ITC Limited v Timbercorp Limited (in Liquidation) - [2009] SASC 342

Supreme Court of South Australia
(Civil)
ITC LIMITED v TIMBERCORP LIMITED (IN LIQUIDATION)
[2009] SASC 342
Judgment of The Honourable Justice Kourakis (ex tempore)
6 November 2009
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS
CORPORATIONS - OTHER MATTERS
The plaintiff and the defendant are large companies involved in the forestry industry - they entered into a joint venture to construct and operate a woodchip export terminal called PPT - each owned 50% of the shares of PPT - if one party offered to sell its shares in PPT to a third party, the Shareholders' Deed gave the other party the right of pre-emption - if a "default event" occurred to one party pursuant to cl 7.4 of the Shareholders' Deed, the other party, upon commissioning an independent valuation of the shares, had the option to purchase the defaulting party's shares at the lesser price of $1 per share or the price of the shares as valued - the defendant went into administration on 23 April 2009 - the defendant then went into liquidation and the administrators were appointed as liquidators on 29 June 2009 - during the period of 18 to 30 September 2009 the liquidators of the defendant were engaged in the process of finding a third party purchaser for the shares - however, the plaintiff exercised its call option pursuant to cl 7.2 of the Shareholders' Deed, stating its entitlement to purchase the shares for $1 per share - a third party agreed to purchase the shares on 30 September 2009, after which the defendant issued a Notice of Sale to the plaintiff, offering the option to exercise its right of pre-emption - whether a "default event" occurred to the defendant - whether the plaintiff complied with the pre-requisites for the valid exercise of the option to purchase the shares at $1 per share - whether the defendant issued a valid notice of sale to the plaintiff.
Held: The ordinary meaning of “administrator” appearing in cl 7.4 is wide enough to include a liquidator – by appointing a liquidator, the defendant threatened to cease business, which is a default event – the defendant’s negotiations with the third party and the entry into the Sale and Purchase Deed on 30 September 2009 were not a disposal of the shares and not default events for the purposes of cl 7.4(e) – the plaintiff complied with the pre-requisites for the valid exercise of the option to purchase the shares at $1 per share – the defendant’s notice of sale was served after the plaintiff exercised its default option and is therefore ineffective.
Corporations Act 2001 (Cth) s 439C(a), s 477(1)(a), s 506, referred to.
Lindholm, in the matter of Opes Prime Stockbroking Limited [2008] FCA 1425; Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500; Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; J & H Manktelow Pty Ltd v Alloway Grazing Pty Ltd [1975] 1 NSWLR 385; Moorgate Mercantile Co Ltd v Twitehings [1977] AC 890; The Lutetian [1982] 2 Lloyds Rep 140; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; GPT Re Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964; Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd [1995] 36 NSWLR 510; Ballas v Theophilos [No 2] (1957) 98 CLR 193; Permanent Trustee Australia Ltd v Woolworths (Qld) Ltd; in the matter of an application by Woolworths (Q’Land) Pty Ltd BC9805880; THL Robina Pty Ltd v The Glades Golf Club Pty Ltd [2004] QSC 461; Sims Metal Ltd v Wanless Metal Industries Pty Ltd BC9700743; Laybutt v Amoco Australia Pty Limited (1974) 132 CLR 57, considered.

ITC LIMITED v TIMBERCORP LIMITED (IN LIQUIDATION)
[2009] SASC 342
CIVIL

KOURAKIS J The plaintiff (ITC) undertakes forestry operations in the Albany region of Western Australia for the purposes of producing and exporting woodchips. Until recently the defendant (Timbercorp) held and managed extensive agri-business operations throughout Australia including forestry and other horticulture. Those operations were funded by managed investment schemes and substantial loans. The investors in the managed investment schemes held interests of a proprietary nature in the agricultural enterprise in which they had invested. Legislation regulating such schemes required the appointment of a person described as a “responsible entity”. Timbercorp Securities (TSL) was the responsible entity. A number of other eponymously named companies were involved in Timbercorp’s agribusiness. The companies will be collectively referred to as the “Timbercorp group”.
Earlier this year Timbercorp found it difficult to continue to finance its business. Mark Korda and Leanne Chesser, who are partners of the firm KordaMentha Pty Ltd (KordaMentha), were appointed as administrators of the companies of the Timbercorp group at a meeting of creditors held on 23 April 2009. On 18 June 2009 KordaMentha reported to the creditors of the Timbercorp group as follows:
The Group is extremely large and complex and has significant and immediate operating cash requirements. The Group has little to no cash to enable a restructure or maintain operations on a going concern basis, including supporting the Managed Investment Schemes.
It is our opinion that it would be in the creditors’ interests for each company within the Group to be wound up. No DOCA has been proposed and it is not in the creditors’ interests to bring the Administrations to an end.
Various partners of KordaMentha were subsequently appointed as liquidators of those companies at a meeting of the creditors of each member of the Timbercorp group held on 29 June 2009. I shall refer to the partners of KordaMentha who were appointed as administrators and liquidators by the name of their firm.
In about 2003, ITC and Timbercorp agreed to construct and operate a woodchip export terminal in the Port of Albany. Plantation Pulpwood Terminals Pty Ltd (PPT) was the corporate vehicle through which the joint venture was undertaken. ITC and Timbercorp each hold, and have always held, fifty per cent of the 100,000 issued shares of PPT.
The Albany Pulpwood Export Terminal (the terminal) opened in 2006 and has been in continuous operation since that time. The terminal receives and stores the pulpwood woodchips produced from the plantations owned and managed by ITC and Timbercorp in the Albany region. On occasion ITC and Timbercorp also procure woodchip from other sources for export through the terminal.
The Shareholders’ Deed
ITC and Timbercorp entered into a Shareholders’ Deed to regulate their respective rights and obligations with respect to each other and PPT, which is referred to therein as the company.
ITC and Timbercorp agreed that PPT would hold a lease over certain land in the Port of Albany[1] and that it would construct the terminal on that land in accordance with certain plans attached to the Shareholders’ Deed.[2] ITC and Timbercorp agreed that they would contribute equally in funds, whether by way of debt or capital, to the construction of the terminal.
[1] Shareholders' Deed cl 2.1.
[2] Shareholders' Deed cl 2.3.
Each shareholder undertook to deliver all of its export woodchip in the Albany region to the company. Financial penalties were imposed for failure to meet specified minimum delivery quotas. A failure to pay the penalties, but not a failure to meet the minimum requirements, was described as a “material obligation” by the Shareholders’ Deed.
The Shareholders’ Deed stipulated that the Board would consist of six directors with each shareholder having the right to appoint one director for each 16.6 per cent of shares.[3] The Shareholders’ Deed recorded that the six existing directors of the company were John Ibson, Anthony Davies and Anthony Price (nominated by ITC) and John Vaughan, Robert Hance and Tim Browning (nominated by Timbercorp). The Shareholders’ Deed provided that no other director would be appointed unless the shareholders agreed in writing to the appointment.[4] No director could be removed other than by the party who nominated him; if a director retired, or otherwise ceased to be a director, the party who had nominated that director was to nominate his or her replacement. The Chairman of the Board was to be selected from amongst the directors.[5]
[3]    Shareholders' Deed cl 4.1.
[4]    Shareholders' Deed cl 4.2.
[5]    Shareholders' Deed cl 4.6.
Clause 2.4 of the Shareholders’ Deed required the parties to pay amounts invoiced by PPT for the cost of processing woodchip within 20 business days of receiving the invoice. The cost included both operating costs and the cost of depreciation of the plant and equipment of the terminal.
The Shareholders’ Deed prohibited dealing in the shares of PPT other than in accordance with the detailed provisions of the Shareholders’ Deed. Clause 3.5 provided.
3.5 Assignment or other dealing in Shares
(a)A Shareholder must not Dispose of any Share to any third party and a purported disposal of any Share will not be effective, except in accordance with clause 7.2 or schedule 6;
(b)A Shareholder who Disposes of Shares to anyone other than another Shareholder must ensure that the transferee, before registration of the transfer of the Shares, enters into a deed with the other Parties agreeing to be bound by this Deed as if named as a party and a Shareholder, amended as reasonably required by the other Shareholders;
(c)The Company must refuse to register the transfer of any Shares if clause 7.2 or schedule 6 has not been complied with;
(d)The Parties intend to be bound by the terms and the intention of this clause 3.5. The intention is to offer the other Shareholders an opportunity of taking the Shares, or economic benefits attached to them, before offering the Shares or economic benefits attached to them to any other person who is not a Party. The Parties must not enter into any arrangements or use any technique which will breach the intention of this clause 3.5.
Disposal was defined in cl 1 of the Shareholders’ Deed to mean:
Dispose means any dealing with a Share, including but not limited to, a sale, transfer, assignment, trust, Encumbrance, option, swap, any alienation of all or any part of the rights attaching to a Share or interest in a Share, and includes any attempt to so deal or the taking of any steps for the purpose of so dealing;
The definition of “material obligations” in cl 1 of the Shareholders’ Deed included a breach of cl 3.5.
ITC and Timbercorp executed a Supplemental Deed on 18 September 2007. The Supplemental Deed recorded the terms on which each joint venturer contributed capital for the establishment of the terminal. The parties agreed to each advance to PPT the sum of about $10 million. The loans were interest free, unsecured and were repayable on six months notice. The Supplemental Deed provided that ITC and Timbercorp would be charged the depreciation expense for the plant and equipment of the Albany Terminal and that the charges would operate to reduce their respective loan accounts.
The Supplemental Deed also amended the two methods of disposal of a shareholders equity authorised by cl 3.5 of the Shareholders’ Deed: Sch 6 and cl 7. The amended provisions applied to and bound Timbercorp and ITC at all times relevant to the matter before me. It is necessary to set out the greater part of those provisions:
REVISED SCHEDULE 6
DISPOSAL OF SHARES
1.     NOTICE OF SALE
A Shareholder who wants to Dispose of any Shares (Offeror) must serve a notice of sale (Notice of Sale) on each Shareholder specifying:
(a)     the number of Shares (which must be all the Shares held by the Shareholder) the Offeror wishes to sell (‘Sale Shares’) and the sale price per share in Australian dollars;
(b)     the outstanding balance of the Offeror’s Shareholder’s Loan as at the date of the Notice of Sale;
(c)     the name of the proposed buyer of the Sale Shares;
(d)     that such number of the Offeror’s nominated directors will retire with the effect from completion of the sale of the Sale Shares in order to comply with clause 4.1 of this Deed;
(e)     any other terms of the proposed disposal (including as to the time and place of completion, the delivery of documents and the payment of the purchase price and stamp duty); and
(e)[sic]        a statement to the effect that each Shareholder has an option to purchase all of the Sale Shares (and if more than one Shareholder accepts, then each accepting Shareholder has an option to purchase the Sale Shares in proportion to their respective interests in the Company) on the terms set out in the Notice of Sale if the Shareholder complies with clause 2 of this schedule 6.
2.EXERCISE OF OPTION TO PURCHASE SALE SHARES
(a)     Each Shareholder may exercise its option to purchase the Sale Shares by giving notice to the Company and the Offeror that it wishes to buy the Sale Shares within 10 Business Days after the date of service of the Notice of Sale.
(b)     If a Shareholder exercises its option to purchase Sale Shares then:
(i)the Offeror must sell to that Shareholder all of the Sale Shares (and if more than one Shareholder accepts, then to each accepting Shareholder in proportion to their respective interests in the Company) and the Shareholder must purchase them on the terms set out in the Notice of Sale;
(ii)completion of the sale and purchase of the relevant shares (‘Completion’) shall occur at 11am at the registered office of the Offeree on the fifth Business Day after acceptance of the offer.
(iii)at Completion the Offeror shall deliver to the purchasing Shareholder the following documents:
(A)all share certificates for the relevant Shares;
(B)a complete transfer of the Shares to the purchasing Shareholder, duly executed by the Offeror;
(C)the written resignations of all directors and secretaries of the Company appointed by the Offeror; and
(D)any release required to transfer the Shares free of any Encumbrance;
(iv)at Completion, and subject to receipt of the documents referred to in clause 2.5(c)(ii), the Offeree shall pay to the Offeror the purchase price for the Sale Shares by way of bank cheque or electronic transfer of funds; and
(v)the Offeree shall pay all stamp duty payable in relation to the transfer of the relevant Shares.
3.     SHAREHOLDER LOAN
(a)     Each party acknowledges that it is the intention of the parties that the shareholding of the relevant Shareholder be stapled to the outstanding balance of the Shareholder’s Shareholder Loan.
(b)     The Offeror must not offer any Shares for sale or transfer unless such offer is conditional upon:
(i)the purchaser lending to the Company the amount specified in clause 3(c) of this schedule on the terms specified in that clause; and
(ii)the purchaser (if it is not a Shareholder already) entering into a deed pursuant to which the purchaser agrees to be bound by this Deed and the Supplemental Deed entered into between ITC, Timbercorp and the Company on or about 13 September 2007 (Supplemental Deed).
(c)     Completion shall be conditional upon the purchaser of any Sale Shares lending to the Company in immediately available funds:
(i)if the purchaser is purchasing all of the Sale Shares, an amount equal to the balance of the Offeror’s Shareholder’s Loan as at Completion (Completion Balance); or
…
(d)     The amounts lent pursuant to this clause shall become part of the Shareholder’s Loan of the relevant purchaser for the purposes of the Supplemental Deed, and must be advanced pursuant to the terms set out in that deed.
(e)     At Completion, and subject to receipt of the documents referred to in clause 2(b)(iii), and lending of the amounts referred to in clause 3(c), the Company shall repay to the offeror:
(i)if all the Offeror’s Shares are being transferred, the Completion Balance, or
(ii)if a portion of the Offeror’s Shares are being transferred, an amount calculated in accordance with clause 3(c)(ii),
by way of bank cheque or electronic transfer of funds;
4.     SALE SHARES NOT PURCHASED BY SHAREHOLDERS
(a)     Subject to clauses 2 and 3, the Offeror may sell any Sale Shares offered in accordance with clause 1 of this schedule 6 not purchased by the other Shareholders to the buyer named in the Notice of Sale within 20 Business days after the date of service of the Notice of Sale.
(b)     The Offeror must not sell the Sale Shares:
(i)for a purchase price less than the price specified in the Notice of Sale; or
(ii)on terms more beneficial to the purchaser than those set out in the Notice of Sale.
(c)     The seller must give a copy of any agreement with the purchaser named in the Notice of Sale relating to the Sale Shares and loan advancement to each Shareholder within 3 Business Days after execution of the agreement.
(d)     If the Offeror does not sell the Sale Shares to the buyer named in the Notice of Sale within the time set out in clause 4(a) of this schedule 6 it may not sell those Sale Shares without complying again with this schedule 6.
…
7.     DEFINITION
For the purposes of this Schedule 6, the term Shareholder’s Loan has the same meaning as set out in the Supplemental Deed dated 13 September 2007 between the parties.
Clause 7 (Shareholders’ Deed) with Clause 7.2 (as amended by Supplemental Deed)
7.     TERM AND TERMINATION
7.1     Term
(a)     This Deed shall commence and be of force and effect as and from the date of execution by the Parties; and
(b)     This Deed shall continue in full force and effect until terminated by the written agreement of all Shareholders, or by the winding up of the Company, or pursuant to clause 7.2 or until one Shareholder holds all of the Shares.
(c)     Any Shareholder who ceases to hold any Shares is no longer bound by this Deed, except for clause 8, and no longer has any Power under this Deed, except in respect of clause 8.
7.2     Termination by Shareholder for default
Without limitation to any other rights a Shareholder may have under this Deed or otherwise, if at any time:
(a)     any Shareholder (“Defaulting Shareholder”) or a director appointed by a Shareholder breaches any of its Material Obligations;
(b)     the non-defaulting Shareholder gives to the Defaulting Shareholder notice specifying the breach and requiring that the breach be remedied; and
(c)     the breach is not remedied within 20 Business Days after such notice is served on the Defaulting Shareholder,
or a Default Event occurs in relation to a Shareholder, then ~~and~~ the non-Defaulting Shareholder has an option to purchase the Defaulting Shareholder’s Shares at a purchase price determined in accordance with clause 2.5(b) of the Supplemental Deed dated on or about 13 September 2007 between the parties, which it may exercise by giving notice to the Defaulting Shareholder prior to the breach being remedied or the Default Event ceasing to subsist and within 10 Business Days after the date of service of the independent valuer’s determination under Schedule 5 that it wishes to purchase all of the Defaulting Shareholder’s Shares, in which case the Defaulting Shareholder must sell all of its Shares to the non-Defaulting Shareholder on the basis that:
(d)     completion of the sale and purchase of the relevant Shares (“Completion”) shall occur at 11am at the registered office of the non-Defaulting Shareholder on the fifth Business Day after the giving of notice of the Defaulting Shareholder;
(e)     at Completion the Defaulting Shareholder shall deliver to the non-Defaulting Shareholder the following documents:
(i)all share certificates for the relevant Shares;
(ii)a completed transfer of the Shares to the non-Defaulting Shareholder, duly executed by the Defaulting Shareholder;
(iii)the written resignations of all directors and secretaries of the Company appointed by the Defaulting shareholder; and
(iv)any release required to transfer the Shares free of any Encumbrance;
(f)    at Completion, and subject to receipt of the documents referred to in paragraph (e) above, the non-Defaulting Shareholder shall pay to the Defaulting Shareholder the Share Purchase Price by way of bank cheque or electronic transfer of funds;
(g)     at Completion, and subject to receipt of the documents referred to in paragraph (e) above, the Company shall repay to the Defaulting Shareholder the Shareholders’ Loan by way of bank cheque or electronic transfer of funds in accordance with its obligations under clause 2.2(c) or clause 2.2(d) of the Supplemental Deed dated on or about 13 September 2007 between the parties (whichever is applicable); and
(h)     the Defaulting Shareholder shall pay all stamp duty payable in relation to the transfer of the relevant Shares and repayment of the Shareholder Loan.
7.3     Effect of termination
Termination of this Deed shall be without prejudice to the accused rights of any Party against any other Party in respect of any antecedent breach of this Deed by that other Party.
7.4     Default Events
It is a Default Event, whether or not it is within the control of any Shareholder, if:
(a)     ceasing business: any Shareholder ceases or threatens to cease to carry on business;
(b)     change in law: any Shareholder is prohibited from being a shareholder in the Company by a change in any law;
(c)     administrator: an administrator is appointed or a resolution is passed or any steps are taken to appoint, or to pass a resolution to appoint, an administrator to any Shareholder.
(d)     receiver: a receiver, receiver and manager, official manager, trustee, administrator, other controller (as defined in the Corporations Act) or similar officer is appointed over the assets or undertaking of any Shareholder;
(e)     arrangements: any Shareholder enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, its creditors or any class of them; or
(f)    disposal of shares: any Shareholder Disposes of any of its Shares in breach of the Constitution or this Deed.

It is convenient not to set out cl 2.5 of the Supplemental Deed because it defines the Share Purchase Price for the purposes of cl 7.2(f) above; and cll A to F of Sch 5 of the Shareholders’ Deed which prescribe the valuation procedure. Clause 2.5 provides:
2.5     Option to Acquire the Shares
…
(b)     The Share Purchase Price shall be lesser of:
i.$1:00 per Share; and
ii.the amount determined in accordance with the valuation procedures set out in Schedule 5 of the Shareholders’ Deed.
Schedule 5
VALUATION OF SHARES
A.    Application of this Schedule
This Schedule applies if an independent valuation of Shares is required under clause 7.2 of this Deed.
B.Appointment of Independent Valuer
The Board by the affirmative vote of each director must appoint an independent chartered accountant or an investment or merchant banker as an independent valuer to determine the value of each Share in accordance with this Schedule 5. If the Board fails to agree on an independent chartered accountant or an investment or merchant banker, then either shareholder may request the President for the time being of the Institute of Chartered Accountants in Australia (Western Australian Division) to appoint the independent valuer.
Unless all of the shareholders agree otherwise, neither:
(d)the independent valuer; nor
(e)     any firm or company of which the independent valuer is an employee, partner, director or consultant,
must have had any business dealings with any Shareholder in the 2 years before the date of appointment.
C.Valuation
The independent valuer must be instructed to determine the fair market value of the shares by valuing the Company (including any subsidiary of the Company) as at the end of the month before the month in which the independent valuer is appointed under this Schedule 5 (Valuation Date).
The independent valuer must be instructed to grant each Shareholder an opportunity to submit to the independent valuer any information it feels is relevant to the valuation of the Company.
The independent valuer must value the Company as an undivided whole and then the fair market value of the Shares as that proportion of the value of the Company which the number of shares bears to the total number of issued Shares of the Company, and must not have regard to whether the Shares to be valued constitute a controlling interest or a minority interest.
The independent valuer must determine a single value and not a range of values.
D.    Access to information
The Board must ensure that the independent valuer has access to the accounting records and other records of the Company (including any subsidiary of the Company) at all reasonable times, and is entitled to require from any officer of the Company such information and explanation as the independent valuer requires to value the Company.
E.Period of determination
The Board must use its best endeavours to ensure that the independent valuer makes a determination as soon as practicable and in any event within 30 Business Days after receiving instructions.
F.Process
The Parties agree that, in determining a value for the Shares under this Schedule, the independent valuer:
(f)will act as an expert and not as an arbitrator;
(g)     may obtain or refer to any documents, information or material and undertake any inspections or enquiries as he or she determines appropriate;
(h)     must provide the Parties with a draft of his or her determination and must give the Parties an opportunity to comment on the draft determination before it is finalised; and
(i)    may engage such assistance as he or she reasonably believes is appropriate or necessary to make a determination.
Effect of Administration
KordaMentha ordered the cessation of all agricultural operations on their appointment as an administrator except for those operations which were necessary to maintain Timbercorp’s agricultural assets. Accordingly, they engaged in maintenance work like fertilization of the trees and, in the case of the forests, work designed to minimise the fire risk. On 23 April 2009 KordaMentha ordered the cessation of all forestry harvesting and wood chipping operations because of the financial risk attendant upon them. The proper harvesting of the forests was affected to a limited extent because KordaMentha could not obtain access to forests on leased land without undertaking the burden of those leases. The export of woodchips was also disrupted because a long term supply contract with Marubeni, a Japanese firm, was not adopted by the liquidator.
Some woodchips were stockpiled at the terminal for the purpose of the Marubeni contract. Consideration was given to the sale of some woodchip on the spot market. The sale of one shipment was negotiated and effected in June 2009. Some of the woodchip sold may have been harvested after the appointment of KordaMentha as administrator.
Quantities of woodchip are generally measured in green metric tonnes (GMT) on receipt into the terminal. In July 2009 Timbercorp’s Forestry Manager, Mr Diedrichs, arranged about 200 GMT of woodchip to be delivered to the terminal. That woodchip was probably harvested and processed before the administration of Timbercorp commenced. It had been kept on about eight truck trailers on Timbercorp land before it was delivered to the terminal. An inventory report of woodchip received at the terminal shows that 200.48 GMT was received from July 1 to 7 October 2009 and that a total of 1,051.29 Bone Dry Metric Tonnes (BDMT) of Timbercorp woodchip were stockpiled at the end of that period.
In August 2009 attempts were made to arrange a further shipment of woodchip stored at the terminal; there were also some negotiations with ITC over its sale. Neither attempt to sell the woodchip was successful.
Appointment of Deloitte
The minutes of the meeting of the Board of PPT held on 14 August record the following:
It was then proposed that an independent valuation be sought from Charted Accounting firm Deloitte for the purposes of clause 7.2 and schedule 5 of the Shareholders Deed [sic]. It was noted that Deloitte are not independent, having provided services to the shareholders within the last two years, however that they could be appointed if both shareholders agreed. The directors resolved unanimously to appoint Deloitte to provide an independent valuation of the shares of the company.
Action LH to engage with Deloitte to provide valuation.
The directors appointed by Timbercorp at that time were its employees, Mr Diedrichs and Mr Saykao. They were present at the meeting which was held by a phone hook-up. Ms Azavedo, another Timbercorp employee, was also in attendance. The directors appointed by ITC who attended that meeting were Mr Davies and Mr Evans. Mr Hargreaves, who was an ITC employee and the company secretary of PPT, was also present, as were other ITC employees.
Diedrichs and Saykao deposed that the meeting was called by Mr Hargreaves on short notice. It appeared from emails that were subsequently produced during the course of the trial that Mr Diedrichs was the fist to request the meeting of 14 August so that the Board could discuss the release by PPT of financial information requested by KordaMentha to assist their efforts to sell Timbercorp’s shares in PPT. Mr Hargreaves added the issue of a valuation of Timbercorp’s PPT shares to the agenda.
Engagement of Deloitte
On 24 August 2009 Deloitte wrote a letter addressed to the directors of PPT confirming that they had been engaged and setting out the terms and conditions of that engagement. On the first page of the letter under a heading “Purpose of Evaluation” the following was written:
The company is jointly owned by Integrated Tree Cropping Limited (‘ITC’) and Timbercorp Limited (‘ITC’) [sic] and operates a pulpwood handling facility at the Albany Port in Western Australia. We understand that this Valuation report is required in accordance with clause 7.2 and Schedule 5 of the Shareholders’ Deed whereby ITC has an option to acquire the equity owned by Timbercorp Limited as a result of Timbercorp triggering a Default Event as defined in the Shareholders’ Deed.
At the conclusion of the letter provision was made for someone, presumably the directors or an authorised officer of PPT, to confirm Deloitte’s appointment by subscribing to the proposed terms and conditions. On the evidence, that part of the letter was not executed by anyone from Timbercorp or KordaMentha. There is no evidence that it was executed by ITC or PPT. It is clear, however, from the subsequent conduct of Mr Hargreaves, that PPT must have accepted the terms of engagement proffered by Deloitte.
On 25 August 2009 Mr Diedrichs sent the letter from Deloitte to a number of Timbercorp employees and to Ms Lord and Mr Webster of KordaMentha. The accompanying email read:
Hi Mark-Joanna, please see attached information from Delloite [sic] on the valuation of PPT, information requests, and costs of services (65-85k plus 5% Admin). Reading the last line in Schedule 5 – H looks like PPT will be up for the costs of the valuation.
Anyone familiar with the PPT business model established by the Shareholders’ Deed would have appreciated that PPT would in turn invoice ITC and Timbercorp for that cost because it had no other source of funds to pay Deloitte’s charges. Mr Webster forwarded the information to Richard Forbes and Scott Langdon, also of KordaMentha. Mr Webster testified that Forbes and Langdon had responsibility for management of the PPT shares. Mr Webster gave evidence that he read that part of the Deloitte letter of engagement which referred to the purpose of the valuation but claimed that he did not understand all of its implications. Mr Langdon of KordaMentha also read the email and attachment. He had read the Shareholders’ Deed soon after the appointment of KordaMentha as administrator and testified that he understood that the purpose of the valuation procedure was to exercise the default option. Mr Forbes testified that he appreciated that the valuation may have been sought in connection with the default option under the Shareholders’ Deed.
Mr Forbes replied to the email informing Mr Webster and Mr Langdon that they should meet with Deloitte to obtain an understanding of the purpose of the valuation. On 25 August 2009 there was a meeting between representatives of ITC, Timbercorp and Deloitte to discuss the valuation process. A summary of that meeting was sent to Mr Webster.
Mr Langdon and Mr Webster met with Mr Craig Bryan, a Deloitte partner, and others on the very next day, 26 August 2009. Mr Webster testified that the officers of Deloitte explained the valuation process on which they intended to embark. Mr Webster testified that they informed him and Mr Langdon that they would require submissions from both Timbercorp and ITC. According to Mr Webster, he responded that it was highly unlikely that Timbercorp would make a submission because it was in liquidation. Mr Webster agreed that neither he nor Mr Langdon objected to Deloitte proceeding to prepare a valuation. Mr Webster also testified that Mr Langdon advised the officers of Deloitte that he and Mr Webster should be copied into any communications between Deloitte and the officers of Timbercorp who were responsible for the relationship between Timbercorp and PPT. Mr Langdon confirmed the general tenor of that evidence and testified that the meeting was brief, lasting only about 10 to 15 minutes. Mr Bryan gave a similar account of the meeting in his affidavit which was received as evidence.
On 27 August 2009 Mr Langdon provided Ms White of Deloitte by email with an electronic copy of the commentary on the PPT shares contained in an information memorandum about the assets of Timbercorp distributed by KordaMentha. Mr Langdon made the following request in that email:
As discussed, we request that Deloitte provide us with commentary in relation to your assumptions and methodology approach in relation to your evaluation of the PPT shares. Once your evaluation is completed in draft, please provide Timbercorp with a copy for consideration. We also request a copy of the ITC valuation submission once provided.
Ms White replied on the same day informing Mr Langdon that Deloitte would not furnish the shareholders with information supplied by the other.
On 28 August 2009 Ms White emailed officers of Timbercorp, KordaMentha and ITC providing a list of information that she had requested to that point and indicated the information she had received. It appears likely from that list that most of the information had been provided by Mr Hargreaves. Ms White’s email shows that, at the very least, officers of ITC would have been aware that Timbercorp and KordaMentha were aware that the valuation process was proceeding. ITC must also have been aware that Deloitte had written to Timbercorp advising of their appointment because both ITC and Timbercorp were shown to be recipients of the email by which the appointment was communicated.
On 27 August 2009 updated letters of appointment were sent by Ms White to Timbercorp, PPT and ITC.
From about 25 August 2009 Mr Diedrichs had requested permission to put a case which valued PPT at $25 million and had secured the assistance of other employees of Timbercorp for that purpose. It is apparent from email correspondence between Mr Diedrichs and officers of KordaMentha that the liquidator was happy to allow him to proceed on that basis. By about 12:57pm on 27 August 2009 Mr Diedrichs and Mr Langdon had realised that cl 2.5 of the Supplemental Deed provided that the price at which ITC could exercise the default option was the lesser of $1 or the value of the shares. That led to an immediate reassessment of the interest of Timbercorp in advancing a case for a high valuation of the shares.
At 12:57pm on 27 August 2009 Mr Langdon sent an email to Mr Diedrichs in the following terms:
Mark – as discussed recently, Timbercorp must ensure that PPT are providing Deloitte with all requested information in relation to the valuation process.
For strategic and legal purposes we are considering our options as to a proposal to Deloitte in relation to valuation. Until further notice, please do not commence preparing a valuation, proposal, providing any information directly to Deloitte or any engage [sic] in correspondence with Deloitte.
Mr Diedrichs replied at 4:47pm saying:
Taken on board (particularly after reading Supplemental Deed 2.5(b)), I will chase up PPT in the provision of information required by Deloitte for their evaluation.
Those emails show, and the testimony of Mr Langdon and Mr Diedrichs confirm, that on that day Mr Langdon and Mr Diedrichs realised that under the terms of the Supplemental Deed the default option entitled ITC to purchase Timbercorp’s shares for the lesser of $1 or the valuation per share.
It is of some importance that, nonetheless, Mr Langdon directed Mr Diedrichs to ensure that PPT provided any information which Deloitte requested. The direction echoed the obligation of the directors of the PPT Board in cl D of Sch 5; an obligation which is premised on the validity of Deloitte’s appointment.
On 28 August 2009 Mr Hargreaves asked Mr Diedrichs to comment on a spreadsheet of draft PPT cost projections before they were provided to Deloitte. Mr Diedrichs responded on Monday 31 August 2009 with certain comments about the CPI calculation and the “mid-case scenario” presented in those projections. The email, however, ended with “otherwise good work”.
Mr Diedrichs replied in those terms only after circulating Mr Hargreaves’ request for comments to his projections to Mr Langdon and Mr Webster.
On 10 September 2009 Ms White emailed a copy of Deloitte’s draft report to officers of ITC, employees of Timbercorp and officers of KordaMentha. The recipients of the draft report are apparent from the face of Ms White’s email. Mr Langdon responded on 11 September 2009; he thanked Ms White for the draft report and informed her that “we will review and consider, and come back to you shortly. Do you have a timeframe in which you would like a response?” Mr Langdon made some handwritten notes on the draft report. For example, he changed the word “administrator” to “liquidator”. He made changes indicated in square brackets in the following passage in that paragraph of the draft report which addressed the purpose of the evaluation:
We understand ITC has [~~has~~ may have] the option to acquire the 50 per cent interest in PPT that it does not already own as a result of Timbercorp triggering a default as defined in the Shareholder’s [sic] Deed.
A number of other changes were also suggested: the description of the delivery method employed at the terminal was corrected, a reference to the certification of woodchip exported from the terminal to be of high quality was added and the likelihood of another woodchip terminal licence being granted at the Port of Albany was raised along with a number of other minor changes.
After some email exchanges generated by the suggested changes, Mr Langdon wrote to officers of Deloitte in the following terms:
… further to our discussion tonight, the Liquidators of Timbercorp do not have any further comments in relation to the valuation. Accordingly, we request as a matter of urgency a copy of the draft valuation, and request that the valuation be finalised tomorrow.
However, there is no evidence that ITC was aware whether or not KordaMentha or Timbercorp had made any submission to Deloitte.
Deloitte delivered its final report on 17 September 2009. The valuation proceeded on an assumed third party handling fee of $14.25 GMT “to reflect arms length revenue for the Company”. It appears therefore that the valuation proceeded on the assumption of a variation of the Shareholders Agreement; obviously enough, if ITC were to obtain all of the shares in PPT the Shareholders’ Deed will have been superseded, but it is not obvious to me that that was the only basis on which the shares could or should have been valued. The value of the forecasted cash flows was discounted by 30 per cent:
… to reflect the long term company specific risks such as competitive pressure on third party handling fees and the sustainability of volumes and broader industry risks such as the current circumstances of a number of companies involved in forestry based managed investment scheme, the impact of any adverse governmental policy or legislative change, changes in the current taxation regime, and changes to current environmental policy including any adverse impacts arising from the Commonwealth Government’s climate change agenda.
The net debt due to the shareholders loans was deducted from the capital value of the projected cash flow and the residual value of the plant and equipment of the terminal. That analysis yielded a low value of $75 per share and high value of $90 per share.
Exercise of the Default Option
On 28 September 2009 Mr Russo, an officer of ITC, emailed Mr Forbes and Mr Langdon in these terms:
We have discussed with you on many occasions ITC’s option to acquire Timbercorp’s shares in PPT and the option exercise process is obviously well progressed now that the Deloitte final report has been served. It is our present intention to exercise the option.
In a letter dated 29 September 2009 Mr Erasmus, the Chief Executive Officer of ITC wrote to Mr Korda in these terms:
In the circumstances, we can confirm that our position remains that we will exercise our option and that we will offer woodchip export services on terms we consider to be reasonable, having regard to the Albany market. Indicative terms are set out in the schedule to this letter. These terms are largely consistent with our previous negotiations, with the exception that we would prepared to offer GFP a 12 year term on the basis of our excellent existing relationship with them.
As has been our consistent position, we will not materially deviate from these terms.

The terms included an obligation to supply a minimum of 350,000 GMT with financial penalties applying if that minimum target was not reached. The charge set was $15.50 per GMT. A term of twelve years was offered.
On 29 September 2009 Mr Korda replied that “the Liquidators of the Company do not acknowledge any option or pre-emptive right that ITC Limited purports to hold in relation to the company’s fifty per cent ownership of PPT”.
On 30 September 2009 ITC served by facsimile, and hand delivery, notice that it wished to exercise its option to purchase Timbercorp’s 50,000 shares in PPT for an aggregate purchase price of $50,000. The Notice was headed “Option Exercise Notice”. The Notice recited that a default event, which the Notice did not specify, subsisted with respect to Timbercorp, that an independent valuation served on 17 September 2009 had determined the value of the shares to exceed $1 per share and then declared:
ITC hereby gives notice to Timbercorp that it exercises the Call Option pursuant to clause 7.2 of the Shareholders Deed [sic] to acquire all of Timbercorp’s shares in PPT for a purchase price of $1 per share.
The sale of Timbercorp’s Forestry Assets
The negotiations for the sale of the forestry assets were conducted with an international firm; Global Forest Partners. Australian Bluegum Plantations Pty Ltd (Bluegum) was the corporate vehicle by which Global Forest Partners ultimately purchased the assets.
The plaintiff submitted that the evidence established the following facts concerning the sale process. I accept that submission. I have replaced some of the actual amounts referred to in the transaction documents with variables to maintain commercial confidentiality.
Timbercorp Forestry Assets Sale Process to 18 September 2009
84.In July 2009 KordaMentha had called for expressions of interest to purchase Timbercorp’s forestry assets, including Timbercorp’s shares in PPT, and issued an Information Memorandum for that purpose.
85.Page 9 of the Information Memorandum confirmed that final binding offers were required to include a completed purchase price allocation in the schedule contained therein.
86.Global Forest Partners responded on 18 September 2009, offering a purchase price of $[P₁]m. The offer broke down the assets and the purchase price as required. This confirmed the allocation of $8m for the 50% ownership of PPT. The unredacted copy of this document reveals the entire breakdown of the total purchase price through the various Forestry schemes.
The Negotiations between 18 and 22 September 2009
87.On 22 September 2009 Global Forest Partners provided a revised binding offer at $[P₂]m. Again, $8m was allocated to the interest in PPT and $[B]m for the Forestry Services businesses, $[F]m for the freehold land and $[L]m for the forest assets. The value of each of the forest assets which had been individually assessed had increased by [K]%. (footnotes omitted)
I interpolate here that the letter of 22 September 2009 conditioned the offer it contained on the transfer of the PPT shares. The plaintiff’s submissions continued:
The Events of 26 September 2009 to 12.40am on 30 September 2009
92.On 29 September 2009 at 2.54pm Minter Ellison provided Corrs and others with their comments on the latest draft of the share purchase deed.   Relevantly, this draft provided:
92.1   On page 5, Excluded Assets includes ‘(c) the PPT Shares held by Timbercorp if ITC exercises either its default option or pre-emptive rights to purchase those shares’;
92.2   On page 5, ‘Forestry Assets’ includes ‘(c) the PPT shares held by Timbercorp, on the condition that ITC does not exercise either its default option or pre-emptive rights to purchase those shares’.
92.3   On page 12, ‘Trees’ means ‘all the trees (including eucalyptus) planted on the woodlots and owned by (a) Timbercorp Lot (b) the Growers pursuant to the Forestry Schemes’, or (c) the investors in the Private Offer’;
92.4   On page 16, Clause 4.2 provides that ‘Excluded Assets are excluded from the sale’;
92.5   On page 19, the Purchase Price payable for the Forestry Assets is the sum of $[P₂];
92.6   On page 19, the parties are to agree that the Purchase Price will be allocated in accordance with Schedule 5;
92.7   On page 55, Schedule 5 allocates the purchase price as follows:
$[L] for the Plantations;
$[F] for Freehold Land;
$[B] for the Forestry Service Business; and
$8,000,000 for the PPT Shares.
93.At paragraph 28 of Mr Korda’s Affidavit sworn on 29 October 2009 in support of the application for Court Approval of the Forestry Assets Share Purchase Deed, he deposed that the purpose of the price allocation by bidders was to assist the Liquidators in determining apportionment of sale proceeds between the various assets and creditor groups.
94.On 30 September 2009 at 12.10am a fresh strike of the PPT share sale and purchase agreement was circulated by Thomas Barry of Corrs. The purchase price on paragraph 3.1 was an ‘amount to be agreed’. On page 2 the ‘Forestry Sale and Purchase Deed’ was defined to mean ‘the sale and purchase deed for the sale of the forestry assets executed by the seller, liquidators and buyer on the date of execution of this agreement’. There was a condition precedent in 4.1(b) namely ‘ITC’s default option and pre-emptive right to purchase the shares pursuant to the shareholder’s [sic] deed expiring or being waived’. Obviously at this time the parties acknowledge that ITC had such rights. Timbercorp Securities was not a party at that stage and there was no reference to ‘tree accretion value’.
95.On 30 September 2009 at 12.40am a further version of the Forestry Assets Sale and Purchase Deed was circulated by Chris Taylor of Corrs. Relevantly, this draft provided:
95.1   On page 5, the definition of ‘Excluded Assets’ is amended to delete the reference at (b) to ‘the PPT Shares held by Timbercorp if ITC exercises its default option or pre-emptive rights to purchase those shares.
95.2   On page 6, the definition of ‘Forestry Assets’ is amended to include ‘the PPT Shares held by Timbercorp’, with the words ‘on the condition that ITC does not exercise either its default option or pre-emptive rights to purchase those shares’ being deleted.
95.3   On page 12, the ‘Sunset Date means 31 December 2009, unless extended by agreement between the parties. The Sellers acknowledge that they will agree to extend the Sunset Date provided that they have adequate cash coverage for the extended period’.
95.4   On page 12, ‘Trees means all trees (including eucalyptus) planted on the Woodlots and owned by (a) Timbercorp Lot (b) the Growers pursuant to the Forestry Schemes or (c) the investors in the Private Offer’.
95.5   On page 13, ‘Value Allocation” means the value attributed to
‘(a) in the case of the Equipment, schedule 5;
(b) in the case of the PPT Shares [insert]; and
(c) in the case of Freehold Properties or Trees, annexure P.’
95.6   On page 20, the Purchase Price for the Forestry Assets is $[P₂];
95.7   On page 24, there is no reference to Clause 8.4(g).
95.8   On page 59, Schedule 5 allocates the Purchase Price as follows:
$[L] to the Plantations;
$[F] to the Freehold Land;
$[B] to the Forestry Service Business; and
$8,000,000 to the PPT Shares. (footnotes omitted)
…
The Events of 30 September 2009
…
101.At 11.00am the Liquidators appeared before Pagone J in the Supreme Court of Victoria, seeking approval for the sale of Timbercorp’s forestry assets.
102.The version of the sale and purchase deed included as ‘Annexure O’ to the Forestry Assets Sale and Purchase Deed which went before the Supreme Court of Victoria for approval, had no reference to ‘Tree Accretion Value’ and Timbercorp Securities Limited was not a party to the Agreement. The document was marked on the cover page ‘Execution version’. (footnotes omitted)
…
108.   At 4.52pm a further draft of the Forestry Assets SPD was circulated. This draft:
108.1 contained no concept of Tree Accretion Value; and
108.2 continued to include Clause 7.2 and Schedule 5 as to purchase price allocation.
109.At 5.29pm Glen Sauer sent to Tim Klienberg and others including Forbes and Langdon a note saying that the Forestry Assets Deed was in an agreed form (subject to resolution of the issue with PPT).
The ‘Tree Accretion Value’
110.The evidence establishes that the concept of a ‘Tree Accretion Value’ was first conceived in the evening of 30 September after ITC had served its Option Exercise Notice.
111.Mr Hallam described a meeting at Corrs’ office at which the implications of ITC having exercised its Default Option were discussed.
112.Mr Korda described how amendments to the Forestry SPD and the PPT Share Sale Agreement were negotiated by Mr Forbes and Mr Langdon and Mr Hallam whilst he remained in a separate room.
113.   The Forestry Assets SPD was relevantly amended so as to:
113.1 Include a definition of ‘Tree Accretion Value’ as follows:
‘Tree Accretion Value shall have the same meaning as in the PPT Share Sale Agreement’.
113.2 Include a definition of ‘Value Allocation’ as follows:
‘Value Allocation means the value attributed to the relevant Forestry Assets:
(a)    in the case of the Equipment, $[B] in total;
(b)in the case of the PPT Shares, $17,000,000, being $8,000,000 as the purchase price for the PPT Shares and $9,000,000 for the ‘Tree Accretion Value’ payable in accordance with the PPT Share Sale Agreement; and
(c)in the case of the Freehold Properties or Trees, in Annexure P’;
113.3 Remove clause 7.2 and Schedule 5;
113.4 Insert Clause 8.4(g) which incorporates the $11.4 million Initial Allocation Mr Korda could not explain and a claw back mechanism based on the terms of an access agreement.
Timbercorp’s assets were sold by the Forestry Assets Sale and Purchase Deed of 30 September 2009 (the Forestry Assets Deed).
The parties to the Forestry Assets Deed are Timbercorp TSL (in its capacity as responsible entity of certain forestry schemes and in its personal capacity) and a number of other Timbercorp group companies. Those companies were defined in the Forestry Assets Deed as the sellers. The liquidators were parties as was Bluegum which was described as the buyer. The forestry assets sold by the Deed included the PPT shares. The purchase price was defined to be the sum of $[P₂] million less the retention amount “to the extent that such amount is retained by the buyer at the Sunset Date”. The Sunset Date was a date after completion, on the Forestry Assets Deed, of such of the assets which the sellers were in a position to assign on that date. The retention amount was an amount calculated pursuant to cl 8 of the Forestry Assets Deed which provided that the parties would meet and agree in good faith a reduction of the purchase price, defined as the Retention Amount, which reasonably reflects the value of any forestry assets that the Sellers are unable to delivery at Completion. Assets which could not be delivered at completion were defined as the Undelivered Assets. The retention value was to be based on the Value Allocation for the undelivered assets. Annexure P to the Forestry Assets Deed is a schedule of the Value Allocation for the leasehold and freehold forests; the total value allocation for the former is $[L] million and for the latter $[F] million. The Value Allocation for plant and equipment is $[B] million. The Value Allocation for the PPT share was specified to be $17 million comprising the purchase price of the PPT shares of $8 million, and the sum of $9 million which was described as the Tree Accretion Value. The retention amount was to be paid to the liquidators and invested in an account styled “Escrow Account”.
It can be seen therefore that the total of the Value Allocations for the forests, the plant and equipment and the “purchase price” of $8 million nominated for the PPT shares is $[P₂] million which equates with the total purchase price, whereas the Value Allocation, ie. the amount which can be retained in the case of non-delivery of the PPT shares, is the greater sum of $17 million. The reason for the apparent paradox is as follows. The sum of $8 million (which includes the repayment of the balance of Timbercorp’s shareholders loan) approximates more closely the value of Timbercorp’s PPT shares on the basis that Timbercorp’s successor remained bound by the Shareholders’ Deed, which essentially assured it of the terminal’s facilities at cost but gave it no prospect of gain from the shares themselves. However it was that very right of use of the terminal at cost that underpinned the enhanced offer made by Bluegum on 22 September 2009; its higher offer for the forests was premised on the higher profit stream the forests near Albany would generate if the woodchips produced from them could be exported, at cost, through the terminal. It was for that reason that Bluegum insisted on a retention amount of greater than the $8 million allocated as the purchase price of the PPT shares if they were not delivered.
Clause 8 of the Forestry Assets Deed provided that if an undelivered asset was delivered before the Sunset Date a portion of the retention amount would be delivered to the sellers. On the other hand if the undelivered assets were not delivered by the Sunset Date the retention amount would be released to the buyer. It follows that if the PPT shares were delivered before the Sunset Date the full amount of the retention amount, $17 million, would be released to the sellers. In the event that the PPT shares remained undelivered by that date the Forestry Assets Deed provided for the disbursement of the retained $17 million in accordance with a formula contained in cl 8.4(g). Clause 8.4(g) provided that if the PPT shares were undelivered a base sum of $[17m – J] million would be returned to Bluegum. Bluegum and Timbercorp would share in the remainder, $J million, in accordance with a formula which depended on the liquidators procuring for Bluegum access to an export facility in the Port of Albany at a favourable price. If KordaMentha secured a favourable contract they would receive more for the sale of the forestry assets than the sum of $[P₂ – 17] million which would otherwise have been the purchase price if the PPT shares were not delivered. The higher purchase price KordaMentha could achieve in this way is referred to as “Improved Value”. The formula did not allow the Improved Value to approach $17 million because it could not exceed the amount of $[J] million. The effect of the formula was described by the forensic accountant, Mr Morris, in the following terms:
Summary of Financial Effects
Determination of the Improved Value
24.Clause 8.4(g)(ii) provides that the Improved Value be determined in accordance with a formula that results in an Improved Value of between $[IV] and $[IV2] million.
25.This in turn results in the Sellers receiving between $[IV] and $[IV2] million and ABP retaining between $[(17 – J) + (J - IV)] million and $[(17 - J) + (J – IV2)] million of the Retention Amount attributable to the PPT shares.
26.The Improved Value is $[IV2] million in the event that the Access Agreement provides ABP with an Access Price of $[a] per GMT and is $[IV] if the Access Price is $[a + $3] per GMT.
27.The Deed also sets out ‘Increased Allocation’ amounts for Access Prices of $[a + $1] per GMT and $[a + $2] per GMT and states that the ‘Increased Allocation will be calculated on a sliding scale’ based on the amounts corresponding to the rates from $[a] per GMT to $[a + $3] per GMT.
28.The Deed is silent as to the calculations that are to apply if the access price is below $[a] per GMT or about $[a + $3] per GMT.
An agreement providing for the terms on which the PPT shares were to be transferred was annexed to the Forestry Assets Deed but not executed until 8 October 2009. The parties to the Share Sale and Purchase Agreement (the Share Agreement) were Timbercorp, TSL, the Liquidators and Bluegum. Pursuant to the Share Agreement Bluegum agreed to purchase Timbercorp’s 50,000 shares in PPT. The Share Agreement stipulates that the purchase price for the shares “is $8 million less the amount of the seller loan”. The seller loan is defined to mean the balance of Timbercorp’s shareholder loan with PPT, which, at the date of the agreement, was $7,591,257.78. Bluegum must pay the purchase price to Timbercorp at completion. However, pursuant to cl 4.6 of the Share Agreement Bluegum must also pay to PPT an amount equal to the balance of the sellers loan and cause PPT to immediately pay such amount to the seller in full discharge of the seller loan. Clause 4.6(d) of the Share Agreement provides that at completion Bluegum must also pay to TSL the Tree Accretion Value which was in turn defined to mean the sum of $9 million. In addition Bluegum must enter into a Deed whereby it agrees to be bound by the Shareholders’ Deed and Supplemental Deed.
Clause 4.1 of the Share Agreement conditioned the parties’ obligations on completion under the Forestry Assets Deed. Their obligations were also conditional:
ITC’s default option and pre-emptive right to purchase the Shares, pursuant to the Shareholders Deed [sic], expiring or being waived.
Construction of clause 7
In my view the ordinary meaning of the word “administrator” appearing in cl 7.4 is wide enough to include a liquidator. An administrator is a person who exercises control over another distinct entity. The essential concept is one of external control. The Macquarie Dictionary defines a “company administrator” to be a person appointed under an insolvency act to administer the affairs of a company in liquidation.
In my view there is no reason to read the word “administrator” in the Shareholders’ Deed as a term of art. True it is that the Shareholders’ Deed is one entered into by commercial entities of a substantial size and with extensive business experience. Moreover the Shareholders’ Deed was probably drawn by lawyers. However, there is no rational reason which the shareholders could have had to intentionally limit the word “administrator” to the narrow meaning it has in the Corporations Act 2001 and to exclude the appointment of a liquidator from being a default event; to do so would frustrate the manifest purpose of cl 7.4. The appointment of a liquidator poses the same, if not a greater, risk to the business interests of the solvent shareholder than the risk which arises from the appointment of an administrator in the narrow sense. There is no sensible reason to limit a default event to the appointment of an administrator, in the sense that that term is used in the Corporations Act 2001, and not a liquidator. Both an administrator and a liquidator exercise external control. Generally an administrator appointed under s 436A of the Corporations Act 2001 controls a corporation for the purpose of continuing its business activity in the hope that it will trade out of its financial difficulties and avoid liquidation. The creditors may then resolve that the company execute a Deed of Company Arrangement.[6] Pursuant to s 436B of the Corporations Act 2001 a liquidator may also appoint an administrator to operate the whole, or a part, of the business of a corporate entity in liquidation.
[6] Corporations Act 2001 s 439C(a).
Administrators and Liquidators, as those terms are used in the Corporations Act 2001, are both appointed to manage the actual or perceived insolvency of a corporation; their functions are related and both exercise external control over the corporation. I find that the shareholders intended the word “administrator” in cl 7.2 to refer compendiously to both statutory offices and therefore construe it to include a liqudator.
On the other hand there is an important distinction between the concept of an administrator, involving as it does external control of a corporate entity, and a receiver or manager who is appointed by a secured creditor with respect to particular assets or undertakings of that corporate entity.

In Opes Prime Stockbroking Limited (Administrators Appointed)[7] Finklestein J observed:
In my view, whether the issue of ‘analogy’ is approached from the perspective of the nature of the appointee or from the principal consequence of the appointment, the result must be the same: a liquidator is not analogous to either an administrator or a receiver appointed by a secured creditor. The function of a liquidator – whether called a liquidator, a trustee, a receiver, a curator or a syndic – is to preside over the death of a company. An administrator appointed in rescue proceedings strives for the opposite result (even though the company may yet in the end die). A receiver appointed by a secured creditor does neither of those things, being largely unconcerned about the fate of the company. From any perspective, the offices are poles apart.[8]
[7] [2008] FCA 1425
[8] Opes Prime Stockbroking Limited (Administrators Appointed) [2008] FCA 1425 at [61].
I would, with respect, adopt the distinction drawn in that passage between external control of the corporation and management of one or more of its assets. Even though the passage also explains how the functions of a liquidator and an administrator, in the narrow sense, differ it is not inconsistent with the construction of the word “administrator”, in the context of the Shareholders’ Deed, to include both offices.
I hold that a liquidator is not a “similar officer” within the meaning of that term in cl 7.4(d) of the Shareholders’ Deed precisely because a liquidator controls the corporate entity itself and not just some part of its assets or undertakings. The distinction I make is the same distinction which is drawn between cll 7.4(c) and 7.4(d). The separate treatment of administrators and receivers in those sub-paragraphs also reinforces my view that an administrator within the meaning of that term in cl 7.4(c) includes a liquidator.
If my construction of the word “administrator” be mistaken, it is, in any event, my view that although Timbercorp continues to carry on business during the winding up, by reason of its proposed liquidation it “threatens to cease to carry on business”.
After the commencement of the administration and the winding up, Timbercorp entered into share farming arrangements with some of its almond and olive holdings. Timbercorp has not yet ceased carrying on business. It has terminated some of its trading activities but it is still in the business, at the very least, of maintaining its assets and preparing for their sale. It is carrying on that business only for the purpose of winding up but it has not ceased to carry on business. A liquidator is expressly empowered by the Corporations Act 2001 to carry on the business of the company albeit for the limited purpose of the disposal or winding up of that business.[9] Furthermore, speaking generally, a company may come out of a winding up without being finally wound up even though that may not be a realistic possibility in the case of Timbercorp.[10]
[9] Corporations Act 2001 ss 477(1)(a), 506.
[10] Corporations Act2001 s 439C(a).
There is no reason to limit the expression “ceases business” in cl 7.4(a) of the Shareholders’ Deed to the woodchipping or forestry operations in the Albany region. True it is that the business of the joint venture is the export of woodchips, but it is not a material obligation of the Shareholders’ Deed to supply a minimum volume of woodchip; it is only a material obligation not to pay the financial penalties incurred for not doing so.
The other sub-paragraphs of cl 7.4 also militate against an implication limiting the business referred to in cl 7.4(a) in that way because, together, they deal with the concept of insolvency and the loss of control of the shares.
In any event there is little reason to strain to give the phrase “cease business” more work to do having regard to the additional element of cl 7.4(a); threatens to cease to carry on business. In my view the word “threatens” is there used in the sense of giving an ominous indication. As a result of the meeting of its creditors held on 29 June 2009 and at the direction of the liquidator, Timbercorp is in the process of realising its assets for the purpose of winding up its corporate existence. By embarking on that course Timbercorp indicates and threatens the impending cessation of its business operations. The defendant contends that it is not winding itself up; the liquidator is and that it cannot be said that Timbercorp, itself, is threatening to cease to carry on business. However, the insolvency which precipitated the creditors’ actions was its own doing.
More importantly, the separate existence of KordaMentha as a liquidator should not be allowed to obscure the essential nature of a liquidation. It is Timbercorp that is selling its assets and preparing for its own annihilation. The directing mind of Timbercorp, and the syndic presiding over its death, to borrow the expression of Finklestein J in the above cited passage, is now KordaMentha, and not its Board, but it is Timbercorp which is conducting its business in a way which manifestly portends its demise.
Construction of the word Dispose
There is a necessary inconsistency between the wide terms in which the word “dispose” is defined by the Shareholders’ Deed and the operation of Sch 6. The Notice of Sale contemplated by Sch 6 could hardly contain the specified particulars unless negotiations with a third party were reasonably advanced. Indeed the form prescribed for the Notice of Sale suggests that negotiations will have reached, at the very least, the stage of the formulation of an offer or an invitation to treat by a prospective purchaser.
Plainly Sch 6 and the cl 3.5, including the definition of “dispose” must be read together. In my view, notwithstanding the apparent width of the definition of “dispose”, cl 3.5 is limited by a necessary implication arising out of the terms of Sch 6. The effect of that implication is to restrict the scope of cl 3.5 so that it only prohibits a shareholder from attempting, or taking any steps, to dispose of the shares other than for the purpose of complying with the procedure prescribed by Sch 6. It follows that an agreement made by one shareholder to dispose of its shares, which is subject to the pre-emptive rights of the other, and any attempt to negotiate such an agreement, is not a breach of cl 3.5. I acknowledge that there may be some difficulty in clearly establishing the purpose of preliminary negotiations where they are not expressly declared to be subject to the pre-emptive rights of the other shareholder, but I think that the difficulty is not so great as to render inefficacious the construction I would adopt.
Statement of Issues
At my request the parties have submitted a statement of issues. I will give my reasons by way of determination of the submitted issues due to the time constraints imposed by the urgency of this matter.
Issues 1 – 1.3
1.Has a ‘default event’ occurred pursuant to clause 7.4 of the Shareholder’s [sic] Deed (paragraphs 74 to 78 of the Amended Statement of Claim). More particularly:
1.1.    Did Timbercorp stop delivering woodchip to the Albany facility and, if so, was that a cessation of the business of Timbercorp?
1.2.    Was the appointment of a liquidator the cessation of business or a threat to cease business?
1.3.    Is a liquidator an ‘administrator’ within the meaning of that term in clause 7.4(a) or a ‘similar officer’ pursuant to clause 7.4(d), Shareholder’s [sic] Deed?
I recorded earlier that Mr Diedrichs arranged the delivery of woodchip to the terminal in about July 2009. It follows that the answer to issue 1.1 is that Timbercorp stopped harvesting and woodchipping operations after 29 June 2009 but that after that date it delivered to the terminal 200 GMT of woodchip which had been prepared for export at an earlier date. I do not regard the delivery of the woodchip, or the attempts to sell the stockpile, as sufficient activity to find that Timbercorp was carrying on the business of exporting of woodchip after 29 June 2009; there was insufficient continuity of business activity to so find. However, for the reasons I have given in [69] – [71] above, Timbercorp had not ceased to carry on business despite the cessation of its woodchipping business operations.
It follows from my discussion of the meaning of cl 7.4 that I would answer issue 1.2 by finding that from the appointment of KordaMentha as an administrator, and later a liquidator, Timbercorp has threatened, and continues to threaten, to cease carrying on business. I would for the reasons given in [61] – [63] find that the term “administrator” in cl 7.4(a) includes a liquidator. However, I find that a liquidator is not a similar officer within the meaning of that term in cl 7.4(d) of the Shareholders’ Deed.
The defendant contends that on a proper construction of cl A of Sch 5 and cl 7.2 of the Shareholders’ Deed a default event must exist at the time the independent valuer is appointed and must exist at the time of the exercise of the default option. Clause A provides that the procedures it prescribes for the valuation of the shares applies “if an independent valuation of shares is required under clause 7.2”. The right to exercise the default option for which the valuation is required only arises pursuant to cl 7.2 if there is a default event or a breach of a material obligation. It follows that the defendant’s contention should be accepted. However, both the appointment of KordaMentha as liquidator, and the threat to cease business, are default events which meet that condition.
Issues 1.4 – 1.5
1.4.Did the liquidators ‘dispose’ of shares in breach of ‘the Constitution or the Deed’ by entering into negotiations with respect to the PPT shares? Can ITC rely on facts giving rise to a ‘default event’ which occurred after the appointment of Deloitte on 14 August 2009?
1.5.Did the liquidators ‘dispose’ of shares in breach of ‘the Constitution or the Deed’ by executing the confidential Sale and Purchase Deed (SPD) late in the evening on 30 September 2009? Can ITC rely on entry into the SPD as giving rise to a ‘default event’ given that it was executed after the appointment of Deloitte on 14 August 2009 and after the notice of exercise of the option was received (earlier in the day on 30 September 2009)?
I find that the liquidators did not “dispose” of the shares in breach of the Constitution of PPT or the Deed by entering into negotiations with respect to PPT shares because those negotiations were conducted for the purpose of entering into an agreement which was subject to the exercise by ITC of its rights of pre-emption.
Accordingly I find that neither the negotiations with Bluegum nor the entry into the Forestry Assets Deed on 30 September 2009 were a disposal of the shares. Therefore they are not default events for the purpose of cl 7.4(e). Even if I be mistaken on my construction of the word “dispose”, the negotiations with Bluegum commenced after 14 August and could not, for the reason given in [79], enliven the valuation procedure.
Compliance by ITC with preconditions for valid exercise of the option
Issues 2 - 2.1.2
2. Did ITC comply with the pre-requisites for the valid exercise of the option:
2.1. Was it a requirement of Schedule 5, clause B, Shareholder’s [sic] Deed that the independent valuer be:
2.1.1. a natural person?
2.1.2. a chartered accountant or a merchant or investment banker?
It would be surprising if Sch 5 of the Shareholders’ Deed required the appointment of a particular individual as an independent valuer. It is well known that accountants who are capable of undertaking a valuation of the nature contemplated by Sch 5 generally work in large national, or even international, partnerships. The reputation of the individual partners of such a firm may not be well known, or known at all, even though the firm is known to have the expertise to conduct the valuation. For that contextual reason and for the further reasons which follow I hold that cl B of Sch 5 can be complied with by the appointment of an accounting partnership.
In my view an appointment of an accounting partnership pursuant to cl B of Sch 5 is in effect the appointment of the partners jointly and severally, or, to put it in another way, the appointment of such of the partners as the partnership may assign the task of valuation. I acknowledge that the very function of conducting a valuation implies the acceptance of a degree of personal responsibility. I find, however, that the appointment of a firm necessarily entails the appointment of one or more of the natural persons who are the partners.
I also acknowledge the statement in The Law and Practice of Commercial Arbitration in England[11] that only a natural person can be appointed as an arbitrator.[12] However there is, I think, a distinction between the appointment of an arbitrator to resolve a dispute over the respective rights and obligations of parties,[13] especially where the arbitration is subject to statutory control, and the appointment of a person to provide an expert report. The power of appointment in the latter case may readily be capable of a construction which allows the appointment of a partnership where, to do so, reflects the circumstances in which experts of that type often practice.
[11] Mustill and Boyd, The Law and Practice of Commercial Arbitration in England (2^nd ed, 1989).
[12] Mustill and Boyd, The Law and Practice of Commercial Arbitration in England (2^nd ed, 1989) at 247-9.
[13] IOOF Australia Trustees Ltd v Seas Sapfor Forests Pty Ltd (unreported, Supreme Court of South Australia, 3 November 1995).
Three further considerations support the construction I would adopt. First, Sch 5 itself contemplates delegation to the President of the Institute of Chartered Accountants where the Board cannot agree on a valuer. It is not difficult therefore to countenance a construction of the appointment clause which would effectively delegate the choice of the particular partner who will value the shares to the firm. Secondly, any concern about the individual valuer that might be assigned to the task by the chosen partnership can be met by the imposition of conditions to the appointment of the firm. Thirdly, if the concern is that the assigned valuer has had prior dealings with a shareholder, then an objection can be taken under the terms of Sch A.
The valuation requested by the directors of PPT was in fact provided by Mr Barry who was a Deloitte partner.
For the above reasons I would construe cl B of Sch 5 in a way which allows the directors to, in effect, delegate the appointment of a particular partner or partners who will conduct the valuation to the firm. I find that the directors of PPT exercised the power in cl B of Sch 5 to appoint a natural person as an independent valuer by resolving as they did.
I wish to make it clear that it is not my finding that the Board of PPT appointed Mr Barry to value the shares. My finding is that the Board appointed an unspecified partner of Deloitte and Deloitte assigned the task to Mr Barry. My finding is that the resolution of the Board appointing Deloitte was an appointment of an independent valuer pursuant to Sch 5.
The requirement in Sch 5 that the firm of which an independent valuer is an employee or partner must not have had business dealings with a shareholder is not inconsistent with the construction I would adopt. On one view the appointment of a firm is in effect the appointment of the partner to whom the firm assigns the task. The additional prohibition against any prior business dealings by the firm would, on that view of who was appointed by the Board, still be necessary. The requirement relating to the firm would still serve a useful purpose for two reasons. First, the partner to whom the valuation is in effect delegated by the firm appointed by the Board, might be regarded for the purpose of the clause to be the appointed valuer even though he or she was not nominated in the resolution. That partner may not personally have had prior business dealings, but there will not have been sufficient compliance with the prohibition against such dealings if the firm itself has provided the prior services. The requirement would also still have work to do in those cases where the Board did choose to appoint, and nominate, a natural person who had no prior business dealings, but who was a partner or employee of a firm which had.
Issues 2.2 – 2.3
2.2.Did Deloitte have business dealings with the shareholders in the 2 years before the date of appointment?
2.3.If the answer to paragraph 2.2 is ‘yes’, did the shareholders agree to the appointment of Deloitte as required by Schedule 5, clause B, Shareholder’s [sic] Deed? Was it sufficient to satisfy the requirement that the shareholders agree, for Mark Dierdrichs[sic] and Charlie Saykao to have voted in favour of the resolution appointing Deloitte at the board meeting of PPT?
It is not disputed that Deloitte had business dealings with Timbercorp in the two years prior to its appointment.
However, I find that Timbercorp agreed to the appointment of Deloitte within the meaning of that term in cl B of Sch 5. I would construe the word “agree” to mean consent, which can be unilaterally given by a shareholder at any time, rather than requiring a mutual consensus to waive the prohibition against prior dealing.
I accept that the Shareholders Agreement must be given in addition to the assenting votes of the directors appointed by it. The directors may act independently of the shareholders and may even be duty bound to vote for the appointment of a valuer where the shareholder they “represent” has committed a default, notwithstanding instructions that the defaulting shareholder may give them to vote against the appointment. However, I find that Timbercorp did agree, or consent, to the appointment of Deloitte by the words and conduct of Mr Diedrichs, in his capacity as the General Manager, Forestry, of Timbercorp. That consent appears from his communications and meetings with Deloitte and his communications with employees of ITC and Mr Hargreaves. Mr Diedrichs was authorised by KordaMentha to co-operate in the preparation of the valuation. That cooperation signified the consent of Timbercorp. The conduct of Mr Langdon, a senior officer of KordaMentha who had responsibility for the management of the PPT share issue, also gave the effective consent of Timbercorp to the preparation of the valuation by Deloitte. My reasons for so concluding follow.
Circumstances in which the acts and knowledge of an employee or officer of a corporation will be attributed to the corporation are difficult to precisely define.
In Meridian Global Funds Management Asia Ltd v Securities Commission,[14] Lord Hoffmann, delivering the advice of the Privy Council, said:
The company's primary rules of attribution will generally be found in its constitution, typically the articles of association, and will say things such as 'for the purpose of appointing members of the board, a majority vote of the shareholders shall be a decision of the company' or 'the decisions of the board in managing the company's business shall be the decisions of the company.' There are also primary rules of attribution which are not expressly stated in the articles but implied by company law, such as:
'the unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company:' see Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd. [1983] Ch. 258.
These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort.
…
The company's primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person 'himself,' as opposed to his servants or agents.[15]
[14] [1995] 2 AC 500.
[15]Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-7.

In Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd[28] Young J stated:
It must be remembered that any right under an option is a contingent right. There may be more than one contingency. Thus an option to acquire land may be given to the holder of the office on a certain day. The contingencies that must occur before a person may acquire an equitable fee simple pursuant to that option are at least: (a) that the person seeking to acquire the property be appointed to the office at the appropriate time; and (b) the option be exercised. Before these contingencies have occurred, there is an equitable contingent right of property that has passed out of the control of the grantor, but the grantor still retains the beneficial interest in the property: J Sainsbury Plc v O’Connor [1991] 1 WLR 963 and see Farrands, The Law of Options (1992) Law Book Co, Sydney at 30.[29]
[28] [1995] 36 NSWLR 510.
[29] Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd [1995] 36 NSWLR 510 at 524.
In Ballas v Theophilos [No 2][30] Williams J stated:
Once the option has been duly exercised, the relationship of the parties becomes that of vendor and purchaser of the property and their rights and obligations are exactly the same as those which arise where a contract of sale is made by persons between whom no legal relationship existed prior to the making of the contract. If the contract is one which a court of equity would order to be specifically performed, the purchaser would acquire an equitable interest in the land. If the option to purchase relates to property of such a character that the court of equity would order the contract of purchase created by the exercise of the option to be specifically performed, then the option to purchase would create an equitable interest in the land, the extent of the equitable interest depending upon the terms of the option. The question whether the option creates an equitable interest in the property would become important if for instance the owner of the property should attempt to alienate it to a third party during the currency of the option in which case the optionee, if he duly exercised the option and performed the consequential contract of sale, would be entitled to have the property conveyed to him in priority to the third party …[31]
[30] (1957) 98 CLR 193.
[31] Ballas v Theophilos [No 2] (1957) 98 CLR 193 at 208.
In my view ITC has held an equitable interest in the PPT shares since the appointment of KordaMentha as the administrator and during the winding up because default events subsisted continuously during that time. It follows that ITC’s equitable interest did not arise after the winding up but was created before it. The recept of the valuation and the provision of the Notice exercising the default event satisfied two contingencies affecting that interest, and therefore its value, but were not the ultimate source of the interest. Section 501 of the Corporations Act 2001 is inapplicable because of the earlier existence of ITC’s equitable interest.
The Notice of Sale (the pre-emptive issue)
Issue 4
4.Assuming that the Plaintiff establishes that it has exercised the option, is the defendant’s Notice of Sale invalid and therefore of no effect?
Timbercorp’s Notice of Sale was served after the occurrence of the default event and after ITC exercised its default option. It follows that at that time the defendant was bound to convey its shares to ITC. Timbercorp’s Notice of Sale is therefore ineffective. If ITC holds an equitable interest from the moment of a default event, and while a default event subsisted, it may be that a Notice of Sale would have been ineffective if given at any time during the period of default. On the other hand, it may be that ITC’s contingent equitable interest is affected by Timbercorp’s right to sell the shares subject to the pre-emption procedure in Sch 6. For example, the Sch 6 procedure could probably not be unreasonably delayed while ITC considered whether or not to exercise its default option. However, the circumstances of this case thankfully do not raise that issue.
Issue 5
5.Was it permissible to include, in the defendant’s Notice of Sale, an amount of $9m for the ‘tree accretion value’?
If contrary to my findings above ITC has not validly exercised its default option, and on the assumption that Timbercorp retains a right to sell its shares in accordance with Sch 6 notwithstanding the subsistence of a default event, it is necessary to decide whether Timbercorp’s Notice of Sale was effective. ITC contends that the Notice of Sale was invalid by reason of the requirement that the sum of $9 million for tree accretion value be paid to TSL. The effect under the Forestry Assets Deed of the failure to deliver the PPT shares was explained by Mr Morris in these terms:[32]
31.BTM12 illustrates that the range in value is $17 million depending upon whether the Sellers deliver the PPT shares at completion and, if they are unable to, whether an Access Agreement is offered to the Buyer and, if so, at what Access Price. Specifically:
31.1   If the PPT shares are delivered ABP will pay $17 million, being the amounts set out in the PPT Share Sale Agreement comprising the Tree Accretion Value, the repayment of the Timbercorp loan account and the purchase price of the PPT shares.
31.2   If the PPT shares are not delivered the amounts receivable and payable fall by $[17m – J] million.
31.3   If the PPT shares are not delivered, but an Access Agreement is offered to the Buyer at an Access Price higher than $[a] per GMT, the amounts receivable and payable then fall at the rate of $[b] million for each dollar by which the Access Price increases above $[a] per GMT until the Access Price reaches $[a + $3] per GMT. If an Access Agreement is offered at $[a + $3] per GMT the Sellers will receive $[IV].
31.4   If the PPT shares are not delivered and an Access Agreement is not offered to the Buyer, none of the $17 million is payable to the Sellers.
[32] The actual amounts referred to have been replaced by letters to maintain commercial confidentiality.
It follows that the effect of the Forestry Assets Deed was that Bluegum would pay $17 million more for the forestry assets if they included the PPT shares than it would pay for the forestry assets without the PPT shares. I acknowledge that Bluegum would pay more than $[P₂ – 17m] million for the forestry assets, other than the PPT shares, if, in addition, a favourable access contract was procured for it. However, I see no greater difficulty in concluding that Bluegum was prepared to pay $17 million for the PPT shares than in concluding that Bluegum was also prepared to pay some amount less than $17 million for the benefit of a favourable access contract if it did not receive the PPT shares.
ITC relies on authorities which have held that it is impermissible to undermine a right of pre-emption by adding collateral conditions to a proposed sale.
In Permanent Trustee Australia Ltd v Woolworths (Qld) Ltd[33] Permanent Trustee leased land in the township of Toowong to Woolworths, which held a right of pre-emption under the lease. A prospective purchaser wished to purchase both the leased land and other land in Toowong owned by Permanent Trustee. The Notice provided to the lessee offered to sell to it both parcels of land in accordance with the terms and conditions acceptable to the prospective purchaser. Moynihan J said:
I am unable to construe the clause, which I do not regard as ambiguous, as having the effect contended for by the respondent. Cl3 by its terms is referrable to the sale of the subject premises. I can see no basis for construing reference to the form of a contract of sale containing terms and conditions as referring other than to the terms and conditions necessary to effect the sale of the subject premises. In general conveyancing parlance the proper function of conditions of sale for land is to set out the terms on which the land is sold. In other words, the terms and conditions referred to in cl3(2) are ancillary to, but necessary to give effect to a contract for sale of the subject premises. The provision does not authorise the respondents including the sale of land other than the subject premises as a condition of sale of that land.[34] (footnotes omitted)
[33] In the matter of a Lease between Permanent Trustee Australia Ltd and Woolworths (Q’Land) Pty Ltd; in the matter of an application by Woolworths (Q’Land) Pty Ltd, BC9805880, 6 November 1998.
[34] In the matter of a Lease between Permanent Trustee Australia Ltd and Woolworths (Q’Land) Pty Ltd; in the matter of an application by Woolworths (Q’Land) Pty Ltd, BC9805880, 6 November 1998, at [4], [6].
In Sims Metal Ltd v Wanless Metal Industries Pty Ltd[35] Cohen J considered a first right of refusal granted to Sims Metal over the Queensland business assets of Wanless as a condition of the sale of other assets.
[35] BC9700743, 19 March 1997.
The proposed sale of those assets to a third party involved both cash price and the issue of 11 million ordinary shares in the proposed purchaser. It was also a condition of completion of the proposed sale that a particular person would be appointed to the Board of Directors of the prospective purchaser. Cohen J held that the Notice did not comply with the terms on which the right of first refusal was granted for the following reasons:
Thus, the notice to be given under cl4.1 is the first step in a series which may lead to a sale. The agreement to sell contemplated by cl4.5 is to be brought about by the offer in cl4.2 and acceptance in accordance with cl4.3. Cl4.1 cannot be read in isolation. Although it only requires a notice to contain the terms and conditions upon which the grantor proposes to sell, that notice is also required by cl4.2 to be an offer. It therefore has a dual role, and in the second category it must be in terms which permit acceptance in order to create a contract. If the so-called offer contains conditions which the grantee cannot comply with because they are extraneous to any relationship which it might have with the grantor and are personal to another proposed purchaser, then the balance of cl4 can never be brought into operation.
Thus, in my opinion, the offer made by the grantor to the grantee must be capable of acceptance by the grantee. This in turn means that the notice which constitutes that offer must contain terms and conditions which are capable of that acceptance. When I refer to capability of acceptance I do not of course refer to a price which may be difficult for the grantee to pay or to terms and conditions which might prove harsh or onerous. These matters would relate only to the grantee's capacity to accept the offer. What in my opinion would not amount to an offer, and therefore could not be contained in the notice under cl4.1, is a condition which can only be fulfilled by a person or company which is not the grantee. The condition of the allotment of shares in Metalcorp and the other conditions to which I have referred are impossible of performance by the plaintiff and in my opinion prevent the notice given on 28 January 1997 from complying with the requirements of cl4.1.[36]
[36] Sims Metal Ltd v Wanless Metal Industries Pty Ltd , BC9700743, 19 March 1997 at [14]-[15].
However in THL Robina Pty Ltd v The Glades Golf Club Pty Ltd & Anor[37] Chesterman J said:
The terms and conditions including those as to price … must be such as to be capable of acceptance by the applicant. His Honour added the following cautionary note:
This is not to say… that the terms and conditions may not be onerous, or even harsh, or the price so high as to prove difficult for the applicant to pay.[38]
[37] [2004] QSC 461.
[38] THL Robina Pty Ltd v The Glades Golf Club Pty Ltd & Anor [2004] QSC 461 at [50].
In my view the offer made by Timbercorp to ITC was in accordance with the right of pre-emption conferred by the Shareholders’ Deed. It did not impermissibly include a collateral obligation or any terms which precluded acceptance of the offer by ITC. Nor was the purchase price inflated by the inclusion of an amount which reflected the value of assets, other than the PPT shares, transferred by the Forestry Assets Deed. My reasons for so concluding follow.
It is simply irrelevant that Bluegum and the Liquidator chose to describe part of the consideration for the shares as “Tree Accretion Value”. Bluegum considered the forestry assets, other than the PPT shares, to be more valuable if it either obtained the PPT shares, and the associated benefit of having the woodchip exported at cost, or a favourable access arrangement. The enhanced value of the trees is, in substance, the value of the PPT shares.
It is also irrelevant that Bluegum, as the purchaser of the other forestry assets, was prepared to pay more for the shares than another person might have been prepared to pay for them. In fact, in this case, the value of the PPT shares is inextricably linked to the ownership of nearby forests. The PPT shares could not be purchased without the purchaser assuming the obligations of the Shareholders’ Deed, which, in turn, required, if the ownership of the shares were to be of any value, the provision of certain minimum quantities of woodchip. Indeed if that woodchip were not supplied the shares would effectively be a burden.
The value of the forests to Bluegum lay in its capacity to generate a profit stream. The profit was to be made from the income stream generated by the sale of woodchips. Obviously enough the profit that Bluegum would earn depended on the costs of producing the woodchips. Those costs included the cost of planting and maintaining the forests, the cost of harvesting and chipping and the cost of the supply through the terminal. Naturally enough, the purchase price for the forests would reflect a capitalisation of the profit that Bluegum expected to earn. That capitalised value would bear an inverse relationship to the costs of earning the income, including the cost of supply through the terminal. The fact that the higher level of capitalised profit that might be achieved by a reduction in the cost of shipping through the terminal was described, by the parties to the Forestry Asset Deed, as the Tree Accretion Value is apt to mislead if the relationship between the capitalised profit and the costs that I have just described is not kept in mind; the reason for the higher capitalisation, and therefore purchase price, has nothing to do with any inherent quality of the trees themselves.
Just as a purchaser of the forests would have good financial reasons to pay more for the forests if they were assured a low cost export facility, so too would a purchaser of the export facility, including ITC as the prospective outright owner of the terminal, pay more for it if it could be reasonably certain that it could generate a good income stream from charging others access to that facility at commercial rates.
There is no reason why ITC could not comply with the conditions of sale by advancing the balance of Timbercorp’s shareholders loan to PPT, paying the balance between that loan and the $8 million purchase price to Timbercorp and paying a further amount, the Tree Accretion Value, to TSL.
It is simply of no moment that the allocation of the purchase price in a particular way may have had collateral benefits, for Timbercorp or ITC.
The reason for the changes to the structure of the Forestry Asset Deed and the Share Purchase Agreement appear to me to reflect the following. ITC did not wish to pay as much for the forests as it had offered on condition that the PPT shares be transferred to it, if the shares were not to be transferred. For that reason it proposed a $17 million purchase price in the Share Purchase Agreement on the night of 29 September 2009. If that simple change had been made, with a consequential decrease in the value of the forests, a Notice of Sale based on a single purchase price of $17 million could have been served and the foundation of ITC’s objection would vanish. However, a change of that nature was a variation of the agreement approved by Justice Pagone on the morning of 30 September 2009. The Timber Accretion Value structure allowed both the Notice of Sale to reflect the substantial value offered by Bluegum for the transfer of the PPT shares and the allocation of value between the PPT shares and forests to reflect the agreement approved by Justice Pagone.
Viewed objectively, I would not characterise the arrangement as a contrivance. If the transaction did not include an obligation to pay TSL the Tree Accretion Value Timbercorp, the Timbercorp group and its creditors would lose the $17 million that Bluegum was prepared to pay for all of the assets and would receive only the $8 million (less the balance of its loan with PPT) which ITC would be bound to pay if it exercised its right of pre-emption. It would not benefit KordaMentha or Timbercorp to deny ITC an opportunity to buy all of the PPT shares for their proper value. Their only interest was to maximise the return for those shares and that was achieved.
It was put to Mr Korda and Mr Forbes that the “Tree Accretion Value” was a contrivance calculated to deny the effectiveness of ITC’s pre-emptive rights. The veracity of their evidence was challenged generally, but particular emphasis was put on the incomplete and piecemeal nature of Timbercorp’s discovery. I am not satisfied that any officer of KordaMentha attempted to obstruct the discovery process. I am satisfied that such problems as there were with discovery were caused by time constraints and because Timbercorp’s solicitors initially took a view of relevance that was as narrow as their opponent’s was wide. I accept the evidence of Mr Korda and Mr Forbes that the transactions were not intentionally structured in a way to undermine ITC’s pre-emptive right other than insofar as it was necessary to maximise the price obtained for the shares.
Issue 6
6.Assuming that the Notice of Sale was not validly exercised, are the liquidators still entitled to sell the PPT shares?
For the reasons I have given above Timbercorp is no longer entitled to sell the PPT shares.
Issue 7
7.Has there been a breach of Schedule 1, clause 4(c), Supplemental Deed by reason of the non-provision of the confidential SPD to the Plaintiff within 3 business days? Is the SPD an agreement ‘relating to’ the sale of the PPT shares?
On 8 October 2009 Mr Russo, an employee of ITC, emailed Mr Korda and asked that he be provided with:
a copy of the agreements between Timbercorp Limited, Timbercorp Securities Limited (or either of them) and Australian Bluegum Plantations Pty Ltd which relate in any way to the sale of shares in Plantation Pulpwood Terminals Pty Ltd.
On 13 October 2009 Mr Russo was sent a copy of the Share Purchase Agreement.
The words “relating to” are of wide import. The Forestry Asset Deed was an agreement with Bluegum which related to the PPT shares because Timbercorp was bound by the Forestry Assets Deed to execute the Share Purchase Agreement and because completion on the Share Purchase Agreement was subject to completion on the Forestry Assets Deed. However Timbercorp did not breach cl 4(c) for the reasons given in answer to Issue 8.
Issue 8
8.Does a breach of Schedule 1, clause 4(c) have any relevance to the validity of the option or the Notice of Sale? (cf. Clause 90.6, Amended Statement of Claim).
Clause 4(c) appears under the heading “Sale Shares Not Purchased by Shareholders”. It proceeds on the premise that the other shareholder has not purchased the shares. The purpose of the provision of any agreement relating to the sale of the shares is to ensure that that sale has not been made on terms more beneficial to the purchaser than those set out in the Notice of Sale. I find that the obligation only arises if the shares are sold to a third party. They were not. For that reason I find that the failure to comply with cl 4(c) does not affect the validity of the Notice of Sale.
Issue 9
9.If there has been a breach of Schedule 1, clause 4(c), given the confidential nature of the SPD, and the peripheral relevance of the documents (assuming, contrary to the defendant’s contention that it is irrelevant) ought the Court order that Timbercorp provide the document? Can an order be made requiring that the SPD be provided in a redacted form?

There has not been a breach of cl 4(c). The Forestry Assets Deed has been provided in various redacted forms during the course of the hearing. It is not necessary to make any order for any further or better disclosure to resolve the substantive issues between the parties. As a result of my finding, ITC will exercise the default option and there is no purpose to be served by ordering production of the Forestry Assets Deed. No such order should be made.
Issue 10
10. Has there been a ‘disposal’ in breach of clause 3.5, Shareholder’s [sic] Deed?
It follows from my reasons given in [74] – [75] above that there has not been a disposal in breach of cl 3.5 of the Shareholders’ Deed.
Issue 11
11.Did the negotiations with potential buyers of Timbercorp’s shares in PPT for the purpose of concluding a sale of the shares an attempt to avoid ITC’s pre-emptive rights and, therefore, an arrangement or used a technique which breaches the intention of clause 3.5, in breach of clause 3.5(d)?
The negotiations with potential buyers was not a breach of ITC’s pre-emptive rights for the reasons given in [74] – [75] above.
Issue 12
12.Does a breach of clause 3.5 have any relevance to the validity of the option or the defendant’s Notice of Sale? Should the Court grant the declaration sought in paragraph 90.5, Amended Statement of Claim, that there has been a breach of a ‘Material Obligation’ given that ITC has not given the 20 business day notice pursuant to Schedule 2, Supplemental Deed, clause 7.2(b) & (c)? (nb. the option procedure pursuant to Schedule 2, Supplemental Deed differs depending on whether there has been a ‘breach of a Material Obligation’ or a ‘Default Event’).
The plaintiff contends that this is not an issue on the pleadings. I have found that there is no breach of cl 3.5 and the question does not therefore arise. In addition, there is no purpose to be served by making the declaration in the light of my finding as to the existence of default events under cl 7.4.
Conclusion
I will hear the parties as to the precise orders which should be made in accordance with these reasons.