Mercator Property Consultants Pty Ltd v Sumampow

[2000] WASC 157

MERCATOR PROPERTY CONSULTANTS PTY LTD -v- SUMAMPOW [2000] WASC 157

Pending Appeal

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASC 157
Case No:	CIV:2122/1998	Heard:	15-19 MAY 2000
Coram:	HEENAN J	Delivered:	16/06/00
No of pages:	20	Judgment Part:	1 of 1
Result:	Judgment for plaintiff for balance of purchase price and interest Counterclaim dismissed
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Parties:	MERCATOR PROPERTY CONSULTANTS PTY LTD (ACN 008 737 022) ROBBY SUMAMPOW
Catchwords:	Contracts Deeds Construction and interpretation Sale of shares in company operating casino and resort complex Conditions precedent Fulfilled after specified date Subsequent payment and acceptance of instalments of purchase price Application by vendor prior to completion date for appointment of receiver and manager of company Casino licence cancelled Purchaser pleading no effective contract after deadline for fulfilment of conditions precedent Alternative pleading of breach by vendor of implied term to preserve subject matter of purchase
Legislation:	Nil
Case References:	Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia & Ors (1977) 139 CLR 54 Butt v McDonald (1896) 7 QLJ 68 Gange v Sullivan (1966) 116 CLR 418 Hichens Harrison Woolston & Co v Jackson & Sons [1943] AC 266 London Founders Association Ltd and Palmer v Clarke (1888) 20 QBD 576 Nullagine Investments Pty Ltd v The Western Australian Club Inc (1992) 177 CLR 635 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Amalgamated Investment & Property Co Ltd v Commerce International Bank Ltd [1982] 1 QB 84 Atlas Truck Services Pty Ltd (1974) 24 FLR 220 Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 Qd R 499 Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646 Bensley v Burdon (1830) 8 LJ (os) Ch 85 Bermingham v Sheridan 55 ER 525 Beswick v Beswick [1968] AC 58 Bowman v Taylor 2 AD & E 279 Carpenter v Buller (1841) 8 M & W 209 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] 149 CLR 337 Commonwealth v Verwayen (1990) 170 CLR 394 Daintree Rainforest Resort Pty Ltd (1999) 17 ACLC 585 Darter Pty Ltd v Malloy [1993] 2 Qd R 615 Dean and Westham Holdings Pty Ltd v Lloyd (1990) 3 WAR 235 Equitable Life Assurance of the US v Bogie (1905) 3 CLR 878 Ex Parte Dawes; Re Moon (1886) 17 QBD 275 Fernlake Pty Ltd (1994) 12 ACLC 453 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 1) (1998) 28 ACSR 688 Gray Eisdell Timms Pty Ltd v Combined Auctions Pty Ltd (1998) 16 ACLC 252 Greer v Kettle [1938] AC 156 Gregory v MAB Pty Ltd (1989) 1 WAR 1 Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers [1977] 2 NSWLR 109 Hughes v Metropolitan Railway (1877) 2 App Cas 439 Hughes v The Queen [2000] HCA 22 Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1992) 182 CLR 26 Industrial Acceptance Corp Ltd v Tarulli [1974] WAR 125 J & E Holdings Pty Ltd v Bourke (1994) 13 ACSR 83 Koutsojiannis v Brown (1980) NZCLC 98081 Kyprianou v Cypurs Textiles Ltd [1958] 1 LIR 60 Mackay v Dick (1881) 6 App Cas 251 Mackwell v Petkovic (1998) 20 WAR 367 Manton v Parabolic Pty Ltd [1985] 2 NSWLR 361 Maynard v Goode (1926) 37 CLR 529 Molodysky v Vema Aust Pty Ltd (1988) 4 BR 9552 Monarch Petroleum NL v Citco Aust Petroleum Ltd [1986] WAR 310 National Bank of Wales [1897] 1 Ch 298 Nelson v Dahl (1879) 12 Ch D 568 Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 Newmont Pty Ltd v Laverton Nickel NL (1982) 44 ALR 598 Ogdens Ltd v Nelson [1905] AC 109 O'Neill v Phillips [1999] 1 WLR 1092 (HL) Ontario and Minnesota Power Company Ltd v R [1925] AC 196 Onward Building Society [1891] 2 QB 465 Paterson v McNaghten (1905) 2 CLR 615 Poulton v Moore [1915] 1 KB 400 Right v Bucknell (1831) 2 B & Ad 278 Roberts v Bury Comrs (1870) LR 5CP 310 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Secured Real Estate Ltd v St Martins Investments Pty Ltd (1979) 53 ALJR 745 Silverman v Isac 249 NYS 505 Southern Foundaries v Shirlaw [1940] AC 701 Sprague v Booth [1909] AC 576 Stirling v Maitland 122 ER 1043 Sullivan v Henderson [1973] 1 WLR 333 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 Tellsa Furniture Pty Ltd v Glendave Nominees Pty Ltd (1987) 5 ACLC 662 Terrex Resources NL v Magnet Petroleum Pty Ltd and Others [1998] WAR 144 The World Navigator [1991] 2 LIR 23 Tropical Traders Ltd v Goonan (1964) 111 CLR 41 Turner v Goldsmith [1891] 1 QB 544 Vanadium Corporation v Fidelity & Deposit Co 159 F 2d 105 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : MERCATOR PROPERTY CONSULTANTS PTY LTD -v- SUMAMPOW [2000] WASC 157 CORAM : HEENAN J HEARD : 15-19 MAY 2000 DELIVERED : 16 JUNE 2000 FILE NO/S : CIV 2122 of 1998 BETWEEN : MERCATOR PROPERTY CONSULTANTS PTY LTD (ACN 008 737 022)

Plaintiff

AND

ROBBY SUMAMPOW
Defendant

Catchwords:

Contracts - Deeds - Construction and interpretation - Sale of shares in company operating casino and resort complex - Conditions precedent - Fulfilled after specified date - Subsequent payment and acceptance of instalments of purchase price - Application by vendor prior to completion date for appointment of receiver and manager of company - Casino licence cancelled - Purchaser pleading no effective contract after deadline for fulfilment of conditions precedent - Alternative pleading of breach by vendor of implied term to preserve subject matter of purchase

(Page 2)

Legislation:

Nil

Result:

Judgment for plaintiff for balance of purchase price and interest

Counterclaim dismissed

Representation:

Counsel:

Plaintiff : Mr M J McPhee & Mr A O Karstaedt
Defendant : Mr K G Robson

Solicitors:

Plaintiff : Michell Sillar McPhee
Defendant : Su & Co

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

Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia & Ors (1977) 139 CLR 54
Butt v McDonald (1896) 7 QLJ 68
Gange v Sullivan (1966) 116 CLR 418
Hichens Harrison Woolston & Co v Jackson & Sons [1943] AC 266
London Founders Association Ltd and Palmer v Clarke (1888) 20 QBD 576
Nullagine Investments Pty Ltd v The Western Australian Club Inc (1992) 177 CLR 635
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

Case(s) also cited:

Amalgamated Investment & Property Co Ltd v Commerce International Bank Ltd [1982] 1 QB 84
Atlas Truck Services Pty Ltd (1974) 24 FLR 220
Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 Qd R 499


(Page 3)

Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646
Bensley v Burdon (1830) 8 LJ (os) Ch 85
Bermingham v Sheridan 55 ER 525
Beswick v Beswick [1968] AC 58
Bowman v Taylor 2 AD & E 279
Carpenter v Buller (1841) 8 M & W 209
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] 149 CLR 337
Commonwealth v Verwayen (1990) 170 CLR 394
Daintree Rainforest Resort Pty Ltd (1999) 17 ACLC 585
Darter Pty Ltd v Malloy [1993] 2 Qd R 615
Dean and Westham Holdings Pty Ltd v Lloyd (1990) 3 WAR 235
Equitable Life Assurance of the US v Bogie (1905) 3 CLR 878
Ex Parte Dawes; Re Moon (1886) 17 QBD 275
Fernlake Pty Ltd (1994) 12 ACLC 453
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 1) (1998) 28 ACSR 688
Gray Eisdell Timms Pty Ltd v Combined Auctions Pty Ltd (1998) 16 ACLC 252
Greer v Kettle [1938] AC 156
Gregory v MAB Pty Ltd (1989) 1 WAR 1
Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers [1977] 2 NSWLR 109
Hughes v Metropolitan Railway (1877) 2 App Cas 439
Hughes v The Queen [2000] HCA 22
Immer (No 145) Pty Ltd v The Uniting Church in Australia Property Trust (NSW) (1992) 182 CLR 26
Industrial Acceptance Corp Ltd v Tarulli [1974] WAR 125
J & E Holdings Pty Ltd v Bourke (1994) 13 ACSR 83
Koutsojiannis v Brown (1980) NZCLC 98081
Kyprianou v Cypurs Textiles Ltd [1958] 1 LIR 60
Mackay v Dick (1881) 6 App Cas 251
Mackwell v Petkovic (1998) 20 WAR 367
Manton v Parabolic Pty Ltd [1985] 2 NSWLR 361
Maynard v Goode (1926) 37 CLR 529
Molodysky v Vema Aust Pty Ltd (1988) 4 BR 9552
Monarch Petroleum NL v Citco Aust Petroleum Ltd [1986] WAR 310
National Bank of Wales [1897] 1 Ch 298
Nelson v Dahl (1879) 12 Ch D 568
Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723
Newmont Pty Ltd v Laverton Nickel NL (1982) 44 ALR 598
Ogdens Ltd v Nelson [1905] AC 109


(Page 4)

O'Neill v Phillips [1999] 1 WLR 1092 (HL)
Ontario and Minnesota Power Company Ltd v R [1925] AC 196
Onward Building Society [1891] 2 QB 465
Paterson v McNaghten (1905) 2 CLR 615
Poulton v Moore [1915] 1 KB 400
Right v Bucknell (1831) 2 B & Ad 278
Roberts v Bury Comrs (1870) LR 5CP 310
Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Secured Real Estate Ltd v St Martins Investments Pty Ltd (1979) 53 ALJR 745
Silverman v Isac 249 NYS 505
Southern Foundaries v Shirlaw [1940] AC 701
Sprague v Booth [1909] AC 576
Stirling v Maitland 122 ER 1043
Sullivan v Henderson [1973] 1 WLR 333
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
Tellsa Furniture Pty Ltd v Glendave Nominees Pty Ltd (1987) 5 ACLC 662
Terrex Resources NL v Magnet Petroleum Pty Ltd and Others [1998] WAR 144
The World Navigator [1991] 2 LIR 23
Tropical Traders Ltd v Goonan (1964) 111 CLR 41
Turner v Goldsmith [1891] 1 QB 544
Vanadium Corporation v Fidelity & Deposit Co 159 F 2d 105
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

(Page 5)

1 HEENAN J: This is an action by a vendor for enforcement of a contract for the sale and purchase of shares in a private company. There is a counterclaim by the purchaser for refund of the moneys paid towards the purchase price and for damages on the ground that the contract was discharged by reason of non-fulfilment of conditions precedent and breach of implied terms by the vendor.

2 Until recently Christmas Island Resort Pty Ltd ("the Company") was the owner and operator of the casino and resort complex on Christmas Island. In or about the year 1986 Mr Francis Woodmore, an Australian businessman, acquired two fully paid shares and 1,099,998 partly paid shares in the Company. The holding represented 10 per cent of its share capital. Either then or subsequently Mr Woodmore had his shares registered in the name of the plaintiff, ("Mercator"), his private company. Mercator, formerly known as F P Woodmore Pty Ltd, adopted its present name on 16 April 1997. By the end of 1993 the defendant Mr Robby Sumampow, an Indonesian businessman, had acquired the balance of the share capital of the Company in the form of 9,900,000 fully paid shares.

3 By deed dated 16 June 1997 ("the Original Deed") Mercator agreed to sell its 1,100,000 shares in the Company to Mr Sumampow for the price of $5.1 million. Of that price $2.6 million was to be paid within fourteen days, and the balance of $2.5 million within six months, after fulfilment of certain conditions precedent. Those conditions, as expressed in cl 2 of the Original Deed, were as follows:

"(a) The Treasurer of the Commonwealth of Australia, pursuant to the provisions of the Foreign Acquisitions and Takeovers Act 1975, approving (or not objecting to the same) the sale and purchase of the Shares pursuant to this Deed ("the FIRB Approval").

(b) The approval of the Commonwealth Department of Territories to the transfer of shares.

(c) The consent in principle of the Australian Department of Transport to the operation of a regular air service between Christmas Island and Jakarta, Indonesia, such consent in principle to be sufficiently evidenced by a letter from the Department of Transport confirming that subject to the normal rules applicable to such services approval will be given.

(Page 6)

(d) The completion by the Purchaser of a due diligence examination of the affairs of the Vendor so far as they relate to this transaction such investigations to be limited in the matters outlined in Schedule A."

The operation of the Original Deed was expressed to be subject to fulfilment of the conditions within 40 days of the date of the deed, that is, on or before 25 July 1997.

4 By deed dated 25 July 1997 ("the first Deed of Extension") Mercator and Mr Sumampow agreed that the deadline for fulfilment of the conditions precedent be extended until 15 August 1997. The conditions were not fulfilled by then. A draft deed extending the deadline to 21 November 1997 was forwarded by Mr Sumampow's solicitors, a Perth firm, to Mercator's solicitors, another Perth firm, on 10 November 1997. The document was executed by Mercator but was not signed by Mr Sumampow. Meanwhile, efforts were still being made by both parties to ensure that the conditions precedent were fulfilled. By letter of 27 November 1997 Mr Sumampow's solicitors submitted to Mercator's solicitors a further deed extending the deadline. The deed was not executed, but by letter of 10 December 1997 Mr Sumampow's solicitors confirmed that all of the conditions precedent had been fulfilled and that settlement should take place on or before 24 December 1997. With the letter they enclosed a draft deed extending the deadline to 12 December 1997. By letter of 24 December 1997 they submitted the engrossed deed ("the second Deed of Extension") to Mercator's solicitors. With the same letter they enclosed for execution copies of a document entitled Deed of Variation, the recitals to which included the following:

"F. The parties to the [original deed] have agreed to extend the Conditions Precedent Deadline to 12 December 1997.

G. On 10 December 1997, Sumampow, by his solicitors, advised Mercator's solicitors that all of the conditions precedent had been satisfied."

The Deed of Variation purported to vary the provisions in the original deed relating to payment of the purchase price. It provided for payment of the first instalment of $2.6 million by a "deposit" of $250,000 forthwith and $2,350,000 on or before 28 February 1998. The document went on to state that in all other respects the terms of the original deed were confirmed by the parties to the Deed of Variation. Payment of $250,000 was made on behalf of Mr Sumampow on 24 December 1997. Both deeds enclosed with his solicitors' letter of that date were executed by

(Page 7)

Mercator and promptly returned to them. Mr Sumampow signed the Deed of Variation on 4 January 1998 but, it seems, he did not sign the second Deed of Extension.

5 On 23 February 1998 Mercator's solicitors wrote to Mr Sumampow's solicitors noting that "the original signed documents have not been returned" and going on to say:

"Our instructions are to say that unless some alternative arrangement is arrived at our client will require settlement on the due date, which is this Friday 27 February 1998, or the next working day thereafter.

Our client understands the difficulties that your clients may be facing, in Indonesia, at the moment and is willing to discuss the matter in a commercial and reasonable way, so long as he is given notice of precisely what the difficulties are and what if any proposal your client has to overcome them.

You will appreciate of course that our client requires to be informed of the position in some detail so that the commercial judgment can be made in relation to any alternative proposal that may be put forward by your client.

If our client is not kept informed; no alternative is offered and default occurs on the settlement our client will have no option but to take its remedies at law.

This is not our client's preferred course and is in not in the long term interests of anyone concerned. Further, litigation between shareholders of the casino will likely be looked at in an adverse way by the relevant licensing authorities.

Would you please convey these matters to your client as a matter of urgency with assurances from our client that if there are difficulties in settlement our client will do what it can, in a commercial way, to help solve the problem; but this can only be achieved by proper and timely communication between the parties.

Please let us know the position in response by return or as soon as possible."

Mr Sumampow's solicitors responded by letter of 27 February 1998 enclosing a draft of a second Deed of Variation setting out, in effect, that

(Page 8)

the remainder of the purchase price was to be paid in two further steps, namely by an instalment of $350,000 forthwith and $4.5 million on or before 31 July 1998. Payment of $350,000 was made on behalf of Mr Sumampow on 4 March 1998, but the second Deed of Variation never was executed.

6 In the course of his evidence-in-chief Mr Herman Gani, Mr Sumampow's personal assistant, spoke of his own discussions with Mr Woodmore in December 1997 and February 1998 which preceded payment of the amounts of $250,000 and $350,000 respectively. In relation to the former amount he said (at T185):

"So Mr Woodmore asking me how can be assured if he allowed a partial payment to be made that Mr Sumampow will pay the balance of that fund. I am suggesting to Mr Woodmore why didn't he treated the first payment to be a non-refundable payment so if they are not in a position to proceed, he is entitled to keep that sum of amount. Then finally he agreed on it and I recall that we negotiate about the interest rate, Mr Woodmore initially asking for 12 to 13 per cent per annum, but finally we agree on 10 per cent per annum."

In relation to the latter amount he said (at T193) that he told Mr Woodmore that it was "to be treated as the same with the first non-refundable deposit". Counsel for Mr Sumampow relied upon Mr Gani's evidence in this respect to establish a "compromise" or, as I understand it, a form of accord and satisfaction whereby Mr Sumampow was relieved of any obligation to proceed with the purchase of the shares but retained the option to proceed if he were in a position to do so. In my opinion, Mr Gani's evidence falls far short of establishing such an arrangement and, in either event, it is not only inconsistent with but contradicted by the contents of the first Deed of Variation.

7 By letter of 16 March 1998 Mercator's solicitors requested Mr Sumampow's solicitors to let them have "an executed and signed copy" of the second Deed of Variation by return mail. By letter of 19 May 1998 they sought copies of the executed and stamped Original Deed and subsequent deeds. On the same day Mr Sumampow's solicitors replied as follows:

"Due to the prevailing circumstances in Indonesia, we are currently experiencing some difficulty in getting instructions from our client. We will ask our client for further instructions and reply to your letter as soon as we have these instructions."

(Page 9)

Further letters of enquiry from Mercator's solicitors dated 20 May, 27 May and 2 June 1998 went unanswered. Then, in response to a similar letter of 10 June 1998, Mr Sumampow's solicitors replied that they were "still experiencing some difficulty" in obtaining instructions from their client and that they would respond to Mercator's enquiries as soon as they had clear instructions to do so.

8 Meanwhile, on or about 23 April 1998 the Company had closed the casino and the resort. Bearing in mind that failure by the Company to meet its financial commitments when they fell due and payable constituted a ground for cancellation of its casino licence, the Minister for Territories wrote to Mr Sumampow on 26 April saying, among other things, that he expected that all outstanding debts would be paid by 6 May 1998. The Minister enquired also as to whether the purchase of "Mr Woodmore's 10% shareholding" in the Company would proceed and, if so, when and on what terms. By letter of 5 June 1998 Mr Gani wrote to the Minister saying, among other things, that

"We understand that the purchase of Mr Woodmore share is still on, there is an additional agreement reach between Mr Woodmore and Mr Sumampow regarding the time for payment only, but for other terms and condition, your office has already had a copy of purchased agreement."

By notice dated 16 June 1998, issued under s 58 of the Casino Control Ordinance 1988, the Minister required the Company to show cause within 21 days why the casino licence should not be cancelled on grounds which included its failure to meet its financial commitments to certain specified creditors and to its employees.

9 By letter of 19 June 1998 Mercator's solicitors wrote to Mr Sumampow's solicitors in the following terms:

"As you know we act on behalf of Mercator Property Consultants Pty Ltd in relation to its shareholding in Christmas Island Resort Pty Ltd ('CIR').

Our client is growing increasingly concerned at the activities of the directors of CIR and the way in which they continue to run the company, one such director being your client Mr Sumampow.

Our client has instructed us to send the attached letters to CIR and both your client and the other directors of CIR as a matter of urgency.

(Page 10)

In the circumstances, and given your connection with Mr Sumampow, we would ask that you use every endeavour to pass on the attached letters to the relevant parties as a matter of urgency."

With the letter were a copy of a letter which Mercator's solicitors had sent direct to the Company at its registered office in Cairns and a copy of a letter which they had sent to Mr Sumampow and to each of three other directors of the Company. The letter to the Company was in the following terms:

"Please be advised that we act on behalf of Mercator Property Consultants Pty Ltd who owns 10% of Christmas Island Resort Pty Ltd ("CIR").

Our client was recently concerned to see that The Australian newspaper has reported that the Commonwealth government had issued a notice to CIR asking it, within 21 days, to show cause as to why the Christmas Island casino licence should not be revoked.

Further, our client is aware that business on the island has been closed for a period of several months, and that the directors of CIR have done nothing in the meantime to manage the affairs of CIR and/or engage in any corporate administration with a view to continuing the operation of the resort and the other affairs on Christmas Island.

Included within this is the non payment of both wages and accounts to creditors.

In these circumstances please advise us as a matter of urgency what measures the directors of CIR intend to take to:

1. retain the benefit and the value of the casino licence for CIR; and

2. recommence day to day operations of the resort and its associated activities on the island.

Our client need not remind you that the casino licence held by CIR represents a large portion of the total value of the assets held by CIR, and any loss or revocation of the licence by the government would see the value of CIR and its shares fall irreparably.

(Page 11)

As a result we are instructed to advise that our client will, pending a satisfactory response to the issues raised herein, take matters into its own hands to preserve the assets of CIR accordingly."

The text of the letter to the four directors of the Company was as follows:

"Please be advised that we act on behalf of Mercator Property Consultants Pty Ltd who own 10% of shares in Christmas Island Resort Pty Ltd ("CIR").

Our client is concerned that you are not discharging the duties attaching to your office as a director of CIR. Enclosed herein is a copy of a letter sent today to the registered office of CIR outlining our clients major concerns.

Please let us have your urgent response to the matters raised in the letter to CIR, failing which our client will have no choice but to take matters into its own hands."


During the following week Mr Michael McPhee, principal of the firm of solicitors acting for Mercator, had several telephone conversations with Mr Mark McLinden, a solicitor with the firm acting for Mr Sumampow. In the course of those conversations Mr McPhee requested a copy of the notice mentioned in the letter which his firm had written to the Company on 19 June 1998. Mr Sumampow's solicitors responded by facsimile of 26 June stating that "Our client has advised us not to provide you with a copy of the notice issued by the Minister for Territories in relation to the cancellation of the casino licence". On the same day Mercator's solicitors wrote to Mr Sumampow's solicitors in the following terms:

"We refer to your letter of today's date which was faxed through to us earlier this afternoon.

We also refer to the earlier conversations between the writer and Mr McLinden earlier in the week and confirm that you are acting currently not only on behalf of Mr Sumampow in his personal capacity, but also on behalf of the company Christmas Island Resort Pty Ltd to deal with the Government on the notice relating to the possible cancellation of the casino licence.

We take it, in this regard, the client referred to in your letter today takes in both clients, Mr Sumampow and the company.

(Page 12)

Our client takes the view that the interests of the company are not co-extensive with the interests of Mr Sumampow and our client believes, subject to any submissions that you might like to make on the matter, that it is obvious on the face of the matter that it is the interests of Mr Sumampow which dominate the operations and decisions of the company; and as a result the interests of the only minority shareholder, our client, are subordinated to those of Mr Sumampow.

We suggest to you and through you to your clients, the company directors including Mr Sumampow that in current circumstances where the following situations pertain, it is oppressive for our client to be treated in the way that is evidenced by your letter today. These circumstances to which our client refers include:

1. That our client has been given no information of any sort from the company relating to the action of the Minister; or the details of any step or submission being taken or made to redress the position and protect the interests of the company.

2. The directors of the company have not replied to our letter of 19 June 1998 sent through you; and which Mr McLinden confirmed had been passed on.

3. There has been no general or special meeting of shareholders since 21 October 1996.

4. No up to date financial reports have been signed off and the returns of the company for the financial year ending 30 June 1997 are still outstanding. Our client has been advised on enquiry from the company accountants that no accounts for that period exist.

5. Notwithstanding the position that our client has agreed to sell his shares to Mr Sumampow with an extended settlement of 31 July 1998, your office was not able to offer any information as to the likelihood of your client settling on that day or at all, when enquiry was made this week.

6. Your office has not provided us with any information, despite several requests over a period of time, to confirm

(Page 13)

that the contract for the sale of shares has been stamped, and your office has not returned the original signature from Mr Sumampow. We still only have a faxed copy.

7. If your client is not able to settle the only security available for our client will be the retention of the shares in the company and this security is now perilously close to being lost; and in the face of such a situation your clients refuse to communicate or consult with ours.

In all these circumstances our instructions are to formally advise as follows:

(a) Our client requires the provision of details as to the company's finances by annual return or otherwise by close of business Monday 29 June 1998.

(b) By the same time our client requires full details of every step being taken by the company, its directors or Mr Sumampow to redress the current difficulty of the company and in particular to preserve the casino licence.

(c) By the same time details of every effort being taken to sell or otherwise dispose of the assets of the company.

Further, our instructions are to formally advise the company through you that in the event of there being continued failure to inform our client of the current position in relation to the company, as detailed above or at all, our client will regard himself as having no option but to take steps to apply to the Court for the appointment of a receiver to take control of the affairs of the company in this most critical time.

Would you please give this your most urgent attention."

On 1 July 1998 Mr Woodmore, in his role of managing director of Mercator, wrote to the first assistant secretary of the Department of Territories advising that Mercator "as a significant shareholder" in the Company intended to apply to the Federal Court of Australia on 3 July to place the Company in the hands of a receiver and manager. In the letter Mr Woodmore went on to say,

"We hope to obtain an expedited hearing by 10 July or shortly thereafter, noting that this is some days after the Minister's 'show cause' deadline.

(Page 14)

If [the Company] is able to resolve the matter by 7 July 1998 we may withdraw our action. Otherwise, we request that the deadline be extended pending the outcome of the Court hearing since our submission is predicated on the need to preserve [the Company's] most valuable asset.

Our action is based on the oppression provisions of the Corporations Law, and in particular the apparent paralysis of [the Company's] board in relation to it's present crisis. A brief summary of the issues:

1. [The Company] directors will not provide us with any details concerning the financial standing of the company. There has been no notification of an AGM for the 1996-97 financial year and accounts have not been provided to us or filed with the ASC.

2. We have been refused information in relation to the Minister's ultimatum and the board's response.

3. The board is not taking appropriate steps to mitigate [the Company's] liquidity crisis. It has not given serious consideration to offers from third parties to buy, and to lease premises, plant and equipment owned by [the Company] but no longer needed for its hotel or casino operations.

4. The board's inaction exposes the company to substantial losses, including the casino licence and site lease with the concomitant forfeiture of improvements.

This action has the support of major creditors of [the Company] and will result in the resurrection of the hotel and casino operations on Christmas Island. This might be achieved through financial restructuring including the raising of additional share capital, or the sale of the entire undertaking by international tender.

Taking into account all the possible alternatives, we believe that the appointment of a Receiver Manager will provide the quickest and most effective long-term solution to the problem now facing all parties associated with the Christmas Island casino. This comprises the Commonwealth, the community and

(Page 15)

workers of Christmas Island, and the creditors and shareholders of [the Company].

We shall keep you advised of progress."

On 3 July 1998 Mercator applied to the Federal Court of Australia for appointment of a receiver and manager over the assets of the Company.

10 Mr Sumampow's solicitors responded to the Minister's notice of 16 June 1998 by letter of 6 July 1998, setting out grounds upon which they submitted that the Minister "should take no action adverse to the licence". Having decided that the matter was not resolved to his satisfaction the Minister issued a notice dated 10 July 1998 directing the Company to meet its financial commitments within 14 days.

11 By letter of 23 July 1998 Mercator's solicitors wrote to the Minister confirming that on the instructions of Mercator they had filed the application at the Federal Court in Perth and that the application had been adjourned "to enable every opportunity, to be given to the company to take the appropriate steps to meet your requirements." The letter then reads as follows:

"As of today we have not received any advice from the company or its directors that it is able to meet your requirements in the time limited, namely by 4.00pm Friday 24 July 1998.

In these circumstances our instructions are to move the Federal Court formally for the appointment of the interlocutory receiver, notice having been given to the company and its directors of our client's intention to so move. The purpose of our client's action is to have someone appointed by the Court who is '… a completely independent competent person who can come in and take hold of the situation' per Bright J in re Club Mediterranean Pty Ltd (1975-76) CLC 40-204. The intention is that such a person once appointed will take control of the affairs of the company and do what is necessary to put its affairs in order and specifically to comply with your requirements as Minister; and to be available locally in Australia to deal with your office directly to act quickly and achieve that purpose.

Our client has proposed as receiver Mr Jeffrey Herbert who is a fully qualified person and one of the senior practitioners in the field in Western Australia.

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His Honour Mr Justice Nicholson, who is hearing our client's application required of us that we advise the directors of the company of the appointment time and place at which Counsel will move for the substantive order for the appointment of receiver on an interlocutory and urgent basis. We are taking steps to give that notification now.

The time fixed by the Court for our client's motion has been fixed for 4.00pm Tuesday 28 July 1998 at the Federal Court Perth. It is to be noted that this appointment will fall after the expiry of your direction to the company to pay certain creditors.

The purpose of this letter is to notify you of the current state of our client's application and to respectfully request on behalf of our client that any formal step to cancel Christmas Island Resort Pty Ltd's Casino Licence be deferred firstly until our client has had the opportunity to move for the order and secondly, if such order is granted, for the receiver appointed to attend upon you as Minister to discuss what steps may be taken as a matter of urgency to preserve the company's assets.

Would you please let us know your position on this request, through your department as soon as you can.

May we express our thanks to you for giving this matter your consideration."

The Company did not comply with the Minister's notice of 10 July 1998 and on 28 July the Minister cancelled the Company's licence to operate the casino.

12 On 29 July 1998 Mercator's application to the Federal Court was granted, and on 8 December 1998 an order was made for winding up of the Company. Meanwhile, no further payment in reduction of the purchase price was made by Mr Sumampow, and on 1 October 1998 the writ which instituted these proceedings was issued.

13 The pleadings raise only two real issues: first, whether the agreement constituted by the Original Deed was discharged by non-fulfilment of the conditions precedent prior to 15 August 1997, the extended deadline specified in the first Deed of Extension; secondly, and alternatively, whether by making the receivership application in July 1998 Mercator was in breach of implied terms of that agreement. Because both issues were raised in the defence and counterclaim filed on behalf of

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Mr Sumampow and the burden of proof rested upon him, I directed that he begin. He did not attend the trial. The only oral testimony was given by Mr Gani, on behalf of Mr Sumampow, and by Mr Woodmore, on behalf of Mercator.

14 There is no substantial conflict in the evidence before the Court. Resolution of the issues depends upon interpretation of the documents and application of the relevant law.

Conditions precedent

15 On behalf of Mr Sumampow counsel argued that the parties had adopted the convention to contract by deed alone and that, as he had not signed any deed extending the time for fulfilment of the conditions precedent beyond 15 August 1997, the agreement for sale of the shares was discharged when the conditions were not fulfilled by that date.

16 The nature and contents of the Original Deed show that the parties accepted that they had settled the terms of their transaction fully. The conditions precedent should be construed as precedent to performance rather than as precedent to formation (see Mason J in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 552-554). In this case fulfilment of the conditions took a considerable time and required the cooperation of both parties. In such circumstances non-fulfilment within the time specified does not automatically discharge the contract, although the contract might well become voidable at the instance of either party, if not in default (see Gange v Sullivan (1966) 116 CLR 418 at 441 per Taylor, Menzies and Owen JJ). At no time did Mr Sumampow take any step towards discharging the contract. The reverse was the case. The evidence shows that he consistently treated the contract as remaining on foot - although, as Mr Gani stated in his letter of 5 June 1998 to the Minister for Territories, there was "an additional agreement reach between Mr Woodmore and Mr Sumampow regarding the time for payment only". Furthermore, after fulfilment of the conditions on 10 December 1997, the parties entered into the "additional agreement" whereby Mercator extended the time for payment of the purchase price. The recitals in the first Deed of Variation, which Mr Sumampow signed on 4 January 1998, are conclusive evidence of his acknowledgment not only that the conditions precedent had been fulfilled but also that their fulfilment was within time. As we have seen, he paid the substantial total of $600,000 pursuant to the additional agreement. In those circumstances, clearly he waived compliance with the convention to contract by deed alone.

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17 I have no hesitation in concluding that Mr Sumampow's right to rely upon non-fulfilment of the conditions precedent as discharging the contract was lost by his treating those conditions as having been fulfilled within time and by affirming, as he did, that the sale of the shares for the agreed price was to proceed.

Implied terms

18 It is a "general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract" (Butt v McDonald (1896) 7 QLJ 68 at 70-71 per Griffith CJ, endorsed in Nullagine Investments Pty Ltd v The Western Australian Club Inc (1992) 177 CLR 635 at 659 per Deane, Dawson and Gaudron JJ). In relation to an agreement to sell shares application of that general rule to the vendor requires him to hand to the purchaser a transfer and certificates of the shares in proper form and to do nothing, either before or subsequently, to prevent registration of the transfer. There is no implied term that the purchaser or his nominee shall be accepted by the directors for entry in the register of shareholders (London Founders Association Ltd and Palmer v Clarke (1888) 20 QBD 576; Hichens Harrison Woolston & Co v Jackson & Sons [1943] AC 266). In evidence Mr Woodmore asserted that at the time agreed by the parties he was and still is ready willing and able to proceed with transfer of the shares. As that aspect of the matter was not contested I infer that at all material times Mercator was, and still is, ready willing and able to hand to Mr Sumampow, or his solicitors, a transfer and certificates of the shares in proper form.

19 There is a general rule also that "a party to a contract made on the footing of the continuance of a state of things may not by any act within its power or control do anything to destroy or relevantly to diminish that situation" (Ansett Transport Industries (Operations) Pty Limited v The Commonwealth of Australia & Ors (1977) 139 CLR 54 at 61 per Barwick CJ). On behalf of Mr Sumampow it is pleaded that there were implied terms of the agreement the subject of the Original Deed that Mercator would act in good faith, cooperate and do all things necessary to ensure that the terms of the Original Deed were implemented and performed, not do anything which would frustrate the performance of the Original Deed or diminish the value of the Mercator shares and do all things necessary to enable Mr Sumampow to have the benefit of the Original Deed. Counsel for Mr Sumampow contended that the intention

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of the agreement between the parties was to have Mercator, and Mr Woodmore, out of the Company and Mr Sumampow in sole control of it. He went on to submit that, by applying for appointment of a receiver and manager - which led to the winding up of the Company - Mercator had brought about a situation in which, on transfer, Mr Sumampow not only would receive shares which, as is common ground, have been worthless since 30 June 1998, but also would be unable to exercise any control over the Company. Counsel contended also that, knowing that the casino licence was the Company's only significant asset, Mr Woodmore instructed Mercator's solicitors to apply for the appointment of a receiver and manager with two, alternative, purposes in mind. He asserted that the first purpose was to force Mr Sumampow to purchase the shares and, if that proved to be unsuccessful, the second purpose was to destroy the licence by having a receiver and manager appointed and thereby to sacrifice the Company in order to garnishee the amount due to Mr Sumampow as an unsecured creditor of the company.

20 In my opinion, the evidence falls far short of enabling the Court to conclude that Mr Woodmore, or anyone acting on behalf of Mercator, had any purpose such as those alleged by counsel. The correspondence supports the oral testimony of Mr Woodmore to the effect that the application for appointment of the receiver and manager was made in good faith and solely for the purpose of preserving the benefit of the contract by having a competent person appointed to manage the affairs of the Company and thereby persuading the Minister to delay cancellation of the licence. In all the circumstances, in my opinion, it was a reasonable - perhaps the only reasonable - approach for Mercator to take in order to protect the security of its vendor's lien. Although the licence was cancelled, the evidence shows that the cancellation took place in spite of, and not because of, that approach. Indeed, the Minister had intervened as early as 26 April 1998, well before and independently of any action taken by or on behalf of Mercator.

21 Of course, the purchaser of shares in any company takes the risk that the company might fail or be wound up. In this case the evidence does not show that the failure of the Company or its winding up was due to any intervening event or change of circumstance attributable to a breach of an implied term by Mercator or by anyone acting on its behalf.

Conclusion

22 Having found against Mr Sumampow in relation to the issues raised on his behalf, I find that he wrongfully refused to pay or to tender the

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balance of the price for the shares at the time agreed by the parties. Mercator therefore is entitled to judgment for $4.5 million, the balance of the purchase price, and interest thereon at the rate agreed by the parties in the first Deed of Variation. The counterclaim fails. It follows of course that, in exchange for that sum, Mercator's solicitors will produce to Mr Sumampow's solicitors a transfer and certificates of the shares in proper form.

23 In order that they might agree upon the amount of interest accrued counsel will have a copy of these reasons prior to the time set for delivery of judgment.