Goldus Pty Ltd v Australian Mining Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

GOLDUS PTY LTD v AUSTRALIAN MINING PTY LTD & ANOR

[2015] SASC 32

Judgment of The Honourable Justice Parker

27 February 2015

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

INTERPRETATION - GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS - COMMERCIAL AND BUSINESS TRANSACTIONS

INTERPRETATION - ADMISSIBILITY OF EXTRINSIC EVIDENCE IN RELATION TO INSTRUMENTS - WHEN EVIDENCE ADMISSIBLE

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS

An action for breach of contract. Goldus (plaintiff) and AM (first defendant) were joint venturers. ACH (second defendant) was the sole shareholder of AM. ACH entered into a contract to sell its shares in AM to a third party. Goldus contends that under the joint venture agreement AM was required to give notice to Goldus of the proposed share sale and its terms, following which Goldus would have a pre-emptive right to purchase AM’s participating interest in the joint venture on the same terms. Goldus also contends that the joint venture agreement contained an implied term that a joint venturer cannot sell its participating interest to an unrelated party incapable of and unsuited to carrying out the joint venture.

Whether extrinsic evidence of negotiations prior to the joint venture agreement is admissible. Whether the pre-emptive rights clause is valid or void for uncertainty. Whether AM was required to give notice to Goldus of the proposed share sale. Whether a term could be implied into the joint venture agreement.

Held (Parker J):

Action dismissed.

1.       Evidence of prior negotiations is admissible to assist in determining on an objective basis what a reasonable person in the position of the parties would have understood the words of clause 13 to mean and to establish the proper context or factual matrix.

2.       Clauses 13.7 and 13.8 of the joint venture agreement are void for uncertainty and must be severed from the contract.

3.       AM was therefore not required to give notice to Goldus of the proposed share sale.

4.       A term could not be implied into the joint venture agreement as it was not so obvious that “it goes without saying”.

Corporations Act 2001 (Cth) s 50AA, referred to.
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494; Scammel (G) & Nephew Ltd v Ouston [1941] 1 AC 251; Beaconsfield Gold NL v Allstate Prospecting Pty Ltd [2006] VSC 320; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd (2009) 103 SASR 354; United Group Rail Services Ltd v Rail Corporation of New South Wales (2009) 74 NSWLR 618; Rieson v SST Consulting Services Pty…

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Details
Case
[2015] SASC 32
Decision Date

CaseChat Overview and Summary

Goldus Pty Ltd initiated proceedings against Australian Mining Pty Ltd and Australian Corporate Holdings Pty Ltd, seeking declarations and orders regarding the sale of shares in Australian Mining. The dispute centred on the interpretation of clauses 13.3, 13.7, and 13.8 of the Joint Venture Agreement (JVA), specifically addressing the pre-emptive rights and conditions for disposing of participating interests. The primary legal issues involved the admissibility of extrinsic evidence to interpret these clauses and whether certain clauses were void for uncertainty. The court also considered whether implied terms could be added to the JVA.

The court found that while extrinsic evidence can be used to understand the factual matrix surrounding the contract, it cannot be used to show the parties' actual intentions or to contradict the written terms. The court admitted the supplementary tender book into evidence but found it provided little assistance. Clauses 13.7 and 13.8 were deemed void for uncertainty due to their broad and undefined nature, which could lead to situations where the joint venturer might not be aware of the terms and conditions required for a notice under clause 13.3. Because of this uncertainty, these clauses were severed from the contract, rendering the requirement for notice under clause 13.3 inapplicable in this case. Consequently, the court dismissed all claims made by Goldus.

The decision highlights the importance of clear and precise drafting in commercial contracts. Broad and undefined terms can lead to uncertainty and render clauses void, which can have significant implications for the enforceability of the contract. The court's ruling underscores the principle that while extrinsic evidence can aid in interpreting a contract, it cannot be used to contradict the written terms or to show the parties' actual intentions.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The causes of action relied upon by Goldus were breach of contract and the tort of unlawful interference with the contract. The latter plea had apparently only been advanced so as to provide a basis for an injunction. While the statement of claim also asserted an estoppel, that plea was abandoned before the trial commenced. Background Since November 2012 Goldus has been party to an unincorporated joint venture with AM known as the Teetulpa Alluvial Joint Venture (“TAJV”). Since 13 March 2013 Goldus has been the owner of a 33.677% interest as joint tenants in the assets comprising the TAJV. AM holds a 66.323% interest in the assets comprising the TAJV. AM is a wholly owned subsidiary of the second defendant, Australian Corporate Holdings Pty Ltd (“ACH”). At all material times AM has been controlled by its registered officers, ie Sidney Fischer (as director), Graham Nicholls (as secretary and company legal officer) and Stephen Wickens (as secretary and operations manager). ACH is the sole shareholder and holding company in control of AM. Fischer is the sole shareholder in ACH. At all material times Mr Fischer has been a director and Mr Nicholls and Mr Wickens secretaries of ACH. The TAJV was formed as an unincorporated joint venture in 2007 for the purpose of carrying out exploration and mining for alluvial gold and other minerals in eight mining tenements in South Australia. The activities of the TAJV are now subject to a written agreement entitled the “Joint Venture Agreement – Teetulpa Alluvial Joint Venture” (“the JVA”) executed by Goldus and AM in November 2012. The assets of the TAJV comprise eight mining tenements issued to Goldus under the Mining Act 1971 (SA) and plant and equipment held for the purposes of the joint venture activities on those tenements.Relief sought Goldus has sought the following relief:1a declaration that no compliant notice has been made by AM to Goldus in accordance with clause 13.3 of the Agreement; and that if the share sale transaction were to proceed it would be an “event of default” under clause 11.1;2an order requiring specific performance of the obligation of AM to provide a compliant notice to Goldus in accordance with clause 13.3;3orders restraining ACH from dealing with its shares in AM until AM has complied with its obligation in clause 13.3; and 4in the alternative to (b) above, declarations that: a.AM is in breach of the Agreement; and b.Goldus is therefore entitled to purchase AM’s participating interest under clause 11.1.The relevant clauses in the JVA The central issue in these proceedings is the operation of clauses 13.3, 13.7 and 13.8 of the JVA. These clauses provide as follows:13.3 Pre-emptive Right(a)Subject to clauses 13.1 and 13.2 a Joint Venturer must not Dispose of all or any of the Participating Interest and rights and obligations under this Agreement unless the disposing Joint Venturer has complied with the procedure specified in this clause 13.3.(b)If the disposing Joint Venturer wishes to Dispose of its Participating Interest and rights and obligations under this Agreement other than to a Related Company it may only do so if the disposing Joint Venturer gives notice to the other joint Venturer of the consideration (which must be cash or cash equivalent amount of any non cash consideration) for, and on terms and conditions upon which, it wishes to Dispose of the Participating Interest and rights and obligations under this Agreement.(c)After receipt of notice under clause 1.3(b) the non-assigning Joint Venturer will have an exclusive option for a period of 30 days to purchase the Participating Interest in respect of which notice[1] has been given for the consideration and on the terms and conditions specified in the notice.[1] In the executed version of the JVA this word appears as “status”. The parties have agreed that it should be read as “notice”. The word “status” would be meaningless in this context. (d)If the non-assigning Joint Venturer does not exercise that option, then the disposing Joint Venturer may Dispose of the Participating Interest and its rights and obligations under this Agreement in respect of which notice has been given, to a third party for a consideration not less than that specified in the notice under clause 13.3(b) and otherwise on terms and conditions which are no more favourable to the third party than those offered to the non-assigning Joint Venturer and specified in the notice under clause 13.3(b), provided that the Disposal is evidenced in writing and completed within 90 days of the expiry of the 30 day option period.13.7Change of ControlA Change of Control of a Joint Venturer (except as a result of a Change of Control of an entity that is listed on a recognised stock exchange) shall, for the purposes of clause 13, constitute a Disposal to a non-Related Company of the Participating Interest of that Joint Venturer, in which case the provisions of clause 13 shall apply.13.8 DefinitionsIn clause 13.7:(a) Change of Control means:(i)Subject to clause 13.8(a)(ii), a Change of Control occurs in relation to a body corporate or entity (the “body”) where:A.an entity that Controls the body ceases to Control the body; orB.an entity that does not Control the body comes to Control the body.(ii)No Change of Control occurs if:C.the entity that ceases to Control the body under paragraph (a)(i) was, immediately beforehand, Controlled by a body corporate that Controls the body; orD.the entity that comes to Control the body under paragraph (a)(ii) is, immediately afterward, a wholly-owned subsidiary of a body corporate that previously Controlled and continues to Control the body; orE.it results from a Change in Control of a listed entity.In this definition each of listed and wholly-owned subsidiary has the meaning given in section 9 of the Corporations Act and entity has the meaning given in section 64A of the Corporations Act.(b) Control has the meaning given in section 50AA of the Corporations Act except that in addition an entity controls a second entity if:(i)the first entity would be taken to control the second entity but for subsection 50AA(4); or(ii)the first entity has voting power (as defined in section 610 of the Corporations Act) of at least 50% in the second entity.

Evidence

Evidence Before The Court

I accept the correctness of the observation by Hargrave J in Beaconsfield Gold. It is entirely consistent with the general principles governing the interpretation of commercial contracts. Parol evidence The plaintiff sought to tender a supplementary tender book comprising a series of email messages and draft versions of the JVA that passed between Kelly & Co, the former solicitors for Goldus, and Norman Waterhouse, the solicitors for AM, while the JVA was being negotiated. Counsel for the defendants objected to the admission of the supplementary tender book into evidence. I received it de bene esse. For the reasons explained below, I have admitted the supplementary tender book into evidence but found that it provided little assistance. The plaintiff submitted that the supplementary tender book was admissible as an aid to interpretation. It would assist the Court to determine the objective intention of the parties and how clauses 13.7 and 13.8 came to be inserted into the JVA. The plaintiff further submitted that the material was also admissible for the purpose of assisting the court to determine whether clauses 13.7 and 13.8 were severable. Its counsel contended that the clauses would not be severable if they were an essential element of the bargain reached by the parties. The defendants objected to the admission into evidence of the supplementary tender book. Counsel submitted that the material was not admissible for the purposes of establishing the views of the parties and their legal advisers as to the intended meaning of the relevant clauses and nor was it admissible to determine whether or not the parties would have entered the JVA in the absence of clauses 13.7 and 13.8. The parol evidence rule precludes the admission of evidence of extrinsic material that seeks to “subtract from, add to, vary or contradict the language of a written instrument”.[8] However, evidence of prior negotiations may be admitted where an understanding of the surrounding circumstances assists in the interpretation of the contract, ie the evidence provides a factual matrix.[9] Thus, extrinsic material may be admitted to establish objective background facts which were known to both parties. Such material is not admissible to show the actual intentions and expectations of the parties.[8] Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24 at [11]; (1982) 149 CLR 337 at 347 (Mason J).[9] Ibid at 352 [22] – [24] (Mason J). In Codelfa Construction Pty Ltd v State Rail Authority of NSW Mason J specifically identified as examples of inadmissible material “negotiations in the course of which the parties gradually evolved the terms of a bargain ultimately embodied in written form”, “preliminary consensus that merged into the written contract” and “statements made during the course of negotiations indicative of the unilateral intentions of each party”.[10] The principles expressed by the High Court in Codelfa remain the law in Australia.[11][10] Ibid at 354 [30] (Mason J).[11] Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5 at [39]; (2002) 240 CLR 45 at 63; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22]; (2004) 218 CLR 451 at 462; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd [2009] SASC 65 at [40]; (2009) 103 SASR 354 at 368 – 369 (Kourakis J, as he then was).

Decision

Reasons for decision

Clause 9.2 of the statement of claim refers to an implied term requiring notice of any third party offer to disclose the identity of the third party purchaser. The submissions made by counsel for the defendants against implication of such a term were primarily directed at the difficulties that would arise from the interaction between the proposed term and clauses 13.3(b) and 13.7. Due to my finding that clause 13.7 is invalid and must be severed, it is not necessary to consider those issues.Conclusion Clauses 13.7 and 13.8 of the JVA are void for uncertainty and must be severed from the contract. For that reason, AM was not required to give notice to Goldus under clause 13.3 of the proposed sale by ACH of its shares in AM to Teetulpa Metals. Terms cannot be implied into the JVA to the effect contended for in paragraph 9.1 of the statement of claim. Because of my conclusion that clauses 13.7 and 13.8 of the JVA are invalid and must be severed, it is not necessary to consider the various claims for relief advanced by Goldus. For these reasons I dismissed the plaintiff's application in all respects.

Ratio Decidendi

Legal Principle Established

The defendants have submitted that the effect of the construction advanced by the plaintiff is radically to modify the effect of clause 13.3 so as to change it from a provision which sets out a pre-condition to be met before a joint venturer is entitled to dispose of its participating interest into a provision which imposes a positive obligation on a joint venturer to make an offer to sell its interest in circumstances where it does not wish to do so. Consideration The operation of clause 13.3(a) is straightforward in those cases where a joint venturer wishes to dispose of any part of its participating interest by sale or assignment. In such a case, clause 13.7 is not relevant. Thus, for example, if AM wished to sell its participating interest, it would be required to give notice in the terms required by clause 13.3(b) and Goldus would have 30 days to exercise the exclusive option granted by clause 13.3(c). In that factual situation the provisions are plainly not uncertain and no question of severance would arise. Clause 13.7 operates as a deeming provision. It requires a change of control (as widely defined in clause 13.8) of a joint venturer to be treated for the purposes of clause 13.3 as if it were a disposal to an unrelated company of the participating interest of that joint venturer. When read in conjunction with clause 13.7, the effect of clause 13.3(a) is to impose a prohibition upon a joint-venturer disposing of any part of its participating interest or being subject to a change in control without first giving notice under clause 13.3 (b). Counsel for the defendants noted that because of the extended definition provided in clause 13.8, a change in control may potentially take effect before the relevant joint venturer becomes aware of that fact. By way of example counsel referred to the death of a director. In those circumstances there will be no terms or consideration that might be included in a notice. Counsel also suggested that it is readily conceivable that a joint-venturer may not be aware that action is being proposed by another that may trigger a change of control as defined in clause 13.8. Even if it is aware of that fact, the joint venturer may have no knowledge of the terms and consideration applicable to the proposed transaction. That is not the present case. Because of the common holding of office, the persons with control over the affairs of AM were aware of the share sale proposed by ACH and its terms. While the two examples referred to by counsel for the defendants point to the difficulties that may arise in the application of clause 13, the fact that the provision has been drafted in terms that may not effectively deal with every situation that might potentially arise does not render it void for uncertainty. However, that is not the end of the matter. Clause 13.3(b) is expressed to apply where a joint venturer “wishes” to dispose of its participating interest. The preceding examples illustrate that a joint venturer that is subject to a proposed change in control may not “wish” to dispose of its participating interest and nor may it “wish” to undergo a change in control.