GB Energy Ltd v Protean Power Pty Ltd - [2009] WASC 333

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: GB ENERGY LTD -v- PROTEAN POWER PTY LTD [2009] WASC 333

CORAM: LE MIERE J

HEARD: 12-14, 17 AUGUST, 4 SEPTEMBER 2009

DELIVERED : 17 NOVEMBER 2009

FILE NO/S: CIV 1937 of 2009

BETWEEN: GB ENERGY LTD (ACN 118 758 946)
Plaintiff
AND
PROTEAN POWER PTY LTD (ACN 113 839 599)
First Defendant
KINGSLEY CHARLES FIEGERT
Second Defendant
SEAN DEREK MOORE
Third Defendant

Catchwords:

Contract law - Whether Deed still binding - Declaration that deed still binding - Turns on own fact

Equity - Estoppel - Whether defendants induced assumption that Deed still binding - Whether plaintiff acted upon assumption to its own detriment - Turns on own facts

Legislation:

Nil

Result:

Declaration made that deed still binding
Second and third defendants obliged to appoint Mr Kirke as director and chairman

Category: B

Representation:

Counsel:

Plaintiff:     Mr M M Mony de Kerloy
First Defendant             :     Mr S Vandongen & Mr J E Scovell
Second Defendant         :     Mr S Vandongen & Mr J E Scovell
Third Defendant           :     Mr S Vandongen & Mr J E Scovell

Solicitors:

Plaintiff:     Mony de Kerloy
First Defendant             :     Jackson McDonald
Second Defendant         :     Jackson McDonald
Third Defendant           :     Jackson McDonald

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

Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Carmichael v National Power Plc [1999] 1 WLR 2042
Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Suncorp Metway Insurance Ltd v Owners Corporation Strata Plan 64487 [2009] NSWCA 223

Table of Contents

1. Introduction
2. The Deed
3. Shareholders Agreement
4. Overview

4.1 November 2007 to July 2008
4.2 July to October 2008
4.3 October 2008 to January 2009
4.4 January to 14 April 2009
4.5 Conflict whether Deed in force and Kirke should be appointed director

5. The issues
6. Stage 1 was completed on 24 April 2008
7. Was the Deed varied?

7.1 GBX's case
7.2 The defendants' case
7.3 Legal principles concerning variation of contract
7.4 Party may be estopped from denying variation of contract
7.5 Privity of contract
7.6 Privity and estoppel
7.7 The Deed was varied

8. The New Agreement

8.1 The new agreement alleged by the defendants
8.2 GBX denies New Agreement
8.3 Protean and GBX did not make the New Agreement

9. Estoppel

9.1 GBX's case
9.2 GBX adopted the assumption
9.3 Departure from assumption would be unconscionable
9.4 GBX acted in reliance on the assumption
9.5 GBX will suffer detriment if the assumption is not fulfilled
9.6 It would be unconscionable for Protean to resile from the assumption

10. Appointment of Mr Kirke as director

10.1 Mr Moore is bound by the Deed
10.2 Mr Fiegert is bound by the Deed
10.3 Obligations under the Shareholders Agreement
10.4 Mr Moore and Mr Fiegert failed to appoint Mr Kirke as a director
10.5 Mr Moore and Mr Fiegert breached the Deed

11. Damages
12. Counterclaim

Conclusion

LE MIERE J:

1. Introduction

The first defendant is an Australian company engaged in the development and commercialisation of renewable energy technology and in particular a device described as a wave energy converter (WEC) which is used to convert ocean waves into a more useable form of energy. The first defendant was known as Australian Sustainable Energy Corporation Pty Ltd until 25 November 2008 when it changed its name to Protean Power Pty Ltd. I will refer to the first defendant as 'Protean'.
The WEC is the brainchild of the third defendant, Mr Moore. The second defendant (Mr Fiegert) is Mr Moore's brother‑in‑law. Mr Moore and Mr Fiegert have been directors of Protean since its incorporation. Sunset Enterprises WA Pty Ltd (Sunset) is a company associated with Mr Fiegert and a holder of shares in Protean.
The plaintiff, which I will describe as 'GBX', is a company listed on the Australian Securities Exchange (ASX) with a relatively small market capitalisation. One of GBX's objectives is to identify, acquire and develop conventional and renewable energy projects.
At the time of the trial, Graeme Kirke was the non‑executive chairman of GBX. Until 9 July 2009 he was the executive chairman. eNGN Ltd (eNGN) is a company associated with Mr Kirke. Ross Ashton is and has been since 13 March 2006 a director of GBX. Miles Ashton, the son of Ross Ashton, became an employee of GBX in September 2008. On 14 January 2009 he became a director of Protean, having been appointed to that position as GBX's representative. On 9 July 2009 Miles Ashton became managing director of GBX. Paul Robinson was at all relevant times a non‑executive director of GBX.
In about July 2006 Mr Moore lodged an Australian provisional patent application to protect the WEC technology (Patent Application). From early 2007 Protean was seeking funding for the development of the WEC technology. On 22 November 2007 Protean and GBX entered into an agreement for GBX to provide funding for the initial development of the WEC in consideration for an option to provide funding for the further development of the WEC in return for shares in Protean. The agreement is contained in a deed entitled Funding and Subscription Deed (the Deed). The parties to the Deed are GBX, Protean, Mr Fiegert, Mr Moore, Sunset and eNGN. At the time they executed the Deed, the parties to the Deed, except for Mr Fiegert, executed an agreement regulating the exercise of their rights as shareholders of Protean (the Shareholders Agreement).
This action is about whether the Deed remains in force and is binding on the parties and about the rights and obligations of the parties under the Deed and the Shareholders Agreement.

2. The Deed

The Deed provides for GBX to fund the design, construction and testing of the WEC. The funding is divided into stages. Under cl 2.1 GBX agrees to sole fund Stage 1 to the level of between $110,000 and $140,000 which is anticipated to be sufficient to complete Stage 1. Stage 1 means the first stage of the further development of the WEC and entails the design, fabrication and launching of a 1 m diameter WEC as defined by the Patent Application. Demonstration of the wave energy conversion is to be made via an electrical load, such as a light, connected to the electric generator. If an amount greater than $140,000 is required to complete Stage 1, Protean must notify GBX and GBX may then elect to either continue to sole fund Stage 1 with the funds required in excess of $140,000 to be credited towards GBX's sole funding commitment in Stage 2 or not to continue to sole fund Stage 1 in which case Stage 1 will be deemed to be completed.
Clause 2.2 provides that the completion of Stage 1 would be constituted by the launching of the WEC under design and construction as described in Annexure A or the deemed completion in accordance with cl 2.1(b)(ii) which occurs if GBX elects not to fund Stage 1 in an amount greater than $140,000 when an amount greater than $140,000 is required to complete Stage 1. Clause 2.2 provides that at the completion or deemed completion of Stage 1 Protean will issue a notice of Stage 1 completion to GBX.
Under cl 4.1 Protean grants GBX an exclusive option to sole fund Stage 2 to a maximum level of $2,100,000 including any amount credited from sole funding Stage 1 in excess of $140,000 (the Option). Stage 2 means the second stage of the further development of the WEC and entails the design, construction and testing of a 5 m diameter prototype as described by the Patent Application. Included in Stage 2 is an appropriate demonstration of the device's scalability for which multiple devices may be deployed and the implementation of any and all required infrastructure such as moorings and energy transfer mechanisms as well as the determination of load characteristics of the electrical generators.
Clause 4.2 provides that the Option is exercisable by GBX at any time during the period of 60 days after receipt by GBX of the notice of Stage 1 completion. Clause 4.3 provides that GBX may exercise the Option during the option term by serving written notice of exercise of the option on Protean.
Clause 4.4 provides for due diligence by GBX. Within a period of 35 days after receipt by GBX of the notice of Stage 1 completion, GBX may conduct due diligence in relation to Protean and the WEC. Protean, Mr Moore and Mr Fiegert are to provide GBX with full access to Confidential Information and any documents and information concerning Protean and the WEC to enable GBX to conduct its due diligence. Confidential Information means, amongst other things, all information, knowhow, intellectual property, ideas and technology of Protean or its businesses including the WEC, copyrights and technical data.
Clause 5 deals with the issue of shares by Protean to GBX. Clause 5.1 provides that after GBX has delivered the notice of exercise of option Protean will issue shares to GBX in four tranches where each tranche of shares is issued after a part of the Stage 2 funding has been provided by GBX and is issued for a consideration of $1. The first tranche of 2,500 shares are to be issued to GBX at the completion of $500,000 of Stage 2 sole funding for a total payment of $1. At the same time Sunset is to transfer 150 shares to eNGN for a total of $1. Clause 5.3 provides that the shareholding after the share transfers and issues in cl 5.1 are complete will be as set out in a table. The table states that GBX is to hold 10,000 shares out of a total of 20,000 shares and is to hold 50% of the shares, Mr Moore is to hold 7,500 or 37.5% of the shares, Sunset 1,900 or 9.5% of the shares and eNGN 600 or 3% of the shares.
Clause 6 provides that where the plaintiff fails to exercise the Option it will not participate in Stage 2, will have earned no equity or shareholding in Protean and GBX's nominee directors will forthwith resign as directors of Protean.
Clause 3(a) provides that the two current directors of Protean are Mr Moore and Mr Fiegert. Clause 3(b) provides that from the date of execution of the Deed, Mr Moore and Mr Fiegert agree to appoint Mr Kirke and Ross Ashton as two further directors to the board at the nomination of GBX. Clause 3(c) provides that during Stage 1 the board will consist of four directors, being the two current directors and the GBX nominee directors. Clause 3(d) provides that Mr Kirke will be appointed as chairman but during Stage 1 Mr Kirke will not have a casting vote.
Clause 8 makes further provisions in relation to Stage 2 funding. Clause 8.1 provides that the plaintiff will undertake the Stage 2 sole funding from the date of delivery of the notice of exercise of option to Protean. Clause 8.9 provides that any funding by GBX during Stage 1 or Stage 2 will not constitute loan funds and will not be recoverable as a debt from Protean.
Clause 9 provides for a Stage 3. Where Stage 2 is completed, the parties will each use their best endeavours to further develop and commercialise the WEC so as to maximise the return to the shareholders. The parties acknowledge the directors may seek further funding including an initial public offer or stock exchange listing.
Clause 10 provides for the employment of Mr Moore as an executive director of Protean. Clause 10.4 provides that for the duration of Stage 1 Mr Moore's remuneration will be $500 gross per week. Once Stage 1 has been successfully completed and GBX elects to fund Stage 2, Mr Moore's remuneration will increase to an amount equal to the annually adjusted median remuneration of a level 5 engineer in the electricity and gas supply industry which was then $125,000 per annum.
Clause 7 provides that the shareholders will enter into a shareholders agreement at the time of first transfer and issue of shares in accordance with cl 5. The Shareholders Agreement is an annexure to the Deed. The parties to the Shareholders Agreement are Protean and the Shareholders, that is Mr Moore, Sunset, eNGN and GBX. The parties to the Shareholders Agreement executed the Shareholders Agreement at the same time that they executed the Deed notwithstanding the terms of cl 7 of the Deed.

3. Shareholders Agreement

A recital to the Shareholders Agreement states that the Shareholders hold the number of shares as set out in Schedule 1. Schedule 1 lists the shares held by Mr Moore, Sunset, eNGN and GBX to be 7,500, 1,900, 600 and 10,000 respectively. Those are the number of shares which, in accordance with the Deed, would be held by each of those Shareholders at the completion of Stage 2 funding.
Clause 11.1 of the Shareholders Agreement provides that each of Mr Moore and GBX is entitled to appoint two directors whilst he or it holds 20% or more of the shares. No other director may be appointed without the prior written consent of each Shareholder. Clause 11.1 further provides that the directors of the company at the date of the agreement are Mr Moore and Mr Fiegert who were each appointed by Mr Moore and Mr Kirke and Ross Ashton who were each appointed by GBX. Clause 11.2 provides for the removal and retirement of directors. Clause 11.3 provides that Mr Kirke is the chairman of the board and will only be removed by a resolution of the board.
Clause 12 deals with meetings of the directors. Clause 13.1 provides that each director has one vote provided that where only one of the two directors appointed by Mr Moore or GBX are present then that one director shall exercise two votes. The chairman has a deliberate and a casting vote.

4. Overview

4.1 November 2007 to July 2008

Between November 2007 and March 2008 Protean continued to develop, and secure patents for, its wave energy conversion technology. Protean issued invoices to GBX which GBX paid to cover costs associated with the development of the technology and pursuing the patent applications.
On 23 April 2008 the WEC was launched. On 24 April Mr Moore reported to Mr Kirke that the WEC had been successfully launched the previous day and Stage 1 was complete. Later that day Protean issued to GBX a notice of Stage 1 completion under cl 2.2 of the Deed.
After GBX received the notice of Stage 1 completion there were discussions and email exchanges between Mr Kirke and Mr Moore. GBX says that the parties to the Deed agreed to vary the Deed. GBX describes the variation as the Stage 1.1 Agreement. GBX says that the Stage 1.1 Agreement is to be inferred from the written and oral communications between the parties and their conduct and dealings. GBX says that the essential terms of the Stage 1.1 Agreement were as follows:
1.Protean would withdraw the notice of Stage 1 completion.
2.Stage 1 would be extended into a Stage 1.1 and new benchmarks would be set for the completion of Stage 1.1.
3.Mr Moore's salary would increase from $500 per week to $125,000 per year pending completion of Stage 1.1, as would have occurred under the Deed had the parties entered into Stage 2.
4.All other rights and obligations the parties had under the Deed would remain on foot.
5.Any funding made by GBX under Stage 1.1 would be counted towards its funding obligations under Stage 2 but otherwise be non‑recourse to Protean.
6.Certain costs including Mr Moore's trip to United States would be funded by GBX and would not count towards Stage 2 funding.
After 24 April 2008 Mr Moore and Protean proceeded to carry out the modifications and refinements to the WEC and to assist GBX in its due diligence assessment of the WEC technology. GBX continued to fund Protean by paying invoices issued by Protean.
On 13 May GBX appointed Mick Rogers of M P Rogers & Associates, an ocean engineer, to review and report on Stage 1 of the WEC. Mr Moore prepared a document entitled 'Due Diligence Assessment Guidelines' dated 10 July 2008 (the Due Diligence Guidelines). The preface stated that the document had been prepared by Protean for the purpose of assisting GBX in its due diligence assessment of Protean's WEC technology.

4.2 July to October 2008

Clause 4.2 of the Deed provides that the Option to sole fund Stage 2 is exercisable by GBX at any time during the period of 60 days after receipt by GBX of the notice of Stage 1 completion. Mr Moore says that the 60 days expired on 21 July 2008. He made that calculation by excluding non‑working days. GBX did not give notice of its exercise of the Option by 21 July 2008. GBX's case is that the Deed had been varied so that the time for the exercise of the Option had been extended until the completion of Stage 1.1.
The defendants deny that the Deed was varied by the Stage 1.1 Agreement or that Protean retracted, or agreed to retract, the notice of Stage 1 completion. The defendants say that after 29 April 2008 GBX agreed to fund further development of the WEC by Protean as part of GBX's due diligence enquiries. The further development was outside the scope of Stage 1 and was referred to as Stage 1.1. The defendants say that GBX did not commit to funding or sole funding Stage 2 under the Deed but that GBX and Protean agreed that any funding by GBX of Stage 1.1 would be credited to GBX's sole funding commitment in Stage 2 if GBX exercised the Option but would otherwise be on a non‑recourse and non‑equity basis. The defendants say that Protean was required to submit invoices to GBX in respect of costs incurred by it in respect of Stage 1.1 and GBX would elect whether it would reimburse Protean in respect of such costs.
The defendants say that GBX did not exercise the Option by 21 July 2008 or at all and as a consequence the Option expired and GBX was not, and is not, entitled to sole fund Stage 2 of the WEC in accordance with the Deed.
After 21 2008 July GBX continued to fund the development of the WEC. On 21 August 2008 Protean issued to GBX an invoice which referred to 'Stage 1 Completion Costs'. The invoice was paid by GBX.

4.3 October 2008 to January 2009

In October 2008 Mr Moore prepared and sent to Miles Ashton a document entitled 'ASEC Strategy Statement' (Strategy Statement). The statement said that the current funding arrangements were proving to be problematic for Protean. The funding scheme for Stage 1.1 had limited the activity of Protean and put limits on Protean's long term planning and preparation for Stage 2. Mr Moore said that the current funding scheme gave rise to concern for GBX in that it was outlaying funds without knowing it would ultimately gain equity in Protean. Mr Moore proposed an interim solution. He proposed that Protean issue shares for the pre‑Stage 2 funding in accordance with the guidelines described in the Deed. Mr Moore says the guidelines described in the Deed was a reference to cl 5.1 of the Deed which provided that after GBX had exercised the option and committed to the Stage 2 sole funding the transfer and issue of shares would be in the amounts and at the times set out in cl 5.1. For example, the first tranche of shares, that is the first 2,500 shares to be issued by Protean to GBX, would be made at the completion of GBX providing $500,000 of funding. However, Mr Moore suggested that it would be best to issue the shares in what he called 'half‑tranches'. That is, the first 1,250 shares would be issued after GBX had provided $250,000 funding, the second 1,250 shares would be issued after GBX had provided a further $250,000 funding and so on.

On 21 October 2008 Miles Ashton presented to GBX's directors what he described as 'an alternative proposal for future funding'. The proposal was essentially that put forward by Mr Moore in his Strategy Statement.
The defendants say that in or about October 2008 GBX and Protean entered into a new agreement (the New Agreement) which essentially was that proposed by Mr Moore in his Strategy Statement and Miles Ashton in his alternative funding proposal.
GBX denies that it ever entered into the New Agreement or any new agreement other than the Stage 1.1 Agreement to vary the Deed but says that the parties subsequently agreed to an amendment to the 'tranching arrangement' set out in cl 5.1 of the Deed whereby funding by GBX was to be made in tranches of $250,000 rather than $500,000. This amendment to the tranching arrangement is described by GBX as the Tranching Amendment. I will discuss the alleged Tranching Amendment later in these reasons.
On 23 December 2008 the WEC was deployed off Fremantle and retrieved the following morning. GBX says that this launch of the WEC completed Stage 1.1.
On 31 December 2008 Mr Kirke, Miles Ashton, Mr Moore and Mr Fiegert met. Mr Moore says that, amongst other things, he said at that meeting that GBX had not exercised the option to sole fund. Mr Kirke denies that Mr Moore said that. Mr Kirke says he stated that GBX's position was that it could not give up the right to fund $2.1 million, was of the view that the $250,000 tranches did not remove the right to subscribe the full $2.1 million and GBX was committed to the project and to Protean.
The GBX board met on 8 January 2009. In his evidence Mr Kirke said that the board determined that the WEC had performed sufficiently well that GBX could agree to enter Stage 2. Miles Ashton says that as soon as the meeting had finished he went to Mr Moore's desk and said to him words to the effect that the board had just approved to move into Stage 2 funding. Mr Moore denies that such a conversation took place.
On 8 January 2009 Mr Moore arranged for 2,500 shares in Protean to be issued to GBX. On 9 January 2009, after GBX had received the share certificate for 2,500 Protean shares, Mr Kirke arranged for another $250,000 to be paid to Protean.
On 16 January 2009 GBX made an ASX announcement. GBX announced the successful completion of Stage 1 proof of concept for the WEC, following recent sea deployments off Fremantle. The announcement said that through funding of Stage 1 expenditure and providing the initial $500,000 of Stage 2 expenditure GBX had acquired a 20% interest in the issued capital of Protean which could be increased to 50% by expending a total of $2.1 million under the terms of an exclusive funding agreement.

4.4 January to 14 April 2009

In about March 2009 Mr Kirke discussed with Mr Moore GBX's proposed capital raising. Mr Moore says he understood that GBX was not going to be able to fund Protean to an adequate extent and he started speaking with Main Sheet, PKF and Worley Parsons in relation to potential investment in, and funding of, Protean. Mr Kirke denies that he said that GBX was not going to be able to fund Protean to an adequate extent. Mr Kirke said that GBX had in hand a capital raising and intended to have the issue fully underwritten. There was a meeting between Mr Kirke, Miles Ashton and Mr Moore at which Mr Kirke proposed that Mr Moore and Mr Fiegert sell their shares in Protean to GBX or the directors of GBX. The proposal did not proceed.
On 2 April 2009 Mr Moore sent a letter to GBX in which Protean requested the second tranche of Stage 2 funding pursuant to the Deed. The letter requested that the first instalment of $250,000 of the second tranche of the funding of Stage 2 be completed by 24 April 2009. Mr Moore said in his evidence that he was directed by Miles Ashton about the terms of the letter.
On 3 April 2009 Mr Kirke sent an email to Tony Fairweather of Fairweather & Lemonis, solicitors. Mr Fairweather had drafted the Deed. Mr Kirke said that they were then into Stage 2 but had not completed the notice of completion or the exercise of option processes as required by the Deed. Mr Kirke suggested they should execute an agreement remedying what he described as 'this oversight'. Mr Fairweather advised that a letter issued by one party countersigned by the others was the appropriate way to deal with the matter. Mr Fairweather drafted a letter to be issued by Protean to the other parties to the Deed. The draft letter was a confirmation by which the parties acknowledged the status of the development of the WEC and the current shareholdings in Protean and agreed to waive any requirement for a notice of Stage 1 completion and notice of exercise of option to have been issued. The letter was never issued by Protean.
On 14 April 2009 Mr Moore on behalf of Protean emailed to Mr Kirke a letter in which he referred to his letter of 2 April 2009 in which he had requested the first $250,000 portion of the second tranche of the funding of Stage 2 be completed by 24 April 2009. Mr Moore said that due to unforeseen circumstances he requested that the date be moved forward to 15 April 2009. The further $250,000 was paid by GBX on 14 April 2009.

4.5 Conflict whether Deed in force and Kirke should be appointed director

On 22 April 2009 Mr Moore emailed to Mr Kirke a letter which stated, amongst other things, that GBX had failed to exercise the option to sole fund Stage 2 in accordance with the Deed and that Protean withdrew the offer made in its letter of 2 April 2009 for GBX to have further shares issued in two instalments.
The Protean board met on 24 April 2009. Miles Ashton proposed that Mr Kirke be appointed a director. Mr Moore and Mr Fiegert voted against it. On 24 April 2009 Mr Kirke wrote to Mr Moore stating that his nomination was in accordance with the Deed and was not capable of being rejected by Protean. Mr Kirke requested that Mr Moore arrange to give immediate effect to Mr Kirke's nomination. The minutes of the Protean board meeting state that the board refused to appoint Mr Kirke on the basis that the Deed was invalid.
Miles Ashton called for a meeting of the directors of Protean on 8 May 2009 and gave notice of agenda items including the appointment of Mr Kirke as a director and confirming the validity and operation of the Shareholders Agreement. Mr Moore and Mr Fiegert voted to adjourn the meeting without appointing Mr Kirke.
On 14 May 2009 Mr Moore emailed to Mr Fiegert and Miles Ashton for their review and approval an information memorandum for potential investors and an application form to subscribe for shares in Protean. Miles Ashton replied raising concerns about the content of the information memorandum and the appropriateness of it being circulated before the dispute between Protean and GBX was resolved.
On 20 May 2009 GBX commenced these proceedings. GBX sought relief including a declaration that the Deed remained binding on the parties and a mandatory injunction requiring Mr Moore and Mr Fiegert to appoint Mr Kirke as a director and chairman of Protean and damages.
On 12 June 2009 I granted an injunction restraining the defendants from circulating or disseminating the information memorandum and from accepting any application for shares by any third party or issuing any new shares or transferring any existing shares of Protean to any third party. On 1 July 2009 I varied the injunction by substituting for the order previously made an order restraining the defendants from circulating or disseminating to any third party any offer to subscribe for shares in Protean which offer was capable of being accepted so as to give rise to a binding agreement and from accepting from any third party any offer to subscribe for shares in Protean. That injunction remained in place at the trial of this action.

5. The issues

The central matters in issue are whether the Deed remains binding on the parties and GBX is entitled to sole fund Stage 2 of the development of the WEC and to receive shares in Protean.
GBX says that as at 24 April 2008 Protean had no entitlement to issue the notice of Stage 1 completion because the original terms of cl 2.2 of the Deed had not been met. However, GBX's principal case is that the Deed was varied by the Stage 1.1 Agreement and the effect of the variation was that Stage 1 was not completed until the completion of Stage 1.1. GBX acknowledges that it did not at any time exercise the Option by serving written notice of exercise of the Option on Protean. GBX pleads that on or about 8 January 2009 by conduct, and by agreement between the parties, GBX exercised the option to sole fund Stage 2 and thereafter committed to do so. GBX further pleads that the defendants, as a consequence of their conduct and representations, are estopped from denying that the parties are bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder under Stage 2. GBX says that it relied on the conduct and representations to its detriment by funding the development of the WEC as if Stage 1 had been completed and it was the sole funder under Stage 2. GBX says that Mr Moore and Mr Fiegert should be ordered to appoint Mr Kirke as a director and chairman of the board of Protean in accordance with the provisions of the Deed and the Shareholders Agreement.
The defendants say that GBX continued to fund the development of the WEC during Stage 1.1 under an agreement or understanding they refer to as the Stage 1.1 Arrangement. The defendants say that in or about October 2008 GBX and Protean entered into the New Agreement which was a new funding agreement in substitution for the Stage 1.1 Arrangement. Protean says that the shares subsequently issued to GBX were issued pursuant to the New Agreement. The New Agreement did not confer any obligation upon GBX to fund Protean or any right to do so.
The defendants say that Mr Moore and Mr Fiegert are under no obligation to appoint Mr Kirke as a director of Protean because the Deed has terminated. The defendants say that the Deed terminated when GBX failed to exercise the Option by 21 July 2008. Furthermore, the defendants say that the Shareholders Agreement executed in November 2007 did not come into effect. That is because, on the proper construction of the Deed and the Shareholders Agreement, the transfer and issue of shares in accordance with cl 5 of the Deed is a condition precedent to the Shareholders Agreement coming into effect.

Stage 1 was completed on 24 April 2008

On 23 April 2008 the WEC was launched. At 7.56 am on 24 April 2008 Mr Moore reported the launch to Mr Kirke by email. Later, on 24 April 2008, Mr Moore, on behalf of Protean, sent a letter by facsimile to GBX giving notification of completion of Stage 1. The letter said that Stage 1 had been completed, that GBX had until 16 June 2008 to conduct a due diligence of Protean and the WEC and that the Option would expire on 21 July 2008.
The defendants say that Stage 1 was completed for the purposes of cl 2.2 of the Deed and the notice of Stage 1 completion issued on 24 April 2008 was properly issued and effective. The plaintiff says that Stage 1 had not been completed because a representative of GBX was not given the opportunity to attend the launch and there were clear doubts about the performance and viability of the WEC.
Clause 2.2 of the Deed provides that the completion of Stage 1 will be constituted by the launching of the WEC under design and construction as described in Annexure A. The description of Stage 1 in Annexure A is that Stage 1 entails the design, fabrication and launching of a 1 m diameter WEC as described by the Patent Application. Annexure A further states that demonstration of the WEC will be made by an electrical load, such as a light, connected to the electric generator.
Mr Moore gave evidence that on 23 April 2008 the WEC was launched. There is no suggestion that the WEC did not comply with the description in Annexure A, that is, a 1 m diameter WEC as described by the Patent Application. Mr Moore gave evidence that the WEC demonstrated the conversion of wage energy via an electrical load implemented as lights on the top of the buoy. There is no evidence to the contrary and I accept Mr Moore's evidence.
Mr Kirke did not attend the launch. He had the opportunity to do so. The minutes of the GBX board meeting of 23 April 2008 state that it was noted that a prototype of the WEC was to be tested that week. Mr Moore informed Mr Kirke of the launch in his email of 24 April 2008 at 7.56 am. Mr Moore said that he was going down to collect the WEC at 10 am that morning and invited Mr Kirke to attend if he wished to do so. Mr Kirke did not.
The only evidence of any doubts about the performance and viability of the WEC is the contents of Mr Moore's email of 24 April 2008 when he reported the launch to Mr Kirke. Mr Moore said that one of the panels had been slightly damaged in a dry land test prior to the launch but that was a small point and did not seem to cause a problem during the test. The only other issue referred to by Mr Moore was that the boat used for the launch was too small for the job and required longer for the test to be completed. Mr Moore said that 'other than these points the test was a huge success proving the system can meet our expectations'. Neither of those matters detracts from the fact that the WEC was launched and met the criteria specified in the Deed for the completion of Stage 1.
I find that the launch of the WEC on 23 and 24 April 2008 satisfied the criteria set out in cl 2.2 and Annexure A of the deed for the completion of Stage 1. I find that the notice of Stage 1 completion given by Protean on 24 April 2008 was at the time it was given a valid and effective notice of Stage 1 completion for the purposes of the Deed.
The next issue is whether the Deed was varied so as to extend Stage 1 until the completion of Stage 1.1. It is open to the parties to vary the Deed to extend the completion of Stage 1 to the completion of Stage 1.1 and to extend the right of GBX to exercise the option to sole fund Stage 2 notwithstanding that Stage 1 had been completed.

7. Was the Deed varied?

7.1 GBX's case

GBX says that Protean retracted the notice of Stage 1 completion by letter dated 29 April 2008. GBX says that the notice was retracted as part of the Stage 1.1 Agreement.
GBX says that the Stage 1.1 Agreement was a variation to the Deed and was partly oral and partly in writing. To the extent it was oral it is said to be contained in conversations following 24 April 2008 between Mr Kirke on behalf of GBX and Mr Moore on behalf of Protean. To the extent it was in writing it is said to be contained in various emails between GBX and Protean following 24 April 2008, activity reports prepared by Protean dated 20 June 2008, 11 July 2008, 12 September 2008 and 3 October 2008 and in the Due Diligence Guidelines.
GBX pleads that on or about 22 December 2008 the WEC was launched and achieved the benchmarks which under the Stage 1.1 Agreement were to constitute the completion of Stage 1. GBX pleads that the parties by agreement, or by conduct, agreed that GBX would continue to solely fund the development of the WEC as if the Option had been exercised. GBX gives two particulars of that plea. First, GBX says that it continued to fund the development of the WEC as if the Option had been exercised by paying amounts to Protean in accordance with their obligations under the Deed to fund Stage 1 and Stage 2. The amounts paid by GBX were amounts paid before and after 22 December 2008. GBX made three payments after 22 December 2008 ‑ $150,000 paid on 9 January 2009, $100,000 paid on 12 January 2009 and $250,000 paid on 14 April 2009. The second particular of GBX's plea is that Protean accepted the funding in accordance with the Deed and issued shares in favour of GBX. On 8 January 2009 Protean issued 2,500 shares to GBX in accordance with the Deed.

7.2 The defendants' case

The defendants deny that Protean retracted the notice of Stage 1 completion. The defendants say that if GBX wished to exercise the Option, it was required to exercise the Option by 21 July 2008 but did not do so and the Deed terminated on 21 July 2008.
The defendants plead that after 24 April 2008 GBX funded Protean under the Stage 1.1 Arrangement. The defendants say the Stage 1.1 Arrangement was partly oral and partly in writing. To the extent that it was oral, it was contained in various conversations between Mr Kirke on behalf of GBX and Mr Moore on behalf of Protean on or about 29 April and 22 July 2008. To the extent that it was in writing, it was contained in various emails passing between Mr Kirke on behalf of GBX and Mr Moore on behalf of Protean between 1 May and 17 May 2008.
The defendants say that the further development of the WEC after 24 April 2008 was outside the scope of Stage 1 under the Deed. The defendants say that the Stage 1.1 Arrangement included the following terms in relation to funding:
1.GBX did not commit to funding or sole funding Stage 2 under the Deed.
2.Any funding from GBX would be credited to GBX's sole funding commitment in Stage 2 if GBX exercised the Option under cl 4 of the Deed but would otherwise be on a non‑recourse and non‑equity basis.
3.Protean was required to submit invoices to GBX in respect of costs incurred by it in respect of Stage 1.1.
4.GBX would elect whether it would reimburse Protean in respect of such costs.
The defendants deny that they agreed that GBX would continue to sole fund the development of the WEC as if the Option had been exercised. The defendants say that after 22 July 2008 GBX's future funding of the Stage 2 development would be subject to further negotiation.

7.3 Legal principles concerning variation of contract

In complex or long‑term contracts, changes will often be made to the contract, either informally or formally. When the parties to an existing contract enter into a further contract by which they vary the original contract then they have made two contracts. Whether the parties terminate their existing contract and replace it with a new contract, or alter the contract without affecting its existence, depends upon the intention of the parties as disclosed by the later agreement: Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 (Gleeson CJ, Gaudron, McHugh and Hayne JJ) [22] ‑ [24].
The rules of contract formation apply equally to a variation as they do to the initial contract. Sometimes, an issue arises whether there is consideration for the variation. That is not an issue in this case. The issue in this case is whether or not the parties agreed to vary their contract constituted by the Deed in the manner asserted by GBX.
Clause 14.4 of the Deed provides that no variation, modification or waiver of any provision of the Deed shall be of any force or effect unless confirmed in writing and signed by the parties. An informal contract variation may occur notwithstanding a clause such as cl 14.4 of the Deed. This is because the very clause governing contract changes may itself be changed expressly or tacitly by the conduct of the parties: Seddon N C, Ellinghaus M P, Cheshire and Fifoot's Law of Contract (9th Aust ed, 2008) [4.32].
The defendants accept that cl 14.4 lacks legal effect but submit that it has significant evidentiary effect. In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1, Finn J discussed the effect of a contractual clause that required any contractual variation to be in writing. Finn J said that 'though lacking legal effect in the face of a subsequent oral or implied agreement, it seems to be accepted that a no oral modification clause can have significant evidentiary effect' [221]. The clause is a fact to be taken into account in interpreting the subsequent conduct of the parties.

In GEC Marconi Systems Pty Ltd Finn J noted the following propositions, which I respectfully adopt:
(1)Parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement: Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd. In so doing the parties will have made 'two contracts': Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at 533; with the latter, no less than the former being subject to the ordinary rules governing contract formation: eg BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 286; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 at 248.
(2)Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. This can be particularly the case when dealings are analysed on an offer and acceptance basis. So in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 81, Ormiston J was prepared to accept:
… that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances.
Likewise in Integrated Computer Services Pty Ltd at 11,118 McHugh JA observed that:
… in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.
(3)'In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances': Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550.
(4)Post‑contractual conduct is admissible on the question whether a contract was formed though it is not admissible on the question of what that contract, if formed, means: Brambles Holdings Ltd v Bathurst City Council at 163 ‑ 164; Lord Steyn, 'The Intractable Problem of the Interpretation of Legal Texts', 9ff, The John Lehane Memorial Lecture (2002).
(5)The need frequently arises in relational contracts of significant duration to adjust terms to accommodate changed or unforeseen circumstances. For that reason it is common for such contracts to make express provision for variation. Nonetheless, and notwithstanding their contract, parties in an ongoing business relationship equally commonly 'regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract': Integrated Computer Services Pty Ltd at 11,117 [226] ‑ [230].
Finn J used the term 'relational contract' to describe 'a contract that involves not merely an exchange, but also a relationship, between the contracting parties' [224]. That description applies to the contract in this case.
As Finn J observed, evidence of post‑contractual conduct is admissible on the question of whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [25] (Heydon JA); Suncorp Metway Insurance Ltd v Owners Corporation Strata Plan 64487 [2009] NSWCA 223, [55] (Sackville AJA, Campbell and MacFarlan JJ agreeing); Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149, [117] (Giles JA, Hodgson and Campbell JA agreeing).
In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Spigelman CJ said that in that case the terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provided a definitive form of words. The Chief Justice said that the issue was not one of interpretation because there were no words to interpret. The issue was one of fact: what did the parties agree? In the absence of a written document or a conversation constituting the agreement it was necessary for the court to consider the full range of relevant surrounding circumstances when determining the subject matter and terms of the contract. Principles of law based on the parol evidence rule are not applicable: [7] ‑ [8]. Spigelman CJ referred to the observations of Lord Hoffmann in Carmichael v National Power Plc [1999] 1 WLR 2042, 2049:
The rule that the construction of documents is a question of law … applies in cases in which the parties intend all the terms of their contract (apart from any implied by law) to be contained in a document or documents. On the other hand, it does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents but also from oral exchanges and conduct. In the latter case, the terms of the contract are a question of fact. And of course the question of whether the parties intended a document or documents to be the exclusive record of the terms of their agreement is also a question of fact.
Spigelman CJ explained:
In Carmichael v National Power Plc, supra, the House of Lords had to determine whether a person performed work under a contract of employment, within the meaning of a statute. The House of Lords overruled a Court of Appeal decision that, on the proper interpretation of documents pursuant to which the casual work arrangement had been made, there was such a contract. When rejecting a submission that reliance on post contractual conduct was inconsistent with the objective approach to identifying and interpreting a contract and that the subjective belief of the parties was irrelevant, Lord Hoffmann said at 2050:
This austere rule would be orthodox doctrine in a case in which the terms of the contract had been reduced to writing. But I do not think that it applies to a case like the present. In a case in which the terms of the contract are based upon conduct and conversations as well as letters, most people would find it very hard to understand why the tribunal should have to disregard the fact that Mr Lovatt and Mrs Carmichael both agreed that the CEGB were under no obligation to provide work and the applicants under no obligation to perform it. It is, I think, pedantic to describe such evidence as mere subjective belief. In the case of a contract which is based partly upon oral exchanges and conduct, a party may have a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief … But the terms of the engagement must have been discussed and these conversations must have played a part in forming the views of the parties about what their respective obligations were.
The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd v James Miller and Partners Ltd [1970] AC 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed [22].
In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are. If it is not possible to make a finding about the particular words that were used, as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct, the surrounding circumstances can be looked at to find what in substance the parties agreed: County Securities Pty Ltd v Challenger Group Holdings [7] ‑ [8] (Spigelman CJ); Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234, [90] (Campbell JA, Allsop P and Basten JA agreeing).
As I have said, a contract may come into existence through conduct. The conduct is to be viewed in light of the surrounding circumstances and in the commercial context in which the dispute arose: Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548. The conduct must be of such a character as necessarily to lead to an inference that an agreement has been made and its terms: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, 535; Brambles Holdings Ltd v Bathurst City Council, 195. It cannot be assumed that merely because something has been done there is a contract in existence which has thereby been partly performed: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, (11,117). Business people not uncommonly act on an anticipated contractual relationship prior to the contract being formed: Sagacious Procurement Pty Ltd v Symbion Health Ltd [117].

7.4 Party may be estopped from denying variation of contract

A party may be prevented or estopped from denying, or departing from, an assumption of fact or law made by another party if this would be unconscionable in the circumstances. It will normally be unconscionable for A to depart from an assumption made by B if A induced or shared the assumption, it was reasonable for B to make it, and B reasonably relied on it so that departure from it would be detrimental to B. This means that a party who induces or shares an assumption that a contract has been varied may be liable under the contract as varied even if the rules of contract formation do not establish that the contract was varied. Similarly, a party who induces or shares an assumption that a contract remains in force may be liable under the contract even if the terms of the contract provide that in the events that have occurred the contract is terminated.

7.5 Privity of contract

The defendants submit that there is no evidence that Mr Fiegert, Sunset or eNGN agreed to the variations alleged by GBX to have been made to the Deed. They submit that any agreement to vary the terms of the Deed would require the agreement of all the parties to the Deed and the absence of any evidence that the other parties agreed to the variation alleged by GBX is fatal to its claim.
The doctrine of privity of contract gives rise to the proposition that only the parties to the contract are bound by its obligations. What happens if some but not all of the parties to a contract agree to vary its terms? When some of the parties to an existing contract enter into a further contract by which they vary their obligations under the original contract there is no reason in principle why the second contract should not be effective to vary their obligations under the original contract. In such a case the parties to the original contract who are not parties to the second contract may remain bound by their obligations, and entitled to their rights, under the original contract. There may be cases in which the exercise of the rights and obligations of the parties who had agreed to a variation of the original contract would be inconsistent with the exercise of their rights and obligations under the original contract in relation to the parties to the original contract who are not parties to the contract of variation. Such a case would give rise to difficulties in determining the effect of the contract of variation. However, where there is no such inconsistency there is no reason why the contract of variation may not be effective as between the parties to it. For example, suppose a company and its managing director enter into a contract to sell the company's business to a purchaser and it is a term of the agreement that the managing director shall not engage in specified activities within a specified location for a specified period. There is no reason why the purchaser and managing director cannot vary the agreement by varying the period of the restraint without the company being a party to the contract of variation.

7.6 Privity and estoppel

Estoppel may operate during the course of a contractual relationship to prevent departure from a promise varying a term of the contract. In a multiparty contract, one party may be estopped from denying that a term of the contract has been varied even though another party to the contract may not be so estopped. Similarly, one party to a contract may be estopped from denying that the contract remains in force and effect even though another party to the contract may not be so estopped.
The elements of estoppel exist when:
1.The party claiming the estoppel adopted an assumption as the basis of an act or omission;
2.The claimant, upon the basis of the assumption, so acted or abstained from acting that a detriment will be suffered if the person against whom the estoppel is asserted is afterwards allowed to set up rights inconsistent with it; and
3.The party against whom the estoppel is alleged must have played such a part in the adoption of, or persistence in, the assumption that the freedom to act otherwise than in a manner consistent with it would be unfair or unjust: Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 444 (Deane J).
In a multiparty contract, a party whose conduct has led another party to rely on that conduct to his or her detriment so that it would be unconscionable for the first party to undermine the assumption generated by his or her conduct may be estopped from denying the assumed state of affairs even though a third party has neither engaged in the conduct nor relied upon it to his or her detriment and hence is not estopped from denying the assumption and cannot rely on an estoppel in his or her favour.

7.7 The Deed was varied

The evidence does not establish that an agreement was made to vary the Deed by the process of offer and acceptance. The evidence does not establish a written document or a conversation constituting an agreement to vary the Deed. I find that an agreement between at least GBX, Protean and Mr Moore to vary the Deed is to be inferred from the conduct of the parties and the surrounding circumstances. The terms of the variation are those of the Stage 1.1 Agreement alleged by GBX and referred to in [24].
After GBX received the notice of Stage 1 completion, there were conversations between Mr Kirke and Mr Moore. There are differences in the evidence of Mr Moore and Mr Kirke concerning when the conversations took place and what was said. However, they both gave evidence that their conversations concerned retracting the notice of Stage 1 completion, refinements or further development of the WEC to provide information to assist GBX in its due diligence and deciding whether to fund Stage 2 of the further development of the WEC and an increase in Mr Moore's salary.
On 29 April 2008 Mr Moore sent an email to Mr Kirke stating:
Attached is a draft retraction notice. If you are happy with it let me know and I'll deliver it via fax, or if you want it amended let me know where.
Mr Kirke responded by email:
I think it should be specific and say that the cost incurred will reduce the Stage 2 budget by the amount agreed to be expended in the additional work, with the exception of the USA costs which were approved as a Stage 1 additional cost. I believe that is what we agreed this morning.
On 30 April 2008 Mr Moore sent an email to Mr Kirke stating: 'I have attached an updated version of the notice'. The revised document, which I will refer to as the Request to Retract Notice was in the following terms:
Request to Retract Notification of Stage 1 Completion
To the Directors of GB Energy Ltd,
After further consideration ASEC would like to request that the Notification of Stage 1 Completion be retracted. Despite having completed the basic requirements necessary for the completion of Stage 1, ASEC feels that it is in the best interest of ASEC and GB Energy to have the official completion postponed until a number of issues encountered during the Stage 1 trial have been addressed.
The issues of concern are not strictly covered under the terms of our Funding and Subscription Deed (Deed) and as such ASEC will need GB Energy's approval to: (1) retract the completion notice, (2) approve the following additional goals and special considerations, (3) approve the budgets needed for the additional goals in accordance with the provision found within the Deed where the funds used during the execution of these extra goals would be deducted from the total of the Stage 2 budget, and (4) to reimburse the extra costs incurred during the approved activities undertaken in Stage 1.
The additional goals and special considerations are:
1.To design and fabricate 3 new power extraction panels and counter‑weights for the WEC.
2.To re‑implement the electrical energy conversion mechanism by using 3 new gear boxes and three electric generators.
3.To Implement an alternative energy conversion mechanism based on a pneumatic energy capture concept, which is in addition to the direct electrical energy conversion currently implemented. This will require 3 pneumatic compressors with gear boxes, a pressure tank, a pneumatic powered rotating prime mover, and an electric generator.
4.The incorporation of data gathering means within the WEC to measure and log the movement of the WEC, the voltage, and/or power created/consumed.
5.Provision for 3 launchings of the Stage 1 WEC utilizing a larger launching tow vessel.
6.To make a special consideration with regards to the salary of Sean Moore and start his Stage 2 remuneration as of 1st June 2008.
7.To fund the extra approved activities undertaken in Stage 1, namely the USA trip, the additional IP, and the CMST Study.
The estimated budgets for the above goals and considerations are:

Item

Estimated Budget

1. Panel and counterweight design and fabrication

$9,000

2. New gear boxes and generators

$9,000

3. Implement pneumatic energy concept

$9,000

4. Incorporate data gathering into WEC

$10,000

5. Salary for Sean Moore ~$2,500 per week for an initial 10 weeks

$25,000

6. 3 trial launchings with hired boat

$6,000

7. Extra approved Stage 1 expenses

$36,000

TOTAL

$104,000

The points proposed above will provide substantial validation of the WEC project and help GB Energy to gather additional information prior to their decision on their participation in Stage 2. The items proposed are the same steps that would be required at the onset of Stage 2 and as such their completion will only help ASEC in its goal towards the completion of Stage 2.

I find that the Request to Retract Notice sent by Mr Moore reflected the conversations between Mr Moore and Mr Kirke after Mr Kirke had received the notice of Stage 1 completion.
On 1 May 2008 Mr Kirke sent an email to Mr Moore in which he said that the wording of the Request to Retract Notice was fine and as he was putting it to the board he would need to be clear on the cashflows involved. Mr Moore responded with an email referring to cashflows and asked: 'Do you want me to send the formal withdrawal request now or wait?'. Mr Kirke responded with an email which said, 'Wait to send so that I can have board informed'.
In a further email on 1 May 2008 to Mr Moore, Mr Kirke said:
I will brief the Board and advise you of outcome. Depending on the response you leave the original Notice in place or you withdraw and reissue.
In context the apparent meaning of Mr Kirke's email is that he would brief the GBX board and depending on the decision of the board Mr Moore was to leave the original notice of completion of Stage 1 in place or withdraw it. That is inconsistent with an agreement between GBX and Protean having already been concluded to withdraw the notice of completion of Stage 1. In cross‑examination Mr Kirke said that the wording of his email of 1 May 2008 was not what he intended.
The Request to Retract Notice was not executed by Mr Moore or Protean. However, it was drafted by Mr Moore and I find that in so far as it contains statements of fact or belief the statements of fact were true and the beliefs were held by Mr Moore. I find that it recorded the refinements to the WEC or additional goals that Mr Kirke and Mr Moore had discussed as refinements or goals to be achieved before Stage 1 would be considered complete. Furthermore, I find that Mr Moore, on behalf of Protean, sent the Request to Retract Notice to Protean and intended to request that GBX agree to the notification of Stage 1 completion being retracted and the time for GBX to decide whether to fund Stage 2 being extended to the completion of the additional goals.
On 5 May Mr Kirke sent a memorandum to Mr Robinson and Ross Ashton together with the following attachments:
•Email 24 April 2008 Mr Moore to Mr Kirke (reporting launch of WEC);
•Request to Retract Notice and email from Sean Moore 30 April 2008 (attaching the Request to Retract Notice); and
•Email Sean Moore 1 May 2008.
In the memorandum Mr Kirke said:
I approached Sean after the deployment of the device. I thought there was sufficient technical issues from the deployment that a review was warranted. In my discussion with Sean it seemed that a driving factor was income. I needed to understand what he would consider appropriate if income were not driving the Notice of Completion. They are dealt with in the attachments and go to refinements of the device following the first deployment.
I have agreed the following.
•Withdraw the Notice of completion.
•Scope desired refinements.
•Sean on salary from 1 June 2008.
•Initiate refinements immediately.
•Costs incurred reduce Stage 2 obligations.
•Some additional costs approved within Stage 1.
•Stage 1 Notice of Completion can be issued when refinements carried out and device deployed.
I believe the additional work within Stage 1 is necessary to ensure the device is worthy of entering Stage 2 and maximizing exposure to capital markets. To say it another way, the device looks incomplete with some mechanical/technical uncertainty existing which would make press release etc difficult and hence diminish out ability to gain market traction for our investment.
Your comments please.
Later on the same day, 5 May 2008, Mr Kirke sent an email to Mr Moore in which he said:
I am putting the proposal we worked out last week to the Board by email today.
Mr Kirke said it would be useful if Mr Moore provided a summary of, amongst other things, budgeted costs of refinements to complete Stage 1. Mr Kirke also said:
I am about to retain an organisation to review Stage 1 and believe it would be best for them to be involved now, in this critical phase of Stage 1. Would you like me to send you some information about them?
Mr Moore responded by attaching information on the expenditure for Stage 1. Mr Moore did not make any comment about Mr Kirke's reference to budgeted costs on refinements to complete Stage 1 or his reference to 'this critical phase of Stage 1'. The inference to be drawn from this email exchange is that Mr Kirke and Mr Moore, on behalf of GBX and Protean respectively, assumed that Stage 1 would not be considered completed until the additional goals or refinements to the WEC had been completed.
On 7 May Mr Kirke sent an email to Mr Moore in which he said he had arranged a meeting with Mick Rogers. In his email of 7 May, Mr Kirke said that he would like Mr Moore to attend the meeting with Mr Rogers and requested that Mr Moore bring with him any material he thought was relevant and a copy of the Stage 1 completion notice 'which I think contains the wording that describes our technical review'. Mr Kirke said, 'The Board has not returned to me on my recommendation as Ross has been unavailable until yesterday'.
Also on 7 May Mr Kirke said in an email to Mr Moore that the board had not returned to him on his recommendation as Ross Ashton had been unavailable until the previous day. The recommendation referred to by Mr Kirke appears to be the matters he stated in his memorandum of 5 May that he agreed with Mr Moore and upon which he requested the comments of Mr Robinson and Ross Ashton.
The defendants say that Mr Kirke did not subsequently inform Mr Moore of the board's response and did not accept or confirm the agreement he had discussed with Mr Moore, including the withdrawal of the notice of completion of Stage 1. In re‑examination Mr Kirke said that he could not specifically recall his dealings with the board between 5 and 13 May 2008 but that the flow of what happened suggested that there were dealings. Mr Kirke said that he must have been talking to both Mr Moore and the GBX board.
Mr Moore's Request to Retract Notice requested that the terms of the Deed be varied. By the notice Protean requested GBX's approval to retract the notice of Stage 1 completion. Protean requested GBX's approval to set new benchmarks or 'additional goals and special considerations' and that the 'official completion' of Stage 1 be postponed until the additional goals and special considerations, or new benchmarks, had been addressed. The achievement of those new benchmarks, refinements or goals were subsequently described by the parties as Stage 1.1. Mr Moore's Request to Retract Notice requested GBX's approval to make a special consideration with regards to the salary of Mr Moore and start his Stage 2 remuneration as of 1 June 2008. Mr Moore's notice sought GBX's approval for the estimated budgets for the extended Stage 1 and for the funding made by GBX under the extended stage to be deducted from the total of the Stage 2 budget. The notice did not expressly say that the funding made by GBX under Stage 1.1 would be non‑recourse to Protean but it is implicit in the notice. The notice expressly requested that GBX fund the un‑budgeted costs incurred in Stage 1, including the costs of the USA trip. Those costs were not included in the estimated budgets for the additional goals and considerations and hence were not to count towards Stage 2 funding.
Mr Kirke's memorandum of 5 May 2008 said that Mr Kirke had reached an agreement with Mr Moore. The memorandum sets out the terms of the Stage 1.1 Agreement. The memorandum says that Mr Kirke had agreed with Mr Moore that Protean would withdraw the notice of Stage 1 completion. The memorandum did not expressly refer to Stage 1.1. However, it is implicit in the memorandum that Stage 1 was to be extended until the 'refinements' had been completed. The 'refinements' are the work carried out in what the parties subsequently described as Stage 1.1. The reference to Mr Moore being on salary from 1 June 2008 is a reference to Mr Moore's salary being increased as would have occurred under the Deed had the parties entered into Stage 2. The memorandum stated that 'costs incurred', that is the costs of carrying out the desired refinements, 'reduce Stage 2 obligations', that is would be counted towards GBX's funding obligations under Stage 2. The reference to 'some additional costs approved within Stage 1' in context means that certain costs would be funded by GBX and would not count towards Stage 2 funding.
It is implicit in Mr Moore's Request to Retract Notice and Mr Kirke's memorandum of 5 May 2008 that apart from the variations to the rights and obligations of the parties set out in those documents, all other rights and obligations the parties had under the Deed would remain on foot.
There is no document by which GBX expressly accepted the offer or request to vary the terms of the Deed contained in Mr Moore's Request to Retract Notice. The evidence does not establish a conversation between representatives of GBX and Protean in which those parties expressly agreed to vary the terms of the Deed in accordance with Mr Moore's Request to Retract Notice and Mr Kirke's memorandum of 5 May. That is, there is no evidence of a conversation by which the parties expressly agreed to the Stage 1.1 Agreement. However, the conduct of Mr Moore, Protean, Mr Kirke and GBX after 7 May leads to the inference that GBX and Protean made and adhered to the Stage 1.1 Agreement. GBX and Protean did agree to new benchmarks, refinements or goals for the completion of the further development of the WEC which they referred to as Stage 1.1. Mr Moore's salary was increased from $500 per week to $125,000 per year. GBX did fund the Stage 1.1 development of the WEC and Mr Moore's increased salary.
In the absence of the Stage 1.1 Agreement the due diligence period expired on 16 June 2008 and the last date for the exercise of the Option was 21 July 2008 in accordance with the manner in which Mr Moore calculated the relevant periods. GBX and Protean continued to refer to the Deed in their dealings with each other after 21 July 2008. It is possible that they used the Deed as a reference document whilst not regulating their relationship in accordance with its terms. However, the frequency with which, and detail in which, Mr Kirke and Mr Moore continued to refer to the Deed gives rise to the inference that they regarded the relationship between GBX and Protean to be regulated by the terms of the Deed as varied in accordance with the Stage 1.1 Agreement.
Mr Moore says that he met with Mr Kirke on 12 May 2008 and the following conversation took place:
Mr Kirke: I have heard back from Ross Ashton. The board doesn't approve the retraction of the Notice of Stage 1 Completion because it wants to limit the funds applied to Stage 1 on a non‑recourse basis. Don't send the retraction. The board is prepared to fund Stage 1.1 while we move onto due diligence. But Stage 1.1 must be completed within the timeframe allowed for the exercise of the option to Sole Fund.
Mr Moore: Should we amend the Funding Deed to provide for Stage 1.1 and set out the Plaintiff's commitment to guarantee funding to the First Defendant?
Mr Kirke: No, we won't amend the Funding Deed. It's unnecessary. We don't need to record every change. The funding Deed is more of a guide and not a hard and fast rule book.
Mr Kirke denies that the conversation took place. He says it is a complete fabrication. He says Ross Ashton had not said to him that the board did not approve the retraction of the notice of Stage 1 completion. Ross Ashton denies that he said to Mr Kirke that the board does not approve the retraction of the notice.
I find that Mr Kirke did not say to Mr Moore that the board does not approve the retraction of the notice of Stage 1 completion or that Stage 1 was not to be extended until the goals or benchmarks of Stage 1.1 had been achieved. Ross Ashton denies that he made that statement to Mr Kirke. Mr Kirke denies that Ross Ashton said those things to him and denies that he made the statement to Mr Moore. There is no evidence of any email or other written communication between Mr Kirke and Ross Ashton between 7 and 13 May 2008 concerning the notice of retraction of Stage 1 completion. Mr Moore does not have any contemporaneous record of his meeting with Mr Kirke on 12 May 2008. There is no document that supports Mr Moore's evidence. The events preceding and following 12 May 2008 make it unlikely that the GBX board had decided, and that Mr Kirke had informed Mr Moore, that Stage 1.1 must be completed within the timeframe allowed for the exercise of the option to sole fund, that is by 21 July 2008. There was a GBX board meeting on 13 May 2008. There is no reference in the board minutes to the board not approving the retraction of the notice of Stage 1 completion or that Stage 1.1 was not to extend beyond the time allowed by the Deed for the exercise of the Option. The only reference to Protean in the minutes of that meeting is to GBX having retained M P Rogers and Associates to review and report on Stage 1. It was noted that the first meeting with Mr Rogers, Mr Moore and Mr Kirke took place on 12 May 2008 and that a scoping study was to be prepared for the review of the board before making the decision to proceed to Stage 2.
On 21 May 2008 Protean sent to GBX a tax invoice. The covering email said, 'Attached is the first invoice for the supplemental Stage 1 activity'. That is consistent with the parties acting in accordance with the agreement or proposal outlined in Mr Moore's Request to Retract Notice of 29 April 2008 and Mr Kirke's memorandum of 5 May 2008, that is the Stage 1.1 Agreement.
On 29 May 2008 Mr Moore sent a summary activity report by email to Mr Kirke and Phil MacLeod, the Secretary of GBX, in which he said:
The status of the ASEC project to the 30^th of April 2008 is highlighted by the completion of Stage 1 and the approval, and subsequent commencement, of a refinement stage dubbed 'Stage 1.1'. Stage 1.1 is primarily an interim development and refinement stage designed to provide additional support and information for the GBX due diligence assessment of the ASEC WEC technology. The main aspects of Stage 1.1 are some minor modifications to the Stage 1 WEC and its relaunching … Intended activity during the month of May include the commencement of the drafting of the Stage 1 WEC modifications, the commencement of the fabrication of the modifications and the preparation of the required documentation for the GBX due diligence assessment.
Mr Moore wrote an activity report for Protean for the fortnight ended 20 June 2008. In that activity report Mr Moore said that work was being undertaken to provide the due diligence auditor with further information. On 26 June 2008 Mr Moore sent an email to Mr Kirke in which he said:
I have been progressing the analysis of the ALL energy conference material, the additional modelling of Stage 1.1 to be used in the DD, and have been furthering the Stage 1.1 design and fabrication.
The reference to DD is a reference to the due diligence by GBX in relation to Protean and the WEC before deciding to exercise its option to sole fund Stage 2 and would have been so understood by a reasonable person in the position of Mr Kirke and GBX. The due diligence period provided for by the Deed expired on 16 June 2008. It is to be inferred from Mr Moore's activity report of 20 June 2008 and his email of 26 June 2008 that GBX and Protean had agreed to extend the due diligence period and by implication the time by which GBX may exercise the Option to sole fund Stage 2.
On 7 July 2008 Mr Moore emailed to Mr Kirke a draft of Protean's contribution to GBX's second quarterly activity report. The draft included:
In the second quarter of 2008 Australian Sustainable Energy Corporation Pty Ltd (ASEC) completed the design and fabrication of its ocean wave energy converter (WEC) and associated mooring system … Early in the second quarter ASEC successfully completed the sea trial of the Stage 1 prototype … Since the successful launching of the WEC and mooring system, GBX has begun its due diligence assessment of the technology. During this phase ASEC will add additional instrumentation and functionality to the Stage 1 WEC and then relaunch it, these requirements will provide the necessary information for an accurate assessment of the WEC's potential to be made. The due diligence assessment of the WEC technology is expected to be completed during the third quarter of 2008; GBX will determine whether or not it proceed with the funding of Stage 2 based upon the outcomes of the due diligence assessment.
Even if that report speaks as at 30 June 2008 rather than 7 July 2008, that is at a time after the due diligence period had expired if there had been no agreement to extend it. Mr Moore referred to the phase during which Protean would add additional instrumentation and functionality to the Stage 1 WEC and then relaunch it. That is a reference to Stage 1.1. Mr Moore said that GBX would decide whether or not to proceed with the funding of Stage 2 based on the outcome of the due diligence assessment that was expected to be completed in the third quarter. Businessmen in the circumstances in which Protean and GBX were dealing with each other would understand the statement that GBX will determine whether or not it will proceed with the funding of Stage 2 to mean that GBX had the right to decide whether or not to proceed with the funding of Stage 2 not merely that GBX would negotiate with Protean the funding of Stage 2.
Mr Moore prepared the Due Diligence Guidelines dated 10 July 2008. The preface stated that the document had been prepared by Protean for the purpose of assisting GBX in its due diligence assessment of Protean's WEC technology. On 10 July 2008 Mr Moore sent a copy of the document to Mr Kirke and said that, once the basis was sorted out, he would send it to Mr Rogers along with the supporting documentation for the first phase of the assessment. Businessmen in the position of GBX and Protean would understand the references to the due diligence as being the due diligence undertaken by GBX prior to deciding whether or not to proceed with the funding of Stage 2. The scope of the due diligence was not confined to a consideration of the criteria set out in the Deed for the completion of Stage 1. The due diligence assessment being undertaken was with regard to the revised goals of Stage 1.1.
There was a meeting of the GBX board on 22 July 2008 attended by Mr Kirke, Ross Ashton and Mr Robinson. Mr Moore attended by invitation. I accept that the minutes reflect the discussion at the meeting. The minutes record that Mr Moore briefed the directors on technical developments. Mr Moore further advised that the next deployment would be off Hillarys Boat Harbour on or around 30 July 2008. The minutes record that a discussion followed about completion of Stage 1. Mr Kirke advised that an independent audit was commissioned which would start shortly after this deployment. It was agreed that it would be about eight weeks before a rescoping of Stage 2 is completed and GBX will have to make a decision on commitment to Stage 2. I infer from the fact that Mr Moore and the directors of GBX were discussing the completion of Stage 1 that they considered that Stage 1 had not been completed on 24 April 2008 but had been extended until the refinements or additional goals of Stage 1.1 had been completed. Businessmen in the position of Protean and GBX would understand the statement that GBX will have to make a decision on commitment to Stage 2 to mean that GBX has the right to decide whether or not to proceed with the funding of Stage 2, not merely that GBX would negotiate with Protean the funding of Stage 2.

Mr Fairweather responded to Mr Kirke's email on 6 April 2009 saying that a letter issued by one party countersigned by the others was probably appropriate and asked to be sent an executed copy of the funding and subscription agreement.
On 8 April 2009 Mr Fairweather sent to Mr Kirke, with copies to Mr Moore and Miles Ashton, a draft letter to be issued by Protean to the other parties to the Deed. Mr Fairweather said that the letter was essentially confirmation by which the parties acknowledged the status of the development of the WEC and the current shareholdings in Protean and additionally the parties agreed to waive any requirement for a notice of Stage 1 completion and notice of exercise of option to have been issued.
Mr Moore says that after he received the email he strongly objected to Miles Ashton about the letter saying words to the effect:
Protean and the Founding Shareholders would be crazy to sign the waiver, as the terms of a new funding agreement have not been finalised. Further, the deed is not in good standing.
Miles Ashton says that no such conversation ever took place. I do not accept Mr Moore's evidence. Mr Moore's assertion is not supported by any contemporaneous record. It is inconsistent with his letters of 2 April 2009 and 14 April 2009 to GBX and with his draft quarterly report contained in his email of 3 April 2009 to Miles Ashton.
On 9 April 2009 Miles Ashton sent an email to Mr Fairweather in which he queried whether eNGN and Sunset should be signatories to the letter of confirmation and also said that it had been raised that since the other share transfers had not happened then stating the deed is in good standing may be an issue to the other shareholders. Mr Fairweather responded by saying that all parties should sign so that the waiver was clear and if the deed was not in good standing then they should remove reference to it in the letter.
I find that Mr Kirke's email to Mr Fairweather of 3 April 2009 reflects the assumption then made by GBX. GBX assumed that the Deed, as varied, was binding on the parties and that GBX had commenced funding Stage 2.
On 14 April 2009 Mr Moore, on behalf of Protean, emailed to Mr Kirke the letter in which he referred to his letter of 2 April 2009 in which he had requested that the first $250,000 portion of the second tranche of the funding of Stage 2 be completed by 24 April 2009. Mr Moore said that due to unforeseen circumstances he requested that the date be moved forward to 15 April 2009. The further $250,000 was paid by GBX.
On 22 April 2009 at 4.56 pm Mr Moore emailed to Mr Kirke a letter which stated, amongst other things:
As you are aware, GB Energy has failed to exercise the option to sole fund Stage 2, in accordance with the Funding and Subscription Deed dated 22 November 2007.
In our letter of 2 April 2009, we extended to GB Energy an offer for an option to have further shares issued in 2 instalments. That offer is hereby withdrawn.
It is our view that, due to the non‑compliance with the terms of the Deed, that the time has arisen that we should meet to discuss our future relationship.
I find that at all times before GBX received Mr Moore's letter of 22 April 2009 GBX assumed that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 under the terms of the Deed at all times prior to 22 April 2009.

9.3 Departure from assumption would be unconscionable

In Commonwealth of Australia v Verwayen Deane J said that the central principle of the doctrine of estoppel is that the law will not permit an unconscionable 'departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation' (444). Deane J went on to say:
The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party: (a) has induced the assumption by express or implied representation; (b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption; (c) has exercised against the other party rights which would exist only if the assumption were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. In cases falling within category (a), a critical consideration will commonly be that the allegedly estopped party knew or intended or clearly ought to have known that the other party would be induced by his conduct to adopt, and act on the basis of, the assumption. Particularly in cases falling within category (b), actual belief in the correctness of the fact or state of affairs assumed may not be necessary. Obviously, the facts of a particular case may be such that it falls within more than one of the above categories (444) - (445).
I find that Protean induced the assumption by GBX that GBX and Protean were bound by the Deed. Protean did so by its Request for Retraction Notice, the emails and other communications between Protean and GBX to which I have referred, Mr Moore's contributions to GBX's quarterly activity and other activity statements to which I have referred, the Due Diligence Guidelines, Mr Moore's contribution to the GBX annual report of 2008, Protean's application to the Western Australian Department of Environment and Conservation for a grant from the LEED fund the terms of which were, to the knowledge of Mr Moore, known to GBX through Miles Ashton, and the sending of tax invoices and receiving payment of them.
I find that from at least January 2009 Protean induced the assumption by GBX that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. On 16 January 2009 GBX made an ASX announcement. GBX announced the successful completion of Stage 1 and said that it had provided the initial $500,000 of Stage 2 expenditure. The first draft of the announcement was drafted by Miles Ashton. By email of 12 January 2009 to Mr Moore, Miles Ashton said that GBX would like to make the announcement and asked Mr Moore to approve it. Mr Moore said that it looked fine to him and made one comment that did not relate to the statements that Stage 1 had been successfully completed or that GBX had provided $500,000 of Stage 2 funding.
On 2 April 2009 Mr Moore sent the letter to GBX which requested that GBX pay Protean the second tranche as described in the Deed and said that once the second tranche had been paid then, in accordance with the Deed, Protean would issue to GBX the second lot of 2,500 shares. Miles Ashton suggested further words be added to Mr Moore's initial draft. Mr Moore says that he made his initial draft after Miles Ashton had said that it had to include reference to the funding deed. I am unable to make any finding whether Miles Ashton said to Mr Moore that the request for further funding would have to include reference to the funding deed. It is unnecessary to make a finding either way. Mr Moore made the initial draft. Mr Moore accepted the amendment suggested by Miles Ashton and included it in his letter. Mr Moore adopted the words of the final letter as his own. He did not say or do anything that would have led a reasonable person in the position of Mr Kirke or Miles Ashton to believe that Mr Moore did not mean what he said in his letter. The letter requests payment of the second tranche pursuant to the Deed. It is a representation that the Deed was binding on GBX and Protean, that Stage 1 had been completed and GBX is funding Stage 2 pursuant to the Deed.
On 3 April 2009 Miles Ashton drafted a quarterly activity statement which referred to the Deed, said that Stage 1 had been successfully completed and GBX had provided the initial $500,000 of Stage 2 expenditure. Miles Ashton asked Mr Moore for his comments. Mr Moore added a sentence but did not contradict any of the statements in the draft quarterly statement.
On 14 April 2009 Mr Moore sent the further letter to GBX requesting payment of the first instalment of the second tranche of Stage 2 funding. The letter is another representation that GBX was providing Stage 2 funding to Protean.
I infer that the requests by Protean for payment of the second tranche of Stage 2 funding and Mr Moore's participation in GBX's ASX report of 16 January 2009 and the quarterly report drafted on 3 April 2009 induced GBX to adopt, or to continue to adopt, the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed.
From 8 January 2009 Protean conducted its relationship with GBX on the basis of the assumption. On 2 April 2009 Mr Moore, on behalf of Protean, requested that GBX pay Protean the second tranche 'pursuant to Pt 5 (share transfer and issue, second tranche of Stage 2 funding) of the [Deed]'. On 14 April 2009 Mr Moore, on behalf of Protean, requested that the second tranche of the funding of Stage 2 be completed by 24 April 2009. The further $250,000 was paid by GBX and received by Protean.
Protean knew that GBX assumed that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. Mr Moore, on behalf of Protean, commented on GBX's ASX announcement of 16 January 2009 before the announcement was made. Mr Moore made no comment upon the statements that Stage 1 had been completed and that GBX had acquired an interest in the capital of Protean by making Stage 2 funding. Mr Moore received a copy of Mr Kirke's email of 3 April 2009 to Mr Fairweather in which Mr Kirke said that 'we are now into Stage 2 although we appear not to have completed the notice of completion (2.2) or the exercise of option (4.2 & 3) process as required by the agreement'. Mr Moore sent to GBX the letters of 2 April and 13 April 2009 requesting payment of the second tranche of Stage 2 funding pursuant to pt 5 of the Deed. Protean refrained from informing GBX that it was mistaken in its assumption, when it was its duty to do so, if the parties were no longer bound by the Deed. To the contrary, Protean received payment of the $250,000 requested in its letters of 2 and 14 April 2009.

9.4 GBX acted in reliance on the assumption

Prior to 8 January 2009 GBX relied upon the assumption that the Deed, as varied by the Stage 1.1 Agreement, was binding on GBX and Protean. GBX refrained from exercising the Option. GBX made payment of the invoices rendered to it by Protean. It is to be inferred from GBX's public announcements and its communications with Protean that GBX did so in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement, was binding on GBX and Protean. GBX also expended its own resources, at least the time and energy of its directors and Miles Ashton, in pursuing the project in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement remained in force.
On 14 April 2009 GBX paid a further $250,000 to Protean. It did so in response to the requests made by Protean in its letters of 2 April and 14 April 2009. Those letters requested the payments as the second tranche of Stage 2 funding pursuant to the Deed. I infer that GBX made the payment in reliance upon the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed.

9.5 GBX will suffer detriment if the assumption is not fulfilled

GBX will suffer detriment if the assumption is not fulfilled. GBX refrained from exercising the Option, or at least deciding whether or not to exercise the Option, in July 2008 in reliance on the assumption that Stage 1 had been extended by Stage 1.1 and GBX would decide whether or not to exercise the Option at the completion of Stage 1.1. GBX devoted the time and energy of its directors and Miles Ashton in pursuing the project and paid the invoices rendered by Protean in reliance upon the assumption.
From 8 January 2009 GBX continued to pursue the project in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement and the Tranching Amendment, was binding on GBX and Protean. GBX paid $250,000 to Protean on 14 April 2009 in reliance upon the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. If the assumption is not fulfilled GBX will have paid funds to Protean, and expended its own resources in pursuing the project, without receiving the further shares in Protean that the Deed provides it will receive progressively through providing Stage 2 funding.

9.6 It would be unconscionable for Protean to resile from the assumption

In all the circumstances departure by Protean from the assumption that the Deed is binding on GBX and Protean as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed would be unconscionable. It was reasonable for GBX to act upon the assumption. The assumption was induced and confirmed by Protean on numerous occasions. The detriment which GBX would sustain by acting upon the assumption if departure from the assumption is permitted is considerable. GBX would have provided substantial funding to Protean, as well as devoting its own resources in the form of the time and energy of its directors and its employee Miles Ashton, and not be able to acquire the 50% interest in the project, by way of a 50% interest in Protean, that was the consideration it expected to receive upon entering upon Stage 2 funding.
Protean knew or ought to have known that GBX would act on the basis of the assumption when Protean sent its letters of 2 and 14 April 2009 requesting payment of the second tranche of Stage 2 funding.
I do not accept the evidence of Mr Moore that he made statements to the effect that the Deed was no longer binding before he sent his letters of 2 and 14 April 2009. Protean refrained from stating that the Deed was no longer binding and GBX did not have the right to sole fund Stage 2 and earn a 50% interest in Protean until Protean had received payment of the $250,000 requested in its letters of 2 and 14 April 2009.

10. Appointment of Mr Kirke as director

10.1 Mr Moore is bound by the Deed

Clause 3(b) provides that from the date of execution of the Deed, Mr Moore and Mr Fiegert agree to appoint Mr Kirke and Ross Ashton as two further directors to the board at the nomination of GBX. Clause 3(d) provides that Mr Kirke will be appointed as chairman but during Stage 1 Mr Kirke will not have a casting vote. I find that the Deed remains binding on Mr Moore. The conduct of Protean which gives rise to the estoppel estopping Protean from denying that the Deed remains binding on GBX and Protean was conduct by Mr Moore. Mr Moore is estopped from denying that he is bound by the Deed, as varied by the Stage 1.1 Agreement and the Tranching Amendment, for the same reasons that Protean is estopped. Mr Moore is bound by the terms of the Deed to vote in favour of the appointment of Mr Kirke as a director of Protean.

10.2 Mr Fiegert is bound by the Deed

Mr Fiegert played a much lesser role in the affairs of Protean. However, Mr Fiegert did participate in meetings with GBX representatives and was a party to relevant communications concerning the relationship between GBX and Protean. Mr Fiegert attended the meeting on 31 December 2008 with Mr Moore, Mr Kirke and Miles Ashton. On 2 January 2009 Mr Kirke sent an email to Mr Fiegert and others in which he purported to summarise the significant elements of the meeting. The email stated that GBX's position was that it cannot give up the right to fund $2.1 million. That statement assumes that GBX had the right to fund $2.1 million and was stating that it would not give up the right. The email stated that GBX had funded the first $250,000 of Stage 2 and was ready to fund the second $250,000. The email stated Protean's position. There was no statement to the effect that GBX did not have the right to fund $2.1 million or had not subscribed the first $250,000 of Stage 2. The position of Protean stated in the email was that the $250,000 tranche structure was potentially destabilising in the next phase of the project and that a different form of funding would be preferable. The email stated the 'summary of position subject to review and approval' to be 'if no alternate agreement reached then the original agreement operates (logical legal position)' and 'tranching can continue on the understanding that it will be withdrawn if delayed or frustrated by GBX'. In effect, the email said that if no new agreement was reached in relation to funding then the original agreement operates and the Tranching Amendment could be withdrawn if delayed or frustrated by GBX. The original agreement must be a reference to the Deed. Mr Fiegert replied to the email by saying that he was satisfied that Mr Kirke's summary of the meeting was an accurate assessment of what was discussed.
On 12 February 2009 Miles Ashton sent an email to Mr Moore and Mr Fiegert. The email included a draft strategy paper for discussion. Under the heading 'Capital Markets and Funding' the draft paper said:
GB Energy: committed to funding AUD2.1M. So far 500k + 140k (proof‑of‑concept) have been provided.
On 2 April 2009 Mr Moore sent his letter to GBX requesting that GBX pay Protean the second tranche 'pursuant to Part 5 (Share Transfer and Issue), Second Tranche of Stage 2 funding), of the [Deed]'. The letter concluded: 'Protean Power would like to extend its thanks to GB Energy for its support and looks forward to a long and mutually beneficial relationship'. Mr Moore sent a copy of the letter by email to Mr Fiegert. In his letter of 14 April 2009 to GBX Mr Moore requested that the first portion of the second tranche of the funding of Stage 2 be completed by 24 April 2009. He sent a copy of that letter by email to Mr Fiegert.
Mr Fiegert did not give evidence. I infer that if he had given evidence Mr Fiegert's evidence would not have assisted his case.
I draw the inference from the communications to which I have referred that Mr Fiegert knew that GBX assumed that the Deed was binding on the parties to it. Mr Fiegert refrained from informing GBX that the assumption was incorrect when it was his duty in conscience to do so. It was his duty in conscience to do so because he was a director of Protean and knew that Protean was requesting payment of $250,000 from GBX on the basis that the payment was requested under pt 5 of the Deed. In all the circumstances departure from the assumption would be unconscionable. I find that Mr Fiegert is estopped from denying that the Deed was binding upon him. Mr Fiegert is bound by the Deed to vote in favour of the appointment of Mr Kirke as a director of Protean.

10.3 Obligations under the Shareholders Agreement

Clause 11.1 of the Shareholders Agreement provides that each of Mr Moore and GBX is entitled to appoint directors whilst he or it holds 20% or more of the shares. GBX holds 20% of the shares.
The defendants say that the Shareholders Agreement executed in November 2007 did not come into effect. The defendants submit that on the proper construction of the Deed and the Shareholders Agreement the transfer and issue of shares in accordance with cl 5 of the Deed is a condition precedent to the Shareholders Agreement coming into effect.
The Shareholders Agreement is an annexure to the Deed. The Deed is referred to in a recital to the Shareholders Agreement and in cl 19. The Deed and the Shareholders Agreement were executed at the same time and form part of a package of agreements. The Deed, and its terms, are part of the matrix of circumstances to which regard may be had in construing the Shareholders Agreement.
Recital B of the Shareholders Agreement states the number of shares held by the Shareholders. They are 7,500, 1,900, 600 and 10,000 (or 37.5%, 9.5%, 3% and 50%) held by Mr Moore, Sunset, eNGN and GBX respectively. Those are the number of shares which, under the terms of the Deed, would be held by each of those persons or companies at the completion of Stage 2 funding. However, cl 7 of the Deed says that the Shareholders will enter into the Shareholders Agreement at the time of first transfer and issue of shares in accordance with cl 5. Under cl 5.1 of the Deed the first transfer and issue of shares is to occur at the completion of $500,000 of Stage 2 funding.
Recital C of the Shareholders Agreement says that the Shareholders wish to enter into the agreement in order to regulate the affairs of the company and their rights and obligations as members of the company. Upon its proper construction, the Shareholders Agreement is only to have effect upon GBX becoming a shareholder.
Clause 11.1 of the Shareholders Agreement provides that each of Mr Moore and GBX is entitled to appoint two directors whilst it holds 20% or more of the shares in Protean. GBX holds 20% of the shares. Clause 11.3 says that Mr Kirke is the chairman of the board. Upon its proper construction, that clause provides that Mr Kirke is the chairman of the board when GBX holds 20% or more of the shares. Clause 4 provides that each shareholder must, by exercise of its Shareholder Control, do, or procure to be done, all such acts and things as that shareholder is able to do, or procure to be done, to give full effect to the provisions of the Shareholder Agreement. Shareholder Control is defined to mean any voting power or other rights that a shareholder is able to exercise by reason of its ownership of shares in Protean.
The effect of the provisions of the Shareholders Agreement is that when GBX holds 20% of the shares in Protean, the Shareholders, who are parties to the Shareholders Agreement, must, by the exercise of their voting power, do, or procure to be done, all such acts and things as that Shareholder is able to do, or procure to be done to appoint two directors nominated by GBX and appoint Mr Kirke as chairman. Mr Moore is a Shareholder and hence is under that obligation. Mr Fiegert is not a Shareholder, or a party to the Shareholders Agreement, and is not obliged by the terms of the Shareholder Agreement to vote for GBX's nominees as directors or for Mr Kirke to be chairman of the board.

10.4 Mr Moore and Mr Fiegert failed to appoint Mr Kirke as a director

There was a meeting of the Protean board on 24 April 2009. Miles Ashton proposed that Mr Kirke be appointed a director. Mr Moore and Mr Fiegert voted against it. On 24 April 2009 Mr Kirke wrote to Mr Moore stating that his nomination was in accordance with the Deed and was not capable of being rejected by Protean. Mr Kirke requested that Mr Moore arrange to give immediate effect to Mr Kirke's nomination. The minutes of the Protean board meeting state that the board refused to appoint Mr Kirke on the basis that the Deed was invalid.
Miles Ashton called for a meeting of the directors of Protean on 8 May 2009 and gave notice of agenda items including the appointment of Mr Kirke as a director and confirming the validity and operation of the Shareholders Agreement.

10.5 Mr Moore and Mr Fiegert breached the Deed

GBX pleads that in breach of the defendants' obligations under the Deed and the Shareholders Agreement the defendants have refused, and have continued to refuse, to appoint Mr Kirke to the board of directors of Protean or to appoint him as chairman. GBX says that Mr Fiegert and Mr Moore were under an obligation to appoint Mr Kirke as a director and chairman pursuant to cl 3 of the Deed and pursuant to cl 11.1 and cl 11.3 of the Shareholders Agreement.
I find that by refusing to appoint Mr Kirke as a director and chairman of Protean Mr Moore has breached his obligations under the Deed and the Shareholders Agreement. By refusing to appoint Mr Kirke as a director Mr Fiegert breached his obligation under cl 3(b) of the Deed. Mr Fiegert is not a party to the Shareholders Agreement and did not breach any obligation under that agreement. Protean did not refuse, or fail, to appoint Mr Kirke as a director and is under no obligation to do so. Indeed, it could not.
GBX pleads that Mr Moore and Mr Fiegert induced, and or caused, Protean to breach its obligations under the Deed and the Shareholders Agreement by refusing to appoint Mr Kirke as a director. Protean was under no such obligation and hence Mr Moore and Mr Fiegert did not induce or cause any such breach.

11. Damages

In its statement of claim GBX claims damages for breach of the terms of the Deed and the Shareholders Agreement. At trial counsel for GBX abandoned the claim for damages other than in respect of the costs of the proceedings. In closing submissions counsel for GBX abandoned any claim for damages in respect of the costs of the proceedings.

12. Counterclaim

Protean counterclaims a declaration that the Deed terminated on 21 July 2008, alternatively on the date the parties entered into the New Agreement and is of no force and effect. For the reasons stated, the Deed did not terminate on 21 July 2008, the New Agreement was not made and no declaration will be made that the Deed is of no force and effect.
Protean seeks a declaration that the requirements of cl 7 of the Deed in respect to entering into the Shareholders Agreement have not been fulfilled and the Shareholders Agreement is of no force and effect. No such declaration should be made.
Protean seeks a declaration that it is under no obligation to accept funding for Protean pursuant to the New Agreement. I have found that the New Agreement was not made and hence this issue does not arise.

Conclusion

For the reasons stated, the Deed remains binding on GBX, Protean, Mr Moore and Mr Fiegert as if Stage 1 has been completed and GBX is the sole funder of Stage 2 pursuant to the terms of the Deed.
I find that Mr Moore and Mr Fiegert are obliged by the Deed to appoint Mr Kirke as a director and chairman of the board of Protean.
In the course of the trial, GBX abandoned its claim for damages and it is not necessary to say anything further about that pleaded claim.

Item	Estimated Budget
1. Panel and counterweight design and fabrication	$9,000
2. New gear boxes and generators	$9,000
3. Implement pneumatic energy concept	$9,000
4. Incorporate data gathering into WEC	$10,000
5. Salary for Sean Moore ~$2,500 per week for an initial 10 weeks	$25,000
6. 3 trial launchings with hired boat	$6,000
7. Extra approved Stage 1 expenses	$36,000
TOTAL	$104,000