Gemini Energy and Minerals Pty Ltd v Luff
[2017] WASC 190
•19 JULY 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: GEMINI ENERGY AND MINERALS PTY LTD -v- LUFF [2017] WASC 190
CORAM: LE MIERE J
HEARD: 26-29 JUNE 2017
DELIVERED : 19 JULY 2017
FILE NO/S: CIV 2607 of 2015
BETWEEN: GEMINI ENERGY AND MINERALS PTY LTD
Plaintiff
AND
RICHARD GEOFFREY LUFF
Defendant
Catchwords:
Contract law - Share subscription agreement - Claim for a debt - Whether parties intended to create legal relations - Whether condition precedent - Whether concurrent obligations - Whether agreement abandoned - Whether defendant induced by alleged misleading or deceptive conduct - Turns on own facts
Legislation:
Australian Consumer Law (Cth), s 18, s 237, s 243
Corporations Act 2001 (Cth), s 127
Supreme Court Act 1935 (WA), s 32
Trade Practices Act 1974 (Cth), s 52
Result:
Plaintiff's claim allowed
Defendant's counterclaim dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr D J Jackson SC & Mr N W Kalmund
Defendant: Mr J R Ludlow
Solicitors:
Plaintiff: Hotchkin Hanly Lawyers
Defendant: HWL Ebsworth Lawyers
Case(s) referred to in judgment(s):
DTR Nominees Pty Ltd v Monger Homes Pty Ltd (1978) 138 CLR 423
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Geeveekay Pty Ltd v Director of Consumer Affairs (2008) 19 VR 512
Razdan v Westpac Banking Corp Ltd [2014] NSWCA 126
Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568
Summers v Commonwealth (1918) 25 CLR 144
Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279
Watson v Foxman (1995) 49 NSWLR 315
LE MIERE J:
Summary
The plaintiff, Gemini, and the defendant, Mr Luff, made a written agreement that Mr Luff pay $1 million to Gemini as consideration for two million shares in Gemini, being 33% of the capital of Gemini. Gemini agreed to use the $1 million to purchase 34 million shares in Atusheni Minerals Pty Ltd. Atusheni had agreed to use the $1 million to fund exploration in Namibia and retire existing loans from Mr Cribbes and Mr Hewitt or entities associated with them. Mr Cribbes and Mr Hewitt were and are directors of Gemini. The Agreement provides that $100,000 of the consideration for the shares was payable on execution of the Agreement and the balance was payable by instalments until 30 November 2014.
Mr Luff did not pay $100,000 on execution of the Agreement and did not pay the instalments on the dates specified in the Agreement. Mr Luff paid $20,000 on 23 April 2014, $50,000 on 5 May 2014, $30,000 on 16 May 2014, $50,000 on 20 June 2014 and $30,000 on 27 February 2015, a total of $180,000. Gemini claims against Mr Luff $820,000 as a debt due under the Agreement or alternatively damages for breach of contract totalling $820,000 or alternatively specific performance of the Agreement.
Mr Luff denies that Gemini is entitled to any relief. Mr Luff advances four defences. First, the parties to the Agreement did not intend to create legal relations by entering into the Agreement. Secondly, the Agreement is subject to a condition precedent that Mr Luff elect to subscribe for the shares by paying $100,000 on execution of the Agreement and Mr Luff did not make that payment and hence the condition precedent was not satisfied. Thirdly, Gemini's obligation under the Agreement to issue the two million shares and Mr Luff's obligation to pay the first instalment of $100,000 are concurrent obligations and performance by Gemini is a condition precedent to Gemini's right to enforce Mr Luff's obligation to pay the first and subsequent instalments totalling $1 million. Fourthly, the parties abandoned the Agreement by 27 February 2015. Furthermore, Mr Luff says that in any event Gemini is not entitled to specific performance of the Agreement because it was required to issue all of the shares on the execution of the Agreement, or alternatively within a reasonable time, and has not complied with that obligation.
In further defence to Gemini's claim Mr Luff says that he would not have executed the Agreement or have made the payments he made to Gemini but for misleading or deceptive conduct engaged in by Gemini. The alleged misleading or deceptive conduct is that Gemini represented that its copper project in Namibia included or would soon include mining leases when the project did not include and would not soon include any mining lease. Mr Luff seeks relief rescinding the Agreement, presumably pursuant to s 237 and s 243 of the Australian Consumer Law. Mr Luff counterclaims against Gemini for the $180,000 he has paid on the ground that he made those payments because of misleading or deceptive conduct engaged in by Gemini.
Gemini denies that it represented to Mr Luff that it had or would soon have any mining lease in Namibia. Gemini further says that if it made the alleged representation, which it denies, Mr Luff did not rely upon the representation in executing the Agreement or making the payments.
For the reasons which follow I find that:
1.The parties did intend to create legal relations.
2.There is no condition precedent to the Agreement that Mr Luff elect to subscribe for shares by paying $100,000 on execution of the Agreement.
3.Gemini's obligation to issue the shares and Mr Luff's obligation to pay $1 million are not concurrent or dependent obligations.
4.The parties did not abandon the Agreement.
5.Mr Luff has not established that Gemini engaged in the alleged misleading or deceptive conduct.
6.Mr Luff has not established that he has suffered loss or damage as a result of entering into the Agreement or making the payments of $180,000 to Gemini.
7.If Gemini engaged in misleading or deceptive conduct by representing to Mr Luff that its copper project included or would soon include mining leases and Mr Luff suffered any loss or damage because of executing the Agreement or making the payments of $180,000 he did not suffer that loss or damage because of the misleading or deceptive conduct of Gemini.
8.Gemini is entitled to judgment for $820,000 plus interest.
Gemini
Mr Cribbes has been a director and shareholder of Gemini since 2010. In 2011 he met Andrew Hewitt. Mr Cribbes told Mr Hewitt that he was aware through a friend who was living in Namibia, Ms De Jukes, of a prospective copper exploration project in Namibia. In January 2012 Mr Hewitt travelled to Namibia with a geologist, Rod Dale, to meet Ms Jukes. When Mr Hewitt returned from Namibia, he and Mr Cribbes agreed to try to secure the exploration project.
In August 2012 Pro Met Engineers, a business in which Mr Cribbes was a partner, made a report on the project called the Oamites Copper Project. The Pro Met Engineers report identified the following tenements as the core of the project:
•An exclusive prospecting licence (EPL 4196) in the name of August 26 Holding Company, an entity associated with the Namibian Army;
•an exclusive prospective licence (EPL 4246) in the name of Fortitude Investments; and
•a mining lease (ML 162) in the name of Everture Strategic Consulting, the principal of which was KB Siebeck.
The report stated that Gemini had entered into a binding heads of agreement with August 26 Holding Company, was nearing completion of its negotiations for a similar heads of agreement with Fortitude Investments and was in detailed negotiations with the owners of ML 162.
On 1 August 2012 Gemini and August 26 had made a Memorandum of Understanding (MOU). The MOU calls for the negotiation and finalisation between August 26 and Gemini of certain written agreements relating to the conduct of prospecting operations and the further development of EPL 4146. By deed made 25 September 2012 Gemini assigned to Atusheni all of its rights under the memorandum of understanding between Gemini and August 26.
Initially, Mr Hewitt and Mr Cribbes agreed to use Gemini as the vehicle to undertake the Namibia Project. However, in September 2012 Mr Cribbes and Mr Hewitt incorporated a company, Atusheni, to undertake the project. Mr Cribbes and Mr Hewitt held their interest in Atusheni through Gemini's shareholding in Atusheni.
On 13 February 2013 Gemini and August 26 entered into a joint venture agreement by which August 26 contributed EPL 4196 and Gemini assumed the duties of exploration manager and the provision of funding. The joint venture agreement provided that August 26 would transfer EPL 4196 to a new company to be established. Also in February 2013 Gemini and Fortitude Investments agreed in principle to establish a joint venture pursuant to which EPL 4246 would be transferred by Fortitude to a new company in which 80% of the shares would be held by Gemini and 20% to Fortitude.
In or about June 2013 Willem Kotze, a consulting geoscientist, provided a report summarising the extent of the geological knowledge about EPL 4196 and EPL 4246 as at the end of June 2013.
Mark Allen is a geologist who has researched and worked on mining and exploration projects in Africa, including Namibia, since about 2001. He was familiar with the area in Namibia known as the Oamites Project and the mining and exploration activities which had been conducted in the area in the past. In February 2013 when he was in South Africa Mr Allen was introduced to Mr Hewitt and travelled with him to inspect the area of the Oamites Project. In July 2013 Mr Allen became a director of Atusheni and his company, Mark Allen and Associates Pty Ltd, was issued shares in Atusheni. Mr Allen became the technical director of Atusheni.
Mr Luff is introduced to the Namibia Project
Mr Cribbes had known Mr Luff since about 2000. In the middle of 2013 Mr Cribbes met Mr Luff at a funeral of one of Mr Cribb's business partners. Mr Luff says that at a wake following the funeral Mr Cribbes told him about the Namibia Project and that Mr Cribbes was looking for seed capital for the project. Mr Luff says that Mr Cribbes suggested they meet further in a few weeks when Mr Hewitt returned from South Africa. Mr Cribbes says he did not discuss the Namibia Project at the wake.
Mr Hewitt, Mr Cribbes and Mr Luff met and discussed the Exploration Project at a meeting or meetings at a coffee shop in West Perth. Mr Luff says it was two to three weeks after the wake. Mr Hewitt says that he and Mr Cribbes met with Mr Luff at a West Perth coffee shop in late 2013.
Mr Luff says that at the coffee shop meeting Mr Cribbes or Mr Hewitt told him a number of things about the project including that a mining lease had been granted and that drilling would start in a few months. Mr Luff said that he would only be able to drip feed money to Mr Hewitt and Mr Cribbes depending on what happened with his other interests. Mr Luff said that he understood he was being offered seed capital shares in a company that would be listed. Mr Luff says that there was a block of land spoken about as part of the intended site of the project and identified as a mining lease, ML 162.
Mr Cribbes says that one or both of he or Mr Hewitt may have told Mr Luff the status at the time of the exploration licences in the area they intended to explore but he has no specific recollection of either of them doing so. Mr Hewitt says that either he or Mr Cribbes said to Mr Luff that through Gemini and Atusheni he and Mr Cribbes had a joint venture with companies which held exploration licences to conduct copper exploration in Namibia in an area surrounding an old underground copper mine called the Oamites mine. Mr Hewitt says that it was at a coffee shop meeting that Mr Luff said he had a geological consultant that he had previously used, Simon Rigby, and that he would get Mr Rigby to review the exploration project.
Atusheni investor presentations
Mr Allen prepared a number of investor presentations in a power point format entitled 'Atusheni Minerals Pty Ltd, Investor Presentation'. The stated purpose of the power point presentation is to provide general information about Atusheni. The September, October and November 2013 investor presentations are in evidence. They are substantially the same. The presentations refer to Atusheni having 'world class copper and base metal exploration ground in Namibia', that there is a seed investment opportunity to develop the project prior to IPO and that there are 'drill ready targets at Oamites Copper Project guided by compelling historic data'. On a page entitled 'Secure tenure over a district scale opportunity' appears:
Core Licences
•EPL4196 is held under a farm‑in agreement to earn an initial 70%
•EPL4246 is held under a farm‑in agreement to earn 80%.
On a page entitled 'Background' appears:
The founders of Atusheni have spent the past 18 months developing this opportunity and negotiating the terms of the acquisition of the Oamites Copper Project, amongst the various EPL and ML tenement holders.
Material given to Mr Luff
On 22 January 2014 Mr Cribbes sent to Mr Luff the November 2013 Atusheni Investor Presentation and in an email stated that there was also a 'full data room' which Mr Rigby could access after the meeting arranged for the following day at GHD's office in Adelaide Terrace. At 7.39 am the following day, 23 January, Mr Luff sent the Atusheni November 2013 Investor Presentation to Mr Rigby.
Mr Allen gave evidence that he met with Mr Luff and Mr Rigby on two occasions. On both occasions the meetings were held at the offices of GHD in Perth where Mr Cribbes worked at the time. Mr Cribbes and Mr Hewitt also attended both meetings.
The first meeting at GHD's offices was held on 23 January 2014. Mr Allen's evidence of what was said at the GHD meeting on 23 January was largely unchallenged and I accept it.
Mr Allen's evidence of what was said at the meeting is as follows. Mr Allen said to Mr Rigby and Mr Luff that Atusheni was seeking funding to conduct exploration in the area of the Oamites Project. He said that one of the exploration licences for the area over which Atusheni intended to conduct exploration was held by August 26 and was up for renewal in 2014. Mr Allen said that the exploration licence for the other part of the area over which Atusheni intended to conduct exploration was previously held by Fortitude which was in the process of renewing this exploration licence. Mr Allen said that Fortitude had given an assurance that the licence would be renewed. Mr Allen said that within the area over which Fortitude had held the exploration licence there was an excision in which there was a small mining licence. Mr Allen said that the owner of the mining lease had fenced off the area and that Atusheni did not presently have access to the area which the owner of the mining lease had fenced off. Mr Allen said that it appeared that the area that the owner of the mining lease had fenced off encroached outside the boundaries of the mining lease and into the area over which Fortitude had held the exploration licence. Mr Allen said that in the future they would explore whether they could gain access to, and the right to explore, this area and there were a number of ways they could attempt to do this, one of which would be to acquire the mining lease. Mr Allen did not say to Mr Luff or Mr Rigby, or witness Mr Cribbes or Mr Hewitt or any other person say to Mr Luff or Mr Rigby that the copper project included mining leases or any words to that effect. Mr Allen says that at no stage did he or anyone else say that the exploration project included or held an interest in that or any other mining lease, at no stage did Mr Luff or Mr Rigby ask whether the exploration project included or held an interest in that or any other mining lease or say that either of them believed that the exploration project included or held an interest in that or any other mining lease.
Rigby issues confidential memorandum to Luff
On 3 February 2014 Mr Rigby provided a confidential memorandum to Mr Luff entitled 'Atusheni Minerals Pty Ltd ‑ Oamites Project Review'. Mr Luff gave evidence that he read Mr Rigby's report carefully. The diagrammatic representation of the project ownership structure shows that the project consisted of EPL 4196 and EPL 4246. In cross‑examination Mr Luff accepted, as he had to, that the report said that the project he was being asked to invest in was made up of the two EPLs.
On 5 February 2014 Mr Luff emailed Mr Rigby's memorandum to Mr Cribbes, who forwarded the email and memorandum to Mr Hewitt. Mr Luff says that before forwarding Mr Rigby's memorandum to Gemini he discussed it with Mr Rigby over the telephone. Mr Luff says that he and Mr Rigby discussed the issue of tenure over ML 162. I do not accept that evidence. It is highly unlikely given the content of Mr Rigby's memorandum and the fact that Mr Luff then sent the memorandum to Mr Cribbes without making any reference to ML 162. The only reference to ML 162 in the memorandum is to show it as an excision on plans or maps. The inference that Mr Luff did not discuss with Mr Rigby tenure over ML 162 is more readily drawn because of Mr Luff's unexplained failure to call Mr Rigby to give evidence. I infer that Mr Rigby's evidence would not have been helpful to Mr Luff.
6 February 2014 - coffee shop meeting
On 6 February 2014 Mr Cribbes met Mr Luff to discuss Mr Rigby's memorandum of 3 February 2014. Mr Luff says he spoke with Mr Cribbes about tenure over ML 162 and that Mr Cribbes said on numerous occasions that tenure over ML 162 would be happening soon. In cross‑examination when it was put to him that Mr Cribbes did not tell him that tenure over ML 162 would be happening soon, Mr Luff said 'I've got it in writing'. Mr Luff did not identify the writing. The only material produced that arguably makes reference to tenure over ML 162 is the Atusheni 'general project overview' of 2012, the Pro Met engineer's report, Willem Kotze's 'summary of exploration status as on end June 2013' and the various Atusheni minerals Investor Presentations prepared by Mr Allen. None of them say that the project includes or was soon to include ML 162 or any other mining lease.
Second GHD meeting
On 26 February 2014 Mr Hewitt, Mr Cribbes, Mr Allen, Mr Luff and Mr Rigby again met at the Perth offices of GHD to discuss the exploration project. I accept the evidence of Mr Allen that neither he, nor in his presence Mr Cribbes or Mr Hewitt, said that the exploration project included ML 162 or any other mining lease.
Allen's exploration plan
On 19 March 2014 Mr Luff sent an email to Mr Rigby attaching a document prepared by Mr Allen entitled 'Atusheni Minerals, Oamites Copper Project, Phase 1 Exploration Plan'. The document stated that it was planned to drill test two targets in order to constrain the tenor of mineralisation and thus define more accurately the potential of the project as a whole and that this phase of exploration will comprise 2,000 m of diamond drilling and will provide reportable results to underpin a further capital raising. The first target, Oamites West, was described as being entirely within the Oamites property and 'access is covered under the terms of the joint venture with August 26'. The second target was Kanzwas South. The target is not on or near ML 162. The document makes no reference to ML 162 or any other mining lease. I infer from the terms of Mr Luff's email that he read the exploration plan despite Mr Luff's answers in cross‑examination that he most likely looked at the attached drawing. The plan and attached drawing show that the drilling targets were on the EPLs and not on the mining lease.
On 19 March Mr Rigby responded to Mr Luff. Mr Rigby was critical of the lack of detail of the proposed drilling programme. He made no reference to ML 162.
Agreement executed
On 17 April 2014 Mr Hewitt and Mr Cribbes executed the Agreement on behalf of Gemini and Mr Luff executed the Agreement on his own behalf.
Payments made by Mr Luff
Clause 3.1 of the Agreement provides that Gemini agrees to issue 2 million shares in the capital of Gemini to Mr Luff for a consideration of $1,000,000 of which $100,000 was payable on execution of the Agreement. Mr Luff did not pay $100,000 or any sum on execution of the Agreement.
Mr Luff made five payments totalling $180,000. The first payment, of $20,000, was paid on 23 April 2014, that is six days after execution of the Agreement. The second payment of $50,000 was paid on 2 May and the third of $30,000 was paid on 14 May. Thus, three payments totalling $100,000 were paid within a month of execution of the Agreement. Mr Luff made further payments of $50,000 on 16 June 2014 and $30,000 on 27 February 2015.
Mr Luff says that the payments were not made under the Agreement. He says he did not think about what he might be getting in return for the payments, he expected to recoup them but he did not think about how that would happen. He says that his assumption was that the payments were a loan to Mr Cribbes, they were something he did to assist Mr Cribbes who was a friend. Mr Luff says he made the payments at the request of either Mr Cribbes or Mr Hewitt to meet travel costs to raise the $3,000,000 needed for exploration. Mr Luff says that at the time he made each of the payments Mr Cribbes or Mr Hewitt told him that the purpose of the payment was to pay for return airfares and other travel expenses to enable a representative of Gemini to travel to South Africa. Mr Luff says Mr Hewitt told him that the purpose of one of the payments was to enable a representative of Gemini to travel to Singapore. Mr Luff says Mr Hewitt told him that Mr Hewitt's brother worked for a bank in Singapore and Mr Hewitt was going there as a representative of Gemini for introductions and promotional activities.
I do not accept that Mr Luff made the payments to meet travel costs or that at the time he made each of the payments Mr Cribbes or Mr Hewitt told him that the purpose of the payment was to pay travel expenses. The amounts are not proportionate to travel costs for a company pursuing the Namibia project. Mr Luff said that the sum of $36,500 showing in Gemini's budget for travel and accommodation was high. He accepted that $180,000 would be an incredibly high travel budget for a company like this.
I accept the evidence of Mr Cribbes and Mr Hewitt to the effect that the payments were requested and received in part discharge of Mr Luff's obligation to pay $1,000,000 under the Agreement in consideration for the issue of 2,000,000 shares. The timing of the first three payments totalling $100,000, the absence of any alternative plausible explanation for the payment of the $180,000 and the absence of a single written record of the payments being made for any other purpose supports their evidence that the payments were made in partial discharge of Mr Luff's obligation under the Agreement.
Parties intended to be legally bound
An intention to enter into a legally binding agreement is a necessary element of formation of a contract. The inquiry may take account of the subject matter of the agreement, the status of the parties to it, their relationship to one another and other surrounding circumstances. The test of intention is objective, it requires an objective assessment of the state of affairs between the parties; it is not a search for the uncommunicated subjected motives or intentions of the parties: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 [24] ‑ [25].
Gemini and Mr Luff intended to enter into a legally binding agreement. The Agreement is a commercial agreement. It is a formal agreement with recitals and operative parts. It was executed as an agreement by Gemini in accordance with s 127 of the Corporations Act 2001 (Cth) and Mr Luff signed the Agreement in the presence of a witness. Importantly, cl 2.1 of the Agreement says that the Agreement is legally binding. I attach no significance to the description of the Agreement on the cover page as 'Heads of Agreement'.
The defendant's case that the parties did not intend to be legally bound rests on the circumstances that Mr Luff did not make payments for the shares in the amounts and on the dates provided for in the Agreement and Gemini did not issue shares in accordance with the Agreement until at least 27 February 2015, that is 10 months after its execution. Those facts do not give rise to an inference that the parties did not intend to enter into a legally binding agreement.
No condition precedent
The defendant submitted that assuming the Agreement was legally binding and enforceable there was a condition precedent that Mr Luff was obliged to pay Gemini the agreed consideration in the amounts and on the dates specified in the Agreement only if Mr Luff elected to subscribe for the 2 million shares referred to in the Agreement. That is, the defendant says that Mr Luff electing to subscribe for the 2 million shares operates as a condition precedent to the performance of the Agreement not to its formation.
There is no such condition precedent. Whether or not Mr Luff subscribing for shares is a condition precedent to performance of the Agreement is determined as a matter of construction by the usual objective test. Clause 2.1 of the Agreement provides that a legal obligation arises under the Agreement once it is executed by the parties. Clause 3.1 provides Gemini agrees to issue 2 million shares to Mr Luff for a consideration of $1,000,000 payable in specified amounts on specified dates, the first of which is $100,000 on execution of the Agreement. There is no foundation in the Agreement for any election by Mr Luff to subscribe or not subscribe for shares.
Obligations to pay and issue shares are not concurrent
The defendant submitted that on the proper construction of the Agreement Gemini was obliged to issue the shares immediately on the execution of the Agreement or alternatively within a reasonable time. In his opening written submissions the defendant submitted that Gemini's obligation to issue the 2 million shares immediately on execution of the Agreement, or alternatively within a reasonable time, and Mr Luff's obligation to pay the first instalment of $100,000, and the subsequent instalments, were concurrent obligations and performance by Gemini of its obligation to issue the shares was a condition precedent to its right to enforce Mr Luff's obligation to pay the consideration for the shares.
I reject that argument. First, on its proper construction the Agreement does not oblige Gemini to issue the 2 million shares on the execution of the Agreement or within a reasonable time and if it does oblige Gemini to issue the shares within a reasonable time then Gemini has not breached that obligation. Secondly, Gemini's obligation to issue the shares and Mr Luff's obligation to make the specified payments are not concurrent obligations. Each instalment of the $1,000,000 is payable at the time specified in cl 3.1 and is not dependent upon Gemini having issued the shares.
The Agreement does not expressly state when the shares are to be issued. I find that on its proper construction the Agreement does not provide for the issue of the 2 million shares on execution of the Agreement for three reasons. First, cl 3.1 expressly provides that Mr Luff is to pay $100,000 on execution of the Agreement but does not provide that the 2 million shares, or any shares, are to be issued on execution of the Agreement. Secondly, cl 4.1 provides that Gemini agrees to appoint Mr Luff as a director of Gemini upon receipt of the consideration referred to in cl 3.1. It would be anomalous for the company to issue shares to a new member on payment of 10% of the subscription price for the shares but not appoint the new member as a director until the whole of the consideration has been paid. Thirdly, it would be anomalous for a closely held proprietary company to issue shares constituting 33% of its capital to a new member upon payment of only 10% of the consideration.
I accept the plaintiff's submission that if the Agreement provides for the shares to be issued within a reasonable time then what is a reasonable time is a question of fact which is to be determined at the time when the defendant says a reasonable time has elapsed and not at the date of execution of the Agreement. In Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 a contract for the sale of a business contained a condition that the sale was subject to consents of third parties. It was common ground that the deed of sale contained an implied term that the necessary consents should be forthcoming within a reasonable time. Samuels JA, with whom Priestly and McHugh JJA agreed, held that where a sale is subject to the consent of a third party being obtained within a reasonable time, the question of what is deemed to be reasonable must be decided at the point where the lapse of time is said by the party seeking to rely on the provision to have occurred and not at the date of execution of the contract, since what is reasonable must necessarily be affected by external events which occur as the period of time elapses. This case is different in that the issue of the shares is within the control of one of the parties. Nevertheless, the expiry of a reasonable time for the issue of the shares must be decided at the time when the defendant asserts it has expired. If, as here, the parties did not specify the date by which the shares are to issue and impliedly agreed that they are to be issued within a reasonable time then they must have intended that what is a reasonable time is to take account of events occurring after the execution of the Agreement.
The defendant says that a reasonable time had elapsed before the issue of the first shares in or about February 2015. I do not agree. First, a period of 10 months is not of itself such an inordinately long time that the lapse of that time alone amounts to the expiry of a reasonable time for the issue of the shares. Secondly, Mr Luff had not paid the instalments due by February 2015. Thirdly, there is no evidence of external events affecting the viability of the Namibia project or the value of the Gemini shares which might give rise to an inference that a reasonable time for the issue of the shares had expired. Fourthly, Mr Luff did not request or demand the issue of the shares before February 2015.
It is not necessary to decide when Gemini is obliged to issue the shares under the Agreement. However, in my opinion Gemini is obliged to issue the shares in tranches upon the payment by Mr Luff of each instalment of the consideration for the issue of the 2 million shares, each tranche bearing the same proportion to the total shares to be issued as the payment instalment bears to the total consideration to be paid by Mr Luff. Clause 4.1 which provides that Gemini is to appoint Mr Luff as a director upon receipt of the consideration for the issue of the shares is an indication that at least the last of the shares to be issued are not to be issued until the whole of the consideration has been paid. On the other hand, it is implicit that the shares to be issued are fully paid shares and it would be surprising if businessmen were to agree that none of the shares are to be issued to Mr Luff until the final instalment was paid on 30 November 2014 notwithstanding that by 30 June 2014 he had paid 60% of the consideration.
The plaintiff submits that each instalment of the $1,000,000 is payable as a liquidated sum or debt at the time specified in cl 3.1 of the Agreement regardless of whether or not the shares had been issued. I agree.
In the course of considering an appeal from the Victorian Civil and Administrative Tribunal in Geeveekay Pty Ltd v Director of Consumer Affairs (2008) 19 VR 512 the Supreme Court of Victoria considered what is a debt in relation to an executory contract for the sale of land. Bell J said that in general terms a debt is what can be claimed in an action for debt and includes claims for money under contracts whenever the demand is for a sum certain [71]. A contract for the supply of goods for a price to be paid on delivery is an executory contract [73] ‑ [74]. It is a contract in which the buyer has agreed to pay the price in return for the goods, not for the seller's promise to supply the goods [74]. At common law, the buyer's obligation to pay does not arise until the goods are delivered, because only then does property in the goods, which is the true consideration, pass to the buyer. Consequently, where the buyer refuses delivery and fails to pay the price, the seller's remedy is to sue for unliquidated damages for breach of contract, not for the liquidated amount of the price as a debt. His Honour then considered the kind of case in which the contract requires the buyer to make payments before consideration or full consideration has passed. Bell J said, at [75]:
The rule that applies is of considerable antiquity … The position was clear by 1669 when it was laid down as Rule I at the end of the judgment in Pordage v Cole:
'If a day be appointed for payment of money, or part of it, or for doing any other act, and the day is to happen or may happen, before the thing which is the consideration of the money, or other act, is to be performed, an action may be brought for the money, or for not doing such other act before performance; for it appears that the party relied upon his remedy, and did not intend to make the performance a condition precedent; and so it is where no time is fixed for performance of that, which is the consideration of the money or other act.'
Rule 1 still represents the common law. In Martin v Hogan, Isaacs and Rich JJ, consistently with the Rule, were able to say:
'If, again, there has been agreement to pay the money on a day fixed by the contract, irrespective of the consideration passing - then, again the sum can be recovered.' (emphasis in original)
The Agreement does not fix the time for the performance of the issue of the shares, which is the consideration for the money to be paid by Mr Luff. The Agreement does set specific times for the payments to be made by Mr Luff. It follows that each instalment of the consideration to be paid by Mr Luff is payable as a liquidated sum or debt at the time specified in cl 3.1 regardless of whether the shares have been issued.
Agreement was not abandoned
The defendant says that the parties have mutually abandoned the Agreement by 27 February 2015. Parties to a contract may indicate the abandonment of it by failing to take any steps to comply with or insist on performance of obligations required by its terms. Evidence of subsequent statements, actions and events is admissible for this purpose. The parties by their statements and actions may make it clear that each of them regards the contract as at an end, not because they are in agreement, but because they have taken rival positions as to why it has been discharged. Even if they are both wrong, the contract may be treated as having been abandoned by them both: DTR Nominees Pty Ltd v Monger Homes Pty Ltd (1978) 138 CLR 423; Summers v Commonwealth (1918) 25 CLR 144. Whether the contract has been abandoned is a question of fact to be inferred from an objective assessment of the conduct of the parties: Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 [2] (Ryan J) [30] - [32] (Kiefel J) [57] (Gyles J).
Mr Luff says it is to be inferred that the parties abandoned the agreement from the following facts and matters. First, the plaintiff is a proprietary company. Secondly, the only shareholders of the plaintiff immediately before 17 April 2014 were Mr Cribbes and Mr Hewitt through their family companies. Thirdly, cl 5 of the plaintiff's constitution gives the directors of the plaintiff very broad powers in relation to shares in the plaintiff. Fourthly, as at 17 April 2014 Mr Cribbes and Mr Hewitt were the only directors of the plaintiff. Fifthly, the persons who executed the agreement on behalf of the plaintiff were Mr Cribbes and Mr Hewitt. Sixthly, the plaintiff did not issue any shares or purport to issue any shares to the defendant until after 27 February 2015. Seventhly, the defendant has never paid the instalments referred to in the Agreement in the amounts referred to or on the dates referred to in the Agreement. Eighthly, and importantly, the plaintiff is involved in exploring for minerals. Under the Agreement, the plaintiff was required to issue 2 million shares upon execution of the Agreement. It is in the nature of shares in a mineral explorer that they are commonly the primary means of funding the mineral explorer's activities and are likely to change significantly in value over time. Thus, if such shares have not been issued within a lengthy period of time after they should have been issued, then that is a strong basis for an inference that the party that was to have issued them no longer intends to issue them, and that the party that was to have received them no longer wants them. The plaintiff did not issue any shares to the defendant within nine months of the execution of the Agreement.
I find that the Agreement was not abandoned. The first seven facts and matters relied upon by the defendant do not give rise to an inference that the parties had abandoned the Agreement. For the reasons stated earlier I find that each of the payments made by Mr Luff to Gemini were paid in part discharge of his obligation to pay $1,000,000 for the shares under the Agreement. The first payment of $20,000 was paid by Mr Luff on 23 April, six days after execution of the Agreement. Mr Luff paid a further $50,000 on 2 May and $30,000 on 14 May 2014. Thus, although Mr Luff did not pay $100,000 on execution of the Agreement as required by cl 3.1 of the Agreement, he paid that amount within a month of the execution of the Agreement. Mr Luff did not pay the instalments of $200,000 each due on 31 May and 30 June 2014 or the instalments of $100,000 on or before the end of each successive month until 30 November 2014. However, Mr Luff paid $50,000 on 16 June 2014 and $30,000 on 27 February 2015 in part discharge of his obligation.
Mr Hewitt gave evidence, which I accept, that after the execution of the Agreement he had a number of conversations with Mr Luff and Mr Cribbes during which Mr Hewitt and Mr Cribbes said to Mr Luff that he needed his payment under the Agreement. Mr Hewitt said that Mr Luff usually responded 'I'm having problems with Avebury Nickel, I haven't got the money right now'. Mr Hewitt said that Mr Luff also said on a number of occasions that he was funding a number of other investments at the time and would 'sort us out' when he could. Mr Cribbes conceded that Gemini did not send Mr Luff a letter of demand when he failed to make the instalment payments on the date specified in the Agreement. Mr Cribbes' evidence, which I accept, is that he was aware from his other dealings with Mr Luff that Mr Luff had cash flow difficulties and was having temporary difficulties in meeting the amounts that he had agreed to. Mr Cribbes said that Gemini 'let it slide'; that is, let Mr Luff's failure to make the agreed payments on the agreed dates slide, but did ask him to make at least some of the payments he made.
On 1 April 2015 Gemini's solicitors sent a letter to Mr Luff demanding payment under the Agreement. Mr Luff's solicitors responded on 9 April 2015 stating that Mr Luff was then overseas and unavailable to respond to the letter of demand and the Agreement. Notwithstanding that statement, the solicitors had clearly received some instructions from Mr Luff. The letter stated, amongst other things, 'we are instructed that our client has not, to date, been provided with basic information pertaining to Atusheni'. Mr Luff's solicitors did not say that the Agreement had been abandoned. To the contrary they stated:
Our client is also to be appointed as a director at Gemini. As you would appreciate, it is in our client's interests given his investment and intended board seat to understand the structure and current operations of Atusheni.
Gemini did not issue to Mr Luff shares in Gemini until after 27 February 2015. On the proper construction of the Agreement Gemini should have issued to Mr Luff 200,000 share on or about 14 May 2014 when Mr Luff had paid the initial instalment of $100,000, albeit by three separate payments. However, there is no evidence of the position taken by Gemini prior to the commencement of these proceedings as to when it was obliged to issue shares to Mr Luff. Mr Luff did not at any time prior to 27 February 2015 request that Gemini issue shares to him.
I accept that it is in the nature of shares in a mining exploration company that they are often a, or the, primary means of funding the company's exploration activities and are likely to change significantly in value over time. However, there is no evidence that the value of shares in Gemini had changed significantly between 17 April 2014 and 27 February 2015. There is no evidence that the Namibia project had ceased to be viable or of any events from which it may be inferred that the shares in Gemini had changed significantly in value.
The circumstances to which I have referred, that is the payments made by Mr Luff, the requests by Mr Cribbes and Mr Hewitt for payment and Mr Luff's response to those requests and Mr Luff's response, through his solicitors, to Gemini's letter of demand on 1 April 2015 lead to the inference that the parties had not mutually abandoned the Agreement.
Misleading or deceptive conduct
Mr Luff alleges that Gemini engaged in misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law by Mr Cribbes and/or Mr Hewitt speaking to him words to the effect that Gemini's copper project in Namibia included and/or would soon include mining leases by which statements Gemini represented to Mr Luff that it held mining leases in Namibia or alternatively would soon be acquiring such leases. In his defence Mr Luff refers to those statements as the Mining Lease Representation. Mr Luff pleads that but for the Mining Lease Representation he would not have executed the Agreement. Mr Luff further pleads that the Mining Lease Representation was misleading or deceptive in that Gemini did not hold and would not soon be acquiring any mining leases in Namibia at the time of the Mining Lease Representation, the execution of the Agreement, the time the payments were made or at all.
This part of the case involves two major issues. First, did Gemini, by Mr Cribbes or Mr Hewitt, make the alleged Mining Lease Representation? Secondly, if so, did Mr Luff rely on that representation in executing the Agreement or alternatively in making the payments of $180,000?
Proof of the alleged representations
In Watson v Foxman (1995) 49 NSWLR 315 McLelland J outlined factors the court should consider when assessing whether conduct that is 'the speaking of words in the course of a conversation' is misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (TPA). His Honour's observations apply equally to conduct that is the speaking of words in the course of a conversation which is alleged to be misleading or deceptive conduct in breach of s 18 of the ACL. In summary McLelland J said:
(1)An allegation of misleading or deceptive conduct requires proof to the reasonable satisfaction of the court of:
(a)what the alleged conduct was; and
(b)the circumstances which rendered the conduct misleading.
(2)Where the conduct is the speaking of words, 'the words spoken must be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances'.
(3)In many cases the question whether the spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances following from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition.
(4)Human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self‑interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.
(5)In establishing each element of the cause of action the court 'must feel an actual persuasion of its occurrence or existence'.
(6)In the absence of some reliable contemporaneous record or other satisfactory corroboration a party relying upon spoken words as the foundation of a cause of action based on misleading or deceptive conduct is faced with serious difficulties of proof.
(pages 318 ‑ 319).
Mining Lease Representation not established
Mr Luff has failed to prove the words allegedly spoken by Mr Cribbes or Mr Hewitt with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. I am unable to feel an actual persuasion of the occurrence or existence of the Mining Lease Representation having been made. To the contrary, I find that the Mining Lease Representation was not made.
At different times in his evidence Mr Luff gave significantly different versions of the words spoken by Mr Cribbes or Mr Hewitt to give rise to the Mining Lease Representation. In his written written statement Mr Luff says that at a coffee shop meeting before the meetings at the offices of GHD Mr Cribbes or Mr Hewitt said that a mining lease had been granted and that drilling would start in a few months. Mr Luff says that at the 6 February 2014 coffee shop meeting Mr Cribbes said that tenure over ML 162 would be happening soon. In cross‑examination Mr Luff did not accept that he understood from the presentation at the GHD office that the project was made up of the two EPLs and ML 162 was excised from the project. He said he did not accept that because 'I've got written information that it was being negotiated and was due any day to be settled'. He did not identify the written information he was referring to. At another point in his cross‑examination he said he brought up ML 162 with Mr Cribbes on nearly every occasion that he spoke to him. When it was suggested to Mr Luff that Mr Cribbes did not tell him that tenure over ML 162 would be happening soon Mr Luff replied 'I've got it in writing'. None of the reports, presentations, emails or other documents in evidence contain any statement that Gemini had been granted, had control over, or would soon be granted ML 162 or any other mining lease. The General Project Overview of 2012 stated that Atusheni was in advanced negotiations with the holders of other relevant EPLs and ML which were expected to be finalised shortly. A statement that the company was in advanced negotiations and that the negotiations are expected to be finalised shortly is a significantly different statement than one that a mining lease would soon be granted. The first is a statement of expectation or likelihood, the second is a statement of certainty. In any event, the later reports, presentations and documents contain statements concerning ML 162 falling well short of statements that the mining lease had been granted or would soon be granted. The Pro Met Engineer's report referred to 'other EPLs and claims being the subject of advanced negotiations, awaiting final documentation'. The Investor Presentations of September, October and November 2013 referred to the founders of Atusheni having spent the past 18 months negotiating the terms of the acquisition of the Oamites Copper Project, amongst the various EPL and ML tenement holders but made no reference that ML 162 had been granted to Atusheni or that that would happen soon. As I have said, in cross‑examination Mr Luff equated the statements he claimed to have been made to him by Mr Cribbes that ML 162 had been granted or would be happening soon with statements in writing. There are no such statements in the written documents. That casts grave doubt on Mr Luff's recollection of what was said to him about ML 162.
The written Investor Presentations provided to Mr Luff do not assert that the Namibia project included and/or would soon include mining leases. Mr Allen, whose evidence I accept, says that at the formal presentations to Mr Luff and his expert, Mr Rigby, at the offices of GHD neither he nor Mr Cribbes or Mr Hewitt said that the project included mining leases or any words to that effect. Mr Allen's statement that the owner of the mining lease had fenced off the area of the mining lease, that Atusheni did not presently have access to the area which the owner of the mining lease had fenced off, that it appeared that the area that the owner of the mining lease had fenced off encroached outside of the boundaries of the mining lease and into the area over which Fortitude held the exploration licence and that Atusheni would explore whether they could gain access to, and the right to explore, this area was entirely inconsistent with the alleged Mining Lease Representation.
The first meeting at the GHD office took place after the first coffee shop meetings and about two weeks before the 6 February 2014 coffee shop meeting. It is implausible that Mr Cribbes would have made the statements attributed to him by Mr Luff at the 6 February 2014 meeting when Mr Allen had made the statements he made about the mining lease at the GHD office meeting two weeks earlier.
I do not feel an actual persuasion that the Mining Lease Representation was made to Mr Luff. To the contrary, I find that it was not made.
Defendant has not proved loss or damage
I further find that the defendant has not proved that he suffered any loss or damage because or as a result of entering into the Agreement or making the payments totalling $180,000.
The defendant's case is that the shares in Gemini which have been issued to him and which are to be issued to him under the Agreement are worthless or at least not worth $180,000. The defendant says that Gemini's only significant assets is its shareholding in Atusheni, that Atusheni has no assets of any significant value and therefore Gemini's shares have no significant value.
The defendant has not proved that Atusheni has no assets of any value and hence that Gemini's shares have no significant value. There is no evidence that Atusheni does not have an interest in the Namibia Project or that the value of its interest is less than $3 million or any other amount.
Reliance
The defendant is seeking relief pursuant to ACL s 237 which provides that a court may on application of a person who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that was engaged in in contravention of, amongst other provisions s 18, make such order as the court thinks appropriate against the person who engaged in the conduct or a person involved in that conduct. Section 243 sets out the kind of orders that may be made. The requirement that the applicant has suffered, or is likely to suffer, loss or damage because of the conduct of the person against whom relief is sought requires the identification of a causal connection between the loss or damage alleged and the contravention. Mr Luff claims that 'but for' the Mining Lease Representation he would not have executed the Agreement.
In his witness statement Mr Luff says:
If I had not been told that tenure would be obtained soon over ML 162, I would not have signed the [Agreement].
and
I would not have made the payments if I had not been given the assurances about tenure [of ML 162].
In Razdan v Westpac Banking Corp Ltd [2014] NSWCA 126 McColl JA noted, at [15]:
Indeed, courts are cautious in accepting assertions of reliance in this context because they are regarded as essentially self‑serving … [t]hey are similar to statements as to what a person would have done if some impugned conduct had not occurred which have little probative value unless the 'reliability of their evidence' is confirmed by 'reference to objective factors' …
The background and experience of the defendant, the Investor Presentations, the statements by Mr Allen at the GHD meetings and the reports of Mr Rigby make it highly unlikely that Mr Luff relied on the alleged Mining Lease Representation. In my view it is commercially illogical and inherently improbable that in deciding upon making a $1 million share purchase Mr Luff relied upon oral statements by directors at coffee shop meetings which were either inconsistent with or at least unsupported by the written material presented to him, the presentation made by Gemini's technical director at formal meetings and the report of the expert he retained to advise him. Despite obtaining written presentations from Gemini and formal oral presentations by its technical director which were either inconsistent with or made no mention of Gemini holding or soon to acquire a mining lease Mr Luff did not seek written confirmation of the alleged representation but for which he says he would not have made the Agreement. That is implausible.
Mr Luff's evidence in cross‑examination is that he did not execute the Agreement because of, or in reliance upon, the alleged representations concerning ML 162. Mr Luff said he signed the agreement 'because it was requested'. Mr Luff said it was not Mr Cribbes who requested him to sign the Agreement but did not say who did. Mr Luff's evidence why he signed the agreement is as follows:
Q: You signed it because somebody asked you to sign it. Is that what you're telling us?
A: Because they were looking for a cornerstone investor which the initial $3 million was. They had already spent $1 million on the project and represented it as 250 ‑ 150 to both Cribbes and to the other shareholder.
Q: But when you signed it, you weren't relying on anything that you had been told about ML 162, were you?
A: No.
The defendant's claim that he suffered loss or damage by making the payments, as distinct from executing the Agreement, in reliance on, or because of, the misleading or deceptive conduct of Gemini in making the Mining Lease Representation must also be rejected. First, Gemini did not engage in misleading or deceptive conduct by making the Mining Lease Representation. Secondly, the defendant has not established that he suffered any loss or damage by making the payments in that he has not established that the shares which have been issued to him or are to be issued to him are worth less than $1,000,000 or $180,000. Thirdly, if the defendant suffered any loss or damage by making the payments he did not suffer that loss or damage because of the alleged misleading or deceptive conduct of Gemini. On executing the Agreement Mr Luff had a legally enforceable obligation to pay $1 million in the specified instalments. The $180,000 he paid was in part discharge of that legal obligation.
Counterclaim
The defendant counterclaims for loss or damage allegedly suffered because of Gemini's misleading or deceptive conduct. The defendant says that Gemini engaged in misleading or deceptive conduct by making the Mining Lease Representation, but for the Mining Lease Representation Mr Luff would not have made the payments and therefore by reason of Gemini's misleading or deceptive conduct, Mr Luff has suffered loss and damage being the total amount of the payments.
That claim fails for three reasons. First, Gemini did not make the Mining Lease Representation and did not engage in the alleged misleading or deceptive conduct. Secondly, the defendant has not established that the shares issued to him are worth less than $180,000 and hence has not established that he has suffered any loss or damage. Thirdly, on executing the Agreement Mr Luff was under a legally enforceable obligation to pay $1 million in instalments in consideration for the issue of 2 million shares. The $180,000 he paid is in part discharge of that obligation.
Conclusion
The plaintiff has established that the defendant is bound by the Agreement to pay to it the amounts specified on the dates specified in cl 3.1 of the Agreement. Each instalment of the consideration to be paid by the defendant is payable as a debt at the time specified in cl 3.1. Each of those times has passed and hence Gemini is entitled to recover the balance of the payments, that is $820,000. It is unnecessary to consider the plaintiff's alternative claims for damages for breach of contract totalling $820,000 or to be assessed or its alternative claim for specific performance of the Agreement.
The plaintiff claims interest on the sum of $820,000 at the rate of 6% per annum pursuant to s 32 of the Supreme Court Act 1935 (WA) from 30 November 2014 to the date of judgment. The defendant has advanced no argument why interest should not be awarded. The plaintiff has been kept out of the money to which it has been entitled since at least 30 November 2014. It is appropriate to order that the defendant pay interest on the sum of $820,000 at the rate of 6% per annum from 30 November 2014 to the date of judgment.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GEMINI ENERGY AND MINERALS PTY LTD -v- LUFF [2017] WASC 190 (S)
CORAM: LE MIERE J
HEARD: ON THE PAPERS
DELIVERED : 4 DECEMBER 2017
FILE NO/S: CIV 2607 of 2015
BETWEEN: GEMINI ENERGY AND MINERALS PTY LTD
Plaintiff
AND
RICHARD GEOFFREY LUFF
Defendant
Catchwords:
Costs - Indemnity costs - Calderbank offer made by plaintiff before trial - Offer rejected by defendant - Turns on own facts
Legislation:
Nil
Result:
Defendant pay plaintiff's costs of the action on a party and party basis up to an including 5 April 2017 and an indemnity basis from 6 April 2017 to judgment
Category: B
Representation:
Counsel:
Plaintiff: No appearance
Defendant: No appearance
Solicitors:
Plaintiff: Hotchkin Hanly Lawyers
Defendant: HWL Ebsworth Lawyers
Case(s) referred to in judgment(s):
Calderbank v Calderbank [1975] 3 All ER 333
Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115
Gemini Energy and Minerals Pty Ltd v Luff [2017] WASC 190
Leichardt Municipal Council v Green [2004] NSWCA 341
LE MIERE J:
Summary
The plaintiff, Gemini, and the defendant, Mr Luff, made a written agreement that Mr Luff pay $1 million to Gemini as consideration for two million shares in Gemini (the Agreement). Mr Luff denied that Gemini was entitled to any relief. Mr Luff advanced four defences. In further defence to Gemini's claim Mr Luff said that he would not have executed the agreement or have paid $180,000 to Gemini but for misleading or deceptive conduct engaged in by Gemini. Mr Luff counterclaimed against Gemini for the $180,000 he had paid on the ground that he made those payments because of misleading or deceptive conduct engaged in by Gemini.
I found that Gemini's claim was made out, rejected Mr Luff's defences and dismissed his counterclaim: Gemini Energy and Minerals Pty Ltd v Luff [2017] WASC 190. I entered judgment for Gemini for $820,000 plus interest.
Gemini now seeks an order that Mr Luff pay its costs of the proceedings on an indemnity basis, alternatively Mr Luff pay its costs of the proceedings on the ordinary party and party basis up to 5 April 2017, the date on which Gemini made a Calderbank offer, and from 6 April 2017 to the date of judgment on an indemnity basis. Alternatively, Gemini says that Mr Luff should pay its costs on a party and party basis. Mr Luff concedes that he must pay Gemini's costs of the action but submits that there should be no order for indemnity costs.
For the reasons which follow Mr Luff should pay Gemini's costs up to and including 5 April 2017 on the ordinary party and party basis and from 6 April 2017 to judgment on an indemnity basis.
Conduct of the proceedings
The plaintiff commenced this action on 9 October 2015. On 19 January 2017 the plaintiff entered the action for trial.
On 8 March 2017 Gemini's solicitors wrote to Mr Luff's solicitors to the following effect. First, the defendant's pleas that there is a condition precedent to the Agreement that Mr Luff elect to subscribe for shares by paying $100,000 on execution of the Agreement and that Gemini's obligation to issue the shares and Mr Luff's obligation to pay $1 million are concurrent and dependant obligations are frivolous and vexatious. Secondly, those pleas would necessitate a factual inquiry regarding the circumstances surrounding payments made by Mr Luff to Gemini and therefore increase the issues and costs at trial. Thirdly, if the defendant maintains those pleas Gemini will seek an order that it be paid its costs of and incidental to those defences on an indemnity basis. On the same day Gemini's solicitors sent a Calderbank letter to the following effect. First, for the reasons set out in the first letter the defendant's defences that the Agreement was subject to a condition precedent that he elect to subscribe for the shares and that his obligation to make payment was concurrent with and dependent upon Gemini's obligation to issue the shares had no reasonable prospects of success. Secondly, Mr Luff's claim of misleading or deceptive conduct had no reasonable prospect of success. Thirdly, Gemini offered to settle the action on the basis that Mr Luff pay Gemini an amount of $750,000 for Gemini's claim in the proceedings, an amount of $102,205.48 interest on the sum of $750,000 and Gemini's costs of the proceedings to be taxed on a party/party basis. The offer was stated to be open for 28 days and to have been made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 and Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 (Lo Presti).
Mr Luff did not accept Gemini's offer. Immediately before trial Mr Luff amended his defence to raise additional defences that the parties did not intend to create legal relations and that the parties abandoned the Agreement.
Indemnity costs ‑ principles
The court will only award indemnity costs where there is something in the conduct of the action, or the circumstances of the case, which takes it out of the norm in a way which justifies an order for indemnity costs. The pursuit of a weak claim or defence will not usually, on its own, justify an order for indemnity costs but the pursuit of a hopeless claim, or a claim which the party pursuing it should have realised was hopeless, may lead to an order for indemnity costs. The circumstances in which indemnity costs will be ordered are not closed. One circumstance is the undue prolongation of a case by groundless contentions. The court must avoid the dangers of hindsight. It must be wary of the suggestion by the successful party that the result was inevitable.
The principles applicable to an award of indemnity costs following the rejection of a Calderbank offer was set out by the Court of Appeal in Lo Presti. The critical question is whether the rejection of the offer was unreasonable in the circumstances. The mere fact that the recipient of an offer is ultimately worse off than he or she would have been had the offer been accepted does not mean that its rejection was unreasonable.
The discretion to award indemnity costs as a consequence of an unreasonable failure to award a Calderbank offer does not only arise where the offeree's case is hopeless. If it was so limited, the making of such an offer would add nothing to the existing discretion of the court to award indemnity costs by unreasonably pursuing a claim or defence. The significance of a Calderbank offer is that it requires the offeree to make a reasonable assessment of the advantages of the offer weighed against the possible disadvantages of proceeding. A case may not be hopeless, but the rejection of an offer may be unreasonable bearing in mind the value of the offer and the prospects of success if the case goes to trial.
Case was not hopeless
The defendant's case was weak. His claim that the parties did not intend to be legally bound by the Agreement and his claim that there was a condition precedent that Mr Luff was electing to subscribe for the two million shares was a condition precedent to the performance of the Agreement had no reasonable prospect of success. On the other hand, the defendant's claim that his obligation to pay $1 million was concurrent with and dependent upon Gemini's obligation to issue the shares, which it did not perform, was not hopeless. The defendant's claim that the Agreement was abandoned at least in part depended upon findings of fact. That defence was not hopeless at the outset.
I find that the defendant's counterclaim had no reasonable prospects of success. Mr Luff's evidence of the words spoken which were alleged to give rise to the pleaded misrepresentations were not proved with a degree of precision sufficient to enable the court to find that the alleged representations were made. The defendant knew that he could not give more precise evidence at the time he received the plaintiff's Calderbank offer. Furthermore, the defendant failed to prove loss or reliance.
Disposition
The defendant should pay the plaintiff's costs of the action on an indemnity basis from 6 April 2017, that is, from 28 days after the Calderbank offer made on 8 March 2017. The offer was made when the action had been entered for trial and the defendant had available to him and his legal advisors adequate material upon which to make an informed assessment of his prospects of success. The plaintiff allowed the defendant 28 days to consider the offer. Furthermore, the defendant was not under the pressure of an imminent trial.
The plaintiff's offer involved a real and genuine element of compromise. The genuineness of an offer of compromise cannot be adduced from simple mathematical calculation; much depends upon the circumstances and nature of the litigation. As Santow JA explained in Leichardt Municipal Council v Green [2004] NSWCA 341:
In some cases a plaintiff's offer which allows only a small discount from 100% success on the claim can be genuine and realistic always depending upon the circumstances [37].
The plaintiff's offer involved a reduction of approximately 8.5% of its claim. However, the quantum of the plaintiff's claim was not in issue and the offer involved a reduction of $70,000 plus interest on that amount (which would have been approximately $10,000). That is a substantial sum albeit not a large amount in the context of the jurisdiction of this court.
A realistic assessment of the defendant's prospects of success assessed as at the date of the offer and not with the benefit of hindsight is that the defendant's prospects of success were poor and some of his defences and his counterclaim had no reasonable prospects of success.
The plaintiff's offer was expressed with precision and clarity. The plaintiff foreshadowed an application for indemnity costs if the offer was rejected.
The defendant chose not to accept the offer, to amend his case by pleading further defences which failed and to maintain at trial arguments that were hopeless and prolonged the trial and unnecessarily added to the cost of the proceedings. In my opinion the totality of that conduct make it appropriate that the defendant pay the plaintiff's costs on an indemnity basis from 6 April 2017. The defendant should pay the plaintiff's costs of the application in relation to costs.
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