment with the flow of information from the Zakis to MindChamps by this  
time.  
241. Mr Lilley’s overall impression was that Mr Chiem was disgruntled about the process. But  
Mr Chiem’s dissatisfaction in part stemmed from the way he felt he had been treated in  
the transaction. He said to Mr and Mrs Lilley,  
“We feel disrespected and I have lost trust in the Zakis.”  
242. Mr Lilley’s impression was that Mr Chiem did not see a resolution of the impasse. Mr  
Chiem then decided to end the deal and request the deposit back in accordance with the  
Term Sheet. He gave instructions to KPMG Legal who wrote a letter to that effect on 16  
September.  
243. Subsequent correspondence occurred between the parties, but it need not be detailed in  
these reasons.  
Breach of Clause 12(a)(i) - Analysis  
244. The due diligence period commenced with a substantial mismatch in expectations  
between the Sellers and the Buyer under the Term Sheet. How did that arise? Several  
factors account for it. The main factor was the distracting intensity of the pre-contractual  
negotiations and multiple meetings, focused as they were on price, the rent negotiations  
for the centres other than Belrose, the number of centres requiring separate  
consideration, defining the Excluded Assets, the Long Form Agreement timetable, the  
FY17 EBIT calculation and cascading purchase price adjustments, the legal detail of the  
Term Sheet and most significantly the influence of active competition from Chiwayland  
and Eden. By the evening of Friday 2 September MindChamps was already suffering  
negotiation fatigue. Little Zak’s was equally exhausted.  
245. This situation promoted a mutual mindset of deferring due diligence planning until after  
Term Sheet execution and a mutual failure to think through in advance due diligence  
questions such as: what would be required on day one; were initial due diligence  
expectations aligned or not; and how the period from 2 September to 30 September  
would most efficiently be used.  
246. There is little evidence of comprehensive due diligence pre-planning on either side of  
this contract. The practical planning of due diligence appears only first to surface within  
MindChamps with Mr Pham’s 9 pm email on 2 September. Even that is only the lightest  
of touches on the subject, pushing the commencement of real planning into the  
following week. And the early email traffic between Mr Johnson and the Zakis after  
execution of the term sheet suggests that the Little Zak’s first attitude was “they are  
likely to ask us for a lot but let’s wait and see what they ask for and then we will react to  
it”. Particularly after Mr Willis came on board for MindChamps, Mr Johnson and Little  
Zak’s gave greater weight to MindChamps’ requests and accelerated their responsive  
efforts.  
247. The Court must judge this situation in hindsight, a perspective which should only be  
used with caution when applied to situations of the intensity of these negotiations and  
early due diligence. It is tempting to say that in the days leading up to signing the Term  
Sheet both parties should, for example, have listed their expectations of what should be  
in the data room and created points of contact on each side to begin to merge the parties’  
expectations.  
248. But that did not happen. Moreover, it is a management solution in a legal vacuum.  
Clause 12(a)(i) did not bind either of these parties until the afternoon of 2 September.  
But such considerations are not irrelevant to the Court’s task in applying clause 12(a)(i)  
as they show each party’s capability, a factor which the Court can consider in making  
judgments as to the performance or breach of clause 12(a)(i).  
249. Deploying clauses 9(b) and 12(a)(i) as previously interpreted, here the Court must  
determine whether the sellers have “promptly” made available to the buyer and its  
professional advisers “all information requested as part of the due diligence  
investigations”. The information requested must be “reasonably required by the buyer”,  
who should be allowed “reasonable access to the records of the Business” to carry out  
due diligence.  
250. Applying the rule of reasonableness embedded in these clauses throws up content issues  
and timing issues. The threshold to the application of the clauses is a content issue  
which the Buyer must satisfy: was the content of the Buyer’s requests reasonable? Mr  
Willis answers that in the affirmative, for the reasons set out above. It does not matter  
that Mr Willis was not making the requests until 8 and 9 September: the content of all  
the main requests was reasonable.  
251. Another content issue was whether the Buyer had “reasonable access to the records of  
the Business”. Without these important words the due diligence process might resemble  
procedural tennis where the Buyer merely serves a request and the Sellers return serve  
with information until the process is exhausted. But due diligence was more than that in  
this case. When the Sellers assumed the obligation to give “reasonable access to the  
records of the Business” they took on an obligation greater than merely to put into the  
data room the Annexure A summary information. The important integers of the  
Information Memorandum and Annexure A, includied revenue, employee expenses,  
property expenses and administration costs extracted from the underlying data of the  
business. Little Zak’s took on an obligation to open and admit the Buyer to their business  
records in the sense of their business data, which were accessible through the  
conventional language used to comprehend financial data, namely actual profit and loss  
statements, balance sheets, and cash flow statements.  
252. The Term Sheet, clause 4 made clear the Sellers were selling nine separate businesses  
situated in different geographic and socio-economic circumstances in suburban Sydney.  
Given that the extracted business information in Annexure A was already attached to the  
Term Sheet, to give any content to the Sellers’ obligation to give “reasonable access to  
the records of the business” implies access to the actual underlying management  
accounts for the nine individual centres being sold so that Annexure A could be tested by  
due diligence, rather than just accepted at face value. And Mr Johnson’s own  
correspondence to the Zakis during the due diligence period and Little Zak’s prompt  
reaction when the MindChamps request for management accounts was made, all  
indicate that there was no real contest about the reasonableness of MindChamps’  
request for access to this information.  
253. Consideration of clause 10(e) leads to the same conclusion. It required MindChamps to  
undertake its own calculation of FY 17 EBIT. This was a meaningless exercise without  
MindChamps being put in the position to test the assumptions in Annexure A. That  
could only realistically be done by using management accounts of the kind requested  
and the other data that Mr Willis says was required.  
254. In the Court’s view there is no reason to interpret clause 9 “access to the records of the  
Business” as part of the due diligence process as anything other than access on day one  
of due diligence to the financial data for each of the centres and not access that needed to  
be gained by a process of request, consideration, and response.  
255. The second issue is the timing issue. Whether the Sellers obligation to “promptly make  
available” was met is a judgment to be made in specific circumstances related to the way  
that a request is made. A “prompt” response to poorly constructed and changing  
requests may take longer than a “prompt” response to a concise unvarying request. And  
embedded within the idea of “information reasonably required” in clause 9 is that  
information should be requested within a reasonable time, and sufficiently early within a  
closed due diligence period.  
256. The interrelationship of the conduct of the parties on timing issues was a fertile source of  
debate in the proceedings. If MindChamps had provided a complete list of what it  
wanted on 2 September Little Zak’s would have had a much better chance of meeting it  
earlier. If Mr Willis had been engaged on 2 September and not 9 September  
MindChamps could have refined its priority requests much better with his professional  
expertise. MindChamps has a greater challenge in establishing a breach of clause  
12(a)(i), as it must also establish that the timing of its requests was sufficiently  
reasonable to give Little Zak’s adequate response time to meet the request. And its own  
delays and Little Zak’s ably resourced and committed response make that more difficult.  
257. But even on timing issues clause 12(a)(i) creates an obligation that Little Zak’s was  
required to meet but did not meet. In clause 12(a)(i) the obligation upon the Sellers to  
act “promptly” applies to all the words after “all information”. But these words, which  
qualify “all information”, should be read disjunctively, as either “requested as part of the  
buyer’s due diligence investigations” or “in connection with the proposed sale”. Properly  
construed clause 12(a)(i) requires the Sellers promptly to make available (in the data  
room) all information “in connection with the proposed sale”. Mr Willis’s evidence and  
the nature of the sale implied by Term Sheet, clause 4 shows that management accounts,  
showing profit and loss balance sheets and cash flow information, for each of the nine  
centres could readily be described as “information... in connection with the proposed  
sale” within clause 12(a)(i).  
258. Thus “promptly making available...all information” does not depend upon any nudge  
from MindChamps but will be measured by what the Term Sheet implies by way of a  
standard of promptness. The short answer to this is that Little Zak’s should have  
“promptly made available” in the data room at least as much information as they could  
reasonably have anticipated MindChamps would reasonably request. And it is evident  
from Mr Willis’s evidence and Mr Johnson’s conduct and his email correspondence and  
Mr Carlos Zaki’s response to it that at least FY 16 management accounts (including  
profit and loss, balance sheet and cash flow information) would have fallen into this  
category.  
259. But “promptly” does not meet immediately. Allowing for the fact that Little Zak’s did not  
have this information readily accessible when the Term Sheet was signed and accepting  
that it took Mr Carlos Zaki and Mr Michael approximately seven days from 7 to 14  
September to produce information, “promptly” means fully resourcing the task from the  
time the decision was made to proceed with the sale to MindChamps. If the seven days is  
counted from the decision time of Thursday, 1 September the management accounts  
should have been available by no later than Thursday, 8 September. They were not  
available until 13 September and even then, only with the profit and loss elements but  
not with full balance sheet and cash flow information.  
260. This was a breach of clause 12(a)(i) entitling MindChamps without more to the return of  
the deposit under clause 12(c). No causation issue arises. The FY16 management  
accounts are only a fraction of the information the supply of which was debated between  
the parties. But a breach of clause 12(a)(i) may be established by the unavailability of  
any information that should have been made available given that the obligation was to  
make “all information” available.  
261. But although it is unnecessary it may nevertheless it be useful for the Court to indicate  
there are other categories of information that should have been in the data room within  
the very early part of the first working week of the due diligence period and no later,  
particularly given the currency of their use within Little Zak’s. These categories include  
the YTD FY17 management accounts for each centre, the master staff lists and  
employment contracts for all centre managers, evidence of current superannuation and  
leave balances for all employees, and reconciliations of centre information to group  
accounts. And because of the significant industry changes to carer to child ratios  
commencing on 1 January 2016 it was always reasonable for MindChamps to wish to  
look back as far as FY15 and ask for management accounts per centre. The Court accepts  
Mr Willis’s evidence that it was reasonable to request management accounts back to  
FY15 for this sale. But these should have been available at least some time in the second  
week of due diligence. Though requested they were not made available before  
termination.  
262. Little Zak’s argues that MindChamps should have sought an extension of time, partly on  
the basis that Mr Willis suggested it. But when the problem of inadequate information in  
the data room first became apparent Mr Chiem emailed Mr Carlos Zaki on 7 September  
about extending the due diligence time. But he did not get a clear response. Mr Willis  
made a similar suggestion on 10 September but did not get an answer. Mr Chiem was  
entitled to believe Little Zak’s were not keen on the idea. Moreover, MindChamps had no  
right to an extension of time for due diligence. It can be held to the contract it signed and  
it can take advantage of the contract it signed without any causation or contributory  
negligence issue arising. This point is not persuasive.  
Contract Breach: The Exclusivity Provisions of Clause 12(a)  
263. This section of these reasons deals with MindChamps’ case that the exclusivity  
provisions of clause 12(a) were breached. It commences with a narrative of the Court’s  
findings followed by the relevant construction of clause 12(a) and its application to the  
facts as found. This narrative overlaps with the period covered by the due diligence  
contract breach case but it gathers material from that period relevant to the issue of  
exclusivity.  
Little Zak’s Dealings with Chiwayland and Other Bidders From 31 August 2016  
264. As at 31 August 2016 Little Zak’s was dealing with two other bidders, Eden and  
Chiwayland. Both Eden and Chiwayland had submitted expressions of interest for eight  
childcare centres, had appointed KPMG to perform due diligence and had access to the  
data room. Mr Carl Wang of Platinum Gate, a financial advisory firm represented  
Chiwayland. And Mr Chris Sacre was a financial adviser representing Eden.  
265. No doubt mindful of the terms of the provisions of Term Sheet, clause 12(a), on the  
afternoon of 31 August 2016 Mr Carlos Zaki called Mr Johnson and said to him words to  
the following effect:  
“Dad and I have decided to deal only with Singapore and will only go ahead with  
exclusivity with them. Tell the Chinese [Chiwayland] and Chris Sacre [Eden] to  
finish up and please make arrangements to return the deposit to the Chinese as we  
cannot continue dealing with them now.”  
266. Mr Johnson’s email to Mr Maged Zaki and Mr Carlos Zaki on 31 August 2016 about mid-  
afternoon confirms this conversation and it can be accepted that it took place. But it is  
also clear that Mr Johnson immediately pushed back against the instructions. He had an  
intuition that Chiwayland, may upon hearing the news, make a stronger bid to ensure  
their pre-eminence in negotiations. Mr Johnson was also concerned about whether the  
binding provisions of the Chiwayland EOI may impede Little Zak’s granting exclusivity  
to MindChamps. In his 31 August reply under the heading “Some Things to Think  
About?” Mr Johnson suggested the following further ideas:  
“(1) is there anything to be lost by agreeing to Carl Wang’s proposal to at least then  
see what their final number is even if you use it to push up Singapore or at least use  
it to ensure they do not drop their price offered during DD?  
(2) upon hearing this news Carl Wang is likely to want to tell CHW to really make a  
strong. If they want to and therefore if he does that verbally to me is there a price  
in which you would be compelled to do business with the Chiwayland party? We  
hold a deposit for the Chinese and they appear imminent to close out and agree to  
co tract  
(3) If they [Chiwayland] argue about our good faith provision of 48 hours to allow  
them to come back to us, do you have a lawyer who will handle this as I will stay  
silent on it?”  
267. The third point in this email was undoubtedly a reference to clause 1.5 of the Chiwayland  
EOI, which confers a somewhat inchoate right of exclusivity upon Chiwayland. But  
whether such a right was enforceable or not, or required Little Zak’s consent before  
exclusivity would be conferred, was an open question.  
268. The Zaki’s did not expressly disapprove Mr Johnson’s suggestions. The Court infers that  
Mr Johnson at least thought he had Little Zak’s tacit consent to proceed along the lines,  
“Some Things to Think About?”  
269. Perhaps with his instinct for the deal, Mr Johnson was reluctant to smother the Eden  
and Chiwayland negotiations. In a text message back to Mr Carlos Zaki during the  
evening of 31 August 2016 Mr Johnson pursued the first suggestion in his email and  
passed on to the Zakis communications from Chiwayland representatives that an  
increased offer in the range $69 to $75 million from Chiwayland was feasible.  
270. Even on the day that the Term Sheet was signed, 1 September 2016, Mr Johnson was  
acknowledging Mr Carlos Zaki’s preference for MindChamps but was advising him to  
maintain a fallback, saying by text message:  
“That’s ok, I know we prefer Singapore, I just think we should keep a backup if  
possible as insurance.”  
271. On the afternoon the Term Sheet was signed a lack of decisiveness within Little Zak’s  
and its advisors on this issue was on display when a Chiwayland executive asked to  
inspect the Artarmon property. At 5.47pm on 1 September 2016 in response to a text  
message from Mr Carlos Zaki, “What time are you coming tomorrow?”, Mr Johnson sent  
a text back:  
“Carlos, apologies. Organised to meet you tomorrow anyway but the Chinese CFO  
emailed a request to visit Artarmon. We haven’t given them a definitive go away  
yet, shall I delay their inspection request? Normally not an issue but I believe he  
flies out Monday back to China. Let me know.”  
272. Mr Carlos Zaki was happy enough to walk away from the other bidders. But Mr Johnson  
was urging him to stay engaged. This was evident from what happened with the  
proposed Chiwayland visit to the Artarmon centre on the afternoon of 2 September,  
which went badly. Mr Wang turned up with the Chiwayland executives, but the centre  
was not ready, and Mr Wang unsuccessfully tried to call Mr Maged Zaki and then  
eventually walked away. In a text message exchange that night between Mr Carlos Zaki  
and Mr Johnson the following was said:  
“Mr Carlos Zaki: All good let us just deal with Singapore I have done a lot of deal so  
far and I am confident.  
Mr Johnson: Chinese serve their purpose got us $60m bid”.  
273. This was less than a command to Mr Johnson not to talk to Singapore, but rather more  
of an exhortation. Shortly after midday on 2 September 2016 Mr Carl Wang, had  
conveyed further due diligence requests to Mr Johnson who forwarded his email on to  
Mr Carlos Zaki, stating “DD questions for filing”. With the implication that Chiwayland’s  
additional due diligence questions should be filed away for potential future use. Nothing  
in the email that Mr Johnson was forwarding indicates that the representative of  
Chiwayland had been informed about the signing of the Term Sheet or the provisions of  
clause 12(a).  
274. Chiwayland’s due diligence requests related to the subject of indirect costs incurred at  
the corporate level that are not shown at the centre level and the subject of price  
increases associated with the new intake of children that was due at about that time.  
275. Mr Wang followed up these requests about head office costs and new intake price  
increases on 9 September 2016, when Carl Wang wrote once again about both subjects  
to Mr Johnson, “Any updates on this?”. Mr Wang continued to be concerned about these  
two subjects. He was concerned about the extent of "indirect costs not reflected in  
management accounts" and the reliability of predicted price increases in new intakes of  
students for 2017.  
276. When Mr Johnson received Mr Wang's reminder on 9 September, he drafted answers to  
the two queries the same day and forwarded them on to Mr Carlos Zaki with the  
message, "Carlos see my answers below for Chinese, are these okay? They are in red  
[and] need of approval". The two queries were as follows:  
"(1) What are the indirect costs incurred at the Company level that are not shown  
at the Centre's level? For example, course development cost, hiring cost and etc.  
(2) It is indicated that there will be a price increase in the new intake. Would it  
actually take place? Has there been any plan for marketing and etc for the new  
intake?"  
277. The draft answers each comprised an explanation of between 150 and 200 words dealing  
with the two queries. On 9 September Mr Johnson also sent a text message to Mr Carlos  
Zaki about another subject and asking him, “can you check my answers on email to  
Chinese too? It is unclear just from emails whether between Friday 9 September and  
Monday 12 September 2016 Mr Johnson spoke to Mr Carlos Zaki about Mr Wang's  
queries and Mr Johnson’s draft answers.  
278. On Monday 12 September 2016 Mr Johnson emailed Mr Wang, forwarding him the  
same emails that he had sent on the Friday to Mr Carlos Zaki with the draft answers to  
Mr Wang's two questions. Mr Johnson’s covering email forwarding the email he had  
sent to Mr Carlos Zaki contained the following additional message to Mr Wang:  
“Please see below in Ref, however, these should not be emailed as I'm awaiting  
vendor approval for their complete accuracy.  
These are my answers deduced from prior information and discussion."  
279. The warning that these "should not be emailed", as Mr Johnson was awaiting "vendor  
approval" may indicate Mr Johnson had not spoken to Mr Carlos Zaki about this subject.  
But these communications were occurring at one remove from Little Zak’s. The  
communications reflect Mr Johnson doing what he thought was his job: keeping other  
bidders interested.  
280. Mr Wang understood that his communications with Mr Johnson needed to be kept close  
hold. Shortly after receiving Mr Johnston's email of 12 September 2016, he replied as  
follows:  
"Thanks Simon. Will not send this to anyone.  
It would be good if we could please also confirm the price increase in the new  
intake will actually take place."  
281. Mr Johnson’s email was calculated to maintain Mr Wang's interest in the Chiwayland  
purchase. Mr Wang apparently had a similar motivation. It could be inferred that these  
shadow communications would not have continued to take place unless they were  
regarded at least by Mr Johnson as potentially valuable.  
282. Mr Johnson was in text message communication with Mr Carlos Zaki on Monday, 12 and  
Tuesday, 13 September 2016. In one of those text messages, he communicates to Mr  
Johnson that "Chinese will do it as is". It is difficult to infer from this alone that any  
further communication has taken place between Mr Johnson and Mr Wang. Mr Johnson  
may have just been assessing Chiwayland's negotiating position from his existing  
accumulated information.  
283. These were the only text or email communications with Chiwayland during the life of the  
Term Sheet. But within hours of MindChamps notifying Little Zak’s that it would not  
proceed Mr Johnson reported to Mr Maged Zaki and Mr Carlos Zaki about their options.  
In an email that covered a range of subjects including repayment of the deposit to  
MindChamps Mr Johnson said the following was “in our favour”:  
“(1) We have two other parties as keen as ever to see it as I have been talking to  
them and keeping them close without telling them any of our issues other than our  
frustration at delays  
(2) We hold a deposit for the Chinese and they appear imminent to close out and  
agree to co[n]tract  
(3) Chris Sacre assuring us he can complete and his equity raising is ‘looking good’.  
I note the money is not in their bank as yet and so this will need more clarification  
but for the time being let’s assume he does have the money”  
284. Mr Johnson rounded out his opinion by suggesting that the best course was to spend a  
few days trying to exhaust the options with Chiwayland before turning to Eden.  
285. Mr Johnson’s statements, “I have been talking to them and keeping them close” resolve  
any ambiguities about his communications in the recent past. What Mr Johnson says  
can be accepted at face value: he had been continuing to talk to both Eden and  
Chiwayland, executing the objective of keeping them both interested.  
286. The defendants did not call Mr Johnson. There is no issue as to his availability. Mr  
Newlinds SC frankly conceded, not calling him was a “forensic choice”. Applying Jones v  
Dunkel principles the defendants’ failure to call him is a basis to infer that his evidence  
would not have assisted the defendants’ case and allows the Court to draw other  
inferences from the available evidence more confidently against Little Zak’s. In this case  
the Court can infer with greater confidence that Mr Johnson held discussions on behalf  
of Little Zak’s with Chiwayland between 1 and 16 September 2016 and that the principals  
of Little Zak’s, Mr Maged Zaki and Mr Carlos Zaki did not ban Mr Johnson from  
conducting those discussions, from which it may further be inferred that they at least  
had reason to believe that such discussions may be occurring. The Court accepts the  
Zaki’s evidence that they did not have direct communications with anyone from  
Chiwayland during the exclusivity period.  
287. Mr Johnson’s interest in continuing conversations with Chiwayland is unsurprising. He  
was on a fee calculated as a percentage of the purchase price of the deal ultimately  
struck. Mr Johnson’s success fee was not inconsiderable and itself a basis to infer  
communications are likely to have taken place. Upon completion of the deal to sell the  
childcare centres for greater than $53 million his fee was $610,000 plus 10 per cent of  
any proportion above $48 million. The structure of his success fee made it particularly  
attractive for him to continue to promote Chiwayland to Little Zak’s up to a possible  
contract value of $75 million, in case the MindChamps transaction fell over.  
288. The defendants rely upon the exchange between Mr Johnson and Mr Maged and Mr  
Carlos Zaki in which they instructed him to tell Chiwayland and Eden “to finish up” and  
later “lets just deal with Singapore”. But the problem with these exchanges for the  
defendant’s case is that they delegated to Mr Johnson the performance of a contractual  
obligation which ultimately lay with the defendants themselves. Little Zak’s evidence  
amounts to no more than having instructed an agent to perform their contractual  
obligation by communicating notice of termination of discussions to the other bidder  
and then to cease further communications. But Little Zak’s has not called that agent to  
provide direct evidence that those instructions were carried out.  
289. Nor has anyone from Chiwayland been called to confirm the instructions were carried  
out. Mr Johnson’s incentive not to carry out the instructions was substantial. And he  
directly indicated to Maged Zaki and Carlos Zaki that he wanted to modify the  
instructions to continue communications inconsistent with the instructions given.  
Neither Mr Maged Zaki or Mr Carlos Zaki strongly countermanded Mr Johnson’s 31  
August pushback, or importantly sought from him clear confirmation after 31 August  
that their instructions had been carried out. In the circumstances the Court infers the  
Johnson–Wang discussions continued. Moreover, the 16 September 2016 email  
confirms that a Chiwayland deposit was not returned, something which should have  
been obvious to the principals of Little Zak’s.  
Breach of the Exclusivity Provisions of Clause 12(a)?  
290. As Chiwayland and Eden were holding discussions with Little Zak’s when the time sheet  
was signed, the relevant breach issue arises out of the first sentence of clause (a) after  
the word “exclusivity period”. The question is whether Little Zak’s complied with their  
obligation to “immediately notify that other person that those discussions are  
terminated” and “cease all further communications with that person”. There is no issue  
on the Court’s earlier this construction of the clause 12(a) that “that person” refers to  
“from any other person” earlier in the sentence which is a reference to the existing  
expressions of interest of Chiwayland and Eden.  
291. The facts found demonstrate a breach of the exclusivity provisions of clause 12(a). There  
was no immediate indication to either Chiwayland or Eden that the existing discussions  
“are terminated”. Compliance with that part of clause 12(a) would require clear notice  
from either Little Zak’s or Mr Johnson that no more communications should take place,  
or would not be dealt with, or were inconsistent with Little Zak’s obligations under the  
Term Sheet. Neither the principals of Little Zak’s nor Mr Johnson under their authority  
initiated such communication. This itself was a breach of Term Sheet clause 12(a).  
292. But there was also a breach of the obligation to “cease all further communication”. Upon  
the proper construction of clause 12(a) that obligation lay not only upon Little Zak’s but  
“their advisors”, otherwise the clause 12(a) restraint would be meaningless. The words  
“such discussions” in clause 12(a) refers to discussions initiated by or through not only  
the sellers but “their advisers”, properly construed the words “cease all communications  
with that person” must apply to communication through the advisors as well as the  
principals.  
293. Mr Johnson represented Little Zak’s to promote competitive bidders for the childcare  
centres and it was well within the scope of his authority to communicate for that purpose  
on behalf of Little Zak’s. And the lack of any responsive email of baffled surprise on the  
part of Mr Carlos Zaki or Mr Maged Zaki upon receipt of Mr Johnson’s email of 16  
September 2016, indicates that they probably approved of such discussions having  
occurred. Analysis of Little Zak’s Construction and Breach Contentions  
294. The defendants advanced several contentions to resist this conclusion. First, they  
contend that the clause 12(a) exclusivity provisions set up an option deal for  
MindChamps. They submit that MindChamps has no interest one way or the other  
whether Little Zak’s keeps other bidders interested against the possibility that  
MindChamps does not enter into a Long Form Agreement. Characterising the Term  
Sheet as an option held by MindChamps would demote Chiwayland and Eden to no  
greater status than parties that Little Zak’s would be left to deal with if MindChamps  
decided not to exercise the legal rights arising from its option to purchase. If that were  
the true construction of the Term Sheet then Little Zak’s argument would have greater  
force, if it were compatible with the words of clause 12(a).  
295. But the Term Sheet does not give MindChamps an option to purchase. Rather it is by the  
payment of a deposit of $500,000 the acquisition of the right to negotiate exclusively for  
a period of six weeks from 1 September until the earlier of the execution of a Long Form  
Agreement or 14 October 2016. Once those events occur the deposit is released to the  
Sellers. The only legally binding provisions of the Term Sheet, clauses 10, 11 and 12, do  
not confer on MindChamps the right to compel Little Zak’s to execute a Long Form  
Agreement. And no Long Form Agreement which could become immediately binding is  
attached to the Term Sheet, as would be the case with an option. Nor are the other terms  
of a proposed Long Form Agreement sufficiently certain that the Term Sheet could  
constitute an option.  
296. If the Term Sheet is not an option, MindChamps has a strong commercial interest in  
seeing Eden and Chiwayland out of the negotiating arena during the six-week exclusivity  
period under the Term Sheet. For a potentially non-refundable $500,000 MindChamps  
only gets Little Zak’s exclusive negotiating attention during a period when it admittedly  
wants to sell quickly. The value of that negotiating attention would be seriously  
undermined if Little Zak’s could foster an alternative deal and have it waiting in the  
wings. Moreover, the essential commercial driver of the agreement in the Term Sheet is  
forcing Little Zak’s to isolate itself from other bidders to incentivise it to enter a Long  
Form Agreement with MindChamps. So, breaking down Little Zak’s isolation removes  
that essential driver. The structure of this agreement strongly points to MindChamps’  
construction of the clause 12(a) exclusivity provisions.  
297. The defendants also argue that clause 12(c) supports their contention. They contend that  
the words that the sellers "enter into an agreement with any third party for the sale of all  
or any of the assets of the businesses to that third party" would be otiose if clause 12(a)  
applied to discussions with parties who had already submitted an expression of interest.  
This argument is not persuasive for at least three reasons.  
298. First, clause 12(c) fulfils, as no other binding part of the Term Sheet does, the function of  
commanding what will happen to the deposit. Second, clause 12(c) covers breach events  
after the signing of the Term Sheet, namely the entry into an agreement with a third  
party, a matter not covered in clause 12(a). Third, clause 12(c) performs an additional  
assurance function, to ensure that a potential agreement to sell Little Zak’s childcare  
centres is not indirectly undermined by Little Zak’s independently selling some of the  
assets of the Businesses, to make them unavailable for acquisition under a Long Form  
Agreement.  
299. The MindChamps construction does not make clause 12(c) otiose. Even if it did, the  
mere possibility of an overlap is more consistent with the parties repeating themselves  
out of abundance of caution, rather than leading to a different meaning: cf Strike  
Australia Pty Ltd v Data Based Corporate Pty Ltd [2019] NSWCA 205; (2019) 19 BPR  
39,621 at [58].  
300. The defendants also contend that clause 12(c) refers to a breach of clause 12(a)(i) or (ii),  
relating to due diligence and is not a reference to the introductory chapeau exclusivity  
portion of clause 12(a). Any other construction is said by the defendants to render the  
second half of clause 12(c) as nugatory and commercially absurd. This submission is not  
persuasive. Without any straining of language clause 12(c) refers to the whole of the  
provisions of clause 12(c).  
301. Little Zak’s seeks to answer the exclusivity case by dividing its analysis into different  
time periods. The first period is the communications between 31 August and 2  
September, it can be accepted that no communications between Little Zak’s and Eden or  
Chiwayland on 31 August or 1 September, before Little Zak’s had signed and returned  
the Term Sheet could be a breach of its terms. Nevertheless, the communications on  
those days set the pattern for later communications.  
302. The defendants also submitted that Mr Johnson’s receipt of the "further DD request"  
from Mr Wang on 2 September 2016, could not have been a breach itself because the  
executed Term Sheet was only being returned at the same time. This can be accepted as  
not being a breach of the second part of the exclusivity provisions in clause 12(a) but the  
receipt of 2 September email highlights the need for compliance by Little Zak’s with the  
obligation to "immediately notify" Chiwayland that their discussions are terminated, in  
order to avoid further strained correspondence such as this.  
303. Little Zak’s liaised through Mr Carl Wang to bring the Chiwayland investors to the  
Artarmon centre on the afternoon of Friday, 2 September. The defendants’ submissions  
can be accepted that it is difficult to establish that this was a breach of Term Sheet,  
Clause 12(a) because the signed Term Sheet was only returned sometime in the  
afternoon or early evening of 2 September, possibly after this visit occurred. Nor can any  
text message exchange immediately after the visit count against the defendants as a  
breach of clause 12(a) for the same reason. But once again, such communications  
demonstrate the need for call for direct compliance by Little Zak’s itself with its  
obligation to "immediately notify" the termination of discussions.  
304. As to the Johnson – Carlos – Wang emails of 9-12 September, Little Zak’s’ submissions  
focus merely upon the interaction between Mr Johnson and Mr Carlos Zaki, to which Mr  
Carlos Zaki had not responded. But the analysis above shows that these email exchanges  
went much further than that, leading to breach because of the communication back to  
Mr Wang.  
305. Finally, in relation to Mr Johnson's post termination email to the Zakis on 16 September  
at 8:02p.m. post termination, the defendants characterised this as a basis to infer that  
Mr Johnson had spoken to Chiwayland and Eden "at some stage". But that is not correct.  
The analysis above shows that Mr Johnson’s communications with Chiwayland and  
Eden are likely to have been post 2 September 2016.  
Conclusions and Orders  
306. The plaintiff, MindChamps, has been successful in its claims in contract, the breach of  
the exclusivity and due diligence provisions of Term Sheet, clause 12(a) and as a result is  
entitled to the return of the deposit of $500,000 paid under Term Sheet, clause 10.  
MindChamps’ Amended Statement of Claim seeks declarations and orders to that effect  
and they are made below. But MindChamps was unsuccessful on its misleading  
deceptive conduct claim for compensation under Australian Consumer Law sections  
236, 237, 242, 243 not only for the deposit but for $16,655.34 in travel expenses,  
together with the associated claim for damages in tort and all these claims will be  
dismissed.  
307. MindChamps is entitled to interest on the deposit up to the date of judgment in  
accordance with the rates prescribed from time to time under Civil Procedure Act 2005,  
s 100. No submissions have yet been made in relation to the proper calculation of  
interest, but MindChamps was probably entitled to interest on the deposit from at least  
as early as 14 October 2016, when it was payable in any event under the Term Sheet  
clause 10(b)(ii)(b). But MindChamps may wish to argue for the earlier date of  
termination of 16 October 2016. This can either be agreed or be dealt with by  
supplementary submissions.  
308. Costs would ordinarily follow the event. But MindChamps has been unsuccessful in a  
substantial evidentiary part of the case and Little Zak’s may wish to argue for a special  
costs order. Moreover, there may be Calderbank letters to consider. The Court will not  
make a costs order at this stage and will give leave for either party to apply by motion  
and affidavit for a special costs order within 28 days. If no such application is made the  
Court will order that the defendants pay the plaintiff’s costs.  
309. For these reasons the Court makes the following orders and directions:  
(1) Declare that upon the true construction of the Term Sheet made between the  
plaintiff as Buyer and the first, second and third defendants as Sellers on 1  
September 2016 (the Term Sheet) and in the events which have occurred, the first,  
second and third defendants are obliged by clause 10 of the Term Sheet to return  
the deposit of $500,000 paid by the plaintiff;  
(2) Order the first, second and third defendants to pay the deposit of $500,000 to  
the plaintiff within 28 days;  
(3) Dismiss the plaintiff’s claims for relief made in prayers for relief 1 and 2 of the  
Amended Statement of Claim;  
(4) Dismiss the plaintiff’s claims for relief in tort made in prayer for relief 3 of the  
Amended Statement of Claim;  
(5) Reserve for further consideration the question of appropriate cost orders in the  
proceedings, noting that if no party takes up the leave granted pursuant to order  
(6) below, the Court is minded to make in chambers an order that the first second  
and third defendants pay the plaintiff’s costs of these proceedings on the ordinary  
basis;  
(6) If any party seeks a special costs order that party should file and serve a motion  
and affidavit in support within 28 days after consulting with the associate to  
Slattery J about a suitable return date after 12 September 2022; and  
(7) Grant liberty to apply.  
Amendments  
04 July 2022 - [308] third line, "14 days" changed to "28 days"  
05 July 2022 - [213] "seen" to "soon"  
05 July 2022 - [213] "soon" changed to "seen"  


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission