Hughes v St Barbara Ltd

[2011] WASCA 234

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   HUGHES -v- ST BARBARA LTD [2011] WASCA 234

CORAM:   MARTIN CJ

PULLIN JA
MURPHY JA

HEARD:   17 & 18 AUGUST 2011

DELIVERED          :   1 NOVEMBER 2011

FILE NO/S:   CACV 79 of 2010

BETWEEN:   BRYAN KEVIN HUGHES (As Trustee of the Kingstream Steel Creditors' Trust)

Appellant

AND

ST BARBARA LTD
First Respondent

ZYGOT LTD
Second Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :KENNETH MARTIN J

Citation  :HUGHES -v- ST BARBARA MINES LTD [No 4] [2010] WASC 160

File No  :CIV 1913 of 2002

Catchwords:

Contract - Option - Nature of option - Whether irrevocable offer or conditional contract - Whether separate contract necessary to amend irrevocable offer

Damages - Breach of contract - Whether breach caused loss - Whether events after breach could be taken into account

Legislation:

Nil

Result:

Appeal allowed in part

Category:    A

Representation:

Counsel:

Appellant:     Mr R M Smith SC & Mr T O Coyle

First Respondent           :     Mr C R C Newlinds SC & Mr I Pike

Second Respondent       :     Mr C R C Newlinds SC & Mr I Pike

Solicitors:

Appellant:     Lavan Legal

First Respondent           :     Tottle Partners

Second Respondent       :     Tottle Partners

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

Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424

Ballas v Theophilos [1958] VR 576

Barrier Wharfs Limited v W Scott Fell & Co Limited [1908] HCA 88; (1908) 5 CLR 647

Beaton v McDivitt (1987) 13 NSWLR 162

Bell Group Limited v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1

Braham v Walker (1961) 104 CLR 366

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Brikom Investments Ltd v Carr [1979] QB 467

Butt v M'Donald (1896) 7 QLJ 68

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Carter v Hyde (1923) 33 CLR 115

Commissioner of Taxes (Queensland) v Camphin (1937) 57 CLR 127

Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674

Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640

Johnson v Perez (1988) 166 CLR 351

Karaguleski v Vasil Bros & Co Pty Ltd [1981] 1 NSWLR 267

Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57

Metwally (No 2) v University of Wollongong [1985] HCA 28; (1985) 59 ALJR 481

Pantorno v The Queen (1989) 166 CLR 466

Paule v Far Horizons Pty Ltd (1998) Aust Torts Reports 81‑486

Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126

R v Clarke (1927) 40 CLR 227

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144

Suttor v Gundowda Pty Ltd (1950) 81 CLR 418

United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services [1968] 1 WLR 74

Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 200 ALR 447

1. MARTIN CJ:  This appeal should be allowed and judgment entered for the appellant in the amount of $500,000 plus interest from 19 September 2001 for the reasons given by Pullin JA with which I agree, save for the observations below.

2. The issues agitated by the parties and determined by the trial judge with respect to the precise legal status of their relationship prior to the exercise of the option on 8 February 1999 are, and always were, irrelevant.  The appellant claimed damages for breach of the contract created by the exercise of the option.  There has never been any doubt that a contract was created by the exercise of the option, nor as to the existence of the elements necessary to render that contract enforceable.  Plainly the parties intended to create a legal relationship, there was ample consideration - promises to transfer a substantial parcel of valuable shares in exchange for the transfer of interests in a parcel of mining tenements, and neither party has ever suggested that the terms of the contract were uncertain so as to render it unenforceable.

3. There cannot be any doubt that the contract included a term requiring St Barbara to cause the interests in the Zygot AMLs to be transferred to Kingstream, and to enable that transfer to be completed when the AMLs were granted.  The notice of exercise of the option expressly refers to the Zygot AMLs, and to the correspondence of 29 January 1999, which left no doubt that the Zygot AMLs were to be included in any contract created by the exercise of the option.

4. Nor can there be any doubt that cl 9 of the Option Deed was a term of the contract created by the exercise of the option - in effect enunciating the term implied by law into all contracts in any event - see Butt v M'Donald (1896) 7 QLJ 68; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126.

5. Nor can there be any real doubt that St Barbara breached that term by inexplicably surrendering the Zygot AMLs, thereby depriving Kingstream of the benefit of that part of the contract created by the exercise of the option.

6. The case with respect to liability for breach of contract is, and always should have been, a simple one.  The precise status of the legal relationships between the parties prior to the creation of the contract by the exercise of the option is irrelevant to that case.

7. However, if, contrary to the view I have just expressed, it is necessary to assess the precise nature of the legal relationships between the parties prior to the exercise of the option, I would not, myself, categorise the exchange of correspondence on 29 January 1999 as giving rise to a unilateral contract (a term which has an oxymoronic quality as Pullin JA points out).  That is because the consideration necessary to render those communications enforceable did not depend upon the exercise of the option by Kingstream, but was sufficiently represented by the agreement to vary the obligations created by the Option Deed, as amended by the Supplemental Deed.  In essence, by the correspondence of 29 January 1999, St Barbara and Kingstream agreed that the terms of the option would be varied by:

   (a)incorporating additional mining tenements, including the Zygot AMLs;

   (b)extending the date by which the option had to be exercised;

   (c)agreeing that, in the event of the exercise of the option, the number of shares to be allotted to St Barbara by Kingstream would be calculated by reference to the market price of Kingstream as at 29 January 1999.

8. The exchange of promises to alter the terms of the option and any agreement brought about by the exercise of the option, supplied quite sufficient mutual consideration to render the promises made enforceable, without the need for further consideration in the form of the exercise of the option.  Although Kingstream received the benefit of the promise to include additional mining interests in the contract if the option was exercised, that carried with it the corresponding burden of Kingstream's promise to carry out exploration on those tenements, and report the results of that exploration to St Barbara in the event the option was exercised.  Similarly, because it was not possible to predict the market price of Kingstream shares between 29 January and 8 February 1999 (when the option had to be exercised), by agreeing that the parcel of shares to be provided as and by way of the purchase price would be calculated by reference to the market price of Kingstream shares on 29 January 1999, the parties agreed to vary their respective rights and obligations in a way which might be of benefit or a burden to either one of them.  The agreement to vary their respective rights in this way provided sufficient consideration in itself.

1. Accordingly, if it were necessary to characterise the legal consequences of the exchange of correspondence on 29 January 1999, in my view that exchange gave rise to an immediately binding and enforceable agreement to vary the terms of the option agreement, and which did not depend upon the exercise of the option for the provision of consideration.

2. On the subject of damages, no doubt it would have been possible for the appellant to have run a case based upon the value of the Zygot AMLs as at the date of breach taking into account information which later came to light with respect to the extent of the mineralisation on those tenements - the extent of mineralisation being something intrinsic to the value of the interest in the tenements - see HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640. However, as Pullin JA points out, that is not how the case was run, nor was any evidence adduced which would permit damages to be assessed on that basis.

   PULLIN JA: 

The appeal

1. The appellant appeals against the judgment of the trial judge who dismissed the appellant's claim for damages for breach of contract. 

An overview

1. The first respondent (St Barbara) and Kingstream Steel Ltd (Kingstream) executed an option deed dated 26 March 1997 (Option Deed).  The Option Deed contained an offer by St Barbara in the form of the grant of an option permitting Kingstream to purchase certain mining tenements on the terms of a sale and purchase contract which were set out in the Option Deed.  Kingstream had the right to accept the offer by exercising the option within 12 months from the date when notice was given of ministerial consent to the transaction.  The Option Deed was varied by a supplemental deed dated 20 January 1998 (Supplemental Deed).  Just before the date of expiry of the option period, St Barbara, in two letters from its solicitors dated 29 January 1999, added extra tenements to its offer.  The first of the letters stated that 'in the event that [Kingstream] exercises its option … that … will be effective in' respect of the extra tenements.  The extra tenements were three applications for mining leases (Zygot AMLs) which had been made by the second respondent (Zygot).  Zygot was a wholly owned subsidiary of St Barbara.  Kingstream accepted the amended offer on 8 February 1999 by exercising

the option and referring to the 29 January 1999 letters.  Kingstream alleged that the sale and purchase contract arising on exercise of the option or a separate contract arising out of the 29 January 1999 letters (Letter Agreement) obliged St Barbara to procure Zygot to maintain or keep the Zygot AMLs on foot until the Minister granted the mining leases.

1. About two years after the exercise of the option, Zygot withdrew the Zygot AMLs.  It is likely that St Barbara and Zygot had forgotten that they were the subject of a contract.  The Zygot AMLs were strictly speaking, not 'tenements' within the meaning of the Mining Act 1978 (WA) (Act), but the parties accepted that they had value.

2. Kingstream sued in the Supreme Court for damages for breach of the sale and purchase contract which came into existence on exercise of the option.  Kingstream also sued for breach of the Letter Agreement.  There were many other causes of action, all of which were dismissed and which are no longer relevant.  The causes of action were assigned to the appellant.  The trial judge dismissed the appellant's action.  The trial judge held that the Letter Agreement did not 'contractually' bind St Barbara or Zygot to keep the Zygot AMLs on foot and as a result there was no breach of contract when Zygot withdrew the Zygot AMLs. 

3. The issues remaining on this appeal are whether the trial judge erred in concluding that St Barbara or Zygot were not 'contractually' bound under the Letter Agreement or under the sale and purchase contract arising on the exercise of the option to keep the Zygot AMLs on foot, whether, if there was a contract and a breach of contract when Zygot withdrew the Zygot AMLs, this caused any loss to Kingstream, and if so, whether the trial judge erred in provisionally assessing damages at $500,000.

4. The appeal should be allowed in part.  The judgment dismissing the claim against St Barbara should be set aside.  In lieu, judgment should be entered against St Barbara for $500,000 plus interest.  The reasons follow.

The Zygot AMLs

1. It is necessary to briefly mention the provisions of the Act relating to exploration licences to help explain how the Zygot AMLs came into existence. 

2. One of the tenements which was the subject of the Option Deed was an exploration licence EL20/209 which was held by Zygot, but which St Barbara offered, under the Option Deed, to transfer to Kingstream under the contract which came into existence if Kingstream exercised the option.  Pursuant to the Act, an exploration licence was for a term of five years.  An exploration licence conferred exploration rights over land (which land was described by reference to graticular blocks (blocks)).  The Act provided in s 65(1) that at the expiration of the third year of the term for which the licence was granted, the holder was obliged to surrender 'not less than half the number of the blocks that are subject to the licence'.  After surrender, the exploration licence, although relating to less land than before, kept the same designation number in the Mines Department records.

3. EL20/209 was granted to Zygot on 27 April 1993.  On 8 October 1996 Zygot complied with its surrender obligation and as a result, EL20/209 only applied to half the land, originally described in EL20/209.  Shortly before the surrender, Zygot applied for three mining leases over that land.  They were given numbers 20/343, 20/344 and 51/641.  They were the 'Zygot AMLs'.  These events occurred before the Option Deed was executed.

4. Zygot was informed in 1997 by the Director of Mineral Titles that the Zygot AMLs had been examined and were 'capable of grant' once provisions of the Native Title Act 1993 (Cth) were complied with. They remained on foot until they were withdrawn.

The Option Deed

1. The Option Deed was prepared after negotiations between representatives of St Barbara and Kingstream concerning mining tenements at Weld Range in the midwest of the State (TR3902H and EL20/176) and EL20/209, which was at Jack Hills.  When the Option Deed was prepared, Kingstream was not aware that Zygot had applied for the Zygot AMLs over the land which was once, but which was not at the time of execution of the Option Deed, covered by EL20/209.

2. Recital A to the Option Deed read:

   St Barbara holds title to three mining and/or exploration tenements namely TR3902H, exploration licence 20/176 and exploration licence 20/209 (collectively called 'the Tenements') and is a party to the Iron‑ore (Murchison) Agreement Authorisation Act ('the State Agreement') (the Tenements and the interest of St Barbara Mines under the State Agreement being collectively called 'the Sale Interests').

3. Operative cl 1 of the Option Deed read:

   Subject to Clause 8 of this Deed St Barbara Mines hereby grants to Kingstream an option ('the Option') for a period of 12 months from and after the date of receipt by Kingstream of notice from St Barbara that the necessary consents pursuant to Clause 8 of this Deed have been obtained ('the Option Period') to purchase the Sale Interests for the price and upon the terms set out below.

4. Other relevant clauses in the Option Deed read:

   2.As consideration for the Option Kingstream shall pay to St Barbara Mines a non‑refundable fee of one million dollars which shall be paid seven days after receipt by Kingstream of written notice from St Barbara Mines that the necessary consents pursuant to clause 8 have been obtained.

   …

   4.In the event that Kingstream shall exercise the option, it shall create a contract pursuant to which St Barbara Mines shall sell and Kingstream shall purchase free from encumbrances the Sale Interests for the price and upon the terms and conditions set out below.

   …

   6.The terms of the contract pursuant to which St Barbara Mines shall sell and Kingstream shall purchase the Sale Interests in the event that the option is exercised are as follows:

   6.1The purchase price payable by Kingstream shall be the sum of $3,200,000 payable by Kingstream issuing to St Barbara Mines such number of fully paid ordinary shares in Kingstream as shall have a market value of $3,200,000 …

   …

   8.This Deed, the Option and the Contract to be created upon exercise of the Option and the transfer of the Sale Interests are all subject to and conditional upon the consents being obtained from both the Minister for Minerals and Energy and the Minister for Resources Development.

   9.Each party shall make all applications, sign all documents and deeds and do all acts and things necessary to obtain all necessary consents and give full effect to this Deed and the Option and the contract to be created if Kingstream shall exercise the Option.

5. Kingstream was interested in the iron ore in the tenements and the Option Deed provided that in all of the tenements, Kingstream alone should have the beneficial interest in the ferrous deposits. The Option Deed also made provision for a shared entitlement to non‑ferrous minerals which might be found.  Details are not relevant.

The Supplemental Deed

1. There were a number of reasons for the execution of the Supplemental Deed which are not now relevant save one.  It was that Kingstream became aware that the other EL - EL20/176 - would soon be the subject of the surrender requirements. 

2. The Supplemental Deed amended Recital A in the Option Deed.  This amendment was provided for in cl 2 of the Supplemental Deed.  Clause 2(e) read:

   That Recital A be amended by deleting the words '("The Tenements")'and substituting the following:

   '("The Tenements" which shall include all other mining or exploration licences, leases or other interests acquired or applied for by either party pursuant to the Mining Act in addition to or substitution for all or part of TR3902H, EL20/167 and EL20/209 or any of them over or in respect of all or part of the area included within the outer perimeter of TR3902H, EL20/167 and EL20/209 as at 26 March 1997)'.

   This amendment did not pick up the Zygot AMLs because they were not in respect of land within the outer perimeter of EL20/209 as at 26 March 1997.  The 26 March 1997 date was the date of execution of the Option Deed.  The Supplemental Deed did pick up two subsequent applications for mining leases in relation to land surrendered by St Barbara under EL20/176.

The 12‑month option period begins to run

1. On 30 January 1998, the Minister's consent required by cl 8 of the Option Deed was given and on the same day notice of the Minister's consent was given by St Barbara to Kingstream with the result that the 12 month option period began to run. 

Kingstream becomes aware of the Zygot AMLs

1. On 17 February 1998, Kingstream became aware, for the first time, of the Zygot AMLs relating to the land which had once been the subject of EL20/209, but which, after 8 October 1996, was no longer land the subject of EL20/209.

2. As a result, Mr Gregory Solomon, Kingstream's solicitor, prepared a draft of a further deed to include the Zygot AMLs in the list of tenements which were to be acquired by Kingstream if the option was exercised by Kingstream and adding Zygot as a party.  This draft was sent by Mr Solomon to St Barbara's solicitors on 22 April 1998.  There was no response. 

3. During 1998, Kingstream persisted with its attempt to persuade St Barbara to vary the Option Deed and the Supplemental Deed by bringing in the Zygot AMLs and joining Zygot as a party. 

4. On 12 January 1999, a meeting was convened between the chairman of St Barbara, St Barbara's new solicitor, Mr Dundo of Clayton Utz, Mr Solomon and a director of Kingstream.  The discussion was about whether the period for exercise of the option could be extended, about whether the Zygot AMLs could be 'included', and whether some new tenements, not previously mentioned, the 'Mount Gould tenements' could also be included [J304].  Nothing was resolved at the meeting.

1. On 14 January 1999, Mr Solomon prepared a revised version of his draft of the further deed which he sent to Kingstream for approval [J306].  This draft still envisaged that Zygot be added as a party and still proposed the inclusion of the Zygot AMLs and the Mount Gould tenements [J310].  This revised draft deed was sent by Mr Solomon to St Barbara's solicitor, Mr Dundo, on 18 January 1999 [J311], stating that he enclosed the draft of the deed which he had prepared 'for your client's consideration'.  A response from St Barbara to Mr Solomon's letter of 18 January 1999 was not required until Friday 29 January 1999.  At the close of business on that day, the 12 month period for exercise of Kingstream's option expired [J311].

2. The trial judge found and it is not disputed, that Kingstream intended to exercise the option even if the Zygot AMLs were not included [J763].  As to whether or not this was a finding determinative of any issue will be discussed later in these reasons.

The 29 January 1999 letters and events surrounding them

1. On the morning of 29 January 1999, Mr Solomon telephoned Mr Dundo.  Mr Solomon's note says that he told Mr Dundo that the option 'must be exercised today'.  It then had a question mark suggesting that a request was made for an extension of two weeks for exercise of the option while the deed was negotiated, and ended with a note '[Kingstream] must exercise' [J312].  The note indicated that Mr Dundo said he would speak to his client and advise.

2. Mr Solomon's further note of an incoming call from Mr Dundo on that day, recorded inter alia that Mr Dundo had spoken to his client, that St Barbara was not prepared to sign any deed, that St Barbara wanted the option exercised, that there would be 'no problem with - Zygot Tenements' and that some other tenements, the 'Mount Gould Tenements will be thrown in' [J313].

3. There was then a third telephone file note by Mr Solomon on that day.  It recorded an incoming telephone call from Mr Dundo recording Mr Dundo as saying that the option would be extended to 8 February 1999 'to discuss royalty so that number of shares is based on today's price', 'subject to agreement between the parties' and 'he will fax me an offer' [J314].

4. At 11.58 am on 29 January 1999, Mr Dundo sent Mr Solomon a letter by facsimile which read:

   We refer to your facsimile of 18 January 1999 and subsequent telephone discussions between Mr Solomon and the writer.

   We are instructed to confirm that in the event that your client exercises its option in respect of the Weld Range tenements, that option will be effective in respective [sic] of the following mining and/or exploration leases, licences, reserves or applications, namely:

   TR 3902H;

   Exploration Licence 20/176;

   Mining Lease 20/402;  

   Mining Lease 20/403;

   Exploration Licence 20/209;

   Mining Licence 23/343 [sic, 20/343];

   Mining Lease 20/344; and

   Mining Lease 51/641.

   and the provisions of the Deeds dated 26 March 1997 and 20 January 1998 shall apply to those tenements as if those tenements were specifically listed in the Deeds.

   We also confirm our client's view that the tenements are sold subject to the Royalty Agreements dated 9 July 1969.

   Mining lease 20/402 and 20/403 were the mining tenements granted over surrendered areas in EL20/176 and the last three tenements were the Zygot AMLs (mistakenly referred to as mining leases).  This was the offer Mr Dundo had earlier foreshadowed by telephone [J315].  (This is the first of the '29 January 1999 letters'). 

5. Mr Dundo sent a second letter by facsimile to Mr Solomon later the same day (this is the second of the '29 January 1999 letters').  It read:

   We refer to our facsimile earlier today. 

   We are instructed that our client is agreeable to the exercise of the option being extended to on or before 8 February 1999 on the basis that the consideration as provided for under the Deeds dated 26 March 1997 and 20 January 1998 is calculated as if the option was exercised today.

   We confirm that mining lease 23/343 in our earlier facsimile today should have read Mining Lease 20/343 and all the tenements listed in that facsimile (as amended by this facsimile) are subject to the option.

   On a 'without prejudice' basis, our client is prepared to meet with your client to discuss any variations to the existing agreements [J317].

6. In response, Mr Solomon on behalf of Kingstream sent a facsimile to Mr Dundo in reply.  It contained a paragraph reading:

   Further to your two facsimiles from earlier today, and the writer's telephone discussions with Mr Dundo we are instructed to advise that our client agrees to terms of the extension of the date for exercise of the option until on or before 8 February 1999 on the basis set out in your second facsimile of 29 January 1999 [J318].

Exercise of the option

1. On 8 February 1999, Mr Solomon sent a letter direct to St Barbara enclosing Kingstream's notice of exercise of the option.  His covering letter read:

   An Feng Kingstream Steel Limited - Weld Range - Option

   We refer to the Deed dated 26 March 1997, the Supplemental Deed dated 20 January 1998, the two facsimile letters from Clayton Utz to our firm dated 29 January 1999 and a letter of 29 January 1999 from our firm to Clayton Utz.  In exercise of the option we enclose our client's notice of exercise of option.  The option has been exercised on the basis referred to in the correspondence on 29 January 1999 and in particular as detailed in the letter from our firm to Clayton Utz of 29 January 1999 [J321].

2. The accompanying document dated 8 February 1999 was entitled 'Notice of Exercise of Option'.  The document referred to the numbers of the eight mining tenements or applications referred to in the first of the 29 January 1999 letters and stated that Kingstream 'hereby exercises the option to purchase'.  The notice concluded that the option had been exercised by Kingstream:

   [P]ursuant to the terms of an option dated 26 March 1997 as varied by supplemental deed dated 20 January 1998 and as further varied by letter dated 29 January 1999 from Clayton Utz to Solomon Brothers.

Sale and purchase agreement

1. Clause 4 of the Option Deed is set out above.  It provided that if the option was exercised, there came into existence a contract whereby 'St Barbara … shall sell and Kingstream shall purchase' the 'Sale Interests'.  The sale and purchase agreement, therefore, came into existence on 8 February 1999.

Settlement

1. On 22 February 1999, settlement occurred.  At settlement, transfers were tendered by St Barbara and accepted by Kingstream including transfers of the Zygot AMLs executed under the seal of Zygot.  On the same day, Kingstream allocated shares to St Barbara as required under the Option Deed.

Events after settlement

1. On 22 April 1999, Kingstream wrote to St Barbara stating that Kingstream had 'lodged five of the eight tenement transfers following stamping by State Revenue.  The [Zygot AMLs] … relate to mining lease applications which can not be transferred until they are granted'.  The letter asked St Barbara to 'copy Kingstream on any correspondence that you receive in regard to [the Zygot AMLs]' and that … 'Kingstream also requests that St Barbara continues to do all things necessary to maintain these applications in good standing until they are determined'.

2. On 3 May 1999, Kingstream made another request of St Barbara.  This request addressed the uncompleted conveyance of EL20/209 to Kingstream due to an overlap with one the Zygot AMLs, namely 20/343.  The communication read:

   In order to facilitate the transfer of tenement EL20/209 it will be necessary to authorise a partial surrender of one graticular block from the EL that is overlapped by the mining lease application 20/343.  Could you please have Zygot … authorise the attached application for partial surrender [J351].

   Arrangements were subsequently made for this partial surrender.  The released graticular block was within Zygot's mining lease application 20/343.

3. The trial judge observed:

   From all this, I infer that St Barbara and if required, Zygot, were fully cooperative with Kingstream up to May 1999, in relation to EL20/209 and the Zygot AMLs at Jack Hills.  I would further infer that had Kingstream made a request of St Barbara or Zygot for a coordinated surrender of the Zygot AMLs so as to enable Kingstream contemporaneously to itself peg out and to apply for those same areas directly, that there was every reason to expect full cooperation from St Barbara and Zygot to that end in, what was a harmonious relationship.  Of course, such a request was never made by Kingstream and the AMLs at Jack Hills continued to be held by Zygot beyond May 1999 [J354].

4. There were then no communications of any consequence between the parties for two and a half years after May 1999.  The Zygot AMLs continued to be  held by Zygot and there were some internal control battles within the board of St Barbara. 

The withdrawal of the Zygot AMLs

1. On 19 September 2001, Zygot lodged forms to the mining registrar withdrawing the Zygot AMLs.  The withdrawals terminated each application for mining lease from the time of registration on 19 September 2001.

2. The trial judge observed that the circumstances in which the withdrawal forms were prepared and lodged were not explored at trial [J359].  No advance notice or forewarning was provided by St Barbara or by Zygot to Kingstream of intention to withdraw.  Kingstream was given no opportunity to intervene, object or be heard prior to the three withdrawals being lodged.

3. The trial judge accepted that it was plausible that the Zygot AMLs were withdrawn in ignorance of the history of the Option Deed or of the dealings between Kingstream and St Barbara [J361].  The appellant contended that the withdrawal of the Zygot AMLs on 19 September 2001 was a breach of contract. 

Kingstream goes into voluntary administration and the writ issues

1. On 27 November 2001, administrators were appointed to Kingstream pursuant to s 436A of the Corporations Act 2001 (Cth). On 3 April 2002, Kingstream entered into a Deed of Company Arrangement with its creditors. The effect of this was to allow time for Kingstream's administrators to consider restructure proposals, acceptable to creditors.

2. On 2 July 2002 the administrator on behalf of Kingstream commenced the action in the Supreme Court.

3. A number of proposals were received by the administrator.  The proposal which found favour emerged from Koolanooka Pellets Pty Ltd.  As a result of this proposal, on 1 November 2002, the administrators caused Kingstream to enter into a Reconstruction Deed.  Under this there was a proposal that there would be an assignment of Kingstream's causes of action to the appellant to be held on trust for the creditors who had put up the proposal.  In early 2003, the reconstruction was approved by shareholders.  Kingstream changed its name to Midwest Corporation Ltd (Midwest).  Midwest issued a prospectus on 6 June 2003, raised fresh capital and came out of administration.   

Assignment of Kingstream's causes of action to the appellant

1. In 2003, Kingstream's causes of action against St Barbara and Zygot were assigned to the appellant.  Notices of the assignment of the causes of action were given to St Barbara and Zygot.

Subsequent history of the land previously covered by the Zygot AMLs

1. On 7 February 2002, Mr Michael Ruane and his associated corporation Zeedam (jointly referred to hereafter as 'Ruane'), applied for exploration licence EL20/535.  This covered the land formerly the subject of the Zygot AMLs. 

2. On 6 November 2002, Ruane made a proposal to the administrator of Kingstream to negotiate to confer on Kingstream the rights to mine the areas covered by EL20/535. The administrator referred the communication to the person arranging the reconstruction proposal, but it was not pursued by Kingstream. 

The Ruane transaction

1. Under an agreement dated 28 July 2004, Ruane agreed to sell two exploration licence applications to a company, Winterfall.  One of the exploration licence applications was EL20/535.  The sale price for the application for EL20/535 plus the other EL was $1 million cash, a royalty arrangement plus a parcel of shares representing 5% of the issued capital in a corporation subsequently to be known as Murchison Metals Ltd [J389].  Ruane also received the benefit in the form of a covenant pursuant to which Murchison Metals promised to expend $1.5 million on exploration concerning EL20/535 'or any associated mining lease conversion' over a three year period between July 2004 to July 2007 (Ruane transaction) [J390].  The value to Ruane of this sale was approximately $13 million (according to the appellant's written submissions in this appeal).

2. In 2007, Murchison Metals acquired ownership of the shareholding in Winterfall which had by then changed its name to Crosslands.  This afforded Murchison Metals control over areas of EL20/535. 

The pleadings at trial

1. The statement of claim at trial included, inter alia, a claim for rectification, a claim that St Barbara and Zygot were estopped from denying that the definition of 'Tenements' in the Supplemental Deed included the Zygot AMLs and included a claim for damages based on alleged negligence by St Barbara and Zygot.  All of these claims were dismissed and are not pursued on appeal.

2. In par 17B, the appellant pleaded that by reason of, inter alia, the 29 January 1999 letters, St Barbara, both for itself 'and as agent for' Zygot, offered that if Kingstream exercised the option, St Barbara and Zygot would be 'contractually bound by the amended Option Deed' to transfer the Zygot AMLs 'as and when each mining lease was granted and to otherwise comply with the terms of that Deed'.  The paragraph also pleaded that 'on exercise by Kingstream of the option by notice in writing dated 8 February 1999' Kingstream accepted the offer of St Barbara and Zygot.  Paragraph 17B concluded with the words 'by reason of the acceptance … [St Barbara and Zygot] became contractually bound to sell and transfer to Kingstream, any mining lease granted to either defendant in respect of the applications' (the Letter Agreement). 

3. It was this paragraph which was said to plead the Letter Agreement.  It is the dismissal of this Letter Agreement claim which is now the subject of the appellant's appeal in ground 1.  The plea might also be read as meaning no more than that the offer in the Option Deed, as amended by the Supplemental Deed and by the 29 January 1999 letters, was accepted on 8 February 1999 and that St Barbara was then 'contractually bound' by the sale and purchase contract which came into existence as provided for in cl 4 of the Option Deed.  However, even if that paragraph was not understood in that way at trial, the statement of claim pleaded in pars 18 to 22 that there was a breach of the sale and purchase agreement arising upon exercise of the option.  In par 17D of the statement of claim, Kingstream referred to cl 9 of the Option Deed and that the withdrawal of the Zygot AMLs was a breach of that clause and of implied terms pleaded in par 20. 

4. Paragraph 20 pleaded that the Option Deed as amended (ie the Option Deed and the Supplemental Deed) contained implied terms:

   (a)[St Barbara] would do all acts and things further or alternatively … would cause or procure [Zygot] to do all acts and things, necessary or desirable for the maintenance of the [Zygot AMLs] until the [Zygot AMLs] were considered and determined by the Minister under the Act;

   (b)[St Barbara] would do all acts and things, further or alternatively [St Barbara] would cause or procure [Zygot] to do all acts and things, necessary or desirable to enable Kingstream to have the benefit of the [Zygot AMLs] and any and all mining leases granted pursuant to [them];

   (c)[St Barbara] would ensure that [Zygot] did not withdraw the [Zygot AMLs] prior to [them] being considered and determined by the Minister under the Act;

   (d)[St Barbara] would use all reasonable endeavours, further or alternatively [St Barbara] would cause or procure [Zygot] to use all reasonable endeavours, to obtain a grant under the Act of each of the mining leases the subject of the [Zygot AMLs] …

   Particulars

   (i)The terms are to be implied in that they are reasonable as between the parties, obvious, necessary to give business efficacy to the Option Deed as amended, not inconsistent with any express term of the Option Deed as amended, and capable of clear expression.

   (ii)Alternatively, the terms are to be deduced by implication or interpretation from the express terms of the Option Deed as amended, considered as a whole.

The issue at trial about the Letter Agreement

1. At the trial, the issue developed and explored by the parties was about whether the 29 January 1999 letters and the exercise of the option by Kingstream on 8 February 1999 (the Letter Agreement) constituted a contract separate from the sale and purchase agreement.  It appears to have been the view of the parties and then the trial judge, that if the offer in the Option Deed (as amended by the Supplemental Deed) was to be amended, it had to be amended by a separate binding contract and thus the parties set about exploring whether the Letter Agreement existed.  This was an unnecessary issue, perhaps based upon a false premise, as explained later in these reasons.

The trial judge's conclusions about the Letter Agreement

1. The trial judge decided that the 29 January 1999 letters were 'essentially … representational in character (as to future matters), rather than … promissory' [J769].  The trial judge also decided that even if the 29 January 1999 letters contained an offer accepted upon exercise of the option, there was no consideration moving from Kingstream and so there was no separate contract in the form of the Letter Agreement [J762].  The trial judge did not go on to consider whether the 29 January 1999 letters merely amended the offer in the Option Deed (as amended by the Supplemental Deed).

2. Finally, the trial judge decided that even if the appellant was able to make good a 'bipartite' Letter Agreement, ie between Kingstream and St Barbara and could show sufficient consideration moving from Kingstream, that the appellant still needed to establish contractual terms 'to generate a breach outcome capable of supporting its claims for damages' [J772].  The trial judge said that the appellant would need to make good either the par 17D(b) inferred terms (based on cl 9), or the par 17D(c) implied terms (pleaded in par 20 set out above) within the Letter Agreement [J772].  The trial judge said that the inferred terms were constructed out of cl 9 of the Option Deed by reference to the effect of the sale and purchase contract [J773].  His Honour said that the terms were 'inappropriate in a somewhat altered and later context of the alleged 1999 Letter Agreement' [J774].

3. The trial judge then said about the alleged implied terms:

   Arguments pursuing the six par 20 implied terms, contended for via par 17D(c), are more difficult to sustain in circumstances where a Letter Agreement, which is their origin, itself has to be constructed out of conduct relied upon by the plaintiff in par 17B(b) (see Byrne & Frew (422) (Brennan CJ, Dawson & Toohey JJ).  Essentially there is just too much uncertainty in the whole implication process.

   Thus the plaintiff would fail in any event, on the basis that it cannot make good any inferred terms arising out of the construction of cl 9 of the Option Deed as put at par 17D(b).  Nor can it make out any of the par 20 implied terms it pleads and then seeks to incorporate via par 17D(c) in its Letter Agreement [775] ‑ [776].  

The trial judge dismisses the action

1. As a result of the dismissal of the claim in contract and the dismissal of other causes of action not pursued on this appeal, the appellant's action against St Barbara and Zygot was dismissed.

Damages

1. Having dismissed the various causes of action, the trial judge nevertheless made provisional findings about damages. 

2. At trial the appellant presented three alternative bases for the calculation of damages.  They were:

   (a)the value of the Zygot AMLs at the date of withdrawal, ie September 2001 [J853];

   (b)the value of lost opportunity of acquiring mining leases over the Zygot AML areas had they not been withdrawn in September 2001 [J854]; 

   (c)the value not only for the lost opportunity of obtaining 21‑year mining leases in the future, but also the loss of the allied opportunity to then profitably exploit the mining leases over a 21‑year duration or beyond [J856].

1. The trial judge dismissed the second and third bases for calculating damages [J1036].  The appellant does not now rely on them.  The appellant adduced reports from two experts, a Mr Philip Retter and Mr Neil Cole.  The respondents submitted one expert report from Mr Jeffery Hall.  Mr Retter expressed the opinion that the value of the Zygot AMLs in September 2001, by reference to comparable sales, was in the range of $250,000 to $750,000 with a preferred value of $500,000.  His opinion was based on drilling results from drilling carried out in the 1970s, showing that the land covered by Zygot AMLs contained an iron ore deposit of about 50 million tonnes.  The trial judge accepted this evidence [J953].

2. Mr Hall also assessed the market value of the Zygot AMLs at September 2001 and generated results of between $100,000 and $1.7 million.   

3. Mr Neil Cole expressed the opinion that the Zygot AMLs had a value of $4 million as at 2001 and a value in 2008 of $2.85 billion by applying a 'share market capitalisation valuation approach' [J963].  The trial judge accepted an opinion of Mr Hall that Mr Cole's market capitalisation approach was 'unprincipled' [J969] and preferred Mr Retter's evidence over that of Mr Cole [J982].  The appellant does not now seek to rely on Mr Cole's evidence.

4. The trial judge observed that notwithstanding that the Zygot AMLs were 'mere expectancies' incapable of being transferred by Zygot, the damages experts, particularly Mr Retter and Mr Hall, accepted that there was an existing market for trading and disposing of AMLs at September 2001 [J947].  The trial judge accepted that evidence [J953].  The trial judge observed that none of the valuation experts who gave evidence suggested that an accurate, reliable market value for the Zygot AMLs could not be ascertained in September 2001 [J901]. 

5. The trial judge observed that the appellant placed heavy reliance at trial on HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 (HTW) 'to justify a wide‑ranging evidentiary excursion into subsequent events' going up to the date of trial [J865].  His Honour considered that the High Court in HTW had recognised a need for a departure from the use of market values 'that are tainted' [J892].

6. The trial judge assessed the case as 'concerning a loss by Kingstream of the prospect of obtaining AMLs (not mining leases) in September 2001' [J904].  The trial judge concluded that the market value of the Zygot AMLs was 'well capable of being ascertained' [J905].  The trial judge concluded that HTW, correctly understood, did not provide 'the platform for the wholesale excursion into post‑breach event evidence' [J917].

7. The trial judge finally concluded that Mr Retter's evidence established that the value of the Zygot AMLs in September 2001 was $500,000 and that an award of damages at that figure would render proper compensation to Kingstream for the loss suffered in September 2001 assuming breach of contract had been made out [J1061].

Grounds of appeal

1. The grounds of appeal (set out in abbreviated form below) assert that the trial judge erred in the following respects:

   (a)in holding that the exercise by Kingstream on 8 February 1999 of the option as amended by the 29 January 1999 letters did not give rise to a contract (ground 2);

   (b)in holding that there was no consideration provided by Kingstream under the 'Letter Agreement' because,

   (i)Kingstream's exercise of the option could not constitute both acceptance of the offer and consideration; and 

   (ii)Kingstream would have exercised the option whether or not the Zygot AMLs were offered (ground 1);

   (c)in holding that the 29 January 1999 letters did not involve any contractual promise and were not intended to impose any contractual obligation upon St Barbara or Zygot (ground 3);

   (d)in holding that any contract which came into existence did not contain any terms which were breached by the withdrawal of the Zygot AMLs (ground 4);

   (e)in holding that Zygot did not become contractually bound to Kingstream (ground 5);

   (f)in holding that if a contract existed then the withdrawal of the Zygot AMLs did not cause Kingstream to suffer any loss (ground 6);

   (g)in holding that damages were to be assessed by reference to market value at the time of breach; and in holding that the value of the Zygot AMLs was not to be assessed having regard to events occurring after September 2001 (ground 7).

2. There was another ground (ground 8) challenging individual findings of fact but none of them have any bearing on the outcome of the appeal. 

Grounds 1, 2 and 3 - the nature of the Option Deed

1. At trial the energy of the parties and the attention of the trial judge in his reasons and in the parties' written submissions filed before the hearing of this appeal, was concentrated on the issue about whether Kingstream and St Barbara entered into the Letter Agreement to amend the Option Deed and the Supplemental Deed.  As mentioned above, this was an unnecessary issue.  To understand why this was so, it is first necessary to consider the nature of the Option Deed as varied by the Supplemental Deed. 

2. A grant of an option may give rise to either a conditional contract or an irrevocable offer.  Dixon CJ in Braham v Walker (1961) 104 CLR 366, 376 said that there was a 'standing controversy' about this: see also Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 72.

3. The controversy has been referred to or exemplified in many cases.  See for example Powell J's reasons in Karaguleski v Vasil Bros & Co Pty Ltd [1981] 1 NSWLR 267, 269 where he referred to the existence of the 'standing controversy' and then gave as an example Griffiths CJ's view expressed at (678) in Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674, that the option in that case was a conditional contract to sell, whereas Latham CJ in Commissioner of Taxes (Queensland) v Camphin (1937) 57 CLR 127, 132 expressed the view that the contract in that case was a contract that the offer not be revoked.

4. In Ballas v Theophilos [1958] VR 576, 578 ‑ 579, Smith J said:

   [The] conflict of opinion is illustrated by the judgments in Goldsborough Mort & Co Ltd v Quinn …  In that case, Griffiths CJ definitely adopted the first view:  see p 678.  O'Connor J, appeared to accept that view but he said that the document there in question might also be regarded from the second point of view:  see pp 685‑6.  The judgment of Isaacs J, contains some observations which might be regarded as supporting the first view … but not withstanding … it seems clear from His Honour's judgment, read as a whole, that he accepted the second view and this is confirmed by his own observations in Gerraty v McGavin (1914) 18 CLR 152 at p 163 and Carter v Hyde (1923) 33 CLR 115 at pp 122‑123.

5. Smith J in Ballas v Theophilos noted, however, at (579) that the form of the contract in a particular case may be decisive.  That must be so.  There is no general rule of law that states the nature or character of option agreements.  It must always depend upon the proper construction of the option agreement under consideration in each case:  see for example Carter v Hyde (1923) 33 CLR 115, 123.

6. Turning to this case, the Option Deed as varied by the Supplemental Deed was a contract creating an irrevocable offer.  The price paid by Kingstream as consideration for St Barbara's promise not to revoke the offer for the option period was the sum of $1 million.  It is plain that it was consideration for the promise to keep the offer open because it was described as a 'non‑refundable fee' and it was expressly described as being 'consideration for the option' (GAB 125).  Until the offer was accepted by exercise of the option there was no contract other than the contract requiring St Barbara to keep the offer open for 12 months.  Clause 4 of the Option Deed provided that in the event that Kingstream exercised the option it was only then that 'it shall create a contract pursuant to which St Barbara Mines shall sell and Kingstream shall purchase free from encumbrances' the defined property for the price and upon the terms and conditions 'set out below'.  There then followed the terms of the contract which would spring into existence if the option were exercised. 

7. By the first of the 29 January 1999 letters, the offer contained within the Option Deed was amended so that the definition of 'Tenements' thereafter included a reference to the Zygot AMLs.  The offer contained in the Option Deed as amended by the Supplemental Deed and amended and enhanced by the 29 January 1999 letters was open for acceptance by exercise of the option.  The amended offer was accepted by Kingstream on 8 February 1999.

8. This view of the effect of the Option Deed, the 29 January 1999 letters and the exercise of the option was not the view of the parties or the trial judge at trial or in the reasons for decision. 

9. The unnecessary issue about whether the Letter Agreement was a separate contract was perhaps based on the false premise, sub silentio, that the Option Deed created a conditional contract.  The parties at trial and the judge in his reasons for decision reasoned that the Option Deed (as varied by the Supplemental Deed) and the offer contained within them could only be varied by a contract supported by consideration.  This explains why the trial judge considered whether there was a separate contract to vary the terms of the Option Deed and the Supplemental Deed by the Letter Agreement [J762].  The trial judge then reasoned that there was no contract because there was no offer capable of acceptance and even if there were an offer capable of acceptance there was no consideration moving from Kingstream [J768 ‑ 769].  On this reasoning the appellant failed.

10. Speaking generally, in negotiations leading up to a contract, parties are free to put, amend and withdraw offers and counter offers.  However, if an offer is incorporated into an option agreement pursuant to which, for consideration paid by the offeree, the offeror undertakes for valuable consideration to keep the offer open for a designated period, then during that period, the offeror cannot lawfully withdraw the offer:  Goldsborough Mort & Co Ltd v Quinn (686).  An irrevocable offer cannot be unilaterally amended by the offeror to diminish the offer, but there would be no reason (subject to the terms of the option agreement) why the offer could not be amended by the offeror to add to it to make it more attractive in order to induce the option holder to exercise the option.  If an (irrevocable) offer were varied to make it more attractive and the offeree was willing to consider the amended offer, then there would be no need for a contract to amend the offer.  Of course, if the amendment to the offer were not made the subject of a binding contract of variation, then the offeror could, before the offer was accepted, withdraw the amendment.  If there were a contract to vary the offer supported by a consideration, then subject to the terms of the variation contract, the amended offer would become irrevocable for the period specified and agreed to.

11. The fact that parties fought the case based on the existence of an assumed legal issue does not bind the court:  Pantorno v The Queen (1989) 166 CLR 466, 473. However, a court is bound to give notice if it takes a different view from the parties about the correct legal issue: Pantorno (473). 

12. Notice was given at the beginning of the hearing of the appeal that this court might not accept that the appellant had, necessarily, to establish the existence of a separate contract in the form of the Letter Agreement in order to succeed in the case (ts 34).  This resulted in the appellant amending his grounds of appeal to add ground 2. 

13. Once the point was raised, counsel for St Barbara and Zygot expressly submitted that the Option Deed constituted a conditional contract (ts 175).  That submission must be rejected for the reasons given above. 

14. The result of the conclusion that the Option Deed contained an offer which could be and was varied without entering into a separate contract means that the foundation for the trial judge's dismissal of the action disappears.  The offer in the Option Deed as varied by the Supplemental Deed and by the 29 January 1999 letters was accepted by Kingstream on 8 February 1999 and thereupon a contract came into existence as provided for in cl 4 of the Option Deed.  The trial judge erred by not reasoning in that way.  Ground 2 should be upheld.

In any event there was a contractually binding Letter Agreement

1. However, even if the case is examined on the basis adopted by the parties and the trial judge at trial (that it was necessary for the appellant to prove the existence of the Letter Agreement), or if it could be successfully argued (it was not in fact argued) that any amendment to an irrevocable offer, even an enhanced offer, required a contract to make the amendment, then the result is the same.  The Letter Agreement contained an offer, an acceptance and consideration and contrary to the trial judge's conclusion, was 'contractually binding'.  Such a contract may be described as a unilateral contract. 

2. The court in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 observed that the expression 'unilateral contract' is 'unscientific and misleading' (456). The court pointed out that there must, of necessity, be two parties to a contractual obligation, and the position in such cases is simply that the consideration on the part of the offeree is completely executed by the doing of the very thing which constitutes acceptance of the offer (456). Unilateral contracts were also described by Diplock LJ in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services [1968] 1 WLR 74 in this way. He said:

   Under contracts which are only unilateral - which I have elsewhere described as 'if' contracts - one party, whom I will call 'the promisor', undertakes to do or to refrain from doing something on his part if another party, 'the promisee', does or refrains from doing something, but the promisee does not himself undertake to do or to refrain from doing that thing (109).

3. Lord Diplock said that the most common contracts of this kind in English law are options for good consideration and 'such contracts as that discussed in Carlill v Carbolic Smoke Ball Co'.

4. Lord Diplock continued:

   A unilateral contract does not give rise to any immediate obligation on the part of either party to do or to refrain from doing anything except possibly an obligation on the part of the promisor to refrain from putting it out of his power to perform his undertaking in the future.  This apart, a unilateral contract may never give rise to any obligation on the part of the promisor; it will only do so on the occurrence of the event specified in the contract, viz, the doing … of a particular thing.  It never gives rise, however, to any obligation on the promisee to bring about the event by doing or refraining from doing that particular thing.  Indeed, a unilateral contract of itself never gives rise to any obligation on the promisee to do or to refrain from doing anything (109).

5. If that thing is done and the promisee exercises his right, then that will result in a subsequent synallagmatic contract on the occurrence of the specified event, in which case, the promisor discharges his obligation under the unilateral contract and accepts new obligations under the synallagmatic contract.  Any obligations of the promisee arise, not out of the unilateral contract, but out of the subsequent synallagmatic contract into which he was not obliged to enter but has chosen to do so.

6. In Australian Woollen Mills the court said:

   A test which has not seldom been applied in such cases in order to determine whether a contract has been made or not is to ask whether there has been a request by the alleged promisor that the promisee shall do the act on which the latter relies.  Such a request may … be expressed or implied … [T]he presence or absence of an implied request to do the act may often provide a useful test for determining whether there has been a true offer and a true acceptance such as to bring a contract into existence.  We are really applying the same test if we ask whether the 'offer' was made in order to induce the doing of the act (548).  (citations omitted)

7. R v Clarke (1927) 40 CLR 227 makes it clear that not only must the offer imply a request, but in addition, the offeree in accepting the offer must act in reliance on the offer: see Isaacs ACJ (236), Higgins J (242), Starke J (244).

8. In Beaton v McDivitt (1987) 13 NSWLR 162, 182, McHugh JA said that when a person promises or offers to transfer property to another person, care must be taken to distinguish between three situations:

   The first concerns a promise to transfer property subject to the occurrence of an event or condition.  The promise will not be enforceable even if the event or condition occurs.  An example is a bare promise to pay X $100 if a certain team wins a football match.  The second situation concerns a promise to transfer property after which the promisor allows the promisee to act to his detriment in reliance on the promise.  In this situation, depending on the circumstances, equity may prevent the promisor insisting on his strict rights and may enforce the promise.  The third situation is where the promise contains an express or implied request by the promisor to do an act or fulfil a condition.  In that situation the doing of the act or the fulfilling of the condition by the promisee in reliance on the promise will usually constitute consideration and create a binding contract.  See Australian Woollen Mills … (at 456, 457, 458, 459 ‑ 460) and Coombe v Coombe (1951) 2 KB 215, 221.

9. McHugh JA referred to Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 as an example of the third situation.

10. The Option Deed as varied by the Supplemental Deed is an example of a unilateral contract of the third kind described by McHugh JA.  The Letter Agreement was also such a unilateral contract and this is because:

    (a)Kingstream had the right to exercise the option but was under no obligation to do so; 

    (b)the offer to make the option 'effective' in respect of the Zygot AMLs was an inducement or implied request by St Barbara to Kingstream to exercise the option.  No other conclusion could be drawn.  St Barbara stood to gain Kingstream shares to the value of $3.2 million if the option was exercised;

    (c)the doing of the act, namely the exercise of the option which Kingstream was not contractually bound to do, was done by Kingstream in reliance on the promise to include the Zygot AMLs.  The notice of exercise of option document and the accompanying letter both afford plain proof that reliance was placed upon the offer of the Zygot AMLs (GAB 274 ‑ 275).  Inducement or reliance upon an offer does not have to be the sole inducement or reliance:  see Brikom Investments Ltd v Carr [1979] QB 467, 490.

11. The trial judge found that Kingstream would have exercised the option irrespective of the offer of the Zygot AMLs.  However, that finding was not determinative.  The question which the trial judge had to answer was whether Kingstream was to any degree induced, or acted in reliance upon, the offer when deciding to exercise the option.  That question was not addressed by the trial judge. 

12. In R v Clarke Starke J said:

    As a matter of proof any person knowing of the offer who performs its conditions establishes prima facie an acceptance of that offer (244).

    It is clear that Kingstream knew of the offer in the first of the 29 January 1999 letters and the contemporaneous evidence is that it relied on the offer when exercising the option. 

Post‑contractual conduct

1. Both Kingstream and St Barbara acted after 8 February on the basis there was a contract in existence.  Although post-contractual conduct is not admissible on the question of what a contract means, evidence of events after a contract was entered into is admissible for determining the question about whether a binding contract was formed:  see Bell Group Limited v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1 [2672]; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, 164 (Heydon JA); Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68, 77; Barrier Wharfs Limited v W Scott Fell & Co Limited [1908] HCA 88; (1908) 5 CLR 647. The conduct of the parties at settlement was consistent with the appellant's contention that St Barbara was 'contractually bound' either by the cl 4 contract in the Option Deed or by the Letter Agreement to procure the transfer of the Zygot AMLs.

1. In view of the reasons above, ground 2 should be upheld.  In the alternative, the Letter Agreement was a separate enforceable contract and ground 1 should also be upheld.  As a result, ground 3 should also be upheld because the 29 January 1999 letters did result in 'contractual obligations' being 'imposed upon St Barbara'. 

What were the terms of the contract

1. In every contract there is implied a term by law, that each party agrees to do all such things as are necessary on his part to enable the other party to have the benefit of the contract:  Butt v M'Donald (1896) 7 QLJ 68, 70 ‑ 71 (Griffith CJ). This imposes a duty on the parties to a contract to cooperate in the doing of acts which are necessary for performance of fundamental obligations under the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 (Mason J).

2. Clause 9 of the contract is an express term reflecting the term which would have been implied as a matter of law if cl 9 had not existed.  This obliged St Barbara to do all acts and things necessary to give effect to the contract created if Kingstream exercised the option.  The option was exercised; the contract was created; the Zygot AMLs were included in the list of 'Tenements' and, as a result, St Barbara was obliged to procure Zygot to keep the Zygot AMLs on foot.  Whether the term is that expressly set out in cl 9, or in the form implied by law, or implied in this contract as pleaded in par 20, the same result would follow.  Zygot's withdrawal of the Zygot AMLs was a breach of contract by St Barbara, which had failed to procure Zygot not to do so.

3. There was a side issue raised during the appeal as to whether Kingstream or Zygot had the obligation to negotiate with native title holders (ts 59).  That question does not have to be answered because Zygot withdrew the Zygot AMLs before that point arose. 

4. The trial judge found that there were 'insurmountable problems' for Kingstream establishing that any term of the contract obliged St Barbara to procure Zygot not to withdraw the Zygot AMLs to prevent the mining leases being granted as a result of the Zygot AMLs [J659].  The trial judge also considered that there could be no such term because it was unreasonable as it was not temporally limited [J664, 671].  The trial judge erred in reaching those conclusions.  The duty contained in cl 9 of the contract or implied by law, or implied in this contract required, at the very least, that St Barbara procure Zygot to not withdraw the Zygot AMLs.  This obligation existed for as long as the Zygot AMLs remained on foot.  Such a term was not unreasonable just because no time was specified.  As a result ground 4 should be upheld.

Damages

1. Kingstream was, therefore, entitled to damages.  As already mentioned, at trial the appellant claimed damages on various bases.  

2. The least ambitious claim was to claim '[t]he value of [the Zygot AMLs] immediately prior to their withdrawal' (par 33(iii) of the statement of claim).  This basis for a claim for damages was orthodox and accepted by the trial judge as a sound basis for a claim for damages.  It was orthodox because it accepted that the time for assessment of damages was as at the date of breach:  see Johnson v Perez (1988) 166 CLR 351, 355, 367, 371. It was also orthodox because the Zygot AMLs were valued by reference to market value determined by comparable sales. The appellant accepts that this was a proper basis for assessment of damages although he claimed that by reference to HTW, events after the date of breach could be taken into account in order to determine the value of the Zygot AMLs as at the date of breach.

3. It is a very poor starting point on an appeal for an appellant to complain that the trial judge erred in accepting the evidence that was led by the appellant but that is what has happened here.  The appellant submitted to this court, in effect, that Mr Retter, the witness he had called, erred by valuing the tenements by reference to market value based upon comparable sales which were selected on the basis that the Zygot AMLs had an iron ore resource of 50 million tonnes (ts 133).  The appellant submitted that the 'real' value should have been ascertained based upon what was known at trial about events subsequent to the date of breach (ts 139). 

4. The first event the appellant relied on was that in 2004 Ruane sold two exploration licences, one of which covered exactly the area covered by the land which had previously been covered by the Zygot AMLs.  The other exploration licence covered other land.  The consideration paid to Ruane is set out above.  The appellant referred to HTW and submitted that statements in that case justified the taking into account of the Ruane sale and adopting it as the value of the tenements in September 2001.  Nothing in HTW justifies such a submission.  HTW reveals that subsequent events may reveal an 'inherent' value in an asset which was not appreciated by the market at the date on which the valuation has to be undertaken (659).  This may be as a result of, inter alia, fraud or because the market is uninformed.  In such circumstances, market value will not reflect 'true' value. 

5. The second event that the appellant relies on is the drilling programme carried out in the 2000s which revealed that the iron ore resource was closer to 500 million tonnes rather than the 50 million tonnes that was known about in September 2001 [J876].  It was argued by the appellant that this was inherent in the land which had been the subject of the Zygot AMLs and which had not been appreciated by the market in September 2001 and that if taken into account, an informed market would have arrived at a true value well above Mr Retter's opinion about the market value.  However, this argument does not assist the appellant in asking the court to adopt the Ruane transaction as evidence of the 'true' value of the Zygot AMLs at the date they were surrendered for three reasons.

6. First, when Ruane sold the two tenements, the information which was available about the mineralisation at the date of breach (based on the 1970's drilling information) was still the only information available.  Mr Retter had taken this into account and it had led him to select the comparable sales he used to determine market value.  If that is so, then the only explanation for the increased price obtained for Ruane over and above the market value as at September 2001 were 'extrinsic factors' (see HTW (659)); most likely the increased world interest in iron ore.  Secondly, it is impossible to derive value merely by reference to one sale nearly two years after the date of breach.  Thirdly, it is also impossible to adopt the Ruane transaction price as the value of the Zygot AMLs in September 2001 because the price paid to Ruane was for EL20/535 and another unrelated tenement.  There is no basis for apportioning the price.

7. In any event, it is not now open to the appellant to argue that the drilling programme carried out in the 2000s, suggesting a resource of around 500 million tonnes rather than 50 million tonnes, should be taken into account as an intrinsic aspect of the Zygot AMLs not appreciated by the market in September 2001.  If that were to be the argument, then the valuers should have been asked to express an opinion about the value of the Zygot AMLs based upon comparable transactions involving tenements where the resource was 500 million tonnes rather than 50 million tonnes.  If that had happened, the two valuers would have selected different comparable sales. 

8. The appellant applied to amend his grounds of appeal to advance this argument.  Leave to amend was refused with reasons to be given later (ts 196).  The reason for refusing leave was that the case was not fought on that basis at trial.  Instead, both parties fought the case on the basis that market value was the basis for determining damages as at the date of breach and market value was to be determined on the market value of the Zygot AMLs assuming an iron ore mineralisation of 50 million tonnes revealed by the 1970's drilling programme.  It is fundamental to the due administration of justice that substantial issues between the parties are settled at trial.  If it were not so then the main arena for settlement of disputes would move from the court of first instance to the appellate court tending to reduce the proceedings in the former court to little more than a preliminary skirmish:  Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1, 7. A party on appeal cannot raise a question of fact that was not litigated below: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438. See also Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 200 ALR 447. A party who has made a decision to conduct its case in a particular way cannot on appeal contend that the trial miscarried as a consequence of the decision so made unless there are exceptional circumstances: Paule v Far Horizons Pty Ltd (1998) Aust Torts Reports 81‑486; Metwally (No 2) v University of Wollongong [1985] HCA 28; (1985) 59 ALJR 481. The appellant's proposed amendment was an attempt to raise an issue which was not raised at trial. If allowed, this court would have had no information to enable it to determine value as at the date of breach based on the extent of mineralisation revealed by drilling in the 2000s. Nor would the trial judge have such information if the case was sent back to him.

9. The only way this subsequently revealed extent of mineralisation could be taken into account would be to have valuers carry out a new exercise identifying different comparable sales and then assessing value based on those different comparable sales.  That would require a new trial of issues.  It is too late for the appellant to seek to do that.

10. Ground 7 should be dismissed.

Causation ground

1. The trial judge held that if any loss was suffered it was not caused by the breach of contract.  His Honour held that any loss suffered was because:

   (a)Kingstream was offered the right to acquire the tenements over the area covered by the Zygot AMLs by Ruane and that Kingstream declined this offer [J1032];

   (b)Kingstream failed to prove that had there not been a breach of contract that Kingstream would not have avoided liquidation [J1031]; and

   (c)it was Kingstream's inaction and disinterest in the area and failing to liaise with St Barbara to secure the areas that caused the loss [J803, 1033]. 

2. With respect, none of these points are relevant.  First, the fact that Kingstream was offered the right to the area in the form of other tenements after the date of breach does not alter the fact that Kingstream suffered loss as soon as Zygot withdrew the Zygot AMLs.  No issue of failure to mitigate was raised by St Barbara.  Secondly, whether Kingstream was reconstructed or went into liquidation would not matter.  Kingstream had lost an asset and if it had gone into liquidation the liquidator would have been able to sell the asset for value.  The third point is no basis for concluding that Kingstream did not suffer loss.  The time would have come where it was necessary to negotiate with native title holders and it would then have been necessary for St Barbara to cause Zygot to liaise with Kingstream about the terms of the negotiations.  However, that point was never reached because of the breach of contract.  Inaction or disinterest in the Zygot AMLs by Kingstream for a time  even if true is no basis for concluding that there was no loss.  Ground 6 should be upheld.

Ground 5 - was Zygot a party?

1. Although it was admitted in the agreed facts and issues that Clayton Utz was solicitor for both St Barbara and Zygot (BAB 348) the evidence does not compel a conclusion that Zygot became a party to the contractual arrangements between Kingstream and St Barbara.  Kingstream made attempts to have Zygot joined as a party to the Option Deed but these attempts were rebuffed.  St Barbara as a controller of Zygot offered the Zygot AMLs.  The 29 January 1999 letters referred only to St Barbara.  The offer in the 29 January 1999 letters to making the Zygot AMLs subject to the provisions of the Option Deed meant that it was still intended that the parties to the contract to arise an exercise of the option should be the parties to the Option Deed; namely, St Barbara and Kingstream.  The trial judge did not err in concluding that Zygot did not become a party to a contract with Kingstream.  Ground 5 is dismissed.  

Conclusion

1. The appeal should be upheld in part.

2. The judgment dismissing the claim against St Barbara should be set aside and in lieu judgment should be entered against St Barbara in terms that St Barbara do pay Kingstream $500,000 plus interest.  The parties will be heard about the quantum of the award of interest.  The judgment dismissing the claim against Zygot is not disturbed by the orders proposed.

3. MURPHY JA:  I have had the advantage of reading in draft the reasons of Martin CJ and Pullin JA. 

4. Subject to the observations which follow, I agree, generally for the reasons given by Pullin JA, that the appeal should be allowed to the extent that his Honour has indicated.  I also agree with certain of the additional observations of Martin CJ.

5. I agree with Martin CJ that the exchange of communications on 29 January 1999 may be characterised as creating a binding bilateral contract by which the parties agreed, in effect, to vary the option deed by:

   (a)extending the time for the exercise of the option to 8 February 1999;

   (b)amending cl 6 by agreeing that, in the event of the exercise of the option, the number of shares to be allotted to St Barbara by

Kingstream would be calculated by reference to the market price of Kingstream's shares as at 29 January 1999; and

(c)including the Zygot AMLs as 'Tenements' within the meaning of that term in the option deed (as amended). 

1. If there were not a bilateral contract entered into on 29 January 1999 in the above terms, then, I agree with Pullin JA that St Barbara's communications on 29 January 1999 conveyed an amended offer, or alternatively constituted a 'unilateral' contract.

2. Whichever of the three characterisations referred to above is adopted, upon the exercise of the option on 8 February 1999, a bilateral contract (or as Lord Diplock would put it, a synallagmatic contract) was created for the sale and purchase of the Tenements.  Relevantly, for present purposes, St Barbara agreed to procure Zygot to transfer to Kingstream any mining leases granted to Zygot pursuant to the Zygot AMLs.  Clause 6.6, as counsel for the appellant acknowledged, made Kingstream responsible for any expenditure required to bring about the grant of any mining leases over the area of the subject of Zygot AMLs, but there was no contention by St Barbara in the appeal that this term was breached. 

3. As Martin CJ and Pullin JA have observed, there was an express term of cooperation (cl 9) in the bilateral contract resulting from the exercise of the option.  To the extent that this express term did not, in effect, cover the field, there were also implied terms of cooperation:  Butt v M'Donald (1896) 7 QLJ 68 70 ‑ 71 (Griffith J); Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 607 (Mason J); Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 [36]. Further, or alternatively, there was an implied ad hoc term that St Barbara would procure Zygot not to do anything to impair or prejudice the grant of mining leases with respect to the Zygot AMLs (which is the effect of the implied term pleaded in par 20(c) of the appellant's pleading).

4. The terms remained operative whilst ever the contract remained on foot.  There was no allegation that the contract had been terminated (including by abandonment, as to which see Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144, 151 ‑ 152; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 434) prior to the relinquishment of the Zygot AMLs.

5. I agree with Pullin JA that St Barbara was in breach of cl 9, or of these implied terms, by failing to procure Zygot not to relinquish the Zygot AMLs.

6. I also agree with Pullin JA, and the additional observations of Martin CJ, on the issue of damages. 

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION: HUGHES -v- ST BARBARA LTD [2011] WASCA 234 (S)

CORAM:   MARTIN CJ

PULLIN JA
MURPHY JA

HEARD:   17 & 18 AUGUST 2011 & 9 MARCH 2012

DELIVERED          :   1 NOVEMBER 2011

SUPPLEMENTARY

DECISION              :24 APRIL 2012

FILE NO/S:   CACV 79 of 2010

BETWEEN:   BRYAN KEVIN HUGHES as Trustee for the Kingstream Steel Creditors' Trust

Appellant

AND

ST BARBARA LTD
First Respondent

ZYGOT LTD
Second Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :KENNETH MARTIN J

Citation  :HUGHES -v- ST BARBARA MINES LTD [No 4] [2010] WASC 160

File No  :CIV 1913 of 2002

Catchwords:

Costs - Appeal against liability and provisional assessment of damages - Appeal on liability succeeded - Appeal against provisional assessment of damages failed - existence of two pre­trial Calderbank letters - No offers during the appeal proceedings - Appropriate orders for costs of the trial and the appeal

Legislation:

Nil

Result:

The first respondent pay the appellant's costs of the trial up until and including 10 November 2008
The appellant pay the first respondent's costs of the trial after 10 November 2008 on an indemnity basis
No order as to costs of the appeal as between the appellant and the first respondent
The second respondent to have its costs of the trial and the appeal over and above the costs incurred by the first respondent
The $1.5 million previously paid by the appellant to be deducted from the respondents' entitlement to costs
There be a set off between the appellant and the respondents with the balance to be paid

Category:    B

Representation:

Counsel:

Appellant:     Mr R M Smith SC & Mr T O Coyle

First Respondent           :     Mr C R C Newlinds SC & Mr I R Pike

Second Respondent       :     Mr C R C Newlinds SC & Mr I R Pike

Solicitors:

Appellant:     Lavan Legal

First Respondent           :     Tottle Partners

Second Respondent       :     Tottle Partners

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

Amaca Pty Ltd v Hannell [2007] WASCA 158 (S)

Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160

Calderbank v Calderbank [1976] Fam 93

Donnelly v Edelsten (1994) 49 FCR 384

Elvidge Pty Ltd v BGC Construction Pty Ltd [2006] WASCA 264 (S)

Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115

Fotheringham v Fotheringham (No 2) [1999] NSWCA 21; (1999) 46 NSWLR 194

Hendrie v Rusli [2000] WASCA 420

Hughes v St Barbara Ltd [2011] WASCA 234

Koh v Tay [1999] WASC 228

Milne v Attorney‑General (Tas) [1956] HCA 48; (1956) 95 CLR 460

Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

1. REASONS OF THE COURT:    This court delivered its reasons for decision in this appeal on 1 November 2011 (Hughes v St Barbara Ltd [2011] WASCA 234).  The matter was adjourned to enable the parties to make written submissions as to the orders to be made in relation to costs of the trial and the appeal, such submissions to be considered at a further hearing.  That hearing was conducted on 9 March 2012.

The orders contended for by the parties

1. The appellant contends that there should be orders that:

   (a)the respondents pay the appellant's costs of the appeal on a party and party basis;

   (b)the respondents pay the appellant's costs of the trial on a party and party basis;

   (c)the respondents repay to the appellant the amount of $1.5 million with interest paid by the appellant in settlement of the entitlement of the respondents to their costs of the proceedings at first instance.

1. The respondents contend that this court should:

   (a)order that the appellant pay the respondents' costs of the appeal on an indemnity basis; and

   (b)not make any orders as to the costs of the trial to the intent that the agreement reached between the appellant and the respondent as to the costs of the proceedings before Kenneth Martin J remain in effect.

Relevant facts

1. The facts bearing on the proper order for costs are as follows:

   (a)The appellant (or rather his predecessor in title) commenced proceedings in 2002 claiming damages for breach of contract relating to some mining tenements.  There were many other associated causes of action.  The appellant at trial claimed damages of $350 million.  However, one of the two expert witnesses called by the appellant to give valuation evidence, valued the tenements at the date of breach at $500,000.

   (b)On 10 November 2008 there was a mediation conference attended by senior counsel for both parties.  This conference was held with the trial pending and due to begin on 1 December 2008.  The mediation conference failed to resolve the dispute.  On the same day, and after the mediation conference, the respondents made a Calderbank offer to pay $1.25 million plus costs.  There was no response to that offer.

   (c)The trial for some reason did not commence on 1 December 2008 and was rescheduled to begin on 2 June 2009.

   (d)On 14 May 2009 the respondents made another Calderbank offer, this time in the sum of $1.7 million plus interest and costs.  This offer was rejected. 

   (e)The appellant countered with an offer to settle if the respondents paid $20 million inclusive of interest and costs.

   (f)The matter went to trial commencing on 2 June 2009 and concluding on 19 June 2009.  After reserving his decision the trial judge, Kenneth Martin J, dismissed the appellant's claim but provisionally assessed damages at $500,000.

   (g)The parties negotiated and the appellant agreed to pay the respondents $1.5 million for the costs of the trial.  As a result, no formal costs order was necessary. The appellant paid the $1.5 million.

   (h)The appellant appealed.  Some grounds of appeal challenged the decision on liability and one ground challenged the provisional assessment of damages.

   (i)The respondents did not renew either of the offers that they had made.  The appellant did not renew its offer.

   (j)The appeal was heard on 17 and 18 August 2011 and this court reserved its decision.

   (k)On 20 October 2011 the appellant made an offer to the respondents that he would settle if the respondents paid to the appellant $4 million.  The offer was not accepted.

   (l)On 1 November 2011 this court published its reasons for decision.  The court concluded that the appeal should be upheld in part.  The appellant succeeded on the issue of liability, but on a ground identified by the court and then adopted by the appellant in the appeal.  The appellant amended its grounds to formalise the adoption.  This ground succeeded.  The ground of appeal challenging the provisional assessment of damages was unsuccessful.  The appellant contended during the appeal that damages should be awarded in the amount of $13.79 million rather than the $500,000 provisionally assessed by the trial judge.

   (m)The result was that the trial judge's judgment was set aside and in lieu, judgment was entered for the appellant in the sum of $500,000.

Disposition of the issues concerning costs

1. Costs of proceedings are in the discretion of the court both at trial and on an appeal: see s 37 of the Supreme Court Act 1935 (WA). The discretion is unconfined because s 37 contains no positive indication of the considerations upon which the court is to determine by whom and to what extent costs are to be paid. However, the power conferred is to be exercised judicially; that is to say not arbitrarily, capriciously or so as to frustrate the legislative intent: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [22] (Gaudron & Gummow JJ). Nevertheless, practices or guidelines have developed, one of which is that, generally speaking, a wholly successful party should receive his or her costs unless good reason is shown to the contrary: Milne v Attorney‑General (Tas) [1956] HCA 48; (1956) 95 CLR 460, 477; Oshlack [35].

2. To guard against a plaintiff with a strong case on liability, but with an unreasonable expectation as to the quantum of relief likely to be granted, the Supreme Court had a rule (at first O 22 and then after 1971, O 24) whereby a defendant could make a payment into court. If the payment in was not accepted and the plaintiff went to trial and recovered less than the payment in, then typically the plaintiff would be ordered to pay the defendant's costs after the payment into court but recover costs up to the date of such payment. This process did not protect a plaintiff who considered that the defendant was being unreasonable in its defence of an action and could not be used in relation to claims for relief not involving the payment of money.

3. In 1991 the relevant provisions of O 24 of the Rules of the Supreme Court1971 (WA) were repealed and O 24A was inserted. This allows either party to make an offer of compromise. There are certain formalities to be complied with and there are restrictions on the time when the offer can be made. Further, under O 24A, if an offer is made and accepted, then any party to the compromise is permitted to apply to the court for such judgment or order as they may be entitled to. Order 24A r 10 states the consequences which are to apply in relation to costs if an offer of compromise under O 24A is accepted or not accepted. In particular, if an offer is made by a defendant and not accepted by a plaintiff and the plaintiff obtains judgment on the claim to which the offer related not more favourable to that person than the terms of the offer, then 'unless the court otherwise orders' the plaintiff is entitled to an order against the defendant for costs in respect of the claim up to and including the day the offer was made, taxed on a party and party basis and the defendant is entitled to an order against the plaintiff for its costs in respect of the claim thereafter taxed on a party and party basis.

4. When O 24A was first introduced it provided, at least in the case of an offer made by a plaintiff and not accepted by the defendant, that if judgment was obtained from the claim in terms no less favourable to the plaintiff than the terms of the offer, then costs incurred after the date on which the offer was made should be taxed on an indemnity basis: see O 24 r 10(4) recited in Koh v Tay [1999] WASC 228. This was subsequently amended in 2007 to remove the provision for indemnity costs and to provide for costs to be taxed on a party and party basis.

5. When it comes to an appeal, r 49 of the Supreme Court (Court of Appeal) Rules 2005 (WA) expressly applies O 24A with appropriate modifications.

6. A separate method of making an offer of settlement which will be relevant in relation to costs orders is via a letter containing a Calderbank offer.  This is the name given to an offer of the type used in Calderbank v Calderbank [1976] Fam 93. This will be one which is marked 'without prejudice', makes an offer of settlement and warns that the letter containing the offer will be relied upon on the question of costs if and when the issue arises. This method is more flexible than an O 24A offer. For example, it may offer to settle by a payment without a judgment being entered. If the offeree does not accept the Calderbank offer, but ends up worse off than if the offer had been accepted, then the existence of the Calderbank offer becomes a factor to be taken into account in the exercise of the court's discretion when dealing with costs. The question will be whether the offeree's failure to accept the offer warrants departure from the practice suggesting the costs order which would usually be made in the absence of such an offer: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 [37] (Giles JA).

7. There are a number of factors to be considered when examining the significance of the Calderbank offer in relation to the appropriate costs order.  For example, an appropriate opportunity to consider and deal with the offer must have been given:  Donnelly v Edelsten (1994) 49 FCR 384, 396 and a Calderbank offer expressed to be 'inclusive of costs' will often reduce the weight to be given to the existence of the offer if the offeree is placed in a position of not being able to determine the appropriate amount to attribute to the substantive claim and the amount to be attributed to costs: Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, 101.

8. However, if there is an offer of compromise made in a Calderbank letter which it would not have been unreasonable for the other party to accept, then the existence of the Calderbank offer will be a powerful factor in the exercise of the court's discretion.  In most cases where the offeree ends up worse off than if the offer had been accepted, the court will make an order in favour of the party making the offer as from the date of the offer and allowing the offeree costs only up until the date of the offer.  

9. In addition, if the rejection of the offer is unreasonable then an indemnity costs order may be made against the offeree:  Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115 [16] (Buss JA, Wheeler JA agreeing). Determining whether the conduct was reasonable or unreasonable involves matters of judgment and impression, but factors often taken into account in making that assessment are set out in Buss JA's reasons. Usually the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of the compromise and the clarity with which the terms of the offer were expressed will be relevant.

10. There is no reason why a Calderbank offer might not also be made during the course of an appeal:  Hendrie v Rusli [2000] WASCA 420 [9]. The existence of a Calderbank offer made during the course of the appeal proceedings will often be an important relevant and determinative factor in the exercise of discretion in relation to appeal costs. A litigant making a reasonable Calderbank offer during an appeal which is not unreasonable for the other party to accept will usually gain a costs order in its favour in relation to costs after the offer if the other party rejects the offer, persists and ends up worse off in the appeal judgment.

The costs of the trial

1. The appellant contended that in relation to the trial, the respondents should pay the costs because the Calderbank offers which had been made during the trial had not been renewed during the appeal.  There is no merit in that submission.  The making of or failure to make offers during the appeal cannot bear on the costs order appropriate in relation to the trial. 

2. This court has substituted for the trial judge's judgment, a judgment which is for a sum considerably less than the offers made by the respondents in their two Calderbank letters.  The appellant is much worse off than if he had accepted the offers made by the respondents. 

3. In the exercise of the court's discretion in relation to the costs of the trial, it is necessary to take into account the fact that the court would normally order that costs follow the event if there were no other relevant factors.  However, that was not the only relevant factor.

4. The court must also take into account the existence of the two Calderbank offers made by the respondents.  The first of these offers was made on the day of and immediately after the mediation conference which had been attended by senior counsel for both parties and where it may be assumed both parties had then had the opportunity to fully assess the issues in the case.  The offers were for an amount well above the damages ultimately awarded.  The existence of the Calderbank letters significantly outweighs the normal inclination of the court to award costs to the successful party.  Instead, an order should be made that the respondent pay the appellant's costs of the trial up until and including the date of the first Calderbank offer and the appellant pay the respondents' costs of the trial after that date.

5. The respondents' submission that the compromise on the costs of the trial should not be disturbed and that no order should be made for the costs of the trial has no merit.  The compromise was reached on the premise that the appellant's claims had been properly dismissed and that the respondents were entitled to an order for costs.  That premise was false.  The payment of $1.5 million by the appellant must be brought to account in the process of determining what amount has to be paid by which party after the costs have been taxed.

The costs of the trial - party and party costs or indemnity costs?

1. There is a further issue and that is whether costs to be awarded to the respondents should be on a party and party basis or on an indemnity basis. 

2. In this case, the first offer was made at an appropriate time, namely immediately after the failure of the mediation conference.  The extent of the compromise was a sum well in excess of the amount eventually recovered in the judgment.  The second offer was made 19 days before trial.  The offers were clear in their terms and the time allowed to the offeree to consider the offers was reasonable.  Even though the letters did not foreshadow an application for indemnity costs, that aspect does not outweigh the other factors and to those must be added the unreasonableness of the appellant's expectations.  It had sought $350 million in the proceedings.  This was revealed (to the respondents but not to the trial judge) as an ambit claim because the appellant offered to settle for $20 million which was itself excessive when measured against the opinion of one of its own expert witnesses.  At trial the appellant still contended for damages in the sum of $350 million.

3. This is a case where the appellant's rejection of the Calderbank offers was unreasonable and as a result the costs of the trial from the day after the date of the first Calderbank letter should be paid by the appellant to the respondents to be taxed on an indemnity basis.  The appellant and the respondents will both be ordered to tax their costs.  The party entitled to the lesser of the amounts of costs taxed or agreed is entitled to set off that amount against the higher amount with the balance then payable to the other party.  The $1.5 million paid by the appellant must be deducted from the respondents' entitlement to costs. 

The costs of the appeal

1. The normal practice would suggest that costs should follow the event.  That would mean that the appellant should be awarded costs.  However, the respondents advanced several reasons why the normal practice should not be followed.  First, they pointed out that the appellant succeeded on liability on a ground which was suggested by the court and adopted by the appellant during the course of the proceedings.  Secondly, they referred to the fact that the appellant's unreasonable approach to quantum persisted at the appeal.  Although its claim for $350 million had been abandoned, the appellant still contended on appeal for judgment in an excessive amount, namely $13.79 million.  Thirdly, the respondent submits that if the Calderbank offers made during the trial had been accepted, there would have been no trial and no appeal.

2. The latter reason may be true in point of fact, but it ignores the circumstance that proceedings by way of appeal were necessary to remedy the erroneous dismissal of the appellant's claim.  This is not to say that pre‑trial offers are irrelevant when it comes to the appeal:  Baresic v Slingshot Holdings Pty Ltd (No 2) [2005] NSWCA 160; Elvidge Pty Ltd v BGC Construction Pty Ltd [2006] WASCA 264 (S) [6]; Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 [71]; Fotheringham v Fotheringham (No 2) [1999] NSWCA 21; (1999) 46 NSWLR 194 [33].

3. However, the existence of a pre‑trial offer should be given less weight than an offer made during the appeal.  The appellant accepted that the existence of the pre‑trial offer was relevant to the question of the appropriate order for costs on the appeal.

4. Just as the existence of a pre‑trial offer is relevant in relation to the costs of the appeal, so the lack of any O 24A offer or any Calderbank offer during the appeal proceedings is also a relevant factor: Monie v Commonwealth (No 2) [71]. 

5. It is also relevant in this case that the appellant persisted in the appeal and failed in its attempt to recover more than $500,000 which had been provisionally assessed by the trial judge.  As a general practice, an appeal court will not embark on an analysis of success on particular issues:  Oshlack [67] ‑ [68]. However, where there are discrete and severable issues which have added to the cost of the proceedings in a significant and readily discernible way, then the court may exercise its discretion to adjust an order for costs: Amaca Pty Ltd v Hannell [2007] WASCA 158 (S) [7]. In this case, the appeal ground concerning damages was separate from the grounds concerning liability and took up a significant amount of the court's time.

6. In summary the factors to be weighed are as follows.  The appellant advanced a ground of appeal dealing with the issue of damages on which it failed completely and which took up a significant amount of time.  The appeal succeeded on the liability aspect on a ground not originally advanced by the appellant.  Finally, the appellant had unreasonably rejected offers of settlement before trial.  These factors militate against the application of the practice that costs follow the event.  On the other hand, the appellant had to conduct the appeal to gain a judgment in his favour.  No Calderbank offer was made by the respondents during the appeal.  Those factors favour the appellant.  The factors are so evenly balanced that the appropriate disposition in relation to the costs of the appeal is to make no order as to costs, thereby leaving the appellant and first respondent each to bear their own costs of the appeal. 

7. The second respondent, Zygot, was successful both at trial and on the appeal.  Insofar as it incurred costs over and above the costs of the first respondent, it should recover costs both of the whole of the trial and of the appeal.