Edensor Nominees Pty Ltd v Anaconda Nickel Ltd
[2001] VSC 502
•18 December 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 4381 of 2001
| EDENSOR NOMINEES PTY LTD (ACN 006 168 516) and ORS | Plaintiffs |
| v | |
| ANACONDA NICKEL LTD (ACN 060 370 783) | Defendant |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 and 31 July; 1, 2, 6-8, 21-24, 27-30 August; 17 September 2001 | |
DATE OF JUDGMENT: | 18 December 2001 | |
CASE MAY BE CITED AS: | Edensor Nominees Pty Ltd & Ors v Anaconda Nickel Ltd | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 502 | Revised 20 December 2001 |
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Estoppel – promissory estoppel – representations – Walton Stores v Maher.
Contract – breach – collateral contract – variation.
Trade Practices Act 1974 – ss.51A and 52 – misleading and deceptive conduct.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P. Hayes QC with Mr I.D. Martindale and Mr M.S. Osborne | Schetzer Brott & Appel |
| For the Defendant | Mr R. Garratt QC with Mr I. Stewart | Andersen Legal |
TABLE OF CONTENTS
Background Facts............................................................................................................................... 2
The Preliminary Agreement Between Anaconda and Centaur................................................. 3
Events Leading to Negotiations for the Sale of Centaur Shares............................................... 4
The Meeting on 23 August 2000...................................................................................................... 7
Due Diligence and the Dennis Memorandum........................................................................... 13
Events Preceding Settlement on 4 September 2000................................................................... 17
The Gutnick Version of the Conversation on 4 September 2000........................................... 20
The Forrest Version of the Conversation on 4 September 2000.............................................. 22
The Documentary Evidence Surrounding the Telephone Conversation on 4 September 2000 24
The 4 September Letter – the Variation Agreement.................................................................. 26
Events After 4 September 2000...................................................................................................... 28
The Correspondence of 16 November 2000................................................................................. 39
The Events of 17 November 2000 and After................................................................................ 41
The Plaintiffs' Claim....................................................................................................................... 42
The Defendant's Defence and Counterclaim............................................................................. 47
The Evidence for the Plaintiffs...................................................................................................... 48
The Evidence of the Defendant..................................................................................................... 50
Findings as to Events on 23 August 2000..................................................................................... 58
Findings as to Events on 4 September 2000................................................................................ 60
Legal Ramifications of Findings................................................................................................... 65
The Promissory Estoppel Claim.................................................................................................... 66
Relief Under the Promissory Estoppel Claim............................................................................ 70
The Claim of Breach of the Share Sale Agreement Deed and the Variation Agreement.. 73
(a) The Written Terms................................................................................................................ 73
(b) The Alleged Implied Terms................................................................................................. 75
The Collateral Agreement.............................................................................................................. 76
The Trade Practices Act Claim...................................................................................................... 77
Conclusion......................................................................................................................................... 78
HER HONOUR:
The plaintiffs bring a claim to enforce an alleged share transfer agreement against the defendant. They claim alternatively under contract, promissory estoppel and the Trade Practices Act 1974.
Background Facts
The first plaintiff, Edensor Nominees Pty Ltd ("Edensor") is a corporate vehicle used for the ownership of shares in mining companies. The second plaintiff, Joseph Gutnick is a director and major shareholder of Edensor. Edensor owned a substantial shareholding in a mining company, Centaur Mining and Exploration Limited ("Centaur"). Gutnick was the chairman of the board of directors of Centaur. The dispute between the plaintiffs and the defendant centred upon shares in that company. Centaur, together with other companies form a group known as the "Centaur Group" and engaged in gold, cobalt and nickel mining. Its principal nickel asset is a laterite nickel and cobalt mine near Kalgoorlie known as the Cawse Nickel Project ("Cawse"). Centaur has an existing processing plant at Cawse with a production capacity of 9,000 tonnes of nickel and up to 3,000 tonnes of cobalt per annum.
On 4 December 1997 Centaur raised the sum of U.S.$225,000,000 by way of an issue of bonds in the United States for the purposes of constructing a plant at Cawse. The holders of the bonds came to carry significant clout in the determination of the future of Centaur and were generally referred to as the "U.S. bondholders". When Centaur borrowed the sum of U.S.$225,000,000 from U.S. bond holders in 1997, the bond holders ranked pari passu with Centaur's bankers, Chase Bank. The gold assets of Centaur were subject to the same security arrangement whilst the borrowing was for the development of the Cawse plant. It transpired that Centaur underestimated the cost of the Cawse nickel project by approximately U.S.$150,000,000. As a consequence, it undertook various steps to improve its cash position including the restructuring of its hedge book with Chase. Chase commenced monitoring the cashflow position of Centaur from about 1998.
Nickel mining in the Kalgoorlie region was divided into mining regions subject to various tenements. It seemed to not be unusual for nickel mining companies to enter into strategic alliances to share resources and technical knowledge and the like and possibly to protect their individual interests from other mining companies. Hence, Centaur had an existing strategic alliance with Heron Resources NL ("Heron"), a nickel mining company, that had tenements adjacent to those of Centaur. There was little evidence about the alliance save that it committed Heron and its tenements to Cawse for a term of 30 years.
The defendant, Anaconda Nickel Ltd ("Anaconda") has substantial laterite nickel mining interests in Western Australia. It conducts a nickel mining operation known as the Murrin Murrin plant and also conducts operations at Mount Margaret and Burlong. The Murrin Murrin plant has a production level of 40,000 tonnes per annum. Anaconda has tenements in three separate areas or provinces generally referred to as "the three provinces". Dominance of the three provinces was a core corporate strategy of Anaconda. So much was borne out by Anaconda's own corporate publications and statements made by its executives, particularly, its chief executive officer. Cawse fell within the three provinces. As part of that strategy Anaconda entered into an agreement with Centaur on 1 November 1999 in relation to mining at Cawse. I turn to that agreement.
The Preliminary Agreement Between Anaconda and Centaur
In about 1999 Centaur determined to expand the nickel production capacity at Cawse to a stage known as Cawse Stage II. In order to achieve that expansion Centaur entered into an agreement with Anaconda to conduct, among other matters, a pre‑feasibility study of Cawse Stage II. The agreement was entered into on 1 November 1999 and was known as the preliminary agreement ("the preliminary agreement"). It was apparently of mutual benefit to both parties. Under the terms of that agreement Anaconda agreed to commission and manage both a pre‑feasibility study and a feasibility study for Cawse Stage II. The preliminary agreement provided that the property in both studies would be equally owned by Anaconda and Centaur and that Anaconda would pay the costs of the pre‑feasibility study and the feasibility study other than the cost of drilling and assaying, the latter costs to be shared between Anaconda and Centaur equally. The costs proved to be substantial to Anaconda. The preliminary agreement contemplated that Centaur and Anaconda would enter into a joint venture for the implementation and development of Cawse Stage II and the development of that project. The preliminary agreement contemplated that, depending on the extent of the financial contribution by Anaconda to the Cawse Stage II project, it would acquire between 50 per cent and 60 per cent interest in the joint venture. Anaconda viewed the preliminary agreement as a vehicle whereby it could acquire a proprietary interest in the Cawse nickel tenements. This was important to Anaconda as it formed an important part of the "three provinces" strategy.
The pre‑feasibility study was carried out during July, August and September 1999. Although repeatedly referred to during the course of the trial, especially on the side of the plaintiff, the pre‑feasibility study itself was not tendered in evidence.
Events Leading to Negotiations for the Sale of Centaur Shares
In the second half of 2000 Centaur was spending more than it was earning, causing concern to Chase. The financial position of Centaur was compounded by movements in the Australian currency. Centaur operated a gold hedge book. By 2000 Chase held approximately 98 per cent of the gold hedge book of Centaur. During 1998 through to 2000 Centaur entered into a number of arrangements with Chase for the sale of its gold. However, this arrangement struck difficulties as Centaur did not always produce as much gold as it promised to sell. As a result, Chase found itself a major stake holder in Centaur with an exposure of about $134,800,000.
The person at Chase responsible for the account of Centaur was one Robert Schuitema. In May 2000 Schuitema discussed strategic options for Centaur with Gutnick. By this time Centaur had entered into the preliminary agreement with Anaconda for Cawse Stage II. Schuitema perceived that Anaconda had an interest in achieving a substantial foothold in the Cawse project. On 5 May 2000 Schuitema sent a fax to Gutnick proposing a financial strategy for Centaur with Anaconda but cautioned him that Anaconda, through its chief executive officer, John Andrew Henry Forrest might "double deal" him. Schuitema urged a course such that Edensor would retain control of Centaur so as to maintain the U.S. bonds and overcome or avoid a scheme of arrangement with the U.S. bond holders. Throughout the trial there was universal agreement that the U.S. bond holders of Centaur were regarded as difficult to deal with.
Chase was close to Centaur. First of all, as its banker, and secondly as a security holder of Centaur with considerable exposure. In the fax dated 5 May 2000 Schuitema proposed that Anaconda acquire a substantial interest in Centaur but that Edensor stand as a nominee for Anaconda so that the U.S. bond holders would be unaware of the real position as to possession of Centaur. There was a prevailing fear that if the U.S. bond holders were aware of Centaur's financial difficulties the bonds might be called up. There was a concern to keep the U.S. bond holders out of the picture. For example, it was considered undesirable to allow the bond holders to learn of Anaconda's interest, the reason being that as Anaconda was a major mining corporation the bond holders might become unnecessarily demanding on Centaur with the knowledge that there was substantial financial backing behind the company.
Subsequent to the fax from Schuitema of 5 May 2000, a letter was written by Gutnick to Forrest dated 17 May 2000 confirming an agreement in principle purportedly reached between Anaconda and Centaur to merge the two companies. The Gutnick letter of 17 May 2000 to Forrest reflected the proposal contemplated by Schuitema in his facsimile of 5 May 2000. Anaconda claimed that the letter of 17 May was never received and that it was not aware of the agreement referred to therein. In any event, nothing came of it.
By about August 2000 Centaur was clearly in a difficult financial position. It transpired that Gutnick had other mining interests offshore at Tahera in Canada. At the same time, differences were emerging between Anaconda and Centaur with respect to the interest of Anaconda in the joint venture contemplated by the preliminary agreement. Gutnick and Forrest had discussions about those differences on 3 August 2000. Gutnick recalled and Forrest had a note to the effect that at this meeting Gutnick raised with Forrest the possibility of Anaconda buying the Edensor shares in Centaur. On about 17 August 2000 Gutnick spoke to Malcolm James, the company secretary of Anaconda, to discuss, among other matters, a meeting between Gutnick and Forrest that came to be held on 23 August 2000.
Forrest was assisted in his executive role by the preparation of briefing notes by his executive assistant including a briefing note for 17 August 2000, shortly before the meeting on 23 August 2000. It included the following statement:
"Mal [being the company secretary] says he spoke with Gutnick and he is coming to the office on Tuesday afternoon and Wednesday (if needed) to get principles of deal completed. He wants to make sure you are available for that and then we can sort out the details.
He mentioned again:
(a)wants gold assets – given hedge book they are 'negative value'
(b)wants shareholders looked after
(c)wants some commitment on shareholders
(d)wants consideration of an issue to raise money so ctr [Centaur] can progress
(e)anl [Anaconda] to deal with bondholders
(f)thinks he is not getting enough."
James recalled that Gutnick discussed with him the matters listed in the briefing notes. He recalled that Forrest told him he had discussed some of the matters listed in the note earlier in time. Forrest recalled that the matters were part of a "basket of conversations" he had with Gutnick previously.
The briefing note referred to gold assets and the hedge book. It transpired that it was a reference to the separation of Centaur's gold assets from its nickel assets. The prospect of separating the assets came to have considerable importance between the plaintiffs and Anaconda. The reference to the hedge book related to Centaur's gold hedge book that was indebted to Chase. It transpired that the reference to the raising of money to Centaur related to a proposal for the injection of capital by Anaconda into Centaur. Again, the subject came to be controversial between the parties.
The Meeting on 23 August 2000
Subsequently, a pre-arranged meeting occurred between Gutnick and Forrest on 23 August 2000. The meeting was attended by the solicitor for Centaur and Edensor in the matter, Paul Ehrlich of Clayton Utz and also by James, the company secretary of Anaconda. The meeting lasted about three to four hours. Much of the meeting was conducted in friendly, even jovial terms. Ultimately, heads of agreement were agreed upon by Gutnick and Forrest. At one point during the course of the meeting Ehrlich left the room to draft a form of agreement on a laptop computer. It seemed that Ehrlich had draft agreement documents ready. He finalised the form of agreement with James. There were differences between the plaintiffs and Anaconda as to the events of the meeting on 23 August 2000. Gutnick and Ehrlich recalled that the sale of the shares of Edensor in Centaur were treated separately from the disposal of the gold assets of Centaur. Gutnick, Ehrlich and James recalled discussion on 23 August 2000 about the separate disposal of the gold assets. There was mention of the fact that the liabilities of the gold assets exceeded their value. There was discussion of the sale of the gold assets to another company of Gutnick, Gutnick Resources NL ("Gutnick Resources") for a nominal consideration. Gutnick and Edensor recalled that at the meeting on 23 August 2000 there was agreement in principle reached between those present that the gold assets were to be sold by way of a put option between Centaur and Gutnick Resources. The agreement was to be finalised later and was to be subject to approval by Centaur shareholders, a fairness opinion and a valuation. The matter of the disposal of the gold assets of Centaur and whether there was a put option came to be another matter of controversy.
Eventually, on 23 August 2000, a share sale deed ("the share sale deed") relating to Centaur was executed by Gutnick for himself and Edensor and by Forrest and James for Anaconda.
The share sale deed provided that Edensor agreed to sell to Anaconda 6,312,374 fully paid ordinary shares in Centaur at a purchase price of $1.35 per share, a total purchase price of $8,521,704.90. The share sale deed was conditional upon Anaconda completing a due diligence investigation of the assets, trading position and liabilities of Centaur. The investigation was to be completed by 4 September 2000. The deed provided that Anaconda was to be satisfied with the results of the due diligence investigation "in its absolute discretion". The matter of due diligence came to be of considerable significance in the trial. The share sale deed provided, also, that the sale was conditional upon Anaconda being satisfied in its absolute discretion that nothing in the deed would result in a "change of control". Clause 4.1 of the share sale deed provided:
"4.1 Condition Precedent and Completion
(a)Completion of this Deed is condition upon the Transferee by the Completion Date completing a due diligence investigation (and being satisfied with the results thereof in its absolute discretion) of the assets, trading position and liabilities of Centaur and being further satisfied in its absolute discretion that nothing in this deed … will result in a 'Change of Control' … .
(b)The Transferor shall use its best endeavours to procure that Centaur provides full access to its records and assets so as to permit the Transferee to complete its due diligence investigations by the Completion Date."
In addition, the share sale deed provided that Edensor would use its best endeavours to procure full access by Centaur to its records and assets so as to allow for completion of the due diligence investigation by 4 September 2000. The deed provided that settlement was to be effected at 2.00 p.m. on Monday, 4 September 2000 at the offices of Anaconda. The date came to be of critical importance in the parties' arrangements. It was important also that Anaconda is based in Perth, Western Australia and hence in a different time zone to Edensor which is based in Melbourne, Victoria. Under the share sale deed Anaconda was required to pay a deposit of $3,500,000 to Edensor and the balance on completion by bank cheque or direct credit.
In addition, under the share sale deed Gutnick gave a guarantee and indemnity to Anaconda of the obligations of Edensor under the deed. There were other routine commercial provisions relating to costs and expenses, waiver, confidentiality and the like. The deed provided that if the due diligence investigation was not satisfied by 4 September 2000 then Anaconda could terminate the deed without liability and that Edensor would repay the deposit sum to Anaconda by a specified date. The deed provided, also, that Edensor charged as a first ranking security the shares in Centaur to Anaconda as security for performance of its obligation to repay the deposit.
As part of the provision of security for the payment of the deposit Gutnick executed four transfer documents transferring the agreed shares in Centaur from Edensor to Anaconda on 23 August 2000. The transfer documents were to be held in escrow. So much was confirmed by a letter dated 23 August 2000 from one Michael Ashby, solicitor of Andersen Legal retained by Anaconda.
As part of the transaction reached on 23 August 2000 Anaconda agreed to purchase up to 1,573,041 fully paid ordinary shares in Centaur at a price of $1.35 per share, a total price of $2,123,605.35 from Mordechai Gutnick, the son of the second plaintiff, Joseph Gutnick. An option was given by Forrest in writing on behalf of Anaconda to Mordechai Gutnick in a letter dated 23 August 2000. There were other related documents signed on or about 23 August. Gutnick agreed in writing on 24 August 2000 to the transfer of the offices of Centaur to a location in Western Australia as directed by the new board and all information relating to and owned by Centaur. The transfer of Centaur offices was to be effected upon completion of the due diligence and settlement of the share sale deed on 4 September 2000. Gutnick signed a letter confirming the transfer of the offices of Centaur dated 24 August 2000. On the same day, Gutnick signed a confirmation of his commitment to procure from Centaur the transfer of 1,573,041 fully paid ordinary shares in Centaur at a price of $1.35 within 14 days of receiving notice from Anaconda to do so. The confirmation was addressed to Anaconda and was a collateral document to the option extended by Anaconda to Mordechai Gutnick.
In summary, therefore, by virtue of the share sale deed Edensor agreed to sell its Centaur shares and facilitate the sale of the shares of Mordechai Gutnick to Anaconda and to execute share transfers to be held in escrow pending settlement. Gutnick gave a guarantee and indemnity of the obligations of Edensor and agreed to transfer the management of Centaur to Anaconda on settlement. Anaconda agreed to pay a specified sum by way of deposit and a specified sum by way of balance for all the shares it was to acquire in Centaur at settlement on 4 September 2000. The share sale deed was subject to completion of due diligence to the satisfaction of Anaconda. The matter of the put option with respect to the gold assets was to be finalised later.
On about 23 or 24 August 2000 the deposit sum of $3,500,000 was paid to Edensor.
There was a great flurry of activity upon the conclusion of the meeting on 23 August 2000. The meeting finished in the evening and the parties, in particular, Gutnick and Forrest resolved to fly immediately to Kalgoorlie to inform Centaur staff of the arrangement with Anaconda. Before departing, outside the front of the relevant office building of Gutnick spoke by mobile telephone to Schuitema of Chase. During the course of the conversation he handed the telephone over to Forrest to speak to Schuitema. It appears that there was much elation among the parties over the sealing of the deal between Edensor and Anaconda. Schuitema had a file note of the conversation that was dated 24 August 2000. The date appeared to be wrong as Gutnick and Forrest recalled speaking to Schuitema on the night of 23 August 2000. The explanation for the incorrect date seems to lie with the likelihood that Schuitema made the note after the conversation. In any event, Schuitema's note recorded that Gutnick and Forrest told him the following six matters:
(1)Gutnick and Edensor were to sell shares in Centaur to Anaconda at a price of $1.35 per share;
(2)Anaconda would support the sale of Centaur's gold assets to Gutnick Resources for $1 subject to a fairness opinion, shareholder approval and evaluation;
(3)Anaconda would recapitalise Centaur through an equity issue for an amount to be determined;
(4)Forrest requested Chase to assist Anaconda in dealing with the U.S. bond holders;
(5)the board of Anaconda would approve the transaction on 22 September 2000;
(6)Forrest requested Chase to work closely with Anaconda and requested a meeting.
These matters were conveyed by Gutnick and Forrest to Schuitema in the presence of each other. In evidence, Schuitema said that during the conversation on the evening of 23 August 2000 Forrest told him that the transaction between Gutnick, Edensor and Anaconda was the missing piece of the three provinces strategy of Anaconda. Forrest said, further, that he would develop Centaur and discussed its recapitalisation. Schuitema recalled that Forrest told him that he would underwrite an equity issue for Centaur in the order of $20,000,000 or $30,000,000 in order to recapitalise it. Schuitema said Forrest asked him if Chase could assist in achieving a lower spot rate on hedging contracts and in dealing with the U.S. bond holders.
On 24 August 2000 Gutnick on behalf of Centaur and Forrest on behalf of Anaconda issued a joint press release in the following terms:
"ANACONDA TAKES LEAD POSITION IN CENTAUR
Anaconda Nickel Limited ('Anaconda') and Centaur Mining & Exploration Limited ('Centaur') today announced that Anaconda have entered into an agreement with Mr Joseph Gutnick, Chairman of Centaur to purchase 6.3 million Centaur shares at $1.35. Mr Gutnick has also agreed to procure the sale of a further 1.57 million shares at that price. The total tranche represents 14.99% of Centaur. The agreement is subject to commercial due diligence which will now commence.
Under the agreement Mr Andrew Forrest will, on completion, be appointed to the Centaur Board as Chairman and Anaconda will be invited to appoint two further Directors to the Board, with such appointments to be confirmed at the following AGM in October 2000. Mr Gutnick will remain on the Board as Deputy Chairman.
Production at the Cawse Nickel Operation across the June Quarter was 83% of design capacity with the autoclave operating at 105% of design capacity. The investment by Anaconda is seen as a major endorsement of the project.
Mr Andrew Forrest commended Mr Joseph Gutnick on the excellent contribution he has made to the development of Australia's dry nickel laterite industry. Mr Gutnick commented that Anaconda was selected as the major international nickel player most able to ensure the success of the Cawse Nickel Operation and its integrated expansions.
Mr Forrest said, 'Joseph has made an outstanding contribution, without his drive and vision the Cawse Nickel Operation would not have happened. His sale today, recognised significant profitability in the nickel industry is only the domain of large companies.'
Mr Gutnick commented that Anaconda has an unsurpassable lead in technology and development of large projects in Western Australia's dry laterite industry. He said this lead will, in the future, dominate the worlds [sic] nickel supplies."
Mr Gutnick said, 'the transaction was overwhelmingly in the best interests of shareholders.'
The purchase of this interest further consolidates Anaconda's position as a leading producer of Nickel and Cobalt and secures Anaconda's Three Nickel Province Strategy.
The Cawse Nickel Operation is a key asset in Anaconda's Southern Nickel Province, already the subject of an existing major expansion being undertaken by Anaconda. The pre-feasibility study is now being finalised."
Also on 24 August 2000 Forrest circulated an e-mail at management level of Anaconda under the heading "Anaconda takes lead position in Centaur". The main parts of the e-mail stated:
"Enclosed is today's ASX release regarding Anaconda's acquisition of the largest single shareholding in Centaur Mining & Exploration Limited and the imminent appointment to the Board and Chairmanship of Centaur. Joseph Gutnick, who has had a long association with Centaur has, after considerable review, determined that Anaconda is the best cultural and technical fit for the Centaur and Cawse operations team to grow and benefit the Centaur shareholders' interests.
This represents another exciting stage in Anaconda's growth through the Three Nickel Province strategy. The Southern Nickel Province (in the Kalgoorlie region) including the Cawse operation, has been key to this strategy.
Joseph has assured me, and I can confirm, that the senior operations management at Cawse are equally excited about this merger of our interests and are keen to work with us, as we are with them. I have made it clear that we at Anaconda admire their efforts to date and seek to complement their activities with our own skills. Cawse enjoys a strong family culture much like Anaconda and we will continue to encourage that."
Schuitema was requested by Gutnick to provide information to the directors of Centaur in relation to a sale by Centaur of its gold assets. In a letter dated 23 August 2000 Schuitema for Chase advised the directors of Centaur that in November 1999 an independent valuation of the gold assets of Centaur at a most likely valuation figure of AU$67,000,000. The highest valuation figure was AU$90,900,000. The letter went on to state that the "out of the money" value of the gold hedge contracts of Centaur was estimated to be AU$120,000,000. The Chase letter advised, further, that as the "out of the money" value of the hedge contracts significantly exceeded the highest valuation of the gold assets Chase viewed the sale of those assets for AU$1 in return for the purchaser assuming full legal responsibility for the hedging contract was likely to be fair and reasonable to Centaur and its shareholders.
Due Diligence and the Dennis Memorandum
The completion of due diligence to the satisfaction of Anaconda was a significant aspect of the transaction. Hence, on 24 August 2000 Stephen Dennis, Group General Manager of Anaconda set in train the commencement of the due diligence investigation of Centaur. Arrangements were made for the due diligence team to meet at Centaur's offices at South Melbourne, Victoria at 1.30 p.m. on Friday 25 August 2000. Initially, the team included Dennis, the company secretary James and representatives from Anaconda's solicitors, Andersen Legal and Anaconda's accountants, Arthur Andersen. Anaconda set other steps in train including an environmental assessment for due diligence purposes. By August 2000, as a result of the conduct of the pre‑feasibility study, Centaur believed that Anaconda was seized of much or all of the relevant information.
On 25 August 2000 Schuitema wrote to Gutnick expressing concern as to the conduct by Anaconda of the due diligence investigation with respect to Centaur's gold hedging book and the gold hedging exposures of Chase.
On 29 August 2000 Dennis sent a memorandum to Forrest in relation to the due diligence then being conducted by Anaconda of Centaur ("the Dennis memorandum"). The memorandum was sent less than one week after the share sale deed and related transactions had been made on 23 August 2000. It proved to be a watershed document. It was described by Mr Hayes QC who appeared for the plaintiffs as "the smoking gun" of the case. In the Dennis memorandum a number of significant matters were identified. Dennis advised that the transaction in relation to Centaur involved the assumption of a substantial risk by Anaconda. Dennis advised against proceeding and provided Forrest with a "Strategy Re‑assessment". He stated that the purchase of the Centaur shares was risky and questioned whether it achieved the strategic objectives of Anaconda. In summary, Dennis stated that the main concerns with the strategy were, as follows:
1.The status of Centaur was uncertain and there was "a very real possibility that the company will not survive without large cash injections".
2.By acquiring shares in Centaur, Anaconda would acquire Centaur's problems without necessarily enhancing its position at Cawse.
3.The acquisition of Centaur did not significantly improve the strategic position of Anaconda as the subject rights of Centaur were secured to bond holders. Dennis argued that the acquisition of the Centaur shares did not advance the position of Anaconda beyond the position it had achieved under the preliminary agreement.
4.Dennis stated that if Centaur collapsed Anaconda would lose its entire investment and have no secured rights in relation to Cawse with a commensurate negative impact on the market.
5.The involvement of Anaconda in Centaur would exacerbate problems with the U.S. bond holders as they would expect it to support Centaur.
6.The better way to achieve the nickel assets was via the bonds rather than Centaur and that there was a risk that third parties could be alerted to this situation and negotiate with the bond holders or acquire the bonds at a discounted market value.
The Dennis memorandum also stated that if the transaction was to proceed there were four minimum matters to be achieved. First, the position in relation to the gold assets of Centaur should be resolved at a price satisfactory to Centaur. Secondly, the employee entitlements of the management company of Centaur, AWI, including termination payments, should be resolved so as not to be payable by Centaur. Thirdly, a longstanding shareholder notice for Centaur shares held by Edensor required removal. Fourthly, a fixed charge of Centaur shares and other securities required resolution before completion of the share sale deed. In the Dennis memorandum, Dennis emphatically warned Forrest " … There is a very real risk Centaur will eventually fall over … If Centaur does fold then Anaconda will not be able to secure an interest in Cawse as this is mortgaged to the bond holders … If Centaur falls over … then Anaconda will lose its $10.5 million investment and be no better positioned in relation to Cawse/Cawse Expansion than at present … ".
In the Dennis memorandum, Dennis recommended the following strategy to Forrest:
"1.Advise Joseph we cannot proceed with the present deal because of due diligence reasons. The real reason not to proceed with the current transaction is that we then significantly reduce our negotiating ability on all outstanding issues.
2.Indicate to Joseph that at the very least all of the issues [being the four items already listed] … need to be first addressed. This will buy us time. In particular we need to complete a full evaluation of the hedge book.
3.So that Joseph does not face an adverse market reaction, we recommend the deal be 'parked' for the time being without further announcement.
4.Indicate to Joseph that we want out deposit back. Assuming he can't or won't repay, the debt obligation should ensure he continues to work with us …
5.Have Joseph commit to not dealing with any other party while we work out a new deal.
6.Advise Joseph we need to resolve a position with the bond holders before proceeding. The key to controlling the Cawse tenements is undoubtedly through the bonds. Proceed then to negotiate with bond holders when Centaur's financial position is fully understood (with Centaur's co-operation).
7.When the bond position is resolved, negotiate a new deal with Joseph. We will need to have negotiated an acceptable term sheet for re-financing the bonds which has the approval of bond holders.
8.Resolve Heron strategy within the same time frame as for resolution of bond holder issues.
………………………………………………………………………. "
The reference to Heron in the last point concerned the existing strategic alliance with respect to Cawse between Heron and Centaur.
The memorandum indicated that Anaconda could explore other strategies such as the acquisition of a shareholding in another interest or a new joint venture with another party. Dennis concluded the memorandum advising that the financial due diligence was continuing and that he anticipated a preliminary report would be ready on Friday 1 September 2000.
Events Preceding Settlement on 4 September 2000
Notwithstanding the strong negative views contained in the Dennis memorandum due diligence continued and Anaconda proceeded as if settlement was to be effected on 4 September 2000. On 30 August 2000 a meeting was convened between representatives of Anaconda including Dennis and representatives of Chase including Schuitema. The purpose of the meeting was to discuss the due diligence. In a file note about the meeting Schuitema recorded, among other matters, that Dennis was very complimentary about Centaur's achievements. There was no disclosure by Dennis (or anyone else from Anaconda) to Edensor, Gutnick or those acting for them such as Ehrlich or Chase as to the views set out in the Dennis memorandum. Of course, by this time Forrest was aware of the contents of the Dennis memorandum. No‑one on the plaintiffs' side knew about the document or its contents. Anaconda did not convey to the plaintiffs any suggestion that due diligence was not going well.
On 31 August 2000 Ehrlich of Clayton Utz wrote on behalf of Edensor to James of Anaconda confirming that no provision in the registered charge held by another party over the assets of Edensor interfered with the sale to Anaconda of the shares in Centaur and that accordingly a partial discharge would be unnecessary at settlement and that the shares would be delivered unencumbered of the relevant charge over Edensor. Further, Ehrlich requested confirmation that settlement would be effected on 4 September 2000 by payment of a bank cheque for the balance due to be collected by Edensor from either the Perth or Melbourne office of Anaconda. Ehrlich requested that settlement occur at 11.30 a.m. Perth time instead of 2.00 p.m. as stipulated in the share sale deed.
Meanwhile a draft due diligence report was prepared by Anaconda dated August 2000. It dealt extensively with technical matters.
The next step in the sequence of events was that a draft letter was prepared by James of Anaconda dated 31 August 2000 (the "James letter")to be signed by Forrest and sent to Gutnick. The draft James letter was drawn by James as a reflection of his concerns about the consequences of the Dennis memorandum and the obligation of Anaconda to settle the share sale deed on 4 September 2000. The draft letter referred to the proposed completion of the share sale deed of 4 September and the requirement for satisfaction of the due diligence. The draft letter recited that the due diligence had raised issues that required finalisation prior to completion and advised that without such finalisation it was unlikely that the board of Anaconda would approve completion. The draft letter proposed an extension of the completion date so that a number of matters could be finalised. These matters included the four matters raised previously in the Dennis memorandum (the gold assets of Centaur, the employee entitlements relating to AWI, the shareholder notice and the resolution of the fixed charge) and other matters, particularly, the status of the U.S. bond holders. In particular, the draft letter stated:
"The status of bond holders and the security entitlements thereto are such that a significant re-negotiation needs to be undertaken to ensure that value remains with CTR [Centaur] for the benefit of all shareholders."
The draft letter proposed an extension of the completion date of the share sale deed to 17 October 2000 and that a further condition precedent be added to the agreement requiring finalisation of various matters including the status of the U.S. bond holders. The letter was not sent.
Despite the concerns of Dennis and James, Anaconda continued to conduct itself as if the share sale deed was to be settled on 4 September 2000.
A letter dated 1 September 2000 was sent by James to Gutnick and stating that a list of "agreed issues" were to be finalised by 4 September 2000 as "a condition of completion of the Centaur Share Sale Deed". There was a schedule to the letter that listed four items as constituting the aforesaid "agreed issues" to be finalised. They were: (1) termination of the AWI service agreement with no liability for Centaur; (2) a six month put option in favour of Centaur from Gutnick Resources NL for an amount equivalent to the value of the hedge books; (3) completion and approval by the Anaconda board of the annual accounts; and (4) confirmation that the rights of Anaconda under the preliminary agreement with respect to the Cawse expansion attached to the Cawse project such that they could not "be repudiated by bond holders or any other party". These matters are referred to hereafter as the four items in the 1 September 2000 letter.
On 1 September 2000 Anaconda received the draft tax component of the due diligence report. It advised that the report required further insertions that would be provided later. On the same day, 1 September 2000, Anaconda received the draft legal component of the due diligence report from Andersen Legal. On 1 September 2000 also Anaconda received the technical and environmental component of the due diligence report.
By this time Forrest had departed on a business trip overseas. On the weekend of 2 and 3 September 2000 he was in London. A telephone hook‑up meeting was held between Forrest, James and Dennis. In all likelihood another Anaconda executive, Michael Masterman participated in the phone call. Masterman did not give evidence at the trial. The precise date of the meeting was not clear save that it was over that particular weekend. In the conversation Dennis and James made their positions clearly known to Forrest to the effect that Anaconda should not go ahead and complete the share transaction for Centaur on Monday 4 September 2000. The meeting finished on the basis that Dennis and James should leave the matter to Forrest and he would deal with it.
On 4 September 2000 the plaintiff parties awaited settlement of the transaction. During the mid afternoon, 3.00 p.m. onwards (EST), Ehrlich began telephoning James as to when the deposit cheque could be collected. James told Ehrlich that a cheque was being arranged. No mention was made by James of settlement not proceeding or of difficulties with due diligence. Thereafter significant developments occurred.
The next step was on Monday 4 September 2000 when Forrest and Gutnick spoke by telephone. This telephone conversation was pivotal to the dispute between the plaintiffs and the defendant. Both Gutnick and Forrest gave evidence of a conversation between them asserting different times and substance and each saying the other instigated the call.
The Gutnick Version of the Conversation on 4 September 2000
Gutnick gave oral evidence that on 4 September 2000 he was in his office at Edensor's premises in Melbourne awaiting the completion of settlement of the share sale deed. His son, Mordechai Gutnick was in Perth waiting to collect the settlement cheque at the offices of Anaconda. Settlement was due at 2.00 p.m. Perth time. Gutnick said that some time between 4.00 and 5.00 p.m. Melbourne time, then three hours ahead of Perth time, his secretary informed him that Forrest was telephoning from overseas. Ehrlich, Edensor and Gutnick's solicitor regularly attended the offices of Edensor in Melbourne. It transpired that at the time of the call between Gutnick and Forrest, Ehrlich was nearby, thus, Gutnick called him into the room. Gutnick said that the telephone call was received on a landline telephone in his personal office. On Gutnick's version of events, Ehrlich entered the room shortly after the commencement of the call from Forrest. Gutnick gave evidence that Forrest told him he was overseas to which Gutnick responded that he wanted his settlement cheque. Gutnick gave evidence that Forrest told him not to worry as he would get his cheque but that he, Forrest, wanted to delay settlement. Gutnick claimed that Forrest said to him " … I want to fuck the bond holders. I want control of the board … I want to delay settlement". Gutnick gave evidence that he told Forrest he wanted settlement immediately to which Forrest replied that he wanted Gutnick's co‑operation. Forrest wanted a six month extension. Forrest repeated what he wanted to do to the bond holders. Forrest said he wanted more time to which Gutnick told him he wanted settlement "to take place now". Gutnick said at this point Forrest told him "You can trust me. I give you my promise that settlement will take place. I need a six month extension. I need a delay in settlement. You have known me and I will honour my commitment to you". Gutnick was clear in his evidence, particularly under cross‑examination, that Forrest said the moneys due would be paid that day and that the payment was to be in the form of a loan until the date of the deferred settlement, six months later, with nominal interest payable at the rate of five per cent. Gutnick said Forrest told him the charging of interest was to make the loan appear legitimate to the U.S. bond holders. Gutnick said that he agreed. He said in his evidence specifically that he agreed to pay the interest.
At the same time as Gutnick was speaking to Forrest he was placing his hand over the telephone and telling Ehrlich in a fragmented way what was being said. Gutnick gave evidence that Ehrlich was shaking his head and telling Gutnick not to give up control of the board and to make sure that Forrest said he would keep his promise. Gutnick gave evidence, also, that Forrest proposed there be a loan with a nominal interest fee. Gutnick said Forrest told him that the loan should be "legitimate". Gutnick said that there was a clear understanding that Forrest had made a commitment and Gutnick agreed because he "relied on his promise". When asked specifically why he agreed Gutnick said he did so because he trusted Forrest. Gutnick said no other matters were discussed. In particular, he gave oral evidence that there was no specific discussion about the topic of due diligence or about a loan for an amount of over $10,000,000. Relevantly, Gutnick said he did not use crude language during the conversation and that it was not his habit to ever do so. Ehrlich recalled being summoned into Gutnick's office during the conversation. He gave evidence that during the telephone conversation between Gutnick and Forrest he heard Gutnick say it made sense to deal with the U.S. bond holders first and mention the Centaur board and the payment of money. Ehrlich recalled that during the phone call Gutnick covered the telephone and told him that Forrest wanted immediate board control, was willing to pay that day and would complete once Forrest reached a deal with the bond holders. Ehrlich said that he heard Gutnick say words to the effect: "Andrew, I'm trusting you. But for your promises, I wouldn't be giving you board control."
On the Gutnick version, the telephone conversation of 4 September 2000 was short. It seemed the arrangements after the conversation were left to the lawyers, Erhlich and Sharwood. Gutnick said his description of the conversation on 4 September 2000 was truthful and he rejected any different version.
Hence, the representations said by Gutnick in his evidence to have been made by Forrest on 4 September 2000 were the following:
(1)Settlement was to be delayed for six months to enable Anaconda to negotiate on favourable terms with the U.S. bond holders of Centaur.
(2)The moneys due on 4 September 2000 ($7,145,310.25) would be paid by Anaconda that day.
(3)The total moneys paid by Anaconda to Edensor ($10,645,310.25) would be paid that day in the form of a loan pending settlement with nominal interest, for the purposes of the negotiations with the U.S. bond holders, at the rate of five per cent for the six month period.
(4)The control of the board of Centaur would be transferred to Anaconda immediately.
(5)Anaconda would complete the transaction.
These matters constituted the representations alleged by the plaintiffs on the evidence and are referred to hereafter as "the representations".
The Forrest Version of the Conversation on 4 September 2000
The Forrest version of the conversation on 4 September 2000 between he and Gutnick was much longer and far more detailed than the description of the conversation provided by Gutnick.
Forrest gave oral evidence that on 4 September 2000 he woke up early and went for a walk in Hyde Park, London. Whilst walking he said he received a telephone call on his mobile telephone from Gutnick. He said that Gutnick was agitated and told him that he needed the deal to be completed, that he needed the money badly and that he understood that due diligence had not proceeded well. Forrest gave oral evidence that he told Gutnick that Anaconda was not going to proceed on the basis of the due diligence alone and that if it was to proceed, Anaconda would need more time. Forrest gave evidence that Gutnick told him he had other creditors and that he was prepared to offer Anaconda control of Centaur. Forrest asserted that Gutnick told him that Anaconda could conduct an extended due diligence from a position of control, that is internally. Forrest said Gutnick told him that because of the position of Anaconda in the laterite nickel industry it would be in a good position to resolve issues including the creditors of Centaur. Forrest gave evidence that he told Gutnick if matters were to proceed more time was required and Gutnick responded that Anaconda could not need longer than three months. Forrest claimed that Gutnick said if he gave Anaconda three months together with control of Centaur and appointed Anaconda personnel to its board of directors then he, Gutnick, would want the full amount of the share consideration "loaned" to him. He said that Gutnick offered a full personal guarantee so that regardless of the extended due diligence outcome Anaconda would receive its money back if it elected not to proceed with the purchase of the Centaur shares. Forrest gave evidence that after some discussion as to the period of extension Gutnick said that if at the end of the period of due diligence Anaconda determined not to proceed, he, Gutnick, would need a reasonable period of time to raise the sum of over $10,600,000 together with interest so as to repay the loan. Forrest said Gutnick asked him about the position of Anaconda with the bond holders. Forrest said he told Gutnick he would need to negotiate with all creditors including the bond holders. Forrest said Gutnick told him "I think you should screw the bond holders" to which he, Forrest, replied that without the bond holders the Cawse nickel project would not exist.
Forrest gave evidence that at this point in the conversation on 4 September 2000 Gutnick told him that he had his own issues with the bond holders, that the bond price was falling, and that Chase had given him an indication of a potential purchase price for the bonds not higher than 30 cents. Forrest claimed Gutnick told him he wanted Forrest to negotiate with the bond holders and that Anaconda would find all outstanding issues "surmountable if we took the three months and worked hard to resolve all the issues in Centaur". Forrest said that he told Gutnick Anaconda would proceed on the basis of the personal guarantee of Gutnick. Forrest said he told Gutnick that the circumstances were such that he had not wanted to put Anaconda at risk because the initial due diligence had shown the liabilities were higher than expected and that Anaconda could proceed only on the basis of a guarantee that it would get its money back. Forrest said Gutnick asked him to contact James so as to "pass on the bones of the agreement" and thereafter the conversation ended.
Forrest denied Gutnick's version of the telephone conversation on 4 September 2000.
The Documentary Evidence Surrounding the Telephone Conversation on 4 September 2000
During the trial, doubtlessly because of the importance of the telephone conversation, the parties explored all avenues to trace telephone calls made and received on 4 September 2000 by Forrest and by Gutnick and the offices of Centaur. Indeed, the defendant produced an entire folder of telephone records. Nevertheless, two potentially important telephone records were not produced despite every effort being made by the parties in all the circumstances. One set of records was the telephone records, if any, of the hotel Forrest stayed at in London on 4 September 2000. The other was the telephone record of a particular office extension of Gutnick and a number of mobile telephones that may have been available for his use on 4 September 2000.
Examination of the documents created on 4 September 2000 and the relevant telephone records made on the same day enabled events to be tracked. Bearing in mind that settlement was due at 2.00 p.m. Perth time and given that parties were based in Perth, Melbourne and Sydney and also London at the time various events were occurring, including telephone calls, it is relevant to observe the separate time zones of West Australian time ("WAT"), eastern standard time ("EST") and United Kingdom time ("UKT").
On 4 September 2000 (at 6.20 a.m. WAT/9.20 EST) James telephoned Sharwood the solicitor for Anaconda. James could not recall the conversation. Sharwood was not called to give evidence. In the overall context and given that settlement was due that day an inference can be reasonably drawn that James and Sharwood were discussing legal matters relating to Anaconda. A little later (at 7.30 a.m. WAT/10.30 a.m. EST) James telephoned Sharwood again. Two and a half hours later (at 10.08 a.m. WAT/1.08 p.m. EST), Sharwood sent an e-mail to Ehrlich and enclosed another draft of the put option contemplating that the vendor had the right to put the sale at any time until March 2001. An inference can be reasonably drawn that at that stage there was no indication that settlement would not proceed. A little over a further two and a half hours later (a little before 1.00 p.m. WAT) Ehrlich made phone calls and spoke to James who advised that he was organising the bank cheque for settlement and that the put option would be e‑mailed. James told Ehrlich, also, that Anaconda would not be settling that day on the shares owned by Mordechai Gutnick. A very short time later (1.12 p.m. WAT/4.12 p.m. EST) a draft put option was sent by Sharwood to Ehrlich. A little later again (at 1.20 p.m. WAT/4.20 p.m. EST) James requested Anaconda's bank to draw a bank cheque payable to Edensor. It is apparent that at that stage James had not been told that settlement would not occur. James said in evidence that he organised the bank cheque in case a decision was made by Anaconda to proceed. The bank cheque was in the amount of $5,021,704.90. A little later in the day an ordinary cheque for the sum of $2,123,605.35 was drawn by Anaconda to pay Mordechai Gutnick for his shares in Centaur. A little later again (at 1.33 p.m. WAT/4.43 p.m. EST) Gutnick's secretary telephoned Forrest's assistant. The substance of the conversation is unknown. Almost an hour later (at 2.23 p.m. WAT/5.23 p.m. EST) an Anaconda employee, one Reed, sent an e-mail to Forrest advising that Gutnick had called Forrest and advising the fact of a telephone call made about an hour earlier by Gutnick's secretary. A gap in telephone records then appears. Gutnick said in evidence that a call was made to him by Forrest at about this time. No telephone records recording such call were produced. Forrest said in evidence that he made some business telephone calls from his hotel. The hotel telephone records were unavailable. Forrest was adamant in his evidence that Gutnick telephoned him on his mobile telephone whilst he was walking in Hyde Park early in the morning in London. Gutnick denied making such a call. No telephone records at the Gutnick end recorded the placement of a call to Forrest at this time.
After the conversation between Gutnick and Forrest on 4 September 2000 records reveal that Ehrlich telephoned Sharwood from Gutnick's office very briefly (at 2.36 p.m. WAT/5.36 p.m. EST). A little over half an hour later (3.10 p.m. WAT/6.10 p.m. EST) Ehrlich telephoned Sharwood on Gutnick's telephone. Five minutes or so later (at 3.16 p.m. WAT/6.16 p.m. EST/8.16 a.m. UKT) Forrest telephoned James briefly. One minute later (at 3.17 p.m. WAT/6.17 p.m. EST/8.17 a.m. UKT) Forrest telephoned his assistant in Australia for over 20 minutes. Ten minutes later (at 3.28 p.m. WAT/6.28 p.m. EST) a call was made from Gutnick's office to Anaconda. A couple of minutes later (at 3.31 p.m. WAT/6.31 p.m. EST) records reveal that Sharwood commenced the preparation of a letter of variation of the share sale deed. An hour and a half later (at 5.01 p.m. WAT/8.01 p.m. EST/9.01 a.m. UKT) Forrest telephoned Anaconda and spoke to James and Dennis and discussed the draft variation letter prepared by Sharwood. A little later (at 5.31 p.m. WAT/8.31 p.m. EST) James telephoned Sharwood. A few minutes later (at 5.35 p.m. WAT/8.35 p.m. EST) Sharwood sent a fax to Ehrlich at Gutnick's offices. Records for the subsequent period disclose that a number of telephone calls were made between James and Sharwood and James and Ehrlich.
Ultimately, (at 7.37 p.m. WAT/10.37 p.m. EST) Anaconda sent a fax to Gutnick setting out the terms of the agreement reached on 4 September 2000 ("the 4 September letter").
The 4 September Letter – the Variation Agreement
The 4 September letter referred to a number of items: the share sale deed of 23 August 2000; the requirement of completion by 4 September 2000 subject to completion of due diligence; and the desire of Edensor, Anaconda and Gutnick to vary the share sale deed and agree to other matters. The other matters described were deferment of the date for completion of the share sale deed until 5 March 2001 and the procurement of completion by Edensor and Gutnick of the transfer of the shares in Centaur owned by Mordechai Gutnick. It also recorded that Gutnick agreed to guarantee repayment of a defined loan. The 4 September letter recited that in consideration of Edensor and Gutnick agreeing to the deferment of completion and the procurement of the Mordechai Gutnick shares and the Gutnick guarantee, Anaconda agreed to treat the deposit of $3,500,000 paid under the share sale deed and the additional sum of $7,145,310.25 as an aggregate loan of $10,645,310.25 to Edensor for a period of six months with interest to accrue on a capitalised basis at an annual rate of 5 per cent, such loan and interest to be repayable on the earlier date of completion or 5 March 2001. Further provision was included to the effect that the loan and interest would be repayable on demand if the annual accounts of Centaur for the year ended 30 June 2000 were qualified by auditors or agreed changes to the Centaur Board were not implemented.
The 4 September letter provided, further, for Centaur to enter into a put option before completion so that Centaur would be entitled to sell its gold assets to a Gutnick company, Gutnick Resources, at fair market value less liabilities under hedge contracts entered into by Centaur or A$1.00 whichever was the greater. The letter made provision in relation to AWI administration and the effecting of resignations from and appointments to the Centaur Board. The letter recited " … The sequence of resignations and appointments of directors must be managed to ensure that there is no 'change of control' of Centaur for the purposes of its U.S. bond indenture". The letter incorporated, also, the four items in the letter of 1 September 2000 to Gutnick. It further incorporated clauses 4.1(a) and (b) of the share sale deed. The 4 September letter finished requiring Edensor and Gutnick to sign, advising: "When you do so there will be a binding agreement between Anaconda, Edensor and Mr Gutnick varying, supplementing and additional to the Sale Agreement." The letter also provided that stamp duty on the agreement constituted by the letter was payable by Edensor. The letter was signed by Gutnick both in his personal capacity and as director of Edensor.
The 4 September 2000 letter constituted the variation of the share sale deed and was referred to in the pleadings as the variation agreement.
The 4 September 2000 letter, namely, the variation agreement, was signed by the parties that day.
On 4 September 2000, also, the general manager of AWI, Peter Lee, wrote to the directors of Centaur confirming that AWI consented to a waiver of notice under a service deed and the termination of a service deed between those parties. It maintained Centaur's obligations to pay moneys due and payable. It further provided that AWI would continue to provide services to Centaur for a period of 30 days.
How was the contractual relationship between Edensor and Anaconda to be properly characterised as at 4 September 2000? Obviously, the arrangements were commercial in character. Gutnick and Forrest were men of commerce each of whom had a vision for their particular corporate entity. They were commercial men used to hard negotiation and bargaining. Ultimately, it was Gutnick's trust of Forrest that led him to agree with Forrest on 4 September 2000 as he did. In legal terms, Gutnick acted in good faith and trusted Forrest to do likewise. There was an implied term, therefore, to act in good faith.
In so far as it would be necessary to do so I find that in making the representations Forrest did on 4 September 2000 together with the conduct of Anaconda thereafter, the duty of good faith implied into the share sale deed and the variation agreement was breached. However, for the reasons previously stated, no loss and damage was made out.
The Collateral Agreement
The next claim by the plaintiffs was one of breach of a collateral agreement. The agreement was alleged to have been made orally and constituted by the statements made by Forrest on 4 September 2000. In order for a collateral agreement to arise I would need to be satisfied that the statements made by Forrest on 4 September 2000 were promissory and consistent with the variation agreement signed on 4 September 2000: Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133; Maybury v Atlantic Union Oil Co (1953) 89 CLR 807; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.
In my view, for the reasons already expressed with respect to promissory estoppel, the statements made by Forrest amounted to assurances as to settlement that were of a promissory character. However, as a matter of application of strict legal principle the collateral agreement was inconsistent with the terms of the variation agreement. Despite the submissions and the case put on behalf of Edensor and Gutnick I am persuaded that the claim of a collateral contract has difficulties.
The High Court has consistently emphasised that a collateral contract cannot be inconsistent with the main contract: Hoyt's Pty Ltd v Spencer, supra; Gates v City Mutual Life Assurance Society Ltd, supra. Nevertheless, Hoyt's and Gates were both decided in the absence of an alternative claim of promissory estoppel and before the judgments in Waltons Stores and Verwayen. I consider, therefore, Hoyt's is distinguishable from the present case. It may be also that the principle expounded in Hoyt's is circumvented by Waltons Stores: see Cheshire and Fifoot, Law of Contracts, (7th Aust. ed.) p.330. I consider that it is unnecessary, indeed inappropriate in the circumstances of the case to find breach of collateral contract against Anaconda. Even if it was appropriate the plaintiffs face the same problem as under the breach of the share sale deed and variation agreement claims with respect to proof of loss and damage. I would not, therefore, make orders for relief under the collateral contract claim in any event.
The Trade Practices Act Claim
The representations made by Forrest to Gutnick on 4 September 2000 constituted misleading and deceptive conduct in breach of s.52 in accordance with the usual authorities: see Taco Co of Aust. Inc. v Taco Bell P/L (1982) 42 ALR 177; Parkdale Custom Built Furniture P/L v Puxu P/L (1982) 149 CLR 1913. The representations also related to future conduct principally to the effect that Anaconda would complete the transaction on 5 March 2001. In that respect the representations were in breach of s.51A of the Trade Practices Act in so far as they constituted a representation as to future conduct: see Futuretronics International Pty Ltd v Gadzhis (1992) VR 217; Miba Pty Ltd and Ors v Nescor Industries Groiup Pty Ltd (1996) ATP 41-534.
On analysis under the statute the principle representations were those made by Forrest on 4 September 2000. The representations were misleading and deceptive at the time of their making because he did not disclose the difficulties over due diligence or the matters revealed in the Dennis memorandum; he did not disclose that there was a risk or likelihood that Anaconda would not settle. The conduct was also misleading and deceptive as to the future intentions of Forrest and Anaconda: see Futuretronics International Pty Ltd v Gadzhis (1992) VR 217; Miba Pty Ltd and Ors v Nescor Industries Group Pty Ltd (1996) ATPR 41‑534.
Edensor and Gutnick relied upon the misleading and deceptive conduct, by inter alia entering into the variation agreement, terminating the AWI agreement, transferring board and management control of Centaur and ceasing to explore alternative investment opportunities. Such acts, done in reliance upon the misleading and deceptive conduct are sufficient to establish causation for the purposes of the Trade Practices Act and hence open the gateway to the remedies contained in ss.82 and 87.
The majority in Marks v GIO Australia Holdings Ltd and Ors (1998) 158 ALR 333, held that in order to be entitled to relief under the statute, the applicants had to be able to establish that had it not been for the misleading conduct, they would have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to them than the course adopted. I accept that had it not been for Forrest's assurances, Edensor would not have entered into the variation agreement but instead would have sought to treat elsewhere or have held Anaconda to the bargain struck by the 23 August 2000 share sale deed.
By reason of the contravention by Anaconda of ss. 51A and 52 of the statute, Edensor is entitled to relief under s.87 of the Act by which the court is empowered to "make such order or orders as it thinks appropriate against the person who engaged in the conduct". It is unnecessary to determine the trade practices claim. However, for the reasons stated the claim would be made out. The question would arise then as to whether any and if so what relief should be granted. For the reasons stated with respect to the contractual claims no loss and damage was made out. Accordingly, I would not order damages under the trade practices claim. As for relief under the section, I would be satisfied, if necessary, to order the declaratory relief recited with respect to the promissory estoppel claim for the purposes of relief under s.87 of the Trade Practices Act.
Conclusion
It follows from these reasons that the plaintiffs succeed. It follows, further, that the counterclaim should be dismissed. The defendant's counterclaim was brought on the basis that moneys were owed pursuant to a loan, interest thereon together with stamp duty. For the reasons stated the defendant has failed in its claim. In so far as Edensor has an obligation to complete the subject transaction the interest sum due on 5 March 2001 will be payable. It was never suggested by the defendant that Edensor defaulted in payment of interest as the obligation to so pay has been found. Declarations will be made, subject to proper formulation, to the following effect:
(1)That Anaconda is unable to contend that it was not required to complete the share sale deed and the variation agreement on 5 March 2001.
(2)That Anaconda is unable to contend that the advance of the sum of $10,645,310.25 is a loan now repayable.
(3)That the sum of $10,645,310.25 is not due or repayable by Edensor to Anaconda on 5 March 2001 or at all.
(4)That the charge over the shares in favour of Anaconda created by clause 6.2 of the share sale deed is of no effect and is unenforceable.
(5)That Gutnick is not bound by the terms of the guarantee provided pursuant to the share sale deed or the amended guarantee pursuant to the variation agreement.
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