Freehills gets its fees from the failed United Petroleum float … No breach of duties by the firm … Financials not ready in time for the prospectus … Letter of engagement … Stephen Murray reports from the Yarraside Supremes

The firm also fended off a counter claim from United Petroleum that breaches of duties by Freehills, and its partner Martin Ziegelaar, resulted in the failed listing. United Petroleum also failed in its attempt to sue non-executive director and chair of United Holdings Martin Hudson, for breaching his duties as director.

On Tuesday (26 June), the Victorian Supreme Court found that both Freehills and Hudson “acted appropriately, and in accordance with their duties, at all material times”. 

The unpleasantness stemmed from the attempted listing of United Petroleum on the Australian Stock Exchange in 2016. At the time, United accounted for about five percent of the Australian petrol market. A lengthy judgment from Justice James Elliott sets out the contentious history of the float, focusing on the strenuous efforts in the mid to late October 2016 to get accurate financials to include in the draft prospectus.

With the deadline for a 2016 listing approaching fast, and the draft prospectus incomplete with regards to these essential particulars, the non-executive directors refused to sign off on the document. United’s founders, Avi Silver and Eddie Hirsch, left with little alternative, decided not to proceed with the float.

In the washup, Freehills pressed for payment of its invoices. United Petroleum argued it was entitled to a discount because the float failed.

While Freehills had been retained since December 2014, it argued its terms were determined by a fresh engagement letter issued in August 2016. This engagement letter made provision for a discount and uplift arrangement of 25 percent, but contained a provision establishing an entitlement to 100 percent of its hourly fees if United decided not to proceed with the public offering. The engagement letter established acceptance either by return of a signed copy or by ongoing instructions. Invoices were subsequently issued under the terms of this new engagement letter.

Justice Elliott held that United’s conduct after receipt of the August 2016 letter indicated agreement with the new terms, including new work on a refinery that was referenced only in the letter, as well as the terms of the invoices issued after August. As the decision to pull the float was ultimately United’s, Elliott J held that Freehills was entitled to claim the full sum of their invoices.

Elliott found that “no allegation of Freehills breaching its fiduciary duties could be properly maintained” by it relying on the August letter to the detriment of United.

As to who was responsible for the failed float, Freehills argued that the failure of the float was due to the failure of Silver to produce satisfactory financial statements in time for the draft prospectus to be finalised. Elliott J found:

“It is incontrovertible that Silver and United failed to produce the financials in accordance with the agreed timetable, and that that was the principal, if not sole, reason why the process was behind schedule in this regard. It is also incontrovertible that, in October 2016, Silver was told of, and appreciated, the need to meet the deadlines if the public offering was to proceed in 2016.” 

In arguing that Ziegelaar and Freehills had breached their duties, United argued that a “script email” prepared by Ziegelaar for the non-executive directors, explaining why the float was in difficulty, was evidence of Ziegelaar working against the interests of the float. 

The judge found that this script was instead a prudent effort “preparing for the real possibility” that United would not have the material ready for the draft prospectus to be approved in time. Elliott said “it is difficult to perceive how any person acting reasonably and diligently would have seriously contemplated” approving the release of the draft prospectus at the material time.

As for Hudson’s position, Elliott found that, given the circumstances, “no non-executive director in Hudson’s position, acting reasonably and intending to act in the interests of United Holdings, could have seriously contemplated approving the release” of the draft prospectus. Elliott J found that the draft prospectus was significantly incomplete, had not been properly checked or tested, was unverified and was highly likely to require amendment in the days after the deadline. 

Not even the combined firepower of Allan Myers and the Wyles one could say the day for Mr Silver. 

United Petroleum Australia Pty Ltd v Herbert Smith Freehills