Aiton Australia Pty Ltd v Transfield Pty Ltd

Aiton Australia Pty Ltd v Transfield Pty Ltd - [2010] WASCA 222 - WASCA 2010 case summary — Zoe

[50]

On 13 September 2004, Mr Poland, whom I have described as the principal of the plaintiff company, attended what appears to have been a political fundraising dinner. At that function, he met Mr Thorp, the general manager of the defendant. Mr Thorp said that the defendant wished to sell the land which is the subject of these proceedings. He suggested that if Poland was interested, they should meet, and early in October 2004 they did so.

The meeting was also attended by another officer of the defendant, and a Mr Weston, a business associate of Mr Poland, who had also been at the dinner, and had heard the conversation between Mr Thorp and Mr Poland at that event. In addition, Mr Poland had Mr Carman attend. Mr Carman was a director of Benchmark Projects, property managers and development consultants. He had also been at the dinner and had heard the discussion about the potential sale of the land. Finally, Mr Poland had the principals of a consultancy business known as Halden Burns attend. They were Mr Halden and Ms Burns.

The only people whom I have named above who did not give evidence before me were Mr Halden and Mr Thorp. As to Mr Thorp, the plaintiff had proposed to call him, although he was the general manager of the defendant, but in the process of closing the plaintiff's case, Mr Clifford told me that, having had the opportunity to speak to Mr Thorp, his independent memory of events was such that he could not relevantly add to what is in the documents. Mr Thorp was not called by the defendant, whose only witness was the company secretary, Ms Jones. There was no substantial cross-examination of Mr Carman, and Mr Weston and Ms Burns were not cross-examined at all.

At the meeting in October 2004, Mr Poland said that the plaintiff was interested in purchasing the land for development purposes. It was proposed to subdivide the land and establish residential lots. It was quite a large piece of land of about 120 hectares, but there was discussion about the fact that about 30 hectares might be taken by the authorities, by way of reservation or otherwise, for public purposes, and to the extent that there was compensation provided for the loss of that land, the defendant thought it ought to share equally in that compensation.

There seems to have been quite a bit of discussion about the remediation of the land, having regard to the mine tailings with some radioactive content which were buried in various locations. That had been a process which complied with governmental requirements when done, but if the use of the land was to change, the understanding was that the tailings would need to be differently dealt with. Mr Thorp said that there were three options which could be considered. The tailings could be relocated and buried in a different location on the land. Alternatively, they could be removed from this land and buried elsewhere. Finally, they might be dealt with by the company reprocessing them, to extract further minerals and thereby reduce their radioactivity.

Mr Thorp said that the cheapest option was to relocate the tailings on the land. He estimated that it might cost between $1 M and $1.5 M. On the other hand, as I understand the evidence, it was thought that the most expensive option would be to dig up the tailings and reprocess them. That, Mr Thorp said, might cost between $4 M and $6 M.

It is clear that Mr Poland made no pretence about the plaintiff's interest in purchasing the land. The two men generally agreed that whatever was to be done with the tailings was within the area of the defendant's expertise, and the work should be carried out by the defendant, but at the plaintiff's cost. The defendant was to undertake a study of the best way to deal with the tailings, and the cost of doing so. When that was done, the plaintiff would undertake a feasibility study in relation to the development of the land. It is clear that there was no discussion at that time about the possibility of the plaintiff providing the defendant with an indemnity, secured by bank guarantee, against the liability which might be incurred to third parties from the state of the land.

There was discussion about price, and it appears that it was agreed that the 90 hectares, which it was anticipated would remain after any resumption or other public reservation, would be purchased by the plaintiff for $3.2 M plus GST, if the plaintiff was satisfied about the feasibility of developing the land profitably once the information was available in relation to the work to be done and the expense involved in dealing with the mineral tailings.

It will be recalled that the plaintiff's case is not that the contract upon which it relies was made at that meeting, but that it was constituted by the MOU, which was subsequently drawn up. Mr Poland travelled overseas immediately after the meeting. He instructed Mr Carman to see to the preparation of the contract, and Mr Carman instructed solicitors accordingly. Mr Carman was to sign the contract for the plaintiff. A draft was prepared. It was forwarded to the defendant. Some changes were incorporated at the defendant's request. Mr Carman executed the document for the plaintiff on 8 November, and Mr Shirfan executed the document for the defendant on 10 November 2004. These arrangements were made by Ms Burns.

[59]

Cable Sands is to keep Strzelecki Holdings informed in relation to all aspects of the study being carried out in accordance with paragraph 1 ('Tailings Relocation Study') and is to promptly advise Strzelecki Holdings of the estimated cost for relocating and encapsulating the tailings once that cost has been determined. The Tailings Relocation Study and cost details (the Confidential Information) contain information confidential to Cable Sands and will be provided to Strzelecki Holdings on a confidential basis. Strzelecki Holdings agrees not to use the Confidential Information for any purpose other than in connection with the purchase of the Land by it, pursuant to this Agreement. In these circumstances, the Confidential Information shall only be used in a manner that fully protects the Confidentiality of that information. The Confidential Information shall not be disclosed to any third parties without the written consent of Cable Sands. All Confidential Information and any copies, in whatever form, must be returned to Cable Sands upon termination of this Agreement.
Strzelecki Holdings is to promptly carry out a due diligence and feasibility study in relation to the subdivision and development of the Land to its highest and best use, including considering all relevant planning processes and approvals which will be required for such a development ('Feasibility Study') and agrees to provide Cable Sands with a copy of the Feasibility Study so prepared.
Cable Sands acknowledges that Strzelecki Holdings, in carrying out the Feasibility Study, may contact and make enquiries with the Shire of Capel, South West Planning and the Department for Planning and Infrastructure provided that at the first meeting between Strzelecki Holdings and any of those authorities a representative of Cable Sands is to be present at that meeting and provided further that Strzelecki Holdings is to keep Cable Sands informed in relation to its enquiries with those authorities and provide copies of correspondence between itself and those authorities.
Strzelecki Holdings is to complete the Feasibility Study by the date being the later of:

[96]

According to Mr Poland, after some preliminary discussion, the conversation turned to what would need to be done to clean up the tailings and Mr Shirfan said that it would be necessary to excavate and re-treat the tailings at an estimated cost of $9 M. The evidence about this was given by Mr Poland and Ms Jones. There are differences in their respective recollections. Mr Poland says that when he was told what was to be done and what the defendant estimated it would cost, he said that although it was a lot higher than the original estimate, the plaintiff still wished to proceed. His evidence was that he felt he had no choice but to capitulate and was prepared to do so to finalise the deal. Although he had been advised that the information from the defendant was unsatisfactory, he realised he would have to accept that no more information would be forthcoming if, as the plaintiff wished, the transaction was to be completed to result in the sale of the land.

Mr Poland said that he told those present at the meeting that this was the plaintiff's position. Poland's evidence was that Shirfan said that he was not sure that the defendant would do the work. Poland said that he told those at the meeting that although he would prefer the defendant to do the work at the plaintiff's expense, if it would not, then the plaintiff would get someone else to do it. Ms Jones agreed that Poland said the plaintiff was prepared to arrange for the cleanup to be done. He said he asked for the study as to what was required. Ms Jones said that it would not be provided unless the plaintiff executed the confidentiality agreement. Mr Poland said he agreed. It appears that progress was being made.

There was a discussion about special conditions which Mr Shirfan said the defendant would require in relation to cleaning up the land. Ms Jones undertook to arrange for those special conditions to be prepared and forwarded to the plaintiff's solicitors. There was no discussion, Mr Poland says, about what their content might be.

Ms Jones' evidence was, and I accept, that at least there was discussion about the fact that in general terms the special conditions would be concerned to protect the defendant from liability which might be incurred to third parties who would subsequently acquire the land, if the cleanup process was done by the plaintiff and imperfectly reduced the level of radiation remaining in the land. She agreed, however, that there was at that meeting, no reference to the plaintiff agreeing to indemnify the defendant against any such liability or to the requirement for the plaintiff to support that undertaking by the provision of a bank guarantee (ts 292 - 296).

[240]

91 The three notions adverted to by Sir Anthony Mason were referred to by Parker J in Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128; (2001) 24 WAR 382 [24] - [25]. That case involved an interlocutory decision which assumed, rather than decided, the existence of a term of good faith encompassing the three notions described by Sir Anthony Mason. By reference to Parker J's decision in Central Exchange v Anaconda Nickel, Murray J referred to the same three elements in Expectation Pty Ltd v Pinnacle VRB Ltd [2001] WASC 144 (S) [16]. His Honour was there considering a clause (cl 6 of a letter agreement) to the effect that the parties would 'negotiate in good faith to close the transactions contemplated in this Letter Agreement in an expeditious manner and as soon as practicable'. On appeal, the court was not required to determine the meaning of the relevant clause as a matter of its proper construction: Expectation Pty Ltd v Pinnacle VRB Ltd [2004] WASCA 261. Rather, the proper construction of the clause (as opposed to its application) appears not to have been in dispute. In the Full Court, Steytler J (with whom McKechnie and Jenkins JJ agreed) noted that the primary judge had also determined in that case that the particular clauses involved an obligation on the parties 'to use their best endeavours to ensure the making of the agreements contemplated by the letter agreement within the time framework provided so as to ensure that each had the benefit of the agreement' [44]. Steytler J said that the trial judge was fully cognisant of the fact that cl 6 would be breached by failure to take reasonable action to negotiate the agreement [49]. His Honour also said that the trial judge had 'correctly understood the nature and extent of the obligations imposed by cl 6 of the Letter Agreement' [70]. As I understand Steytler J's reasons, his Honour was not considering the question of whether the defendant had proposed objectively unreasonable terms, but rather whether it could be said that the defendant failed to do what was reasonably required in the circumstances and having regard to the requirement of expedition, to participate in the process of negotiation (see [89]).

[242]

93 In my view, the following matters are relevant to the proper construction of the contractual terms in this case. First, the nature of the arrangement was that the Land would be sold by Cable Sands to Strzelecki Holdings if suitable terms could be mutually agreed within the time stipulated for the negotiations to be undertaken. This is underscored by the 'lockout' provision precluding sale elsewhere, and the fact that it was recognised that Cable Sands would disclose confidential information to Strzelecki Holdings for the purpose of facilitating a sale of the Land (if terms could be agreed) to Strzelecki Holdings. Secondly, the parties had agreed on important terms involving price, the application of any resumption compensation, and the panoply of machinery provisions (the standard REIWA terms) designed to effectuate the sale of land in this State. Thirdly, apart from embodying the principle that in any binding agreement for sale to be negotiated between the parties, Strzelecki Holdings would be responsible for 'all costs' associated with relocating and encapsulating the tailings, the MOU was silent as to whether Cable Sands, or Strzelecki Holdings, or some third party, should undertake the task of dealing with the tailings. Fourthly, whilst cl 1 of the MOU indicates that, at the time of contracting, the parties assumed that it would be feasible to relocate the tailings from one part of the Land to another part of the Land in a way which would facilitate the overall commercial development of the Land, the Tailings Report had not then been prepared and the parties were unaware of the full nature, complexity, magnitude and expense of the tasks associated with the process of dealing with the tailings and rendering the Land safe and suitable for residential development and occupation. (As noted below, the assumption made by the parties, as events transpired, proved incorrect). Fifthly, the MOU is between two arms-length commercially astute parties, the subject matter of which concerns a valuable asset. Sixthly, negotiation is 'an essentially self-interested commercial activity': United Group Rail Services v Rail Corporation NSW [71].

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (269 paragraphs)

STRZELECKI HOLDINGS PTY LTD -v- CABLE SANDS PTY LTD [2010] WASCA 222 (22 November 2010)

Parties

Cases Cited (31)