Sent v Primelife Corporation Ltd

[2006] VSC 445

­IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 8652 of 2003

EDUARD CHRISTIAAN SENT	Plaintiff
v
PRIMELIFE CORPORATION LTD	Defendant

No. 9502 of 2003

SANDI PORTER	Plaintiff
v
PRIMELIFE CORPORATION LTD	Defendant

No. 2062 of 2004

PRIMELIFE CORPORATION LTD	Plaintiff
v
MAINPOINT DEVELOPMENTS PTY LTD	Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATES OF HEARING:	15-19 May, 22-26 May, 29-31 May, 1 June, 5-8 June, 13-15 June, 19-22 June, 26 June, 8-9 August, 14-16 August 2006
DATE OF JUDGMENT:	28 November 2006
CASE MAY BE CITED AS:	Sent v Primelife Corporation Ltd
MEDIUM NEUTRAL CITATION:	[2006] VSC 445

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EMPLOYER AND EMPLOYEE – summary dismissal of CEO and Deputy CEO – whether serious misconduct established in context of videotaping of board meetings, substantial cash payments to an alleged industrial consultant and tapping of employees’ telephone calls.

VENDOR AND PURCHASER – exercise of option to purchase property – construction of option deed – whether certain conditions were conditions precedent to the exercise of the option or conditions precedent to the completion of the sale – whether the conditions precedent were solely for the benefit and protection of the purchaser – whether it was necessary for the purchaser to waive the benefit of the conditions precedent.

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APPEARANCES:	Counsel	Solicitors
For Sent, Porter and Mainpoint Developments Pty Ltd	Mr P Bick QC with Mr M Osborne	Schetzer Brott & Appel
For Primelife Corporation Ltd	Mr T North SC with Mr P Nugent and Mr S Sharpley	Arnold Bloch Leibler & Minter Ellison

CONTENTS:

CONTENTS:........................................................................................................................................ 1

A:       INTRODUCTION.................................................................................................................. 3

B:       CONTRACTUAL SETTING................................................................................................ 9

C:       FACTS.................................................................................................................................... 12

Prior to 1998................................................................................................................................. 12
1998................................................................................................................................................ 13
1999................................................................................................................................................ 16
2000................................................................................................................................................ 16
January to June 2001................................................................................................................... 17
July to August 2001..................................................................................................................... 18
September 2001............................................................................................................................ 20
October 2001................................................................................................................................ 21
November 2001............................................................................................................................ 22
2002................................................................................................................................................ 24
January to February 2003........................................................................................................... 27
March to April 2003.................................................................................................................... 28
May 2003....................................................................................................................................... 28
June 2003....................................................................................................................................... 31
July 2003....................................................................................................................................... 39
August 2003................................................................................................................................. 59
September 2003............................................................................................................................ 73
October 2003................................................................................................................................ 79
December 2003............................................................................................................................. 88
2004................................................................................................................................................ 89

D:       VIDEOTAPING OF BOARD MEETINGS..................................................................... 89

E:        CASH PAYMENTS TO GATTO AND A&M................................................................ 91

Relevant facts............................................................................................................................... 92

Gatto’s “general retainer”....................................................................................................... 92
Gatto’s “site allowance retainer”........................................................................................... 100
The Royal Commission.......................................................................................................... 105
Original directors’ knowledge of cash payments................................................................... 108

Submissions............................................................................................................................... 109
Conclusions................................................................................................................................ 111

F:        RECORDING AND LISTENING TO EMPLOYEES’ TELEPHONE CALLS......... 114

Relevant facts............................................................................................................................. 114

Stuart’s evidence.................................................................................................................... 118

Submissions............................................................................................................................... 123
Statutory provisions.................................................................................................................. 124
Conclusions................................................................................................................................ 125

G:       OTHER ALLEGED MISCONDUCT.............................................................................. 126

Other alleged misconduct by Sent.......................................................................................... 126
Other alleged misconduct by Porter...................................................................................... 128

H:       COUNTERCLAIMS BY PRIMELIFE IN THE SENT AND PORTER PROCEEDINGS  129

I:         THE POINT COOK PROCEEDING.............................................................................. 130

Relevant provisions of the Point Cook option...................................................................... 130
Submissions............................................................................................................................... 134
Reasons....................................................................................................................................... 137

J:         ORDERS.............................................................................................................................. 141

HIS HONOUR:

A:       INTRODUCTION

1. It is convenient to refer to the parties and other persons involved in these proceedings by way of the following abbreviations:

PARTIES
Edward Christiaan Sent	Sent, Ted Sent or Ted
Sandra Joy (or Sandi) Porter	Porter
Sent and Porter (and Mainpoint Developments only if the context so requires)	The plaintiffs
Primelife Corporation Ltd	Primelife
Mainpoint Developments Pty Ltd	Mainpoint Developments
DIRECTORS OF PRIMELIFE
Robert James Champion de Crespigny, Chairman of directors of Primelife from 27 June 2003	de Crespigny
Ronald Joseph Walker, a director of Primelife from about June 2003 to 31 December 2005	Walker
David Stewart Legge, Chairman of directors of Primelife from about 1993 until 27 June 2003 and thereafter a director until 16 December 2003	Legge
Louis James Panaccio, a consultant to Primelife from mid-2000 until 31 October 2001, acting chief financial officer of Primelife during part of the above period, and a director of Primelife from 31 October 2001	Panaccio
Kenneth Hugh Spencer, a director of Primelife from June 2003 (since deceased)	Spencer
Sandra Veronica McPhee, a director of Primelife from 6 June 2003 to 1 June 2005	McPhee
Andrew Peter Somerville Kemp, a director of Primelife from 19 August 1988 to 16 December 2003	Kemp
Stuart James McGregor, a director of Primelife from 1 December 2001 to 26 February 2004	McGregor
OTHER COMPANIES AND ENTITIES
Mainpoint Enterprises (Aust) Pty Ltd, trustee of the Mainpoint Settlement Trust (Sent’s family trust)	Mainpoint Enterprises
Mainpoint Enterprises (Aust) Pty Ltd and/or Mainpoint Developments Pty Ltd	Mainpoint
People First Retirement Services Pty Ltd (formerly Mainpoint Enterprises), trustee of the Mainpoint Settlement Trust (Sent’s family trust)	People First
Williamstown Range Pty Ltd, a subsidiary of Primelife that managed the Williamstown Range retirement village project	Williamstown Range
Albany Bay RV Investments Pty Ltd	Albany Bay
Arbitrations and Mediations Pty Ltd	A&M
Construction, Forestry, Mining and Engineering Union	CFMEU
OTHER PERSONS
Gary Cobbledick, Acting CEO of Primelife appointed 25 August 2003	Cobbledick
Pasquale Daniele, financial controller of Primelife 1998 to about January 2001, investor relations manager since 2001, national finance manager – operations since October 2005, company secretary 27 September 2000 to 2 June 2004	Daniele
Gregory David Flood, senior corporate counsel of Primelife from March 2001 to August 2003, Chief Operating Officer from August 2003 to 22 December 2004	Flood
Dominic Gatto	Gatto
Shona Monica Holzer, personal assistant to Porter from about November 1999 to 22 August 2003 and during that time, from time to time, providing similar services for Sent	Holzer
Michael Lane, an accountant retained by Albany Bay	Lane
Grace Sent, Sent’s wife	Grace Sent
Maxwell Charles Stuart, general manager of Renaissance Television (a Primelife subsidiary)	Stuart
Gary Thompson, employed by Primelife and in charge of its construction division	Thompson
Brian Daniel Tudor, a builder retained by Primelife	Tudor
Ross Charles Williams, Primelife’s general manager - finance and administration, from about January 2001 to October 2004	Williams
SOLICITORS
Arnold Bloch Leibler, solicitors	ABL
Mark M Leibler, a partner of ABL	Leibler
Robert J Heathcote, a partner of ABL	Heathcote
Gary Rothville, a partner of ABL	Rothville
Schetzer, Brott & Appel, solicitors	SBA
Jeffrey Appel, a partner of SBA	Appel
Morris Landau, a solicitor with SBA	Landau
Strongman & Crouch, solicitors	S&C
Andrew Joseph, solicitor (S&C)	Joseph

1. This case is comprised of three proceedings that were heard together.  In the first proceeding[1], Sent is plaintiff and the sole remaining defendant is Primelife – “the Sent proceeding”.  In the second proceeding[2], Porter is plaintiff and Primelife is defendant – “the Porter proceeding”.  In the third proceeding[3], Primelife is plaintiff and Mainpoint Developments is defendant – “the Point Cook proceeding”.

   [1]8625 of 2003

   [2]9502 of 2003

   [3]2062 of 2004

1. The Sent proceeding is a claim by Sent for damages for breach of a contract of employment.  Sent was employed as Chief Executive Officer of Primelife pursuant to a written agreement dated 17 July 2003 for a period commencing 1 July 2001 and ending 30 June 2008 (“the Sent agreement”).  Sent was dismissed by Primelife on 30 October 2003.  Prima facie Primelife’s termination of Sent’s employment was in breach of the Sent agreement. 

1. Primelife’s defence involves allegations of conduct by Sent said to constitute such misconduct as would justify his summary dismissal.  Primelife summarised Sent’s alleged conduct as follows:

(a)purporting to terminate Porter’s employment without authority and in contravention of express instructions to the contrary;

(b)receiving cash from Primelife for which he failed to properly account and purportedly paying such cash to Gatto or A&M;

(c)his involvement in the tapping of Primelife employees’ telephones;

(d)his involvement in the videotaping of meetings at Primelife’s offices, including two meetings of its Board, and failing to carry out an express direction that no further taping occur and the videotaping equipment be removed;

(e)lying to the Board on 27 June 2003 when asked whether the Board Meeting was then being taped;

(f)lying to the Board on 16 July 2003 when asked whether the Board Meeting was then being taped;

(g)providing confidential Board papers and facilitating the provision of other documents to Porter;

(h)refusing to participate in the review conducted by ABL on behalf of the Board.

1. The Porter proceeding is a claim by Porter for damages for breach of a contract of employment in writing dated 1 July 2001, pursuant to which Porter was employed by Primelife as Deputy Chief Executive Officer for a period of five years commencing on 1 July 2001 (”the Porter agreement”).  Porter alleges that her employment was wrongly terminated by Primelife on 16 July 2003 or on certain other specified dates from July to November 2003.  Prima facie, if Primelife terminated Porter’s employment, that termination was in breach of the Porter agreement. 

1. In defence, Primelife contends that Porter’s employment was not so terminated but that in any event any termination was justified by her alleged conduct said to constitute such misconduct as would justify any such termination or dismissal.  Primelife summarised Porter’s alleged conduct as follows:

(a)the tapping of Primelife employees’ telephones and the destruction of Primelife’s property, in the form of the disks upon which the RACAL recordings were made and the data contained on her VAIO computer;

(b)the videotaping of meetings at Primelife’s offices, including two meetings of its Board, despite express instructions that such meetings were not to be recorded, and failing to carry out an express direction that the videotaping equipment be removed;

(c)lying to the Board on 27 June 2003 when asked whether the Board Meeting was then being taped;

(d)lying to the Board on 16 July 2003 when asked whether the Board Meeting was then being taped;

(e)facilitating the provision to Sent of cash from Primelife for which Sent has failed properly to account;

(f)removal of boxes of confidential information;

(g)refusing to participate in the review conducted by ABL on behalf of the Board.

1. The Point Cook proceeding is a claim by Primelife to establish the validity of, and enforce, its purported exercise of an option, pursuant to a call option deed dated 17 July 2003 (“the Point Cook option” or “the Deed”), for the purchase from Mainpoint Developments of a property known as Catalina Waters, located on the corner of Sneydes Road and Point Cook Road, Point Cook (“the Point Cook property” or the “Point Cook land”).  Mainpoint Developments, a company associated with Sent, contends, for a variety of reasons, that the option was not duly exercised or is not enforceable.  The principal matters in issue in the Point Cook proceeding involve questions of construction of the Point Cook option. 

1. Sent has had a chequered business history and it is common ground that, rightly or wrongly, he had and has a poor reputation in the business community.  Nevertheless it was also common ground that he has and had considerable entrepreneurial flair and many commercial talents.  Sent has had a long business association with Porter.   As Mr Bick QC (who appeared as Senior Counsel for Sent, Porter and Mainpoint Developments) put it, Sent was the “big picture man” and Porter dealt with all the details.  It was really common ground that Sent and Porter had for many years and at all relevant times constituted a business “team”.  It was abundantly clear from their evidence that Sent was in command of the overall business objectives and was the originator both of the business strategy and the business tactics of Primelife, whereas Porter as his subordinate faithfully implemented all of his instructions and had an encyclopaedic knowledge of all the details of the Primelife business.  That is not to say that Sent was unaware of many details of the business but Porter was the one who was familiar with all of the documentation, what was in it and where it was.  She composed and sent all of Sent’s emails, faxes and letters and received and informed him of and where necessary provided him with copies of emails, faxes and letters addressed to him.  She was clearly a prime administrative conduit and, as will appear (it was suggested by some), a “bottleneck” in the Primelife organisation.

1. Broadly speaking, Primelife was in the business of constructing and managing “retirement villages” in Victoria and it was common ground that these establishments were well conducted and that Primelife was a “good brand” in the retirement village industry.  This business had been initiated and developed by Sent and had become a substantial business, not without financial and liquidity problems, by the year 2003 when what was referred to as “the cornerstone investor” came on the scene at the instance of Sent and the Board of Primelife in order to solve Primelife’s financing problems.  The cornerstone investor was a company, Albany Bay, and the leading individuals involved in the company were two prominent Australian company directors, de Crespigny and Walker.

1. In order to understand what occurred and to deal with the issues in these proceedings, it is necessary to refer to the contractual setting and then to state the facts in some detail.

B:       CONTRACTUAL SETTING

1. Clause 2.1 of the Sent agreement provided that Sent would continue to be employed by Primelife until 30 June 2008, on the terms and conditions of the agreement, until[4] his employment and the agreement were terminated in accordance with clause 10.  Clause 5.4 provided that Sent would within the scope of his duties specified in Schedule 2 use his best endeavours to be fully responsible for the day-to-day operations of Primelife and be immediately responsible and accountable to and perform his duties in accordance with the directions of the Board and report to the Board, fulfil the responsibilities prescribed by any applicable legislation for a person in his position, follow and comply with the lawful instructions of the Board, and so on.  Schedule 2 described his position as Chief Executive Officer and set out the duties customarily performed by a chief executive officer.

   [4]i.e. “unless and until”

1. Clause 10.1 of the Sent agreement provided that “the Employer may dismiss the Employee, and thereby terminate this Agreement without notice if the Employee is guilty of Misconduct”.  Clause 10.6 provided, in effect, that if the employment was wrongly terminated the Employer would pay to the Employee all amounts to which the Employee would have been entitled had he continued his employment for the remainder of the Term.

1. The Sent agreement[5] defined “Misconduct” as having its “ordinary meaning at law” and as including a long list of specified classes of conduct.  Somewhat redundantly sub-para (a) of the definition included as misconduct “any material conduct … which will as a matter of law or pursuant to this Agreement result in summary dismissal”.  Other relevant classes of conduct included: “(c) not complying with the legislative requirements in a manner material for a person in the Employee’s position”;[6] “(d) wilful disobedience of the Employer’s lawful directions on material matters”; “(g) wilful neglect of duty or gross incompetence”; and “(h) conduct of a sort which may materially injure the Employer’s reputation”.

   [5]Clause 1.1

   [6]The reference to “the” legislative requirements is clearly a reference to any legislative requirements applicable to the employee so long as the non-compliance is one that is material for a person in the employee’s position.

1. Clause 24.1 of the Sent agreement provided that “the Employer is required to act reasonably in the exercise of its rights and powers pursuant to this Agreement”. 

1. Clause 2.1 of the Porter agreement provided that Primelife agreed to employ Porter for a period of five years (from 1 July 2001) as its Deputy Chief Executive Officer and that, unless otherwise directed, she would report directly to the Managing Director, and be accountable in general to the Board.  Clause 2.3 provided that Porter’s duties might be varied by Primelife from time to time.  Clause 3.1 provided that Porter must perform the duties “assigned to her” to the best of her abilities, serve Primelife faithfully and diligently, abide by the directions of her Manager and the Board, give her Manager and the Board any information about the affairs of Primelife when they so requested, act in Primelife’s best interests and comply with all law applicable to her position and to the duties assigned to her, and so on.  The “duties assigned to” Porter were defined in Schedule 1 as including the duties assigned from time to time by the Managing Director, including any duties that are commonly associated or incidental to the position of Deputy Chief Executive Officer. 

1. Clause 10.5 of the Porter agreement provided that Primelife might terminate the agreement at any time with immediate effect by giving notice to her: “if you behave in a way that is considered by Primelife to amount to Serious Misconduct or Misconduct in the course of performing your duties under this agreement … that is likely to bring Primelife into substantial disrepute”[7]; “if your action or inaction is fundamentally inconsistent with your duties as an employee”[8]; and “if you disobey or neglect any lawful and reasonable order or direction of Primelife”[9].  Schedule 4 headed “Serious Misconduct” provided:

   [7]Clause 10.5.1

   [8]Clause 10.5.2

   [9]Clause 10.5.6

“The following actions are considered to be acts of Serious Misconduct, which could lead to summary dismissal.  This list is not all-inclusive and Primelife reserves the right to dismiss summarily for any other act of Serious Misconduct as provided in clause 10.5.1.

…

·Immoral … conduct during the course of employment

·Falsification of records or making untrue statements which may result in the falsification of records

·Misuse or removal from premises of any property of Primelife without its prior approval

·Abuse or deliberate destruction of property, plant and equipment belonging to Primelife …

·Lying or any like dishonesty to Primelife in relation to any work matters

…

·A serious or persistent breach of any of the terms or conditions of this agreement …”

1. Although the above specific provisions in the plaintiffs’ employment agreements provide guidance as to the nature of the classes of misconduct which might lead to summary dismissal, the plaintiffs said and I agree that their employment agreements embodied, did not displace and were no wider than the common law notion of misconduct that was sufficiently serious as to justify summary dismissal (hereinafter referred to as “serious misconduct”).[10]  It follows that Primelife, to succeed in its defences, must prove to the satisfaction of the Court misconduct by Sent and Porter sufficiently serious as to justify summary dismissal.  Serious misconduct in this context has been held to include conduct, in relation to important matters, that constitutes a repudiation of or is incompatible with or repugnant to the essential obligations of an employee or is destructive of the relationship of good faith and confidence between employer and employee.

   [10]There was no dispute between the parties as to the relevant legal principles stated and applied in such cases as Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; North v Television Corporation Ltd (1976) 11 ALR 599; Concut Pty Ltd v Worrell (2000) 176 ALR 693; Bruce v AWB Ltd (2000) IR 129; Rankin v Marine Power International Pty Ltd [2001] VSC 150 and Connor v Grundy Television Pty Ltd [2005] VSC 466.

C:       FACTS

Prior to 1998

1. Sent came to Australia in 1960 and thereafter entered into various business activities and investments.  Porter first met Sent in 1984 when she took up a position as financial controller with a company in which Sent was involved and they have been closely associated in business for most or a considerable part of the time since then. 

1. On 21 March 1990 Sent was disqualified from acting as a director for six months.  On 29 April 1992 a sequestration order was made against Sent on the application of the Australian Taxation Office.  Sent had debts in excess of twenty million dollars.  Sent was discharged from bankruptcy on 30 May 1995. 

1. Mainpoint Enterprises[11] was the Trustee of the Mainpoint Settlement Trust (Sent’s family trust) and became active in the retirement village industry.

   [11]Now called People First Retirement Services Pty Ltd.

1. In or about 1993 Sent and, through him, Mainpoint Enterprises became involved with a company that was subsequently renamed Primelife Corporation Ltd (“Primelife”).[12]  At that time Primelife was chaired by Legge who remained Chairman until June 2003.  Legge also held approximately 20% of the issued share capital in Primelife. 

   [12]The company was and has continued to be a public company listed on the Australian Stock Exchange, the listing having commenced in or about 1987, its previous names being Permasnow Australasia Ltd and then Thomas McDougall Ltd.

1. In 1993 Primelife entered the retirement village industry by taking a 50% share in a joint venture operating a retirement village project in Altona, together with interests associated with Legge to the extent of 25% and interests associated with Mainpoint Enterprises or with Sent’s family to the extent of 25%.  Primelife subsequently acquired retirement villages at Viewbank and Williamstown and later developed retirement villages in Camberwell and Essendon.  Initially the management of Primelife’s retirement villages was contracted by it to Mainpoint Enterprises. 

1. From 1994 to 1998, pursuant to an arrangement between Primelife and Mainpoint Enterprises,  Mainpoint Enterprises offered retirement village opportunities to Primelife.  Primelife made various investments in retirement villages and so did Mainpoint Enterprises and the value of the overall retirement village operations continued to increase. 

1. In about July 1997 Daniele commenced working for Mainpoint as group accountant.  At that time Porter was general manager and Grace Sent was sales and operations manager. Daniele also acted as a consultant to Primelife preparing its financial statements and managing its accounting records.

1. On 14 October 1997 Porter was appointed as company secretary of Primelife. 

1. On 17 November 1997 Sent was appointed a director of Primelife.

1998

1. In January 1998 Primelife, Mainpoint Enterprises and a number of other entities executed heads of agreement under which Primelife was to acquire all of Mainpoint Enterprises’ management and ownership rights in a number of retirement villages and similar developments, some of which had formerly been conducted by Mainpoint Enterprises in its own right and others of which were owned or operated by Primelife.  The acquisition by Primelife of Mainpoint Enterprises’ retirement village interests and an associated allotment of shares in Primelife by way of consideration was subsequently approved by the shareholders of Primelife at a meeting held in June 1998.  A public announcement relating to this transaction quoted Legge as saying that the proposed acquisition would not only remove any market uncertainty or confusion over the relationship between the two groups and their respective activities, but would reinforce Primelife’s future direction as a specialist operator in the aged care and accommodation industry.  Legge noted that on completion of the acquisition the number of units and apartments under ownership and management in Primelife’s name would increase from 354 to 818 and that there was also a land bank capable of yielding approximately 200 additional units for which planning permits were being sought.  The announcement referred to Primelife’s objective of having a minimum of 2000 units and apartments under ownership and management by the year 2002.  At or about the same time Sent entered a five year employment contract with Primelife, commencing 30 June 1998, and became the Managing Director and Chief Executive Officer (“CEO”) of Primelife.  

1. Sent’s 1998 employment contract provided for a base salary plus superannuation together with a bonus scheme which was set out in the schedule to the agreement.  The bonus was to be calculated by reference to the future profitability of Primelife. 

1. After the sale of Mainpoint’s retirement village interests to Primelife, Mainpoint’s activities (apart from its shareholding in Primelife) were limited to:

·an ownership interest in two facilities which were managed by Primelife;

·an interest in a group of companies operating in the health care sector;

·an interest in an amusement business known as Thrillseekers, managed by Tony de Luca;[13] and

·ownership of vacant land (subsequently including the Point Cook property).

[13]De Luca was for some time a director of Primelife.

1. As I have said, prior to Primelife’s acquisition of Mainpoint Enterprises’ business, Mainpoint Enterprises had managed Primelife’s retirement village portfolio.  At the time of the sale, all Mainpoint Enterprises employees were transferred to Primelife except Porter and Grace Sent.  The services of Porter and Grace Sent were provided by Mainpoint Enterprises to Primelife pursuant to a consultancy agreement between Mainpoint Enterprises and Primelife.  From 30 June 1998 until 22 August 2003 Porter spent most of her working hours attending to Primelife’s business.

1. From 1998 onwards, Sent ran Primelife on a day to day basis, but reported regularly to the Board on strategic issues and on Primelife’s financial situation.  Sent devoted his full-time attention and efforts to the conduct of Primelife’s business, working about 70 hours per week, ordinarily from 7 am to 8 pm during the week and often on weekends.  Sent also spoke and met regularly with Legge.  Sent testified that during the period from June 1998 until October 2003 Primelife became recognised as one of the largest brands in the retirement village and aged care industry and its market capitalisation, he said, grew from about $400,000 to in excess of $100M.  The company employed some 1300 people and operated over 80 retirement villages with some 6000 residents. 

1. Porter assisted Sent in the day to day management of Primelife’s activities, initially as company secretary and as a consultant supplied by Mainpoint Enterprises to Primelife and from about July 2001 as Primelife’s Deputy CEO.  Sent testified that Porter was his “right arm” and “confidante”.  He said that Porter was computer-literate, whereas he was not.  He said that Porter was prepared to work extremely long hours; she wrote letters, prepared submissions, made enquiries and carried out investigations.  She headed up due diligence exercises conducted in relation to acquisitions.  She researched contracts and businesses.  Sent testified that he was heavily involved in the business aspects, including the business details and contemplated acquisitions, and that Porter would deal with other matters of detail and was responsible for the implementation of Sent’s directions and of the directions of the Board.  Porter would take notes at all meetings and follow up to ensure that the matters requiring attention were attended to.  Porter would also meet with Sent to discuss the details of such things as “cash-flows, legal matters, acquisitions and disposals”.  Sent testified that the two of them “functioned very effectively as a ‘package’” and had functioned in that way since 1992.  I am satisfied that Sent and Porter worked as a team and “hand in glove” and kept in close and constant contact and consultation on all aspects of Primelife’s business, although Sent left the administrative details to Porter.

1999

1. In about early 1999 Sent told Legge that he had identified an opportunity to acquire the Point Cook property and suggested to Legge that Primelife should buy it.  Legge told Sent that Primelife did not have the funds to buy the property at that time.  Sent then offered to acquire the Point Cook property through Mainpoint for on-sale to Primelife at a later date “at cost”.  The Point Cook project was shown in all subsequent Primelife promotional material as a Primelife project.

1. Sent’s employment agreement was orally varied as a result of discussions he had with the other directors of Primelife in about July 1999.  The substance of the variation agreed was to increase his base remuneration to $600,000 per annum (inclusive of superannuation entitlements).  The variation was documented in October 2000.

2000

1. At all relevant times, Primelife’s principal offices were located at 464 Collins Street, Melbourne in an old two-storey building.  On the front half of the second floor were situated the offices of Sent (adjacent to the boardroom), of Porter (next to Sent’s office) and of Holzer (Sent’s and then Porter’s personal assistant) and also Primelife’s boardroom and an adjoining conference room.  In the corridor between the front and back half of the second floor were cupboards where Porter’s files were stored.  These files consisted of numerous files relating to Primelife’s business and the various retirement villages operated or being constructed by Primelife and also a large number of files relating to the activities of Mainpoint. 

1. In about early 2000 Primelife arranged for a company (“Kiandra”) to install a telephone monitoring system (“the RACAL system”) the use of which has given rise to issues in these proceedings.

1. On 27 September 2000 Porter was replaced as company secretary of Primelife by Daniele. 

1. From about 2000 onwards Sent had a number of discussions with Legge concerning the structure of his employment package.  Legge told him that this existing package was not being well received by the market, that institutional shareholders and lenders were not going to support Primelife while Sent’s package remained in its then form and that the market’s perception was that the package was too skewed in favour of bonuses.  Legge told Sent that the market was also concerned by the number of related party transactions between Mainpoint Enterprises (or other entities controlled by Sent) and Primelife.

1. The evidence shows that in or about October 2000 certain cash withdrawals commenced to be made by Sent from Primelife’s funds.  Sent alleged that this cash was paid to Gatto and A&M.  These cash withdrawals continued for some years and in addition, at a later stage, payments commenced to be made by cheque allegedly for the same or related purposes.  The circumstances of these payments occupied a considerable part of the evidence at trial because Primelife contended that the conduct of Sent and Porter in relation to them constituted serious misconduct.  I will deal with these facts in more detail in Part E below. 

January to June 2001

1. In 2001, as a number of directors perceived it, there was market and media criticism of Sent’s remuneration package, in particular his bonus arrangements, and the extent of his related party transactions with Primelife.   During 2001 some members of the Board, mainly Legge, Kemp and Panaccio, conducted negotiations with Sent with the aim of restructuring his employment agreement and unwinding the related party transactions. 

1. In 2001 Porter deployed the RACAL system in order to monitor telephone calls made by various Primelife employees for the purpose, she said, of identifying the sources of the apparent public leakage of confidential information, thought to be associated with Primelife’s involvement in a number of pieces of litigation.  The details of this matter are referred to in Part F below.

1. In or about March 2001 Williams replaced Daniele as financial controller of Primelife.  On 12 May 2001 Flood was appointed Primelife’s in-house counsel.

1. Legge agreed to a one-off increase in Sent’s salary for the year ending 30 June 2001 of $100,000.  By a memorandum to the accounts department dated 11 June 2001,  Legge authorised this salary increase.[14] 

   [14]As to the reason for this increase, see para 280 below.

July to August 2001

1. In 2001 Porter and Grace Sent became direct employees of Primelife.  The Porter agreement was dated 1 July 2001 and provided a $200,000 per annum remuneration package for a period of five years.  Porter was employed under the agreement as Deputy Chief Executive Officer of Primelife reporting directly to Sent as Managing Director.  Porter testified that her day to day duties and responsibilities did not significantly change from those which she had been performing with Primelife from about mid-1998.   Porter testified that, in practical terms, she acted as the Chief Operating Officer of Primelife.  She was responsible for the day to day activities of the company and her skills, as she saw them, lay in the detailed nuts and bolts of ensuring the efficient running of the organisation and the carrying through to execution of Sent’s vision and concepts as approved by the Board for future retirement village developments.  Porter testified that her duties included monitoring the work of executives and senior support staff, analysing operational and financial reports, providing daily guidance and instruction to executives on a wide range of issues, providing strategic advice and financial analysis to Sent in respect of new “products”, liaising with advisers, writing property reports and submissions to investors, assisting Sent, Flood and Williams in financial matters, giving instructions to external lawyers in relation to transactions and litigation, overseeing IT infrastructure and office administration and overseeing the development of company policies.

1. The minutes of a meeting of directors of Primelife on 21 July 2001, at which Sent was present, record that discussion took place on the “rearrangement” of Sent’s employment contract.  The minutes stated:

“[Legge] and [Panaccio] (who have been negotiating with [Sent]) reported on the key issues as follows:

·     Shares to be issued in lieu of bonuses accrued to date (plus forecast for remaining two years): five million shares is the figure which the parties have agreed to subject to agreement [with] respect to related matters and final expert’s report …

·     On-going salary for [Sent]: figure of approximately $750000 plus on-costs being current amount on the table

·     Other matters which lead to related party transactions are to be sold to [Primelife] or divested.  In particular:

o   Pt Cook: agreement to agree to sell Pt Cook to Primelife to be triggered by future event.  Land to be acquired at cost and [Primelife] to pay holding costs including a figure for interest. [Primelife] may commence development at an opportune time (subject to above agreement) …

All the above issues are subject to shareholder approval at a meeting to be held as soon as possible.”

1. On 7 August 2001 Panaccio sent an email to Porter attaching a memorandum on the above subject and broadly in line with the minutes of 21 July 2001.  In the memorandum Panaccio referred to the issue of five million shares to satisfy Sent’s accrued bonuses as at 30 June 2001 and to compensate for terminating his existing agreement. 

1. On  18 August 2001 there was a meeting of the Board of Primelife, the minutes of which record substantially the same matters on the topic of Sent’s restructured employment package and related issues as were recorded by the minutes of 21 July 2001, save that the on-going salary “on the table” was noted as approximately $800,000.

1. The minutes of a meeting on 28 August 2001of Primelife’s due diligence committee, at which Sent was not present, record that Primelife had agreed to issue Sent with five million shares as compensation for foregoing his accrued bonus and any future bonus, that Sent’s annual salary would be in the realm of $850,000 and that the Point Cook land would be purchased by Primelife at cost, at some future time, but that this agreement would be entered into “now”. 

September 2001

1. In September 2001 the Point Cook property was valued for first mortgage security purposes in the sum of $5M.

1. On 10 September 2001, in order to obtain relevant advice, Panaccio sent a memorandum to McCullough Robertson, Primelife’s then solicitors, and to Panell Kerr Forster, Primelife’s then accountants,  entitled “[Primelife] related party changes and [Sent] revised agreement” which stated, so far as relevant:

“This memorandum is to outline the agreement reached by the [Primelife] Board & [Sent] on the manner to deal with the CEO’s bonus agreement and dealings between the company and parties associated with the CEO…

It has been agreed, subject to shareholder approval, to terminate the existing agreement as at 30^th June 2001.  The original agreement would be replaced by:

- Annual salary package of $850K

- The issue of 5M ordinary shares in [Primelife] to compensate   the CEO for foregoing accrued and future entitlements under the original agreement  …

Linked to this transaction is the proposal for [Primelife] to purchase, at cost, [the Point Cook land] …

It is proposed that [Primelife] enter into an agreement to enter into an agreement to purchase the land on the occurrence of a condition subsequent.  Payment for the land will be in cash.  It is suggested that the condition subsequent could be: the commencement of construction, the obtaining of development finance or even the granting of the development permit…”

1. On 26 September 2001, in a draft letter from a valuer to the directors of Primelife in relation to the Point Cook property, a valuation of some $9.7 million was given, but only based on the assumption that planning approval for a retirement village be obtained.

October 2001

1. On or about 4 October 2001 Primelife and Sent executed a Share Issue Deed.  The deed provided for the issue of shares, subject to the approval of the shareholders, and that, subject to such approval, the execution of the deed would have the consequences that all existing contracts, agreements and understandings between Primelife and Sent as far as they related to any remuneration or bonuses (whether by way of money, ordinary shares or options in Primelife or otherwise) (“Financial Entitlements”) payable to Sent for him carrying out his role as the Chief Executive Officer and Managing Director of Primelife should “cease immediately” and that all accrued Financial Entitlements payable to Sent other than holiday leave, sick leave, long service leave or superannuation entitlements were “irrevocably waived” by Sent.  The deed then provided that in consideration of Sent waiving his Financial Entitlements, Primelife would issue to him or his nominee 5 million fully-paid ordinary shares.  These shares were in fact issued to Sent at some time shortly after the passing of the shareholders’ resolutions mentioned below.  However, the Sent agreement and the Point Cook option were not finalised or executed until much later, namely in July 2003.

1. On 31 October 2001 a Notice of Annual General Meeting was given to shareholders of Primelife together with a letter to shareholders, proxy form, explanatory memorandum, independent expert’s report and projected earnings and cash flows relating to the acquisition of the Point Cook property.  The letter to shareholders explained that they were also being asked to vote on items of Special Business concerning the restructuring of the arrangements with Sent.  Under the heading “CEO’s Executive Service Contract Agreement” the shareholders were informed that Sent would forego all current and potential future entitlements pursuant to the executive service agreement, would enter into a new 5 year service agreement with a remuneration of $850,000 per annum and that Sent or his nominee would be issued with 5 million shares in Primelife.  Under the heading “Acquisition of Land” the shareholders were informed that Primelife would acquire 15.8 hectares of land from a company associated with Sent and that the agreement to purchase the land would stipulate that the purchase price was to be the lesser of $6 million or the total expended by the company associated with Sent; provided the cost was below market value at the time of acquisition of the land including holding costs, and subject to town planning approval for the development of a retirement village and that the transaction would only proceed if the formal valuation of the property at the time of acquisition was greater than the price to be paid by Primelife.  

November 2001

1. Prior to the Annual General Meeting on 30 November 2001, there was correspondence between ASIC and Primelife’s solicitors relating to the material provided to shareholders concerning resolution 6 “Acquisition of Point Cook Property”.  As a result, on 30 November 2001, Primelife provided to ASIC an undertaking in the following terms:

“If Resolution 6 is passed by members at the annual general meeting of Primelife to be hold on 20 November 2001 (or at any adjournment thereof) Primelife will in implementing that decision:

(a)Pay to Mainpoint a purchase price for the Point Cook property that is:

i.$6 million; or

ii.the total expended by Mainpoint in relation to the Point Cook property at the time of acquisition by Primelife …

…

(d)will not proceed with the purchase of the Point Cook property in any event, unless and until … [requirements in relation to valuation, development approval and finance were satisfied].”

1. At the meeting on 30 November 2001 the following resolutions, inter alia, were passed by the shareholders:

“4.That the members approve and authorise the issue to [Sent], or his authorised nominee, of 5 million ordinary shares in [Primelife], in consideration of the termination of his current executive service agreement … and in satisfaction of all entitlements under that executive service agreement notwithstanding that this issue will or may result in [Sent] becoming entitled (within the meaning of the Corporations Act) to more than 20% of the voting shares in Primelife”

“5.That approval be given to payment of an annual salary package of $850,000 to [Sent] in his capacity as Managing Director of [Primelife]”

“6.That approval be given for [Primelife] to enter into an option to purchase 15.38 hectares of land at Point Cook from Mainpoint Developments …. an entity controlled by … Sent, Managing Director, for a purchase price of up to $6,000,000 and conditional on [Primelife] obtaining necessary development approvals and sufficient development finance, and also conditional on the directors’ obtaining a valuation of the land at the time of the proposed acquisition which exceeds the purchase price.”

1. Prior to voting on the above resolutions, the meeting was informed that resolutions 4, 5 and 6 were interdependent and would only be implemented if each of the resolutions was approved by members.  Legge told the meeting of the history of the matter including that the original employment contract with Sent had to be viewed as part of the agreement to acquire the business of a private company related to Sent.  The revised structure, Legge said, would strengthen the balance sheet by removing the liability for the bonus, remove a constant source of negative publicity, send a clear message to all shareholders of Sent’s total commitment to Primelife (saying that, in due course, Sent’s only interests in the aged care industry would be his investment in Primelife).  Legge further said that it was part of an agreement to terminate all related party transactions that had been a major negative to the market players.  In relation to Point Cook, Legge told the meeting that the property was to be acquired at cost, that the Board was confident that the land was an ideal site for a retirement village and that the project would generate significant development profits and an income stream worth $20 to $25 million and that Sent would make no profit on the transaction other than through his shareholding in Primelife.  In addition Kemp informed the meeting of the undertaking to ASIC. 

1. On 1 December 2001 McGregor joined the Board of directors of Primelife.  McGregor testified that at this time the major financial institutions were reluctant to lend money to Primelife at competitive interest rates and that one of the reasons for his appointment was to help Primelife obtain access to bank finance.  Another reason for his appointment was expressed by McGregor as follows:

“At the time of my appointment, Primelife needed to strengthen its management.  Primelife did not, at that time, have in place the usual checks and balances one expects of a public company.  Rather, it was run along the lines of an entrepreneurial private business.”

2002

1. In early 2002, Porter recommended to Sent that Primelife install a camera surveillance system that would videotape activities in the ground floor foyer and the two executive meeting rooms (which included the boardroom) on level 2 of the company’s premises.  A system was installed in or about February 2002.  A short time after the installation a notice was posted in the boardroom and also in the adjacent meeting room stating that “Meetings held in this room may be recorded”.

1. Porter controlled a dedicated computer that operated the surveillance system which was located in her office.  The recordings were accessible only upon scanning the thumb print of the user and, at all relevant times, the only thumb prints recognised were those of Porter and Holzer.  The tapes ran continuously and had the capacity to keep recording for about two to three weeks, and later for about thirty days, after which the earliest recorded material would begin to be overwritten, in a continuous loop.  If it was desired to preserve any record (of, for example, a meeting) it was necessary to save the record to a separate file on the hard drive of the surveillance computer from which it could subsequently be copied to other media.

1. On 27 February 2002 Gatto gave evidence to the Building Industry Royal Commission[15] to the effect that he had a number of customers who paid him $50,000 to $100,000 per annum and that his customers included Primelife.  Gatto’s evidence was reported in the media.  The context for these events is set out in Part E below, dealing with the cash payments to Gatto. 

   [15]See para 287 below.

1. On 16 April 2002 Flood circulated to the “executive”[16] Primelife’s video surveillance policy.  The policy document stated, inter alia:

   [16]Primelife’s “executive” was, it would seem, constituted by Sent and Porter but Flood testified that the policy document was also circulated to “senior managers”. 

“Video surveillance – 464 Collins Street, Melbourne

As you are probably aware the Company has installed video surveillance in the foyer, the second floor small meeting room and the board room at 464 Collins Street, Melbourne.

To ensure that all staff understand the reasons behind this video surveillance and the Company’s policies in that regard, I have drafted the following policy.  I ask that you hold a meeting with your staff to explain the policy …

…

2.The video cameras can record these areas 24 hours a day and the second floor installation has the capacity to record sound as well.

…

4.The recording shall only be available to executives after a written request by a staff member, which is to be countersigned by two of Ted Sent, Sandi Porter and Greg Flood.

5.This access will be view only and requests for view access and/or transcripts will be granted only in compelling circumstances.

6.The recordings will, unless specifically held under paragraph 4 or 5 of this policy, be permanently deleted after 21 days.

…

8.Recordings may also be kept if the Primelife party notifies me that they wish a record to be kept of a meeting for a longer period.  On receiving such a written request it will be discussed between the CEO, DCEO and myself …

9.Signage has been installed in meeting rooms to notify attendees of the presence of video surveillance …”

1. On 12 May 2002 Sent was interviewed on television on a Channel 9 Sunday programme (“the Sent interview”).  Matters mentioned in the course of the Sent interview included Sent’s previous bankruptcy, his involvement with failed companies and his disqualification as a director.  In his evidence Sent agreed that these matters were “common knowledge”.  In the course of the interview related party transactions were mentioned and Sent stated in relation to the Point Cook property “I wished that I didn’t have to sell it in because I sold it in for cost.”

1. In April and May 2002, Flood participated in communications with Primelife’s solicitors, McCullough Robertson, concerning the terms of the Sent agreement and the Point Cook option but, in order to progress the matter further, Flood needed instructions from Porter and did not receive any during 2002. 

1. By late 2002, Primelife had a number of development proposals that required to be financed but Primelife was short of cash and finding it difficult to borrow. 

1. In November 2002 Legge publicly announced that the Board were committing to exploring all options available to Primelife to enhance long-term share value including initiatives relating to the position of Chairman, a succession plan for the Managing Director and the appointment of corporate advisers to assist with capital raising.  Following this announcement, Primelife engaged consultants to procure a “cornerstone” investor who would be able to provide further equity to Primelife and also might be able to induce institutional investors to support Primelife shares and might be able to assist Primelife in obtaining ongoing credit facilities. 

1. A number of proposals were received by Primelife and the one finding favour with the Board came from a company, Albany Bay, a private investment company associated with de Crespigny and Walker.  De Crespigny was and is a prominent and well-known Australian businessman.  He initially practised as a chartered accountant and became senior partner of the firm now known as KPMG.  He was chairman and chief executive of Normandy Mining Ltd from October 1985 to February 2002.  By February 2002, when it merged with an international gold producing company, Normandy Mining was capitalised at A$5.25 billion and was Australia’s largest gold producer.  De Crespigny was and is the chairman or board member of major corporations and other organisations.  Walker was and is another prominent and well-known Australian businessman.  He was founder and chairman of one of Australia’s largest private chemical companies and was co-founder, director and a major shareholder of Hudson Conway Ltd.  He is a former Lord Mayor of Melbourne and a chairman or board member of major corporations and other organisations. 

1. On 10 December 2002 Walker, by email, caused a message to be sent to de Crespigny in the following terms:

“My dear Robert

There is a public company by the name of Prime Life which is a major player in the retirement village market.  Their Chairman is an absolute sleaze but the company is basically very good, but needs an injection of cash.  Could your adviser take a quick overview? 

You will have noticed the retirement village market is growing very rapidly …

All the best

Ron.”

1. De Crespigny also viewed a tape of the Sent interview that was sent to him by

Walker.

January to February 2003

1. In or about late January 2003 de Crespigny and Walker had an introductory meeting with Sent in Adelaide.

1. On 11 February 2003 there was a meeting between Sent, Walker and de Crespigny at Primelife’s offices at 464 Collins Street, Melbourne to discuss whether Albany Bay might be interested in becoming a cornerstone investor.  They also discussed the role that Lane, an accountant employed by the de Crespigny interests, might play in any due diligence.  On 11 February 2003 Sent and Walker went on a tour of Primelife locations.

March to April 2003

1. On 20 March 2003 Kemp emailed the other directors of Primelife and Porter (for Sent) attaching a “final draft Terms Sheet” from Albany Bay for their consideration.  The attached Terms Sheet contained a proposal for the provision of a loan of $6 million for three years at 10% per annum and further proposals in relation to the placement of shares with Albany Bay for an agreed consideration and for the issuing of share options to Albany Bay.  The Terms Sheet also referred to a due diligence process over a period of about four weeks and provided for either party withdrawing from the proposed transaction if “unhappy”.  The Terms Sheet also referred to the “on-going board and management structure” of Primelife and proposed that Walker and de Crespigny join the Board, with de Crespigny as Chairman “to maximise profile”, Sent “to commit to remain with” Primelife and a “COO type person (and other senior management as appropriate) to be located to work with” Sent.  Walker testified that he understood that this aspect was an “old plan” and they (Albany Bay) were happy for that to continue.

May 2003

1. The evidence shows that in early May 2003 Porter made arrangements to listen to the telephone conversations of Holzer, Flood and a number of other Primelife employees utilising the RACAL system.   Details of this matter are set out in Part F below.

1. On 9 May 2003 de Crespigny and Walker, by invitation, attended part of a Primelife board of directors meeting. De Crespigny said to the meeting that, subject to completion of due diligence, he and Walker were keen to proceed with the cornerstone proposal.  According to the minutes, de Crespigny tabled a presentation and discussion followed.  Among a variety of matters mentioned were the benefits that de Crespigny and Walker could bring to Primelife, including their relationship with the investment community and an immediate cash injection by way of loan and equity.  It was indicated that de Crespigny would accept the role of Chairman of the Board and that Walker would also join the Board.  Walker suggested the appointment of two new directors, namely, Spencer and McPhee.  De Crespigny said that he and Walker had no preconceived ideas or hidden agendas on management personnel. 

1. On 13 May 2003 de Crespigny and Sent had a luncheon meeting in Adelaide at the Grange Jetty Kiosk.  They discussed generally the aged care industry and the nature of Primelife’s business. During the course of that meeting, de Crespigny told Sent that the due diligence had identified a number of matters which needed to be finalised prior to Albany Bay proceeding with its investment, including the employment contract for Sent and the option agreement in relation to the Point Cook property.[17]   

   [17]In his witness statement, de Crespigny said that he also discussed with Sent the need to move him into a role away from management and his opposition to nepotism.  Sent denied that these matters were mentioned and I am not satisfied that they were.

1. De Crespigny further testified, and I accept, that, in the course of the above meeting, Sent said to him that when there was unrest on building sites “he had to do matters” and that he (de Crespigny) then said to Sent “that there can be no payments made of any description to any people at all that are not 100% acceptable”.  I infer that Sent must have made some sort of reference to some payments in the past having been made in cash but there is no evidence that any details were provided by Sent to de Crespigny[18].  De Crespigny further testified, and I accept, that Sent mentioned a problem at a Williamstown site a long time ago and that Sent talked about “eating goat” with senior building union people and that he (de Crespigny) said to him “this is not the type of behaviour that should occur…”.  De Crespigny testified that Sent treated this as something that had happened in the past. 

   [18]De Crespigny testified that he “believed” that he first learned of the continued making of cash payments in August 2003 but he then conceded that he could not dispute that Flood may have told him something earlier, but not before he became Chairman.    De Crespigny said, and I accept, that if the making of cash payments had been discovered during the due diligence process, he would, because of their size, have wanted to know to whom they were made, because they were outside the range of “petty cash”.

1. On 14 May 2003 Sent forwarded a three page memorandum to Legge, Kemp, Panaccio and McGregor.  This memorandum, like many and probably all documents from Sent, was composed by Porter and produced by her on her computer.  In the memorandum Sent purported to provide a summary of the issues discussed with de Crespigny, commenting that he “found the meeting productive and am encouraged that we should be able to see our company grow in the manner that we have all worked towards.”  In relation to his service agreement, Sent said that it had not been signed and needed to be completed as a matter of urgency.  He added:

“The commercial terms will be negotiated between me and Andrew Kemp this week, before being finalised by the company’s solicitors.  The terms set out below are the key conditions included in the draft … to be dispatched to Andrew tomorrow.  The document was prepared by McCullough Robertson and includes amendments proposed by my solicitor.”

1. The memorandum from Sent then set out various key provisions of the proposed service agreement and Sent concluded on this topic:

“At this time, I expect to retire at the end of my current term, subject to the succession plan having successfully identified a suitable replacement, that person’s orientation into the role having been completed to my satisfaction, and my investment (or as much of it as I require) having been disposed of for a value acceptable to me.”

1. The memorandum then moved on to the subject of board representation and composition and Sent stated that, although he had not specifically discussed it with de Crespigny, “I also require Sandi Porter to attend all board meetings, all audit committee meetings and any other sub committee meetings that the board may yet determine.”

1. In relation to Point Cook, the memorandum stated:

“As is outlined in the summary of related party transactions, I have agreed to forego any profit that Mainpoint would generate on the development of the Point Cook property.

When valued in 2001, the land was considered to be worth $5 million with no retirement village permit and $10 million with a permit.  Primelife’s purchase of the property is capped at $6 million.  However, due to rapid escalation of land values in the area over the last 2 years, the land is now worth $12 million – and this will increase once the permit has been obtained.  I have already rejected a cash offer of $12 million from a large residential developer. 

With the proposed change in Primelife’s shareholding and board composition, I consider my tenure at Primelife to be less secure than it has been in the past.  In these circumstances, I require the arrangements with respect to Point Cook to be amended in the event that my employment with Primelife is terminated by Primelife before June 2006 on terms that are not amicable and/or I am forced into a position whereby I am unable to quit my shareholding for what I believe to be a fair value.

If any of these events occur, I will agree to Primelife completing its acquisition of Point Cook on the original terms, but I will require compensation to be paid to me for the profit foregone.  For example, if Primelife pays $5.5 million for the land and the current market value at the time is $12 million, the compensation required would be $6.5 million.”[19]

[19]The evidence shows that Legge and Kemp considered that Sent had no basis for seeking such amendments to the Point Cook option.

1. On 26 May 2003 there was a meeting at Primelife’s offices between Sent, de Crespigny, Walker and Lane.  Issues relating to Primelife’s finance and liquidity were discussed.  After the meeting, de Crespigny, Walker and Lane met with representatives of the ANZ Bank and discussed the provision of bank finance (which was ultimately made available). 

June 2003

1. At some time during the due diligence process, Flood told de Crespigny about the payments to A&M that had been the subject of Gatto’s evidence to the Royal Commission.  De Crespigny asked Flood whether the payments had definitely ceased but Flood was unable to tell him.  As a result, Flood decided to make enquiries with the accounts section and he then discovered that the payments had not ceased but had continued and increased from March 2002 onwards.[20]

   [20]Flood then told de Crespigny that his investigations were continuing.  In late June 2003 he and Williams gave de Crespigny an incomplete list of payments, but it was only after July 2003 that Flood attempted to reconcile the payments with cheque butts, invoices and other records.  Flood only reported the details to de Crespigny in mid-August 2003.

1. On 2 June 2003 de Crespigny had a meeting with Sent at Primelife’s offices.  On 9 June 2003 Sent and Grace Sent went to the United States on holiday.

1. On 24 June 2003 there was a meeting in Primelife’s boardroom between de Crespigny, Walker and Sent.  This meeting was taped by the videotaping system.  A number of aspects of Primelife’s business were discussed.

1. On 27 June 2003, although the due diligence process had not been completed, a meeting of Primelife’s board of directors was held.  By this time, de Crespigny was aware that there was some kind of capacity to tape meetings which occurred in the boardroom. At this meeting de Crespigny was appointed Chairman (replacing Legge), Walker was appointed Deputy Chairman and McPhee and Spencer, who were also present, were appointed as directors.  Porter, as was usual, was present throughout the meeting. 

1. The minutes of the meeting record the following:

“…de Crespigny also stated that board meetings were not to be taped.  He was advised that none would be taped.  It was also confirmed that there were no matters arising from previous meetings (that may have been taped without the knowledge of the attendees) leading up to the new boards appointment that should be advised to the meeting or the individuals concerned.  And further there were no issues arising from those meetings or tapings that would be used in the future.”

1. In that regard, I note that Sent testified that, at an early stage of the meeting, de Crespigny raised the topic of the videotaping of board meetings and asked whether it was company practice to record board meetings.  According to Sent, Porter said that it was not.  Sent testified in his witness statement that Porter was responsible for overseeing Primelife’s IT requirements “which included the video recording” and that he had no reason at the time to doubt that what she said was true.  He added that it also accorded with his understanding as to the use which was made of “the video facility” and that “certainly I had never seen recordings of board meetings or [been] told that there were any”.   However, in cross-examination, the following exchange occurred:

“You were aware of the video system though, weren't you? --- I am aware of the video system.

And you were also aware that the meeting before this one was taped, weren't you? --- No, I was not aware of that one, because as we clearly understand, the video recording was a continuous recording, that only upon decisions to clip something it became actually a document or a history of that particular taping, if you like.

Now, Mr Sent, I am - - - ? --- I am not a technical person, Mr North.

You were aware of the meeting on the 27th being taped at or about the 27th June 2003 or shortly thereafter, weren't you? --- I can't recall. Who told me?

You from your own knowledge were aware, weren't you, that the meeting of the 27th, that is the board meeting of the 27th June was in fact taped, and you became aware on or about 27th June or shortly thereafter, that is a true position, isn't it? --- I believe that all the boardroom happenings were continuously taped and automatically erased at a certain period of time. I have never ever seen other than that one that is subject to these proceedings any of the tapes.

So you agree then that you were aware that the board meeting of 27th June was taped? --- It was, yes. It was continuously taped.

And then you would have also been aware the one of 16th July was continuously taped? --- No, I certainly was not, because at that particular time Mr de Crespigny asked that there would be no more recordings.

On the 16th July? --- On the 16th, he asked on the 27th and on the 16th.

All right. You were asked an interrogatory, "when did you first become aware that the meeting of the 27th was taped?" Your answer was, "at or about the 27th June or shortly thereafter"? --- But that I meant that the meetings of all the board meetings were continuously taped on a revolving loop.

HIS HONOUR: You knew the cameras were running? --- Yes, the cameras were running.

MR NORTH: And you knew that on 27th June in the meeting, didn't you? --- Yes. My understanding of the recording is that the recording is actually kept and not removed or erased after a certain period of time which is what I believe happened with all the tapes.

You were also aware, weren't you, that the meeting in the small meeting room on 24th June was being taped, weren't you? --- As I said, all the meetings were automatically recorded, and only at somebody clipping the recordings would they be actually recorded as  such, otherwise they would have just gone and be erased.

...

Now, on 27th June you were sitting in the boardroom knowing that it was being taped, that is right, isn't it? --- Knowing that the cameras were rolling, yes.

And you don't make any difference between the cameras rolling and it being taped, do you? A record of the meeting was being held at that stage because the tape was running? --- The tape was running and consequently in a number of days it would automatically be wiped out unless somebody retained it or clipped it, or whatever it is called.

You do recall the question being put to both you and Ms Porter on 27 June, don't you? --- Yes, I do.

And the question which was put was that you gathered from past procedures that there had been taping, that you'd tape-record meetings, and the question was, is that right, did you answer that question? --- I answered that question.

What did you say? --- I said no board meetings have been recorded at this particular time, to the best of my knowledge was that none of those had ever been clipped or recorded as a record of the actual meeting.

But the question was, is it being taped or a record of the meeting being held, and you answered - - - ? --- No, because in my opinion it is - was not being recorded as a recording, it was merely on a continuous loop that automatically would erase itself.

I want to put to you your answer is recorded as, "M’mm," and then it was asked, "Is it happening now?" And you answered, "Not now"? --- Again - I can't recall that.

But I am telling you that my understanding of the video recording was that it was automatically recording each and every 24 hours a day, 7 days a week.

HIS HONOUR: Until it was erased it could be watched? --- It could - I am sorry?

Until it was erased it could be watched? --- It could be watched if somebody had the opportunity, the authorisation to do so, to open it up or whatever.

MR NORTH: Well, I want to put to you that it went further than that, and, sir, the question was, "And is it happening now?" And you said, "Not now." You recall those words being used, don't you? --- If I said, "Not now," I meant that it wasn't being recorded on the sense that somebody could bring it back next week and say, here is a copy of the recording.

Did you explain that to anybody? --- We didn't get a chance to do that.

You see, immediately thereafter to the same question, is it happening now, you heard Sandi Porter say "No", didn't you? --- Yes.

And the question was then put again, "It is not happening now?" And you heard her answer, "No, we did it selectively." And your answer was "M'mm", and then she said "We had client meetings" - - -

HIS HONOUR: Too many questions.

MR NORTH: Sorry, sir. You heard the question, "It is not happening now?" And you heard Sandi Porter say, "No, we did it selectively"? --- Okay, if I said "m'mm", was only because I didn't know.

You heard what Ms Porter said by the answer "No", that was to indicate to the board members that in fact there was no tape or recording happening at that time, is that right?

MR BICK: That asks the witness to interpret somebody else's answer.

MR NORTH: Do it from yours. When you answered "Not now", the only impression that you knew that would leave was that there was no tape or recording, sir, you agree with that don't you? --- No, I doesn't. The cameras were running 7 days a week, and the recording - and if I said that I certainly didn't mean that it was being recorded, I only meant that the cameras were running on a continuous loop and that they would at a certain time be erasing what was on the tape at that particular time, and they certainly weren't being kept.

Both you and Ms Porter would control what you wanted to save and what you didn't, you agree with that, don't you? --- I agree that both Mr Greg Flood, myself and Sandi were mentioned in the policy that the two of us would need to agree, two of the three would need to agree to be able to keep something. I was never asked and I have never ever given my permission to that.

But you knew that the only person who would do the saving was Sandi Porter? --- It was Sandi who was the person in control of that particular part.

And after 27 June, when the issue of recording and taping had been mentioned, did you then take steps to tell Sandi Porter to turn the machine off? --- I assumed that Sandi would automatically do this after the instructions that was given on 27 June meeting.

Now, the distinction that you make between recording and the running of the machine, you have never made that distinction before, have you, in your explanations about this? --- Well, it has been known to all of those that have been involved in that particular part that it was a continuous running machine.

Who were all involved in those - - - ? --- Mr Flood, for instance.

Anybody else? --- I believe Shona Holzer.

Yes. And just you and Sandi? --- Well, there were a number of other people, I just don't at this particular point of time - I believe Mr David Legge knew, I believe Mr Lou Panaccio knew.

One thing which was asked was "Can I then as well, has it happened with um, ah, when Ron and I had meetings?" Do you recall that question? --- No, I don't recall that question.

Do you recall Sandi Porter saying "No"? --- I don't recall - she could have, I can't recall that.

You knew that she was recording meetings that you and Ron - - - ? --- Yes, it really goes back to the recording.

Did she clip or whatever it is called that particular session? I don't know.

She could listen to it, couldn't she? --- I don't know whether you can listen to it and recording it at the same time.  I have never known this particular function.

You and her were a package, weren't you? --- I don't know what you mean by "a package".

Well, you were - - -? --- She was my confidante.”

1. Further, Sent’s evidence in his witness statement is contradicted in his answers to interrogatories in which he said that he knew that the meeting of 27 June was being taped at or about that date or shortly thereafter because he knew that it was board policy for the board meetings to be videotaped.  When cross-examined about this answer, Sent added:

“Ever since we had the video installed, it was working to the best of my knowledge seven days a week and the board meetings were all videotaped.”

1. In fact the meeting was videotaped and a transcript of this part of the board meeting is in evidence.  The transcript was prepared by Mr Peter Garde, an expert audio engineer, after reviewing the video recording of that part of the meeting.  Daniele viewed the relevant portion of the video recording, attempted to identify the speakers and made handwritten notations on the transcript identifying the speakers  as hereafter appears.  The transcript thus evidences the following discussion:

“De Crespigny:        The, the other thing I wanted to raise is something I wasn’t aware of, um, about it but I gather that past procedures have been here that you, that you tape and record meetings.  Is that right?

[Unidentified male: Mm, mm.]

De Crespigny:          And, and is that happening now?

Sent:Not now.

Porter:No.

De Crespigny:          It’s not happening now?

Porter:No.  We did it selectively.

[Unidentified male:           Mm, mm.]

Porter:…, um, that had, we had client meetings …

[Unidentified male:           Mm.]

Porter:… that we, um, feel need to be, um, recorded, um, we have done it in the past but its been a selective process (INDISTINCT).  We wouldn’t …

De Crespigny:          Sure.

Porter:… record or tape record (INDISTINCT)

De Crespigny:          Can I ask then as well has it happened with, um, ah, when Ron and I have been in meetings…

Porter:No.

De Crespigny:          … um, before?

Unidentified Female[21]:      No.

De Crespigny:          So there is nothing.  I think it is important if there are any areas that people are concerned or worried about that we can, we can raise them.

Unidentified female[22]:       Yes of course.”

[21]I am satisfied upon viewing the video file forming part of exhibit 48 that this unidentified female is Porter – indeed it could not in the circumstances have been the new director, McPhee, the only other female present.

[22]I refer to and repeat the previous footnote.

1. I note that McGregor testified that this was the first time the subject of videotaping had been raised at any board meeting.  Panaccio testified that he was aware that cameras were installed but there was no board policy that meetings be taped and he was never told that board meetings were or may be taped and he did not know that Porter had access in her office to the video surveillance.

1. The minutes of the meeting further record that de Crespigny tabled an unaudited short-term cash requirement and profit impact report that highlighted short-term liquidity challenges the company needed to resolve.  De Crespigny said that he would not chair the company if these short-term issues were not resolved and that he was concerned about the current financing arrangements in relation to a $5.5 million “Mainpoint loan” that was currently at call.  Walker also raised the issue of solvency and expressed concerns in relation to the company’s short-term cash requirements.  The minutes record that the “board agreed that there were short-term liquidity challenges that needed to be properly addressed but believed the long-term position was sound”.  It was resolved that a special finance committee comprising of Kemp, Legge, Panaccio and McGregor be appointed to work on the short-term loan arrangement/terms with Mainpoint Enterprises and Albany Bay.  Sent advised the meeting that he was prepared “to fix the Mainpoint loan of $5.4m until 31 December 2003”.

1. In the Porter proceeding, Primelife counterclaimed for damages on a number of bases but the only one that was pressed in any way related to the payments totalling $234,650.  It is sufficient to say the claim fails because Primelife has failed to establish the allegations as to Porter’s knowledge pleaded in each of paras 33, 34, 35 and 36 of its amended defence and counterclaim.

I:         THE POINT COOK PROCEEDING

Relevant provisions of the Point Cook option

1. The Point Cook option dated 17 July 2003 recited that Mainpoint Developments (or “Vendor”) was the owner of the Property and that the Vendor wished to grant Primelife (or “Purchaser”) an option to purchase the Property on the terms set out in the Point Cook option (hereafter “the Deed”).

1. Clause 1.1 of the Deed contained the following relevant definitions:

‘Call Option’ means the right granted pursuant to Clause 2;

‘Call Option Period’ means the period commencing on the date of this Deed and expiring at 5.00 pm on that day which is 30 days after the Due Diligence Date;

‘Completion Date’ means that day which is 15 days from the date of the Sale Contract;

‘Due Diligence Date’ means the day which is 5 Business Days after the date on which the Vendor provides the Purchaser with the Due Diligence Material;

‘Due Diligence Material’ means the documentation referred to in Clause 8.2(b) of this Deed;

‘Market Value’ means the amount the property is valued at by the Purchaser …

‘Sale Contract’ means the sale contract for the purchase of the Property as agreed between the parties after the exercise of the Call Option and containing the terms of the purchase of the Property as set out in this Deed;

‘Settlement Date’ is the date which is 30 days from the exercise of the Call Option by the Purchaser or such earlier date as may be agreed between the parties.

1. The Deed contained the following further relevant provisions:

2.1 Grant       

Subject to Clause 8 of this Deed, the Vendor grants to the Purchaser an option to purchase the Property on the terms and conditions contained in this Deed and the Sale Contract.

3.1 Exercise

The Call Option may only be exercised by delivery to the Vendor during the Call Option Period of a written notice generally in the form contained in Schedule 1.

3.2 Failure to exercise

The Call Option lapses if it is not exercised strictly in accordance with Clause 3.1.

3.3 Effective exercise

Upon exercise of the Call Option the Vendor and the Purchaser are immediately bound to respectively sell and purchase the Property in accordance with the terms set out in this Deed and as agreed in the Sale Contract.

3.4 Sale Contract

Within 72 hours of the exercise of the Call Option, the parties must agree and enter into the Sale Contract which must contain the terms for the purchase of the Property set out in this Deed and otherwise be in accordance with the Law Institute of Victoria’s standard Contract of Sale of Real Estate.  The date of the Sale Contract is the date of exercise of the Call Option.  Delivery and execution of the Sale Contract is not a condition necessary to the parties being bound as set out in Clause 3.3.

7.5 Waiver

A waiver of any right or power under this Deed is ineffective unless it is in writing and signed by the party granting the waiver.

7.6 Variation

No variation or modification of any term of this Deed is effective unless it is in writing and executed by both parties.

7.7 Entire Agreement

This Deed (together with the Sale Contract) embodies the entire agreement and understanding between the parties in relation to the subject matter of the Deed. 

7.8 Actions

Any act which this Deed states is to be done by a party, can be done by the other party at the cost and expense of the first party provided that:

(a)the first party has failed to perform such acts when they are due to be performed under this Deed;

(b) the other party notifies the first party of its intention to perform such acts in accordance with this clause; and

(c)the first party has not performed such acts within 5 Business Days of receiving notice from the other party under clause 7.8(b).

8 CONDITIONS PRECEDENT TO SALE

8.1 Sale subject to conditions

The Call Option or sale of the Property is conditional on:

(a)the Vendor obtaining all necessary permits and planning approvals for development of a retirement village on the Property at his own cost; and

(b)the Purchaser obtaining sufficient finance for development of the retirement village mentioned in 8.1(a) at its own cost; and

(c)the Purchaser obtaining a formal valuation of the Property at the time of the proposed acquisition at its own cost; and

(d)the Purchaser certifying by way of board resolution that the value figure is greater than the price to be paid for the Property by the Purchaser (‘Purchase Price’).

8.2 Purchaser’s Due Diligence

(a)This Deed is conditional upon the Purchaser being satisfied in its absolute discretion with the results of a due diligence enquiry under clause 8.2(b) in respect of the conditions set out in clause 8.1 of this Deed by the Due Diligence Date.

(b)As soon as possible and in any event within 5 Business Days following notification pursuant to Clause 8.3, the Vendor must provide to the Purchaser copies of all supporting material required to satisfy the Purchaser that conditions set out in clause 8.1 have been met.  The Vendor must also provide to the Purchaser all other information which the Vendor has in relation to the Property which the Purchaser may reasonably require in order to properly carry out its due diligence and to make an appropriate determination in relation to clause 8.1.

8.3 Vendor must notify when planning approval obtained

The Vendor must notify the Purchaser within 5 Business Days of obtaining all necessary permits and planning approvals specified in clause 8.1 of this Deed, and as to whether or not it has satisfied the relevant conditions precedent to sale established in Clause 8.1(a) of this Deed.

8.4 Purchaser may terminate

(a)The Purchaser must notify the Vendor within 2 Business Days of the Due Diligence Date as to whether it is satisfied with its due diligence enquiries; and

(b)      If the Purchaser:

(i)notifies the Vendor that it, or the Vendor has not satisfied the conditions specified in Clause 8.1 of this Deed; or

(ii)notifies the Vendor that on completion of its due diligence as specified in Clause 8.2 of this Deed the Vendor has not satisfied the conditions specified in Clause 8.1 of this Deed; or

(iii)does not notify the Vendor that it has satisfied the condition specified in Clause 8.1(a) of this Deed within 2 Business Days of the Due Diligence Date;

then this Deed will terminate.

8.5 Effect of Termination

If this Deed is terminated under Clause 8.4:

(a)neither party will be under any further obligation to the other; and

(b)the Purchaser can not exercise the Call Option.

9.1 Purchase price of Property

The Purchase Price of the Property shall be the lesser of:

(a)       $6,000,000 plus GST; or

(b)the total amount expended by the Vendor in relation to the Property at the Settlement Date, provided the cost is below market value at the time of the Settlement Date, plus GST.

13 FAILURE TO SETTLE UNDER SALE CONTRACT

In the event of the Purchaser exercising the Call Option and failing to complete the Sale Contract by the Settlement Date, the Purchaser will be required to pay, in addition to the costs as set out in this Deed, the following:

(a)interest accruing and payable by the Vendor under any existing mortgage over the Property, on and from the Settlement Date;

(b)legal costs and expenses reasonably and properly incurred by the Vendor in relation to all matters and things directly arising from the failure of the Purchaser to settle the purchase of the Property on the Settlement Date; …

Submissions

1. The parties exchanged lengthy and substantial written submissions and then counsel spoke to them.  The written submissions dealt with every possible alternative argument and contingency.  Indeed, there were so many alternative contentions that Primelife produced a Concept Map that was attached to their submissions.  I will therefore endeavour to summarise only the essence of the major submissions and thereafter deal with the major submissions, and only with the various alternative contentions insofar as is necessary for the determination of the proceeding.

1. The Vendor (the defendant Mainpoint Developments) submitted that in the circumstances the Deed was not enforceable or the option thereunder was not exercisable or enforceable by the Purchaser (the plaintiff Primelife).  It was submitted on behalf of Mainpoint Developments that the option could not be exercised until the conditions set out in cl. 8.1 had been satisfied.  The grant of the option was expressly “subject to clause 8”.  The conditions in cl. 8.1 had not been satisfied in that Mainpoint Developments had not obtained any permits or planning approvals for development of a retirement village on the Property (cl. 8.1(a)) and there was no evidence that Primelife had satisfied the other conditions in cl. 8.1. 

1. Mainpoint Developments submitted that the first step in the process was that it had to notify the Purchaser that it had obtained all necessary permits and planning approvals (cl. 8.3) and next it had to provide the Purchaser with the supporting material referred to in cl 8.2(b) (i.e. the Due Diligence Material as defined in cl. 1.1).  The Purchaser then had a limited time to carry out the due diligence process (cl. 8.2(a)), namely by the Due Diligence Date (as defined in cl. 1.1).  After those steps the Purchaser had to notify the Vendor within 2 business days as to whether it was satisfied with its due diligence enquiries (cl. 8.4(a)).  The Deed terminated (cl 8.4(b)) either in the event that the Purchaser did not notify its satisfaction within that time or in the event that it notified the Vendor that the conditions in cl. 8.1 were not satisfied.  It was only after those steps, and if the Deed had not been so terminated, that the Purchaser became entitled to exercise the cl. 2.1 option within 30 days after the Due Diligence Date.  If the option was then exercised, the Deed provided for a formal sale contract and for settlement.

1. Mainpoint Developments submitted in the alternative that, if the conditions in cl. 8.1 were conditions precedent to the sale of the Property, they were not conditions exclusively for the benefit of Primelife and could not be waived by Primelife. 

1. The primary submission on behalf of Primelife was that the conditions in cl. 8.1 were conditions precedent to the sale of the Property and not conditions precedent to the exercise of the option. 

1. In support of its primary submission, Primelife referred to four textual matters:

(i)       the heading to cl. 8 “CONDITIONS PRECEDENT TO SALE”;

(ii)      the heading to cl. 8.1 “Sale subject to conditions”;

(iii)     the reference to “conditions precedent to sale” in cl. 8.3; and

(iv)     the language of cl. 8.1 itself, in particular:

·     the reference to proposed “acquisition”

·     the reference in cl. 8.1(d) to a “Board resolution that the valuation figure is greater than the price to be paid” when the price to be paid could not be determined until the Settlement Date (see cl. 9.1).

1. In further support of its primary submission, Primelife referred to a consideration of the Deed as a whole.  First, the Call Option Period commenced on the date of the Deed and a right to exercise the option on that date was inconsistent with a construction that would defer that right until after satisfaction of various conditions.  Second, the Sale Contract was to contain the terms of the Deed (cl. 1.1 definition and cl. 3.4) including the conditions precedent.  Third, there was no other tenable interpretation to the introductory words of cl. 8.1, namely, “the Call Option or sale of the Property is conditional on …” (emphasis added).  It was submitted that the reference to the “Call Option” here was a reference to the Deed itself and not to the exercise of the call option (and that when exercise was intended it was specifically mentioned)[75].

   [75]As in cll. 3.1, 3.2, 3.4, 4.1, 5.2, 8.5(b), 10 and 13.

1. In the alternative, Primelife submitted that due to changes in circumstances between the date of the Deed (17 July 2003), or perhaps more accurately the time in 2001 when the arrangement was formulated in principle and approved by the shareholders, and the date of its purported exercise (4 December 2003) satisfaction of the conditions precedent was no longer necessary because the conditions were for the protection of Primelife and such protection was no longer required because the value of the land, even without planning approval, greatly exceeded the Purchase Price that Primelife would have to pay and because Primelife no longer needed to be protected from the Sent/Mainpoint interests as Sent had resigned as a director and sold his controlling interest in Primelife. 

1. In further alternative, Primelife submitted that the conditions precedent could be waived by it as they were included primarily, alternatively solely, for the benefit of Primelife.

1. Primelife further submitted that, in breach of various terms to be implied in the Deed, the Vendor had failed to use its best endeavours to obtain all necessary permits and planning approvals and otherwise obstructed the satisfaction of the conditions precedent, and that as a result the Vendor was not entitled to rely upon the non-fulfilment of the conditions precedent.

Reasons

1. On the plain language of the Deed it is clear that the conditions precedent in cl. 8.1 are conditions precedent to the completion of the sale and not to the exercise of the option.  The heading of cl. 8 is “CONDITIONS PRECEDENT TO SALE” and the heading of cl. 8.1 is “Sale subject to conditions”.  The reference is to “sale” and not to exercise of the option.  Importantly, cl. 8.1 itself provides that “the Call Option or sale of the Property is conditional on…”.  The words “sale of the Property” would be superfluous if the intention was to set up the cl. 8.1 conditions as conditions precedent to the exercise of the option.  Again, there is nothing in the Deed expressly providing that the option cannot be exercised unless the conditions in cl. 8.1 are first satisfied and it would have been easy to so provide had that been the intention.  Instead cl. 3.1 provides that the option may be exercised during the Call Option Period, a period that is defined by cl. 1.1 to commence on the date of the Deed and not at some later date, such as the date that the Purchaser notifies the Vendor that it is satisfied with its due diligence enquiries (i.e. at some time within 2 business days of the Due Diligence Date)[76].  The Deed thus contemplates that the option might be exercised, for example, prior to the Vendor obtaining the permits and planning approvals referred to in cl. 8.1(a).  Indeed, the fact was that when the Deed was executed those permits and planning approvals had not been obtained.  So, it must be taken, both from the language of the Deed and the facts surrounding its execution, that the parties contemplated the possibility that the option might be exercised before those permits and approvals had been obtained.

   [76]See cl. 8.4(a) of the Deed.

1. Language that could be argued to point to a contrary conclusion is the phrase “Subject to Clause 8 of this Deed” contained in cl. 2.1 of the Deed.  However what cl. 2.1 makes subject to cl. 8 is not the exercise of the option but the grant to the Purchaser of the option to purchase on the terms and conditions contained in the Deed.  This language is equally consistent with an intention to ensure that the conditions precedent operate to protect the Purchaser after the option is exercised.  Further, the Purchaser is not in need of any such protection until it has exercised the option because, before the exercise of the option, the Purchaser can protect itself by refraining from exercising the option.  It is only after exercising the option that it is bound to purchase the Property (cl. 3.3) and only then may it be in need of such protection.  Clause 3.3 provides that the Vendor and Purchaser are bound to sell and purchase the property on exercise of the option “in accordance with the terms set out in this Deed” – those terms include cl. 8.1. 

1. The only other language that might point to a contrary conclusion is the provision in cl. 8.5 that if the Deed is terminated under cl. 8.4 neither party will be under any “further” obligation to the other and “the Purchaser can not exercise the Call Option”, but this provision is more consistent with an intent to make it clear that once the Purchaser has notified that the conditions are not satisfied (or it has not notified that they are) the Deed will terminate and there will be no second opportunity to exercise the option. 

1. It might be contended that the intent of the Deed was to prevent Primelife when controlled by Sent exercising the option in the interests of Sent (or Mainpoint Developments) to the prejudice of the interests of Primelife.  However the contention is flawed because if Primelife were controlled by Sent at the relevant time, the Deed could be abrogated in toto.  This was no doubt recognised by ASIC when it imposed a requirement upon Primelife that it give certain protective undertakings to ASIC.[77]  On the other hand, if Primelife is not controlled by Sent at the relevant time, it need not exercise the option unless it seems to be in its interests to do so and it then  makes sense that the Purchaser be protected by the conditions contained in cl. 8.1 after the exercise of the option. 

   [77]See para 54 above. I note that on 9 May 2006 ASIC advised Primelife that it was no longer bound by the undertakings.

1. It seems to me for the foregoing reasons that the plain literal construction of the Deed which I prefer is supported in all the circumstances by common sense considerations and gives business efficacy to cl. 8.1.

1. It follow in my opinion that Primelife has validly exercised its option under the Deed to purchase the Point Cook property and as a result there is a binding contract for the sale and purchase of the Property which is subject to the conditions precedent contained in cl. 8.1.

1. Primelife submitted that, if the Court came to the conclusion which I have reached in the previous paragraph, there was no need for it to waive the conditions precedent because Primelife did not need the protection of those conditions in circumstances where the value of the land, even without planning approval, at the time of the exercise of the option far exceeded the price that Primelife would have to pay. 

1. In Clark v Refeld[78], the defendants sold certain farming land to the plaintiff pursuant to a contract of sale containing special conditions.  One special condition was that the contract was subject to a named bank agreeing on or before a specified date to grant a loan of not less than a specified sum to the purchaser and to the purchaser obtaining that loan on or before the date of settlement on the security of a first mortgage on specified terms.  The contract further provided that if any of the special conditions should not be fully satisfied within the time appointed (unless waived by the purchaser in writing) then either party might at any time thereafter cancel the contract by written notice to the other.  The purchaser did not apply for the specified loan because he had other funds or finance and did not need the bank loan but he did not purport to waive the special condition.  The vendors cancelled the contract.

   [78](1980) 25 SASR 246.

1. The Full Court of the Supreme Court of South Australia (Mitchell, Zelling and Legoe JJ) dismissed an appeal from the decision of the trial judge (Wells J) that the vendors were not entitled to cancel the contract.  The decision depended upon construction of the specific language of the contract but, in essence, the judges both at first instance and on appeal held that the special condition was fully satisfied because the purchaser had the necessary funds to settle the contract and that the vendors therefore derived no further benefit from the special condition.  The main object of the contract should not be defeated by a literal interpretation of the special condition.

1. The facts of the present case are of course quite different but I think that the principle is the same.  The circumstances at the time of the exercise of the option were such that Primelife undeniably derived a very substantial financial advantage by exercise of the option and neither required nor gained any necessary protection from the cl. 8.1 conditions. 

1. The foregoing conclusion no doubt involves the assumption that Mainpoint Developments has no independent interest in the performance of the cl. 8.1 conditions and obtains no benefit from insisting upon their performance, in other words, the conditions are for the exclusive benefit and protection of Primelife.  It seems to me on a reading of the Deed that, prima facie, the conditions in cl. 8.1 were inserted exclusively for the benefit and protection of Primelife.  On the face of the document there would seem to be no reason why Mainpoint Developments should be concerned as to whether or not Primelife obtained the necessary permits and approvals for development of a retirement village or the necessary finance for the same.  This view is reinforced by cl. 8.2(a) providing that the Deed is conditional upon the Purchaser being satisfied in its absolute discretion with the results of a Due Diligence Enquiry, i.e. being satisfied in its absolute discretion that the conditions precedent have been satisfied.  The background history of the Deed[79] supports and certainly does not detract from this conclusion. 

   [79]See para 33 and paras 45 to 56, above.

1. If (contrary to my conclusion) Primelife needs to waive the benefit of the cl. 8.1 conditions, it is able and entitled to do so because, as I have said, they are solely for the benefit and protection of Primelife.[80]   

J:         ORDERS

[80]See generally G&S Koikas v Greenpark Construction Pty Ltd (1970) VR 142; Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 and Peatties Rd Pty Ltd v Hanson [2004] NSWSC 831.

1. In each of the Sent and Porter proceedings there will be judgment for the defendant.  In the Point Cook proceeding there will be an appropriate declaration as to the enforceability of the contract for the sale and purchase of the Point Cook property.  I will hear the parties as to the precise orders and as to costs.