Goldus Pty Ltd v Australian Mining Pty Ltd - [2015] SASC 32

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 Ltd (2005) 219 ALR 90; Agricultural & Rural Finance Proprietary Limited v Gardiner (2008) 238 CLR 570; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, considered.

GOLDUS PTY LTD v AUSTRALIAN MINING PTY LTD & ANOR
[2015] SASC 32

PARKER J: The plaintiff, Goldus Pty Ltd (“Goldus”) sought orders to require the first defendant, Australian Mining Pty Ltd (“AM”), to comply with what are alleged to be its obligations under a pre-emptive rights clause in a mining joint venture agreement.
On 6 February 2015 I made orders dismissing the application by Goldus in its entirety. Because of the urgency of the matter, I deferred publication of my reasons. These are my reasons.
Goldus has asserted that the pre-emptive rights clause is valid and that AM has not met its obligation to give notice to Goldus under the clause. The defendants have denied the validity of the clause and have contended that it should be severed from the contract.
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 Control
A 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   Definitions
In 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; or
B.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; or
D.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; or
E.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.
Because clause 13.3(a) is subject to clauses 13.1 and 13.2, it is necessary, for completeness, to refer briefly to those provisions. Clause 13.1 prohibits a joint venturer from granting a charge or encumbrance over a participating interest without the prior written consent of the other joint venturer. Clause 13.2 permits any party to freely dispose of all its participating interests and rights and obligations under the JVA to a related company provided that the related company delivers a deed containing a covenant to re-transfer the participating interest if it ceases to be a related company of the transferor.
Should AM be in breach of the JVA, clause 11.1 will also be relevant. It provides:
11.1 Defaulting Joint Venturer Liable to Forfeit Participating Interest
A Joint Venturer is a “Defaulter” is [sic] it defaults in the performance of any of its obligations under this Agreement (“Event of Default”), and such default continues for a period of thirty days after the Manager or (where the defaulting Joint Venturer is the Manager) another Joint Venturer shall have given written notice to the defaulting Joint Venturer specifying the default and (where such default is remediable) requiring its remedy, and requiring the payment of a reasonable sum to cover the costs of issuing the said notice, then the Defaulter shall be deemed to have withdrawn from the Joint Venturer and it shall transfer its Participating Interest in the Joint Venture to the non-defaulting Joint Venturer or Joint Venturers (as the case may be) (“Non-Defaulter”) in proportion (as between them to their Participating Interests inter se) in consideration for a price determined by an independent valuation to be conducted by a valuer agreed between the Joint Venturers or failing agreement, appointed by the President of AusIMM payable by Non-Defaulters and this Joint Venture shall be at an end as regards the Defaulter.
It is not necessary to refer to the subsequent paragraphs of clause 11 which deal with payment of monies upon default and the suspension of a defaulter’s rights under the JVA.
Purported notice by AM
On 14 October 2014 Mr Nicholls, acting on behalf of AM, sent a letter to Minter Ellison, the solicitors for Goldus. The letter referred to clauses 13.3, 13.7 and 13.8 of the Agreement. It gave notice to Goldus of an offer received by AM from a third party for the disposal of its participating interest in the TAJV by way of a change of control. The disposal was intended to proceed by way of the sale by ACH of whole of the issued share capital in AM. The proposed purchaser was not disclosed.
The letter of 14 October 2014 referred to other terms and conditions that were proposed to apply to the transaction, including the total consideration of $2 million. The greater part of the consideration was to be payable by instalments. A related company of the purchaser was to guarantee payment of the instalments.
It was also proposed that those shares in Sathya Holdings Pty Ltd that were not currently held by AM would be transferred to AM prior to settlement. Thus, at settlement, the purchaser would indirectly acquire all of the issued share capital in Sathya as part of the sale price.
The letter invited Goldus to indicate within 30 days whether it wished to purchase AM’s participating interest on the terms and conditions and for the consideration referred to in the letter.
During October and November 2014 there was a further exchange of correspondence between the Minter Ellison on behalf of Goldus and Mr Nicholls on behalf of AM. It is unnecessary to refer to the terms of that correspondence other than to note that Goldus asked for the name of the intended purchaser and also sought further information about some of the proposed terms and financial matters.
On 13 November 2014 Mr Nicholls sent an email on behalf of ACH to Minter Ellison. Attached to that message were copies of documents described as a Share Sale Agreement and a Security Interest Over Shares (collectively “the Offer Documents”). The Offer Documents were said by Mr Nicholls to set out the complete terms and conditions upon which ACH was prepared to sell its shares in AM. However, the names of the purchaser and guarantor had been redacted.
Mr Nicholls stated in the email message that ACH did not accept the contention made on behalf of Goldus in the earlier correspondence that the 30 day option period only ran from the provision of the Offer Documents. Nevertheless, ACH would allow Goldus up until 17 November 2014 to accept the offer in accordance with the Offer Documents.
On 14 November 2014 Minter Ellison sent an email message to Mr Nicholls on behalf of ACH indicating that Goldus would review the Offer Documents as soon as it could but that the time limit of 17 November 2014 was not accepted.
Subsequently, it was disclosed that the proposed purchaser of the shares in AM was Teetulpa Metals Pty Ltd and the guarantor was Australian Tailings Group Pty Ltd.
The notice is said to be defective
Goldus contends that the letter of 14 October 2014 either when read alone, or in conjunction with the email message of 13 November 2014, does not meet the express requirements of clause 13.3. The deficiencies are said to be that AM has not put an offer which is clear, unequivocal and capable of acceptance by Goldus. Furthermore, the notice is said not to provide sufficient information to Goldus to enable it to make the comparison required by clause 13.3. Another complaint is that AM has not met its obligation to offer to sell its participating interest in the TAJV. Instead the shares in AM have been offered by ACH.
Goldus contends that ACH knew of the Agreement and its terms because of the common officers it shared with AM. ACH knew that AM would breach the Agreement if it did not comply with clause 13.3 before seeking to sell the shares it held in AM. In those circumstances, the conduct of ACH in threatening to proceed with the sale of the AM shares was said to be a direct and tortious interference with the contractual rights of Goldus.
On 18 December 2014 ACH (as vendor), Teetulpa Metals (as purchaser) and Australian Tailings Group (as guarantor for the purchaser) executed a deed of variation to the share sale agreement that had been executed by the parties on or about 17 November 2014. The deed of variation was executed following the institution of these proceedings. The recitals to the deed state that its purpose was to prevent the share sale agreement being frustrated by the proceedings. The scheduled completion date for the share sale agreement had been 6 February 2015. The parties to the deed agreed that if the Court had not made a final ruling in the present proceedings by that date, or if a finding was made in favour of Goldus, or if Goldus validly exercised any pre-emptive rights it may have under the JVA, the parties would be released from performing their obligations under the share sale agreement.
Interpretation principles
The defendants contend that clause 13.7 is unworkable and void for uncertainty. The plaintiffs contend that the interpretation put forward by the defendants is contrary to the relevant legal principles and seeks to manufacture uncertainty where none exists.
Before referring to the competing interpretations of clause 13.7 advanced by the parties, it is necessary to refer to the principles applied where a contract, or a clause in a contract, is said to be void for uncertainty. The parties do not dispute the relevant principles. The only issue is the application of those principles to clause 13.
The issue before the High Court in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd[2] was whether a clause in an electricity supply agreement was void for uncertainty. The clause entitled the supplier to vary its charges if “the supplier’s costs” were increased. Barwick CJ held (with McTiernan, Kitto and Windeyer JJ concurring) that while there was wide scope for disagreement as to the application of the clause to a particular case, it was not meaningless nor was it ambiguous. The clause was valid. In a separate judgment Menzies J also held that the relevant clause was not void for uncertainty.
[2] [1968] HCA 8; (1968) 118 CLR 429.
Barwick CJ[3] observed as follows:
But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties and of applying it. Lord Tomlin’s words in this connexion in Hillas & Co Ltd v Arcos Ltd[4] ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright’s words in Scammel (G) & Nephew Ltd v Ouston[5] is not “so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention”, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.
[3] Ibid at 436 [9].
[4] [1932] All ER Rep 494 at 499; 147 LT 503 at 512.
[5] [1941] 1 AC 251 at 268.

The passage in the speech of Lord Tomlin in Hillas v Arcos referred to by Barwick CJ in Upper Hunter was as follows:
the problem for a court of construction must always be so to balance matters that, without violation of a essential principle, the dealings of men may as far as possible be treated as effective, and the law may not incur the reproach of being the destroyer of bargains.
The plaintiff has placed reliance on Beaconsfield Gold NL v Allstate Prospecting Pty Ltd[6] where Hargrave J observed that a pre-emptive rights clause in a joint venture agreement was intended to “… ensure that existing participants are empowered to exclude new participants by purchasing the outgoing participant’s interest if they so desire”.
[6] [2006] VSC 320 at [33].
In Beaconsfield Gold Hargrave J went on to state:[7]
These objectives may be defeated if pre-emptive rights provisions are interpreted narrowly. In my view, in interpreting pre-emptive rights provisions, a court should keep this steadily in mind. Where there are two interpretations of a pre-emptive rights clause in a joint venture agreement which are reasonably open, that which accords with the objective purpose of the provision should be preferred.
[7] Ibid at [34].
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).
The parol evidence rule does not preclude admission of extrinsic evidence where the words used in a contract are ambiguous. While the plaintiff contends that there is no ambiguity and the words used in clause 13 are clear, the defendant contends that the relevant provisions are defective and cannot operate. Thus, there is said to be a patent ambiguity.
In Royal Botanic Gardens and Domain Trust v South Sydney City Council[12] the High Court held that the words of a rent review clause were ambiguous and therefore permitted the admission of evidence concerning the background to the agreement and its negotiation. The High Court majority indicated that Codelfa should continue to be followed.
[12] [2002] HCA 5 at [39]; (2002) 240 CLR 45.
Thus, if the meaning of a contract is clear, extrinsic evidence is not admissible to contradict the language used. However, if the words used in the contract are ambiguous then evidence of that type may be admitted to assist with interpretation.[13]
[13] See also K Lewison and D Hughes, The Interpretation of Contracts in Australia (2011) at 115.
I have therefore admitted into evidence the contents of the supplementary tender book 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. In doing so, I remind myself that the extrinsic material cannot be used to alter a clear meaning if in fact the words used are capable of bearing such a meaning.
It is also permissible to refer to extrinsic evidence in determining whether clauses 13.7 and 13.8 were essential elements of the agreement between the parties but only to the extent that the extrinsic material assists by putting the commercial relationship in its proper context or factual matrix.[14]
[14] United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177 at [92]; (2009) 74 NSWLR 618 at 643 (Allsop P); Rieson v SST Consulting Services Pty Ltd [2005] FCAFC 6 at [60]; (2005) 219 ALR 90 at 103 (Wilcox and Finn JJ); N Seddon et al, Cheshire and Fifoot, Law of Contract (10^th Australian Edition, 2012) at [6.17].
Before referring to the contents of the supplementary tender book, it is necessary to consider the contents of an earlier JVA between Goldus and Heath Investments Pty Ltd executed in 2007. It was tendered by the defendants without objection from the plaintiff. The terms of the current JVA substantially replicate the 2007 document. The clause then numbered as 12.3 is identical to clause 13.3 of the current JVA.[15] The 2007 JVA did not include any provision in similar terms to clauses 13.7 and 13.8 of the current JVA.
[15] In fact, clause 12.3(c) of the 2007 JVA mistakenly used the word “status” instead of “notice” as in clause 13.3(c) of the current JVA.
The supplementary tender book includes a first draft of the current JVA that was provided by Kelly and Co to Norman Waterhouse on 18 June 2012. That document closely resembled the 2007 JVA between Goldus and Heath Investments. What was then clause 12.3 was identical to the equivalent provision in the 2007 JVA. There was no provision similar to the current clauses 13.7 and 13.8.
On 26 June 2012 Norman Waterhouse forwarded a revised draft to Kelly and Co. The covering email message stated “we have included in the JVA numerous standard provisions that are usual in mineral joint venture agreements so I doubt they will be contentious”. The message went on to state “the attached documents have not been reviewed by my client and we reserve the right to make further amendments”. Clauses 13.7 and 13.8 were included for the first time.
Clause 13.8 as it appears in the executed version remained in the terms proposed on 26 June 2012. However, the draft clause 13.7 proposed at that time was not identical to the version ultimately adopted. The draft provided that a joint venturer would be in default if it underwent a change in control without the consent of the other joint venturer. There was an exception if the change in control affected an entity listed on the stock exchange.
On 27 June 2012 Kelly and Co responded to the changes proposed by Norman Waterhouse. Kelly and Co had made further changes which were described in the covering email as “minimal”. The message also stated that “your changes were mostly standard JV provisions and therefore largely acceptable to us”. The changes made by Kelly and Co to clause 13.7 brought it very close to the final version.
Norman Waterhouse proposed further changes to Kelly and Co on 28 June 2012. Most of the changes were unrelated to clause 13 and that clause was not mentioned in the covering email. Nevertheless, clause 13.7 was revised by Norman Waterhouse so as to include the words “to a non-related company” after the word “disposal”. Thus, clause 13.7 took its final form.
While further amendments were made to the draft JVA, clause 13 was not affected. It remained in the terms proposed by Norman Waterhouse on 28 June 2012 (which closely resembled the version put forward by Kelly and Co on 27 June 2012).
I do not consider that the email correspondence and draft versions of the JVA included in the supplementary tender book provide any real assistance in determining the meaning of the contentious provisions in clause 13. The addition of clauses 13.7 and 13.8, in contrast to some other changes, does not appear to have been considered sufficiently significant to warrant any specific reference in the e-mail messages that passed between the solicitors. The solicitors acting for Goldus and for AM both appear to have considered that what they were adding to the draft JVA and then amending were uncontentious provisions commonly found in such agreements.
The e-mail traffic does not provide evidence that assists on the severance question by putting the commercial relationship in its proper context or factual matrix. In particular the extrinsic evidence does not assist in establishing that one or both parties would not have entered the JVA but for the inclusion of clauses 13.7 and 13.8, ie they were not “deal breakers”.
The plaintiff’s contentions about certainty
The plaintiff says that the contractual intention of the parties in relation to clause 13 is clear. If a change of control occurs with respect to a joint venturer, that joint venturer must offer to sell its participating interest to the other joint venturer in accordance with clause 13.3.
The plaintiff contends that the obligation to make an offer to sell the participating interest was recognised by both the first and the second defendant when they purported to make an offer under clause 13.3. I consider that the post-contractual action of the defendants in purporting to make an offer cannot be taken into account for the purpose of interpreting the contract.[16]
[16] Agricultural & Rural Finance Proprietary Limited v Gardiner [2008] HCA 57 at [35]; (2008) 238 CLR 570 at 582.
Upon ACH determining to sell its shares in AM, and thereby effecting a change of control in AM, the plaintiff contends that AM was required to comply with clause 13.3. Thus, AM was obliged to provide a valid notice to Goldus (which it says has not been done) setting out the consideration and terms and conditions upon which Goldus could purchase the participating interest held by AM. Goldus would then hold an exclusive option for a period of 30 days to purchase AM’s participating interest for the consideration, and on the terms and conditions, set out in the notice. If Goldus did not exercise the option, AM would retain the participating interest when its shares are sold by ACH to Teetulpa.
The defendants say that clause 13.7 must fail for uncertainty
The defendants have put forward two possible general approaches to the interpretation of clause 13.7 but have submitted that any possible construction is unworkable and meaningless. While there is no direction in clause 13.7 to apply the provisions of clause 13.3 mutatis mutandis, it was submitted that even if an attempt were to be made to adopt that approach, it must fail.
Before referring to the two possible interpretations canvassed by the defendants, it is necessary to refer to an important preliminary point made by their counsel. He has suggested that an insurmountable difficulty has been created by the fact that a "change of control" is something that happens to a joint venturer while a disposal of a participating interest is something done by a joint-venturer.
Counsel submitted that clause 13.7 does not specify how clause 13 is to be applied to a situation where it is proposed that a different entity (and not necessarily an entity that currently has control over the relevant joint venturer) is proposing to do something that may result in a "change of control" of the joint venturer which does not wish to dispose of its participating interest.
Counsel also noted that the term "control" is defined by clause 13.8 to have the meaning in s 50AA of the Corporations Act (but subject to two modifications that further broaden the already wide statutory definition). The effect of clause 13.8 is that an entity will "control" a joint-venturer if it has practical influence (as distinct from rights that it can enforce) that is sufficient to determine the outcome of decisions about the financial and operating policies of that joint venturer.
Against that background the first possible interpretation canvassed by the defendants is as follows. Clause 13.3 applies as if, for the purposes of that provision, a proposed change of control of a joint venturer were a proposed disposal to a non-related company of the participating interest of that joint venturer.
The defendants have suggested that a second interpretation appears to be that preferred by the plaintiff. That interpretation was expressed by the defendants in the following terms.
Clause 13.3 applies as if the proposed change in control gives rise concurrently to an implied obligation on the part of the joint venturer to give a notice under clause 13.3 (b) on the fictional basis that it wishes to dispose of the whole of its participating interest.
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.
Clause 13.7 could potentially have been drafted so as to deem the joint venturer to wish to dispose of its interest when it is to undergo a change of control. However, the parties have not agreed to take that additional step in the drafting process. Clause 13.7 goes no further than to deem the change in control to constitute a disposal.
The word “wishes” appears twice in clause 13.3(b). As already noted, the first reference is to the desire of the joint venturer to dispose of its participating interest. It may be possible for the first use of “wish” to be read mutatis mutandis so as to refer to a joint venturer being “subject to” or “undergoing” (or words to like effect) a change in control rather than “wishing” for a change to occur. The final words of clause 13.7 (ie “...in which case the provisions of clause 13 shall apply”) might potentially be taken to require that interpretation to be adopted.
A further question is whether the second appearance of "wish” in clause 13.3(b) can also be read mutatis mutandis. This second usage of “wish” relates to the identification in the notice to be provided to the other joint venturer of the consideration and terms and conditions upon which the joint-venturer wishes to dispose of its participating interest.
Even if clause 13.7 could be read as deeming the joint venturer to wish to dispose of its interest, in order for the plaintiff’s construction to be effective it must be taken to have a further deeming effect. That would be necessary so as to identify the consideration and terms and conditions that are to be the subject of the notice required under clause 13.3(b). Two possibilities arise.
Clause 13.7 might potentially be read as deeming the joint venturer to wish to dispose of the participating interest upon the terms and consideration that it would want to have applied if it did in fact wish to sell its participating interest regardless of what the party responsible for the change of control (ie here ACH) may have negotiated with the proposed new controlling entity (ie Teetulpa Minerals).
If that interpretation were to be adopted, then the relevant passage in clause 13.3(b) would operate as if it had been drafted as follows:
“... 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 that the disposing Joint Venturer would seek if it wished to Dispose of its Participating Interest and rights and obligations under this Agreement.

I consider that such an interpretation would be highly artificial and could not be adopted under a mutatis mutandis approach. It would constitute an impermissible rewriting by the Court of the agreement made by the parties. In any event, that construction has not been advanced by the plaintiff and need not be further considered.
Alternatively, as the plaintiff has contended, clause 13.7 might deem the joint venturer to wish to dispose of the participating interest upon the terms and consideration that the person or entity effecting the change of control wishes to have applied in the transaction that will give rise to that change in control. Thus, on this construction, AM would be deemed to wish to dispose of its participating interest upon the terms and consideration that ACH has negotiated with Teetulpa.
The question is whether the words used in clause 13.7 can properly be read on a mutatis mutandis basis as having the very wide deeming operation to which I have referred. The answer to that question is assisted by considering the scope of the changes to clause 13.3 that would be required.
If the latter part of clause 13.3(b) was to require the joint venturer to give notice of the consideration and terms that the entity seeking to effect a change in control proposes to apply to their transaction the provision would need to be read as having the following effect (the changes are highlighted):
“... 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 the person or entity that is seeking to Dispose of its controlling interest in the Joint Venturer wishes to Dispose of that controlling interest.
As counsel for the defendants submitted, such an interpretation would fundamentally change the operation of clause 13.3(b). Rather than serving as a pre-condition that must be satisfied before a joint venturer is entitled to dispose of its participating interest, it would instead impose 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. In addition, the terms and conditions of the offer to sell would-be those selected by another party and may be very different to what the joint venturer would require.
The operation of clause 13.3(c) will also be affected by the difficulties which I have already referred relating to the content of the notice.
Clause 13.3(d) provides that if the non-assigning joint venturer does not exercise its exclusive option, then the disposing joint venturer may dispose of the participating interest and its rights and obligations under the JVA to a third party for a consideration not less than that specified in the notice and on terms and conditions which are no more favourable to the third party than those specified.
In circumstances where no issue arises as to the application of clause 13.7, the operation of clause 13.3 (d) is straightforward. The provision simply places a restriction on the consideration and terms and conditions that may apply to the disposal by a joint venturer of its participating interest. However, in a case where clause 13.7 is said to apply the position is quite different.
The plaintiff contends that clause 13.7 operates so that the reference in clause 13.3(d) to the "disposing joint venturer” must be read as applying to the entity wishing to effect a change of control of that joint-venturer. Clause 13.3(b) requires that the consideration specified in the notice must be expressed as a cash or cash equivalent amount. Thus, on the plaintiff's construction, clause 13.3(d) would appear to govern the terms and conditions and consideration that the third party entity may include in its contract with a fourth party and also the manner in which the consideration is expressed.
This issue arises in the present case because ACH wants to include the transfer to AM of shares in Sathya Holdings as part of the consideration for the sale of its shareholding in AM to Teetulpa Metals. The question then arises whether the doctrine of privity of contract is offended by the restriction sought to be imposed under the JVA between AM and Goldus upon the terms and consideration that may be included in the contract between ACH and Teetulpa.
The matter may be analysed in the following fashion. The assets owned by AM include its participating interest under the JVA. The JVA places a restriction upon the disposal by AM of its participating interest to other than a related company. That does not offend the privity doctrine as the restriction is imposed upon AM under a contract to which it is a party. However, on the plaintiff's construction, the JVA also potentially restricts the freedom of ACH to decide the terms and consideration that it will accept from Teetulpa Metals for the sale of its shares in AM. The restriction is not said to arise under the constitution of AM as a limit upon the transferability of its shares but rather as a term of the contract between AM and Goldus, to which ACH is not a party. That offends the privity doctrine and provides a further basis to reject the construction pressed by the plaintiff.
While the Court must construe commercial agreements broadly where that is possible and necessary to give effect to the parties’ bargain, it is apparent that the interpretation contended for by the plaintiff would go a considerable distance beyond a mutatis mutandis modification of clause 13.3 in those cases where clause 13.7 operates.
As I have already noted, I accept the correctness of the observation by Hargrave J in Beaconsfield Gold that the purpose of a pre-emptive rights clause is to enable the existing joint venturers to exclude new participants by purchasing their interest if they so wish. Where two interpretations of such a clause are reasonably open, the court should prefer that which accords with this objective.[17] However, the plaintiff’s preferred interpretation would require clause 13.7 to modify the operation of clause 13.3 in a manner that I do not consider is reasonably open. What is being sought by the plaintiff would extend substantially beyond a purposive interpretation of the words actually used and would amount to an impermissible rewriting of the JVA by the court.
[17] [2006] VSC 320.
I therefore find that clause 13.7 is void for uncertainty. While nothing turns on the point, clause 13.8 is also void for uncertainty as it merely provides definitions for the purposes of clause 13.7 and has no independent operation.
In view of that finding it is not strictly necessary to deal with any of the other contentions advanced by the plaintiff. However, for completeness, I will deal briefly with the argument that certain terms ought to be implied into the JVA.
Implication of a term
The plaintiff has pleaded at paragraph 9.1 of the statement of claim that it was an implied term of the JVA that neither party could sell its participating interest to an unrelated third party “who was incapable of discharging the rights and obligations required of a joint venture party under the Agreement or unreasonable or unsuited to carrying out a joint venture with the other party”.
The statement of claim contains a further contention at paragraph 9.2 that a term must also be implied that any notice of a third party offer given for the purposes of clause 13.3 must disclose the identity of the proposed third party purchaser.
An implied term must be based upon the presumed or imputed intention of the parties.[18] The majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[19] held that the term to be implied:
(1)     must be reasonable and equitable;
(2)must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)     must be so obvious that ‘it goes without saying’;
(4)     must be capable of clear expression;
(5)     must not contradict any express term of the contract.
[18] Byrne v Australian Airlines Ltd [1995] HCA 24 at [12]; (1995) 185 CLR 410 at 422 (Brennan CJ, Dawson and Toohey JJ).
[19] [1977] UKPCHCA 1 at [40]; (1977) 180 CLR 266 at 283.
Counsel for the defendants submitted that what must be included in the notice has been identified exhaustively in clause 13.3(b). I understood the argument to be that there is no room to imply any additional obligation and thus the implied term would be inconsistent with the express terms of the agreement. While that submission has some force, I consider that because the parties have been quite specific about the information that must be included in the notice it is not so obvious that “it goes without saying” that further information must also be included.
The implied term referred to in paragraph 9.1 of the statement of claim would very significantly limit the rights of a joint venturer to sell their participating interest. Despite the significance of that matter to the rights of the parties, the proposed term does not identify the basis upon which it is to be determined that a third party “... is incapable of discharging the rights and obligations required of a joint venture party under the Agreement or unreasonable or unsuited to carrying out a joint venture”.
I do not consider it so obvious as “to go without saying” that either party would have agreed to accept an obligation about such an important matter affecting their property rights that is expressed in such uncertain terms as clause 9.1. Due to its uncertain operation, I also cannot be satisfied that the term would be reasonable and equitable or necessary to give business efficacy to the JVA.
I find that the obligations sought to be implied into clause 13.3(b) of the JVA to identify the third party to whom a joint venturer wishes to dispose of its participating interest cannot be implied into the JVA.
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.