Alex Turnbull claims in his case against Russel Pillemer, that he is owed up to $8.7m

It was a particularly momentous month in the prime ministership of Malcolm Turnbull: he announced sweeping new foreign interference laws, unveiled a new cabinet, and Australians voted in favour of marriage equality.

And in December 2017 the then prime minister also found time for another engagement: a meeting at his home between his son, Alex, and a longtime friend, former business partner and colleague Russel Pillemer.

Alex Turnbull and Pillemer had been in business together, through the investment firm Pengana Capital, until February 2016, but the relationship had become fractious.

Pillemer had repaid a $6m loan to Turnbull, effectively ending the business relationship. Alex Turnbull said he accepted cash to repay the loan, rather than keeping shares in Pengana, as Pillemer had convinced him keeping shares would be of little value.

But after Pillemer subsequently completed a merger that more than doubled the value of the business, Alex Turnbull said it would be fair if he paid the Turnbulls at least $3m more.

When the extra payment was not forthcoming, Alex Turnbull sued, and this week the family’s business dealings found their way to the New South Wales supreme court as well as onto the front pages of the nation’s newspapers.

More than three years after the meeting at Malcolm Turnbull’s home, the discussion that took place underlines a key plank of Pillemer’s defence: that Alex Turnbull wanted out of the business, regardless of how much money it would cost him, because he was worried about protecting his father.

Alex Turnbull disputes this, saying that any concern he had about possibly negative media coverage of his business dealings would have been far outweighed by the financial benefit of doing a transaction that was more lucrative than Pillemer had let on.

Pillemer claims Malcolm Turnbull once made statements to him that underlined this need for sensitivity.

In an affidavit tendered as evidence in the case, Pillemer said that shortly after Turnbull became prime minister in September 2015, the pair had a phone conversation in which Turnbull said words to the effect of: “It is essential that we keep the loan and the transfer confidential.

“While my disclosures in Parliament were in accordance with the law, the details around the loan have the potential to cause immense damage if they get into the public domain. My enemies would almost certainly claim that I have misled Parliament and the public.”

Turnbull said in his affidavit that he did not say the words attributed to him and they were “the product of Mr Pillemer’s imagination”.

Alex Turnbull’s claim in his case against Pillemer is that he is owed damages of up to $8.7m.

Pengana Capital co-founders

Malcolm Turnbull and Pillemer met in 1997 at Goldman Sachs, where Pillemer, an investment banker, worked under Turnbull, the chairman and managing director. In 2003, they founded Pengana Capital. Turnbull was elected to parliament as the member for Wentworth the following year.

When he became prime minister in 2015, Turnbull gifted his shares in the company, worth about $6m, to his son, Alex, and his daughter, Daisy, via another company which they controlled, Maurtray (there is no suggestion Turnbull acted improperly, and the correct parliamentary disclosures appear to have been made at the time).

Pillemer says, however, that Alex Turnbull let him know soon after that he was keen to get out of the business completely. Pillemer said Alex made clear to him that Malcolm’s “enemies” would be keen to exploit any perception that the Turnbull family’s extensive business interests were improper.

In October 2016 an opportunity arose for the Turnbulls to have their loan repaid. Alex Turnbull and Pillemer discussed the plan further at Indigo, a cafe in Double Bay, on 14 December, and it continued to develop in the following days.

But on Boxing Day, Pillemer said he heard some interesting news: a key shareholder in another firm, Hunter Hall, had resigned, raising the prospect that it could merge with Pengana.

The narratives of Pillemer and Alex Turnbull diverge considerably at this point.

Pillemer says he let Alex Turnbull know as much as possible about the merger, and encouraged him to stay involved in Pengana, because the changes were likely to mean his shares increased in value. But he says he could not tell Turnbull everything, because of concerns he would breach insider trading laws, and because of confidentiality agreements he signed while negotiating the merger. He says that Turnbull repeatedly made clear he wanted out, regardless of whether the merger went ahead or not, because of the risk of exposure.

Alex Turnbull argues that under the loan agreement, Pillemer had an obligation to disclose any information that would effectively impact the value of the loan. If he had known how much he stood to gain, Turnbull said, he would not have sold – regardless of any concern he had about the blowback on his father.

Supreme court evidence

The NSW supreme court heard evidence from Alex and Malcolm Turnbull and Pillemer this week. Both Alex Turnbull and Pillemer were asked about exchanges of which there were no longer any electronic records, and of which they have opposing memories.

Alex Turnbull gave evidence he had used burner phones while travelling in China for work – and deleted other exchanges – because an Australian diplomat in Singapore had warned him in 2013 that his communications could be targeted by Chinese intelligence services.

Pillemer said he had deleted some exchanges as a result of another court case relating to Pengana.

Malcolm Turnbull gave evidence about an extraordinary email sent by Pillemer last November, in which he made a final plea for the former prime minister to intervene.

Pillemer said his father claimed the day that Turnbull was made prime minister was one of the happiest of his life, after the birth of his three children and marriage.

He went on to write that it would make no sense that Pillemer would decide to betray the Turnbulls for financial gain only days after he and his wife had felt honoured to be seated at “the best table in the room” during a lunch the then prime minister held in honour of his visiting Israeli counterpart, Benjamin Netanyahu.

“We were on the biggest highs of our lives after that lunch, marvelling at what a great man and friend you were to us – that in a huge audience of some of the most important people in Australia, it was the two of us that you paid the most attention to.”

Turnbull said he found the email threatening, and Pillemer’s final bid for a resolution outside a court room failed. Both teams hired top-end legal teams, and their own media consultants.

The case before Justice Kate Williams has been adjourned until 21 October, when final written submissions from both parties are due.