Bullion Minerals Ltd v Fewster
[2007] WASC 100
•4 MAY 2007
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BULLION MINERALS LTD -v- FEWSTER & ORS [2007] WASC 100
CORAM: LE MIERE J
HEARD: 5-8, 11-15, 18-22, 27 & 28 SEPTEMBER 2006
DELIVERED : 4 MAY 2007
FILE NO/S: CIV 2041 of 2005
BETWEEN: BULLION MINERALS LTD
Plaintiff
AND
MICHAEL EDWARD FEWSTER
First DefendantSUZANNE THERESA FEWSTER
Second DefendantEAGLEFIELD HOLDINGS PTY LTD (ACN 009 327 093)
Third DefendantNARNOO MINING PTY LTD (ACN 084 713 100)
Fourth Defendant(BY ORIGINAL ACTION)
MICHAEL EDWARD FEWSTER
First Plaintiff by CounterclaimEAGLEFIELD HOLDINGS PTY LTD (ACN 009 327 093)
Second Plaintiff by CounterclaimNARNOO MINING PTY LTD (ACN 084 713 100)
Third Plaintiff by CounterclaimAND
BULLION MINERALS LTD
First Defendant by CounterclaimGE RESOURCES PTY LTD (ACN 096 473 737)
Second Defendant by Counterclaim(BY COUNTERCLAIM)
Catchwords:
Contract law - Alleged breach of contract - Whether oral agreement amounted to legally binding contract - Extent of agreement on essential terms - Whether parties intended to be legally bound - Whether agreement so uncertain or incomplete as to be void
Equity - Remedies - Specific performance - Lack of certainty
Mining Act 1978 (WA) - Section 119(2) - Whether alleged agreement enforceable
Legislation:
Mining Act 1978 (WA), s 119(2)
Result:
Claim dismissed
Counterclaim allowed
Declarations made
Category: B
Representation:
Original Action
Counsel:
Plaintiff: Mr M L Bennett, Mr T O Coyle & Mr R Brierley
First Defendant : Mr D R Williams QC, Mr S Ellis & Mr S J Penrose
Second Defendant : Mr D R Williams QC, Mr S Ellis & Mr S J Penrose
Third Defendant : Mr D R Williams QC, Mr S Ellis & Mr S J Penrose
Fourth Defendant : Mr D R Williams QC, Mr S Ellis & Mr S J Penrose
Solicitors:
Plaintiff: Lavan Legal
First Defendant : Tottle Partners
Second Defendant : Tottle Partners
Third Defendant : Tottle Partners
Fourth Defendant : Tottle Partners
Counterclaim
Counsel:
First Plaintiff by Counterclaim : Mr D R Williams QC & Mr S Ellis
Second Plaintiff by Counterclaim : Mr D R Williams QC & Mr S Ellis
Third Plaintiff by Counterclaim : Mr D R Williams QC & Mr S Ellis
First Defendant by Counterclaim : Mr M L Bennett & Mr T O Coyle
Second Defendant by Counterclaim : Mr M L Bennett & Mr T O Coyle
Solicitors:
First Plaintiff by Counterclaim : Tottle Partners
Second Plaintiff by Counterclaim : Tottle Partners
Third Plaintiff by Counterclaim : Tottle Partners
First Defendant by Counterclaim : Lavan Legal
Second Defendant by Counterclaim : Lavan Legal
Case(s) referred to in judgment(s):
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) NSWLR 622
Commonwealth of Australia v Riley (1984) 5 FCR 8
Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1
Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31
Masters v Cameron (1954) 91 CLR 353
Sorna Pty Ltd v Flint (1999) 21 WAR 563
Stern v McArthur (1988) 165 CLR 489
Striker Resources NL v Australian Goldfields NL (in liq) [2006] WASC 153
Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144
TABLE OF CONTENTS
Mr and Mrs Fewster
The Narnoo Project tenements
The plaintiff and its officers
Observations on credit and reliability
Plaintiff's witnesses
Fewster's evidence
The documentary evidence
The initial contact
The Narnoo Project – an overview
Negotiations begin – Bullion's initial proposal
Fewster receives some tax advice
Bantock reactivates negotiations – Fewster puts forward some terms
Fewster obtains some tax advice from Golding
Negotiations continue
21 June: Fewster advances new proposed transaction structure
Bullion executes confidentiality agreement
22 June: Bullion puts forward further proposal
Fewster receives more tax advice from Golding
22 July: Fewster puts forward further proposal
Kiernan drafts first Heads of Agreement
Graticular gaps
29 July: Fewster meets Bantock and Goyder
Fewster was given a copy of the heads of agreement on 29 July
Davis sent employment agreement
Fewster meets with Bowen and Paterson
Thursday 4 August: Fewster meets Bantock and Goyder and puts the CPPS Proposal
Fewster's negotiations with other parties
Friday 5 August – Fewster telephones Bantock
Saturday 6 August
Sunday 7 August
Monday 8 August
Fewster sees his solicitor
Tuesday 9 August
Wednesday 10 August
Thursday 11 August
Friday 12 August
Saturday 13 August
Sunday 14 August
Events after Sunday 14 August
The plaintiff's case
The defendants' case
Counterclaim
Legal principles relating to contract formation
Terms concerning Reserve Minerals and scandium
A. Inclusion or exclusion of Reserve Minerals
B. Boundaries of Reserve Minerals
C. Mining and processing of scandium
D. Narnoo Joint Venture
E. Reserve Minerals Joint Venture
F. Rights and Useage Agreement
G. Time and costs of negotiating joint venture agreements
H. Definition of pre‑feasibility study
I. Immediate acquisition or farm‑in
J. Bullion options
K. Recipient of shares and options
L. Recipient of payments
M. Recipient of CPPSs
N. Terms and conditions of CPPS
O. Entity to retain scandium rights
P. Mrs Fewster
Q. Pre‑emptive rights and dilution
R. Approved mining lease area
S. Operation and timing of process
Matters not agreed
The form of the putative agreement, its subject matter and terms
Some pointers for and against a concluded agreement
Fewster and outstanding tax advice
Prior to 6 August the parties contemplated the execution of a heads of agreement
On 6 August did the parties intend to conclude an agreement before executing a HOA?
The pegging of the graticular gaps
The alleged admissions
Conclusion – No binding agreement made on 6 August
Was an agreement made on 8 August?
Uncertainty
Specific performance
Certainty
Hardship
Mining Act, s 119
Plaintiff's claim – conclusion
Counterclaim
The declarations
The caveats
The confidentiality agreement
$5,000 payment
LE MIERE J: In March 2005 the plaintiff started to negotiate with the first defendant, who I will refer to as Fewster, for the plaintiff to enter into a joint venture with the defendants, or some of them, to explore, evaluate and develop a uranium poly‑metallic mining project on the Mulga Rock tenements. The project or projects on the Mulga Rock tenements and surrounding area were described by the parties as the Mulga Rock project or the Narnoo Project. The plaintiff contends, and the defendants deny, that, although it was contemplated that there would be a more formal contract brought into existence, a binding oral agreement was entered into between the plaintiff and the defendants on 6 August 2005 or, alternatively, on 8 August 2005. The plaintiff claims a declaration that the oral agreement constitutes a binding agreement and claims specific performance of the agreement.
The defendants counterclaim for declarations to the effect that there is no agreement between the plaintiff and any of the defendants concerning the project and for orders that the defendants by counterclaim withdraw caveats over tenements in relation to the project and forbidding the defendants by counterclaim from registering further caveats over those tenements.
Fewster counterclaims liquidated damages in the sum of $5,000 for breach of an agreement between the plaintiff and Fewster on or about 10 August 2005 for the plaintiff to pay to Fewster $5,000 on account of additional legal and accounting expenses Fewster would incur in continuing to negotiate with the plaintiff and in formulating an alternative proposal to be put to the plaintiff. The third defendant, Eaglefield Holdings Pty Ltd ("Eaglefield"), claims damages against the plaintiff for breach of a written confidentiality agreement made by the plaintiff and Eaglefield on 22 June 2005.
Mr and Mrs Fewster
Fewster is a geologist. He has in the past acquired a number of tenements and formed a number of joint venture arrangements with mining companies.
Fewster is the managing director and holder of one share in Eaglefield. Fewster is the sole director of the fourth defendant, Narnoo Mining Pty Ltd ("Narnoo Mining"). Fewster holds the only share issued in Narnoo Mining on trust for the Busani Family Trust, of which his family are the sole beneficiaries.
The second defendant, Mrs Fewster, holds the other share in Eaglefield and is a director of Eaglefield.
The Narnoo Project tenements
The Narnoo Project is a multi‑commodity resource project located in the eastern goldfields region of Western Australia. On 5 August 2005 the project consisted of two Exploration Licences, Nos 39/876 and 39/877 ("the ELs") and three applications for exploration licences, Nos 39/1091, 39/1092 and 30/1114 ("the EL Applications"). Eaglefield held each of the ELs on trust for Narnoo Mining. Subsequently Narnoo Mining lodged three applications for exploration licences covering the same areas as the EL Applications. Eaglefield withdrew each of its exploration licence applications.
The plaintiff and its officers
The plaintiff is a public company whose securities are and were listed for quotation on the Australian Stock Exchange ("ASX"). It is a resource, exploration and development company. In 2005 it held tenements for exploration for gold, uranium, nickel and base metals in various parts of Australia and concentrated in the area of gold‑based minerals, nickel, base metals and uranium exploration and development.
In May 2006 there was a reorganisation of the plaintiff. As a result of the reorganisation the plaintiff acquired all of the shares in a company called Uranium Equity Ltd for the consideration of shares in the plaintiff. The plaintiff changed its name to Uranium Equities Ltd. Mark Chalmers, David Brunt and Timothy Clifton, who previously controlled Uranium Equity Ltd, were appointed managing director, executive director and chairman of the plaintiff respectively. The plaintiff's 35 million shares in Chalice Gold Mines Ltd ("Chalice") were distributed in specie to shareholders. The company's shares in its base metal subsidiary, Base Resources Ltd ("Base Resources") were distributed in specie to shareholders. Notwithstanding that change of name I will sometimes refer to the plaintiff as Bullion.
Andrew Bantock is a chartered accountant. In October 2004 he was appointed managing director and chief executive officer of the plaintiff. On the re‑organisation of the plaintiff in May 2006 Bantock stepped down from the position of managing director of the plaintiff but remained as an executive director. He is currently executive chairman of Chalice and a director of Base Resources.
In 2005 Timothy Goyder had over 30 years experience in the exploration and resources industry. He was then chairman of the plaintiff. On the re‑organisation of the plaintiff in May 2006 Goyder stepped down as chairman of the plaintiff but continued as a non‑executive director.
Anthony Kiernan is a solicitor who holds executive and non‑executive positions on the boards of several private and public companies. At all relevant times he was a non‑executive director of the plaintiff and continues to be so.
John McIntyre is a geologist. Prior to the re‑organisation of the plaintiff he was the exploration manager of the plaintiff. On the re‑organisation of the plaintiff in May 2006 McIntyre became an executive director of Chalice.
Douglas Stewart is a geologist. In 2005 he was a non‑executive director of the plaintiff.
Observations on credit and reliability
Some of the evidence led by the plaintiff of the discussions which it says gave rise to the agreement was contested. The principal conflict is between the evidence of Fewster and the evidence of the plaintiff's witnesses, Bantock, Goyder, McIntyre and Kiernan. It is convenient at this time to make some observations on the credit and reliability of the principal witnesses.
Plaintiff's witnesses
The principal witness for the plaintiff was Bantock. His evidence was assisted and supported by several detailed sets of notes of his dealings with Fewster. His evidence was in general consistent in itself and consistent with the evidence of the plaintiff's other witnesses and with relevant documents. In general I accept the substance of Bantock's evidence subject to the following matters.
There are parts of Bantock's evidence that are a statement of his impression, understanding or conclusion of the effect of what was said rather than of the words spoken. In general, I give little weight to the words used by Bantock to summarise his impression, understanding or conclusion.
The telephone conversations between Bantock and Fewster on 6 August 2005, to which I will refer, are important. Bantock gave his evidence‑in‑chief by way of witness statement. In his statement Bantock gives evidence of his first telephone conversation with Fewster on 6 August. He commences by saying that "Fewster said words to the effect that" and then sets out in indirect speech the substance of what Fewster said. Bantock then goes on to say:
"I did not propose the concept of reaching a verbal agreement that day. Fewster put the proposition of a verbal agreement to me."
That evidence goes beyond reporting the conversation in indirect speech. It is argumentative and the statement of a conclusion.
The rule that evidence of conversations shall be given in direct speech is, in Australia, a rule of practice rather than a rule of law, a practice that is probably now disregarded as often as it is followed: Commonwealth of Australia v Riley (1984) 5 FCR 8 at 34 per Smithers, Sheppard and Wilcox J. In LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31 at [8] Barrett J said:
"There is no rule of law, whether under the Evidence Act or otherwise, which makes inadmissible evidence of a conversation given in indirect speech, but there are obviously very good reasons why courts have, over the years, been astute to regard the direct speech form as the best form."
Barrett J went on to say at [9]:
"… I accept that not all the cross‑examination opportunities available in a case of direct speech report will arise in case of an indirect speech report, but the ability to engage in meaningful cross‑examination will exist nevertheless. There is also the point that the probative value of the evidence may be diminished by its form."
Bantock was cross‑examined about his statement that Fewster put the proposition of a verbal agreement to Bantock. Bantock agreed with counsel that Fewster "was putting in this conversation basic terms on the basis he stated that if those basic terms could be agreed, he would stop negotiating with other parties". Bantock said that Fewster had gone beyond saying that he would commit to working towards a deal with Bullion. Bantock said that he had said to Fewster: "So you're saying you want to do a deal today" and that Fewster had said: "Yes, he did, here was the deal and that if [Bullion] accepted the deal then the deal would be done". Bantock said that Fewster had put the proposition of a verbal agreement to him "pretty much as I described it then", that is as set out earlier in this paragraph. Bantock went on to say that he then checked that what he was hearing was right and "it was expressed in those terms, so that here was the deal and if we accepted the deal the deal would be done".
I accept that Fewster said words to the effect that he wanted to do a deal that day and that if Bullion accepted the terms Fewster put forward then the deal would be done. Bantock's evidence that Fewster "put the proposition of a verbal agreement to me" is an argumentative conclusion and I place no weight on it.
The discussions between Fewster, Bantock and Goyder on Monday 8 August are important. For the reasons I state later I do not accept Bantock's evidence of what happened that day.
In general, I accept the evidence of Goyder. However, like the evidence of Bantock, his evidence is at times a summary of his recollection of the effect of what was said or done and cannot be taken without reservation or qualification as an accurate reflection of the words spoken on each occasion of which he gave evidence. His evidence of what happened on 8 August is vague and inconsistent in that his witness statement says that he, Bantock and Fewster reviewed a handwritten document whereas in cross‑examination he said it was a typed document. I place little weight on Goyder's evidence of the details of what was said and done that day.
I accept the evidence of Kiernan, although his witness statement also takes the form of impression, understanding and conclusion at times. Subject to the same qualification I accept in general the evidence of McIntyre and Stewart.
Fewster's evidence
Counsel for the plaintiff submitted that in critical respects Fewster's evidence was wholly unsatisfactory. I will refer to some of the matters addressed by counsel.
I accept the submission of counsel for the plaintiff that Fewster gave incorrect evidence about the involvement of Linq Entities in Energies and Mineral Australia Ltd ("EMA"). In cross‑examination, Fewster was asked whether Linq Corporate had been granted a financing mandate. He first said not to his knowledge and then said he was not familiar with it. Fewster agreed that he had presented a paper to the Australian Uranium Conference in July 2006. He said that in that presentation he outlined the creation of a company called Energy Minerals Australia Ltd. It appears from one of the slides prepared by Fewster for that presentation that EMA had granted a finance mandate to Linq. Counsel asked Fewster whether he had informed the people at the conference that he had created that structure to list on the ASX with the Narnoo Project as its project. Fewster said that was not correct. Counsel then informed Fewster that he had a CD recording of his speech and again asked whether Fewster had presented EMA as the company which would list on the ASX. Fewster then agreed that it was and that he had presented to the conference that it was the intention of EMA to develop the Narnoo Project but there had been no conclusion of any agreement between EMA and the owner of the Mulga Rock project.
I find that Fewster did not have a good recollection of much of the detail of his dealings and communications with Bantock and the other directors of the plaintiff. Fewster did not take notes of his dealings with the plaintiff and other parties he was negotiating with in relation to the Narnoo tenements.
An example of Fewster's lack of recall of the detail of his dealings with the plaintiff is his recollection of his communications with Bantock and the other directors of the plaintiff on Saturday, 6 August. That is a critical day. The evidence establishes that on that day Fewster had four telephone conversations with Bantock and others. The second telephone conversation was at about 1.30 pm. Bantock made the call in the presence of Goyder, McIntyre and Kiernan and in the course of a meeting of the plaintiff's board of directors. The fourth telephone call was made by Bantock in the presence of Goyder at about 7 pm to Fewster who was at the Perth Glory football match. Fewster purports to have an actual recollection of each telephone conversation. However, he has confused elements of the second and fourth conversations. Fewster says that the second telephone conversation was at about 1 pm and that Bantock said that he had spoken to the plaintiff's directors. Fewster says that during the telephone call he took at the Perth Glory game he heard Bantock say the names of each of the directors and he heard someone in the background say "hello" so he presumed that all of the directors were present in the room and that Bantock was introducing them to him. Furthermore, Fewster has forgotten the third telephone call made by Bantock at about 5 pm.
Bantock and Goyder gave evidence that Bantock gave Fewster a copy of the heads of agreement document on 29 July or 4 August. As I set out later in these reasons, I accept the evidence of Bantock and Goyder on this point in preference to that of Fewster.
Later statements by Fewster corrected errors in earlier statements and added significant detail to discussions referred to in earlier statements. It was submitted on behalf of Fewster that the amendments to his witness statements were largely in response to objections. Nevertheless, Fewster's witness statements were finalised after the plaintiff's witnesses had completed their evidence. That causes me to have less confidence in the reliability of parts of Fewster's witness statements than I might otherwise have had.
Counsel for the plaintiff drew attention to the fact that in his amended statement of evidence in response (Exhibit 228) Fewster corrected the date on which he alleges that he received a copy of p 9 of the Heads of Agreement document, Exhibit 79, from 8 August to 3 August. In cross‑examination Fewster conceded that up until the previous night his recollection was that he had written on that page on 8 August. Fewster then said that when he wrote his initial statement that was his recollection but subsequently he recalled that it was more likely that it was on 3 August. Fewster denied that he changed his evidence after listening to Bantock give evidence. He said that he had mentioned the correction to his solicitors the previous week. He could not recall whether or not that was after Bantock had been cross‑examined on the point. In cross‑examination senior counsel for the defendants put to Bantock that Fewster had written on page 9 of the draft heads of agreement on 8 August. I find that Fewster did not inform his solicitors that he had received p 9 of the document on 3 August until after the completion of Bantock's cross‑examination. I find that Fewster's evidence on this point is a reconstruction after considering and reviewing all of the evidence available to him.
There is another important matter on which Fewster concedes he was mistaken. In his amended statement of evidence in response (Exhibit 228) Fewster said that he did not meet with McIntyre and Stewart on 8 August 2005. Fewster said that he had met with Stewart on the morning of 9 August. Fewster subsequently conceded that he had met with Stewart on the morning of 8 August.
As I have said, Fewster has no notes to assist his recollection of events and conversations. I find that Fewster's evidence is a mixture of actual recollection together with reconstruction based upon relevant documents and the sequence of events. Some of Fewster's reconstructions were calculated to advance his case.
In general, I prefer the evidence of Bantock and the other witnesses for the plaintiff to that of Fewster. However, there are some matters on which I accept the evidence of Fewster as to what he said or did in preference to the evidence of Bantock and Goyder. I do not accept in its entirety Bantock's evidence of what happened on Monday 8 August. I accept the evidence of Fewster in so far as his evidence is that there were matters discussed on Monday 8 August without any final agreement being reached in relation to those matters.
In general, I accept the evidence of Paterson and Golding.
The documentary evidence
The most reliable evidence of what was said and done by the protagonists is the contemporaneous documents. This includes draft memoranda, letters, e‑mails and the minutes of the meeting of the board of directors of Bullion on 6 August to which I will refer later in these reasons.
The initial contact
In March 2005 Goyder instructed a geologist to find out who owned the Mulga Rock project. At the time the plaintiff was pursuing new projects. Goyder was aware of the Mulga Rock project from when a Japanese company, Japanese Power and Nuclear Fuel Corporation, had held the rights to it.
The plaintiff found out that Eaglefield held the tenements the subject of the Mulga Rock project and that Fewster was the director of Eaglefield.
On about 2 March 2005 Bantock telephoned Fewster. Fewster said that he was not interested in vending his interests into a company but was considering whether to go into a joint venture with a party needing a secure supply of uranium. There was a further discussion about the tenements and Fewster's plans for them. Fewster said that he would provide Bantock with an outline of the project.
On the same day, 2 March, Fewster sent an e‑mail to Bantock. The e‑mail attached what Fewster described as an overview of the Narnoo Project and invited Bantock to give him a call after he had looked at the material and researched the state of the offshore market for uranium listings.
The Narnoo Project – an overview
In the executive summary of his overview of the Narnoo Project Fewster stated the following. The Narnoo Project is a major multi‑commodity resource project located in the eastern goldfields region, about 240 kilometres from the city of Kalgoorlie. Eaglefield privately owns the project. The project is contained within two granted exploration licences and three applications for exploration licences, which aggregate about 900 square kilometres. The tenements cover the entire prospective area of a small sedimentary basin named the Narnoo Basin. Only about 20 per cent of the project is subject to native title claim, which importantly excludes all known mineral resources. The tenure of resources can be converted to mining leases without reference to the native title procedure, a considerable saving in both cost and time. There are four resource types presently identified within the project, plus exploration prospects for a further two resource types. All known or predicted resource types host multiple deposits or prospects. One of the identified resource projects is the Mulga Rock lignite‑sandstone‑hosted uranium, scandium, nickel and cobalt deposits described as the Mulga Rock Deposit or "MRD". The MRD was the principal mineral resource within the Narnoo Project with the largest of deposits at feasibility study stage development. The MRD comprised three deposits named Ambassador, Emperor and Shogun. Another of the identified resource types was lignite, an oily young coal used mostly for electric power generation.
Negotiations begin – Bullion's initial proposal
On 22 March Fewster and Bantock met at the Bullion offices. They discussed Bullion's assets, capabilities and objectives and the Narnoo Project.
On the following day, 23 March, Bantock sent a letter of 23 March to Fewster by e‑mail. The letter outlined a proposal to establish a company to develop the Narnoo deposit. The proposal contained four key points. First, Fewster/Eaglefield was to establish a new (unlisted) public company, say West Australian Resources and Energy ("WARE"). Secondly, WARE would acquire all the assets and undertakings, including tenements, of the Narnoo Project. Thirdly, Bullion would pay to Fewster/Eaglefield $2.5 million and subscribe $10 million to WARE in return for a 50 per cent interest in WARE. Fourthly, the Board of WARE would be Fewster, his nominee, Bantock and Goyder.
Bantock said that it would be necessary to check for any tax or regulatory issues that may arise. Bantock's proposal was essentially that Bullion acquire 50 per cent of the Narnoo Project. Bantock went on to set out how the joint venture would work. The $10 million invested in WARE by Bullion's subscription for shares would be used to complete the first phase of feasibility work on the project. Bullion would then fund the second phase at the conclusion of which the project would have progressed to bankable or near bankable standard. The proposal envisaged a shareholders' agreement which would include an optional exit of either party from the project.
Fewster responded to Bullion's proposal by a letter dated 29 March. Fewster said that the funding format proposed by Bullion was not one that he found attractive. Fewster said that there were four key parameters that he was pursuing. Firstly, if the project went into a public company, then it must be listed as soon as possible. Secondly, no third party would hold more than 20 per cent of the company at listing. By third party Fewster meant parties other than himself and his related entities. Thirdly, the $25 million value was too low. The vendor consideration would also include a major options component, exercisable at minimal cost, provided some performance parameters were met. The issue of ownership of the scandium component of the resource was also unresolved. Fourthly, there should be an initial focus on exploration to increase uranium resources rather than acquiring other deposits. Fewster said that he was meeting his colleagues to discuss progress on the project and would discuss the Bullion proposal and advise Bantock of progress later in the week.
Fewster receives some tax advice
On 13 April Fewster received some advice by e‑mail from Russell Garvey of Horwath, chartered accountants. Garvey referred to having met Fewster the previous week and made a number of suggestions with respect to tax planning "for the proposed float process". The e‑mail included the advice that under a scrip for scrip deal capital gains tax ("CGT") rollover relief is available subject to certain conditions. Garvey concluded by stating that the strategy outlined had been put together urgently and would require "a fuller consideration of all steps before being proceeded with" but would assist Fewster for the purposes of his meeting with the brokers the following day.
Bantock reactivates negotiations – Fewster puts forward some terms
On 9 May Bantock reactivated negotiations by telephoning Fewster. Later that day, Fewster sent an e‑mail to Bantock in which he said that he was moving towards a decision on how to progress the Narnoo Project. Fewster said that his preferred option was an initially unlisted public company to complete work up to completion of a feasibility study on Ambassador as Bantock had proposed. Fewster set out some general terms that he said encompassed issues raised by various parties who had an interest in the project and said he was also looking at some other funding options.
The general terms referred to by Fewster were as follows. Bullion would acquire an initial 25 per cent equity in the unlisted public company (say Newco) that would hold all aspects of the project (that is uranium, nickel, cobalt, gold, oil etc) excluding scandium, which would remain with the vendor. Bullion was to provide the following consideration:
1.Payment of $250,000 cash non‑refundable deposit for a two month due diligence period.
2.Payment of a further $1 million cash to the vendor and subscribe for $15 million shares in Newco.
3.Bullion have the option to subscribe for 50 per cent of subsequent issues up to a maximum of 35 per cent of Newco.
4.Bullion appoint one non‑executive director to a board to consist of a non‑executive chair, Bullion's appointed non‑executive director and two executives.
5.Bullion to hold a first right of refusal over any farm‑out of uranium exploration prospects.
In his e‑mail Fewster said that those terms were without prejudice and subject to execution of a formal heads of agreement and payment of the deposit.
Fewster obtains some tax advice from Golding
On 10 May Phillip Golding, a chartered accountant, sent an e‑mail to Fewster referring to a meeting on 2 May and setting out the scope of work Fewster had asked Golding to undertake. The e‑mail said that Fewster was considering raising capital to conduct exploration and possibly development on mining tenements held by his entities through an initial public offering ("IPO"), the objective being to have the IPO vehicle listed on the ASX. Golding said that Fewster had asked his firm to provide advice on the tax consequences of alternative ways of structuring the IPO with the primary objective of ensuring that his group did not incur any significant tax liability until it eventually disposed of any shareholding in the IPO vehicle.
On 13 May Golding provided to Fewster a draft memorandum of advice for review by Fewster. The advice referred to Fewster receiving proceeds from the IPO in the form of both shares and cash but predominantly shares. The memorandum said that scrip for scrip rollover relief would be available to avoid capital gains where two conditions were satisfied. The conditions were that the existing shareholders receive shares only in the listed company in return for shares in Eaglefield and that the listed company must initially acquire 80 per cent or more of the voting shares in Eaglefield. Golding noted that this requirement conflicted with the objective to receive some cash proceeds.
Negotiations continue
Bantock's evidence is that on 16 May he telephoned Fewster to follow up previous discussions and Fewster's e‑mail of 9 May. Fewster agrees he spoke to Bantock on 16 May but says the discussion took place at a meeting with Bantock and Goyder at Bullion's office where they discussed Fewster's proposal of 9 May.
On 17 May Bantock sent Fewster an e‑mail referring to their discussion the previous day, attaching a letter of 17 May and setting out the structure of a potential agreement for Bullion and Eaglefield to develop the Narnoo poly‑metallic deposit. The letter stated that there were seven key objectives. One stated objective was that Eaglefield was concerned to ensure that dilution is minimised prior to IPO, that is to ensure that it does not cede 50 per cent of the project only to find that the project stalls for lack of corporate commitment. Another objective was that Bullion receives a 50 per cent interest in the project to justify its investment pricing and the dedication of management efforts and a major change in corporate direction to the project. Bantock suggested two possibilities to meet these objectives. The first was to amend the deal as outlined in his letter of 23 March by swapping $1 million of initial cash consideration for Bullion shares issued to Eaglefield so that Eaglefield would retain a 55 per cent project interest, being a 50 per cent direct project interest plus 5 per cent indirect interest through its shareholding in Bullion. The second possibility was that in addition to that suggestion, Bullion's interest would dilute to 25 per cent should only Eaglefield (and not Bullion) wish to proceed to the second phase of work and proceed to fund the work, that is elevating the project from the initial feasibility study to a bankable position.
On 20 May Fewster e‑mailed to Bantock a revised summary for the Narnoo Project.
Bantock responded to Fewster by e‑mail of the same date stating that the revised summary for the Narnoo Project was a useful improvement on the previous document and adding that one other thought to add to those in Bantock's letter was that Fewster retain the oily lignite rights to the extent that those are clearly separable from the other poly‑metallic resources.
Fewster responded by e‑mail the same day. He said that he was still not happy with the revised deal proposed by Bantock but had been thinking about a structure where the different commodities that could be separated either by way of conversion to mining leases or other methods be placed in separate company structures with differing levels of ownership. Fewster said he was still working on the idea and would get back to Bantock once he had something firm.
On 8 June Fewster e‑mailed Bantock stating that his delay in replying indicated that he was still not comfortable with Bullion's current proposal. Fewster stated that he was still interested and had been thinking about some other options. He said that also required seeking some advice from tax experts and that was not yet finalised. Fewster said he would get back to Bantock when his thinking was complete.
On 16 June Bantock e‑mailed Fewster enquiring whether Fewster had seen the SBS Cutting Edge programme the previous night. Fewster replied the same day stating that he had seen the programme and would call Bantock the following day to advise where things were at.
On 20 June Fewster e‑mailed Bantock what he described as the final version of the Narnoo Project summary. The executive summary is dated 17 June 2005. The report includes as figure 3 a plan entitled "Tenement Outline and Deposit and Prospect Locations" that showed the tenements covering the prospective area and the location of the resources and prospects within the project area.
21 June: Fewster advances new proposed transaction structure
On 21 June Bantock and McIntyre met with Fewster. John McIntyre was Bullion's exploration manager. Bantock's evidence is that the meeting lasted about four hours. There was discussion about technical aspects of the project until McIntyre left the meeting. Bantock then talked to Fewster about the commercial structure of the deal. Fewster produced a diagram and explained that he and his advisers were developing a model that would address the corporate and taxation parameters which he had set for the project. The document showed an arrangement by which Eaglefield would convey the tenements to Narnoo Mining. A subsidiary of Eaglefield would retain all scandium rights. A separate subsidiary of Eaglefield called Lignite Co would have the ability to take the interest in the lignite by payment of an amount equal to twice past exploration expenditure. A company called Newco would own 80 per cent of Narnoo Mining. Bullion would have a 50 per cent interest in Newco. Fewster would have a 50 per cent interest in Newco and also a 20 per cent interest in Narnoo Mining.
Bantock told Fewster that he would consider the structure of the proposed deal and come back to Fewster with his thoughts.
Bullion executes confidentiality agreement
At their meeting on 21 June Bantock and Fewster agreed that Fewster would forward a confidentiality agreement so that Bullion could progress its technical due diligence on the project at the same time that commercial discussions progressed.
On the morning of 22 June Fewster forwarded a draft confidentiality agreement to Bantock. Bantock sent an e‑mail to Fewster on 22 June raising some issues about the confidentiality agreement. Bantock also referred to their commercial discussions the previous day and said that he would work on the commercial terms and send a proposal to Fewster. Bullion executed the confidentiality agreement and returned it to Fewster on 22 June. On the following day, 23 June, Fewster acknowledged receipt of the confidentiality agreement and said that he would deliver the data package to Bullion's office the following morning.
22 June: Bullion puts forward further proposal
Later on 22 June Bantock had sent by e‑mail a letter of 22 June, a memorandum entitled "Establishment of Energy and Minerals Australia Ltd (EMA) to develop the Narnoo Polymetallic Resource, a partnership between Bullion Minerals Ltd and Eaglefield Holdings Pty Ltd, Outline of Principal Terms of Co‑investment" and a covering e‑mail. The covering e‑mail summarised Bullion's offer or proposal as follows:
•A progressive earn rather than 50 per cent up front;
•$100,000 cash to Fewster on signing heads of agreement;
•$400,000 cash plus 4,000,000 Bullion shares to Fewster on signing the shareholders/subscription agreements;
•$15 million for 50 per cent of the Narnoo deposit (ex lignite/scandium) including a further $1.5 million cash/shares;
•Eaglefield reverts to 60 per cent interest in Narnoo on plus 45,000 tons uranium JORC Measured/Indicated and
•Joint management and control within a complimentary team.
The outline of principal terms of co‑investment said that Bullion would invest $100,000 in EMA (or Eaglefield/vendor, subject to discussion/tax advice). In the outline Bantock said that the final ownership structure was to be in accordance with the attached diagram subject to tax advice with a prime objective to achieve the best outcome for Eaglefield and with Bullion to fund the tax advice on an agreed reasonable basis. Bullion was to issue Eaglefield or its nominee(s) 4,000,000 fully paid ordinary Bullion shares on execution of the shareholders/subscription agreements.
Fewster responded to Bantock's proposal by e‑mail on 23 June. Fewster said he expected that it would be early July before he would be able to get back to Bantock with his reply.
On 24 June Davis delivered two CD's of technical information regarding the project to Bullion.
On about 6 July Bantock telephoned Fewster. One of the things that Fewster said to Bantock was that the claw back provision that Bantock had proposed would possibly create a tax problem in the long term.
Fewster receives more tax advice from Golding
On 13 July Golding provided a memorandum of advice to Fewster. Golding stated that at a meeting on 22 June Fewster had presented a revised structuring plan to cater for different commercial outcomes than initially envisaged. Golding stated that they had discussed the tax consequences of the revised plan but that Fewster did not wish Golding to provide comprehensive advice on it. Golding said that there were two specific issues that Fewster had asked him to comment on. The first was whether the scrip for scrip capital gains tax rollover relief would allow two separate exchanges of shares in Narnoo Mining by Uranium Newco. The second concerned how the value shifting rules would operate if shares in Uranium Newco were later issued to a third party at the then negotiated value of the shares. Golding provided some advice in relation to each of those issues but stressed that his notes were in response to Fewster's specific questions and should not be relied upon to affirm the tax consequences of the overall structuring. Golding added his advice that once Fewster had the commercial parameters resolved, tax issues should be reviewed cohesively and comprehensively.
22 July: Fewster puts forward further proposal
On 18 July Fewster met with Davis, Bantock and Goyder at Bullion's offices and then they had lunch together.
On 22 July Fewster met with Bantock and Goyder at Bullion's offices. During the meeting Fewster outlined a further proposal. Fewster proposed that Bullion provide consideration of 4,000,000 fully paid ordinary Bullion shares plus $500,000 in cash and 4,000,000 Bullion options at 15 to 20 cents per share. Fewster proposed two further tranches of options. The first tranche of 5,000,000 options would only be capable of exercise at a price of 20 cents per option upon Bullion's market capitalisation exceeding $50 million. The second tranche of 10,000,000 options would be capable of exercise at a price of 20 cents per option upon a decision to mine where the resource at the Ambassador deposit exceeded an in ground value of $1 billion. Fewster said that there should be a new company in the structure which would have an optional right to earn 50 per cent of the interest in the project. He said that in that way the structure for Bullion's investment in the project would be tax effective from Fewster's perspective. There was discussion about tax. Goyder and Bantock suggested to Fewster that he may want to talk to Bullion's tax advisers to help him finalise the structure. Fewster declined the offer and said that his proposal had been looked over by his tax advisers. During the meeting Goyder and Bantock proposed to Fewster that they should prepare a heads of agreement that embodied the concepts discussed in the meeting. Fewster agreed that should be done.
On 25 July Bantock prepared an annotated diagram and bullet point description of the deal proposed by Fewster. Bantock did so in part so as to provide instructions for Kiernan to draft a heads of agreement.
Kiernan drafts first Heads of Agreement
In late July Kiernan drafted a heads of agreement. The first heads of agreement document is entitled "Draft 1 – 27 July 2005". The parties are Bullion, Fewster, Narnoo, Eaglefield and "Newco Pty Ltd". The recitals say that Newco and Narnoo Mining have agreed to enter into a joint venture for the exploration, development and mining of ELs and EL Applications ("the Tenements"). Clause 4.1 provides that Fewster agrees to sell and Bullion agrees to purchase all of the shares in Newco. The consideration is 10,000,000 fully paid ordinary Bullion shares and options to acquire Bullion shares with the right to exercise the options dependant on certain milestones in the project.
Clause 5 provides for the establishment of a joint venture between Newco and Narnoo Mining. Newco initially has no interest in the joint venture and in the event that Newco solely funds all exploration expenditure in relation to the Tenements prior to a Decision to Mine for Uranium then Newco has a 50 per cent interest. The joint venture excludes the Reserve Minerals, that is scandium, lignite and sedimentary exhalative gold (commonly referred to as sedex gold) in those areas marked by cross hatching in Annexure A and unless Newco and Narnoo Mining agree otherwise Newco shall acquire no rights in relation to the Reserve Minerals irrespective of any expenditure undertaken in relation to the Tenements by Newco. I pause to note there was no Annexure A at that stage.
Decision to Mine for Uranium was defined to mean a decision to conduct mining for uranium in accordance with cl 5.7. Clause 5.7 provided that during the Earn In Period a Decision to Mine for Uranium may be made by Newco provided it has prior to making such a decision consulted in good faith with Narnoo Mining, taken proper account of any matters raised by Narnoo Mining and has provided to Narnoo Mining information that Narnoo Mining may reasonably require.
Clause 5.8 provides that at any time prior to earning its joint venture interest Newco may withdraw from the joint venture by written notice to Narnoo Mining but subject to having met, on a pro rata basis, expenditure requirements to maintain the Tenements in good standing.
Clause 5.9 deals with other minerals, that is Minerals other than Uranium and Reserve Minerals. Newco is entitled to make a Decision to Mine for Other Minerals at any time prior to earning its joint venture interest and if doing so Newco shall meet all costs and expenses and after reimbursement to Newco of all expenses incurred by it in relation to the mining of the other minerals the net proceeds shall be divided equally between Newco and Narnoo Mining.
Clause 5.10 is entitled "Put and Call on Joint Venture Interest". It is the first draft of the clause that came to be known as "the gelignite clause".
Graticular gaps
I interrupt the narrative of events to refer to graticular gaps. Outlines on the surface of the earth with boundaries defined by lines of latitude and longitude in one minute increments are called graticular blocks. Graticular blocks are used to define exploration licences. In 2000 the Australian Government changed the way latitude and longitude was measured in Australia. This resulted in the latitudinal/longitudinal co‑ordinates prior to this date being 150 metres different from the same co‑ordinate after this. This resulted in some tenements either overlapping slightly or having a gap between them. The gaps between tenements are called graticular gaps. There were graticular gaps between the tenements the subject of Eaglefield's exploration licences and applications for exploration licences.
On 24 June Fewster's colleague, Davis, had delivered two CDs of technical data regarding the project to Bullion. Subsequently Fewster had provided more technical information to McIntyre, Bullion's chief geologist. On 21 July McIntyre sent an e‑mail to Fewster in which he said there are graticular gaps between the tenements and said that Fewster should peg them just in case some speculative type sees some blackmail potential. Fewster responded by saying, incorrectly, that only the holder of the new exploration licence can peg the graticular gap within mining leases. On 22 July McIntyre informed Fewster that anyone can peg the graticular gaps and no priority was given to the holders of surrounding exploration licences. On 22 July Fewster thanked McIntyre for the information but said that he would deal with the pegging of the graticular gaps. McIntyre acknowledged Fewster's response and reminded Fewster that it was not necessary to physically peg the gaps but that they could be applied for as prospecting licences with the appropriate application.
29 July: Fewster meets Bantock and Goyder
On 29 July Fewster met with Bantock and Goyder at Bullion's offices. Bantock made notes of the meeting in his notebook and on the first draft of the heads of agreement document. Bantock says that he gave a copy of the draft heads of agreement document described as Draft 1 – 29 July 2005 to Fewster. That version of the heads of agreement stated the parties to be Bullion, GE Resources Pty Ltd ("GER"), a wholly owned subsidiary of Bullion, Narnoo Mining, Eaglefield, Fewster, Mrs Fewster and a company to be formed or acquired called Mulga Rock Mining Pty Ltd ("Mulga Rock Mining"). The heads of agreement envisaged that at the time of execution of the heads of agreement there would be in existence an agreement described as Option Agreement, being an agreement between Narnoo Mining as grantor and Mulga Rock Mining as grantee pursuant to which Mulga Rock Mining has the option to acquire a 50 per cent interest in the Tenements and that upon exercise of the option the Joint Venture be established in consideration of the Option Exercise Obligations. The Joint Venture was the joint venture to be established under the Option Agreement between Mulga Rock Mining and Narnoo Mining for the exploration, development and mining of minerals other than Reserve Minerals within the Tenements. Reserve Minerals was defined to mean scandium, lignite and sedex gold in those areas marked by cross‑hatching in Annexure A to the extent that those Reserve Minerals are clearly separable in a geological exploration and development sense from the underlying uranium resource. Thus, the joint venture was to apply primarily but not exclusively to the exploration, development and mining of uranium.
Clause 4.1 provided that Fewster sells and GER purchases all the shares in Mulga Rock Mining for 10,000,000 ordinary Bullion shares (subject to a voluntary escrow for 24 months) and options to acquire shares in Bullion exercisable on the achievement of certain milestones.
Clause 5 provided for the establishment of a joint venture between Narnoo Mining and Mulga Rock Mining with each to have a 50 per cent interest. Clause 5.3 provided that Mulga Rock Mining shall fund all Joint Venture expenditure up to completion of a Definitive Feasibility Study. Clause 5.4 provided that the Joint Venture excludes the Reserve Minerals and unless Mulga Rock Mining and Narnoo Mining agree otherwise Mulga Rock Mining shall acquire no rights in relation to the Reserve Minerals irrespective of any expenditure undertaken in relation to the Tenements by Mulga Rock Mining. There were clauses relating to a Definitive Feasibility Study and to a Decision to Mine for Uranium. There was a clause dealing with Mulga Rock Mining's right to withdraw from the Joint Venture. The gelignite clause, that is cl 5.10 (Put and Call on Joint Venture Interest) had been substantially amended since the first draft of the Heads of Agreement.
Fewster was given a copy of the heads of agreement on 29 July
Bantock and Goyder say that Fewster was given a copy of the Draft 1 ‑ 29 July 2005, heads of agreement. Bantock's copy contained a "thought cloud" on the top right hand corner which contained notes he made to prompt the raising of issues at the meeting, being related to matters which were not included in the draft agreement. Bantock says that they talked through the terms of the heads of agreement and the meeting concluded on the basis that Fewster would review the agreement in more detail over the weekend and come back to Bantock.
Fewster denies that he was given a copy of the heads of agreement on 29 July. He says he did not see the document until Monday 8 August 2005. He says, however, that on 3 August he was given a single page from the heads of agreement, containing cl 5.10, that is the gelignite clause.
I accept the evidence of Bantock and Goyder on this point. Their evidence was consistent and credible. I do not accept the evidence of Fewster. His evidence as to when he wrote on page 9 of the document was inconsistent. It is unlikely that Fewster would have written on a single page of a draft agreement without requesting a copy of the document or asking anything about it. Also, Fewster adopted the definition of Reserve Minerals, a label devised by Kiernan to describe the separate treatment of scandium, sedex and lignite within the joint venture, in his dealings with KTL on 3 August 2005. Furthermore, the first bullet points list prepared by Bantock on 8 August included a bullet point that referred to cl 5.10 of the first draft heads of agreement "previously circulated".
I find that Fewster's evidence was a reconstruction to explain how his writing could be on a page of a document he says he did not receive until a later time, that is 8 August.
Davis sent employment agreement
On 29 July Bantock sent a draft employment agreement to Davis in respect of his future role as development manager for Bullion pursuant to the proposed deal with Fewster.
Fewster meets with Bowen and Paterson
On 2 August Fewster met with Davis, Bowen and Grant Paterson at the office of Hardy Bowen. Paterson is a solicitor employed by Hardy Bowen who then worked under the supervision of Michael Bowen, a principal of that firm. Bowen and Paterson represented a company called KTL Technologies Ltd ("KTL"). Bowen outlined a proposal that KTL's promoter, Mr Fletcher, desired to put to Fewster for the acquisition of the Narnoo tenements. Bowen said to Fewster that convertible preference performance shares (CPPSs) may be a tax effective means of structuring a transaction between KTL and the Fewster entities.
Thursday 4 August: Fewster meets Bantock and Goyder and puts the CPPS Proposal
On 3 or 4 August there was a meeting between Fewster, Bantock and Goyder at Bullion's offices. Fewster says the meeting was on 3 August. Bantock says it was on 4 August. It does not matter on which day the meeting occurred but I accept the evidence of Bantock that it was on 4 August. Bantock has a contemporaneous note of the meeting with the date 4 August written on. I accept the evidence of Bantock, supported by that of Goyder, as to what happened at that meeting.
Fewster said that the previous proposal would not be effective for tax purposes and therefore he proposed an alternative structure in which he would be issued with CPPSs. Fewster said that he proposed that there be three tranches of the CPPSs. He wanted a number of entities to receive various elements of the consideration payable. The entities were likely to include the Busani Family Trust. Bantock and Goyder said that all Fewster needed to do was advise who he wished to be the recipients of the consideration. As long as Bullion acquired 50 per cent of the project then the nomination of recipients for the consideration was up to him. Fewster said that the appropriate structure was being driven by the need to manage his tax position. Fewster said that the third tranche of CPPSs would be subject to Bullion retaining the sedex and lignite rights and that this would eliminate conflicts of interest issues which would otherwise arise whenever the Bullion Board contemplated exploration in the sedex/lignite areas. Fewster said he proposed a rights and useage agreement be entered into by a subsidiary of Narnoo Mining. The subsidiary would hold the lignite and sedex assets. Fewster referred to a prospectus issued by Nova Energy Limited as being a good example of such an agreement.
At the meeting Bantock said that Bullion understood that under the deal it would fund all the expenditure on the project through to a decision to mine and that Bullion would agree to spend a minimum of $2 million each year on the project through to the completion of a preliminary feasibility study.
Fewster commented on the draft heads of agreement and there was a discussion on Fewster's comments.
Exhibit 79 is a copy of the heads of agreement bearing the description Draft 1 29 July 2005. Clause 5.10 is the put and call on joint venture interests clause described by the parties as the gelignite clause. The typed text of the clause has been altered by handwritten amendments. Bantock said that the handwriting is that of Fewster. Bantock explained that they discussed the document on 29 July and again on 4 August. Bantock said that when they got to discussion of cl 5.10, the gelignite clause, there was some discussion as to how it would work and in explaining how it should work, Fewster lent across and wrote on Bantock's copy.
Fewster agrees that the handwriting on cl 5.10 of Exhibit 79 is his handwriting but disputed how it came to be on that copy of the heads of agreement. Fewster says that he made the handwritten amendments at the meeting on 3 August. They were discussing the change of the proposed transaction from the Mulga Rock Mining proposal to the CPPS proposal and Bantock gave the page of the heads of agreement document containing cl 5.10 to Fewster and Fewster made the amendments changing the name of the party from Mulga Rock Mining to Bullion. I accept Bantock's evidence of what occurred. I do not accept Fewster's evidence on this point.
After the meeting on 4 August Bantock prepared a document entitled "Discussion with M Fewster: Changes to HOA" for the purpose of sending it to Kiernan so that Kiernan would have a clear picture of changes that needed to be made to the heads of agreement to reflect the discussion between the parties. The note includes the following. Mulga Rock Mining is no longer involved. Bullion will acquire a 50 per cent interest in the tenements. The lignite/sedex rights on the tenements might be 50 per cent held by another subsidiary of Narnoo Mining. If Bullion does not elect to keep those rights after December 2007 then those rights might pass across to Narnoo. Fewster favours the concept of a rights and useage agreement similar to the Nova Energy prospectus. The consideration now comprises $0.5 million cash, 1.5 million options, 1 million fully paid ordinary shares, three annual payments of $600,000 and CPPSs. The CPPSs are to comprise 9 million CPPSs, being securities which automatically convert to fully paid ordinary Bullion shares on a one to one basis upon Bullion's market capitalisation exceeding $20 million; 10 million CPPSs automatically converting to Bullion fully paid ordinary shares on a one to one basis upon the happening of any feasibility study establishing a JORC standard resource and 25 million CPPSs automatically converting on 31 December 2007 if Bullion elects to keep the 50 per cent interest in the lignite and sedex.
The note further says that Bullion is to fund the project through to the decision to mine. There are other notes concerning the decision to mine and a note that a minimum expenditure requirement of $2 million per annum will apply for the period until Bullion has satisfied the CPPS second tranche conditions. The note refers to the "death trigger" and a number of other matters.
Fewster's negotiations with other parties
During the time that Fewster was negotiating with Bullion he was also negotiating with other parties. He had been negotiating with Linq Resources Fund since at least June. Fewster's colleague, Davis, met with Gareth Lloyd of Linq on 4 August 2005.
Fewster conducted negotiations with a company called Maple Minerals Corporation ("Maple") that was associated with a Canadian based resource company called Laramide Resources Ltd. On Tuesday 2 August a representative of Maple put an offer to Fewster. On Wednesday, 3 August Fewster responded with a counterproposal in which he said that he would like to conclude a deal soon. Maple put forward a further proposal on the morning of 5 August. Fewster replied by saying that it would take him a few days to decide which way to go with the project. Maple seems to have detected Fewster's lack of enthusiasm for its proposal and by a further e‑mail on Friday, 5 August its representative said that he "just want[s] to assure you that Maple is keen to negotiate a deal that is fair to both parties and is committed to advance the project in line with your expectations".
Fewster held discussions with a company called KTL. I have already referred to the meeting on 2 August between Fewster, and Bowen and Paterson, solicitors who were then acting for KTL, at which Bowen outlined a proposal that KTL desired to put to Fewster for the acquisition of the Narnoo Tenements and Bowen said to Fewster that CPPSs may be a tax effective means of structuring a transaction between KTL and Fewster entities. That appears to have been the first occasion on which Fewster considered receiving CPPSs as part of the consideration for transferring interests in the Narnoo Tenements.
On 3 August Fewster sent an e‑mail to John Fletcher, a representative of KTL, in which he attached what he described as an outline of a heads of agreement. The document outlined a proposal for the "Trafalgar group" to acquire Narnoo Mining. Part of the consideration involved CPPSs. Fewster concluded his e‑mail by saying that he would appreciate if Fletcher could give him a yes or no or maybe on the proposal by 2 pm the following day (Thursday) and added: "I am under a bit of pressure to wrap up a deal ASAP". On the morning of Friday, 5 August Fewster sent an amended draft heads of agreement document to Fletcher.
Friday 5 August – Fewster telephones Bantock
On Friday 5 August Fewster telephoned Bantock. Fewster said that he had been approached by other companies who had made offers to him. Bantock said to Fewster that he had a clear choice to sell out or to corporatise his interest in the project by a deal with Bullion. Later that day Bantock met with Goyder and travelled to the Bullion offices. Bantock telephoned Fewster. Bantock and Goyder both spoke to Fewster. They said, in effect, that the deal they had put to Fewster was based on the structure that Fewster had said he wanted and that they could vary the proposal according to Fewster's wishes. Fewster said that he was unsure what he wanted to do and he would sleep on it.
Saturday 6 August
The following day, Saturday 6 August, Bantock drafted a letter to Fewster. The draft letter reflected the previous day's discussion. The draft letter includes the sentence: "all of the above is structured in a tax‑effective way -subject to your further professional advice – which is outstanding". Bantock never sent the letter because it was overtaken by events. Before Bantock could post the letter he received a telephone call from Fewster which was followed by further telephone calls.
Fewster, Bantock, Goyder, Stewart and McIntyre all gave evidence of or relating to the telephone calls on Saturday 6 August. Fewster's evidence of the times and sequence of calls is inconsistent with that of Bantock, Goyder, Stewart and McIntyre. I accept the evidence of Bantock as to the sequence and time of the calls.
Bantock's evidence is that Fewster telephoned him at about 11.30 am. I accept that Fewster telephoned Bantock at about that time. Fewster and Bantock have different recollections of what was said in the first telephone call. The minutes of the meeting of directors of Bullion held on Saturday 6 August summarise Fewster's first call to Bantock that day. The minutes were prepared by Bantock after the meeting. Goyder subsequently signed the minutes and testified that they were an accurate minute of what occurred. Counsel for the plaintiff, Mr Bennett, submitted that the minutes of the meeting provide the best evidence of the later telephone call between Fewster and the Bullion directors. Senior counsel for the defendants, Mr Williams QC, did not dispute the accuracy of what was said in the minutes, although he submitted that Mr Fewster gave a more detailed account of the telephone conversations. I accept that the minutes contain an accurate, although truncated and incomplete account of the board meeting and of the first telephone conversation between Fewster and Bantock on 6 August and of the later telephone conversation between Fewster and the Bullion directors during the course of the meeting of the board of directors of Bullion.
The recollections of Bantock and Fewster differ as to when and in what conversation things were said. They differ as to whether some things were said or not. I am not satisfied that either of them has a recollection of the words that were spoken as distinct from their impression of the effect of what was said. The most reliable guide to the contents of the telephone conversations is the minutes of the meeting of the board of directors.
The minutes state:
"Earlier this morning, Mr Fewster had telephoned Mr Bantock and advised of the deal structure which, if agreed to by Bullion, Mr Fewster would commit to, today.
Mr Bantock outlined the principal terms of that structure as follows:
•Cash payment of $1.1 million, up front (to be characterised as for purchase of intellectual property relating to the project, including Mr Fewster's masters thesis);
•1 million Bullion [fully paid ordinary] shares, up front;
•1.6 million $0.20 5‑year Bullion options, up front;
•25 million Convertible Preference Performance Shares (CPPSs), which convert to 25 million Bullion [fully paid ordinary] shares upon Bullion's market capitalisation exceeding A$30 million;
•20 million CPPSs, which convert to 20 million [fully paid ordinary] Bullion shares upon Bullion electing to retain lignite/sedex minerals rights beyond 31 December 2007;
•each tranche of CPPS will be subject to a 2‑year voluntary escrow period;
•Mr Mike Fewster and Mr Chris Davis are to join Bullion's Board;
•Bullion is to fund all project expenditure through to Decision to Mine;
•The minimum expenditure requirement of $2 million per annum would apply in the period prior to Bullion producing a [pre‑feasibility study];
•two further cash payments are to be made to Mr Fewster or his nominee of $600,000 each on 1 July 2006 and 1 July 2007."
I have referred earlier in these reasons to the first telephone conversation between Bantock and Fewster on 6 August. For the reasons I have stated, I accept that Fewster said words to the effect that he wanted to do a deal that day and that if Bullion accepted the terms Fewster had put forward then Fewster would stop negotiating with other parties and would do the deal with Bullion. I place no weight on Bantock's statement in cross‑examination that Fewster put the proposition of a verbal agreement to him.
After the telephone conversation Bantock called Goyder and Stewart to convey the telephone discussion and convene an urgent Board meeting to consider Fewster's proposal.
The Bullion Board meeting was held at Goyder's home in Mosman Park. The minutes disclose that the meeting commenced at 1.15 pm with Goyder, Bantock and Kiernan present and Stewart present by telephone. The minutes state that earlier that day Fewster had telephoned Bantock and advised of the deal structure which, if agreed by Bullion, Fewster would commit to that day. The minutes state that Bantock outlined the principal terms of the structure and set out those terms. The terms are those Fewster outlined in his telephone conversation with Bantock earlier that day that I have set out above.
The minutes then state:
"Mr Bantock outlined the reasons for development of the deal in the above principal structure, as explained to him by Mr Fewster, and concluded by reiterating that, whilst Bullion may seek a slightly different structure in a number of the elements, it was time to make a decision as to whether to commit or not, given Mr Fewster's undertaking that if Bullion agreed to deal today, then the deal would be done. Mr Bantock commented that Mr Fewster was waiting for his call."
The statement what whilst Bullion may seek a slightly different structure in a number of elements it was time to make a decision as to whether to commit or not is ambiguous. Senior counsel for the defendant submits that those words demonstrate the incomplete nature of the discussions between Fewster and Bullion on 6 August in that Bantock was suggesting that Bullion may seek to slightly change the structure and a number of elements in the course of further negotiations. On the other hand, counsel for the plaintiffs says that the words mean that whilst Bullion may have wanted some aspects of the structure to be slightly different it was now time to make a decision on the basis of the proposal put forward by Fewster, that is it was time to take it or leave it. In my view the words of the minutes are ambiguous and it is not possible to resolve that ambiguity.
The minutes state that there was some discussion and then Stewart left the meeting because he had a pressing commitment and it was agreed that he would be briefed on the outcome of the meeting prior to Bullion committing to the deal. McIntyre then joined the meeting by telephone. McIntyre outlined his endorsement of the decision to invest. McIntyre left the teleconference. There was further discussion. The board then resolved, subject to the final agreement of Stewart, that the company would commit to the proposal put by Fewster.
The minutes then state that Fewster joined the meeting by teleconference. That is confirmed by the evidence of Bantock, Goyder and Kiernan. Fewster's evidence is that he believed he spoke with members of the board at a later telephone conversation at about 7 pm. I accept the evidence of Bantock, Goyder and Kiernan on this point.
I accept the account of the teleconference that is set out in the minutes of the Bullion board meeting as follows:
"Mr Bantock outlined that, as he had explained to Mr Fewster in their previous telephone discussion earlier in the morning, the Board of Bullion had met to consider the deal put by Mr Fewster. He then summarised the deal put by Mr Fewster this morning, as outlined above.
Mr Bantock stated each principal point to the deal and sought and received for each point Mr Fewster's understanding and agreement of the point. He also confirmed that the above comprised the principal points of the deal. It was then clarified that the basis of future dealing was that if Mr Bantock telephoned Mr Fewster later in the day saying that Bullion accepted his deal, then the deal outlined above would be done.
The Board explained to Mr Fewster that it awaited a further conversation with Mr Stewart, before this confirmation would be made. Mr Fewster agreed and the Board assured Mr Fewster that Bullion looked forward to working as his partner to optimise the project and develop an outstanding uranium business.
Mr Bantock then summarised the process from here, being that subject to Mr Bantock confirming Bullion's acceptance of the deal, Bullion would request a trading halt on the ASX from Monday 8 August 2005, which under the Listing Rules could last for two days. It was expected that the agreed deal would be summarised in a bulletpoint list, which Messrs Bantock and Fewster would review by Monday lunchtime, after which the Heads of Agreement embodying the agreed deal would be prepared, concurrent with the relevant stock exchange announcement, over the course of Monday afternoon and Tuesday. On this basis, it was hoped that Bullion's ASX trading halt would cease on Tuesday, with the public announcement of the deal being released on the Wednesday morning. Mr Bantock stated that he would work on the bullet points over the weekend, and Mr Kiernan stated he would update the previous draft Heads of Agreement to incorporate today's changes pursuant to the agreed deal.
Each party wished the other well and Mr Fewster left the teleconference."
After the Board meeting concluded Bantock attempted to contact Stewart. Bantock was unable to contact Stewart for some time and at approximately 5 pm contacted Fewster and informed him that he (Bantock) expected to speak with Stewart shortly and to confirm with Fewster his agreement with Bullion. Fewster said that he was going to a Perth Glory game but that Bantock could contact him by mobile phone to confirm their agreement. Fewster also asked Bantock to confirm an aspect of the deal which he said had been raised previously but had not yet been effected in the draft heads of agreement and was not raised in their discussion that morning. Fewster asked that Bullion commit to a minimum expenditure requirement in relation to the lignite/sedex minerals area of the tenements of $750,000 by 31 December 2007. Bantock said that that matter had previously been discussed and therefore it should be included. Bantock asked Fewster to discuss details of the exploration further with McIntyre on Monday.
Bantock then telephoned McIntyre to discuss the $750,000 expenditure requirement. Bantock and McIntyre concluded that Bullion should agree to the $750,000 minimum expenditure.
Bantock then called Fewster to confirm the matter. However, Fewster was not at home and Bantock spoke to Mrs Fewster.
Goyder then joined Bantock at Bantock's home. Goyder and Bantock telephoned Stewart at around 6.30 – 7 pm. Bantock and Goyder outlined to Stewart the outcome of the Board meeting at which he was not present and then further discussed the merits of the proposed deal. Stewart said that he had spoken with McIntyre, who had considered the matter and he agreed the agreement should proceed.
Bantock then telephoned Fewster who was at the Perth Glory game. Bantock's phone was on speaker phone and Goyder was present. Bantock's evidence is that he said words to the effect that Bullion had accepted the deal that Fewster had proposed and that therefore the deal was done. Bantock said that he would notify the ASX to put the company into a trading halt on Monday. Bantock's evidence is that Fewster said words to the effect that Bantock and Goyder should be delighted, but he was also delighted and that they should crack open a bottle of champagne to celebrate the deal. Bantock concluded the call by arranging for Goyder, Fewster and himself to meet at Bullion's offices on Monday morning at 9.30 am. Goyder's evidence is that both he and Bantock said words to the effect that they had spoken to Stewart and that Bullion was happy to go ahead with the deal.
I am unable to make a finding as to the words used by Bantock and Goyder in their telephone conversation with Fewster. I am not able to find that Bantock said that the deal had been done rather than that the deal would be done or some similar words. I observe that the board resolution earlier in the day was that the company would commit to the proposal put by Fewster. I find that Bantock and Goyder conveyed to Fewster that Bullion accepted the deal that Fewster had proposed earlier in the day and that Bullion would proceed with that deal.
Sunday 7 August
On the evening of Sunday 7 August Bantock prepared a handwritten bullet point list of the terms of what he described as the agreement that had been agreed the previous day. In the course of drafting the notes Bantock telephoned Fewster to clarify a point in the arrangement as to the decision to mine implications in the context of a $1 billion resource. Bantock closed the call by again confirming that on the basis of their agreement Bullion would be placed in a trading halt the following morning.
Monday 8 August
On the morning of Monday 8 August Bantock wrote to the ASX requesting a trading halt. A trading halt was then effected.
At 8.36 am Fewster sent an e‑mail to Fletcher of KTL in which he said:
"Events have moved fast down here, and I regret to inform you that I have agreed to basic terms with a Perth based company, with the intention of executing a Heads in a few days. An announcement should be out on Wednesday.
However, if for some reason the deal is not concluded, I will contact you again, and we can pick up discussions again."
Fewster sent a copy of the e‑mail to Bowen and Paterson.
At 8.30 am Bantock had arrived at the offices of Bullion. He spoke with McIntyre. Bantock says he instructed his secretary to type the first draft of the bullet point list from his handwritten bullet point list.
Fewster arrived at the Bullion office at about 9 am. Davis arrived at about the same time. Fewster commenced discussions with McIntyre and Stewart. Davis met with Bantock. Bantock advised Davis to the effect that Bullion had done a deal with Fewster and that consequently Bullion was now in a trading halt. Bantock discussed with Davis matters relating to the agreement and Davis' future employment with Bullion. Davis then left Bantock's office and joined the meeting of McIntyre, Stewart and Fewster. Bantock briefly joined that meeting. Stewart left the Bullion offices at around 10 to 10.30 am.
At about 10.30 am Bantock asked Fewster to come to the Board room to work through the bullet point list with himself and Goyder.
Bantock's evidence of what happened in his discussions with Fewster and Goyder is principally given by way of a statement of his impression, understanding or conclusion of the effect of what was said. Bantock said:
"I gave Fewster and Goyder each a copy of the bullet‑point list. I asked Fewster in respect of each point words to the effect did the words used in the bullet‑point reflect Fewster's understanding of our agreement? Where he felt that the point had not represented the agreement, he advised of this and amendments were made. Goyder also made comments which, when agreed with Fewster, were reflected within the bullet‑points."
Bantock then says that he asked his secretary to effect the agreed changes and she brought back a clean copy of the bullet point list. Bantock then said:
"We then read through the amended list. Fewster then agreed that the final list of bullet points accurately reflected our agreement.
The specific changes can be identified by comparing the first draft of the bullet points … to the final bullet points".
Bantock's evidence that Fewster "agreed that the final list of bullet points accurately reflected [their] agreement" is Bantock's summary of the effect of what was said rather than an account of the words actually spoken.
Goyder says that he, Bantock and Fewster worked through a bullet point list that Bantock had prepared over the weekend. The document identified by Goyder in his witness statement is Exhibit 24, the document entitled "Discussion with M Fewster: Changes to HOA" which is a handwritten document prepared by Bantock on 5 August after his meeting with Fewster on 4 August. However, in cross‑examination Goyder referred to the discussion being in relation to a typewritten document.
In his witness statement Goyder says that he recalls that Bantock went through each point with Fewster to confirm whether he agreed with it. Goyder says he recalls that a number of amendments, described by him as minor, were made to certain of the bullet points including the cash component and changing the ongoing exploration requirement prior to feasibility. He said that they progressed through the bullet points list without much difficulty as most of the points were as previously discussed. He recalls that Kiernan joined the meeting at approximately 11 am and they went through the various points of the agreement with Kiernan.
Kiernan's evidence is that he joined the meeting around midday, or a little earlier. Kiernan's recollection is that he remained at Bullion's office for two to three hours. Kiernan and Bantock reviewed the first list of bullet points. Kiernan left the meeting on the basis that he was to draft a heads of agreement.
Fewster's evidence is that he, Bantock and Goyder began discussing the transaction. As each matter was discussed, Bantock took handwritten notes. From time to time his secretary entered the room and collected each completed page for typing. Fewster says that the first typewritten bullet points were given to him at about 1.30 pm. The first bullet points reflected the discussions up to that time.
In his witness statement Fewster said that he, Bantock and Goyder reviewed the first bullet points together when they were available. Fewster said that when they reached each of points 4 and 5 on page 1 and points 1 and 5 on page 2 he said words to the effect that: "that would do for now" but that he could not give Bullion a final answer as to who the recipient of the consideration would be until he had obtained advice from Golding. Fewster said that Bantock or Goyder said "OK" or words to that effect. Fewster went on to say that in relation to a number of points in the bullet points he said words to the effect that that would do for now and Bantock or Goyder said okay or words to that effect.
On the evening of Monday, 8 August Fewster asked Bantock to pull the applications. Bantock did not protest that Fewster had made a concluded agreement and that the lodging of the applications was part of, or made pursuant to, that agreement. To the contrary he undertook to see if it could be done.
The alleged admissions
The plaintiff says that Fewster's email to Fletcher at 8.36 am on Monday 8 August is evidence of, and an admission that, Fewster agreed to and intended to be bound by an oral agreement made on 6 August. I do not agree. The email is consistent with Fewster having agreed "basic terms" but there being other terms to be resolved before an agreement was concluded. Fewster's reference to an intention to execute a heads of agreement is consistent with Fewster intending that the agreement with Bullion should be made on the execution of a heads of agreement. Fewster's statement that, "if for some reason the deal is not concluded, I will contact you again, and we can pick up discussions again" is consistent with Fewster not having agreed to, or having intended to be bound by, an oral agreement made on 6 August. Indeed, his suggestion that if the deal is not concluded he would pick up negotiations with Fletcher is inconsistent with a legally binding agreement having been made with Bullion.
The plaintiff says that it should be found that Fewster told David Brunt in a telephone conversation on or around 8 ‑ 10 August that he had concluded the deal with Bullion. I do not find Brunt's statement to be reliable. Brunt did not give a statement until 21 August 2006, a year after the alleged call, and could not remember when the call took place. The evidence of emails shows that the call could not have occurred until after the meeting on 10 August in which Paterson had confirmed that the transaction was "dead".
Fewster's email to Taylor Wall & Associates on 15 August 2005 and subsequent communications are consistent with Fewster not having agreed or intended to be bound by an oral agreement made on 6 August.
Conclusion – No binding agreement made on 6 August
On 6 August the parties had not reached agreement on important matters. The conduct of the parties in meeting on 8 August and further negotiating the terms of their proposed transaction and relationship is consistent with neither party having agreed or intended to be bound by terms agreed on or before 6 August.
The minutes of the meeting of directors of Bullion on 6 August record that the board discussed the investment opportunity and resolved that "subject to the final agreement of Mr Stewart, the company would commit to the proposal put by Mr Fewster". I find that on 6 August each of the parties agreed the consideration to be paid to Fewster and committed to negotiating the further matters that needed to be resolved in the expectation that an agreement would be concluded by the signing of a heads of agreement, but no concluded agreement was made on 6 August.
Was an agreement made on 8 August?
At about 10.30 am on Monday 8 August, Goyder, Bantock and Fewster met in the Bullion boardroom to go through the bullet point list that Bantock caused to be typed. At some time that morning Bantock gave Fewster and Goyder each a copy of the typed bullet point list. Bantock went through the list with Fewster. Bantock asked his secretary to affect changes to the bullet points that were discussed. A second list of bullet points was prepared.
However, nothing was done to conclude an immediately binding agreement. Neither Fewster nor Bantock signed the bullet points or stated words to the effect that the agreement was then made. To the contrary, the bullet points were to be provided to Kiernan for him to draw up a draft heads of agreement. The procedure that had been agreed on 6 August was that the heads of agreement would be completed during the trading halt and signed by Wednesday to enable the trading halt to be lifted. The parties intended that their agreement should be made by executing the heads of agreement. No binding agreement was made on 8 April.
Uncertainty
I have found that the parties did not intend to make a legally binding agreement on 6 or 8 August. It is strictly not necessary to consider the second, although closely related, question of whether the parties reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (supra) per Gleeson CJ at 548.
The plaintiff says, in essence, that the parties had reached agreement on the matters required for a legally effective agreement and the other matters related to inessential or collateral matters. The plaintiff further says that some of the matters not agreed upon were not necessary for the formation of a legally binding agreement because they were to be decided at a later stage of the parties' relationship, in particular, after the making of a decision to mine.
The requirement of certainty or the sufficiency of agreement was considered by the Full Court in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101. The respondent was a registered owner of a number of mining tenements in the goldfields of Western Australia. The appellant wished to explore the respondent's tenements for nickel with a view to mining. In September 1994 the parties began negotiating. In April 1996 the appellant wrote to the respondent proposing five terms as heads of agreement. The letter concluded:
"The above forms a heads of agreement which constitutes an agreement in itself intended to be replaced by a fuller agreement not different in substance or form."
The respondent signed the letter confirming its agreement to the terms and conditions set out in it. The parties then entered into negotiations for the fuller agreement but those negotiations were unsuccessful. The appellant sought a declaration that the heads of agreement was a valid and binding contract. The respondent submitted that the parties had omitted so many important matters, and described so many other matters in such uncertain terms that, objectively speaking, the appropriate inference was that the parties had not intended to bind themselves to a legally binding contract. The respondent also submitted that the agreement was unclear and unworkable, including in situations where concurrent exploration might occur.
The Full Court allowed the appeal and found that the terms of the heads of agreement, the pre‑contractual negotiations and the parties' subsequent conduct indicated that the parties intended the heads of agreement to have binding contractual effect. The Full Court found that the agreement did not omit essential terms, and nor was it unworkable in the sense of it being objectively impossible to perform. Ipp J, with whom Pidgeon J agreed, said at [25]:
"It is well recognised that parties may enter into a valid contract containing a limited number of terms comprising those terms essential to the bargain that they wished to conclude, in the expectation that at a later date a further contract will be arrived at containing additional terms that would facilitate and clarify the initial contract. That is to say, a binding contract may be arrived at even though it leaves unresolved many matters which might arise in the future. As Kennedy J said in Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144 at 159:
'An agreement does not have to be worked out in meticulous detail. A bargain can be made containing certain terms, regarded as essentials, whilst the parties recognise that a formal document will eventually be drawn up in the full expectation that a number of additional terms will, by consent, be included in that document.'"
Once the court has determined that the requisite intention is present, it is then necessary to go on to consider whether the contract is so incomplete or uncertain as to be void. In Anaconda Nickel v Tarmoola (supra) Ipp J said at [29]"
"It does not follow that any omission will make a contract incomplete or uncertain in the sense of rendering it invalid. It is only the omission of an essential term that will have that effect. As to the meaning of 'essential' in this context, the following words of Lloyd LJ (with whom the other members of the Court of Appeal agreed) in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601 at 619 are helpful:
'It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by "essential" one means only a term which the court regards as important as opposed to the term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether they are important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, "the masters of their contractual fate". Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so‑called "heads of agreement".' "
I find that some of the matters on which the parties had not reached agreement, which I have set out earlier in these reasons, were matters which were required to be agreed before a legally binding agreement could come into effect. Those matters included the principal terms of the Narnoo Joint Venture Mining Agreement, the principal terms of the Reserve Minerals Joint Venture Mining Agreement, how scandium would be dealt with in a mining and process operation, how the inclusion or exclusion of reserve minerals would be dealt with and the definition of a pre‑feasibility study.
The parties' conduct on 8 August and subsequently, shows that they considered those matters required agreement. Those matters were essential to the relationship between the parties. Whether the parties reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract is not the same as, although in this case it is closely related to, the question of whether the parties intended to make a concluded agreement: see Australian Broadcasting Corporation v XIVth Commonwealth Games (supra) at 548 per Gleeson CJ.
The heads of agreement drafted by Kiernan, and considered by Bantock, on 8 and 9 August are a strong indication of the matters that were the terms necessary for an enforceable agreement to be made. Agreement was not reached on all of those terms. I find that the parties did not reach agreement on essential terms. Their transaction and future relationship would be unworkable without agreement having been reached on those terms.
Specific performance
The plaintiff seeks specific performance of the oral agreement made on 6 August or alternatively on 8 August. As I have found that no binding legal agreement was made, it is strictly not necessary to consider the plaintiff's case for entitlement to orders for specific performance. In case the matter goes on appeal I will make some brief observations on the plaintiff's claim for specific performance.
Certainty
Equity will not enforce contracts which, though enforceable at law, are too uncertain to permit formulation of the decree for specific performance: see Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 14. Since non‑compliance with the order is punishable as a contempt of court, there must be sufficient certainty to make the defendants' duty clear. I have found that the alleged agreement is not enforceable at law. It is not feasible to pronounce upon whether or not the alleged agreement, if enforceable at law, is sufficiently certain to be enforceable by an order for specific performance. That is because it would be necessary to consider different permutations of hypothetical findings, contrary to the findings I have made.
The defendants also argue that specific performance should be refused because it would require constant supervision by the court. In this context constant supervision does not mean that the court would literally have to supervise the execution of the order but rather, "the possibility of the court having to give an indefinite series of such rulings in order to ensure the execution of the order which has been regarded as undesirable": Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (supra) per Lord Hoffman at 12. References to constant supervision of the court is sometimes regarded as a part of the more general concern about whether the terms of the contract are sufficiently definite to allow a clear and precise court order to be issued. While constant supervision of the court and definiteness in the contractual terms remain separate and independent factors, the overlap is quite significant: Co‑operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (supra) per Lord Hoffman at 13 – 14.
It is not practicable for me to consider whether an order of specific performance should be refused on the grounds that it would require constant supervision for similar reasons that it is undesirable that I consider whether an order should be refused on the grounds that the terms of any agreement between the plaintiff and the defendants, or any of them, are not definite enough.
Hardship
The defendant says that specific performance should not in any event be ordered because its enforcement would impose undue hardship on the defendant. That is because it is said that the transactions entered into by the plaintiff since 8 August 2005 which were part of the corporate reorganisation, to which I referred earlier in these reasons, have substantially altered:
(a)the nature of the entity with which the defendants were to have an ongoing relationship;
(b)the significance of the defendants' shareholding in the plaintiff; and
(c)the consideration to be received by the defendants.
The defendant says that in the circumstances it would be unjust to order specific performance.
Whether or not it would be unjust to order specific performance only falls for consideration if the court finds that there was a binding legal agreement sufficiently certain to be the subject of an order for specific performance. To consider that issue in this case would require the court to hypothesise about what might be the facts and circumstances, contrary to those which I have found, which would call for the court to consider whether or not to refuse an order for specific performance on the grounds of hardship. It is not appropriate to undertake such a hypothetical task.
Mining Act, s 119
The defendants say that by virtue of the Mining Act 1978, s 119(2), a legal or equitable interest in a mining tenement is not capable of being "created, assigned, affected or dealt with, whether directly or indirectly, except by an instrument in writing" signed by the person dealing with the interest. Where there is no instrument in writing sufficient to satisfy the Mining Act, s 119(2), specific performance is not available, although a plaintiff may have a remedy in damages. The defendants refer to Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144 per Kennedy J at 162:
"The purpose of s 80 is to prevent legal or equitable interests in permits from being created, assigned, affected or dealt with, whether directly or indirectly, except by an instrument in writing. It does not provide that oral agreements shall be of no force: cf s 81(2). Accordingly, although an oral agreement may not, for example, assign an interest in a permit, this is not to say that it does not create a personal right in contract. I consider that it does – cf Adamson v Hayes (1973) 130 CLR 276 at 297, 304, 306, 319 – 320, the note by R P Austin, 'The Conveyancer: Moot Point' (1974) 48 ALJ 322 at 324 and N C Seddon, 'Contracts for the Sale of Land: is a Note or Memorandum Sufficient?' (1987) 61 ALJ 406."
In Sorna Pty Ltd v Flint (1999) 21 WAR 563, the appellant was the legal holder of a number of prospecting licences, an exploration licence and a number of applications for exploration licences. The respondents contended that pursuant to an oral contract the appellant held the tenements on trust for them. The appellant conceded that it held an 80 per cent interest in the tenements as trustee for the respondents but maintained that it was the holder of the beneficial interest in the remaining 20 per cent. In relation to the 20 per cent interest in dispute the appellant relied on s 119(2) of the Mining Act 1978 (WA) and contended that a legal or equitable interest in a tenement is not capable of being created except by an instrument in writing signed by the person creating the interest. The respondents contended that s 119(2) of the Mining Act did not operate to prevent equity from enforcing a constructive trust in the same terms as an oral contract. Ipp J at [11] addressed the question whether s 119(2) precludes the creation of a constructive trust created by the oral contract as contended for by the respondents. His Honour said that s 119(2) prevents legal or equitable interests in permits from being created, assigned, affected or dealt with, whether directly or indirectly, except by an instrument in writing. Accordingly, the section prevents the creation of the express trust orally agreed upon by the parties. It also prevents the creation of any equitable interest being created by construing a trust. Ipp J added that s 119(2) does not apply to contracts and the party's personal rights in contract remain.
Murray J held that the appellant's claim could not succeed by reason of the operation of s 119(2). His Honour said:
"That is not to say that a differently formulated claim in contract might not have been put in such a way as to seek the relief of an order that the mining tenements be conveyed to the respondents. But no such claim was made or agreement ever pleaded …"
Senior counsel for the defendant in this case, Mr Williams QC, characterised the plaintiff's claim as being tantamount to specific performance of an agreement to transfer 50 per cent interest in mining tenements less the scandium rights. Mr Williams said that the claim was not maintainable because:
"Now, if the plaintiff is entitled to remedies in the nature of an order for specific performance or mandatory or other injunctions that are designed to give it an interest, it is entitled to that interest under the agreement before the orders are made but the act says you can't get an interest except by an instrument in writing."
Counsel for the plaintiff, Mr Bennett, submitted that Mr Williams' argument is based on circularity. As Gaudron J pointed out in Stern v McArthur (1988) 165 CLR 489 at 537 the interest of a purchaser under a contract to purchase land is commensurate with the availability of specific performance. That availability is the very question in issue where there has been a termination by the vendor for failure to complete as required by the essential stipulation. Reliance upon the "interest" therefore does not assist; it is bedevilled by circularity.
Mr Bennett submits that the primary relief sought by the plaintiff is that Fewster execute the heads of agreement. That is a contractual right. It does not depend upon the plaintiff having an interest in the tenements prior to the execution of the heads of agreement.
I accept the plaintiff's submissions. Section 119(2) of the Act does not preclude an order for specific performance requiring Fewster to execute the heads of agreement document.
Plaintiff's claim – conclusion
I have found that there was no binding agreement made between the plaintiff and the defendants or any of them. The plaintiff's claim must be dismissed.
Counterclaim
The defendants make a number of counterclaims. Firstly, the first, third and fourth defendants claim declarations to the effect that there was no agreement between the plaintiff and the defendants in relation to the project. Secondly, the defendants make various claims in relation to caveats lodged by the plaintiff. Thirdly, the third and fourth defendants claim damages for breach of a confidentiality agreement made on 22 June 2005. Fourthly, Fewster claims $5,000 for breach of an agreement to pay him $5,000 in account of legal and accounting expenses.
The declarations
On or about 15 August 2005 Bullion lodged caveats over exploration licences 39/876 and 39/877. Bullion claimed an interest in each of the ELs by virtue of an oral agreement entered into on 6 August between Bullion on the one part and Fewster on behalf of Eaglefield and Narnoo Mining on the other part regarding development of the project and an oral agreement entered into on 8 August between Bullion and Fewster regarding the development of the project.
On or about 16 August 2005 Bullion published an announcement on the Australian Stock Exchange that, in the opinion of Bullion, it had entered into an agreement with Fewster to acquire a 50 per cent interest in the project.
Bullion maintains that there is a binding agreement between it and Fewster, Eaglefield and Narnoo Mining concerning the tenements and the project. It maintains the caveats and maintains its position publicly. It is appropriate that declarations be made to the effect that there is no enforceable agreement between the plaintiff and any of the defendants concerning the tenements or the project.
The caveats
In its prayer for relief the third defendant claims an order that the plaintiff forthwith deliver to Eaglefield duly executed withdrawals of each of the caveats, an order that GER deliver to Eaglefield duly executed withdrawals of each of the caveats and an order that in default of compliance by Bullion the Principal Registrar be authorised to execute withdrawals of the caveats in the name of the plaintiff. The third defendant also seeks an order forbidding the registration of further caveats over the tenements or on behalf of the plaintiffs or either of them. The third defendant further seeks an order forbidding the lodgement of further applications for exploration licences within the relevant area by or on behalf of the plaintiffs.
The fourth defendant claims a declaration that the plaintiff has no caveatable interest in the ELs or either of them, an order that the plaintiff deliver to Eaglefield duly executed withdrawals of each of the caveats, an order that GER deliver to Eaglefield duly executed withdrawals of each of the GER applications and joint applications and orders that in default of compliance by the plaintiff the Principal Registrar be authorised to execute withdrawals of the caveats and the GER applications and joint applications. The fourth defendant also seeks an order forbidding the registration of further caveats over the tenements by or on behalf of the plaintiffs and an order forbidding the lodgement of further applications for ELs within the relevant area by or on behalf of the plaintiffs or either of them.
I have found that there is no binding agreement between the plaintiffs and the defendants. That means that the plaintiffs do not have the caveatable interest that was claimed in lodging the caveats. However, no argument was addressed to the caveats or the relief sought in relation to the caveats. In those circumstances I will hear from the parties as to orders that should be made.
The confidentiality agreement
The plaintiff and Eaglefield entered into a confidentiality agreement on 22 June 2005. The confidentiality agreement concerned "the Information" which was defined to mean all and any information, knowledge and know‑how not in the public domain of any nature whatsoever and in any form of expression whatsoever in any way relating to the subject matter described in Schedule C and all parts and aspects thereof, and includes any reports, studies or other analysis prepared by any servant or agent of the plaintiff. Schedule C specified exploration licences 39/876 and 39/877, applications for exploration licences 39/1091, 39/1092 and 39/1114 (collectively described as the Tenements) and an area extending five kilometres beyond the boundaries of the Tenements. The agreement states that in consideration of the disclosure of the Information by Eaglefield to the plaintiff, the plaintiff made the covenants and agreements contained in the agreement. Clause 3 provides that the plaintiff shall at all times during the term of the agreement keep the Information and cause the Information to be kept strictly confidential and shall not cause or permit the disclosure of any of the Information to any person other than employees and consultants of the plaintiff or employees and consultants of Associates of the plaintiff. Associates is defined in a way which includes GER. Clause 6 provides that the plaintiff shall not at any time during the term of the agreement in a personal capacity or by or through an Associate make use of the Information in any manner whatsoever or derive any personal benefit from the Information from its use or application except as otherwise agreed by Eaglefield. The clause further provides that the plaintiff and any Associate agree not to obtain or seek to obtain any interest or right in ground contained within the area described in Schedule C during a two year period while Eaglefield is the holder or one of the holders of an exploration licence or exploration licence application in relation to that ground except with the written permission of Eaglefield.
On 24 June, two days after the plaintiff executed the confidentiality agreement, Davis delivered to the plaintiff technical information regarding the project. Fewster gave McIntyre a green manila folder which contained more information concerning the tenements and graticular block gaps for reference in pegging the graticular block tenements.
On or about 8 August Bullion caused to be lodged at the Department of Industry and Resources applications for prospecting licences in the joint names of Narnoo Mining and GER and on 16 August caused to be lodged further applications for prospecting licences in the name of GER only. The prospecting licence applications related to the graticular block tenements. They concern ground within the area described in the confidentiality agreement during the term there described. In lodging those applications Bullion and GER used confidential information supplied by Eaglefield to Bullion.
The plaintiff raises two substantial defences. The first is that the applications made used publicly available information. However, the existence of the graticular gaps was information which came to the attention of the plaintiff whilst analysing the data that Fewster had provided and was not a matter of public record. The plaintiff also became aware, as a result of its analysis of the confidential information given to it, that the land the subject of the graticular gaps was sufficiently valuable to warrant applications for tenements. It was the use of the confidential information, rather than ascertaining the details of the boundaries, that constituted the plaintiff's breach of its obligations under the confidentiality agreement.
The plaintiff's further answer to this claim is that it used the confidential information to make the prospecting licence applications with the agreement of Fewster on behalf of Eaglefield. As I have said earlier in these reasons, there was a discussion on 8 August amongst McIntyre, Goyder, Kiernan and Fewster, the outcome of which was that it was agreed that the tenements should be pegged in the joint names of GER and Narnoo Mining. There was no breach of the confidentiality agreement by the plaintiff causing the applications to be lodged on 8 August in the joint names of GER and Narnoo Mining.
The plaintiff admits that on or about 16 August the plaintiff and GER lodged applications for prospecting licences in the name of GER only but denies that it did so without the consent or knowledge of the defendants.
On the evening of Monday 8 August, in the course of a telephone conversation, Fewster asked Bantock to ask McIntyre to "pull" the tenement applications in respect of the graticular blocks. Bantock said he would call McIntyre but doubted that this could be achieved. It is implicit in Fewster's request that he did not consent to any subsequent prospecting licence applications being made by the plaintiff or GER, whether in joint names with Eaglefield or alone.
By Sunday 14 August, if not before, Fewster had made it clear that he and Eaglefield maintained that there was no binding agreement with the plaintiff. I have found that there was no binding agreement.
I find that Eaglefield did not consent to the plaintiff lodging the prospecting licence applications on 16 August 2005. In using the defendants' confidential information to prepare and lodge those applications the plaintiff breached the confidentiality agreement.
The parties have agreed that the assessment of damages should be assessed separately and at a later time. I will hear the parties as to the appropriate orders to give effect to this part of these reasons for decision.
$5,000 payment
Fewster says that there was an oral agreement made on 10 August 2005 that the plaintiff would pay Fewster $5,000 on account of further legal and accounting costs.
The parties devoted little attention to this matter at trial. That is understandable because the amount in issue is relatively small compared with the other matters in issue between the parties.
Fewster's case is that Bullion, through Bantock, agreed to make a contribution towards his legal and accounting costs of $5,000 and that it has failed to do so. Fewster gave evidence of the making of the agreement. That was not contested by Bantock or Goyder. I find that the plaintiff agreed to make a contribution of $5,000 towards Fewster's legal and accounting costs. There is evidence that Fewster incurred legal and accounting costs after 10 August. Paterson and Golding worked on developing a new written proposal for Fewster to put to the plaintiff.
I find that Fewster was entitled to the payment of $5,000 and the plaintiff has failed to pay it. Fewster is entitled to judgment for $5,000 on that account.
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