Expectation Pty Ltd v Pinnacle VRB Ltd - [2002] WASCA 160

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: EXPECTATION PTY LTD -v- PINNACLE VRB LTD [2002] WASCA 160

CORAM: STEYTLER J
MILLER J
HASLUCK J

HEARD: 6 MARCH &
17 APRIL 2002

DELIVERED : 19 JUNE 2002

FILE NO/S: FUL 103 of 2001

BETWEEN: EXPECTATION PTY LTD
Appellant
AND
PINNACLE VRB LTD
Respondent

Catchwords:

Contract - Condition precedent - Whether failure to satisfy renders contract void or voidable

Contract - Implied terms - Implication that each party will do all that is necessary on its part to enable the other party to have the benefit of the contract - Whether party in breach can terminate for breach by the other - Circumstances in which defaulting party can terminate contract

Legislation:

Corporations Law, s 249D, s 249F

Rules of the Supreme Court (WA), O 63 r 9(2)

Result:

Appeal allowed

Category: A

Representation:

Counsel:

Appellant: Mr D M Stone
Respondent: Mr H Jolson QC, Mr G S Clarke & Mr J L Evans

Solicitors:

Appellant: Williams & Hughes
Respondent: Keogh & Co

Case(s) referred to in judgment(s):

Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909
Butt v M'Donald (1896) 7 QLJ 68
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Foran v Wight (1989) 168 CLR 385
Gange v Sullivan (1966) 116 CLR 418
GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Howtrac Rentals Pty Ltd v Thiess Contractors (NZ) Ltd [2000] VSC 415
Kyrwood v Drinkwater [2000] NSWCA 126
Mackay v Dick (1881) 6 App Cas 251
Mehmet v Benson (1965) 113 CLR 295
Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181
Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537
Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd, Receiver & Manager Appointed (1997) 42 NSWLR 462
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sprague v Booth (1909) AC 576
State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 277
Summers v The Commonwealth (1918) 25 CLR 144
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418

Case(s) also cited:

Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Alghussein Establishment v Eton College [1988] 1 WLR 587
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Coulton v Holcombe (1986) 162 CLR 1
Drinkwater v Caddyrack Pty Ltd, unreported; SCt of NSW (Young J); 25 September 1997
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41 - 703
Gray v Allen [1977] VR 413
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Morris v Baron & Co [1918] AC 1
O'Brien v Komesaroff (1982) 150 CLR 310
Pizzale v Gumina Enterprises Pty Ltd (1994) 13 WAR 88
State Bank of New South Wales v Chia (2000) 50 NSWLR 587
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130

STEYTLER J: The appellant ("Expectation") was the unsuccessful plaintiff in proceedings brought by it against the respondent ("Pinnacle") in the Court below. The circumstances giving rise to the proceedings are set out at some length in the judgment of the trial Judge. It is unnecessary to repeat them except insofar as is relevant to the issues giving rise to this appeal.

The Letter Agreement

In 1998 Pinnacle acquired rights to the technology involved in the development of a product known as the vanadium redox battery ("VRB"). On 29 May 2000 it entered into an agreement with Expectation which has been described by the parties as "the Letter Agreement". The material terms of that agreement are as follows:
"LICENCE AGREEMENT
This letter of agreement ('Letter Agreement') sets out the terms and conditions pursuant to which Pinnacle VRB Limited (ACN 060 111 784) ('Pinnacle') will licence Expectation Pty Ltd ACN 009 030 102 ('Expectation') to use the full suit [sic] of intellectual property to make and sell electrolyte and VRB's.
Upon execution of this Letter Agreement Pinnacle and Expectation each intend to be bound to the performance of the terms of this Letter Agreement but, at the same time, propose to have the terms restated in a [sic] formal licence agreements (as stated in paragraph 2) in a form which will be fuller or more precise (but not different in effect) to this Letter Agreement.
This Letter Agreement shall be binding on and enforceable against the [sic] Pinnacle and Expectation upon the acceptance of this offer by Pinnacle pursuant to this Letter Agreement as if executed by the parties as a deed.
1.Conditions Precedent
The obligations herein shall be subject to and conditional upon the following conditions precedent:
(a)the parties entering into a [sic] mutually satisfactory formal licence agreements ('Licence Agreements') and Collaborative Venture as soon as practicable but no later than 30 June 2000 (or such later date as agreed) which formalises and sets out more fully the terms and conditions of the licence and Collaborative Venture and includes in substance those terms set out in paragraphs 2 and 3; and
(b)satisfaction of all necessary approvals applicable to Pinnacle and Expectation including, without limitation, the Boards of Pinnacle and Expectation, compliance with the Corporations Law, ASX Listing Rules, the Constitutions of Pinnacle and Expectation and any agreements or understandings entered into by Pinnacle or Expectation.
2.Licence Agreements
Pinnacle hereby grants to Expectation the following:
(a)a non exclusive licence for the full suit [sic] of intellectual property owned by Pinnacle to make and sell electrolyte and VRB's world wide in territories where there are already in existence non exclusive licences on terms and conditions no less favourable than those existing non exclusive licences;
(b)first right of refusable [sic] to take up exclusive licences that have been granted by Pinnacle over territories (including Africa) that are currently covered by exclusive licences if they become available, on the same terms and conditions as those licences; and
(c)exclusive licence to use VRB technology in Korea and Taiwan and the first right of refusal for exclusive licences to use VRB technology in other regions within Asia on the basis that Expectation will be offered the licences on terms and conditions no less favourable than those being negotiated with a third party.
The parties agree to enter into the Licence Agreements to evidence the licences referred to herein.
3.Collaborative Venture
Expectation and Pinnacle enter into a collaborative venture ('Collaborative Venture') to research and develop a cost effective means of producing vanadium electrolyte and to establish a research and development activity.
Pursuant to this Collaborative Venture:
(a)Pinnacle will exclusively licence Expectation to use the intellectual property currently owned by Pinnacle for electrolyte production in Australia with the right to export product;
(b)Pinnacle will provide technical assistance, know how and expertise available to Pinnacle at a cost to be agreed;
(c)Expectation will provide the vanadium electrolyte as required for Pinnacle projects at a cost to be agreed; and
(d)intellectual property developed by the Collaborative Venture will be jointly owned by Pinnacle and Expectation.
4.Consideration
In consideration for the grant of the licences referred to herein and the entering into the Collaborative Venture Expectation:
(a)will underwrite a pro-rata non-renounceable issue by Pinnacle of 3 Options for every 10 securities held by all shareholders and participating optionholders which Options will each be issued for a consideration at [sic] 5 cents; and
(b)or its nominees will take a placement of 2,000,000 shares each at 40 cents with 2,000,000 attaching Options.
Expectation will be paid an underwriting fee of 5%.
For purposes of this Letter Agreement 'Option' means a 5 year option over an unissued fully paid ordinary share in Pinnacle exercisable at 50 cents which option will be officially quoted on the ASX.
4.2Warranties
…
4.3Other Terms
The Licence Agreements and Collaborative Venture will contain such other terms as would normally be included in such types of agreements provided that the effect of the terms is not inconsistent with those terms set out in this Letter Agreement.
5.Assignment
…
6.Obligation of Good Faith
The parties agree that they will negotiate in good faith to close the transactions contemplated in this Letter Agreement in an expeditious manner and as soon as practicable.
7.Expenses
The parties will each bear their own costs in connection with the negotiation of the Licence Agreements, Collaborative Venture and other matters contemplated by this Letter Agreement.
8.Preparation of Documentation
Pinnacle will be responsible for arranging the preparation of the Licence Agreements, Collaborative Venture and any other documentation contemplated herein and shall bear the cost of preparing such documentation.
…"

Events following the Letter Agreement

Notwithstanding that, by cl 8 of the Letter Agreement, Pinnacle was responsible for preparing the necessary documentation, Expectation's solicitors were asked to prepare drafts of the four agreements which were perceived to be required. By 13 June 2000 they had prepared drafts of a "co‑operation agreement" and a "subscription agreement" and revised drafts of a licence agreement and an underwriting agreement. On that day Mr Roderick Smith, the chairman of a number of companies which were related to Expectation (although not an officer of Expectation itself), took these documents with him to Melbourne. There he met with Pinnacle's managing director, Dr Malcolm Jacques. On the following day he and Dr Jacques flew to Sydney where they met with Dr Richard Sharp, a member of Pinnacle's board of directors, and Maria Skyllas‑Kazacos, a professor at the University of New South Wales, who had initially developed the technology for the VRB. The four of them discussed the terms of the proposed collaborative venture.

Discussions on 15 June 2000

On 15 June 2000, there was some discussion (in Melbourne) about the draft collaborative agreement. The trial Judge found that, apart from the fact that the draft agreement was considered by Dr Jacques and Mr Desmond Kennedy, another of Pinnacle's directors, to be an entirely unsatisfactory instrument, "they were able to progress the matter little further". This was so notwithstanding that a document described as a "term sheet", which sets out what the terms of the final form of the collaborative agreement might be and which was attached to the draft, was initialled by each of Dr Jacques and Mr Smith.
The trial Judge also found that Mr Smith had then been under pressure from a Mr Hill, one of Expectation's directors, to produce at least a signed copy of the Licence Agreement. Pinnacle's representatives appear to have had no difficulty with this. His Honour said, in that respect, (par 47 of his reasons):
"Dr Jacques in particular thought it to be important that that be done, if at all possible, as a sign of good faith by Pinnacle. It must be borne in mind that at this stage they were halfway through June, looking at a deadline of 30 June for the entry into mutually satisfactory formal licence agreements and a collaborative venture agreement, and there was little progress to be seen. I accept that Dr Jacques said as much to Mr Smith and that Mr Smith's view was that it would surely be acceptable if the agreements were brought to fruition one at a time, provided the parties were actively working to complete them all."
The trial Judge said that he was satisfied that Dr Jacques, Mr Kennedy and Mr Smith were then working in the context of the Licence Agreement being the first of a total of four agreements provided for by the Letter Agreement which, he said, would express, separately, the various aspects of the total transaction.

The Licence Agreement

Pinnacle executed the Licence Agreement on 15 June 2000. Mr Smith thereafter returned to Perth, where that agreement was executed by Expectation.
Recital C to that agreement provides that:
"On 25 May 2000 the Licensor and the Licensee entered into a binding agreement [although the letter which formed the basis of the Letter Agreement was dated 25 May 2000, the agreement was in fact made on 29 May 2000] pursuant to which, amongst other things, the Licensor agreed to grant to the Licensee certain licences and rights. The Licensor and the Licensee are entering into this Agreement to clarify the terms and conditions of those licences and rights."
Clause 2 of that agreement provides for the grant of the licences, recording that the Licensor (Pinnacle) "hereby grants to the licensee [Expectation], for the Term", the licences which are then set out. The "Term" is defined to be a period of 25 years unless the agreement is terminated sooner. The agreement contains a number of detailed provisions. One of these, cl 18.1, reads as follows:
"Whole agreement and release
This Agreement supersedes all and any previous agreements whether oral or written in respect of the Licensed Products and the Technology between the Licensee and the Licensor and any statement, disclosure, representation, warranty, condition, promise, undertaking or other provision not expressly set out in this Agreement has not been relied on and shall have no force or effect. Accordingly, the Licensee hereby releases the Licensor and its respective officers, employees, advisers and agents from all claims, demands, rights or liabilities whether in tort (including negligence), contract, under statute or otherwise which it has or may hereafter have arising out of negotiations for and subject matters of this Agreement other than such express rights as are contained in this Agreement."
The trial Judge found that the agreement effectively implemented "all by way of licences and rights of first refusal" for which the Letter Agreement had provided. He also remarked (par 61) that, while the Licence Agreement provided for the payment of a royalty and licence fees, it made no provision for the consideration expressed in cl 4 of the Letter Agreement.

Unrest in the Pinnacle camp

At the time of the execution of the Licence Agreement, some of Pinnacle's shareholders were fomenting unrest. A group of shareholders, holding at least five per cent of the votes that might be cast at a general meeting, requested Pinnacle's board to hold a general meeting pursuant to s 249D of the Corporations Law. Their purpose was that of putting a motion to remove Dr Jacques, Mr Kennedy and two other of Pinnacle's directors as directors of the board, leaving only Dr Sharp, of the then existing board, in office, with two new directors being appointed.
Then, on 27 June 2000, a shareholder commanding at least five per cent of the votes that might be cast at a general meeting called a general meeting of Pinnacle's shareholders pursuant to s 249F of the Corporations Law. That meeting was called for 31 July 2000. Pinnacle's directors had not, by then, called the meeting as required by the earlier notice issued pursuant to s 249D of the Corporations Law. However, they did so on 6 July 2000, fixing 15 August 2000 as the date for the meeting. On 18 July 2000, Pinnacle's board resolved to postpone the meeting called for 31 July to 15 August in order that the motions to be advanced at both meetings might then be moved.
Shareholders who attended the meeting on 31 July 2000 were advised of the board's decision, but held the meeting regardless. Resolutions were passed removing all of the existing directors other than Dr Sharp and replacing them with new directors.
The original board took issue with this. They commenced, in Pinnacle's name, action in the Supreme Court of Victoria. They sought declarations that the meeting had been validly postponed and that the resolutions passed on 31 July were invalid. The Court held that Pinnacle's board could act validly to postpone a general meeting, as it had purported to do, provided it did so for proper reasons.
A general meeting of Pinnacle's shareholders was held on 15 August 2000. Dr Jacques was removed from office as a director (although he was retained as Pinnacle's general manager) and three other directors, including Mr Kennedy, retired. Of the original board, only Dr Sharp remained. Three new directors were appointed.
The trial Judge found that these events were a major distraction to Pinnacle's then incumbent board between the second half of June and the early part of August 2000. He also found that Dr Jacques had sought the assistance of Expectation's managing director and chairman, Mr Hugh McLernon, "to advise and bring influence to bear in an effort to shore up the position of the incumbent Board". He said that Mr McLernon asked Mr Paul Rainford, Expectation's secretary, and Mr Smith to do what they could in that regard. He said that Mr Rainford "met with influential groups and persons in June and early July".
Yet another difficulty facing Pinnacle's board, in mid‑July, was that another company then announced a take‑over bid for the whole of its issued securities.

Efforts at progress until 30 June

Efforts were made, during the early part of this period of unrest, to progress the implementation of the Letter Agreement.
On 20 June 2000 Mr Smith e‑mailed Dr Jacques, asking whether the remaining agreements could be executed and whether Mr Kennedy was authorised to do so. On the following day he sent an e‑mail to Mr Kennedy, asking for suggestions, so that the collaborative venture agreement could be settled.
There were also discussions between Dr Jacques and Mr Smith. In an e‑mail sent by Dr Jacques to Mr Smith on 21 June, Dr Jacques confirmed that he and Mr Smith were of the view that the price of either the rights issue or the share placement should be changed, so that both would be the same. He expressed his preference that the share placement should be at a price of 50 cents per share, with the number of shares being reduced so that the total cost of the placement ($900,000) would be unaltered. In the same e‑mail, he said that Pinnacle would proceed with the preparation of the documents on that basis. He went on to say:
"Can you please ask your technical people to define a sensible programme for the Collaborative Venture between Expectation, PMA [Precious Metals Australia Ltd, a company controlled by Messrs Hill and McLernon and the operator of a mine which produced vanadium pentoxide] and Pinnacle. I do not think that this is a difficult task and requires an initial feasibility study to look at the economics of your current processes and estimates on the processes to produce vanadium electrolyte from an existing PMA process stream, possibly after de‑silication. Would you recommend that we do this with an external engineering firm or internally? I would think that the engineering firm that designed Windimurra [a reference to the vanadium pentoxide mine at Windimurra] should be able to do this initial feasibility study in a month. If it looks good economically then we can start the technical development work. They should be able to advise on the technical development program needed to produce low cost electrolyte. Maria [Prof Skyllas-Kazacos] could be involved as an adviser and her laboratory used to do some of the non-critical technical assessment work like testing the stability, activity and purity of the electrolyte. We do need PMA's input into this Collaboration Program in order to get the University to sign off on it. I would also like to raise it with SEI [Sumitomo Electric Industries Ltd, a Japanese company] next week in Osaka but will need some input from your technical boys first. It would also be helpful to have a budget and schedule for the Collaboration Project that fits closely with the money expected to be raised from the Rights Issue and the Placement. This is around $1.8m if my memory serves me well. Roderick [Mr Smith], please give me a call if you need to discuss any of the above action items."

On 26 June Dr Jacques sent a further e‑mail to Mr Smith. He discussed the collaborative venture at some length. He said, in this respect:
"I had hoped to have received something from your vanadium specialists regarding the proposed Collaborative Venture with Pinnacle, Expectation and PMA. We do need to develop a technical programme and plan on which we can collaborate.
In the absence of any input from PMA I offer the following tasks as a starting point for defining the collaboration programme: …"
He then set forth a reasonably lengthy proposed programme.
Dr Jacques' e‑mail seems to have crossed with one from Mr Smith in which the latter urged that the various transactions needed to be concluded.
Dr Jacques responded by an e‑mail of 28 June 2000 in which he said:
"Thanks for the e-mail. Looks as though Pinnacle will be going to a shareholders' meeting without any new friends. A shag on a rock is the term I have heard used. Have you had any thoughts on the proposed Collaborative Venture featuring PMA and having the objective of producing low cost vanadium electrolyte. I don't see how we can actually sign an agreement on this without defining what we will be collaborating on. How much does PMA and/or Expectation plan to spend on this collaboration? For how long, and how will it be managed?"
Almost immediately, Mr Smith responded in the following terms:
"I have not focused on the collaborative venture detail yet as we don't have the docs in place. I thought we agreed the detail would follow. We do have the key guy, a chemical engineer who is without peer in the world vanadium industry - Tom Heaton. He is currently doing test work on production of various v chemicals like ammonium metavanidate, ammonium polyvanadate and granular vanadium pentoxide.
The term sheet we initialled is a good start but the covering contract isn't signed. Nor is the rights issue or subscription. I guess these things can't advance in your absence. How about you bring them over in two weeks."
Dr Jacques responded to this a few hours later. He said:
"You must have joined the diplomatic corp, [sic] how can you sign up a collaboration agreement with no details of level of commitment, costs, scope, personnel, etc, etc. The letter agreement does this. I see no reason to sign another agreement to agree unless there is an expiry date on the letter agreement. By the way there is an expiry date on the letter agreement and it is the 30th June unless extended by mutual agreement.
We will need to respond to the request for a shareholders' meeting next week and I cannot see how we could possibly go to shareholders on the Expectation Placement before we deal with the shareholders' request to spill the Board. We could of course do both at the same time.
Let me know when PMA and Expectation want to discuss details of the collaboration agreement."
Dr Jacques had also heard from Mr McLernon on 28 June 2000. In a facsimile transmission sent to him on that day Mr McLernon suggested that the collaborative venture agreement had been "initialled as accepted in principal [sic] but a few minor changes were required before the final copy could be executed" and said that this should be done. He also said, as regards the other outstanding agreements, that the option price should be 40 cents which, as the trial Judge remarked, was not Dr Jacques' preferred position, and asked that the underwriting agreement and placement agreement be executed and returned.
The trial Judge suggested that this was hardly the sort of response that Dr Jacques had been expecting. So much appears from his e‑mail to Mr McLernon, sent on 30 June 2000. He said, as regards the collaborative agreement:
"Your comments regarding the Collaboration [sic] Agreement are not quite correct. We did make changes to and initial a draft Term Sheet attached to a draft Co-operation Agreement between Pinnacle VRB Ltd and Expectation Pty Ltd. The language in this draft agreement was little more than an agreement to agree and does not accurately reflect the terms of the Collaborative Venture as defined in the Letter Agreement signed on 25th May [sic]. I have been chasing Roderick [Smith] for some details on the scope of work contemplated under this Collaborative Venture and in the absence of any input from PMA I have suggested an initial scope of work and division of responsibilities. My e-mail to Roderick on this is attached."
After discussing some of Pinnacle's internal difficulties, Dr Jacques went on to say:
"I am acutely aware of the Company's obligations under the good faith negotiation provisions of the Letter Agreement, and my resolve to complete these transactions has not changed. Given Roderick's travel schedule and the need for us to co‑ordinate a number of interrelated corporate matters, I would ask for your understanding in these matters and suggest that we extend the proposed date for completion of formal agreements from June 30th to July 15th. I am of the opinion that to keep the UNSW [the University of New South Wales, which was Pinnacle's major shareholder] on side the Collaboration Agreement should include some language covering the proposed scope of work, budgets, management responsibilities, contract research (UNSW), time schedules, etc."
Mr Smith, in an e‑mail to Dr Jacques dated 30 June 2000, said, inter alia, the following:
"Expectation agrees to your proposed extension of time to conclude the written agreements until July 31. When you are in Perth we could sit down with our technical guys and finalise the terms of the work required. The idea was to get the collaboration agreement signed up in principal [sic] with the basic terms sheet. The covering agreement deals more with intellectual property etc, rather than the scope of works. I take it you have no objection to the draft Underwriting and subscription agreements."
It will be apparent that, while Dr Jacques had suggested an extension only to July 15, Mr Smith agreed to one until July 31. The date of the extension appears not to have been mentioned any further.

A lack of progress with the collaborative venture agreement after 30 June

The trial Judge went on to find that the evidence did not indicate that there had been any further effective action in respect of the collaborative venture agreement after 30 June 2000, although, in the latter part of June and during July, Pinnacle's solicitors were instructed to work on, and did work on, the preparation of a prospectus with respect to the share placement and underwriting of the rights issues and they prepared a substantial "due diligence" manual for use by Pinnacle.
His Honour went on to say (pars 95, 96 and 97):
"In the exchanges to which I have referred above it is evident I think that the parties were never able to reconcile their different views as to the content of the collaborative venture agreement. In my opinion it is clear that the terms sheet initialled by the parties on 15 June could never by itself have been an adequate expression of such an agreement, nor I think was it ever intended to operate in that way …
In my opinion Jacques' view of what was required to be agreed and incorporated into the collaborative venture agreement was much closer to the mark in respect of what was required to fulfil the letter agreement than the approach that Smith was taking on behalf of Expectation. The impression I have is that Expectation were concerned not so much with the technical aspects but to have the agreements made and executed and to have Pinnacle locked in. In any event it is clear that Jacques regarded the responses from Expectation, particularly by Smith, as being entirely unsatisfactory by the end of June - he described the discussions as 'one sided' and it is clear that he regarded the response to his approaches as so inadequate as to preclude progress. Nothing further was achieved by Pinnacle to progress the collaborative venture after that time and nor it appears were there any further significant developments from Expectation's side.
So far as the collaborative venture is concerned, it appears that both parties simply allowed the matter to drift on once the extension of time was granted, despite the obligation imposed jointly on the parties by cl 6 of the letter agreement to negotiate in good faith to close the transactions contemplated by the agreement 'in an expeditious manner and as soon as practicable'."
On 27 July 2000, Expectation's solicitors wrote a formal letter of demand to Pinnacle, asserting that Pinnacle had breached cl 6 of the Letter Agreement. However, Expectation elected not to treat the Letter Agreement as discharged. Rather, it elected to demand specific performance or damages.
There were then discussions between representatives of the two parties. These culminated in Mr Charles Wantrup, who had by then been appointed as chairman of Pinnacle's board, writing to Expectation's managing director, Mr McLernon, as follows, on 1 August 2000:
"This letter records an agreement between us, that the existing rights issue of options and the placement of shares agreed with Expectation Pty Ltd on 25 May 2000 shall be mutually cancelled.
This company will determine the conditions for a future placement of shares and does grant to Expectation Pty Ltd a first right of refusal to underwrite that placement."
On the same day Mr Smith sent to Mr Wantrup a letter, signed for Mr McLernon by his secretary, dated 1 August 2000. This letter thanked Mr Wantrup for his letter recording the agreement to mutually cancel the rights issue of options and the share placement, but added:
"This is of course agreed in the context that the Licence Agreement and Co‑operation Agreement between us shall remain in good standing and be free of condition."
Mr Smith also transmitted to Mr Wantrup, by facsimile, a draft Deed of Acknowledgment and Variation (which was never executed) which, in cl 2.1, contained an acknowledgment by each of Expectation and Pinnacle that the conditions precedent set out in cl 1 of the Letter Agreement had been satisfied. It also contained an acknowledgment, in cl 2.2, that the Licence Agreement had been entered into and that it was valid and binding according to its terms. Clause 3 of the draft contained a provision recording the agreement of the parties that the Letter Agreement should be amended in various respects, including the deletion of cl 4 thereof.
On 2 August 2000 Mr Wantrup replied, by facsimile, to Mr McLernon, thanking him for his letter. He went on to say:
"My understanding was that the two parties were dealing with the issues dealt with in my letter.
Mr Kennedy, my co‑director, then spoke to your Mr Roderick Smith in the presence of Mr Rainford and it was agreed that discussions would take place today about the terms of the other agreements.
Mr Smith has now arrived in Melbourne and I expect these discussions to take place later today. Mr Kennedy is presently in Court."
Mr McLernon replied shortly afterwards by way of what the trial Judge referred to as a rather unusual facsimile transmission, apparently written upon the basis that, in his second letter, Mr Wantrup had reneged from the position expressed in his first letter. The body of Mr McLernon's facsimile transmission read as follows:
"1.Thank you for your facsimile dated 2 August 2000 in relation to the abovementioned matter.
2.The placement and underwriting rights held by Expectation Pty Ltd are extremely valuable commodities. We were prepared to relinquish those rights in consideration for Pinnacle accepting the ongoing validity of the licence agreement. In the absence of that consideration we are not prepared to voluntarily give up those rights.
3.We are clearly not ad idem on this matter.
4.I will accordingly instruct our solicitors to issue proceedings upon Mr Smith's return."
Later that day, Mr McLernon sent a further facsimile transmission to Mr Wantrup. The body of that transmission read as follows:
"1.I refer to my earlier facsimile in relation to the abovementioned matter.
2.I have now spoken to Mr Roderick Smith who tells me that he has discussed the matter at some length with you.
3.I understand that you have confirmed that the licence agreement is in good standing and that Pinnacle will not seek to renegotiate the terms of the licence.
4.I am told by Mr Smith that your letter of 2 August was intended to refer to the collaboration agreement.
5.If this is so, then I am prepared to say that Pinnacle and Expectation have reached agreement as follows:
(a)that the underwriting obligation and the placement entitlement have been mutually cancelled;
(b)that the licence agreement is in good stead and binding on the parties;
(c)that the parties will negotiate in good faith to finalise the collaboration agreement.
6.This position can be achieved by you confirming the above in writing at your convenience.
7.Please be aware that, as the chairman of Expectation Pty Ltd I alone can bind the company. I appreciate the assistance of Mr Rainford and Mr Smith but the terms of any agreement must be in writing and under my signature.
8.I look forward to hearing from you."
For reasons into which it is, I think, unnecessary to go, the trial Judge found that, notwithstanding the terms of Mr McLernon's facsimile transmission dated 2 August 2000, and notwithstanding that Mr Wantrup signed a handwritten endorsement on the facsimile suggesting that it was "Agreed", no such agreement had been reached between the parties. Nor was any such agreement ever reached.
Thereafter, the trial Judge found, nothing further occurred "in any productive sense on either side with respect to the implementation of the Letter Agreement". On 27 October 2000 Pinnacle's solicitors advised Expectation that, because of the failure to perform the Letter Agreement, that agreement was to be regarded as terminated and the Licence Agreement was not legally enforceable. The proceedings giving rise to this appeal were commenced shortly afterwards, on 31 October 2000.

The trial Judge's conclusions

Against this background, the trial Judge arrived at a number of conclusions which are material to the appeal.
First, he made findings (at par 36) as regards the effect of the Letter Agreement. I will set some of these out in full:
"…
(2)The letter agreement was not itself … a licence. It was, as the first paragraph says, an agreement as to the terms and conditions pursuant to which Pinnacle 'will licence' Expectation 'to use the full suit [sic: suite] of intellectual property to make and sell electrolyte and VRB's.' That is also made clear in the second paragraph which refers to the future making of formal licence agreements.
(3)Clause 2 sets out the proposed licence agreements. Although it starts with the words 'Pinnacle hereby grants to Expectation the following:', it is abundantly clear that the letter agreement did not itself constitute one or more licences to use any of the technology. The grant of any licence would occur on the making of the relevant licence agreement. Self-evidently those which might arise under cl 2(b) could only arise at some time in the future.
(4)That paragraph (3) above expresses the correct interpretation of the letter agreement is made clear by cl 1 of the letter agreement itself. There were conditions precedent to the performance of the letter agreement which expressly included entering into formal licence agreements in a 'mutually satisfactory' form. Their form remained to be agreed although they were to set out more fully the terms and conditions to be derived from cl 2 of the letter agreement, ie, on terms and conditions no less favourable than those applicable in other licence agreements made by Pinnacle or being negotiated by it. Further, the opening paragraph makes it clear that the letter agreement sets out the terms and conditions upon which Pinnacle 'will licence' Expectation to use the technology.
(5)The licences to be granted under cl 2 of the letter agreement were only part of those agreed upon. Under cl 3 a collaborative venture was to be entered into by way of agreement in respect of the matters generally described in subpars (a) to (d). It will be noted that, by that agreement, under subpar (a) Pinnacle 'will exclusively licence' Expectation to use the currently owned intellectual property in Australia but the main purpose of the collaborative venture was clearly to further research and develop the technology and the intellectual property in it, to be jointly owned by Pinnacle and Expectation.
(6)The entry into or making of the collaborative venture agreement was the second precondition upon which the performance of the letter agreement was to depend. At least that is my interpretation of the meaning of cl 1 and its provision that, 'The obligations herein shall be subject to and conditional upon' the following conditions precedent. I shall return ultimately to discuss the nature of the 'conditions precedent' provided by cl 1.
(7)Those two preconditions, the entry into mutually satisfactory formal licence agreements and the collaborative venture agreement, were required to be completed by no later than 30 June 2000 if no later date was agreed. Otherwise, the only reference to the time for performance of elements of the letter agreement is cl 6 and the obligation to negotiate, not only in good faith to close the transactions contemplated by the letter agreement, but also to do so 'in an expeditious manner and as soon as practicable.'
(8)In my view the obligation contained in cl 6 to negotiate in good faith was effective to require both parties to use their best endeavours to ensure the making of the agreements contemplated by the letter agreement within the time framework provided so as to ensure that each had the benefit of the agreement. I do not think therefore that it is necessary to imply a term to that effect, but if it is so necessary, then there appears to be no issue on the pleadings that that should be done: cf Gregory v MAB Pty Ltd (1989) 1 WAR 1 at 15 and the cases there cited.
(9)The point remains that pursuant to the second paragraph of the letter agreement, cl 1(a), cl 2 and for completeness cl 4.3, the licence agreements and collaborative venture agreement would obviously contain terms and conditions which, subject to the requirement of consistency with the letter agreement, required negotiation and agreement. The terms of the letter agreement left much unsaid about the terms of any licence agreement, particularly the exclusive licence for Australia and the terms of the collaborative venture. It is not open to the view in my opinion that the letter agreement itself constituted the effective expression of any such licence agreement or the terms of the collaborative venture.
(10)Clause 4 of the letter agreement is in my opinion in clear terms. It expresses the consideration for the letter agreement involving the grant of the licences once their terms were agreed and the commitment to enter into the collaborative venture. Clause 4 is expressed in terms of an obligation by Expectation but in my view it imports not only the obligation of Expectation to underwrite the pro rata non-renounceable issue of options to take up shares and its obligation by itself or nominees to take the share placement, but there was an obligation by Pinnacle to issue the options and the shares.
That these events were expressed to be the consideration for the grant of licences and entry into the collaborative venture reinforces the conclusion to which I would otherwise come having regard to the whole of the terms of the letter agreement that its product was to be a package of at least four, and possibly more, agreements, depending upon how many licence agreements proved to be desirable. They would be independent binding agreements but linked in their efficacy and operation by the terms of the letter agreement.
(11)The obligation to make and underwrite respectively the rights issue and to make and take the share placement did not arise until the making or entry into licence agreements and the collaborative venture agreement which were conditions precedent, but the rights issue and share placement remained the consideration for the grant of the licences and the entry into the collaborative venture and also the means by which Pinnacle would be placed in funds (I was told $1.8M) to perform the obligations which it anticipated would arise under the collaborative venture agreement.
…
(12)Nor in my view is the conclusion to which I have come about the effect of the letter agreement affected by noting that the 30 June 2000 time limit, unless extended, applied only to entry into the licence agreements and collaborative venture agreement and not to the underwriting agreement and share placement, which were only to be performed as soon as practicable. It seems abundantly clear that the financial aspects of the transaction could not be completed by 30 June 2000, if for no other reason than that the share placement required shareholder approval and by the Corporations Law, s 249HA, 28 days notice of a shareholders' meeting was required.
…"

The trial Judge went on to find (par 62) that:
"… [H]aving regard to the terms of the letter agreement, the licence agreement when made was simply the fulfilment of one condition precedent to which the performance of the letter agreement was expressed to be subject. It was not intended and did not have, as at the time it was made, effect according to its terms alone. That depended upon the performance otherwise of the letter agreement, entry into the collaborative venture and the provision of the consideration for which the letter agreement provided."
Next, his Honour said (par 151) that the Licence Agreement, while binding the parties, did not become operative upon its making on 16 June 2000. He said, in that respect, that an extension of time to 31 July 2000 to make the collaborative venture agreement was agreed upon by the parties but that the matter proceeded no further than the initialling of the terms sheet on 15 June. He said that the collaborative venture agreement was never made. He said also that no share placement was made and nor was there an options issue underwritten by Expectation.
His Honour also found that, while there had been some exchanges between the parties in early August 2000, these had, notwithstanding Expectation's contentions to the contrary, not resulted in any effective agreement to vary the Letter Agreement by abandoning the requirements of cl 4 thereof.
Next, the trial Judge said that the conditions contained within the Letter Agreement "were not conditions precedent to the formation of the contract comprised in the letter agreement, but conditions subsequent to that agreement, but precedent to its entire performance … ". After some additional discussion he reached the following conclusions (pars 160 and 161):
"The licence agreement was entered into in a timely way (although not having an operative effect, according to my interpretation of the letter agreement). However, the collaborative venture agreement was not entered into by 30 June 2000. I have found that an agreed extension of time to 31 July 2000 was entered into. That may be a generous interpretation of what occurred. But in any event it is of little moment because the collaborative venture agreement was not entered into by then, or indeed, ever. Nonetheless, in my opinion the termination of the contract on the ground of the non-fulfilment of that condition was not in a sense self-executing. It did not happen automatically on 31 July 2000.
That is because of the beneficial construction which I have given the clause so as to permit extensions of time to be agreed after a previously limited time has expired. But as I have found, there was no further extension sought or granted … I think it is clear that Pinnacle with sufficient clarity made its election to terminate at the latest by its solicitor's letter of 27 October 2000. That I think was effective in law unless it was the case that Pinnacle was to be regarded as being in breach of the letter agreement."
His Honour went on to consider the obligation to negotiate in good faith which had been imposed by cl 6 of the Letter Agreement. He said (par 162) that, while the mere non‑fulfilment of cl 1 of the agreement and the consequential failure to comply with cl 4 thereof by both parties "would not of itself constitute an actionable breach of the letter agreement", cl 6 imposed upon the parties "a mutual obligation to do all that was reasonably required to enable the contingent elements of the contract comprised in the letter agreement to be satisfied". He said that it followed that a failure to co‑operate in negotiating the making of the agreements expeditiously would constitute a breach of cl 6 of the Letter Agreement and might also enable a party not in default to obtain a remedy for breach.
His Honour went on to make the following findings (pars 164 to 167):
"The parties seem to me in this case to be either equally at fault, or it may be that neither is at fault, for the following reasons. It has been seen that following the making of the letter agreement there was a flurry of activity on both sides. The parties achieved the licence agreement by 15 June 2000. They initialled the basic terms sheet which might provide the foundation for the collaborative venture agreement. But it is clear that on Pinnacle's side in particular, for what appear to me to be obviously good reasons, the collaborative venture agreement produced in draft by Expectation was regarded as entirely unsatisfactory. I accept that Jacques made strenuous efforts thereafter to get a sensible contribution from Expectation, and in particular from Mr Smith on its behalf. He did that even while overseas in America and Japan.
An extension of time to 31 July was negotiated, but little effective work appears to have been done after that occurred. I think Jacques really gave up on Smith and I think that at that point the ball was in Expectation's court, but the work to progress the collaborative venture did not occur. As July progressed, of course, those in charge of Pinnacle's affairs became increasingly distracted by the efforts to preserve their own position on the Board of the company and as its management and those acting for Expectation were enlisted to assist in resolving their difficulties. The failure to progress either the collaborative venture agreement or the funding agreements in the form of the share placement and underwriting agreements cannot I think, in the circumstances that occurred, be reasonably laid entirely at the door of one party or the other.
I have found that the content of the facsimile of 2 August was legally ineffectual. But it clearly prevented any further effort to pursue, with shareholder approval, the placement agreement or the underwriting agreement, and although in its terms it provided the affirmation that the parties would negotiate in good faith to finalise the collaboration [sic] agreement, it seems to me that thereafter nothing effective happened in that regard on either side. In my opinion, it is almost as if at that point, without anything being said, there was a mutual recognition that the letter agreement had failed, the collaborative venture would not occur and although, as Dr Jacques, as General Manager of Pinnacle but no longer on its Board, reported to the Board, the letter agreement with Expectation was a time bomb awaiting detonation, nothing effective was done on either side until Pinnacle acted at the end of October.
I think that the proper construction of what has occurred is that both parties are in breach of cl 6 of the letter agreement. The effect of that conclusion is of course that Expectation is not entitled to any relief on the basis that Pinnacle has breached the agreement, whereas it has not done so."
The trial Judge went on to dismiss Expectation's claim.

Expectation's grounds of appeal

Expectation raises five grounds of appeal, containing a number of sub‑grounds.
It contends, by ground 1, that the trial Judge erred in his construction of the Licence Agreement in holding that it was subject to an implied term which deprived that agreement of effect if the Letter Agreement was terminated, alternatively if it was terminated by a party in breach.
Ground 2 is to the effect that the trial Judge erred in law and in his construction of the Letter Agreement in a number of respects set out in appendices to the notice of appeal.
Ground 3 contends that the trial Judge erred in holding that, after 2 August 2000, Expectation accepted that the Letter Agreement had failed (or abandoned it) and did nothing to try to negotiate the terms of the collaborative venture agreement.
Ground 4 of the grounds of appeal reads as follows:
"4.The learned Judge erred in fact and in law in holding that Expectation was in breach of the terms of the Letter Agreement in particular as at 27th October 2000 (the date Pinnacle purported to terminate it) because, at times after 15th June 2000, it did not negotiate in good faith the terms of the collaborative venture.
4.1there was no evidence that Expectation had failed to negotiate the (formal) collaborative venture (agreement) in good faith, and in particular on and after 2nd August 2000 the evidence was that:-
(a)it continued to try to do so;
(b)it had been prevented from doing so by Pinnacle's unwillingness to negotiate (please see ground 3);
4.2the learned Judge overlooked … [the evidence of those witnesses and to the effect referred to in Appendix 4].
4.3the learned Judge overlooked that:-
(a)Pinnacle's pleaded case of breach (of the Letter Agreement) by Expectation was that Mr Smith had failed, despite an agreement with Messrs Kennedy and Jacques in Melbourne on 15th June 2000, to prepare a further written collaborative venture agreement based on a terms sheet initialled on behalf of the parties in Melbourne on 15th June 2000;
(b)the breach (of the Letter Agreement) the learned Judge found stemmed from a failure by Mr Smith to cause Expectation to comply with requests Dr Jacques made on:-
(i)22nd June 2000 to define a 'sensible program for a collaborative venture', and to prepare a 'feasibility study';
(ii)26th June 2000 to provide input into a proposed technical program; and
(iii)28th June 2000 for a 'scope of work' under the collaborative venture.
This was not the breach pleaded and as a consequence the contention not [sic] covered by Expectation's evidence in chief.
(c)the breach he found, or the facts giving rise to it, were not put to Expectation's witnesses (in cross examination) and in particular not put to Mr Smith;
(d)the facts he found were only referred to in evidence for the first time in a witness statement of Dr Jacques served on 8th May 2001 which was after Expectation's case had closed;
(e)… Pinnacle did not plead a case that after 2nd August 2000 (when the collaborative venture was discussed and) when Expectation had affirmed its wish to proceed with the collaborative venture, Expectation had done nothing effective to progress the negotiations;
(f)on 2nd August 2000 (as he found) both affirmed the Letter Agreement.
4.4the learned Judge considered that Dr Jacques' view of the requirements of a collaborative venture agreement were 'closer to the mark' than those of Mr Smith, when, because of the absence of a pleaded case, there was no expert evidence as to what the 'normal terms' of the collaborative venture agreement were;
4.5the learned Judge overlooked that, pursuant to the Letter Agreement, Pinnacle had the obligation to prepare the collaborative venture;
4.6the learned Judge should have held that:-
(a)after 2nd August 2000 Pinnacle was not willing to negotiate the terms of the collaborative venture with Expectation;
(b)on and after 2nd August 2000 Expectation was reading willing and able and attempted to negotiate the collaborative venture;
(c)because Pinnacle was not willing to negotiate the steps taken by Expectation to negotiate with Pinnacle were and further efforts to negotiate would have been fruitless;
(d)after 2nd August 2000, by demonstrating its unwillingness to negotiate the collaborative venture further, Pinnacle dispensed with Expectation's further performance of the obligation in the Letter Agreement to negotiate the collaborative venture in good faith."
Finally, Expectation contends, by ground 5, that the trial Judge erred in fact and in law in holding that Expectation was not entitled to the declarations and other relief sought by it.

Pinnacle's Notice of Contention

Counsel for Pinnacle, at the conclusion of argument on the appeal, sought leave to file a notice of contention pursuant to O 63 r 9(2) of the Rules of the Supreme Court (WA). Pinnacle contends, by that notice, that the trial Judge should have found, in addition to his findings, that Pinnacle avoided or terminated the Letter Agreement by the letter from its solicitors to Expectation dated 27 October 2000 for non‑fulfilment of the condition precedent contained in cl 1(a) of the Letter Agreement.
Pinnacle's entitlement to raise this contention is opposed by Expectation. Counsel for Expectation contended (in written submissions lodged, by leave, since the hearing of the appeal) that Pinnacle never pleaded that the condition precedent had not been fulfilled and that, as a consequence, it was entitled to, and did, terminate the Letter Agreement on 27 October 2000. It contends that, the trial having been fought within the bounds of the pleadings, it is now far too late to raise this contention (which would have resulted in Expectation introducing additional evidence at the trial or conducting its case differently) and that leave to do so should be refused.

Arguments on the appeal

Counsel for the appellant chose to support his grounds of appeal by making six broad propositions which did not precisely mirror those grounds. They were as follows:
(1)The trial Judge should not have found that Pinnacle, by its letter dated 27 October 2000, effectively terminated the Letter Agreement. This proposition appears to be made in support of grounds 3 and 5 of the notice of appeal. It also bears upon the notice of contention.
(2)The trial Judge erred in finding that Expectation was in breach of the Letter Agreement by failing to negotiate in good faith with Pinnacle for the making of the collaborative venture agreement when:
(a)Pinnacle did not plead any such breach on Expectation's part;
(b)no such breach was put, in the course of cross‑examination at the trial, to Expectation's witnesses;
(c)no such breach was contended for on behalf of Pinnacle in the course of submissions at the trial;
(d)the finding overlooked a significant body of evidence which, had the issue been raised, would have been drawn to the attention of the trial Judge; and
(e)if the issue had been pleaded or otherwise raised by Pinnacle, Expectation would have introduced additional evidence in respect of it.
This proposition is made in support of grounds 4 and 5 of the notice of appeal.
(3)Pinnacle repudiated the Letter Agreement by its letter dated 27 October 2000. This proposition appears to be made in support of grounds 4 and 5 of the notice of appeal. It also bears upon the notice of contention.
(4)The trial Judge erred in holding that Expectation was not entitled to sue for damages for breach by Pinnacle of the Letter Agreement when that agreement remained on foot after 27 October 2000, but Pinnacle refused thereafter to negotiate with Expectation for the finalisation of matters referred to in that agreement. This proposition appears to be made in support of grounds 3 and 5 of the notice of appeal.
(5)The Licence Agreement should, on its true construction, have been found to be unconditional. This proposition is made in support of grounds 1 and 5 of the grounds of appeal.
(6)Alternatively to proposition 5, the Letter Agreement should, on its true construction, have been found to have the effect that the making of the Licence Agreement was not subject to the making of one or more of an underwriting agreement, a placement agreement or a collaborative venture agreement. This proposition is made in support of grounds 2 and 5 of the grounds of appeal.
I will, for the sake of convenience, deal with the matter in the manner in which it was argued, namely by addressing these six broad propositions rather than the individual grounds of appeal.

The first proposition

The first proposition can be dealt with very simply. Contrary to the assumption which underpins that proposition, the trial Judge did not find that Pinnacle, by its letter dated 27 October 2000, effectively terminated the Letter Agreement.
His Honour said, at par 161 of his reasons, that it was "clear that Pinnacle with sufficient clarity made its election to terminate at the latest by its solicitors' letter of 27 October 2000". He also said (ibid) that this "was effective in law unless it was the case that Pinnacle was to be regarded as being in breach of the letter agreement". However, his Honour went on to find, in par 167, that both parties were then in breach of cl 6 of the Letter Agreement. That being so, he could not have found that Pinnacle had effectively terminated that agreement by the letter dated 27 October 2000. This proposition consequently falls away.

The sixth proposition

It is convenient to deal with the remaining propositions in a different order. I will deal, first, with the sixth proposition and then with the fifth, before returning to propositions two, three and four and the notice of contention.
The sixth proposition is that to the effect that the Letter Agreement should have been found to have the effect that the "making" (which should, I think, more properly read "performance") of the Licence Agreement was not subject to the making of one or more of an underwriting agreement, a placement agreement or a collaborative venture agreement. Expectation also contends that the "making" of the Licence Agreement was not conditional upon Pinnacle making a rights issue or placement.
I have mentioned that cl 1of the Letter Agreement was headed "Conditions Precedent" and that, by that clause, the "obligations" therein were to be "subject to and conditional upon" the specified "conditions precedent" including that specified in subclause (a), being that the parties should enter into mutually satisfactory formal Licence Agreements and a "Collaborative Venture" as soon as practicable, but no later than 30 June 2000 or such later date as might be agreed, "which formalizes and sets out more fully the terms and conditions of the licence and Collaborative Venture …". I have also mentioned that, by cl 4 of the Letter Agreement, the consideration for "the grant of the licences referred to herein and the entering into the Collaborative Venture" was expressed to be that Expectation would "underwrite a pro rata renounceable issue by Pinnacle" of the options referred to and that Expectation (which, by that clause, was to be paid an underwriting fee of 5 per cent) or its nominees would "take a placement of 2,000,000 shares each at 40 cents with 2,000,000 attaching options".
Counsel for Expectation submitted that, on the true construction of the Letter Agreement, Pinnacle thereby granted to Expectation, with immediate effect, the licences identified in cl 2. He relied, in this respect, principally upon the second (unnumbered) paragraph of that agreement (which records that, upon execution of the agreement, Expectation and Pinnacle each intend to be bound to the performance of its terms but, at the same time, proposed to have the terms restated in formal licence agreements in a form which would be fuller or more precise, but not different in effect to the Letter Agreement), upon the opening words of cl 2 (which are to the effect that "Pinnacle hereby grants to Expectation" the licences referred to) and upon the concluding words of cl 2 ( to the effect that the parties agree to enter into the Licence Agreements to "evidence" the licences referred to in that clause).
He also submitted that the "obligations herein", mentioned in cl 1, are only those referred to in cl 4 of the agreement. He supports this construction by the contention that, if any other construction were to be put upon the agreement, then it would follow, as he put it, that the making of the Licence Agreement would be a condition precedent to the making of the Licence Agreement and that the same would be true in respect of the collaborative venture agreement. That being so, he submitted, the obligations referred to had to be something other than the making of the Licence Agreement and the collaborative venture agreement, namely the provision of the consideration referred to in cl 4.

Next, he submitted that there was nothing, anywhere in the Letter Agreement, which required that there be an underwriting agreement or a placement agreement. Indeed, he submitted, there was no obligation on the part of Pinnacle to make the non‑renounceable issue or the placement and that the only obligation was one upon Expectation to underwrite the issue or to take up the placement if, in each case, Pinnacle decided to make it. That being so, he submitted, there could be no question of the obligations referred to encompassing the making of either an underwriting agreement or a placement agreement.
It is unnecessary to consider this last argument. That is because, in my opinion, the trial Judge was entirely correct in his conclusion that the "obligations herein" in cl 1 of the Letter Agreement encompassed the making of the Licence Agreements referred to and also a collaborative venture agreement, it being, of course, common cause that no collaborative venture agreement was ever made. It seems to me that, on the ordinary and natural meaning of the words used, read in their context, the "obligations" referred to are all of the obligations contained within the Letter Agreement, including the grant, by Pinnacle to Expectation, of the licences referred to in cl 2 thereof. All of those obligations are made conditional upon the matters set out in cl 1, including the entering into, by the parties, of "… mutually satisfactory formal Licence Agreements and Collaborative Venture as soon as practicable but no later than 30 June 2000 (or such later date as agreed) …".
That construction does not lead to any absurd consequences. Nor is it detracted from by the second (unnumbered) paragraph of the agreement. As will be apparent, that clause does no more than suggest that each party intends forthwith to be bound to the performance of the Letter Agreement but that the parties propose to have that agreement restated more formally and fully. There is nothing in that paragraph to suggest that performance of all of the obligations contained within the agreement, including that to give the licences, is not to be subject to the conditions precedent identified in cl 1 of the agreement.
Also, while it is true that the opening words of cl 2 of the agreement suggest that Pinnacle "hereby" grants to Expectation the licences and the right there referred to and that the concluding words of that clause mention that the Licence Agreements are to be entered into in order to "evidence" the licences referred to, those words must be read in the context of the entire agreement, including what I take to be the clear meaning of the opening words of cl 1 of that agreement. This construction seems to me (as it did to the trial Judge) to be supported by the opening paragraph of the Letter Agreement, which records that that agreement sets out the terms and conditions pursuant to which Pinnacle "will license" Expectation to use the intellectual property in question. A similar phrase is used in cl 3(a), which provides that Pinnacle "will exclusively license" Expectation to use the intellectual property therein referred to. Also, as the trial Judge pointed out, the conditions precedent to the performance of the Letter Agreement include the entering into of "mutually satisfactory" Licence Agreements.
This construction also seems to me to be supported by the fact that the consideration expressed in cl 4 is for both the grant of the licences and the entering into the collaborative venture. While the Licence Agreement does, of course, provide for consideration in the form of the payment of royalties, it would, in my opinion, still be an odd result if, that agreement having been executed but no collaborative venture agreement having been made, Expectation could have the benefit of the Licence Agreement but not be required to provide any consideration, at all, under cl 4 of the Letter Agreement when that consideration is expressed to be, at least in part, for the grant of the licences.
This construction is also supported by the fact that the second condition precedent (cl 1(b)) seems to me not to relate only to the provision of the consideration referred to in cl 4, but also to other obligations, including the making of the licensing agreements referred to in cl 2. It is reasonable to assume that approval for these was required from "the Boards of Pinnacle and Expectation". It is also reasonable to assume that the obligation to make the licence agreements was subject to any agreements or understandings which might have been entered into by Pinnacle.
I am consequently not persuaded that this sixth proposition provides any basis for upsetting the judgment of the trial Judge.

The fifth proposition

The fifth proposition is that to the effect that the Licence Agreement was a "stand‑alone" document which was not conditional on the making of any other agreement.
I am unable to accept that that is so.
It will be apparent that Recital C to the Licence Agreement refers to the Letter Agreement and records that, pursuant to that agreement, Pinnacle had agreed to grant to Expectation, amongst other things, certain licences and rights. The Recital goes on to record that Pinnacle and Expectation were "entering into this Agreement to clarify the terms and conditions of those licences and rights".
It consequently seems to me to be quite plain that the Licence Agreement was intended to be read in conjunction with the Letter Agreement and that the former agreement was not to take effect until such time as the conditions precedent to performance under the Licence Agreement had been satisfied.
While counsel for Expectation relied upon the terms of cl 18.1 of the Licence Agreement (which I have earlier set out) in support of his proposition that that agreement was a "stand‑alone" agreement, I am not persuaded that that clause has, when read in its context, the consequences contended for. The clause is a standard form "entire agreement" clause. While it does provide that the Licence Agreement supersedes all other agreements in respect of the licensed products and that any provision not expressly set out in that agreement has not been relied on and is to have no force or effect, that must be read in the context of Recital C to the agreement which expressly refers back to the "binding" Letter Agreement and records that the parties are entering into the Licence Agreement to "clarify the terms and conditions of … [the] licences and rights" granted pursuant to the Letter Agreement.
It follows, in my opinion, that cl 18.1 of the Licence Agreement is only to take effect once the Licence Agreement itself takes effect, namely when all of the conditions precedent to that occurring have been satisfied.

The second, third and fourth propositions and the notice of contention

That leaves the second, third and fourth propositions and the notice of contention. These can be dealt with together.
These propositions, and the notice, raise a number of issues. The first of these is that of what was the consequence of the fact that the formal agreements referred to in the exchange of e‑mails on 30 June 2000 had not been completed by 31 July 2000, the parties having, on the trial Judge's undisputed finding, agreed that the time fixed by cl 1(a) of the Letter Agreement should be extended until 31 July 2000.
It seems to me, firstly, that the trial Judge was right in his conclusion that the Letter Agreement, upon its proper construction, did not provide for its automatic termination in the event of a failure to meet the time limit specified in cl 1(a) thereof.
While the effect of any condition of a contract will depend upon its own language, the cases suggest that there is a disposition on the part of the Courts to treat non‑fulfilment of a condition of the kind specified in cl 1(a) in the Letter Agreement as rendering the contract voidable rather than void. That is because, while the non‑fulfilment of the condition might be brought about without default on the part of either party, it might equally be brought about by the failure of one party to co‑operate in achieving the fulfilment of the condition. In such a case, in the absence of a disposition of the kind to which I have referred, it would be a simple matter for one party to benefit itself by its own conduct in ensuring, or contributing to, the non‑fulfilment of a condition bringing the contract to an end. (See Gange v Sullivan (1966) 116 CLR 418 at 441 - 442; and Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440 - 442; and Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 544 - 545 and 567.)
There is, in my opinion, nothing in the language of cl 1(a) which is sufficient to overcome that disposition (as to which, see Gange, above, at 441 and Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181 at 352). Rather, the fact that that clause expressly provides that the date might be extended by agreement militates against a construction that non‑fulfilment of the condition rendered the contract void.
It follows from this that, notwithstanding that 31 July 2000 came and went without any formal agreement having been made with respect to the "Collaborative Venture" referred to in cl 1(a) of the Letter Agreement, the Letter Agreement remained on foot, neither party having terminated it
However, the condition precedent to performance of the Letter Agreement not having been satisfied, either party was at liberty to bring that agreement to an end if it chose to do so, so long, of course, as the failure to fulfil the condition had not been caused or contributed to by that party's own breach.
As will be apparent, the parties were obliged, by cl 6 of the Letter Agreement, to negotiate in good faith to close the transactions contemplated in the Letter Agreement in an expeditious manner and as soon as practicable. Even if that had not been so, it is a general rule applicable to every contract that each party agrees, by implication, to do all that is necessary on its part to enable the other party to have the benefit of the contract: Butt v M'Donald (1896) 7 QLJ 68 at 70 - 71 and Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. It follows that if performance of the contract is conditional on some event which is to any degree within the control of a party, that party must co‑operate reasonably in bringing it about. Failure to co‑operate in that way will generally disqualify the defaulting party from relying upon the non‑fulfilment of the condition, or, to put it differently (as is sometimes done), courts will, in such cases, treat the condition as having been satisfied: see Newmont, above, at 352; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 637; Mackay v Dick (1881) 6 App Cas 251 at 270; Foran v Wight (1989) 168 CLR 385 at 433 and Paltara Pty Ltd v Dempster (1991) 6 WAR 85.
If non‑compliance with a contractual obligation is to take away the defaulting party's right to terminate, there must be a direct causal relationship between that non‑compliance and the failure to complete the contract, with the onus of proof lying upon the non‑defaulting party: see Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 and Kyrwood v Drinkwater [2000] NSWCA 126, pars 154, 232.
It is not clear from the trial Judge's reasons whether his Honour found that the parties had, by 31 July 2000, breached the obligation contained in cl 6 of the Letter Agreement (or an implied obligation to co‑operate) or whether the breach which he found occurred after that date. While the trial Judge said that little effective work appeared to have been done after the extension of time to 31 July was negotiated (and this was done on about 30 June 2000), he also said that, although the facsimile of 2 August "provided the affirmation that the parties would negotiate in good faith to finalise the collaboration [sic] agreement", it seemed to him that "thereafter nothing effective happened in that regard on either side". That being so, it might be the case that his Honour considered that the obligation to which I have referred was breached only after 2 August 2000, although it is not entirely clear what was intended by the reference to an "affirmation" and whether his Honour considered that there had been a prior breach. There was, in this respect, no plea of any affirmation (or, as I understand it, even any contention that there was an affirmation, no breach of the kind found having been alleged against Expectation). Also, while Expectation pleaded, in par 13.10 of its Reply, that on or about 2 August 2000 Pinnacle waived all conditions precedent to performance of the Letter Agreement that had not by that date been fulfilled, the only contention which appears to have been advanced by it at the trial in this respect was that the exchanges in early August had given rise to a variation of the Letter Agreement in a number of respects and that this variation had the effect of waiving the condition precedent. However, the contention that any variation was agreed upon was, as I have said, rejected by the trial Judge.
I should add that, contrary to what is said in ground 4.3(f) of the grounds of appeal, the trial Judge did not find that, on 2 August 2000, both parties affirmed the Letter Agreement. All that he found (as I read his judgment) was, as I have said, that Mr McLernon's facsimile transmission to Mr Wantrup dated 2 August 2000 (which the trial Judge found to have been "legally ineffectual"), "provided the affirmation that the parties would negotiate in good faith to finalise the collaboration [sic] agreement". The trial Judge, as I read his reasons, made no finding that the condition precedent was waived after 31 July 2000. Rather, his finding (in par 161) that, after 31 July 2000, no further extension was sought or granted seems to me to be inconsistent with the notion that there was a waiver.
If his Honour did rely upon the conclusion that cl 6 of the Letter Agreement was breached after 2 August 2000, then that conclusion was not, in my respectful opinion, one which was open to him. There are two reasons which lead me to this view.
The first is that, while the failure of the condition precedent contained within cl 1(a) rendered the Letter Agreement voidable, and not void, that does not, on my understanding of the position, mean that the condition can be ignored, if no further extension of time was agreed upon and it was not waived. The condition was expressed, on my reading of it, to be a condition precedent to performance of the agreement. It was consequently an essential condition of the agreement (cf Perri, above, at 554, per Gibbs CJ, and 569, Brennan and Stephen JJ concurring) which required strict compliance (GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80) as, indeed, appears to have been recognised by the parties in expressly agreeing to extend the time. If no further extension of time was agreed upon (as is common cause) and if there was no waiver (and none was contended for, otherwise than by way of the alleged variation agreement, or found), then either party could, at any time after 31 July 2000, avoid the contract for failure of the condition if that party had not, prior to 31 July 2000, repudiated the contract or breached it in such a way as to cause or contribute to the failure of the condition. Equally, of course, the parties could, if they chose, keep the contract on foot and agree upon a further extension of time or, perhaps, waive the condition. However, in circumstances in which no further extension of time had been agreed upon and in which there was no waiver of the condition, neither party could thereafter breach an obligation to negotiate in good faith to close the transaction in question expeditiously and as soon as practicable, when the time for doing so had already expired. While each could, as I have said, waive the condition or vary the Letter Agreement by agreeing upon a further extension of time, neither could be compelled to do so (cf Howtrac Rentals Pty Ltd v Thiess Contractors (NZ) Ltd [2000] VSC 415, pars 414, 417).
Of course, if neither party took any step to avoid the contract, or further to perform it, notwithstanding the passage of time, the point may be reached at which the parties will be taken to have so conducted themselves as mutually to have abandoned or abrogated the contract: cfSummers v The Commonwealth (1918) 25 CLR 144 and DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423. The proposition that this point was reached in this case appears to have held some attraction for the trial Judge. I have mentioned that his Honour said that it was "almost as if …, without anything being said, there was a mutual recognition that the letter agreement had failed …". However, neither party has pleaded that the Letter Agreement was abandoned.
The second reason which leads me to the view which I have expressed (and this reason would apply also to a breach by Expectation, of the kind found, which occurred before 31 July) is that the breach which was found by the trial Judge appears not to have been pleaded by Pinnacle.
Expectation alleges, in par 4E of its re‑amended statement of claim, that Pinnacle, in breach of cl 6 of the Letter Agreement and of the implied obligation to "do all things necessary to ensure … [that Expectation] had the benefit of the Letter Agreement, failed or refused to negotiate in good faith the terms of the Licence Agreement, collaborative venture agreement, underwriting agreement and/or subscription agreement". In par 4G it pleads that it was, and at all material times had been, ready, willing and able to perform all of its obligations under the Letter Agreement.
Pinnacle, in its further re‑amended defence, alleges that Expectation, in breach of the Letter Agreement, evinced an intention no longer to be bound by that agreement and thereby repudiated it (par 3(y)). It relies, in support of this plea, essentially upon four propositions. The first is that "the terms of the forms of licence agreement" executed by Expectation and Pinnacle were "inconsistent with and … different from those set out in the letter agreement" (par 3(x)). The second proposition relates to the collaborative venture agreement. Pinnacle pleads, in this respect, the following (par 4E(c)):
"(c)Regarding the terms of a collaborative venture agreement:
(i)There were negotiations conducted for Pinnacle by Jacques and Kennedy with Roderick Smith at meetings during the period on or about 13 to 15 June 2000 concerning the terms of a term sheet to form the basis of a collaboration agreement to be subsequently entered into between Pinnacle and Expectation and such a term sheet was initialled by Jacques and Roderick Smith on behalf of Expectation in Melbourne on 15 June 2000 (the term sheet).
(ii)On 15 June 2000 at Melbourne, Roderick Smith agreed with Jacques and Kennedy that he would cause a form of collaborative venture agreement to be prepared based upon the term sheet and provide it to them for comment and further negotiation.
(iii)No such draft agreement was provided by Expectation to Pinnacle."
The third proposition relates to the "underwriting agreement and/or subscription agreement". Pinnacle pleads, in that regard, the following (par 4E(d)):
"(d)Regarding the terms of an underwriting agreement and/or subscription agreement:
(i)On or before 13 June 2000 Expectation provided a draft subscription agreement and a draft underwriting agreement to Pinnacle for comment.
(ii)Negotiations between Expectation and Pinnacle in relation to those drafts did not subsequently occur in detail because of:
(A)the subsequent attempts by shareholders of Pinnacle to remove four of the five directors of the board of Pinnacle, include Jacques and Kennedy, which were ultimately resolved by the resignation of Richard Revelins … as a director on 28 July 2000 and the removal of Jacques, Kennedy and Professor Malcolm Logan … as directors at a meeting of the shareholders of Pinnacle on 15 August 2000;
(B)the decision by Expectation on or about 2 August 2000 not to proceed with any form of underwriting and/or subscription agreement with Pinnacle."

Collaborative Venture Issue

It will be useful to look at the matters I have just mentioned in more detail. For ease of reference, I will call the facts and matters bearing upon this aspect of the appeal the "collaborative venture issue".
In asserting that Pinnacle did not sufficiently plead, or argue, that Expectation had failed or refused to negotiate the terms of the collaborative venture agreement, Expectation was obliged to acknowledge that there were some references to this aspect of the matter in Pinnacle's statement of defence.
Expectation recognised that by par 3(y) of the defence it was put against Expectation that Expectation evinced an intention no longer to be bound by the letter agreement. More particularly, when par 3(y) and par 4E(1) were read in combination those clauses of the pleading seemed to allege that Expectation evinced an intention no longer to be bound because contrary to arrangements made in Melbourne on 15 June 2000, Smith failed to submit a form of collaborative venture agreement based on the term sheet to Pinnacle.
Expectation contended, however, that a somewhat different allegation was not put against it, namely, that what Smith proposed by way of the collaborative agreement was inadequate having regard to the elements of such an agreement envisaged by the letter agreement. This meant that it could not be fairly said (or found by the trial Judge) that Expectation was failing or refusing to progress the collaborative agreement in the manner envisaged by the letter agreement. Further, Smith was not cross‑examined on this specific issue. Expectation therefore did not have an opportunity to meet or rebut the allegation that Expectation was in default. As it turned out, the Judge made a finding in general terms that was not related to the Pinnacle case pleaded in par 3(y) of the defence but to the different and wider allegation just mentioned. Put shortly, the learned Judge held at par 164 that:
"On Pinnacle's side in particular, for what appear to me to be obviously good reasons, the collaborative venture agreement produced in draft by Expectation was regarded as entirely unsatisfactory."
The learned Judge said further at par 165 that:
"…at that point the ball was in Expectation's court, but the work to progress the collaborative venture did not occur."
The learned trial Judge then went on to recognise that as those in charge of Pinnacle's affairs became distracted by internal events there was a failure to progress with the collaborative agreement or the funding agreement. This set the scene for the learned trial Judge's important and perhaps crucial finding at par 167 which he expressed in these terms:
"I think that the proper construction of what has occurred is that both parties are in breach of cl 6 of the letter agreement. The effect of that conclusion is of course that Expectation is not entitled to any relief on the basis that Pinnacle has breached the agreement, whereas it has not done so."
Against this background, Expectation's case on appeal was that the learned Judge erred in making such a finding, first, because such a finding concerned a matter that was not properly raised by the pleadings (and was therefore not properly dealt with at trial); second, in circumstances where his Honour appeared to have recognised that both parties had let the matter of the collaborative agreement drift, it could not be held that Expectation was in breach of the letter agreement and was therefore not entitled to relief.
I pause to observe that his Honour's finding against Expectation on the collaborative venture issue was made in very general terms. Further, I see force in the submission made on behalf of Expectation on appeal that it cannot be said there was a failure or refusal to negotiate by Expectation. To my mind, the exchange of emails left the difference of opinion unresolved and it seems to me from this and the initialling of the so‑called "term draft" that the collaborative venture agreement was still being negotiated throughout June and July, albeit in a rather desultory way.
Counsel for Expectation made this submission at the hearing of the appeal:
"The question of who was right about the content of the collaborative venture was not properly ventilated because the issue was not exposed and was not put to us. Jacques conceded in cross‑examination that there was a genuine dispute between him and Smith about what the collaborative venture agreement should contain. He wasn't saying Smith was not negotiating in good faith."
The thrust of Expectation's case on appeal was that par 3(y) of the statement of defence, as supplemented by a cross‑reference to par 4E(c) of the defence, did not direct Expectation's attention to the fact that what Dr Jacques was going to say was that there was a failure by Smith to negotiate effectively in the latter days of June. Paragraph 4E(c) is confined to an allegation of a different kind that Smith had agreed to prepare an agreement based upon the term sheet but (see par 4E(c)(iii)) no such draft agreement was provided by Expectation to Pinnacle. What his Honour later found, in effect, was that Smith had failed to make an adequate input into a collaborative venture agreement having regard to the terms of the letter agreement, with the result that Expectation was in breach of the letter agreement.
Put shortly, Expectation's case on the appeal as to this aspect of the matter was that it was not in default in regard to the good faith provision or in regard to the negotiation of the collaborative venture. It was therefore not open to Pinnacle to set aside the letter agreement by its letter dated 27 October 2000 or otherwise to elect to accept an alleged repudiation by Expectation. Thus, Pinnacle was in default itself and had repudiated the letter agreement. It followed from such a view that Expectation was entitled to damages for Pinnacle's breach of the letter agreement.

Pinnacle's Case on Appeal

Pinnacle contended that after 31 July 2000 the parties were no longer under any obligation to each other to negotiate in good faith in the absence of an agreed extension to the prescribed date. Once the date for fulfilment of the condition precedent had passed, renewed activity by one party to negotiate in good faith in an expeditious manner did not excuse the breach, as the 31 July 2000 deadline had passed.
Pinnacle submitted further that the learned trial Judge correctly construed the letter agreement in holding that the letter agreement did not itself constitute one or more licences to use any of the technology. The grant of any licence would occur on the making of the relevant licence agreements.
Pinnacle said also that the consequence of both parties being in breach of a mutual obligation was to prevent either party from asserting the breach against the other, and seeking relief from the Court: Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909. Further, or alternatively, either party could assert the breach of the condition against the other, and terminate the agreement: State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 286.
In the present case, counsel for Pinnacle submitted, where both parties were in breach of the same obligation, and the breach had the effect of causing the non‑fulfilment of the condition precedent in cl 1(a) of the letter agreement, after 31 July 2000 either party was free to terminate the letter agreement, which by virtue of the non‑fulfilment became voidable at the election of either party: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418. It was upon this basis that Pinnacle exercised its right to terminate the agreement between the parties with the result that Expectation's claim for relief was properly dismissed by the learned trial Judge.

The Licensing Arrangements Issue

In essence, grounds 1, 2 and 5.3 raise the principal contention of Expectation on appeal, that is to say, that the learned Judge erred in his construction of the licence agreement. Further, he is said to have erred in holding that by the letter agreement Expectation and Pinnacle did no more than bind themselves to negotiate the terms of formal licences for the VRB technology and a formal collaborative venture agreement in good faith. On its true construction, the letter agreement should have been found to have the effect that the making of the licence agreement was not subject to the making of one or more of an underwriting agreement, a placement agreement or a collaborative venture agreement.
I am not persuaded that the learned trial Judge was in error in holding that the licence agreement was not to be characterised as a "stand alone" document which was not conditional on the making of any other agreement. I consider that the licence agreement was intended to be read in conjunction with the letter agreement and that the former agreement was not to take effect until such time as the conditions precedent to performance under the licence agreement had been satisfied.
It is true that the formal licence agreement contained an "entire agreement" clause. However, the recital to the document and the surrounding circumstances establish that cl 18.1 of the licence agreement was only to take effect once the licence agreement itself took effect, namely when all of the conditions precedent to that occurred had been satisfied. It is apparent from the letter agreement that the consideration payable by Expectation went beyond the royalties allowed for by the licence agreement and included the obligations of the parties concerning the collaborative venture and the placement of shares.
It follows from this view of the matter that neither the letter agreement nor the subsequently executed licence agreement was sufficient to confer rights in the technology independently of the overall requirements of the letter agreement. I do not consider that the appeal should be allowed on the grounds reflected in par 1, par 2 and par 5.3. It therefore becomes necessary to deal with the issues raised by the remaining grounds of appeal.

The Letter Agreement Issues

Ground 3 is the starting point for a consideration of the further issues raised on appeal. Expectation says that the learned Judge erred in holding that after 2 August 2000 Expectation accepted that the letter agreement had failed and had done nothing to try to negotiate the terms of the collaborative venture. Expectation refers in par 3 of the appendix supporting ground 3 to Mr McLernon's evidence that Expectation remained ready, willing and able to proceed. It is said further in par 6 that Pinnacle did not plead or submit that Expectation accepted the letter agreement had failed, or that Expectation had done nothing to negotiate in the manner required by the letter agreement. This imports a reference to the facts and matters I have called the collaborative venture issue.
Expectation's position is echoed in ground 4 where it is said the learned Judge erred in holding that Expectation was in breach of the letter agreement as at 27 October 2000 because it did not negotiate in good faith the terms of the collaborative venture. More particularly, it is said in par 4.5 that the learned Judge focused not upon Pinnacle's pleaded case concerning the collaborative venture issue but upon an alleged failure to negotiate that was not pleaded and was therefore not adequately covered by Expectation's witnesses.
The learned trial Judge held that the letter agreement, upon its correct construction, did not provide for automatic termination in the event of a failure to meet the time limit specified in the letter agreement, namely, 31 July 2000, being the date prescribed by the letter agreement as extended. I am of the same opinion. It seems to follow from the decided cases that thereafter the letter agreement was voidable at the option of a party not in default. In the circumstances of this case, it could be argued that either party was at liberty to bring the agreement to an end, so long as the failure to fulfil the condition precedent had not been caused or contributed to by that party's own breach.
I am referring here to previously decided cases such as Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Gange v Sullivan (1966) 116 CLR 418 and Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537. The High Court has recognised in these cases that conditions of the kind reflected in cl 1 of the letter agreement in the present case can be said to contain a promissory element which obliges the parties to use their best endeavours to ensure that the conditions are fulfilled. If one party has by his default brought about the non‑fulfilment of the condition the other party alone has the option of avoiding the contract. If the non‑fulfilment occurs without default on either side then either party may avoid the contract. The important feature of the contractual relationship in the period after the time for fulfilment of the condition has expired is that the contract remains on foot until set aside.
It follows from my observations to this point that as at 31 July 2000 the letter agreement was still in force. Non‑fulfilment of the conditions precedent did not bring the agreement to an end automatically. The agreement was voidable but it would remain in force until set aside by a party entitled to take such a step.
It must be kept in mind, however, that a significant feature of the letter agreement was the requirement in cl 6 whereby the parties were under a mutual obligation to negotiate in good faith to close the transactions contemplated in the letter agreement in an expeditious manner and as soon as practicable.
A provision of this kind reflects the rule referred to by Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251 at 263 that where both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing though there may be no express words to that effect. What is the part of each must depend on the circumstances. See also per Privy Council in Sprague v Booth (1909) AC 576 at 580.
To my mind, the obligation to negotiate in good faith reflected in cl 6, consistently with the rule enunciated by Lord Blackburn, was not confined to observance of the time limit prescribed by the letter agreement. It was a matter of general application, and continued to apply after 31 July 2000 because the agreement constituted by the letter agreement remained in force. If the letter agreement remained in force, it remained in force for all purposes, notwithstanding that the prescribed limit (as extended) had expired. Thus, after 31 July 2000, the parties remained subject to an obligation to use their best endeavours to negotiate the collaborative venture and related agreements.
I pause here to say that, as appears from my earlier description of the collaborative venture issue, there are passages in the learned trial Judge's reasons for judgment which suggest that, in his view, Expectation had been remiss in responding to the reasonable requirements of Dr Jacques in seeking to finalise the collaborative venture. This meant that Expectation was arguably a party in default. On this view of the matter Pinnacle was arguably at liberty to set aside the contract, notwithstanding the obligation to negotiate in good faith.
To my mind, however, the passages in question are expressed in general terms and do not justify such a conclusion. Further, and in any event, it is questionable whether such a ruling was open having regard to the issues raised by the pleadings. As appears from my description of the collaborative venture issue, the finding made by the trial Judge was made in general terms and was much broader than finding merely a failure to provide Pinnacle with a collaborative venture agreement based on the term sheet. His Honour appeared to find that Expectation was in breach because it produced a draft at an earlier stage that was entirely unsatisfactory.
I am conscious also that the initialling of what was called the term draft, without any clear act of renunciation of the same on either side, strongly suggests that as at 31 July 2000 both parties viewed the collaborative venture as still being subject to negotiation. This is borne out by his Honour's view that both parties let the matter "drift" and by the subsequent events concerning the proposed variation. On his Honour's findings no variation was effected but the relevant incident indicates that the parties still saw themselves as being bound by the requirements of the letter agreement.
It therefore seems to me that in the period after 31 July 2000, notwithstanding expiry of the prescribed time limit (as extended), the contract remained on foot and the obligation on both sides to negotiate in good faith continued to apply. I have noted that in par 13.10 of its reply Expectation pleaded a waiver of the conditions precedent to performance of the letter agreement. Such a plea must be taken to embrace a waiver of the time limit. In the absence of a condition of the kind reflected in cl 6 it was probably open to either party to set aside the voidable contract pursuant to the rule referred to earlier that the contract could be rescinded by a party not in default. However, in circumstances where cl 6 continued to apply, it seems to me that before Pinnacle could rescind the contract it had to identify a specific act of default by Expectation in the period after 31 July 2000, being either a failure or refusal to negotiate in good faith or the assertion of an unwarranted interpretation of the letter agreement in regard to the collaborative venture. Summers v The Commonwealth (1918) 25 CLR 144.
A default of that kind by Expectation does not appear to be supported by the evidence. The events of 2 August 2000 suggest that both parties were interested in negotiating a variation of their arrangements, but, as the learned trial Judge found, the events were inconclusive and no variation was effected. The parties remained subject to the obligations imposed by the existing contract, including the obligation to negotiate in good faith. There was evidence before the Court (and this was Expectation's pleaded case) that Expectation remained ready, willing and able to perform, and took at least some steps in that regard. The evidence bearing on this latter point is summarised in appendix 4 to Expectation's amended notice of appeal. In particular, at the hearing of the appeal, reference was made to a letter dated 21 August 2000 in which Mr Rainford on behalf of Expectation said that Expectation was keen "to get the show on the road after months of delay."
I am conscious also of the rule that if a party entitled to insist on the essential quality of the stipulated time leads the other party to understand that it is essentially not being maintained, the time for compliance will cease to be essential without some further circumstance, such as a proper notice requiring the default to be rectified in order to establish its essential quality. Mehmet v Benson (1965) 113 CLR 295 at 303. No such notice was given in the present case before Pinnacle purported to rescind.
It was against this background, that Pinnacle purported to bring the relationship between the parties to an end on 27 October 2000 or, at least, made it clear that it would not proceed further. In my view, for the reasons I have just outlined, and having regard especially to the continuing operation of cl 6 and the lack of any prior notice of default, it was not in a position to terminate the letter agreement in that manner. The intimation by Pinnacle that it would not perform the agreement itself amounted to repudiation and relieved Expectation of its dependent obligation to perform thereafter. Expectation was nonetheless entitled to keep the letter agreement on foot with a view to obtaining relief by way of specific performance. Foran v Wight (supra).

This conclusion in favour of allowing the appeal on grounds 3 and 4 is reinforced by some other considerations. I have indicated in my description of the collaborative venture issue that Pinnacle arguably does not set out sufficient facts and matters in its statement of defence to justify a rescission of the kind relied on. In other words, a failure by Expectation to negotiate in good faith has not been sufficiently identified by the relevant pleading or by the evidence. I have already noted that, in my view, the failure to progress either the collaborative venture agreement or the funding agreements in the form of the share placement and underwriting agreements could not be reasonably laid entirely at the door of one party or the other. The learned trial Judge concluded that the proper construction of what occurred is that both parties were in breach of the good faith provision in cl 6 of the letter agreement, but for the reasons previously given I am not persuaded to such a view. I consider that Expectation was not in default. There was evidence before the Court that it remained willing to perform, although the disruption within Pinnacle and the inconclusive events of 2 August made it difficult to discern exactly what was required of Expectation by way of performance.
For the reasons given by Steytler J, I am not persuaded that Pinnacle should be given leave to rely upon its proposed notice of contention. However, even if leave were granted, it follows from my earlier observations concerning the application of cl 6 that, in my view, Pinnacle was not at liberty to terminate the letter agreement for non‑fulfilment of condition 1(a). Pinnacle's contention assumes that Pinnacle was not bound by any continuing obligations under cl 6 which is contrary to the view of the matter I have just expressed.

Summary

In summary, then, in the absence of a specific plea and related finding as to the manner in which Expectation was in breach of an obligation to negotiate in good faith, grounds exist for challenging the determination of the learned trial Judge that the plaintiff's claim should be dismissed. I am of the view that the appeal should be allowed. It will be apparent from my reasons, however, that in regard to the orders sought I would not make a declaration that the licence agreement is binding and subsisting. I would be prepared to order that there be a declaration the letter agreement is binding and subsisting. Having regard to the passage of time, it seems to me that further evidence will be required as to whether specific performance be awarded or whether damages be awarded in lieu of specific performance. It therefore seems to me that the matter should be returned to the trial Judge for that purpose.