Brimaud, Kenneth Maurice v Boston Securities Entertainment Investments Pty Ltd & Ors
[1998] FCA 1104
•09 SEPTEMBER 1998
KENNETH MAURICE BRIMAUD v. BOSTON SECURITIES ENTERTAINMENT INVESTMENTS PTY LIMITED, CINEMA PLUS LIMITED and GARY BLOM
No. NG 996 of 1998
FED No. 1104/98
Number of pages - 57
Contract - Damages
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
EMMETT J
Contract - application for damages for breach of contract - language of agreement unclear - whether contract both written and oral - whether contract orally varied - whether estoppel arises as to time for exercise of option - whether misleading or deceptive conduct in relation to exercise of option - repudiation of contract - whether damages precluded because applicant not ready, willing and able to perform contract.
Damages - measure of damages for breach by seller of fungible property - difference between contract price and market price - time at which market price should be determined where assessment of damages depends on future events.
Secured Income Real Estate (Australia) Pty Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596, referred
Bahr v Nicolay (No. 2) (1988) 164 CLR 604, referred
Willis v The Commonwealth (1946) 73 CLR 105, followed
Johnson v Perez (1988) 166 CLR 351, referred
Foran v Wight (1989) 168 CLR 385, referred
SYDNEY, 22-26 June, 22-23 July and 3 August 1998 (hearing), 9 September 1998 (decision)
#DATE 9:9:1998
Counsel for the Applicant: G.K. Downes QC with R.A. Campbell
Solicitor for the Applicant: Cordato Partners
Counsel for the Respondent: A.J.L. Bannon SC with D.B. Studdy
Solicitor for the Respondent: Gilbert & Tobin
EMMETT J
The applicant, Kenneth Maurice Brimaud ("Mr Brimaud") claims damages from Boston Securities Entertainment Investments Pty Limited ("Boston"), Cinema Plus Limited ("Cinema Plus") and Gary Blom ("Mr Blom"). The claim for damages is based upon breaches of contract, contraventions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) and contraventions of the Corporations Law. The primary claims are for alleged breach of contract and the other claims might fairly be characterised as fall back positions so far as Mr Brimaud is concerned.
BACKGROUND
Mr Brimaud and Mr Blom first became acquainted in late 1988 or 1989. They met socially on one or two occasions thereafter. However, in late 1994, Mr Blom telephoned Mr Brimaud and a meeting was arranged. Mr Blom indicated that he had a few things which might be of interest to Mr Brimaud, one of which was connected with Darling Harbour.
The two men met thereafter and, in the course of their discussions, Mr Blom intimated to Mr Brimaud that the matter connected with Darling Harbour involved building an IMAX theatre. Mr Blom explained that IMAX is a "unique technology which projects a high definition image onto giant screens up to the size of a 10 storey building". Mr Blom said that one of the people involved in the project was John Weiley, an Australian film producer who, he said, had won an international award for the IMAX film "Antarctica". Mr Blom said that Mr Weiley had been a successful tenderer when the Darling Harbour Authority called for expressions of interest but was not able to obtain project finance and that was how Mr Blom got involved. Mr Blom said that the theatre which was proposed would be one of the largest in the world.
The meetings led to Mr Blom, in his capacity as managing director of Boston Securities Australia Limited ("Boston Securities"), writing to Mr Brimaud on 5 December 1994 confirming an offer that Mr Brimaud become a director of Cinema Plus (DH) Pty Limited ("Cinema Plus DH"). The letter said that a director's fee of $20,000 per annum would be paid to Mr Brimaud by Cinema Plus DH commencing 15 January 1995. The letter also said as follows:
We see your role as one of active involvement assisting us with discussions with the corporate sector, government officials and other appropriate parties. We feel that your position with the Powerhouse Museum and your dedication and commitment to the Arts and associated fields will be of great value to the IMAX Theatre project.
The letter enclosed a form of consent to act as a director and on 15 December 1994 Mr Brimaud returned the form duly signed.
The IMAX Project
In late March 1995, Mr Brimaud received from Mr Blom a document entitled "Business Plan" under the name of Cinema Plus and Cinema Plus DH ("the Business Plan"). The precise purpose for which the Business Plan was prepared is not clear, although it might be assumed that it was to furnish information to other parties who might become involved in the IMAX theatre project. The Business Plan described Cinema Plus DH as a wholly owned subsidiary of Cinema Plus and said that Cinema Plus DH had "secured a significant site in Darling Harbour for a 99 year lease on which an IMAX theatre will be constructed". The Business Plan described "the project" in the following terms:
Cinema Plus has secured an exciting opportunity to construct New South Wales' first IMAX theatre at Sydney's premier tourist destination, Darling Harbour. Having secured the rights to a long term lease from the Darling Harbour Authority (DHA), construction of the theatre is to commence in March 1995 with completion and opening mid-December 1995. ........ ........ ........ ........ .... The building will house a 560 seat theatre, 300 seat restaurant and merchandising areas and a spacious function room to be called "Room with a View". This function room, with its commanding views over Sydney Harbour, will be available for product launches and gatherings for up to 500 people in first class comfort. Its location will make it a natural focal point for the film industry and a natural marketing tool for the IMAX theatre. The first movie to be shown will be John Weiley's "Antarctica" together with one of the several successful space movies. Within 12 months these will be replaced by the feature "Australia", which has commenced production and then the movie on the Olympics. The themes and timing of the proposed movies are obviously linked to the marketing strategy of the IMAX theatre.
The Business Plan described the proposed management team which included Mr Blom and Mr Weiley. Under the heading "Ownership Structure - Cinema Plus Pty Limited" the following appeared:
No. of Shares
% Boston Securities Entertainment Investments Pty Ltd
2,383,721 50.0 Votraint No. 856 Pty Ltd 1,430,233 30.0 AusAsean Exporters Fund Limited 953,488 20.0 4,767,442 100.0
Note: AusAsean Exporters Fund Limited's initial shareholding is 20% however, there is an option for them to purchase an additional 10% if so desired by the Directors of Cinema Plus, which must be exercised prior to December, 1995. This would result in Boston's shareholding being reduced to 40% and AusAsean's shareholding increased to 30%.
Votraint No. 856 Pty Ltd ("Votraint") is a company controlled by Mr Weiley.
On 22 March 1995, Mr Brimaud wrote to Mr Blom referring to a meeting of the previous week at which Mr Blom was said to have confirmed that Mr Brimaud was to be appointed a director of Cinema Plus "which is to operate IMAX cinemas in Australia and elsewhere". The letter went on to say, inter alia, the following:
In consideration of my services you have agreed that I am to be paid reasonable directors fees and be included in a profit sharing scheme to be implemented for directors and others who do not hold equity in the company. The rationale behind the profit sharing scheme seems to me to be for the rewarding of non equity owning directors for their services to the company on an ongoing basis ........ ........ ........ ... I do not think you will disagree that I have already made a substantial contribution up front by assisting in the negotiations with the Darling Harbour Authority and I believe that I will play a significant role with Multiplex to get over the inconvenience caused by Baulderstone Hornibrook. I have no idea of the amount of time this will involve me in and I think it is fair that I am properly compensated. I would like you to consider granting me some share options in the company that you and the other shareholders will be comfortable with and be prepared to give me. It is usual for companies to secure the commitment and reward directors by this means.
At some time after receipt of that letter by Mr Blom and before 8 May 1995, probably during April 1995, Mr Brimaud and Mr Blom met to discuss the letter. By that stage, Mr Brimaud had read the Business Plan. It is common ground that there was a discussion between Messrs Brimaud and Blom concerning the terms upon which Mr Brimaud would be entitled to acquire an equity interest in Cinema Plus. However, there is a dispute as to the precise terms of the discussions. Mr Blom made some notes during the course of the discussion and Mr Brimaud added briefly to those notes.
Whatever the terms of the discussions, they led to Mr Brimaud preparing a letter evidencing the terms of the arrangement which they contemplated by the end of their discussion. It is common ground that, after signature of the letter in question, to which I shall refer in detail later, there was a binding contract in existence. However, there is a dispute as to the extent to which the discussions should also be regarded as constituting part of the contract which thereafter came into existence.
On 5 May 1995, Cinema Plus submitted to the Darling Harbour Authority ("DHA") a document entitled "Lessee's Proposal" also under the names of Cinema Plus and Cinema Plus DH ("the Lessee's Proposal"). The Lessee's Proposal was an outline to the DHA of proposals of Cinema Plus to take a lease of a site in Darling Harbour and to construct and operate on that site an IMAX theatre. Under the heading "The Participants and Their Roles" there appeared a reference to an attachment showing the ownership of Cinema Plus. The Lessee's Proposal indicated that the current shareholders of Cinema Plus were John Weiley and Susane Weiley each holding one ordinary share of $1. It was stated that, upon signing of lease documents with the DHA, the shareholders of Cinema Plus would be:
* Boston Securities Entertainment Investment - 35% (1,668,605 shares)
* Votraint No. 856 Pty Ltd - 30% (1,430,233 shares)
* AusAsean Exporters Fund Limited - 30% (1,430,232 shares)
The Lessee's Proposal also stated that four private investor companies had committed to take up a total of 5%. Those companies ("the Spatt Group Investors") were as follows:
* Capital Credit Company Pty Ltd
* Management Services - 4 - U Pty Ltd
* Vosare Pty Ltd
* Mergamin Pty Ltd
The Spatt Group Investors were associated with Mr Nathan Spatt ("Mr Spatt"). The significance of the shareholdings is that, while the proposition had changes, the total number of issued shares remained at 4,767,442.
The Lessee's Proposal also indicated that a number of agreements would be entered into by participants in the proposal. The agreements to be entered into include a shareholders' agreement between the proposed members of Cinema Plus.
The 8 May Agreement
Against that background, Mr Brimaud sent a letter to Mr Blom on 8 May 1995 ("the 8 May Agreement"). The terms of the letter are critical and I set out its terms verbatim:
Dear Gary, This is to confirm my acceptance of the offer made to me by you on behalf of Cinema Plus Pty Limited and Boston Securities Entertainment Investments Pty Limited and, as indicated by you, with their authority, that in consideration of my personal involvement in, and the provision of advisory services related to, the development of an IMAX theatre complex at Darling Harbour, I shall receive the following benefits: 1. After signing of the Head Lease between Cinema Plus Pty Limited and the Darling Harbour Authority in respect of the site at Cockle Bay, Darling Harbour on which an IMAX theatre is to be built (the Lease), my consultancy company will be retained to provide advisory and business services to Cinema Plus Pty Limited for its subsidiaries, associated and related companies or entities at the hourly rate of $250.00 per hour payable within thirty (30) days of invoice date. 2. My consultancy company will continue to receive $1,666.00 per month payable monthly for the provision of consultancy services until the opening of the IMAX Theatre and thereafter I shall be paid director's fees of $2,500.00 per month payable monthly. 3. I shall be allotted 47,674 shares being the equivalent of one percent (1%) of the fully diluted capital of Cinema Plus Pty Limited at the price of $1.674 per share, fifty percent (50%) of which will be fully paid now and the balance to be exercisable no later than 31 December 1996. It is further agreed that payment for these shares and allotment calls may, at my option, and it is hereby acknowledged, be made by applying consultancy fees due and payable to me. 4. I am granted at no cost an option to purchase a further 47,674 shares being the [e]quivalent of an additional one percent (1%) of the fully diluted capital of Cinema Plus Pty Limited at the share price of $1.674 per share such option to be exercised no later than 31 December 1995. Please sign this letter and copy in confirmation. Yours faithfully, [Signed] Agreed and Confirmed [Signed] Ken Brimaud ........ ........ ........ ........ ........ .. Enc. Gary Blom On behalf of Cinema Plus Pty Limited and Boston Securities Entertainment Investments Pty Limited
While the letter was signed by Mr Blom, he did so only on behalf of Cinema Plus and Boston. He did not purport to incur any personal obligation. I consider, therefore, that the intended parties to the contract were Mr Brimaud on the one hand and Cinema Plus and Boston on the other. Since all three respondents have been represented in these proceedings by the same solicitors and counsel, that may not have any practical significance.
Four separate matters can be identified as arising from the 8 May Agreement as follows:
1. Mr Brimaud's "consultancy company" would be retained to provide advisory and business services at the hourly rate of $250. That consultancy company would continue to receive $1,666 per month until the opening of the IMAX theatre. It is not totally clear from the language of the 8 May Agreement, but the preferable reading is that the consultancy company would be paid a retainer of $1,666 per month until the opening of the IMAX theatre and in addition would be paid at the rate of $250 per hour for services actually provided. That construction is supported by the terms of the letter of 5 December 1995 whereby Mr Brimaud was to receive director's fees of $20,000 per annum payable monthly which would amount to $1,666 per month. The intention appears to have been to convert the entitlement of Mr Brimaud to director's fees from Cinema Plus DH into an entitlement that his consultancy company receive a retainer of $1,666 per month from Cinema Plus until the opening of the IMAX theatre.
2. Mr Brimaud was to be paid director's fees of $2,500 per month after the opening of the IMAX theatre. In the light of the letter of 22 March 1995, that appears to be remuneration as a director of Cinema Plus rather than Cinema Plus DH. No mention is made of any period during which Mr Brimaud was to receive those fees. Nor is there any reference to any circumstances in which Mr Brimaud would cease to be a director. That is of significance for reasons which will become apparent later.
3. Mr Brimaud was to be "allotted" 47,674 shares in Cinema Plus for a price of $1.674 per share ("the first tranche"). Those shares would represent the equivalent of 1% of "the fully diluted capital" of Cinema Plus. Having regard to the terms of the Business Plan and the Lessee's Proposal, it is clear that the parties to the 8 May Agreement had in contemplation that Mr Brimaud would be entitled to 1% of 4,767,442 shares intended at that stage to be issued by Cinema Plus. No mention is made of the par value of the shares. Neither Votraint nor AusAsean Exporters Fund Limited ("AusAsean") was a party to the 8 May Agreement. The parties to the 8 May Agreement appear to have contemplated, therefore, that Mr Brimaud's initial tranche of 47,674 shares would come from the shares intended to be issued to Boston. Boston was originally to receive 2,383,721 shares. However, by the time of the Lessee's Proposal, that number had been reduced to 1,668,605 by allocations to AusAsean and the Spatt Group Investors.
Mr Brimaud was to pay for the first tranche as to half immediately and as to the other half no later than 31 December 1996. Mr Brimaud was to be entitled to pay for those shares by applying consultancy fees due and payable to him.
A number of observations can be made in relation to paragraph 3. First, the 8 May Agreement refers to the balance of the price being "exercisable" no later than 31 December 1996. That is nonsensical since, while a price may be payable, it is not "exercisable". The use of that word may signify an expectation that Mr Brimaud was to have an option in respect of the first tranche. However, paragraph 3 provides that 50% of the price for the first tranche "will be fully paid now". That language signifies the imposition of an immediate obligation upon Mr Brimaud. Secondly, it contemplated that "allotment calls" might be payable. It is not clear what that means. It might suggest that the shares were to be issued and allotted by Cinema Plus direct to Mr Brimaud credited as partly paid with the balance payable by way of call no later than 31 December 1996. Thirdly, the payment of the balance of the price, whatever character that might have, was to be made by applying consultancy fees. However, no consultancy fees were due and payable to Mr Brimaud. The only consultancy fees payable were those payable to Mr Brimaud's "consultancy company". Those considerations suggest that the draftsman of the 8 May Agreement had somewhat imprecise notions as to what obligation paragraph 3 was intended to create. They indicate that one can have no confidence that language was used with any degree of precision.
4. The right created by paragraph 4 is expressed to be an option and it is clear that Mr Brimaud had no obligations unless he exercised the option. Mr Brimaud was to have an option to acquire a further tranche of 47,674 shares in the capital of Cinema Plus ("the second tranche"). That second tranche was also contemplated by the parties as comprising 1% of the shares which the Business Plan and the Lessee's Proposal indicated would be issued by Cinema Plus. The option was to be exercised no later than 31 December 1995. The price payable on exercise of the option was also to be $1.674 per share. The use of the term "purchase" in contrast to the term "allot" in paragraph 3 suggests that the draftsman had in mind that the second tranche was to be acquired by way of transfer rather than initial allotment. Once again, however, the lack of precision in the drafting of the 8 May Agreement would leave one with no confidence that the draftsman intended to draw that distinction.
One critical matter which is not addressed in the 8 May Agreement and which gives rise to a significant issue in the proceedings is precisely what was intended to be the subject of the third and fourth paragraphs when those paragraphs refer to "47,674 shares". At the time of the 8 May Agreement, the issued capital of Cinema Plus was two shares of $1 each. There is nothing in either the Business Plan or the Lessee's Proposal to indicate the intended par value of the 4,767,442 shares which were to be issued. However, it is clear enough that the parties to the 8 May Agreement had in mind that, whatever the nominal or par value of the shares issued, 4,767,442 shares would be issued and, as a consequence, Mr Brimaud would be entitled to acquire two tranches of 47,674 such shares for a price of $1.674 per share. Whether the shares were to be issued and allotted direct by Cinema Plus to Mr Brimaud from the shares which would otherwise have been issued and allotted to Boston or whether the shares were intended to be transferred by Boston to Mr Brimaud following issue and allotment to Boston by Cinema Plus may not, in the events which have happened, much matter. It is clear enough that obligations were imposed either jointly or severally on Boston and Cinema Plus at least to procure that Mr Brimaud would acquire those shares subject, of course, to his performing or being ready, willing and able to perform, his side of the bargain.
On 13 June 1995, Mr Blom, as managing director of Cinema Plus, wrote to Mr Brimaud requesting that he complete a consent to act as director in respect of Cinema Plus and Cinema Plus DH. The documents were completed by Mr Brimaud on 19 June 1995 and returned. In connection with the consent to act as a director of Cinema Plus, Mr Brimaud completed a form of notice pursuant to sections 231 and 236 of the Corporations Law. Those sections require, inter alia, notification of:
* particulars of shares in the company, and in related bodies corporate, in which the director has a relevant interest;
* particulars of rights and options held by the director in respect of the acquisition or disposal of shares in the company and related bodies corporate.
Mr Brimaud completed a schedule disclosing the following in relation to relevant interests:
* name of company: Cinema Plus Pty Ltd
* number of shares: 1% of fully diluted capital
* nature and extent of relevant interest: shares not yet issued but allotted to me or at my direction
* consideration per share: $1.674
* date: 8 May '95.
In relation to rights and options, Mr Brimaud disclosed the following:
* name of company: Cinema Plus Pty Ltd
* number of rights/options: unknown - 1% of fully diluted issued capital
* description and class of rights/options: option over fully paid ordinary shares expiring on 31 Dec 95
* number, description and class of underlying securities: unknown
* consideration: exercise price $1.674 per share
* date: 8 May '95.
Initial Capitalisation of Cinema Plus
On incorporation of Cinema Plus on 8 July 1994, 2 shares of $1 each had been deemed to be issued to the subscribers. On 5 June 1995, 2 shares of $1 each were transferred from the subscribers to Votraint and 286 further shares of $1 each were issued to Votraint.
On 29 June 1995, a shareholders agreement was entered into by each of the proposed shareholders of Cinema Plus other than Mr Brimaud. By that stage, it appears that AusAsean was no longer to be a shareholder. In lieu of AusAsean, Perpetual Trustees Australia Limited, in its capacity as trustee of Macquarie Investment Trust II ("Macquarie Trust"), was a party to the shareholders agreement. The shareholders agreement provided that there were to be three classes of shares in the capital of Cinema Plus being A Class Ordinary Shares, B Class Ordinary Shares and C Class Ordinary Shares. The A Class, B Class and C Class Shares were all to have a par value of 20 cents. The A Class Ordinary Shares were to be issued to Votraint, the B Class Ordinary Shares to Boston and the C Class Ordinary Shares to Perpetual and Boston. At that stage, the issued capital of Cinema Plus consisted of 288 ordinary shares of $1.00 each held by Votraint. Those shares were to be reclassified as 1,440 A Class Ordinary Shares.
Clauses 7.1 and 7.4 of the shareholders agreement relevantly provided as follows:
7.1 Rights Attached to Shares The A Class Ordinary Shares, B Class Ordinary Shares and C Class Ordinary Shares will carry the same rights in all respects except: (a) the voting rights and dividend entitlements attached to the A Class Ordinary shares will not fall below 20% of the total voting rights and dividend entitlements in the Company before [the date on which the IMAX theatre... is first opened and screened to members of the Public]... (b) the A Class Ordinary Shares will entitle the holder (Votraint) to appoint two directors to the Board of Directors; (c) the B Class Ordinary Shares will entitle the holder (Boston) to appoint two directors to the Board of Directors and...Boston may transfer 238,372 B Class Ordinary Shares to [the Spatt investors]; and (d) the holder of the C Class Ordinary Shares other than Boston will entitle the holder to appoint one director to the Board of Directors. ........ ........ ........ ........ .... 7.4 Critical Matters ...the parties agree that none of the matters referred to below shall occur or be effected at any time unless: (a) it is first submitted to the Board of Directors; and (b) the matter is approved by Directors appointed pursuant to clause 7.1 representing Shareholders who collectively hold not less than eight five percent (85%) of the voting rights in the Company. The matters referred to above are as follows: ........ ........ ........ ........ .... (vii) allotting shares, convertible notes, options or other securities in the Company; ........ ........ ........ ........ .... (xiv) appointing and removing the Chairman, chief executive officer, chief financial officer and general managers and the Company's bankers, Auditors and solicitors; ........ ........ ........ ........ ....
By facsimile of 17 August 1995 from Messrs Gilbert and Tobin, the solicitors for Cinema Plus, Mr Brimaud was notified of a proposed directors' meeting of Cinema Plus to be held at 2 p.m. on that day. The business to be transacted at the meeting included allotment of further shares in Cinema Plus.
Mr Brimaud did not attend the meeting because, he said, of the short notice and a long standing commitment. He said that he had a telephone conversation with Mr Blom after he received the notice during which there was a discussion concerning the absence of any reference in the business to the allotment of shares to Mr Brimaud. Mr Brimaud says that Mr Blom told him that he did not have to worry and that Mr Brimaud still had to pay for the shares. He said that Mr Blom said "the shares will be allotted to you as we agreed". Mr Blom denies that such a conversation took place. On the issues which arise in the case, it may not matter whether that conversation took place or not.
In any event, the meeting apparently proceeded and the following business was transacted:
* the articles of association of Cinema Plus were altered to reflect the provisions of the shareholders agreement;
* the 288 shares of $1 each held by Votraint were subdivided into 1,440 shares of 20 cents each and those shares were converted into "A" class shares;
* 1,668,605 "B" class shares were issued to Boston;
* 1,430,232 "C" class shares were issued to Perpetual Trustees Australia Limited as trustee for Macquarie Trust.
Entries were subsequently made in the register of members of Cinema Plus recording the allotment of shares on 17 August 1995. In addition, it appears that options were granted to Votraint for a further 1,428,793 "A" class shares.
Shortly after 17 August 1995, Mr Brimaud received an invitation to attend the formal announcement by the New South Wales State Government Minister responsible for Darling Harbour that Cinema Plus had been granted the right to build and operate the IMAX theatre. Mr Brimaud subsequently attended the announcement on 28 August 1995. There was considerable media coverage of the announcement in the days which followed.
There is in evidence a document purporting to be minutes of a meeting of directors of Cinema Plus held on 26 September 1995 by telephone. The minutes record, inter alia, the following:
Financial Statements: The company's accounts for year ended 30th June, 1995 with the reports thereon were tabled. It was resolved that the accounts be approved for presentation to members at the 1995 annual general meeting. Directors Statement: It was resolved that the Director's Statement presented to the meeting, made up pursuant to section 301 of the Corporations Law, be signed on behalf of the Board by two of the Directors present and attached to the Company's accounts for the year. Directors Report: It was resolved that the Directors Report presented to the meeting, made out pursuant to section 304 of the Corporations Law, be signed on behalf of the Board by two of the Directors present and attached to the Company's accounts for the year.
There is also in evidence a document purporting to be minutes of the annual general meeting of the members of Cinema Plus held by telephone on 10 October 1995. The only people reported as present were directors, all of whom were shown as present by telephone. The minutes include the following:
Financial Statements: The company's accounts for period ended 30th June, 1995 with the reports thereon were tabled. It was resolved that the accounts and the reports thereon be received and adopted.
Mr Brimaud was recorded as being present "by telephone" at both meetings. That fact was not the subject of any cross-examination. However, Mr Blom was cross-examined concerning the terms of the report of the directors which forms part of the annual accounts of Cinema Plus for the period ended 30 June 1995.
The report of the directors and the statement by directors are both dated 10 October 1995. Significantly, the report of the directors contains the following statement:
No options to shares in the company have been granted during the financial period and there were no options outstanding at the end of the financial period.
There was no explanation from Mr Brimaud as to how he would be a party to such a report, having regard to the terms of the 8 May Agreement. Mr Blom said, in cross-examination, that he believed that the statement was true. That is difficult to accept having regard to the way in which he described the right conferred by paragraph 4 of the 8 May Agreement. He referred to the right as "options to take up shares in Cinema Plus". He agreed, in cross-examination, that it was an option "associated with the issue of new shares in Cinema Plus".
In about the second week of October 1995, Mr Brimaud received notice of a directors' meeting of Cinema Plus to be held on 17 October 1995. The board papers for the meeting included financial information comprising, inter alia, a "Pro Forma Balance Sheet Projected to Opening Date" of Cinema Plus. That pro forma balance sheet disclosed shareholders' equity as including the following:
* paid up capital (20 cents) $953,488;
* share premium reserve $1,713,854.
A note to those items states as follows:
Issued capital is represented by 4,767,442 ordinary shares totalling $2,667,342.
A further document entitled "Summary of Share Capital Structure" set out the issued capital as follows:
Shareholder
CLASS
Shares Allocated
Votraint
A
1,440 Votraint (Options to be exercised) (Issued out of share premium account)
A
1,428,793 Boston Securities Entertainment Investment Pty Ltd (Note: 5% - 238,378 B Class Shares on sold by
Boston to Spatt group of investors)
B
1,668,605 Macquarie Bank C
1,430,232 Boston Securities Ent. Inv. P/L (Off balance sheet expenditure by Braniff/Boston
to be converted to C Class Shares.)
C 238,372
The agenda for the board meeting also included an item as follows:
Tabling of share transfers to [sic] Cinema Plus Pty Limited board from Boston Securities Entertainment Investments for the transfer of 238,378 shares to the minority shareholders.
The minutes of that meeting record the approval of transfers of 238,372 "B" class shares from Boston to the following transferees:
* Capital Credit Company Pty Limited - 139,554 shares
* Vosare Pty Limited - 84,862 shares
* Mergamin Pty Limited - 13,956 shares
The next step in the initial capitalisation of Cinema Plus took place on 21 March 1996 when 238,372 "C" class shares were issued to Boston. As a result of that allotment, the issued capital of Cinema Plus was 4,767,442 shares of 20 cents each, on the assumption that the option granted to Votraint would be exercised. The shares would therefore be held as follows:
* Votraint: 1,430,233 "A" class shares
* Boston: 1,430,233 "B" class shares
238,372 "C" class shares
* Macquarie Trust 1,430,232 "C" class shares
* Spatt Group of Investors 238,372 "B" class shares
Failure to Exercise the Option for the Second Tranche
Mr Brimaud said that after the meeting of 17 October 1995 he spoke to Mr Blom and asked him why he did not raise Mr Brimaud's shareholding. He said that Mr Blom told him to stop worrying and to send him Mr Brimaud's "bill to part pay the shares". Mr Blom did not deny that such a conversation took place. In any event, Mr Brimaud subsequently forwarded to Cinema Plus a fee note in the name of "International Consulting Services Pty Limited" dated 24 October 1995. The fee note was headed "Darling Harbour IMAX Theatre Project" and was said to be on account of:
Consulting services including attendances, correspondence and advices provided to the Company, on and from December 1994.
The services were detailed over two pages. The fee note ended:
Significantly in excess of, but say.... $45,000
The status of International Consulting Services Pty Limited was not the subject of any evidence. The address shown in the fee note referred to above was Mr Brimaud's residential address. There was some evidence that International Consulting Services Pty Limited was a company previously controlled by Mr Brimaud's father and that Mr Brimaud had changed its name after his father's death. Mr Brimaud said that he is now the only shareholder and director of International Consulting Services Pty Ltd.
Further meetings of the directors of Cinema Plus were held on 28 November 1995 and 13 December 1995. The former was attended by Mr Brimaud by telephone according to unsigned minutes. Mr Brimaud is also recorded in unsigned minutes as being present at the meeting on 13 December 1995. It is significant that although a proposal had been received by Cinema Plus from IMAX which was regarded as generally acceptable, the minutes of the meeting of 13 December 1995 record the following:
Essentially, it appears that the climate of conciliatory negotiation we have cherished with Brian Hall is not indicative of the IMAX corporation as a whole... It is imperative that the company establish its ground either one way or the other with IMAX before Christmas. It is the desire of both management and investors of the company to form a strategic alliance with IMAX however, we will not commit to any agreement that is detrimental to the company. Accordingly, the board is in agreement that negotiations be urgently elevated beyond Brian Hall and contact made directly with the board of IMAX. It was resolved that a sub-committee be formed and the powers of the board be duly assigned to the committee so that it is empowered to complete negotiations on behalf of the company with IMAX. The duly authorised members of this committee are Gary Blom and Michael Traill. ........ ........ ........ ........ .... The agreement as it stands does not provide for any financial penalties, however, if certain performance milestones are not met the company could be exposed to the payment of minimum royalties on sites not yet operational, and in the worse case scenario the company's exclusivity for Australia and New Zealand would be extinguished. Accordingly, the board recognises that once Sydney is on its way and Melbourne under construction the company will be in a much stronger position to re-negotiate any timing issues in respect of payments and upgrades, etc. ........ ........ ........ ........ .... The sub-committee will continue to keep all members abreast of development as they occur [sic].
The significance of that item in the minutes is that the success of Cinema Plus must, at that stage, be seen to be at least somewhat equivocal.
Two days after the meeting, Mr Weiley wrote to all directors, including Mr Brimaud referring to a court case in which IMAX was involved against "IWERKS" which was described as "its competitor in the 15/70 projector manufacturing business". The letter to the Board finished as follows:
IWERKS would be delighted to install and maintain our IMAX projector and sound system, to supply and install our screen etc. and to sell us a matching a 15 perf projector if we want to go to 3D. Adopting this alternative would be fraught with difficulty but if dealing with Imax Corp goes from being almost impossible to completely impossible it is important to remember that there are other ways of skinning this cat.
On the same day, Mr Traill wrote to IMAX in New York saying, inter alia, as follows:
I am writing to express concern at certain recent developments. In particular, some of these seem to reflect a hardened and, in some cases, uncommercial approach on the part of Imax and I would appreciate the opportunity to take up the offer expressed by you in our phone call to talk directly if any blocking points to completing an agreement emerged. From my reading of Brian Hall's letter of November 29, 1995 to Gary Blom there are two key issues which need to be addressed, on both of which Imax's current position appears to have been modified substantially relative to the tenor of discussions held over the last 3 months ........ ........ ........ ........ .... My concern is that there appears to have been an adversarial framework for discussions that has recently developed, which is inconsistent with the dialogue between Gary and Brian over the last three months and the conversation between you and I [sic].
The significance of those matters is to indicate that an air of concern was apparent by December 1995. In other words, while there may still have been optimism on the part of the directors of Cinema Plus, it appears that there was cause for some concern at the turn of events in the negotiations with IMAX. The conflicting evidence between Messrs Brimaud and Blom concerning discussions which took place between them in December 1995 must be assessed against this background.
It is common ground that some discussions took place between Messrs Brimaud and Blom during November and December 1995. The two versions of the discussions, however, are quite inconsistent in some respects. Mr Brimaud said that in late November 1995 he had a telephone discussion with Mr Blom as follows:
Brimaud: Gary, I would like to finalise our agreement. When can we do it? Blom: I am working on a plan which may save you having to find the cash to pay for the shares. I mentioned before the possibility of floating the company. If that happens it will be a good opportunity to grant you options which you won't have to pay for right away. Lets get together soon to discuss it.
Mr Blom denied that such a conversation took place.
Mr Brimaud said that after the directors' meeting of 13 December he had a another conversation with Mr Blom as follows:
Brimaud: We had better talk about my shares and when I have to pay for it. Blom: I wouldn't worry about it. As I told you. I am looking at an alternative way for you to get the shares without having to outlay funds at this time. Why don't you give me a ring when you get back to the office.
Mr Blom denied that such a discussion took place.
Mr Brimaud said that within the next few days he had a further discussion with Mr Blom as follows:
Blom: What are you doing over Christmas? Brimaud: I am not sure. I have made no firm plans. I was thinking of going away but don't think I will now. Blom: Well why don't you come to the Hunter. I will have the family and we can catch up and talk about Cinema Plus. Brimaud: What are your movements? Blom: We will be at the Hunter over Christmas and then we may go to the South Coast. Brimaud: Well I am not sure, can I ring you next week? Blom: Sure. It would be a good opportunity for us to get together and talk. Brimaud: Being December when should I pay for the options? Blom: That is not important. As I have told you I am going to try to work something out that will be better for you. I do appreciate what you have done. Trust me.
Mr Blom denied that any conversation about options in the terms asserted by Mr Brimaud took place. Mr Blom, on the other hand, asserted that in December 1995 he spoke to Mr Brimaud and had a conversation to the effect of the following:
Blom: Are you going to take up the option to purchase the shares? Brimaud: I don't have the financial ability to come up with the money. I am near a settlement with my partners. Can I have $45,000 cash instead for my services and forget about purchasing the shares. Blom: I can't do that. However, we will be structuring a profit share or option scheme for non-executive directors which you would be entitled to participate in. Brimaud: That would be great.
It is common ground that Mr Brimaud did not purport to exercise the option conferred by paragraph 4 of the 8 May Agreement. The conversations in dispute, to which I have just referred, are critical to the basis upon which Mr Brimaud says he was, nevertheless, entitled to treat the option contained in paragraph 4 as continuing on foot during 1996. Mr Brimaud said that he believed what Mr Blom had said to him, as set out above, and that he relied on Mr Blom's "statements and assurances". In his signed statement he said:
I did not think that I had to exercise the option formally in writing or to make formal application for the shares. I expected that Blom would let me know when he required payment. But for that conduct of Blom and my reliance upon it I would have exercised the option in a formal manner and by 31 December 1995.
Development of a Rift between Messrs Blom and Brimaud
On 15 January 1996, Mr Brimaud received a memorandum from Mr Blom announcing that on 22 December 1995, "we signed an agreement with Imax Corporation which grants Cinema Plus exclusive agency for the Australian and New Zealand Territory". Mr Blom went on to say that the signing of the agreement "now puts the company in an excellent and strong position".
Mr Brimaud said that later in the week beginning 22 January 1996, he had lunch with Mr Blom during which, he says, the following discussion took place:
Brimaud: When can we get everything finalised? Blom: I am still talking to the brokers. I have a few ideas but I am waiting for them to come up with some proposals. Don't be anxious.
Mr Blom denies that such a discussion took place. Mr Brimaud says that Mr Blom also said to him on that occasion:
If I were you I would concentrate on one or two important projects. Get your money together for the shares and concentrate on making Cinema Plus a big success.
Mr Blom does not deny that such a discussion took place and said that he had numerous discussions with Mr Brimaud about that time in which he said words to the effect:
You should get your money together for the Cinema Plus shares now. Once Cinema Plus floats, the Boston shares will be in escrow.
Whichever version is accepted, the discussion appears somewhat equivocal. No distinction is drawn between the two tranches of shares provided for in the 8 May Agreement.
Mr Brimaud also says that on the night before the meeting of directors of Cinema Plus fixed for 6 March 1996, he had a conversation with Mr Blom as follows:
Brimaud: How will the float affect my shareholdings since my entitlement is to 2% of the fully diluted capital of the company? Blom: I can't answer that question at the moment. I have been talking to a number of brokers like Bain and Pru-Bache. I can't do anything without a valuation. It is being worked on. We can then have a talk and finalise our agreement. Ken stop worrying.
Mr Blom denied that such a discussion took place. The significance of that discussion, if it took place, would be that it appears to involve acceptance by Mr Blom that Mr Brimaud was still entitled to "2% of the fully diluted capital of the company" as at March 1996. He would be unlikely to have accepted such a proposition from Mr Brimaud without question if he thought that the option had lapsed following its non-exercise before the end of December 1995.
No document was brought into existence prior to April 1996 which in any way confirmed either Mr Brimaud's version or Mr Blom's version of the discussions which took place in December 1995. However, Mr Brimaud brought into existence a diary note dated 2 April 1996 following a meeting which, according to the diary note, took place between Messrs Brimaud and Blom at 8 a.m. that day. Mr Brimaud said that in the course of the meeting, the following discussion took place:
Blom: I've got a valuation from Pru-Bache. They valued the company at $70 million. You are going to have a huge capital gains tax problem. Brimaud: Why is that? Blom: Because your shares will be worth a lot of money. You will have to find the money for the tax because you will not be able to sell your shares for about two years. They will be in escrow. Brimaud: Have you taken expert advice on that? Blom: Yes, I have. Brimaud: Well I doubt if that is correct but I will also check on it. Brimaud (after referring to "2% of the fully diluted capital of Cinema Plus"): I hope the float will not dilute my interest. Blom: Well your equity will be diluted, just as mine will. Brimaud: To what extent? Blom: Your 1% will probably be diluted to .6%. But it is better to have .6% of $70 million rather than 1% of $7 million. Brimaud: Well Gary, I hope that I am getting the full 2% and that you will not renege on it. I did not write to you formally exercising the option to take up the additional 1% because you said it wasn't necessary. I am still waiting to hear from you when I have to pay for them. Blom: I am still talking to brokers. I think we will go with Pru-Bache. I have told you not to worry and to trust me. You do have an important role to play in promoting the theatre to tourist and cultural bodies. I'd like you to help organise the opening night. It has to be a spectacular affair like one of those Powerhouse opening nights.
Mr Blom denied that such a conversation occurred. Mr Brimaud's diary note of the discussion, after referring to his own understanding of the effect of the 8 May Agreement, went on to say as follows:
Gary said that there would be a capital gains tax problem in relation to the 1% already half paid for on the float of Cinema Plus because the value of the shares would increase significantly. After discussing the capital gains issue, I indicated that the 2% was always intended to be of the fully diluted capital of Cinema Plus and that this should be taken into account on the proposed float as it would have the effect of reducing the agreed share of equity I was to be given. He replied by saying that this was a necessary consequence of a float and affected his shareholding as well. He said in response to a question from me that the dilution would be in the order of 40% and that it was better that I had .6% of $71 [million] rather than 1% of $7 million. In relation to the further option to purchase shares being the equivalent of an additional1% of the fully diluted capital of Cinema Plus, he confirmed that he had waived the date on which the option was to be exercised and he would put in place an option and bonus plan which would effectively give me what had been promised in our agreement without me having to shell out any funds on the exercise date while being able to exercise the option over a longer period of time and pay for the options if and when I onsold the shares. He indicated that there were discussions going on with the brokers, and the preferred broker for the float would be Prudential. He repeated again that he intended to honour the agreement to the letter and indicated that he had a role for me to play in relation to the Tourism and Institutions linkage and discussed putting me in charge of the opening night. [Emphasis added.]
The diary note has a self-serving air about it. Further, Mr Brimaud conceded, in the course of cross-examination, that the diary note was not an accurate record of what was said. Mr Brimaud's evidence was as follows:
He didn't use the word, waived, he said he had another plan in place. He didn't say I waived the date. He said, I am giving you a 1 per cent in a different way, I've got an option plan, option bonus plan. ... he didn't say I'll waive the date, waive the date.
When asked what caused him to include a statement that Mr Blom confirmed that he had "waived" the date, Mr Brimaud said:
Because he said words to me that indicated to me that the date, that we had gone beyond December 1995 and that I would be getting the 1 per cent through another way, through an option and bonus plan that he would be putting in place.
That, of course, is not a waiver but a confirmation of a different arrangement. The diary note does not corroborate the version of the conversation which Mr Brimaud set out in his statement. Further, Mr Brimaud's concession in cross-examination indicates that the diary note itself is not a reliable record of what was said at the time. In the circumstances, I do not regard it as corroborative of the version of the discussion in December 1995 relied on by Mr Brimaud.
If anything, it tends to corroborate Mr Blom's version that there was a discussion about a profit share or option scheme for non-executive directors which would give Mr Brimaud an interest in the equity of Cinema Plus without any need on his part to pay out funds which would have been necessary upon exercise of the option. Indeed, the statement that Mr Blom "intended to honour the agreement to the letter" is hardly consistent with an arrangement which involved a variation of the 8 May Agreement, or a departure from the strict performance of its terms.
On 9 April 1996, Mr Brimaud received from Mr Traill a copy of a letter of 1 April 1996 from Prudential-Bache Securities (Australia) Limited ("Pru-Bache"). The letter stated that Pru-Bache had arrived at a preliminary valuation of the Cinema Plus business of approximately $70 million. The letter set out a pro forma capital structure of Cinema Plus assuming an issue to the public to raise $30 million. The capital structure disclosed set out shareholdings as follows:
* Boston - 20%
* Votraint- 17%
* Macquarie Trust - 17%
* Other vendor shareholders - 3%
* New investors (following public issue) - 43%
The letter, after saying that the capital structure assumed that there was no sale by the vendors of their shares in Cinema Plus, also said:
In Prudential's view share market perception of promoter's commitment is essential to the success of a float and for this reason we strongly advise that the vendors of the Cinema Plus business do not sell their shares.
The letter went on to refer to the requirements of the listing rules of Australian Stock Exchange Limited ("ASX") restricting the transfer of ownership of securities issued by a company in consideration of the acquisition of any interest in an asset for which value cannot be readily ascertained. The letter also said that ASX had consistently imposed "escrow periods" of between 18 and 24 months depending on its assessment of the investment risk to the public. The letter expressed the belief that ASX would impose an escrow period of 2 years on securities issued to the vendor shareholders of Cinema Plus. However, the letter referred to precedent for ASX excluding from escrow vendor securities up to the value of a vendor shareholder's original investment in the business.
Mr Brimaud said that a further conversation took place with Mr Blom following a presentation to the directors of Cinema Plus at the offices of Macquarie Bank on 16 April 1996. Mr Brimaud said in his statement that the conversation was as follows:
Brimaud: What is happening? When can we finalise our agreement? We are talking about a float and I still don't know what my position is. I can pay for the shares. Blom: We have to wait until the Board decides to go ahead with the Pru-Bache proposal and then we can put it in place. Brimaud: But I still don't know what you have in mind in relation to the additional 1%. Blom: I don't know how many times I've told you not to worry. You have no reason not to trust me. Once we get it through the Board then we can move. Be patient.
Mr Blom denies that such a conversation took place. He conceded, however, that he had a number of discussions with Mr Brimaud in which he said that it was still his intention that the non-executive directors of Cinema Plus, including Mr Brimaud, would participate in a share option scheme. Even if the conversation took place as asserted by Mr Brimaud, it is equivocal in relation to Mr Brimaud's version of the discussions in December 1995.
During April 1996, a dispute arose within Cinema Plus which has a bearing on one of the claims made by Mr Brimaud. The dispute concerns the proposed appointment of Ms Julie Steiner as managing director, or chief executive officer, of Cinema Plus. The dispute was essentially one between Messrs Blom and Weiley.
On 20 March 1996, Mr Blom, purporting to act as managing director of Cinema Plus, had written to Ms Steiner offering her the position of managing director of Cinema Plus and setting out proposed remuneration. Ms Steiner was also offered an option to acquire "an equity position" in Cinema Plus. The letter said that 139,554 shares at a price of $1.674 would be available for her acquisition "from an existing minority shareholder".
It appears that Mr Weiley was unhappy about the proposed appointment of Ms Steiner. The reasons are not clear and are probably not relevant to the issues before me. On 11 April 1996, Mr Weiley wrote to Ms Steiner saying, relevantly, as follows:
As you have no doubt become aware, the process of attempting to arrange for you to join Cinema Plus as CEO has been extremely unsatisfactory from my point of view. Pretty much everything that could be done to create a fait accompli and extinguish my rights to have an equal say in the matter has been done. The fact remains that you cannot be appointed to the position until more than 85% of the shareholders vote for you at a board meeting and also approve the terms of any contract with you. ........ ........ ........ ........ .... If you are still interested in the position and would like to try to sort this problem out I would be happy to meet you as soon as possible after your return. The board meeting to resolve this matter will have to be held within a week or so. ........ ........ ........ ........ ....
Mr Weiley was clearly referring to clause 7.4 of the shareholders' agreement entered into on 29 June 1995 which is set out above.
A meeting of the directors of Cinema Plus was proposed for 22 April 1996. One item of business was the appointment of Ms Steiner as chief executive officer. On 22 April 1996, that meeting was deferred to 24 April 1996. However, for reasons which are not clear and probably do not matter, the meeting did not take place. The next meeting took place on 22 May 1996 in circumstances of some acrimony.
The May Correspondence
In the meantime, a further discussion took place between Messrs Brimaud and Blom on 1 May 1996. Mr Brimaud said that the conversation was as follows and Mr Blom did not dispute that version.
Brimaud: I have had a chance to look at the Prudential-Bache proposal. I could be serious disadvantaged. I will write to you and put my concerns in writing rather than do it now on the telephone. Blom: Ken, there's no need to do that. I have told you 27 times now that you don't have to worry. It will all be done before the theatre opens. Brimaud: I know Gary. I am just afraid that if we don't sort this out now, especially given the problems with Weiley, it could get messy. There are a number of things that could happen with a float. I don't know exactly what you are planning. Anyway, its better if I put it in writing so you can give it proper consideration.
The conversation is equivocal in relation to the issues before me. In any event, the letter foreshadowed by Mr Brimaud was written on 2 May 1996. Thereafter, there was a series of letters passing between Messrs Blom and Brimaud concerning the 8 May Agreement. The terms of that correspondence are of some significance in resolving the dispute as to the disputed discussions in December 1995. Running in parallel with the latter part of that series of letters, was a further line of communications, mostly oral but some in writing, between Mr Brimaud on the one hand and Mr Blom and others concerned with Cinema Plus on the other. The second line of communications resulted from the dispute concerning Ms Steiner and Mr Blom's proposed resolution of that question. I shall deal with that second line of communications below.
Mr Brimaud's letter to Mr Blom of 2 May 1996 was in the following terms:
Dear Gary, Cinema Plus Pty Limited I refer to our telephone conversation yesterday when I indicated to you that I was proposing to write to finalise my shareholding position in the company in the light of the proposed public issue. Also, from our telephone discussion there appears to be a strong possibility of a change in shareholding in the company before the proposed float and this is all the more reason to document and finalise the issue of my equity in the company. As you know, I only received a copy of the Shareholders Agreement from Michael Traill last Friday week prior to the aborted Board Meeting of 22 April, the papers for which also contained the Prudential-Bache letter on the proposed public issue. The information I received from these documents impact on our agreement of 8 May 1995. In our telephone conversation you referred to having told me "27 times now" that you would ensure I received the benefits under our agreement. I do not doubt your sincerity but since receiving the copy of the Shareholders Agreement and details of the proposed float, it is clear that I would be seriously disadvantaged by not receiving the second 1% equity since for each share in the existing company it appears I would receive 8.39 shares in the public company. Perhaps you could let me know how you propose to cover this with the options plan you told me you were in the process of preparing with Michael Traill? When we last discussed this issue, over coffee on Tuesday afternoon of 16 April, after the MoV presentation, you seemed to say that I had lost the additional 1% because I failed to formally exercise the option to purchase by the due date (December 1995). Perhaps I misunderstood you because you did reassure me (you would say 'yet again') that I would obtain this benefit but in another way. On a number of occasions, prior to and after December 1995, you indicated you were formulating an options/bonus plan as a suggested alternative which would be better for me as it would minimise or draw out the cash commitment for the additional 1% equity. This was mentioned in the context of floating Cinema Plus and I recall you mentioning discussions with Bain and Dicksons. Indeed, in our breakfast meeting on 2 April you specifically said I should not be concerned about the additional 1% because you intended soon to submit the options/bonus plan for Board approval. Thus, from our many discussions, I formed a clear impression that the exercise date for the option was not a 'deadline' because you had not finalised your alternative proposal for my consideration. On these occasions you would criticise my bringing up the topic yet again as you had repeatedly told me you 'would look after me'. What I need to know now is the nature and value of the equivalent benefit you are proposing so we do not find ourselves in conflict later. It may be that your plan is to issue options in the present entity which will have a right to options in the float with a factor of 8.39 which might achieve the result you intend. However, the number of options issued to me should not only reflect the 1% additional equity offered to me but also the options I would have received as a director of the company. ........ ........ ........ ........ .... Gary, I am sure you appreciate the value of my contribution which along with yours was vital to the project getting up. If the DHA deal had not eventuated there would have been no Imax exclusive rights and the wealth which has been created for you in the project would not have happened. The equity I have been promised is minuscule by comparison and I am paying a premium for it. I have no doubt that you want to do the right thing by me and honour our agreement. I appreciate there are many important issues to focus on now and I would like us to do so and get this matter resolved and finalised. Like you, I am fully committed to the success of Cinema Plus and excited by the opportunities that lie ahead. I know I can make a significant contribution to the company's future development and look forward to continuing our close relationship. Kind regards. Yours sincerely,
It is significant that Mr Brimaud did not, in his letter of 2 May 1996, attempt to confirm the conversations which he asserted had taken place in December 1995. The references to the proposed formulation of "an options/bonus plan" as an alternative which would minimise or draw out the cash commitment is important. That is not inconsistent with Mr Blom's assertion that he referred to a proposed profit share or options scheme. It is also consistent with Mr Brimaud's diary note of 2 April 1996 to the effect that the option and bonus plan would give Mr Brimaud what had been promised without Mr Brimaud having "to shell out any funds on the exercise date while being able to exercise the option over a longer period of time and pay for the options if and when they are onsold to the shares".
The conclusion in Mr Brimaud's letter of 2 May 1996 was that he had "formed a clear impression" from his many discussions with Mr Blom. He did not assert that Mr Blom had said that it was "not important" that he pay for the options and that Mr Brimaud should "trust" Mr Blom.
It is also of significance that Mr Brimaud's reference to the alleged discussion of 16 April 1996 in the letter of 2 May 1996 is not consistent with the version of that discussion which he included in his statement as set out above. There is no suggestion in that version that Mr Blom "seemed" to say that Mr Brimaud "had lost the additional 1% because I failed to formally exercise the option to purchase by the due date (December 1995)". That is another reason for rejecting Mr Brimaud's statement as reliable evidence of conversations.
The thrust of the 2 May 1996 letter is a complaint about the absence of the options bonus plan as follows:
What I need to know now is the nature and value of the equivalent benefit you are proposing so we do not find ourselves in conflict later.
There never was a satisfactory response to that demand. However, if Mr Brimaud truly believed that the date for exercising the option for the second tranche had been deferred and also understood that Mr Blom was saying on 16 April that because of failure to exercise the option by the due date the second tranche had been lost, it is surprising that there was no protest by Mr Brimaud in the letter of 2 May 1996. It would also be surprising if there were no complaint at the meeting on 16 April 1996.
On 14 May 1996, Mr Blom responded to the letter of 2 May 1996 in the following terms:
Dear Ken, In accordance with your letter of 2 May 1996 I am writing to confirm with you what has been agreed previously in our many discussions. As per our agreement of 8 May 995, Boston Securities Entertainment Investment Pty Limited ("Boston") agreed to allot you 47,647 shares (1%) of its shareholding in Cinema Plus Pty Limited ("Cinema Plus") at a price of $1.674 per share. Fifty percent of this amount has been fully paid by way of contra of your legal services provided in assisting with the DHA negotiation. The remaining fifty percent still outstanding requires payment no later than 31 December 1996. In the event the Board of Cinema Plus decides to proceed with the public offering as planned you will need to pay the balance outstanding of $39,903 to Boston so it may issue you with the appropriate share certificates prior to the issue of any new shares. In regard to the additional one percent (1%) you were granted an option to purchase a further 47,674 at $1.674 which was to be exercised no later than 31 December 1995. Prior to December 1995 you advised me that you were short of funds due to the fact that you needed money to settle an outstanding legal problem with you[r] old law firm. Based on this situation I advised you, that rather than your funding an additional $79,806 to take up your option, it was our intention to issue Directors who are non-shareholders, management stock options and that you and Keith Moremon would participate in this non-executive option scheme. Based on discussions with other shareholders it is our intention to issue stock options to non executive directors (K. Brimaud, K. Moremon), senior executives and key employees prior to the company going public. Once we have determined the actual capital structure and the price per share we will be formalising the actual number of options to be issued to the various parties. Assuming at the time of the public offering the share price is $1, these options would be issued to directors and management at the same value and would be subject to similar escrow provisions that will apply to all existing shareholders which we anticipate will remain in effect for 24 months. ........ ........ ........ ........ .... In addition, I wish to confirm with you that you are the only director currently receiving a monthly consultancy fee which we agreed to continue until opening of the theatre and thereafter at the rate of $2,500 per month for your past and current involvement. I trust that this clarifies and confirms the situation. Ken, I honestly do appreciate all of your efforts to date and trust that you will be involved with Cinema Plus for many years to come. Yours sincerely, Gary Blom
One matter of significance which emerges from that letter is the unequivocal acceptance by Mr Blom that, in respect of the first tranche of shares in Cinema Plus, part of the price had already been made "by way of contra of your legal services". While Mr Blom, as he subsequently acknowledged, was incorrect in referring to payment of 50%, the letter constitutes an unequivocal acceptance of part payment in respect of that tranche.
More significant, however, is the assertion by Mr Blom that Mr Brimaud had advised him that he was "short of funds due to the fact that you needed money to settle an outstanding legal problem with you[r] old law firm". Mr Brimaud himself said that he had told Mr Blom in the discussion in 1995 which preceded the 8 May Agreement that he was keeping some cash in reserve "to settle some outstanding claims relating to my old firm". That language is consistent with the language used by Mr Blom in his letter. On the other hand, Mr Blom's language in the letter does not support the language he set out in his statement:
I don't have the financial ability to come up with the money. I am near a settlement with my partners.
Further, there is no suggestion in the letter that Mr Brimaud had said, as Mr Blom asserted in his statement:
Can I have $45,000 cash instead for my services and forget about purchasing the shares.
However, the reference to an intention that Mr Brimaud would participate in a "non executive option scheme" is more consistent with Mr Blom's version of the December discussions than Mr Brimaud's.
On 20 May 1996, Mr Brimaud wrote again to Mr Blom, this time in the following terms:
Thank you for your letter of 14 May 1996, but there are a number of statements you have made with which I disagree. First, in arriving at the price Macquarie Bank paid for their shares you suggest that their $1 million convertible note should be factored into the calculation. I understand this note is treated by the bank as 'debt' and it was originally planned that if the project was successful it would be retired from profits. If it was not sufficiently profitable the bank may elect to convert it to shares. Hence, the price I should be paying is less than $1.398 per share. What Nathan Spatt paid is immaterial. In calculating the amount payable by me by 31 December 1996 I would point out that I rendered an account for my services for an amount of $45,000 last October which was to be by way of contra against the cost of my first 47,647 shares (1%). Based on a price of $1.398 per share the total cost would be $66,610 with a net amount payable of $21,610.00. Secondly, in relation to the additional 1% equity for which I was granted an option, I did advise you at the time that I may have a settlement payment to make but had set aside funds for that purpose. I never did say that I could not or would not take up the option since at the time I had more than sufficient assets to raise the funds and this fact is easily verified. You suggested you had a plan involving options which would provide me with an equivalent benefit without a cash outlay. Accordingly, in relation to your stated intent to issue stock options to non-executive Directors, am I to take it that this means that I will receive 47,674 options which in the public float would each be entitled to 8.39 options which equates to 400,000 options? If so, then you would be giving me the equivalent value under the alternative arrangement you had suggested. If no, you misled me when you said (on more than one occasion) that I need not worry abut exercising the option. The alternative you proposed of the issuing of options is predicated on there being a public float. However, if this does not occur then the original arrangement whereby I purchase outright the further 1% equity stands. In that case we need to agree the timing for the payment of these shares. Thirdly, I am not the only Director receiving a consultancy fee. You and John Wieley [sic], either directly or indirectly, are receiving consultancy fees for your services. In my case, it was part of our agreement that I would have a Board seat and until the opening be paid a fee to be called a consultancy fee which would be converted to a Director's fee of $2,500 per month after opening. Finally, I am pleased you appreciate my efforts on behalf of the company and that you would like me to be involved with Cinema Plus for many years to come. I am sure that you will acknowledge, on reflection, that what I have outlined is a true and accurate account of the position and honour our agreement. We should therefore move to finalise these aspects of our agreement as soon as possible. Yours sincerely, Ken Brimaud
Mr Brimaud again referred to the possibility of a "settlement payment". That clearly refers to the discussions which took place in April 1995. Mr Brimaud, however, then goes on to refer to the time at which he would have been required to take up the option, namely by the end of December 1995. His assertion that he had "more than sufficient assets to raise the funds" is significant for reasons which will appear later. That is a matter which goes to the heart of Mr Brimaud's credibility as a reliable witness. The reference to Mr Blom suggesting that he had a plan involving options relates to the same time, namely, the time at which the option for the second tranche would have been taken up.
In this letter, however, Mr Brimaud complains about being misled when, as he says, Mr Blom told him that he "need not worry about exercising the option". Mr Brimaud, however, does not specify in the letter when it was that Mr Blom told him not to worry about exercising the option. In the letter he took the stance, which he maintained in the proceedings, that if options were not issued following the public float, the original arrangement should stand, in which event it would be necessary to agree on the timing for payment.
Mr Blom's response of 22 May 1996 to Mr Brimaud's letter of 20 May 1996 confirmed without equivocation that Mr Brimaud's obligation in respect of the first tranche had been satisfied to the extent of $45,000, leaving a balance outstanding $34,806. In relation to the second tranche, however, the letter was somewhat equivocal. It confirmed Mr Blom's intention in relation to non executive director stock options but it does not assist in determining whether or not the option was still on foot. It confirms Mr Brimaud's expectation that, if the public float proceeded, his entitlement would be approximately 400,000 options in the new structure. However, it says nothing about the option for the second tranche under the 8 May Agreement.
Mr Brimaud placed reliance on the expression in the letter "you will still be entitled". However, that appears to me to refer to a continuation of an entitlement under the non executive director stock option scheme, notwithstanding change in the valuation or issue price. It does not, in my opinion, constitute an acknowledgment that there is still in existence an option under the 8 May Agreement.
Removal of Mr Brimaud as a Director
The dispute between Messrs Weiley and Blom concerning the proposed appointment of Ms Steiner gave rise to a series of communications between Messrs Brimaud and Blom in the second half of May 1996. Mr Brimaud prepared diary notes reporting his discussions with Mr Blom and others. There was also an exchange of letters between Messrs Brimaud and Blom.
On 21 May 1996, Mr Brimaud and Mr Blom met, at Mr Blom's request, at 10.30 a.m. Mr Blom told Mr Brimaud that he wanted Ms Steiner to be appointed to the board so she could hold herself out as having the necessary authority to perform her duties adequately. Mr Blom told Mr Brimaud that he had consulted Mr Gilbert of Messrs Gilbert and Tobin, the solicitor for Cinema Plus, and suggested that he, Mr Gilbert, should step down and Ms Steiner be appointed in his place. Mr Blom said that Mr Gilbert advised that that would not be wise and that Mr Brimaud should be the one to resign from the board for Ms Steiner. Mr Brimaud recorded Mr Blom as saying that "our agreement" would remain in place and it would be a "temporary arrangement". Mr Brimaud indicated that they had an agreement whereby he was to have a board seat and receive a certain level of remuneration.
Later in the morning, Mr Brimaud spoke to Mr Gilbert who said that he had not advised that Mr Brimaud should step down from the board as it was not his idea or concept to put Ms Steiner on the board. Mr Gilbert agreed with Mr Brimaud's assessment that placing Ms Steiner on the board would provoke a reaction from Mr Weiley. Mr Gilbert said that he had indicated to Mr Blom that the proposal would be seen as a "back door" method of achieving what Mr Blom could not achieve under the shareholders' agreement. Mr Brimaud expressed his concern about being part of a scheme to circumvent the shareholders agreement. In the evening of 21 May 1996, Mr Brimaud had a series of conversations with other directors of Cinema Plus. The conversations appear to have been inconclusive.
On 22 May 1996, Mr Blom wrote to Mr Brimaud concerning his position on the board in the following terms:
In regard to the Board meeting today, I have reviewed your concerns made last night with Macquarie Bank and our company lawyers and, therefore, wish to confirm that I require you to resign as my nominee director for today's special Board Meeting. Please appreciate that this is only a temporary situation and I wish to confirm that you will be re-appointed as a director as quickly as possible. In the interim, I would ask that you remain as my alternate director and therefore you continue to receive all information that is regularly distributed to board members. Your monthly consultancy and entitlement to options, etc. will remain as my attached letter. As stated I will be appointing Julie Steiner as my nominee director, only until such time as the current shareholder dispute is resolved. Ken, please appreciate that this is a very difficult situation and one that must be strategically handled correctly. Your ongoing commitment and involvement in the project will continue as if you are a full member of the Board and hopefully this will only endu[r]e for a short interim period.
The attached letter referred to is the letter of 22 May 1996 referred to above dealing with the 8 May Agreement.
Mr Brimaud responded to Mr Blom's letter later in the day saying, relevantly:
I refer to our meeting yesterday morning in which you indicated that you wished to have Julie Steiner appointed to the Board of Cinema Plus Pty Ltd so that she would have the requisite executive authority as John Weiley has opposed her appointment as CEO. You put to me that I should step down from the Board temporarily in order to make way for Julie Steiner. You would then appoint me your alternate director and I would be receiving all Board papers and other information to which directors are entitled. After full consideration of your proposal, I believe that there are serious legal implications in my agreeing to resign. An obvious consequence is that I would be a willing participant in a scheme to circumvent or breach the shareholders agreement... Being put on notice of this provision and the fact that John Weiley objects to the appointment of Julie Steiner as CEO, to agree to your proposal could implicate me in an attempt to by-pass the shareholders agreement. ........ ........ ........ ... ...As I indicated to you, I am always willing to act in the best interests of the company. I do not believe that resigning from the Board in these circumstances is in the company's best interest. This morning I received a letter from you in which you advise me that you are removing me from the Board to make way for Julie Steiner. I note that you wish me to be your alternate director and that I will be re-appointed as a director "as quickly as possible".
The minutes of a meeting of the directors of Cinema Plus held on 22 May 1996 record the following:
Gary Blom advised that he has exercised his right under clause 7.3(c) of the Shareholders Agreement by removing his 'B' Class nominee director Ken Brimaud and appointing Julie Steiner. A letter dated 22 May 1996 received from Ken Brimaud was tabled acknowledging this fact along with a consent to act as director received from Julie Steiner also dated 22 May 1996. The company secretary was requested to complete the necessary Form 304 and lodge with the ASC. ........ ........ ........ ........ .... Gary Blom advised those directors present that he has appointed Julie Steiner as his Assistant. Those directors noted their approval of this appointment.
Mr Traill wrote to Mr Brimaud on 23 May 1996 criticising his decision to distribute his letter of 22 May 1996 to the other directors. Mr Blom also responded to the letter on 27 May 1996 saying, inter alia:
I find your view of the events pertaining to the appointment of Julie Steiner somewhat misplaced and ill informed. I take particular offence at your inference that our appointment is a "scheme to circumvent or breach the shareholders agreement". The appointment of Julie Steiner as both 'Assistant to the CEO' and a director of the board is fully within my powers vested to me by right of the provisions contained within the Shareholders Agreement. Furthermore, this is an agreement to which you are not even a party and to which you have no pecuniary interest. Please be advised that your actions have no doubt lead [sic] to the increased aggravation of the current shareholder dispute. Furthermore, I have extreme difficulty in understanding how such actions are in the best interest of the company or it's [sic] shareholders.
That letter was written by Mr Blom in his capacity as director of Boston. Mr Blom also wrote another letter to Mr Brimaud on 27 May 1996 as chief executive officer of Cinema Plus. That letter included the following:
I reject your suggestion that any of this is an attempt to by-pass or circumvent the shareholders agreement. The appointment of Julie Steiner as my assistant and to the board is in all respects lawful and in accord with the shareholders agreement. The shareholders agreement appoints me as CEO and I will remain CEO until a new CEO is appointed under the terms of that agreement. The characterisation which you have given this matter is wrong.
Mr Brimaud responded to Mr Blom's letters on 13 June 1996. In that correspondence he sought to justify his actions ending with the following comment:
It is unfortunate that the conflict with John Weiley has led to some uncertainty and disharmony between us. I hope there will be an early resolution so we can continue to work together to achieve the goals we have often spoken about.
The dispute between Messrs Weiley and Blom was resolved by Votraint transferring all of its shares to other members and Mr Weiley resigning as director, secretary and public officer of Cinema Plus. The shareholders' agreement was terminated. A reconstruction of the share capital then proceeded. All of those events occurred in August 1996.
The shares in Cinema Plus held by Boston, Macquarie Trust and the Spatt Group of Investors were treated as "restricted securities". The respondents relied on that restriction as a basis for contending that the 8 May Agreement was no longer possible of performance when Mr Brimaud signified his desire to complete in November 1996. However, there was no clear evidence as to how ASX would have treated a transfer from Boston to Mr Brimaud. If Boston, in performance of the 8 May Agreement, had delivered a transfer to Mr Brimaud in exchange for payment of the sum $34,806, that may not have been a contravention of the ASX requirements.
Even if it were, ASX may have been prepared to permit the transfer since it would have been the discharge of an obligation which came into existence many months before, namely on 8 May 1995. It is highly probable that Mr Brimaud would have been required to accept the same restriction as was imposed on Boston. That, however, is a different question although it is a relevant factor to be taken into account in considering the measure of damages which would be appropriate in the light of the breach by Boston and Cinema Plus.
The respondents contended that any obligation other than an obligation to vest 47,674 shares, being 1% of the issued share capital, was impossible of performance following the reorganisation of the share capital which occurred on 12 August 1996. They contended that a breach occurred on 12 August 1996 and that, accordingly, damages should be assessed as at that time. While the proposed public float was well under way by then, there was no certainty, so it was said, as to the realisability of any shares which Mr Brimaud would have acquired.
The best indication of value, so it was argued, was the value attributed to shares in Cinema Plus when Votraint disposed of its shares on 12 August 1996. Votraint sold 953,489 shares in Cinema Plus for $5,250,000 representing approximately $5.50 per 20 cent share. On that basis, 47,674 20 cent shares would have been worth $262,207. Accordingly, Mr Brimaud's damages would be $262,207 less the balance of $34,806 which was still payable.
That contention, however, is not tenable where the contract was still capable of being performed. For the reasons which I have indicated, I consider that the parties did not attach any significance to the number "47,674" other than specifying that it was 1% of the intended total issued capital. Accordingly, even after the reorganisation of the capital on 12 August 1996, it was still possible for Boston and Cinema Plus to perform by vesting 440,000 shares in Mr Brimaud, representing 1% of the issued capital prior to the public issue. Further, whether or not there was an anticipatory breach of the 8 May Agreement in August 1996, Mr Brimaud did not rely on that breach. He relied on the failure to perform in November 1996, after he called for performance.
The proper measure of damages for breach by a seller of fungible property is the difference between the contract price and market value at the date of breach or within such time thereafter as would be sufficient to enable the buyer to go into the market and buy the property which should have been delivered. By November 1996, shares in Cinema Plus were fungibles because they were listed for quotation by ASX. Accordingly, I consider that the appropriate measure of damage suffered by Mr Brimaud, as a result of the failure of Boston and Cinema Plus to vest in him in November or December 1996 440,000 shares in Cinema Plus, is the difference between $79,806 and the market price on an appropriate date.
The first day when Mr Brimaud could have gone into the market after the date fixed for completion in the letter of 15 November 1996 was 30 November 1996. On that date, shares in Cinema Plus traded between $1.09 and $0.99 and closed at $1.00. If that is the appropriate date, Mr Brimaud could have bought 440,000 shares for $440,000. On that basis, Mr Brimaud's loss was $440,000 less $79,806, namely $360,194.
However, Mr Brimaud may also be entitled to recover the $45,000 referred to in the fee note from his consultancy company. Although there is no claim for that sum in these proceedings, the proceedings have been conducted on the basis that there was a payment of that sum by Mr Brimaud in part payment of the price of $79,806. On that basis, that sum would be money recoverable as having been paid under a contract the consideration for which has totally failed. Mr Brimaud's loss, therefore, also includes the further sum of $45,000, making a total of $405,194. To that sum would be added interest under section 51A of the Federal Court Act 1976 (Cth).
However, as I have said, it is highly probable that, if Mr Brimaud had received 440,000 shares in Cinema Plus from Boston in November 1996, the restrictions imposed by ASX would have applied to those shares. Accordingly, the probabilities are that he would have been required to retain the shares until the expiration of two years from listing. That period will expire in October 1998. It would not have been possible for him to realise the 440,000 shares at market price before that time. Mr Brimaud contended that, in those circumstances, the appropriate date for determining market price is the date of judgment.
Mr Brimaud perceived that there would be a benefit for him in that course because the market price of shares in Cinema Plus during the trial was considerably higher than in November 1996. Mr Brimaud relied on observations made in Johnson v Perez (1988) 166 CLR 351 at 367 to the effect that, while, as a general rule, damages for breach of contract are assessed at the date of the breach, the rule will yield if, in the particular circumstances, some other date is necessary to provide adequate compensation. Mr Brimaud contended that it would not be appropriate to assess damages as at the date of breach in November 1996 because he would not have had the funds to go into the market to buy 440,000 shares at the then market price of $1.00.
However, the question is what amount of money would put Mr Brimaud in the position in which he would have been had there been performance by Boston and Cinema Plus. Where assessment of damages depends upon uncertain future events, it is legitimate for the Court to take account of what has actually happened (Willis v The Commonwealth (1946) 73 CLR 105 at 109). Mr Brimaud's inability to buy shares is not to the point. He would have received 440,000 shares which he probably would have been required to retain until some time in October 1998. Mr Brimaud would not have had to find funds to pay for shares but would have had both the benefit and burden of holding 440,000 shares during the period of compulsory retention.
The appropriate date, therefore, for determining market price of shares in Cinema Plus is the date of judgment, subject to a discount of that price to take account of the lack of saleability until the expiration of the period of compulsory retention. For example, on 31 July 1998, at the end of the hearing, shares in Cinema Plus were trading at $1.94. On that basis, the damages would be $853,600 less $79,806 plus $45,000 making a total of $818,794. That sum would be subject to a discount for any uncertainty in the market between judgment and the end of the period of compulsory retention, but would not attract interest under the Federal Court Act.
Second Tranche
In dealing with Mr Brimaud's credibility, I have indicated my conclusion that I do not regard as reliable his evidence concerning the alleged discussions with Mr Blom in late 1995 and his alleged reliance on those discussions in not exercising the option for the second tranche. There are other factors which lead me to conclude that Mr Brimaud's claims in relation to the second tranche should fail.
I have set out above the discussions in October, November and December 1995 which are said to constitute a variation of the 8 May Agreement in respect of the second tranche. However, even if I accepted that the conversations occurred as alleged by Mr Brimaud, they simply do not amount to a variation of contract. Mr Brimaud had insisted upon a degree of formality in making the 8 May Agreement. Mr Blom had apparently asked that the contract be simple but Mr Brimaud took the trouble to record formally the arrangement which they made. If Mr Brimaud believed that he was varying the 8 May Agreement, he would have insisted upon some manner of formality.
Further, if Mr Brimaud was truly relying on an explicit oral deferral of the exercise date for the second tranche, let alone an implicit one, he is the sort of man who would have wished to obtain some confirmation or would at least have made a file note of the relevant conversation. In April and May, for example, he produced a plethora of file notes recording in considerable detail discussions which he thought were important.
The parties to the 8 May Agreement included Cinema Plus. Mr Brimaud was always aware that there were directors of Cinema Plus other than Mr Blom and himself. There is no suggestion that Mr Brimaud made any effort to raise with the other directors the understanding which he said he reached with Mr Blom in December 1995. In his earlier discussion with Mr Blom, Mr Brimaud had been very careful to obtain an assurance from Mr Blom that he had authority to bind the other shareholders in relation to the arrangements which he was then entering into. By the end of 1995, of course, the affairs of Cinema Plus were attended with greater formality, having regard to the outside interests of Macquarie Trust and the Spatt Group of Investors. There was no challenge to Mr Blom's authority to act on behalf of Cinema Plus. However, I consider that Mr Brimaud would have sought some confirmation from the other directors at the end of 1995 if he really believed that he would be entitled to continue to exercise the option for some indefinite period into 1996.
Mr Brimaud, in his actions in 1995 and 1996, exhibited the character of a man who was careful to look after his own interests. It is highly unlikely, if Mr Brimaud believed that his conversations with Mr Blom had legal consequences, at least in relation to deferral of the time within which he could exercise his option, that he would have failed to raise the matter with the other directors or at least confirm the matter to Mr Blom in writing. Added to those considerations is the fact that Mr Brimaud was a solicitor with considerable commercial experience. It is even more likely, therefore, that, if Mr Brimaud believed he had an enforceable arrangement to defer the exercise of the option, he would have made some effort to confirm that arrangement in writing.
Mr Brimaud gave an explanation in cross-examination for not seeking written confirmation of his understanding. He said that he was concerned not to offend Mr Blom. However, that so called concern did not prevent Mr Brimaud from questioning Mr Blom about the various assurances he claimed Mr Blom had given him that "everything would be alright" and that he should "stop worrying". One wonders why Mr Blom would have been offended by confirmation of assurances which he had given.
Mr Brimaud's version of the conversation which he said occurred in October 1995, as set out in his statement, makes no mention of the second tranche. His concern appears to have been in relation to the first tranche. Even in the November conversation, according to the version in Mr Brimaud's written statement, there was no mention of the word "option" but only to a desire "to finalise our agreement". That could have been related to payment of the balance of the price for the first tranche. Mr Blom's alleged response is curious if Mr Brimaud had never suggested that he had a problem with making the necessary payment or payments.
In the course of cross-examination, Mr Brimaud gave two additional versions of the discussion in November 1995. On one occasion he said:
What is happening about my shareholding and about exercising the option?
On another occasion he claimed that he said:
What about my shares, when can we do something about it? Do I have to exercise it? I may have said I am ready to pay, or you know, I would like to pay for it and get it done.
The version in his written statement, of course, is quite different. The differences confirm that no version is reliable.
It is quite unclear why Mr Brimaud thought that he might not have to exercise the option. Further, Mr Brimaud's evidence in cross-examination as to Mr Blom's response is somewhat vague. He asserted that Mr Blom said "might deliver the promise, deliver the 1% option in another way" or "Another idea of how I can deliver only the agreement, another way of doing". That would make no sense in relation to the option because, until the option was exercised, there was no obligation to deliver. There is no suggestion of those words in the written statement. Again, Mr Blom's apparent unprompted concern to avoid Mr Brimaud having to pay for any shares at that time is unexplained.
In dealing in his written statement with the discussions alleged to have occurred on 13 December 1995, no mention is made of "the option". Rather, the words alleged were:
We had better talk about my shares and when I have to pay for it.
That conversation makes little sense if referring to the option. One wonders why there would be any need to talk about the option and when it had to be paid for. The option had to be exercised before the end of December.
The second conversation in December was the subject of oral evidence as well as the written statement. In the course of oral evidence Mr Brimaud said that he said:
...what about my options, I would have said. You know, its December, should I be doing something about that?
and:
...And by the way, look, you know, it is December now, you know, what about the option? You know, do I have to exercise it, what do we have to do.
On the other hand, the written statement suggests that the payment date only was in issue and the option had been exercised.
Mr Brimaud did not have $79,000 of his own money in December 1995. His credit card statements demonstrate that, at the end of 1995, he was overdue in paying the minimum amount payable and even when he did pay he only paid the minimum amount. There is no evidence that he could have borrowed that money from anywhere other than the Colonial Cash Management Trust Account. At that stage, while there may have been a degree of optimism, there were also concerns about the future of the IMAX Project. Further, by that stage, Mr Brimaud had been an unsuccessful investor in the company of a good friend from which he had learned a bitter lesson. That factor, coupled with the uncertainty with IMAX in December 1995, is a reason why Mr Brimaud would not have risked his family trust funds in the IMAX Project.
That is particularly so where he had already committed himself to paying $79,000 for the first tranche, part of which he had already paid by set off of the consultancy fees. The suggestion of the option scheme is something which Mr Brimaud would have found very attractive. I consider that all those considerations led Mr Brimaud to decide not to exercise the option in respect of the second tranche. Rather, he decided to pursue the alternative course suggested by Mr Blom of participating in the option scheme.
It is unlikely that, in December 1995, Mr Brimaud would have asked for payment of the fees which had been rendered by the consultancy company only a matter of weeks before. The fee note was submitted at the behest of Mr Blom and it was clearly intended that both Mr Blom and Mr Brimaud would treat that as part payment for the first tranche as contemplated by the 8 May Agreement. While Mr Brimaud's financial position was tight in December 1995, there is no suggestion that it had deteriorated to such an extent since the date of the fee note that he would change his mind about wanting to acquire the first tranche. The payment of the balance of the price of $34,806 was not required for another 12 months. I conclude, therefore, that Mr Blom's version of the conversation in December 1995 did not occur.
However, while Mr Brimaud is unlikely to have resiled from his commitment for the first tranche, different considerations would have been operative on Mr Brimaud's mind in relation to the second tranche. That required a commitment and payment in December 1995 of the sum of $79,806. At that time Mr Brimaud was under some financial pressure as evidenced by his overdue credit card accounts. He was aware of possible claims in respect of his partnership. He must also have been mindful of his position in relation to NAB. By that stage, NAB had appointed an agent for the collection of the debtors of his former partnership. That must be regarded as a very significant step to take in relation to a professional partnership of solicitors. It is to Mr Brimaud's discredit that he was not prepared to acknowledge, in cross-examination, that that was a significant step.
The share option proposal offered Mr Brimaud the opportunity of taking up further shares in Cinema Plus at a later time without the necessity of finding money which he did not have. Mr Blom was saying to him that by means of the proposed share option scheme there was a prospect that he would have the opportunity of participating to a greater extent in the project without any immediate commitment. There was at that stage no guarantee that any share option scheme would be established. However, there was every reason to hope that, if the IMAX Project was ultimately successful, Mr Brimaud would be in a position to participate in that success. That hope, however, was simply another consideration which would have afforded him some comfort in relation to his decision not to commit himself in relation to the second tranche. All of those considerations, when coupled with the difficulties then being encountered with IMAX, indicate that Mr Brimaud would have had good reason for not wanting to commit himself to immediate payment of $79,806.
I do not accept that the discussions which Messrs Brimaud and Blom had before the end of December constituted a variation of the terms of the 8 May Agreement. Nor did they constitute any representation or holding out by Mr Blom that, even if he did not exercise the option and pay the price before the end of December 1995, Mr Brimaud would continue to have an entitlement to do so until some indefinite time in 1996. Accordingly, I do not consider that it would be unconscionable to hold Mr Brimaud to the strict terms of the 8 May Agreement in relation to the second tranche.
It must have been apparent to Mr Brimaud by the end of May that there was an intended reversion to the strict terms of the Agreement. However, even in the correspondence of May 1996, there was no attempt to exercise the option or even any suggestion by Mr Brimaud that he might exercise the option. Mr Brimaud chose to rely on Mr Blom fulfilling his stated intention in that regard rather than to exercise the option. There was no attempt to exercise the option until months later. Even if it were unconscionable for Boston and Cinema Plus to rely on the strict terms of the 8 May Agreement as at May, it was not unconscionable in September, November or December 1996. Accordingly, in my opinion, Mr Brimaud's claim fails in so far as it is based on the second tranche and the purported exercise of the option in the second half of 1996.
Loss of Directorship
In the amended statement of claim, the alleged agreement in relation to the appointment of Mr Brimaud as a director is pleaded as follows:
By agreement made in or about May 1995 between the Applicant on the one hand and the Respondents on the other the parties agreed as follows: ........ ........ (b) the Respondents should appoint the Applicant a director of Cinema Plus and remunerate the Applicant in respect thereof by payment of $1,666 per month to the Applicant's consultancy company until the opening of the IMAX Cinema Theatre by payment of $2,500 per month to the Applicant. PARTICULARS The terms of the Agreement were partly oral and partly written being constituted by the words spoken by the Applicant and the Third Respondent at the meeting and recorded in handwritten notes made contemporaneously at the meeting and partly reduced to writing in the letter of 8 May 1995 signed by the Applicant and Mr Blom; Mr Blom signing on behalf of himself, Boston and Cinema Plus. 8A It was further agreed at the meeting that the Applicant should have a seat on the board of directors of the Second Respondent and all future subsidiaries which engaged in future IMAX Projects and Theatres. PARTICULARS The terms agreed orally in the course of the meeting. ........ ........ ........ .. 8C The Applicant says that in May 1996 the Third Respondent on behalf of himself and the other Respondents wrongfully and in breach of the term alleged in paragraph 8A purported to dismiss the Applicant which purported dismissal the Applicant was obliged to accept. ........ ........ ........ ...... 27. Further and in the alternative the Applicant says that in May 1995 in trade and commerce each of the Respondents by the Respondent Mr Blom represented the Applicant that in reward for the Applicant's past assistance in IMAX project and by way of reward for his agreement to provide further assistance as might be required: ........ ........ ........ ... (b) the Applicant's consultancy company would continue to be paid $1,666 per month for the provision of consultancy services until the opening of the IMAX Cinema Theatre and thereafter the Applicant should be paid director's fees of $2,500 per month. ........ ........ ........ ... (e) the Applicant was entitled to a seat on the board of the Second Respondent and of each subsidiary which engaged in future IMAX projects. ........ ........ ........ ...... 31. The Respondents in fact ceased to make payments to the Applicant's consultancy company of the monies represented in 27(b), in or about May 1996 removed the Applicant as a director of Cinema Plus and despite the opening of the IMAX Cinema Theatre have not reappointed the Applicant as a director thereof and have failed or refused to make payment of the directors' fees referred to therein...
Thus in so far as the agreement relating to directorships and representation in relation of directorships was said to be written, the writing comprised paragraphs 1 and 2 of the 8 May Agreement. In so far as it was oral, Mr Brimaud relied on the version of the conversation in or about April 1995 contained in Mr Brimaud's written statement. The only part of that statement which records any conversation at that time concerning directorships is as follows:
Mr Brimaud: I would also like to be a director of the holding company and all subsidiary companies. Mr Blom: The holding company is Cinema Plus Pty Ltd and I have no problem with your directorships.
Mr Brimaud asserted that, on the basis of the 8 May Agreement and that conversation, he was entitled to remain a director of Cinema Plus and its subsidiaries indefinitely and could be removed only for misconduct. Alternatively, he contended that he could only be removed upon reasonable notice which, having regard to the long term nature of the arrangements said to be contemplated as between Mr Brimaud on the one hand and Mr Blom on the other, would require something in the order of at least three years' notice. Neither assertion was pleaded. The pleading was limited to the assertion of an agreement that Mr Brimaud would be appointed.
The proceedings were commenced in December 1996. It is significant that, when the proceedings were first commenced, the only reference to Mr Brimaud's directorship was paragraph 8(b). No mention was made of any partly oral agreement. It was not until an amended statement of claim was filed in April 1998 that the words in bold type in the particulars to paragraph 8 and paragraphs 8A, 8C and 27(e) were inserted. If Mr Brimaud had understood that the conversation had contractual significance it would be surprising that it was not referred to in the pleading until more than a year after the commencement of the proceedings. As I have said, the discussion concerning directorship at the April 1995 meeting was disputed by Mr Blom. I am not satisfied that any conversation which then took place was intended to have any contractual effect.
While the 8 May Agreement may constitute an agreement as to the fees which would be paid to Mr Brimaud as a director of Cinema Plus so long as he remained a director, I do not regard that letter, or the conversation which preceded it even if Mr Brimaud's version is accepted, as constituting an express promise by any of Mr Blom, Boston or Cinema Plus that Mr Brimaud would remain a director for any particular period of time or that he would be maintained in office indefinitely. No implied term is pleaded and there is nothing before me from which any implied term could arise concerning the circumstances of Mr Brimaud's removal.
There is no basis for implying a term that a non executive director will be maintained in office for a reasonable period of time or that he will not be removed except after the expiration of reasonable notice. As between Cinema Plus and Mr Brimaud, there is no basis for implying a term that Cinema Plus would maintain Mr Brimaud in office as a director and its subsidiary or that reasonable notice would be given of his removal. The constitution of the board of directors is a matter for the shareholders in accordance with the articles of association.
Prior to the discussion which led to the 8 May Agreement, Mr Brimaud had considered the contents of the Business Plan. Prior to preparing the 8 May Agreement, Mr Brimaud had endorsed the letter from Mr Weiley to the general manager of the Darling Harbour Authority enclosing the Lessee's Proposal. The Lessee's Proposal referred to the intention that there would be a shareholders' agreement and that AusAsean, or any institutional investor standing in the place of AusAsean, would have the right to appoint one director to the board. While the Lessee's Proposal indicated that Mr Brimaud was a director of both Cinema Plus and Cinema Plus DH, there is nothing to indicate that the board of directors would be constituted otherwise than as determined by the shareholders from time to time.
Mr Brimaud's claim under this head fails.
The amended statement of claim complains that Mr Brimaud's consultancy company was not paid its consultancy fee. However, the consultancy company is not a party to the proceedings. There is no evidence before me which justifies any conclusion that Mr Brimaud himself suffered any loss by reason of non-payment of fees to his consultancy company. There is no evidence as to the financial condition of that company which would suggest that, assuming Mr Brimaud is a shareholder of the company, failure to pay fees to that company resulted in any loss to Mr Brimaud.
Mr Brimaud also claimed that, because of his removal, he was unable to participate in an option scheme in which other directors apparently participated following the issue of the prospectus. The prospectus issued by Cinema Plus discloses that options were intended to be granted to several directors prior to completion of the offer made by the prospectus. Two non-executive directors were to be granted 150,000 options and another was to be granted 100,000 options. However, there is no evidence as to the manner in which the number of options so granted was calculated. It may be that an inference could be drawn that, if Mr Brimaud had remained a director of Cinema Plus, he would have been granted at least 100,000 but not more than 150,000 options.
The most which could be implied from the appointment of Mr Brimaud as a director is a term that he would only be removed as a director upon being given reasonable notice. Board meetings were held fairly irregularly although generally, on the evidence before me, no more frequently than once a month. I have seen nothing to suggest that any greater notice than one month would be appropriate. Had Mr Brimaud been given one month's notice on 22 May 1996 of Boston's intention to remove him as a director, that notice would have expired before the prospectus was issued. There is no basis on the material before me for concluding that Mr Brimaud suffered any calculable loss in respect of any option scheme by reason of his removal as a director in May 1996.
CONCLUSION
In the light of the findings which I have made above, Mr Brimaud is entitled to damages in respect of the repudiation of the 8 May Agreement in so far as it relates to the first tranche. There should be an award of damages based on the listed price of shares in Cinema Plus as at today, subject to a discount to take account of the continuing restriction on sale of shares and the possibility that the price may change in the meantime. There should also be an allowance for the sum of $45,000 in respect of the fee note of October 1995.
However, Mr Brimaud has been unsuccessful to a significant extent and accordingly, questions arise as to the appropriate order for costs. I propose to give the parties the opportunity of further argument in relation to costs and the quantum of an appropriate discount after they have had the opportunity of considering my conclusions and the reasons for them.
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