IPT SYSTEMS LTD -v- QUADRANT MANAGEMENT PTY LTD & ORS [2002] WASC 216

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2002] WASC 216
Case No:	CIV:1159/2002	Heard:	17-20 & 26 JUNE 2002
Coram:	SCOTT J	Delivered:	9/09/02
No of pages:	74	Judgment Part:	1 of 2
Result:	Plaintiff's claim allowed Orders to be made for repayment to the plaintiff of moneys held in trust account
Category:	B	Other Parts:	Pages 51 to 74
PDF Version

Parties:	IPT SYSTEMS LTD (ACN 009 148 529) QUADRANT MANAGEMENT PTY LTD (ACN 009 307 457) PLATO MINING PTY LTD (ACN 065 188 427) VLADIMIR NIKOLAENKO STEINEPREIS PAGANIN (A FIRM)
Catchwords:	Contracts Construction and interpretation of contracts Plaintiff a mining and high technology company Agreement with defendants to spin off mining assets into a new public company Mining tenements subject to plaint by third party Contentions of rescission and abandonment
Legislation:	Nil
Case References:	Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Foran v Wight (1989) 168 CLR 385 Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41 Legione v Hateley (1983) 152 CLR 406 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289 Shevill v Builders Licensing Board (1982) 149 CLR 620 Stevenson v Hook (1956) 73 WN (NSW) 307 Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664 Commonwealth v Verwayen (1990) 170 CLR 394 Computershare v Perpetual Registers Ltd (No 2) [2000] VSC 233 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563 Gillespie v Steer (1973) 6 SASR 200 Green v Sommerville (1979) 54 ALJR 50 James Schaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106 Kyrwood v Drinkwater [2000] NSWCA 126 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Markovina v The Queen (No 2) (1997) 19 WAR 119 Media and Entertainment and Arts Alliance, Re; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 Mehmet v Benson (1965) 113 CLR 295 National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 Osborne Park Cooperative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77 Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124 Poort v Development Underwriting (Vic) Pty Ltd (No 2) [1977] VR 454 Sargant v ASL Developments Ltd (1974) 131 CLR 634 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 SVI Systems Pty Ltd v Best & Less Pty Ltd (2001) 187 ALR 302 Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 Tropical Traders Ltd v Goonan (1964) 111 CLR 41

JURISDICTION :

SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION :

IPT SYSTEMS LTD -v- QUADRANT MANAGEMENT PTY LTD & ORS [2002] WASC 216

CORAM :

SCOTT J

HEARD :

17-20 & 26 JUNE 2002

DELIVERED :

9 SEPTEMBER 2002

FILE NO/S :

CIV 1159 of 2002

BETWEEN :

IPT SYSTEMS LTD (ACN 009 148 529)

Plaintiff

AND

QUADRANT MANAGEMENT PTY LTD (ACN 009 307 457)

First Defendant

PLATO MINING PTY LTD (ACN 065 188 427)

Second Defendant

VLADIMIR NIKOLAENKO

Third Defendant

STEINEPREIS PAGANIN (A FIRM)

Fourth Defendant

Catchwords:

Contracts - Construction and interpretation of contracts - Plaintiff a mining and high technology company - Agreement with defendants to spin off mining assets

(Page 2)

into a new public company - Mining tenements subject to plaint by third party - Contentions of rescission and abandonment

Legislation:

Nil

Result:

Plaintiff's claim allowed

Orders to be made for repayment to the plaintiff of moneys held in trust account

Category: B

Representation:

Counsel:

Plaintiff : Mr M L Bennett

First Defendant : Mr M J McCusker QC & Mr R M Wilenski

Second Defendant : Mr M J McCusker QC & Mr R M Wilenski

Third Defendant : Mr M J McCusker QC & Mr R M Wilenski

Fourth Defendant : Mr P S Murray

Solicitors:

Plaintiff : Bennett & Co

First Defendant : Tottle Christensen

Second Defendant : Tottle Christensen

Third Defendant : Tottle Christensen

Fourth Defendant : Marks & Sands

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

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Foran v Wight (1989) 168 CLR 385

Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41

(Page 3)

Legione v Hateley (1983) 152 CLR 406

Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289

Shevill v Builders Licensing Board (1982) 149 CLR 620

Stevenson v Hook (1956) 73 WN (NSW) 307

Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Case(s) also cited:

Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425

Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549

Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582

Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99

Carr v J A Berriman Pty Ltd (1953) 89 CLR 327

Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382

Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664

Commonwealth v Verwayen (1990) 170 CLR 394

Computershare v Perpetual Registers Ltd (No 2) [2000] VSC 233

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500

Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563

Gillespie v Steer (1973) 6 SASR 200

Green v Sommerville (1979) 54 ALJR 50

James Schaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106

Kyrwood v Drinkwater [2000] NSWCA 126

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623

Markovina v The Queen (No 2) (1997) 19 WAR 119

Media and Entertainment and Arts Alliance, Re; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379

Mehmet v Benson (1965) 113 CLR 295

National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1

Osborne Park Cooperative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77

Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124

Poort v Development Underwriting (Vic) Pty Ltd (No 2) [1977] VR 454

(Page 4)

Sargant v ASL Developments Ltd (1974) 131 CLR 634

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596

Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359

South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611

Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245

SVI Systems Pty Ltd v Best & Less Pty Ltd (2001) 187 ALR 302

Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699

Tropical Traders Ltd v Goonan (1964) 111 CLR 41

(Page 5)

SCOTT J

: The plaintiff in this action, IPT Systems Ltd ("IPT"), is a publicly listed company.

2 The first defendant, Quadrant Management Pty Ltd ("Quadrant"), provided management, administrative and supervisory services to IPT pursuant to a five-year management agreement.

3 In March 2000 IPT entered into an agreement with Adrian Floate, Russell Milne and Andrew Mann to acquire a 20 per cent interest in a company, MTIC Corporate Pty Ltd, which was owned by those three gentlemen. They will hereinafter be referred to as Floate, Mann and Milne. ITP acquired 20 per cent of the issued capital of MTIC for $650,000. That consideration was satisfied by the payment of $200,000 in cash and the issue of 1 and a half million fully paid ordinary shares in IPT being issued to each of Floate, Mann and Milne.

4 IPT decided to become a technology company and on 10 May 2000 IPT entered into a further agreement with MTIC and Floate, Mann and Milne to acquire a further 60 per cent of the issued capital of MTIC for a further sum of $9,000,000. That acquisition was approved by the shareholders of IPT in June 2000 and in consideration Floate, Mann and Milne were each issued 3,330,333 fully paid ordinary shares in IPT.

5 The end result of those transactions was that Floate, Mann and Milne became significant shareholders in IPT. At that time Quadrant was also a substantial shareholder in IPT. The third defendant, Vladimir Nikolaenko ("Mr Nikolaenko"), was also a substantial shareholder in IPT. After those transactions MTIC was owned as to 80 per cent by IPT and the remaining 20 per cent was held as to one third each by Floate, Mann and Milne.

6 A dispute arose between IPT and Floate, Mann and Milne in relation to the funding of MTIC's operation and on 16 November 2000 the directors of MTIC placed MTIC in voluntary administration. The administration ended on 29 January 2001. At that time MTIC was indebted to IPT for $2,000,000 that had been advanced by IPT to develop the intellectual property of MTIC.

7 Since late 2000 IPT, Floate, Mann, Milne, Quadrant, Plato Mining and Mr Nikolaenko had been involved in Federal Court civil proceedings. Eventually, however, an agreement was reached to settle those proceedings and it is that agreement which is the subject of this action. A copy of the agreement is appended to these reasons. The second defendant is a party to that agreement, but otherwise not directly involved

(Page 6)

in this dispute. The agreement will be referred to as the "letter agreement".

The full terms of the agreement will be referred to in due course. The arrangement was that IPT would transfer its substantial mining assets to a new corporate entity to be called Newco NL ("Newco"). Essentially the scheme was that Quadrant would be the major shareholder holding the balance of power in Newco which would operate the mining business. By way of an adjustment to their respective shareholding Nikolaenko would provide to Floate, Mann and Milne shares in IPT in exchange for Floate, Mann and Milne shares in Newco. In the end result, Newco would be a mining company controlled by the Quadrant group, and IPT Systems with Floate, Mann and Milne as major shareholders, would operate a technology business. The intention of the parties was that the expensive and protracted Federal Court proceedings to which I have referred would then be discontinued and the dispute resolved.

9 One of the important terms of the agreement was that Newco shares were to be listed on the Australian Stock Exchange ("ASX"). For that to happen Newco had to satisfy ASX listing rule 1.19 which provides:

"1.19 Admission to the official list, and category of an entity's admission, is in ASX's absolute discretion. ASX may admit an entity on any conditions it thinks appropriate. ASX may grant or refuse admission without giving any reasons."

ASX listing rule 1 sets out 12 conditions for an entity to be admitted to the official list. It is not necessary to set out all of those conditions in these reasons. Condition 3 provides:

"A prospectus or Product Disclosure Statement must be issued and lodged with ASIC. If ASX agrees, an information memorandum that complies with the information memorandum requirements of appendix 1A will be sufficient instead of a prospectus or Product Disclosure Statement."

Condition 6 provides:

"The entity must apply for and be granted permission for quotation of all of the securities in its main class of securities."

Condition 7 provides:

(Page 7)

"An entity must satisfy either (a) or (b). This condition is not met if spread is obtained by artificial means.

(a) There must be at least 500 holders each having a parcel of the main class of securities with a value of at least $2000, excluding restricted securities and, if the entity has previously been removed from the official list, excluding securities not acquired by those holders under a recent prospectus or product disclosure statement. If CDIs are issued over securities in the main class, holders of CDIs will be included.

(b) Both of the following are satisfied -

• There must be at least 400 holders each having a parcel of the main class of securities with a value of at least $2000 excluding restricted securities and, if the entity has previously been removed from the official list, excluding securities not acquired under a recent prospectus or Product Disclosure Statement. If CDIs are issued over securities in the main class, holders of CDIs will be included.

• Persons who are not related parties of the entity must hold that number of securities in the main class, excluding restricted securities which is not less than 25 per cent of the total number of securities in that class."

Condition 8:

"The entity must satisfy either the profit test in rule 1.2 or the asset test in rule 1.3."

As to condition 8, requirement 1.2.4 provides:

"The entity's aggregate profit from continuing operations for the last three full financial years must have been at least $1,000,000."

(Page 8)

1.2.5:

"The entity's consolidated profit from continuing operations for the 12 months to a date no more than two months before the date the entity applied for admission must exceed $400,000."

An alternative test is provided in ASX listing rule 1.3:

"1.3.1 At the time of admission, the entity must have net tangible assets of at least $2,000,000 after deducting the costs of fundraising, or a market capitalisation of at least $10,000,000."

There are other methods of satisfying the ASX requirements for listing which need not be referred to in these reasons. What is clear, however, is that Newco had to satisfy either the asset test or the profit test as set out before its shares could be listed on the ASX.

18 In order to meet these requirements the agreement provided that the mining tenements and assets held by IPT would be transferred to Newco which would, as I have said, be controlled by the Quadrant group. The end result of the scheme was that Newco would then become a wholly owned subsidiary of IPT. In order to satisfy the consideration which Newco had to pay for the mining assets, Newco was to issue IPT with 39,000,000 shares. The agreement then provided that IPT would distribute to its shareholders the 39,000,000 shares in Newco in proportion to the shares held by the shareholders of IPT. It was not clear how this was to be done, but one proposal was that IPT would achieve the restructure by a reduction in its capital so that in the end result IPT shareholders would receive as a bonus the shareholding in Newco. By that means it was intended that the 4800 shareholders in IPT would become shareholders in Newco so as to satisfy the ASX listing requirement for spread of shareholders as set out in condition 7 of cl 1.1 of the ASX listing rule.

19 Whilst it was not identified at the time the agreement was entered into, a problem subsequently emerged in relation to the payment of stamp duty. Whilst the transfer of assets to or from a wholly owned subsidiary is exempt from stamp duty, where, as here, there was to be a change of ownership of the wholly owned subsidiary, the transfer became subject to stamp duty on an ad valorem basis. With the scheme structured in the manner set out in the letter agreement so that the IPT shareholders were to

(Page 9)

become shareholders in Newco, the scheme attracted ad valorem stamp duty which was not contemplated by the parties or allowed for in the agreement.

The next step in the proposal was that Newco was then to do a rights issue to its shareholders to raise a further sum of $560,000 or thereabouts. Newco was also to issue a prospectus to raise $1,000,000. IPT was to subscribe to that prospectus and take up $500,000 worth of shares and Quadrant was to underwrite or procure underwriting for a further $400,000. In the end result Newco would have a significant spread of shareholders, would have $1.5 million in cash and would hold the mining tenements and plant. The value of the mining tenements and plant was not established by the evidence, but it is not disputed that the value was approximately $6,000,000.

21 As I have said earlier in these reasons, the arrangement was embodied in a written agreement in the form of a letter dated 27 April 2001. The letter, on letterhead of Quadrant, was addressed to IPT, Plato Mining and Nikolaenko. The "letter agreement" which will hereinafter be referred to by that name and which is central to this action is annexed to these reasons. The various clauses of the letter agreement, as they become relevant, will be referred to in the course of these reasons.

22 Although the letter agreement is a detailed and comprehensive document, the history and background of the relationship and conduct of the parties to the agreement are important.

23 This is a case where the surrounding facts and circumstances assist in the interpretation of the letter agreement: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; followed and approved in Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289.

24 The letter agreement provides by cl 2.2(a)(i) that IPT is to pay to Quadrant by 12 noon on or before 30 April 2001 $237,000 as settlement moneys in relation to the settlement of the Management Agreement. Pursuant to cl 2.2(a)(ii) IPT, by the same date and time, is to pay Steinepreis Paganin $40,000 for legal costs incurred in relation to the preparation of the letter agreement. Other conditions are provided in cl 2.2, including 2.2(iv) which requires IPT to subscribe for 500,000 shares and pay to Newco the sum of $100,000 (Newco's subscription sum) on condition that Newco's subscription sum will be used by Newco solely for the purposes contemplated by the letter agreement.

(Page 10)

By cl 2.2(c)(i) IPT was to pay to Freehill Hollingdale and Page, solicitors ("Freehills"), on trust in an interest bearing account established for the purpose:

(i) the sum of $100,000 as deferred settlement moneys in relation to the settlement of the management agreement;

(ii) $200,000 as deferred settlement money in relation to the settlement of the management agreement associated with the timing of the proposed listing of Newco on ASX (listing settlement sum), that sum to be repaid to IPT in the event that listing does not occur on or before the listing date; and

(iii) the sum of $500,000 to be applied in the subscription by IPT of 2,500,000 shares under a prospectus for the offer of a minimum of 5,000,000 shares and up to 55,000,000 non-attaching options at 0.01 cent each exercisable at 0.20 cents on or before 28 February 2004 (options) (prospectus) (IPT subscription funds).

It is common ground that the $800,000 provided for by cl 2.2(c) has been paid by IPT. By arrangement between the parties the $800,000 is held in trust pending the resolution of this action by the fourth defendant, Steinepreis Paganin, who replaced Freehills as the solicitors for Newco. The fourth defendant has filed a notice to abide the decision of the Court. It is that sum of $800,000 held by Steinepreis Paganin as trustee which is the subject of contention between the parties. The plaintiff's position is that it maintains that the defendants have either impliedly agreed to the recision of the letter agreement and/or abandoned the contract so that the sum of $800,000 should be refunded. The defendants, on the other hand, maintain that it is the plaintiff who is in default and they do not accept that the agreement has been rescinded. They maintain that the agreement is still on foot and capable of being performed once certain conditions are met. Their position is that the moneys should remain in trust until the letter agreement can be finalised.

27 As I have said earlier in these reasons, there are other terms of the letter agreement which are of significance and which will be referred to in the course of these reasons.

28 The plaintiff, as I have said, contends that the agreement has been rescinded and, by the plaintiff's letter of 7 February 2002, terminated. The plaintiff maintains that the defendants have done nothing since the date of

(Page 11)

termination to progress the transaction and that the defendants are taking no steps to advance or finalise the letter
agreement.

There are a number of other difficulties arising out of the letter agreement which should be mentioned as part of the background to this action. Firstly, for the transaction to be carried out IPT had to obtain approval from its shareholders. After the adjustment of shareholding between Nikolaenko and Floate, Mann and Milne, Mr Nikolaenko was to become a substantial shareholder in Newco and Floate, Mann and Milne were to become substantial shareholders in IPT. Because each of those parties would become substantial shareholders in the respective companies in that they would hold more than 20 per cent of the issued capital, shareholder approvals by both IPT and Newco were required. The necessary shareholders' meetings of each of those companies to approve the transaction was provided for in the letter agreement. The letter agreement provides that each of the parties is to co-operate and supply the other with information necessary for the shareholder meetings and the approvals to occur. In that respect, the notices of meetings to the shareholders of each of the companies is critical because by way of full disclosure the terms of the transaction have to be explained to each company's shareholders, as well as the future plans of each company, before the necessary approvals can be obtained.

30 A further and critical condition of the agreement was that Newco was to be listed on the ASX. The importance of that step was that it would enable IPT shareholders to trade their Newco shares on the ASX. One of the significant impediments which occurred in the course of the steps that were taken to implement the letter agreement was that the ASX would not approve the listing of Newco without a significant independent shareholder spread to enable Newco shares to establish an independent value. The history of that aspect of the matter and its significance will be discussed later in these reasons.

31 It should, however, be mentioned that Newco has not, as at the date of these proceedings, issued a prospectus to raise the necessary capital, nor has it proceeded with the rights issue.

32 It should also be mentioned that the settlement of the dispute between Quadrant and IPT was resolved by payment of the $237,000 referred to earlier and the Federal Court proceedings have been discontinued. In addition, the $40,000 for legal costs was paid to the fourth defendant for legal fees in relation to the letter agreement.

(Page 12)

It should also be mentioned as part of the history that pursuant to the letter agreement when Newco was established, it initially had a share capital of one share which was issued to IPT. The board of Newco, however, was constituted by nominees directed by the third defendant, Mr Nikolaenko.

34 It should also be mentioned that the $100,000 and the $200,000 (being part of the total of $800,000 paid into the trust account) are referred to in the letter agreement as being deferred settlement sums in relation to the management agreement. There is no dispute that $200,000 was payable upon the finalisation of the early listing of Newco. The letter agreement provided for a listing date (28 February 2002) and the letter agreement provided that if the listing was effected prior to that date, the $200,000 held in trust would be paid to Newco. It is common ground that Newco has not as yet been listed for reasons that I will later come to.

35 As part of the background to this dispute in late 2000 two of the mining tenements held by the plaintiff were the subject of plaints by a claimant, Ron Morellini ("Mr Morellini"), who claimed title to the tenements. I am told by counsel that the dispute in relation to those tenements has not yet been resolved. As will be seen, however, the letter agreement provides for a transfer of the mining assets, including the tenements on an "as is where is" basis, and it is contended that the plainting of those tenements by Mr Morellini does not affect the substance of the agreement. The plainting of the tenements, however, was a matter of concern to Newco and the evidence, to which I will later come, indicates that Newco has been reluctant to proceed with the acquisition of the mining interests of IPT whilst the tenements are subject to plaint.

36 Clause 2.6(d)(i) of the letter agreement provides:

"If any of the mining assets are not capable of being transferred to Newco by the transfer date because of either:

(A) operation of law, including, without limitation, that which is provided for in clause 2.6(b); or

(B) any third party claim;

(affected mining assets) the parties agree that;

(C) transfer of those mining assets which are not affected mining assets shall take place by the transfer date and IPT will, as soon as possible after the transfer date, do all

(Page 13)

things necessary (to the extent permitted by law or required by law) to transfer the legal title to the affected mining assets to Newco; and

(D) transfer, IPT (as transferor) shall deliver to Newco (as transferee), to the extent permitted by law, signed transfers of the legal title to the affected mining assets."

The effect of that clause, as I understand it, is that the risk as to the plainting of the mining tenements runs with Newco from the date of the transfer of the mining assets.

38 The letter agreement provided by cl 2.14(d):

"It is their common objective to achieve the listing on or before 30 November 2001 and that they will each diligently work towards that common objective."

The letter agreement provides in cl 2.7(b) in the event that listing is not achieved prior to the listing date (28 February 2002) the trustee of the funds will immediately return the IPT subscription funds to IPT (together with interest accruing thereto). The construction of cl 2.7(b), as will be revealed later in these reasons, is of importance.

40 Newco arranged for Quadrant to assist in implementing the letter agreement and a timetable was prepared with the assistance of Freehills, who were then Quadrant's solicitors. The proposed timetable was over-optimistic, as it subsequently proved to be.

41 A further matter to be mentioned in dealing with the general background to this dispute was that because the IPT shares in Newco were to be acquired by way of the transfer of assets from IPT to Newco, the shares in Newco would be the subject of escrow because, effectively, they would be vendor shares. This was another aspect of the transaction that was not contemplated when the letter agreement was entered into.

42 It should finally be mentioned that a further difficulty arose in the course of implementing the transaction in that the solicitors for Newco were concerned about the in specie distribution of the Newco shares to the IPT shareholders because the IPT shareholders had not agreed to become shareholders of Newco. Legal advice initially obtained in relation to that issue indicated that this aspect of the transaction could not be accomplished by way of a return of capital, but had to be implemented through a scheme of arrangement.

(Page 14)

Because of problems with a scheme of arrangement, legal advice was sought from senior counsel based in Sydney. A proposal was then developed to amend the memorandum and articles of IPT so that the IPT members agreed to accept a return of capital

in specie

by way of shares in a listed company (Newco) as an alternative to the scheme of arrangement proposed.

44 Because of the difficulties that arose in relation to the carrying out of the letter agreement, a course of correspondence followed between Steinepreis Paganin, solicitors, on behalf of the Nikolaenko interests (including Quadrant and Plato) complaining that the agreement was not being carried out. The course of correspondence will be referred to later in these reasons. In the end result, those parties represented by Steinepreis Paganin proposed a series of variations to the letter agreement. In particular, Newco was anxious to obtain the $800,000 held in the trust account and was insisting that the $100,000 and the $200,000 be paid to it immediately. IPT, on the other hand, was in the position where it could not justify to its shareholders approving the payment of those sums to Newco until such time as there was some advantage to the shareholders of IPT. From IPT's point of view there was little or no justification in advancing those payments until such time as the entire transaction, including the transfer of the mining assets and the listing of the Newco shares, could be achieved. The proposals advanced by Steinepreis Paganin to vary the letter agreement will be discussed later in these reasons.

45 The plaintiff's position in relation to the letter agreement is that after the ASX required a shareholder spread which was not feasible for Newco to achieve, Newco took no further steps to carry out or implement its part of the letter agreement. The plaintiff maintains that the defendants impliedly rescinded the contract at that date or, alternatively, abandoned their obligations pursuant to it, so that the plaintiff is entitled to a refund of the $800,000.

46 The plaintiff maintains that it has been anxious to carry out its obligations under the letter agreement and because some of the information required for the IPT shareholders' meeting had to be supplied by Newco and Quadrant, it requested those parties to supply the relevant information. It is common ground that the information has never been supplied so that IPT has been unable to hold its shareholders' meeting to approve the transaction.

(Page 15)

In the course of these reasons I will later come to the difficulties that were encountered in the course of trying to implement the transaction and the proposals that were suggested in order to overcome those difficulties. Before doing so, however, it is necessary to turn to the pleadings and to see the way in which the plaintiff's claim and the defence are each formulated.

48 The essence of the plaintiff's claim is contained in pars 17 through to 31 of the statement of claim. The plaintiff pleads that the defendants have failed to carry out their obligations under the letter agreement and particularise its claim in that regard. The plaintiff says that the defendants have failed to provide particulars which would enable the plaintiff to hold its transaction meeting and they plead that the board of Newco has also failed to carry out its obligation to hold a meeting of Newco to approve the transaction. In addition, the plaintiff pleads that the defendants have failed to finalise the terms of the asset sale agreement which was forwarded to the defendants in draft on or about 20 July 2001. The plaintiffs plead that the first to third defendants have failed to approve or amend the draft asset sale agreement forwarded to the defendants and that Newco has refused to accept a transfer of the mining assets from the plaintiff.

49 The plaintiff also pleads that the fourth defendant has failed to apply for appropriate waivers from the ASX in relation to the spread of shareholders and otherwise to comply with the ASX requirements so as to enable Newco to list on the ASX.

50 The plaintiff also pleads that the lodgment of the plaints against the plaintiff's mining tenements by Mr Morellini does not preclude or prevent the plaintiff from transferring the leases to Newco. The plaintiff pleads that the first to third defendants have told the plaintiff that they will only accept a transfer of the mining assets if the plaintiff successfully defends the plaints lodged by Mr Morellini. The plaintiff particularises the way in which it is said that the defendants have refused to complete the transaction and refer to a letter of 24 December 2001 from the fourth defendant, as solicitors for the first to third defendants, to Bennett and Co in which the fourth defendant states that:

"In the event that the plaints are successful Newco may have to consider winding back the consideration given for the initial transfer."

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The plaintiff also pleads that at a meeting at the office of Bennett and Co held on 30 January 2002 Mr Jonathan Murray ("Mr Murray"), on behalf of the third defendant, said that the first to third defendants would not complete the transfer of the mining assets for the consideration set out in the letter agreement unless and until the plaintiff was wholly successful in defending the plaints. It is pleaded that other parties at the meeting on behalf of the defendants agreed with Mr Murray's views.

52 The plaintiff then pleads that, as a result of the matters pleaded, the first, second and third defendants have breached cl 2.14(a) of the letter agreement and have breached the implied terms of the letter agreement to carry out their part in relation to the agreement. The plaintiff also pleads that the first, second and third defendants have evinced an intention not to be bound by the terms of the letter agreement.

53 The plaintiff pleads that as at 7 February 2002 the letter agreement has been terminated by reason of:

(a) the expiration of the time to convene the Newco meeting;

(b) the expiration of the time to convene the transaction meeting;

(d) the refusal of the first to third defendants to implement the transaction on the terms set out in the letter agreement; and

(e) the parties not having agreed to any variation to the transaction or the agreement to address the requirements of the ASX.

The plaintiff also pleads that the agreement has expired by reason of the effluxion of time.

55 As a result of the breaches of the agreement and the repudiation, the plaintiff claims a refund of the $800,000 held in trust by Steinepreis Paganin, as referred to earlier in these reasons.

56 In their defence, the first, second and third defendants deny that the letter agreement has been expressly or impliedly rescinded and deny that they have accepted that the agreement is at an end.

57 The first to third defendants plead that the plaintiff has failed to prepare compliance documents for their own transaction meeting and to prepare asset sale documentation. The first to third defendants plead that

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the plaintiff has failed to obtain shareholder approval for the transaction and has failed to transfer the mining assets to Newco.

58 The defendants also plead that the plaintiff, as shareholder of Newco, has failed to cause Newco to complete the transfer of the mining assets and to cause Newco to hold a shareholders' meeting for the purpose of obtaining the approval of the shareholders to the letter agreement.

59 The defendants also plead that the plaintiffs have failed to agree to the variations to the letter agreement proposed by them and deny that they have repudiated the letter agreement.

60 The first, second and third defendants deny that the plaintiff is entitled to the moneys held by Steinepreis Paganin and plead that the relevant dates in the letter agreement have been extended by operation of the terms of the agreement so that the agreement is still valid, binding and ongoing. The defendants plead that the fourth defendant is obliged to retain the funds and to hold them on the terms contained in the letter agreement.

61 It should also be mentioned that in the statement of claim the plaintiff pleaded that the defendants were withholding documents belonging to the plaintiff in relation to the mining tenements and have failed to return those documents to the plaintiff. The first to third defendants plead to that allegation, but it is not necessary to repeat those pleadings here as it is common ground that this issue has been resolved between the parties.

62 The defendants plead that the conduct of the plaintiff in certain pleaded respects induced the first, second and third defendants to believe that the negotiations to vary the letter agreement would continue to be conducted in good faith and would not seek to terminate the agreement without first giving reasonable notice to the first to third defendants that the negotiations were ended. The first to third defendants plead that they relied upon that conduct by the plaintiff and continued with their negotiations based upon that conduct. As a result, they plead that the plaintiff is estopped from relying upon the termination of the letter agreement or that the agreement has been rescinded. Alternatively, the first to third defendants say that for the plaintiff to repudiate the agreement is unconscionable.

63 In its reply the plaintiff denies most of the matters contained in the defence and denies that its conduct was such as to ground an estoppel or that the defendants suffered any detriment sufficient to found an estoppel.

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In its reply the plaintiff pleads that since 7 February 2002 the first to third defendants have not taken any steps to progress the transaction and plead that the first to third defendants are not ready, willing and able to complete the transaction.

The Evidence

65 In dealing with the evidence called at this trial and having taken into account the evidence called on behalf of each of the parties, in my view the evidence called for the plaintiff is preferable to the evidence called on behalf of the defendants. So far as the evidence called for the defendants is concerned, only one witness, Bradley Stephen Moore ("Mr Moore"), was called and, for reasons to which I will come, I am of the view that his evidence should not be accepted in the critical areas of the case.

66 The first of the plaintiff's witnesses, Glenda Jane Currie ("Ms Currie"), testified that she attended a meeting of the parties on 30 January 2002. That meeting was to discuss the letter agreement and the progress of the transaction. Ms Currie's evidence was that she was expressly asked to attend the meeting and take notes. I accept that Ms Currie attended that meeting and took notes, as far as was possible, of what was said at the meeting. Ms Currie had not previously met Mr Nikolaenko, Mr Moore or Mr Barras who attended the meeting, although she knew of Mr Moore and Mr Murray prior to that date. Her evidence was that at the start of the meeting Mr Murray made a statement to the meeting indicating the position of the first to third defendants in relation to the letter agreement. Ms Currie's evidence was that Mr Murray said words to the effect of, "We want to find out where we are with the letter agreement and we also want to find out what IPT's response is to the variations we have suggested." Ms Currie's evidence was that Mr Murray also wanted the listing settlement sum to be brought forward because Newco had expended significant money since the letter agreement was signed and had an obligation to spend further money. Ms Currie recorded that Mr Sanders said that the whole point of the listing settlement sum was to provide an incentive to list Newco. Mr Sanders also said that if the money was paid up front, then there would be no incentive for Newco to list.

67 Ms Currie recorded that Mr Murray said words to the effect that Newco wanted the subscription funds brought forward. In response to that request Mr Sanders indicated that the shareholders of IPT would not approve such a proposal. That response, in my view, was appropriate because there was no advantage to the IPT shareholders in paying out the

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subscription funds, or indeed any of the moneys in the trust account, until such time as IPT was to obtain some benefit from the transaction.

68 Ms Currie's evidence was that there was discussion concerning the plaints and the effect of the plaints on the mining assets. Her evidence was that Mr Barras indicated to the meeting that if one of the plaints was successful, Newco would want to renegotiate the price of the mining assets or, alternatively, obtain the assets in a piecemeal fashion.

69 Much of what Ms Currie said occurred at the meeting was denied by Mr Moore in his evidence, and I will come to his evidence later in these reasons. It is important to note, however, that Ms Currie, as I have said, was at the meeting to take notes and, whilst I accept that she was unable to write down all that was said in longhand, the notes that she did prepare reflect a fair and reasonable outline of the discussions at the meeting. The importance of Ms Currie's evidence, in my view, is that at the meeting the first to third defendants indicated their reluctance to proceed with the letter agreement without the variations that the first to third defendants proposed being agreed to. In particular, the first to third defendants were anxious to obtain the money held in the trust account and were anxious to avoid having the tenements transferred to Newco whilst the plaints had not been resolved. For that reason it was in Newco's interest to delay the implementation of the transaction at least until the plaints lodged by Mr Morellini had been resolved in the Mining Warden's Court.

70 Ms Currie's evidence was supported by evidence from David Grant Sanders ("Mr Sanders"), a solicitor employed by Bennett and Co. Mr Sanders testified that on 7 August 2001 he spoke to a Mr Gibson of Steinepreis Paganin concerning the ASX requirement of a shareholder spread for Newco to list on the ASX. A note that Mr Sanders made of that conversation indicates that he was advised by Mr Gibson of Steinepreis Paganin that the ASX was stalling on giving a waiver or approval to the Newco proposal because Newco needed 300 applications for parcels of $2000 worth of shares at 20 cents each for ASX approval.

71 Mr Sanders testified that he had a conversation with Mr Murray, an employee of Quadrant and Newco, on 25 January 2002 and made a note which states, "Do not transfer tenements until after plaints. If plaints not successful, same consideration. If same were successful, don't want to have to pay for them in full."

72 Mr Sanders also testified that at the meeting of 30 January 2002 he instructed Ms Currie to make notes of the meeting and that he recalled

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generally what was said at the meeting. After the meeting Mr Sanders asked Ms Currie to have her notes typed and either the day of the meeting or the day after the meeting Mr Sanders said he read those notes. He testified that the notes accorded with his recollection of the meeting with one exception, namely that Ms Currie had wrongly recorded Mr Barras's Christian name as Barry instead of Bob.

73 As I have already said, I find the evidence called for the plaintiff preferable to that called by the defendants and I accept Mr Sander's evidence as supporting the evidence of Ms Currie, particularly in relation to what was said at the meeting on 30 January 2002.

74 The defendants called Mr Moore as the only witness for the defendants. Mr Moore testified that he was an employee of Quadrant at the time the letter agreement was negotiated and signed. He said that he was nominated by Mr Nikolaenko to be one of the three directors of Newco and that he accepted that position. Mr Moore was Mr Nikolaenko's proposed son-in-law.

75 Mr Moore said that he prepared a timetable of the steps which needed to be carried out in order for the letter agreement to be implemented. Generally speaking, Mr Moore evidenced a sound grasp of the requirements of the Corporations Law with respect to the two meetings that were to be held in order to implement the letter agreement (that is, the meeting of IPT shareholders and the meeting of Newco shareholders). Mr Moore was also aware of the ASX and ASIC requirements in relation to the transaction.

76 Mr Moore, in his evidence, pointed out that Newco was not a party to the letter agreement and, accordingly, had not agreed to accept a transfer of the mining assets. Mr Moore's view was that for that reason Newco was not liable to pay the stamp duty on the transfer of the mining assets. He said that the stamp duty issue, to which I have earlier referred, was a matter of concern to Newco in the course of the negotiations and that from his point of view he thought that IPT should contribute to the stamp duty assessed. Mr Moore's evidence was that Newco did not have the financial capacity to pay the stamp duty assessed without fundraising.

77 Mr Moore said that he took advice from his solicitors, Steinepreis Paganin, the fourth defendant, in relation to the application to the ASX to waive the listing spread requirement. He then made application to the ASX in that regard. Mr Moore said that he did not assist in settling the IPT or Newco transaction meeting agendas because he was concerned that

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the stamp duty issue had not been dealt with. As I have said, Mr Moore's view was that Newco was not in a position to meet the stamp duty commitment because its funding position was insufficient to meet that liability. However, his evidence was that the IPT transaction meeting and the Newco transaction meeting could occur prior to the finalisation of the asset sale agreement so that funding could then be raised by Newco in order to meet the stamp duty assessment which would not be payable for 30 days after the asset sale agreement was executed.

78 Mr Moore's evidence was that after Freehills advised Newco that the transaction could only be effected by way of a scheme of arrangement, he spoke to Mr Nikolaenko, Plato Mining and Quadrant and was advised that a scheme of arrangement was not acceptable.

79 Mr Moore's evidence was that after correspondence between solicitors he was aware that Newco would have difficulty in raising funds by way of the prospectus proposal. As he expressed it, there was then an unfavourable climate for mining companies and gold assets with respect to fundraising.

80 Mr Moore then decided to propose some variations to the letter agreement and he did so through his solicitors, Steinepreis Paganin, by letter of 15 November 2001 which he said he settled with the solicitors.

81 The letter of variation is dated 15 November 2001 and is written on the letterhead of Quadrant and is addressed to IPT, Plato Mining and Vladimir Nikolaenko.

82 The letter of variation, in my view, is of significance in revealing the approach that the first, second and third defendants were taking to the letter agreement as at that date. The letter of variation provides:

LETTER OF VARIATION

The Parties acknowledge the delay in the implementation of the matters contemplated by the letter agreement between IPT Systems Limited, Vladimir Nikolaenko, Quadrant Management Pty Ltd and Plato Mining Pty Ltd dated 27 April 2001 (Letter Agreement). For this reason, the Parties have agreed to vary the terms of the Letter Agreement in the manner set out below.

Unless otherwise indicated, terms used in this variation letter have the same meaning given to them in the Letter Agreement.

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Variation

For the avoidance of doubt, the Parties have agreed to vary the Letter Agreement by replacing clauses 2.7 and 2.8(d) and substituting the following clauses in replacement:

'2.7 The Parties agree and acknowledge that in the event all necessary shareholder and regulatory approvals are obtained by Newco (Newco Settlement Approval) and IPT (IPT Settlement Approval) (and notwithstanding that the Newco Approval and/or the Approval may not have been obtained), the Stakeholder shall be irrevocably authorised and directed to (within two (2) business days from the date of the Newco Settlement Approval and the IPT Settlement Approval, whichever is the latter):

(a) release and pay to Quadrant the Deferred Settlement Sum (and any interest accruing on that sum);

(b) release and pay the IPT Subscription Funds to Newco on behalf of IPT and in full payment for 2,500,000 Shares issued at a price of 20 cents each (allotment of the Shares to occur immediately upon the IPT Subscription Funds having been received by Newco);

(c) release and pay to IPT the interest which has accrued on the IPT Subscription Funds in the period commencing on the date the funds were received by the Stakeholder and expiring on the date the IPT Subscription Funds are released in accordance with paragraph (b) above; and

(d) release and pay the sum of $200,000 (referred to as the Listing Settlement Sum in the Letter Agreement) to Quadrant.'

2.8(d) Newco will be permitted to and shall consider all possible alternatives and opportunities for the benefit of Newco shareholders PROVIDED THAT any alternative will be subject to and conditional upon Newco shareholder approval and compliance with applicable laws. As at the date of this variation letter, no

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alternatives have been identified by or presented to Newco.'

IPT Settlement Approval Date

IPT Systems Limited agrees to convene an Extraordinary General Meeting to consider the IPT Settlement Approval (EGM) so that the EGM is held no later than Monday 14 January 2002.

Operation

Other than as provided for in this variation letter, the Letter Agreement shall remain in full force and effect. In the event of any inconsistency between the terms of the Letter Agreement and this variation letter, the terms of this variation letter shall prevail.

Costs

The Parties have agreed to pay their own costs of and in respect of the negotiation and preparation of this variation letter.

Further Assurances

The Parties agree to execute and do all acts and things necessary or desirable to implement and give full effect to the provisions and purpose of the Letter Agreement (as amended)."

The problem with the letter of variation from IPT's point of view was that, as I have said, it offered no advantage to IPT shareholders.

84 As I have also said, IPT did not agree to the variations proposed.

85 It is common ground that on 28 November 2001 IPT made an announcement to the ASX expressing its commitment to the Newco transaction. Mr Moore's evidence was that he understood that IPT was anxious to continue with the agreement and would negotiate in relation to, and ultimately settle, the terms of the variation.

86 Mr Moore's evidence, however, was that Newco would not be displaying due diligence in accepting the mining tenements whilst they were still subject to plaint by Mr Morellini.

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Mr Moore's evidence was that he attended the meeting on 30 January 2002 which was convened in order to seek a resolution of the problems that had arisen. He denied that Mr John Murray had made the statements that Ms Currie testified had been made, at the opening of the meeting. Mr Moore's evidence was that Mr Murray indicated that the defendants still considered themselves bound by the letter agreement and that the proposed variation was not intended to indicate that they did not accept that they were so bound. As I have said, however, in my view, the evidence of Ms Currie and Mr Sanders is to be preferred on that topic.

88 Mr Moore's evidence was that Newco did not accept the letter from Bennett and Co (dated 7 February 2002) purporting to terminate the letter agreement. Mr Moore's evidence was that Newco was anxious to proceed with the letter agreement and anxious to agree some variations to the letter agreement which would enable the transaction to proceed.

89 The letter from Bennett and Co on behalf of the plaintiff to Steinepreis Paganin, solicitors on behalf of the defendants, referred to the letter of variation of 15 November 2001 and said:

"Our client's board is unable to see how the proposed variation would be in the interests of its shareholders. In the circumstances where your client (despite numerous invitations to do so) has also been unable to advise how the variation could be in the interests of our client's shareholders, our client is not prepared to agree to the proposed variation nor go to the expense of putting to its shareholders a variation which the board believes is not in their interests."

In the same letter Bennett and Co went through the various steps that were to have been taken to implement the letter agreement and the failure of the defendants to take the steps required of them. In addition, Bennett and Co referred to the Steinepreis Paganin letter of 24 December 2001 which states:

"Your client considers that it would not be diligent to effect the transfer of the mining assets in consideration of a specific number of shares 'and that' in the event the plaint application was successful Newco may have to consider winding back the consideration given for the initial transfer."

Bennett and Co went on to say that it was clear to the plaintiff that not only had the defendants failed to comply with their obligations under par 2.6 of the letter agreement in relation to the transfer of the mining

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assets, but were now attempting to unilaterally impose additional conditions into the letter agreement due to the existence of the plaints.

92 Bennett and Co indicated that the plaintiff was no longer prepared to proceed with the letter agreement and sought repayment of the moneys held in trust.

93 Finally, Bennett and Co asked Steinepreis Paganin to indicate whether or not their client was prepared to make any new offer to acquire the plaintiff's mining assets.

94 It is common ground that no such offer was made by the defendants and shortly thereafter the present proceedings were instituted.

95 In cross-examination Mr Moore accepted that the objective was to have Newco listed on the ASX, if possible, by November 2001, but he also accepted that the deadline for the listing of Newco was 28 February 2002 and that Newco had not met that date.

96 Mr Moore accepted in cross-examination that Newco was not in a position to pay the stamp duty on the asset sale agreement and that until that issue was resolved, he was not going to settle the terms of the asset sale agreement.

97 Having considered Mr Moore's evidence and his cross-examination, in my view, the conclusion is inevitable that Newco was not prepared to proceed with the letter agreement because:

(1) It seemed unlikely that Newco would be able to comply with the ASX listing spread requirement;

(2) Newco was unable to raise the stamp duty payable on the asset sale agreement until its funding was finalised by the prospectus and the rights issue, which seemed improbable;

(3) Newco did not want to acquire the mining assets and tenements whilst the tenements were subject to plaint by Mr Morellini;

(4) Newco wanted its proposed variations to the letter agreement agreed to, and access to the funds in the trust account, before it would go ahead with the letter agreement in any event;

(5) Newco understood that once it acquired the tenements, it would have the responsibility of maintaining those assets,

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including the payment of rents, rates and committed expenditure. It was not in a position to meet those commitments until such time as its funding was finalised.

In my view, whilst the defendants maintain through the evidence of Mr Moore, and in correspondence, that they were committed to the letter agreement and to implementing the transaction, I have reached the conclusion that this evidence should not be accepted. In my opinion, Mr Moore was acutely aware of the difficulties to which I have referred and it was in Newco's best interest to put the transaction on hold until such time as the plaints issue was resolved and until such time as the climate for raising money by way of a prospectus and rights issue was more favourable. For that reason, Newco was prepared to sit back and take no action in the hope that these issues would be resolved in a manner favourably to it before the transaction was finally implemented.

99 Having made those findings of fact, it is then necessary to turn to the legal principles surrounding this action.

100 The plaintiff's claim is that the letter agreement has expired by reason of effluxion of time or, alternatively, that the defendants have abandoned the agreement, thus entitling them to terminate it. They contend that their revocation of the agreement was valid and binding upon the defendants.

101 In relation to the legal principles surrounding this action, there are three main areas of contention:

(a) whether the defendants either expressly, orally or in writing, or impliedly repudiated the letter agreement; and

(b) whether the defendants, by their words or actions, can be said to have abandoned the letter agreement.

102

In dealing with the first issue, the defendants maintain that they have not rescinded the letter agreement and have been, and are, anxious to have the agreement finalised. Mr Moore, in his evidence and under cross-examination, insisted that the defendants were willing and anxious to proceed with and finalise the letter agreement. In saying that, Mr Moore accepted that it was no longer possible to comply with some of the time limits in the letter agreement and, for reasons which he gave in his evidence, the defendants would prefer to proceed with the transaction as provided for in the deed of variation rather than as provided for in the

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original letter agreement. As can be seen from the terms of the letter agreement, the time limits for the various steps to be taken in relation to carrying out the transaction have passed, and indeed long passed, so that, in any event, a new timetable would have to be formulated.

103 Mr Moore conceded that the ASX listing requirement as to shareholder spread had not been met, but maintained that it would still be possible for Newco to obtain the required shareholder spread if the ASX attitude proved to be intransigent. However, he was hopeful that less stringent requirements could be imposed.

104 From Newco's point of view, Mr Moore was anxious that Newco should receive the money held in the Steinepreis Paganin trust account in order to advance the transaction. In that respect, as can be seen from the proposed letter of variation, Newco was anxious to receive the sum of $300,000 as soon as possible. In addition, Newco was also anxious to receive the further sum of $500,000 by way of share subscription at the earliest possible date, even before the listing of Newco shares on the ASX.

105 From the plaintiff's point of view, it was contended that all of the deadlines for the letter agreement had passed and that the listing settlement date had come and gone without Newco shares being quoted on the ASX. Accordingly, from their point of view, it was contended that the defendants had evidenced a clear intention not to proceed with the transaction in the manner outlined by the letter agreement.

106 In dealing with the legal principle surrounding rescission, senior counsel for the defendants referred to Shevill v Builders Licensing Board (1982) 149 CLR 620 at 633 where Wilson J said:

"This case does not call for a detailed examination of the law touching repudiation, because in my opinion the circumstances do not even approach the point at which it can be said that by its words or conduct the lessee had demonstrated that it would or could no longer perform its obligations under the contract. Repudiation of a contract is a serious matter and is not to be lightly found or inferred:

Ross T Smyth & Co Ltd v T D Bailey Son and Co

[1940] All ER 60 at 71. In considering it, one must look to all the circumstances of the case to see whether the conduct 'amounts to a renunciation, to an absolute refusal to perform the contract':

Mersey Steel and Iron Co v Naylor Benzon & Co

(1884) 9 App Cas 434 at 439. There is no

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question here of abandonment of possession of the property by the lessee, such as furnished the basis for the decisions in Buchanan v Byrnes (1906) 3 CLR 704; Hughes v NLS Pty Ltd [1966] WAR 100; affd (1966) 120 CLR 583; Highway Properties Ltd v Kelly Douglas & Co Ltd (1971) 17 DLR (3d) 710. Notwithstanding the initiation of proceedings by the board on 3 August 1977, whereby the lease was determined, the lessee continued in possession of the premises, conducting its business therefrom after that date. It did not vacate until ordered to do so by the Court on 14 October. It is true that it did not seek relief from forfeiture, as it might have done, but the board's case of repudiation can derive no support from that fact.

Furthermore, the reliance of the board upon Ex. R is misconceived. The material reflects the difficulties experienced by the lessee in meeting its rental obligations, and the consequent anxiety and effort thereby imposed on the board. There were many instances of late payment of rent and some cases of insufficient funds to meet cheques when presented by the board. However, I know of no authority or of any principle of law which requires me to hold that consistently late payment of rent without more is sufficient to establish repudiation of a lease. It would indeed be a harsh doctrine. Although not directly in point, the practice in equity of reviewing a proviso for re-entry as a security for the payment of rent affords an indication to the contrary: cf Howard v Fanshawe [1895] 2 Ch 581 at 588. Here there is no sufficient evidence of a refusal or inability to perform the contract. On the contrary, the evidence reveals serious and consistent effort on the part of the lessee to meet its obligations. While it did not succeed entirely, the fact remains that during the two months immediately preceding the termination of the lease the lessee paid a sum which was equivalent to more than two months' rental, thereby making some reduction in the arrears. While it requested the understanding and co-operation of the Board in meeting its financial difficulties, there is no suggestion that it sought to be relieved from its obligations altogether. For these reasons, the board's argument based on an alleged repudiation of the lease of the lessee must fail."

107

I accept that, in determining whether or not the defendants have repudiated the letter agreement, repudiation is not lightly to be found or

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inferred and I have taken that principle into account in determining this action.

108 Senior counsel for the defendants also referred to Stevenson v Hook (1956) 73 WN (NSW) 307 at 313 where Street CJ and Herron J said:

"The question whether, in any particular case, one party to a contract has been released therefrom by the conduct of the other is one which has concerned many courts. The basic statement of the law on this point is contained in the judgment of Coleridge CJ in

Freeth v Burr

(1874) LR 9 CP 208. If one party by his acts and conduct has evinced 'an intention no longer to be bound by the contract', then the other party may accept that as a repudiation of the contract by an anticipatory breach, and is, himself, thereafter freed from any further obligation.

A repudiation has been defined in different terms - by Lord Selborne as an absolute refusal to perform a contract; by Lord Esher as a total refusal to perform it; by Bowen LJ in Johnstone v Milling (1886) 16 QBD 460 as a declaration of an intention not to carry out a contract when the time arrives, and by Lord Haldane in Bradley v H Newsom and Sons & Co Ltd 119 LT 239; (1919) AC 16 as an intention to treat the obligation as altogether at an end. They call come to the same thing, and they all amount at any rate to this, that it must be shown that the party to the contract made quite plain his own intention not to perform the contract.

…

The nature of the contract and the circumstances of the case are all-important, and the repudiation of the contract must appear clearly and without ambiguity. It is not to be lightly inferred."

109

Similar views were expressed in the case of

DTR Nominees Pty Ltd v Mona Homes Pty Ltd

(1978) 138 CLR 423 where Stephen, Mason and Jacobs JJ discussed the question of rescission at 431 and said:

"For the respondents it was submitted that such an intention should be inferred from the appellant's continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect

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interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognise his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him."

110

In applying those principles to this case, it is necessary to review the difficulties encountered by the parties to the letter agreement. As these reasons make clear, the agreement encountered many unforeseen difficulties, including:

1. Newco was not in a position to pay the stamp duty on the mining assets and sought assistance from IPT in order to do so.

2. Newco was unable to list its shares on the ASX without additional fundraising and a wider shareholder spread. Again, that was not anticipated in the letter agreement.

3. After the letter agreement was entered into, the mining tenements were the subject of plaint by Mr Morellini and that issue had not been resolved by the listing settlement date.

111

All of these matters, and the others to which I have earlier referred, put the defendants in a position where, in my view, they decided that it was not diligent to proceed with the letter agreement in its original form. It was, no doubt, for that reason that the letter proposing the variations was prepared. In any event, in my view, the evidence of Mr Moore made it clear that, whilst the defendants were anxious to proceed with the letter agreement, they were not prepared to proceed with it in the terms in which it was originally proposed, nor upon the timetable which had originally been set. It follows that, despite the protestations made by Mr Moore that the defendants were prepared to carry out the letter agreement if the variations could not be agreed, I do not accept his evidence in this regard. In my view, the evidence makes it clear that the defendants were prepared to put the implementation of the letter agreement on hold until such time as these difficulties were resolved. In that respect the financial climate for the raising of capital for mining ventures may have improved; the Morellini plaints in the Mining Warden's Court may have been determined; and it may have been possible for Newco to arrange an

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alternative source of funding. It was, in my opinion, in the interests of Newco to delay proceeding with the letter agreement for as long as possible and its conduct, as evidenced throughout the course of correspondence from its solicitors to the plaintiff's solicitors, indicated just such an approach.

112 In addition, as I have said, I accept the evidence of Ms Currie as to what was said at the meeting held on 30 January 2002 and, in particular, I accept that the defendants were not prepared to continue with the letter agreement unless the proposed variations which they proposed were agreed to. That in turn reflected the fact that if the Morellini plaints were successful, the consideration for the acquisition of the mining tenements would have to be renegotiated.

113 Those factors, together with the course of correspondence between the solicitors, leads me to the conclusion that the defendants had decided that they would not proceed with the letter agreement until such time as either these difficulties were resolved or the variations had been agreed to.

114 The evidence indicates that from the plaintiff's point of view the variations were unacceptable, as indeed were the delays, and, as a consequence, the plaintiff decided to terminate the letter agreement. In my view, the plaintiff was entitled to do so.

115 Whilst in the course of correspondence emanating from the defendants' solicitors there are repeated references to the defendants being committed to the letter agreement and to the transaction, I have come to the conclusion that in reality the defendants were not prepared to proceed with the letter agreement on its original terms and, absent agreement to the variations proposed, were determined not to proceed with it.

116 On this aspect of the matter I would finally add that, in my view, the evidence of Ms Currie as to what was said by Mr Murray at the meeting of 30 January 2002 made it clear that the defendants were not prepared to proceed with the letter agreement on its original terms. In particular, at that meeting Mr Murray made clear that the defendants were not prepared to proceed with the transaction until the issue of the plaints was resolved and the defendants had the opportunity to renegotiate the consideration for the mining assets after the resolution of the plaints.

117 In addition, Mr Murray made clear that Newco wished to have flexibility in the way in which it raised the funds to pay for the mining assets so that it was not necessarily committed to the prospectus avenue contemplated by the letter agreement; for example, one option that was

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contemplated was to buy an existing listed company and obtain a "backdoor listing" through that process. In addition, from Newco's point of view, it was contemplating the possibility of acquiring the mining assets in a piecemeal fashion if some of the plaints were successful.

118 It would appear from the evidence in its totality that after 7 February 2002 the defendants took no steps whatever to advance the letter agreement which is consistent with the conclusion that I have reached.

119 In my view, it was unnecessary for the plaintiff to put the defendants on notice that it intended to terminate the contract in all the circumstances of the case: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 as per Gibbs CJ at 546. The correspondence between the solicitors for the parties following the meeting of 30 January 2002 made clear the plaintiff's position. In a letter of 7 February 2002 Bennett and Co, on behalf of the plaintiff, wrote to Steinepreis Paganin concerning the letter agreement and in that letter referred to each of the outstanding matters. The letter then says:

"These matters demonstrate that your client is not prepared to implement the transaction as set out in the Letter Agreement. In these circumstances and given that two of the conditions precedent to the transaction have not been satisfied and the dates for their satisfaction have passed our client has elected not to proceed further with the transaction."

120

Bennett and Co, however, made clear that the plaintiff remained committed to disposing of the mining assets so that it could complete the transaction to a pure technology company. The letter concluded:

"Our client therefore remains interested in any new offer any or all of your clients may wish to make to acquire any or all of the mining assets."

121

It is common ground that thereafter nothing further happened in relation to this transaction and that the $800,000 has remained in trust ever since. Senior counsel for the defendants submitted that it would have been imprudent for the defendants to take any further steps or to incur any further expense until such time as the issue presently under consideration was resolved.

122 The alternative basis of the plaintiff's claim is that the letter agreement came to an end by reason of the effluxion of time. In that

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respect, it is to be recalled that the letter agreement had a deadline in that cl 2.7(b) provided:

"In the event that the listing is not achieved prior to the listing date (defined as 28 February 2002) immediately return the IPT subscriptions funds to IPT (together with interest accruing thereto)."

123

In my opinion, it is clear from the letter agreement that the intention of the parties was that 28 February 2002 would be a shut-off date. If the listing of Newco was not achieved by that date, then the intention of the parties was that the agreement would be terminated and the funds returned to the plaintiff.

124 Whilst I accept that 28 February 2002 passed without the plaintiff demanding the subscription funds, it was shortly thereafter that these proceedings were instituted. I will later deal with the question of waiver, but, in my view, the construction of the letter agreement required that the listing be achieved by 28 February 2002, failing which the funds were to be returned to the plaintiff.

125 I then turn to the question of abandonment. In relation to this issue, the factual findings made earlier in these reasons are equally significant. The plaintiff has not held the IPT transaction meeting, it says, because the defendants have failed to provide the information that is required for the meeting to be held. On the other hand, the defendants have not arranged for the Newco meeting to be held, nor carried out their obligations under the letter agreement. In those circumstances the question arises as to whether the defendants, by their conduct, have abandoned the agreement. In view of the conclusions that I have reached in relation to repudiation, it is not necessary for this issue to be resolved. Having concluded that the defendants have repudiated their obligations under the letter agreement, I have come to the conclusion that the plaintiff was entitled to terminate the agreement in the manner in which it did. It is therefore unnecessary to determine whether or not the defendants abandoned their obligations under the letter agreement.

126 As can be seen from the letter agreement attached hereto, there are a number of conditions precedent set out in cl 1.1(a) to (e) inclusive and cl 1.2 and cl 1.3.

127 There is a difficulty in identifying conditions precedent, as Gibbs CJ said in Perri v Coolangatta Investments Pty Ltd (supra) at 542 - 543. It may well be in this case that the conditions identified as conditions

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precedent do not strictly meet that description as a matter of law, but, nonetheless, their significance is that they were identified as conditions precedent by the parties to underline their importance to the contractual relationship. It is not necessary to repeat those conditions in these reasons as they attached hereto, but significant steps in the carrying into effect of the agreement are identified.

128 What is clear on the evidence is that each of the schedule dates in the condition precedent were not met despite the parties attaching significance to the timetabling structure. In addition, as I have already indicated, ASX approval has never been obtained for the listing of the Newco shares.

129 It is also important to note that on the first page of the agreement under cl (b) the parties agree that "as soon as possible after the execution date, they will negotiate with one another in good faith to ascertain the extent to which, if any, further documentation is required to address the matters raised in cl 2.14(b) and (c) of this letter agreement. As can be seen, those clauses relate to negotiating with one another with a view to considering alternative mechanisms (or approaches) to achieve the same commercial result as the ARA transactions and the transaction. In addition, under cl 2.14(c) the parties to take advice with respect to the taxation implications of the transaction and to meet to discuss the implementation of any agreed matters in any supplementary documentation with a view to maximising the tax effectiveness of the transaction to the shareholders of IPT and Newco.

130 In my opinion, therefore, whilst the conditions identified as conditions precedent do not necessarily meet that description as a matter of law, they underline the significance that the parties attached to the matters identified as being of fundamental importance to the agreement.

131 It is also clear, on the evidence, that in almost every respect the conditions precedent were not met at the time at which IPT indicated that it proposed to terminate the contract.

132 Returning to Perri v Coolangatta Investments Pty Ltd and dealing with conditions meeting the description of conditions in this case, Gibbs CJ said at 546:

"For these reasons I consider that when the time has elapsed for performance of a condition which is not a promissory condition, but a condition precedent to the obligation to complete a contract of sale, either party, if not in default, can elect to treat the contract as at an end if the condition has not been fulfilled or

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waived, and that it is not necessary first to give a notice calling on the party in default to complete the contract or fulfil the condition. What I have said is of course, subject to any sufficient indication of a contrary intention in the words of the contract itself."

133

The solicitors for the plaintiff, IPT, gave notice of termination of the contract at a time when it was not possible for the listing date as defined in the letter agreement to be met (bearing in mind the period of notice required for a shareholders' meeting to be held). It follows that the plaintiff was entitled to give notice of termination of the contract in all the circumstances of the case.

134 In reaching that conclusion, I have taken into account cl 2.13(a) of the letter agreement which provides:

"The parties agree that, notwithstanding any condition precedent or term of this letter agreement, the interpretation of the defined terms listing date, Newco meeting date and/or transaction meeting date will be extended by that number of days which is equivalent to the number of days that either:

(i) the transaction meeting; and/or

(ii) the Newco meeting;

is justifiably delayed because of the parties' obligations to comply with the ASX listing rules, the Corporations Law or any other relevant statute or legislative instrument in respect to documenting and seeking Newco approval and/or the approval and the parties agree that such extension shall be their sole remedy arising from such delay."

135

The contract provided a capacity to extend time in accordance with cl 2.13(a), but only for the express reasons identified in that clause. Insofar as the clause refers to a justifiable delay because of the parties' obligation to comply with the ASX listing rules, I have concluded, on the evidence, that the defendants concluded that the ASX requirements were virtually insurmountable because of the spread requirements and the capital raising involved. Because of those difficulties, the defendants did not pursue an appeal against the ASX ruling and instead sought a variation of the agreement on the terms referred to in these reasons.

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136 In addition, cl 2.12 required IPT to use its "best endeavours" to convene the transaction meeting so that it was to be held no later than the transaction meeting date. In that respect, as I have said, IPT sent a draft meeting notice to the defendants with a view to the defendants supplying such information as was necessary for that notice to be completed. No response was ever received. In my view, the plaintiff has done all it can to comply with its requirements under the contract. The plaintiff's obligation to use its "best endeavours" obliges the plaintiff to do all that it reasonably can in the circumstances to achieve the contractual objective. The plaintiff accepts that it was required to make full disclosure to its shareholders in relation to the transaction and it could not do so without the information requested from the defendants. Whilst the plaintiff could have held its shareholders' meeting without information from the defendants, it would not have been reasonable to do so. In that respect, in my view, the plaintiff has complied with its contractual obligations: Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41 per Gibbs CJ at 64 - 65; Wilson J at 118; and Dawson J at 144. In my view, the plaintiff has done all that it was reasonably required to do to carry out its obligation under the letter agreement: Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 per Mason J at 100.

137 The next matter for consideration is whether the plaintiffs are estopped from exercising the right of termination of the contract. This proposition, on the facts of this case, needs to be considered together with the defendants' claim that the plaintiff has waived its rights to insist upon strict adherence to the contract. In that respect, it is rightly pointed out that the time limits under the contract have not been adhered to and the plaintiff has not insisted upon them, at least up until 30 January 2002. It is contended by the defendants that because of the plaintiff's representations in relation to the continued existence of the contract, it should be estopped from terminating the agreement. In other words, the issue is whether the plaintiff, by its approach to the contract, induced the defendants to assume that they would not exercise their rights to terminate the contract. Legione v Hateley (1983) 152 CLR 406 per Mason and Deane JJ at 430 - 431; Foran v Wight (1989) 168 CLR 385 at 412 where Mason CJ cited with approval the proposition advanced by himself and Wilson J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404:

"… The courts will grant relief to 'a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part

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in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it'.

Grundt v Great Boulder Pty Ltd Goldmines Ltd

(1937) 59 CLR 641; see also

Thompson v Palmer

(1933) 49 CLR 507. The same principle may be applied to the purchasers in this case if they acted to their detriment on the face of the representation by not tendering performance on 22 June. The estoppel would operate to protect the purchasers from a claim by the vendors that the purchasers' failure to tender performance constituted a breach of contract and, as well, to enable the purchasers to maintain their termination of the contract on the footing that the vendors, not the purchasers, were in breach of the contract."

138

On the facts of this case, in my view, there is no evidence that the defendants have relied upon any representation or representations by the plaintiff which have operated to their detriment. If, as the defendants contend, their wish is to proceed with the letter agreement, then their conduct has not demonstrated such an intention. As I have said, consistent with the evidence of Mr Moore, the defendants have chosen to sit back and wait in the hope that some of the difficulties which have been encountered in the course of implementing the transaction will disappear. Accordingly, in my view, the defendants' contention based upon estoppel have not been made out. I would add for the sake of completeness for the same reasons, in my view, it cannot be said that the defendants have relied upon the plaintiff's waiver of strict compliance with the letter agreement in all the circumstances of the case.

139 In the end result, therefore, the plaintiff's claim should be allowed and orders made for repayment to the plaintiff of the moneys held in the trust account.

140 I will hear from the parties as to the orders required to finalise this action.

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IPT Systems Ltd v Quadrant Management Pty Ltd

[2002] WASC 216

9 SEPTEMBER 2002

IPT SYSTEMS LTD -v- QUADRANT MANAGEMENT PTY LTD & ORS [2002] WASC 216