Phillips Fox (a firm) v Westgold Resources NL
[2000] WASCA 85
•4 APRIL 2000
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION: PHILLIPS FOX (A FIRM) -v- WESTGOLD RESOURCES NL & ORS [2000] WASCA 85
CORAM: OWEN J
WHITE J
PARKER J
HEARD: 20-22 SEPTEMBER 1999
DELIVERED : 4 APRIL 2000
FILE NO/S: FUL 186 of 1998
BETWEEN: PHILLIPS FOX (A FIRM)
Appellant (Third Party)
AND
WESTGOLD RESOURCES NL (ACN 009 260 306)
First Respondent (Plaintiff)ST GEORGE BANK LTD (ACN 055 513 070)
Second Respondent (First Defendant)EMLEN PTY LTD (ACN 008 959 769)
Third Respondent (Second Defendant)MICHAEL GILL and ORS
Fourth Respondent (Putative Third Parties Appearing Under Protest)
FILE NO/S :FUL 189 of 1998
BETWEEN :ST GEORGE BANK LTD (ACN 055 513 070)
Appellant (First Defendant)
AND
WESTGOLD RESOURCES NL (ACN 009 260 306)
First Respondent (Plaintiff)EMLEN PTY LTD (ACN 008 959 769)
Second Respondent (Second Defendant)PHILLIPS FOX (A FIRM)
Third Respondent (Third Party)MICHAEL GILL and ORS
Fourth Respondent (Putative Third Parties Appearing Under Protest)
Catchwords:
Contracts - General contractual principles - Construction and interpretation of put option deed - Form of notice of exercise stipulated in deed - Whether put option properly exercised - Whether strict or substantial performance required
Contracts - General contractual principles - Construction and interpretation of settlement deed - Proper construction of obligation to sell shares under settlement deed - Implication of terms - Whether settlement deed contains implied term as to price at which shares to be sold
Contracts - Assignment - Whether assignment supported by valuable consideration
Practice and procedure - Costs - Multiple issues or causes of action - Plaintiff successful overall but failing on many issues - Appropriate costs orders
Legislation:
Nil
Result:
Appeal dismissed
Cross-appeal dismissed
Representation:
FUL 186 of 1998
Counsel:
Appellant (Third Party) : Mr M J Buss QC &
Mr D Wallace
First Respondent (Plaintiff) : Mr M L Bennett
Second Respondent (First Defendant) : Mr M C L Dicker
Third Respondent (Second Defendant) : No appearance
Fourth Respondent (Putative Third
Parties Appearing Under Protest) : No appearance
Solicitors:
Appellant (Third Party) : Minter Ellison
First Respondent (Plaintiff) : Bennett & Co
Second Respondent (First Defendant) : Arthur Robinson &
Hedderwicks
Third Respondent (Second Defendant) : No appearance
Fourth Respondent (Putative Third
Parties Appearing Under Protest) : No appearance
FUL 189 of 1998
Counsel:
Appellant (First Defendant) : Mr M C L Dicker
First Respondent (Plaintiff) : Mr M L Bennett
Second Respondent (Second Defendant) : No appearance
Third Respondent (Third Party) : Mr M J Buss QC &
Mr D Wallace
Fourth Respondent (Putative Third
Parties Appearing Under Protest) : No appearance
Solicitors:
Appellant (First Defendant) : Arthur Robinson &
Hedderwicks
First Respondent (Plaintiff) : Bennett & Co
Second Respondent (Second Defendant) : No appearance
Third Respondent (Third Party) : Minter Ellison
Fourth Respondent (Putative Third
Parties Appearing Under Protest) : No appearance
Case(s) referred to in judgment(s):
Ballas v Theophilos (No 2) (1957) 98 CLR 193
Bava Holdings Pty Ltd v Pando Holdings Pty Ltd, unreported; SCt of NSW (Santow J); 18 March 1998
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Buckland v Bay of Islands Electric Power Board (1980) ANZ Conv R 513
Caltex Oil (Australia) Pty Ltd v Howard Smith Industries Pty Ltd [1973] 2 NSWLR 89
Cannane & Anor v Official Trustee in Bankruptcy (1996) 65 FCR 453
Carter v Hyde (1923) 33 CLR 115
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87
George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387
Hankey v Clavering [1942] 2 KB 326
Hare v Nicoll [1966] 2 QB 130
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
Phillips v Ellison Brothers Pty Ltd (1941) 65 CLR 221
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services [1968] 1 All ER 104
Vickery v Waitaki International Ltd [1992] 2 NZLR 58
Case(s) also cited:
AF Grant Pty Ltd v MacDonald [1960] Qd R 465
Allen Allen & Hemsley v Deputy Commissioner of Taxation (NSW) & Ors (1988) 81 ALR 617
Ankar Proprietary Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth of Australia (1977) 139 CLR 54
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326
Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700
B v The Minister for Immigration & Muticultural Affairs (1997) 50 ALD 120
Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056
Beaton v McDivitt (1987) 13 NSWLR 162
Breen v Williams (1996) 186 CLR 71
Byrne v Australian Airlines (1995) 185 CLR 410
Carradine Properties Ltd v Aslam [1976] 1 WLR 442
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87
City of Camberwell v Camberwell Shopping Centre Pty Ltd [1994] 1 VR 163
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Commonwealth of Australia v Antonio Giorgio Pty Ltd (1986) 67 ALR 244
Crafter v Singh (1990) 2 ACSR 1
Crawford v Stirling (1802) 170 ER 693
D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10
Don King Productions Inc v Warren [1998] 2 All ER 608
Fagan v Knowsley Metropolitan Borough Council (1985) 83 LGR 782
FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343
Fryer v Plucis [1967] WAR 161
Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40
Giannarelli & Ors v Wraith & Ors (1991) 98 ALR 1
GM & AM Pearce and Co Pty Ltd v RGM Australia Pty Ltd (1998) 16 ACLC 429
Gye v McIntyre (1990) 171 CLR 609
Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62
Heyman v Darwins Ltd [1942] AC 356
Holland v Wiltshire (1954) 90 CLR 409
Holroyd v Marshall (1862) 10 HLC 191
Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41
Hyde v Carter & Anor (1922) 23 SR (NSW) 125
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583
Johnson v Bones [1970] 1 NSWLR 28
Karaguleski v Vasil Bros & Co Pty Ltd [1981] 1 NSWLR 267
Kennedy v Collings Construction Company Pty Ltd, unreported; SCt of NSW; Giles J; BC8901651; 29 September 1989
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85
Macarthur v Georgamlis (No 4), unreported; SCt of NSW; Young J; BC9002665; 8 March 1990
Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241
Market Services Pty Ltd v Westpac Banking Corporation (1997) V Conv R 54-569
Masel v Semini, unreported; FCt SCt of WA; Library No 930198; 19 July 1996
McDonnell & East Ltd v McGregor (1936) 56 CLR 50
Moschi v Lep Air Services Ltd [1973] AC 331
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9
Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (In Liq) (1994) 15 ACSR 191
Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1
Peabody Resources Ltd v Macquarie Generation; Renson Ltd v Macquarie Generation, unreported; SCt of NSW; Einstein J; BC9806319; 19 November 1998
Proprietors Strata Plan No 9,968 v Proprietors Strata Plan No 11,173 [1979] 2 NSWLR 605
Prudential Assurance Co v Health Minders Pty Ltd (1987) 9 NSWLR 673
Quadling v Robinson (1976) 137 CLR 192
Ralston v South Greta Colliery Company (1912) 13 SR (NSW) 6
Rawson v Hobbs (1961) 107 CLR 466
Re Homfray Carpets Australia Pty Ltd (1996) 14 ACLC 555
Re Interwest Hotels Pty Ltd (In Liq) (1993) 12 ACSR 78
Re Just Juice Corporation Pty Ltd (1992) 109 ALR 334
Re Kelcey, Tyson v Kelcey [1899] 2 Ch D 530
Roxburghe v Cox (1881) 17 Ch D 520
Samuel Properties (Developments) Ltd v Hayek [1972] 3 All ER 473
Sargent v ASL Developments Limited (1974) 131 CLR 634
Schuler (L) AG v Wickman Machine Tools Sales Ltd [1974] AC 235
Scurr v Brisbane City Council (1973) 133 CLR 242
Seamen's Union of Australia v Adelaide Steamship Co Ltd (1976) 46 FLR 444
Spectra Pty Ltd v Pindari Pty Ltd (1974) 2 NSWLR 617
Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103
Spunwill Pty Ltd v Bab Pty Ltd (1984) 36 NSWLR 290
Stoddart v Union Trust Ltd [1912] 1 KB 181
Sun Candies Pty Ltd v Polites [1939] VLR 132
Syrett v Egerton [1957] 3 All ER 331
Tailby v Official Receiver (1888) 13 App Cas 523
Tasker v Small (1837) 40 ER 848
The Commonwealth v Verwayen (1990) 170 CLR 394
The Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60
Thomson v Richardson (1928) 29 SR(NSW) 221
Tonitto v Bassal (1992) 28 NSWLR 564
Torr & Torr Realty Pty Ltd v John Lockrey Pty Ltd (1994) 6 BPR 13749
Transfield Proprietary Ltd v Arlo International Ltd (1980) 144 CLR 83
Tropical Traders Ltd v Goonan (1964) 111 CLR 41
W Pope & Co Pty Ltd v Edward Souery & Co Ltd [1983] WAR 117
Westwind Air Charter Pty Ltd & Mullins Investments Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71
Winterton Constructions Pty Ltd v MA Coleman Joinery Co Pty Ltd (1996) 14 ACLC 1168
Wren v Mahony (1972) 126 CLR 212
Yates Building Co Ltd v R J Pulleyn & Sons (York) Ltd (1975) 237 EG 183
OWEN J: I have read the reasons that White J is about to publish. I agree with those reasons and with his Honour's conclusion that, in each case, the appeal and the cross‑appeal should be dismissed. In deference to the very careful and thorough arguments put by counsel for the several parties that appeared at the hearing I wish to state in summary form only the basis of my agreement.
On 30 July 1998 the parties entered into a deed by which Westgold Resources NL ("Westgold") granted to Emlen Pty Ltd ("Emlen") a put option the effect of which was that on 30 June 1998 (and subject to certain conditions) Emlen could require Westgold to purchase from it up to 20,000,000 shares in St Barbara Mines Ltd at 40 cents per share. Clause 3 of the Deed states: "The Option may be exercised by [Emlen] giving a Notice of Exercise to [Westgold] on [30 June 1998]". Clause 1 of the Deed contains a definition of the phrase "Notice of Exercise", indicating that the term "means a notice in the form set out in the schedule". The schedule does indeed contain a form of notice.
Emlen, St Barbara Mines Ltd and certain other companies were associated with a Mr Atkins. By virtue of certain security arrangements entered into between Emlen and other Atkins interests on the one hand and St George Bank Ltd ("the Bank") on the other, the put option and its exercise came under the control of the Bank. On the due date the Bank purported to exercise the put option; first as an assignee from Emlen and later as Emlen's attorney. The trial Judge found that the Bank was not entitled to exercise the option as an assignee. That conclusion was not challenged on appeal. The attempt by the Bank to exercise the option as attorney is the one on which the appellants rely for the purposes of the appeal.
One of the more curious aspects of this entire transaction is that in neither of the written communications on which the Bank and Emlen relied at trial as the notice of exercise of the option was any effort made to follow the form set out in the schedule. The various points involved in the disconformity between the letter by which the grantee purported to exercise the option and the form of notice of exercise set out in the schedule were listed by the trial Judge and are not in dispute although, of course, their effect is in issue.
At the risk of oversimplifying the matter the trial Judge found that the communication from the Bank to Westgold was, notwithstanding the points of disconformity, sufficient to communicate the grantee's intention to exercise the option and would have been so understood by a reasonable grantor. Nonetheless, as a matter of construction, the Deed required strict compliance with the mode of exercise stipulated in the instrument. The notice did not constitute strict compliance and the option was not, therefore, effectively exercised.
The gravamen of the appeal was summarised by senior counsel for Phillips Fox in these terms:
"…was the notice which was in fact served effective to exercise the option or notwithstanding the fact that it adequately communicated intention and that, as his Honour found, it would have communicated intention to a reasonable recipient, nevertheless the notice of exercise was bad because it wasn't sufficiently strictly in accordance with the notice in the schedule".
The difference between strict and substantial performance is a concept that is well known in contract law. The dichotomy of conditions and warranties is an example: see Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641. Another example is the distinction between entire and divisible contracts where there is a claim for recovery of part of the price fixed by the bargain but where there has only been partial performance of the obligations: Phillips v Ellison Brothers Pty Ltd (1941) 65 CLR 221 at 234. Nor is it exceptional that the bargain should require strict compliance and yet forgive or overlook slight or trivial discrepancies such as spelling or punctuation. The reason is that such errors could not on any view be said to go to the heart of what the parties had agreed.
To my mind this was (and is) a difficult question of construction and one for which the arguments advanced by the appellants are not without some attraction. On the other hand the trial Judge made a very careful and comprehensive analysis of the authorities and of the application of the legal principles to the facts of the case. I have not been persuaded that his Honour erred in any way in the findings of fact that were necessary to answer the construction issue or in the legal analysis of those questions. In other words (and without in any way suggesting that the appeal is spurious or should never have been brought) I am, in the end, compelled to the conclusion that his Honour was correct for the reasons that he enunciated.
There are two additional factors that have not been mentioned or emphasised and which, in my view, lend support to the trial Judge's conclusion that strict compliance with the exercise regime was required. The first is that this is a put option. I think it is fair to say that the put option is a relatively strange species of transaction. In the property ownership and transfer structure that has been developed in the Western world it is unusual for a person to be forced to take ownership of property. Even in relation to gifts, settlements and testamentary transactions the grantee or beneficiary can disclaim property. This is not so in relation to a put option. This makes it even more amenable to the concepts implicit in the dicta of Lord Greene MR in Hankey v Clavering [1942] 2 KB 326 at 329, which both the trial Judge and White J have set out.
The second point relates to the form of the notice set out in the schedule to the Deed. One thing that is noticeable about the form is that it is quite prescriptive and complete. Apart from the date of the Deed itself, the only "blank" is for the number of shares in St Barbara Mines Ltd in respect of which the put option is to be exercised. This is not surprising as cl 2 and cl 3 of the Deed contemplate that the option could be exercised in respect of all or some of the 20,000,000 shares that were the subject of the arrangement. The relative completeness of the form tends to suggest that the parties intended that the text and content of the form was more than merely a guide to, or example of, the means by which the intention to exercise the option should be notified to the other party.
If it be the case, as I think it is, that strict compliance was necessary it is difficult to resist the conclusion that the letter sent by the Bank to Westgold at about 6.30 pm on 30 June 1998 was ineffective as an exercise of the option. As the trial Judge commented, the disconformity was not trivial and neither was it the result of a slip.
I now turn to the cross‑appeal. The trial Judge accepted that the deed entered into on 9 July 1997 (called "the settlement deed") was an umbrella agreement pursuant to which a number of other instruments (including the put option deed) came into existence. The other instruments (including the put option deed) were intended to give effect to the obligations contained in the settlement deed and had to be construed in that light. Importantly, cl 5.2 of the settlement deed required Emlen and others to use "their best and all reasonable endeavours to find purchasers for the Westgold put option shares prior to 30 June 1998 or, alternatively (in the case of [the others]), to cause Emlen to terminate the Westgold put option". The first three grounds of the cross‑appeal relate to the effect of this provision.
His Honour found that "as a matter of pure construction" Westgold's argument that its obligations under the put option deed depended upon performance by Emlen of its obligations under the settlement deed could not be sustained. The trial Judge went on to say that on its proper construction the "best endeavours" clause did not require Emlen to find purchasers for the put option shares at less than 40 cents per share. I find that conclusion compelling.
The plain meaning of the words used do not indicate that the right of Emlen to insist on Westgold taking the shares under the put option was conditioned by it having complied cl 5.2(a) of the settlement deed. Nor, it seems to me, does that result follow from an understanding of the commercial arrangements that were known to both parties. As the trial Judge said, the put option was intended to be a security to the extent of $8,000,000 for an outside borrowing of $10,625,000. Taken at face value, the construction contended for by Westgold would mean that Emlen was obliged effectively to dump the shares on the market at whatever price could be obtained, perhaps as low as 1 cent if that was all the market was prepared to pay at the time. This would have an adverse effect on the security and could not reasonably be said to have been within the contemplation of the parties.
There are several factors (all of which were known to the parties) in relation to the commercial arrangements that need to be taken into account. At the time when the settlement deed was being negotiated, Emlen was, to Westgold's knowledge, in financial difficulties. It could not exercise a put option which then existed in favour of Westgold. The Bank was prepared to advance funds to enable Emlen and Westgold to proceed with the settlement on terms that included the put option and provision of security for Westgold's obligations under it. It seems to me that this militates against a construction that would have the effect of watering down or defeating the security.
It is true that cl 5.2(a) does not state the price (minimum or maximum) at which Emlen was to sell shares in accordance with its "best endeavours" obligation. Counsel for Phillips Fox submitted that a term to the effect that Emlen was not obliged to find purchasers at less than 40 cents per share was one that could be implied or deduced by implication or interpretation from the express terms of the document: see Vickery v Waitaki International Ltd [1992] 2 NZLR 58 at 64. I think there are some real difficulties in implying terms to flesh out the meaning of cl 5.2(a) to make it fit with the meaning contended for by either party or sets of parties. This is something the trial Judge recognised, at least when he was contemplating the meaning contended for by Westgold. The principles for the implication of terms are well known: see BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283.
The obligations of Emlen and the others under cl 5.2 seem to stand alone. A breach of them would sound in damages at the behest of Westgold. It is not at all clear to me that the commercial arrangements represented by the combination of documents would lack business efficacy unless a term making performance of the "best endeavours" clause a condition of the exercise of the put option were to be implied. Nor is such a result so clear that it "goes without saying". The same can be said about the implication of a term about the price at which shares were to be sold in accordance with the "best endeavours" clause. I think it is essentially a question of construction. In my view, the trial Judge was correct.
The central plank in Westgold's argument in ground 1.3 is that in none of the documents is there any identification of particular shares or parcels of shares (for example, by certificate numbers) as the shares that are the subject of the put option. In these circumstances the proper construction of the documents is that if there were sales of shares by what might loosely be called the Atkins interests, all of those sales were for the benefit of Westgold and reduced Westgold's obligations under the put option arrangement. It is common ground that there were share sales by the Atkins interests during the relevant period.
I am not persuaded that Westgold's argument has merit. No connection was established between the identity of the shares sold during the relevant period and the shares to be put under the option. Under the put option deed Emlen could exercise the option in respect of all 20,000,000 shares or a lesser number. This right was not qualified by reference to any shares that might be sold by the Bank or by the Atkins interests. There is another reason. On its proper construction, cl 5.2(a) of the settlement deed contains two true alternatives. First, to use best endeavours to find purchasers for the put option shares. Alternatively, to cause Emlen to terminate the put option. The trial Judge noted that there was no evidence of any failure to use best endeavours to terminate the put option. Accordingly, even if there were a failure to use best endeavours to sell the put option shares, it would not amount to a breach of a contractual obligation that contained true alternatives.
Ground 1.4 of the cross‑appeal was abandoned and I need say no more about it.
On 27 July 1997 Emlen entered into a deed of assignment by which it purported to assign the benefit of the put option deed to the Bank. The deed was delivered on 28 July 1997. The problem is that the put option deed was not executed until 30 July 1997. The trial Judge found, in my view correctly, that the deed of assignment was a purported assignment of future property and could not have effect in law. However, provided the assignment was supported by consideration, it would be recognised in equity. In the fifth ground of the cross‑appeal Westgold challenges the finding that there was valuable consideration and that, therefore, the Bank could enforce it against Westgold.
On this issue I accept the submissions advanced by counsel for Phillips Fox which are to the following effect. Valuable consideration may consist of some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other: Cannane & Anor v Official Trustee in Bankruptcy (1996) 65 FCR 453 at 466. An indirect benefit can be sufficient: Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 at 108. By cl 2 of the deed of assignment the Bank agreed to provide or continue providing credit or financial accommodation. The deed of assignment was executed in anticipation of the settlement between Westgold and Emlen, which occurred shortly thereafter. The settlement conferred a benefit on Emlen and there was a corresponding assumption of a detriment by the Bank. In my view, this is sufficient to dispose of the issue. That makes it unnecessary to deal with the notice of contention which counsel for Phillips Fox handed up during the course of argument on the appeal.
Ground 1.6 of the cross‑appeal relates to the efficacy of a statutory declaration that was prepared for the purposes of a document called the cash security deed. If the put option was validly exercised, cl 2 and cl 4.2(b) of the put option deed required Westgold to pay the exercise price "in accordance with the cash security deed". The latter document detailed the arrangements by which Westgold advanced $8,000,000 as security for the performance of its obligations under the put option deed. Clause 4 of the cash security deed provided that on exercise of the option Emlen could withdraw from the security deposit an amount equal to the amount payable to it under the put option deed:
"subject to delivering to the Depositee a statutory declaration in the form of Annexure B duly completed by two directors of Emlen …."
The term "Depositee" is defined in cl 1 of the cash security deed as: "any bank with whom an Account is opened". In the context of this case that is a reference to the Bank. As the trial Judge found, there was no statutory declaration that answered this description. However, his Honour went on to find that this did not entitle Westgold to decline to settle. In my view, his Honour was correct.
It seems to me that this provision was for the benefit of the Bank in that it would give the Bank some comfort that a person seeking to have access to the security deposit was entitled so to do. However, because of the equitable assignment of the benefit of the put option deed by Emlen to the Bank the latter was fully aware of the circumstances under which the option had come to be exercised and, accordingly, the circumstances in which an entitlement to the money was claimed. There was, therefore, no compelling need for the comfort that the statutory declaration would otherwise have given the Bank. It was entitled, if it chose to do so, to act in relation to the security deposit, without the benefit of the statutory declaration.
The trial Judge ordered that the defendants in the action pay three quarters of Westgold's costs. Ground 2 of the cross‑appeal challenges this decision and seeks to have it replaced by an order that the defendants pay the entirety of the costs of the action.
Westgold succeeded substantially in relation to the relief it claimed. Nonetheless, at trial Westgold failed to persuade the trial Judge on a number of issues that it advanced. Some of them have been dealt with in the cross‑appeal. Other issues that Westgold advanced, unsuccessfully, include whether the fact that the put option involved personal skill and confidence affected its assignability, whether the Bank had converted the funds in the security deposit and whether the sale of the shares to Westgold would have constituted "insider trading".
I wish only to make the trite statement that a costs order is a discretionary one. This is a situation where the trial Judge had the benefit of hearing the argument and assessing the evidentiary materials in a trial that lasted for about three weeks. Where a party has succeeded on some issues and failed on others it is a legitimate exercise of the discretion as to costs to make an overall percentage deduction from the costs that would otherwise be awarded. This is especially so where it would be difficult to compartmentalise the costs from issue to issue. There are practical and pragmatic reasons to deal with costs in this way rather than attempt to award the costs of one issue to party "A" and the costs of another issue to
party "B". That is what the trial Judge did in this case, although not in relation to the counterclaim. After argument specifically directed to the question of costs he made a reasoned and considered decision on that issue. Nothing has been advanced to convince me that his discretion miscarried.
In its notice of cross‑appeal, Westgold included a notice of contention in which it advanced the argument that, if the Bank's counterclaim for $8,000,000 succeeded, Westgold would have had a set off in the amounts owed by Emlen to it. Because of the conclusions to which I have come on the failure of the Bank's appeal, it is unnecessary for me to deal with the notice of contention.
WHITE J: These two appeals and the cross‑appeal, against the judgment of Anderson J, were heard together.
The background, taken from his Honour's judgment, was as follows:
Westgold Resources NL, ("Westgold") sued to recover $8,000,000 from the St George Bank Ltd, ("the Bank") and in the alternative damages for conversion; and sued Emlen Pty Ltd, ("Emlen") to recover damages for conversion. Westgold sought declaratory relief against both the Bank and Emlen in relation to a put option agreement. The declarations sought against the Bank were that by reason of a purported assignment of the put option by Emlen to the Bank, the put option was avoided against Westgold and that the assignment of the put option was a repudiation of it. The declaratory relief sought against Emlen was that a purported exercise of the option by the Bank as its attorney was ineffective at law. Other, mostly ancillary, relief was sought which it is unnecessary to detail.
The Bank joined its firm of legal advisers, Messrs Phillips Fox, as a third party alleging that if the put option agreement or the assignment of it could not be enforced by or at the instance of the Bank, Phillips Fox was to blame and should indemnify or compensate the Bank for any consequential losses.
Westgold is a publicly‑listed company under the effective control of Mr Hugh McLernon and associates. Westgold had acquired 23,898,951 shares in St Barbara Mines Ltd, ("St Barbara Mines") which was about 10 per cent of the issued share capital and held a put option, exercisable at any time between 1 March 1997 and 31 August 1997, by which it could put 12,500,000 St Barbara Mines shares to Emlen, at 85 cents per share.
On 13 June 1997, Westgold exercised the put option and nominated 4 July 1997 as the settlement date. Emlen's obligations under the put option were guaranteed by Mr Ross Atkins ("Atkins") who, directly or indirectly, controlled Emlen and Montleigh Investments Pty Ltd.
An extraordinary general meeting of St Barbara Mines was to be held on 9 July 1997 and the resolutions to be put to the meeting concerning the composition of the board of St Barbara Mines were resolutions which Mr Atkins was anxious to see defeated. The Atkins interests could command sufficient votes to defeat the resolutions and gain control of the board if Westgold did not vote its shares the other way. Although it suited Mr Atkins to take the St Barbara Mines shares that were being put by Westgold, he could not pay the put option price unless he were able to borrow funds to do so.
There was the expectation that if Mr Atkins could get control of St Barbara Mines, he could stimulate the company and enhance the value (market price) of its shares.
The Bank, through its manager, Mr Briggs, expressed willingness to put up sufficient funds, provided certain conditions were agreed upon, including that, as a condition of an advance of $10.6 million to enable Montleigh to purchase the 12.5 million put option shares from Westgold, the Bank would require that a put option be entered into and would require Westgold to place $8,000,000 on deposit with the bank as security for the put option.
Some time during 8 July 1997, after a meeting at Mr Briggs' office between Mr McLernon, Mr Dundo (a solicitor acting for Atkins) and Mr Briggs, it was agreed that Emlen be the grantee of the put option upon the basis that Montleigh would borrow from Emlen to purchase the shares from Westgold. Mr McLernon knew that Emlen was not providing the funds to Montleigh from its own resources, but that the Atkins group would borrow from the Bank.
A deed of settlement was executed on 9 July 1997, a few hours before the extraordinary general meeting of St Barbara Mines. All of the obligations under the deed were (by cl 4) subject to and conditional on Mr Atkins gaining control of the board of St Barbara Mines. In the result, the Atkins interests prevailed and Mr Atkins and his associates became the only directors of St Barbara Mines. The following are important clauses of the settlement deed of 9 July 1997:
"2.SALE AND PURCHASE OF OPTION SHARES
2.1Subject to clause 4, Westgold will sell to Montleigh, and Montleigh will purchase from Westgold, the option shares ... for the sum of $10,625,000 (representing 85 cents per share) and otherwise on the terms and conditions of this deed. Completion of the sale and purchase of the option shares will take place at Level 3, Wesfarmers House, 40 The Esplanade, Perth, Western Australia, 6000 not later than 15 business days after fulfilment of the condition referred to in clause 4 ...
3.SALE AND PURCHASE OF ADDITIONAL SHARES
3.1Subject to clause 4, Westgold will sell to Montleigh, and Montleigh will purchase from Westgold, a further 11,398,951 St Barbara shares (the 'additional shares') for the sum of $8,435,743 (representing 74 cents per share), such sum to be paid in full not later than 31 December 1998 (or 1 July 1998, in the event that the option referred to in clause 5.1 is exercised) ...
4.CONDITION PRECEDENT
The parties' respective obligations under this deed are subject to and conditional on the board of directors of the company comprising, by no later than 10 July 1997 (or such later date as the parties may agree), Atkins, Keith Clarence Dodd and Gordon Brian Speechly (or such other persons as may be reasonably acceptable to Atkins) and no other persons.
5.WESTGOLD PUT OPTION:
5.1Subject to and conditional on completion of the sale and purchase of the Option Shares, Westgold will grant to Emlen an option (the 'Westgold Put Option') to require Westgold to purchase up to 20,000,000 St Barbara shares (the 'Westgold Put Option Shares') at a price of 40 cents per share, such option to be exercisable on 30 June 1998. The form of the Westgold Put Option must be reasonably acceptable to Westgold and its legal advisers.
5.2In consideration of Westgold granting the Westgold Put Option to Emlen at the request of Atkins, Montleigh and Emlen (which request is evidenced by their execution of this deed), Atkins, Montleigh and Emlen jointly and severally covenant with Westgold
(a)to use their best and all reasonable endeavours to find purchasers for the Westgold Put Option Shares prior to 30 June 1998 or, alternatively (in the case of Atkins and Montleigh), to cause Emlen to terminate the Westgold Put Option; and
(b)...
5.3On receipt of the sum of $10,625,000 referred to in clause 2, Westgold will place on interest bearing deposit with a bank or other financial institution nominated by Atkins (the 'Financier') the sum of $8,000,000 (the 'Security Deposit'), and Westgold will grant a charge over the Security Deposit in favour of Emlen to secure the performance of Westgold's obligations upon any exercise of the Westgold Put Option, which charge will automatically be released immediately following any exercise or termination of the Westgold Put Option or on 1 July 1998 (whichever first occurs). The charge over the Security Deposit will also automatically be released to the extent of 40 cents for every Westgold Put Option Share sold pursuant to clause 5.2(a). The Security Deposit will bear interest at 0.1% below the financier's official interest rate, payable monthly in arrears. Upon the exercise of the Westgold Put Option, the Security Deposit will be paid to Emlen in satisfaction of the exercise price, and any interest accrued but unpaid on the Security Deposit will be paid to Westgold.
6.CALL OPTION
6.1... Montleigh will grant to Westgold ... an option (the 'Westgold Call Option') to purchase all or any of the Security Shares at a price equal to [the market price at the time of exercise]. ... The Westgold Call Option will be exercisable during the period of five business days commencing on 1 January 1999 (or 1 July 1998, in the event that the Westgold Put Option has been exercised) ..."
"Put Option Deed between Westgold and Emlen, 30 July 1997
This is the deed by which Westgold granted Emlen the put option in respect of 20,000,000 St Barbara Mines shares. Important clauses in this deed were the following:
'1.INTERPRETATION
...
"Exercise Date" means 30 June 1998.
"Exercise Price" means 40 cents per option share.
"Notice of Exercise" means a notice in the form set out in the schedule.
"Option Shares" means 20,000,000 St Barbara shares.
"Settlement Date" means 1 July 1998.
2.GRANT OF OPTION
The Grantor [Westgold] grants to the Grantee [Emlen] an option to require the Grantor to purchase the Option Shares (in whole or in part) from the Grantee at the Exercise Price.
3.EXERCISE OF THE OPTION
The Option may be exercised by the Grantee giving a Notice of Exercise to the Grantor on the Exercise Date. The Option may be exercised once only but may be exercised in respect of all or part only of the Option Shares.
4.COMPLETION
4.1Completion will take place on the Settlement Date ...
4.2On Completion:
(a)the Grantee must deliver to the Grantor a duly executed transfer in favour of the Grantor of the Option Shares, together with certificate or certificates for the Option Shares ...
(b)the Grantor must pay to the Grantee the Exercise Price in accordance with the Cash Security between the Grantor and the Grantee dated on or about the date of this deed.
…
7.NOTICES
7.1A Notice must be signed by or on behalf of the Party giving it, addressed to the Party to whom it is to be given, and:
(a)delivered to that Party's address;
(b)sent by pre-paid mail to that Party's address; or
(c)transmitted by facsimile to that Party's address.
7.2A Notice given to a Party in accordance with clause 7.1 is treated as having been given and received:
(a)if delivered to a Party's address, on the day of delivery if that is a Business Day, otherwise on the next Business Day;
(b)if sent by pre-paid mail, on the second Business Day after posting; and
(c)if transmitted by facsimile to a Party's address and a correct and complete transmission report is received, on the day of transmission if that is a Business Day, otherwise on the next Business Day.
7.3Addresses for Notices
For the purpose of clause 7.1 the address of a Party is the address set out below or another address of which that Party may from time to time give Notice to the other parties:
Party:Westgold Resources NL
Address: Level 3, 40 The Esplanade,
Perth, WA, 6000
Facsimile: 08 9324 2373
…
8.GENERAL
…
8.2Assignment
No Party may assign its rights or obligations under this deed without the prior written consent of the other Parties.
…
SCHEDULE
NOTICE OF EXERCISE
To:Westgold Resources NL, ACN 009 260 306
Emlen Pty Ltd, ACN 008 959 760 (in its capacity as trustee of the Ross Trading Trust and the Atkins Property Trust) (the Grantee) hereby exercises the option granted by the Grantor to the Grantee under clause 2 of the deed dated [blank] 1997 [the Put Option Deed] in respect of [blank] of the option shares.
Words and expressions defined in and for the purposes of the Put Option Deed have the same meaning where used in this notice.
DATED:30 June 1998
.................................
for and on behalf of Emlen Ltd'"
These appeals are concerned with the result of the purported exercise by Emlen of the put option granted to it by Westgold. There were two notices by which the option was sought to be exercised. The first was a letter sent by facsimile transmission from St George Bank (hereinafter referred to as "the Bank) to Mr McLernon of Westgold, on 30 June 1998 in the following terms (AB 1026):
"Dear Hugh
Re Emlen Pty Ltd/St George Bank Put Option to Westgold
As discussed recently, St George, in its capacity as assignee of the Put Option Deed between Westgold and Emlen Pty Ltd, hereby provides formal notice of intention to exercise the agreement effective today.
Under the agreement, 20M St Barbara Mines Ltd shares will transfer from Bengal Star Pty Ltd to Westgold for consideration of $8.0M. The $8.0M is currently held by St George Bank in a deposit account for Westgold subject to security arrangements previously outlined. This deposit will be redeemed in full today, with the $8.0M to return to Emlen Pty Ltd and accrued interest to be credited to Westgold.
Please do not hesitate to call should you have any queries in relation to the process outlined.
Kind regards,
(Sgd)
Chris Briggs
State Manager"
Mr McLernon then sent a letter to Mr Briggs by fax in the following terms:
"Chris,
1.Thank you for your notice dated 30 June 1998 in relation to the abovementioned matter.
2.As I mentioned in our earlier telephone conversation, Westgold adopts the position that St George Bank Ltd cannot redeem any funds as a result of this notice. As I understand it, St George is an assignee by way of security and I am unaware of any consent having been given by Westgold to that assignment.
3.At the very least, we are entitled to insist that Emlen Pty Ltd deliver the transfer certificates and other documents referred to in clause 4.2(a) of the put option.
4.In fact, under the terms of the cash security agreement (clause 4), Westgold is entitled to insist on strict compliance with the terms of the put option deed before Emlen Pty Ltd is entitled to withdraw the $8M from the account.
5.Westgold does not accept that notice complying with the put option deed has been properly given by reference to any one or more of the form of the notice, the party giving the notice and/or the party to whom the notice was given.
6.Please be advised that Westgold insists upon strict compliance with the terms of the put option deed and will object to any moneys being withdrawn from its account in the absence of that compliance.
7.If these and the balance of the requirements imposed upon Emlen Pty Ltd by the transaction documents are complied with, then we will proceed with settlement tomorrow as set out under the terms of the put option deed.
Best regards …
…
At about 4 pm Mr McLernon telephoned Mr Briggs and told him that as far as Westgold was aware, Westgold had not given a consent to the assignment of the put option to St George, which therefore had no right to exercise the option and 'redeem the funds'. Mr Briggs asserted that Westgold had in fact given a written consent to the assignment. Mr McLernon asked Mr Briggs to fax him a copy.
At 4.16 pm Mr McLernon received a handwritten fax from Mr Briggs saying:
'Hugh:
As discussed, letter of assignment of put attached. This was prepared by Westgold and forwarded to our solicitors Phillips Fox.
As such, St George has complied with the requirements relating to notice under the put option agreement.
Subject to transfer of the subject share scrip as discussed we will then proceed to exercise our security deposit as previously advised.
Regards.'"
This note was accompanied by the following form of consent:
"'FROM: Westgold Resources NL
TO: Emlen Pty Ltd
Dear Sirs
We refer to the Put Option Deed ('Deed') between Westgold Resources NL ACN 009 260 306 ('Westgold') and Emlen Pty Ltd ACN 010 229 599 ('Emlen') dated on or about the date of this letter. The expressions defined in the Deed shall have the same meaning when used in this letter.
Pursuant to clause 9.2 of the Deed, Westgold hereby consents to Emlen assigning by way of a security its interests in the Deed pursuant to:
(a)an assignment of its interests in the Deed in favour of St George Bank Limited ('St George');
(b)creating a fixed and floating charge over all of its assets including its interests in the Deed in favour of St George; and
(c)creating a mortgage over the shares the subject of the Deed in favour of St George (referred to as the 'Securities') provided that such consent is conditional upon the agreement of Emlen and St George to the following:
1.Each of the Securities is granted subject to the terms of the Deed.
2.St George undertaking that it will unconditionally and immediately release the Option Shares from the Securities upon the Option being exercised.
Please confirm your agreement and the agreement of St George to the above by having the attached copy of this letter executed and returned to us.
Yours faithfully
We confirm our agreement to the above.
____________________ ________________
duly authorised representative duly authorised representative for and on behalf of for and on behalf ofEmlen Pty Ltd Emlen Pty Ltd"
In fact, however, that form of consent was not prepared by Westgold, nor was it ever executed by Westgold. It was a draft of a document prepared by Emlen's solicitors in the days immediately before settlement on 30 July 1997 and never executed by anyone.
Later on 30 June 1998, Mr Briggs sent another notice of exercise which was expressed to be given by the Bank not as assignee of Emlen but as Emlen's attorney.
His Honour dealt with the second purported notice of exercise of the option as follows (AB 74 ‑ 77):
"Second Notice of Exercise, 30 June 1998
At about 6.30pm on 30 June 1998, Mr Briggs sent what purported to be another notice of exercise of the put option. This notice was sent to Mr McLernon and copied to Mr Staltari and it was in the following terms:
'Dear Hugh,
Re Emlen Pty Ltd/St George Bank put option to Westgold.
Further to our letter today, your subsequent fax and our fax reply, please note the following;
1.St George has no intention of applying the secured $8.0M deposit funds until such time as the share transfer for 20M shares is effected which we, as discussed, anticipate to occur tomorrow ...
2.As advised, St George is an assignee of the put option and this has been consented to by Westgold.
3.Notwithstanding the fact that we have already clearly complied with the notice requirements of the put option as per item (3) of the deed, please also note that St George hereby gives notice to Westgold Resources NL (including direct notice to managing director Guido Staltari) on behalf of Emlen Pty Ltd of its intention to exercise the put. St George's power to act for Emlen Pty Ltd is conferred by virtue of clause 14 to the specific put option security and fixed and floating charge over Emlen Pty Ltd which grants power of attorney to St George. We confirm that Emlen Pty Ltd is, and has been, in default in relation to its contractual obligations with St George and as such St George is granted automatic power of attorney.
As discussed, upon execution of the share transfer tomorrow, the $8.0M will be redeemed and applied by St George.
Regards
(Sgd)
Chris Briggs.'
At this stage, therefore, St George had sent two notices purporting to exercise the put option. The first notice, constituted by the fax of about 11.10am on 30 June 1998, was expressed to be a notice by St George in its capacity as assignee of the put option deed. The second notice, constituted by the fax of about 6.30pm on 30 June 1998, was expressed to be a notice by St George in its capacity as attorney of Emlen. It is not in issue that Emlen was in default under the bank's fixed and floating charge and that by 6.30pm on 30 June 1998 the bank had become entitled, pursuant to cl 16 of the charge, to act as Emlen's attorney to do everything that Emlen was entitled to do in exercise of Emlen's rights under the put option deed.
In my opinion, St George was entitled to assume such powers as attorney for Emlen as were conferred on it by cl 16 of the fixed and floating charge, including 'to do anything ... [Emlen] ... could do ... '
It was pursuant to that power that Mr Briggs in his capacity as state manager of St George gave the second notice of exercise on 30 June.
Quite obviously, his letter is not in the form of the notice of exercise scheduled to the put option deed. There is a number of differences between the agreed form and Mr Briggs' letter; and Westgold submits they are fatal to a proper exercise of the option. As to the differences, it is an exercise in comparison, but they may be itemised as follows:
(i)Whereas the agreed form of notice does in its terms unequivocally and unambiguously exercise the option Mr Briggs' letter, strictly construed, merely signifies an 'intention' to exercise it.
(ii)Mr Briggs' letter is addressed to Mr McLernon and Mr Staltari in their capacity as director and managing director of Westgold, whereas the agreed form is addressed to 'Westgold Resources NL'.
(iii)Mr Briggs' letter is signed by him in his capacity as state manager of St George Bank, whereas the agreed form of notice is to be signed on behalf of Emlen.
(iv)Insofar as the notice is a notice by Emlen it is a notice by Emlen in its own right not, as required, in its trustee capacity.
(v)Mr Briggs' letter does not stipulate the clause number of the put option deed which grants the option.
(vi)Mr Briggs' letter does not stipulate the date of the put option deed.
(vii)Mr Briggs' letter does not expressly stipulate the number of the option shares in respect of which the option was intended to be exercised.
(viii)Mr Briggs' letter is expressed to be a notice by 'St George ... on behalf of Emlen Pty Ltd ... '. The agreed form of notice is a notice by Emlen.
The text of Mr Briggs' letter obviously differs from the text of the agreed form of notice of exercise. The points of difference taken as a whole take the discrepancies beyond what might be termed minor or trivial discrepancies.
Notwithstanding the disconformity between Mr Briggs' letter and the notice scheduled to the put option deed, I am satisfied that the letter would have been understood by a reasonable optionor in the circumstances known to Mr McLernon and Mr Staltari (and that it was understood by Mr McLernon and Mr Staltari) to be a purported exercise of the put option in respect of the whole of the shares, that is, 20,000,000 shares; and that the exercise was by the bank as attorney for Emlen, that is, by Emlen through its attorney."
The learned trial Judge held that the purported exercise by Emlen and by the Bank on 30 June 1998 was ineffective at law and ordered that the Bank pay to Westgold $8,000,000 with interest.
The Nature of Appeal 186 of 1998
In appeal 186 of 1998, Phillips Fox appeals against his Honour's orders, and seeks the following orders in substitution (AB 3):
"2.And in lieu thereof the following orders be substituted:
(a)the First Respondent's (Plaintiff's) claims against the Second and Third Respondents (First and Second Defendants) be dismissed;
(b)the First Respondent (Plaintiff) do pay the Second Respondent's (First Defendant's) costs (including any reserved costs of the action) to be taxed.
(c)the First Respondent (Plaintiff) do pay the Third Respondent's (Second Defendant's) costs (including any reserved costs of the action) to be taxed.
(d)the First Respondent (Plaintiff) do pay the Appellant's (Third Party's) costs in connection with the main action or alternatively the First Respondent (Plaintiff) do indemnify the Second Respondent (First Defendant) against any liability for the Appellant's (Third Party's) costs in connection with the main action, such costs to be taxed without regard to the limits in item 6(b), 9(b) and 13 of the fourth schedule and the Appellant (Third Party) have a certificate for second counsel."
The grounds of appeal are:
"1.The learned Judge erred in law in holding that:
(a)the form and content of the notice of exercise set out in the schedule to the put option deed dated 30 July 1997 was the exclusive mode of exercise of the put option;
(b)the put option could only be exercised by giving a notice in the form set out in the schedule to the put option deed;
(c)it was relevant to determine whether an attempt had been made to comply with the form set out in the schedule to the put option deed;
(d)the notice ('the Second Notice') given by the Second Respondent (First Defendant) as attorney for the Third Respondent (Second Defendant) to the First Respondent (Plaintiff) on 30 June 1998 was not effective in law to exercise the put option.
2.The learned Judge should have held that:
(a)it was not a condition of the put option deed that any notice of exercise of the put option had to strictly or exactly comply with the form and content of the notice of exercise set out in the schedule to the put option deed;
(b)strict or exact compliance with the form and content of the notice set out in the schedule to the put option deed was not the only manner in which the put option could be exercised;
(c)it was irrelevant whether or not an attempt had been made to comply with the form set out in the schedule to the put option deed;
(d)the Second Notice was effective in law to exercise the put option."
Accordingly, this appeal is primarily concerned with a question of law, namely: was the purported exercise of the option in a form different from that set out in the schedule to the deed a valid exercise of the option? It is apparent that the grantee intended and purported to exercise the put option by the second notice it gave, that Westgold knew that that was its intention and that the notice was in a form which differed in several respects from that of the notice on the schedule.
The Nature of Appeal 189 of 1998
In appeal 189 of 1998, the Bank appeals against his Honour's orders and seeks the following orders in substitution (AB 6):
"(a)the first respondent's (plaintiff's) claims against the appellant (first defendant) and second respondent (second defendant) be dismissed;
(b)the first respondent (plaintiff) do pay the appellant's (first defendant's) costs (including any reserved costs of the action) to be taxed;
(c)the first respondent (plaintiff) do pay to the appellant (first defendant) the sum of $8 million with interest at the rate of 6% per annum from 1 July 1998 until payment;
(d)further or alternatively, an order in favour of the second respondent (second defendant) for specific performance by the first respondent (plaintiff) of the agreement to buy shares contained in the put option deed notice of exercise of which put option had been effectively given by the appellant (first defendant) as attorney for the second respondent (second defendant) to the first respondent (plaintiff) on 30 June 1998 and an order for specific performance accordingly."
The grounds of the Bank's appeal are (AB 7):
"1.The learned Judge erred in law in holding that:
(a)the form and content of the notice of exercise set out in the schedule to the put option deed (the Scheduled Notice) dated 30 July 1997 between the first respondent (plaintiff) and second respondent (second defendant) was the exclusive mode of exercise of the put option;
(b)the put option could only be exercised by giving a notice in the form set out in the schedule to the put option deed and that holding was confirmed by the commercial setting in which the put option deed was negotiated;
(c)it was relevant to determine whether an attempt had been made to comply with the form set out in the schedule to the put option deed;
(d)the notice (the Second Notice) given by the appellant (first defendant) as attorney for the second respondent (second defendant) to the first respondent (plaintiff) on 30 June 1998 was not effective in law to exercise the put option;
(e)the finding that the option could only be exercised by giving a notice in the scheduled form was confirmed by the commercial setting in which the put option deed was negotiated was against the evidence and the weight of the evidence;
(f)the differences between the form and content of the Scheduled Notice the Second Notice as a whole were more than minor or trivial discrepancies.
2.The learned Judge should have held that:
(a)it was not a condition of the put option deed that any notice of exercise of the put option had to strictly or exactly comply with the form or content of the notice of exercise set out in the schedule to the put option deed;
(b)strict or exact compliance with the form and content of the notice set out in the schedule to the put option deed was not the only manner in which the put option could be exercised;
(c)it was irrelevant whether or not an attempt had been made to comply with the form set out in the schedule to the put option deed;
(d)the Second Notice was effective in law to exercise the put option;
(e)the commercial setting in which the put option deed was entered into involved a common contemplation of the parties to that deed that the put option deed would be exercised only in circumstances where the appellant required it to be exercised and by or at the behest of the appellant;
(f)the commercial setting in which the put option deed was negotiated was inconsistent with the conclusion that the option would only be exercised by the giving of a Scheduled Notice;
(g)in law the differences between the form and content of the Second Notice and the Scheduled Notice were relevantly minor or trivial discrepancies in light of the learned judge's finding that the Second Notice would have been understood by a reasonable optionor in the circumstances known to Mr Lernon and Mr Staltari (and that it was understood by Mr McLernon and Mr Staltari) to be a purported exercise of the put option in respect of the whole of the shares, that is, 20,000,000 shares; and that the exercise was by the appellant as attorney for the second respondent, that is, by the second respondent through its attorney;
(h)the appellant was entitled to orders in accordance with the orders set forth in paragraph 3 above."
The Nature of the cross‑appeal
Westgold's cross‑appeal seeks orders that (AB 11 & 12):
"1.The following findings by the Honourable Justice Anderson in the action be set aside:
1.1that the right of Emlen Pty Ltd to exercise the Put Option is not in terms conditioned by performance of the best endeavours clause (Reasons p 67);
1.2that on its proper construction the best endeavours clause did not require Emlen Pty Ltd to find purchasers for the Put Option shares at less than 40 cents per share (Reasons p 68);
1.3that the right to exercise the Put Option is not qualified by reference to shares that might be sold otherwise than pursuant to the best endeavours clause (Reasons p 17);
1.4that after 11 August 1997 when Westgold received the Notice of Assignment Westgold took no step to exercise any right that had arisen to bring the Put Option to an end and on the contrary elected not to terminate. Accordingly Westgold was not entitled to terminate the Put Option deed on 30 June 1998 on the grounds of repudiatory conduct (Reasons p 71 ‑ 72);
1.5that having correctly found that the Assignment must be regarded as an assignment of future property that Emlen received valuable consideration for the assignment. (Reasons p 76 ‑ 77);
1.6that failure to produce a statutory declaration in the form prescribed in the Cash Security Deed did not give rise to any relevant right in Westgold or relieve Westgold of any obligation. (Reasons p 85).
2.The Order of Honourable Justice Anderson made 9 December 1998 that the Defendant pay three quarters of the Plaintiffs costs of the action to be taxed if not agreed and three quarters of all reserved costs be set aside and in lieu thereof it be ordered that the Defendants pay the Plaintiffs costs of the action to be taxed if not agreed including all reserved costs."
The grounds of the cross‑appeal are:
"1.As to paragraph 1
1.1On a proper construction of the Settlement Deed, dated 9 July 1997 and the Put Option Deed, His Honour should have held that the right of Emlen to exercise the Put Option was conditioned by performance by Emlen Pty Ltd of the best endeavours clause.
1.2On its proper construction especially having regard to the terms to the factual matrix surrounding the creation of the Settlement Deed, His Honour should have held that on its proper construction the best endeavours clause required Emlen Pty Ltd to find purchasers for the Put Option shares without regard to any price.
1.3His Honour should have held that the right to exercise the Put Option was qualified by reference to shares that might be sold otherwise in pursuant to the best endeavours clause and therefore His Honour should have found that the right to exercise a Put Option was reduced by that number of shares found by His Honour to have been sold prior to 30 June 1998.
1.4His Honour should have held that the facts as found do not constitute an election by Westgold not to terminate the Put Option and accordingly as at 30 June 1998 Westgold was entitled to terminate the Put Option on the grounds of repudiatory conduct.
1.5His Honour should have held that Emlen received no valuable consideration as at the date the assignment was entered into and delivered in that there was no evidence whatsoever that Emlen received valuable consideration on that date and to the contrary the evidence was that as at the date of delivery St George had not agreed to supply financial assistance or accommodation to Emlen.
1.6His Honour should have found that the failure to produce a statutory declaration in the form prescribed in the Cash Security Deed relieved Westgold of any obligation to pay from the monies held on deposit with the St George pursuant to the Cash Security Deed the sum of $8 million or any other sum."
In addition, Westgold gave notice of an intention to contend that the learned trial Judge's decision should be affirmed on the following ground:
"AND FURTHER TAKE NOTICE that on the hearing of the Third Party's Notice of Appeal dated 4 December 1998 and the First Defendant's Notice of Appeal dated 7 December 1998 the Plaintiff will contend that the Judgment of the Honourable Justice Anderson should be affirmed on the following ground:
1.In the event that His Honour found that St George's counterclaim for the sum of $8 million was made out, His Honour should have found that:
1.1Westgold was entitled to set off the claims made in paragraph 4A.4.2 of Westgold's Defence to St Georges' Counterclaim against any claim by the bank.
1.2Alternatively in the event that it is found that the Notice of Exercise Option was validly given by Emlen Pty Ltd, His Honour should have entered judgment for Westgold against Emlen in the sums claimed in the Statement of Claim and held that Westgold was entitled to set off the debts due and owing from Emlen to Westgold against any claim by Emlen Pty Ltd for payment of $8 million."
Appeal 186 of 1998
The first ground
The first issue raised in this appeal relates to his Honour's finding that the form and content of the notice of exercise of the put option set out in the Schedule to the put option deed was the exclusive mode of exercise of the put option.
Mr Buss QC submitted:
" … the point in essence being whether or not, in order effectively to exercise the put option, it was necessary for Emlen by its attorney St George Bank to give a notice precisely or exactly in accordance with the form of notice set out in the schedule to the deed ...
… his Honour did find that it was not necessary to comply in all respects with the form of the notice in the sense that it was not necessary or it was a matter of no consequence that punctuation was not observed, paragraphs, spelling errors and a variety of other things. However, his Honour also found that the second notice which was, in fact, served by St George as attorney for Emlen was effective in its terms to communicate to Mr Staltari, the managing director of Westgold and to Mr McLernon, also a director of Westgold, the intention of St George as attorney for Emlen that the put option was being exercised.
His Honour also found that the notice was effective not only to actually communicate that intention to Westgold but that it would also have been apparent to a reasonable recipient of that notice. So the nice question of construction for your Honours is: against that background was the notice which was in fact served effective to exercise the option or notwithstanding that fact that it adequately communicated intention and that, as his Honour found, it would have communicated intention to a reasonable recipient, nevertheless the notice of exercise was bad because it wasn't sufficiently strictly in accordance with the notice in the schedule."
There is no doubt that the notice actually served was not strictly in accordance with the draft in the schedule to the deed.
In Hare v Nicoll [1966] 2 QB 130 at 141, Willmer LJ said:
"It is well established that an option for the purchase or repurchase of property must in all cases be exercised strictly within the time limited for the purpose. The reason for this, as I understand it, is that an option is a species of privilege for the benefit of the party on whom it is conferred. That being so, it is for that party to comply strictly with the conditions stipulated for the exercise of the option."
In Hankey v Clavering [1942] 2 KB 326 at 329, Lord Greene MR said of a notice given pursuant to a clause in a 21‑year lease conferring a right to determine the tenancy at the end of seven years on giving a certain notice:
"Notices of this kind are documents of a technical nature, technical because they are not consensual documents, but, if they are in proper form, they have of their own force without any assent by the recipient the effect of bringing the demise to an end. They must on their face and on a fair and reasonable construction do what the lease provides that they are to do ... I dissent entirely from the proposition that, where a document is clear and specific, but inaccurate on some matter, such as that of date, it is possible to ignore the inaccuracy and substitute the correct date or other particular because it appears that the error was inserted by slip."
In United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services [1968] 1 All ER 104, Lord Denning MR said at 107:
"In point of legal analysis the grant of an option ... is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer."
In the same case, Diplock LJ said at 109:
" ... in an option, the promisor's undertaking may be to enter into a synallagmatic contract with the promisee on the occurance [sic] of the event specified in the unilateral contract ... "
and:
" ... as respects the promisor, the initial inquiry is whether the event, which under the unilateral contract gives rise to the obligations on the part of the promisor, has occurred. To that inquiry the answer can only be a simple 'Yes' or 'No'. The event must be identified by its description in the unilateral contract; but if what has occurred does not comply with that description, there is an end of the matter. It is not for the court to ascribe any different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract have not done so."
In Buckland v Bay of Islands Electric Power Board (1980) ANZ Conv R 513, Richmond P said, applying what Denning LJ had said in the United Dominions Trust (supra) case:
"The sole question is one whether the option has been exercised strictly in accordance with its terms so that the contractual relationship of vendor and purchaser has been brought into existence. There is no room for the introduction of a rule whereby something less than exact compliance with the terms of the option will suffice."
The learned trial Judge said (AB 80 ‑ 81):
"In this case, Westgold's opponents argued that in more recent times the rule that there must be exact compliance with the terms of the option has been relaxed somewhat; but I would respectfully agree with the observations of Santow J in Bava Holdings Pty Ltd v Pando Holding Pty Ltd, unreported; SCt of NSW; 18 March 1998; Butterworths Unreported Judgments BC9802304 that if there has been a relaxation, it has taken place at the point of interpretation and construction of the documents, that is, of the instrument conferring the power to give the notice and the notice which is given pursuant to that power. Perhaps options are looked at more generously to the optionee to see whether the requirement said to be missing from his notice of exercise really is a requirement; and perhaps notices of exercise are looked at more benignly than hitherto to see whether the notice really is disconform to that stipulated in the option. Perhaps courts are less ready these days to construe options as prescribing indispensable conditions for their exercise and are less ready to say that notices which, prima facie, contain some discrepancies and deficiencies do not comply. But it remains a matter of construction. I am not able to see in the authorities any modification of the primary rule that if the option (or other instrument empowering the giving of a notice affecting rights) does prescribe conditions for its effective exercise, then those conditions must be complied with. I do not think the modern cases go so far as to authorise the court to dispense with compliance with agreed conditions. In my opinion, the court has no more authority at law to modify contractual arrangements in this field than in any other field. We are not here concerned with relief against forfeiture."
The relevant clauses in the put option deed are:
"2. Grant of Option
The Grantor hereby grants to the Grantee an option to require the Grantor to purchase the Option Shares (in whole or in part) from the Grantee at the Exercise Price.
3. Exercise of the Option
The Option may be exercised by the Grantee giving a Notice of Exercise to the Grantor on the Exercise Date. The Option may be exercised once only, but may be exercised in respect of all or a part only of the Option Shares."
As his Honour pointed out, "Notice of Exercise" is defined to mean "a notice in the form set out in the Schedule". It is not defined to "include" a notice in that form, or to mean a notice "substantially" in that form or to mean a notice "to the same effect as" the notice in that form.
Whether an option is to be construed as an irrevocable offer supported by consideration or as a conditional contract, the grantee is not entitled to enforce the option, unless he has complied strictly with such of its terms as, upon the proper construction of the option, must be strictly complied with for its valid exercise.
In George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387 at 395, Menzies J said, in relation to the law of contract:
"It has been accepted law for a long time that for an acceptance to be effective, it must comply with the requirements stipulated in the offer … It is also the law that where an offer does not stipulate for a particular mode of acceptance, it is sufficient that acceptance be communicated to the offeror."
In Hare v Nicoll (supra) at 141, Willmer LJ said, in relation to the exercise of an option:
"On the basis that clause 2 of the agreement was designed to confer a privilege on the plaintiff, I entertain no doubt that the two conditions as to date would have to be strictly complied with if he desired to avail himself of the privilege conferred."
If on the proper construction of an option, it is not essential that it be exercised precisely in accordance with a particular method, it will be sufficient if the exercise expresses clearly and unequivocally that the exercise of the option was intended. In Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 196, Dixon CJ said, of an option:
"Clearly enough, however, it was the business of the plaintiff to exercise the option. The clause contains no express provision saying how he is to do it and any definitive communication of an election would suffice. But it was necessary that the communication should express clearly and unequivocally the fact that the surviving partner, the plaintiff, then and there elected to acquire the deceased's interest upon the terms of the clause."
In Carter v Hyde (1923) 33 CLR 115 at 126, Isaacs J said:
"The second question is whether the option was properly exercised. It was objected that, because in the written notice of acceptance given on 22nd April 1921 the option of 1st February 1921, being otherwise fully and unmistakably described, was referred to as an option 'as per inventory dated the 22nd day of April' (that is, the date of acceptance), the acceptance was void, since it added another term to the offer. The communication of that acceptance was by personally handing it to the appellant accompanied with verbal intimation of acceptance of his offer; and, after reading the document, the appellant said 'I suppose it is all right,' and an inventory was proceeded with. The appellant certainly raised objections, but only to the inclusion of certain items on the ground that their exclusion had been verbally agreed to between Hyde and himself. No other objection was raised. In those circumstances the appropriate question is that of Romer J. in Jones v. Daniel(1894) 2 Ch at pg 335) (1), namely, 'Now, what would anybody when he received that letter fairly understand to be the meaning of it?' I add, of course, 'in the circumstances of its receipt.' His own attitude shows that he understood it, and I think reasonably understood it, as adding nothing to the conditions. Ordinary practice for evidentiary purposes involves an inventory, and the addition of the word is only an indication of what the respondents understood the offer to import. His attitude is, in effect, an admission of that. The appellant's attitude was unaltered even in his solicitor's letter of 22nd April. The learned primary Judge has found, as a fact, that the objection on the ground of agreed exclusion was not well founded. Reference to an inventory on 22nd April is therefore innocuous, unless substantially the sale was to be of the property as on 1st February and not as it stood on 22nd April. The reasoning of Eve J. in Goffin v. Houlder (1920) 90 LJ Ch at pg 489 (2) is, however, in point, and is in my opinion correct. The objection has no substance in it and fails."
In the present case, the deed expressly provides that the option may be exercised by the grantee giving a Notice of Exercise (being a notice in the form set out in the Schedule) to the grantor on the Exercise Date.
Mr Buss QC argued that the prescribed form of notice in the schedule was not the exclusive method by which the put option could have been exercised and that any other form of notice would have been satisfactory and adequate for that purpose, provided that a reasonable recipient of the notice would have understood the notice as being an unequivocal exercise of the option. The learned trial Judge did find that the notice was understood by Messrs McLernon and Staltari and a reasonable recipient of the notice would have understood it as being intended to exercise the option in respect of 20,000,000 shares. His Honour said, in this regard (AB 77 ‑ 78):
"Notwithstanding the disconformity between Mr Briggs' letter and the notice scheduled to the put option deed, I am satisfied that the letter would have been understood by a reasonable optionor in the circumstances known to Mr McLernon and Mr Staltari (and that it was understood by Mr McLernon and Mr Staltari) to be a purported exercise of the put option in respect of the whole of the shares, that is, 20,000,000 shares; and that the exercise was by the bank as attorney for Emlen, that is, by Emlen through its attorney.
The background of dealings to which reference has been made is such that neither Mr McLernon nor Mr Staltari could have been under any misconception as to the purpose and object of the letter. I cannot accept that either of them believed, or that a reasonable person in their position could have believed, that the letter was merely a polite precursor to the giving of a notice in the form scheduled to the put option deed. The letter itself is in the language, overall, of a final act of notification. It does not indicate to a reader that another notice is on its way. The use of the words 'hereby gives notice of' dispels any impression as to equivocation that the use of the words 'intention to exercise' might give. I find that when Mr Briggs' letter arrived, Westgold by its responsible officers, Messrs McLernon and Staltari, understood that it was an attempt to exercise the put option in respect to all of the put option shares and that the bank had done all the bank regarded as legally sufficient to exercise the put option on behalf of Emlen as attorney for Emlen.
The question is whether it was an act which was legally sufficient to exercise the put option."
Mr Buss QC submitted:
"Your Honours, the difficulty, with respect, with the learned trial judge's judgment on this point in this case is this, that his Honour didn't find that there needed to be exact compliance with the form, and once that position is accepted, that you don't need exact compliance with the form, then you immediately get yourself into a problem, and the problem is that if you don't have to have exact compliance with the form, then either you don't need compliance with it at all and the question is any form of notice which unequivocally manifests an intention to exercise the option will be satisfactory, or otherwise you have got to go through the form, endeavour to work out which bits are essential and which bits aren't."
In support of his submission that the option could be exercised by a notice in different form from that in the schedule to the deed, Mr Buss QC submitted further that:
"8(a)The Put Option Deed did not state that it was a condition of the deed that the option be exercised 'exactly', 'precisely' or 'strictly' in accordance with the form of the notice set out in the schedule.
(b)The Put Option Deed did not state that the giving of a notice in the precise form of the notice set out in the schedule was the sole method by which the option could be exercised.
(c)(i) At all material times prior to settlement on
30 July 1997 all parties to the transactions (including, in particular, Westgold and Emlen) contemplated that Emlen would assign to the Bank, further or alternatively, grant security to the Bank over, its rights and interests in relation to the option. See AB1 pages 29A, 30A, 40B‑E, 50C‑58E, 66D‑71A.
(ii)Indeed, clause 8.2 of the Put Option Deed itself
contemplated assignment, subject to the proposed assignor obtaining the prior written consent of the other party to the deed.
(iii)If there had been a valid assignment it would not have been possible for the assignee to comply strictly with the form of notice which expressly provides for exercise by 'Emlen Pty Ltd. ...' and for signature 'for and on behalf of Emlen Pty Ltd.'
(iv)This strongly suggests that the parties to the Put Option Deed did not intend it to be a condition of the deed that the option be exercised 'exactly', 'precisely' or 'strictly' in accordance with the form of the notice set out in the schedule and not in any other manner.
(d)(i) The learned trial Judge held that 'the deed would
not necessarily be construed as requiring such exactitude as to render ineffective a notice which complied in all respects save that a word was misspelled, a capital letter was not used or the notice was not divided into paragraphs and so on'. See AB1 page 85A.
(ii) To his Honour's list may be added:
(A)a failure to include the Australian company number of Westgold or Emlen or both of them;
(B)a failure to use the punctuation set out in the form of notice;
(C)a failure to include the parenthesis set out in the form;
(D)a failure to include the dotted line set out in the form above 'for and on behalf of Emlen Pty Ltd';
(E)a failure to stipulate the date set out in the form;
(F)a failure to include the definitions '(the Grantee)' and '(the Put Option Deed)' set out in the form;
(G)a failure to include the heading 'NOTICE OF EXERCISE' set out in the form;
(H)execution by Emlen under common seal instead of by a person 'for and on behalf of Emlen Pty Ltd'.
(iii)if it was not necessary to comply exactly with the form of notice then this strongly suggests that the parties to the Put Option Deed did not intend the prescribed method to be the sole method by which the option could be exercised.
(e)(i) The learned trial Judge observed that ' … the
disconformity in this case was not trivial and, it is important to note neither was it the result of a slip. There was in truth no attempt to comply at all'. See AB1 page 85B.
(ii)These observations are irrelevant to the critical issue (or, as his Honour described it, the 'big question'). See AB1 page 82D).
(iii)The issue of whether exact compliance was a condition of the put option or not depends upon the proper construction of the deed.
(iv)The subjective intention of either or both of the parties is irrelevant.
(v)Similarly, whether Mr Briggs' failure to comply exactly with the form of notice was deliberate, unintentional, trivial or 'the result of a slip' can have no bearing upon this process of construction."
The Cross‑Appeal
Grounds 1.1 and 1.2:
Westgold submitted that Emlen, in breach of cl 5.2(a) of the Settlement Deed, failed to exercise its best and all reasonable endeavours to find purchasers for the shares or to terminate the Put Option Agreement and that, in consequence of that failure, Emlen was disentitled to exercise the put option and it forfeited its entitlement under the Cash Security Deed.
Westgold argued that, on the proper construction of the Settlement Deed dated 9 July 1997 and the Put Option Deed, the rights of Emlen to exercise the put option was conditional upon Emlen performing its obligations under the "best endeavours" clause, namely, cl 5.2 of the Settlement Deed (set out above.) While that clause is not directly incorporated in the put option deed, his Honour accepted that the latter deed should be construed on the basis that it was a document which (among others) was intended to give effect to the Settlement Deed.
His Honour rejected the argument, holding that the proposition could not be sustained as a pure matter of construction and that it would require an implied term to that effect. His Honour was not persuaded that the tests for contractual implication were satisfied. His Honour said (AB 87 ‑ 89):
"The tests are well-known and can be summarised as requiring that the term be reasonable, necessary to give business efficacy, obvious to the point that it goes without saying, capable of clear expression and not contrary to any express term of the agreement: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 189 CLR 266 at 283; Byrne v Australian Airlines (1995) 185 CLR 411 at 422, 442; Breen v Williams (1996) 186 CLR 71 at 90, 91, 123. I do not think that it is so obvious as to go without saying that Westgold's obligations under the put option should be conditioned by performance by Emlen, Mr Atkins and Montleigh of the best endeavours clause in the settlement deed, nor do I think that the implication of such a term into the put option is necessary to give business efficacy to the put option.
I am anyway of the opinion that on its proper construction, the best endeavours clause did not require Emlen to find purchasers for the put option shares at less than 40 cents per share. In light of the commercial arrangements between these parties it would be absurd to place a construction on the clause that required Emlen, Mr Atkins and Montleigh to immediately begin selling down the shares at any price. The put option was always intended to be a security for an outside borrowing of $8,000,000 (more accurately security to the extent of $8,000,000 for a borrowing of $10.625 million). The best endeavours clause should not be construed in a way that would cut down that security. To construe the best endeavours clause as imposing a requirement to sell the put option shares as soon as possible at any price would simply defeat the security. As to price, there is no evidence that it was possible by reasonable endeavours to find purchasers for any shares at 40 cents or better. I think it is common ground that on 30 July 1997 the shares traded between 34 cents and 36 cents and thereafter their market price declined steadily. By 30 June 1998, they were trading at about 10 cents.
The other point I would make about the obligation in cl 5.2 of the settlement deed is that it is in fact a set of alternative obligations, that is, to use best endeavours to find purchasers for the put option shares or to cause Emlen to terminate the put option. Proof of a failure to use best endeavours to find purchasers for the put option shares would therefore not prove breach of the clause. Where a party has an obligation to do X or Y, proof that he failed to do X does not prove breach of the obligation. What is required is proof that he failed to do either X or Y. There is no evidence that the relevant parties failed to use their best endeavours to terminate the put option. The only evidence on the subject is the other way. It is the evidence of conversations between Mr McLernon and Mr Dundo and Mr Atkins in mid‑July 1998 from which it appeared (as is entirely to be expected) that the Atkins interests were doing their best to obtain a refinancing of the St George debt. Transcript 315, 328, 929, 1005-1011, 1013. That they could not do so is not at all surprising."
I am not persuaded that his Honour was in error in his determination of this issue and I would not uphold this ground of cross‑appeal.
Ground 1.3:
Westgold pointed out that Emlen and its associates sold approximately 14.8 million shares in St Barbara Mines in the period 30 July 1997 to 30 June 1998 and that the consequence was that the notice of exercise could only be valid so as to put 5.2 million shares to Westgold, or, alternatively, that Westgold's liability under the put option was reduced pro tanto to about $2.1 million.
In relation to Westgold's submission that the right to exercise the put option was reduced by the number of shares sold prior to 30 June 1998, his Honour said (AB 89 ‑ 90):
"The plaintiff relies upon evidence to the effect that between 30 July 1997 and 30 June 1998 there were sales on account of the Atkins interests of 14,816,295 shares in St Barbara Mines. I will not detail the evidence of share sales. There certainly is evidence that a substantial number of shares in St Barbara Mines was disposed of on account of the Atkins interests, they being shares owned by Mr Atkins, Emlen or Montleigh, or shares over which Mr Atkins had control and which were registered in the name of Bengal Star Pty Ltd. Many of these sales - 12,000,000 or thereabouts - were sales by the bank in exercise of its power of sale (ex 25C para 9). The plaintiff contends that all these sales should be taken to be sales in accordance with cl 5.2(a) of the put option deed and that the sales thereby operated to release the security deposit pro tanto in accordance with cl 5.3 of the settlement deed and cl 2.3(b) of the cash security deed. I am not sure that a case along these lines was actually pleaded, but anyway I am not persuaded of the correctness of the proposition implicit in the argument, that in light of the best endeavours clause any and all sales of St Barbara Mines shares by the Atkins interests during the relevant period must be regarded as sales pursuant to the best endeavours clause. I do not think that result follows from any process of construction of the relevant documents, nor do I think a term to that effect can be implied into the documents.
No connection is established in terms of identity between the shares sold and the option shares. The right to exercise the put is not qualified by reference to shares that might be sold otherwise than pursuant to the best endeavours obligation. It seems to me that the only relevance of sales made during the period is that it might provide evidence that by the use of best endeavours the Atkins interests could have found purchasers for the put option shares. But if the best endeavours clause is qualified as I have held it to be, that is, if the clause should be construed so as not to require sales to be made at less than 40 cents, mere proof of sales without proof that sales were at 40 cents or better would not prove breach of the obligation. There is no evidence that any of the sales referred to by the plaintiff were at 40 cents or better."
In my opinion, this last finding by the learned trial Judge is fatal to Westgold's argument in relation to this ground and I would dismiss this ground of cross-appeal accordingly.
Ground 1.4:
This ground was abandoned at the hearing of the appeal.
Ground 1.5:
This ground challenges the learned trial Judge's finding (at AB 96 ‑ 97) that Emlen received valuable consideration for the assignment.
Westgold submitted that, while the consideration recited in the Deed at cl 2 is an agreement by the Bank to provide or continue providing credit or financial accommodation from time to time at Emlen's request, at the date the deed of assignment was entered into the Bank was not providing credit or financial accommodation to Emlen and the terms of the agreement between the Bank and Emlen to provide financial accommodation had not been agreed and were not agreed until on or about 29 July 1997. Westgold points to the Bank's offer made on 25 July 1997 (AB Vol 5, 1125 ‑ 1134) executed by Emlen as a counter‑offer on 29 July 1997 which was accepted by the Bank. Westgold submitted that the absence of consideration resulted in the assignment being ineffective in equity.
The learned trial Judge dealt with this aspect of the case as follows (AB 96 ‑ 97):
"The conclusion I have reached that the deed became operative on 28 July 1997 has the consequence simply that, as a purported assignment of future property, it could not have effect in law, but, as long as the assignment was supported by consideration equity would enforce it against Westgold. Equity would permit the bank as assignee to sue Westgold as obligor on the assignment provided the assignor Emlen was joined as a proper party to the proceedings: William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 460-461; In re Griffin; Griffin v Griffin [1899] 1 Ch 408; Anning v Anning (1907) 4 CLR 1049, 1058-1061, 1067.
On behalf of the plaintiff, Mr McClintock QC submitted that the deed of assignment was not supported by consideration and he and Mr Bennett put forward arguments in support of that submission. I cannot accept this. I think Mr Buss QC is right in his submission that Emlen received valuable consideration for the assignment in that the assignment was, and was intended to be, security for advances and accommodation to be provided by St George to Emlen. So, for example, by cl 2 of the deed of assignment it is provided by way of recital:
'2. Background
St George has agreed to provide or continue providing credit or financial accommodation from time to time to or at the request of [Emlen] upon the condition that [Emlen] enters into this mortgage.'
And the warranty provided by Emlen in cl 12.1.8 was not a gratuitous or idle acknowledgement. By cl 12.1.8, Emlen 'warrants to St George that ... [Emlen] is receiving valuable commercial benefit for giving this security'. I am satisfied that Emlen was, indeed, receiving a valuable benefit for giving the security."
In my opinion, the learned trial Judge was correct in his decision on this aspect, and I would not uphold this ground of cross‑appeal.
Ground 1.6:
This ground concerns the fact (as found by the learned trial Judge) that, on 1 July 1998, there was no statutory declaration in existence in the terms required by cl 4 of the Cash Security Deed (which clause is set out above).
Westgold submits that the plain meaning of the clause is that the requirement for the production of a statutory declaration was mandatory and a condition precedent to the taking of the $8,000,000 and refers to Caltex Oil (Australia) Pty Ltd v Howard Smith Industries Pty Ltd [1973] 2 NSWLR 89, 93 (Hardie JA) as to the possible meaning of the words "subject to". Westgold submitted that, in the absence of a valid Statutory Declaration, Emlen could not have been ready, willing and able to settle.
The learned trial Judge dealt with this aspect (AB 104 ‑ 105) as follows:
"The 'false' statutory declaration
On behalf of Westgold, it was submitted that it would not have been obliged to settle on 1 July 1998 in any event, because Emlen/St George Bank was not in a position to settle. This is said to be mainly because there was not in existence a statutory declaration in the terms required by cl 4 of the cash security deed.
I find that there was not such a document in existence. It is an extraordinary feature of the case that on 30 July 1997, Mr Dundo procured the signatures of two directors of Emlen Pty Ltd, Mr Crawley and Mr Brookes, to a blank form of statutory declaration in the form scheduled to the cash security deed. Of course, the statutory declaration required by cl 4 had to depose to a state of affairs as at 30 June 1998, as has already been observed. What Mr Dundo was thinking of when he had Mr Crawley and Mr Brookes sign the document in July 1997, I do not know. I think the answer must be that he was not thinking at all. He and the other witnesses involved, including Mr Wilkes, were rigorously cross-examined on the matter by Mr McClintock QC. They gave no satisfactory explanation. I should say, however, that I do not find that they had any intention to deceive. I do not believe it was in the mind of Mr Dundo, or Mr Wilkes or anyone else, to actually present a false declaration. The date written in to the jurat by Mr Dundo was 30 July 1997, that is, the day on which the document was signed. The declaration on its face was therefore incompetent inasmuch as it was, on its face, a declaration made on 30 July 1997 deposing to a state of affairs 'on 30 June 1998 ... '. In the result, however, there was not a compliance with cl 4.
That there was not in existence a statutory declaration which satisfied the requirements of cl 4 of the cash security deed did not, however, provide Westgold with a warrant to decline to settle. The cash security deed required Emlen to produce the statutory declaration to the bank, not to Westgold. Non-production of the document or production of a disconform statutory declaration would have entitled the bank to be not satisfied of the fact of the exercise of the put option and to be not satisfied that Emlen had become entitled to withdraw money from the account. In these circumstances, the bank would have been entitled to refuse to permit the withdrawal sought to be made by Emlen. That is all. Failure to produce a statutory declaration in the prescribed form did not give rise to any relevant right in Westgold or relieve Westgold of any obligation."
Westgold pointed out that Emlen and its associates sold approximately 14.8 million shares in St Barbara Mines in the period 30 July 1997 to 30 June 1998 and that the consequence was that the notice of exercise could only be valid so as to put 5.2 million shares to Westgold, or, alternatively, that Westgold's liability under the put option was reduced pro tanto to about $2.1 million.
It is apparent that the obligation to produce the required statutory declaration was limited to production to the Bank ("Depositee" is defined to mean any bank with whom an account is opened). There was no obligation to produce the statutory declaration to Westgold and the failure to produce such a declaration could affect only the Bank, which would be free to waive that obligation without reference to Westgold.
I would not uphold this ground of cross‑appeal.
Ground 2 - The Costs:
In relation to the appeal relating to the order of the learned trial Judge concerning costs, I agree with the conclusion and reasons expressed by Owen J and that this ground of appeal should be dismissed accordingly.
Conclusion
In the result, I would dismiss the appeals of both Phillips Fox and of the Bank and also the cross‑appeal of Westgold.
PARKER J: I have had the advantage of reading the reasons for decision of White J and of Owen J which have now been delivered. I respectfully agree with their Honours that neither the appeals of the Bank and Emlen, nor the cross-appeal, have demonstrated that the learned trial Judge had fallen into error in respect of any of the issues now raised for this Court's consideration.
The reasons of White J have sufficiently identified the issues and the factual findings which the learned trial Judge made and I will not canvass these again.
The appeals
The essential issue raised by the appeals is whether the purported exercise of the put option by the Bank, purporting to act as Emlen's attorney, by the second notice on 30 June 1998 was effective in law. This involves, in turn, consideration of whether strict compliance with the form and the content of the notice of exercise in the schedule to the put option deed was required and, if not, whether the notice given was sufficient to be effective for the purposes of the put option deed. These issues are to be considered in the context that it is accepted by all parties that the
second notice was not in strict compliance with the form in the schedule to the put option deed although there is dispute as to the materiality and extent of the matters that are not in compliance.
The notice of exercise is a creation of the put option deed. What is required as to its form and content is a matter to be determined according to the intention of the parties to the deed. Obviously, the words by which the parties express their agreement afford the most telling guidance of what was intended. In this case the agreement was not in terms which merely required that notice be given or that merely stipulated that the notice should deal with specified matters. Hence, in my view, decisions such as Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 are to be distinguished. Instead, the parties went to the lengths of agreeing a form of the notice of exercise, which form was set out in a schedule to the agreement. The primary terms of the agreement as to the exercise of the option and the notice of exercise are concise and explicit:
"3.This Option may be exercised by the Grantee giving a Notice of Exercise to the Grantor on the Exercise Date. The Option may be exercised once only but may be exercised in respect of all or part only of the Option Shares."
"Notice of Exercise" was specifically defined by cl 1 as " … a notice in the form set out in the schedule".
While the question of construction is not an easy one, in my view the meaning of these provisions, and the intention of the parties to be gleaned from them, is that the only method of exercise of the option is by a notice in the form agreed in the schedule. In the sense of the authorities, strict compliance was required.
Given the commercial context in which the parties dealt and reached agreement, this is not a surprising intention. As the analysis of the commercial considerations undertaken by the learned trial Judge reveals, persuasively, there were reasons of some force why it could have been thought appropriate to provide that the exclusive form of exercise of the option should be by use of the agreed form of notice of exercise.
Thus, I am not persuaded that the learned trial Judge erred in his approach to this question of construction and in his finding that the
agreement of the parties was that use of the form of notice in the schedule was to be the exclusive means by which the option should be exercised.
It is a different question whether the intention of the parties that the exclusive means of exercise of the option was by use of the agreed form also required absolute compliance in every respect with the detail of the agreed form, even to incidental matters such as punctuation, spelling and the like. Like the learned trial Judge, I am attracted by the view that an intended and apparent use of the agreed form could constitute a valid exercise of the put option, ie it could satisfy the agreement of the parties that use of the form of notice in the schedule should be the exclusive means by which the option might be exercised, despite some trivial failure to comply with the precise form of the notice in the schedule. In expressing that view I am well conscious of the authorities referred to in the reasons of White J which, in one way or another, make the point that the Court is not justified in re-writing the terms of the agreement reached by the parties. The question of a trivial failure to comply with the agreed form of notice appears, however, to be better viewed as involving the discernment of what the parties did intend when they required the exclusive use of an agreed form, rather than any re-writing of their terms of agreement cf Bava Holdings Pty Ltd v Pando Holdings Pty Ltd, unreported; SCt of NSW (Santow J); 18 March 1998.
The reasons of the learned trial Judge and of White J identify the many aspects in which the second notice did not comply with the form agreed in the schedule. Of these, the identity of the parties to whom the notice was addressed and by whom it was given and the failure to identify whether the exercise of the option was in respect of all or part only of the option shares are sufficient, without more, in my view to justify the finding of the learned trial Judge that "the disconformity in this case was not trivial". Further, the evidence at the trial provides adequate support for the findings of his Honour that the disconformity was not the result of a slip, there being in truth no attempt to conform at all as the author of the second notice did not know or did not have in mind that any form of notice of exercise had been agreed. Indeed, in my view, the failure to identify whether the exercise of the option was in respect of all or part only of the option shares, even taking alone, was sufficient to justify the conclusion that the second notice could not have been effective as an exercise of the option for which the put option deed provided.
I also respectfully agree with the other views expressed by White and Owen JJ as to the appeals. For these reasons the appeals should be dismissed.
Cross-appeal
I do not wish to add to the reasons of Owen and White JJ, with which I respectfully agree, in support of the view I have reached that the cross‑appeal, insofar as it was pursued, should also be dismissed.
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