Kyrwood v Drinkwater - [2000] NSWCA 126

NEW SOUTH WALES COURT OF APPEAL

CITATION: KYRWOOD & ORS. v. DRINKWATER & ORS. [2000] NSWCA 126 revised - 27/04/2007

FILE NUMBER(S):
40886/97

HEARING DATE(S): 01/02/00

JUDGMENT DATE: 25/08/2000

PARTIES:
Caddyrack Pty. Limited, Terry Kyrwood, Geoffrey Kyrwood, Caddyrack International Pty. Limited, Gedrot Pty. Limited and Gavros Pty. Limited (Appellants)
Peter Westgarth Drinkwater, John Francis Drinkwater, Lustray Pty. Limited, Caddyrack Inc. (Respondents)

JUDGMENT OF: Meagher JA Powell JA Fitzgerald JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 3970/96

LOWER COURT JUDICIAL OFFICER: Young J

COUNSEL:
R.W. White SC and A McInerney (Appellants other than Caddyrack Pty. Limited and Caddyrack International Pty. Limited (both now in liquidation)

B.A.J. Coles QC and M. Ashhurst (Respondents)

SOLICITORS:
Wood Roberts Solicitors (Mayfield) (Appellants other than Caddyrack Pty. Limited and Caddyrack International Pty. Limited)

Hansens Solicitors (The Junction) (Respondents)

CATCHWORDS:
CONTRACT - Repudiation and non-performance - Termination - Breach by other party to contract - Right of other party to terminate - Not available if causal relationship between other party's breach and first party's repudiation or if other party's breach itself amounted to repudiation. D

LEGISLATION CITED:

DECISION:
(By majority) Appeal dismissed

JUDGMENT:

11IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40886/97
ED 3970/96
MEAGHER JA
POWELL JA
FITZGERALD JA
25 August 2000

KYRWOOD & ORS v. DRINKWATER & ORS.
JUDGMENT

MEAGHER JA: I agree with Powell JA.
POWELL JA: This is an appeal by four of the six defendants - the other two are said (T.1) now to be in liquidation - against Judgments delivered by Young J on 25 September 1997, 23 October 1997 and 28 November 1997 and against orders made by his Honour pursuant to those Judgments on 23 October 1997 and 28 November 1997, in proceedings which had been brought by the Respondents following the breakdown of an agreement made in July 1996 between the personal Respondents - Peter Drinkwater and John Drinkwater - and the personal Appellants - Terry Kyrwood and Geoffrey Kyrwood. That agreement had been intended to effect a settlement of the disputes which had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood and companies controlled by them respectively concerning the activities of two companies, Caddyrack Pty. Limited ("Caddyrack") - which had been the First Defendant in the proceedings before Young J - and Caddyrack Inc - the Fourth Respondent - which companies had been formed at the behest of the Messrs. Drinkwater and the Messrs. Kyrwood for the purpose of having manufactured, and marketing, a product which came to be called a "Caddyrack" which had been invented by Geoffrey Kyrwood.
Although the principal issues debated on the hearing of the appeal were whether or not the Messrs. Kyrwood had repudiated their obligations under the agreement of 26 July 1996 and whether the Messrs. Drinkwater had validly terminated that agreement, by reason of the Messrs. Kyrwood's repudiation of their obligations under it, a proper understanding of the circumstances which gave rise to the execution of that agreement and the various matters dealt with in it, calls for a more extended record of the background facts than the statement of the issues debated on the hearing of the appeal would otherwise seem to call for.
The product known as a "Caddyrack" is a golfing accessory which fits on the top of golf bags for the purpose of organising and protecting clubs within golf bags. The product, as I have already indicated, was invented by Geoffrey Kyrwood. In February 1994 Geoffrey Kyrwood, his brother Terry Kyrwood and the Messrs. Drinkwater, entered into what was described as an "Exploitation Agreement" (Blue AB 398), which Agreement, after reciting that Geoffrey Kyrwood had assigned to each of Terry Kyrwood and the Messrs. Drinkwater a one-quarter share in the invention and that he, Terry Kyrwood and the Messrs. Drinkwater, had jointly filed an application for a patent to the invention, provided (inter alia) that the parties agreed that the subject matter of the patent application would only be jointly exploited by them and would not be exploited by any one of them acting other than in the furtherance of the joint exploitation of the invention with the full knowledge and consent of the remaining parties.
On 28 June 1994, Caddyrack was incorporated pursuant to the provisions of the Corporations Law. Although they were not the corporators, the Appellants Gedrot Pty. Limited ("Gedrot") and Gavros Pty. Limited ("Gavros") which were respectively trustees of the family trusts of Geoffrey Kyrwood and Terry Kyrwood - and the Third Respondent, Lustray Pty. Limited ("Lustray") - which was a trustee for the family trusts of the Messrs. Drinkwater - came to hold the issued shares in the capital of Caddyrack in the proportions 25% on the part of each of Gedrot and Gavros and 50% on the part of Lustray.
In the evidence which was tendered on the hearing before Young J it was said (Blue AB 18-19) that at about this time it was agreed between the Messrs. Drinkwater and Messrs. Kyrwood that the benefit of the application for the patent and the benefit of the application for the registered design in respect of the "Caddyrack" would be held by an overseas company in which each of the Messrs. Drinkwater and the Messrs. Kyrwood would hold the shares in the issued capital in equal proportions.
Despite this, it would appear that, on 10 October 1994, the Messrs. Drinkwater and the Messrs. Kyrwood executed an assignment to Caddyrack of the patent application, the invention the subject of the application and the right to apply for or obtain corresponding letters patent for the invention in any country (Blue AB 653-654).
Although the time at which it did so is not entirely clear, it seems clear enough that, at some time between the date of its incorporation and December 1994, Caddyrack had International Tool & Gauge NSW Pty. Limited ("ITG") manufacture what came to be known as "the Australian tool" - a two part injection mould to be used for the manufacture of the "Caddyrack", which then took the form of a 9 slot golf club holder - the cost of that mould being in the order of $100,000.00. Although the "Caddyrack" itself is not large, the two parts of the mould are far larger than might be imagined - each part of the mould is about 600 mm square on one face and about 150 mm deep and each part has cavities carved into it, the two parts being connected to the arms of an injection moulding machine which clamps the two halves together so that plastic might be injected into the cavities in the mould. The two parts together weigh something of the order of a tonne and when clamped together need to be moved with a forklift (Black AB 54). The Australian tool was capable of producing only right handed Caddyracks.
Production of Caddyracks using the Australian tool commenced in December 1994. Caddyrack did not itself produce the Caddyracks but subcontracted the injection moulding of the product and also subcontracted the task of putting the various components in boxes for distribution and sale, Caddyrack's activities being limited to advertising and marketing the product (Black AB 53-54).
Although the evidence does not clearly demonstrate that this was so, it seems tolerably plain that, at some time prior to February 1995, the Messrs. Drinkwater and Messrs. Kyrwood had agreed that steps should be taken to have Caddyracks manufactured and marketed in the United States.
On 7 February 1995 Mr. Berrey, the managing director of ITG forwarded to John Drinkwater by facsimile a letter providing a quote for the production of an injection mould to produce a modified Caddyrack, that mould to be manufactured in such a way that "the finned area (could) be interchanged with left and right hand inserts", the mould to come complete with right hand inserts; to produce a complete set of left hand inserts; and providing for extra pattern costs, the total cost being $99,790.00 and the terms of payment being 30% with order, 30% after 60% progress and 25% after 80% process and the balance on approval (Blue AB 736). At the foot of the quotation is the handwritten addition "extra $20,000.00 for USA modifications". A further quotation dated 6 March 1995 provided for extra pattern work.
Thereafter, on 6 April 1995, Peter Drinkwater wrote to ITG confirming Caddyrack's order for completion of the "right and left handed tool".
It would seem that, at about the same time, the Messrs. Drinkwater and the Messrs. Kyrwood at a meeting of directors of Caddyrack resolved that a company should be set up in America, that company to be known as Caddyrack Inc, for the purpose of marketing Caddyrack products in the United States and ultimately for the purpose of manufacturing such products, that company to be managed by John Drinkwater (Blue AB 92).
Shortly thereafter John Drinkwater went to the United States to arrange for the setting up of Caddyrack Inc and to oversee the introduction of Caddyracks into the United States market (Blue AB 92).
At a meeting of the directors of Caddyrack held on 8 May 1995 Peter Drinkwater "confirmed an overdraft facility in the order of $500,000 was to be established to provide initial working capital for the US operations and (that) he had currently been discussing with their local bank to organise facilities at which it was confirmed that there were no problems at (that stage)". (Blue AB 533)
Caddyrack Inc was incorporated in May 1995, at which time John Drinkwater had himself appointed as president and sole director of the company.
On 15 May 1995, Caddyrack entered into an agreement with the internationally known golfer Greg Norman whereby, in consideration of the payment to him of the sum of $1 million payable by instalments over the first year, Greg Norman granted to Caddyrack the exclusive right and licence to use in the United States, his signature or likeness in connection with the advertisement, promotion and sale of Caddyracks. The agreement provided for payment of those sums being guaranteed by the Messrs. Drinkwater and the Messrs. Kyrwood, but a copy of the agreement which is with the papers (Blue AB 656-662) while bearing the signature of Peter Drinkwater and each of the Messrs. Kyrwood, does not bear the signature of John Drinkwater.
On 1 June 1995, Caddyrack assigned to 505 Pty. Limited - a company which, since it had the same registered office as Caddyrack, appears to have been incorporated, or the shares in which appear to have been acquired, at the behest of, or by, the Messrs. Drinkwater and the Messrs. Kyrwood or Caddyrack - the benefit of Application B640,821 which had been made for the registration of the trademark "Caddyrack" in Class 28 of the Register (Blue AB 663-664).
On 1 July 1995, Caddyrack assigned to Golf Products Promotions Limited ("Golf Products") a company incorporated in the island of Guernsey in the Channel Islands, presumably at the behest of the Messrs. Drinkwater and the Messrs. Kyrwood or Caddyrack - the benefit of the applications for letters patent which it had made in (inter alia) Australia, the Republic of South Africa and Thailand (Blue AB 665-666) and, on the same day, assigned to Golf Products the benefits of registered design number 122985 which it had earlier obtained in respect of Caddyrack (Blue AB 667).
It is said (Blue AB 92) that, in or about July or August 1995, Caddyrack acquired 57% of the issued share capital in Caddyrack Inc, the remaining shareholders being Gavros, Gedrot, Golf Products, Lustray, David Drinkwater and ITG, the directors of Caddyrack Inc being the Messrs. Drinkwater and David Drinkwater.
It is also said (Blue AB 420) that prior to 17 June 1996, the issued shares in Caddyrack Inc were held as follows:
(i)Caddyrack 60,000 shares;
(ii)Gavros 5,000 shares;
(iii)         Gedrot 5,000 shares;
(iv)Lustray 10,000 shares (5,000 on behalf of each of the Messrs. Drinkwater);
(v)          ITG 2,083.5 shares;
(vi)         Golf Products 20,000 shares;
(vii)        David Drinkwater 2,083.5 shares.
It is suggested (Blue AB 190) that the shares in Caddyrack Inc which had been issued to ITG had, in some way, been substituted for the amount previously agreed upon for the making of the injection mould for the US tool.
The moneys which were subscribed for the shares in the capital of Caddyrack Inc which were allotted in July or August 1995 were insufficient to provide working capital for the conduct of the business of Caddyrack Inc in the United States, as the meeting of the directors of Caddyrack held on 8 May 1995 (see para 14 (above) had foreshadowed. The minutes of a meeting of directors of Caddyrack held on 5 June 1995 contain the following (inter alia) (Blue AB 534):
"3.Peter advised that the US company was 100% in the name of John Drinkwater and he was the only director at this stage.
It was noted that the transfer of shares etc needed to be undertaken as soon as possible.
4.The $500,000 loan was primarily approved. It was noted that this loan was to be on the basis $250,000 Kyrwood; $250,000 Drinkwater.
Peter advised that he would put in the necessary funds to start with as this would make the accounting a lot simpler for the payment of interest and fees."
It is said (Blue AB 272) that, either at the meeting of 5 June 1995 or at the meeting of directions of 26 June 1995 to which I shall next refer, Peter Drinkwater said to the Messrs. Kyrwood:
"I have obtained approval for a $250,000 interest only loan. I will provide my home as security. You two will need to come up with a similar amount as soon as possible."
to which the Messrs. Kyrwood replied:
"Yes. We should be able to do that within a month."
and that, Peter Drinkwater then said:
"The company will be responsible for all interest and charges."
to which the Messrs. Kyrwood replied:
"Of course."
The minutes of the meeting of directors of Caddyrack held on 26 June 1995 record the following (inter alia) (Blue AB 283):
"MATTERS DISCUSSED
(i)Directors advised the maximum amount they are prepared to personally raise as capital for Caddyrack operations is $500,000.00.
(ii)Agreed the US operation must stand on its own as a business and must meet its own cash flow requirements.
………
(iv)Finance facilities are: $150,000  OD
$250,000  Drinkwater
$250,000  Kyrwood
Agreed to reduce overdraft to NIL and budget for $100K as final amount available to US operations.
Work on the concept of no OD for Australian operations.
(v)As a result of (iv) US operations will have working capital contributions;
Cash  $100K
Stock  20,000 units
plus  Dollars already sent"
It is said (Blue AB 272-273) that, in late June or early July 1995, Peter Drinkwater attended at the Jesmond Branch of the National Australia Bank and signed papers for a $250,000.00 loan, to be deposited into the account for Caddyrack which was held at that branch of the bank, and a mortgage over his property at 44 Skye Point Road, Coal Point. In an Affidavit sworn by him in June 1997, Peter Drinkwater swore (Blue AB 273-4) that he had never personally paid any interest of charges in respect of that loan and that during the period July 1995 to February 1996 he saw monthly bank statements in respect of the account maintained by Caddyrack at the Jesmond Branch of the National Australia Bank, each of which statements contained a direct debit for interest and charges on the loan which had been made.
On 14 August 1995, Caddyrack, the Messrs. Drinkwater and the Messrs. Kyrwood, entered into what has been described as "the Shareholders Agreement" (Blue AB 606). Since the agreement recited (Blue AB 607):
"Certain questions have arisen between the Company and the Directors in relation to the business conducted by the company known as 'CADDYRACK PTY. LIMITED'
In order to promote continuity and the harmony in the operation and management of the company and to reduce and to reduce (sic) the possibility of resorting to litigations (sic) the parties have entered into this agreement."
one can but assume that, even by that stage, certain tensions had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood as to the company's future.
The agreement provided (inter alia):
"NON COMPETITION
11.No director shall at any time during the term of his directorship and for a period of one year after the termination of his office, whether directly or indirectly, and whether as a principal, agent, director of a company, servant or otherwise, carry on or be engaged or concerned or take part in the business of supplying/making caddyracks and in the event of a failure to observe or perform his obligations under this clause, he shall be liable for liquidated damages for its consequential loss.
RESTRICTION ON SOLICITING CUSTOMERS
12.No director shall at any time during the term of this agreement and for a period of 1 year after his resignation or removal from office either on his own account or for any person, firm or corporation contact, solicit the custom of or endeavour to entice away from the Company any person, firm or company who at any time during or at the termination of his office was a client or customer of or in the habit of dealing with the Company.
CONFIDENTIAL INFORMATION
13.All records, materials, information, trade secrets and copies of them which are obtained or reviewed by a Director in the course of his directorship are confidential and shall remain the exclusive property of the Company. No Director shall at any time during the term of or at any time after the termination of his office, disclose any of such confidential information to any person other than the Directors and authorised servants or agents of the Company and other than as may be required by law and then only following notice to the Company and he shall not after the termination of his office use the contents of any such records or information for any purpose whatsoever.
………
DIRECTORS' SHAREHOLDING AND INSURANCE
15.No Director shall charge or in any way encumber his shareholding in the Company unless with the written consent of the Board of Directors is first obtained.
16(i)Upon the removal or resignation or death of a Director/Shareholder the surviving Shareholders shall purchase the share owned by the deceased Shareholder in the capital of the company.
In the event of the death or the total and permanent disablement of a Director/Shareholder the shares owned by that deceased Shareholder shall be purchased by means of life assurance effected by the Company/Shareholders and the parties hereto agree to execute an agreement in the form annexed hereto and marked with the letter 'A'.
(ii)For the purpose of valuing the shareholding the goodwill of the business of the Company shall be determined by multiplying by two(2) the average of the profits derived by the Company during the previous two years. 'Profit' shall mean the sales effected during the previous two years after deduction of expenditure incidental to the conduct of the business plus the sum of $2.00 for every rack sold during that period..
(iii)In the event of a death of a Director/Shareholder, the Company shall pay to his legal personal representative (or the Trustee of the Family Trust of that Director/Shareholder if directed by his legal personal representative) in addition to the value of the shareholding, a monthly amount equivalent to fifty cents for every for every rack sold during each month for a period of ten years from the date of death.
………
18.Upon resignation or removal of a Director the shareholding of that Director shall be purchased by the remaining Shareholders in the following manner:
25% of the purchase price payable within one month of the date of resignation or removal and the balance payable by thirty-six equal monthly instalments with no interest to accrue on the unpaid balance however interest shall accrue at the prime lending rate imposed by Banking Institutions at the particular time upon amounts not paid in accordance with the provisions herein and such interest shall accrue until such payment is made except in the case of default by the Company pursuant to this clause.
………"
The agreement also provided (Cl 19 Blue AB 610) a means of resolving any deadlock arising at directors meetings, and, as well(Cl.11 Blue AB 611), provided for a process of dispute resolution to be followed.

Although the evidence does not clearly demonstrate when it was that this occurred, it would seem likely that it was at about this time when Peter Drinkwater, who had been appointed general manager of Caddyrack when John Drinkwater had gone to the United States to set up operations there, went to the United States to join John Drinkwater to assist him (Blue AB 275). About a month later Geoffrey Kyrwood went to the United States where he stayed for a time before returning to Australia in late 1995. Peter Drinkwater stayed in the United States until January 1996 when he returned to Australia (Blue AB 275). While he was in the United States Peter Drinkwater received no remuneration from Caddyrack (Black AB 67).
It would seem that Caddyrack Inc began marketing Caddyracks in the United States in the latter part of 1995, the Caddyracks until February 1996 having been manufactured in Australia using the Australian tool. In this early period, Caddyrack Inc employed as a sales manager one Chris Phillips and utilised the services of an American company known as All Counties Secretarial to process its sales, invoices, receipts and payments for Caddyracks sold in the United States.
As from about February 1996, Caddyracks marketed by Caddyrack Inc in the United States were manufactured in the United States using the US tool which had been produced by ITG pursuant to the order which had been delivered to that company during 1995. The Caddyracks produced using the US tool were better than those produced in Australia using the Australian tool and, as will be apparent from what I have earlier recorded, in addition to right handed Caddyracks, it was possible by the comparatively minor adjustment of the mould also to produce left handed Caddyracks. The Caddyracks which were manufactured and marketed in the United States after February 1996 were not manufactured by Caddyrack Inc but were manufactured for it by the United States company Performance Engineered Products Inc.
The underlying tensions between the Messrs. Drinkwater and the Messrs. Kyrwood to which I have earlier referred appear to have surfaced at, or shortly after, the time of Peter Drinkwater's return to Australia in early 1996. That this was so is made clear by the minutes of a meeting of the directors of Caddyrack held on 14 February 1996 at which both of the Messrs. Drinkwater and both of the Messrs. Kyrwood were present. Those minutes record the following (Blue AB 25):
"MATTERS DISCUSSED
The focus of the meeting was to resolve the management structure of the company as the Kyrwoods and Drinkwaters acknowledged that both parties have different management styles.
Peter Drinkwater advised that in order for the Company to have any chance of success there had to be a change. This was acknowledged by all.
A number of different options were tabled and discussed at length.
Peter offered that he and John resign from the day to day management and allow the Kyrwoods to run the operations. In principle this was accepted as being the only alternative due to the circumstances.
The following were agreed to:
1.Peter and John to resign as directors;
2.Personal asset security from Peter and John to be transferred to the Kyrwoods as priority;
3. Remuneration of the outgoing directors was set at
- $1,000.00 per week for three months
- $500.00 per week for second three months
- Nil thereafter
4.Shareholding to remain unchanged;
5.Peter and John to be available to undertake duties on a task by task basis as directed by the Directors;
6.A monthly meeting would be held so that the Directors could report to shareholders in regard to company activities;
7.Terry Kyrwood was appointed Secretary."
Those minutes were prepared by the Company Secretary, Mr. Abrams.
The Messrs. Kyrwood took the stand that the Messrs. Drinkwater had resigned as directors at that meeting whereas, the stand taken by the Messrs. Drinkwater was that they had offered to resign subject to the fulfilment of certain conditions which conditions were not thereafter met so that they remained directors.
Shortly thereafter John Drinkwater and Terry Kyrwood went to the United States to deal with the affairs of Caddyrack or Caddyrack Inc.
In their absence, Geoffrey Kyrwood asked Mr. Abrams to prepare a form of notice to the Australian Securities Commission regarding the fact that the Drinkwaters had resigned as directors as from 14 February 1996. Mr. Abrams caused that document to be prepared following which Mr. Geoffrey Kyrwood signed it and Mr. Abrams then caused it to be lodged with the Commission. Thereafter a member of Mr. Abrams' staff caused the Register of Directors of Caddyrack to be changed to record the resignation of the Drinkwaters as at 14 February 1996 (Blue AB 35).
On 18 March 1996, there was a meeting between the Messrs. Drinkwater, Geoffrey Kyrwood and Mr. Abrams, that meeting not being a meeting of directors or a meeting of shareholders of Caddyrack, but, rather, just a meeting of the four men concerned to discuss the affairs of the company. A memorandum prepared by Mr. Abrams recorded agreement in principle about a number of enumerated matters including the following (Blue AB 35-36):-
"3.Drinkwater property security to be returned unencumbered …
………
6.Salary package for Drinkwaters $900 plus vehicle per week for 3 months; $500 per week for next three months.
7.Point 6 commences when deeds are returned (whilst there are outstanding wages, will continue to be paid).
………
12.Drinkwaters to resign as directors …
………
14.Should the above not be fulfilled then the shares will revert back to the Drinkwaters."
It is said (Blue AB 36) that during the course of the meeting there was an adjournment while Geoffrey Kyrwood telephoned Terry Kyrwood in America following which Geoffrey Kyrwood told the resumed meeting that the Messrs. Kyrwood agreed to the various matters which Mr. Abrams was later to record in his memorandum.
Although the materials which are before the Court do not clearly demonstrate that this was so, it seems tolerably plain that, after 14 February 1996, the Messrs. Kyrwood excluded the Messrs. Drinkwater from any part in the activities of Caddyrack and continued to assert that they were no longer directors of Caddyrack. That this was so seems to be made clear by the fact that, on 22 May 1996, there was filed on behalf of the Messrs. Drinkwater a Summons in Proceedings No. 2205 of 1996 in the Equity Division of the Court, in which Summons the Messrs. Drinkwater sought against the Messrs. Kyrwood and Caddyrack the following (inter alia) relief (Blue AB 26-27):
"1.A declaration that the Plaintiffs are directors of Caddyrack Pty. Limited ACN 065 368 032.
2.An order that the Defendants complete all or any documents required to up date the records held by the Australian Securities Commission to reflect the declaration made in Order 1.
3.An order that the Defendants file the documents referred to in Order 2 with the Australian Securities Commission to up date the records held by such Commission.
4.Until further Order the Defendants not exclude the Plaintiffs from any Directors' Meetings held by the Third Defendant.
5.Until further Order the Defendants give notice to the Plaintiffs of any Directors Meetings held by the Third Defendant in accordance with the Memorandum and Articles of Association of the Third Defendant.
6.An Order that any resolutions passed by the Third Defendant between 14 February 1996 and the date of those Orders at which the Plaintiffs or each (sic) of them were excluded or not provided with notice in accordance with the Memorandum and Articles of Association of the Third Defendant are invalid."
The Summons appears to have come before Brownie J on 4 July 1996, by which time there appears to have been filed on behalf of the Messrs. Kyrwood - Caddyrack was separately represented - a Cross-Claim, the relief sought in which is not revealed by the materials which are before the Court. On that day, having given certain directions as to the further conduct of the proceedings and having noted certain undertakings, Brownie J ordered that the issues raised by the Summons be separated from the issues raised in the Cross-Claim, fixed the hearing of the issues raised by the Summons for 15 and 16 July 1996 and granted leave "to the Defendants" to file a Notice of Motion returnable for 15 July 1996 seeking such directions as they might be advised as to the conduct of the Cross-Claim (Blue AB 245-247).
The separated issues were thereafter heard by Brownie J who delivered his Judgment (Blue AB 30) on 16 July 1996. Towards the end of his Judgment (Blue AB 37) Brownie J said:
"Subject then to what might now be submitted as to the form of relief to be granted, I propose to make a declaration in terms of paragraph 1 of the summons and orders as set out in paragraphs 2 to 6 together with an order for costs of the determination of these issues.
Paragraphs 4 and 5 of the summons are cast in terms more generally found in relation to interlocutory injunctions than a permanent injunction. However, in the circumstances of this case, that might be an appropriate form of relief, coupled with a grant of liberty to apply, or the reservation of further consideration."
Although the engrossment of Brownie J's Judgment does not record that this occurred, it is likely that, before his Honour made his formal orders, there was discussion as to the form of relief to be granted as the engrossment of his Judgment continues (Blue AB 37-38):
"I make the following declaration and orders:
1.I make a declaration in terms of paragraph 1 of the Summons.
2.I make orders in terms of paragraphs 2 and 3 of the Summons.
3.I order the first and second defendants to pay the plaintiffs' costs of determining the separate issues.
………
6.I stand the proceedings including the defendants' Notice of Motion over until 30 July 1996 before the Registrar.
7.I grant liberty to any party to apply on three days notice."
Before passing on to the events which followed delivery by Brownie J of his Judgment in proceedings No. 225 of 1996 in the Equity Division of the Court, I pause to record that similar tensions to those which had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood in relation to the affairs of Caddyrack appear to have arisen between them in relation to the affairs of Caddyrack Inc - according to the Messrs. Kyrwood those tensions were due to the fact that John Drinkwater was making decisions in relation to Caddyrack Inc without their consent or knowledge (Blue AB 524). As a result, so the Messrs. Drinkwater would suggest (Blue AB 524), they, together with Mr. Berrey and Mr. Reuthliger - who seems to have been an officer of ITG - on 21 May 1996 forwarded to Caddyrack Inc for the attention of John Drinkwater a letter reading (inter alia) as follows (Blue AB 537)::
"You are not authorised to incur any debts or enter into any contracts to bind either Caddyrack Inc or Caddyrack Pty. Ltd. in anyway whatsoever without the written prior approval of a majority of shareholders of the appropriate company."
On the same day, the Messrs. Kyrwood, Berrey and Reuthliger forwarded to Caddyrack for the attention of John Drinkwater a letter (Blue AB 538) requesting that a meeting of the shareholders of Caddyrack Inc be scheduled for the purpose of:
"1Formulate and set the by-laws of the company.
2.Terminate sole director and elect new officers."
On 3 June 1996, John Drinkwater forwarded by facsimile addressed to each of David Drinkwater, ITG, Caddyrack, Gavros, Gedrot, Lustray and Golf Products - the latter in care of Brien Cornwell, who was also the solicitor for Caddyrack - a letter (Blue AB 540) advising the Caddyrack Inc was in urgent need of funds - he estimated that $40,000.00 "should be sufficient to see (Caddyrack Inc) through to the stage were (sic) (he could) stabilise the position of the Company and have the Company return to supporting itself through regular income" and indicating that he proposed "to sell" additional shares in the capital of Caddyrack Inc, those shares to be offered to all shareholders on the ratio of their current shareholding and indicating that if some shareholders chose not to take up the offer, a further offer would be made to those shareholders, if any, who did, and, in the event that no shareholder chose to take up the offer, an offer would be made to any potentially interested third parties. At the same time, John Drinkwater forwarded by facsimile to Brien Cornwell a further letter (Blue AB 543) indicating that, as Golf Products was owned as to one-quarter each by the family trusts of each of the Messrs. Drinkwater and Messrs. Kyrwood, that company would not be able to apply for shares in the proposed issue as it would be unable to reach a majority decision.
On 5 June 1996, Brien Cornwell forwarded by facsimile to John Drinkwater, a letter (Blue AB 544-545) in which he suggested that the "Notice of Meeting (sic) in regard to issue of additional shares in Caddyrack Inc would be invalid for (a variety of) reasons" which he then set out.
On 9 June 1996, John Drinkwater forwarded by facsimile to the Messrs. Kyrwood, a letter (Blue AB 546) which, so far as is relevant for present purposes, was as follows:
"I would also like to acknowledge your decision not to participate in the recent call for capital and inform you that Lustray Pty. Ltd. & David Drinkwater were the only shareholders who chose to take up the offer. This call is not yet finalised, as the required funds have not been obtained, but the immediate crisis has been averted.
The shareholding as of today is that, between them, Lustray and David Drinkwater now own 52% of the shares in Caddyrack Inc.
I have appointed Mr. David Drinkwater and Mr. Ray Berry as the 2 additional Directors required by the By Laws and I am awaiting their signed consent forms."
Although it is suggested (Blue AB 421) that the share issue was irregular and contrary to United States corporations law, it is said that, as from June 1996, the shareholding in Caddyrack Inc was recorded as being:
(i)David Drinkwater 5283.5 shares
(ii)          ITG 2032.5 shares
(iii)         Caddyrack 60000 shares
(iv)         Gavros 5000 shares
(v)          Gedrot 5000 shares
(vi)         Lustray as trustee for the Peter Drinkwater family trust 43800 shares
(vii)        Lustray as trustee for the John Drinkwater family trust 51,400 shares
(viii)       Golf Products 20000 shares.
A total of 192116 shares.
It is also convenient here to record two further developments:
1.in an Affidavit sworn by him on 5 June 1997 (Blue AB 594 et seq), Mr. Berrey deposed (inter alia) as follows:
"3.ITG became dissatisfied with Caddyrack Inc's performance of its agreement with ITG. I complained about the prospectus which John Drinkwater had given me. I expressed my unhappiness to the Drinkwaters and the Kyrwoods.
4.In June 1996 I was informed by John Drinkwater that I had been appointed a director of Caddyrack Inc. He had not sought my prior approval and when he later asked for my consent, I declined. At about this time, I became aware of a dispute between the Kyrwoods and the Drinkwaters in relation to the Caddyrack businesses."
2.on 19 July 1996 Paul B. Erickson the Chief Operating Officer and General Counsel of Great White Shark Enterprises Inc - which clearly enough is a corporation formed a the behest of Greg Norman - forwarded by facsimile to each of Craig Doyle - a partner in the firm of McDonald Johnson, the solicitors for the Messrs. Kyrwood - and Phillip Hewitt - a solicitor in the employ of Messrs. Hansens, the solicitors for the Messrs. Drinkwater - a letter (Blue AB 306) in the following terms:
"I am writing this letter to both of you in your capacities, as I understand them, as the respective counsel for Kyrwoods and the Drinkwaters who are guarantors under the agreement dated as of May 15,1996 between Caddyrack Pty. Limited and Greg Norman. As you are aware, the sum of US$500,000.00 was due June 1, 1996 and has not been paid. This sum is personally guaranteed by John Drinkwater, Peter Drinkwater, Jeffrey (sic) Kyrwood, and Terrence Kyrwood.
Please be advised due to the default in payment, all rights of Caddyrack to the promotional use of the Norman Identification as referred to in the Grant of Endorsed Rights in the agreement has terminated. Any product that is in the possession of Caddyrack on which the Norman Identification is used must be destroyed.
I further instructed our Australian solicitors Corrs Chambers to undertake an action for collection of the balance due under the contract including an action against the guarantors."
Having recorded those matters, I now return to the strict order of the narrative.
Although it would appear that the Messrs. Drinkwater and the Messrs. Kyrwood met on a number of occasions following the delivery of Brownie J's Judgment and before 24 July 1996, it is doubtful whether any of those meetings could properly be characterised as a meeting of directors and there is considerable dispute as to whether any matters of any relevance were decided - as best as one can judge it from such materials as are before the Court, and in the absence of any relevant findings of fact made by Young J, it would appear that all that occurred were acrimonious and inconclusive discussions as to the possibility, and the manner, of settling the disputes which had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood. The chronologies which have been filed on behalf of both the active Appellants and the Respondents would suggest that, among those meetings, was one held on 24 July 1996 which meeting was attended by the Messrs. Drinkwater, the Messrs. Kyrwood and Mr. Brien Cornwell.
On 25 July 1996, Mr. Cornwell, having first telephoned Mr. Hewitt, forwarded to Mr. Hewitt a draft of an agreement which he had prepared as the possible basis for a settlement and invited the Messrs. Drinkwater and Mr. Hewitt to comment on it (Blue AB 189) - although the materials which are before the Court do not demonstrate that this was in fact so, one assumes that Mr. Cornwell made a similar telephone call to Mr. Doyle and forwarded a copy of the draft agreement to him in order that the Messrs. Kyrwood and Mr. Doyle might comment on it.
Having apparently considered with the Messrs. Drinkwater Mr. Cornwell's draft, Mr. Hewitt then prepared a fresh draft agreement and forwarded it by facsimile to Mr. Cornwell's office (Blue AB 189, 195-200). According to Geoffrey Kyrwood (Blue AB 487-488), on the same day Mr. Peter Drinkwater gave him a copy of what he (Geoffrey Kyrwood) believed to have been a copy of the agreement which had been prepared by Mr. Hewitt.
Further, according to Mr. Kyrwood, (Blue AB 488) at some stage on 25 July 1996 he had a conversation with Mr. Peter Drinkwater in the course of which he (Geoffrey Kyrwood) said:
"We still have to make some arrangements in relation to ITG. I have promised them that they will be paid for the tool in the US."
to which Peter Drinkwater replied:
"Well, he knew the risks. He got his 2% shareholding in Caddyrack Inc."
to which he (Geoffrey Kyrwood) replied:
"Well I insist that we look after Ray Berrey (of ITG). You cannot ignore the fact that ITG has a claim on the tool."
According to Mr. Berrey (Blue AB 595-596), on 25 July 1996 he was telephoned by Peter Drinkwater who said:
"What will it cost to alter the Australian dye (sic) so that the Caddyracks will have the same look as the Caddyracks made in America?"
to which he replied:
"We can amend the dye (sic) to give a similar cosmetic appearance but we cannot make the Australian dye (sic) exactly the same. In addition, the Australian die will not make left handed Caddyracks."
Then, so he says, Mr. Berrey "gave Peter Drinkwater an outline of what (ITG) would do to upgrade the Australian dye (sic) … (and) told him that some aspects of the product would not look exactly the same as the American product."
Mr. Berrey also says that he told Peter Drinkwater:
"It will cost between $15,000.00-$18,000.00 to upgrade it. The product will look similar but you will not be able to make left handed Caddyracks."
to which Peter Drinkwater said:
"$20,000.00 would cover it then?"
and he replied in the affirmative, following which Peter Drinkwater said:
"How long would it take to do the work?"
to which he replied:
"About 12 weeks."

Mr. Berrey also says (Blue AB 596) that on 26 July 1996, Geoffrey Kyrwood telephoned him and that, when he (Geoffrey Kyrwood) telephoned him, he (Mr. Berrey) "had a conversation with him about the possible upgrading of the tool, how much it would cost and how long it would take. I also recall having a discussion with him concerning the terms on which ITG would agree to be paid for the American tool and who would have the ownership of the tools until ITG had been paid its $120,000.00."
The several conversations to which I have just referred and of which Geoffrey Kyrwood and Mr. Berrey gave evidence are difficult to reconcile with the evidence given by Mr. Doyle in an Affidavit sworn by him on 2 April 1997 and also with an Affidavit sworn by Mr. Hewitt sworn on 2 May 1997.
In his Affidavit, Mr. Doyle deposed (inter alia) (Blue AB 293-294):
"12.During the meeting I recall that John Drinkwater said words to to the following effect:
'I will need a letter from you (referring to the Kyrwoods) relinquishing any interest you may have in the US Tool. If this is not done, I will not be able to do anything in the US.'
Geoff Kyrwood said the following words, or words to the following effect: 'You must think I am mad John. I am not going to release the US Tool and be left with the inferior Australian Tool.'
I said: 'What is so inferior about the Australian tool?'
Geoff Kyrwood said: 'It does not have a left hand insert and is the old style mould.'
I said: 'Can it be made the same as the US Tool?'
Geoff Kyrwood said: 'It can never be the same but it can be made better than it is.'
John Drinkwater said: 'Well there won't be any agreement unless the US Tool is relinquished. I need to be able to manufacture caddyracks anywhere that I want to'
Geoff Kyrwood said: 'John, if I am going to relinquish the Tool, how am I going to get left handed racks?'
There was then discussion between the parties as to how the Australian Tool could be upgraded. Either John Drinkwater or Geoff Kyrwood then suggested that the Tools could be swapped after the Australian Tool had been upgraded.
Subsequently, there was a further conversation between Geoff Kyrwood and John Drinkwater to the following effect:
Geoff Kyrwood said: 'I have spoken to Ray Berry (of ITG) he says that the upgrade will cost about $20,000.00. He says the job will take about 3 months.'
Geoff Kyrwood said: 'I suppose you want me to pay for the upgrade John?'
John Drinkwater said: 'Yes, but you don't think I should pay for it?'
Geoff Kyrwood said: 'Well, we have agreed to pay ITG for the US Tool. You don't expect us to also pay for the upgrade.'
Peter Drinkwater said: 'That's your problem Geoff. You should not have agreed to pay for the US Tool. They agreed to take the shares - they knew the deal.'
There was then further discussion following which agreement was reached that the Drinkwaters would pay up to $20,000.00 for the upgrading of the Australian Tool following which there would be an exchange of the US Tool with the Australian Tool with each party being responsible for freight."
In his Affidavit, Mr. Hewitt deposed (Blue AB 190):
"4.I refer to the Affidavit of Craig Gerald Doyle ('Doyle') dated 2 April 1997 and my affidavit dated 12 November, 1996. In respect of paragraph 12 of Doyle's Affidavit, the conversation was not in those terms but in words to the following effect:
Geoff Kyrwood:                   'Ray doesn't want the tool staying in America. He will commence legal proceedings.'
Peter Drinkwater:              My brother put in his $40,000.00. Ray has received his shares for the tool. That's nothing to do with us.'
Geoff Kyrwood:                   'We're going to pay Ray for the US tool.'
Peter Drinkwater:              'That's your problem Geoff.'
Geoff Kyrwood:    'No deal will be done without Ray.'
John Drinkwater:               'Don't let the deal go because of Berry.'
Peter Drinkwater:              'We will take the Australian tool and you can take the US tool.'
John Drinkwater:               'But the Australian tool is not as good as the US tool.'
Geoff Kyrwood:    'It can be upgraded.'
John Drinkwater:               'Provided you pay.'
Geoff Kyrwood:                   'We're already paying Norman. What about you?'
Hewitt:'I have to talk to my clients to see if we can resolve this new problem.'
The Drinkwaters and myself retired to another room.
On our return, I said 'As I understand it, the expected cost is between $15,000.00 and $18,000.00. What about the Kyrwoods pay anything over and above $20,000.00.'
Although the version of that conversation given by Peter Drinkwater in an Affidavit sworn by him on 5 May 1997 (Blue AB 214-215) differs in some minor respects, it is in substance the same as that given by Mr. Hewitt in his Affidavit.
The conversation on 26 July referred to in the Affidavits of Mr. Doyle and Mr. Hewitt to which I have just referred was but one of a number of conversations which took place at varying times between the Messrs. Drinkwater, Messrs. Kyrwood, Mr. Doyle, Mr. Hewitt and Mr. Cornwell on that day, each of those conversations involving discussions as to the terms of the drafts of an agreement which it was proposed be executed by the Messrs Drinkwater and the Messrs. Kyrwood with a view to settling their differences. According to Peter Drinkwater (Blue AB 215) after one such draft had been produced and read by him, he said:
"It still does not state in here that I will get my house back within two (2) weeks."
to which Mr. Cornwell said:
"I will put in the words 'within fourteen (14) days'. Is that satisfactory?"
and he then replied:
"Yes, that will do."
The agreement, the alleged breaches of which gave rise to these proceedings, appears to have been engrossed in its final form at about 9.00 p.m. following which it was executed.
No doubt because of the speed with which the agreement was drafted and finalised and the varying hands which appear to have had a part in the drafting of it, the agreement is anything but a shining example of the draftsman's art. Although the provisions of the agreement which appear to have attracted the greatest attention at trial are cll. 6, 10 and 12, it is as well that I set it out in full. It is as follows (Blue AB 39-43):
"THIS AGREEMENT dated 26 day of July 1996.
BETWEEN: PETER DRINKWATER and JOHN DRINKWATER (hereinafter also referred to as 'the Drinkwaters.')
AND: GEOFFREY KYRWOOD and TERENCE KYRWOOD (hereinafter also referred to as 'the Kyrwoods.')
WHEREAS:
1.The Drinkwaters and Kyrwoods are directors and/or shareholders in Caddyrack Inc and Caddyrack Pty Limited.
2.The parties have the authority to bind their respective shareholders to do all acts and sign all transfers and the like, in order to complete the terms of this agreement as expeditiously as possible.
3.The parties either directly or indirectly have the collective rights to the patent and trademark for the golfing accessory known as 'the caddyrack.'
4.The shareholders of Caddyrack Pty Limited are the parties (sic) respective Family Trusts.
5.Caddyrack Pty Limited owes certain monies (sic) to Greg Norman and/or Great White Shark Enterprises under a contract dated May 1995; and
6.The parties are desirous of settling all matters between themselves and settling the repayment of the debt to Great White Shark Enterprises.
IT IS HEREBY AGREED AS FOLOWS:
1.The Drinkwaters will:
1.1have the exclusive non assignable rights to the patent and trademark of the nine slot rack and bag in Continental North and South America and including Hawaii;
1.2have the exclusive rights to marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in Continental North and South America including Hawaii;
1.3take responsibility for half the debt payable to Great White Shark Enterprises. Caddyrack Inc is not liable to pay any monies (sic) to Great White Shark Enterprises Incorporated until the later of the following dates:
(a)the date which is ten (10) months after the date of this agreement; or
(b)the date when Caddyrack Pty. Limited has paid its half of the monies (sic) due to Great White Shark Enterprises Incorporated.
1.4transfer all shares owned or controlled by them or their respective family trusts in Caddyrack Pty. Ltd, to the Kyrwoods or their assigns, except that Peter Drinkwater or his wife or child or an entity controlled by Peter Drinkwater retain five per cent (5%) of the issued shares in Caddyrack Pty. Ltd.
1.5resign as directors of Caddyrack Pty. Limited;
1.6         Each of the above sub clauses shall not merge on completion.
2.            Peter Drinkwater is to:
2.1have the exclusive non assignable rights to the patent and trademark of the nine slot rack and bag in Korea except for the initial order of five hundred (500) units where the value of the sale is to be paid to Caddyrack Pty. Ltd;
2.2have the exclusive rights to marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in Korea;
3.The Kyrwoods will:
3.1have the exclusive non assignable rights to the patent, trademark and nine slot rack and bag in the balance of the world (excluding the Americas and Korea).
3.2have the exclusive right to the marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in this designated area;
3.3have the responsibility for the payment of half the debt for Great White Shark Enterprises with responsibility for that half share commencing from the date of this agreement;
3.4transfer all shares owned or controlled by them, or their respective family trusts in Caddyrack Inc to the Drinkwaters or their nominees and all parties will authorise the director of Golf Products Promotion Limited and Caddyrack Pty. Limited to transfer all shares in Caddyrack Inc to John Drinkwater and Peter Drinkwater.
3.5         Each of the above sub clauses shall not merge on completion.
4.Caddyrack Pty. Limited will be responsible for the patent registration and maintenance of the patent and trademark both domestically and internationally during the life of the patent.
5.All parties are to have the non exclusive rights for any developments of the existing product, eg seven or eight slot racks etc. If in the event that either party develops and markets a similar rack (ie seven or eight slot unit) in the non exclusive market, the margin between the new product wholesale and/or distributor price will not be less than 84% of the wholesale/distributor price of the nine slot caddyrack during the period of the Great White Shark debt. Wholesale price is defined as in United States of America and Australia the price to retail shop eg US$29.50 and AUS$37.50. Distributor price is defined as the price paid by the distributor anywhere else in the world. The developer of the seven or eight slot unit agrees to sell at cost plus fifty per cent (50%) to the other party, (the cost price allows a maximum of $1.00 AUS as the royalty payment until the tool is paid for) with each party having the right to use the trademark in its exclusive area.
6.The Kyrwoods will replace within fourteen (14) days the security over the residential property of Peter Drinkwater at 44 Skye Point Road, Coal Point currently held by the National Australia Bank provided all conditions in this agreement have been satisfied. Peter Drinkwater is to make that property or any substitute property available for security for Caddyrack Pty. Limited if required and Peter Drinkwater is to have priority security by way of a fixed and floating charge over the assets of Caddyrack Pty. Limited the security to be released within twelve (12) months from the date of advance. If Peter Drinkwater fails to provide such security then his shares in Caddyrack Pty. Limited will be transferred to the Kyrwoods.
7.If Caddyrack Inc fails to meet and maintain its commitment to its agreed $250,000 US owing to Great White Shark, the rights in Clauses 1.1 and 1.2 of the agreement vest in Peter Drinkwater, Terence Kyrwood and Geoffrey Kyrwood as tenants in common in equal shares between them. In this event, any sum still owing to Great White Shark Enterprises is to be paid by Peter Drinkwater, Terry Kyrwood and Geoff Kyrwood equally. Any payment made to Great White Shark by Caddyrack Inc will be refunded to the directors of Caddyrack Inc by Peter Drinkwater, Terry Kyrwood and Geoff Kyrwood in equal shares. These three parties are then to have the exclusive non assignable rights as set out in Clause 1.1 and 1.2 of this agreement. Similarly if Caddyrack Pty. Limited fails to meet its obligations under the Great White Shark agreement all its interests are to vest in the Drinkwaters or their nominee.
8.Caddyrack Inc. is to supply left handed caddyracks at cost as required to Caddyrack Pty. Limited. Cost is defined as actual manufactured cost from the injection moulder.
9.All loans between the companies are to be written off. All actions currently pending are to cease with any costs to be paid in accordance with the order of the court with payment of taxed costs being deferred for eight (8) months from the date hereof.
10.The parties agree that they will not, nor will their agents or servants, do any act or say anything that will be derogatory to the reputation or product of the other party. Both parties agree not to be active in any way in marketing or distributing into the other parties (sic) country for a period of six (6) months.
11.This agreement is subject to satisfactory arrangements being met (sic) for the repayment of the debt to Great White Shark Enterprises. The parties agree that terms not more onerous than the following are satisfactory arrangements for repayment of the debt to Great White Shark Enterprises:-
(a)The sum of US$20,000 per month for six months;
(b)The sum of US$30,000 per month for six months;
(c)The balance of US$200,000 by six equal payments over six months.
Provided that Caddyrack Pty. Limited is liable only for the first US $250,000 and Caddyrack Inc is liable for the balance.
12.That Drinkwaters pay to International Tool and Gauge up to $20,000 for the upgrading of the Australian tool and when the upgrade is complete will exchange the United States tool for the Australian tool with each party being responsible for freight.
13.When the United States tool is in Australia, Caddyrack Pty. Limited agrees to be bound on the same basis as Caddyrack Inc in Cl 8 hereof.
14.John Drinkwater agrees that he will not move the tool in the United States for a period of three (3) months provided that the Kyrwoods and International Tool and Gauge provide a letter relinquishing all interests (if any) in such tool within seven (7) days of the date hereof. This clause will not merge on completion.
15.This agreement is also conditional upon International Tool and Gauge Pty. Limited agreeing to transfer its shares in Caddyrack Inc to John Drinkwater or his nominee."
Although the versions given by Peter Drinkwater (Blue AB 215) and Mr. Doyle (Blue AB 294-295) differ in their detail, it seems to be clear that, while the parties were having a drink following the execution of the agreement, it was agreed that Mr. Cornwell should deal with Great White Shark Enterprises concerning the proposal for paying the outstanding debt to that organisation by instalments.
It also seems clear enough that, at the same time, John Drinkwater produced and had the Messrs. Kyrwood sign a letter addressed to Mr. Phillips (Blue AB 308) which letter was in the following terms:
"RE: CADDYRACK PTY. LTD. & CADDYRACK INC
Dear Mr. Phillips,
The dispute between the Drinkwaters and the Kyrwoods was settled today.
Settlement provides for the Drinkwaters to be the sole owners of Caddyrack Inc and have the exclusive rights to the Americas and the Canadian and the Korean market place.
Further, we have agreed not to be active in any way in marketing and distributing in America for a period of six (6) months.
Accordingly, any previous instructions to the contrary are withdrawn."
and a further letter (Blue AB 309) addressed to a number of persons, who appear to have been officers of Performance Engineered Products Inc, which letter, when signed by the Messrs. Drinkwater, the Messrs. Kyrwood, Mr. Cornwell, Mr. Doyle and Mr. Hewitt, was in the following terms:
"From Caddyrack
RE: SHAREHOLDERS' DISPUTE
Gentlemen,
We are finally able to inform you that we have signed an agreement to settle our dispute.
The basis of settlement is that the Kyrwoods, Caddyrack Pty. Limited and Golf Promotions Products have no interest in Caddyrack Inc and the Drinkwaters in Caddyrack Pty. Limited.
John Drinkwater will be in the US on Monday, 29th and will contact you forthwith."
In the Affidavit which he swore in the proceedings, Mr. Berrey deposed (inter alia) (Blue AB 596-597):
"9.After 26 July 1996 I had a further discussion with Geoff Kyrwood in relation to finalising the terms on which ITG would be paid the $120,000.00. I recall saying to Geoff:
'What do you want me to do in relation to upgrading the Australian dye (sic)?'
Geoff Kyrwood said: 'Part of the agreement with the Drinkwaters is that they will pay for the upgrading and then there will be an exchange of tools. I suggest that you contact John Drinkwater.'
10.A few days after 26 July 1996 I recall I rang John Drinkwater. I said to him:
'Is the change in the Australian dye (sic) going ahead?'
John Drinkwater said: 'Yes'
I said: 'I will need some money up front before we start work. I will need $10,000.00 now and the balance on completion of the upgrade.'
John Drinkwater said:
'Well, that has to be sorted out.'"
On 29 July 1996, Mr. Cornwell wrote to Mr. Erickson a letter (Blue AB 310) which was in the following terms:
"RE: CADDYRACK DEBT
This is by way of confirmation of my verbal offer on behalf of Caddyrack Pty. Limited and the four guarantors for the outstanding US$500,000.00 owing to Great White Shark Enterprises Inc:
1.The sum of US$20,000.00 for 6 months.
2.The sum of US$30,000.00 then for 6 months.
3.The balance of $US200,000.00 by six equal monthly instalments of US$33,333.33 per month.
4.That all existing stock bearing the endorsement (approximately 10,000 units) will be sold as expeditiously as possible.
5.At your discretion I will undertake as your 'unpaid agent' to provide an audit report of stock numbers on a regular basis.
The above schedule of payments is realistic achievable by the parties. It would be appreciated if you could advise if this is acceptable by Great White Shark Enterprises Inc."
A copy of the letter which is in the Court papers bears the handwritten endorsement "Agreed - Paul Erickson".
On 31 July 1996, Mr. Doyle forwarded by facsimile addressed to Sanders Simpson Freed, who appear to have been the solicitors for ITG a letter (Blue AB 311) which was in the following terms:
"RE: CADDYRACK PTY. LIMITED & INTERNATIONAL TOOL & GAUGE
I refer to my discussion with you on 30 July 1996 and enclose the last page of an agreement entered into between the parties, paragraphs 12, 14 and 15 concern your client. Is your client prepared to give the letter required in paragraph 14?
If so, please arrange for us to receive this letter as a matter of urgency."
On 1 August 1996 McDonald Johnson wrote to Hansens a letter (Blue AB 315-316) which was in the following terms:
"RE: CADDYRACK PTY. LIMITED
We refer to the agreement made on 26 July 1996 and now enclose the following:
1.Transfer from Lustray Pty. Limited as trustee for the John Drinkwater Family Trust to Gavros Pty. Limited of nine (9) shares.
2.Transfer from Lustray Pty. Limited as trustee for the John Drinkwater Trust to Gedrot Pty. Limited of one (1) share.
3.Transfer from Lustray Pty. Limited as trustee for the Peter Drinkwater Family Trust to Gedrot Pty. Limited of eight (8) shares.
4.Resignation of Director to be signed by Peter Drinkwater.
5.Resignation of Director to be signed by John Drinkwater.
You might have these documents signed and then held in escrow pending settlement of the conditions set out in the Deed.
We suggest that a formal settlement then take place, attended by the National Australia Bank so that all matters can be concluded.
Also, we suggest that the Intellectual Property be transferred to the individuals to be exploited on the terms set out in the Deed of 26 July, 1996. We are submitting a Deed under separate cover."

On 2 August 1996, Mr. Berrey forwarded to Mr. Doyle by facsimile a letter (Blue AB 313) which was in the following terms:
"TO WHOM IT MAY CONCERN,
International Tool & Gauge hereby relinquishes any interest in the die to make Caddyracks currently situated at Performance Engineering Products in the United States provided that:
1.The die remains in Performance Engineered Products until 26 October, 1996; and
2.We have upgraded the die currently situated in NSW within that period (we will use our best endeavours to do so); and
3.The agreement between the Kyrwoods and Drinkwaters dated 26 July, 1996 becomes unconditional.
4.Which ever (sic) tool in Australia remains the property of International Tool & Gauge until a total of $120,000.00 has been paid."
On 2 August 1996, Mr. Reuthlinger, forwarded to John Drinkwater by facsimile a letter (Blue AB 599) in the following terms:
"International Tool & Gauge Pty. Ltd. requires a deposit of $10,000.00 for the modification on the Caddyrack Aus. mould as instructed and as agreed to be paid for by Caddyrack Inc.
As set down in the agreements between the KYRWOODS and DRINKWATERS.
Balance of payment ($10,000.00) to be paid to International Tool & Gauge Pty. Ltd. on completion of modification. Looking forward to an urgent reply."
On 2 August 1996 the Messrs. Kyrwood forwarded by facsimile to John Drinkwater a letter in the following terms (Blue AB 314):
"We have satisfied I.T.G. with arrangements for the USA tool. They have acted accordingly by relinquishing their interest in such tool, but for you to abide by our agreement you are responsible for the payments of any alterations to the Australian tool. I.T.G. have indicated that they cannot commence alterations without a deposit from you. Please cooperate with them so that the three months schedule for transfer of these tools can be achieved."
Caddyrack International Pty. Limited ("International"), which was the Fourth Defendant in the proceedings and which, as I have earlier (see para. 1 (above)) indicated, was formed at the behest of the Messrs. Kyrwood, was incorporated on 5 August 1996. The registered office of International on its incorporation was the same as that of Caddyrack.
On 5 August 1996, McDonald Johnson forwarded by facsimile to Hansens, a letter (Blue AB 317) which was as follows:
"RE: CADDYRACK PTY. LIMITED
We refer to our letter of 1 August, 1996 and enclose a copy of draft Minutes for a proposed meeting of the directors to be held at the offices of Rees Pritchard at 3.00 pm on Wednesday 7 August, 1996.
At that meeting it is proposed that a discharge of the mortgage over your clients (sic) property be handed over in exchange for signed Transfers and Resignations.
Please confirm these arrangements as a matter of urgency."
to which letter Hansens replied on 6 August 1996 as follows (Blue AB 325):
"RE: CADDYRACK PTY. LIMITED
We refer to your letter of 1 August in regard to the above.
Could you please confirm that the outstanding matters between Caddyrack Pty. Limited and Great White Shark Enterprises have been finalised. Upon written finalisation of same our clients will be in a position to execute the transfers and resignations requested."
Despite the apparently promising progress being made toward settlement, matters began to deteriorate thereafter.
As best as one can judge it, on 6 August 1996 John Drinkwater forwarded by facsimile to the Messrs. Kyrwood a letter (Blue AB 507) in the following terms:
"Part of the deal was that you were to obtain a letter from ITG, within 7 days, confirming that they have no interest in the US tool.
As yet I have not received this confirmation from ITG. Please attend to in and avoid defaulting on the deal.
In regard to the payment for the modification of the Australian tool, it was to be taken care of by you and when it was completed and test run only then was I to pay for it and exchange the tools.
I received a fax from Heinz on Aug 2 which indicates that you told him that I would be paying the deposit as set out in our agreement. This is not true and you know it. It was your responsibility to get the tool altered and then we would pay and exchange."
to which letter Terry Kyrwood replied by facsimile on 7 August 1996 in the following terms (Blue AB 508):
"Attached a facsimile from ITG which was sent to PEP and Brien Cornwell on 2 August, 1996.
In regard to the payment for modifications of the Australian Tool I bring your attention to clause 12 of the agreement of the 26th July, 1996. You are totally responsible for payment of any such modifications. If you are not prepared to co-operate maybe you could forget about modifications and have the tools exchanged now.
Please arrange delivery of the lap top computer and printer to Caddyrack Pty. Ltd. as soon as possible and advise when dispatched and by which courier company."
On 7 August 1996, McDonald Johnson forwarded by facsimile to Hansens a letter (Blue AB 326) in the following terms:
"RE: CADDYRACK PTY. LIMITED
Thank you for your letter of 6 August, 1996.
We enclose a letter from Brian Cornwell to Paul Erickson dated 29 July, 1996. You will see that Paul Erickson has signed the letter agreeing to the arrangements.
Settlement cannot take place today because the National Australia Bank is not ready. We hope that it is ready tomorrow when we will contact you as soon as we can to arrange the necessary directors meeting."
On 8 August 1996, McDonald Johnson forwarded by facsimile to Hansens a letter (Blue AB 328) in the following terms:
"RE: CADDYRACK PTY. LIMITED
The National Australia Bank has advised that it cannot take the mortgage of Peter Drinkwaters (sic) at 44 Skye Point Road, Coal Point because it secures other financial arrangements of Peter Drinkwater.
The National Australia Bank, however, is prepared to provide a letter acknowledging that the loan involving Peter Drinkwater and Caddyrack Pty. Limited has been extinguished and that the property no longer secures this loan.
We trust that this will suffice.
We will contact you as soon as we have this letter so that settlement can take place. We still hope that settlement can take place on 9 August, 1996."
The letter from the National Australia Bank which was foreshadowed in this letter is dated 9 August 1996 and addressed to Peter Drinkwater in care of McDonald Johnson. It was in the following terms (Blue AB 327):
"This is to confirm the National Australia Bank, Toronto has no interest in your property at 44 Skye Point Road, Coal Point relative to advances afforded to CADDYRACK PTY. LIMITED. We also confirm we will today pay in full a loan for $250,000 plus charges at our Jesmond branch in the name of Peter Westgarth DRINKWATER, account No. 64.826-5706 which funds were raised for the purpose of injection into the Company, Caddyrack Pty. Limited. This action will be taken upon telephonic advise (sic) from Terrence and Geoffrey KYRWOOD and their Solicitor Craig Doyle that all conditions have been ratified relative to the agreement to be finalised by today between Terence and Geoffrey KYRWOOD and Peter and John Drinkwater."
Later events would seem to demonstrate that, notwithstanding the terms of this letter, no such sum was ever paid by the National Australia Bank to the credit of Peter Drinkwater's account.
9 August 1996 saw the outbreak of a rash of letters passing between Hansens and McDonald Johnson. Although, in the materials which are before the Court, those letters have not been assembled in an ordered fashion, they appear to me to have been forwarded in the order which I set out below.
What appears to have been the first in point of time of such letters was one (Blue AB 333-334) from Hansens to McDonald Johnson in the following terms:
"RE: CADDYRACK PTY. LIMITED
We refer to the above matter and are instructed by our client John Drinkwater that the following matters have not been attended to in accordance with the agreement between the parties:
(i)John Drinkwater has not yet received the letter from International Tool & Gauge set out at clause 14 of the agreement of 26 July last;
(ii)Confirmation in writing of the exact nature of any agreement with Great White Shark Enterprises;
(iii)Confirmation that International Tool & Gauge will upgrade the Australian tool and upon completion Drinkwaters to pay up to $20,000.00 in respect thereto;
(iv)Your clients agreed to return the assets of Caddyrack Inc to our clients. This has not occurred. Our client has paid US$5,500.00 to Chris Phillips in regard to alleged outstanding commissions. Please forward a cheque in this sum immediately;
(v)Please forward a cheque in the sum of the Australian equivalent of US$23,800.00 for racks supplied from the US to Sandpiper Canada;
(vi)The Kyrwoods have not returned the original Greg Norman print nor golf clubs owned by Inc and/or John Drinkwater."
The next letter in point of time appears to have been one (Blue AB 335-336) from McDonald Johnson to Hansens in the following terms:
"RE: CADDYRACK PTY. LIMITED
Thank you for your letter of 26 July 1996.
Enclosed are copies of letter from the National Australia Bank dated 9 August 1996 and from International Tool & Gauge dated 2 August 1996.
The International Tool & Gauge letter has been faxed to the United States and provided to Brian (sic) Cornwell who we understood was to give you a copy.
We believe that these letters satisfy the obligations of the Kyrwoods under the Agreement dated 26 July 1996.
Kyrwoods want to settle this afternoon. We suggest 4.00 pm at the registered office of the company at 10 Murray Street, Hamilton. Please arrange for Peter Drinkwater to be present.
In response to the matters raised in your letter of today we make the following additional comments (adopting your numbering):
(ii)This has previously been provided to you. As Brian (sic) Cornwell acts for the company, please contact him.
(iii)See enclosed letter.
(iv)We understand that all assets have been made available to Caddyrack Inc. Any moneys owned to Chris Phillips would be owed by Caddyrack Inc. and would have nothing to do with our clients.
(v)We do not understand the significance of this request. There is nothing in the Agreement of 26 July 1996 from which date arrangements were made for territories.
(vi)The Greg Norman print has previously been given to John Drinkwater. We do not have instructions on the golf clubs. In any event, we cannot believe that your client would be raising such trivial matters in the context of the arrangements set out in the Agreement of 26 July 1996.
Please have your client contact our client direct re the matters set out in paragraph (vi) of your letter."
The letter from the National Australia Bank referred to in the second paragraph of this letter would appear to be that to which I have earlier (see para. 73 (above) - see also Blue AB327) referred, while the letter from International Tool & Gauge referred to in the same paragraph would appear to be that to which I have earlier (see para. 64 (above) - see also Blue AB313) referred.
The next letter in point of time appears to have been one (Blue AB329-330) from Hansens to McDonald Johnson, which was in the following terms:
"RE: CADDYRACK PTY. LIMITED
We refer to your facsimile of today's date.
Our clients (sic) instructions are that:
(i)Your clients cannot have bound Caddyrack Inc in their dealings with Chris Phillips. They have not co-operated in the return of assets of Caddyrack Inc to John Drinkwater.
(ii)The letter from International Tool & Gauge is not in accordance with clause 14 of the agreement.
(iii)Sandpiper Canada have been supplied with 500 racks from Inc, the payment of which has been forwarded to Caddyrack Pty Limited. Accordingly, monies (sic) remain outstanding to 'Inc' from 'PL'.
(iv)The print and the golf clubs remain outstanding in contravention of the undertakings given by your clients to the Supreme Court.
(v)Notwithstanding the provision of a letter apparently signed by Paul Ericsson, (sic), there appears (sic) to be no complete documents setting out the terms of the agreement.
Our clients (sic) instructions are that until these matters and the matters covered in the accompany (sic) letter in respect of Peter Drinkwater are satisfied there can be no finalisation. Accordingly no settlement can take place this afternoon."
The "accompany letter" was in the following terms (Blue AB 331-332):
"RE: CADDYRACK PTY. LIMITED
We refer to the above matter and are instructed by our client Peter Drinkwater that the following matters require finalisation:
(i)Confirmation in writing of the agreement on the Great White Shark deal;
(ii)That Peter Drinkwater purchase the Hilux on the average of 3 wholesale prices or alternatively pay out the lease at his option;
(iii)That the Kyrwoods supply a status report on the patent now and a report every 3 months;
(iv)That as agreed to by your clients, Caddyrack P/L shall supply to our client Peter Drinkwater materials, packaging and advertising. Our client is agreeable that after the first container has been shipped to Korea that our client be billed for work done by Leslie Pickering in respect of distribution etc of Caddyracks to Korea and 10% on cost.
We await your advice in respect of what arrangements the National Australia Bank have made with your clients in regard to the outstand (sic) security provided by Peter Drinkwater for Caddyrack Pty. Limited. Your early attention to the above matters is requested."
Thereafter, on 13 August 1996, McDonald Johnson forwarded by facsimile to Hansens a letter (Blue AB 337-338) which was in the following terms:
"RE: CADDYRACK PTY. LIMITED
Thank you for your letters of 9 August 1996.
As you know the parties entered into an Agreement dated 26 July 1996. That Agreement was entered into after extensive negotiations and with all parties having the benefit of independent legal advice. I acted for the Kyrwoods and you acted for the Drinkwaters.
The Agreement dated 26 July 1996 was conditional on:
1.Satisfactory arrangements being met (sic) for the repayment of the debt to Great White Shark Enterprises (clause 11).
2.International Tool & Gauge providing a letter relinquishing all interests (if any) in the tool situated in the United States (clause 14).
3.International Tool & Gauge agreeing to transfer its shares in Caddyrack Inc to John Drinkwater or his nominee (clause 15).
Satisfactory arrangements have been made with Great White Shark Enterprises Inc. We refer you to our letter to you of 7 August 1996 enclosing a copy of a letter from Cornwells, signed by Paul Erickson on behalf of Great White Shark Enterprises. Separately, we have had Paul Erickson confirm to us in writing that the arrangements are satisfactory. If you have any concerns, we suggest you write direct to him in view of the fact that he has been writing to you.
The letter we sent to you from International Tool & Gauge states 'International Tool & Gauge hereby relinquishes any interest it has in the die to make Caddyracks currently situated at Performance Engineering Products in the United States …'. This satisfies the condition in clause 14.
International Tool & Gauge have now separately advised us that it is happy to transfer its shares in Caddyrack Inc and is awaiting on the appropriate documentation. May we suggest you send it to them or contact them direct should you have any queries.
We do not propose to otherwise comment on the matters raised in your two letters of 9 August 1996 as they are clearly outside the terms of the Agreement dated 26 July 1996. However, we understand that Mr. Kyrwood, Mr. Drinkwater and Mr. Cornwell have had a 'without prejudice' meeting to consider what arrangements our clients may be prepared to make to assist your client with the rights he has under clause 2 of the Agreement. Naturally, any further agreement in that regard would not effect of existing Agreement as it would be totally separate.
The Kyrwoods are ready, willing and able to complete the Agreement dated 26 July 1996 and have carried out their relevant obligations under that Agreement. In particular, Caddyrack Pty. Limited has made the first payment to Great White Shark Enterprises Inc and has paid a substantial amount of money to protect the patent. The Kyrwoods have also put in place the arrangements with the National Australian (sic) Bank (see the bank's letter dated 9 August 1996).
Please make immediate arrangements for Peter Drinkwater and John Drinkwater to attend a meeting with the Kyrwoods to effect the resignations and transfer the shares. If this meeting has not taken place by 5.00 pm Thursday 15 August 1996 we have instructions to commence proceedings in the Supreme Court for specific performance of the Agreement dated 26 July 1996."
Although it does not appear to have loomed large in any of the Judgments which were delivered by Young J in these proceedings at first instance, it seems to have been the fact (see Judgment Young J, 25 September 1997 pp. 31-33; see Red AB 66-68) that, from a date shortly after the incorporation of International, the Messrs. Kyrwood were diverting orders, which had been directed to Caddyrack, to International and were making arrangements for that company to enter the United States market and, in particular, to have a stand at the Orlando Golf Show and to have International listed in the 1997 PGA Merchandise Show Directory and Buyers Guide (see Blue AB 749-453, 771-775).
The war of words between Hansens and McDonald Johnsons resumed on 15 August 1996 when Hansens forwarded by facsimile to McDonald Johnson a letter (Blue AB 339) reading as follows:
"RE: CADDYRACK INC
We refer to the above matter. We have been advised by Brien Cornwell that the share transfers in respect of Golf Products Promotion Limited have not yet been returned. Further the letter from International Tool and (sic) Gauge, clause 14, is a conditional letter, such conditions not been (sic) canvassed in the agreement. There also remains a number of outstanding issues in respect of John Drinkwater which we are currently awaiting instructions (sic).
Could you please take instructions from your clients in regard to the above matters."
Although the circumstances in which it did so are not revealed by the materials which are before the Court, it would appear that, at about this time, Mr. Cornwell's firm became involved in the disputes between the Messrs. Drinkwater and the Messrs. Kyrwood as to the carrying out of the terms of the agreement of 26 July 1996. Thereafter, on 29 August 1996 Hansens wrote to Cornwells a letter (Blue AB 509, 747) which read as follows:
"RE: CADDYRACK INC AND CADDYRACK PTY. LIMITED
We refer to your letter of 21 August last in regard to the above matter.
We have been able to take instructions from John Drinkwater on 27 August.
He instructs us that he has been required to pay monies (sic) to Chris Phillips to retrieve items that were returnable to Caddyrack Inc under the orders of the Court. These items were compiled from a list setting out the assets of Caddyrack Inc held by the Kyrwoods. This list was annexed to an Affidavit used by the Kyrwoods in recent Court proceedings.
On our instructions the Kyrwoods have deliberately allowed those assets to remain with or go to Phillips. They have not honoured their undertaking to the Court.
Our client Caddyrack Inc is also out of profit in respect of the Sandpiper sale.
The agreement signed on 26 July last does not envisage any undertaking from Caddyrack Inc to pay for refurbishment of the tool.
Our client instructs us to advise that in the circumstances they shall retain the current tool in America and supply left handed Caddyracks at cost as required to Caddyrack Pty. Limited pursuant to clause 8 of the agreement. Caddyrack Pty. Limited can then upgrade the Australia (sic) tool if and when it is required.
Could you please take instructions from the Directors of Caddyrack Pty. Limited in regard thereof."
A copy of that letter is said (Blue AB 492) to have been made available to Geoffrey Kyrwood.

On both those dates, the Drinkwater interests also continued to repudiate the Settlement Agreement. The Drinkwater interests’ repudiation of the agreement had commenced on 29 August 1996, preceded the Kyrwood interests’ repudiation of the agreement and continued throughout the Kyrwood interests’ repudiation of the agreement. The question for determination is whether the Drinkwater interests were entitled to terminate the Settlement Agreement for the Kyrwood interests’ repudiation of that agreement when the Kyrwood interests were themselves repudiating the agreement; that is to say, when the Drinkwater interests were not themselves ready, willing and able to perform the Settlement Agreement. [38]
In Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd Receiver and Manager Appointed, [39] this Court held that Roadshow had been entitled to terminate its contract with the respondent. However, Roadshow had not repudiated [40] or even breached the contract. [41] Further, Roadshow’s obligation was not a condition precedent to the obligations repudiated by the respondent and was independent of those obligations. [42] Understandably, the Court emphasised that “a comprehensive analysis of the effect of a breach on a party’s right to rescind” was not required. [43]
Two (obiter) propositions are deducible from Roadshow, namely that:
(a)“A party in breach of non-essential terms who has not repudiated may rescind for fundamental breach” [44] (emphasis added) or for “repudiation by the other party”. [45] However, that “general rule” might be subject to an “exception or qualification” which would prevent the party in breach from terminating the contract “if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon”[46] (or, presumably, the other party’s repudiation).
(b) “A party in breach of an essential but independent term may also rescind for fundamental breach.”[47]
The authority relied upon in Roadshow [48] for proposition (b) in the preceding paragraph was State Trading Corporation Ltd of India v Golodetz Ltd [49]. The leading judgment in that case, which was delivered by Kerr LJ, contains a statement which was unnecessary for the decision of either case. His Lordship said: [50]
“… . Neither obligation was dependent upon the other and both had to be performed concurrently … . Since both obligations are (assumedly) in the nature of conditions, both parties had an equal right, so long as the other party’s obligation remained unperformed, to treat the other party as having wrongfully repudiated.”
According to that passage, a party which is itself repudiating a contract, i.e., not ready, willing and able to perform the contract, can terminate it for the other party’s fundamental breach or repudiation, at least unless both parties are in breach of interdependent essential terms
It is unlikely that the Court in Roadshow [51] intended to endorse the full ambit of what had been said by Kerr LJ in State Trading Corporation of India, [52] especially without any discussion of Foran v Wight, [53] which was referred to at the same point in Roadshow, [54] or DTR Nominees Pty Ltd v Mona Homes Pty Ltd [55], which had been referred to a little earlier. Proposition (b) extracted above from Roadshow [56]can be limited to a party who had earlier breached an essential but independent term but was ready, willing and able to perform the contract at the time when he or she acted to terminate it for the other’s breach. That was the basis on which Lennon v Scarlett and Co [57] was explained in DTR Nominees Pty Ltd v Mona Homes Pty Ltd.[58]
Further, there was no reference in State Trading Corporation of India [59] to the decisions of the House of Lords in Bremen Vulkan Schiffbau und Maschinerfabrick v South India Shipping Corporation Ltd [60] or Paal Wilson and Co A/S v Partenreederei (The Hannah Blumenthal). [61] In the second of those decisions, the House of Lords reversed a decision of the Court of Appeal [62] was a member of the Bench. which had not applied the earlier House of Lords decision. In both Bremer Vulkan [63] and Paal Wilson, [64] there was no suggestion that the parties’ “mutual” obligations were interdependent.
In Bremer Vulkan, [65] the plaintiffs were respondents to an arbitration commenced by the defendants in which they claimed to have been seriously prejudiced by the inordinate and inexcusable delay of the defendants in prosecuting the arbitration. The plaintiffs sought injunctions restraining the defendants from continuing with the arbitration. It was held by the trial judge that the defendants’ conduct constituted a repudiatory breach of the agreement to submit the dispute to arbitration and injunctions were granted. The defendants’ appeal was dismissed by the Court of Appeal, which held that the plaintiffs were entitled to treat the defendants’ conduct as a repudiation of the arbitration agreement and, as they had elected to rescind it, the injunctions were correctly granted. The House of Lords allowed an appeal. By three to two majority, it was held that, since both parties were under an obligation to keep the arbitration procedure moving forward, both were under an obligation to apply to the

arbitrator to prevent inordinate delay. Since the plaintiffs had made no such application, they were not entitled to treat the defendants’ breach as giving them the right to treat the agreement as at an end. One of the majority, Lord Diplock, stated that the parties were “under a mutual obligation to one another to join in applying to the arbitrator for appropriate directions to put an end to the delay.” [66] Later, his Lordship said: [67]
“For failure to apply for such directions before so much time had elapsed that there was a risk that a fair trial of the dispute would not be possible, both claimant and respondent were … in breach of their contractual obligations to one another; and neither can rely upon the other’s breach as giving him a right to treat the primary obligations of each to continue with the reference as brought to an end.”

Lord Diplock was again a member of the Bench which decided Paal Wilson, [68], but the leading judgment was delivered by Lord Brandon of Oakbrook. There, plaintiffs sought and initially obtained a declaration that an arbitration agreement had been discharged by reason of frustration because of the other parties’ delay. That decision was upheld by a majority in the Court of Appeal. The House of Lords upheld an appeal on the basis that the operation of the doctrine of frustration was excluded by the “default” of each of the parties. Lord Brandon of Oakbrook said: [69]
“The Court of Appeal in Bremer Vulkan had held that the claimant had been guilty of such inordinate and inexcusable delay in proceeding with the reference there concerned as to amount to a repudiation of the agreement to refer; that the respondents were entitled to accept, and had accepted, that repudiation as such; and that the agreement to refer had accordingly been discharged by breach. What Lord Diplock was saying was that, since the delay concerned was the consequence of breaches on the part of both the claimant and the respondent of their mutual obligation owed to one another, neither could rely on the other’s conduct as amounting to repudiation. … Lord Diplock’s mutual obligation concept was an essential part of the ratio decidendi of the Bremer Vulkan case in your Lordships’ House.”
In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, [70] purchasers sought a declaration that they had validly rescinded a contract for the sale of land and the vendor cross claimed seeking a declaration that it had validly rescinded the contract. Broadly stated, the purchasers alleged that the vendor’s failure to lodge a plan in accordance with a term of the contract was a repudiation of the contract and the vendor alleged that the purchasers’ purported rescission constituted a wrongful repudiation of the contract, which it had accepted. Both parties accepted that the contract was at an end, but there was a dispute as to who was entitled to the deposit. The purchasers succeeded.
A majority of the High Court held that the vendor had breached the contract by not lodging the plan in accordance with the relevant term but that the term was not an essential term in the sense that its breach entitled the purchasers to terminate the contract. Further, the vendor did not repudiate the contract by requiring the purchasers to complete when they were not obliged to do so. Accordingly the purchasers’ attempt to terminate the contract was ineffective.
It was also held that the purchasers’ attempt to terminate the contract was not a repudiation of the contract which entitled the vendor to rescind, because the purchasers did not evince an intention not to proceed with the contract properly interpreted. However, both parties had abandoned or abrogated the contract by their conduct before the commencement of proceedings. Accordingly, the deposit was repayable to the purchaser.
Stephen, Mason and Jacobs JJ delivered a joint judgment with which Aickin J agreed. The passage in the joint judgment which is material for present purposes is as follows: [71]
“But the question remains whether the appellant was entitled to rely on this ineffective rescission of the contract by the respondents as itself a repudiation of the contract and thereupon to rescind as it purported to do by its letter of 25th July 1974. This is the question raised by the cross-action. In our opinion the appellant could not rely on the respondents' purported rescission as a repudiation. The respondents purported to rescind only upon the basis that the appellant would not complete the contract as correctly interpreted. They were in error in regarding themselves as entitled to rescind at the stage when they purported to do so but they were not in error in their interpretation of the contract. The actions of the parties must now be considered in the light of the true interpretation of the contract. The purported rescission of 19th July did not evince an intention not to proceed with the contract correctly interpreted; it did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by the appellant. That cannot be regarded as a repudiation which would entitle the appellant to rescind when it was itself the party in error. A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages. By insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondents were relying on the different but correction interpretation, the appellant by that stage showed that "definitive resolve or decision against doing in the future what the contract" (required) which is referred to by Dixon C.J. in Rawson v. Hobbs (1961) 107 CLR 466 , at p 481 . Whether or not the respondents could by then have rescinded certainly the appellant could not do so. (at p433)
The appellant never accepted that the contract be performed according to its correct interpretation and thus the facts are different from those in Lennon v. Scarlett & Co. (1921) 29 CLR 499 . There a plaintiff had, after the making of the contract, sought to insist on additional terms. The defendant then called off negotiations, in effect purporting to rescind. It was held that the attempt by the plaintiff to add new terms did not amount to a repudiation. It was further held that the defendant had repudiated. But the difference between that case and the present case is that there the plaintiff, after the defendant`s purported rescission, offered to complete the contract on its true terms. The defendant declined to do so. By that tim the plaintiff was willing to complete the contract according to its true terms and he could therefore treat the defendant`s act as a repudiation and could rescind accordingly”.
Although the majority judgment in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [72] stated that only an “innocent party”, that is a party “willing to perform the contract on its proper interpretation”, can terminate a contract for the other party’s “anticipatory repudiation”, [73] it is apparent from both the circumstances of the dispute in that case and the explanation [74] which was there given for the decision in Lennon v Scarlett and Co [75] that the same principle is applicable if the repudiation of the party other than the party seeking to terminate is not an anticipatory repudiation.
Foran v Wight [76] involved a contract for the sale of land which was due to be completed on a specified date with time of the essence. A special condition required the vendors to obtain registration of a right of way before completion. Two days before the date specified for completion, the vendors’ solicitor told the purchasers’ solicitor that the vendors would not be able to settle on the specified date because the right of way had not been registered. Neither party attempted to settle on the specified date. Two days later, the purchasers gave the vendors a notice of rescission. The purchasers succeeded in their claim for a declaration that they had rescinded the contract and for the return of the deposit. The vendors’ cross-claim that the purchasers were not entitled to terminate the contract and that the vendors had validly terminated the contract and were entitled to the deposit failed. The vendors’ contention that the purchasers’ notice of rescission was invalid on the ground that the purchasers were not ready and willing to complete on the specified date for want of funds was rejected. The basis for the rejection of the vendors’ contention was that the need for the purchasers to be ready, willing and able to complete the contract had been dispensed with by the vendors’ solicitors’ statement that they would not be able to complete that day. However, a majority [77] approached the matter on a different basis from the other members of the Court. of the High Court accepted that, but for that dispensation, the purchasers could not have terminated if they had not been ready and willing to perform the contract. [78]
Mason CJ dissented in the result only because he considered that the purchasers had not been ready, willing and able to complete. The following passages from his judgment are sufficient for present purposes:
“Accordingly, in relation to termination for actual breach, the principle is that established by the earlier decisions - the plaintiff is required to show that he was ready and willing to perform the contract if it had not been repudiated by the plaintiff. In other words, the requirement is that the plaintiff be ready and willing to perform except to the extent that the defendant dispensed with his performance. In the case of an anticipatory renunciation accepted by the plaintiff, the requirement of readiness and willingness extends only up to the time of acceptance because then the earlier repudiation results in an early termination of the contract. Accordingly, in the case of actual breach the requirement of readiness and willingness is more stringent; it continues through to the time for performance. That is because the termination of the contract does not antedate the time for performance. Subject to this difference and to the possibility of a difference in the onus of proof, the principle to be applied in the case of actual breach is consistent with that to be applied in the case of termination for anticipatory breach. The difference in the onus of proof arises because in the case of termination for anticipatory breach the plaintiff will generally be able to show at the time of termination that he would have been able to perform at the time for performance by demonstrating that he was not then disabled or incapacitated from such performance.”[79]
…
“However, in the present case, the anticipatory breach of the vendors was not accepted. The case is one of termination for actual breach. The time for determining whether or not the purchasers would have been ready and willing to perform the contract had it not been for the dispensing conduct of the vendors is therefore the time for performance. The purchasers have not discharged the onus of showing that at that time they would have been so ready and willing. It follows that the purchasers are unable to justify their termination by reference to the ordinary principles of contract law. It is necessary now to turn to the doctrine of estoppel in order to ascertain whether the application of that doctrine enables the purchasers to succeed.”[80]
…
“The purchasers cannot by invoking the doctrine of estoppel avoid the need to show that the vendors' conduct caused them not to perform the contract. The contract went off for two reasons: first, because the purchasers lacked the financial resources to complete on the appointed day; secondly, because the vendors were unable to complete on the appointed day as the right of way could not be registered in time. Accordingly, the failure of the contract was as much due to the purchasers' incapacity as that of the vendors. But in order to terminate the contract the purchasers needed to show that the vendors were at fault. The consequence is that the purchasers did not validly terminate the contract. In this situation it might at first seem just and fair that the purchasers should recover their deposit but it is conceded that, if the purchasers did not validly terminate, the vendors' later termination of the contract was valid and it was not contested, in this event, that the purchasers' claim to recover the deposit should fail.” [81]
Brennan J held that, at the time when the vendors’ solicitor told the purchasers’ solicitor that the vendors would not be able to complete on the specified date, the purchasers were, in the material sense, ready and willing to complete. The vendors’ indication that they were unable to complete on the specified date dispensed with the purchasers’ obligation to tender performance. His Honour’s opinion that a party seeking to terminate for another’s repudiation must be ready, wiling and able to complete is encapsulated in the following passage:
“Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v. Hobbs, at pp 480-481. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v. Norman (1842) 9 M & W 820 at p 827 ( 152 ER 347 , at p 350). Since a party's right to rescind an executory contract for the other party`s repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives.”
Deane J agreed that the vendors could not rely on the purchasers’ omission to perform on the specified day because of the vendors’ indication that they could not complete at that time. His Honour added: [82]
“In these circumstances, it is strictly unnecessary that I express any view on the question whether one party to a contract is precluded from rescinding it by accepting a repudiation of the contract by the other party if he is not in a position to prove that he is, or but for the repudiation would have been, ready, willing and able to perform the contract. However, in view of the discussion of that question in other judgments, it would seem desirable that I indicate that, notwithstanding some statements of authority to the contrary, I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness and willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by either principle or common sense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party’s repudiation.”
Nothing in that passage suggests his Honour considered that a party which was itself repudiating a contract could terminate that contract.

Dawson J’s judgment contains the following passage: [83]
“In this case, the purchasers did not accept the vendors' repudiation of the contract but terminated the contract for actual breach. But the vendors' implied intimation to the purchasers that there was no point in their attempting to tender the purchase price on the due date was sufficient to alter the nature of the readiness and willingness which the purchasers were required to prove, that being put in issue by the vendors. They were not required to show that upon the day stipulated for settlement they were ready and willing to tender the purchase price. They were absolved from the obligation of placing themselves in a position to be able to tender the purchase price upon that day by reason of the representation of the vendors two days earlier. All that the purchasers were required to show was that at the time of the repudiation, that is, at the time they were absolved from future performance, there was not a "substantial incapacity" on their part or a "definitive resolve or decision" against the performance of their obligations.
The question whether the purchasers satisfied this onus is not without some difficulty because the trial judge directed his attention to the situation on the date stipulated for settlement rather than the situation two days before. However, the purchasers did not have to prove that they could have raised the amount needed to complete the financing of their purchase by the time stipulated for settlement. They merely had to prove that, at the time of the defendants` repudiation, two days before the settlement date, they were not incapacitated from raising that amount and had not resolved or decided against doing so. That was a relatively light burden to discharge and, upon the evidence, I think that the plaintiffs did discharge it. There is nothing in the trial judge`s findings which requires a contrary conclusion.”
In this Court, McHugh JA had also recognized that a party who is repudiating a contract is not entitled to terminate it for the other party’s repudiation. [84]
The Drinkwater interests’ repudiation of the Settlement Agreement, which commenced no later than 29 August 1996 and continuing past 30 October, precluded them from terminating the agreement for the Kyrwood interests’ repudiation.
In the circumstances, it is unnecessary to consider proposition (a) from Roadshow. [85] However, a party who is not itself repudiating a contract cannot terminate if that would involve taking advantage of its own wrong;[86] for example, as was indicated in Roadshow, because of the causal relationship between the conduct of the party seeking to terminate and the other party’s repudiation. Arguably, a wider test is appropriate in which consideration is given to the terms of the contract and the total conduct of the respective parties, including any breaches of contract and the importance of the terms breached. It is now established that the Court has power to grant relief in respect of an unconscionable or inequitable termination. [87]
The position adopted and persisted in by the Drinkwater interests, the importance of the United States tool to the Kyrwood interests and the causal relationship between the Drinkwater interests’ attitude and conduct and the Kyrwood interests’ repudiation of the Settlement Agreement precluded the Drinkwater interests from terminating the agreement. Even if they were not, at the time, repudiating the Settlement Agreement, the Drinkwater interests were plainly not ready, willing and able to perform it according to its terms.
The declaration that the Settlement Agreement was terminated by the Drinkwater interests in October 1996 was wrongly made. As I understand the position, the Drinkwater interests do not dispute that, if they did not validly terminate the Settlement Agreement in October 1996, the appeal should be allowed and the orders made by the trial judge should be set aside. It is unnecessary to consider whether the orders sought by the Kyrwood interests in their notice of appeal would be appropriate if the appeal was allowed since the other members of the Court consider that the appeal should be dismissed.

END NOTES

1. (1824) 2 Sim & St 174 at 177; 57 ER 311 at 312 per Leach V-C.
2. (1837) 2 My & Cr 192 at 202; 440 ER 613 at 617 per Lord Cottenham LC.
3. (1956) 95 CLR 420, 426-427 per Dixon CJ and Fullagar J.
4. [1976] 1 WLR 989, 995-996 per Lord Wilberforce.
5. (1978) 138 CLR 423, 429 per Stephen.
6. (1987) 8 NSWLR 642)

7. (1938) 38 SR 632
8. supra at 641-642
9. (1931) 45 CLR 159, 166
10. (1968) 71 SR 126
11. supra at 149
12. (1977-1978) 138 CLR 423
13. supra at 431-432
14. (1988-1989) 166 CLR 623, 634
15. supra at 647-648
16. supra at 657-659
17. (1881) LR 6 App. Cas. 251, 263
18. (1896) 7 QLJ 68, 70-71
19. [1984] 3 NSWLR 613
20. (1997) 42 NSWLR 462
21. supra at 479-480
22. (1989) 168 CLR 385, 407-409
23. CPL and International are now in liquidation.
24. It is not clear how long these rights were to continue: see cl. 10 of the Settlement Agreement.
25. It is not clear how long these rights were to continue: see cl. 10 of the Settlement Agreement.
26. See the letter dated 2 August 1996 from ITG, which is referred to below.
27. The trial judge did not hold that this conduct by the Kyrwood interests was itself a repudiation of the Settlement Agreement, and the Drinkwater interests’ Notice of Contention did not assert that his Honour should have done so.
28. Although each party had wanted to purchase the other’s shares in CPL, they eventually agreed that the Kyrwood interests would purchase from the Drinkwater interests. A “very substantial sum” is involved, although CPL is now in liquidation.
29. (1981) VR 1041. Reference was also made to Stage Club v Millers Hotels Pty Ltd (1981) 150 CLR 535, 569 per Brennan J.
30. As all parties were aware, ITG estimated that the modification of the Australian tool could be completed in about 12 weeks.
31. This is elaborated upon in the letter from the Kyrwood interests’ solicitors to the Drinkwater interests’ solicitors dated 23 September 1996.
32. A letter dated 28 October 1996 from the Drinkwater interests’ solicitors to the Kyrwood interests’ solicitors is missing from the appeal record and might not have been tendered.
33. As to what constitutes repudiation, see, for example, Laurinda Ltd v Capabala Park Shopping Centre Pty Ltd (1988) 166 CLR 623.
34. Under the Settlement Agreement, both the Kyrwood interests’ obligation under clause 6 and the Drinkwater interests’ obligation under clause 12 to arrange and pay for the upgrading of the Australian tool were overdue for performance at 5 September 1996. Compare Morris v Baron and Company (1989) 1 AC 9 and Fercometal SARL v Mediterranean Shipping Co SA (1989) 1 AC 788.
35. Vitol SA v Norelf Ltd (1996) AC 800, 810-811.
36. cf Holland v Wiltshire (1954) 90 CLR 409.
37. Neither party suggested that the Settlement Agreement had been mutually abrogated or abandoned: see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Paal Wilson and Co v Partenreederei (The Hannah Blumenthal) (1983) 1 AC 854.
38. The present case is not concerned with the exercise of a power to terminate which is expressed in the contract or which arises from the non-fulfilment of a condition to which performance of the contract is subject. The source of the power to terminate asserted by the Drinkwater interests is the common law.
39. (1997) 42 NSWLR 462.
40. 42 NSWLR 462, 479F.
41. 42 NSWLR 462, 481C-F.
42. 42 NSWLR 462, 479G.
43. 42 NSWLR 462, 479F.
44. 42 NSWLR 462, 481B; cf 479G.
45. 42 NSWLR 462, 479G.
46. 42 NSWLR 462, 480A.
47. 42 NSWLR 462, 481B-C.
48. 42 NSWLR 462
49. (1989) 2 Lloyd’s Law Reports 277.
50. (1989) 2 Lloyd’s Law Reports 277, 286, 2nd column, 1st paragraph.
51. 42 NSWLR 462.
52. (1989) 2 Lloyd’s Law Reports 277.
53. (1989) 168 CLR 385.
54. 42 NSWLR 462, 478B.
55. (1978) 138 CLR 423.
56. 42 NSWLR 462, 481B-C.
57. (1921) 29 CLR 499.
58. (1978) 138 CLR 423, 434.
59. (1989) 2 Lloyd’s Law Reports 277.
60. (1981) AC 909.
61. (1983) 1 AC 854.
62. Kerr LJ
63. (1981) AC 909
64. (1983) 1 AC 854.
65. (1981) AC 909.
66. (1981) AC 909, 986.
67. (1981) AC 909, 987-988.
68. (1983) 1 AC 854
69. (1983) 1 AC 854, 909.
70. (1978) 138 CLR 423.
71. 138 CLR 423, 433-434.
72. 138 CLR 423.
73. 138 CLR 423, 433. See also page 437.
74. 138 CLR 423, 434.
75. (1921) 29 CLR 499.
76. (1989) 168 CLR 385.
77. Gaudron J
78. See also Holland v Wiltshire (1954) 90 CLR 409.
79. 168 CLR 385, 408.
80. 168 CLR 385, 409.
81. 168 CLR 385, 413.
82. 168 CLR 385, 437.
83. 168 CLR 385, 453.
84. See Wight v Foran (1987) 11 NSWLR 470, 487-488. See also Thors v Weekes (1989) 92 ALR 131, 143-144 per Gummow J.
85. 42 NSWLR 462.
86. See, for example, New Zealand Shipping Co v Societe des Ateliers et Chantiers de France (1919) AC 1; Alghussein Establishment v Eton College (1988) 1 WLR 587.
87. Foran v Wight 162 CLR 385, 394 per Mason CJ and cases cited.

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LAST UPDATED: 27/04/2007