Golden Sands Pty Ltd v Davegale Pty Ltd
[2003] VSC 458
•21 November 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 8743 of 2002
F5536
| GOLDEN SANDS PTY LTD (ACN 096 491 913) | Plaintiff |
| v | |
| DAVEGALE PTY LTD (ACN 096 359 527) and ORS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13, 14, 15, 16, 20, 21, 22, 23 October 2003 | |
DATE OF JUDGMENT: | 21 November 2003 | |
CASE MAY BE CITED AS: | Golden Sands Pty Ltd v Davegale Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 458 | First Revision 26 November 2003 |
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CONTRACT – Joint venture – Agreement to conduct sand quarry on land of one venturer – Construction of joint venture agreement - Whether licence to enter upon land terminated – Whether licence coupled with a grant – Whether licence for a term or terminable at will of one venturer
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M.W. Shand QC | Bazzani Brand Lawyers |
| For the Defendants | Mr M. Adams QC and Mr D.F. Hyde and Mr D. Crennan | Phillip Hamilton |
HIS HONOUR:
In early 2001, William Robert Wilson, Robbyn Charles Strickland and the secondnamed defendant, David John Derham, agreed to operate a sand quarry at premises situate at and known as 350-390 Sandy Creek Road, Lara (“the Davegale site”). I shall refer to Mr Wilson as such, to distinguish him from his sons. These premises were to be purchased by or on behalf of Mr Derham and the business operated by a company representing their interests. This litigation arises out of the breakdown of this business relationship and out of the decision of Mr Derham on 4 April 2002 to terminate the venture and to continue the sand quarrying through his own company, Hillview Sand Pty Ltd, the thirdnamed defendant, and to conduct an associated compost business through another of his companies, Hillview Compost Pty Ltd, the fourthnamed defendant. This judgment is given following a trial of all liabilities issues, that is, all issues other than those relating to relief.
The April Agreement
Mr Derham for over 30 years had conducted a successful trucking business through his companies, Derham Transport Pty Ltd and a partnership, Derham and Ward. In 2000 he had the idea of expanding his commercial activities into sandpits and he mentioned this to David Robert Wilson, the son of Mr Wilson. In early 2000, Mr Wilson telephoned Mr Derham to say that there was an opportunity for him to purchase a sand quarry. This was the Davegale site which was then being operated as a sand quarry by Little River Pastoral Co Pty Ltd trading as Specified Sands. This was the first contact between the two men. In February 2001, Mr Derham inspected the site with Mr Wilson and another son, Peter John Wilson, and the two men, Mr Wilson and Mr Derham, formulated a proposal. This was for Mr Derham to purchase the land for $2M and for him to contribute all or most of the $1M which was required as working capital. The business was to be run by a management company in which Mr Derham and Mr Wilson would hold a 40 percent share each. The remaining 20 percent would be held by Mr Strickland who was then Specified Sands’ quarry manager at the Davegale site. Mr Derham made an offer to purchase the land on 28 February 2001 and heads of agreement were signed for the purchase about three weeks later. A contract of sale was executed on 5 April 2001. The purchaser by this time was identified as the firstnamed defendant, Davegale Pty Ltd, a new company which had been incorporated by Mr Derham on 28 March. The directors of this company were Mr Derham and his wife, Gale Derham. The non-beneficial owner of its share capital was D.J. & G.L. Derham Pty Ltd, a company whose shareholders were Mr and Mrs Derham. The price of $2.15M was allocated as to $1.85M for the land, $300,000 for the plant and equipment and nil for the work authorities which were to be transferred to the purchaser. The contract of sale for the purchase of the land was settled on 11 May 2001.
Meanwhile, Mr Derham, Mr Wilson and Mr Strickland were holding meetings together with Mr Derham’s accountant, Allan William McKenzie, to work out the details of the venture. Included in these meetings were those held on 6 March, 12 March and 19 March at which Mr McKenzie took notes. These are the only contemporaneous records of these discussions and I accept them as reliable - more reliable than the recollections of the participants, all of whom gave evidence. I say this not because of any deliberate misrepresentation of the discussions by any witness, but rather because of the passage of time which has elapsed and because the three venturers were practical men with little concern for fine detail. They were prepared to deal with each other in generalities and on the basis of trust. I should add, too, that the collapse of the venture has, perhaps because of this attitude, engendered considerable bitterness between them – a bitterness which has in my judgment distorted their recollections.
In the course of these discussions, Mr McKenzie produced two discussion drafts of the agreement pursuant to which the business was to be conducted. The agreed version of this agreement was executed by the three venturers on 23 April 2001. I will set this April Agreement out in full, inserting for ease of reference, numbers for each of the clauses:
“This agreement is made this 23 day of April 2001 between Bill Wilson or nominee (Wilson) on the first part Robbyn Strickland or nominee (Strickland) on the second part and David Derham or nominee (Derham) on the third part.
Derham has made an offer to purchase the property plant and equipment extraction licences and business of Specified Sands of Sandy Creek Road Little River. Upon the acceptance of the offer of Derham by Specified Sands the above parties agree that:-
1.The parties will form a company (Golden Sands Pty Ltd) with shareholdings to be
Wilson 40%
Strickland 20%Derham 40%
and that Golden Sands Pty Ltd be registered in Victoria with the registered office being Sandy Creek Road Little River.
2. That the parties may vote in proportion to their interest held.
3.That the parties will contribute sufficient capital to ensure any operations carried on can be funded and creditors paid within thirty days of incurring the debt and such contribution to be determined one month before the commencement of operations.
4.That Golden Sands Pty Ltd will apply to a bank for an overdraft facility if the parties agree such a facility is required and can be obtained.
5.That the parties will determine on a case by case basis the need to contribute capital or borrow to fund acquisition of plant and equipment.
6.That any party may sell their interest in Golden Sands Pty Ltd only to the other parties and in proportion of equity previously held by the remaining parties.
7.That a party wishing to sell their interest in Golden Sands Pty Ltd will receive the greater of their share of net assets of Golden Sands Pty Ltd as contained in the Financial Statements drawn up to the last financial year or the net tangible assets of Golden Sands Pty Ltd as determined by an independent valuer as agreed to by all parties.
8.Golden Sands Pty Ltd will carry on the business of mining processing and selling sand and any other business as agreed by the parties at a later date.
9.Golden Sands Pty Ltd will pay to Derham royalties of $1.00 per tonne of sand shipped and the royalty will be increased in line with the royalty index as published by the Bureau of Statistics.
10.Golden Sands Pty Ltd will have the use of plant and equipment purchased by Derham and will pay Derham an amount of seven percent of the cost of the plant.
11.Golden Sands Pty Ltd will pay the costs of operating the plant and equipment purchased by Derham.
12.Golden Sands Pty Ltd will reimburse Derham all outgoings including rates and land taxes associated with the property.
13.Golden Sands Pty Ltd will maintain in good working order all plant and equipment.
14.Derham will allow Golden Sands Pty Ltd to carry on the business until such time as Derham decides that the agreement should end.
15.Golden Sands Pty Ltd will ensure that all legal requirements of statutory bodies are carried out including the restitution of mined areas.
16.That Robbyn Strickland will be employed as the mine manager with remuneration to be determined two weeks before the commencement of operations.
17.That David Wilson will be employed by Golden Sands Pty Ltd with remuneration to be determined two weeks before the commencement of operations.
18.That Derham be the preferred carrier of product leaving the site and be permitted to quote on all such cartage and be the carrier nominated to any customer requiring their own carrier.
19.Should Golden Sands Pty Ltd decide to use a contractor to perform any work for Golden Sands Pty Ltd that each of the parties be first offered the work before an outside contractor be engaged.
20.That Golden Sands Pty Ltd will employ the current employees of Specified Sands assuming all obligations to entitlements such employees may have accrued.
21.That Golden Sands Pty Ltd will employ any further staff as required to operate and administer Golden Sands Pty Ltd.
22.That this agreement be used as the basis of any further agreement setting out more detail.”
It will be seen that the management company is the plaintiff, Golden Sands Pty Ltd (“Golden Sands”), which had been incorporated by Mr McKenzie on 10 April 2001. As agreed, its share capital of 100,000 shares of $1 each was allocated as follows:
· 40,000 shares to DJ and GJ Derham Pty Ltd, a company acting as trustee for the Derham Family Trust
· 20,000 shares to RCS Consulting Pty Ltd, a company controlled by Mr Strickland’
· 40,000 shares to persons and companies associated with Mr Wilson.
The register of members records that the shares were allocated for cash. In fact the whole of the share capital was provided by Mr Derham by cash for his own shares and as unsecured loans to the other shareholders for their shares.
This had the consequence that the contributions of the three venturers were as follows. Mr Derham provided all of the money – some $3M; Mr Wilson and Mr Strickland provided only their expertise. This created an area of difficulty for Mr Derham and an area of potential conflict, for he was only a minority shareholder; he could be outvoted by those whose financial contribution was very much less than his own.
The critical clause of the April Agreement for my purposes is cl. 14 which, on its face, entitles Mr Derham to bring the agreement to an end at will, a power which he claims to have exercised on 4 April 2002. The document, however, in three important respects at least, contains difficulties which may be traced to the facts that it was prepared by a non-lawyer and that it was expected that a formal agreement would be drawn up and entered into.
The first difficulty concerns the parties to the agreement. These are the three venturers or their nominees. There was no nomination by any of them.[1] In the case of Mr Derham, rights and obligations are under the agreement imposed on him, whereas, in fact, they were the rights and obligations assumed or imposed variously upon DJ and DL Derham Pty Ltd as shareholder[2], and on Davegale Pty Ltd as owner of the Davegale site and of the plant to whom royalties and payment for use of the plant were to be paid and made[3], and on Derham Transport Pty Ltd as the preferred carrier[4], and perhaps on Mr Derham himself. This causes me to reject the submission put on behalf of the defendants that I should infer that Davegale, rather than one or other of Mr Derham’s companies, was Mr Derham’s nominee as a party to the agreement. The uncertainties with respect to the other parties are less significant. Associated with this difficulty is that Golden Sands, upon whom many obligations are imposed, was not a party and did not execute the document. Indeed, of the three signatories, only Mr Derham is party to this proceeding.
[1]In the case of Mr Derham, Golden Sands pleads further and in the alternative “that Mr Derham nominated Davegale as a party to the [April] agreement” and that it assumed the benefits and burdens conferred or imposed thereby jointly and severally with him (CB87). In the defence, paragraph 22, this is denied (CB12).
[2]See cll. 1, 2, 6 and 7.
[3]Clauses 9, 10 and 12.
[4]Clause 18.
The second is that the document does not specify what right Golden Sands had to use the land for the quarrying business. It is clear enough that this was in the contemplation of the parties because the sand could not otherwise be won from the Davegale site. Except insofar as cll. 8, 9, 10, 11, 12, 13 and 14 are to be read as a containing an implied permission by Davegale, in this regard the document is silent. It may be, although this was not pleaded, that its right did not depend upon any term of the April Agreement. On this basis, a right might be inferred to have been granted by Davegale, who was not a party to that agreement. This inference would have to arise from its permission for Golden Sands to do all of these things in consideration for its being paid the various sums which are mentioned in these clauses and its receipt of the agreed consideration for this.
The third, and perhaps associated, difficulty is again contained in the words of cl. 14. What is to be the legal effect of a decision by “Derham” that the agreement should end? Most of the agreement deals with matters which were already performed by the time production started from the Davegale site on 12 May 2001. Others were matters over which Mr Derham or his shareholding company had no control, for he was but a minority shareholder in Golden Sands. Some, such as employment agreements and cartage agreements, to say nothing of any agreement conferring access to the Davegale site, were not part of the April Agreement and might not be terminated when it terminated.
The first question which I must consider is whether the intention of the parties was that their agreement should be contained in this April Agreement. Golden Sands in its statement of claim[5] alleges that the agreement was partly contained in the document, partly in conversations which led to it and partly to be implied. Again, I mention, to put to one side, the fact that Golden Sands was not a party to it. The defendants in their defence[6] say that the agreement was wholly contained in the document except for those terms which are to be implied to give business efficacy to it. Having heard evidence of the negotiations which preceded the agreement, I am satisfied that the agreement is contained in the document, as the defendants contend. The evidence showed that Mr McKenzie produced two drafts, each of which was the subject of discussion between the venturers, the second at a meeting on 23 April 2001 where it was the subject of discussion. Mr Derham on 9 April 2001 caused the draft to be submitted to his solicitors, Messrs Gargan & Roche and received their preliminary comments on 18 April. These were referred to Mr Strickland on that day and the advice was in the hands of all parties on 23 April 2001. Mr McKenzie then prepared the third and final document, reflecting the agreement reached on that day, and the three men signed it. I accept that they all had the intention, which is recorded in cl. 22, that a further formal agreement might be entered into, but I find that this document was intended to be the repository of the agreement, at least until this be done.
[5]Second amended statement of claim filed 24 September 2003, para 12.
[6]Second amended defence and counterclaim filed 23 October 2003, para 12.
On behalf of Golden Sands, I was pressed with the contractual significance of statements which I find were made by each of the venturers during the negotiations to the effect that they were all “in for the long haul”, whatever that expression meant. I find, too, that they discussed on more than one occasion whether a specific period should be inserted in cl. 14, and whether the decision to terminate should be that of both Mr Derham and Golden Sands, as appeared in the second draft. They all decided on 19 March 2001 that the decision should be that of “Derham” alone and that they could trust him, for they were all to “behave like gentlemen”. This decision was not changed when they rejected Mr McKenzie’s second draft contract which contained a decision to be shared by him and Golden Sands.
This conclusion does not, however, resolve the second and third difficulties which I have identified. I am satisfied that Golden Sands’ tenure of the Davegale site was that of licensee. Counsel for that party urged me to find a lease but I decline to do so. There is in the document none of the indicia of leasehold. I am satisfied, too, that the right of access of Golden Sands to the Davegale site was a licence granted by the owner Davegale, whether this grant be implicit in the April Agreement or otherwise. Of the two choices, I prefer the latter; Davegale was not a party to the April agreement so that it is conceptually difficult to see the grant by it of a licence as an implied term of that agreement. It is equally difficult to see it as having become an implied nominee of Mr Derham because this would mean that Davegale was his nominee for the purposes of certain provisions of the agreement, and not others. In any event, even if Davegale did become Mr Derham’s nominee for some part or all of the April Agreement, this does not make it a party to that agreement unless there has been some novation[7] which was, in this case, neither pleaded nor proved. Nevertheless, I am satisfied that Davegale did grant a licence to Golden Sands. To my mind, the most satisfactory analysis is that it did so impliedly by its acquiescence in Golden Sands entering upon the land and in quarrying, processing and removing sand from it. I am satisfied that it was a licence coupled with a grant, namely a profit à prendre, for the removal of the sand. Further, there was no fixed term for this licence. I am satisfied, too, that the expression in cl. 14 regarding the decision that “the agreement should end” must be interpreted in a commercial sense. The clause is expressed in terms of Mr Derham “allowing Golden Sands to carry on the business”. “Allow” in this sense does not mean permit, because this was not a permission which he might give or withhold. It means that he would support the venture so that the business might be continued by Golden Sands and, further, that he might at will decide to withdraw his support for the venture. He might in this way withdraw his funds and determine or cause to be determined the licence or any agreement, arrangement or permission granted, entered into or given by himself or which he caused to be granted or entered into or given, upon which the venture depended. This would be subject to any constraint upon such a termination contained in the other agreement or licence to be determined. For example, and there was no evidence of this, were the trucking arrangements between Golden Sands and Derham Transport terminable only on some basis other than at the will of Mr Derham or Derham Transport, cl. 14 would not override this agreement.
[7]Tonelli v Komirra Pty Ltd [1972] VR 737 at 738-9, per Smith J.
I must acknowledge that this interpretation of the April Agreement can be supported as a matter of construction only with great difficulty. Nevertheless, it appears to have been the understanding of the venturers and the basis upon which they conducted the business of sand mining on the Davegale site, including the payment and receipt of royalties and other sums payable to Derham or nominee under the April Agreement. They treated in this way the rights of the parties to the licence as inextricably intertwined with the rights of the parties to the April Agreement. More importantly, perhaps, it was the basis upon which this litigation was conducted before me. With some misgivings I will proceed on this basis.
In its defence, Davegale erected in paragraphs 13A to 13H an elaborate and creative structure based on alleged false representations and breach of fiduciary duty by Mr Wilson and Mr Strickland with the intent of raising an estoppel to prevent them alleging that the April Agreement contained any terms other than those in the document itself. It is not necessary, given my conclusion, that I enter upon these.
Following settlement of the contract of sale for the purchase of the Davegale site, Golden Sands on 12 May 2001 commenced to operate the quarry on the site. No formal agreement was then, or indeed ever, entered into to set out the rights of the venturers or of Golden Sands or of Davegale more fully and more carefully.
Fiduciary Obligations
In paragraph 23 of the statement of claim, Golden Sands alleges that the April Agreement was a joint venture agreement and that the parties to it, in particular Mr Derham and his nominee Davegale, owed fiduciary obligations to the other joint venturers. In paragraph 23A it is alleged that Mr Derham as director of Golden Sands, until his resignation on 23 March 2002, also owed fiduciary duties to Golden Sands.
Joint Venture
I entertain no doubt that the arrangement which the three men entered into by the April Agreement was a joint venture which gave rise to fiduciary obligations. It was an arrangement under which each was to bring to bear his own skill or money for the benefit of the ongoing commercial venture with a view to mutual profit[8].
[8]See United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10, per Mason, Brennan, Deane JJ.
The nature of this obligation will depend upon the nature of the venture and the terms of any contract between the venturers[9]. In a case such as the present, the law imposes on each of the venturers a general obligation not to put himself in a position where his interest and duty conflict[10] and not to apply the resources of the venture for his own collateral purposes, at least without the informed consent of the others[11]. This obligation, however, expires when the venture comes to an end, although cases such as Chan v Zacharia show that conduct engaged in after termination may amount to a breach of the obligation where the opportunity for the conduct arose only from events which pre-dated the termination.
[9]Kak Loui Chan v Zacharia (1984) 154 CLR 178 at 204, per Deane J.
[10]Kak Loui Chan v Zacharia (1984) 154 CLR 178 at 198, per Deane J.
[11]United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 13, per Mason, Brennan, Deane JJ.
At this point the spectre of the April Agreement rises again to create difficulties. First, there is the question whether Davegale as a non-party owes fiduciary duties to Golden Sands, another non-party. For reasons which I have endeavoured to set out, I am satisfied that Davegale was a joint venturer, for it provided the land and the plant. Again, this may be seen as a matter of construction on the basis that Davegale is included as a nominee of Mr Derham, or it may be seen as the consequence of the parties treating Davegale as a venturer. With respect to Golden Sands, which is the joint venture vehicle rather than a venturer, it was not in issue that the venturers owe to it a like obligation.
I shall return to this matter and to the manifestations of this obligation in this case when I come to deal with the suggested breaches.
Director’s Duty
It is likewise clear enough that directors owe a fiduciary duty to the company of which they are directors. This is a duty to act in good faith and in the interests of the company and not to obtain for themselves some private advantage inconsistent with the interests of the company[12]. In the present case it was alleged[13] and admitted[14] that Mr Derham owed these duties.
[12]Mills v Mills (1938) 60 CLR 150 at 185, per Dixon J.
[13]Statement of claim, para 23A.
[14]Defence, para 23A.
The Darra Site
Between 1994 and 1997 Mr Strickland had been employed as quarry manager and, later, as sand area manager at a sand quarry site opposite the Davegale site on the western side of the Sandy Creek Road. This site was referred to at trial as the Darra site. In his later years at the Darra site he was employed by the owner and operator of the quarry, Excel Quarries Pty Ltd (“Excel”).
Even before the April Agreement was signed, Mr Wilson and Mr Strickland had in mind to take over the Darra site and to operate it together with the Davegale site as the one business. This was also discussed at the time with Mr Derham who was prepared to go along with them. Indeed, Mr Wilson and Mr Strickland had a meeting with representatives of Excel on this topic on 23 March and in cl. 8 of the April Agreement they made provision for such an event. On 24 April, the day upon which the April Agreement was signed, Ian Ridoutt, general manager of the Excel Group, and Terrence Williams, its area manager (Victoria), had discussions about this with Mr Derham at Bacchus Marsh. These discussions were directed to Golden Sands acquiring the right to take sand from the Darra site and to use the Excel plant and machinery which was there. Although a draft agreement was prepared by Excel and submitted to Mr Strickland as early as 11 May 2001, no document was settled or executed by 1 June 2001 when Golden Sands began to use the Darra site. Again, this reflects the relaxed and trusting relationship which characterised the dealings of the venturers. They and Excel were content that Golden Sands operate the Darra site without any documentation to record the basis on which this was done, at least until 21 December 2001, except for a skeletal memorandum signed on 24 September 2001.
The Darra site was an important acquisition for Golden Sands for it contained useful plant as well as an unexhausted supply of coarse sand. At the same time it was convenient for the operation of the Darra site for it to have the use of water which was plentiful on the Davegale site and for it to use that site to dispose of its waste or slimes.
Another business which was in contemplation of the venturers from the early meetings in February was that of manufacturing and selling compost from the Davegale site. This product was to comprise liquid food waste mixed with sawdust, composted and then blended with washed fine sand to be sold as both topsoil and a high grade fertiliser. Work on this project was well advanced by Specified Sands when it sold the Davegale site. Before and on 8 June 2001, Mr Wilson and Mr Strickland discussed the project with the Environment Protection Authority and the City of Greater Geelong. An arrangement for the production and sale was agreed between Mr Strickland and one Brian Barrett of Kyneton Kompost and an EPA permit application was lodged in September 2001. Sometime after a meeting which took place in late November or early December 2001, Mr Strickland said, the EPA permit was granted. It does not appear that Golden Sands went into production of compost before the giving of the 4 April 2002 notice.
The Royalty Agreement
I pass for the moment over the other events of the six months from 1 June to 21 December 2001. As will be seen, during this period Mr Derham became somewhat dissatisfied with certain aspects of the management style of the co‑venturers, especially those of Mr Wilson – so much so that in early November he consulted his solicitor, Richard Dalzell Harrison, an employee of the firm Price Higgins. 21 December 2001 was the date upon which a formal Royalty Agreement was entered into with respect to the operation of the Darra site. This agreement was prepared by Excel’s solicitors, Clayton Utz in Brisbane, and was the subject of consideration and advice from Mr Harrison. At this time Mr Harrison was advising Mr Derham as to his rights against the other venturers as well as commenting on the drafts of the Royalty Agreement. I am, however, satisfied that he acted for Golden Sands in his involvement with this Royalty Agreement. The parties to the Royalty Agreement were Darra Exploration Pty Ltd, who was the owner of the Darra site, Excel, Golden Sands and Davegale. Davegale was a party because, under the agreement, Excel was given certain rights over the Davegale site including, by cl. 19.12, the right, if Golden Sands ceased to operate the Davegale site, itself to have the right to quarry sand from that site. Moreover, it was to provide water to the Darra site and to receive waste product or slimes from sand washing carried on at the Darra site.
The Royalty Agreement also contained in cl. 9.11 a provision which was much relied on before me. It is in these terms:
“9.11Davegale undertakes that at all times during the Initial Term and any Further Terms it shall allow Golden Sands access to the Davegale Site to continue to conduct the activities upon that site (including extraction of sand for processing) which Golden Sands undertook in periods prior to the Commencement Date.”
In the Royalty Agreement the initial term was a period of 10 years with rights of extension conferred by cl. 3.2. The commencement date was defined as 1 June 2001. And so it was contended on behalf of Golden Sands, that, if Mr Derham’s company, Davegale, had granted in April a licence revokable at Mr Derham’s will to enter upon the Davegale site to win sand, then this clause converted that licence into a licence for 10 years with rights of extension. The argument, then, was that Mr Derham’s decision to terminate the April Agreement and the licence was a breach of this 10-year licence agreement. The submission on behalf of Davegale was that the reference in cl. 9.11 to Golden Sands continuing to conduct activities on the Davegale site showed that the intention of the parties was that Golden Sands should continue to do so under the terms of the April Agreement. This would mean that, by cl. 9.11, Davegale warranted that during the term of the Royalty Agreement it would allow Golden Sands access to the Davegale site unless Mr Derham or Davegale decided otherwise. This contention was supported by a submission that the construction of cl. 9.11 urged by Golden Sands would have the consequence of effecting a variation to cl. 14 of the April Agreement by a side wind, as it were. The fact of any such variation was not expressly stated in the Royalty Agreement and, further, this was done by an agreement to which none of the signatories to the April Agreement was a party.
Notwithstanding these difficulties, I am satisfied that, upon a proper construction of the Royalty Agreement, the parties including Davegale agreed that the right of access of Golden Sands to the Davegale site would be assured for the term of that agreement. This has the consequence that the licence granted by Mr Derham through Davegale to Golden Sands permitting it to have access to the Davegale site for the purpose of quarrying and processing sand for sale and removal was henceforth a licence for the term of the Royalty Agreement.
Counsel for the defendants advanced a number of responses to this conclusion. First, that Mr Wilson made a number of representations to Mr Derham as to the purpose of the Royalty Agreement and its effect upon the rights of summary termination contained in cl.14 of the April Agreement. In the pleading these representations go nowhere. No falsity is pleaded unless it be that in paragraph 75 it is said that they were misleading and deceptive conduct contrary to the Trade Practices Act 1974. I pause to observe that the alleged representor is not a corporation. There is mention in paragraph 25D of their giving rise to an estoppel. In paragraph 76, the representations are said to be a breach of a miscellany of duties and that they entitled Davegale to rectification of the Royalty Agreement. Putting to one side the evident legal deficiencies in these contentions, this response must fail for two factual reasons. There was no evidence that Mr Wilson made the representations. It was contended, rather optimistically, that he made them by his silence, but the factual basis for an obligation to speak was neither pleaded nor made out. Finally and fundamentally, the evidence shows that Mr Harrison in his examination of the draft Royalty Agreement noted this effect of cl. 9.11 and drew it to the attention of Mr McKenzie and Mr Derham in a letter of advice to them dated 9 November 2001. In the face of this, it cannot be suggested that Mr Derham was under any misapprehension as to the likely effect of cl. 9.11 when Davegale executed the Royalty Agreement.
It is possible to discern from the defendants’ pleading other defences, including a similar estoppel arising from earlier representations and events, dating from the making of the April Agreement[15]. These were said to constitute misleading and deceptive conduct[16] and a breach of duties entitling Davegale to rectification[17]. These pleas suffer from the same infirmities as those dependent upon the later representations and from the further difficulty that the events of April 2001 were remote in time from the entering into of the Royalty Agreement. I reject them.
[15]Statement of claim paras 25D, 32(c).
[16]Statement of claim para 75.
[17]Statement of claim para 76.
Next it is said that there is an implied term in the Royalty Agreement that the obligation of Davegale under cl. 9.11 would cease if Mr Derham exercised his right to terminate under cl. 14 of the April Agreement[18]. The implication is said to arise in order to give business efficacy to the Royalty Agreement. There is no such warrant for this implication which, in any event, flies in the face of the words in cl. 9.11. I reject this submission.
[18]Statement of claim para 25C, para 32(d).
Finally, there is the counterclaim for rectification. The factual basis for this was not made out. In any event, I should not be minded to grant such relief without Excel being a party to the proceeding. It has an interest in cl. 9.11 as well as in the other provisions of the Royalty Agreement concerning the use of the Davegale site.
I return now to some subsidiary matters pleaded on behalf of Golden Sands. In paragraph 32 of the statement of claim it is said that the Royalty Agreement operated to vary the term of the April Agreement. If this is to be understood as a variation properly so called I reject it. In paragraph 32A this is put as an underlying agreement. I am not at all certain what is meant by this. In any event, I reject it also. As I have noted, the parties to the two agreements are different. The proper analysis in my view is that the relevant clause of the Royalty Agreement created a licence for a term where there had been previously only a licence at will.
Golden Sands also in paragraphs 32C to 32J seeks to set up an estoppel as to the security of its right of access to the Davegale site under the April Agreement and of the continuance of the venture during the term of the Royalty Agreement. I do not accept that the representations there pleaded were made out or relied upon by Golden Sands. I reject this plea also.
Implied Terms of the April Agreement
As an alternative basis for impugning, Golden Sands pleaded in paragraph 14 implied terms in the April Agreement to the effect that Mr Derham would not exercise his power of termination under cl. 14 “other than in the long term and taking into account the remaining resources on the Davegale site” and that he would exercise the power only acting “in good faith and on reasonable grounds, alternatively upon reasonable notice”.
The first of these suggested terms is said to arise from the pre-contract discussions. I find that the parties agreed that Mr Derham might have the sole decision to terminate the venture and that they were in it for the long haul. Notwithstanding that they all expected that this termination would not happen in the short term, I am unable to infer a term in the contract as pleaded that the venture would continue until the site was exhausted.
The second term as to good faith and reasonable grounds is said to arise as a matter of law from the subject matter of the agreement and the relationship between the parties. Given my conclusion as to the effect of cl. 9.11, it is not necessary that I determine this matter nor the associated factual issues as to whether on 4 April 2002 Mr Derham had in fact reasonable grounds for exercising his right of terminating the April Agreement. Nevertheless, in case the matter should go further, having regard to the fact that questions of relief may depend upon my findings, I shall express my views on these matters.
I proceed on the basis that the decision to terminate pursuant to cl. 14 of the April Agreement involves a decision to terminate the licence in favour of Golden Sands so that it must cease all activity on the Davegale site and withdraw its personnel and plant from the site with all the possible consequences this might have upon its contractual commitments to its customers. In these circumstances, I conclude that the decision to terminate must contain reasonable notice to Golden Sands to enable it to remove its operations. I make no finding as to the length of this notice for none was given.
As to good faith and reasonable grounds, I would conclude on the authority of Renard Constructions (ME) Pty Ltd v Minister for Public Works[19] and the cases that have followed it, that such an implied term existed with respect to the right to terminate pursuant to cl 14. The suggested term that there be reasonable notice of determination is more problematic. In Cowell v The Rosehill Racecourse Company Limited[20], Dixon J concluded that a licence which is not coupled with or granted in aid of an interest in land is revocable at law. This revocation is immediately operable, but a licensee does not become a trespasser until a reasonable time after notice has been given of revocation so that it may withdraw from the land and remove property which was been brought on in pursuance of the licence. Given this period of grace, there is no necessity as a matter of law or otherwise, absent special circumstances which have not been proved here, that a licensor must give reasonable notice of termination of the licence if revocation is otherwise available.
[19](1992) 26 NSWLR 234.
[20](1936) 56 CLR 605 at 631.
In paragraphs 39 and 73 of the defence, Davegale alleges that the 4 April 2002 decision to terminate was made in good faith and on reasonable grounds. This was said to be because Mr Derham had lost confidence in Mr Wilson’s and Mr Strickland’s ability to manage Golden Sands and because of fifteen specific matters alleged in paragraph 70 of the defence.
The Derham Complaints
Before I turn to the fifteen complaints set out in paragraph 70, I should make some general observations. It is true that in the latter months of 2001 Mr Derham was becoming disenchanted with Mr Wilson’s management style and he was concerned that operational decisions were being made without consulting him. His concerns were such that on 6 November 2001 he sought advice from Mr Harrison, his solicitor, as to how he might rid himself of his co-venturer. It is clear, however, that at this time he simply wanted to acquire for himself a majority shareholding in Golden Sands and to remove Mr Wilson as director. Even at this time he was not seeking to exclude Mr Wilson altogether.
At this time, too, his complaints were as to Mr Wilson’s precarious financial position and that he, Wilson, seemed to be always asking for money. Mr Wilson had on 26 March 2001 borrowed $25,000 from Mr Derham with a written promise that it “is to be repaid with interest as soon as possible or repaid out of dividends from our joint venture”. Notwithstanding Mr Derham’s requests, he had not repaid it. Moreover, he sought more loans and had billed the company for $27,500 for work which Mr Derham considered he should have treated as part of his duties as director. Mr Derham’s other complaints to his solicitor at this time were that Mr Wilson had used a company vehicle for his own purposes and that his son was on the payroll. In his letter of 9 November 2001 Mr Harrison noted these matters and sought instructions. The response of the client was contained in Mr McKenzie’s letter of 27 November 2001 in which he informed the solicitor that Mr Derham was not at this time proceeding with any action against the directors. I infer from this, and from the fact that Mr Derham was about to commit himself in the Royalty Agreement to the venture on a relatively long-term basis, that his concerns about Mr Wilson had dissipated.
For some reason Mr Derham’s discontent was reignited in late January and early February 2002. According to him the incident which brought matters to a head was Mr Wilson’s request that Golden Sands on 4 January 2002 declare a dividend of $20,000 and a further dividend of $30,000 on 14 January. Mr Derham said he was unhappy about this but I find that he did not express this unhappiness and was content to sign the necessary cheques. Mr McKenzie, as the company accountant, too, was content that the dividend be paid. What did upset Mr Derham was that Mr Wilson was receiving $20,000 from the company by way of dividend and yet had not repaid the $25,000 which he had borrowed 10 months previously and which was agreed to be repaid from dividends. A further cause of dissatisfaction was that, after the dividend was declared, Mr McKenzie discovered and disclosed to Mr Derham unpaid invoices for about $50,000 which he said would have affected his dividend decision.
And then, in late January 2002, Mr Wilson called a meeting of directors and published an agenda. In this he included items which suggested he wished to receive further remuneration for work done and for further work, director’s fees and that his son, David, should receive a company vehicle. This caused Mr Derham to become very angry and he wrote to Mr Wilson a letter dated 4 February 2002 in which he demanded that Mr Wilson resign forthwith as director of Golden Sands and that he repay the $25,000 debt. This is an important letter for, in it, Mr Derham sets out the matters concerning Mr Wilson which were then of concern to him.
I mention this because the matters which were of most concern to Mr Derham at this time do not, for the most part, appear to have found their way into the list of complaints made in paragraph 70 of the defence. This list, as will be seen, has the appearance of having been produced after the event as a result of dredging up a number of matters which had long ceased to be of significance. Nevertheless, I shall address them in turn.
(a)In mid-July 2001 Wilson approached Derham about being paid remuneration contrary to any right to such payment.
(b)On 18 July 2001, Wilson demanded the sum of $27,500 (inclusive of GST) for alleged services rendered by him contrary to any right to such payment.
It appears that these two complaints refer to the same incident when Mr Wilson on 18 July 2001 rendered an invoice in the name of his company, Pacton Place Pty Ltd for $27,500. It was said on behalf of Davegale that Mr Wilson had no right to this remuneration for he was to provide his expertise for nothing more than a share in the profits. Mr Derham said that Mr Wilson asked him “if he could get a few bob for the time he had put in working on the Darra site” and he agreed to this. When the invoice for $25,000 plus GST was delivered on 18 July Mr Derham considered it outrageous. He thought that this was what Mr Wilson was receiving 40 percent of the profits for and he told this to Mr Wilson. Nevertheless, he authorised payments by Golden Sands totalling $18,000 in respect of this invoice in July and August 2001. Mr Wilson said that he raised the invoice principally for work done in negotiating the purchase of the Davegale site and the Royalty Agreement and for work done generally for Golden Sands so that the work was not performed by him as a director of a company presently in production. This complaint was not included in Mr Derham’s 4 February letter. I am satisfied that Mr Derham was well able to make a decision on these matters. He approved the payment and he cannot later complain that it was unlawful or without contractual basis.
(c)During and after May 2001, Wilson authorised the unlawful removal of topsoil from the Davegale site.
There was a good deal of confusion about this matter. Mr Derham said that he observed this soil being removed from the Davegale site and sold as soon as Golden Sands started operations in May 2001. He seemed at first to be pleased about this because it generated good cash flow. Later he said he discovered it was illegal and in August 2001 he asked Mr Wilson and Mr Strickland to stop. They continued nevertheless. He later spoke of the same activity at the Darra site. Mr Wilson flatly denied the allegation. He pointed out that, in the quarry industry, topsoil is used to describe the top 150 mm which is taken from the surface of the area to be mined and is later reinstated. He said that what was removed and sold was the underlying sandy loam, which was not unlawful means. This is consistent with cl. 5.2 of the work authorities which were in evidence. Mr Strickland confirmed this and said that no complaint was made to him about this matter by or on behalf of Mr Derham or Davegale. He was not challenged on this evidence. This matter was not the subject of complaint by Mr Derham to his solicitor nor was it included in his letter of 4 February 2002. I find there is no substance in this allegation.
(d) In June 2001, Wilson and Strickland organised (without notification to Derham) a proposed sale of 5,000 shares in Golden Sands from Wilson to Strickland, for the purchase price of $100,000 payable to Wilson.
There was no evidence of this allegation other than that 5000 shares were transferred for $100,000 and that it was done with the knowledge and consent of Mr Derham. There is no substance in this allegation.
(e) Wilson improperly commenced withdrawing money from Golden Sands which withdrawals were necessarily recorded in the books of Golden Sands as “loans”.
As pleaded, this refers to two loans totalling $15,000 made by Golden Sands to Mr Wilson. According to Mr McKenzie, the loans of $10,000 made on 25 May 2001 and $5,000 made on 8 June 2001 were sought by Mr Wilson to enable him to meet his obligations under another venture. These loans were approved by Mr Derham, albeit reluctantly and they were made by Golden Sands. They were repaid on 20 June 2001 by Mr Wilson out of the proceeds of the sale of part of his shares to Mr Strickland. A further loan was sought and refused by Mr Derham in mid-June. No evidence was led from Mr Derham which was in any way critical of these loans. I find no impropriety. This allegation is not made out.
(f) Wilson assumed the use of a Ford duel cab 4x4 utility motor vehicle (being the property of Golden Sands) for his own private purposes.
Mr Wilson said that he used the vehicle for a few weeks while his own car was undergoing repairs. Mr Derham said he complained when he heard about this and that it made him unhappy because it showed that Mr Wilson and Mr Strickland were content to use company assets as if they were their own. This was particularly irksome for him since he was aware that all of the funds for the company had been provided by himself or his companies. When this matter was raised with Mr Wilson he stopped using the company vehicle. This matter was not a reasonable ground for complaint in January 2002 and it was not mentioned in Mr Derham’s letter of 4 February 2002.
(g) In July 2001, Robbie Wilson (a son of Wilson) was employed by Golden Sands at the instigation of Wilson without the knowledge of Derham.
Mr Wilson says that, after his son had worked for some time for Golden Sands on a voluntary basis, he did employ him in July 2001 but that this was done with Mr Derham’s approval. It seems that Robert is still employed. Mr Derham said that he saw Robert working on the Darra site for a few weeks and then next thing he was on the payroll. He said he was not consulted but he did not bother to complain. He said that he “would have complained” to Mr Strickland but Mr Strickland denied this and he was not challenged on this denial. I am not prepared to find that this employment was without Mr Derham’s approval. There is no substance in this allegation.
(h)On 17 August 2001, Wilson demanded funds from Golden Sands (or alternatively Derham) by claiming he was “about to lose his house” (or words to this effect) if he was not paid $6,000 immediately.
There is no doubt that this occurred. Mr Wilson was given the money from the Golden Sands account, which was applied in reduction of his invoice for $27,500. The money was paid with Mr Derham’s approval. There is no cause for complaint here.
(i) In late 2001, Wilson caused at least 60 tonnes of material to be removed from the sand stockpile of Golden Sands without authorisation.
Mr David Wilson said that in or about September 2001 he removed about 8 tonnes from the stockpile having a value of about $35.00. He said that he did this without telling his father and that he used the material on the driveway on the Davegale site. The evidence of Mr McKenzie on this matter was largely hearsay but, in any event, it was not contradictory of David Wilson’s account. Mr Wilson maintained that he knew nothing about this. Mr Strickland said that no complaint was made to him about this matter by or on behalf of Mr Derham or Davegale and it was not the subject of complaint in the 4 February 2002 letter. I find no cause for complaint against Mr Wilson for this which is, in any event, a minor matter.
(j) During the spring of 2001, Wilson (or his son, David Wilson) and Strickland arranged for motorbike riders to use the Davegale site and the Darra site without authorisation and without the implementation of appropriate safety measures.
This incident provoked a good deal of evidence. The facts as I find them are these. Some time in August 2001 there took place on the Darra site a motorcycle event in which riders were filmed performing various stunts. For the purpose, the site had been prepared using Golden Sands’ plant. The riders included at least one from overseas who was considered a champion in that sport. The fact of this event was brought to the attention of Mr Derham and Mr McKenzie a day or so before it occurred. Neither of them was happy with it and Mr McKenzie expressed concern about the prospect that the public risk insurance held by Golden Sands would not cover the risk of injury to a rider. Mr Derham was not happy for this reason and also because he had not been consulted. Although he did accept that members of his own family had used the Davegale site and the Darra site for their own motor cycling activities and had done so notwithstanding Mr McKenzie’s concerns about insurance.
Mr Wilson acknowledged that Mr Derham and Mr McKenzie had expressed insurance concerns but he said all appropriate safety measures were implemented and each participant was required to sign a release and indemnity. He said, too, and I accept, that both Mr Derham and Mr McKenzie were spectators at the event.
Mr Strickland said that no complaint was made to him about this matter by or on behalf of Mr Derham or Davegale and his evidence on this was not challenged. Although it appears to be a matter of concern to Mr Derham at the time, it was not included in his letter of 4 February 2002 and, indeed, he said that after the event had passed, he put the matter out of his mind. This was no longer a matter of complaint on 4 April.
(k) Immediately prior to Christmas 2001, Wilson arranged for his son, Peter Wilson, to be employed by Golden Sands without Derham’s consent.
Again, the fact of Peter Wilson’s employment was not disputed. Mr Wilson says that his son worked at this time because they were short-staffed and that he had worked previously without pay for Golden Sands. He said he discussed the matter with Mr Derham who agreed. Mr Derham also said that he agreed to the employment, but only for two weeks. The employment, nevertheless, ran on in January when Mr Derham was becoming more and more concerned about the future of the business. Nevertheless, he made no complaint about the identity of this employee. Mr Strickland, too, said that this matter was not the subject of any complaint to him by or on behalf of Mr Derham or Davegale. In fact Peter Wilson is still on the payroll. The allegation is without substance.
(l)Between 16 and 18 February 2002 a total of 78.34 tons of washed turf sand belonging to Golden Sands was “donated” by Wilson (or on his behalf) to Bell Park Sports Club without authorisation.
This donation was made by David Wilson, Mr Wilson’s son, who was the sales manager for Golden Sands. The date is significant. It was at a time when relationships between Mr Derham and his co-venturers were poor. Mr McKenzie says that it took place without any consultation with him or Mr Derham. Mr Derham was not asked about the matter. David Wilson said, and I accept, that he made the donation with the approval of Mr Derham but without telling his father. He said that the sale value of the material was about $1000. I accept his evidence. There is no substance in this allegation.
(m) Throughout the term of the 23 April Agreement, Wilson authorised unnecessary expenditure and works at significant cost to Golden Sands.
As particularised, this related to the purchase of unnecessary equipment and the modifications of a pontoon. Mr Wilson was said to have authorised this wasteful expenditure. He denied the allegation, saying he had no knowledge of it. His evidence was not challenged or contradicted. Mr Strickland said that no complaint was made to him by or on behalf of Mr Derham or Davegale about this matter. There is nothing in this complaint.
(n)On numerous occasions both Wilson and Strickland directed employees of Golden Sands to work in unsafe conditions and otherwise allowed unsafe work practices.
As particularised, this is an allegation that boilermakers were required in June 2001 to work on the washing plant at the Darra site without safety harness. There was no evidence offered in support of the allegation. Mr Wilson denied it and this evidence was not challenged. Mr Strickland said that no complaint was made by or on behalf of Mr Derham or Davegale about this matter. There is nothing in this complaint.
The Termination
At the director’s meeting of 4 February 2002, Mr Derham presented his letter of that date to Mr Wilson and there followed a heated and inconclusive argument. Mr Wilson did not resign.
Throughout February 2002, the parties through their solicitors and at a meeting on 21 February sought to resolve their differences. Various options were explored, including the preparation of a formal agreement between Davegale and Golden Sands to regularise their relationship with respect to the Davegale site. There was also a discussion about Mr Derham selling his shareholding in the company to Mr Wilson. All of this came to nothing and on 7 March 2002 Mr Derham resigned as a director of Golden Sands. Unfruitful negotiations continued until 4 April 2002 when Mr Derham wrote to Golden Sands a letter in the following terms:
“Pursuant to the Agreement dated 23 April 2001 between Bill Wilson or nominee (Wilson), Robbyn Strickland or nominee (Strickland) and David Derham or nominee (Derham), Derham gives notice that Derham has decided that the Agreement should end as at 4 April 2002.”
By a further letter of the same date, Mr Derham required Golden Sands to deliver up all the plant and equipment owned by Davegale within seven days and offered to supply sand from the Davegale site on terms set out in the letter, which terms differed from those in the April Agreement.
On the following day, 5 April, the locks on the Davegale site were changed and Golden Sands was denied access.
Further acts at this time were the disconnection by digging up a section of a pipeline running between the Darra site and the Davegale site on or about 12 April 2002. This pipeline had been installed by Golden Sands to carry slimes from the washing operation on the Darra site to the Main Dam to the south of the Davegale site. The pipeline was also used to carry water from another dam on the Davegale site for use on the Darra site for its sand washing operations. Mr Derham said that this disconnection took place because Golden Sands owed Davegale for unpaid royalties, but this default was not particularised or proved. I am satisfied that the interruption of the pipeline was part of his general course of conduct in severing relationships with Golden Sands.
The termination of the right to carry slimes from the Darra site was in breach of cll. 9.8 and 9.9 of the Royalty Agreement for which Darra Pty Ltd served notice on 17 June 2002. Following this, Davegale permitted Golden Sands to enter upon the Davegale site for the purpose of repairing the pipeline at its own expense.
By letter dated 26 April 2002, Davegale gave Golden Sands notice that the electricity on the Davegale site would be switched off as soon as the meters were read. What is there described as “unauthorised removal of water” by Golden Sands would henceforth cease.
About this time, too, the sand mining activities on the Davegale site which had previously been carried on by Golden Sands were recommenced by Mr Derham through a new company, the thirdnamed defendant, Hillview Sand Pty Ltd. This company was incorporated on 11 April 2002 with Mr Derham as its sole director. Hillview Sand then became a competitor of Golden Sands.
The statement of claim alleges further conduct of a similar nature by Davegale and Mr Derham which was said to have taken place some 12 months later, in January and February 2003. I am not concerned with these matters at this trial.
The result of these events of April 2002 was that Golden Sands was permitted access to the Davegale site only to the extent that this was its entitlement for the purpose of its activities on the Darra site under the Royalty Agreement which remained unaffected by the termination of the April Agreement. Even so, there were difficulties, including the interruption of water supply in early 2003, but I am not now concerned with these. Since April 2002, Golden Sands has not been able to conduct its mining activities on the Davegale site.
My task is to determine what, if anything, was the legal effect of the termination notice of 4 April 2002 and of the conduct of Davegale in preventing Golden Sands from having access to the Davegale site and its plant on that site and whether any of the defendants is in breach of their duties in doing these things and in commencing the competitive business of sand mining by Hillview Sand and that of manufacture of compost by the fourthnamed defendant, Hillview Compost Pty Ltd.
It is necessary at this point to disentangle the network of contracts under which Golden Sands operations were conducted in the early months of 2002 prior to 4 April in order to assess the impact of this determination on each.
· The April Agreement, insofar as continuing obligations existed under this agreement;
· The licence granted by Davegale to enter upon the Davegale site and to take sand from it. The licence which was originally for an indeterminate period, was given a fixed term with the prospect of extensions by cl. 9.11 of the Royalty Agreement;
· The Royalty Agreement which conferred rights with respect to the Davegale site upon Excel;
· Any other agreement which the parties might have entered into, for example, for cartage with Derham Transport.
In the defence, Davegale alleges only that the April Agreement is at an end[21]. In its prayer for relief in the counterclaim, declarations are sought:
“C.That the 23 April Agreement was lawfully terminated by Derham on 4 April 2002;
D.That Davegale is not obliged (either at law or in equity) to afford Golden Sands access to the Davegale site nor to supply sand and/or water to Golden Sands.”
This relief, in terms of the complexities of cl 14, is probably inappropriate, if not meaningless. Moreover, no facts were alleged in the counterclaim to support it. It must be supposed therefore, that it was intended that the facts relied on, including the conclusion alleged in paragraph 74(a) and those facts giving rise to this conclusion, must be taken from the defence.
[21]Defence para 74(a).
I have already made mention of the difficulty caused by the omission of Davegale and Golden Sands as parties to the April Agreement. I have concluded that Davegale, and not Mr Derham, granted the licence to Golden Sands to enter upon the Davegale site to win the sand and this was done in the furtherance of the April Agreement, but not as part of it. I have concluded that cl 14 of the April Agreement entitles Mr Derham to withdraw his support for the venture so that he might decide to determine or cause to be determined an agreement, licence, permission or other arrangement subject to an implied term of the April Agreement that he do so in good faith and on reasonable grounds and upon reasonable notice, depending upon the relationship which was determined and, further, subject to any constraint contained in the agreement licence permission or other arrangement.
This conclusion resolves the further difficulties which attend the operation of cl 14 of the April Agreement. Who is to make the decision that the agreement should end: Mr Derham or one or other of his companies or some of these? What precisely is brought to an end by such a decision? How does this affect a licence between non-parties and made outside the April Agreement? Is it possible that a decision of Mr Derham under cl 14 might operate to bring to an end some agreements and the like, but not others? These were points which were not taken before me in the pleadings or otherwise. It appears to have been assumed that the decision of Mr Derham, if otherwise effective, was competent to bring to an end both the April Agreement and the licence to enter upon the Davegale site. Again, I will proceed on this basis.
The Termination Notice
As pleaded, the termination of the April Agreement by the notice of 4 April 2002 was said to be ineffective on three grounds:
· want of good faith;
· want of reasonable grounds;
· want of reasonable notice[22].
[22]Statement of claim, para 39.
It is convenient to deal with the first two grounds together because, in a case such as the present, they represent but two sides of the same coin[23]. It was submitted on behalf of Golden Sands that Mr Derham had breached the implied terms of the April Agreement by summarily terminating it, and that he did so without reasonable grounds and in order to enable his own company, Hillview Sand, to take over the business.
[23]Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [170]-[171].
I have concluded that the licence granted to Davegale was, since the Royalty Agreement, a licence for a term equivalent to that of the Royalty Agreement. Moreover, since it was a licence coupled with a grant, it was not competent for Mr Derham or Davegale then to terminate it, whether for good reason or upon reasonable notice or otherwise. This assumes, as was common ground, that the Royalty Agreement was not terminated, and also, as was never alleged, that the conduct of Golden Sand did not amount to a repudiation of the licence. The case of Davegale was that the April Agreement was terminated on 4 April 2002 pursuant to its terms, presumably pursuant to cl 14.[24] This is sufficient for me to conclude that the purported termination of the licence was ineffective.
[24]Defence para 38. At transcript 412, counsel for Davegale foreshadowed an amendment to this plea but it was not pursued.
In case this proceeding may go further, and in deference to the submissions of counsel, I shall briefly venture my views on the alternative arguments put on behalf of the defendants. As to want of good faith and reasonable grounds, I would find for Davegale. Accepting that there was an implied term of the April Agreement that the power conferred upon Mr Davegale by cl 14 would not be exercised otherwise than in good faith and upon reasonable grounds, this implied term must operate in the circumstances as they appeared at the date of contract. These circumstances included the fact that Mr Derham was providing most, if not all, of the capital for the venture and that the venture depended upon the expertise of Mr Wilson and Mr Strickland. Mr Derham was in late 2001 and early 2002, increasingly losing confidence in his co-venturers, particularly Mr Wilson. He was entitled to have regard to the security of his investment in the venture and the three men accepted this as a legitimate concern when they agreed in April 2001 that he might unilaterally decide to determine the venture. In these circumstances, it seems to me that it is entirely consistent with this agreement, and reasonable, that he might withdraw if he lost confidence in them.
I should record at this stage that on 4 April 2002, at the time that Mr Derham decided to terminate the April Agreement, he was no longer a director of Golden Sands. On the evidence before me, I do not find that his decision was motivated by a wish to undermine the venture and to substitute his own company as operator of the Davegale Quarry. My conclusion on the evidence before me is that his decision to withdraw his support from Golden Sands was the result of his dissatisfaction with the co-venturers. Having decided to terminate the Golden Sands venture, he was left with the Davegale site. It was then entirely proper that he should decide, as he did, to exploit this quarry using his own company. In short, I find that his establishment of the Hillview Sand enterprise was as a consequence of his decision to terminate that of Golden Sands; it is not correct to say, as counsel for Golden Sands suggested, that his decision to terminate the Golden Sands venture was a consequence of his decision to establish the Hillview Sand project.
Accordingly, notwithstanding that his specific complaints set out in para 70 of the defence were not made out, I am satisfied that there was no want of good faith or of reasonable grounds for him to exercise the power invested in him pursuant to cl 14 of the April Agreement if it were otherwise available.
The third ground is a want of reasonable notice. I have concluded that, in this case, there is no implied requirement that the licensor should give reasonable notice of revocation. The want of any such notice, therefore, cannot effect the right of Mr Derham or Davegale to terminate the licence summarily if that right is otherwise available to him or it.
My conclusion that Mr Derham or Davegale was not entitled to terminate the licence on 4 April 2002 leaves, then, the difficult question what was the effect, if any, of his decision then to terminate the April Agreement. This would involve an examination of what provisions of that agreement remained on foot immediately prior to the decision to terminate. As I have mentioned, this matter was not addressed in submissions before me. As best I understand it, the parties appeared to take the position that this agreement was the equivalent of the licence so that, if the licence was not determined, so too the April Agreement was not determined, and vice versa. In these circumstances, it would be inappropriate for me to take a different view. I would simply record that I would not wish it to be thought that I would have accepted the position had the matter been raised for my decision.
In these circumstances, I content myself with concluding, as I do, that the decision of Mr Derham of 4 April 2002 and his notice of that date were not effective to determine the licence of Golden Sands to enter upon the Davegale site or determine the April Agreement. They constituted a breach of the licence granted by Davegale to Golden Sands. Questions as to the relief, if any, which should be granted to Golden Sands as a consequence will fall to be determined in due course.
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