Pt Krakatau Steel v Felix Resources - [2010] SASC 170

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PT KRAKATAU STEEL v FELIX RESOURCES & ORS
[2010] SASC 170
Judgment of The Honourable Justice White
9 June 2010
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - GENERALLY
ESTOPPEL - ESTOPPEL IN PAIS - EQUITABLE ESTOPPEL - PROMISSORY ESTOPPEL
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - MISLEADING OR DECEPTIVE CONDUCT GENERALLY
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT - WHAT CONSTITUTES - GENERALLY
Plaintiff and the first and second defendants are shareholders in the third defendant - an attempt by the third defendant to establish the viability of pig iron production using a particular technology was unsuccessful and was abandoned - plaintiff seeks to recover the amount of its investment in the project - the relationship of the parties was governed by two agreements: the "State Agreement" and the "Shareholders Agreement" - the plaintiff claimed that cl 11.2.5 of the Shareholders Agreement required the defendants to grant it access to mineral deposits from which it could recover iron ore or coal of equivalent value to the amount of its investment, thereby rendering its investment cash neutral.
Whether the defendants breached cl 11.2.5 - whether the first defendant breached express terms of the Shareholders Agreement by divesting its interest in a subsidiary and by relinquishing exploration licences - whether the first defendant breached an implied term of the Shareholders Agreement to do what was reasonably necessary to allow the plaintiff to have the benefit of cl 11.2.5 - whether the first defendant breached an implied term of the Shareholders Agreement requiring it, upon request, to transfer title to coal deposits to the third defendant - whether the second defendant breached the Shareholders Agreement by its disposal of the technology used in the project.
Whether the first and second defendants are estopped from denying a construction of cl 11.2.5 which would give the plaintiff the right to obtain iron ore or coal to the value of its contribution to the project, or the same rights which were conferred under a previous agreement - whether an estoppel arose on the basis of representations made by representatives of the first and second defendants or upon a conventional basis.
Whether, in the event that cl 11.2.5 of the Shareholder's Agreement did not entitle the plaintiff to obtain iron ore or coal to recoup the amount of its contribution in addition to the extraction and transportation costs, the clause should be rectified to give it that effect.
Whether representations made by the first and second defendants amounted to misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth).
Whether the parties owed fiduciary duties to each other - whether the defendants breached those obligations.
Whether the affairs of the third defendant had been conducted in a way which was oppressive of the plaintiff under s 232 of the Corporations Act 2001 (Cth).
Held: none of the bases upon which the plaintiff makes its claim succeed - the plaintiff's claim is dismissed.
Corporations Act 2001 (Cth) s 232, s 233; Trade Practices Act 1974 (Cth) s 51A, s 52, s 82, s 87; Mining Act 1971 (SA) s 6, s 16, s 25, s 28, s 34, referred to.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 ; Franklins Pty Ltd v Metcash Trading Ltd (2010) 234 ALR 15; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; Pukallus v Cameron (1982) 180 CLR 447, applied.
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, distinguished.
Jones v Dunkel (1959) 101 CLR 298; Frederick v State of South Australia (2006) 94 SASR 545; Payne v Parker [1976] 1 NSWLR 191; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, discussed.
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 560; International Air Transport Association v Ansett Australia (2008) 234 CLR 151; A Goninan & Co Ltd v Direct Engineering Services Pty Ltd (No 2) [2008] WASCA 112; Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411; Mackay v Dick (1881) 6 App Cas 251; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; Energy World Corporation Ltd v Mauric Hayes and Associates Pty Ltd (2007) 239 ALR 457; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Artifakts Design Group Ltd v NP Rigg Ltd [1993] 1 NZLR 196; Auag Resources Ltd v Waihi Mines Ltd [1994] 3 NZLR 571; Re Gold Corp Exchange Ltd (1995) 1 AC 74; Benedetti v Sawiris [2009] EWHC 1330; Breen v Williams (1996) 186 CLR 71; State of South Australia v Trevorrow [2010] SASC 56; Morgan v 45 Flers Avenue Pty Ltd (1986) ACLR 692; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60; Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539; Re Spargos Mining NL (1990) 3 ACSR 1; O'Neill v Phillips (1999) 1 WLR 1092; Thomas v H W Thomas (1984) 1 NZLR 686; Re London School of Electronics Ltd (1986) Ch D 211; Fexuto Ltd v Bosnjak Holdings (2001) 37 ACSR 672; Re M Dalley & Company Ltd v Sims (1968) 120 CLR 603; Residues Treatment and Trading Company Ltd v Southern Resources Ltd (No 2) (1989) 7 ACLC 1130; Re Overton Holdings Pty Ltd (1984) 9 ACLR 225, considered.

PT KRAKATAU STEEL v FELIX RESOURCES & ORS
[2010] SASC 170
Civil
WHITE J:
INDEX
Introduction
The Parties
The Witnesses
PTKS’ Jones v Dunkel Submission
Initial Findings
The May 1995 Joint Venture Agreement
Entry into the PTKS MOU
The 1996 SASE Joint Venture Agreement
Incorporation of the Joint Venture
The State Agreement
The Shareholders’ Agreement
The Amending Agreement of December 1999
Construction and Operation of the Demonstration Plant
The Decision of Felix to Cease Funding the SASE Project
Events after June 2002
PTKS’ Letters of Demand
Claim in Contract: Alleged Breach of Express Terms
The Admissible Evidence
Features of the SHA
The Claimed Breach of Clause 11.2.5
An Obligation Binding Felix and Ausmelt
“Good Title” and a Mining Lease
Does “Good Title” Mean “Right of Access”?
Relevance of the State Agreement to the Meaning of “Good Title”
Factual Findings Concerning the State Agreement
Implications from the State Agreement
Failure of PTKS Witnesses to Refer to State Agreement
Close Attention to cl 11.2.5 in the Drafting
Other Matters Concerning “Good Title”
Conclusion Concerning cl 11.2.5.

Clause 10.1
Clause 15.2.1
Clauses 10.2 and 15.2.2
Clause 15.1.5
Clause 15.3
Implied Terms
Estoppel and the Construction of cl 11.2.5
Promissory Estoppel
Conventional Estoppel
Rectification
Misleading or Deceptive Conduct
Breach of Fiduciary Duty
The Oppression Claim
The Grounds of Alleged Oppression
Principles Relating to Oppression Claims
Further Findings of Fact
Notice of the Meeting of 22 November 2002
Use of Majority Voting Power
Alleged Contravention of Obligations under the SHA
Clause 7 of the SHA
Clause 13.1 of the SHA
Clause 9.3 of the SHA
Clauses 9.7 to 9.9 of the SHA

Denial of Means of Recoupment of PTKS’ Contribution
Divestment of Assets
Benefits
Tax Losses
Other Benefits to Felix
The Benefits Acquired by Ausmelt
Aggregate Assets of $77m?
Benefits to SASE
Benefits to PTKS

Retention of Status Quo
Conclusion on Oppression Claim
Pervading Problem in PTKS’ Claim of Loss
Conclusion
Introduction

Commencing in February 2000, the third defendant, SASE Pty Ltd (SASE) constructed and operated a demonstration plant at Whyalla with a view to establishing the viability of commercial pig iron production using a technology known as “top submerged lance smelting” and coal and iron ore obtained from deposits in the northwest of South Australia. The overall project was known as the SASE Project.
The SASE Project was not a success and was, in effect, abandoned by decisions made on 22 November 2002. In these proceedings the plaintiff (PTKS) seeks to recover the amount of its US$2.5m investment in the Project.
PTKS, the first defendant (Felix) and the second defendant (Ausmelt) are the three shareholders in SASE. Since 5 December 1999, Felix has held 90 per cent of its shares and each of Ausmelt and PTKS has held 5 per cent.
In addition to the SASE shareholders’ relationship being regulated by the Articles of Association of SASE, it was also governed by other documents, including a Shareholders’ Agreement into which the parties entered on 12 March 1999 (the SHA). The SHA was in turn an annexure to another agreement (the State Agreement) into which the parties also entered on 12 March 1999. The parties to the State Agreement were the parties to these proceedings, together with the Minister for Primary Industries, Natural Resources and Regional Development in the Government of South Australia and the Director of Mines in South Australia.
The financing of the SASE Project was derived principally from funds supplied by Felix (over AU$30m as at June 2002), a Research and Development Grant of approximately AU$6.5m provided by the Australian Government (AusIndustry) and from the US$2.5m provided by PTKS.
On 25 June 2002, Felix decided to cease funding the SASE Project and to take action to facilitate the realising of value from its interest in SASE. It also resolved to limit its further expenditure on the SASE Project to those areas which would facilitate the realising of value.[1] Without funding from some other source, this meant that the Project could not continue.
[1] Exhibit P1 at p 4182.
Over the ensuing months, attempts were made to attract a new “cornerstone” investor or a “strategic partner” who might contribute funds to continue the SASE Project. Those attempts were unsuccessful. On 22 November 2002, the Board of Directors of SASE resolved, over the objection of a director nominated by PTKS, to transfer the demonstration plant to AusIron Development Corporation Pty Ltd (ADC), and to enter into certain other arrangements. ADC is a subsidiary of Ausmelt.
PTKS makes its claim for recovery of its investment on several bases. First, it asserts a breach by Felix and Ausmelt of express or implied terms of the SHA, and contends that they are estopped from denying the correctness of the construction of the SHA for which it contends. In the alternative, PTKS seeks rectification of the SHA, and then seeks damages for the defendants’ breach of the SHA as rectified. In the further alternative, PTKS seeks orders under ss 82 or 87 of the Trade Practices Act 1974 (Cth) (TPA) in consequence of conduct of Felix and Ausmelt which it asserts was misleading or deceptive, in contravention of s 52 of the TPA. PTKS also makes a claim of breach of fiduciary duties by Felix and Ausmelt for which it seeks equitable compensation. This claim did not appear to be pressed very strongly, but it will be necessary to address it later in these reasons.
In the final alternative, PTKS seeks relief under s 233 of the Corporations Act 2001 (Cth), contending that on and since 22 November 2002 the affairs of SASE have been conducted in a way which is oppressive to, unfairly prejudicial to, and unfairly discriminatory against it, in its capacity as a member of SASE.
Although in its statement of claim, PTKS sought relief in a variety of forms, including declarations, an order for specific performance and an order under s 87 of the TPA, it indicated in opening its case at trial that it limited the relief which it sought (apart from the claim of rectification) to that of a pecuniary kind, ie, damages, equitable compensation, or an order that one or other of the defendants pay it the sum of US$2.5m. In its closing submissions PTKS also said that it sought an order that either Felix or Ausmelt acquire its shares in SASE at a price to be fixed. The submissions of PTKS at trial did not indicate clearly how any of the causes of action, if established, would lead to the form of monetary relief which it claimed.
The Parties
PTKS is a very substantial Indonesian company and is wholly owned by the Indonesian Government. It is a major steel producer, being one of the largest steel producers in Asia.
Felix was formerly a publicly listed Australian exploration and mining company. At various times relevant to these proceedings, it was known as Meekatharra Minerals Ltd and as AuIron Resources Ltd. It has been known as Felix Resources Ltd since 27 November 2003. It is convenient in these reasons to refer to it as “Felix”, including in relation to those events which occurred when it was known by one of its former names. Wholly or partly owned subsidiaries of Felix have held exploration licences in respect of substantial undeveloped coal deposits in the north-west of South Australia.
Ausmelt is a publicly listed Australian company. Its principal business is the development and marketing of the top submerged lance smelting technology which was used in the SASE Project. The parties referred to this technology as the “Ausmelt Technology”. It had originally been developed by a founder of Ausmelt.
The Witnesses
The first witness for the plaintiff was Mr Neill Arthur. He was the Managing Director and Chief Executive Officer of Felix between 1998 and 1 July 2002. In that position he was the person through whom Felix acted in many of the events upon which PTKS now relies. On occasion, Ausmelt also relied on Mr Arthur to engage in the communications with PTKS about the SASE Project.
In addition, PTKS called four of its own present and former office holders or employees. One, Mr Sutrisno, is a former President Director of PTKS. Another, Mr Bujang, is the current President Director. The office of President Director is the highest office within PTKS. Each of the four Indonesian witness had some knowledge of English, but all gave their evidence with the assistance of an interpreter. Although the interpreter appeared to be very competent, In my consideration of their evidence I have kept in mind that English was not their first language, that they are unlikely to have been familiar with the manner of conduct of a trial in an Australian court, and that cultural and linguistic differences may have affected my appreciation of the quality of their evidence.
The defendants Felix, Ausmelt and SASE, who were represented by the same solicitors and counsel, led evidence from five of their current or former office holders or employees, from Mr Bridges (the solicitor who had drafted the SHA), and from Mr Horn who has geological and mining expertise.
In order to provide a basis for my conclusions on the contentious issues in this case, I propose to make some initial findings. These initial findings mainly involve matters which are non-controversial and do not depend upon my assessment of the evidence of individual witnesses. It is appropriate however at this stage to record some of my conclusions about the individual witnesses.
In some cases, witnesses gave evidence of what was said at meetings at which extensive minutes were taken. Those minutes had been adopted as a true and correct record at subsequent meetings. In those circumstances, I have generally preferred on the written record rather than the recollections of witnesses which were first recorded many years after the event.
In many instances, the resolution of contentious issues in this trial has not required a preference for the evidence of one witness over another. However, as will be seen, I do not regard the evidence of Mr Masduki as reliable. I also have some reservations about the evidence of Mr Arthur. It seemed to me that Mr Arthur continues to have some animus towards Felix arising out of the circumstances in which his employment came to an end and that he allowed that animus to colour his evidence. Mr Arthur was retained as a consultant to PTKS in relation to these proceedings. I agree with the substance of the critique made by the defendants of Mr Arthur’s evidence. Mr Sutrisno’s recollection of events was clearly affected by the fact that he had been busy with, and probably preoccupied by, other matters during the period in which he was President Director of PTKS, and so had not been able to concentrate at that time on the detail of the SASE Project. I will refer later in these reasons to the evidence of Mr Bujang.
I regarded the evidence of the defendants’ witnesses as being generally reliable.
The evidence-in-chief of all witnesses in the trial was in the form of affidavits. The plaintiff’s witnesses’ evidence comprised two affidavits, being their original affidavit and an affidavit in reply.
Both parties objected to the admissibility of certain portions of the affidavits of the witnesses of the other. As a result of a ruling which I made during the course of its opening PTKS did not press the receipt of certain paragraphs in Mr Arthur’s affidavit on 22 December 2009 (Exhibit P3), nor the receipt of two other affidavits. In relation to the remainder of the objections, which mostly raised issues of relevance, the parties sensibly took the view that it was not necessary for the conduct of the trial to be delayed by arguments about, and rulings upon, admissibility. The parties invited me to receive all the affidavits and to rule on the issues of admissibility, to the extent that I found it necessary to do so, in these reasons.
In the view which I take of the matter, it is not necessary to rule on the various objections to admissibility individually. Subject to what I will say shortly, I have overruled the objections based on asserted irrelevance. In relation to those paragraphs or portions of paragraphs to which objection was taken on other grounds, I have considered that the evidence should be received. Many of these objections were technically correct, but the content of the impugned paragraphs is of little, if any, significance to the real issues in the trial. I have, however, upheld the defendant’s objections to the admissibility of paragraphs 19 to 22 inclusive and 27 of Mr Arthur’s affidavit affirmed on 22 December 2009 (Exhibit P3).
PTKS’ Jones v Dunkel Submission
PTKS drew attention to the fact that the defendants had not called a number of witnesses. It identified nine separate categories of people who had been involved in one way or another in the negotiations for the SHA, or in the events occurring in 2002, who had not been called. In identifying these categories, PTKS appeared to cast the net very widely. Relying on Jones v Dunkel,[2] PTKS submitted that the Court should draw an inference that those witnesses could not have given evidence of assistance to the defendants.
[2] (1959) 101 CLR 298.
The principles relating to the inferences which may be drawn when a party, without explanation, fails to call as a witness a person whom it might reasonably have been expected that it would call are well settled. I referred to a number of those principles in Frederick v State of South Australia.[3] Reference may also be made to the decision in Jones v Dunkel[4] itself and to Payne v Parker.[5]
[3] [2006] SASC 165 at [36]-[41]; (2006) 94 SASR 545 at 555-7.
[4] (1959) 101 CLR 298.
[5] [1976] 1 NSWLR 191 at 201.

On the view I take of the matter, it is not necessary to address the Jones v Dunkel submission of PTKS in any detail. First, counsel for PTKS acknowledged that, apart from the assurances given by Mr Arthur upon which PTKS relied, its case was largely documentary. Secondly, in the case of at least some of the categories of witnesses identified by PTKS, it was as much open to it to call those persons to give evidence as it was the defendants. Thirdly, many of the matters about which PTKS suggested that the possible witnesses could have given evidence appear to be peripheral at best to the issues raised by the parties’ pleadings, and to the real matters in dispute at the trial. Finally, it appears that some of the witnesses are likely to have done little more than to duplicate evidence given by others. In those circumstances, and without discussing the Jones v Dunkel principle in relation to each possible witness separately, I consider that the issues in this trial should be resolved without application of that principle.
Initial Findings
The May 1995 Joint Venture Agreement
The SASE Project had its origins in an agreement reached on 21 December 1994 between Felix, Ausmelt and the Minister for Mines and Energy in South Australia (the Minister). At that time, Ausmelt owned the Ausmelt Technology, Felix held exploration licences issued under s 28 of the Mining Act 1971 (SA) over substantial coal deposits in the Arckaringa Basin in South Australia, and the Minister wished to develop the iron ore resources in the Lake Phillipson area of South Australia which were, by virtue of s 16 of the Mining Act, vested in the Crown.
On 21 December 1994, by executing a document entitled “Heads of Agreement”,[6] Felix, Ausmelt and the Minister committed themselves to negotiate in good faith to agree upon a joint venture agreement, the essential terms of which were set out in the Heads of Agreement. The parties proposed forming a joint venture to evaluate the potential for, and possible construction of, facilities producing electrical power and pig iron using the coal resources of Felix, the iron ore resources of the Minister and the Ausmelt Technology. Under the Heads of Agreement, Ausmelt was to contribute the Ausmelt Technology and to construct a proto-type plant [cl 4]. Felix agreed to make available without charge a guaranteed supply of coal from its resources together with its technical knowledge [cl 5]. The Minister agreed to allow the joint venturers to extract iron ore and coal without charge and to contribute up to $1m to the project [cl 6]. The parties agreed that Felix and Ausmelt should each have a 40 per cent interest in the Project and that the Minister should have 20% [cl 7.1].
[6] Exhibit P1 at p 1.
The agreement between Felix, Ausmelt and the Minister was formalised by their entry into a document entitled “Joint Venture Agreement” on 10 May 1995. (the 1995 JVA).[7] The terms of the 1995 JVA were substantially similar to those contained in the Heads of Agreement save that Felix now agreed to make available for the purposes of the joint venture a guaranteed supply of coal from the coal deposits in the Arckaringa Basin and Lake Phillipson areas over which it held exploration licences, and the Minister agreed to expend $700,000 to support coal and iron ore resource definition.
[7] Exhibit P1 at p 18.
The object of the joint venture, as described by Mr Arthur, was to seek to commercialise the new Ausmelt Technology so as to produce pig iron and steel in South Australia, using the coal resources of Felix and the iron ore resources of the Minister. This was to be done in two stages. First the viability of a plant using the Ausmelt Technology, the coal of Felix and the iron ore of the Minister was to be established by the construction and operation of a demonstration plant. If that viability was established, the parties would then move to the establishment and commissioning of a commercial plant with an intended production of 2.5 million tonnes of pig iron per year.
The joint venture was unincorporated. The parties agreed that it should be called the “South Australian Steel and Energy Project” and consequently the project became known as the “SASE Joint Venture” or the “SASE Project”.
The parties also agreed to seek additional participants in the SASE Joint Venture who would provide the estimated US$10m required to fund the demonstration of viability phase of the Project.
Entry into the PTKS MOU
After May 1995 Mr Arthur, and others, spoke to two Indonesian companies, PT Maritosa Coalindo (Maritosa) and PTKS about participation in the SASE Project. On 16 April 1986 the three joint venturers entered in a Memorandum of Understanding with Maritosa (the Maritosa MOU) under which Maritosa agreed to contribute US$5m in exchange for a 10 per cent interest in the SASE Joint Venture. The joint venturers agreed to confer certain specified benefits on Maritosa and to grant it an option to subscribe a further US$2.5m in exchange for a further 5 per cent participating interest. As will be seen, Maritosa did not meet its obligation to contribute US$5m and, subsequently, all parties agreed to discharge it from participation in the Joint Venture.[8]
[8] Exhibit P1 at p 922; Exhibit P2 at [28].
On 17 April 1996, the original SASE joint venturers entered into an agreement entitled “Technical Collaboration and Support Agreement” with PTKS under which PTKS agreed to provide the Joint Venture with certain technical services, advice and assistance in relation to the SASE Project.[9]
[9] Exhibit P1 at p 533.
Negotiations continued with Maritosa and PTKS between April and November 1996 culminating in the parties entering into a number of agreements. By a Memorandum of Understanding made on 14 November 1996 (the PTKS MOU), the original joint venturers and Maritosa invited PTKS to become a participant in the SASE Joint Venture by payment of the sum of US$7.5m in exchange for a 15 per cent interest. The PTKS MOU contemplated that the total sum of US$7.5m would be paid in three equal tranches of US$2.5m, with the first tranche to be paid within 14 days of the execution of the MOU, the second within 14 days after the appointment of a project manager for the demonstration phase of the Project, and the third on or before 31 March 1997. However, payment of the third tranche of US$7.5m was made optional, as cl 2.1.2 provided that if it was not paid by the stipulated date, PTKS would have a 10 per cent participating interest, and would not otherwise be deemed to be in default.
Under the PTKS MOU, the parties contemplated that PTKS would be entitled to certain benefits, including, in the event that a commercial plant was established, to have reserved for its use one million of the proposed two and a half million tonnes of pig iron envisaged as the output of the plant. In addition, cl 4.7 of the PTKS MOU provided for the entitlements of PTKS in the event that the SASE Project did not proceed to the establishment of a commercial plant. This provision is of some significance in the current proceedings. Clause 4.7 provided:
In the event that the SASE Joint Venture Project does not proceed to establishment of a commercial plant, the SASE Joint Venture will endeavour to render PTKS’ total cash investment approximately cash neutral in the manner set out in clause 4.7.1.
4.7.1Sufficient in situ ore iron ore and/or coal tonnage of a value approximately equivalent to $US5 million or US7.5 million as appropriate, shall be retained under the stewardship of MMESA or SASE Joint Venture participants as the case may be for a period of five years from the date that the SASE Joint Venturers decide not to proceed to establish such commercial plant, and at any time during such period PTKS or its nominee shall be entitled to obtain free of charge such equivalent value of Hawks Nest iron ore or coal of its choice, provided that extraction and transportation costs shall be paid for by PTKS and arranged by the SASE Joint Venture participants.
Clause 4.7 is somewhat awkwardly expressed but it can be seen that it contemplated that, in the event that a commercial plant was not established, the “SASE Joint Venture” was to endeavour to render PTKS’ total cash investment approximately cash neutral by retaining “in situ” under the “stewardship” of the Minister or of the SASE Joint Venture participants for a period of five years iron ore and/or coal tonnage of a value approximately equivalent to US$5m or US$7.5m, as the case may be, so that, at any time during that five year period, PTKS could obtain free of charge iron ore or coal of equivalent value to its contribution, provided that the extraction and transportation costs would be paid for by PTKS and arranged by the SASE Joint Venture participants.
The parties to the PTKS MOU agreed to enter into a new joint venture agreement on the same terms as the 1995 JVA but with amendments incorporating the essential terms of the PTKS MOU.
The 1996 SASE Joint Venture Agreement
Each of the original joint venturers, Maritosa and PTKS entered into a second agreement on 14 November 1996 entitled “SASE Joint Venture Agreement” (the SASE JVA).[10] This was the agreement contemplated by the Maritosa MOU and by the PTKS MOU. Under the SASE JVA, Maritosa and PTKS became participants in the SASE Joint Venture. The 1995 JVA, the Maritosa MOU, the PTKS MOU and other documents were annexed to the SASE JVA and the parties agreed that those annexures formed part of their Agreement (cl 2) and that the terms and conditions of the joint venture were those contained in the annexures (cl 1). The effect was that PTKS was bound to make at least the two payments contemplated by the PTKS MOU and cl 4.7 quoted earlier became part of the SASE JVA.
[10] Exhibit P1 at p 369.
Under a third agreement made on 14 November 1996 to which all entities were parties, the times at which Maritosa was to make its payments to the Joint Venture were varied.[11]
[11] Exhibit P1 at p 552.
On 2 December 1996, PTKS paid US$2,500,000 to the SASE Joint Venture being the payment of the first tranche of its contribution.
The Asian Financial Crisis, which occurred during 1997 affected the ability of Maritosa and PTKS to meet their respective obligations under the SASE JVA. In April 1997 the parties executed amending agreements extending the time within which Maritosa could make its contribution and within which PTKS could make its further contribution. However, Maritosa still did not comply with its obligations and, on 26 November 1997, all parties agreed that Maritosa should cease to be a participant in the SASE Joint Venture. It took no further part thereafter.
Incorporation of the Joint Venture
Shortly after entering into the SASE JVA on 14 November 1996, the Australian participants realised that an unincorporated joint venture had some shortcomings, particularly in the raising of finance. Further, the parties contemplated making an application to the Australian Government for a Research and Development Start Grant, and such grants could be made only to Australian resident companies. They sought advice on whether the SASE Joint Venture should be incorporated. In anticipation of that advice, SASE (originally known as Ausmelt-MML Pty Ltd) was incorporated on 16 September 1997.[12] In December 1997, Ernst & Young recommended that the SASE Joint Venture be incorporated and Gresham Partners recommended that the parties hold their respective interests in the SASE Project and in the demonstration plant through SASE.[13]
[12] Exhibit P2 at [26].
[13] Exhibit P1 at p 994.
On 10 December 1997, AusIndustry (a department of the Australian Government) approved a grant (the R & D Start Grant) to Felix, Ausmelt, the Minister and PTKS as joint venturers, and for the purpose of the SASE Joint Venture. The amount of the R & D Start Grant was 50 per cent of the eligible project expenditure for the SASE Project or $6,532,329, whichever was the lesser. This meant that the joint venture had to fund at least $6,532,329 from its own resources if it was to receive the maximum grant. The R & D Start Grant was subject to certain conditions. The negotiation of those conditions and the entry by SASE into an agreement with AusIndustry was delayed for a number of reasons, including the negotiation of the incorporation of the terms of the SASE JVA into the SHA and into the State Agreement. The agreement relating to the R & D Start Grant was not executed until 16 December 1999 and payment of instalments of the R & D Grant commenced shortly afterwards.
The decision to incorporate the SASE Joint Venture and to use SASE as the vehicle was made at a meeting of the Management Committee of the SASE Joint Venture on 12 January 1998. This meeting was attended by Mr Arthur as a representative of Felix, by three representatives of Ausmelt (including Mr McCammon, its Managing Director, and Mr Fogarty), three representatives from PTKS including Mr Bujang, then the Director of Technology within PTKS, and Mr Satrio, and by three representatives from the Department of Primary Industry and Resources (PIRSA) in South Australia representing the Minister. This was an important meeting as Mr Bujang was given assurances relied upon by PTKS in these proceedings to the effect that the entitlements and benefits of PTKS under the existing SASE JVA would be preserved and protected within the proposed incorporated structure. It will be necessary to return to the representations made at the meeting on 12 January 1998 and to their effect.
Subsequently, the Minister decided not to take up shares in SASE and instead to relinquish his interest in the SASE Project. He informed the other parties of this decision in February 1998. Nevertheless the Minister wished to encourage the Project and to facilitate its continuance. It was accordingly recognised that there would need to be two principal agreements: one regulating the relationships between the continuing joint venturers; and one regulating the relationships of the joint venturers with the Minister.
Shortly after 12 March 1998, Mr Fogarty, although remaining an employee of Ausmelt, was engaged by the Joint Venture participants to work on their behalf in achieving the incorporated structure and to conclude the negotiations with AusIndustry.
Mr Bridges from the Adelaide firm of Thomson Playford was engaged by another solicitor, Mr Cooper, on behalf of the Joint Venture participants to draft the SHA. Employees within PIRSA and lawyers within the South Australian Crown Law Office drafted the State Agreement. The drafting and negotiation of the terms of both Agreements was protracted. In the negotiations PTKS was at times represented by Mr Bujang (until July 1998), at other times (fom July 1998) by Mr Masduki (its Technical and Planning Director), at times by Mr Sutrisno (the President Director) and at times by Mr Satrio (an engineer in its Technological Planning Division). Mr Bujang was the principal representative engaged in the negotiations until July 1998. Mr Masduki was the principal representative thereafter. The parts played by Messrs Sutrisno and Satrio in the negotiation of the SHA and State Agreements appear to have been minor.
The negotiations continued over numerous meetings. There was also a considerable exchange of correspondence. In all, Mr Bridges prepared some nine separate drafts of the SHA. I am satisfied that in each successive draft Mr Bridges marked up the amendments which had been made to the preceding draft so as to make them readily identifiable.
During the negotiations Felix and Ausmelt agreed to the request of PTKS that the payment of its second tranche of US$2.5m should be made optional rather than obligatory. This meant that its payment of both the second and third tranches would be optional.
Eventually, on 12 March 1999, both the SHA and the State Agreement were executed. As noted earlier, the SHA was made an annexure to the State Agreement. I am satisfied that all parties intended, and appreciated, that the SHA and the State Agreement replaced the SASE JVA, including the PTKS MOU. The State Agreement contained an express provision (cl 3) to this effect, and the recitals to the SHA contained a statement to that effect.
The State Agreement
The parties to the State Agreement were the Minister, the Director of Mines, Felix, Ausmelt, PTKS and SASE. The principal elements of the State Agreement were the termination of the SASE JVA (including the annexures to that agreement) (cl 3.1); the relinquishment by the Minister of his interest in the Joint Venture (cl 5.1); the release and discharge of the Minister and of each of the parties from their respective rights, obligations and liabilities under the SASE JVA (cl 3.1); the conversion of the interests of Felix, Ausmelt and PTKS under the SASE JVA into a shareholding in SASE with their relationships to be governed by the Articles of Association and the SHA (cll 3.2, 3.3); the agreement of SASE to proceed with the SASE Project (cl 6.1); the agreement of all parties to use their best endeavours to complete the demonstration phase (cl 12); the agreement of the Minister to grant to SASE an exploration licence over an iron ore tenement in the Hawks Nest area (approx 120 km north of Kingoonya); the agreement of the Minister to grant to SASE an exploration licence in respect of a limestone deposit in the Watson area (approx 40 km west of Ooldea) (cl 6.1); the agreement of Felix, Ausmelt, PTKS and SASE to use their best endeavours to implement the “Demonstration Phase” of the SASE Project (cl 6); and the agreement of SASE to conduct and complete a final feasibility study (of the technical and financial viability or otherwise of the SASE Project) within five years from 12 March 1999 (cl 6.1).
The State Agreement was expressed to have a five year term commencing on the date upon which the Minister granted the exploration licences over the Hawks Nest area and the Watson area. Both of those licences were granted on 12 March 1999 (ELs 2587 and 2586 respectively) with the effect that the State Agreement would terminate, on its own terms, on 12 March 2004.
The Shareholders’ Agreement
By the SHA, also entered into on 12 March 1999, Felix, Ausmelt, PTKS and SASE agreed that the SASE Project would be continued through SASE and SASE was required to undertake the Project (cl 6). Each party agreed to transfer and assign to SASE all the right, title and interest of that party in such real or personal assets which were previously, and only to the extent that such assets were, owned by any of the parties as parties to the SASE Joint Venture; Ausmelt was required to make the Ausmelt Technology and other assistance available to SASE free of charge (cl 9); Felix was required to provide to SASE without charge “irrevocable access to a guaranteed supply of coal and other minerals” from the coal tenements which it held in South Australia (cl 10) (but SASE was to be liable for the mining and certain other costs); PTKS was required, amongst other things, to provide to SASE at competitive commercial rates technical services, advice and assistance agreed upon from time to time by the parties; and the parties agreed that they would use their best endeavours to ensure that the business of SASE was progressed to achieve four specified “Milestones”; namely:
(i)the investment of sufficient capital in SASE to enable it to build a demonstration plant to demonstrate the technical and commercial viability of the Ausmelt Technology (the First Milestone). This Milestone was to be deemed to be achieved only by the agreement of the parties;
(ii)the building and bringing into operation of the demonstration plant (the Second Milestone);
(iii)the completion of a final feasibility study for SASE by resolution of its Board. That resolution had to include acceptance of a test shipment of pig iron by a commercial steel producer in Australia or overseas (the Third Milestone);
(iv)the obtaining of sufficient capital or funds for SASE to enable the construction and commissioning of a Commercial Plant to produce pig iron using the Ausmelt Technology and the construction of such Commercial Plant (the Fourth Milestone) (cl 7).

The SHA also provided that until completion of the Third Milestone, no action would be taken in the management of SASE with respect to topics enumerated in cl 14.3 (described as “fundamental to the formation, structure and establishment” of SASE) without the unanimous approval of its Board.
Each of the State Agreement and the SHA provided for the entitlements of PTKS in the event that the SASE Project did not proceed to commercialisation, ie, to the construction and commissioning of a commercial plant producing pig iron using the Ausmelt Technology, in a manner to which reference will be made shortly. It is pertinent to note however that neither the SHA nor the State Agreement entitled PTKS to a form of monetary reimbursement in the event that the Project was not a success.
Following the execution of the SHA, the directors of SASE allotted shares to each of Felix, Ausmelt and PTKS with the effect that Felix held 350,000 B Class Ordinary Shares, Ausmelt held 350,000 A Class Ordinary Shares and PTKS held 50,000 C Class Ordinary Shares.
In summary, the effect of the execution of the State Agreement and of the SHA on 12 March 1999 was that the SASE JVA was terminated; the Minister ceased to be a party to the joint venture; each of Felix; Ausmelt and PTKS continued their interests in the SASE Project by taking a shareholding in SASE; PTKS obtained a 5 per cent shareholding in SASE; and, in the event that the Project did not proceed to the establishment of a commercial plant, PTKS had entitlements arising under cll 7.3 to 7.5 of the State Agreement and cl 11.2.5 of the SHA.
The SHA contemplated that the parties would seek a new shareholder or shareholders who would subscribe at the then prevailing market price for D Class Ordinary Shares giving it or them a 25 per cent interest in the company. The parties contemplated that upon 250,000 D Class Ordinary Shares being issued to a new shareholder or shareholders, each of Felix and Ausmelt would own 35 per cent of the shares in the company, the new shareholder or shareholders 25 per cent and PTKS five per cent. The parties also agreed in the SHA that even if new shares were issued, PTKS would be entitled to five per cent of all dividends declared by the company and a vote equal to five per cent of all votes which may be cast by the members of the company until such time as the Third Milestone was achieved.
The Amending Agreement of December 1999
It is unclear on the evidence what attempts were made after 12 March 1999 to attract a new shareholder or shareholders, but in any event, no new shareholder was obtained. Negotiations then occurred, principally between Felix and Ausmelt, with a view to Felix providing the necessary additional funding for the SASE Project to proceed. Eventually, on 29 September 1999 Felix and Ausmelt entered into a written agreement (the SASE Supplemental Agreement). The principal terms of the SASE Supplemental Agreement were:
(i)Felix would provide SASE with the funds necessary to secure payment of the R & D Start Grant to SASE and to undertake the demonstration plant phase of the SASE Project;
(ii)Ausmelt would transfer 300,000 of its Ordinary A Class Shares in SASE to Felix in exchange for the payment of $400,000;
(iii)SASE would issue and allot to Felix 250,000 Ordinary D Class Shares;
(iv)Felix would issue and allot to Ausmelt shares and options in Felix;
(v)Ausmelt was to provide the technical leadership in relation all activities of SASE during the design, construction and operation of the demonstration plant on the terms provided in the Shareholders’ Agreement [cl 7.1];
(vi)Felix agreed to appoint a project team to manage the demonstration plant stage [cl 7.2];
(vii)The project team was to use its best endeavours to resolve all technical issues in relation to the demonstration plant by consensus [cl 7.4];
(viii)Felix confirmed that it would make available to SASE in accordance with the provisions of the SHA a guaranteed supply of coal. It also agreed that when and if required to facilitate the financing of the SASE Project, it would cause title to coal of sufficient quantity and quality needed for the economically viable operation of the SASE Project to be transferred to SASE but with title to that coal to revert to Felix at no cost in the event that the SASE Project did not proceed to commercialisation [cl 10.3].
The effect of the arrangements contemplated by the SASE Supplemental Agreement was that Felix would own 90 per cent of the shares in SASE and each of Ausmelt and PTKS five per cent. In addition, the payment to SASE by Felix of $6.7m would enable SASE to meet a condition of the R & D Start Grant. For this purpose the consent of PTKS was required. Discussions to that end took place with representatives of PTKS.
Ausmelt and PTKS did agree to the deletion of cl 14.3. PTKS said that it did so in reliance on assurances given to Mr Sutrisno by Mr Arthur on 6 December 1999. It says that by causing the SASE Board to pass the resolutions on 22 November 2002, Felix did not honour those assurances. This was an important element in its oppression claims and it will be necessary to make more detailed findings about this aspect later.
For present purposes, it is sufficient to find that the Amending Agreement which effected the changes required by the SASE Supplemental Agreement was executed by each of Felix, Ausmelt and PTKS on 16 December 1999.
Construction and Operation of the Demonstration Plant
Following the execution of the Amending Agreement on 16 December 1999 SASE was able to satisfy the conditions of the R & D Start Grant. It executed the R & D Start Grant Agreement with the Australian Government on 16 December 1999 containing the conditions of a grant of $6,532,239.
Construction of the demonstration plant at Whyalla commenced on 7 February 2000 and was completed by 23 November 2000. The cost of construction was approximately $12.5m. This meant that the First and Second Milestones contemplated by cll 7.1 and 7.2 of the SHA had been achieved (although there was no evidence in these proceedings that the parties had agreed, as contemplated by cl 7.1, that the First Milestone had been achieved).
Operations at the demonstration plant commenced shortly after September 2000 and continued to 7 May 2002. On that day a fire occurred, damaging the Plant and necessitating its shutdown for repairs which were not completed until early September 2002.
Despite some initial difficulties in the demonstration plant’s operation, it did produce pig iron and, in particular, did produce a test shipment of pig iron of a quality acceptable by a commercial steel producer, as required for the Third Milestone in the SHA (cl 7.3). By early 2002, SASE was planning for the final feasibility study contemplated for the completion of the Third Milestone.
The Decision of Felix to Cease Funding the SASE Project
Mr Parker commenced as the Chief Operating Officer of Felix with effect from 7 January 2002. At that time Felix had incurred or committed approximately $20.6m in the operation of the demonstration plant and had incurred or committed an additional amount of approximately $1.8m for a preliminary feasibility study of the development of commercial iron-making operations by SASE. With the exception of the amount of US$2.5m which had been contributed by PTKS and the R & D Start Grant, the financing of the SASE Project had been provided entirely by Felix. In addition, Felix had incurred costs of approximately $6m in 2001 in constructing a trial coal pit at Ingomar. Mr Parker’s evidence about these matters was not contested and I accept it.
Mr Parker informed the Board of Directors of Felix on 29 January 2002 of his preliminary view that SASE was unlikely to achieve the development of a 2.5 million tonne per annum (mtpa) project in a single step, if at all. The Board then directed him to investigate, in addition, the feasibility of SASE developing a 0.5 mtpa smelter in conjunction with OneSteel Ltd (which also had operations at Whyalla) or, alternatively, of SASE developing a 0.5 mtpa stand-alone smelter.
The Directors of Felix discussed the SASE Project again at a “SASE Immersion Day” on 11 March 2002 and at their scheduled meeting on 13 March 2002. Recognising that OneSteel may not wish to participate in a feasibility study, Mr Parker recommended at that time that Felix should develop “a concurrent exit strategy”.
At the next Board meeting on 5 April 2002, Mr Parker confirmed his preliminary view that it was not commercially viable for SASE to develop a 2.5 mtpa smelter and recommended that Felix should focus solely on assessing the and commercial viability of SASE developing a 0.5 mtpa smelter. The Board noted that a joint business case analysis involving Ausmelt, OneSteel and Thiess (the contractor who had built the demonstration plant) was to begin on 15 April 2002 and was expected to take eight weeks. Mr Parker also reported on negotiations which had taken place with Ausmelt concerning possible future funding of the SASE Project.
Following the Board meeting, Felix lodged with the Australian Stock Exchange (ASE) a report which summarised the results of Mr Parker’s strategic review. The report (signed by Mr Arthur) contained the following:
As a result of the Strategic Review and given the current uncertainties in markets, the Company has decided that the most prudent project development strategy seeking to achieve the goal of a 2.5 mtpa pig iron business is to now focus on an initial 500,000 tpy commercial smelter module at Whyalla (the “SASE Project”) using commercially available third party coal and iron ore feeds.
This focused new approach will reduce initial Project capital costs scale-up and other risks. The Company anticipates that once a 500,000 tpy commercial pig iron smelter module is in operation, lower pig iron production costs may be achieved by switching to [Felix’s] own coal.
The first phase of this new focused approach, before deciding to commit further significant cash resources to the SASE project, is to develop, in cooperation with its strategic stakeholders, a thorough business case assessment that is targeted for completion by mid – 2002.
…
Upon the feasibility study confirming the viability of the SASE Project, [Felix] will then seek the necessary project funding with a view to the smelter being completed and commercial qualities of pig iron being produced in 2005 for domestic and overseas markets.[14]
[14] Exhibit P1 at p 4128.
On 12 April 2002, Felix sent to PTKS (addressed to Messrs Masduki and Supardi) a number of documents including a copy of Felix’s report to the ASE. The letter accompanying the documents included the following:
As you will see in the releases, a thorough business case study on a 0.5 Mt/a SASE smelter module is about to commence next week. This study is expected to be completed by mid – 2002. Upon a successful completion of the study, [Felix] intends to allocate the necessary capital for the next phase of the demonstration plant and complete the high intensity smelting test work program.[15]
[15] Exhibit P1 at p 4136.
By the time that the Directors of Felix next met on 30 May 2002, Mr Parker had concluded that the development of a 0.5 mtpa smelter by SASE was not commercially viable. He communicated that view to the Directors.
The business case analysis was completed in June 2002 and was presented to the Directors of Felix at their meeting on 25 June 2002. Mr Arthur informed the Board that the development of a 0.5 mtpa pig iron smelter at Whyalla was not economic for Felix and that realising value for SASE from the Project would be difficult. The Board resolved that Felix should cease funding further development of the SASE Project on a sole investor basis and should take the action necessary to facilitate the realising of value from its interest in SASE. It also resolved that Felix should reserve expenditure on the SASE Project to those areas which would facilitate the realising of value.[16]
[16] Exhibit P1 at p 4177.
On 28 June 2002, Felix announced to the ASE the effect of the decisions it had made on 25 June.[17] On the same day, Felix provided to PTKS (Messrs Sutrisno, Masduki and Supardi) a copy of its announcement to the ASE.
[17] Exhibit P1 at p 4203.
Events after June 2002
Mr Arthur’s employment with Felix terminated with effect from 1 July 2002. The cessation of his employment was prompted by the decisions made by the Board of 25 June 2002. Mr Arthur had been intimately involved in both the conception, negotiation and development of the SASE Project and had had a positive view, at least until the first part of 2002, of its prospects. Mr Parker was appointed as Managing Director in his place.
On 1 July 2002, Mr Parker wrote to PTKS proposing a meeting in Jakarta to discuss the future involvement of both Felix and PTKS in the SASE Project. That meeting took place on 29 July 2002. Prior to the meeting Mr Parker wrote to PTKS (Mr Sutrisno) alerting it to the discussions which Felix had had with Ausmelt with view to it increasing its participation in the SASE Project, and identifying some potential implications for PTKS. Felix wrote again to PTKS on 28 August. On 3 September 2002 PTKS responded to Felix by saying that it would continue in the SASE Project by maintaining its share ownership.
At about this time, Felix and Ausmelt began to firm up an agreement on transactions with the following principal elements. In exchange for a contribution by Felix of $1m, Ausmelt would allocate two million of its shares to Felix; Ausmelt would use the $1m to capitalise a subsidiary, AusIron Development Corporation (ADC); Ausmelt would grant to ADC perpetual and exclusive world-wide rights to the Ausmelt Technology; and SASE would transfer the SASE demonstration plant to ADC in exchange for a 21.5 per cent share of any licensing fees and royalties from the use of the Ausmelt Technology (together with an option to increase that share). The negotiated terms were incorporated in a draft Subscription, Transfer and Shareholders’ Agreement, described by the parties as the “Umbrella Agreement”. Felix kept PTKS informed of the negotiations.
At a meeting held by telephone on 22 November 2002, the Directors of SASE resolved to give effect to the arrangements referred to above. Mr Masduki participated in that meeting but dissented from the Board’s resolution. However, as PTKS had only a five per cent interest, he was outvoted. It was in this circumstance that PTKS regretted agreeing to the removal of the requirement for unanimous resolutions.
Subsequently, Felix, Ausmelt, SASE and ADC did enter into the formal documents contemplated by the Board’s resolution of 22 November 2002, and settlement of the respective transactions was effected on 16 April 2003.
It will be necessary to make more detailed findings concerning the events just described in relation to PTKS’ oppression claim.
PTKS’ Letters of Demand
Just over two years later, on 11 April 2005, solicitors for PTKS wrote to each of the defendants. The solicitors (Deacons) referred to cl 11.2.5 of the SHA and demanded that the defendants take whatever steps may be necessary to procure the availability of iron ore and/or coal reserves to the value of US$2.5m for PTKS. Deacons asserted that PTKS was ready, willing and able to procure the necessary infrastructure and resources to extract and/or remove the iron ore or coal. PTKS had, in fact, commenced the present proceedings on 11 March 2005, one month before Deacons issued the letters of demand.
Later, on 19 November 2008, PTKS issued separate proceedings alleging that the defendants had, in contravention of s 233 of the Corporations Act 2001 (Cth), engaged in oppressive conduct. By orders made on 3 June 2009, this Court ordered that the oppression claim be incorporated in the present proceedings.
Although PTKS appeared ultimately to place the most emphasis on its oppression claim it is convenient to consider first its other claims.
Claim in Contract: Alleged Breach of Express Terms
PTKS alleged that each of Felix and Ausmelt had breached cl 11.2.5 of the SHA by failing to procure SASE to take the steps contemplated by that clause by which its contribution of US$2.5m could have been rendered “approximately cash neutral”, and that each of Felix and Ausmelt had breached cl 15.3 of the SHA. It alleged, in the alternative, that SASE itself had breached cl 11.2.5. PTKS claimed that Felix by itself had breached cll 10.1, 10.2, 15.2.1 and 15.2.2 of the SHA, and that Ausmelt by itself had breached cl 15.1.5.
The Admissible Evidence
Because of its relevance to the rectification and misleading and deceptive conduct claims in particular, the parties adduced a considerable amount of evidence concerning their antecedent negotiations for the SHA. If PTKS’ claim had been confined to allegations of breach of the SHA, much of that evidence, in particular that concerning their subjective intentions, would not have been admissible.[18] The fact that the evidence was received in relation to the rectification and misleading and deceptive conduct claims does not mean that the evidence may be used in relation to the contractual claims.
[18] Cf Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [35]; (2004) 219 CLR 165 at 177-8.
The principle of objectivity by which the rights and liabilities of contracting parties are to be determined was recently affirmed by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd:
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[19] [Footnote omitted]
[19] Ibid at [40]; 179. See also Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [4], [322]; (2010) 264 ALR 15 at 21, 89 and the authorities therein cited.
The principles concerning the use of evidence of the parties’ negotiations in the construction of contracts were stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[20] in the following passages:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.[21]
Later authorities have made it clear that it is not necessary for a court first to identify some ambiguity in the parties’ contract before it can have regard to evidence of surrounding circumstances.[22] Hence, in construing the SHA, the Court should have regard not only to its text but also to the surrounding circumstances known to the parties and to the purpose and object of the transaction.[23] It should determine what a reasonable person would have understood the words used to mean. The Court should not have regard to the parties’ statements of their subjective intentions.
It is not necessary in these reasons to review more fully the principles appropriate to the construction of commercial contracts. I note the recent review by Allsop P and Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd. [24]
[20] (1982) 149 CLR 337.
[21] Ibid at 352.
[22] Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70 at [11]; (2001) 210 CLR 181; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22]; (2004) 218 CLR 451 at 462; Zhu v Treasurer of the State of New South Wales [2004] HCA 56 at [32]; (2004) 218 CLR 530 at 559; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]; (2004) 219 CLR 165 at 179; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3 at [8], [53]; (2008) 234 CLR 151 at 160, 174.
[23] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22]; (2004) 218 CLR 451 at 462.
[24] [2009] NSWCA 15 at [19]-[23], [239]-[292].
Features of the SHA

Some features of the SHA have already been noted. Clause 6 identified the business of SASE in the following terms:
The business of the Company is to evaluate the potential for and if considered appropriate, build and operate commercial facilities in South Australia to produce electrical power, pig iron and steel used in South Australian iron ore or concentrates South Australian coal and other South Australian minerals necessary for the Ausmelt Technology in the manner fully described in the proposal prepared by the Minister annexed hereto and marked “Schedule 4”.
Clause 7 committed the parties to use their best endeavours to ensure that the “business” of SASE was progressed to achieve the four Milestones identified earlier at [53]. Clause 8 required each of Felix, Ausmelt and PTKS to transfer to SASE those assets which each had previously held as parties to the SASE JVA. Clause 10 detailed the contribution required of Felix in the following terms:
10. FELIX’S CONTRIBUTION
10.1 [Felix] agrees to provide to the Company without charge the irrevocable access to a guaranteed supply of coal and or other minerals for the Project from [Felix’s] leases in South Australia as nominated from time to time by the Company in consultation with [Felix]. The only expense to the Company will be the costs of mining such coal and or other minerals (including operating costs, amortisation of capital costs and [Felix] management fee) as agreed between the Parties prior to incurring any such costs.
10.2 [Felix] agrees to take all such action and do all such things as are necessary to fulfil its obligations pursuant to clause 10.1 including maintaining good title to [Felix’s] exploration licences in South Australia and making application for any mining lease in accordance with the provisions of the Mining Act 1971 (SA).
10.3 [Felix] agrees to make available to the Company its mining and coal processing and power industry skills, its marketing, financing, management skills, personnel and contracts, corporate judgements and experience including without limitation all know-how, data and technology for use on the Project on a non-exclusive basis at competitive commercial rates as negotiated prior to the provision of such services. [Felix] shall arrange all mining and power generation activities on behalf of the Company and upon request of the Company shall take up under the provisions of the Mining Act 1971 (SA) such further licenses that become available and are of potential use to the company.
10.4 [Felix] agrees to provide to the Company without charge all necessary information which it posses in relation to [Felix’s] leases in South Australia to enable the effective and efficient mining of such leases including all geological and geochemical information in relation to such leases, subject to the Company first entering into an agreement on reasonable terms and conditions to keep all such information confidential.
Clause 11 provided for the contribution and entitlements of PTKS. In particular, cll 11.2.1 and 11.2.5 provided for circumstances in which PTKS could have access to raw materials. Clause 11.2.1 provided:
11.2.1PTKS shall have priority to negotiate in regard to access to raw material controlled by the Company and/or [Felix] and in particular to high grade iron ore/concentrate and coal supply (whether used in the Project or not), by way of long term take or pay contracts at special competitive prices.
Clause 11.2.5, which was at the heart of PTKS’ contract claim, provided as follows:
11.2.5in the event that the Company does not establish a commercial plant in South Australia and has good title to sufficient iron ore and coal deposits, the Company will endeavour to render PTKS’ total cash investment approximately cash neutral (which includes exploitation and transportation costs for the iron ore or coal to be mined) by ensuring that sufficient in situ ore and/or coal tonnage of a value approximately equivalent to $US2.5 million shall be retained under the stewardship of the Company as the case may be for a period of five years from the date that the Company decides not to proceed to establish such commercial plant, and at any time during such period PTKS or its nominee shall be entitled to obtain free of charge such equivalent value of Hawks Nest iron ore or coal of its choice, provided that direct cash cost for extraction and transportation shall be paid for by PTKS and arranged by the Company.
The parties agreed to “promote” the SASE Project to potential investors with the intent of issuing new shares in SASE so as to facilitate the achievement of the four Milestones (cl 12.1) and to enter into negotiations with each other, and with any new shareholder, to agree unanimously a program and budget for the completion of each Milestone (cl 13.1).
Ausmelt warranted that it would not “encumber, dispose of or otherwise deal with the patents in a manner that restricts their being fully available for the use for the purposes of the Company in accordance with this agreement” (cl 15.1.5).
Clause 15.2 contained warranties by Felix:
15.2 [Felix] represents and warrants that at the date of this agreement:
15.2.1it holds the exploration licences shown in Schedule 2 through its wholly owned subsidiaries Balhoil Nominees Pty Ltd or South Australian Coal Corporation Pty Ltd and that it will maintain these properties for the life of the Company subject to the terms of this agreement and relevant legislation and agrees that it will not dispose of a controlling interest in its wholly owned subsidiaries Balhoil Pty Limited and South Australian Coal Corporation Pty Limited during the term of this agreement or any agreement replacing or implementing this agreement; and that
15.2.2it will not encumber, dispose of or otherwise deal with any exploration licence or other interest held by it for the purposes of the Company under the provisions of the Mining Act 1971 (SA) in a manner that restricts their being available for use for the purposes of the Company in accordance with the agreement.
Clause 15.3, which was directed to the preservation of assets for the benefit of the SASE Project, applied to all parties:
15.3The Parties shall not encumber, dispose of or otherwise deal with any assets which are owned by them pursuant to this agreement or which are made available by them for the purposes of the Company in a manner that restricts the asset from being fully available for use for the purposes of the Company in accordance with this agreement.
The Claimed Breach of Clause 11.2.5
The opening words of cl 11.2.5 indicate that its operation depended upon the existence of two conditions precedent: first, SASE not proceeding to establish a commercial plant in South Australia; and, secondly, SASE having “good title” to “sufficient iron ore and coal deposits”. When enlivened, cl 11.2.5 obliged SASE to endeavour to render the US$2.5m investment of PTKS “approximately cash neutral”. It was to do so by ensuring that, for a period of five years from the abandonment of the SASE Project, sufficient iron ore and/or coal was retained in situ under its stewardship so that PTKS or its nominee, could, providing that it, or the nominee, paid the direct costs of extraction and transportation, obtain free of charge an amount of iron ore or coal which was approximately equivalent in value to the amount of its financial contribution.
Clause 11.2.5 did not entitle PTKS to be reimbursed a cash sum of US$2.5m. Instead, subject to the satisfaction of the two conditions precedent, it sought to secure a means of access by PTKS to iron ore or coal from which it could obtain, if it chose, amounts of those minerals which were approximately equivalent in value to its contribution.
It was common ground that the first condition precedent for the enlivening of the obligation under cl 11.2.5 existed: SASE did not establish the commercial plant contemplated by the Fourth Milestone in the SHA. It was also common ground that the five year period during which the obligation imposed by cl 11.2.5 applied had commenced at least by 22 November 2002, when SASE resolved to transfer the demonstration plant to ADC.
An Obligation Binding Felix and Ausmelt
At first blush, PTKS’ claim that Felix and Ausmelt have breached cl 11.2.5 faces the difficulty that it is SASE, and not Felix and Ausmelt, which is subject to the obligation created by that clause. However, in my opinion, cl 11.2.5 is to be understood in the context of the whole agreement of which it forms part, ie, an agreement by shareholders who had formerly been joint venturers. This suggests that it was intended to regulate the relationships between themselves by, amongst other things, imposing obligations on the shareholders. Further, to construe cl 11.2.5 as imposing an obligation on SASE only would have the effect of denying it a practical content: it would not bind SASE because it is not a party to the SHA; and it would not bind Felix or Ausmelt because it purports to place an obligation only upon SASE. The context and purpose of the SHA, which includes cl 4.7 of the PTKS MOU which it discharged, indicates that such a construction is inappropriate.
Accordingly I accept the submission of PTKS that cl 11.2.5 should be construed as requiring Felix and Ausmelt, once the circumstances enlivening its operation existed, to procure SASE to endeavour to render PTKS’ contribution cash neutral in the way for which the clause provides.
“Good Title” and a Mining Lease
The second condition precedent does however constitute a greater difficulty for PTKS. Apart possibly from the iron ore and coal which was actually used in the operation of the demonstration plant, SASE did not ever own, or otherwise have “good title” to, iron ore or coal. More importantly SASE did not ever have good title to “deposits” of iron ore or coal.
The exploration licences 2587 and 2586 respectively which the Minister had granted to SASE on 12 March 1999 were just that: exploration licences. They entitled SASE to explore for iron ore and limestone respectively but not to mine them.[25] In order to be entitled to mine, and thus to have title, SASE would have had to obtain a mining lease.[26] Even if SASE had held a mineral claim under Part 4 of the Mining Act, it would not have been entitled to remove iron ore or coal, as the case may be, exceeding one tonne in mass (s 25(2)), and could not have used any minerals from the areas to which the exploration licences related for any commercial or industrial purpose (s 25(3)).
[25] Mining Act 1971 (SA) s 28 and see the definition of “exploring” in s 6(1).
[26] Mining Act 1971 (SA) s 34, and see the definition in s 6(1) of “mining” and “mining operations”.
I find that during the negotiations for the SHA all parties understood that a right to mine, and therefore the existence of title, required the obtaining of a mining lease. The minutes of the meeting of the SASE Joint Venture Management Committee Meeting held on 28 and 29 April 1997[27] record that Mr Arthur explained expressly to those present, including Mr Bujang and a legal advisor retained by PTKS, that exploitation of the exploration licences held by Felix would require the grant of mining leases.[28] Mr Bujang gave evidence about that meeting which included an acknowledgement that Mr Arthur had given that explanation.[29]
[27] Exhibit P1 at p 587, 593.
[28] Ibid.
[29] Exhibit P15 at [26].
I find that Mr Bujang was aware even before 28 and 29 April 1997 of the significance of a mining lease in providing title to iron ore or coal. Mr Bujang gave evidence of a discussion occurring at a meeting towards the end of 1996 in which, given that there were then no developed mines, he had queried the access which would be available to PTKS to extract iron ore or coal. I accept that Mr Bujang said words to the following effect:
I can accept, for Krakatau Steel’s investment, the situation that the mines for the iron ore and coal are not yet developed – provided Krakatau Steel can be certain either that mining leases will be available to be allocated to Krakatau Steel or Krakatau Steel being allowed access to your deposits, so that we can get access for the purpose of extracting an amount of coal and/or iron ore that we have to agree on, in the event that the SASE Project does not proceed to commercial development.[30] [Emphasis added]
It can be seen that in this passage Mr Bujang himself distinguished between the title which a mining lease would provide, on the one hand, and means of access to iron ore or coal deposits, on the other.
[30] Exhibit P15 at [13].
Mr Arthur gave evidence (which I accept) that, as at March 1999 (and for that matter at any other time relevant to these proceedings) neither SASE nor Felix nor any subsidiary of Felix owned or controlled a mine.
In relation to iron ore, the parties contemplated that SASE could in time obtain good title. Under the terms of the State Agreement, the Minister granted SASE an exploration licence in relation to the iron ore deposits in the Hawks Nest area, making it possible for SASE to apply for a mining lease in relation to those deposits.
In relation to coal, the parties to the SHA contemplated that it would be Felix which would have the title, and not SASE itself (cl 10). From the very commencement of the negotiations for the SHA, Felix and Ausmelt had made it plain that:
The Ausmelt Technology and the coal licences are excluded from the Assets of both the Original Joint Venture and the new Company. This has previously been the agreed position and there is no negotiation on this issue. The iron ore and any other EL’s for limestone etc will become property of the Company.[31]
Despite the terms of that memorandum, Mr Bujang on behalf of PTKS proposed on 8 April 1998 that the draft of the SHA be amended to provide for the assignment and transfer by Felix to SASE of its exploration licences and tenements. Both Mr Arthur on behalf of Felix[32] and Mr McCammon on behalf of Ausmelt[33] firmly rejected that proposal. Mr Arthur pointed out that the coal deposits held by Felix were so extensive and so valuable that there was “no conceivable way” that SASE could give fair value to Felix if the coal assets were transferred to SASE. He also pointed out that the capital cost of establishing coal mines would not be to SASE’s account because it would not hold the coal licence and further, that it would only become liable for the cost of developing iron ore mines if it did hold iron ore licences.[34]
[31] Memo from Felix of 4 March 1998, Exhibit P1 at p 1245.
[32] Exhibit P1 at p 1355.
[33] Exhibit P1 at p 1353.
[34] Exhibit P1 at p 1356.
PTKS accepted that position and did not press for the transfer of the coal exploration licences to SASE.[35]
[35] As to the significance of express agreement by the parties that a particular stipulation should not form part of their agreement, see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; A Goninan & Co Ltd v Direct Engineering Services Pty Ltd (No 2) [2008] WASCA 112 at [38]; Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411 at 421-2.
It was the fact that SASE did not have title to any coal deposits which led to the insertion of cl 10.5 into the SHA by the Amending Agreement made on 16 December 1999. Clause 10.5 provides:
10.5When and if required to facilitate the financing of the Project, [Felix] shall cause title to coal of sufficient quantity and quality needed for the economically viable operation of the Project to be transferred at no cost to the Company. Title to the coal will revert to [Felix] at no cost in the event that the Project does not proceed to commercialisation.
As it happens, Felix did not ever transfer title to any coal to SASE for financing purposes as contemplated by cl 10.5. However, the insertion of cl 10.5 reflects the parties’ awareness that SASE did not have title to any coal, and their attempt to address the effect which that lack of title may have on the ability of SASE to raise finance from external financiers.
Does “Good Title” Mean “Right of Access”?
Accepting that SASE did not have a good title in any recognised sense of those words, PTKS argued that the words “good title” in cl 11.2.5 were to be construed as referring to the ability of SASE to call on Felix to provide access to iron ore or coal. It submitted that if SASE had required Felix to supply it (SASE) with iron ore or coal, Felix would have been obliged by cl 10.1 to comply. PTKS also put the submission slightly differently by arguing that the phrase “good title” included access by SASE to coal deposits over which Felix held mining leases.
PTKS submitted that in the light of the common understanding of the parties in the negotiations for the SHA that SASE would not own any coal deposits, at least until a decision had been made to proceed with the commercial plant, the expression “good title” must necessarily have been intended to connote something other than ownership if cl 11.2.5 was not to be understood as bestowing a hollow right only.
While I accept the premise for this aspect of PTKS submissions, the construction of cl 11.2.5 for which it contends involves a number of difficulties.
In the first place, the SHA itself distinguishes between “good title”, on the one hand, and “access” on the other, giving rise to the inference that those expressions were intended to have different meanings. Clause 10.1 required Felix to provide SASE with “irrevocable access” to a supply of coal or other minerals, whereas cl 10.2 required Felix to maintain “good title” to its exploration licences. Clause 11.2.1 granted to PTKS priority in negotiating “access” to all minerals controlled by SASE and Felix whereas cl 11.2.5 uses the expression “good title”. As noted earlier, cl 10.5 which was added in December 1999 required Felix to cause “title” to coal to be transferred to SASE if that was necessary for the financing of the SASE Project. Those differing provisions suggest that the words “access” and “good title” are used in the SHA with distinct meanings.
Although it may not strictly speaking be relevant to the issue of construction of the SHA, I note again that Mr Bujang himself distinguished between the concepts of title and access in the statement which he made at the meeting in late November 1996, to which I referred at [104].
Relevance of the State Agreement to the Meaning of “Good Title”
PTKS’ submission as to the construction of the word “title” also ignores an important matter of context, namely, the State Agreement into which the parties (and the Minister and the Director of Mines) also entered on 12 March 1999, and to which the SHA was an annexure. The State Agreement is important because it too contained provisions giving PTKS certain entitlements in the event that the SASE Project did not result in the establishment of a commercial plant.
Amongst other things, the State Agreement specified the terms upon which the Minister was withdrawing from the joint venture. The Minister was not to have an unconditional release from the obligations which he had accepted under the SASE JVA (which included cl 4.7.1 of the PTKS MOU) and the State Agreement was intended, amongst other things, to provide part of the protection which had previously been available to PTKS under the PTKS MOU.
Factual Findings Concerning the State Agreement
It is appropriate here to make some further factual findings. During 1996 Mr Bujang informed the parties to the 1995 JVA of the importance to PTKS, as a government owned entity, of having a mechanism in place which would allow it to recover the full amount of its proposed investment in the event that the SASE Project was not successful. At one meeting at least, both Mr Arthur and the Minister’s representative gave Mr Bujang assurances that, in the event that the Project did not proceed beyond a demonstration plant, PTKS would be able to recover its investment by extracting iron ore and coal to the value of its investment. I accept the evidence of Mr Arthur[36] and Mr Bujang[37] that assurances to this effect were given. Clause 4.7.1 of the PTKS MOU which was executed on 14 November 1996 gave expression to these assurances.
[36] Exhibit P2 at [20].
[37] Exhibit P15 at [13]-[14].

PTKS’ claim was that Felix’s failure to maintain a guaranteed supply of coal was a breach of the obligations to which it was subject under cll 10.1, 10.2, 15.2 and 15.3 of the SHA.
As noted earlier, there is a certain awkwardness in PTKS’ claim that conduct by Felix in its individual capacity amounts to conduct in the affairs of SASE which was oppressive of it. However, consideration of that awkwardness can be put to one side. I have found earlier that Felix was not in breach of the obligations imposed on it under cll 10.1, 10.2, 15.2 and 15.3 of the SHA. In the circumstances of this case, it cannot be oppressive of Felix or SASE to act in accordance with their own contractual entitlements.
In relation to Ausmelt, PTKS claimed that it had breached cll 15.1.5 and 15.3 of the SHA by transferring the Ausmelt Technology to ADC, thereby restricting the use of the technology for the purposes of SASE in accordance with the SHA. In other words, this particular simply repeats the allegations of breach of the SHA which PTKS had made against Ausmelt.
I addressed PTKS’ claims about these alleged breaches at [161]–[164]. I noted that PTKS had not made any oral or written submissions in support of those claims. I concluded that the claims should, in any event, fail. In those circumstances, I do not accept that the conduct of SHA which is impugned by PTKS can be oppressive of it.
Benefits
In its written opening for the trial, PTKS emphasised the benefits which each of Felix and Ausmelt had obtained from the transactions agreed upon on 22 November 2002, and contrasted those benefits with its own position. It contended that the unfairness resulting from the denial to it of access to iron ore and coal deposits was made stark by consideration of the advantages which each of Felix and Ausmelt had obtained from the abandonment of the SASE Project. In its written opening PTKS said:
That outcome [the decisions made on 22 November 2002] offered something for everyone, except PTKS. [Felix], as 90% shareholder and manager, secured the benefit of the tax losses that had accrued in SASE Pty Ltd, estimated at around $36 million: TB 12/229/4237. Ausmelt acquired the Demonstration Plant, the value of which was estimated by [Felix] to be $41 million: TB 12/229/4237. It may be noted that, if assets with a value in the order of $77 million ($36 million plus $41 million) were to be distributed, a 5% shareholder such as PTKS might expect to receive a benefit in the order of $3.85 million. Moreover, the Demonstration Plant was an asset of unique value to Ausmelt, given Ausmelt’s ownership of the Ausmelt Technology. In particular, regardless of whether the Ausmelt technology could be profitably applied to the production of iron, the Ausmelt technology had already been successfully applied to the production of other, non-ferrous metals. PTKS, on the other hand, was left with its 5% shareholding in SASE Pty Ltd, in circumstances where SASE’s only asset was a right to share in a stream of royalties and licensing revenues which have never materialised.
In short, PTKS alleged that Felix had secured the benefit of tax losses of around $36m and that Ausmelt had obtained a demonstration plant with an estimated value of about $41m. It asserted that a cash distribution to shareholders of assets of that value would have entitled it to a benefit of the order of $3.85m. The suggestion was that while it had been denied the opportunity of sharing in a form of distribution of the assets of SASE, each of Felix and Ausmelt had obtained valuable assets for themselves. Counsel for PTKS submitted that Felix and Ausmelt had engaged in a form of asset stripping.
It is necessary to address a number of aspects of this submission.
Tax Losses
As can be seen, PTKS claimed that Felix had “secured” the benefit of the tax losses which had accrued in SASE. That understanding of the position is not correct. Under the former s 80G of the Income Tax Assessment Act 1936 (Cth) Felix could not make use of the tax losses accrued in SASE. That is because SASE was not, and has not ever been, a wholly owned subsidiary of Felix. Unless a subsidiary is wholly owned, the tax losses are quarantined in the subsidiary and cannot be used by the parent company. In addition, in order to be able to make use of the tax losses, Felix would have to satisfy the “continuity of ownership”[122] and “continuity of business” tests.[123] Sub-division 170-A of the Income Tax Assessment Act 1997 (Cth) contains corresponding provisions.
[122] Income Tax Assessment Act 1936 (Cth) s 94G.
[123] Income Tax Assessment Act 1936 (Cth) s 94E.
Mr Parker ceased to be Managing Director of Felix in March 2006. He gave evidence (which I accept) that during his time in office, Felix had not, as a matter of fact, obtained the advantage of the tax losses in SASE and had not ever actively pursued obtaining a 100 per cent interest in SASE which would have been an essential requirement before it could do so.[124] I note that the possibility of Felix acquiring PTKS’ shares in SASE was touched upon in the correspondence between Messrs Masduki and Parker in October and November 2002, but the matter never proceeded to negotiations. PTKS did not ever give Felix an indication of the price it sought for its shares. Mr Parker had, in any event, suggested that any discussion about a share sale be deferred until circumstances were more favourable.
[124] T 340.
I also accept Mr Parker’s evidence that the prospect of Felix obtaining the benefit of tax losses in SASE was not a factor operating in his mind when he participated in the directors’ meeting on 22 November 2002.[125]
[125] T340, line 31.
In short, I am satisfied that Felix did not, and has not since, obtained any benefit from the tax losses accrued in SASE.
Other Benefits to Felix
In its final submissions, PTKS revised the benefits which it said Felix had obtained from the decisions made on 22 November 2002. It said that Felix was able to “walk away” from a Project which it no longer wished to pursue. It thereby avoided having to bear the whole cost of the feasibility study necessary for the completion of the Third Milestone. It rendered itself free to dispose of, or relinquish, the coal tenements without the restraints contained in the SHA.
The submission that Felix had “walked away” from the SASE Project is, in my view, simplistic. It is true that Felix was able to discontinue its funding of the SASE Project. However, this was not without cost. It subscribed $1m for shares in Ausmelt in order that Ausmelt could capitalise ADC. As noted earlier in these reasons, this effectively meant that Felix provided the funds by which the commercialisation of the Ausmelt Technology at the demonstration plant could be pursued.
Further, as already noted, Felix was not bound to continue funding the SASE Project at all, let alone once it was satisfied that the Project was no longer commercially viable. The agreements into which it and the other parties entered on 22 November 2002 did not have the effect of relieving it from an obligation to provide further funding. It had been able to make that decision for itself on 25 June 2002.
Understood in this way, Felix did not obtain from the transactions approved on 22 November 2002 the kind of benefits which typically provide a basis for oppression claims.
The Benefits Acquired by Ausmelt
In its final submissions, PTKS maintained the submission that Ausmelt had benefitted from the decisions made on 22 November 2002 because it had acquired the demonstration plant which had an estimated value at the time of $41m.
It is the case that SASE transferred the demonstration plant to Ausmelt’s wholly owned subsidiary, ADC and, in that sense it can be said that Ausmelt had acquired a valuable asset. However, I considered it surprising that PTKS maintained the submission that Ausmelt may thereby have obtained an asset valued at $41m. The only evidence to which PTKS referred in support of the suggestion that the demonstration plant had a value of $41m was the mention of that figure in the Powerpoint presentation made by Messrs Parker and Siregar to Messrs Sutrisno and Masduki on 29 July 2002. Under the heading “SASE” the Powerpoint referred to “assets comprising Demonstration Plant (A$41M), tax losses (A$36M)”.
However, there is simply no evidence at all indicating that the figure of $41m was used in the Powerpoint as an estimate of the value of the demonstration plant, and it is unlikely that it was. Neither Mr Sutrisno nor Mr Masduki claimed that they had been told that the demonstration plant had a value of $41m, and it was not suggested to Mr Parker in his evidence that any statement to that effect had been made. It seems much more probable that the figure of $41m reflected the total amount which had been spent in pursuit of the SASE Project to that time.
As already noted, valuers retained by Ernst & Young in November 2002 valued the demonstration plant on an existing use basis at A$3.3m and on an auction realisation basis at A$975,000. These are the estimates of value used by KPMG in the independent expert report which they prepared in February 2003. KPMG concluded that the transactions contemplated by the Umbrella Agreement were fair and reasonable to the non-associated shareholders of Felix. As the Ernst and Young figures were undoubtedly estimates of value and because they were relied upon in the independent experts’ report, it is much more appropriate to act on them, rather than the figure of $41m. PTKS did not in any event plead that the demonstration plant had been sold for less than its true value.
Further, it is highly improbable as a matter of commercial practicality that Felix would have agreed to the transfer to Ausmelt of an asset with a value of $41m in consideration of a share in a revenue stream, especially as Felix had itself to provide an additional $1m as part of an associated transaction.
Accordingly there is no basis upon which it can be concluded that Ausmelt obtained a benefit of the kind suggested by PTKS, and, in particular a benefit which involved oppression of PTKS as a shareholder in SASE. Rather the evidence which was put before the Court suggests that the transaction involved an exchange of fair value on each side.
Although evidence of what has occurred since November 2002 may not strictly speaking be relevant to this aspect of the claim for oppression, I do think it pertinent to note that the attempts of Ausmelt and ADC to “commercialise” the Ausmelt Technology at the demonstration plant had not been successful. I accept the evidence of Mr Abbott[126] that Ausmelt spent some $17m in pursuing that commercialisation but without success. Ausmelt then used the demonstration plant and the Ausmelt Technology for non-ferrous metals but that venture has not been successful. The demonstration plant is now mothballed.
[126] Exhibit D27 at [110].
This is not a case of PTKS being excluded from sharing in the fruits of successful commercial operations.
Aggregate Assets of $77m?
PTKS maintained in the final submissions the suggestion that if aggregate assets of SASE of the order of $77m were distributed in cash, PTKS as a five per cent shareholder could have expected to receive a benefit of the order of $3.85m, with the implication that because it had received nothing directly, this was evidence of oppression. Again, I found it surprising that PTKS maintained this submission.
The figure of $77m was said to comprise the $41m attributed to the value of the demonstration plant and the sum of $36m being the value of the accrued tax losses. For the reasons just given, it cannot sensibly be held that the demonstration plant had a value of $41m. The accrued tax losses of $36m are still in SASE. The evidence does not suggest that any attempt has been made to dispose of them in a way which disadvantages PTKS. The tax losses are not, in any event, available to be distributed in cash to SASE’s shareholders.
I specifically reject PTKS’ submission concerning asset stripping. He transactions contemplated by the resolutions of 22 November 2002 cannot reasonably be understood in that way.
Benefits to SASE
PTKS’ submissions tended to overlook the benefits which SASE itself obtained from the transactions.
By disposing of the demonstration plant, SASE relieved itself from paying the care and maintenance costs of approximately $250,000 per annum.
Perhaps more significantly, SASE obtained the agreement of ADC to repay half the amount due to the Australian Government in respect of the R & D Start Grant. That was a significant benefit because it relieved SASE from the liability to pay $832,500, and possibly the whole of the grant of $6.5m if the demonstration plant had simply been shut down.
Benefits to PTKS
PTKS complained that compared with the “benefits” which each of Felix and Ausmelt obtained, all it received was an indirect entitlement to five per cent of the 21.5 per cent which SASE could obtain from the revenue stream of ADC.
In this respect, it is to be noted that Mr Parker did raise with PTKS the possibility of it investing in either Felix or Ausmelt, but it chose not to pursue those options. It is also relevant in this respect that PTKS did not pursue any discussions with Felix in relation to the sale of its shares in SASE. In other words, PTKS has not itself taken any action to ameliorate its position as a five per cent shareholder in SASE, even though it has been provided with opportunities to explore some options by which it could do so. It has chosen to adopt a passive role. These circumstances also militate against a finding of oppression.
Retention of Status Quo
The PTKS claim of oppression has some curious features. In this section of the reasons, I note one of those features.
The PTKS complaints about the resolutions passed on 22 November 2002, and the agreements which were entered into and completed in consequence of those resolutions, really amounted to a claim that the status quo existing immediately before 22 November 2002 should have been maintained. That is because PTKS does not allege that transactions of a different form should have been adopted. It does not complain that Felix, Ausmelt or SASE failed unreasonably to adopt alternative courses of action open to them.
It is relevant to note what maintenance of the status quo would have involved. The SASE Project did not have funding as Felix had withdrawn its funding, neither Ausmelt nor PTKS were prepared to contribute further funds, and the parties had not been able to locate a new cornerstone investor or strategic partner. Maintaining the demonstration plant on a care and maintenance basis required the expenditure of approximately $250,000 per annum. If the demonstration plant was simply shut down, there was a real risk that the entire R & D Start Grant of approximately $6.5m would have to be repaid to the Australian Government. On the evidence, if that had been required, SASE would have become insolvent.
In those circumstances, it seems inevitable that the parties, as a matter of commercial reality, had to take some action to resolve the position. The sad fact was that the SASE Project was not a success and had occasioned losses to all parties. An oppression claim which asserts in substance that the status quo should have been preserved, despite the loss making nature of the Project, has accordingly an inherent difficulty.
Furthermore, it is difficult to see how an oppression claim in the circumstance that the SASE Project had been a failure could result in a Court ordering the defendants, or any one of them, to make a payment to PTKS amounting in effect to a reimbursement of its original investment. It was never contemplated that Felix and Ausmelt should be guarantors of the project, or of PTKS’ investment. PTKS’ original investment was made many years before the alleged oppressive conduct occurred, and, as noted, the Project to which the investment related had failed in circumstances which are not said to be oppressive. I agree with the submission of the defendants that PTKS has not shown any rational relationship between the circumstances giving rise to the loss of the value of its contribution to the SASE Project, on the one hand, and the relief which it claims in these proceedings, on the other.
The same point can be made in a slightly different way. PTKS did not establish a basis for the monetary award which it seeks as it did not establish that its shareholding in SASE had a value which was lost by reason of the oppressive conduct which it alleges. As Mr Masduki acknowledged, even before 22 November 2002, the value of PTKS’ shares in SASE was low. That circumstance is not said to result from oppressive conduct. PTKS has not established that there was any change in the value of those shares as a result of the impugned decisions made on 22 November 2002.
Conclusion on Oppression Claim
For the reasons just given PTKS’ claim of oppression fails.
Pervading Problem in PTKS’ Claim of Loss
A central proposition in a number of PTKS’ claims and, in particular, its oppression claim, is that it has not been able to recoup the US$2.5m contribution which it had made to the SASE Project by reason of the refusal or failure of SASE and Felix to grant it access to iron ore or coal deposits. As has been seen, it claimed that this was what was required by cl 11.2.5 of the SHA.
Alternatively, PTKS claimed that even if it was not entitled as a matter of contract to that access, Felix or SASE should in any event have provided it with that access. At one stage counsel for PTKS went further and submitted that Felix and/or SASE was positively obliged to endeavour to render PTKS’ investment cash neutral by retaining a stockpile of iron ore or coal for a period of five years (if it has such a stockpile on the abandonment of the Project), or by retaining any mining leases which it had over iron or coal deposits or, if it did not, by entering into arrangements with a third party so as to secure for PTKS access to a sufficient quantity of iron ore or coal which would meet the requirements of cl 11.2.5, and should then keep those arrangements in place for period of five years. As can be seen, obligations of this extent go well beyond those contemplated by cl 11.2.5.
Of significance, however, is that PTKS pursued its claims on the basis that if it had been granted access to coal deposits which were the subject of the exploration licences held by Felix, or to the iron ore deposits which were subject to the exploration licences held by SASE, it would, as a matter of fact, have been able to extract iron or coal of sufficient value so as to be able to recoup its original contribution as well as the extraction and transportation costs involved. PTKS did not adduce any evidence at all to support this fundamental implicit assumption for its claims. The evidence adduced by the defendants indicates that, even if PTKS had been granted access, it could not have extracted iron ore or coal profitably, and that any attempt by it to do so, would have caused still further losses. This evidence went to the heart of the losses alleged by PTKS and to the utility of the various causes of action which it pursued in relation to those alleged losses.
The defendants tendered a report from Mr Horn,[127] a qualified geologist with extensive experience in the mining industry. Between 1978 and 1996 M Horn was employed in various positions within PIRSA. I am satisfied that he is well qualified to express the opinions contained in his report. PTKS did not require him to attend for cross-examination.
[127] Exhibit D26.
Mr Horn was asked by the defendants to address a number of issues arising out of PTKS’ claim that SASE and/or Felix were obliged under cl 11.2.5 of the SHA to endeavour to render its contribution cash neutral in the way specified in that clause. Mr Horn addressed these issues by reference to the period November 2002 to November 2007. It was common ground that this was the five year period in which SASE and Felix would have been subject to the obligation imposed by cl 11.2.5, if its application had been enlivened.

I accept Mr Horn’s opinions. It is sufficient for present purposes to summarise his conclusions, without elaborating on the steps of reasoning which he gave for them. Mr Horn concluded:
(i)Of the various coal deposits which were subject to exploration licences held by Felix or its subsidiaries, the deposits at Lake Phillipson provided the most efficient and economically viable option for access by PTKS.
(ii)Because each of SASE and Felix held only exploration licences over the iron ore deposits at Hawks Nest and the coal deposits at Lake Phillipson respectively, mining leases and other regulatory approvals would have been required before those deposits could be mined.
(iii)It would have taken SASE and Felix a minimum of two years to have obtained a mining lease and the attendant regulatory approvals. Accordingly, had SASE or Felix initiated the processes necessary to enable the extraction of either iron ore or coal from Hawks Nest and Lake Phillipson respectively in the first quarter of 2005 (ie, at about the time that PTKS made its demand by the letters from Deacons), it is unlikely that mining would have commenced before the first quarter of 2007.
(iv)The capital and operating costs incidental to the extraction of US$2.5m worth of iron ore, if that had commenced in 2005, would have been a minimum of A$21m (US$15m).
(v)The capital and operating costs incidental to the extraction of US$2.5m worth of coal, if that had commenced in 2005, would have been a minimum of A$25m (US$18m).
(vi)Although estimates of an ex mine gate value for iron ore and coal are difficult, estimates of A$65 per tonne for iron ore and A$24 per tonne for coal are reasonable. This means that 54,000 tonnes of iron ore, or 146,000 tonnes of coal, would have had to be mined in order to provide the equivalent in value of US$2.5m.
(vii)If the full capital and operating costs incidental to the provision of iron ore or coal in those quantities were to be recovered through the extraction of additional iron ore or coal, a minimum of an addition 320,000 tonnes of iron ore, or an additional 1m tonnes of coal, as the case may be, would need to be mined. The extraction and transportation of that additional tonnage would also involve significant additional operation costs.
On the basis of these opinions it can be seen that even if SASE and Felix acted with expedition upon receipt of the letters of demand in April 2005, and thereafter, PTKS would not have been able to obtain access to iron ore or coal until early 2007. It would then have had only until November 2007 in which to extract the iron ore or coal, before SASE or Felix, as the case may be, ceased to be obliged to continue to hold the deposits for its benefit.
Perhaps more fundamentally, Mr Horn’s report indicates that it would not have been economic for PTKS to exercise the entitlements under cl 11.2.5, if they were otherwise available to it. This is illustrated very clearly in the analysis made by the defendants’ counsel using the costs’ estimates made by Mr Horn. That analysis indicated that the cost per tonne of extracting, transporting to port, and loading iron ore onto a ship would have been A$75.35 per tonne, compared with an ex mine gate sale value of A$65 per tonne for iron ore. For coal, the equivalent costs were estimated at A$60.55 per tonne compared with an estimated ex mine gate sale value of A$24 per tonne. PTKS did not dispute this analysis.
This means that PTKS (which was liable under cl 11.2.5 to pay the direct cash costs of extracting and transporting the iron ore or coal involved) would have incurred losses if it had attempted to exercise an entitlement under that clause. Further, the more iron ore and coal it extracted, the greater those losses would have been. This was the case throughout the relevant five year period.
I am satisfied that PTKS, acting with ordinary commercial prudence in its own interests, would not have sought to invoke rights under cl 11.2.5 in those circumstances.
Mr Bujang was aware, during the course of the negotiation of the SHA that the exercise by PTKS of rights under the proposed cl 11.2.5 would not be economic. In his first affidavit Mr Bujang said:
At the time I made the changes to Article [11.2.5] [in May 1998], I knew that the cost of extracting and exploiting such iron ore or coal would far exceed the amount of Krakatau Steel’s USD$2.5m investment. However, what I had in mind was that if we were forced into the situation to protect our investment as the Agreement provided, then it was my intention to apply to South Australian Government for mining rights, not only to recover our investment, but to commercially exploit mining opportunities in South Australia. It was my belief that Krakatau Steel had been well received by the South Australian Government, and that our research and investment had been valued, and as such I was quite confident that if the situation arose, an application by Krakatau Steel to mine in South Australia would be well received by the South Australian Government.[128]
Two points can be made about this evidence. First, as already noted, Mr Bujang well knew that cl 11.2.5 created an entitlement which, considered by itself, could not be economically exploited and yet chose to have PTKS proceed on the basis of it. Secondly, Mr Bujang contemplated that PTKS could take advantage of the entitlement in cl 11.2.5 only by obtaining from the South Australian Government a larger entitlement.
[128] Exhibit P15 at [40].
In his cross-examination Mr Bujang acknowledged on several occasions that he was aware during the negotiations for the SHA that it would not be economic for PTKS to seek to recoup the amount of its contribution by taking iron ore or coal if it was confined to recovering US$2.5m in value only:[129]
[129] See T144, line 37–T145; line 16; T146, lines 6-17; T147, lines 10-23;T180, line 20–T181, line 11; T184 line 17–T185, line 7.
Mr Bujang acknowledged that PTKS has not sought some larger entitlement from the South Australian Government. As noted earlier, although warned in August 2003 of the imminent expiry of the State Agreement, and of the prospect that the State Government may be prepared to negotiate some extension or renewal of the exploration licences, Mr Bujang (who was then President Director of PTKS) took no action on that warning, did not seek an extension or renewal of any exploration licences, and has not since made any application to the State Government.
In these circumstances, it is difficult to see how PTKS has suffered a loss as a result of any of the conduct or omissions of which complains in these proceedings. The submissions made on behalf of PTKS did not provide an explanation. It cannot be said that PTKS has lost the opportunity to make an application to the State Government, or indeed any other commercial opportunity.[130] Even after the expiry of the State Agreement, it has been open to PTKS to approach the State Government in relation to the exploitation of iron ore or coal resources in north-west South Australia.
[130] Cf Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 167-168.
In their letter of demand of 11 April 2005 to the defendants, Deacons said:
Accordingly, we now demand that your Company take whatever steps that may be necessary on its part to procure iron ore and/or coal reserves to the value of US$2,500,000 such that those reserves might be made available to PTKS. On reasonable notice, our client is ready, willing and able to procure the necessary infrastructure and resources to extract and/or remove the iron ore and/or coal.[131]
Given the acknowledgement of Mr Bujang the President Director of PTKS that it would not have been economic to do so, this statement of PTKS’ willingness and preparedness can now be seen to have been hollow.
[131] Exhibit P1 at p 5235.
I add that Felix and Ausmelt were aware that cl 11.2.5 would not in practice provide much by way of benefit to PTKS. In a joint letter dated 6 January 1999 to PIRSA from Mr Arthur (Felix) and Mr McCammon (Ausmelt) they said:
… We are of the view that opening up a mining operation to extract $2.5m, or even $5m worth of iron ore would not be commercially viable in any circumstances. On this basis it is highly unlikely that PTKS would ever claim under the guarantee clause.[132]
[132] Exhibit P1 at 1923-4.
At one stage I was troubled by the fact that, despite holding those views, Mr Arthur, on his own account, had repeatedly reassured Mr Bujang and others in PTKS that cl 4.7.1 of the PTKS MOU and cl 11.2.5 of the SHA would protect its position in the event that the SASE Project did not proceed. I considered it possible that this was one respect in which PTKS had been misled. However, Mr Bujang’s admission that he himself knew that the entitlements under cl 11.2.5 could not be enforced economically, together with the fact that PTKS obtained its own legal advice in relation to cl 11.2.5, have led me to conclude that even if Mr Arthur’s conduct was misleading, it has been of no consequence.
The conclusion that PTKS could not have recouped its contribution of US$2.5m by mining iron ore or coal in northwest South Australia has a further consequence. It is difficult in these circumstances to see how any of the claims of PTKS which are founded on the alleged failure of the defendants to allow it to recoup the value of its investment by extracting iron ore or coal could justify the relief claimed by PTKS, ie, the payment of a monetary sum of US$2.5m. This is a further reason why the claim of PTKS fails.
Conclusion
In summary, I do not consider that PTKS has made good any of the bases upon which it made its claim. Nor do I consider that it has established a loss or detriment justifying the relief which it seeks.
For the reasons given above, I dismiss the claim of PTKS.