MLW Technology Pty Ltd v May
[2005] VSCA 29
•28 February 2005
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 2085 of 2002
| M.L.W. TECHNOLOGY PTY LTD | |
| Appellants | |
| v. | |
| ROGER THOMAS MAY | Respondent |
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JUDGES: | WINNEKE, P., BUCHANAN, J.A. and GILLARD, A.J.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 24 November 2004 | |
DATE OF JUDGMENT: | 28 February 2005 | |
MEDIUM NEUTRAL CITATION: | [2005] VSCA 29 | |
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CONTRACT – Exclusive licence agreement – Consideration being issue of shares – Licensee warranting value 12 months after execution of agreement – Warranted value not achieved – Breach of warranty – Entitled to damages where plaintiff retains shares – Whether agreement provided exclusive code of remedies – A presumption against party to a contract abandoning remedies at common law in absence of clear words.
PRACTICE – Withdrawal of concession mistakenly made at trial by counsel – Point argued on appeal.
VALIDITY OF NOTICE given seeking enforcement of a contract term where notice did not comply with clause – Failure to specify time – How the reasonable recipient would understand the notice.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr C.L. Pannam, Q.C. and | Nathan Kuperholz |
| For the Respondent | Mr M.S. Goldblatt | Madgwicks |
WINNEKE, P.:
For the reasons given by Gillard, A.J.A., I agree that the appeal should be allowed and that the judgment entered on 4 July 2003 and the order for costs made on 29 July 2003 should be set aside; and that in lieu thereof there should be judgment for the plaintiffs/appellants in the sum of $2,271,117.50 or, alternatively, the grant of an order for specific performance in terms to be settled, if the plaintiffs/appellants so desire. I also agree that the plaintiffs/appellants should have their costs of the trial and the appeal.
BUCHANAN, J.A.:
In my opinion this appeal should be allowed for the reasons stated by Gillard, A.J.A. and judgment entered and orders made as his Honour proposes.
GILLARD, A.J.A.:
This is an appeal by a company and its director against a judgment of a judge of the Trial Division, whereby the company recovered only nominal damages having proven a breach of a contract by the defendant. The director, who was a defendant to an unsuccessful counterclaim, joins in the appeal in respect to the costs order made by the trial judge which did not include an order for costs in his favour. However, the ground of appeal was abandoned.
Parties
The plaintiff, M.L.W. Technology Pty Ltd (“the plaintiff”) is a company which was first registered in 1987 and at all relevant times its directors were Mr and Mrs Yii. In 2001 it had rights to a product known as MIM 1000 Mobile Display Terminal (“the product”) which comprised a computer display terminal capable of installation in motor vehicles in order to streamline and control despatch and co‑ordination of fleet vehicles. It was used to track and locate vehicles, and to send to and receive information from the computer system in the office of the organisation
in control of the motor vehicle.
The defendant, Roger Thomas May (“Mr May”) was at all material times a director of a company known as Advanced Communications Technologies (Australia) Pty Ltd (“ACT Australia”). The company operated a communication technology business. At all relevant times Mr May was in effective control of ACT Australia.
Mr May was a substantial shareholder in a company known as Advanced Communities Technologies Inc (“ACT Florida”), a corporation incorporated under the laws of the State of Florida, United States of America. Mr May was also a director of a company called Info‑Motion Technologies Pty Ltd (“Info-Motion”) as was Mr Yii, who resigned on 5 September 2001. As at that date Mr May effectively controlled that company. Mr May is a businessman without any particular training in the field of computers, but had been engaged in computer related businesses since early 1999.
After the proceeding had been instituted, Mr May obtained an order that ACT Australia and Info-Motion be joined as additional defendants to enable a counterclaim to be brought by him and the added defendants against the plaintiff and Mr Yii. Mr Yii is a businessman with training and experience in the field of computer engineering.
The Dispute
The events and circumstances leading to the dispute between the parties can be briefly stated. On 6 September 2001 the plaintiff, Info‑Motion, ACT Australia and Mr May entered into an exclusive licence agreement. Pursuant to the agreement, the plaintiff appointed Info‑Motion as its exclusive licensee to manufacture, market, distribute, sell and provide technical support for the product MIM 1000 Mobile Display Terminal throughout the world. The term was in perpetuity. A similar exclusive licence was granted for the software interface but it could be terminated. The consideration for the grant of the licences was 750,000 fully paid ordinary shares in the capital of the company ACT Florida. The licence agreement obliged Info-Motion, ACT Australia and Mr May to procure the issue of the shares to the plaintiff or its nominee. The shares were in fact issued to the plaintiff on 16 August 2001 and given to it after the execution of the agreement. After the date of the agreement, Info-Motion manufactured, developed and marketed the product. It was continuing to do so according to evidence given at trial on 6 May 2003.
The parties to the agreement acknowledged that the shares were restricted securities as defined in the Securities Act 1933 of the United States of America and hence the plaintiff was not permitted to sell, deal in or transfer the shares for a period of 12 months after the date of issue of the shares.
The licence agreement provided that on the first anniversary of the commencement date which was defined by the agreement as 5 September 2001, ACT Australia and Mr May guaranteed the shares would have an aggregate value of not less than A$2,300,000. The agreement provided certain remedies in the event that the shares did not have that aggregate value. In fact as at 5 September 2002 the shares were worth A$28,882.50.
On 25 September 2002, the plaintiff gave notice to Mr May and to the administrator of ACT Australia pursuant to clause 3.4.2 to acquire the shares for the purchase price of A$2.3 million. Mr May declined to purchase the shares and accordingly the proceeding was instituted on 4 November 2002. The plaintiff sought against Mr May specific performance of his obligation under clause 3.4.2 and in the alternative damages for breach of contract. Mr May filed a defence raising many defences and he and the added two defendants brought a counterclaim against the plaintiff and Mr Yii.
The Hearing
The trial commenced on 28 April 2003 and in a reserved judgment delivered on 13 June 2003, the learned trial judge held that Mr May was liable under the licence agreement, that none of his defences was made out, that he and the added defendants had failed to establish their counterclaim, and that the plaintiff was entitled to damages for breach of warranty, the warranty being the term of the licence agreement that the shares would have a value of A$2.3 million, as at 5 September 2002.
On 30 June 2003, his Honour heard submissions on the issue of damages and on 4 July 2003 he delivered his reasons. He held that the plaintiff had failed to establish any loss or damage and accordingly was only entitled to nominal damages which he assessed at $5. He later heard submissions on costs and held that the costs of the claim and the counterclaim were all intertwined and hence there was little point in trying to disentangle them. He ordered that the plaintiff pay the costs of Mr May of the claim and counterclaim including reserved costs.
Appeal
On 31 July 2003, the plaintiff and Mr Yii filed a notice of appeal against the judgment and order for costs. All told, there were nine grounds of appeal, but the ninth ground has been abandoned. Mr Yii no longer seeks any relief.
The eight remaining grounds raise three important issues for consideration and determination, namely:
(i)Did the plaintiff prove it was entitled to substantial damages against Mr May?
(ii)Did the plaintiff’s notice to Mr May dated 23 September 2002 comply with the provisions of the agreement obliging Mr May to purchase the shares?
(iii)Did the learned trial judge’s discretion miscarry in respect of the costs’ order?
Issues (ii) and (iii) required leave of this Court. At trial, counsel for the plaintiff in final address conceded that an omission to refer to a period in the notice affected its validity and hence the plaintiff abandoned its claim for specific performance of Mr May’s obligation. As issue (iii) relates to a question of costs, s.17A(1) of the Supreme Court Act 1986 applies and the order cannot be subject to appeal “except by leave of the Court of Appeal or by leave of the judge”. No application was made to the learned judge or this Court for leave to appeal against the costs order. Mr May in his outline of submissions raised the question of leave and at the hearing a summons was filed by the plaintiff seeking an extension of time in which to apply for leave to appeal.
The Court granted leave to the plaintiff to argue issues (ii) and (iii), reserving the question whether leave should be granted.
Plaintiff’s Case
The plaintiffs’ case at trial was simply put and straightforward. It was a claim for specific performance of Mr May’s obligation to purchase the shares for A$2.3 million and in the alternative damages for breach of the warranty as to their value. The agreement is a 13 page formal document.
Although the defence denied the agreement, the judge held that the agreement was made and bound the parties including Mr May. The object of the agreement was to give effect to the appointment by the plaintiff of Info‑Motion as its exclusive licensee for the MIM 1000 Mobile Display Terminal product and software interface throughout the world. Info‑Motion agreed to accept the appointment subject to the terms and conditions of the agreement. Mr May was a party to the agreement. Clause 1 dealt with definitions and interpretation and defined the word “guarantors” to mean each of ACT Australia and Mr May.
It is necessary to set out some of the clauses –
“2.1 Exclusive Licensee for the Product
2.1.1Subject to clause 5, MLW (the plaintiff) irrevocably appoints IMT (Info-Motion) as its exclusive licensee to manufacture, market, distribute, sell and provide technical support for the Product in the Territory and IMT agrees to act in that capacity, subject to the provisions of this Agreement.
…
2.2 Exclusive Licence for the Software Interface
2.2.1Subject to clause 5, MLW appoints IMT as its exclusive licensee to manufacture, market, distribute, sell and provide technical support for the Software Interface in the Territory and IMT agrees to act in that capacity, subject to the provisions of this Agreement.
…
3 CONSIDERATION AND GUARANTEE
3.lIn consideration for MLW granting the licences referred to in clauses 2.1.1 and 2.2.1 to IMT, IMT and the Guarantors shall procure that on the Commencement Date the ADVC (Advanced Communications Florida) shares are issued to MLW or its nominee.
3.2MLW acknowledges that the shares referred to in clause 3.1 are restricted securities as defined in the Securities Act 1933 of the United States of America and that MLW may not sell, deal in or transfer the shares referred to in clause 3.1 for a period of 12 months after the date of issue of the shares.
3.3The Guarantors jointly and severally guarantee to MLW that on the first anniversary of the Commencement Date the ADVC Shares will have an aggregate value of not less than $2,300,000.
3.4If the aggregate value of the ADVC Shares is less than $2,300,000 on the first anniversary of the Commencement Date, MLW may:
3.4.1sell all (and not less than all) of the ADVC Shares after the first anniversary of the Commencement Date in such daily volumes as do not adversely affect the market price of the shares of Advanced Communications Technologies Inc and after all of the ADVC Shares have been sold give to the Guarantors 30 days’ written notice requiring the Guarantors to pay to MLW the difference between the aggregate price (in Australian dollars) received by MLW for the ADVC shares and $2,300,000;
or
3.4.2within 30 days after the first anniversary of the Commencement Date give to the Guarantors 30 days’ written notice requiring either one or both of the Guarantors to purchase from MLW the ADVC Shares for an aggregate purchase price of $2,300,000; or
3.5If MLW gives to the Guarantors the notice pursuant to clauses 3.4.1 or 3.4.2, then either the Guarantors, ACT or May shall, within the time specified in the notice, pay to MLW the amount claimed by MLW against proof of the price received by MLW on the sale of the ADVC Shares or the transfer of the ADVC Shares (as the case may be).
3.6If the Guarantors do not perform their obligations pursuant to clauses 3.4 or 3.5 then IMT shall pay to MLW the amount that the Guarantors were obliged to pay to MLW pursuant to clause 3.4.1 or 3.4.2 (as the case may be), in cash, in 12 equal monthly instalments of $191,666.66 each.”
Pursuant to clause 1.3, headings in the agreement were not to form part of the interpretation. The word “Product” was defined being the MIM 1000; “Territory” meant the world; and “the Commencement Date” was defined as meaning “5 September 2001 or such other date as the parties may agree.” The parties did not agree on any other date and accordingly the commencement date was 5 September 2001. The reference to dollars was defined as meaning Australian dollars.
On 18 July 2002, ACT Australia was placed under administration pursuant to the provisions of the Corporations Act 2001 and on 17 October 2002 it entered into a deed of company arrangement.
As stated above the plaintiff gave notice to Mr May and the administrator on 25 September 2002 requiring them to purchase the shares. Mr May declined to do so.
Judge’s Judgment
The learned judge rejected all the defences raised by Mr May, many of which were technical, lacking substance and without merit. Mr May attacked the validity of the notice which was given pursuant to clause 3.4.2. As I have stated, in final address plaintiff’s counsel accepted the validity of the challenge at least on one ground and announced that the specific performance claim was not pressed. This left the claim for damages for breach of warranty. His Honour held that Mr May had warranted the value of the shares and accordingly the plaintiff was entitled to recover damages. He dismissed the counterclaim and adjourned the issue of damages. After hearing argument on the issue of damages, he held that the plaintiff had not proven any loss and accordingly was only entitled to nominal damages which he assessed at $5. In his third judgment the learned trial judge dealt with costs. He ordered the plaintiff to pay Mr May’s costs of the proceeding and counterclaim.
Facts
The main issues on this appeal concern the construction of the exclusive licence agreement entered into on 6 September 2001. Because the issues concern the construction of a formal written agreement, the evidence bearing on that question is indeed very limited. Accordingly, it is only necessary to summarise the facts leading to the execution of the agreement, and the events which occurred on the anniversary date being 5 September 2002.
In mid-1999, Mr Yii and the design staff of the plaintiff designed a mobile computer terminal designed for the purpose of being used in despatch courier, transport and other mobile vehicle uses. The device came to be known as the MIM 1000. Initially, Mr Yii proposed to market the product through a company associated with him called Monash Professional Group Pty Ltd (“Monash PG”). By an agreement dated 13 July 1999 that company entered into a memorandum of agreement with a company known as Datalink Technologies Pty Ltd (“Data”) in relation to a joint venture to develop and market the product. Data at that time was a company associated with Messrs Colin Wells and Peter Crook. The memorandum provided, inter alia, that the parties would conduct the joint venture business as a sole distributor of the product. Pursuant to that agreement, Monash PG and Data established the company Info-Motion as the joint venture vehicle. Mr Yii became a director and his shares in Info-Motion were held by the plaintiff. In late 2000 Mr Yii on behalf of the plaintiff and Monash PG, and Mr Crook on behalf of Data entered into a fresh joint venture agreement in relation to the product.
In early 2001 interests associated with Mr May, via his company Advanced Network Technologies Pty Ltd, acquired all the shares in Data. On about 23 January 2001 the plaintiff, Monash PG, Data and Mr May’s company Advanced Network Technologies Pty Ltd Ltd entered into a memorandum of understanding. The effect was to terminate the early agreements on the basis that the parties would enter into a new agreement. By this memorandum of understanding the plaintiff and Monash PG, being the two companies associated with Mr Yii, and Data and Advanced Network Technologies Pty Ltd, were to negotiate in good faith to establish a new agreement concerning the product joint venture. In June 2001 the plaintiff agreed with Data to sell back to Info-Motion all of the plaintiff’s shares held in that company. Ultimately the negotiations between Mr Yii and the plaintiff on the one hand, and Mr May, ACT Australia being another company associated with Mr May, and Info-Motion resulted in the execution of the exclusive licence agreement dated 6 September 2001. The parties to the agreement were the plaintiff, Info-Motion, ACT Australia and Mr May.
I have set out above the clauses relevant to the issues on the appeal. On the anniversary of the commencement of the agreement, namely, 5 September 2002, the shares in ACT Florida were worth far less than A$2.3 million having a value of only A$28,852.50. As the value of the shares in ACT Florida were less than the warranted value, Mr Yii on behalf of the plaintiff sent two letters dated 23 September 2002 by facsimile on the evening of 25 September 2002 to Mr May and the administrator of ACT Australia.
The letters were on the plaintiff’s letterhead, and the first was addressed to:
“Mr Roger May
Advanced Communications Technologies Australia Pty Ltd
(Administrator Appointed)
(Receivers and Managers Appointed)
40 Park Grove
RICHMOND Victoria 3121.”
The letter reads as follows:
“Dear Mr May,
Exclusive Licence Agreement – MLW Technology Pty Ltd (MLW), InfoMotion Technologies Pty Ltd (IMT), Advanced Communication Technologies Australia Pty Ltd (ACT) and Roger May (May) (Licence Agreement)
You will recall that under the Licence Agreement you guaranteed to MLW a floor value for the ADVC shares. Those shares were issued as consideration for the licence granted by MLW to IMT. The guarantee, by both you and ACT was that the ADVC shares would be worth A$2.3 million, on the first anniversary of the commencement date of the Licence Agreement. As the commencement date was 5 September 2001 and the share price at which the ADVC shares are trading is approximately $0.02 per share, the guaranteed floor price has not been reached.
Pursuant to clause 3.4.2 I hereby notify you that you are required to purchase from MLW the ADVC shares for a purchase price of A$2.3 million.
A similar notice has been sent to ACT (care of Mr Gideon Rathner).”
The letter was signed by Mr Yii and below his name appeared the words –
“MLW TECHNOLOGY PTY LTD”.
A similar letter of the same date was sent to the administrator of ACT Australia, that is, Mr Rathner. The letter concluded that “a similar notice has been sent to Mr Roger May”.
In his defence, Mr May admitted receiving the letter dated 23 September 2002 and went on to assert that if the notice was given pursuant to clause 3.4.2, the plaintiff failed to comply with clause 3.5 of the agreement by failing to tender a share transfer to Mr May within 30 days of that notice. However, at the hearing he raised two further issues said to affect the validity of the notice. They were that the notice was not sent to Mr May in his personal capacity but to ACT Australia, and the letter did not specify a period during which the purchase of the shares was to be effected.
On 26 September 2002 Mr May faxed a letter to Mr Yii. The letter referred to the licence agreement and the parties under the greeting in the same words as appeared in Mr Yii’s letter. Mr May wrote –
“Dear Mr Yii,
(Exclusive Licence Agreement etc)
…
We are in receipt of your letter dated 23rd September 2002 that was faxed to our offices in Queen Street at 9.15 p.m. last night. We understand from a conversation with Mr Gideon Rathner this morning that he received the letter by fax at the same time 9.15 p.m. last night. Accordingly I did not have a chance to review this letter until approximately 9.15 a.m. on 26th September 2002, 45 minutes before the Scheduled 2nd creditors meeting.
Please be advised of the following:
We assume the Licence Agreement you refer to is the one between Advanced Network Technologies Pty Ltd and Data Link in regard to the MIM technology. It is our understanding that while ACT may be a guarantor to such transaction we believe there are many other steps to be taken by MLW before any such guarantee can be called on.
In addition, as you are well aware, the entire basis for the transaction is in dispute as you were notified in June of this year, and during other verbal discussions, in regard to the non-performance and non‑delivery of the specific content of the Licence Agreement by MLW.
Accordingly, we dispute and deny the validity of any claims you may intend to make at this morning’s Creditors Meeting at 10.00 a.m. and have previously notified the Administrator and Receivers‑Managers of this dispute and supplied them with backup evidence.
Should you wish to discuss the matter personally we would be quite willing to arrange a meeting for that purpose.”
On 31 October 2002 the plaintiff’s solicitor wrote to Mr May in his private capacity and as a director of ACT on the instructions of the plaintiff. The first paragraph of the letter dealt with the events of 25 and 26 September. The letter stated that the notice of demand was sent pursuant to clause 3.4.2 of “the Exclusive Licence Agreement”. The letter then continued –
“My client instructs me that the matters raised in your said letter of acknowledgment always have been and are without foundation in fact or at Law and that you always have been and remain liable to my client personally as Guarantor for the amount claimed by my client pursuant to clause 3.4.2 of the said Agreement.
I note that payment of the amount of $2,300,000 has not been effected by you within thirty days of receipt by you of the said Demand. Accordingly, I hereby demand payment from you by bank cheque of the said amount of $2,300,000 and hereby tender, in exchange for such payment, Certificate of Stock number MF1340 in respect of the ADVC shares (as so referred to in the said Agreement) together with an instrument of transfer duly signed by my client.
Should you fail to attend at my office to pay the said amount of $2,300,000 to my client by 5.00 p.m. on Friday 1st November 2002, in exchange for the said Certificate of Stock and instrument of transfer, action will be instituted against you personally for recovery.
This demand is final.”
As plaintiff’s counsel announced in final address, the specific performance claim was not pressed. His Honour did not consider the question of the validity of the notice and its effect in his first judgment but proceeded on the basis that the plaintiffs accepted the validity of the challenge and hence the notice was not a valid notice under clause 3.4.2. The learned trial judge in his later reasons on damages said:
“The claim (for specific performance) failed because the notice given under clause 3.4.2 did not meet the requirements of that provision.”
The learned judge held that the plaintiff had not proven any loss.
The Appeal
Grounds 5, 6 and 7
These grounds attack the learned trial judge’s finding that the plaintiff had failed to prove any loss or damage.
It is necessary at the outset to set out what his Honour said in respect of the issue of damages. Mr May’s counsel raised a number of matters which his Honour rejected. His Honour said:
“ … Inasmuch as this warranted prediction does not come to pass, he, and his co-guarantor are liable to make good the promise.
It is at this point that MLW’s case encounters a difficulty. Clause 3 goes on to provide alternative ways for MLW to obtain the benefit of the promise, neither of which it has implemented. It still has the ADVC shares. It seeks in addition to have the warranted value of those shares. Counsel for Mr May is correct in submitting that MLW cannot have this double benefit. As a matter of principle, it seems to me that MLW had on the anniversary day a choice to hold the shares in the hope that the market might rise or to sell the shares, on the market or to the guarantors, and thereby recover the warranted value pursuant to 3.5 or 3.6.
The present issue does not turn on questions as to causation or remoteness, but rather upon a more fundamental analysis of the transaction and the nature of the loss, if any, suffered by MLW. Nor is it a case where it was put that the value of the shares at the time of their issue was affected by the promise, so that MLW’s loss is represented by the difference between the price paid for the shares with the promise and their value without it. The contract gave to MLW the expectation that the shares it received in exchange for its covenants would have a specific future value in 12 months. At that time it might sell the shares and take the profit or retain them in the hope of greater benefit. If the shares did not fulfil the promise MLW might at common law recover any shortfall in the event of sale, for it is against the risk of this loss that the promise provides protection. If, in such a case, MLW chose not to sell, it suffers no loss since it still has the shares. If, two years after the date of their issue, MLW sold the ADVC shares for a sum less than the warranted value then this loss does not flow from the breach of the contractual promise. This is because there is no promise as to the value of the shares on a date other than the anniversary date. This result obtains whatever might have been their value on the anniversary date.
… It follows from this that no loss and damage have been shown. There should therefore be judgment for nominal damages only.”
The law concerning the measure of damages for breach of contract was stated by Parke, B. in Robinson v. Harman[1] as follows:
“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
[1](1848) 1 Ex. 850 at p.855, 154 E.R. 363 at p.365.
The same rule was stated by Lord Blackburn in Livingstone v. Rawyards Coal Company[2] and has been quoted often, always with approval. The principles have been accepted and applied in Australia. See The Commonwealth v. Amann Aviation Pty Ltd[3]. It follows that the plaintiff is entitled to be put back into the position it would have been in if Mr May had fulfilled his promise. This would be the difference between the value of the shares as at 5 September 2002 and the sum of A$2.3 million. There is no dispute as to the value of the shares which was at the relevant date $28,882.50.
[2](1880) 5 App. Cas. 25 at p.39.
[3](1991) 174 C.L.R. 64 at p.80, 98-9, 116-7, 134, 148 and 161.
The plaintiff submitted on appeal that his Honour’s reasoning was wrong. It was submitted that it is implicit in his Honour’s reasoning that he found clauses 3.4 to 3.6 (inclusive) were a complete code of the plaintiff’s rights in respect of a breach of warranty under clause 3.3. I do not read his Honour’s reasoning in that way, however the parties argued the issue before the learned trial judge, and Mr May as respondent to the appeal seeks to uphold the decision on that ground. It follows that there are two issues for consideration and determination by this Court –
·Was the learned trial judge’s decision in accordance with the law?
·Were clauses 3.4 to 3.6 (inclusive) a complete code of the rights of the plaintiff to enforce a breach of the warranty given by clause 3.3?
In considering his Honour’s reasoning, I proceed on the basis that clause 3.3 is free‑standing and the remedies available for its breach are not confined to clauses 3.4 to 3.6 (inclusive). Given that assumption, it must follow that the application of the principles concerning the measure of damages leads to the conclusion that the plaintiff is entitled to substantial damages for breach of clause 3.3. The promise given was that on 5 September 2002, being the anniversary date, the shares would have a certain value. They did not have that value and accordingly Mr May is obliged to fulfil his promise and place the plaintiff in the same position it would have been in if the contract had been performed by him. The end result must be the difference between A$2.3 million and $28,992.50.
In my respectful opinion, his Honour’s reasoning is incorrect and contrary to law.
First, the plaintiff is not obtaining a double benefit. Clause 3.3 promises that the shares will have a certain value in the hands of the plaintiff at the anniversary date and does not oblige the plaintiff to sell the shares. The breach of the clause is that the shares did not have that value at that date. The clause contemplated that the plaintiff may retain the shares. It is clear that it was the common intention of the parties that the value of the consideration to be given to the plaintiff for the grant of the exclusive licensee was A$2.3 million. The evidence revealed that the shares had a value of approximately five cents US at the date of execution of the agreement which is far short of a value of A$2.3 million. The parties agreed that the consideration should be given in the form of shares which could not be sold or transferred for a period of 12 months. To guard against the risk that they would not have the value at the end of one year, clause 3.3 was inserted. There is no basis for saying that the plaintiff was gaining something that was not contemplated by the agreement and the common intention of the parties. The measure of the damages is the difference between the warranted value and their value at the relevant date and this would of course depend upon the value at the anniversary date.
Secondly, there is no principle of law which stands for the proposition that the beneficiary of a warranted value of an item is obliged to sell dispose or surrender the item before it can recover damages. Dr Pannam Q.C. who appeared with Mr M. Robins for the plaintiff appellant referred to familiar examples such as shopping centre cases where leases contain terms warranting the business return of the tenant at a certain point or the mix of tenants. It has never been suggested that the tenant must surrender its lease before it can recover damages. Another example is where a contract for the sale of a business warrants the value of the business. It has never been said that the purchaser cannot rely upon the warranty if it retains the business but may do so if it returns or on-sells the business.
It is clear that his Honour reasoned that the loss could only be recovered if there was a sale of the shares because if the plaintiff retained the shares there was always the possibility that the shares may increase in value at a later date. However, in my opinion, the reasoning is wrong because the promise was that at the anniversary date the shares would have a certain value and it is that breach of that promise which grounds the right of the plaintiff to recover damages. The right to recover damages does not depend upon the sale or transfer of the shares. This is made clear by reference to clause 3.6. It provides that Info‑Motion was obliged to pay in 12 equal monthly payments a sum of $191,666.66 if Mr May and his co-guarantor did not comply with the obligations under 3.4 or 3.5. In those circumstances the plaintiff would retain the shares. In my opinion, construing clause 3.3 as a free-standing clause in the context of the balance of clause 3 and the agreement as a whole, the normal measure of damages applies and the plaintiff was entitled to the difference between the warranted value and the value as at 5 September 2002.
The second question concerns the interpretation of clause 3. Counsel for Mr May submitted that clauses 3.4 to 3.6 (inclusive) provided an exclusive code of the remedies available to the plaintiff in the event of a failure of the warranty given in clause 3.3. Mr Goldblatt, counsel for Mr May, submitted that this conclusion was correct based upon the provisions of clause 3, in particular that clauses 3.4 to 3.6 (inclusive) followed on from clause 3. He also drew attention to clause 15.1 which provided that the agreement constituted the whole agreement between the parties and superseded and extinguished any previous agreement or understanding concerning the subject matter of the agreement and any representation or warranty previously given. In my opinion, clause 15.1 is irrelevant to the issue raised for consideration, namely, the construction of clause 3. It is trite law that the construction of an agreement is to be determined taking into account the whole agreement.
The court’s object in interpreting a contract is to determine the common intention of the parties. It is trite law that the common intention is to be determined objectively and at the date the contract was concluded. That date is 6 September 2001. The primary source of the common intention is the words of the contract, to be considered in context after taking into account the whole document. The words are to be given their normal every day meaning unless it is clear that the words are to bear a special meaning, for example, because they are technical or because of trade usage or custom, or because the document provides a dictionary as to meaning. In addition, the admissible surrounding circumstances may show that the parties used the words in a particular sense. If the words are clear and definite, there is no necessity to resort to any aids to interpret the agreement. Effect must be given to the clear language. But where there is an issue as to meaning the court considers the issue in the setting in which the contract was executed. Lord Wilberforce stated the court’s approach in Reardon Smith Line Limited v. Yngvar Hansen‑Tangen[4]:
“… what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed.”[5]
[4][1976] 1 W.L.R. 989 at 997.
[5]See also Mason, J. in Codelfa Construction Pty Ltd v. State Rail Authority of N SW (1982) 149 C.L.R. 337 at 352 per Mason, J.
Donaldson, J. said in S.I.A.T. di Dal Ferro v. Tradax Overseas S.A.[6]:
“ … a contract is not made in a vacuum, but against a background of present and past facts and future expectations and … its terms, and indeed the consensus itself, are to be gathered not only from expressed words, but also from conduct viewed against that background.”
[6][1978] 2 Ll. Rep. 470 at 490.
The nature of the transaction is always a relevant consideration and here we are dealing with a contract between commercial parties. Business common sense must not be overlooked. In Upper Hunter County District Council v. Australian Chilling and Freezing Co Ltd[7], Barwick, C.J. observed in seeking to determine a party’s contractual intention the following[8]:
“In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.”
[7](1968) 118 C.L.R. 429.
[8]At p.437.
Lord Diplock made the same observation in Antaios Compania Naviera S.A. v. Salen Rederierna A.B [9]. His Lordship said[10]:
“ … if a detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”
[9][1985] A.C. 191.
[10]At p.201.
The first question then is to determine what the commercial purpose of the contract was and the background in which it was made. As stated above, there had been discussions and negotiations going back over a long period of time and more lately involving Mr May and his companies. It is clear that the commercial purpose of the arrangement was to grant an exclusive worldwide licence in perpetuity to Mr May’s company, and this substantial right had a value.
In construing the licence agreement, it is important at the outset to determine what each party gained and gave. The plaintiff which had an interest in the product and the software, was prepared to grant to Info-Motion an exclusive licence to manufacture, market, distribute and sell the product throughout the world. The term of the agreement was in perpetuity. What Info‑Motion gained were exclusive rights which clearly had a substantial value. The judge found that Info‑Motion exercised its rights in the 12 months after the agreement was executed and was deriving income from that activity. Mr May was a director of Info-Motion. He was in control and managed that company. Indeed the evidence revealed that after the anniversary date Info‑Motion continued marketing the product.
What the plaintiff received for granting this exclusive licence was 750,000 fully paid ordinary shares in the capital of ACT Florida. However, it is clear from the terms of the agreement and also the evidence that the plaintiff could not deal in the shares for a period of at least 12 months after acquisition. It is equally clear from the terms of the agreement that the shares were to represent the purchase price of the exclusive licence. Not surprisingly, the plaintiff as purchaser wished to have a value attached to that consideration and hence the terms of clause 3.3. Mr May, together with ACT Australia, warranted that on 5 September 2002 the shares would have an aggregate value of A$2.3 million.
It was obviously known to the parties and contemplated by them that, the consideration for the licence agreement being shares, there was the possibility that the shares could increase in value. However, of course, there was the risk that the shares would not attain the agreed value. It was against this risk that the parties agreed to clause 3.3.
The parties placed a value on the consideration for the grant of the exclusive licence. The value was A$2.3 million. The plaintiff took shares in the expectation and hope that the shares would be worth at least that amount of money at the end of 12 months after the execution of the agreement. If the shares rose in that time, and had a greater value than A$2.3 million, then the plaintiff would gain a windfall. That was clearly in contemplation of the parties. That is clear on a plain reading of clause 3. However, there was the risk that the value would not be A$2.3 million. The parties provided for this risk in clause 3.3. It is clear on a plain reading of clause 3.3, in the context of the agreement as a whole, that the company‑guarantors were guaranteeing the sum of A$2.3 million as consideration for the exclusive agreement 12 months after the agreement was executed. The only value of relevance to the parties under the agreement was the value as at 5 September 2002.
Dr Pannam submitted that clauses 3.4 to 3.6 (inclusive) were not an exclusive code as to remedies. He prayed in aid the well‑known principle that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies available.
The principle was stated by Lord Goff of Chievley in Stocznia Gdanska S.A. v. Latvian Shipping Company[11] where his Lordship said:
“Considerations such as these lend added weight in this context to the familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law.”
[11][1998] 1 W.L.R. at 574 at 585.
See also Modern Engineering v. Gilbert-Ash[12]. The principle was quoted in the High Court by Gleeson, C.J., Gaudron and Gummow, JJ in Concut Pty Ltd v. Worrell[13] referring to the above authorities.
[12][1974] A.C. 689 at 717.
[13](2000) 176 A.L.R. 693 at para 23.
In my opinion, the agreement does not contain any clear or express words which would lead to the conclusion that the plaintiff abandoned its common law rights to claim damages for breach of the warranty in clause 3.3 and was confined to the remedies found in clauses 3.4 to 3.6 (inclusive). There is no expression of intention found in clause 3 to so confine the remedies.
Dr Pannam submitted that on a plain reading of clauses 3.4 and 3.5, they gave an option to the plaintiff to divest itself of the shares. It was an option which it could pursue if it wished to do so. He emphasised the word “may” in the opening words of clause 3.4 and contrasted that word with the word “shall” in clause 3.5 and submitted that the word “may”, being permissive, did not require the plaintiff to divest itself of the shares. He also emphasised that there was nothing in clauses 3.4 to 3.6 (inclusive) which qualified or modified the effect of clause 3.3, and submitted that the latter was a freestanding clause. He submitted that on a plain reading of clauses 3.4 to 3.6 (inclusive) there was no indication that the clauses were an exclusive code as to remedies for breach of clause 3.3.
As against these arguments, Mr Goldblatt submitted that the wording of clause 3 and the sub‑clauses following one after another led to the conclusion that it was an exclusive code. He also relied upon clause 15.1 concerning the agreement constituting the whole of the agreement between the parties, but as I have stated, the latter is irrelevant.
In my opinion, the submissions put on behalf of the plaintiff are correct; it was not the common intention of the parties that clauses 3.4 to 3.6 (inclusive) were to constitute an exclusive code of remedies denying the right of the plaintiff to enforce clause 3.3 pursuant to the common law.
It follows that in my opinion the learned trial judge was wrong and should have awarded substantial damages for breach of contract. The evidence clearly demonstrated that Mr May did not intend to honour the promise in clause 3.3 and the plaintiff is entitled to substantial damages.
Grounds 1 to 4 (inclusive)
These grounds raise the issue of the validity of the letter sent by the plaintiff to Mr May dated 23 September 2002. As stated above, the judge made a passing reference in his first reasons for judgment to the withdrawal of the claim for specific performance in the context of a challenge to the validity of the notice. When it came to the question of considering the issue of damages, the judge held that the notice given under clause 3.4.2 did not meet the requirements of that provision.[14] However, his Honour did not give any reasons for that conclusion. I have set out above the letter sent by the plaintiff.
[14]See paragraph 3 of the later reasons.
Counsel for Mr May at trial attacked the validity of the notice on three grounds, namely –
(i)that the notice was not addressed to Mr May;
(ii)that the notice failed to specify compliance with the demand within 30 days;
(iii)that the plaintiff failed to comply with clause 3.5 by failing to tender a share transfer to Mr May within 30 days of notice.
In the course of final submissions, his Honour pressed plaintiff’s counsel in respect to the validity of the notice with particular reference to the failure to specify 30 days and it was in that context that counsel informed the Court that the claim for specific performance was not being pressed. Hence the issue was not fully argued and it seemed to be assumed that the failure to specify a 30 days’ period was fatal to the validity of the notice.
Because the point was conceded below and not argued, resulting in an acceptance that the notice was not valid, it is necessary for the plaintiff to obtain leave on appeal to withdraw the concession made to argue the notice was valid. The Court permitted plaintiff’s counsel to argue the question without ruling whether the Court would grant leave.
Mr Goldblatt submitted that the application was futile because the reality was that the plaintiff’s counsel at trial had elected to claim damages for breach of warranty and accordingly was bound by the election. Of course, the plaintiff would not have been entitled to obtain specific performance and also judgment for damages for breach of warranty, but the plaintiff was entitled to keep alive both courses of action right up to the entry of judgment. The word “election” has a number of meanings when used in a legal context. For example, it may refer to the equitable doctrine of election concerning a gift of property subject to conditions, a contractual right given to a party to elect between two inconsistent courses and also a waiver. However, when it is used in reference to loss of a right to an equitable discretionary remedy, it is more correct to refer to an abandonment of a right to obtain the remedy which amounts to a defence of acquiescence. The principles are discussed by the learned author of Spry Equitable Remedy 6th ed at pp.237-244. Whilst noting that the precise consequences of an abandonment of the right of specific performance has not been settled yet by the authorities, the learned author stated the following at p.239-40.
“Where proceedings are brought for specific performance it sometimes appears that, either in association with a purported abandonment or otherwise, a defence of acquiescence arises. Acquiescence is found when, in the first place, there is an express or implied representation by the plaintiff that he intends not to compel the performance in specie by the defendant of the obligation in question. Then, secondly, if in consequence of that representation it becomes unjust that specific performance should be granted, either because the position of the defendant has been prejudiced through reliance on it or on any other basis, the plaintiff is confined to such other remedies as may be appropriate. But specific performance may nonetheless be ordered if injustice can be avoided, either because, for example any prejudice is of such a nature that it can be obviated through a limitation or suspension of the order of the court or else because it is sufficient to impose appropriate conditions on the plaintiff.”
In my opinion, the defence of acquiescence will arise if two matters are established, namely, that the plaintiff represents either expressly or impliedly that he will not require performance in specie and secondly, that in all the circumstances it would not be equitable to grant specific performance. As a general rule it is necessary to show that the defendant would be prejudiced if the plaintiff was permitted to resile from the abandonment of the remedy. In other words, if specific performance was granted, the defendant would suffer prejudice because of his reliance upon the representation that the right would not be pursued. In the end, as in many areas of equitable relief, justice is the final determinant and if the consequences in allowing the plaintiff to claim specific performance after he had abandoned the relief, would result in injustice to the defendant, in those circumstances, the abandonment is final. In other words, the defence of acquiescence is available. Mr Goldblatt did not suggest that Mr May has altered his position in response to the abandonment of the right, or that he would suffer any prejudice if the plaintiff was permitted to withdraw the concession made and seek specific performance. In my opinion, the defence of acquiescence is not available to the defendant precluding the plaintiff seeking the discretionary remedy. The purported abandonment during final submissions did not result in Mr May changing his position in any way. Indeed, if the plaintiff was to opt for specific performance on judgment, it would be on the basis that the plaintiff would transfer the shares to Mr May. He would benefit from the changed position. If the concession was made as a result of a mistaken understanding of the facts and the law, which resulted in the abandonment of the claim for specific performance and is now withdrawn, in my view justice would require the parties to be restored to the position they would have been in, which would therefore leave the options open to the plaintiff until entry of judgment. I do not accept Mr Goldblatt’s argument. However, that does not resolve the question whether the plaintiff should have leave to withdraw the concession and be permitted to submit that the notice was valid.
This Court does have jurisdiction to permit a point to be argued on appeal which was abandoned at first instance but it is a power which is sparingly used. The reasons for that were stated by Gibbs, C.J., Wilson, Brennan and Dawson, JJ. in Coulton v. Holcombe[15] where their Honours said:
“It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.”
[15](1986) 162 C.L.R. 1 at 7.
Nevertheless, it may be expedient in the interest of justice that the question should be argued, and in determining that question a number of matters are relevant. The first important matter concerns the question of evidence. If the point had been taken below, would that have resulted in further evidence being called? This would include evidence adduced in cross-examination. If that is the position, the court has always maintained the principle “that the point cannot be taken afterwards.”[16] Another factor of some importance is whether the allowance of a new point on appeal would require a further trial of the action. In addition, there are questions of the sense of injustice if a point not taken at trial is allowed on appeal with the consequence that the result of the proceeding at first instance is reversed, and of course there is also the question of the pressure and expense, not to mention the worry concerned with a re‑trial. Those matters were recently identified as relevant by the High Court in Whisprun Pty Ltd v. Dixon[17]. After observing that the case formulated by the Court of Appeal had not been run at trial, Gleeson, C.J., McHugh and Gummow, JJ. said[18]:
“Accordingly, this appeal must be allowed. It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination. Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action. Not only is the successful party put to the expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience, and an interference with their personal and business affairs.”
[16]Ibid, at p.7 – 8.
[17](2003) 200 A.L.R. 447 at paras 50 – 53.
[18]At para 51.
On the other hand, if the question is one of law only and would not require the calling of further evidence, justice more often than not requires the question to be argued and decided. In O’Brien v. Komesaroff[19], Mason, J., in whose judgment the other members of the Court agreed, said[20]:
“In some cases when a question of law is raised for the first time in an ultimate court of appeal, as for example upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is expedient in the interests of justice that the question should be argued and decided.”
[19](1982) 150 C.L.R. 310.
[20]At p.319.
It is clear that the concession was made after all evidence was called in the proceeding, and Mr Goldblatt, on behalf of Mr May, accepts that if the question was to be argued now, there would be no question of calling further evidence or further cross‑examining any witness called at the hearing. Further, Mr Goldblatt frankly conceded that if the point was argued and determined, Mr May would suffer no prejudice save of course if the point was found against him. Mr Goldblatt accepted that the question was mainly a question of law, namely, the effect of the letter sent in the setting in which it was sent, and there is no dispute as to the facts relevant to the issue. In my opinion, it is expedient in the interests of justice to permit the concession to be withdrawn and the issue to be considered and determined by this Court. If the point is a good one, it would be a denial of justice to find against the plaintiff because counsel took a mistaken view as to the facts and/or the law. In my opinion, leave should be granted to the plaintiff to withdraw the concession and the issue should be determined.
The licence agreement is a formal document, and has the hallmarks of consideration by a lawyer. However, there was no evidence as to the involvement of lawyers in the preparation or execution of the agreement. The end result is the signing of an agreement by commercial men concerning a commercial venture. The plaintiff had something to sell, it wished to be paid the value of the item, and Mr May’s company wished to acquire the product and market it at a profit. The court, in construing contracts between businessmen and also their actions, should proceed in a common sense, non-technical way. How would the businessmen construe their agreement in the light of the commercial purpose and the setting? How would commercial men construe the letter sent by the plaintiff? This is not a new approach. In 1917, Isaacs, J. said in Cohen and Co v. Ockerby and Co Ltd[21]:
“… the expressions, and particularly any elliptical expressions, in a mercantile contract are to be read in no narrow spirit of construction, but as the Court would suppose two honest businessmen would understand the words they have actually used with reference to their subject matter and the surrounding circumstances.”
[21](1917) 24 C.L.R. 288 at 300.
Lord Wright said in Hillas and Co Ltd v. Arcos Ltd[22]:
“Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects … “.
[22](1932) 147 L.T. 503 at 514.
The law should strive to uphold a contract wherever possible to avoid the reproach of being the destroyer of bargains[23]. The principle applies not only to contracts but also to the actions of businessmen. The point has been recently reinforced in the House of Lords in relation to a notice given pursuant to a contract by Lord Steyn in Mannai Investment Co Ltd v. Eagle Star Life Assurance Co Ltd[24]. That case concerned a lease and the validity of a notice to determine the lease. The notice wrongly stated the date of termination and the question arose whether it was effective. The Court of Appeal, adopting a strict approach, held that it was not. On appeal, the House of Lords by a majority held that it was sufficient. Lord Steyn[25] formulated a number of propositions and stated with respect to proposition 2 the following:
“(2) The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene.”
[23]Ibid, Lord Tomlin at p.514.
[24][1997] A.C. 749.
[25]At p.767.
His Lordship[26] posed the question as follows:
“… the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice.”
[26]At p.768.
His Lordship[27] noted that the law had moved on from a strict technical approach and said:
“Since then there has been a shift from strict construction of commercial instruments to what is sometimes called purposive construction of such documents. … It is better to speak of a shift towards commercial interpretation. About the fact of the change in approach to construction there is no doubt.”
[27]At pp.770-771.
His Lordship said[28]:
“In determining the meaning of the language of commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”
(Emphasis added).
[28]At p.771.
In my opinion, that is a proper approach to the issue concerning the notice sent on the evening of 25 September 2002. The approach also accords with authority in this Court.
In Catley v. Watson[29] Brooking J. said:
“… a notice … is not valid unless it is, in relation to its essential features as required by that condition, clear and unambiguous. By this I mean, not that its import must be clear beyond the slightest peradventure, but that its terms must be such that a reasonable person, having given it fair and proper consideration, would be left in no doubt as to its meaning.”
Referred to with approval in Central Pacific (Campus) Pty Ltd v. Staged Developments Australia Pty Ltd[30] .
[29](1983) V.Conv.R. para 54-003 at p.62,115.
[30](1998) V.Conv. R. 54-575.
Dealing with the objections to the validity of the letter dated 23 September 2002, the first concerns who was the recipient of the notice. The letter is addressed to
“Mr Roger May
Advanced Communications Technologies Australia Pty Ltd (Administrator appointed) (Receivers and Managers appointed)
50 Park Grove
RICHMOND VICTORIA 3121”
In my opinion, the document was forwarded to Mr May and also the company. A similar notice was sent to the company care of its administrator. There is no doubt that Mr May understood the letter was sent to him. He faxed his reply with a cover sheet on 26 September 2002 which read:
“Dear Mr Yii,
Please find the attached letter in response to your letter of 23 September 2002.
Kind regards,
Roger May.”
In addition, the letter faxed on 26 September 2002 was signed by Roger May, Director of the company, and in the first paragraph commenced:
“We are in receipt of your letter dated 23 September 2002 that was faxed to our offices in Queen Street at 9.15 p.m. last night.”
This objection has no substance and is rejected. The letter was clearly sent to Mr May. He received it in his personal capacity. He understood it was sent to him, and he responded to the letter.
The letter of 23 September 2002 did not specify compliance within 30 days. The letter was sent within 30 days after the first anniversary. However, the objection is that it did not give the guarantors “30 days’ written notice requiring one or both of the guarantors to purchase” from the plaintiff the shares for an aggregate price of A$2.3 million. But one thing is clear - the notice was given pursuant to clause 3.4.2. The reasonable recipient in the shoes of Mr Roger May, knowing the contents of the agreement and the letter, would have been in no doubt whatsoever that the obligation was to purchase within the 30 days’ period. Indeed, in his letter dated 26 September 2002 Mr May did not take the point that there was no period specified in the letter. Reference to clause 3.4.2 would have made it very clear what his obligation was and the time period. What Mr May said was – “It is our understanding that while ACT may be a guarantor to such transaction we believe there are many other steps to be taken by MLW before any such guarantee can be called on.” There is mention of a 30 days’ period. The letter has all the hallmarks of evasion and obfuscation. This objection is unfounded, without substance and without merit. That conclusion is reinforced by the fact that at no stage was the point taken prior to the trial. It is not a point taken in the defence.
The third point is that the plaintiff did not tender the transfer of the shares within the 30 days’ period. It is said this was contrary to the obligation found in paragraph 3.5. It is correct that there was no tender in that period. In a letter written on 31 October 2002, some eight days after the 30 day period had expired, Mr May’s solicitor wrote a letter tendering the transfer. It is clear from that letter and also the statement of claim attached to the writ dated 4 November 2002, that at all relevant times the plaintiff was ready, willing and able to transfer the ACT Florida shares to Mr May.
In my opinion, the objection has no validity because it is clear beyond the slightest peradventure that Mr May had evinced an intention and conveyed it to the plaintiff that he was not going to respond to the notice within 30 days or indeed within any period. This is made clear by his letter of 26 September 2002 and the defence to the statement of claim delivered on 20 December 2002.
The law is clear; where each party to a transaction owes concurrent duties to the other party, and one party evinces and conveys an intention not to perform his, her or its duty, then this relieves the obligation resting upon the other party. The principle was stated by Brennan, J. in Foran v. Wight,[31] where his Honour said:
“Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party’s failure at that time to perform his obligation. Each party’s obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other’s obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance.”
[31](1989) 168 C.L.R. 385 at 417.
The principle applies here. Mr May was not proposing to purchase the shares and has to this date maintained an objection to doing so. In my opinion, it is unrealistic in those circumstances to expect the plaintiff to tender within the 30 days’ period when it was clear at that time that Mr May was not going to honour the obligation.
In my opinion, the notice was a valid notice within the meaning of clause 3 and justice demands that the plaintiff should be able to seek specific performance if it so chooses. There is ample evidence that the plaintiff was at all relevant times ready, willing and able to honour its obligations. I refer to the plaintiff’s solicitor’s letter and the statement of claim. I reject Mr Goldblatt’s submission that an election has been made which in the circumstances was binding. It was an election made under mistake, the mistake has been rectified, the parties should be restored to the position at the time, and this means that the plaintiff has the option to seek a decree of specific performance if it so chooses.
The plaintiff is entitled to enforce the covenant of warranty found in clause 3.3 pursuant to clauses 3.4.2 and 3.5.
In my opinion, the plaintiff is entitled to recover judgment for damages for breach of the covenant of warranty, such damages to be determined at 5 September 2002, or is entitled to specific performance or damages in lieu of specific performance. It is a matter for the plaintiff to elect between the remedies.
Ground 8
Costs Orders
The ground attacking the costs order arises if the plaintiff fails in the appeal.
It is unnecessary for me to consider ground 8 because I am of the view that the plaintiff is entitled to judgment for substantial damages or specific performance. In any event, the plaintiff would require leave to appeal to argue the ground. It is well out of time.
The costs question involved the exercise of a discretion by the learned trial judge. It is correct that the Court has a wide and unfettered discretion on the question of costs. Like all discretions it has to be exercised in accordance with the law and judicially.
Plaintiff’s counsel argued that the judge erred in his costs order and that he should have made an order giving the plaintiff the costs of the issues in the defence and counterclaim which failed. It was argued, and in my opinion with some substance, that some of the defences were unfounded, lacking substance and were without merit, as were some of the claims made in the counterclaim, that they lengthened the trial and the learned judge in the exercise of his discretion should have given those costs to the plaintiff.
It was also argued that since the plaintiff and Mr Yii had been successful on the counterclaim they should have their costs of the counterclaim. The learned judge said the claim and counterclaim were intertwined and there seemed to be little point in trying to disentangle them. The learned trial judge observed in respect to severance of the issues the following:
“Again this is a practice which is not readily adopted, and to my mind this is not a case where it is appropriate. The defence which was successful was the one among a bundle of defences which were run, and in order to succeed the plaintiff had to overcome all of them, and this it did not do.”
The hearing was over six days, the seventh day being devoted to submissions. The defences in fact failed. What succeeded was the denial of damages. The plaintiff failed to prove them. There is substance in the submission that the plaintiff should have been given the costs of the failed defences which could have been calculated on a time basis. Further, it is difficult to understand on what basis the plaintiff and Mr Yii were denied the costs of their successful defence to the counterclaim. In fact the plaintiff was ordered to pay Mr May’s costs of the counterclaim. However, as the ground is no longer alive, it is unnecessary to determine these issues.
Conclusion
In my opinion, the plaintiff is entitled to succeed in the appeal. I would order that the appeal be allowed, the judgment entered on 4 July 2003 and the order for costs made on 29 July 2003 be set aside. In lieu thereof, I would enter judgment for the plaintiff in the sum of $2,271,117.50 or grant an order for specific performance in the terms to be settled if the plaintiff so desires. In my opinion, the plaintiff is entitled to its costs of the trial and the appeal.
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