Sijehama Pty Limited & Anor v The Coal Cliff Collieries Pty Limited

[1992] HCATrans 54

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S85 of 1991

B e t w e e n -

SIJEHAMA PTY LIMITED and BULLI

MAIN COLLIERY PTY LIMITED

Applicants

and

THE COAL CLIFF COLLIERIES PTY

LIMITED and KEMBLA COAL AND

COKE PTY LIMITED

Respondents

Application for special leave

to appeal

BRENNAN J
DAWSON J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 FEBRUARY 1992, AT 3.50 PM

Copyright in the High Court of Australia

Sijehama 1 14/2/92

MR R.J. BAINTON, QC: If the Court pleases, I appear with my

learned friend, MR T.A. ALEXIS, for the applicant.

(instructed by Wm. Walker Taylor Edwards & Smith)

MR D.F. JACKSON, QC:  May it please the Court, I appear with

my learned friend, MR M. DEMPSEY, for the

respondents. (instructed by Allen Allen & Hemsley)

BRENNAN J:	Mr Bainton.
MR BAINTON:	Your Honour, we have prepared an outline of the

submissions we wish to put. Can I hand it up?

BRENNAN J: Yes, Mr Bainton?

MR BAINTON:  Your Honour, can I add an amplification of what

is in paragraph 2, that this decision has caused

some concern. There is an association called the

Australian Mining and Petroleum Lawyers
Association. It produces a bulletin. And after

the publication of the reasons of the Court of

Appeal in this matter, it wrote an article for the

benefits of its members pointing out the problems

that some of them may well find themselves in as

a result of the decision that what is apparently

quite common, to have heads of agreement that are

said to be binding with a provision that further

and more detailed, or whatever phrase you might
chose to use, provision should be after negotiated,

is in a sense imperilled by this decision of the

Court of Appeal if it is correct. So, it is a

matter of some considerable interest in the
community beyond the present application although

the applicant's interest, of course, is real enough

in the sense that it was a fairly large verdict

that it received from the judge at first instance,

that is taken away from it by the decision of the

Court of Appeal.

Your Honours, the question has not, in fact,

been decided in this Court. It was assumed in

Booker Industries - if Your Honours would like to

look what is said there, we have prepared some

photocopies of the relevant pages. Could I hand

those up? Your Honours, we have not photocopied

the entirety of the decision but simply the

argument and what the Court said at the bottom of

page 604. The question which arose there is what

order should be made in respect of a promise to

grant a new lease at a rent to be determined. The

authority is really authority for a form of a

decree for specific performance in a situation such

as that but at the bottom of page 604 a proposition

is put that:

Sijehama 14/2/92

It is established ..... that the courts

will not lend their aid to the enforcement of

an incomplete agreement, being no more than an

agreement of the parties to agree at some time

in the future.

And it is that proposition that we would seek to

have considered in a case where it really arises

for decision as, in our submission, it does in this

case.

BRENNAN J:	What do you have to say about the problem of the finding of the Court of Appeal that there was no
breach in any event?

MR BAINTON: That is obviously one of my main hurdles, I

appreciate. But what they found there is, in a

very real sense, wrapped up with what we seek to

describe as the principal question. What happened

was this - and I may need to take Your Honours

briefly to some of the terms of the heads of

agreement to illustrate this.	They are printed at
the back of the application book.	And before

directly answering Your Honour Justice Brennan, can

I go to these? At page 189 one has the

introductory provision. It simply says:

This document will serve to record the terms

and conditions subject to and upon which CCC,

Sijehama and Bulli Main agree to associate

themselves in an unincorporated Joint Venture

for -

a purpose that is stipulated. Then it goes on:

The parties will forthwith proceed in good

faith to consult together upon the formulation

of a more comprehensive and detailed Joint

Venture Agreement ..... which when approved and

executed will take the place of these Heads of

Agreement, but the action of the parties in so

consulting and in negotiating on fresh or additional terms shall not in the meantime in	any way prejudice the full and binding effect
of what is now agreed.
Now, Your Honours, the general outline of what

was then agreed can be seen by looking, first, at

page 191, which deals with the payments to Sijehama

for the information that is provided. The form of

that is to set a dollar amount which is indexed in

accordance with the formula in the schedule and

payable in instalments commencing at the date of
the joint venture agreement. Then, if you go over
the page, you find the first reference to one of

the matters - I am sorry, I should really go

Sijehama 3 14/2/92

further down page 191 first. Clause (2)(a)

requires:

Bulli Main will enter into a Joint Venture

with -

Coal Cliff in which there are to be loans of a

total sum of $2.88 million in constant 1981 terms,

which is the code that this document uses for

indexation, which becomes payable initially nine

years from the date of the agreement and at

intervals thereafter. If you go over the page, you

find that:

If at the end of the 21st year -

what is called

project cash break-even has not been

achieved -

and then, going down a few lines, a provision to

continue to make loan payments to Bulli Main of

$240,000 annually indexed is provided for. On the

next page you find Coal Cliff's obligations which you might expect. It is to explore and so forth.

On page 194, Coal Cliff gets 100 per cent of the

coal under what is called "cash break-even" and

thereafter it is shared 80:20. On page 195,

clause (9)(i) there is another provision for
maintaining Bulli Main's, in effect, cash flow if
net profit before tax falls below a particular

figure.

Your Honours, I refer to those not to ask

Your Honours to construe them in any way but simply

to illustrate that this was a long-term venture and

the parties had, in the heads of agreement, defined
what were at least some of the parameters of the

joint venture that they were seeking to enter into.

TOOHEY J: 

The difficulty, Mr Bainton, it seems to me is

that you do not find in the decision of the
President, with whom Mr Justice Waddell agreed, any

rejection of the notion that an agreement to

negotiate may constitute a binding contract.

MR BAINTON: 

No, he accepted that it could but then he, in

effect, went back on himself and said this one did

not for a reason.

TOOHEY J: Yes, but the moment you put it that way you raise

the difficulty of extracting a special leave point,

do you not? But if, in the end, it turns upon the

terms of the agreement or the arrangement into

which the parties entered, what is there that

should attract a grant of special leave?

Sijeharna 4 14/2/92

MR BAINTON:  Your Honour, can I come back to that after I

have tried to answer the earlier question as to how

do I deal with the fact that it was a finding of,

in effect, no breach?

TOOHEY J: Yes.

MR BAINTON: Well now, the trial judge found - and there

could not have been any dispute about this because

this was really based on the defendants' propounded

case - that during the course of trying to
negotiate this further agreement - and the parties

had got, I might say, to draft four, not to draft

14, as the President seems to have thought - the

Coal Cliff people came to realize or to believe, rightly or wrongly, that to implement this proposal

would be commercially disastrous to them. They

therefore said that they did not propose to go any

further. That was treated as a repudiation and

there was a cancellation.

Now, the President seems to have taken the

view, without really explaining, in our submission,

how he could possibly have got there, that it was

not a breach of an agreement, assuming it to be

contractually binding, to negotiate in good faith,

to walk away from the agreement if you realized it

was commercially disadvantageous. In other words,

he seems to have put a construction upon what is a

very usual expression in this type of agreement, to

negotiate in good faith, but that allowed either

party to the negotiation to walk away from the

agreement if it no longer suited it.

If to negotiate in good faith allows that, you have got this contract back really to one that is

quite illusory because it simply means that either

party can terminate it at will and if it is
contractual, it is not usefully contractual. It

therefore becomes, in our submission, quite

important to decide whether the rejection of the

allegation of breach on that ground can be
sustained.	Our submission would be it cannot, it

is a contradiction of the proposition that there

should be a negotiation in good faith.

If I can then return to Justice Toohey's

question to me:  Mr Justice Clarke was of the view

that an agreement to negotiate could impose a

contractually binding obligation. In the Court of

Appeal, Mr Justice Handley took the view that it

could not, depending upon what was said in a number

of cases primarily by Lord Denning and Diplock. The President took, as it were, a mid course by

saying, "Well, yes, you can have a contract to

agree" which imposes legally binding obligations on

a party to it, but whether a particular contract is

Sijehama 14/2/92

within that category or not depends upon the terms

of the contract. So, there are three, really,

different views as to the law on this question.

What he then did was to say that this contract

fell precisely, he thought, within the description

that Lord Denning used in Courtney's case to reject

contractual obligation at all, therefore it took it

back out. Now, from one point of view, that may be

said to raise a narrow question whether this case

is suitable - the decision at point of principle -

but, in our submission, it is when you have three

different and substantially irreconcilable views of

the trial judge and the judges of the Court of

Appeal.

One would have thought, with respect to the President, that if you can come to the conclusion

that you can have an agreement to agree, you do not

take it back out of that concept by the route that

the learned President used by saying that this

particular one was too uncertain. If I can try and

develop a general proposition which is

outlined -

DAWSON J: But that must be right, Mr Bainton. I mean, if

you have an agreement to negotiate and a provision

that failing the negotiations, an arbitrator will

decide the - - -

MR BAINTON: That is so, Your Honour.

DAWSON J:  I mean, clearly, that is a contract that one

can enforce.

MR BAINTON: That is easy.

DAWSON J:  I mean, that is all that the President was

saying. There was nothing in this case by which

you could measure the obligation.

MR BAINTON: That is the point, with respect, at which we

would want to take issue because it is an important

point.of fundamental principle.

DAWSON J: Yes.

MR BAINTON:  The basis on which various courts have got

themselves into the proposition that an agreement

to agree, if I can use that very general

expression, gives rise to no contractually binding

obligation seem to fall into four different

categories, and they are all different. Some of

them do not, with the greatest of respect to those

who propound them, seem very sensible and others

only apply in very restricted situations. I have

tried to catalogue them and most of the things said

Sijehama 6 14/2/92

can be found in the actual pages of the application

book.

The proposition of Lord Wensleydale, which seems to be one of the oldest, is set out at the

bottom of page 91, and this seems to be the

foundation of a lot of the discussion. He says:

"An agreement to enter into an agreement upon

terms to be afterwards settled between the

parties is a contradiction in terms. It is

absurd to say that a man enters into an

agreement till the terms of that agreement are

settled."

DAWSON J: Well, that is not this case.

MR BAINTON:	That is not this case and he is obviously using the word "agreement" in the last couple of lines in
a completely different sense. So, one can put that
aside as one of the types of propositions.

Another sort of proposition that is often

advanced is that if the agreement to agree is, in

effect, producing something illusory it is

non-contractual. The simple example of that is if

A gets a promise from B that B will pay A whatever

B chooses to pay A, that advances A nowhere

whatever.	He is no better off the moment after
that agreement than he was the moment before.	It

is therefore illusory and the courts will not deal

with it.

Now, that is very close to the situation, in

our submission, that the President got himself into

by saying, "Well, either party can call this off at

will" under the terms, as he seems to have read

them, of these heads of agreement. If that is

right, it is illusory because it is only a promise

to perform as long as you choose to perform and one

can readily see that, as a matter of legal theory,

that should not be regarded as contractually

binding.

BRENNAN J:  I am not sure whether that gives full justice to

what the President has said but, no doubt, we can

come to that at a later time.

MR BAINTON: It gives full justice, with respect, to the

results of what the President said. It may not be

the words he used. But that, really, is why, in

our submission, it is important to look at the
subsidiary question as to whether he was right in

saying that there was no breach because the reasons

he gave for saying no breach were really the same

reasons as have been given in other cases for no

contract. It would be illusory to say that

Sijehama 7 14/2/92

somebody's promise to negotiate so long as he sees

fit to negotiate but no longer.

DAWSON J: But how could you give effect to this contract?

I know there are aspects of it which were intended

to be contractual and were, but the agreement to

negotiate in good faith, when the negotiations, if
they were successful, would lead to an agreement of

the most complicated sort?

MR BAINTON: That should not and, in our submission, could

not lead to the conclusion that then on a

contractual -

DAWSON J:  How would a court decide that a person had

reached the point where he no longer had to

negotiate?

MR BAINTON: It may, in some cases, be very difficult, I

would agree.

DAWSON J:  It may in some cases be impossible and it was

said that this was one.

MR BAINTON:  Your Honour, it is not impossible to decide

whether somebody is in breach of an obligation to

negotiate in good faith to find that he has

determined, because he thinks the deal that he

agreed to in the first place is no longer to his
advantage, to walk away from it. That is not to

negotiate in good faith.

DAWSON J: Well, I am not sure that that is so. If it

becomes quite obvious that you cannot make a profit

under a contract, you would not expect a party to

negotiate any further, would you? Do you mean to

say that you would impose an obligation on the

party to negotiate a lesser loss, as it were?

MR BAINTON:  If he were negotiating to enter into a

contract, as step 1, everything Your Honour says to

me is perfectly right, you would not expect him to

do it. But if he has made his preliminary

agreement, presumably after taking a view as to the

long term that he has made it for, which is why I

went to those particular provisions, and he

undertakes an obligation to negotiate more detailed

provisions relating to that long-term objective,

then it is easy, in our submission, to say that he

is in breach of that if he simply walks away from

it because he realizes it is no longer to his

commercial advantage. The error he made was the

error he made when he entered into the heads of

agreement which he agreed would be binding on him,

subject to negotiating more detailed provisions.

Sijehama	14/2/92
DAWSON J:	I find that difficult to understand, that to

cease to negotiate when you realize that whatever
the further negotiations, the eventual contract is

not going to be to your commercial advantage, is to

be in bad faith. I just cannot see that.

MR BAINTON:  If your promise is, as it was in this case, to

proceed to consult upon the formulation of a more

comprehensive and detailed joint venture agreement,

that is more comprehensive and detailed than the

heads of agreement which are expressed to be

binding, then, with respect, that conclusion cannot

follow. You have bound yourself then to the

parameters and you have to do your best to flesh

them out. You are not fleshing them out by

deciding you made a bad bargain in the first place

in walking away from it. The good faith that is

called for is good faith in negotiating, not the

agreement embodied in the heads of agreement, but the more comprehensive and detailed joint venture
agreement. That is a more comprehensive and

detailed documentary recording of the basis on

which the joint venture, which has been mapped out

as to its parameters or some of them in the heads

of agreement, is to be set up by way of machinery

and otherwise.

Now, there is nothing in that, in our

submission, that entitles either party to have a

second look at the commercial desirability of what

they agreed to do in general outline.

BRENNAN J: Is it right to say, Mr Bainton, that in order to

get to the point that you wish to raise, it would

be necessary for this Court to look at the evidence

in the case in order to form a view, (a), as to the

content of the alleged obligation to consult in

good faith and, (b), to determine whether or not

the President was right, having regard to that

content in holding that there was a breach?

MR BAINTON:

No, Your Honours would not need to look at the

evidence for either of those propositions. There

was some evidence that there had been a number of

draft heads of agreement before the one that was

actually executed but nobody sought to lead

evidence as to the surrounding circumstances or to

what anybody intended beyond what you can see from

the document itself.

BRENNAN J: All right. Well, we have got the document

itself.

MR BAINTON:	So, the heads of agreement can be construed without any more knowledge, really, than you can
get from looking at them.  Now, there might be
something somewhere that I have overlooked there.

Sijehama 9 14/2/92

BRENNAN J:  What then is the content of the obligation to be

derived from those heads of agreement?

MR BAINTON:  Yes. So far as the next step is concerned, the

breach, all one needs to do is to go to the

findings of the trial judge - and I have noted

where they are in this document - and let me

observe again that his findings as to what happened

depended entirely upon his accepting part of the

case that the defendants made as to why they walked

away from this. They said, in effect, "We'd come

to the belief", and it matters not for this purpose whether they came to it honestly or correctly. They

came to it and decided that it was no longer to

their advantage to proceed with the matter and they thereupon wrote a letter saying they were not going

to. They withdrew from it.

BRENNAN J: Well, having regard to the way in which the

President put it, there were particular

circumstances which appeared in the evidence which

led him to the conclusion that there had been no

breach.

MR BAINTON:  No breach, yes.

BRENNAN J: There is no challenge, I take it, by you to the

facts as he found them because if there is, then we

would have to look at the facts to find it?

MR BAINTON:  I think what Your Honour has said is correct.

I am not really challenging the facts. What I

challenge is the proposition that he led to that if

a decision was reached, for whatever reason, it

was no longer to be a commercial advantage to go on

with the negotiations.

BRENNAN J: Well, it is very important to say "for whatever

reason" because if the reason is, in part, the
conduct of the other party, then one must be very

cautious indeed of finding what the terms of the

obligation are.

MR BAINTON: Well, let me then go to where Mr Justice Clarke

dealt with it.	The passages are comparatively
short.

BRENNAN J:  I do not want to divert you from your argument

but it seems to me that if one takes it from the
point of the President's judgment, one has a

finding of fact departing from the conclusion of

Mr Justice Clarke and coming to the conclusion, by

a majority of the Court of Appeal, that there was

no breach on the term as he construed it. Now,

either the term has to be differently construed or

the facts have to be differently found.

Sijehama	10	14/2/92
MR BAINTON:	Yes.	Primarily, we say the term plainly has to

be differently construed.

BRENNAN J: Primarily, but to make this a suitable case, it

has got to stand, as it were, very starkly on some

very simple factual foundation.

MR BAINTON:  Mr Justice Clarke, if I can go to page 75 to

begin with, said, at the beginning of line 3, after

developing over a number of pages his reasons for

this:

In summary I am left with a conviction

that it is probable that if the parties had

continued to negotiate as they were required -

meaning, I take it, thereby, as the contract

required them -

and leaving aside for the moment other

considerations which may have led to a

breakdown -

and he is talking there to some matters that were

still in negotiation between the solicitors as to

the contents of the documents, I think -

a joint venture agreement would probably have

been executed.

And he later, at page 81, quantifies his view

that that degree of probability as measurably

better than 50 per cent.	It is at the bottom of
the page.

I should then go back to his reasons for finding that there was a breach and they begin at

page 41. In the middle of that page he sets out a

letter from the defendants' solicitors and it is at

the end of some arguments about some of the

matters. What they are saying there is they have

got a new proposal.

It is put forward ..... to replace the proposals

in the Heads of Agreement -

"unworkable", they say, for their clients	and for
ours, they think, a view we do not agree.	And then
they end up, "We don't intend to proceed."	So,
that was the repudiation.

Now, if you then go to page 43 there are the findings as to what happened. At line 10

His Honour said:

What occurred was simply that the officers of

the defendants having ascertained, as a

Sijehama 11 14/2/92

consequence of the plaintiffs'

representations, that the joint venture would

be unworkable if it conformed strictly with

the heads of agreement endeavoured to

negotiate an alternative arrangement. This,

it was urged, did not constitute a failure

bona fide to negotiate but represented a

break-down, which was contemplated by the

heads of agreement, after four years of

extensive negotiation in good faith.

I might add that if Your Honours would look at

these, that was an argument that was being

propounded about the effect on the present

applicant of one of the provisions in the

agreement. By this stage, we had withdrawn our

objections to it and said that we would live with

it. And then His Honour goes on:

My immediate impression during the

hearing was that Mr Bainton's submission that

"good faith" in the heads of agreement would

hardly comprehend an insistence on departure

from the heads of agreement pursuant to a

realisation that its provisions were

disadvantageous to the defendants was correct.

However, while I do not believe that the

explanations proffered in support of the stand taken by the defendants alter the force of the

submissions, I should, in deference to the

care and attention directed to this issue,

deal shortly with the evidence of Cummings,

Tronson and Fraser.

And then he goes through and does so and it is

there he points out that these are the people who
are saying, for various reasons, they have come to

the conclusion that this deal was not economic to

Coal Cliff. It was as a result of those views that

Coal Cliff's solicitors wrote the letter that I

have pointed to earlier saying that they would not

go on with the matter.

BRENNAN J:  What do you say abut the findings recorded at

pages 139 and 140?

MR BAINTON: Before I answer that, can I just point to where

the concluding passage of Mr Justice Clarke's

summary of the reasons is?	It is page 51,
beginning at line 20.	It is the summary there that

they had come to the conclusion that the:

joint venture based on the heads of agreement

was unsatisfactory for them.

Now, if I can come to page 139, the President

said:

Sijeharna 12 14/2/92

The starting point of the consideration of the departure from the good faith promise

is the concession of the respondents that,

until August 1985, the appellants negotiated

with them in good faith.

And that concession is not withdrawn. Up to that

stage the negotiations had proceeded on both sides.

DAWSON J:  Mr Bainton, an agreement to negotiate in good

faith simply cannot be an agreement to negotiate in

good faith until an agreement is concluded. There

must come a point at which a party can withdraw for

whatever reason he wants to.

MR BAINTON: But, Your Honour, it is to negotiate in good

faith for an agreement that does not exist in any

shape or form at that stage. We are dealing with

an agreement to negotiate for an additional -

whatever phrase you like - "terms" to fill out the
machinery and so forth of what had already been

agreed to in the heads of agreement as a joint

venture which obliged during its subsistence both

parties to do a number of things and to spend

money. Coal Cliff, for instance, had obviously to

carry out exploratory activities; Bulli Main had to

keep its concessions alive and whatever, and those

obligations, in terms, was said by the parties to

be binding on each of them. Whether or not they

are, as a matter of contract law, is, of course,

one of the questions. It is very difficult to see

any reason why those provisions of that document,

which they said should be binding and which were

not vague or illusory, should not be binding.	The
question remains as to whether the additional

promised to negotiate in good faith to fill out the

heads of agreement - not to change them but to fill

them out - is contractually binding or not, and

that is a much narrower question, with respect,

than the proposition that Your Honour put to me.

BRENNAN J: Is an agreement to negotiate in good faith

capable of frustration by reason of supervening and

unexpected circumstance?

MR BAINTON:	Your Honour, I suppose if somebody dropped an Atomic bomb on the area of these coal mines and
obliterated it, perhaps that might be a result but
it is not an unexpected and extrinsic circumstance, surely, to work out in year three, something you
should have worked out at the beginning or some
change in the economic circumstances that you
thought would occur.  Economic circumstances
change, as everybody knows, unexpectedly at times.
DAWSON J:	Mr Bainton, there must come a point, agreement

not having been reached, at which there is no

Sijehama 13 14/2/92

longer an obligation on either side to continue

negotiations.

MR BAINTON:  Your Honour, I suppose, put in that bald form,

it would be hard to contradict it. But does it

come at the time and for the reason that one party
comes to regret having entered into the heads of
agreement because he ·has then worked out that they
are not in his economic interest, as they are, or

filled out in any way at all, and then to say,

ttI've made an awful mistake entering into this

agreement, I'm going to walk away from it"? That

is putting it colloquially the question of

the - - -

DAWSON J: Having, for a substantial period of time, engaged

in negotiations in good faith, which was found as a

fact.

MR BAINTON:  Having engaged in good faith in negotiations, I

agree until the time arrives which they came to

realize, for whatever reason - and, again, rightly
or wrongly - that the agreement as it was or

fleshed out in any way within its framework, was to

their commercial disadvantage.

BRENNAN J:	The proposition you have to advance is that the content of the terms of the agreement were such
that if the events described at page 139 and
page 140 occurred and, in particular, those that occurred at page 140, but notwithstanding the
occurrence of those events, the parties were bound
to continue until they reached a joint venture
agreement.
MR BAINTON:	No, with respect, I do not have to go that far.
BRENNAN J:	Do you not?

MR BAINTON: Until they eventually reached a joint venture

agreement or they eventually reached a stalemate on

the further terms within the scope of the heads of

agreement. That is a possibility.

BRENNAN J: Very well, yes. Then subject to that - - -

MR BAINTON:	One or the other, yes.
BRENNAN J:	- - - they certainly went as far as saying that

they were bound, notwithstanding the events

described at page 140, to continue negotiating?

MR BAINTON:  Yes, that it was a breach of the promise to

negotiate in good faith; to cease to negotiate

simply because you realized that you should never

have entered into the heads of agreement in the

Sijehama 14 14/2/92

first place, they were commercially

disadvantageous.

BRENNAN J:  Even though that realization is derived from

material supplied to you by the other party in the

course of the negotiations?

MR BAINTON: Well, that did not arise in this case.

BRENNAN J: Well, it says so, does it not?

MR BAINTON: If it says so, it is in error.

BRENNAN J: 

Then we would want to go into the facts, do we?

MR BAINTON: 

Your Honour, the material supplied to the

appellants there is internally generated material
of the then appellants, the respondents here.

BRENNAN J: Yes.

MR BAINTON: It is not anything we gave them. They, in

effect, made some assumptions as to coal prices, as

to cyclical movements and ran some computer runs as
to the likely outcome of the joint venture if it

were of the form of the heads of agreement and they

then concluded - - -

BRENNAN J:	You mean it was material supplied by the appellants to the appellants?
MR BAINTON:	Yes.

It was material supplied by employees of the appellants to the negotiating officers of the

appellants. It fell into two categories: the

appellants conducted themselves a feasibility study
of what is described as the Eckersley area and the

appellants got one of their employees, a

Dr Tronson, who was a mathematician, to run some

calculations on a Lotus 3 spreadsheet to see what

would happen if prices moved in a certain way, if

prices that were going to be achieved were

particular prices, and they came to the conclusion,

they said, having examined that computer run, that

this heads of agreement venture was not profitable.

They therefore said, "Right, we walk away from it."

DAWSON J: They had, bona fide, come to a conclusion that

further negotiations would not be useful?

MR BAINTON:  No, not be in their interests. It depends,

Your Honour, what you mean by "useful".

DAWSON J: Well, someone is not going to enter into an

agreement against their interests and if you ask

them to do so, well, you are asking a great deal.

So, if they come to that conclusion, bona fide,

then further negotiations are not useful.

Sijehama 15 14/2/92

MR BAINTON:  The conclusion they came to was that the heads

of agreement were not in their interest. They did

not say that negotiating further terms within the

parameters of their heads of agreement was not in

their interest. That is the point of distinction.

They had bound themselves to the type of deal. It

was a long-term mining venture under which they had undertaken obligations to Bulli Main by way of loan

funds for a period of which they had agreed on the

profit share, they had agreed upon who was going to

market.

BRENNAN J:  Even though PCBE might never have been reached?

MR BAINTON:  Yes, in short, is the answer to that. They

reached that agreement when they entered into the

heads of agreement. What they should have done was

run the type of investigation that they say

Dr Tronson ran before they entered into the heads

of agreement. They did not.

BRENNAN J:  What you say is that they tied themselves into

that framework, and within that framework they were

bound?

MR BAINTON:  They were bound within that framework to

negotiate in good faith until either of the two

possibilities that Your Honour raised occurred.

BRENNAN J: Yes. Well, I think we understand that

proposition.

MR BAINTON:  The President is saying, on pages 139 and 140

that having concluded on the material supplied to

them - and that is, in a sense, if it had come from

us it might be different. It did not come from us.

It was not likely to achieve project cash break

even unless they are unrealistically high prices

and then he goes on really to say, as we would read

it, that negotiating in good faith for fresh or

additional terms means that you can negotiate

completely to change the structure and basis of the	heads of agreement. In our submission, that is not
a meaning it can bear in this contract, and if it
meant it in this contract, it would mean it in
virtually every joint venture arrangement that has
been entered into between financiers and miners and
that, in our submission, with the greatest of
respect, would horrify both of them because one
commits his mining titles to the other; the other
is likely to spend a great deal of money and if
either of them thinks thereafter that for whatever reason he made a mistake in the first place and can
walk away from it, that would disrupt that aspect
of the commercial community's expectations very considerably indeed.

Sijehama 16 14/2/92

BRENNAN J: Well, there might be a claim in restitution in

that event.

MR BAINTON: Let me test that for this case: what is there

that can be the subject of restitution here? Our

complaint is so far as Bulli Main is concerned that

its 20 per cent share of the coal in due course

would not come to it, and that its loans that were

promised in the meanwhile to keep it financed would

not be made. The only thing that we got out of

them was some cash which, as a result of the cross-

claim, we were ordered to pay back. So far as Coal

Cliff and Sijeharna is concerned, what they

bargained to get and got in the first place was

some information relating to what was then

described as A38 as an area. Quite some time

before August/November 1985 the parties had

realized that A38 area was not going to be suitable

and they transferred their attentions to a new

area, Eckersley. Giving back Sijeharna what it had

given away in respect of an area that was then

abandoned would be of little utility to it.

In the general run of this sort of situation, restitution is impractical. It is impractical from

the very nature of the things because there is a

company that is going to spend money usually on a

mining property of a company that does not have

money and it is not there to be given back. The

purpose of this sort of situation is to allow the

opportunity for both parties to spend money or make

available mining rights or information on the basis

that if it looks as though it is going to be

successful, both of them have bound themselves to a
joint venture, even if not to the express terms of

the joint venture, which is the reason why it is

done this way.

If an agreement of that form - and

"negotiating in good faith" is a very common

expression - means that either party can take a

stance dictated not by what it has agreed to do in

the heads of agreement but by its own changed

perception of its commercial interest, you have

made a great inroad, in our submission, on the

commercial expectations of parties to agreements of

this description.

Those two pages in the President's finding do

not, for the reasons I have just given, depend on

evidence. This was one aspect of the matter in

which there was very little dispute. They depend

upon the construction that His Honour put on the

provision in the heads of the agreement relating to

negotiation in good faith.

Sijeharna 17 14/2/92

In any event, most of what Your Honours have

put to me and what I have been putting to

Your Honours in answer is directly relevant to

Bulli Main's case against Coal Cliff and the other defendant, the one that was going to be party to

the joint venture. The decision of

Mr Justice Clarke was in its favour on questions of

liability. Quantification of its loss, assuming

the Court of Appeal's setting aside of that
decision does not stand, has not even been

commenced and we obviously realize that there are

difficulties involved in that. We do not know what

would ultimately have been agreed to, if anything,

which makes it difficult, of course, to work out

loss.

One may ultimately come to a loss of chance

but as this Court pointed out, I think, in every

judgment in the recent Amann Aviation decision, the

mere fact that it is difficult to assess damages

does not relieve the Court of trying in a case

where there has been breach, but the more direct

point at the moment is what is Sijeharna's position?

It was not to be a party to the joint venture as

such. Its interest is that it agreed to sell

information payable on the happening of an event

and thereafter at intervals commencing on the

happening of the event and the event was the date

of the joint venture agreement. That is at page

191.

BRENNAN J: Well, the problem is a simple one, is it not,

and that is if A and B agree that A will sell

something to B, delivery instanter and price to be

payable on a contingency, and the contingency does

not occur, what is A's position?

MR BAINTON:  It would depend on the precise terms of the

contract but at least he is at substantial risk of

not getting paid anything. That is one

possibility. There is no doubt as to that as a

general proposition. But this case is not as

simple as that because Sijeharna is a party to the

heads of agreement and the heads of agreement,

assuming they are contractual, contain promises of

which it has the benefit and there is no doubt that

they are contractual to some extent, if for no

other reason that the Court of Appeal entered

judgment in favour of Bulli Main and against Bulli

Main in favour of Coal Cliff in respect of some

moneys that had been provided, and there are other

provisions obviously contractual as well.

Now, Sijeharna, in agreeing in the terms that

it did, is taking its chance, as it were, that the

contingency will occur. The contingency includes

the promise of Coal Cliff and its parent company,

Sijeharna 18 14/2/92

Kembla, that it would, having entered into the

heads of agreement, proceed to consult upon the

formulation of a more comprehensive and detailed

joint venture agreement. Had that promise been

fulfilled, the amount of money due to Sijehama

would have been paid in full and its

$1.6-odd million indexed.

The trial judge's approach to that, in our submission, was quite correct.	He said, "Well,
that is a contingency.	They were taking a chance.

I therefore have to evaluate the chance", and he

did it in advance of a decision of this Court in

Malec but in precise accordance with the

principles. He looked to see what were the

probabilities that agreement would have been

reached had all the parties to the heads of

agreement kept their promise and the joint venture
agreement reached, and he expressed himself

"convinced that but for the supervening events",

which were the conclusion that it was unprofitable,

"a joint venture agreement would have been

executed" and he quantifies it as "measurably more

than 50 per cent"; not much but - - -

BRENNAN J: That is contingent on the fact that there was a

breach of the agreement, is it not?

MR BAINTON:	The contingency was that for whatever reason the promise in the heads of agreement may not be
fully performed; in other words, that there may
not, for whatever reason, ultimately end up being a joint venture agreement of the nature described in the promise to pay. That was the chance it took.
The trial judge thought that there was measurably
better than 50 per cent; "measurably" did not mean
a lot, it is something better, and he therefore
discounted the present value of the promise back to
roughly half what it would have been.

Now, that, in our submission, is an

unexceptional way of quantifying those damages if

they had been taken away.

BRENNAN J: Assuming that you reject the approach that the

President took at pages 139 and 140.

MR BAINTON:	Yes, I have to assume that you reject the proposition that "negotiation in good faith"
permits walking away simply in your own commercial
interests, recently discovered, to differ from what
they originally were. That, I agree, is central to the proposition. But if that is the correct construction, all of the other consequences, in our
submission, follow in that the findings of the
President depend upon a wrong view of the
construction of this agreement and it is a common

Sijehama 19 14/2/92

form of agreement for joint ventures for mining

operations.

BRENNAN J:  I mean, your proposition is absent the breach

that the President said existed, the case is a very

suitable one for raising the question whether an

agreement to negotiate in good faith can ever be

enforceable.

MR BAINTON:  Yes, it is almost an ideal case.

BRENNAN J: Yes, I understand that.

MR BAINTON:	Yes, I accept that is how we put it.
BRENNAN J:	We need not trouble you, Mr Jackson.

MR JACKSON:  Thank you, Your Honour. Your Honours, may I

just mention one thing? I do not want to derogate

in what Your Honour said in the slightest but I

perhaps should draw the Court's attention to the
fact there is a very recent decision of the House
of Lords in England which, for that country,

quashes the central notion relied on by our learned

friend, that is Walford v Miles, (1992) 2 WLR 174,

in which an agreement to negotiate in good faith

was held not to give rise to a binding agreement

largely for the reasons similar to those put by

Your Honour to my learned friend in the course of

the discussion, the relevant part of the reasoning

being at page 181 point 5 and on to the next page.

BRENNAN J: Yes, thank you, Mr Jackson. Notwithstanding

that, Mr Jackson:

The Court of Appeal held that there was no

legally enforceable obligation to negotiate in good

faith, a breach of which would sound in damages.

Mr Justice Kirby, with whom

Mr Acting Justice of Appeal Waddell agreed, held

that the English Court of Appeal decision in

Courtney disapproving dicta of Lord Wright in

Hillas v Arcos was wrong in deciding that a

contract to negotiate in good faith could never be
enforced but held that in this particular case the
contract was unenforceable. Mr Justice Handley, on the other hand, held that contracts to negotiate in

good faith are illusory and not binding.

Whether or not an a,:3reement to negotiate in

good faith could constitute an enforceable

agreement in some circumstances, the majority of

the Court of Appeal came to the conclusion that the circumstances of this case negatived any failure to negotiate in good faith.

Sijehama 20 14/2/92

The applicant challenges that conclusion on

the ground that the respondents were bound to

continue negotiations despite the events described

by the learned President in his judgment.

If there were an enforceable agreement in this

case, there is insufficient reason to doubt that

the events so described could not have amounted to a breach. In these circumstances, the case is not
a suitable vehicle for considering the general

question of whether an agreement to negotiate in

good faith can constitute an enforceable agreement.

Accordingly, special leave will be refused.

MR JACKSON:  I ask for costs in the application.

BRENNAN J: It will be refused with costs.

AT 4.46 PM THE MATTER WAS ADJOURNED SINE DIE

Sijehama 21 14/2/92