GLENDALOUGH HOLDINGS PTY LTD -v- MILITAIRE NOMINEES PTY LTD [2013] WASC 457

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2013] WASC 457
Case No:	CIV:1358/2011	Heard:	28-30 OCTOBER & 2 DECEMBER 2013
Coram:	BEECH J	Delivered:	18/12/13
No of pages:	50	Judgment Part:	1 of 1
Result:	Plaintiff's claim dismissed
Category:	B
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Parties:	GLENDALOUGH HOLDINGS PTY LTD MILITAIRE NOMINEES PTY LTD
Catchwords:	Contract Whether informal contract made Whether parties intended to make a concluded binding agreement Turns on own facts
Legislation:	Nil
Case References:	Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 Banque Commerciale SA (in liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Fazio v Fazio [2012] WASCA 72 Films and Casting Temple Pty Ltd v Malla [2013] NSWCA 377 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296 Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 Lewis v Condon [2013] NSWCA 204 RJ Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2010] WASCA 128 Uranium Equities Ltd v Fewster [2008] WASCA 33; (2008) 36 WAR 97 WA Country Health Service v Wright [No 2] [2010] WASCA 120 Westpac Banking Corporation v The Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : GLENDALOUGH HOLDINGS PTY LTD -v- MILITAIRE NOMINEES PTY LTD [2013] WASC 457 CORAM : BEECH J HEARD : 28-30 OCTOBER & 2 DECEMBER 2013 DELIVERED : 18 DECEMBER 2013 FILE NO/S : CIV 1358 of 2011 BETWEEN : GLENDALOUGH HOLDINGS PTY LTD

Plaintiff

AND

MILITAIRE NOMINEES PTY LTD

Defendant

Catchwords:

Contract - Whether informal contract made - Whether parties intended to make a concluded binding agreement - Turns on own facts

Legislation:

Nil

Result:

Plaintiff's claim dismissed

Category: B

Representation:

Counsel:

Plaintiff : Mr D H Solomon & Mr C S Williams

Defendant : Mr R J Nash

Solicitors:

Plaintiff : Solomon Brothers

Defendant : Ginbey & Co

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

Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Banque Commerciale SA (in liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Fazio v Fazio [2012] WASCA 72
Films and Casting Temple Pty Ltd v Malla [2013] NSWCA 377
Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551
Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296
Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437
Lewis v Condon [2013] NSWCA 204
RJ Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2010] WASCA 128
Uranium Equities Ltd v Fewster [2008] WASCA 33; (2008) 36 WAR 97
WA Country Health Service v Wright [No 2] [2010] WASCA 120
Westpac Banking Corporation v The Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1

BEECH J

(1) Introduction

1 In late 2007, three groups of companies vended their assets into a new company, Novetec Building Products Pty Ltd (Novetec). In return, each group was given a shareholding in Novetec, calculated according to their respective earnings, after some adjustments.

2 The plaintiff (Glendalough) constituted one group. The defendant (Militaire) was part of another group, known as the Rigo group. The third group of companies was known as the Technicon group.

3 The Technicon group had assets in China. Those assets were vended into and owned by Novetec through a 100% owned subsidiary of Novetec. By mid-2008, Novetec was in substantial financial difficulty. The directors discussed the possibility of excising the Chinese assets to prevent their loss in any collapse. The directors of the companies in the Technicon group also asserted that the Chinese assets had been mistakenly vended into Novetec, and sought some redress in that respect.

4 In the same period, most of the non-Rigo group directors formed the view that a substantial amount of the stock of the Rigo group was slow moving and obsolete, with the result that the Rigo group had received more shares than it should have. There was correspondence asserting that the Rigo group had breached a warranty in this respect. That was denied by the Rigo group.

5 Glendalough claims that on 7 August 2008 an agreement was made between the shareholders that the Rigo group would transfer some of its shares in Novetec to the other shareholders. Glendalough also claims that on 10 October 2008 Glendalough's director, Mr Keith Robertson, acting with the authority of the companies comprising the Technicon group, agreed on all their behalves with Mr Rigo, on behalf of the Rigo group and Militaire, that the agreement of 7 August 2008 would be implemented by Militaire transferring just over 11 million shares to Glendalough. Glendalough would then be obliged to distribute the transferred shares to the other shareholders in accordance with what had been agreed on 7 August 2008.

6 The central issue in the case is whether, at a meeting between the shareholders on 7 August 2008, Mr Rigo made a binding agreement on behalf of Militaire or the Rigo group to transfer shares in Novetec to the other shareholders as compensation for the slow moving and obsolete stock and the mistaken vending in of the Chinese assets. There are also issues about the circumstances leading to Mr Rigo signing a receipt dated 10 October 2008, and whether any agreement was made on 10 October 2008.

7 For the reasons that follow, I would dismiss Glendalough's claims.

8 The remainder of these reasons are organised as follows:

(2) The facts: [9] - [110].

(3) Glendalough's claim: [111] - [113].

(4) Informal contracts: legal principles: [114] - [119].

(5) The meeting of 7 August 2008 - was the First Agreement made? [120] - [154].

(6) The events of 10 October 2008 - was the Second Agreement made? [155] - [201].

(7) Conclusion [202].

(2) The facts

2.1 General approach to fact finding

9 The trial concerned events that occurred five years ago. None of the principal participants in events was asked to recall what had happened until some years after the events in question. None of the witnesses professed to have a great deal of recollection of events beyond what they obtained from reading the documents produced at the time. Moreover, in the course of cross-examination it was apparent that none of the witnesses had a reliable recollection independent of the documents. Understandably, they all relied heavily on the documents to refresh their memory.

10 Further, in my view, the perspectives and recollections of both Mr Robertson and Mr Rigo, five years after the events in question, have been significantly affected by their respective claims and contentions in this action. As will appear, in several material respects I do not accept the evidence of Mr Robertson or Mr Rigo, although I do not doubt that each of them genuinely believes in the truth of the evidence he has given.

11 In all the circumstances, I have placed significant weight upon the contemporaneous documentary evidence, and upon the inferences to be drawn from that evidence. I have also taken into account the inherent probabilities of a particular version of events, particularly where that can be assessed against any objective facts that are established by the documents or by any evidence of whose reliability I am satisfied. This is a conventional approach to fact finding.1

2.2 The parties and their businesses

12 Mr Robertson is a director of Glendalough. Prior to the merger, Glendalough had a business of manufacturing bathware and other acrylic products for the plumbing industry, using the trade name Multiform. It supplied its products to the plumbing industry through plumbing merchants, and also liaised directly with builders, architects and specifiers. It had operations in Western Australia and Victoria and sold directly to a distributor in South Australia. It also paid commissions to agents, including members of the Rigo group, to sell its products in New South Wales and Queensland.

13 The Rigo group operated a plumbing business trading as Vogue/Novelli. The group comprised Militaire, Bhutan Nominees Pty Ltd (Bhutan) and Ausital SRL (Ausital). Ausital was an Italian company which undertook the Italian operations of the Rigo group. Until about 2006 or 2007, the Rigo group was controlled by two brothers: Mr Armando Rigo, known as John; and Mr Ettore Rigo, known as Eddie. In the lead up to the merger of the Rigo group with the other groups, Mr Eddie Rigo had decided that he did not want to be part of the arrangement. That led to an agreement between Mr John Rigo and Mr Eddie Rigo by which John took over the businesses and Eddie took ownership of real property and other assets within the group.2

14 The third group, the Technicon group, operated a plumbing supply business trading under the name Technicon. It manufactured and sold plumbing and brassware products that were manufactured in China and supplied to Australia.

15 The business of the Technicon group was conducted through Technicon Industries Pty Ltd (Technicon Industries). The shareholders in Technicon Industries were three companies, each of which was associated with and owned by a different individual. Mr Ronald Rouwenhorst was, until February 2008, the sole director of Solution 2000 Australia Pty Ltd (Solution). Mr Samuel McCallum was the director and substantially controlled Olympic Tapware & Building Products Pty Ltd (Olympic). The third company comprising the group was Technicon Drilling & Mining Supplies Pty Ltd (TDM Supplies). Shares in TDM Supplies were owned and controlled by Mr Guo Shi Zhong, a Chinese citizen, who ran the Chinese manufacturing part of Technicon's operations. Mr Rouwenhorst was a director of TDM Supplies, but did not hold any shares.

2.3 Pre-merger discussions

16 Mr Robertson had discussions with Mr Eddie Rigo and Mr Rouwenhorst in 2004 and 2005 about the possibility of merging their respective businesses.

17 By 2006, the discussions had progressed to the point where legal and accounting advisors were engaged. Substantial documents mapping the process and setting out what was required were prepared.3

18 The original concept was that the three groups, the Technicon group, the Rigo group and Glendalough, would sell their assets to a new company, with the new company to issue shares to each group to be determined according to each company's EBITDA (earnings before interest, tax depreciation and amortisation). The company was to be floated on the ASX at the same time as the merger, with the issue of shares in the new company to occur at the time of the float of the new company on the ASX.4

19 By mid-2007, concerns emerged about whether the new company would be in a position to be publicly listed by late 2007.5

20 Novetec Building Products Limited, a public company, was registered on 1 August 2007.6

21 By the second half of 2007 it was agreed that the merger would occur in late 2007, but that the float would be delayed until later.

22 On 9 November 2007, Novetec Building Products Pty Ltd was registered as a proprietary company.7

2.4 Agreements entered, and first tranche share issue

23 On 30 November 2007, a series of agreements were entered into to effect the merger of the three groups of companies. The agreements were:8

(a) business sale and purchase agreement between Militaire, ATF The Economic Distributors Unit Trust and Novetec;

(b) business sale and purchase agreement between Bhutan, ATF E & A Rigo Unit Trust and E & A Rigo Pty Ltd;

(d) a Technicon share sale agreement (step 3) between Novetec, Olympic, Solution and TDM Supplies;

(e) a business sale and purchase agreement between Glendalough, Technicon Industries, Novetec and other parties;

(f) Ausital SRL share sale agreement between Novetec and Armando Rigo; and

(g) a shareholders agreement.

24 The substance of the agreements is accurately summarised in the schedule to Glendalough's written opening submissions dated 27 June 2013. It is not necessary to recite it.

25 The end result after the merger was that all three businesses were held within Novetec or its 100% owned subsidiary Technicon Industries. The businesses of the Rigo group were held in Novetec. What had been the businesses of the Technicon group and Glendalough were held in Technicon Industries. Novetec held all the shares in Technicon Industries, having acquired those shares from Olympic, Solution and TDM Supplies.

26 The agreements provided that the shares would be issued in two tranches. That was to allow for a process of adjustments to be made to the financial statements of the various entities, following which a second tranche of shares would be issued.

27 After the first tranche share issue, the position was that:

(a) 87,863,670 shares were issued;

(b) a total of 35,912,444 shares representing 40.87% of the total issued shares were issued to the Rigo companies, comprising 27,843,806 to Militaire, 5,703,342 to Bhutan, and 2,365,296 to Mr Rigo;

(c) a total of 47,317,823 shares representing 53.85% of the shares were issued to the Technicon group, of which 17,194,416 were issued to Olympic, 15,194,416 to Solution and 14,928,991 to TDM Supplies; and

(d) 4,633,403 shares representing 5.27% of the shares issued to Glendalough.9

2.5 Financial problems for Novetec

28 During 2008, Novetec developed serious financial difficulties. In their statements, Mr Robertson and Mr Rigo offer different perspectives on the reasons for that. Mr Rigo attributes it to the economic downturn leading to serious cash flow problems.10 Mr Robertson says that it was caused by more than the general downturn in the industry. He points to the fact that Mr Rouwenhorst and Mr McCallum had taken $2 million and $1 million respectively out of their company's before the merger, reducing Novetec's cash flow and also to the urgent need to transfer $1 million to Ausital following the merger.11 It is not necessary to attempt to analyse the reasons for the financial difficulties faced by Novetec in 2008.

29 By 15 April 2008, Mr David Duncan, the then managing director of Novetec, wrote to members of the executive, stating the company was falling significantly short of its profit targets and that significant cost reductions were necessary.12

30 At a directors meeting in April 2008, Mr Rouwenhorst asked whether any directors were willing to resign, saying that the business could not afford all of its directors. At that stage the directors were each paid a salary of $360,000 per annum.13 No one was willing to resign. Mr Rouwenhorst then proposed a significant pay cut for directors. After further discussion, the directors agreed to reduce their salary to $150,000 per annum.14

2.6 Issues regarding the Rigo group's stock

31 By May 2008, Mr Rouwenhorst, Mr McCallum and Mr Robertson came to the view that there were problems with the accounts of the Rigo companies and, in particular, they were concerned that the aging of the stock had not been correctly recorded at the time of the merger.15

32 On 24 May 2008, Mr McCallum sent an email to Mr Duncan, Mr Rouwenhorst and Mr Penson, the company secretary and CFO of Novetec, about the Rigo group's current stock of Italian tapware.16 The email stated that it was 'disgraceful' what they had been left to sort out. The email stated that it would be surprising if 25% of the total value of the stock could be recovered, requiring a write-off of $1.5 million. The email suggested that, being conservative, there should be a minimum of a 25% devaluation of the Rigo group. The email requested that this be sorted out prior to the second tranche issue of shares.

33 There was a meeting of directors on 5 June 2008.17 The minutes record that during a directors only discussion, topics discussed included 'inventory valuation - E & A Rigo', and '2^nd Share Tranche adjustments'. The minutes also record discussion about cash flow and finance issues. A resolution is recorded that 'based on current strong working capital position and the ongoing negotiations with the current bank and other potential finance providers, including debt factoring, the Company was able to pay its debts as and when due and was therefore continuing to be a going concern'.18

34 On 9 June 2008, there was a meeting between Mr Robertson, Mr Rouwenhorst and Mr McCallum. Mr Rigo was absent. The next day, Mr Rouwenhorst sent an email to Mr Penson, copied to Messrs McCallum, Robertson and Rigo, summarising what was agreed at the meeting.19 The email included the following:

• Following investigation by Keith Robertson should such investigation result in no improvement in second tranche share issue and rather a reduction in shares it was agreed that any such occurrence would trigger an increase in shares to existing shareholders rather than a reduction via cancellation or return. It is important to note that this will result in a dilution of share value to existing shareholders as the size of the pie will effectively not change.

• It was discussed that there was a concern from some existing shareholders that there expectation of there percentage of shares was consistent with the original IPO allocation plus or minus a percentage following WCD finalisation and that the inclusion of compensation for the China land and buildings has had the result in diluting there shareholding percentage as there was an extra amount of shares to be issued to the Technicon vendors. It was discussed that there maybe an opportunity for the land and buildings to remain in the hands of the original Technicon shareholders. The issues surrounding this are being investigated by the China based shareholder so as to determine if this is possible.

• It was discussed and agreed that the loans recently made by all the shareholders would be subject to a simple loan agreement and available on call within the capacity of the company to pay.

• It was agreed that the salary temporarily forgone due to cost cutting measures would be subject to drawings once the financial position of the company could cover such amounts being the difference between the original amount and the lesser amount currently being taken as salary.

• It was agreed that the issue of employee share scheme would be delayed until the status of the companies profitability was back on track.

• It was agreed that the issue of the Italy lease be discussed with John upon his return.

35 Thus, at this meeting, the issue of the inclusion of the China land and buildings was raised, and further enquiries were to be made, following which the issue would be revisited.

36 By mid-June, Messrs Rouwenhorst, Robertson and McCallum were dissatisfied in relation to the value of the Rigo group's stock. They authorised Mr Penson to write a letter to Mr John Rigo.20 In substance, the letter stated:21

(a) the amount of slow moving/obsolete stock inventory was stated in the Rigo group's accounts to be about $1.36 million for Australia and about $200,000 for Italy;

(b) it was now suggested that the provision should have been at least $4 million, resulting in an EBITDA adjustment of about $430,000;

(d) that could be set off against the second tranche issue of shares due of about $3.6 million;

(e) this matter could be argued to amount to a breach of warranty under cl 1.1 of sch 2 of the business sale and purchase agreements.

37 Mr John Rigo showed the letter to his brother and they spoke to their solicitors, Norton & Smailes.22

38 By letter of 26 June 2008, Norton & Smailes responded to Novetec's letter of 20 June 2008.23 The letter requested information that demonstrated the basis on which the slow moving obsolete inventory provision should have been at least $4 million and why the EBITDA adjustment should have been $430,000. Further, the letter requested advice as to how that information was relevant to the calculation of the purchasers' shares under the business sale and purchase agreements in any event. The letter recorded the solicitors' instructions that their clients reject any suggestion that they breached any warranty under the agreements.

39 The Norton & Smailes letter disputed that the letter of 20 June was a determination of inventory value pursuant to cl 6.1(12) of the business sale and purchase agreement, stated that the Rigo group reserved its rights, and requested that no further shares in Novetec be issued to any party until the issue had been resolved.

40 Messrs Rouwenhorst and McCallum say, and I accept, that after receipt of that letter they had a meeting with Mr Penson at which it was determined that the matter was dead because it was expensive and was the result of an inadequate due diligence. It was agreed between them that no further action would be taken by Novetec.24

41 There was a meeting of directors on 10 July 2008. There are minutes of the meeting, although these say the meeting was held on 10 July 2009.25 The minutes record the following under the topic of 2^nd Tranche Shares:

• RR having meeting with P & S [accountants, Pike and Skinner] to discuss figures used in calculation - will not proceed until happy with these

• One issue with Glendalough - Shareholders to discuss offline

• Several issues with Rigo, one of which concerns the debt owed to Ausital by Armic s.r.1 as per RR this is not to be settled by share reduction

• MDP advised of pressure from State Revenue to finalise the issue of shares

42 The note of matters arising from the board meeting of 10 July 2008 includes an item 'Doubtful Debts/Obsolete Stock Provision' as being the responsibility of Mr Penson to progress, with a completion date of 25 July 2008.26

2.7 Loan from Rigo Nominees Pty Ltd

43 By about July 2008, Novetec was in need of further funds by way of additional working capital. Novetec's bank, Westpac, would not lend further monies.27

44 Rigo Nominees Pty Ltd was associated with Mr Eddie Rigo. As I have said, the Rigo brothers had split their corporate assets so that Mr Eddie Rigo was no longer involved in the plumbing part of those assets. Mr Eddie Rigo, through his company Rigo Nominees, was Novetec's landlord in a number of its premises. Messrs Rouwenhorst, McCallum, Robertson, Penson and John Rigo met and agreed to approach Rigo Nominees for a loan. On 21 July 2008, Mr Rouwenhorst wrote a letter proposing the terms of and security for the loan.28

45 On the same day, Mr Robertson authorised Mr Rouwenhorst to seek private equity funding of up to 50 to 60% of the company.29

46 By letter of 22 July 2008, Westpac set out its terms of extension of its facilities to Novetec. The directors agreed to those terms.30

47 Mr Penson had some discussion with an alternative bank.31

48 A heads of agreement was signed between Rigo Nominees, Novetec, Messrs John Rigo, Robertson, McCallum and Rouwenhorst in relation to the proposed loan.32 It provided for a loan by Rigo Nominees to Novetec of $1 million. Clause 8 of the heads of agreement provided that in further consideration of the advance of the loan sum Novetec thereby released and discharged Rigo Nominees, and, as a separate covenant, various companies from any claims arising out of the valuation of the stock purchased by Novetec pursuant to the sale of business agreement which may be pleaded in bar to any action or proceeding by Novetec against Rigo Nominees, the named trust, Mr Eddie Rigo, Militaire or Bhutan.

49 As Glendalough submits, this is a release by Novetec, not by the shareholders of Novetec.

50 Mr John Rigo says that after discussions with Messrs McCallum, Rouwenhorst, Robertson and his brother about the slow moving stock, each person expressed that on signing the heads of agreement, the slow moving stock would no longer be an issue.33 I do not accept this evidence. Taking into account the whole of his evidence in cross-examination, I do not accept that he has a reliable recollection of any such discussions.

2.8 Discussion about Chinese assets

51 Messrs Rouwenhorst, Robertson and McCallum discussed Novetec's Chinese assets. Mr Rouwenhorst told Mr Robertson that it would be possible for Novetec to hive off its Chinese assets into a Chinese company if the Australian company was no longer viable. Mr McCallum told Mr Robertson that after the second tranche issue, shareholdings in Novetec would need to be redistributed to account for the Chinese assets.34

52 Mr Rouwenhorst says he discussed the matter with Mr Robertson and Mr John Rigo before the merger, and it was decided that the Chinese assets would be excised after the merger.35

53 By August 2008, as I have said, Messrs Rouwenhorst and McCallum had complained that the Chinese assets of Technicon Industries had been vended into Novetec as part of the merger, when that had not been intended.

2.9 Shareholders meeting 6 August 2008

54 On 6 August 2008, there was a meeting between Mr Robertson, Mr John Rigo, Mr Rouwenhorst and Mr McCallum as (representatives of) the shareholders of Novetec. (For convenience, I will refer to these individuals as the shareholders, although it was their respective companies which owned the shares in Novetec.) There are minutes of the meeting, signed within days of the meeting by Mr Rouwenhorst and by Mr Rigo.36 With an immaterial qualification, I accept the accuracy of the minutes and, where the evidence of a witness as to what happened at the meeting conflicts with the minutes, I consider the minutes more reliable. The qualification relates to the first dot point, the accuracy of which was challenged by Mr McCallum. Because it relates to an immaterial topic, nothing turns on that.

55 The minutes read as follows:

Present:

K Robertson (KR), A Rigo (JR), Ron Rouwenhorst (RR), S McCallum (SMcC)

By invitation Michael D Penson (MDP)

Apologies - Guo Shi Zhong (GSZ) RR advised the members that he held proxy for GSZ

Procedural

The members waived the requirement for notice

The members unanimously agreed to make the following adjustments to the 2^nd Share tranche, vary the shareholders agreement and split out the business of Technicon and its subsidiaries from the group through an 'in specie' distribution. MDP was tasked with actioning the following points with assistance from Deacons and BDO Kendall as required.

• Olympic Tapware (SM) will convert $2 million of the shares owing to him to a loan to Novetec unsecured, at call, of $1 million.

• It was agreed that when and if an equity injection is achieved the members would waive their pre-emptive rights to the extent that SM will be allowed to buy 4 million shares from AR at a mutually agreed price.

• Glendalough Holdings. An adjustment will be made to the working capital calculation so that the stock written off in respect to the display stock does not effect his entitlement under the 2^nd share tranche.

• AR currently holds a DIV7A loan from Novetec in the amount of $350k advanced to approximately $175k. This agreement is to be terminated and replaced with the following: AR will forgo 3.2 million shares in exchange for a loan to Novetec of $800k repayable monthly over 24 months. AR recognises that interest is recoverable by Novetec from the $800k balance.

• Yantai Leader and Yantai Technicon and Ausital are all to acknowledge that there is no retention of title attaching to inventory held in Australia or in transit as at 30^th June 2008.

• That Clause 8.3 of the shareholders agreement covering decisions by members and clause 8.2 covering decisions by directors will be varied so that the percentage in each case is 60.

• That Technicon and its subsidiaries be excised from the group so that initially all shareholders maintain their current holding but in two separate entities. This is to be varied once the business has been excised to the following percentage ownerships - AR (Militaire plus Bhutan plus AR personally) 27%, KR (Glendalough) 8.5%, RR (Solution 2000) 21.5%, SM (Olympic Tapware) 21.5% GSZ (Technicon Drilling and Mining) 21.5%.

6. Next Meeting

Next meeting sine die

Signed as a true record [signed by Mr Rouwenhorst]

Date: 8/8/08

56 It can be seen from the minutes that:

(a) the proposal under discussion at the meeting related to the excising of Technicon Industries and its subsidiaries from Novetec through an in specie distribution;

(b) the percentage shareholdings were to be varied once that excise had occurred; and

(c) at that stage, the proposal was for an adjustment of the shareholdings to take place as part of the issue of the second tranche of shares under the merger agreements.

57 In the course of the meeting, at an early stage, Mr Rouwenhorst proposed hiving off the Chinese operation held by Technicon Industries to ensure that the parties had something to fall back on if the Australian operation of Novetec failed.37 In the course of the meeting, Mr Rouwenhorst referred to the claim by the Technicon group that the Chinese assets should not have been vended into Novetec, and that that issue needed to be redressed.38

58 These minutes use the language of agreement, for example, 'the members unanimously agreed'. In my view, that language does not reveal an intention on the part of the shareholders to make a binding legal commitment. Rather, the members were recording an agreed course of action which would require further professional advice and assistance, and further consideration. That is consistent with the fact that the question of the respective share percentages was revisited the next day, with further debate and negotiation. In any event, Glendalough does not claim that any binding contract was made on 6 August 2013.

2.10 Shareholders meeting 7 August 2008

59 At 7.50 am on 7 August 2008, Mr Penson sent an email to Mr O'Brien, of BDO Kendalls, an accounting firm, and others.39 The email referred to conversations of the previous day and stated that Mr Penson had been informed that Chinese law would make it very difficult to separate Technicon Industries from the two Yantais. (That is a reference to the Chinese corporate subsidiaries of Technicon Industries). The email asked Mr O'Brien to consider how making the break at the Technicon Industries level might be achieved.

60 At 9.40 am there was a directors' meeting of Novetec.40 The minutes of the meeting include an entry that among the shareholder related issues being reviewed by lawyers and accountants were some conversion from equity to debt, and the possible demerger of Technicon Industries. The minutes record that Mr Penson was to advise directors once the legal/accounting and tax position was clear.41

61 At 10.36 am on 7 August 2008, Mr O'Brien responded to Mr Penson's email of earlier that morning, suggesting that one possibility was to strip Technicon Industries back to a shell, and transfer all its existing operations and assets to Novetec, with the only assets remaining being the ownership of the Chinese subsidiaries. There would then be an in specie distribution of the shares in Technicon Industries to the shareholders, with a reconstruction to then deal with the ownership issues. The steps involved were identified as:

(1) Transfer all operations and assets out of Technicon Industries to Novetec, other than the shares in Chinese subsidiaries.

(2) In specie distribute the shares in Technicon Industries to the existing shareholders of Novetec.

(3) Shareholders agree to sell shares in Novetec and Technicon Industries to one another at nominal values to determine the ownership structure.

62 The email stated that tax advice would be needed in relation to this possible approach.

63 At 1.45 pm, Mr Penson forwarded those emails to Messrs Rigo, Robertson, Rouwenhorst, McCallum and another, saying that the contents of what was forwarded was what he (Mr Penson) had said that morning, and that it seemed to make sense. That is evidently a reference to what Mr Penson had said at the directors meeting that had been held that morning.

64 At 2.00 pm on 7 August 2008, there was a meeting of directors. Glendalough's case is that at the meeting the parties reached an enforceable oral agreement. Minutes of the meeting, signed by Mr Rigo, state as follows:42

Minutes Meeting

7^th August 2008 2.00 pm

Present: Ron Rouwenhorst, Sam McCallum, Keith Robertson and John Rigo

The discussion opened around the issue of Technicon vending in or not the China land and buildings and that going into an IPO they were never to be vended in but were to be an outright purchase that would be satisfied either at IPO or some future IPO or capital raising. Circumstances had changed and due to certain expectations and representation it is unlikely the company will go to IPO in the foreseeable future.

The Technicon vendors have the opportunity to challenge the vending in of the China land and buildings on the basis that historical minutes would confirm the land & building were never to be included in, in the first place.

Secondly there was a very strong case for the shareholders to challenge the Rigos for misrepresentation.

It was also discussed that some months ago we as shareholders and vendors would not benefit from a course of litigation and that we would attempt to find an amicable solution that we could all live with. A proposal was put forward that an element of de merger be undertaken that would result in the shell company Technicon (the Australian company) being de merged out of Novetec and as such Technicon would stand alone as an Australian shell but its only asset would be the China business and land and buildings with common shareholdings.

In order to agree to this there needs to be an agreed redistribution of shares in a proportion different to that envisaged with the Novetec Company. The rationale for this is that a value attributable to the land and buildings was in the vicinity of 8.5 million dollars and if eliminated from Novetec there would be no automatic reduction in the value held by both the Rigo vendor and the Glendalough vendor and that the full value of the land and building would revert to the original Technicon vendors.

It was felt that the amicable solution to avoid any litigation or removal of the China land & buildings would be to include all parties in the ownership of everything via a redistribution or component of share and then to do an in specie distribution to all shareholders consistent with the reallocation.

There was a proposed redistribution in the following percentages: Mr Rigo 25%, Mr Robertson 9% and Mr Rouwenhorst, Mr McCallum and Mr Shi Zhong 22%.

Following discussions and negotiations it was finally agreed by all parties that the following percentages would be fair and acceptable 27% Rigo, 8.5% Robertson and 21.5% McCallum, Rouwenhorst and Shi Zhong.

65 In section 5 of these reasons, I will make detailed findings about what occurred at the meeting.

66 At 6.13 pm on 7 August 2008, Mr Penson sent an email to Mr O'Brien and others, copied to Messrs Rouwenhorst, McCallum, Robertson and Rigo.43 The email requested a meeting to discuss how to implement 'the board and shareholders' wish to proceed with the carve out of Technicon'. The email stated that the relativity the shareholders wish to achieve was Rigo 27%, Glendalough 8.5%, Rouwenhorst 21.5%, Olympic 21.5% and Guo 21.5%, and that these percentages were to be in both Novetec and Technicon Industries.

67 In the days following, none of the shareholders to whom this email was copied responded with any disagreement as to its contents.

68 On 7 August 2008, Mr Rouwenhorst sent an email to Mr Guo at 6.53 pm, reporting on 'what we/I are trying to achieve and ... the current status'.44 The email stated that:

(a) everything has legal and tax implications, but the latest is that they were trying to move the whole of Technicon from Novetec, but before doing this they must sell all the assets of Technicon [to Novetec], with the exception of the Chinese assets;

(b) it was then proposed they sell Technicon to the existing shareholders of Novetec;

(c) before doing that, they were trying to change the shareholding of Novetec which will flow through to Technicon in the same percentage;

(d) 'after long negotiations' they had persuaded Rigo to accept 27% for him, 8.5% for Robertson and 21.5% each for Rouwenhorst, McCallum and Guo, for both companies;

(e) the email stated that this was far better than the present situation of current shareholding of the whole company; and

(f) he will keep Mr Guo informed as things progress, and what the outcome are of both legal and tax advice surrounding the proposed restructure of the shareholdings.

This email was forwarded to Mr McCallum on 8 August 2008.

69 It should be noticed that, unlike the other emails exchanged on 7 August 2008 to which I have referred, this email was not communicated to all of the other shareholders who had attended the meeting of 7 August 2008. It represented Mr Rouwenhorst's subjective view of things, which he communicated to Mr McCallum. Mr McCallum did not dissent from it.

70 In any event, in substance Mr Rouwenhorst's email sent at 6.53 pm is consistent with the other emails to which I have referred.

2.11 The second tranche issue

71 Through mid-2008 Mr Penson calculated shares to be issued in the second tranche share issues.

72 In late August 2008 or early September 2008, the directors met and agreed to a calculation that had been made by Mr Penson in relation to the further shares to be issued in the second tranche.45

73 A meeting of directors was held on 4 September 2008. Among other things, the minutes record in relation to the second share tranche that, subsequent to the second tranche, the vendors intended to rebalance their shareholdings in Novetec.46

74 New share certificates were issued.47 The result of the second tranche issue was that the Rigo group held 36.24% of shares, Olympic 21.62%, Solution 19.8%, TDM Supplies 18.16% (giving the Technicon group 59.58%), and Glendalough 4.18%.48

75 There are unsigned minutes of a meeting of shareholders of Novetec held on 4 September 2008.49 These record discussions about management structure in light of the impending departure of the managing director. It was agreed that Messrs McCallum and Rouwenhorst be appointed joint managing directors.

76 On 4 September 2008, Mr Rouwenhorst sent an email to Mr Penson, copied to the other shareholders.50 The email stated that the redistribution in equitable proportions would result in the following allocations that would not affect the shareholdings of the other shareholders upon the redistribution. The percentages were McCallum 23.4%, Rouwenhorst 21.4%, Guo 19.6%, Rigo 27% and Robertson 8.5%. The email stated that this gave an average of 21.5% for Rouwenhorst, McCallum and Guo. This corrected an error which had led Mr McCallum not to sign the minutes of 7 August 2008 in which the holdings of the three companies in the Technicon group had wrongly been treated as equal.51

2.12 Mr Rigo changes his mind

77 Sometime within a month of the meeting of 7 August 2008, probably quite soon thereafter, Mr Rigo changed his mind, and told the other shareholders that he would not go ahead with what had been discussed at the meeting of 7 August 2008. He told Mr McCallum and Mr Rouwenhorst that he would only go ahead with a restructure if the business was demerged and there was only a restructure of the demerged entity owning the Chinese assets.52

78 Both Mr McCallum and Mr Rouwenhorst accepted what Mr Rigo said, and did not say anything to him to suggest that he was obliged to proceed with what had been agreed on 7 August 2008. Given that Mr Rouwenhorst left the Novetec office on 7 September 2008 and did not return, it can be inferred any conversation with Mr Rigo during which he communicated his change of mind was no later than 7 September 2008. This change of mind did not mark the end of discussions about a restructure and share redistribution. Mr Rigo continued to discuss possible restructure and redistribution, at least as regards the Chinese part of the business.53

2.13 Steps taken by Mr Robertson after the second tranche share issue

79 Mr Robertson's evidence is to the following effect. On a number of occasions in September and October 2008, Mr McCallum said to him that they needed to get the share redistribution fixed. In the course of one of those discussions, one of them said that it could be approached by paying a peppercorn sum for the shares, roughly mathematically equivalent to the number of shares to be transferred, and then transferring some of the shares to Technicon Industries as agreed. One of them proposed this and the other agreed with it.54

80 Mr McCallum's evidence was to substantially different effect. He recalled some discussion about buying the shares for 1 cent as a tax effective means of implementing the arrangement contemplated at the meeting of 7 August 2008.55 He could not recall when that discussion occurred.56 He denied that it was agreed between him and Mr Robertson that Mr Robertson would proceed on that basis, and denied that he had authorised Mr Robertson to pay 1 cent per share on his behalf.57 Mr McCallum also denied that he had any discussion with Mr Robertson at which Mr Robertson said that the share reallocation had to be implemented, and they could pay Mr Rigo 1 cent a share.58

81 On this topic, I prefer the evidence of Mr McCallum to Mr Robertson. Mr McCallum's evidence is that at no point after the meeting of 7 August 2008 did he consider Mr Rigo to be bound to proceed with the arrangements discussed at that meeting, and that, on several occasions when Mr Robertson raised the share reallocation with him, he told Mr Robertson to forget about it, and that the matter was closed.59 I accept that evidence. Mr McCallum's subjective view of things is not probative of whether a binding agreement was concluded at the meeting on 7 August 2008. However, it is relevant to the probability that he said to Mr Robertson words to the effect that they needed to get the share redistribution fixed. I do not accept that Mr McCallum said anything to that effect.

82 I find that, at some stage, Mr Robertson and Mr McCallum discussed the mechanics by which the share reallocation contemplated by the arrangements discussed at the 7 August 2008 meeting might be implemented. In the course of that discussion:

(a) they discussed buying the shares for 1 cent each or for some other nominal amount; but

(b) Mr McCallum did not agree with Mr Robertson that Mr Robertson should pay 1 cent (or any amount) for shares on behalf of Olympic.

2.14 10 October 2008 meeting

83 On 10 October 2008, Mr Rigo signed a document, in his handwriting, bearing the date 10 August 2008.60 It reads as follows:

Received from Bicton Trading $1100.73 cents in consideration for 11,007,302 shares in Novetec Pty Ltd for distribution as agreed.

84 The receipt was signed by Mr Rigo on behalf of 'Militaire Nominees'.

85 In their evidence Mr Robertson and Mr Rigo gave very different accounts of how this document came to be signed.

86 Mr Robertson's evidence in his witness statement was, in summary, as follows:61

(a) he met with Mr Rigo, knowing that Mr Rigo was about to go on a business trip;

(b) he said to Mr Rigo that the share issue needed to be sorted out and it would be easiest if Mr Robertson gave him a cheque with a figure roughly equivalent to the number of shares to be transferred;

(d) Mr Robertson said that Mr Rigo would need to give him a receipt;

(e) Mr Rigo agreed and asked how the receipt should be made out; and

(f) Mr Robertson dictated the terms of the receipt to Mr Rigo.

87 Mr Rigo says as follows:62

(a) Mr Robertson came to his office and said he needed a document to give to the bank relating to Mr Rigo's shareholding if the demerger took place;

(b) Mr Robertson said the document was not legally binding and was only for the bank;

(d) Mr Robertson said that Novetec had to be seen to be buying 11 million shares from Mr Rigo and said that the shares should be worth 1 cent each;

(e) Mr Robertson said that Messrs Rouwenhorst, McCallum and Penson had agreed with the plan; and

(f) Mr Robertson dictated the terms of the receipt to Mr Rigo.

88 The cheque was presented for payment on 21 October 2008.63 Mr Rigo and his son, Mr Michael Rigo, gave evidence that seeks to explain that fact. Mr John Rigo says that he did not intend to bank the cheque, but Mr Michael Rigo says he banked it while his father was away, and without speaking to his father.

89 For the reasons that follow, I do not accept Mr Robertson's or Mr Rigo's versions of the events on 10 October 2008.

90 Generally, I do not accept Mr Rigo's evidence as to what was said at the meeting on 10 October 2008. Mr Rigo's version of events appears to me not to accord with the objective probabilities. There is no apparent reason why a bank would have been interested in a transfer of shares between the shareholders in Novetec and, on Mr Rigo's version of events, no explanation for this was sought or offered. Nor is it apparent why, if the receipt was said to be a sham to be shown to a bank, there needed to be a cheque exchanged and retained by Mr Rigo. According to Mr Rigo, he was intending to give it back in a couple of weeks when he returned.

91 Further, the allegation that the document was a sham without any legal consequence, produced for the purposes of showing to the bank, is a serious allegation requiring convincing proof.64 The same is true of any allegation that Mr Robertson falsely told Mr Rigo that the document was only to show the bank, while intending to use the document to assist in enforcing the arrangements of 7 August 2008. It is unclear if that is what Militaire alleges, although that seems to flow logically from the defence case as to what happened on 10 October 2008.

92 Sometime after 10 October 2008, Mr Robertson showed the receipt document to Mr McCallum.65 Notwithstanding Mr Robertson's evidence to the contrary,66 I accept Mr McCallum's evidence that Mr McCallum did not say in response to Mr Robertson anything to the effect of 'good that's out of the way'.67 Nevertheless, the fact that Mr Robertson showed the document to Mr McCallum tends against it being created as a sham to be given to the bank, and against the likelihood that Mr Robertson deliberately conned Mr Rigo into signing it.

93 Finally, parts of Mr Rigo's evidence in the course of cross-examination were inconsistent and unsatisfactory, and adversely reflected on his credit generally.68

94 However, I do not accept that the version of the discussions on 10 October 2008 advanced by Mr Robertson in his witness statement provides an accurate and complete picture of those discussions in their context.

95 I do not accept Mr Robertson's evidence that he said to Mr Rigo that they had to get the share issue sorted, to which Mr Rigo agreed, saying 'okay let's get it done'.69 For Mr Rigo to have, in effect, unconditionally agreed to the transfer of the Novetec shares would have been at odds with his conduct and statements since shortly after the meeting of 7 August 2008.70 Further, in section 2.13, I rejected Mr Robertson's evidence that in discussions between him and Mr McCallum, Mr McCallum said to him that they needed to get the share redistribution fixed. Rather, I find that Mr McCallum and Mr Robertson discussed a share transfer for nominal consideration as a means by which the arrangements that had been discussed at the 7 August 2008 meeting, or similar arrangements, might be implemented in a tax effective way. I think it is more likely that that is the framework in which Mr Robertson proposed to Mr Rigo that a nominal amount be paid for shares in Novetec. In other words, I consider it more likely that Mr Robertson raised with Mr Rigo the payment of a nominal amount for the shares as a means of progressing the arrangements discussed at the 7 August meeting, rather than as the 'fixing' or finalisation of the share transfers previously proposed and discussed at the meeting on 7 August 2008.

96 In the course of cross-examination, in substance, Mr Robertson accepted that, at the meeting of 10 October 2008, he had said words to the effect 'we need to be seen to be buying these additional shares from you, and that's why we are giving you a cheque for a nominal amount'.71 In my view, that evidence supports the conclusion that the discussions on 10 October were in the context of, and further to, the proposals in August 2008 for share restructuring.

97 I find that at the meeting on 10 October 2008:

(1) Mr Robertson said words to the following effect:

(a) in order to progress the share restructuring of Technicon Industries and Novetec (as discussed in August 2008), in a tax effective way, the other shareholders would need to be seen to buy the additional shares from Mr Rigo's company (or companies);

(b) to that end, Mr Robertson would give Mr Rigo a cheque for a nominal amount for those additional shares;

(2) Mr Rigo agreed to do so and asked how the receipt should be made out; and

(3) Mr Robertson dictated the terms of the receipt to Mr Rigo.

2.15 Subsequent events

98 On 15 October 2008, Mr Rouwenhorst took extended leave from the company. Before that, he had been absent from the office since 7 September 2008. He resigned from the board with effect from 28 October 2008.72

99 On 25 October 2008, Mr McCallum sent an email to Mr Robertson.73 The email said:

As discussed with [Mr Rigo] yesterday could you please advise [Mr Penson] to action company split in accordance with the agreed shareholding.

100 The email also dealt with some other matters.

101 By reference to the email, Mr McCallum accepted that he must have agreed with Mr Rigo, the day before the email, to request Mr Robertson to have Mr Penson action the company split in accordance with the agreed shareholding.74

102 In this context I think 'the company split' is a reference to the splitting of Technicon Industries and Novetec.

103 Following Mr Robertson's receipt of Mr McCallum's email of 25 October 2008, Mr Robertson spoke to Mr Penson and asked him, in effect 'are you going to make the redistribution happen', to which Mr Penson said that he would speak to Mr Rigo.75

104 On 11 November 2008, Norton & Smailes wrote to Mr Rigo, Mr Penson and others. The letter stated that they understood from Mr Penson that the owners of the shares in Novetec, including the Rigo entities, were considering either or both of the following transactions at some stage in the future:

1. an in specie distribution of the shares in Technicon by Novetec to the holders of Novetec shares;

2. the sale of a parcel of Novetec shares held by the Rigo entities to other owners of Novetec shares for a nominal price (for example 1 cent per share).

105 The letter advised that there may be significant tax implications for those proposals and that tax advice should be sought before proceeding.

106 It should be noticed that this letter was not copied to Mr Robertson, and there is no evidence that he received it. In the circumstances, Norton & Smailes statement of their understanding, apparently derived from a conversation with Mr Penson, is of no evidentiary value in assessing whether any agreement had been made on 7 August 2008 or 10 October 2008 and, if so, on what terms.

107 Following receipt of that letter, no steps were taken by any party to progress the contemplated restructure. That objective fact is relevant to the assessment of whether a contract was made on 7 August 2008 or 10 October 2008.

108 Mr Rouwenhorst and Mr McCallum accepted that Mr Rigo was entitled to withdraw from the arrangements entered into on 7 August 2008,76 although it is clear from the evidence that some further negotiations occurred.

109 Mr Robertson did not take any further steps until August 2010. He says that when he spoke to Mr Penson it appeared to him 'that the matter had been resolved' and that there was no pressing need for the transfer of shares to physically occur, given that Novetec was not paying dividends and there was no prospect of an imminent float.77 Although there was no cross-examination in relation to that specific evidence, and although nothing seems to turn on Mr Robertson's subjective uncommunicated reasons for taking no steps, I do not accept that, in late 2008 and early 2009, Mr Robertson considered that the arrangements for reallocation for shareholdings had been resolved. The last conversation he had with Mr Penson was in terms that Mr Penson would speak to Mr Rigo. That provided no foundation for an understanding that the matter had been resolved.

110 By its solicitors' letter of 25 August 2010, Glendalough made a demand to Militaire. 78

(3) Glendalough's claim

111 In its statement of claim, up to and including when I reserved my decision on 30 October 2013, Glendalough pleads that:

(1) on or about 7 August 2008, all of Novetec's shareholders made an oral agreement that, among other things, Militaire would transfer some of its shares in Novetec to Novetec's other shareholders, in consideration for which the other shareholders would release Militaire, Bhutan and Mr John Rigo from any liability which they had to the other shareholders arising from misleading or deceptive conduct which the other shareholders alleged had been engaged in by the Rigo group;

(2) the agreement (the First Agreement) contained the following express terms:

(a) after the transfer of the shares and payment of a nominal sum, the proportion of shares in Novetec would be:

i. Glendalough - 8.5%

ii. Militaire, Bhutan and Rigo - total of 27%

iii. Olympic - 21.5%

iv. Solution - 21.5%

v. TDM Supplies - 21.5%

(b) upon the transfer, all claims of Glendalough, Olympic, Solution and TDM Supplies against Militaire, Rigo and Bhutan arising from the alleged misleading or deceptive conduct of these latter parties would be released; and

(c) the parties would subsequently agree the precise manner in which Militaire's obligations under the agreement would be discharged;80

(3) in about October 2008, Glendalough, Militaire, Olympic, Solution and TDM Supplies agreed that Glendalough would on its own behalf and on behalf of those other companies take steps to procure the transfer by Militaire of sufficient shares in Novetec to implement the First Agreement. This agreement is said to have been oral and reached during the course of a number of conversations held between Mr Robertson on behalf of Glendalough, Mr McCallum on behalf of Olympic, and Mr Rouwenhorst on behalf of TDM Supplies;

(4) on or about 10 October 2008, Glendalough, acting in its own right and on behalf of the other shareholders, agreed with Militaire that Militaire would transfer to Glendalough sufficient shares in Novetec for the implementation of the First Agreement, Glendalough would then transfer to Olympic, Solution and TDM Supplies those shares in Novetec that were required to implement the First Agreement. This agreement is referred to as the Second Agreement. The particulars assert that it was partly written and partly oral, comprising the document dated 10 October 2008 signed by Mr Rigo and the oral part constituted by conversations between Mr Robertson and Mr Rigo on that day;

(5) the Second Agreement contains the following terms:

(a) Militaire would transfer 11,007,302 shares;

(b) Glendalough would pay a nominal sum of $1,100.73;

(d) Glendalough would transfer 2,123,944 shares to Olympic;

(e) Glendalough would transfer 1,946,615 of the shares to Solution;

(f) Glendalough would transfer 1,786,839 of the shares to TDM Supplies;82

(6) on 10 October 2008, Glendalough paid $1,100.73 to Militaire pursuant to the terms of the Second Agreement;

(7) despite demand, Militaire has failed to transfer the shares to Glendalough in breach of the First Agreement, further or alternatively, the Second Agreement;

(8) Glendalough claims specific performance of the First Agreement and/or the Second Agreement.

112 Militaire denies that the parties entered into the First Agreement and denies that the parties entered into the Second Agreement.83

113 It will be necessary to give closer attention to the statement of claim in section 6 of these reasons, concerning the claim based on the Second Agreement. In section 6, I will also deal with an application made by Glendalough on 2 December 2013 to amend its pleading.

(4) Informal contracts: legal principles

114 Determining whether an informal contract has been concluded between the parties and, if so, its terms, involves a question of fact. As Spigelman CJ said in County Securities Pty Ltd v Challenger Group Holdings:84

[T]he subject matter and the concomitant terms of the contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?

115 Whether a contract has been formed and the terms of the contract are to be determined objectively. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon subjective beliefs or intentions.85 Determining whether the parties have manifested a common intention to be bound, and as to the terms of any informal contract, requires 'consideration not only of the text of [any relevant] documents, but also the surrounding circumstances known to participants, and the purpose and object of the transaction, but not the participants' subjective beliefs'.86

116 In determining whether communications between parties amount in law to a binding contract, care is needed in determining the weight given to the use by the parties of words such as 'agreement'. I refer to the well-known passage in the judgment of Gleeson CJ in Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd as follows:87

In a case such as the present, there are two, sometimes related, questions which require to be considered. The first is whether the parties to the putative contract intended to make a concluded agreement.

The second is whether they succeeded in doing so...

As the decision in [Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540] illustrates, the fact that parties to negotiations have agreed upon the major matter under discussion, confidently believing that the remaining matters to be decided will be sorted out later between them or their lawyers, without any difficulty, can sometimes create a misleading appearance of consensus. Such parties may well believe that they have a 'deal' or a 'bargain', and speak and act accordingly, whilst at the same time knowing and intending that further and more detailed agreement is necessary. For that reason, conduct such as shaking hands, or using the language of agreement, can be ambiguous. The resolution of the ambiguity may require more detailed factual and legal analysis.

117 It was not in issue in the case, and it is well established, that subsequent conduct of the parties is admissible on the question of whether a contract has been formed.88 Evidence of the parties' subsequent communications is admissible for the light it casts on their dealings from which the contract was alleged to have arisen. The statement that there is or is not a concluded contract, if admissible, may carry significant weight or little weight depending on the circumstances.89

118 There is some overlap between the questions of intention to create legal relations and questions of certainty or completeness.90 The more the parties have not dealt with in their discussions, the more it may be said that it is objectively unlikely that they intended to conclude a bargain.

119 The scale and complexity of the subject matter of the putative agreement are relevant to an assessment of whether the parties intended to make a concluded bargain.91

(5) The meeting of 7 August 2008 - was the First Agreement made?

120 The minutes of the meeting, signed by Mr Rigo, state:92

(a) Messrs Rouwenhorst, McCallum, Robertson and Rigo were present;

(b) the discussion opened around the issue of Technicon vending in, or not, the Chinese assets, saying that going into an IPO those assets were not intended to be vended in, but were to be an outright purchase;

(c) the Technicon group had the opportunity to challenge the vending in of the Chinese assets on the ground that they were never intended to be included;

(d) there was 'a very strong case' for the shareholders to challenge the Rigos for misrepresentation;

(e) earlier discussions had concluded that the group of shareholders and vendors would not benefit from litigation, and determined that an amicable solution should be found;

(f) it was proposed that as part of the demerger, the shell company Technicon Industries would be demerged out of Novetec, so that Technicon Industries would stand alone as an Australian shell with its only asset being the Chinese assets, with a common shareholding to that of Novetec;

(g) in order to agree to that, there would need to be an agreed redistribution of shares in a proportion different to that in Novetec;

(h) the reason for that was that the Chinese assets had a value in the vicinity of $8.5 million. If that was eliminated from Novetec there would be no automatic reduction in the value held by the Rigo group and Glendalough;

(i) the best amicable solution, avoiding any litigation and to avoid the removal of the Chinese assets, would be to include all parties in the ownership of everything via a redistribution of shares, and then do an in specie distribution consistent with the reallocation; and

(j) after other proposed percentages were considered, and after discussion and negotiation, it was 'finally agreed' by all parties that the percentages would be 27% Rigo, 8.5% Robertson, and 21.5% for each of McCallum, Rouwenhorst and Guo.

121 Mr Rigo signed the minutes soon after they were prepared. That demonstrates that he accepted then, when his memory of the meeting was considerably fresher than when he gave evidence in this case, that the minutes were accurate.

122 The upshot of the evidence of Messrs Robertson, Rouwenhorst and McCallum is that they accepted the accuracy of the minutes and drew heavily on the minutes to assist their recollection.

123 I accept the accuracy of the minutes, with the exception of what is said in [127] below.

124 The concept or proposal under discussion at the meeting of 7 August 2008 had three elements: the restructure of what was owned by Novetec and Technicon Industries; a change in the ownership of the shares in Technicon Industries; and a change in the respective shareholding proportions between Novetec's shareholders.

125 First, it was proposed that all of Technicon Industries' assets, with the exception of its Chinese subsidiaries which owned Chinese land and buildings, would be transferred to Novetec. That would leave Technicon Industries owning only its Chinese subsidiaries.

126 Secondly, Technicon Industries would cease to be a 100% owned subsidiary of Novetec. Novetec's shares in Technicon Industries would be distributed in specie to the shareholders of Novetec.

127 Thirdly, the proportion of respective shareholdings would be altered to the percentage shareholdings agreed at the 7 August meeting. There was an error in the minutes regarding the number of shares which the individual corporate members of the Technicon group would end up with. The minutes record that each of them would end up with 21.5%. That overlooked that they did not have equal shareholdings. The intention was that they would share equally in the increase to be given to the Technicon group as a whole. The correct position was reflected in Mr Rouwenhorst's email of 4 September 2008.93

128 In my view, these three elements of what was under consideration are apparent from the minutes themselves, and are also supported by the parties' communications before and after the meeting.94

129 Militaire submits that any agreement reached was to the effect that an adjustment of percentages applied only to Technicon Industries as the company holding the Chinese assets. I do not accept that that was the substance of what was discussed on 7 August 2008. The better reading of the minutes is that the adjusted percentages would apply in both companies so that there would be 'common shareholdings' in both Novetec and Technicon Industries. In any event, it is clear from emails sent on 7 August 2008 that that was part of what was being contemplated.

130 Insofar as Mr Rigo's evidence suggests a proposal to transfer the Chinese assets into a new entity,95 it is inconsistent with the contemporaneous documents and I do not accept it. The proposal was not for a new entity to hold the Chinese assets. Rather, those assets would become the only assets of Technicon Industries, and Technicon Industries would cease to be a subsidiary of Novetec.

131 Further, I do not accept Mr Rigo's evidence that at the meeting of 7 August 2008 he spoke only of shares in the new entity, and said nothing about transferring his and his group's shares in Novetec. I am satisfied by the contemporaneous documents that the proposal agreed at the meeting involved the reallocation of shares in both Novetec and Technicon Industries.

132 The substance of much of what Mr Rigo recollects is that the share reallocation was to take place in the context of a restructure by which Novetec would no longer be the holding company of the Chinese assets, and, in that sense, the Chinese assets would be demerged. To that extent, that accords with my findings.

133 What was said at the meeting of 7 August 2008, and the parties' earlier communications referred to in sections 2.6, 2.8 and 2.9 of these reasons, reveal that at least three considerations informed the proposal discussed at the meeting of 7 August 2008. These were:

(1) the Technicon group had complained that the Chinese assets had not been intended to be vended in as part of the merger, and sought some redress to remedy that or to compensate for it;

(2) the parties had a shared desire to separate the ownership of the Chinese assets from Novetec so that those assets would not be exposed if, as the shareholders contemplated might happen, Novetec went into liquidation;

(3) the shareholders had complained about the stock valuation for the Rigo group at the time of the merger.

134 Although not discussed at the meeting of 7 August 2008, in proposing that Militaire end up with an 8.5% shareholding, Mr McCallum at least may have taken into account a complaint on the part of Mr Robertson about the lack of any adjustments, in the merger process, for commissions that Glendalough had paid to companies in the Rigo group.96

135 Glendalough did not contend that on 7 August 2008 the parties made a contract with all three of the elements referred to in [124] - [127] above. Nor could any such submission be accepted. In my view it is clear that, at the meeting of 7 August 2008, the parties did not intend to conclude a bargain that included the three elements to which I have referred. A corporate restructuring of what was owned by Technicon Industries and what was owned by Novetec, and of the ownership of the shares in Technicon Industries, would evidently give rise to detailed and significant tax, accounting and legal questions. The parties had previously used detailed legally drafted documents to constitute their agreements, after having first taken professional advice, including tax advice. The parties' communications before and after the meeting demonstrate that they were mindful of the need for tax, legal and accounting advice in relation to any corporate restructuring of the kind contemplated. It is unlikely that they would have intended to be bound before obtaining and considering such advice.

136 Further, the transaction being contemplated was one of substantial value. It included the transfer of 9% of the shares of a company that was evidently valued by the parties somewhere upwards of $30 million.

137 The minutes refer to the shareholders having a strong case to challenge 'the Rigos' for misrepresentation. Neither the minutes nor any other evidence identify with any specificity which parties would be released from any claim by the shareholders. For example, whether the release would extend to include Mr Eddie Rigo and his company Rigo Nominees Pty Ltd was not specified. Nor was the scope of any release identified. Precisely what claims would be released? The evidence in this respect did not go beyond the minutes. The minutes referred only to avoiding 'any litigation'.

138 The lack of detail in these respects is a contraindication of any intention to be bound contractually then and there.

139 In my view, what was agreed at the meeting of 7 August 2008 did not reveal and reflect an intention on the part of the parties to make a binding contract. Rather, it reflected their agreement as to the way forward, and their agreement that, if the contemplated restructure proceeded, the shares would be reallocated in accordance with the specified proportions.

140 As I have said, Glendalough did not contend that on 7 August 2008 the parties intended to enter into a contract with the three elements I have outlined. Rather, Glendalough submits that the parties agreed that the shareholdings in Novetec would be adjusted in accordance with the percentages set out in the final paragraph of the minutes, in order to resolve the issues that had arisen concerning the vending in of the Chinese assets of Technicon Industries, and to resolve the issues concerning misrepresentation by the Rigo group as to its stock at the time of the merger. Glendalough contends that that agreement was not conditional on a demerger of the Chinese assets, submitting that:

(a) the redistribution of shares was to resolve the issues of the vending in of the Chinese assets and of the obsolete or slow moving stock; and

(b) although the demerger was discussed at the same time, the demerger served a different purpose from the share restructure and did not resolve the issues that were resolved by a redistribution of shareholdings.

141 I do not accept these submissions. In my view, what was said at the meeting of 7 August 2008, and in the parties' surrounding communications, involved one composite proposal with several elements. These elements were not simply being discussed at the same time; they were all part of a single discussion about a composite proposal.

142 Glendalough's submission involves an acceptance that in their discussions at the meeting, the parties reached no binding agreement about the restructuring of Technicon Industries' assets and ownership, but at the same time those discussions revealed an intention to make a binding agreement about the reallocation of shares in Novetec. In my view, the evidence does not sustain a finding of these different intentions in relation to these topics, which were discussed and progressed by the shareholders together and as a whole. As Mr Rouwenhorst expressed it, the restructuring of the assets and share ownership of Technicon Industries was 'one of the matters that [they] were simultaneously attempting to [do]'.97

143 Further, the reallocation of share ownership was to apply to both companies. That suggests that it would occur after the restructure of the two companies. That is the order of the steps apparently contemplated in Mr O'Brien's email of 7 August 2008 that was circulated to shareholders.98 The reconstruction to deal with ownership issues is 'post' the transferring of Technicon Industries' assets to Novetec and the in specie distribution of shares in Technicon Industries.

144 Mr Penson's email of 7 August 2008 at 6.13 pm,99 copied to shareholders, supports the view that there was one composite proposal, not two distinct ones. The shareholders had a 'wish to proceed' with what was described as the carve out of Technicon Industries.

145 Moreover, the complaint about the vending in of the Chinese assets was a major ground for the reallocation of shareholdings. In my view, the shareholders' approach to the question of compensation for leaving the Chinese assets in the ownership of Novetec or its shareholders, rather than being entirely owned by the Technicon group as that group asserted had originally been intended, was mixed up with the question of how, if at all, Novetec and Technicon Industries were to be restructured to deal with the ownership of the Chinese assets. That restructure (if any) was relevant to the nature and extent of compensation for what was alleged to be the unintended inclusion of the Chinese assets in the merged company. That is reinforced by the fact that when, at the meeting, Mr Rigo was resisting the proposal that he redistribute some of the Rigo group's shares, Mr Rouwenhorst said that if Mr Rigo did not agree, the others would find a way to get out the Chinese assets and leave him with nothing.100

146 Further, the considerations mentioned in [136] - [138] militate strongly against a finding that on 7 August 2008 the parties' conduct and communications revealed an intention to be contractually bound.

147 For these reasons, I find that:

(1) on 7 August 2008 the parties did not intend to enter a binding contract as to the reallocation of shares in Novetec, separate from their ongoing investigations in pursuing their goal of restructuring Technicon Industries' ownership and assets;

(2) rather, the parties were engaged in discussions and negotiations about a proposal with the following three elements:

(a) a restructure of what Technicon Industries and Novetec owned;

(b) a restructure of the ownership of the shares in Technicon Industries so that it ceased to be a subsidiary of Novetec; and

148 While agreement was reached on certain topics on 7 August 2008, the parties' discussions did not reveal an intention to be contractually bound in any respect.

149 In coming to the conclusions I have just stated, I have taken into account all of the evidence of the parties' communications and actions, both before and after the meeting of 7 August 2008, so far as they reveal the parties' objectively ascertained common intention.

150 Glendalough submits that the parties' subsequent conduct, in particular what occurred on 10 October 2008, supports its contention that on 7 August 2008 the parties intended to be bound in relation to the reallocation of shareholdings in Novetec.

151 In my view, what occurred on 10 October 2008 does not sustain Glendalough's contention that the parties intended to make a binding agreement on 7 August 2008. First, what occurred on 10 October 2008 involved only two of the parties to the discussions on 7 August. Mr Robertson was not authorised by Mr Rouwenhorst or by Mr McCallum in relation to what occurred on 10 October. Mr McCallum and Mr Rouwenhorst knew that Mr Rigo had said he would not proceed with the arrangement discussed on 7 August 2008 and, in that knowledge, took no steps to enforce or progress what had been discussed on 7 August 2008. It is an objective fact that Glendalough took no step after November 2008 until the second half of 2010.

152 Secondly, I find that on 10 October 2008, Mr Robertson proposed that Mr Rigo receive a cheque for the Novetec shares as a means of progressing the arrangements discussed at the 7 August 2008 meeting, not as an attempt to finalise the share transfers as claimed by Mr Robertson in his evidence.101

153 Further and in any event, in my view, what occurred on 10 October 2008 does not displace the combined weight of the circumstances and considerations to which I have referred in explaining my conclusion.

154 For these reasons I am not satisfied that the First Agreement, or any agreement, was made between the parties at the meeting on 7 August 2008.

(6) The events of 10 October 2008 - was the Second Agreement made?

6.1 Introduction: the pleading disputes

155 Glendalough's primary case is that the Second Agreement was made in implementation of the First Agreement. However, I have found that the First Agreement was not made.

156 At trial Glendalough contended, in the alternative, that if the First Agreement was not made, what occurred on 10 October 2008 reveals and constitutes an agreement between Glendalough and Militaire that Militaire would transfer the 1.1 million shares in Novetec to Glendalough, and Glendalough would then transfer some of those shares to Olympic, Solution and TDM Supplies, in the proportions that had been agreed on 7 August 2008.

157 There was a dispute at trial about whether it was open on the pleadings for Glendalough to advance a claim and obtain relief based on the Second Agreement standing alone (if the First Agreement is not established).102

158 After I had reserved my decision on 30 October 2013, I came to the view that a claim based on the Second Agreement, standing alone, was not open on the statement of claim. That was brought to the attention of the parties by a letter dated 26 November 2013 from my associate. The letter stated that the court considered that it was appropriate in the interests of justice to bring this to the attention of the parties at that stage, notwithstanding that, at the trial, no party had sought a ruling on the pleading dispute.

159 Consequently, a further hearing occurred on 2 December 2013. At that hearing, Glendalough made two submissions. First, Glendalough submitted that notwithstanding that a claim based on the Second Agreement standing alone was not pleaded, relief could be given for specific performance of the Second Agreement as a stand-alone agreement, given that at trial the parties had fully fought out the issue of what occurred and what was agreed on 10 October 2008. Secondly, in the alternative, Glendalough applied to amend its statement of claim. Militaire denied the first proposition and opposed the amendment.

160 For the reasons that follow:

(1) a claim based on the Second Agreement as a stand-alone agreement is not available without an amendment to the pleading;

(2) leave to amend the statement of claim should be refused; and

(3) in any event, the proposed claim based on the Second Agreement as a stand-alone agreement fails on its merits.

161 I proceed to explain those conclusions.

6.2 A claim to enforce the Second Agreement, standing alone, is not available without an amendment to the pleadings

162 In my opinion, on a fair reading of the statement of claim, Glendalough's pleaded case is that the Second Agreement was made in implementation of the First Agreement; there is no claim for relief based on the Second Agreement standing alone from the First Agreement. In my view, the following features of the statement of claim support that view:

(1) par 5.3 pleads that it was an express term of the First Agreement that the precise manner in which Militaire's obligations under the First Agreement would be discharged would be subsequently agreed;

(2) par 6 pleads an agreement between Glendalough, Olympic, Solution and TDM Supplies to the effect that Glendalough would, on its behalf and on behalf of those other companies, take steps to procure the transfer by Militaire of sufficient shares in Novetec to implement the First Agreement;

(3) par 7 pleads that the Second Agreement was made by Glendalough acting on its own behalf and on behalf of Olympic, Solution and TDM Supplies;

(4) further, par 7 pleads that by the Second Agreement it was agreed that Militaire would transfer to Glendalough sufficient shares for the implementation of the First Agreement; and

(5) par 8 pleads that the Second Agreement contained an express term to the effect that Militaire's obligations under the First Agreement would be discharged in the manner set out in pars 8.1 to 8.6, echoing the express term of the First Agreement pleaded in par 5.3.

163 In my view, these features of the statement of claim are not consistent with it asserting a claim based on the Second Agreement in circumstances where there was no First Agreement.

164 The material facts supporting the claim based on the Second Agreement are pleaded in a singular fashion; none of the facts is pleaded in the alternative.

165 Glendalough submits that if the First Agreement is not made out, alternative relief based on enforcing the Second Agreement as a stand-alone agreement is open on the material facts pleaded in the statement of claim.103 In support of that submission, Glendalough relied heavily on the decision of the Court of Appeal in Fazio v Fazio.104

166 The decision of the Court of Appeal in Fazio v Fazio makes it clear that there does not need to be a perfect identity between a pleaded contract and a contract as found after trial.

167 In Fazio v Fazio, the defendant respondents had pleaded in effect that there was an agreement to the effect that the plaintiff would retire from the partnership effective from 1 July 1984, and relinquish or transfer his interest in the partnership to the continuing members of the partnership, and that he would receive as consideration two properties and a release of all the debts and liabilities of the partnership. It was implicit in the agreement that the remaining partners would continue to operate the business and it would not be wound up.105

168 The trial judge found that it was agreed that the plaintiff would retire from the partnership on terms that the partnership would continue without there being a winding up, that the plaintiff would be absolved from any liabilities arising from the future conduct of the partnership business, and the plaintiff would be given one of the pleaded properties in consideration for the surrender of his interest in the partnership.106 The Court of Appeal found that the agreement found by the trial judge contained, in essence, the same terms as had been pleaded, except that the judge was not satisfied that the transfer of one of the properties, or the provision of the architect's plans for the other property, formed part of the consideration. That being so, the terms of the agreement as found by the judge did not fall outside the scope of the respondent's pleaded case.107

169 In questions of the character now under consideration, each case depends upon its own facts and circumstances, including the terms of the relevant pleadings.108 In my view, the conclusion of the Court of Appeal in Fazio, summarised in the preceding paragraph, does not suggest, much less dictate, any conclusion in respect of the questions now under consideration. In my view, a claim based on the Second Agreement as a stand-alone agreement is different in substance from the claim pleaded in the statement of claim and, for the reasons I have given, is not a claim fairly within the claim pleaded in the statement of claim.

170 At the hearing on 2 December 2013, Glendalough further submitted that:

(a) at the trial, the parties had fully fought the issues of what occurred and what was agreed on 10 October 2008; and

(b) in those circumstances, specific performance of the Second Agreement as a stand-alone agreement could be awarded notwithstanding that such a claim was not pleaded, if the court found that the Second Agreement as a stand-alone agreement was established by the evidence.

In support of that submission, Glendalough relied on the recent decision of the New South Wales Court of Appeal in Films and Casting Temple Pty Ltd v Malla,109 and the decisions in WA Country Health Service v Wright [No 2]110 and Leotta v Public Transport Commission (NSW).111

171 I do not accept this submission of Glendalough. In essence, that is because at the trial from 28 to 30 October 2013 counsel for Militaire objected (at every appropriate opportunity) to Glendalough advancing a claim based on the Second Agreement standing alone, on the ground that no such claim was pleaded.112

172 In Films and Casting Temple Pty Ltd v Malla, the claim outlined in the plaintiff's opening went beyond what had been pleaded. There was no objection or protest by counsel for the defendant.113 That fact was central to the reasoning of the Court of Appeal in holding that the judge should not have dismissed the claim on the ground that it was not the pleaded claim. McDougall J (with whom Ward JA and Gleeson JA agreed) emphasised that no objection had been made to the way in which the case for the plaintiff had been put, concluding that the obvious inference was that the defendant was content to meet the new case on its merits.114

173 As Newnes JA explained in WA Country Health Service v Wright,115 the decision in Leotta v Public Transport Commission (NSW) is authority for the proposition that where in cases alleging a breach of a duty of care the evidence has been allowed to travel beyond the issues raised in the particulars, failure to amend the particulars will not necessarily preclude a judgment upon the facts as they have emerged, but that presupposed that the new issue or new way of particularising the existing issue had emerged at the trial and had been litigated.

174 In WA Country Health Service v Wright116 and Films and Casting Temple v Malla,117 the court applied what had been said by Mason CJ and Gaudron J in Banque Commerciale SA (in liq) v Akhil Holdings Ltd:118

The function of pleadings is to state with sufficient clarity the case that must be met. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. (citations omitted)

175 I apply that approach.

176 A narrow or technical view is not to be taken as to what points were raised at trial. It is necessary to identify what can fairly be regarded as an issue raised at trial and accepted by the parties as an issue to be determined.119

177 In my view, in light of what was said at trial by counsel for Militaire, it cannot be said that Militaire accepted that a claim based on the Second Agreement standing alone was part of what was litigated at trial.

178 Glendalough submits that:120

(1) at the trial Militaire did not object to evidence about the discussions of 10 October 2008, or seek to limit the use of such evidence; and

(2) it was incumbent on Militaire to do so, failing which it should be concluded that both parties ran their cases at trial on the footing that the court will find the facts and determine what was agreed at the meeting of 10 October 2008 without being limited by the pleadings.

179 I do not accept that submission. The evidence of what was said and done on 10 October 2008 was admissible in respect of Glendalough's case that the Second Agreement was made in implementation of the First Agreement. Counsel for Militaire made it clear that Militaire objected to any claim that the Second Agreement stood alone, because no such claim was pleaded.

180 For these reasons, in my view, in the absence of an amendment to the pleadings, a claim based on the Second Agreement standing alone, in circumstances where the First Agreement was not established, is not available.

6.3 Glendalough's application to amend the statement of claim

181 At the hearing on 2 December 2013, Glendalough applied to amend the statement of claim to plead alternative versions of the Second Agreement. Glendalough sought to plead two alternative versions of the Second Agreement. The first alternative Second Agreement, in pars 8A and 8B, would arise if it were found that the First Agreement had been made, but that, contrary to par 7 of the statement of claim, Mr Robertson had not been authorised by Olympic, Solution and TDM Supplies in relation to the Second Agreement.

182 Paragraphs 8C and 8D concern the scenario in which the First Agreement is not established. Those proposed paragraphs, as refined in the course of the hearing on 2 December 2013, are as follows:

8C. Alternatively to paragraphs 7 and 8 above, and alternatively to paragraphs 8A and 8B above, on 10 October 2008 the plaintiff and the defendant agreed that the defendant would transfer to the plaintiff shares in Novetec and the plaintiff would then transfer to Olympic, Solution and Technicon [TDM Supplies] some of those shares in Novetec ('the Second Alternative Second Agreement').

Particulars

The plaintiff repeats the particulars to paragraph 7 above and relies on the meeting held on 7 August 2008 referred to in paragraph 4 and its particulars.

8D. The Second Alternative Second Agreement contained express terms which, on their proper construction, were to the following effect:

8D.1 the defendant would transfer the Shares to the plaintiff;

8D.2 in exchange for the Shares the plaintiff would pay to the defendant the sum of $1,173;

8D.3 the plaintiff would retain 5,149,904 of the shares in its own right;

8D.4 the plaintiff would transfer 2,123,944 of the shares to Olympic;

8D.5 the plaintiff would transfer 1,946,615 of the shares to Solution; and

8D.6 the plaintiff would transfer 1,786,839 of the shares to Technicon [TDM Supplies].

8E. The Second Alternative Second Agreement contained an inferred term that the release pleaded in paragraph 4 would apply immediately upon the transfer of the Shares to the plaintiff.

Particulars

The making of the Second Alternative Second Agreement was the culmination of the negotiations pleaded in paragraphs 4 to 6.

183 A late application to amend engages considerations of the kind discussed in Aon Risk Services Australia Ltd v Australian National University.121

184 There was no explanation for the delay in applying to amend to plead the Second Agreement as a stand-alone agreement. There is no evidence or submission as to why no such claim was pleaded earlier. There is no evidence of any assumption that such a claim was encompassed within the existing pleadings. There is no evidence or submission as to whether any consideration was given to the pleading of the Second Agreement as a stand-alone agreement at any stage before the court reserved its decision.

185 The consequences of allowing the amendment, including prejudice to any party, are an important consideration.

186 Militaire submits that the late making of this application to amend means that counsel for Militaire has not had any opportunity to investigate whether there is further evidence that might be led, whether from Mr Rigo or otherwise, that would bear upon whether the Second Agreement, as a stand-alone agreement, was made.

187 That is a consideration to which I do not give any significant weight. I am satisfied that the parties adduced all evidence available to them bearing on the question of what was said and done on 10 October 2008. That includes evidence of events before and after that date which is capable of bearing on the proper understanding or characterisation of what was said and done on 10 October 2008.

188 If that were the end of the considerations, I would be inclined to allow the amendment, notwithstanding its timing. However, as I will now explain, there are additional considerations.

189 Counsel for Militaire submits that if Glendalough were permitted to make its proposed amendment, Militaire would apply to amend its defence to plead various provisions of the shareholders agreement, in the nature of rights of pre-emption, which control the disposal of shares in Novetec.122

190 In supplementary submissions dated 23 October 2013, filed shortly before the commencement of the trial, Militaire submitted that the First and Second Agreements, even if found to have been established, were void by operation of rights of pre-emption in cl 11 of the shareholders agreement.123 Glendalough's submissions in response to Militaire's supplementary submissions contended that that argument of Militaire was not open on the pleadings.124 On 28 October 2013, the first day of the trial, counsel raised the question of whether this contention by Militaire was available on the pleadings. On 29 October 2013, counsel for Militaire informed the court that Militaire did not propose to apply to amend to plead the various provisions of the shareholders agreement.

191 However, on 2 December 2013, counsel for Militaire submitted that different considerations arise in terms of its defence in relation to the alternative Second Agreements now proposed to be pleaded by Glendalough. That is because Glendalough's primary case, in its existing pleadings, asserts agreements to which all shareholders were parties, whereas the alternative Second Agreement is said to be between only two of the shareholders. That, Militaire submits, means that there is less force in a contention that the Second Agreement involved a waiver of the provisions of the shareholders agreement controlling the disposal of shares.

192 Counsel for Glendalough accepted that Militaire should be permitted to make such an amendment, subject to the court being satisfied that such a plea is arguable.125 Glendalough submits that the plea of the provisions of the shareholders agreement is not arguable because what was agreed on 10 October 2008 was a culmination of discussions aimed at giving effect to what had been agreed between all the shareholders in August. As such, there was an 'obvious waiver' of the rights of pre-emption provisions of the shareholders agreement.126 I do not accept that I am in a position to determine, on that basis, that the plea by Militaire is so unarguable that an amendment to add it to the defence should not be permitted.

193 Further, Glendalough submits that if the amendment to the defence were permitted, it would amend its reply to plead positive matters and would, in all likelihood at least, apply to re-open to lead further evidence.127 Although the subject matter of these matters was not specified, I infer that the reply and additional evidence would likely encompass matters such as estoppel and waiver. Further submissions on the merits of the new defence raised by Militaire would also be needed.

194 The application to amend was made very late in the proceedings, after the trial had been concluded and the court had reserved its decision. There was little or no explanation for the delay. The probable consequence of permitting the proposed amendment would be the need to re-open the trial to permit the leading of further evidence and the making of further submissions. In all the circumstances, I am not persuaded that it would be in the interests of justice to permit the amendment.

195 For these reasons, I refuse Glendalough's application to amend the statement of claim.

196 In any event, if the amendment were allowed, I would reject the claim. For the reasons in section 6.4, I am not satisfied that the parties made the proposed Second Alternative Second Agreement on 10 October 2008.

6.4 Did the parties make an agreement on 10 October 2008?

197 In support of its claim, Glendalough points to Mr Robertson's evidence as to what was said and done on 10 October 2008, and to the fact that a cheque was paid, a receipt provided, and the cheque banked.

198 In section 2.14, I made findings about what occurred on 10 October 2008. I do not accept all of what Mr Robertson says about what occurred on that day.

199 I have found that at the meeting on 10 October 2008:

(1) Mr Robertson said, in effect:

(a) in order to progress the share restructuring, in a tax effective way, the other shareholders would need to be seen to buy the additional shares from the Rigo group;

(b) to that end, Mr Robertson would give Mr Rigo a cheque for a nominal amount for those additional shares;

(2) Mr Rigo agreed to do so, and asked how the receipt should be made out;

(3) Mr Robertson dictated the terms of the receipt to Mr Rigo.

200 The payment of the cheque, provision of a receipt and the banking of the cheque provide some support for a conclusion that the parties intended to make a contract by which they were bound to the transfer by Militaire of 11 million shares to Glendalough.

201 However, in the context of all that had gone before, and what occurred after, in my view what was said and done on 10 October 2008 does not reveal an intention to be contractually bound to the transfer of the 11 million shares. Rather, the transfer of the shares remained part of an incomplete composite proposal with the three elements I have identified: the restructure of what was owned by Novetec and Technicon Industries; a change in the ownership of shares in Technicon Industries so that it was no longer a wholly owned subsidiary of Novetec; and a change in the respective shareholding proportions between Novetec's shareholders. That is consistent with and supported by my findings as to what was said by Mr Robertson and Mr Rigo. Mr Robertson proposed the payment of the cheque as a means of progressing the share restructuring. In all the circumstances, the objective intention of the making of the payment of .01 cent per share for the Novetec shares was as a step in progressing the arrangements that had been discussed on 7 August 2008. As already explained, those arrangements involved three elements, and discussions had not reached the point of any contractual intention to be bound. The payment, the banking of the cheque, and the provision of the receipt did not reveal an intention that Glendalough and Militaire be then bound to the transfer of Novetec shares from Militaire to Glendalough, independently of the other elements of the arrangements proposed and discussed on 7 August 2008. The objectively ascertained common intention was such that those arrangements remained contractually inchoate.

(7) Conclusion

202 For these reasons, I would dismiss Glendalough's claims. I will hear from the parties as to costs.

______________________________________

1 See, for example, Fazio v Fazio [2012] WASCA 72 [37] - [44].
2 Exhibit 2 [52] - [54].
3 Exhibit B [19] - [23]; exhibits A11 - 23.
4 Exhibit B [25] - [26].
5 See, for example, exhibit A20, email of 10 May 2007.
6 Exhibit A24.
7 Exhibit A1; its constitution is exhibit A29.
8 See exhibits A32 - A38.
9 Exhibit B [45], exhibit A90, page 910.
10 Exhibit 2 [96] - [105].
11 Exhibit B [52] - [53]; [59] - [61].
12 Exhibit A47.
13 Exhibit B [49].
14 Exhibit B [62] - [65].
15 Exhibit B [71], exhibit 3 [36] - [38], exhibit 5 [64] - [66].
16 Exhibit A49.
17 Exhibit A50, exhibit A51.
18 Exhibit A51.
19 Exhibit A53.
20 Exhibit 5 [67] - [68], exhibit 3 [39] - [40].
21 Exhibit A55.
22 Exhibit 2 [129] - [130], ts 117 - 118.
23 Exhibit A56.
24 Exhibit 5 [72] - [74], [87]; exhibit 3 [44] - [45].
25 Exhibit A59.
26 Exhibit A61; exhibit B [72].
27 Exhibit 5 [95], [98]; exhibit 3 [52].
28 Exhibit A62.
29 Exhibit A63.
30 Exhibit A64, exhibit A65.
31 Exhibit A66.
32 Exhibit A71.
33 Exhibit 2 [142].
34 Exhibit B [75] - [76].
35 Exhibit 5 [81].
36 Exhibit A73.
37 Exhibit B [84], exhibit 5 [129] - [133].
38 ts 70, 78; exhibit 5 [127], read with [114] - [120].
39 Exhibit A75, page 866.
40 Exhibit A72.
41 Exhibit A72, page 859.
42 Exhibit A77.
43 Exhibit A78.
44 Exhibit A79.
45 Exhibit A89.
46 Exhibit A87, page 885.
47 Exhibit A82, A83, A84.
48 Exhibit A89, page 896.
49 Exhibit A86.
50 Exhibit A88.
51 ts 150.
52 ts 163, exhibit 3 [70] - [71]; ts 208 - 209, exhibit 5 [144].
53 ts 163.
54 Exhibit B [101] - [103].
55 ts 157.
56 ts 157 - 158.
57 ts 157 - 158.
58 ts 164.
59 Exhibit 3 [70] - [74], [81], ts 164.
60 Exhibit A95.
61 Exhibit B [104] - [120].
62 Exhibit 2 [187] - [202].
63 Exhibit A98.
64Lewis v Condon [2013] NSWCA 204 [63].
65 ts 164, exhibit 3 [81].
66 Exhibit B [116].
67 ts 164.
68 See, for example, ts 137 - 144.
69 Exhibit B [106] - [107].
70 See section 2.12 above.
71 ts 90 - 91.
72 Exhibit 5 [143].
73 Exhibit A102.
74 ts 162.
75 Exhibit B [122].

76 ts 163, 208 - 209.
77 Exhibit B [123].
78 Exhibit 1.
79 Statement of claim [4].
80 Statement of claim [5].
81 Statement of claim [6].
82 Statement of claim [8].
83 Re-amended defence dated 27 February 2012 [4], [7], [8].
84County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 [7]. See, also, Westpac Banking Corporation v The Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1 [1347] - [1349].
85Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [34]; RJ BakerNominees Pty Ltd v Parsons Management Group Pty Ltd [2010] WASCA 128 [63].
86County Securities [150], Bell Group Ltd [No 3] [1341].
87Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551, 14,552.
88Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 [26]; RJ Baker [65].
89RJ Baker [66].
90Uranium Equities Ltd v Fewster [2008] WASCA 33; (2008) 36 WAR 97 [127].
91Uranium Equities [133] citing Geebung Investments (14,569 - 14,570).
92 Exhibit A77.
93 Exhibit A88.
94 See exhibits A73, A75, A78, the contents of which are outlined in sections 2.9 and 2.10.
95 Exhibit 2 [160] - [164].
96 ts 161.
97 ts 182.
98 Exhibit A75.
99 Exhibit A78.
100 Exhibit B [93].
101 Section 2.14.
102 Plaintiff's submissions in response to supplementary submissions of the defendant dated 25 October 2013 [4]; Plaintiff's notes for closing submissions [11]; ts 27, 58 - 59, 222 - 223, 246 - 249.
103 Plaintiff's submissions in response to supplementary submissions of the defendant dated 25 October 2013 [4]; Plaintiff's notes for closing submissions [11], ts 246 - 249.
104Fazio v Fazio [117] - [124].
105Fazio v Fazio [121] - [122].
106Fazio v Fazio [32].
107Fazio v Fazio [123].
108Fazio v Fazio [120].
109Films and Casting Temple Pty Ltd v Malla [2013] NSWCA 377.
110WA Country Health Service v Wright [No 2] [2010] WASCA 120.
111Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437.
112 ts 58 - 59, 222 - 223.
113Films and Casting Temple Pty Ltd v Malla [46], [56].
114Films and Casting Temple Pty Ltd v Malla [56].
115WA Country Health Service [54].
116WA Country Health Service [42].
117Films and Casting Temple Pty Ltd v Malla [51] - [52].
118Banque Commerciale SA (in liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 286 - 287.
119WA Country Health Service [43].
120 ts 267 - 270.
121Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, see especially at [89] - [103], [111] - [112]; see also Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296 [52].
122 ts 282.
123 Supplementary submissions of Militaire 23 October 2013 [5].
124 Plaintiff's submissions in response to supplementary submissions of the defendant dated 25 October 2013 [9].
125 ts 282.
126 ts 283.
127 ts 283 - 284.

Glendalough Holdings Pty Ltd v Militaire Nominees Pty Ltd

[2013] WASC 457

18/12/13

GLENDALOUGH HOLDINGS PTY LTD -v- MILITAIRE NOMINEES PTY LTD [2013] WASC 457