Hudson Investment Group Ltd v Australian Hardboards Ltd - [2005] NSWSC 716

No judgment structure available for this case.

CITATION:
Hudson Investment Group Limited v Australian Hardboards Limited & Ors [2005] NSWSC 716

HEARING DATE(S): 4/07/05, 5/07/05, 6/07/05, 7/07/05, 8/07/05, 11/07/05, 12/07/05, 13/07/05, 14/07/05

JUDGMENT DATE :

12 August 2005

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF:
Einstein J

DECISION:
Declarations to be made declaring void each of purported amendments to the Entitlement Deed; Specific performance suit in respect of Bremer Share Sale Agreement to be dismissed; Specific performance of Entitlement Deed to be ordered; Rectification cross-claim proceedings to be dismissed.

CATCHWORDS:
Contract - Construction - Rectification - Masters v Cameron - Abandonment - Specific performance - Discretionary considerations - Corporations Law - Corporations claiming to have held informal directors meetings - Principles concerning essential requirements of valid meetings of directors - Minutes of meetings - Whether later meetings purporting to affirm or ratify or approve fictional minutes of purported earlier meetings had or may have had any and if so what effect at law - Categorisation of 'notation' analysis as opposed to 'imprimatur' analysis - Retrospective alteration and backdating of minutes - Company directors - Authority - Fiduciary obligations - Requirement to take into account interests of particular company in group in relation to proposed transaction - Subjective and objective tests

LEGISLATION CITED:
Companies Act
Corporation Act 2001 (NSW)
Evidence Act 1995 (NSW)

CASES CITED:
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Allen v Carbone (1975) 132 CLR 528
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Associated Colour Laboratories Ltd, Re Bankruptcy of (1970) 73 WWR 566
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B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
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Bonelli's TelegraphCompany, In re (Collie's claim) (1871) LR12Eq 246
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East Norfolk Tramways Company, In re (Barber's Case) (1877) 5 Ch D 963
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Great Northern Salt and Chemical Works; Ex parte Kennedy, In re [1890] 44 Ch D 472
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Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
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Inland Revenue Commissioners v Raphael [1935] AC 96
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PARTIES:
Hudson Investment Group Limited (ACN 004 683 729) (Plaintiff)
Australian Hardboards Limited (ACN 088 183 420) (First Defendant)
Hudson Timber Products Limited (ACN 081 809 814) (Formerly called Hudson Timber & Hardware Limited) (Second Defendant)
AH Bremer Park Pty Limited (ACN 098 657 188) (Third Defendant)
Bruce William McLeod (Fourth Defendant)
Peter Cecil Holland (Fifth Defendant)

FILE NUMBER(S):
SC 50066/04

COUNSEL:
Mr DJ Hammerschlag SC, Mr WG Muddle, Ms T Leibman (Plaintiff)
Mr J Stevenson SC, Mr PS Braham (First to Third Defendants)
Mr GJ Nell (Fourth and Fifth Defendants)

SOLICITORS:
Deacons (Plaintiff)
Coudert Brothers (First to Third Defendants)
Ebsworth & Ebsworth (Fourth and Fifth Defendants)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 12 August 2005

50066/04 Hudson Investment Group Limited v Australian Hardboards Limited & Ors

JUDGMENT

The proceedings

1 The proceedings concern the rights of the respective parties arising from a number of interrelated agreements. The complex of agreements require a close analysis of events generally covering the period 1999 through to 2003 and dealt with in materials in evidence covering some 4,000 pages. Without purporting to be exhaustive it is fair to say that the issues litigated concerning those events include contests as to what agreements or arrangements were entered into, the proper construction of such agreements as were entered into, allegations that rectification of a written agreement should be ordered, allegations that instruments were ineffective for want of authority, allegations that directors breached their duties to particular companies in committing the companies to and in purporting to cause the execution of instruments and claims that obligations set out in arrangements or agreements were abandoned.

The plaintiff

2 The plaintiff, Hudson Investments Group Ltd ["HIG"] incorporated in 1967 [as JF & H Roberts (Australia) Pty Limited] has at all material times been a public company listed on the Australian Stock Exchange. Insofar as concerning issues anterior to the 2003 Group restructure, the principal shareholders in HIG were at all material times held by Mr Vincent Tan and his family and associates. As at 1 March 2002, HIG had 751 shareholders and HTP 357 [cf Annual Reports PX 536, 2/579].

3 Prior to the undermentioned Share Purchase agreement being entered into:

· HIG owned both 100% of the first defendant, Australian Hardboard Ltd ["AHL"] [an unlisted company] and approximately 92% of the second defendant, Hudson Timber Products Ltd ["HTP"];

· CSR which had owned the Hardboards business sold that business and associated assets to HIG.

Acronyms

4 One can become quickly confused by reason of the different acronyms utilised by the parties in their submissions and by witnesses in their affidavits. It may be convenient then to keep in mind that:

· Hudson Investment Group Ltd was variously referred to as "HIG" [presently adopted], "Group" and "HGL";

· Australian Hardboards Ltd was variously referred to as "AHL" [presently adopted] and "Hardboards";

· Hudson Timber Products Ltd was variously referred to as "HTP" [presently adopted] and "Timber".

Directorships

5 At all material times anterior to the 2003 Group restructure the directorships of each of HIG, AHL and HTP included the fourth defendant, Mr McLeod and the first defendant, Mr Holland. Mr Hughes was at all material times company secretary of HIG, AHL and HTP. The present post 2003 restructure circumstances of relevance involve Mr McLeod remaining a director of HTP and AHL and Mr Hills remaining a director of AHL.

AHL’s factory

6 AHL at all material times operated a factory in Ipswich, Queensland located 25 kilometres south-west of Brisbane. Its manufacturing operations were profitable. It owned over 300 hectares of land. The timber and building products manufacturing operations are located on 22 hectares of this land. For the purposes of the issues raised in these proceedings it is apparent that the most significant of the associated assets was the land ["the Land"] utilised by the factory to discharge process waste water. The factory produced large quantities of waste water, approximately one million litres per day, and discharged this waste water via an irrigation system over the otherwise unused 300+ hectares of land.

Wingate Properties Pty Ltd

7 Some short time after AHL was acquired by HIG, the Land was identified by a property developer, Wingate Properties Pty Limited [“Wingate”] as having significant development potential. It was decided that, were the factory to dispose of its water through a water treatment facility (to be constructed on the grounds of the factory site), the remaining 300+ hectares of land could be then used for property development purposes.

Heads of Agreement – 27 November 2000

8 On 27 November 2000 Heads of Agreement [“the Heads of Agreement”] were entered into between Wingate, AHL and HIG for the purpose of considering proposals for the development of the Land. Clause 4 was in the following terms:

“4. Project Stages – Development Stage

JV Value =

plus

PostApprovalValuation

less

PreApproval Valuation

4.2 Upon calculation of the JV Value, the parties will enter into negotiations to form a formal joint venture to commercially exploit the Land, based on the Master Plan and in accordance with the approvals obtained. The parties must negotiate in good faith and use their best endeavours to reach an agreement. The Joint Venture will provide for Wingate to be entitled to receive an amount equal to 50% of the first $4,000,000 of profit and thereafter an amount equal to 25% of the profit over the $4,000,000.

4.3 If the parties are unable to reach agreement on a joint venture to progress the development of the Land within 2 months of the parties agreeing (or receiving an arbitrated decision as to) the Post Approval Valuation (‘Joint Venture Deadline’) then within 30 days from the Joint Venture Deadline, Wingate may give notice to Hudson demanding payment under this Agreement.

4.4 Within 6 months of the receipt of such demand from Wingate, Hudson, or its nominee, must pay Wingate an amount equal to 50% of the first $4,000,000 of difference between the Pre Approval Valuation and the Post Approval Valuation and thereafter 25% of the remaining amount of difference.

(a) Wingate makes no demand within the time referred to in clause 4.3; or

then Wingate shall have no claim whatsoever against any of the Hudson Group in relation to this Agreement. Without limiting the generality of the preceding, Wingate shall have no:

(a) claim in relation to costs incurred by it under this Agreement except any duly payable and unpaid;

(b) claim for services rendered to Hudson Group;

(c) claim for lost opportunity in relation to the failure of the parties to agree on a joint venture;

(a) nothing in this Agreement entitles Wingate to a fee for services rendered in relation to the preparation of the Master Plan or provision of any advice of any nature to the Hudson group in relation to the Land or the Schedule B Land or the provision of the Project Management Services referred to in clause 3.2, other than those fees approved for 50% payment by the PCG;

(b) it is not entitled under any circumstances to be reimbursed its 50% share of the costs and expenses under this Agreement.

9 As is common ground the joint venture did not proceed and there was no post-approval valuation.

10 The Land had previously been re-valued (specifically with the contemplated joint venture in mind) from a nominal value in the books of Hardboards to $10 million.

The Share Purchase agreement – 8 June 2001

11 The next significant event was the sale by HIG of the whole of the issued shares in AHL to HTP. That sale was effected by an agreement ["the Share Purchase Agreement"] entered into on 8 June 2001 some six months after the Heads of Agreement. The purchase price fixed by the agreement was the sum of $25 million. HTP remained at the time of the sale, a 92% owned subsidiary of HIG.

12 The Share Purchase Agreement sought to improve the capital position of HTP. Sales revenue for the 6 months to 30 June 2001 in HTP was down as the residential construction market remained sluggish post the introduction of GST and subsequent projects associated with the Olympic Games.

13 The Share Purchase Agreement contained [clause 2] certain conditions precedent requiring the approval of shareholders of Group and Timber which were required under the applicable Chapters of the ASX Listing Rules.

The Entitlement Deed – 8 June 2001

14 By a second agreement ["the Entitlement Deed"] also entered into on 8 June 2001 as part of the same transaction, HIG and AHL included a number of provisions beneficial to HIG calculated to have the effect that HIG (notwithstanding the sale) would benefit from the development and disposal of the Land.

15 The critical provisions of the Entitlement Deed were as follows:

" 4 Payment

The parties agree that if the ultimate control over or, ultimate beneficial ownership in the Land changes in any way (a "Disposal") on or before the Sunset date [2009], [AHL] must, on the date of the Disposal, pay to HIG the lesser of the following amounts:

(b) the value of the aggregate consideration received by [AHL] in relation to the Disposal less the Deposit.

5 Disposal Undertaking

AHL agrees that it will not undertake a Disposal:

(a) which does not involve AHL ceasing to have all control over, or all of its beneficial ownership in, the Land; and

(b) unless it is on arms length terms and the consideration to be received is cash payable as at the date of the Disposal

6 Best Endeavours

(a) AHL shall use its best endeavours to develop and Dispose of the Land before the Sunset Date on the best possible commercial terms.

(b) AHL shall not do anything, suffer, or permit anyone else to do anything which may have the effect of diminishing the value of the Land.

8 Security

AHL shall grant HIG the Mortgage as and when required by HIG
[This provision constituted an obligation of AHL to grant a mortgage over the land to secure the payment of the amounts stipulated by clause 4]

AH Bremer Park Pty Limited

16 In August 2000, the third defendant, AH Bremer Park Pty Limited [“Bremer”] [previously “AH Group Limited”] was incorporated. Mr McLeod and Mr Holland were appointed directors. Mr Hughes was appointed as company secretary. The shareholdings of Bremer consisted of two shares, both held by AHL.

17 Between December 2001 and January 2003, Bremer acquired the Land which had been owned by AHL. It appears that Bremer was intended to be the vehicle by which the land would be developed and the profits shared between HIG/AHL and Wingate, the property developer.

References to defendants

18 As a matter of convenience the first three defendants, AHL, HTP and Bremer will be referred to as "the defendants" and fourth and fifth defendant, Mr McLeod and Mr Holland will together be referred to as "the defendant directors".

2003 restructure

19 On an overview basis it is apparent that in about May and June 2003, HTP underwent a major restructure which involved:

· the sale of its timber and hardware division;

· the change of the company’s name from "Hudson Timber & Hardware Limited" to "Hudson Timber Products Limited";

· HTP buying back and cancelling 220,000,000 of its shares from HGL for $17.6 million which was satisfied by a discharge of $17.6m intercompany loan owed by HIG to HTP;

· the sale by HIG of 14,000,000 shares in HTP which raised $2.1 million, which was then paid by HIG to HTP to discharge the balance of HGL's indebtedness to HTP;

· the disposal by HTP of other non-core assets including Hudson Imports Pty Ltd; and

· a raising of capital by HTP through the offer of shares under a prospectus dated 28 May 2003 (the Prospectus) (the Restructure).

20 On completion of each of the steps referred to above, HIG’s shareholding interest in HTP decreased from 91.69% to 22.2%. HTP remained the owner of 100% of the share capital of AHL.

21 Over the period from around July 2003 to August 2003, HGL sold the balance of its shareholding in HTP on market.

AHL proposal of partial sale of its shares in Bremer to Wingate – March 2003

22 In March 2003, AHL proposed to sell one of its shares in Bremer to Wingate for $200. This agreement has not been carried out to date.

The Bremer Share Sale Agreement

23 In a separate 2003 transaction ["the Bremer Share Sale Agreement"] HTP is said to have agreed to sell one-half of the issued shares in Bremer, to HIG for $100. The sale was approved by HTP in general meeting on 16 June 2003 pursuant to an Explanatory Memorandum dated 16 May 2003. HIG contends that the agreement was effected by a countersigned letter dated 23 July 2003. HTP has refused to execute a transfer of the Bremer shares. The context concerned the above-described agreement that 220,000,000 of HIG’s shares in HTP would be cancelled in return of the cancellation of $17,600,000 of debt owed by HIG to HTP. HTP proceeded to issue a prospectus for public subscription of 47,381,167 shares in order to raise approximately $7.1 million. The prospectus issued in relation to the HTP shares referred to the proposal that the one share in AH Bremer held by AHL would be sold by AHL to HIG for $100.

24 A Masters v Cameron issue arises as to whether the Bremer Share Sale Agreement was intended to have binding effect.

The First Deed of Amendment

25 The defendants contend that a First Deed of Amendment which bears the date 20 June 2001 is valid and has the effect of deleting HIG’s mortgage entitlement from the Entitlement Deed. The instrument is sealed and witnessed, for HIG, by Mr McLeod and the company secretary and, for AHL, by Mr Holland and the company secretary.

The Second Deed of Amendment

26 The defendants also contend that a Second Deed of Amendment [Bundle 2016] which is undated, is valid. The defendants contend that it was executed on 5 September 2001. If valid it has the effect of significantly reducing the amount to be paid to HIG on a Disposal of the Land [for example, if the sale price was $10 million, HIG would not receive any amount at all]. The instrument is sealed and witnessed, for HIG, by Mr McLeod and the company secretary and, for AHL, by Mr Holland and the company secretary.

Relief sought by HIG

27 In the result HIG brings the proceedings principally:

· of the Entitlement Deed [including the obligation that AHL provide it with the mortgage required under clause 8];

· of the Bremer Share Sale Agreement.

The cases pursued by the first three defendants

28 AHL, HTP and Bremer contend that the Entitlement Deed requires to be rectified by reference to the alleged common intention of AHL and HIG at the time of entry into this Deed. This contention forms a cornerstone of the case of these defendants. The matters litigated require the Court to look in two directions in resolving the rectification issue. The first is to examine the Heads of Agreement anterior to the Entitlement Deed. The second is to examine the run-up to the Entitlement Deed itself and also the events which followed entry into of the Entitlement Deed.

29 Central to the cases pursued by the defendants is the proposition that their rectification case is entirely congruent with the arrangements proposed in the November 2000 Heads of Agreement entered into with Wingate. The proposition is that the new factor which emerged in 2001 involved the principal lender, that is to say the ANZ Bank, being dissatisfied with the arrangements proposed in the Heads of Agreement. The case is that once the ANZ's concern was determined to be satisfied by HIG selling its interest in AHL to HTP, it became necessary for arrangements to be made in the altered environment to accommodate the 20 November 2000 Heads of Agreement.

30 The 2003 restructure is also relied upon by the defendants in aid of their alternative cases that the Deed of Entitlement was abandoned in 2003 and/or that specific performance of the Deed of Entitlement should be refused on discretionary grounds.

Principal issues litigated on the summons

31 Principal of the issues which arise concerning the Entitlement Deed are the following:

(1) whether HIG conferred upon Mr McLeod authority to execute the amending deed dated 20 June 2001 (the “First Deed of Amendment”) amending the Entitlement Deed by, amongst others, deleting the benefit of the mortgage (B 1305);

(2) whether if Mr McLeod had such authority his committing HIG to the First Deed of Amendment constituted behaviour by him in breach of his statutory and fiduciary duties to HIG in that what he did was not for the benefit of HIG but to its detriment and to the benefit of HTP and was a failure by him to avoid a conflict of interest and duty;

(3) whether HIG conferred upon Mr McLeod authority to execute the Second Deed of Amendment amending the Entitlement Deed by, amongst others, deleting the benefit of the first $10 million proceeds on sale and substituting for it a share of proceeds after receipt of the first $10 million;

(4) whether, if Mr McLeod had such authority, his committing HIG to the Second Deed of Amendment constituted behaviour by him in breach of his statutory and fiduciary duties to HIG in that what he did was not for the benefit of HIG but to its detriment and to the benefit of HTP and was a failure by him to avoid a conflict of interest and duty;

(5) whether Mr Holland as a director of both companies breached his fiduciary duty to HIG by permitting the Deeds of Amendment to go forth to the detriment of HIG;

(6) whether in the circumstances the Deeds of Amendment should be set aside;

The Cross Claim

32 The cross claimants [AHL, HTP and Bremer] contend that the common intention of the parties was that if AHL disposed of all of its control over or all of its beneficial ownership in the Land on or before 8 June 2006 then either:

(a) The first cross claimant must on the date of the Disposal, pay to the cross defendant an amount determined in accordance with the following table less the Deposit:

The value of the aggregate consideration received by the first and/or the second cross claimant in relation to the Disposal (“AC”)	Payment Amount
AC is less than or equal to $10 million	Nil
AC is greater than $10 million and less than or equal to $14 million	[AC - $10 million] x 0.5
AC is greater than $14 million and less than or equal to $24.667 million	$2 million + [AC - $14 million) x 0.75]
AC is greater than $24.667 million	$10 million

(i) less than the Deposit, the first cross claimant is entitled to part of the Deposit equal to the Deposit less the Payment Amount; and

Or alternatively;

[Declaratory relief and rectification of the Entitlement Deed to reflect this alleged common intention is sought in the cross-claim]

The issues concerning the directors

33 It is plain that the case against the fourth and fifth defendants is confined to the events of 2001 and to the First and Second Deeds of Amendment. Notwithstanding that no complaint is made against the directors in relation to the Bremer Sale Agreement or in relation to the events of 2003, should the defendants case in relation to abandonment prove successful, this would impact on the question of damages should the Court find that the directors were in breach of their fiduciary duties.

34 No contention was advanced by Mr McLeod or Mr Holland to the effect that they wished to contend that the plaintiff had not always been understood as pleading breaches of fiduciary obligation [transcript 670,671]. And this notwithstanding the precise state of the Summons.

35 Should HIG succeed in setting aside the first and second Deeds of Amendment any questions of equitable compensation in HIG's claims against the directors fall away.

The Evidence

Reliability of witnesses

Mr McLeod

36 Mr McLeod was an unreliable witness. Reasons for this finding are given in a number of places throughout the judgment. Under cross-examination his evidence was given haltingly and it was quite clear that in many of his answers he was about assessing the reasons for the question and promoting the interests of the defendants in the litigation. On many subjects in high contention he prevaricated, now giving an answer to one effect and later altering that answer. His evidence cannot be accepted as reliable unless corroborated by contemporaneous documents or the evidence given by other witnesses who are accepted as reliable. His continued failure to accept the reality which was that so-called 'single agenda' meetings were really never meetings at all, is only one example of the reason why his evidence cannot be regarded as reliable. When asked whether he considered the practice of the company in terms of single agenda meetings, later referred to in the judgment, to be an 'honest practice', his answer was that he thought it was an 'acceptable practice'.

37 It is appropriate to note that the gravity of the findings concerning the backdating of minutes has required that these reasons include a deal of detail in particular pertinent to the credit of Mr McLeod. I make no apology for setting out certain sections of Mr McLeod's cross examination verbatim for the reason that a paraphrasing of that evidence does not provide the same emphasis as is sought to be highlighted by those excerpted sections.

Mr Holland

38 Mr Holland was also an unreliable witness. His evidence cannot be accepted save where corroborated by contemporaneous written documents or by evidence given by witnesses who are regarded as reliable. His evidence was inconsistent with the evidence given by a number of the other witnesses, who far more openly accepted that in truth the so-called 'single agenda' meetings were not meetings at all when one looked closely at what actually happened. His evidence was unreliable for many reasons mostly only able to be understood by a full reading of the transcript of his cross-examination. Some examples of that evidence included:

Negotiation of the Entitlement Deed and his understanding of that Deed

· His evidence that notwithstanding that he had played no part in the negotiation of the Entitlement Deed [Transcript 385] his understanding of the Entitlement Deed simply gained from what the document said, was that AHL would pay HIG $10 million out of profit of the side of the land [Transcript 381.46].

[However he could not recall Mr McLeod ever telling him that 'the deal' was with respect to profit, nor discussing with Mr McLeod whether profit was intended or not-(transcript 382.47, 385.26)].

He could not recall whether or not at the time when he read the Entitlement Deed he did not see any reference to any profit in the Deed. He could not even say in the witness box, whether or not the document made any reference to profit, because, so he contended in the witness box, he had not read the document since it was signed. But he was quite firm in his evidence that the sole source of his understanding that the deal had concerned profit was his reading of the Entitlement Deed [Transcript 388.11]. Yet his evidence was that he had no understanding in this context of the difference between profit before tax or profit returns above a pre-approved valuation and that this was not something that entered his mind [Transcript 387.5]]

Second Amending Deed and his understanding in that regard

· His evidence was that his understanding of the change to the Entitlement Deed leading to the Second Amendment Deed "was to clarify issues in the Deed [Transcript 390.12].

[Yet in being asked what these issues were, his answer was that he simply did not know and could not recall [transcript 390.17]].

Understanding as to what is asserted against him in the proceedings

· He was asked whether he understood what was asserted against him in the proceedings and his answer was "not particularly" [transcript 390.43]. He was asked whether he understood that it was asserted against him that he had breached a fiduciary duty to the Hudson Group. His answer was that he did not so understand.

Evidence concerning conflict of interest

· In relation to minutes [cf for example the meeting of the board of HTP of 17 May 2001 PX 655] in which the minutes stated that he had not attended a meeting as it was considered that conflict of interest issues arose pursuant to his respective positions as directors of certain of the companies within the Group , his evidence was that he did not turn his mind to the question of whether or not the fact that different companies in the Group had interests which were not the same. This was, he accepted because he did not understand as a director of the different companies that he ought to look at the interests of each separately.

39 His lack of recall of detail is a further indicator of the need to treat his evidence with the greatest of care. I formed the view that on the balance of probabilities he simply carried out the requests of Mr McLeod without giving the matters the subject of such requests, any or any real consideration. He had originally been a petty officer in the Navy. Mr Holland readily accepted that he had had no expertise in the construction of complex commercial documents or the restructuring of companies: his expertise was in the building industry at the level of building industry operations.

Reliability of other witnesses

40 It is unnecessary to specifically treat with questions concerning the reliability of other witnesses. The judgment is generally self-explanatory where the evidence of a particular witness is found to be unreliable. Generally the findings concerning the unreliability of many of the documents purporting to be minutes of meetings, carries with it a finding rejecting as unreliable the evidence given by any witnesses to the effect that any such meeting had taken place. Sometimes that finding may be consistent with Mr McLeod having discussed certain matters [later appearing in minutes] with one or other of those persons. For reasons given in the judgment, discussions of that type have not been shown to constitute 'meetings' within accepted principle.

41 Some of the structural background has already been set out in the opening sections of the judgment. In order to hand down findings as to what actually happened, it seems to me convenient to deal with the several steps taken in the commercial dealings seriatim. These findings are as to the balance of probabilities and are reached taking into account all of the material evidence before the Court.

42 It is important to note the interrelationship between the issues. The issues of fact underlying the rectification causes of action are central; however the entirety of the factual matrix requires to be taken into account in the determination of the respective cases.

The Heads of Agreement

43 There is an immediate threshold problem in relation to any attempt to determine questions concerning the claimed rectification of the Deed of Entitlement. This flows from the state of the evidence as to what occurred between the parties to the Heads of Agreement prior to its being entered into.

No evidence given by Mr Tan

44 No evidence was given by Mr Tan.

45 No evidence was given by Mr Williams who had represented the Wingate interests.

Mr McLeod’s evidence

46 The evidence given by Mr McLeod on this topic [as well as on the topic of conversations with Mr Tan anterior to the signing of the Entitlement Deed] was unsatisfactory in the extreme. So much appears from his cross-examination. His affidavit evidence cannot be read in isolation from that cross-examination which is examined below. Further and as is apparent from the judgment below, the defendant's rectification case as pleaded does not conform with the evidence as to his own understating, given by Mr McLeod who was the defendants principal witness on the issue.

Mr McLeod’s evidence as to the earlier background

47 It is convenient to first shortly outline Mr McLeod's evidence of the earlier background.

48 His evidence was that by early March 2001 HTP had experienced a significant drop in its revenues placing it in breach of a number of financial covenants required by ANZ as part of its financing arrangements. Hence he commenced discussions with ANZ with a view to HTP restructuring its balance sheet by reducing debt, the most effective way to carry out which objective would be to raise equity. His evidence was that HTP directors resolved on 20 March 2001 to in principle seek to raise $5 million by way of a preference share issue. Mr Tan however is said to have indicated that his shareholding group would not support a raising of equity as this would dilute their shareholding.

49 Thereafter there were further discussions with ANZ turning to the alternative of a transfer of the shareholding in AHL to HTP, the fact being that AHL should generate approximately $5 million in free funds over the following 12 months.

50 The discussions included the integer that the Master Plan for Bremer was anticipated to be completed by the middle of 2002 and that this would generate extra funds in the group which could then be used to repay debt.

51 The ANZ generally agreeing in principle to the proposed sale of the shareholding in AHL to HTP, Mr McLeod became involved in negotiating the terms and conditions of the transfer, in which negotiation he represented the interests of HTP and Mr Tan represented the interests of HIG. These negotiations took place in late April/early May 2001.

52 Mr Tan had proposed that the Surplus Land be transferred to HIG for no cost prior to the sale. Mr McLeod had opposed that suggestion making the point that neither AHL nor the ANZ would permit any such course.

53 It is in the suggested evidence of Mr McLeod as to what then occurred in the negotiation, that the evidence of Mr McLeod as to the parameter of HIG obtaining a pre-determined profit share is rejected as unreliable. The precise evidence given by Mr McLeod in his affidavit was in this regard as follows:

· [They] had a conversation to the following effect:

“Mr Tan: I agree that the deal should be done where the land is sold with Hardboards but that an agreement is put in place recognising [HIG's] entitlement to some of Hardboards' future upside in the development of the land. In a way, it doesn’t really matter as [HIG] owns around 90% of Timber [HTP] and at some future date we might acquire the remaining 10% anyway.

· On the basis of that agreement, they then commenced negotiations as to the consideration to be paid by HTP to [HIG]. The negotiation as to price took place over the next couple of weeks.

54 Mr McLeod's further evidence was that at that time, discussion took place in relation to how to determine [HGL's] profit share over the Surplus Land, and he recalled having a conversation with Mr Tan in words to the following effect:

“Mr Tan: With the [HIG] profit share why don't we tie it into the Wingate Agreement?

Mr McLeod: That makes sense.

Mr Tan: Well then, as part of the deal then it means Timber [HTP] will need to pay more for Hardboards [AHL].

Mr McLeod: That is fine, but ultimately the value will need to be signed off by the Independent Expert.

Mr Tan: On that basis we should use the Land [Surplus Land] value in the Heads of Agreement, of $10 million. I will speak to Kevin Grice to prepare a new balance sheet for Hardboards [AHL] showing the Surplus Land on the Hardboards [AHL] balance sheet at an agreed $10 million.

Mr McLeod: It will need to be at Directors' Valuation as the independent valuation is only around $3.5 million.

55 For reasons given later in the judgment. Mr McLeod's above-described evidence of having reached an arrangement/agreement that HIG would be obtaining a pre-determined profit share requires in the light of all of the evidence, to be rejected as unreliable.

Preparation of the later documentation

56 If one bears in mind the principal documents of concern which followed the November Heads of Agreement and the order in which they are said to have been entered into [the Share Purchase Agreement, the Entitlement Deed, the first Deed of Amendment and the Second Deed of Amendment] it is next convenient

· to deal with the evidence given by Mr Restas of Atanaskovic Hartnell who was heavily involved in the preparing the material documentation.;

· thereafter to treat with the evidence given by Mr McLeod on a number of topics and to deal with the other evidence.

Evidence given by Mr Restas

57 Mr Restas had been admitted to practise as a solicitor in South Australia in November 1995 and had moved to Sydney in about October 1998 when he commenced to work with Atanaskovic Hartnell in Sydney. His evidence is accepted as reliable.

Late May 2001

58 In late May 2001 he was asked by Mr Simmons, a partner of the firm, to assist him with the documentation of the sale and purchase of AHL. Mr Simmons handed to him two draft documents entitled "Share Purchase Agreement" and Entitlement Deed, informed him that Mr Kyriac [also of Atanaskovic Hartnell] had prepared these documents, and asked him to look after the matter from that moment on.

59 Importantly he assumed that Mr Kyriac had captured the instructions in his drafts and that he was being required to effect those drafts [PX2/18 page 473]. [Transcript 123,45, 125.1]. He was not shown a letter from Mr McLeod to Mr Simmons of 8 May 2001 [Tab 35 PX Volume 2] giving instructions and including the following:

60 It appears that on the morning of 30 May 2001, Mr Kyriac had sent to Mr McLeod an e-mail enclosing the same draft documents which had been furnished to Mr Restas. The e-mail had stated inter alia:

attempted

limited knowledge of the details of this agreement we will need to discuss the agreement to review its accuracy in documenting the arrangements

61 Mr Restas gave evidence that he had not seen this covering e-mail in the course of his preparation of the documents and only came to see it at the time of preparing his affidavit in these proceedings. [Transcript 126.5]

62 In the days following his having first been asked to assist Mr Simmons with the documentation, Mr Restas made a number of amendments to the Share Purchase Agreement with respect to the view that he had formed that various approvals were required by the shareholders either of HTP or of HIG and his view that Chapter 11 of the Listing Rules may be relevant.

Atanaskovic Hartnell acting for HIG

63 Mr Restas’ evidence was that on about 31 May 2001 he had a telephone conversation with Mr McLeod in which he confirmed that his firm were acting for HIG and receiving instructions from Mr McLeod on its behalf [which Mr McLeod said was correct] [cf confirmatory email PX3/751]. Mr Restas recommended that HTP retain independent lawyers to act on its behalf but was informed by Mr McLeod that HTP would not do that. Rather HTP would get an independent director plus Mr Scadden to review the contract on behalf of HTP.

64 Further communications passed between Mr Restas and Mr McLeod between 31 May 2001 and 5 June 2001 by way of routine drafting and regulatory issues.

6 June 2001

65 On 6 June 2001 Mr McLeod telephoned Mr Restas and they had a discussion concerning options which Mr McLeod said would now be issued to HIG. Mr McLeod also raised a need to amend the entitlement Deed to reflect the fact that AHL would pay HIG a deposit of $3.5 million.

66 On 6 June 2001 Mr Restas reviewed the draft of the Entitlement Deed and made a note of certain points which he wished to discuss with Mr McLeod. That handwritten note reads as follows:

“- Issue regarding 1st $10 mill

- Financial Assistance Issue

- Security

- Options ensure get approval under Item 7 of 611

Bruce McLeod 6/6/01

- Ist 10 mill goes to AHL

- Fin Assistance – could be seen to be (he said had been agreed before – not related – draft minutes were prepared by MTH and more money)

- even if fin assistance he does not believe that it would mutually prejudice interests of creditors or co – he will get directors to look at this

67 Mr Restas deposed in his affidavit that the first bullet point referred to his concern that some of the documentation with which he had been provided [drafts of minutes of a directors meetings of HTP of 17 May 2001 and of a directors meeting of AHL of 2 May 2001] referred to the payment of the first $10 million of profit to HIG and elsewhere it was recorded that the land had been revalued to $10 million.

68 He deposed that specifically, and in the context of acting for HIG, he queried whether HIG should receive the first $10 million of any consideration received for the sale of the land, rather than the first $10 million of profit. He deposed that this was due to the fact that he considered the latter to be unreasonable from the point of view of HIG in the event that no profit was made from the development of the land.

69 Later on 6 June 2001 he telephoned Mr McLeod and a conversation to the following effect took place:

Mr Restas: “I have reviewed the Entitlement Deed and I have a number of issues I would like to run through with you. Firstly , is the Entitlement Deed really required? I believe that it would be simpler and neater to increase the purchase price to $35 million and have $28.5 million of the consideration paid at completion with the balance paid at the time that the land is disposed of. I also think that it would be more appropriate if the first $10 million of consideration was paid to Hudson Investment rather than the first $10million of profit, given that the asset is worth $10million. I do not think Hudson Investment should wear any risk of the development not making any profit . Thirdly, I think there is an issue of financial assistance by Hardboards paying the money to HIG. Amending the Share Purchase Agreement would avoid this problem. Shareholder approval would be required if the financial assistance would materially prejudice Hardboards’ creditors, shareholders or Hardboards itself.”

Mr McLeod: “Even if it is financial assistance, I do not think it would materially prejudice those interests. I will get the other directors to look at this.”

Mr Restas: “ Finally , if a mortgage needs to be given to Hudson Investment to secure the remainder of the money, I would need to speak to Queensland lawyers to document that as the land is based in Queensland.”

Mr McLeod: “That is fine.”

Restas: “I will send to you a revised Share Purchase Agreement which sets out the amendments I suggest be made in order to reflect the issues I have raised.”

70 Under cross-examination [transcript 128] Mr Restas gave evidence as follows:

“Q. But you don't give any account, do you, of what response Mr McLeod gave you to the first two issues you raised?
A. No, I do not record that.

Q. And in particular, you don't give any account of Mr McLeod's response to your suggestion which starts at line 6 in the first words attributed to you, in the sentence, "I also think", do you?
A. No, I do not.

Q. And Mr McLeod did give you a response to that suggestion, didn't he?
A. Not that I recall, no.

Q. And you have recorded that response to that suggestion in your diary note, haven't you?
A. That note was an error on my part . It should have referred to Hudson Investment Group.

Q. I think you are referring, aren't you, to the words you have written at page 902 of the bundle, "First 10 mill" arrow "goes to AHL"?
A. Yes.

Q. Well, that as note you wrote, isn't it, at the time of your conversation with Mr McLeod?
A. Yes.

Q. And that was, wasn't it, his response to your suggestion that the first $10 million consideration go to Group rather than profit?
A. No, my - the documentation that I prepared reflected the proposition I put forward, that the first 10 million of consideration should go to Hudson Investment Group.

Q. I know that's what you did, but you say in paragraph 17 that the reason that this issue arose in your mind was because documentation, which you agree was the minutes, referred to the payment of the first million dollars profit to Group and elsewhere referred to $10 million as being the value of the land, that's right, isn't it?
A. That is correct.

Q. And the minutes that you saw made clear to your mind, didn't they, that what had been resolved, according to those minutes, was that the first $10 million of profit, not consideration, go to group?
A. That is correct, that I raised it as an issue with Mr McLeod.

Q. And isn't it the case that, consistently with the minutes, what Mr McLeod said to you was exactly what you have written down in your note ?
A. I wrote down in my note the first 10 million. I didn't write down the first 10 million profits .

Q. The first 10 million goes to Hardboards?
A. I acknowledge that my note says that, but as reflected in the documentation, it was Hudson Investment Group and I believe that I made an error in my notes at the time of the conversation.

handwriting of what

71 Mr Restas further deposed that after his conversation with Mr McLeod he had a conversation with Mr Simmons to the following effect:

Mr Restas: “I think this transaction can be simplified by having the Share Purchase Agreement deal with the passing of the $10 million consideration in relation to the land. It could be simplified by increasing the purchase price to $35 million and having $28.5 million of the consideration paid at completion with the balance paid at the time that the land is disposed of.”

72 Mr Restas then sent an e-mail to Mr McLeod attaching a draft Share Purchase Agreement reflecting their conversation [Exhibit JR1 tab 14].

7 June 2001

73 On 7 June 2001 Mr McLeod telephoned Mr Restas and said that he had reviewed the new Share Purchase Agreement and wished to revert back to the use of two documents, that is to say the Share Purchase Agreement and Entitlement Deed. Mr Restas said that he would prepare a revised version of the Entitlement Deed and send it to Mr McLeod. He did that [PX3/932]. That draft provided for payment, on disposal, of the lesser of $10 million and the value of the aggregate consideration received by AHL in relation to the disposal of the land as referred to in the above described conversation which he had had with Mr McLeod. In the covering e-mail Mr Restas referring to the Entitlement Deed, said in the second bullet point:

"Clause 3 deals with the requirement to pay the balance of the $10 million in the event of a "Disposal."

74 Under cross-examination Mr McLeod gave the following evidence:

“Q. Now, Mr Restas there attached for your review the latest draft of the entitlement deed, telling you that he had made significant amendments to a previous draft and summarising those amendments?
A. Yes.

Q. The second dot point is that clause 3 deals with the requirement to pay the balance of $10 million in the event of a disposal, right?
A. Yes.

Q. And that was your understanding, that what the deed required was that in the event that there was a disposal the balance would have to be paid up to the amount that was received, correct?
A. Yes, the balance of the profits, that is right.

Q. Mr McLeod, no reference to profits. That says the requirement to pay the balance of the 10 million in the event of a disposal. There is no reference to profits.
A. But this is a summary of three points--

Q. There is no reference to detail and there is no reference to profit in the agreement, in the deed, is there?
A. No.

Q. And if it was intended to be profit why didn't you tell Mr Restas, "Jamie, stick in the word 'profit' please"?
A. Because we'd - well, we had discussed that previously.

Q. No, Mr McLeod, if you wanted there to be "profit", why didn't you give instructions to the lawyer to put in "profit"?
A. As I noted before, assuming the joint venture was in place, aggregate consideration could be considered the same as profit.

Q. … I suggest to you that it clearly does not mean "profit"?

Q. It certainly, even on what you say, does not mean in clear terms "profit", does it?
A. Within the terms of a joint venture it could do and it would do.

Q. Forget about the joint venture. The term "aggregate consideration" does not clearly mean "profit", does it?
A. As I said before, if the joint venture was in place it would. It was assumed the joint venture would be in place by myself.

Q. … The words "aggregate consideration" do not clearly mean, in any way shape, or form as you understand it, "profit", do they?
A. They do not clearly--…
-- define the word "profit".

Q. Now, if you had "profit" in mind when the lawyer came back to you and said, "Clause 3 deals with the requirement to pay the balance of 10 million in the event after disposal", why didn't you tell him, "Please make it the first 10 million of pre-tax profit"?
A. Because I didn't need to.

Q. Why, because you thought the words were clear?
A. In my mind the structure of the agreement as it was was clear at that point in time. That is why it was amended. It wasn't clear to all parties, and even to myself when we went through different scenarios.

Q. I am dealing with you with respect to June 7th.
A. Yes.

Q. Mr Restas wrote to you and said, "I've made substantial changes. Clause 3 deals with the requirement to pay the balance of the 10 million", of which 3.5 had already been paid…
…"upon a disposal".
A. Yes.
…
Q. … Do you tell his Honour that when you received this e-mail from Mr Restas your understanding was that he was telling you in dot point 2, clause 3, that clause 3 dealt with the requirement to pay the balance of the 10 million, representing pre-tax profit, in the event of a disposal?
A. My understanding on receipt of that e-mail, and I can't remember receiving that e-mail, had not changed.

Q. You say you don't recall this e-mail?
A. No, I don't specifically recall that e-mail, no.

You will agree with me now, as you read it, Mr McLeod, as you understand it, the second dot point makes no reference to profit

No, it doesn't

[Transcript 228-230]

75 His later cross-examination included the following:

“Q. Now, on 6 June you had another conversation with Mr Restas, didn't you, in which Mr Restas said to you that he had reviewed the deed and he had a number of issues to run through with you. Do you recall that conversation?
A. I don't recall the conversation.

Q. First was he said to you the entitlement deed, he thought - he asked you whether it was really needed?
A. I recall that, yes.

Q. And he said it would be simple and neater simply to increase the price to 35 million and have 28.5 million of the consideration paid at completion, with the balance paid at the time the land is disposed of?
A. Yes, I recall that.

Q. He also said that it would be more appropriate if the first 10 million of consideration was paid to Hudson Investment rather than the first 10 million of profit, given that the asset is worth 10 million?
A. Yes, they were his comments .

Q. Right, and you understood, therefore, Mr McLeod, that on 6 June that Mr Restas was drawing a distinction, which you understood, between consideration and profit ?
A. Yes .

….
Q. And you understood, I suggest to you, Mr McLeod, on 6 June that the lawyer was drawing a distinction between consideration and profit and that the agreement referred to the former?
A. And that's why he changed the agreement back to the original consideration.

Q. Correct. You knew that the lawyer was making a terminological difference between the term "profit" and the term "consideration", right?
A. Yes.

Q. And you knew that the agreement that you signed contained the words "consideration", not "profit "?
A. Yes .

[Transcript 234-235]

76 Also on 7 June 2001 Mr Restas advised Mr McLeod that the terms of the Entitlement Deed meant that relevant shareholder approvals should be obtained including that of Hardboards (of which Group was the sole shareholder) for the giving of financial assistance which Mr Restas considered Hardboards was doing by undertaking the obligations in the Entitlement Deed in connection with the purchase and sale of its own shares (B 3/940).

77 The draft Entitlement Deed submitted to Mr McLeod also contained a provision (clause 7 – B 3/935) requiring Hardboards to grant Group a mortgage to secure Hardboards’ obligations under the Deed.

78 On 7 June 2001 Mr Restas wrote to Mr Glass of James King Lawyers in Brisbane asking for their assistance in preparing the mortgage over the Land. His letter included:

"I act for Hudson Investment Group Ltd… a company listed on the Australian Stock Exchange Ltd.

Hudson is the holding company of Australian Hardboards Ltd ("AHL"), which is the owner of some land in Queensland…AHL and Hudson entered into a Heads of Agreement late last year pursuant to which the Land is to be developed.

effectively provides that in the event the Land is developed and sold within a certain period of time AHL will pay Hudson $10 million

Execution of the Share Purchase Agreement – 8 June 2001

79 On 8 June 2001, the Share Purchase Agreement between HGL and HTP and the Entitlement Deed between HGL and AHL were respectively executed under the common seal of the companies.

80 Atanaskovic Hartnell also assisted the parties in the preparation of notices of meeting. Mr McLeod vetted them (See PX 3/922, PX 3/1056, PX 4/1111, PX 4/1161, PX 4/1265, PX 4/1353, PX 4/1584).

81 Atanaskovic Hartnell also assisted in the preparation of minutes of directors of Hardboards for the grant of financial assistance under the Entitlement Deed, and the necessary resolution of members as well as for the appointment by Group of Mr McLeod as Group’s representative (being the only shareholder in Hardboards) to vote at the general meeting of Hardboards (PX 3/1382 – 1404).

Execution of the Entitlement Deed – 8 June 2001

82 The Entitlement Deed was executed on 8 June 2001 by Mr McLeod on behalf of Group and Mr Holland on behalf of Hardboards.

13 June 2001 – Explanatory Memorandum

83 Following further discussions between Mr Restas and Mr McLeod and written communications, on 13 June 2001 Mr Restas forwarded to Mr Hughes an Explanatory Memorandum of Shareholders including an independent expert's report. In his affidavit he deposed as follows:

that it was the first $10 million of proceeds which was to be paid and not the first $10 million of profit

The mortgage issue

84 Mr McLeod gave the following evidence in his affidavit:

· I believe at some time around mid June 2001, I provided a copy of the Entitlement Deed and the Share Purchase Agreement to the ANZ and discussed the requirement of the mortgage with ANZ account executives. An ANZ representative came back to me, who's name I cannot now recall, and I recall having a conversation where he said words to the following effect:

“ANZ Rep: We are not prepared to consent to HGL taking a mortgage over any asset of AHL.”

· the refusal by ANZ to consent to the mortgage meant that as it remained the principal financier of the Hudson Group, that part of the Entitlement Deed could not be performed;

· about the same time, I was aware that the entry into the mortgage would result in a significant amount of mortgage stamp duty being payable. As I knew that stamp duty would be payable on the proposed mortgage, I believe I had a conversation to the following effect with Mr Restas, the Associate with whom I had contact at Hartnells:

Mr McLeod: Can you give me an estimate of the mortgage duty payable?

Mr Restas: Told me [x] amount. (I cannot now recall the figure).

· I also recall that at or about the same time, I had a conversation with Mr Tan to the following effect:

“Mr McLeod: Do you realise that entering into a mortgage will result in a liability in stamp duty in the order of [$x]

Mr Tan: As HGL owns around 90% of HTP, it is not worthwhile paying the money to the Stamp Duties Office.

Mr McLeod: I will get Hartnells to amend the document by deleting the requirement for a mortgage. ANZ have told me they will not consent to a mortgage anyway.

· afterwards I had a telephone conversation with Mr Restas during which we said words to the effect:

Mr McLeod: I have discussed the requirements of the mortgage with Vincent and due to costs associated with stamp duty and that HGL will own over 90% of Timber [HTP], there is no need for the mortgage.

First Deed of Amendment

85 The First Deed of Amendment was executed under the common seal of AHL [Mr Holland signing as a director] and HIG [Mr McLeod signing as a director] and dated by Mr Hughes signing as secretary in each case on 20 June 2001.

20 June 2001

86 On 20 June 2001 Mr Restas received an email from Ms Jerenko and thereafter a telephone call from Mr McLeod to the following effect:

Mr McLeod: “No mortgage will be provided to Hudson Investment Group under the Entitlement Deed due to the amount of the stamp duty that would need to be paid. In addition, interest on the deposit is always payable to Hardboards [AHL]. Can you prepare an amending deed.

Mr Restas: “Okay. If we’re going to amend the Entitlement Deed then we may want to tighten it up by providing that the sale of Hardboards by Hudson Investment Group to Hudson Timber is not a disposal for the purposes of clause 4. Also, you may want to amend clause 4(b) to refer to any consideration received by Hudson Timber or any other holding company of Hardboards.”

Mr McLeod: “Okay.”

Mr McLeod: “There is no need as Hudson Timber and Hardware will be controlled by Hudson Investment Group.”

Evidence of Mr Restas concerning the Second Deed of Amendment

87 Mr Restas gave the following evidence in relation to the Second Deed of Amendment:

29 August 2001

· At 10.22am on 29 August 2001 I received a facsimile from Mr McLeod... At that stage I had not had any conversation with him concerning the subject matter of that facsimile. Later that morning Mr McLeod telephoned me and said to me words to the following effect:

· During this conversation I made annotations on the second page of the facsimile... Mr McLeod did not seek any advice in this conversation nor did he instruct me to undertake any further work. I understood that he was simply informing me of an issue raised by the auditor which he was going to meet with the auditor to discuss. I believe my reference to “ACC” on that page is a reference to the accountant, Mr Willie Seaton.

4 September 2001

· On the morning of 4 September I received a telephone call from Mr McLeod. A conversation ensued to the following effect:

Mr McLeod: “I had a meeting with Willie Seaton and we need to amend the Entitlement Deed. The Entitlement Deed needs to be amended to reflect that Hudson Investment [HIG] will receive half of the consideration above the $10 million, less the deposit.”

I do not now recall whether he gave any reasons for that decision.

· During the conversation Mr McLeod did not say anything to me which suggested that the Entitlement Deed had not been correctly drafted to reflect the instructions given by HIG to Atanaskovic Hartnell. Following the conversation I prepared a draft deed of amendment which I emailed to McLeod at 12.11pm...

· Following that consideration and later that afternoon I telephoned McLeod and had a conversation with him to the following effect:

Mr Restas: “I have considered the legal issues and am of the view that no shareholder approval is required to amend the Entitlement Deed.”

· Mr McLeod then sent me a facsimile… I reviewed his amendments and considered that it would be easier to prepare a consolidated version of the Entitlement Deed, incorporating all of the amendments. At 5.06pm I sent through an email attaching my proposed deed...

· On the following morning, I sent an email to Mr McLeod at 10.16am containing the advice referred to in my email of the previous afternoon. In that email I confirmed both my instructions and my advice that I had given to that point. In particular I recorded at the second bullet point that the proposal put forward to amend the Entitlement Deed, which provided that HIG change its right to the first $10 million received in connection with a “disposal” to a right to receive $10 million only if the amount received in connection with the “disposal” was equal to or greater than $24.667 million, amounted to HIG giving to AHL a “financial benefit” for the purposes of the Corporations Act… The final paragraph of my email contemplates that I would prepare a draft ASX announcement in relation to the change.

6 September 2001

· On 6 September 2001 I received from Mr Hughes a facsimile attaching copies of the previous ASX announcements, as requested by me in my email...

· I do not recall any further conversations with Mr McLeod or Mr Hughes concerning this further amendment to the Entitlement Deed prior to my leaving the employ of Atanaskovic Hartnell on 11 October 2001.

Evidence given by Mr Knox

88 Before proceeding further it is convenient to shortly summarise the evidence given by Mr Knox [the Group chief financial officer] which is accepted as reliable. Effectively what occurred is that in August 2001, during the course of preparation of the financial statements for the two companies for the half year ended 30 June 2001 (they each have December year ends), Mr Seaton, a partner in PricewaterhouseCoopers informed, Mr Knox, that the terms of the Entitlement Deed required that the first $10 million of value of the surplus land (being its then entire value at directors’ valuation) could not be shown as an asset in the books of Hardboards. This was because under the terms of the Entitlement Deed the first $10 million of proceeds were to go to Group.

89 Mr Knox had not previously been shown the Entitlement Deed and upon reading the Deed, it was clear to him that the Entitlement Deed meant that the first $10 million of proceeds for the land was to be paid to Group; consequently Hardboards could not have it in its books at $10 million. That meant a reduction in the net assets of the Timber side of the group of $10 million and the inclusion of an insupportable figure for goodwill on the acquisition of Hardboards which would have to be written down thereby producing a loss in the books of Timber. This was a serious issue.

90 Mr Knox accepted that the only way this could be fixed was if the terms of the Entitlement Deed were changed so that there “didn’t have to be shown up a big black hole of $10 million in the books of the Timber group” (“T 346-351”) with the critical passage at T 349 Line 56 to T 351 line 27).

91 Under cross-examination Mr McLeod gave the following evidence:

“Q. That's right, it is not inconsistent with the Wingate heads of agreement because Wingate doesn't share in it?
A. No, that first $10 million goes to--

Q. AHL.
A. As the JV V, that's right.

Q. So there is nothing inconsistent with the first $10 million being required to be paid by AHL to HIG, is there?
A. There is.

Q. What?
A. Because the land is in the books of AHL at $10 million--…

A. --pay the $10 million to HIG, otherwise…..Otherwise AHL would post a loss of $10 million.

Q. Yes, that's where the truth lies, Mr McLeod. Why you changed the entitlement deed is because you came to realise that the deal that you get meant that AHL's financial position was unacceptable to the bank because the deal you did meant it could not ascribe $10 million to the value of the land in its books, correct?…

Q. …You subsequently came to realise after a discussion with Mr Seton at the bank that AHL - at Pricewaterhouse I should say, that AHL had put that land in its books at $10 million, which it couldn't have there if it had to pay the $10 million to HIG, and that's why you changed the deed.
A. That's exactly right.

Q. It had nothing to do with it being inconsistent with the Wingate heads of agreement or anything else. It had to do with a mistake that you had made in putting it into the books of AHL at $10 million which you shouldn't have done.
A. That is wrong.

Q. And in fact, I want to suggest to his Honour that when you come to give evidence on your oath that the real intent of the agreement was as set out in that little schedule in clause 4 of the amended deed, that evidence is deliberately false?
A. That is wrong.

Q. Because what happened was, Mr McLeod, in August or September of 2001 you went to an audit meeting at Pricewaterhouse with a Mr Seton and Mr Seton drew to your attention, at a time at which the bank was on your back, that you had to deduct $10 million in the value of AHL because you were obliged to pay that money to HIG?
A. It's wrong.

[Transcript 252-253]

Share sale approval by shareholders – 6 August 2001

92 The share sale was approved by the shareholders of both HIG and HTP in their respective general meetings of 6 August 2001 both meetings having been called pursuant to Notices of General Meeting dated 5 July 2001 which included Explanatory Statements (B 5/1854 –1608; 1609 – 1652).

93 The final form of the Explanatory Memoranda were mirror images of one another insofar as describing the Entitlement Deed relevantly, as in earlier drafts, including the following:

“Entitlement Deed

In connection with the sale of AHL, HIGL and AHL have entered into a deed (the “Entitlement Deed”) under which AHL has agreed to pay HIGL an amount not greater than $10 million in certain circumstances.

As AHL and HIGL entered into a Heads of Agreement with other parties in November 2000 to develop an industrial and service park on land owned by AHL at Bundaba in Queensland (the “Land”), HIGL, as a condition to the sale of AHL, wishes to ensure that it retains the ability to participate in, and have the benefit of, some of the potential future benefits associated with the development and future disposal of the Land.

in the event the Land is disposed of by AHL on or before 8 June 2006, AHL will pay HIGL the lesser of:

· $10 million; and

· the value of the aggregate consideration received by AHL in relation to the disposal of the Land,

in both cases less the deposit of $3.5 million already paid by AHL to HIGL (such deposit to be refunded if the conditions precedent below are not satisfied by 10 August 2001).

In addition, under the terms of the Entitlement Deed AHL will also need to provide HIGL with a mortgage over the Land to secure the payment referred to above.

· AHL’s sole member (i.e. Hudson) in accordance with section 260B(1) of the Corporations Law; and

· the Company’s shareholders in accordance with section 260B(2) of the Corporations Law,

Before it can be given.

· the relevant shareholder approvals have been obtained in accordance with the requirements of section 260B of the Corporations Law to the giving of the above financial assistance to the Company; and

· 14 days have elapsed from the date of AHL lodging with the Australian Securities and Investments Commission the notice required by section 260B(6) of the Corporations Law.

Returning to the cross-examination of Mr McLeod

94 It is now convenient to return to the cross-examination of Mr McLeod which naturally principally focused upon the material communications leading up to the execution of the Entitlement Deed but also dealt with a number of associated matters.

95 The evidence given by Mr McLeod may shortly be summarised as follows:

· Mr McLeod did not at any stage in his affidavit of 17 February 2005 give any evidence as to the content of conversations or correspondence between himself and Mr Tan [or between himself and any other person or company] immediately leading up to the entry into of the Entitlement Deed.

· The very limited evidence which Mr McLeod gave as to later conversations with Mr Tan resulting in the Second Deed of Amendment was confined to the above described occasion [mentioned by Mr McLeod to Mr Restas on 4 September] when in late August 2001 Mr Seaton, the audit partner at PwC, raised with those present at the meeting [including Mr McLeod and Mr Tan], Mr Seaton's understanding of the Entitlement Deed to the effect that the value of the land in the consolidated accounts of HTP would be nil as there was an obligation to pay HIG the first $10 million of proceeds. Mr McLeod deposed that at that time he had cause to carefully review the Entitlement Deed and "first appreciated that the Entitlement Deed did not reflect the commercial agreement that had been reached between [himself] and Mr Tan".

· He further deposed that he had responded to Mr Seaton’s observation during the meeting by saying:

342 Having carefully considered:

· the terms of the letter;

· all of the material documents anterior to the signing of the 23 July 2003 letter;

· all of the material documents post the signing of the 23 July 2003 letter;

Masters v Cameron

343 As earlier indicated, one of the considerations which to my mind suggests that the parties objective intent is seen, in the light of all of the relevant evidence, not to have been to bind themselves by the letter to an enforceable agreement simply concerns the number of "loose ends" remaining to be ‘tied’, notwithstanding the terms of the letter. These are pointed up in the subsequent correspondence/negotiations between the solicitors for the parties but of course, importantly, include the manner in which the requirements of GE Capital should be accommodated, as well as the difficulties to be apprehended in obtaining a consensus as to precise details with respect to the funding of/arrangements concerning the proposed Water Treatment Plant. To my mind the “acknowledgment” [paragraph 3 of the letter] is insufficient to demonstrate that the letter coped with the loose ends. The many matters dealt with in the documents provided by Mr McLeod to GE Capital in December 2003 make plain the complexity of the arrangements and terms which remained to be agreed upon, and importantly agreed upon not only by the parties who had signed to the 23 July letter but also by the other parties affected.

344 Reference has already been made to the document entitled "Attachment 1" Shareholder Agreement dated 5 June 2003 and signed by Mr McLeod on behalf of HTP and by Mr Tan on behalf of HIG. That document had no independent contractual effect if only for the reason that Wingate was not a party to the document but additionally because the document simply reads as a type of action statement as opposed to an agreement. But the very matters which were dealt with in the document point up the number and type of arrangements/agreements remaining to be negotiated, not only on 5 June 2003 but also as at 23 July 2003.

345 Another consideration concerns the whole of what the parties 2003 path seemed to comprise. Clearly enough the 23 July letter proceeded on the presumption that HIG as well as HTP/ AHL would not contribute to the costs of the development and would not share in any of the profits: witness the timetable set out in both the Shareholders Agreement and the 23 July letter under which AHL would be repaid any and all debts owing to it by Bremer.

346 An important consideration it seems to me is to be found in the fact that the 23 July letter was clearly intended not to replace or prejudice the Shareholder Agreement of 31 March 2003 and it would plainly become necessary for Wingate to sign to a Shareholders Agreement which would comprehend the sale by HTP to HIG of the remaining 50% shareholding in Bremer. If it be that the parties were [as the defendants case would have it] proceeding against a background to the effect that the First and Second Deeds of Amendment were unexceptionable and enforceable, it would seem to have been necessary for the agreement contemplated in the last paragraph of the 23 July letter to treat with whether or not that agreement, either by itself, or read together with the earlier restructuring events of 2003, constituted the parting by AHL of its control or beneficial ownership of the Land otherwise than on arms length terms and in a circumstance where the consideration to be received was cash payable at the date of the disposal [cf Entitlement Deed clause 5]. This is the type of complexity which would require to be unravelled presumably by some form of agreement. Whilst the intent was for AHL to part with its shareholding in Bremer for the sum of $100 [AHL of course to receive other benefits from the disposal of its interest in Bremer], yet still these other benefits, at least as expressed in the subject documents to date, did not constitute "cash payable". Further there may have been debate concerning the question of the proper construction of clause 5 of the Deed of Entitlement [immaterially varied by the Second Deed of Amendment] and whether or not the terms of the agreement to be negotiated and signed by all necessary parties could or would amount to a "Disposal" within the meaning of clause 5. That matter would seem to have been important to be treated with.

347 In the above reference to the earlier restructuring events of 2003, I do not suggest that entry into the 31 March 2003 Shareholders Agreement would have constituted a "Disposal" within the meaning of clause 5 of the Entitlement Deed [immaterially varied by the Second Deed]. It seems clear that the entry into that Shareholders Agreement was wholly consistent with the commercial regime which both AHL and HIG had envisaged would be entered into at the time when the Entitlement Deed was signed. Nonetheless the path which had been taken during 2003 raised sufficiently closely, the question of the possible engagement of clause 5, to have meant that looking at the matter objectively, the parties would have needed to at least deal with the issue in the agreement which was to be negotiated.

Abandonment

The principles

348 It is clear that a contract can be terminated by abandonment. In Summers v Commonwealth (1918) 25 CLR 144 Isaacs J at 151-152 put the principle as follows:

349 In that case a contract for the supply of blocks of marble was entered into and each party adopted a different view as to what the seller was bound to do in performance of the Contract. After months of disputation, the purchaser purported to give a notice of cancellation of the contract which was held to be ineffective. Thereafter the plaintiff took no step towards performing his contract, which originally was to have been completed in four months. He appeared to have maintained his determination not to proceed on the defendant's basis, and to have acquiesced in considering his obligation at an end. The Commonwealth also apparently considered it as at an end, because they procured the marble elsewhere. [cf Hope JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 324].

350 There has in recent times been some consideration of differences in approach taken in the United Kingdom. In CGM Investments Pty Ltd v Chelliah [2003] FCA 79 Finklestein J [whose opinion as to principle was not departed from by the Full Court [2003] FCAFC 279 sub nom Wallera Pty Ltd v CGM Investments Pty Ltd] set out the position in the following terms:

“[18] In my view, the authorities to which I have referred establish not only that an agreement can be abandoned by conduct, but also that the question whether an agreement has been abandoned does not require one to examine whether the parties actually had the intention of abandoning the agreement; only whether their conduct, when objectively viewed, manifests that intention. This conclusion accords with the objectivist theory of contract which is now irrevocably entrenched in our law: Taylor v Johnson (1983) 151 CLR 422. See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, where McHugh JA (as his Honour then was) said (at 336) that “[t]he weight of authority in favour of the objective theory is too great”.

Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal)

"Where A seeks to prove that he and B have abandoned a contract in this way, there are two ways in which A can put his case. The first way is by showing that the conduct of each party, as evinced to the other party and acted on by him, leads necessarily to the inference of an implied agreement between them to abandon the contract. The second method is by showing that the conduct of B, as evinced towards A, has been such as to lead A reasonably to believe that B has abandoned the contract, even though it has not in fact been B’s intention to do so, and that A has significantly altered his position in reliance on that belief. The first method involves actual abandonment by both A and B. The second method involves the creation by B of a situation in which he is estopped from asserting, as against A, that he, B, has not abandoned the contract.” [citation omitted]

"To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply. To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other, what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide. That is what English lawyers mean when they resort to the Latin phrase consensus ad idem and the words that I have italicised [underlined] are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law.”

Lord Brightman said (at 924):

"To entitle the sellers to rely on abandonment, they must show that the buyers so conducted themselves as to entitle the sellers to assume, and that the sellers did assume, that the contract was agreed to be abandoned sub silentio. The evidence which is relevant to that inquiry will consist of or include: (1) What the buyers did or omitted to do to the knowledge of the sellers. Excluded from consideration will be the acts of the buyers of which the sellers were ignorant, because those acts will have signalled nothing to the sellers and cannot have founded or fortified any assumption on the part of the sellers. (2) What the sellers did or omitted to do, whether or not to the knowledge of the buyers. These facts evidence the sate of mind of the sellers, and therefore the validity of the assertion by the sellers that they assumed that the contract was agreed to be abandoned. The state of mind of the buyers is irrelevant to a consideration of what the sellers were entitled to assume. The state of mind of the sellers is vital to a consideration of what the sellers in fact assumed.”

Tankrederei Ahren Keil GmbH v Frahuil SA (The Multitank Halsatia)

"Lord Diplock [indicated] however, that the claimant must subjectively understand that the respondent is consenting to the abandonment of the arbitration. It is at this point that his speech conflicts with that of Lord Brightman who indicated that the state mind of the claimant as to the proper inference to be drawn from the conduct of the respondent was irrelevant. In recent cases Lord Justice Neill has expressed tentative approval of Lord Diplock’s conclusion, in The Agrabele, Lord Justice Nicholls tentative disapproval in The Anticlizo and Lord Justice Bingham has stated that the position is unclear [in] the same case”. (Citations omitted)

Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA

Thai-Europe Tapioca Service Ltd v Seine Navigation Co. Inc (The Maritime Winner)

[21] In Australia this controversy need not be entered. First the cases to which I have referred, have opted for the objective ascertainment of the intention to abandon a contract. Further, a number of cases make it quite clear that the existence of a contract does not depend upon the strict application of the doctrines of offer and acceptance. It is sufficient in this regard to refer to Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, a case in which Ormiston J (as he then was) had to consider that very issue. After a comprehensive review of Australian and overseas authorities he concluded (at 81) that a contract “can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances”. So it must be with an implied agreement to abandon a contract.

351 With respect I entirely adopt the above summary by Finklestein J of the applicable principles. Nothing therein said departs from the principle as generally summarised in Summers.

352 The defendants contended that a contract may be abandoned where parties enter into inconsistent contractual obligations. Nothing in the principles enunciated by Finklestein J would take issue with this proposition. The operative word is "may".

Exposing the Issue

353 The proposition for which the defendants contend is that the contract constituted by the Entitlement Deed is seen to have been abandoned for the reason that the parties in relation to the 2003 restructuring arrangements, are seen to have entered into inconsistent contractual obligations.

354 The defendants argument runs as follows:

· On any version of the Entitlement Deed, AHL covenanted to make a payment to HIG from the proceeds of the sale of the Land.

· That covenant could only be performed by AHL whilst it owned the Land and was entitled to receive the proceeds of sale.

· The letter/agreement of 23 July 2003 for the transfer by AHL to HIG of 50% of its shareholding in Bremer [when read the light of the anterior Shareholder Agreement of 31 May 2003] meant that following crystallisation of the agreement referred to in the last paragraph of the 23 July 2003 letter, AHL would transfer the other 50% of its shareholding in Bremer to Wingate, hence leaving AHL with no shareholding interest in Bremer.

· Absent any shareholding interest in Bremer, AHL could not perform its Deed of Entitlement covenant to make a payment to HIG from the proceeds of the sale of the land.

· The Entitlement Deed is therefore seen to have been abandoned as the parties had entered into a new contract entirely [or to an extent going to the very root of their earlier contract], which earlier contract is inconsistent with the latter contract.

Decision on Abandonment

355 There is no substance in the abandonment contention.

356 The Entitlement Deed was entered into on 18 June 2001 being the same date as the Share Purchase Agreement and being part of the same transaction. At that time HIG ceased to hold the issued shares in AHL and HTP acquired those shares, HTP continuing to be a wholly owned subsidiary of HIG.

357 The operative provision in the Entitlement Deed was the event of the ultimate control over or ultimate beneficial interest in the Land changing in any way ["the Disposal"], in which event AHL covenanted, on the date of the Disposal, to make the material payment to HIG.

358 HIG was to be secured by the mortgage provided for in the Entitlement Deed whereunder AHL was to grant a mortgage to secure the payment of the amounts to which HIG would be entitled in the event of a Disposal.

359 In December 2001/January 2002 AHL transferred the title of the Land to Bremer, then its wholly owned subsidiary. [PX 2341]

360 At that time there was no change in the ultimate control over or ultimate beneficial ownership in the Land. That control/beneficial ownership still remained with AHL. Hence even by this time, the defendants proposition 2 did not hold true. AHL was no longer the owner of the Land and strictly speaking had no entitlement [save of course in the looser sense of its capacity as shareholder], to receive the proceeds of sale. However even in this situation it was possible that the ultimate control over or ultimate beneficial ownership in the Land could change hence triggering the Disposal provision in clause 4 of the Entitlement Deed. So that the fact that AHL was no longer the owner of the Land did not mean that the operative provisions of the Entitlement Deed fell away or became impotent/ otiose. And the mortgage provided for in the Entitlement Deed continued to protect HIG in this circumstance.

361 Arguably the parties to the Entitlement Deed were entitled to proceed upon the assumption that in reality as long as AHL remained a shareholder in Bremer, in the event that the Land was developed by a joint venture agreement with an outside party [the likelihood being Wingate], HIG's clause 4 Entitlement Deed benefit would filter down to it from AHL's shareholding entitlement, as on distribution.

362 In any event it is apparent from the terms of the 2003 restructuring arrangements leading up to in the 23 July 2003 letter/agreement, that what was proposed was that AHL would transfer 50% of its shareholding in Bremer to HIG and what was anticipated was that the agreement contemplated in the last paragraph of the 23 July letter/agreement would be negotiated and that as part of that agreement, AHL would transfer the other 50% of its shareholding in Bremer to Wingate.

363 It was not impossible that the agreement contemplated in the last paragraph of the 23 July letter/agreement may never be consummated. The uncertainties at least included the need to obtain GE's approval to the Shareholder Agreement. That would have left HIG with its 50% shareholding in Bremer and AHL with the other 50%. In that circumstance it simply cannot be said that the 23 July letter radically or at all changed the contractual position which had obtained from the date of the Entitlement Deed, through the circumstance that saw the title to the Land transferred to Bremer.

364 Whilst it is not necessary to go further into the possibilities, the above reasoning makes quite clear that the parties had not by 23 July 2003, entered into a new contract which was inconsistent with the Entitlement Deed. And on the above Masters v Cameron findings the 23 July letter was itself not a binding agreement.

365 The other approach taken by the defendants was to refer to the lack of mention of the Entitlement Deed in the documentation throughout 2003 and to focus upon the Prospectus which went out to shareholders without any mention of the Entitlement Deed. The matter is dealt with below in relation to discretionary defences. However, in terms of the principles earlier set out, the lack of mention of the Entitlement Deed does not produce the inference necessary to establish an abandonment of the Entitlement Deed.

366 The abandonment submission is rejected.

Discretionary defences

367 The defendants have contended that as a matter of discretion the Court ought not grant specific performance of the Entitlement Deed to HIG.

368 The central proposition for which the defendants contend relies upon the following factors:

· the lack of mention of the Entitlement Deed in the May 2003 prospectus or in any of the explanatory memoranda published in respect of the prospectus;

· the prospectus recording the Land as a $10 million asset on the consolidated balance sheet of HTP;

· the prospectus dealing not only with an offering of new shares but also involving an offering by HIG of 14 million of its existing shares in HTP: that offering made in conjunction with the proposal whereunder the bulk of HIG's shareholding in HTP would be cancelled in satisfaction of HIG's indebtedness of $17.6 million to HTP;

· HIG having sold it’s shares for value on the basis that the Entitlement Deed did not exist: the current owners of HTP having invested in HTP and purchased shares from HIG, on that basis;

· the now attempt by HIG to enforce the entitlement Deed which was not disclosed to prospective purchasers.

Dealing with the issue

369 The Court is dealing with suggested hardship or unfairness to shareholders who subscribed for the prospectus offering, effectively being third parties to the proceedings.

370 Clearly in some circumstances hardship suffered by a third-party will afford a defence to a suit for specific performance: Meagher, Gummow and Lehane's Equity Doctrines Remedies, Fourth edition Butterworths LexisNexis 2002 at [20-110]; Spry Equitable Remedies, 4th ed, 198 et seq.

371 The hardship or unfairness which specific performance may cause, whether to a defendant or a third party, is to be balanced against the hardship and inconvenience that would be caused to the plaintiff should it be denied specific enforcement and confined to other remedies. Relief is granted or refused accordingly as the balance of justice is found to incline one way or the other: cf Spry supra at 183.

372 It is clear that the prospectus was verified as being not misleading or deceptive by the directors of both HIG as well as HTP and of Raffles Equities Ltd [a wholly owned subsidiary of HIG which also held shares in HTP].

373 In truth at least as between HIG and HTP, it cannot be suggested that any blame for the failure to refer to the Entitlement Deed should be sheeted home only to HIG.

374 There are considerations which speak against a principled exercise of the Court's discretion being to refuse to grant specific performance of the Entitlement Deed on the above described grounds of suggested hardship/unfairness.

375 At a threshold level it is somewhat doubtful to be precise as to what is the hardship or unfairness caused to those prospective shareholders who viewed the HTP prospectus. This is highlighted by comparing the prospectus which was propounded [‘the actual position’] against a hypothetical prospectus which recognised the original Deed of Entitlement (and not the Second Deed of Amendment) as in force [‘the correct position’].

376 Under the actual position, the prospective shareholders were made aware that HTP was losing an asset worth $10 million for an aggregate sum of $200, plus other benefits (for example, the water treatment plant).

377 Under the correct position, the Bremer asset would be valued at nil in HTP’s accounts (in accordance with the advice provided by the company’s auditors in August 2001), with possibly a contingent liability of $10 million. Prospective shareholders would have thought that HTP was receiving the $200 plus other benefits for the cost of an asset which had no value, or for the cancellation of a $10 million contingent liability. The reason why prospective shareholders would think that the $10 million contingent liability was being cancelled was because, after the proposed disposal of Bremer to Wingate and HIG, it would not be receiving any monies as a result of the joint venture development, and accordingly, would not have to pay any monies to HIG.

378 As this shows, the prospective shareholders were shown, in the actual prospectus, a picture which involved HTP giving up more than the correct prospectus would have shown to be given up.

379 This is regardless of whether, under the correct position, this $10 million contingent liability was disclosed. To put it another way, under both the actual and the correct positions, HTP was receiving exactly the same thing: $300 plus other benefits (the water treatment plant for example). However, under both positions, HTP is shown to be giving up a different thing for what it is to receive. Under the actual position, the shareholders were told HTP was giving up a $10 million asset. Under the correct position, they would have been told that HTP was giving up a nil value asset.

380 That the plan that AHL would dispose of all its shares in Bremer has not been fulfilled to date is immaterial to this analysis, as in either situation regarding the prospectus, the position of the shareholders is the same. Under the actual and correct prospectuses, shareholders would have been led to believe that the plan to dispose of Bremer would be completed.

381 In those circumstances it is difficult to see that an order for specific performance should be refused on discretionary grounds in terms contended for by the defendants.

382 However in any event, and even if the above analysis be flawed, the balancing exercise [in weighing the hardship or unfairness which specific performance may cause, whether in a defendant or a third party, against the hardship and inconvenience that would be caused to the plaintiff should it be denied specific enforcement and confined to other remedies] seems to me to incline on HIG's side. The whole of the complex of circumstances is taken into account and against the whole of the background matrix, the principled exercise of the Court's discretion is to grant specific performance of the Entitlement Deed.

Short minutes of Order

383 The above reasons ought to be sufficiently clear to enable the parties to bring in short minutes of order:

· Appropriate declarations will be made declaring void each of the two purported amendments to the Entitlement Deed;

· Specific performance is to be ordered in respect of the Entitlement Deed;

· The specific performance suit in respect of the Bremer Share Sale Agreement fails;

· The defendant's rectification cross-claim proceedings fail.

384 In the manner in which the plaintiff’s claim proceeded, bearing in mind the above findings, I did not understand the plaintiff to pursue equitable compensation on its causes of action against the directors.

385 The parties will be given an opportunity to address on costs on the occasion when short minutes of order are brought in.

I certify that paragraphs 1 - 385
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 12 August 2005

___________________
Susan Piggott
Associate
12 August 2005

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Citations

Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716

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CITATION:	Hudson Investment Group Limited v Australian Hardboards Limited & Ors [2005] NSWSC 716
HEARING DATE(S):	4/07/05, 5/07/05, 6/07/05, 7/07/05, 8/07/05, 11/07/05, 12/07/05, 13/07/05, 14/07/05
JUDGMENT DATE :	12 August 2005
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Declarations to be made declaring void each of purported amendments to the Entitlement Deed; Specific performance suit in respect of Bremer Share Sale Agreement to be dismissed; Specific performance of Entitlement Deed to be ordered; Rectification cross-claim proceedings to be dismissed.

CATCHWORDS:	Contract - Construction - Rectification - Masters v Cameron - Abandonment - Specific performance - Discretionary considerations - Corporations Law - Corporations claiming to have held informal directors meetings - Principles concerning essential requirements of valid meetings of directors - Minutes of meetings - Whether later meetings purporting to affirm or ratify or approve fictional minutes of purported earlier meetings had or may have had any and if so what effect at law - Categorisation of 'notation' analysis as opposed to 'imprimatur' analysis - Retrospective alteration and backdating of minutes - Company directors - Authority - Fiduciary obligations - Requirement to take into account interests of particular company in group in relation to proposed transaction - Subjective and objective tests
LEGISLATION CITED:	Companies Act Corporation Act 2001 (NSW) Evidence Act 1995 (NSW)
CASES CITED:	Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Allen v Carbone (1975) 132 CLR 528 Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA [1985] 2 Lloyd's Rep 18 Amalgamated Television Services Pty Limited v Marsden [2002] NSWCA 419 Anaconda Nickel Holdings Pty Ltd, Re [2003] WASC 19 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 ANZ Executors and Trustee Company Ltd v Qintex Australia Limited (1990) 2 ACSR 676 Associated Colour Laboratories Ltd, Re Bankruptcy of (1970) 73 WWR 566 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Gypsum Ltd & Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Bailey v Mandala Private Hospital Pty Limited (1987) 12 ACLR 641 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Bonelli's TelegraphCompany, In re (Collie's claim) (1871) LR12Eq 246 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 CGM Investments Pty Ltd v Chelliah [2003] FCA 79 Chamberlain v Thornton (1892) 18 VLR 192 Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commissioner of Stamp Duties (NSW) v Carlenka Pty Limited (1995) 95 ATC 4620 Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467 Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 East Norfolk Tramways Company, In re (Barber's Case) (1877) 5 Ch D 963 Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Etablissements Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2 Lloyd's Rep 67 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR [97023] Fowler v Fowler (1859) 4 De G & J 250 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 GPI Leisure Corp Ltd v Herdsman Investments Pty Ltd (No 4) (1990) 9 BPR 17,461 Great Northern Salt and Chemical Works; Ex parte Kennedy, In re [1890] 44 Ch D 472 Halt Garage (1964) Ltd, Re [1982] 3 All ER 1016 Harris v English Canadian Co (1905) 3 Western Law Reporter 5 Helmos Enterprises Pty Limited v Jaylor Pty Limited [2005] NSWCA 235 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Hindle v John Cotton Ltd (1919) 56 Sc LR 625 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 Inland Revenue Commissioners v Raphael [1935] AC 96 Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (unreported, Court of Appeal of New South Wales, McHugh, Mahoney and Hope JJA, 23 December 1988, BC8801158) International Fina Services AG v Katrina Shipping Ltd ("The Fina Samco") [1995] 2 Lloyd's Rep 344 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Joscelyne v Nissen [1970] 2 QB 86 Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 Lakatoi Universal Pty Limited & Walker [2000] NSWSC 113 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 Lloyd v Stanbury [1971] 1 WLR 535 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 76 ALJR 246 Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 565; 15 ACLR 325 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404 Masters v Cameron (1954) 91 CLR 353 Meehan v Jones (1982) 149 CLR 571 Merchants and Shippers SS Co Ltd, In re (1916) 17 SR (NSW) 21 Mitropoulos v The Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134 Muriti v Prendergast [2005] NSWSC 281 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 All ER 34 Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747 Prenn v Simmonds [1971] 1 WLR 1381 Pukallus v Cameron (1982) 180 CLR 447 Pulbrook v Richmond Consolidated Mining Co (1878) 9 Ch D 610 R v Byrnes & Hopwood (1996) 20 ACSR 260 Raguz v Sullivan (2000) 50 NSWLR 236 Reardon -Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Ryan (Receiver and Manager of Homfray Carpets Australia Pty Limited) v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 Sandwell Park Colliery Co, In re; Field v The Company [1929] 1 Ch 277 Slee v Warke (1949) 86 CLR 271 Smith and Fawcett Ltd, In re [1942] Ch 304 State Bank of South Australia v Macintosh (unreported, Supreme Court of New South Wales, Young J, 31 May 1995, BC9504827) Summers v Commonwealth (1918) 25 CLR 144 Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756 Sydlow Pty Limited (in liq) v Melwren Pty Limited (in liq) (1994) 13 ACSR 144 Tankrederei Ahren Keil GmbH v Frahuil SA (The Multitank Holsatia) [1988] 2 Lloyd's Rep 486 Taylor v Johnson (1983) 151 CLR 422 Thai-Europe Tapioca Service Ltd v Seine Navigation Co. Inc [1989] 2 Lloyd's Rep 506 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Versteeg v R (1988) 14 ACLR 1 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 Walker v Wimborne (1976) 137 CLR 1 Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 Whitehouse v Carlton Hotel Pty Limited (1987) 162 CLR 285
PARTIES:	Hudson Investment Group Limited (ACN 004 683 729) (Plaintiff) Australian Hardboards Limited (ACN 088 183 420) (First Defendant) Hudson Timber Products Limited (ACN 081 809 814) (Formerly called Hudson Timber & Hardware Limited) (Second Defendant) AH Bremer Park Pty Limited (ACN 098 657 188) (Third Defendant) Bruce William McLeod (Fourth Defendant) Peter Cecil Holland (Fifth Defendant)
FILE NUMBER(S):	SC 50066/04
COUNSEL:	Mr DJ Hammerschlag SC, Mr WG Muddle, Ms T Leibman (Plaintiff) Mr J Stevenson SC, Mr PS Braham (First to Third Defendants) Mr GJ Nell (Fourth and Fifth Defendants)
SOLICITORS:	Deacons (Plaintiff) Coudert Brothers (First to Third Defendants) Ebsworth & Ebsworth (Fourth and Fifth Defendants)