Sacca v Starink
[2000] WASC 182
•18 JULY 2000
SACCA -v- STARINK [2000] WASC 182
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 182 | |
| Case No: | CIV:2247/1997 | 26 MAY - 1 JUNE 2000, 19 JUNE - 23 JUNE 2000 | |
| Coram: | PIDGEON J | 18/07/00 | |
| 41 | Judgment Part: | 1 of 1 | |
| Result: | Claim dismissed | ||
| PDF Version |
| Parties: | JOSEPH SACCA JON STARINK |
Catchwords: | Contracts Contract to pay a success fee if a company was listed on the Stock Exchange Whether a variation or discharge of that contract Whether an agreement to pay promoter shares in addition to a success fee Turns on own facts |
Legislation: | Nil |
Case References: | Nil ANZ Banking Group v Westpac Banking Corporation (1988) 164 CLR 662 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Baltic Shipping v Dillon (1993) 176 CLR 344 Brenner v First Artist's Management Pty Ltd [1993] 2 VR 221 Chandler Bros Ltd v Boswell [1936] 3 All ER 179 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 H Dakin & Co Ltd v Lee [1916] 1 KB 566 Hoenig v Isaacs [1952] 2 All ER 176 Jackson v Rotax Motor and Cycle Co [1910] 2 KB 937 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Pordage v Cole (1669) 1 Wms Saund 3191 Purcell v Bacon (1914) 19 CLR 241 Steele v Tardiani (1946) 72 CLR 386 Sumpter v Hedges (1898) 1 QB 673 Williamson v Commonwealth (1907) 5 CLR 174 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
JON STARINK
Defendant
Catchwords:
Contracts - Contract to pay a success fee if a company was listed on the Stock Exchange - Whether a variation or discharge of that contract - Whether an agreement to pay promoter shares in addition to a success fee - Turns on own facts
Legislation:
Nil
Result:
Claim dismissed
(Page 2)
Representation:
Counsel:
Plaintiff : Mr S Owen-Conway QC & Mr P T Kakulas
Defendant : Mr R E Keen
Solicitors:
Plaintiff : Godfrey Virtue & Co
Defendant : Zilkens & Co
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
ANZ Banking Group v Westpac Banking Corporation (1988) 164 CLR 662
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Baltic Shipping v Dillon (1993) 176 CLR 344
Brenner v First Artist's Management Pty Ltd [1993] 2 VR 221
Chandler Bros Ltd v Boswell [1936] 3 All ER 179
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
H Dakin & Co Ltd v Lee [1916] 1 KB 566
Hoenig v Isaacs [1952] 2 All ER 176
Jackson v Rotax Motor and Cycle Co [1910] 2 KB 937
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Pordage v Cole (1669) 1 Wms Saund 3191
Purcell v Bacon (1914) 19 CLR 241
Steele v Tardiani (1946) 72 CLR 386
Sumpter v Hedges (1898) 1 QB 673
Williamson v Commonwealth (1907) 5 CLR 174
(Page 3)
1 PIDGEON J: The plaintiff is claiming a success fee of $400,000 which he claims is payable to him by the defendant as a result of a company, Adelong Consolidated Gold Mines NL, being listed on the Australian Stock Exchange. The plaintiff is, in addition, claiming that the defendant transfer to him 2,500,000 shares in that company on account of promoter shares which he claims were promised to him by the defendant in the event of the company being listed.
Circumstances leading to the arrangement between the parties
2 The plaintiff first met the defendant in November 1995. The plaintiff had heard about some goldmining tenements in an old mineral field near Adelong east of Wagga Wagga in New South Wales. Two of these tenements were being held by an estate of which the defendant was the agent. A further tenement was held by a company, Mining Management Services Pty Ltd, which was owned and controlled by the defendant and his partner, Mr Clark. In addition, companies owned and controlled by the defendant and Mr Clark held a number of tenements in the Northern Territory. The plaintiff had heard that the tenements had been sold but that the purchaser could not raise the money and, accordingly, they may again be available for sale. The defendant, in his evidence, confirmed that there was litigation in the Northern Territory as a result of the attempted sale of the tenements and the floating of a company to acquire the tenements. The plaintiff was told of the prospect by an acquaintance of one of the litigants.
3 The plaintiff, on hearing that the tenements might again be available for sale, was interested in obtaining them for a company, King Mining NL, of which Mr John Rodgers was the managing director. The plaintiff, by conducting searches, ascertained that the defendant, who was then a stranger to him, was the person to contact. In early November 1995, the plaintiff, who lived in Western Australia, rang the defendant who lived at Bungendore, New South Wales, which is a town in New South Wales some 30 kilometres from the Capital Territory. It was agreed that the plaintiff and Mr Rodgers would fly to Canberra to meet the defendant. On 9 November 1995 the plaintiff and Mr Rodgers flew to Canberra and were met at the Canberra Airport by the defendant and driven to his home in Bungendore. They spent the day discussing the tenements. Mr Rodgers expressed interest on behalf of his company and it was agreed that he would make further contact with the defendant. The plaintiff was not interested in those tenements which were in the Northern Territory but
(Page 4)
- the defendant said that they must be all dealt with together and this was accepted.
4 There is, however, a significant divergence in the evidence of the parties as to what happened in the weeks following. It would be sufficient to say, at this stage, that Mr Rodgers subsequently advised the defendant that his company, King Mining NL, was no longer interested in acquiring the tenements and this resulted in discussions between the defendant and the plaintiff.
5 The plaintiff's evidence was that when the defendant ascertained that King Mining NL was no longer interested in acquiring the tenements, the defendant asked the plaintiff if the plaintiff could arrange for a company to be floated on the basis that the company would acquire the tenements at 80 per cent of their value. The defendant had indicated that the tenements had been independently valued at $1.1 million and that he was prepared to sell the tenements to a public company for 80 per cent of their valuation. The plaintiff's case was that the plaintiff would arrange for a public company to be floated and listed on the Australian Stock Exchange and for this purpose the plaintiff would arrange for the necessary underwriting. The plaintiff would also arrange for a further independent valuation and the preparation of the prospectus. He was also to provide some seed capital. It was agreed at an early stage that if the plaintiff carried out or caused to be carried out his part of the task and if the company was successfully floated the defendant would pay the plaintiff a success fee of $400,000 in a manner to which I shall later refer. The plaintiff needed the help of other persons to carry out his task and it is the plaintiff's case that the defendant agreed that promoter shares would be issued to enable the plaintiff to reward these persons in the event of a successful float.
6 Subject to four qualifications the parties were on common ground as to these matters stated in this broad fashion. The first qualification is that there is a conflict of evidence as to the meetings when these matters were discussed and as to how the agreement was reached. The second qualification is that the defendant claims that the success fee would not be payable unless the plaintiff did everything that he agreed to do and it would not be sufficient to claim the success fee if the company had been registered, but the defendant had not done all that he said he would do. The third qualification is that the defendant claims that there was never an agreement to issue promoter shares to the plaintiff for the purpose of rewarding those who assisted him. The defendant claims that the plaintiff was at liberty to obtain such assistance but the persons assisting him were
(Page 5)
- to be paid by the plaintiff out of his success fee. The fourth qualification is that the plaintiff claims he received the impression that at this stage the plaintiff was the only person with whom the defendant was dealing. The defendant, on the other hand, was trying to sell the tenements to the most satisfactory purchaser he could find and it would appear that he was doing this from the conclusion of the litigation in the Northern Territory. The defendant regarded the plaintiff as one possible purchaser. He was advertising the tenements for sale and was negotiating with other possible purchasers and would have sold the tenements if such a purchaser could have been found.
7 The parties had a meeting on 23 April 1996, which was an important meeting as it established at least some of the matters on which the parties had agreed by that date. Before dealing with that meeting I shall mention a number of matters which developed. The first is that the plaintiff would not have been able to do what he said he would do on his own and it was necessary for him to obtain assistance. There were two persons, in particular, whom the plaintiff arranged to assist him. The first was Mr Luff, who had extensive experience in the promotion of mining companies and had known the plaintiff for some time. Mr Luff suggested that they obtain the services of Mr Higginson, who was also known to the plaintiff. Mr Higginson had previously worked for the Stock Exchange and ran a company, Corporate Services (WA) Pty Ltd. Mr Higginson became the secretary of the company. At a meeting between the plaintiff, Mr Higginson and Mr Luff, Mr Higginson said that he would be prepared to prepare the prospectus for a fee of $15,000 and for that fee he agreed to draft the prospectus and obtain a valuation of the mining tenements and organise any professional advisers necessary.
8 The plaintiff originally had in mind using one of his shelf companies, Kimberley Resources. The plaintiff was a director of this company, but it was agreed between the plaintiff, Mr Luff and Mr Higginson that it would be better for the plaintiff's name not to appear in any prospectus as the plaintiff had been associated with some failures that occurred in the previous decade. It was arranged that a new company bearing the name Kimberley Resources would be incorporated with Mr Higginson as secretary. The plaintiff contributed $30, 000 initial capital to be used as seed capital. During the course of the earlier unsuccessful sale persons independently of the defendant instructed Terence Willsteed and Associates, consulting mining engineers, to provide a valuation. The
(Page 6)
- plaintiff decided to obtain his valuation by asking Mr Willsteed to confirm or update the earlier valuation and there is no dispute that it was open to the plaintiff to follow this course. The plaintiff and those assisting him also decided, at a slightly later time, to ask Mr Lewis, a man of considerable mining experience, to be chairman of the company. The plaintiff, at about the time Mr Lewis was approached, also approached Mr Stuart Haywood and asked him to become a director. The plaintiff had worked with Mr Haywood in promoting companies for over 10 years and he considered that he would be an asset to the float.
9 The plaintiff contemplated paying the persons he had engaged to assist him by having issued to them promoter shares. At an early stage he asked the defendant to issue promoter shares, such shares to be issued to the plaintiff for distribution at his discretion. It becomes an issue whether the defendant ever agreed to issue promoter shares of any description. The plaintiff told the persons he had engaged to assist him that he would pay them by distributing to them the promoter shares he was to receive.
10 The tenements were to be transferred to the company and the consideration was to be paid by a cash payment of $500,000 and the balance of the purchase price was to be discharged by the issue of shares to the vendor's. The plaintiff's success fee of $400,000 was to be paid to him by the vendor's either in cash or by the vendors transferring to him, from the shares they were to receive for the purchase price, shares to the value of $400,000.
11 At one of the meetings in the earlier part of March the defendant was introduced to Mr Lewis, the proposed chairman. It was agreed that the plaintiff and Mr Lewis would inspect the site of the tenements at Adelong and this inspection took part in the latter part of March 1996. The defendant said it was 21 March and the plaintiff thought it a little later. The plaintiff and Mr Lewis flew to Wagga Wagga, the nearest airport. The defendant met them and they inspected the sites. The plaintiff said that the next day he, Mr Lewis and the defendant met with brokers in Sydney to discuss the proposed float and that the defendant said the promoter's would receive 2,500,000 shares to be distributed by the plaintiff at his discretion. This meeting will be examined further when I deal with the issue of promoter shares.
Meeting 23 April 1996
12 It is common ground that the plaintiff and the defendant met in Perth on 23 April 1996 and that, following this meeting, the plaintiff and the
(Page 7)
- defendant were of the one mind in respect of most things with the exception of the promoter shares. There is a dispute as to whether there was agreement on that question. Agreement on a number of matters had been reached earlier because by 23 April the plaintiff had been carrying out his part of the agreement. He had by that time created the framework of the company which was to be used and had obtained office bearers. He had been consulting a number of stockbrokers and investors with a view to obtaining support.
13 The defendant, on 25 April 1996, sent a letter confirming the arrangements (exhibit 13 - Judge's papers Vol 9, p 3100). The letter was addressed to Kimberley Resources NL marked to the attention of the plaintiff. It read:
"Dear Joe
25 April 1996
I refer to my fax dated 3 April 1996 and our further discussions in Perth on 23 April 1996.
I would like to confirm that I am authorised to act for Hilltop Enterprises Pty Ltd, Driffield Mining Pty Ltd and Julka Pty Ltd in relation to the conduct of further negotiations to finalise agreement for the sale of interests in gold mining tenements and the right to mine gold owned by these companies to Kimberley Resources NL ('Kimberley').
I would like to confirm our current understandings:
. Kimberley is to be listed on the ASX as soon as is practicable upon finalisation of appropriate underwriting agreements,
. Subject to listing, Kimberley would acquire all of the interests held by Hilltop in the Woolgni tenements and the Woolgni Joint Venture, all of the interests held by Driffield in the Wolfram Hill, Mountain View and Last Hope group of tenements (or applications for tenements as the case may be), all of the interests held by Mining Management Services Pty Ltd on behalf of Julka Pty Ltd in the Adelong project and all of the interests owned by Robinson's Estate in the Adelong project,
(Page 8)
- . Kimberley would not acquire any other interests in mining tenements from third parties,
. Kimberley will change its name to something more appropriate, like Adelong Gold Mines or similar, to reflect its major interests,
. I and Geoff Clark would be appointed to the Board of Kimberley following execution of appropriate documentation and I would be appointed as Managing Director,
. Aside from these appointments only Stan Lewis and Stuart Haywood would be appointed with the former appointed as non-executive Chairman,
. You will do all things necessary to arrange seed capital, prepare the draft prospectus and arrange underwriting,
. I will assist in the preparation of documentation, presentation to prospective underwriters, conduct of site visits and the like as required to facilitate the conclusion of an underwriting agreement,
. Driffield, Hilltop and Julka (or as they may direct) will be allotted Vendor Shares equivalent in value to the aggregate Independent Valuation less the consideration to be paid to Robinson's Estate,
. Robinson's Estate will be paid in cash up to a value of $500,000. In the event the consideration for the interests of the Estate exceeds $500,000, the balance of the consideration exceeding $500,000 will be paid be [sic] way of allotment of Vendor Shares
As you know I am about to enter hospital for surgery and will be generally unable to assist for the first few weeks of May.
Final agreement remains contingent on agreement of Robinson's Estate, suitable indication of underwriting and a final review of the Independent Expert's valuation.
I trust the foregoing is satisfactory and reflects our present understandings.
(Page 9)
- Regards
Jon Starink"
14 The plaintiff's position is that what is set out in the letter are matters that were agreed, but that the letter did not set out everything which had been agreed. The letter itself did not refer to the plaintiff's success fee, but this was referred to in the fax of 3 April 1996, one of the documents mentioned in the letter. This fax said that the consideration for the transfer of the tenements to the company would be 80 per cent of the independent valuation. The next matter referred to in the fax was that the vendors were to be paid $500,000 in cash to go to the estate and the balance of the purchase price would be discharged by the issue of vendors' shares. The fax said:
"From this consideration will be deducted an amount of $400,000 which would be paid by the vendors to the promoter in vendors' shares (2 million shares)."
15 It was contemplated that these shares would be issued at 20 cents making their value $400,000. It is clear that the word "Promoter" in the context of this fax referred to Mr Sacca. It was the defendant's case that that word was used in that fax in that context to make it clear that it was to discharge the obligation to all those who assisted the plaintiff.
16 The plaintiff in referring to the letter of 25 April said: (TS193)
"That letter accurately summarises our agreement, except that it does not refer to the payment of $400,000 cash or shares I was to receive and does not refer to the promoters shares. This didn't surprise me because I didn't expect any reference to my payment or the promoters shares as it is a public letter and it was inappropriate to have the payments to me disclosed."
17 It does not matter that the success fee of $400,000 was not mentioned in the letter as it had been made clear in the fax of 3 April that the success fee was to be $400,000.
18 It was agreed, as mentioned in the letter of 25 April, that the plaintiff would arrange for the company to change its name. This was done on 7 June 1996 when the name of the company was changed to Adelong Gold NL. There was a further change on 8 October 1996 when the name was changed to Adelong Consolidated Gold Mines NL.
(Page 10)
19 Other matters agreed at the meeting of 23 April were that both the defendant and his partner, Mr Clark, were to be appointed as directors. It was confirmed that Mr Lewis would be chairman and that Mr Stuart Haywood would be appointed to the Board. The plaintiff said that it was also agreed that once the company was listed the plaintiff should be paid his expenses.
The Claim for Promoter's Shares
20 The question is whether prior to 23 April 1996 the defendant agreed with the plaintiff that if the float were successful the plaintiff would receive the promoter shares over and above shares or cash for his success fee. The plaintiff said that shortly after he returned from Canberra, after first meeting the defendant in Bungendore in early November 1995, he spoke to Mr Luff. He told Mr Luff of the tenements and of the possibility of forming a company to acquire them if King Mining did not proceed with them. It was then that Mr Luff recommended that they obtain Mr Higginson's assistance. They asked Mr Higginson to prepare a preliminary plan. The plaintiff said that he had a discussion with Mr Higginson sometime in January 1996. He told Mr Higginson that there must be promoter shares to "compensate people who are going to work for us" (T/S 144). The plaintiff said the question was also discussed with the defendant also in January 1996. He said the following was said (T/S179):
"…John Starink said to me, "What people do I have to compensate to work on it?" and I said, "There's quite a lot of people. We would probably need about 2 to 2 and a half million promoter shares to be issued to compensate people for working.
….
And what did he say to that, if anything?---He said to me, "Yes, I agree with you," but he said, "If we succeed in this float we intend to pay you a success fee direct to you, and what you do with it is your business, of 2,000,000 vendor shares out of the vendor consideration or if we can't transfer the vendor shares we would use our discretion whether we give you cash to the value of $400,000."
(Page 11)
21 On 19 February 1996, Mr Luff faxed to the plaintiff from Mr Higginson's office a document headed "Capital Structure". (Exhibit 2 - 8/2925) The sub-title described it as the pro-forma capital structure of the company following allotment of the shares and options offered by the prospectus. It showed two million promoter shares being ordinary shares of 20cents issued to promoters. It left blank the amount of any discount. The document did not, nor would it be expected to, refer to the success fee. This would not form part of the capital sheet in the prospectus as it was a separate and independent payment by the vendors to the plaintiff to be made by the vendors transferring to the plaintiff a portion of the shares issued to them in discharge of the purchase price for the tenements.
22 The plaintiff said that he faxed this document to the defendant on the same day (19 February). The plaintiff said a day or two later Mr Luff was in his office in Perth and he phoned the defendant in Bungendore. The plaintiff said that it was a "three way conversation" with Mr Luff taking part, as I understand it, on a separate phone. The plaintiff said he told the defendant that Mr Luff wanted to make the promoter share 3 million and that the defendant replied, "That's a bit too much. …I reckon it could be somewhere between 2 and 2-1/2."
23 I shall now refer to two separate later instances where the plaintiff said the question of promoter shares were discussed by the defendant. I have earlier referred to the first which was a meeting with brokers the day after the inspection of the site at Adelong. The plaintiff said that the defendant, Mr Lewis and he met with each of two Sydney broker firms, namely Intersuisse and Shaws to discuss the proposed float and whether either firm would be interested in underwriting the float. The defendant said in his statement and repeated in evidence:
"100. At that meeting, Starink said that the promoters would receive 2,500,000 new shares for the float to be distributed by me at my discretion.
101. The other promoters were Luff, Higginson, Haywood, Lewis and myself. These shares would be disclosed in the prospectus."
24 The plaintiff then referred to another meeting in Sydney at the Fishmarkets Restaurant, which it is agreed took place on 28 June 1996. The plaintiff said he asked the defendant when they would be receiving the agreements to transfer the tenements into the company's name and the
(Page 12)
- defendant promised that they would be receiving them soon. There was then a dispute with Mr Haywood as to what Mr Haywood would receive. He said it was suggested that Mr Haywood would receive 25 per cent of the promoters' shares and also 25 per cent of the plaintiff's success fee and the plaintiff said he would not agree to that. He said that the defendant said to Mr Haywood, "How much do you think you are worth?" and Haywood replied, "$100,000 to $150,000." The plaintiff said that this was too much and he left the meeting. He said the defendant chased him down the street and when he caught up with the plaintiff the defendant told the plaintiff that he would pay Mr Haywood out of his own pocket. The plaintiff then said in effect that he would have nothing to do with paying Mr Haywood and the defendant agreed.
25 The defendant agrees that Mr Sacca, Haywood and he had lunch at the Fishmarkets Restaurant. He said it followed a presentation to Findlays, a firm of stockbrokers. They were seeing if Findlays would underwrite the float. The defendant said that following this they had lunch at the Fishmarkets when there was a vigorous argument between the plaintiff and Mr Haywood. He said that at the lunch Mr Haywood said that if he did not receive a substantial success fee, Findlays would not be underwriting. He said that the plaintiff said to Mr Haywood that he was not entitled to any success fee and he regarded the request for a success fee as an act of betrayal. He said that Mr Haywood said that he would not participate if there was no success fee. He said that he then arranged to speak privately to the plaintiff and said to the plaintiff that although it was none of the defendant's business, the defendant felt that Mr Haywood should receive some incentive. The defendant said he told the plaintiff that he thought that it was the purpose of the success fee pool. He said the plaintiff then said to him that he had been betrayed by Mr Haywood and that Haywood had a lever over him. The defendant said that they went back to the table and the defendant suggested that Mr Haywood should receive 5 per cent of the value of any underwriting he directly introduced. He said Mr Haywood was happy with this, but that the plaintiff was furious. He said the meeting broke up with nothing agreed. The defendant said that he did not receive the fax exhibit 2 (The Capital Structure document). He said there was no three way phone conversation and he had been introduced to Mr Luff at an earlier time. The defendant said that although shares of this type had been discussed at an early stage, he had made it clear by the end of February that he would not be agreeable to it.
26 There is supporting evidence that the proposal of promoter shares had been made at an early stage. The defendant was negotiating with a
(Page 13)
- Mr Andrew Kam in respect of Mr Kam acquiring an option over some of the interests. On 11 February 1996 the defendant sent a fax to Mr Kam (exhibit 35 - 8/2921). The fax said that under the proposal the parties would provide seed capital, prepare the prospectus and arrange for an underwriter. The letter continued: (2922)
"In return for their assistance, they would:
. take 2 million 'promoter' shares (at no cost),
. take 2 million 'seed capital' shares (at a 50 per cent discount), and
. take 2 million of our 'vendor' shares.
It is intended that the Robinson Estate be paid out $500,000 cash from the proceeds of the IPO."
28 The plaintiff referred to exhibit 5 which was such a document showing 2,400,000 Promoter shares This was altered by pen reducing it to 1,000,000. The plaintiff said that this document, as altered, was faxed to the defendant who said, "That looks a little better but I am still not a hundred per cent happy." The plaintiff thought that the defendant said that they would discuss it further when they met. The plaintiff said he arranged for his daughter to retype this document and this became exhibit 6. (5/21882). This showed promoter shares at 1,000,000 being ordinary shares of 25 cents issued to promoters at a discount of 15 cents and paid to one cent. The plaintiff said he thought his daughter typed this out some time in July and he intended to give it to the defendant when he next visited Perth. The plaintiff said that when the defendant next came to Perth "We did not discuss much about this document because mainly there was a disagreement between me and him about the number of promoter shares that the promoters were going to receive and of course he insisted that he wanted to keep the capital structure very tight, and he saw that it would be better off if he can - because his valuation had doubled
(Page 14)
- from the original one. He saw an advantage of him having a smaller capital by cutting out the promoter shares and issue a vendor consideration in replacement".
29 The next document which is of importance and which does have a fax machine endorsement is exhibit 7 (10/3538). This was a capital structure document prepared by the defendant and forwarded to the plaintiff. This has the imprint of the defendant's facsimile machine showing it had been sent on 19 August. This showed 1,000,000 promoter shares with the explanation:
"Ordinary shares of 20 cents each issued to Promoters, experts and consultants in lieu of fees for professional services at a discount of 5 cents."
30 The plaintiff said that this was sent as a result of a phone conversation when they were not agreeing and when the plaintiff said, "Well, I've sent you so many capital structure, you send me a copy and let's see what you come up with." The plaintiff said that the defendant was expected in Perth on 24 August to have the documents transferring the tenements signed and it was planned that they would discuss this document then. The defendant's explanation was that the reason he prepared this document was that he was looking at the impact of a proposal to pay certain professional fees by issuing shares to those persons doing professional work. He said the reference to promoter shares was a reference to the shares being issued to persons carrying out this type of work. They were not a reference to shares being issued to the plaintiff. (TS738)
31 An important event occurred prior to the issue of the next document. The plaintiff said that there were delays in transferring the tenements to the company. The plaintiff considered that this was impeding the float. This was causing difficulties between the plaintiff and the defendant. The plaintiff said that the defendant would not produce the documents for signature until his arrival in Perth on 24 August. He said the documents bore date 8 August and the directors were asked to sign the documents with this date. Mr Higginson refused to do so. The reason for this on the plaintiff's evidence was that on 20 August 1996 a tax exemption formerly enjoyed by mining holders selling assets was removed by the Federal Budget of that month. The plaintiff said that on 24 August the defendant produced for execution sale agreements bearing date 8 August, this being a date when the exemption still applied. Both Luff and Higginson refused to sign the documents unless they were correctly dated. The plaintiff
(Page 15)
- claims that the defendant said he would not issue them their promoter shares if they did not sign the documents in this manner.
32 The defendant denies this and says that the agreements were given to the plaintiff on 8 August for the plaintiff to arrange execution, but he did not do so. The defendant considered agreement had been reached on that date and that would justify him in backdating them. It is common ground that the agreements were not signed until late August or early September, but were in fact backdated to 8 August. A question of credibility arises from this which I shall examine later. The plaintiff says that they were signed with a blank date and were dated by the defendant.
33 The plaintiff said that after Mr Higginson and Mr Luff had left the defendant said he wanted to know how the plaintiff was going to split the 2,000,000 Promoter shares. The plaintiff said he told the defendant the proposed breakdown and the defendant wrote them down.
34 After these events a further Capital Structure Document issued. It was prepared on the plaintiff's behalf by Mr Higginson and given to the plaintiff. It was photocopied by the plaintiff onto the back of one of his letterheads and this photocopy document with a number of hand-written notations became exhibit 8A. A photo copy of this document with the hand written notations being in photocopy was earlier received as exhibit 8 (10/3538). The plaintiff said the very first copy (not in evidence) was prepared by Mr Higginson who gave it to him some time in August. He said he photocopied it onto the back of one of his letterheads and this was the document which became exhibit 8A. The plaintiff said that before there was any handwriting on this particular document, he gave it to the defendant. He said this occurred some time after the 24 August. He said he knew it was after 24 August that being the day Mr Higginson and Mr Luff refused to execute the back-dated documents. The plaintiff said the defendant's idea was the promoter shares would have to be wiped off because the directors did not do what they were told.
35 The document, in its original form, showed promoter shares at $2,400,000. The plaintiff said, in evidence, "We are having a dispute about the promoter shares and I said 'You sought it out and come back to me' "(T/S 161). The plaintiff said that the defendant took the document. The plaintiff said that the next thing which occurred was that on 6 September he received on his fax machine a copy of the document which included the hand-written notations. I am unable to determine the sequence of what occurred because I consider each party made understandable mistakes in endeavouring to describe a sequence. Exhibit
(Page 16)
- 8A, by its very appearance and by its having original writing on it, must be the document that remained in Mr Higginson's office and which Mr Higginson placed in the fax machine to fax it to the plaintiff on 6 September. The copy the plaintiff received is not in evidence. Exhibit 8A remained in Mr Higginson's office and possibly the company's office as it became a defendant discovered document. I consider that exhibit 8A must have been left, prior to 6 September, with Mr Higginson in its final form with all the writing it now has including the plaintiff's writing. The significance of the document is not the sequence of how things occurred but the notations made on it by the defendant. The document originally described the promoter shares in the following way:
"2,400,000 Ordinary shares of 25 cents issued to
promoters at a discount of 15 cents and
paid to 1 cent
Less discount on issue and uncalled
capital $576,000"
36 The defendant, with pen, made a circle around the figure 2,400,000 and wrote above it "1.2". Underneath he wrote the figure, again in a circle, "360,000" and underneath that, "180,000".
37 The plaintiff said after he received this fax he had a heated telephone conversation with the defendant the next day. He said the defendant said that he did not want any promoter shares to be issued because nobody deserved any. He said the defendant also said, "And he said if there was any to be issued I should be entitled because I am doing a lot more work than what I was doing before." The plaintiff said that the defendant then said, "Well, you come back to me with the new ideas then how you see it should happen."
38 The defendant's evidence was that when he was on the way to the airport on 7 September he was shown exhibit 8A. I consider this date could not be right as the document must have been in its final form when faxed on 6 September. The defendant said when he was shown exhibit 8A he considered that it introduced for the first time a proposal that 2.4 million promoter shares be issued at a discount of 15 cents and paid to 1 cent. He said that the plaintiff said to him, "What do you think of this?" He replied, "It was not part of the deal and it is out of the question." He said that the plaintiff replied that the promoter shares were to be spread out amongst the promoters and that he had in mind to hold some of them on the defendant's account. (TS746) He acknowledged that the figure 1.2 million was his handwriting but he was not sure what it meant. He
(Page 17)
- thought the other figures he had written such as 360,000 was the amount of the discount.
39 On 9 September the plaintiff sent the following facsimile (10/3557) to the defendant:
"Dear John,
The following list is the way I feel the promoter shares should be distributed at the moment.
(shares)
Michael Higginson 175 000
Stanley Lewis 100 000
Jeff Luff 500 000
Stuart Haywood 500 000 (?)
John Starink 400 000
Geoff Clark 400 000
Joe Sacca 325 000
- This is only my suggestion and of course this could change at any time. I feel that these shares should be the last to be issued out and that it should be on a performance basis. If they do not perform, then there will be no issue of shares to them.
With the 325 000 shares to be issued in my name, I will have to look after a couple of brokers due to the support they have given.
I have not showed this list to anybody, it is purely for your consideration, and I suggest it stays that way until you decide if you agree with it or not.
Best regards,
Joe Sacca"
40 The defendant responded to this by facsimile dated 13 September 1996 (10/3599). This read:
"Joe Sacca
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- We will go with an amendment to the sale agreement such that the shares & options issued to Geoff & myself are reduced to a total of 10.4 million or $2.6 million dollars worth.
If any promoter shares are to be issued at all, they will be issued at a discount of 10 cents.
All of the seed capital shares will be issued at a discount of 12.5 cents, including any which have already been allocated. Previously people were going to get these at half price and they will continue to get them at half price.
The matter of the issue of promoter shares is one which I am going to have to discuss with you more. I must admit that I am upset with you. I have always understood that Geoff and I would give you $400,000 worth of shares by way of a success fee for the whole exercise, in return for which you would prepare the prospectus, arrange for seed capital and arrange for underwriting. Accordingly I have always regarded this sum as the total pool of funds for success.
It has also always been my understanding that if you wanted to use others to achieve any of these things and if they required some additional success fee that it would come out of this $400,000 pool of funds.
Now you want to reward Higginson, Lewis and particularly Jeff Luff separately. I note that Jeff has contributed some funds - I also note that the funds contributed by Jeff Luff have gone entirely to pay for expenses incurred by Jeff Luff. The only major external creditors are Willsteed whose bill remains unpaid !!! What happened to the $10,000 we put in which I understood was going to be matched by you?? (ie $20,000 dollars)
If we proceed along the lines that you want to go, Adelong will be handing out another $100,000 to 'Promoters' (provided that the shares are issued at a 10 cent discount) as well as you receiving $400,000 and Stuart receiving another $80,000. This is simply too much Joe.
On top of all this I now find myself having to write significant parts of the prospectus because Michael in the end can only provide the 'Boiler Plate' (the non-technical parts of the
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- prospectus) and I have spent considerable time doing work associated with this effort.
If you want to reward Higginson and Luff you will have to do it from your pool of shares. I have already agreed to part with $100,000 worth of shares to Haywood so he is already fixed up. If you believe that Stan Lewis should receive something, go with what you previously said which was that he would be satisfied with and that is options Both Lewis and Higginson can get employee options.
We can do this in one of three ways as I see it.
ALTERNATIVE 1
ISSUED CAPITAL
1,000,000 SEED CAPITAL
ISSUED AT 12.5 CENT DISCOUNT 125,000
1,000,000 PROMOTERS
ISSUED AT 10 CENT DISCOUNT 150,000
2,000,000 275,000
with the promoter shares distributed as follows:
Luff 500,000 $50,000
Higginson 200,000 $20,000
Lewis 200,000 $20,000
Haywood 200,000 $20,000
in which case you would receive from us $320,000 and Haywood would receive from us $80,000 which would leave us with $2.1 million before giving some to Robinson.
ALTERNATIVE 2
ISSUED CAPITAL
1,000,000 SEED CAPITAL
ISSUED AT 12.5 CENT DISCOUNT 125,000
0 PROMOTERS
ISSUED AT 10 CENT DISCOUNT 0
1,000,000 125,000
- in which case you would get from us $400,000 which could be applied to $50,000 to Luff, $20,000 to Higginson and $20,000 to Lewis (leaving you with $310,000) and Haywood would get
(Page 20)
- from us $100,000. We would be paying out more so we would need another 400,000 vendor shares which would still leave us with $2.1 million before giving some to Robinson.
As you can see the numbers work out much the same from our perspective. One thing though you can't have it both ways. Please let me know which you prefer.
ALTERNATIVE 3
You can go with Alternative 2, forget about giving Luff and Higginson and Lewis a success fee and pocket the entire $400,000 yourself.
Please let me know, soon."
41 The plaintiff responded to it by a fax which becomes significant in this action dated 16 September 1996 (exhibit 28A) which read:
"John,
In reply to your fax dated the 13th September. I do not agree with your fax, therefore I have come to a decision that you can go whichever way you like because whenever I make a commitment I never go back on it, unlike you who has chosen to go back on your commitment. I therefore declare that I do not want a success fee in the company, all I want is the repayment of my out of pocket expenses, of which I can provide receipts for. The money of which I have placed as seed capital, I will leave that as a loan to the company until it raises some money to pay me back. I do not want any shares in the company.
I will assist with the formation of the float because of my previous commitment and as I said before I do not go back on my word.
I now point out to you the reason why I made this decision.
1. Yes, you are right this company should have been listed six months ago.
2. When you made the commitment to me of a success fee, you would not sign any contract until an underwriter agreement was signed.
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- 3. Your vendor consideration was then $1.6 million, you have now more than doubled that amount.
4. You also decided to push ahead and sign the acquisition agreement before the underwriting agreement was signed for financial reasons of which I'm sure I do not have to go into detail about.
5. You now have decided to cut every body back on the promises which were made because you have this illusion that you are handing out hundreds of thousands of dollars to everybody for nothing. This money that you think you are handing out is only pieces of paper and in three years could be worth nothing. People will have to wait this time to see if they are going to get any benefit or not.
6. I feel that you should have made it known that you wanted to cut everybody back the day that you asked for the agreement to be signed, instead of waiting for the agreement to be signed and then put this proposition forward.
7. In regards to Terrence Willsteed, you told me that the bill was unpaid. Our original agreement was that he would provide an evaluation suitable for the market at the cost of $10,000. Since his first valuation, he has been asked to revalue the property and to spend extra time on the job at no advantage to the company whatsoever. The only people receiving advantage by his new valuation is the vendor by more than double their acquisition price, and yet the company has to foot the bill.
8. I feel that you have put me in an embarrassing position by asking me to get the agreement signed by the other people against their will and now you are asking me to go back and tell them that they are not going to get their promised fees, because you feel they are getting too much.
John, this has been a very painful decision for me to make but as I pointed out to you many times, once I make a commitment I do not go back. I have been involved in many floats and the only successful floats were the ones where the vendors have co-operated with everybody else and worked together to make it a successful one.
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- But when the vendor becomes involved and worries about what other people could get two or three years down the track, they are always doomed to fail.
As I previously said in this fax, I will continue if I am wanted to cooperate in putting this float together, provided I get paid out of pocket expenses, as I have made a commitment to many friends and I do not want to be seen to let everybody down and I am quite happy to do this without a success fee so that I don't have to have any obligations to anybody to receive this fee.
Yours sincerely,
Joseph Sacca"
42 A number of issues arise from the plaintiff sending this facsimile, one of which is whether the plaintiff, by saying he did not want a success fee, brought to an end the agreement to pay the success fee. Other issues are what happened subsequently. I am, however, at this stage setting out these faxes for the purpose of determining the issue whether there was an agreement whereby the defendant would issue to the plaintiff the promoter shares in the event of the company being listed. The prospectus was registered on 11 November 1996 and the company was listed on the Australian Stock Exchange on 27 February 1997.
43 I shall now refer to some of the things the plaintiff did following the meeting of 23 April and the letter of 25 April. The plaintiff after that date continued to carry out his task, including securing the underwriting and finding persons who would be interested in investing when the company was floated. The plaintiff had been negotiating with a broker, Mr Arnott-Smith to underwrite the float and by 20 August, Mr Arnott-Smith agreed to underwrite it subject to suitable sub-underwriting. However, a number of difficulties arose between the plaintiff and the defendant. I shall refer to these in general at this stage and later consider some of them in greater detail. Firstly there was the disagreement as to the issue of the promoter shares. Secondly the defendant was not satisfied with the valuation obtained from Mr Willsteed. He considered the valuer had overlooked a number of matters and had not inspected the site. Steps were therefore taken to ask Mr Willsteed to make a new valuation. A a new valuation was given of $3.7 million being the figure to be reduced by 80 per cent in order to obtain the purchase price. The plaintiff agreed this new figure. He said he did this because the defendant threatened to pull out if he did not agree with the new value. The new valuation meant that the company,
(Page 23)
- when listed, would have the appearance of having assets of a greater value.
44 The next area of difficulty was the delay in transferring the tenements to the company. This difficulty was enhanced by a further factor and that was the plaintiff said he heard rumours that the defendant was continuing to attempt to sell the tenements to an outside person. If this occurred it would bring to an end the ability to float the company as a public company by reason of its not having assets. It is now known that the defendant was still attempting to sell the tenements to the best purchaser. The plaintiff interpreted the paragraph of the letter of 25 April saying that, subject to listing, Kimberley would acquire all of the interests in the tenements as being a firm commitment that they would not be sold elsewhere. The defendant considered he was at liberty to carry on with his earlier advertising campaign to sell the tenements elsewhere and was continuing to contact prospective buyers. This question will be looked at in greater detail when considering the question of credibility of the parties.
45 The next thing that I shall mention regarding the promoter shares is that the plaintiff said that the question was referred to in a meeting which becomes critical and which occurred in Mr Higginson's office in October 1996. There was evidence that the defendant was aware that the plaintiff had promised that he would distribute portion of the shares he received to Mr Luff and Mr Lewis. I do not consider this takes the matter further. The defendant, on this version, was indicating that he was aware that the plaintiff had made promises in the absence of finality between the plaintiff and the defendant on this question.
Conclusions as to the claim for promoter shares
46 The plaintiff's evidence to support the proposition that the promise to issue the promoter shares in question had been made was firstly the initial conversation with the defendant in January 1996. Secondly the three-way conversation with the plaintiff, defendant and Mr Luff which the plaintiff said took place a day or two after 19 February. The plaintiff said that he told the defendant that Mr Luff wanted the promoter shares to be 3 million and the defendant replied that that was a bit too much, but they could be somewhere between 2 and 2-1/2 million. There could be a question whether this, of itself would support an agreement. The plaintiff's case goes further. He states that on the day following the site inspection at Adelong, the defendant positively stated that the promoter shares would issue and that these were "to be distributed by me at my discretion". The
(Page 24)
- next area of the plaintiff's case is the meeting at the Fishmarket restaurant when there was the argument with Mr Hayward and the defendant again mentioned the promoter shares. The plaintiff said there was further mention of them at a breakfast in September and at the October meeting.
47 Mr Luff, in his evidence, supported the plaintiff in this area and referred to the three way phone conversation in which Mr Luff said he was introduced to the defendant. Mr Luff said he was in the plaintiff's office in Adelaide Terrace and spoke to the defendant by telephone conference and was introduced to the defendant. He said that the plaintiff told the defendant that he, Luff, wanted 3 million promoter shares, but the plaintiff said it should be 2.5 million. He said the defendant agreed with the plaintiff. Mr Luff thought the phone conversation was early February (TS564).
48 The plaintiff said that Mr Lewis was present at the meeting in Sydney following the site inspection. Mr Lewis gave evidence of inspecting the site at Adelong. He said that they went from Adelong to Sydney and met with the brokers Intersuisse and Shaw Securities and he said they also met with the defendant. He did not in his evidence refer to the defendant saying to the plaintiff that promoter shares would issue. He said that at the October meeting the defendant said to him that he would "make available to me 200,000 shares out of the vendor's consideration instead of 200,000 shares promised to me by Sacca". Mr Hayward, who was present at the Fish Market Restaurant did not give evidence.
49 I consider that the documents exchanged following 25 April are inconsistent with an agreement having been earlier reached as to the issue of the promoter shares. They suggest continuing and unconcluded negotiation. It is of significance that the promoter shares were not referred to in the fax of 3 April 1996 or the confirming letter 25 April 1996. I feel it is also significant that there was no response by the plaintiff following the receipt of the letter of 25 April.
50 The plaintiff's explanation was that he did not expect any reference to it as the letter was a public letter and it was inappropriate to have the payments to him disclosed. I do not accept this. Amongst other things it was not a public letter. I have reservations about the ability of the plaintiff and Mr Luff being able to describe in detail earlier phone conversations in February. I consider it unlikely that the defendant would have made a firm promise over the phone to issue promoter shares, and if they were discussed at all, they were discussed no more than in the context of there being a possibility that there should be such shares.
(Page 25)
51 The plaintiff's next claim to support the promise of the shares is the meeting in Sydney following the site inspection when Mr Lewis was present and where it was said that the defendant said he would issue 2.5 million promoter shares to the plaintiff to be distributed at his discretion. Mr Lewis' evidence did not support this being said. I do not consider it was said. There is some further evidence I do not accept and that is evidence by the defendant who said that he told the plaintiff firmly in February that there would be no promoter shares to be issued to the plaintiff. Nor am I satisfied that the argument with Mr Hayward occurred in the way outlined by the plaintiff and I do not consider that the promoter shares were mentioned at that time.
52 I consider the true position is that the plaintiff was seeking to have promoter shares issued so he could reward those assisting him without having to make inroads on his success fee. The defendant did not wish such shares to be issued and considered the success fee was the source from which those assisting the plaintiff should be rewarded. I consider, however, that the defendant was anxious to sell the tenement, particularly after the earlier failure resulting in the Northern Territory litigation. The plaintiff's proposition was the best prospect and the plaintiff and those assisting him were capable of causing the necessary capital to be raised. The defendant did not wish to dampen the prospect by positively refusing to agree to the issue the shares and for that reason kept negotiations open. The meeting on 23 April was for the purpose of confirming what had been actually agreed in principle and what the plaintiff was required to do to earn the success fee. I do not consider that promoter shares were mentioned at that meeting. The defendant sent the fax of 3 April and wrote the letter of 25 April making no mention of promoter shares hoping that would be the end of the matter. The question was, however, revived by the plaintiff at a time when there were prospects of success of the plaintiff being able to raise the capital and for that reason the defendant was hesitant to reject it outright. I consider it likely that the capital structure documents were received by the defendant which caused the defendant to consider giving some ground by sending back exhibit 7 suggesting promoter shares should be 1 million dollars. I do not accept the defendant's evidence that he did this with a view to rewarding other experts and that this was the reason he sent a document headed "Capital Structure". I consider this evidence was highly unlikely and the defendant's evidence in this area did not impress me. I consider the defendant was considering that the company structure should show 1 million promoter shares be issued in order to keep happy those who were succeeding in raising capital. The plaintiff's response was
(Page 26)
- exhibit 8A with a request for 2.4 million promoter shares. This led to the final breakdown in the faxes of 13 and 16 September.
53 I consider that the plaintiff has not established an agreement that he receive the promoter shares claimed.
The claim for the success fee
54 It is clear that prior to the plaintiff's facsimile message of 16 September saying he did not want a success fee, there was on foot a contract as set out in the letter of 25 April whereby the plaintiff was to carry out the work mentioned in that letter and would receive a success fee if the company was listed. Had the matter stopped following the receipt by the defendant of the fax of 16 September, a number of questions would arise as to the status of the contract. However, on the evidence of each of the parties the matter did not stop then. It continued and, with the plaintiff's assistance, the company was floated.
55 The plaintiff claims that when the defendant received the fax of 16 September the defendant rang the plaintiff and spoke to him for one or two hours and begged him to stay in the float. The plaintiff said that the conclusion of the conversation was that the defendant would pretend that he had never received the facsimile and they both agreed with that. The plaintiff said that the defendant told him that the defendant wished to play a more leading role, but the plaintiff would still receive his success fee and the promoter shares and that the defendant would come to Perth in the next few days. The plaintiff said the defendant did arrive and they had breakfast at Coco's Restaurant in South Perth on 20 September 1996. The plaintiff said it was agreed that the plaintiff would still be paid $400,000 cash or receive $400,000 worth of shares as the success fee and that all they needed to do was to sign up the underwriter. The plaintiff said that the defendant also said that he would reduce the number of promoter shares because he would take care of the promoters out of the vendors' consideration and the plaintiff was, at that time, happy with this. They then went and saw some brokers that day.
56 The next matter of critical importance is the meeting at Mr Higginson's office in October 1996. The plaintiff said this meeting was at the end of October and the defendant said it was at the beginning of October. The plaintiff's witnesses were cross examined on the basis it was 4 October and this date was mentioned in the defence. However, the defendant after consulting records thought it was 2 October and I consider this was the date.
(Page 27)
57 The defendant's case, following the dispatch of the facsimile of 16 September, was that on that day he was skiing in the mountains at Perisher. He received a message to ring the plaintiff and he did so without having seen the fax. He said it was a short conversation in which the plaintiff said he wished to pull out and that he said, "If you want a hand with the float I'll give you a hand but I don't want any success fee." The defendant said he replied that if that was how the plaintiff felt it was in order with the defendant.
58 The defendant's evidence was that there was no meeting at Coco's Restaurant and he had no meetings at all with the plaintiff until the October meeting. His evidence was that he considered the plaintiff was no longer involved. He came to Perth early in October and his diary entries indicate probably 2 October. His case was that it was necessary for him to make new arrangements with those raising capital. He met Mr Luff and agreed that the company would pay him $25,000 for work done to date together with 5 per cent on capital raised. This was paid by the company to Mr Luff shortly after the company was listed. The defendant said the arrangement he made with the plaintiff was that the company would transfer 400,000 shares to the plaintiff forthwith on account of work done to date and the company would also pay the plaintiff 5 per cent of the capital raised. It is common ground that the plaintiff did assist to raise capital and to obtain sub-underwriting after that and the plaintiff and defendant attended promotions together. Mr Higginson was the secretary of the company and each assisted Mr Higginson to prepare the prospectus. Mr Arnott Smith and Mr William Noall became joint underwriters. The prospectus was registered on 11 November 1996 and, as mentioned, the company was listed on the Australian Stock Exchange on 27 February 1997. No further payment was made to the plaintiff.
59 The main defence on the part of the defendant is that the agreement to pay the success fee was brought to an end by the fax of 16 September and a new agreement was made pursuant to which the plaintiff worked further to help list the company. It is claimed in the alternative that if the agreement to pay the success fee was on foot on 2 October, it was brought to an end by the discussions of that day and the transfer at the plaintiff's request to his family company of 400,000 shares. It is not in issue that the company transferred these shares but the plaintiff says this was done as a result of a request by the defendant that shares promised to Mr Higginson be transferred to the plaintiff's family company for subsequent transfer to Mr Higginson to avoid the necessity of Mr Higginson's name appearing in the prospectus. The plaintiff said that extra shares were transferred to the
(Page 28)
- family company in payment for secretarial services rendered by his daughter.
60 The defendant raised a further alternative claim, namely, that if the original agreement remained on foot it was an entire agreement in the sense that the plaintiff was required to do everything he originally undertook to do. He did not do this because during October and thereafter a number of things were done by the defendant. I indicated at the trial I saw no merit in this defence. The original contract was that the plaintiff was to carry out the matters referred to earlier and was to be paid a success fee on the registration of the company at the stock exchange. If the company became registered and if it were not necessary for the plaintiff to do some of the things he said he would do, then I consider he would still be entitled to the success fee. If there were no default by the plaintiff and if as a matter of convenience or desire the defendant did some of the things, I do not consider it could be raised as a defence that this would be a bar to the success fee. The reason I reached this view is that I do not consider it was ever specifically agreed that it was a condition of the plaintiff obtaining the success fee that he must do each and every matter originally contemplated. I would certainly not imply such a term. It would be no breach and no bar to the plaintiff being entitled to the fee if the defendant carried out some matters the plaintiff was otherwise willing to do.
61 If the obligation to pay the success fee remained after the meeting in October, then I am satisfied that the plaintiff did all that was required to earn that fee. The question now to determine is whether there was a meeting at Cocos and, if so, what was determined at it and what was determined at the meeting in October.
Credibility
62 A number of matters were raised which it is claimed would affect the credibility of the parties. The first question of credibility was raised by counsel for the defendant. It was claimed that the plaintiff was asked in interrogatories to outline what he did to raise capital and bring about the listing and he overstated the position in his answers. The plaintiff said he had approached certain people and the defendant adduced evidence from some of those persons to say they had not been approached by the plaintiff. The plaintiff said he made a mistake. He said that the persons mentioned had been approached by persons such as Mr Arnott-Smith and Mr Arnott-Smith was the man the plaintiff had arranged to assist in the float. I consider the detail of the answers would indicate that there was no
(Page 29)
- mistake and the defendant did overstate the position. I would see this as no more than a factor to weigh up.
63 The next three matters are matters raised by counsel for the plaintiff in respect of the defendant. The first is that the defendant took steps to backdate the agreement of sale of the tenements to the company and did so to make it appear that the sale took place at a time when there was a tax exemption and prior to the date in August when this position changed. An issue was raised, which can only be an issue of credibility, as to whether the agreements had been handed to the plaintiff on 8 August and whether agreement had been reached by that date. The position of the Court is clear. If there is an issue to be tried, in an action, whether there has been tax avoidance and if it is found that there has been, a very serious view will be taken. In a case such as this it could be no more than a factor of credibility and it could not possibly be a determining factor. The documents clearly should have been dated when executed by the vendor and a failure to do this is a factor to weigh up. I do not see it as an acceptable explanation that the parties had reached a verbal agreement at an earlier date. The documents should have been properly dated and the factor that the parties may have reached agreement at an earlier stage is a matter for the taxpayer to take up with the Commissioner of Taxation. The documents were wrongly dated by the defendant and this is a factor to weigh up. There is no need to determine whether there was a meeting on 8 August and what might have occurred then.
64 The next factor is one to which I have earlier referred and that is that the defendant following 23 April attempted to sell the tenements to outside persons, which if successful, would have brought to an end the work the plaintiff was doing. I would see this as a breach of the agreement spelt out in the letter of 25 April. There would be an implied term that the defendant would use his best endeavours to bring about the sale referred to in that letter and afortiori it was a breach to be attempting to do an act that would prevent title being transferred to the company. The defendant's explanation is that he had a duty to the estate, and the persons on whose behalf he was acting, to sell for the best price. I consider, at the very least, the plaintiff should have been told at an early stage that this was to be the position. Again this can be no more than a factor to affect credibility.
65 There is evidence by the plaintiff which must be weighed up when considering his credibility and which balances to a degree some of the matters raised by him against the defendant. There was issued to the plaintiff's family company, Quairading Holdings Pty Ltd, 400,000 shares
(Page 30)
- described as promoter shares. These were referred to in the prospectus as being in consideration for services provided by that company. The plaintiff's answer to the proposition that this was the substituted basis for his remuneration is that he was asked by the defendant to receive 200,000 shares that were to be transferred to Mr Higginson. Such a transfer would be required to be disclosed in the prospectus. The plaintiff said to avoid this and to avoid the necessity of calling a general meeting to obtain shareholders approval he was agreeable that these shares be transferred to his family company and he would later transfer them to Mr Higginson. He said that when he was asked to do this, he required a further 200,000 shares to be transferred to his family company in repayment of secretarial services and this was done. This arrangement would amount to a false statement in the prospectus and would be misleading potential investors.
66 I have weighed up each these factors set out under this heading. I have come to the view, when considering all the issues raised including that of promoter shares, that none of these matters, either separately or together, are sufficient to reject the evidence of either party. Portion of the evidence of each party on a number of matters was supported by either the probabilities or the documents. I consider that in order to reach the view whether the evidence of a party on a particular matter is to be accepted I must make a determination on the way the witness gave his evidence, his demeanour, the probabilities of what was said and how it compared to the documents bearing in mind the matters referred to me and which I have set out above. There are areas of evidence of each party that did not impress me and which I would not accept. There are also on the other hand areas of evidence of each which I do accept.
Defendant's Computer Records
67 The defendant produced some printouts of time sheets he kept in his computer. I admitted these as business documents under s 79C of the Evidence Act. It was the plaintiff's submission that some were or could be a fabrication. The defendant in reply brought the computer into court and showed on the computer screen the dates when the documents were created and when they were last modified. This showed that they were created and last modified within times I would expect them to be if they were genuine documents and had not recently been interfered with. For example, a timesheet described as the "Adelong Float Timesheet (Exhibit 70 - 2/725)" which commenced on 23 April 1996 and which continued to 2 March 1997 was created on 25 April 1996 and last modified 5 May 1997. The last date I mention is the last entry of the
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- document actually produced, but it may not be the complete document. The last modification showed a modification well before litigation was contemplated. I would see these as genuine records and I do not consider this would be detracted from by the fact that where there was more than one timesheet, appropriate entries were not made in each of the timesheets. I would see entries being genuine if they appeared on one or other of the timesheets. It is for this reason that I consider the dates referred to by the defendant when verified by these records would be accurate.
Telephone conversation and meeting at Coco's
68 I am satisfied on the defendant's evidence that he was at Perisher when the fax of 16 September was received at Bungendore. I do not consider that there was an hour long conversation whereby the defendant was begging the plaintiff to remain. This was inconsistent with records the defendant produced. I would also not find that the conversation was as outlined by the defendant, who was endeavouring to reconstruct it some years later without there being a record of this particular conversation. The inference I make from the whole of the evidence and particularly what subsequently happened is that the defendant was anxious to keep in harness those persons raising capital in Western Australia, including the plaintiff, because the activities of those persons were the best and possibly the only means of raising sufficient capital to enable the defendant to make the sale. I feel it likely that there were phone calls when the defendant encouraged the plaintiff to continue work. I do not consider that the defendant came to Western Australia between 16 September and 2 October. This would be inconsistent with the records he produced, including his diary and records relating to flights. I accept his evidence in this area and I do not consider that there was the breakfast at Coco's. If the original agreement remained on foot or was revived, I do not consider the plaintiff was required to prove the variation to which he referred in his amended pleadings in order to obtain payment. I would not see the failure to prove the Coco's meeting as being of any significance. The important and critical meeting is the meeting in Mr Higginson's office in October. I am satisfied on the defendant's evidence and his records that this was probably on 2 October and no later than 4 October 1996. This means that there was only a fortnight between the fax and the meeting.
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69 The plaintiff led evidence to suggest that there was a meeting in Sydney in late September between the proposed underwriter, Mr Arnott-Smith, the plaintiff and the defendant. This was a meeting in Mr Arnott-Smith's office. I am satisfied, after hearing the cross examination and the defendant's evidence that this meeting took place in August. I consider that the next meeting between the plaintiff and the defendant was the meeting in Mr Higginson's office on 2 October 1996. I must now determine what occurred at that meeting.
70 The plaintiff said that it was a meeting called by the defendant and that Mr Lewis, Mr Higginson, Mr Luff and he were to be present. The plaintiff said that he picked the defendant up at the airport and took him to Mr Higginson's office. He said that the defendant said at the meeting he wanted to cut the number of promoter shares to be issued and that he intended to issue shares to persons out of the vendors' shares. The plaintiff said that the defendant then took him outside onto the pavement and the plaintiff told the defendant that he was not happy with this arrangement. The plaintiff said he told the defendant that he had made an arrangement with the persons that he, the plaintiff, would give them promoter shares and he did not want to go back on his word. The plaintiff also said that originally he was not to be reimbursed his expenses, but the defendant told him that he would authorise the company to reimburse the plaintiff expenses up to $50,000 without proof, but if they were any greater than that he would have to satisfy the Board by providing proof of payment. The plaintiff said that the defendant spoke to the others separately outside on the pavement.
71 The defendant's evidence was that he came to Perth between 2 and 4 October and had meetings with Mr Higginson and on one particular occasion he had a discussion with Mr Luff in the car park outside Mr Higginson's office. He said that Mr Luff said to him, "Now that this has been done what arrangements have been made for me?" He said that Luff said that the plaintiff promised him something, but he was not sure if it was free shares or cash. The defendant said that he told Mr Luff he was not prepared to make a payment for success unless there had been success. The defendant said that Luff replied that if he had known that he would never have transferred the company to the defendant's control and would not have helped him with his tax problems. The defendant said that he told Luff that he had no doubt that Luff had provided services to the company and that the defendant was willing to procure the company to make a cash payment of $25,000 for his services. He would pay him on
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- the same basis as he was paying Mr Haywood, namely 5 per cent of any capital. He said that Mr Luff accepted the proposal.
72 The defendant said that after he spoke to Mr Luff he then spoke to Mr Higginson and told him that the company would pay Mr Higginson a fee of $7,500 on the float with a bonus, in the event of a successful listing, there would be a fee of $10,000. The defendant said that he then went on to have a conversation with the plaintiff. He said that the plaintiff said to him "I am quite prepared to continue to assist the float process for no fee". The defendant said he replied that that was not reasonable and he wished to offer him an arrangement along the same lines as the arrangement with Mr Luff and Mr Haywood. He told the plaintiff that Mr Luff and Mr Haywood were each receiving 5 per cent of the money they raised. The defendant said that the plaintiff replied "rather than being paid in cash, I would prefer an upfront allocation of shares". The defendant said that he replied that he was not prepared to do that without success and it could not be done before the prospectus issue. The defendant said that the plaintiff's response was "Well why can't the company issue me with partly paid shares?" The defendant said that he was happy for the plaintiff to participate in acknowledgement of what he had done to date. He said that, after further discussion, the plaintiff said "I suggest we agree on a fee of 400,000 partly paid 10 cent shares (that is, at a discount of 15 cents per share), paid to 1 cent as a reward for my efforts to date plus a 5 per cent success fee for any subunderwriting which I directly secure after today. Also, when the company is listed I would like it to pay my expenses related to the float." The defendant said that that was acceptable to him. The defendant said that in due course those shares were issued to the plaintiff's family company (Quairading Holdings Pty Ltd) the value of the shares were $60,000 and they were subject to a restriction.
73 Mr Luff said in cross-examination that there was a meeting in Mr Higginson's office about the time when shares were issued on 4 October (T/S603). Mr Luff said it was about the remuneration of various people that were involved in the matter. He said that he told the defendant that the plaintiff had promised him something but he was not sure whether it was free shares or cash. He did not recall the defendant saying that he was not prepared to make any payment for success unless there was success. He was then asked in cross-examination: (TS603)
"What (the defendant) will say is that the company would pay you $25,000 for your services in the event of a successful listing - - -I think I remember nearly hitting him."
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- He then said that that was not said to him. He said he was in fact paid $25,000 after the float which he assumed to be out of pocket expenses. It was paid by three separate cheques.
74 He said in cross-examination that there was no invoice or record for these expenses. He agreed in cross-examination that he had been paid a number of other expenses for which he had provided vouchers. The effect of his evidence was that the payment of $25,000 was for expenses that could not be vouched for.
75 Mr Lewis' evidence was that he was at the meeting in October 1996. The defendant was not then on the Board, but it had been decided that he would later join the Board as managing director. There was general discussion of the progress being made towards listing the company. He said that after the meeting concluded, the defendant took him outside the office onto the pavement and told him that he would make available to him 200,000 shares out of the vendors' consideration instead of the shares promised by the plaintiff. Mr Lewis said the shares would be required to be in escrow and the defendant replied that his partner, a solicitor, would arrange for it to happen. He said that he did not receive either the defendant's vendors' shares or the plaintiff's promoter shares.
76 The defendant's case is that the agreed method of remuneration of the plaintiff, following the plaintiff saying he did not want a success fee was the transfer to his family company of 400,000 shares in the company. These shares were to be transferred in the near future irrespective of whether the company was listed on the stock exchange. They were, in fact transferred later in October and the following note appeared in the prospectus which issued:
"On 4 November 1996, 400,000 ordinary shares of $0.25 each partly paid to $0.01 and issued at a discount of 15 cents per share and 400,000 Options were issued to Quairading Holdings Pty Ltd in consideration for services provided by Quairading Holdings Pty Ltd to the Company in connection with the Issue."
- The prospectus went on to set out the terms and conditions of these partly paid shares.
77 The plaintiff's explanation for this transfer was that the defendant told him that he had promised Mr Higginson a bonus of 200,000 shares but as Mr Higginson was the company secretary there would be a difficulty in transferring these shares to him without shareholders' approval and without a disclosure in the prospectus. The plaintiff said
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- that he was asked if he would take these shares on Mr Higginson's behalf. His evidence was(T/S255)
"He had promised Michael Higginson as a bonus to give 200,000 contributing shares paid up to 1 cent and discounted at 15 cents but there was a problem. The company could not issue to Michael Higginson 200,000 shares unless it had shareholders approval and it would have to be disclosed in the prospectus. Now, to do that it would take the company - it would set the company at least 3 weeks back because you had to give notice of meeting of the shareholders and everything and they could not do that. Starink asked me if I would hold 200,000 contributing shares for Michael Higginson in my company.
…
I said, "I'm not going to hold just 200,000 shares for Michael Higginson in my company." I said, "If you like,' because the company Adelong owed my company Quairading for some service which my daughter had provided, I said, "In return for that, if you like, and we'll call it square, you could issue out 400,000 and it'll be 200,000 to Quairading and 200,000 will be kept for Michael Higginson."
That is, he was to issue 400,000 to Quairading?---Yes, to Quairading.
And you in turn would give 200,000?---To Michael Higginson. We had to pay, actually we paid to pay 1 cent each to get those shares issued out, which I had to write out a cheque, and Michael Higginson wrote out a cheque for the same amount, which is the discovery of the company records. The shares were issued out at - were paid up to 1 cent, discounted 15 cents."
"I had overheard a discussion where Higginson and Sacca were discussing their own relationships and I believe that there was an arrangement that Sacca was going to pay Higginson 200,000 of those shares. I said at the time, 'I don't want to know about this. My arrangement is with you; it's 400,000 shares. What
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- other arrangements you have with other people is entirely your business.' That payment of 200,000 shares, if that ever occurred to Higginson, was not part of the arrangement that I reached with Higginson in relation to the float."
79 The plaintiff's position in respect of expenses due to him personally was that it was always agreed he would be reimbursed out of pocket expenses. He said that he had to bring a District Coourt action in order to obtain them.
80 The plaintiff, when he became aware that the company had been listed on the stock exchange, did not take any steps to claim his success fee. The following are reasons he gave for this (T/S258)
"OWEN-CONWAY, MR: Mr Sacca, his Honour asked you about whether you then asked Mr Starink about your success fee after the company had listed in February. Did you in fact ask Mr Starink for your success fee and when?---I was waiting for Jon Starink to contact me and he didn't and then I had a few discussions with Brent Arnott-Smith - at that time he was a director of the company - and Brent said to me, "Look, leave it with me. At the next board meeting, I'll mention it to Jon." A few times he was supposed to come back and he never come back to me, and by July then we had a contact with Jon Starink in July 97 and I discussed the money due to me and he asked me to write to the company for my out of pocket expenses and he would personally deal with my success fee on my return from Italy, as I was leaving at the end of the month.
You have referred to a facsimile dated 16 July 1997? ---Yes. I sent a facsimile to Adelong requesting reimbursement for my out-of-pocket expenses."
81 This fax was received as Exhibit 31 and read:
"16 July 1997
Adelong Consolidated Gold Mining NL
John Starink
Managing Director
FAX: 06 238 1036
- Dear John
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- I wish to submit my invoice for my out of pocket expenses for the pre-listing of Adelong Gold Mining.
I wish to point out that this does not include any of the long hours and the personal time that I put in. It does however include airfares for both myself and company Directors from to Perth to the Eastern States to visit various stock-brokers; Independent Geologists fees, Office Expenses - phone calls, photocopying etc; Courier expenses - Documentation to Eastern States; Entertainment expenses - stockbrokers; Expenses for Stuart Hayward to travel from Sydney to Adelong return.
These expenses I incurred total $35,375.
I am looking forward to receiving a cheque.
Yours faithfully,
Joseph Sacca
cc Michael Higginson
Brent Arnott-Smith"
82 It was these expenses which were the subject of the District Court action. His evidence continued:
"OWEN-CONWAY, MR: Did you send an account for your success fee, or for the promoters success fee?---No, I didn't. When I had a discussion with Starink in July 87 he said to me that he will fix it up. He didn't say to me he wasn't going to pay it in full or anything, he said he will fix it up with me on my return from Italy."
83 The next matter to which the plaintiff refers are steps taken by the defendant to settle the matter in October 1997. On 16 October 1997 the defendant sent the following fax to the plaintiff: (11/3893)
"Joe Sacca
Please find attached a DRAFT of the proposed Deed for your consideration and comment.
As you know, Jeff Luff, Stuart Haywood and Michael Higginson have received payment for their services.
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- Separately, Geoff & myself have settled outstanding matters with Brenton Arnott-Smith. After other costs associated with the float for which Geoff & I assumed direct responsibility, we are personally out-of-pocket to the tune of approximately $367,500 at this time and remain committed to a further $256,000 which admittedly we may be able to get back some time in the future.
As a separate matter, could you please finalise your invoice for expenses related to the float at your earliest convenience. As each & every payment is carefully scrutinised by our independent director and the auditors, please ensure that you provide appropriate documentary evidence for your expenses.
Regards."
84 The Deed proffered was between the defendant, his partner and the plaintiff and it contained the following recitals: (11/3894)
"RECITALS:
Whereas:
A. Starink is indebted to Sacca for consulting services in the sum of $20,000 which sum is due and payable on 1 April 1999 ('the Starink debt').
B. Clark is indebted to Sacca for consulting services in the sum of $20,000 which sum is due and payable on 1 April 1999 ('the Clark debt').
C. Both Starink and Clark have held discussions with Sacca concerning the discharge of the debt ('discharge of the respective debts')."
85 The plaintiff rejected the offer.
86 The plaintiff subsequently brought action against both the defendant and Mr Clark for the success fee. Mr Clark settled the matter by entering into a Deed to pay $120,000 and it is agreed that if the plaintiff is successful this must be credited to his claim.
87 The defence that the transfer of the shares to the plaintiff's family company was in discharge of any indebtedness under the original contract or amounted to a variation was not pleaded until the commencement of
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- the trial. The position was that until a week before the trial the plaintiff's claim was limited to payment of the success fee of $400,000. The plaintiff had not then pleaded any variation alleging to arise from the breakfast at Coco's on or about 20 September. It was a claim for $400,000 or its equivalent under the original contract. The defendant's defence was that the contract had come to an end by reason of the fax of 18 September and in the alternative, it was claimed it was an entire contract and had not been fully performed.
88 Five days before the trial the plaintiff amended his statement of claim to claim the promoter shares and in addition to claim the variation by reason of the meeting at Coco's which, if proved, would indicate the contract was still on foot. It was in these circumstances that the defendant amended his claim to say that if a contract was on foot it was discharged in the manner I said. I would not in these circumstances see the late amendment to the defence as being a factor to lean against the defendant's case. One effect of the late amendments is that the witnesses did not in their witness statements focus on this meeting. The statements had been prepared much earlier.
Conclusions as to meeting 2 October
89 I am satisfied on the defendant's evidence that at the meeting of 2 October the defendant was of the view that earlier arrangements in hand to remunerate those from Western Australia assisting in the float had come to an end. He therefore decided to make new arrangements on his own account to remunerate them in a different way to ensure they continued to assist to raise capital. The plaintiff's fax of 16 September would give the defendant, at the very least, the impression that the method of remunerating those assisting was uncertain. Mr Lewis was chairman of the Board and had standing. Mr Luff, Mr Higginson and the plaintiff were in touch with persons who could provide capital. The evidence showed that he spoke to each separately outside the office and I consider that this was in each case to have a private discussion in respect of remuneration. He was aware that the plaintiff had promised to Mr Luff and Mr Lewis promoter shares, although the plaintiff had not secured agreement that those were to be issued.
90 A factor to support the defendant's evidence in this area is that $25,000 was paid to Mr Luff. I do not accept Mr Luff's evidence that this was in payment for unvouched expenses. That evidence, by the way it was given, did not impress me and I would see it highly unlikely that such
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- a figure would have been agreed. Mr Luff was paid regularly by the company for expenses for which he produced receipts.
91 I would now turn to Mr Lewis's evidence. It is consistent with that part of the defendant's evidence that he was making a separate arrangement to pay Mr Lewis. It was a promise that he should receive shares from the company. I do not consider the matter is weakened by the fact that the shares did not issue to Mr Lewis. He was chairman of the company and it would be a company decision whether such shares should issue. They were not shown in the prospectus and it would appear that the arrangement was out of order.
92 The next factor to support the defendant's evidence is that 400,000 shares issued to and were accepted by the plaintiff's family company Quairading Holdings Pty Ltd. I cannot accept the plaintiff's explanation for receiving these shares. It was that he enter into an arrangement to mask the transfers of shares to Mr Higginson and a requirement for his doing this was the receipt of a further 200,000 shares in satisfaction for secretarial services by his daughter. No invoice had been submitted for these expenses and no attempt was made to show that they had been incurred.
93 I accept the defendant's evidence as to the arrangements he made with the plaintiff and others on 2 October. I reach this view by the way each party gave evidence on this particular question and by the fact that the defendant's version is supported to the extent I have indicated. I do not consider that this is detracted from by reason of the new remuneration coming from the company. No company was in existence when the original promise was made.
94 I consider that on 2 October, when the plaintiff accepted the offer of the shares and requested the shares to be transferred to his family company it was clear in both parties minds and they had agreed that the contract to pay the success fee had come to an end. It was agreed that for work done to date the plaintiff would receive shares to be transferred as soon as they could be and to be transferred irrespective of whether the company was listed. Future work was to be remunerated under a new agreement. I consider the remuneration in the future was on the same basis as agreed with the others, namely 5 per cent on capital raised or sub-underwriting obtained.
95 In reaching this view I have considered the action of the defendant in attempting to settle the matter in October 1997. I find it difficult to
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- determine why the defendant made the offer. He said he thought that the plaintiff was to commence action and he was to forestall it, but there is no evidence to suggest that this was the position. In fact the evidence was to the contrary. I could not spell out from the deed or from the defendant's actions that there was an acknowledgement that the success fee as claimed was due. The proffered deed refers to no more than $40,000. I could not infer that the defendant realised that the full amount was due and was endeavouring to forestall it by the offering of a token payment.
96 I would dismiss the plaintiff's claim.
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