123 There was a meeting of the GBX board on 7 October 2008 attended by Mr Kirke, Mr Robinson and Ross Ashton. Mr Moore and Miles Ashton attended by invitation. Mr Moore says that the board asked for an update on instrumentation for the WEC Stage 1 prototype and threatened to stop funding the project if the instrumentation was not finished immediately. The minutes of the board meeting record that Mr Moore gave the board a presentation on the latest developments. The minutes say that it was emphasised to Mr Moore that the Board needed to be in a position to make a stage 2 decision and that Mr Moore was in control of that process. The minutes record that it was decided to postpone a final decision about a trip to the United States to a later date 'especially if the company has not yet committed to stage 2 or patents are not in place at the time'. I find that the minutes reflect what occurred at the meeting.

124 I find that it is to be inferred from the conduct of GBX and Protean that they agreed to vary the Deed in accordance with the Stage 1.1 Agreement. I will now consider whether, as alleged by the defendants, GBX and Protean made the New Agreement in or about October 2008 in substitution for the agreement or arrangement between them prior to the making of the alleged New Agreement.

8.1 The new agreement alleged by the defendants

125 The defendants say that, pending the completion of GBX's due diligence, in or about October 2008 GBX and Protean entered into a new funding agreement in respect of Protean's development of the WEC and in substitution for the existing agreement between them, which they refer to as the New Agreement. The New Agreement is said to contain the following terms:

1. if Protean required additional funding from GBX, it would make a request in writing;
2. GBX could, at its sole discretion, choose to either fund Protean or refuse such funding and would respond to Protean's request within 14 days;
3. any further funding provided by GBX would be on a non-exclusive and non-recourse basis;
4. depending on the level of funding agreed to by GBX, Protean would agree to issue shares to GBX in similar amounts and upon receipt of similar funding amounts to that provided for in [4] of the Deed;
5. the shares would be issued in consideration of GBX's funding of Protean and not for any cash consideration;
6. eNGN would not receive any shares pursuant to funding provided by GBX; and
7. the parties would investigate alternatives to GBX funding Protean to the sum of $2.1 million contemplated by the Deed.

126 The defendants say that the New Agreement was partly oral and partly in writing. To the extent that it was oral, it was contained in various conversations between Mr Kirke and Miles Ashton on behalf of GBX and Mr Moore on behalf of Protean in or about October 2008. To the extent it was in writing it consisted of an email of 29 October 2008 from Miles Ashton to the GBX board and an email of 24 December 2008 from Miles Ashton to GBX's board attaching a memorandum concerning the deployment of the WEC on 23 December 2008. The defendants further say that the existence of the New Agreement was confirmed in writing and discussed between representatives of GBX and Protean on a number of occasions following October 2008. The defendants rely upon emails of 8 October 2008 from Mr Moore to Miles Ashton (which attached his Strategy Statement) and 29 October 2008 from Miles Ashton to GBX's board, an internal GBX memorandum dated 24 December 2008 and various emails passing between Mr Kirke and Miles Ashton on behalf of GBX and Mr Fiegert and Mr Moore on behalf of Protean between October 2008 and April 2009.

127 The defendants say that payments made by GBX commencing on 1 August 2007 and concluding on 11 March 2008 and totalling $129,000 were made in respect of Stage 1 funding pursuant to the Deed but deny that any of the payments made after 11 March 2008 were made by GBX pursuant to the Deed. The defendants say that the payments made by GBX subsequent to 11 March 2008, commencing with a payment on 30 May 2008 and concluding with a payment on 14 April 2009, were made by GBX pursuant to either the Stage 1.1 Arrangement or the New Agreement. The defendants say that the shares issued by Protean to GBX were issued in accordance with the terms of the New Agreement not in accordance with the Deed.

128 GBX denies that the New Agreement, or any new agreement, was ever entered into between the parties except for the Stage 1.1 Amendment and the Tranching Amendment. The Tranching Amendment is said to be an amendment to the tranching arrangement set out in cl 5.1 of the Deed whereby funding by GBX was to be made in tranches of $250,000 rather than $500,000.

8.3 Protean and GBX did not make the New Agreement

129 On 8 October 2008 Mr Moore emailed his Strategy Statement to Miles Ashton. The statement outlined Protean's technology, financial, strategic and corporate goals. It referred to a Stage 1.1 which was not part of the Deed and commenced to develop the Stage 1 WEC and provide GBX with further proof of the WEC's functionality. It then outlined financial constraints and concluded as follows:

The important issues facing ASEC are the immediate critical allocation of resources to secure its IP and prepare for the company's push into the US at the beginning of next year. Realistically these significant costs will be incurred before the completion of the Stage 1.1 instrumentation, subsequent re-launch, data analysis, and third party verification of the results. The current funding arrangements are proving to be problematic to ASEC in its efforts to move forward and it is in both GBX's and ASEC's best interests that this be examined.

The current funding scheme poses an obvious area of concern for GBX; in short GBX is in an uncomfortable position of outlaying funds without knowing if it will ultimately gain equity in ASEC, this is becoming an increasing financial risk for GBX; it may be worthwhile to look at an interim solution to this problem. In an effort to overcome this issue it may be advisable for ASEC to consider issuing prorated shares in itself for this pre-Stage 2 funding. The shares would be issued to GBX in accordance with the guidelines described within the Deed.

As the current funding is pre-Stage 2 it would be best to issue the shares in half-tranches based on what is described in the Deed. The half-tranches could be (i) $250k - 1250 shares; (ii) $250k - 1250 shares; (iii) $250k - 1250 shares; (iv) $250k - 1250 shares; (v) $250k - 1250 shares; (vi) $250k - 1250 shares; (vii) $300k - 1250 shares; (viii) $300 - 1250 shares; thus giving GBX the same percentage share in ASEC at the completion of the funding, while making a transition into Stage 2 easy, when this occurred.

At present GBX has funded $140k above the Stage 1 maximum funding amount and it is estimated that the immediate expected costs for IP and promotional material could be in the order of $100k. If GBX were to provide funding for this next proposed portion of pre-Stage 2, ASEC would invoice GBX for $110k, which would allow GBX (and eNGN) to acquire the first half-tranche of ASEC shares. This mechanism would be consistent with the Deed and provide GBX with some security for its funding.

The obvious advantage for GBX is that it mitigates much of the risk associated with funding above the budgeted $140k for Stage 1. ASEC understands that because Stage 2 has not been entered into as yet that this pre-Stage 2 funding would not be guaranteed and as such this funding would be limited to funding the activity within the current tranche. At any time GBX would have the right to cease funding and retain its acquired shareholding in ASEC.

130 I find that Strategy Statement accurately reflects what had been agreed between GBX and Protean up to that time. Stage 1.1 was not provided for under the Deed. Under Stage 1.1 the WEC was to be further developed so as to enable GBX to make a better assessment of the functionality of the WEC and hence to decide whether or not to commit itself to the Stage 2 funding under the Deed. Mr Moore further wrote that in the Deed any extra funds released above the $140,000 for Stage 1, while not in Stage 2, will be deducted from the total available funding of Stage 2, if it were to proceed. That reflects the Stage 1.1 Agreement between Protean and GBX that Stage 1 was to be extended into Stage 1.1 and funds provided by GBX under Stage 1.1 would be deducted from the amount GBX was obliged to fund under Stage 2, if it elected to exercise the Option and proceed to Stage 2 funding.

131 The Strategy Statement is inconsistent with the Deed having come to an end in July 2008 and the parties no longer regulating their relationship in accordance with their rights or obligations under the Deed. The contention of Protean is to the effect that in October 2008 GBX was providing funds to Protean so as to enable Protean to continue to develop the WEC technology and protect its intellectual property which would be of benefit to GBX if it subsequently decided to invest $2.1 million in Protean and Protean accepted that investment. However, if that were the position it is unlikely that Mr Moore would have referred to his proposal being consistent with the Deed nor referring to the risk associated with funding above the budgeted Stage 1 funding. Mr Moore wrote that if GBX were to provide funding for this next proposed portion of pre-Stage 2, Protean would invoice GBX for $110,000 which would allow GBX (and eNGN) to acquire the first half tranche of Protean shares. The reference to eNGN acquiring shares is a reference to Sunset transferring 150 shares to eNGN at the completion of $500,000 of Stage 2 sole funding by GBX as provided for in cl 5.1 of the Deed.

132 On 21 October 2008 Miles Ashton emailed to Mr Kirke, Mr Robinson and Ross Ashton his alternative proposal for future funding. Miles Ashton said that they needed to make a high level decision on the future of the Protean relationship. The proposal is set out in a memorandum of 20 October 2008 from Miles Ashton to Mr Kirke, Mr Robinson and Ross Ashton and entitled 'ASEC Funding Proposal'. The memorandum commenced by stating that GBX had funded a total of $280,000 of which $140,000 was allocated to Stage 1 and $140,000 for Stage 1.1. Miles Ashton stated that the previous week he, Mr Kirke and Mr Moore had met with Mr Rogers and Mr Rogers had stated that he would not be able to provide a review of the project without knowing the WEC efficiency, that is instrumentation readings on both the output of the WEC but more importantly accurate measurement of the energy extraction or conversion ratio from the wave energy source. The memorandum referred to the Protean and GBX agreement. It said that GBX 'has' the option to acquire a 50% interest in Protean through funding Stage 2 and GBX 'has' an exclusive option to fund Stage 2 to a maximum level of $2.1 million. The memorandum then stated that without the proposed sea trial, which includes the instrumentation measuring equipment, Mr Rogers, who was conducting the due diligence on behalf of GBX, cannot make a recommendation. Miles Ashton said that given that the IP is Protean's most important asset an immediate funding of between $150,000 and $200,000 was needed to secure that IP. Miles Ashton said that GBX had the following options under the existing agreement:

(a) Go to Stage 2 without recommendation from Mick Rogers - this requires a commitment of $1 million;

(b) Fund the IP without committing to Stage 2 - requiring a further outlaying of funds without knowing if it will ultimately gain equity in Protean;

(c) Relinquish the WEC project now so that Protean can find alternative funding - GBX will have zero interest in Protean.

Proposal for new agreement between ASEC and GB Energy

Recognizing the increasing financial risk to GB Energy and the tight timeline for securing the IP a new proposal to the three alternatives above is needed. Total shares in ASEC amount to 10,000 at present. A new funding and share issuance schedule is proposed as follows: (i) $250k - 1250 shares; (ii) $250k - 1250 shares; (iii) $250k - 1250 shares; (iv) $250k - 1250 shares; (v) $250k 1250 shares; (vi) $250k - 1250 shares; (vii) $300k - 1250 shares; (viii) $300 - 1250 shares; thus giving GB Energy the same percentage share in ASEC at the completion of the funding, while making a transition into Stage 2 easy, when and if this occurred.

GB Energy has already funded $140k over and above the originally agreed Stage 1 funding and therefore this amount would be used towards the first $250k to earn 1250 shares or 10% in ASEC thereby securing an interest without committing to Stage 2. The obvious advantage for GB Energy is that it mitigates much of the risk associated with funding above the budgeted $140k for Stage 1. ASEC understands that because Stage 2 has not been entered into as yet that this pre-Stage 2 funding would not be guaranteed and as such this funding would be limited to funding the activity within the current tranche. At any time GBX would have the right to cease funding and retain its acquired shareholding in ASEC.

Summary

I believe the WEC to be one of GB Energy's most important assets given the current investment climate and believe that this new proposal allows GB Energy to retain ownership in ASEC with less financial commitment and more flexibility. GB Energy can continue with the planned sea trial with instrumentation and then make the decision on whether to proceed to Stage 2 with the knowledge that regardless of its decision it will have secured an interest in ASEC through the funding required for the IP. Additional funding would also allow GB Energy to prepare for the LA conference in January - recognized by the Board as being a very important opportunity.

Later on 21 October 2008 Ross Ashton replied to Miles Ashton's email:

I am comfortable with proceeding with ASEC without the comfort of the energy measuring device under the proposed $'s for equity revised terms as outlined by Miles.

Also happy to commit - $200,000 for ongoing patents in next six months or so.

On 23 October Mr Robinson responded to Miles Ashton's email:

I fully support the continued funding of ASEC at the levels indicated with the proposed share structuring.

134 On 22 October 2008 the LEED fund programme manager had sent an email to Mr Moore raising a number of queries concerning Protean's LEED fund application. On 28 October 2008 Miles Ashton responded stating that he was doing so on behalf of Mr Moore, that he was responsible for strategic projects for GBX and that GBX was funding Protean for the assessment of its WEC device. Miles Ashton sent a copy of his email to Mr Moore. In his email Miles Ashton said that GBX had continued the funding and subscription agreement, that the concept stage of development was now complete and GBX would continue its due diligence assessment of the technology and was expected to finalise its decision on moving to Phase 2, development of a commercial prototype. Miles Ashton said that he could confirm that GBX intended to continue funding Protean through Phase 2 - commercial prototype and that the existing funding and subscription deed between Protean and GBX allowed for up to $2.1 million of funding in Phase 2 in return for an equity stake in Protean of up to 50%.

135 On 29 October 2008 Miles Ashton sent an email to Mr Kirke, Mr Robinson and Ross Ashton in which he referred to the memo he sent dated 20 October 2008 in which he requested the board to approve further funding to Protean under new funding arrangements for the purpose of securing the intellectual property.

136 Mr Moore says that on or about 4 November 2008 he met with Mr Kirke and Miles Ashton. Mr Moore says that Mr Kirke and Miles Ashton stated that they would review the existing agreement between GBX and Protean and produce a letter of agreement outlining the new terms. He says the discussions were subsequently confirmed and agreed in emails between Miles Ashton, Mr Kirke and himself.

137 Emails from Miles Ashton of 3 and 4 November 2008 confirm that new funding terms were discussed but not what, if any, terms were agreed. On 3 November 2008 Miles Ashton sent an email to Mr Kirke on the subject 'of weekly meeting summary 3/11/08'. The summary in relation to Protean stated, amongst other things:

• [Miles Ashton and Mr Kirke] to agree to new funding terms with [Mr Moore].

On 4 November 2008 Miles Ashton sent an email to Mr Kirke in which he gave a summary of 'Protean/GBX meeting' which included:

• [Mr Kirke/Miles Ashton] to review existing contract between [Protean] and GBX and produce letter of agreement outlining new terms.

Mr Kirke says that at the meeting they discussed Mr Moore's Strategy Statement. Mr Kirke says he did not state that he, or they, would produce a letter of agreement outlining the new terms.

138 On 11 November 2008 the LEED fund programme manager sought further information from Protean including what other funding had been considered if a foreshadowed federal grant was not obtained. Miles Ashton drafted a response which he circulated to Mr Kirke and Mr Moore. Mr Moore stated he agreed with the draft. The draft said that if the federal funding was not obtained then alternative funding would need to come from the private sector. It was stated that Protean and GBX believed the most suitable option to be an IPO - listing Protean on the ASX with GBX as sponsor. The draft also stated that the current management team consisted of individuals from both Protean and GBX. Mr Moore replied to the LEED fund programme manager in the terms of Miles Ashton's draft with only some amendments that are not relevant to the present issues.

139 On 18 November 2008 Miles Ashton sent an email to Carel Smit of Wrays. I will refer later in these reasons to my finding that Miles Ashton subsequently sent a copy of this email to Mr Moore. Miles Ashton said:

I have attached the existing subscription and funding agreement between ASEC and GBX. GBX intends to modify the agreement. Sections 4 and 5 of the Funding and Subscription Deed - Share Transfer and Issue is the relevant section we will revise. The new terms for Stage 2 Sole funding will be as follows: Total shares in ASEC amount to 10,000 at present. We have completed Stage 1 and are at Stage 2 of the funding agreement. A new funding and share issuance schedule is proposed as follows to replace sections 4 and 5 of the deed. (i) $250k - 1250 shares; (ii) $250k - 1250 shares; (iii) $250k - 1250 shares; (iv) $250k - 1250 shares; (v) $250k - 1250 shares; (vi) $250k - 1250 shares; (vii) $300k - 1250 shares; (viii) $300 - 1250 shares.

This email shows that on 18 November 2008 Miles Ashton, and by inference GBX, believed that the Deed remained binding on the parties. The email also shows that the new funding terms intended by GBX were a further variation of the Deed rather than a new agreement in substitution for the Deed. The variation referred to by Miles Ashton is the Tranching Amendment.

140 There was a GBX board meeting on 28 November 2008 attended by Mr Kirke, Mr Robinson and Ross Ashton. Miles Ashton attended by invitation. The minutes record:

The board discussed a forward strategy for Protean (ASEC). Mr Kirke advised that a new agreement with Protean should be finalised within 7 days; a draft of this agreement will be circulated to all board members prior to execution. The board agreed that the most appropriate way forward is to float Protean Energy off in the first half of 2009, with the aim of raising between $2 - $3 million; the amount raised would be matched by Commonwealth grants.

141 Mr Moore says that in early December 2008 Miles Ashton informed him that Mr Kirke would not approve payment of the patent costs until GBX and Protean had finalised a new agreement. Mr Moore says he did not want to be pressured into a new agreement so he arranged a loan from a third party to pay the patent costs.

142 I accept that there were discussions between Mr Moore, Mr Kirke and Miles Ashton concerning changes to the funding agreement between Protean and GBX. That does not mean that the Deed had ceased to have effect. GBX and Protean continued to deal with each other on the basis that their relationship was governed by the Deed, as varied by the Stage 1.1 Agreement, but continued to discuss changes to their agreement.

143 On 11 December 2008 Miles Ashton sent an email to Mr Kirke stating that after payment of invoice 12 GBX had funded tranche 1 of Stage 2 of $250,000 to earn equity of 1,250 shares. Miles Ashton requested delegated authority to the amount of $100,000 for anticipated future payments in December 2008 and January 2009 for IP costs, salary and sundry expenses. On 15 December 2008 Mr Kirke emailed to Ross Ashton and Mr Robinson a copy of Miles Ashton's email and stated that he had asked Miles Ashton to make the request so that they could consider the issue. Mr Kirke said:

I recommend we make this delegation. It in effect commits GBX to the next $250k tranche. Execution of the amended agreement, previously discussed, is a prerequisite for any draw on the next tranche. This is underway.

Several funding options are available, directly or indirectly, to fund Protean. The options will be reviewed upon the return of Miles and Sean from the January US trip.

Please advise if you support the delegation and commitment to the next $250,000 of funding.

Mr Robinson responded on 15 December 2008 by saying that he supported the Protean delegation to the US and the commitment to the next $250,000 subject to the availability of GBX funds and the review of the forward funding options for Protean. On 16 December 2008 Ross Ashton responded 'me too!!'. The inference from these communications is that Miles Ashton, Mr Kirke, Ross Ashton and Mr Robinson intended that GBX would decide to sole fund Stage 2 and would become entitled to earn equity of 1,250 shares after providing $250,000 funding to Protean under Stage 1.1, which was to count as Stage 2 funding upon GBX deciding to fund Stage 2, and any further funding provided after entering Stage 2.

144 There were discussions between Mr Moore, Mr Fiegert and Mr Kirke in December 2008 about the future funding of Protean and GBX raising funds to fund Stage 2. That does not mean that the Deed had terminated or that Protean and GBX were no longer bound by the Deed as varied by the Stage 1.1 Agreement.

145 On 17 December 2008 Miles Ashton forwarded to Mr Moore a copy of his email to Carel Smit of 18 November 2008, in which Miles Ashton had referred to 'the existing subscription and funding agreement between ASEC and GBX'. Mr Moore said in his evidence that he did not recall reading Mr Ashton's email in December 2008 and that Mr Ashton's email differed from the negotiations he had been having with Mr Kirke about a funding structure for Protean. Whilst Mr Moore did not recall reading Miles Ashton's email, he did not deny it. I find that he did receive the email. Mr Moore did not inform Miles Ashton that there was not an 'existing subscription and funding agreement between ASEC and GBX'.

146 Mr Moore says that on or about 19 December 2008 he had a meeting with Miles Ashton at which they discussed certain issues regarding the funding arrangements between the parties. Mr Moore says that as a result of this meeting he was concerned that GBX and Protean had different views as to the status of the Deed. Mr Moore says at the time he was of the view that GBX was providing funding on a non-exclusive, non-recourse basis.

147 On 20 December 2008 Mr Kirke sent an email to Mr Moore in which he referred to the meeting the previous day between Miles Ashton and Mr Moore and said:

I would like to sit down together, including Kingsley and Miles if possible, and make sure we are all thinking the same way on the agreement and what we see as the best way forward for Protean. I think it is very important to do this as soon as possible.

148 On 24 December 2008 Miles Ashton sent an email to Mr Kirke, Mr Robinson, Ross Ashton and Mr Moore which attached a memorandum of 24 December 2008 on the subject 'Protean Wave Energy Deployment 2'. The memorandum said in part:

Currently GBX have funded the first half tranche of $250,000 as per the previously distributed amended funding terms. GBX have made available the second half tranche of $250,000, and these funds will be transferred pending the formalisation of the new funding arrangement between Protean Power and GBX.

149 On 31 December 2008 Mr Kirke, Miles Ashton, Mr Moore and Mr Fiegert met. Mr Moore says that there was a discussion to the following effect:

Kirke: To my mind, we've been in Stage 2 development for a while. We're not going to waste any more money on Stage 1.1 or the Stage 1 prototype. GB now wants to acquire shares in Protean.

Moore: But you haven't done what you were supposed to do under the Funding Deed. You didn't exercise the option to sole fund in July. The manner of funding so far has been destabilising. We think that instead, Protean should work with strategic industry partners who will provide funding. We need to recognise the current high share value in Protean.

Kirke: While GB can't afford to fund Protean to $2.1 million, one solution might be for the GB shareholders to take up or share the funding responsibilities of GB in preparation for floating Protean in an IPO.

Moore: In principle, that sounds reasonable. However, I need more time to consider this and whether it would be the best course of action for Protean.

Kirke: I want you both to have a stake in GB in order to support GB into the future.

Fiegert: In my view, we need to extend any share offer to third parties and form strategic partnerships for the future.

150 Mr Kirke says that Mr Moore's evidence is untrue. Mr Kirke says that the summary of the meeting contained in his email of 2 January 2009 summarises what occurred at the meeting. On 2 January 2009 Mr Kirke sent an email to Mr Moore, Mr Fiegert and Miles Ashton in which he purported to summarise the significant elements of the meeting. The email stated that GBX's position was that it cannot give up the right to fund $2.1 million, is of the view that the $250,000 tranches did not remove the right to subscribe the full $2.1 million and GBX is committed to the project and to Protean, having funded the first $250,000 of Stage 2 and is ready to fund the second $250,000. The email stated Protean's position to be that the $250,000 tranche structure is potentially extremely destabilising in the upcoming phase of the project which requires certainty of funding. Industry partners may now be a realistic option and if they took the place of GBX would be less dilutive to all shareholders. Proof of concept prototype has done all and more than was required to comply with the Stage 1 obligation. The email stated the 'summary of position subject to review and approval' to be 'if no alternate agreement reached then the original agreement operates (logical legal position)' and 'tranching can continue on the understanding that it will be withdrawn if delayed or frustrated by GBX. Say 14 days to complete when funding request made by Protean?' and 'Protean will permit GBX to offer its residual Stage 2 funding obligation to GBX shareholders as a pre-IPO raising'.

151 On 8 January 2009 Mr Moore replied to Mr Kirke's email of 2 January 2009. Mr Moore said that the way Mr Kirke had recorded the outcome of the meeting was a fair representation of what had transpired. He then raised further points concerning how further funds may be raised and how the agreement might be modified. The agreement referred to by Mr Moore appears to be the agreement contained in the Deed. That emerges from, amongst other things, Mr Moore's statement: 'the agreement uses the procedure of money in then GBX (and eNGN) buys the shares for $1'. Mr Fiegert responded to Mr Kirke on the same day. Mr Fiegert said he was satisfied that Mr Kirke's summary of the meeting was an accurate assessment of what was discussed and raised a point concerning strategic partners.

152 Ross Ashton replied to Graham Kirke's email on 7 January 2009 by forwarding Mr Kirke's original email with some comments by Ross Ashton added together with a separate statement in which he said:

I started making comments below but then realised that I really do not know what the issue is. Is it as simple as GBX agreeing to move to Stage 2 funding and we revert to existing agreement. If so then I have no problem agreeing to additional funding (either by tranches or under terms of agreement) subject to technical report that Stage 1 requirements have been met. However I am confused as to what Sean/Kingsley really want. I remain of the view that restructuring the existing agreement to provide Sean with some $'s as a trade off to providing GBX/Protean commercial flexibility is important.

Mr Robinson responded by saying that he would like to pay the next (second) $250,000 to Protean.

153 I find that the discussion between Mr Kirke, Miles Ashton, Mr Moore and Mr Fiegert on 31 December 2008 was broadly as set out in Mr Kirke's email of 2 January 2009. Mr Moore's evidence concerning the meeting is not supported by any documentary evidence. Mr Fiegert did not give evidence. I infer that Mr Fiegert's evidence would not have assisted the defendants' case. I find that, as Mr Kirke said in his email, GBX asserted that it could not give up the right to fund $2.1 million, that is the right to sole fund Stage 2. Protean, by Mr Moore and Mr Fiegert, did not deny that GBX had the right to sole fund Stage 2 but said in effect that the then current funding arrangement was destabilising and proposed a different funding arrangement involving industry partners. The parties were negotiating a new funding arrangement. Mr Kirke's email stated that 'if no alternate agreement reached then the original agreement operates (logical legal position)'. Neither Mr Moore nor Mr Fiegert disputed that statement. I find that the reference to the 'original agreement' is a reference to the Deed as varied by the Stage 1.1 Agreement. I find that on 31 December 2008 GBX and Protean continued to conduct themselves and the dealings between them on the basis that they were bound by the Deed as varied by the Stage 1.1 Agreement. The reference to 'tranching' is a reference to the proposal in Mr Moore's strategy statement of 8 October 2008 and replicated in Miles Ashton's alternative proposal for future funding of 21 October 2008. That was a new agreement that varied the Deed not an agreement that terminated the Deed. I find that the Deed was further amended in accordance with the Tranching Amendment asserted by GBX. That finding is supported by Miles Ashton's email of 18 November 2008 to Carel Smit, which Mr Moore received on 17 December 2008. That email is to the effect that the Deed was binding on the parties and GBX intended to modify it by the Tranching Amendment.

154 Mr Moore says that he had a discussion with Miles Ashton on or about 8 January 2009 to the following effect:

Moore: Protean really needs that further funding. We can't get it elsewhere. Is GB going to provide funds?

Miles Ashton: Well the further funding has been approved as you know, but we are concerned that a new funding agreement has not been reached, and Protean won't agree to be bound by the original agreement.

Moore: We want to reach a new agreement, but we urgently need this funding. We committed to these patent fees based on GB Energy's board approval of the funding to cover the fees.

Miles Ashton: Graeme has informed me that he will only make the payment if Protean issues 2,500 shares at the same time. He said he needs the share certificates in his hands before any transfer of funds is made.

155 Miles Ashton says the conversation as described by Mr Moore did not occur. I do not accept that Mr Moore said, either in the conversation of 31 December 2008 or 8 January 2009, words to the effect that the Deed was terminated or that GBX had lost the right to sole fund Stage 2. That does not match the response of Mr Moore and Mr Fiegert to Mr Kirke's email of 2 January 2009. It is inconsistent with Mr Moore having approved GBX's ASX announcement of 16 January 2009. It is inconsistent with Mr Moore's letters of 2 April and 14 April 2009 to GBX.

156 I find that up to and including 8 January 2009 the Deed as varied by the Stage 1.1 Agreement and the Tranching Agreement remained in force. GBX and Protean did not reach a new agreement in the terms of the New Agreement in place of the Deed.

157 Stage 1.1, or Stage 1 as modified by the Stage 1.1 Agreement, was completed on 22 December 2008. GBX did not exercise the Option by written notice. GBX's case is:

1. from and including 8 January 2009 GBX assumed that the parties were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the terms of the Deed;
2. Protean played such a part in the adoption of, or persistence in, the assumption that it would be unfair or unjust if the assumption was not fulfilled;
3. GBX acted in reliance on the assumption;
4. GBX would suffer detriment if the assumption is not fulfilled;

158 I find that at least up to 8 January 2009 GBX assumed that the Deed as varied in accordance with the Stage 1.1 Agreement and the Tranching Amendment remained in force and binding upon both GBX and Protean and that on the completion of Stage 1.1 GBX had the right to exercise the Option conferred on it by cl 4.1 of the Deed to sole fund Stage 2. I find that GBX adopted that assumption as the basis of its relationship with Protean and its dealings with Protean including not exercising the Option before 21 July 2008, carrying out due diligence into the WEC and Protean after 21 July 2008 and funding Protean throughout 2008.

159 The plaintiff's case is that on and after 8 January 2009 it assumed that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and the plaintiff was the sole funder of Stage 2 pursuant to the Deed. The defendants say that the evidence shows that GBX did not hold that assumption.

160 There was a meeting of the GBX board on 8 January 2009 attended by Mr Kirke, Mr Robinson and Ross Ashton and Miles Ashton by invitation. In his evidence Mr Kirke said that the board determined that the WEC had performed sufficiently well that GBX could now agree to enter Stage 2. The minutes of the board meeting record three resolutions:

It was resolved to provide a further $250,000 to Protean Power Pty Ltd pursuant to the Funding and Subscription Agreement taking the total of Stage 2 funding to $500,000.

It was resolved that a summary of data from the 22 December 2008 deployment be requested from Mr Sean Moore and a report on completion of Stage 1 and Stage 1 enhancements be sought from Mr M Rogers. It was also resolved that no further funding be provided until this report has been received.

The resolution to provide a further $250,000 pursuant to the Deed, taking the total of Stage 2 funding to $500,000, demonstrates an assumption that GBX had entered upon Stage 2 funding.

161 Miles Ashton says that as soon as the meeting had finished he went to Mr Moore's desk and said to him words to the effect:

Good news, the board has just approved to move into Stage 2 funding. We will now provide the next $250,000 tranche of funding. You now need to transfer the 2,500 shares in Protean to GB as per the deed.

I accept that Miles Ashton informed Mr Moore that GBX would provide the next $250,000 tranche of funding and that Mr Moore should arrange for Protean to transfer 2,500 shares in Protean to GBX. However, I do not accept that Mr Ashton said that the board had just approved the move into Stage 2 funding. There was no express resolution to that effect at the board meeting.

162 The defendants submit that the second and third resolutions demonstrate that GBX did not commit to sole fund Stage 2 under the terms of the Deed. One of the obligations of GBX under the Deed, upon exercising the option to sole fund Stage 2, was to pay to Protean at least $1 million. GBX had no right to refuse to pay for any reason. However, the second and third resolutions imposed conditions upon the continued funding of Protean. Accordingly, the defendants submit, without the knowledge of the defendants and in contravention of Protean's rights under the Deed, if it was binding, GBX imposed a condition upon the continued funding of Protean. The defendants submit that the fact these conditions were imposed, and imposed without any input from the defendants, demonstrates that GBX did not resolve to commit to sole fund Stage 2 under the terms of the Deed.

163 I find that on 8 January 2009 GBX, by its directors, assumed that it and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 under the Deed. As I have said, the first resolution at the board meeting of 8 January 2009 demonstrates that assumption. The conditions upon funding imposed by the second and third resolutions demonstrate an intention of GBX to control its funding under Stage 2. The contract between GBX and Protean had undergone significant changes since it was made in November 2007. The second and third resolutions show an intention to attempt a further change to the funding arrangement, if it became necessary, but not an assumption that the Deed as varied was no longer binding on GBX.

164 On 8 January 2009 Mr Moore arranged for 2,500 shares in Protean to be issued to GBX. On 9 January 2009 after GBX had received the share certificate for 2,500 Protean shares, Mr Kirke arranged for $250,000 to be paid to Protean. Under the Deed GBX was to receive the shares after it had paid the money. However, that the shares were issued on the day before the money was paid does not lead to an inference that either party no longer assumed that the Deed was in force and binding upon them. Parties to a long term contract may often make informal changes to their agreement or waive strict compliance with some of the terms. The issue of the shares immediately before, rather than after, the payment of $250,000 was a minor variation in the manner of performance. It was not objected to by Protean and is not inconsistent with GBX assuming that the Deed, as varied, was in force and GBX was the sole funder under Stage 2. The circumstances do not lead to the inference that GBX no longer assumed that the Deed was binding upon it.

165 On 16 January 2009 GBX made an ASX announcement. GBX announced the successful completion of Stage 1 proof of concept for the Protean WEC, following recent sea deployments off Fremantle. The announcement said that through funding of Stage 1 expenditure and by providing the initial $500,000 of Stage 2 expenditure GBX had acquired a 20% interest in the issued capital of Protean which could be increased to 50% by expending a total of $2.1 million under the terms of an exclusive funding agreement. Mr Moore had been asked to comment on the announcement before it was made. He did not raise any objections.

166 The announcement demonstrates an assumption by GBX that it had provided funding under Stage 2 of the Deed. The announcement said that GBX could increase its interest to 50% by expending a total of $2.1 million under the terms of an exclusive funding agreement. That is consistent with the rights and obligations of GBX under the Deed on the assumption it was the sole funder of Stage 2 under the Deed. GBX could then increase its interest to 50% by expending a total of $2.1 million but it would not necessarily, and was not obliged to, do so. It could review the position after funding $1 million and cease further funding.

167 I find that GBX assumed that it had commenced Stage 2 funding and had the exclusive right to fund Stage 2 in accordance with the Deed notwithstanding the resolution of 8 January 2009 that no further funding be provided until Mr Rogers' report had been received and notwithstanding that GBX paid $250,000 to Protean on 9 January 2009 only after the 2,500 shares had been issued to it. I find that GBX was trying to optimise its position notwithstanding the terms of the Deed as varied by the Stage 1.1 Agreement and the Tranching Agreement. I do not infer from the conduct of GBX in relation to those matters that GBX did not assume that the Deed, as varied by the Stage 1.1 Agreement and the Tranching Agreement, was no longer in force.

168 On 25 March 2009 Mick Rogers delivered his report to GBX. The report concluded that the information logged and provided by Protean demonstrated that the WEC was capable of generating electrical power from the incident waves. The report analysed only a small portion of the data from the sea trial on 23 December 2008 and recommended that the entire data record be analysed to verify the performance of the WEC. The report was forwarded to the directors of GBX. Mr Robinson commented that the report supported that the proof of concept was achieved and he believed that Stage 1 was completed to the level they had agreed. Ross Ashton said that he did not understand why Mr Rogers only examined six seconds of data but was happy to give the benefit of the doubt and move to the next stage.

169 The defendants submit that the evidence of the events concerning Mr Rogers' report and the evidence of the GBX directors in relation to the report show that GBX did not assume that it was the sole funder of Stage 2 pursuant to the terms of the Deed prior to receipt of Mr Rogers' report on 25 March 2009. The defendants submit that the contention that GBX assumed it was the sole funder of Stage 2 under the Deed when it was not in possession of Mr Rogers' report, which it had been seeking for almost 11 months, is illogical and inconsistent with the objective facts. The defendants submit that to say otherwise means that the GBX directors acted in contravention of what they themselves described as sound, responsible conduct. I find that the directors of GBX were seeking the comfort of Mr Rogers' report. However, GBX did not act contrary to the assumption that it was the sole funder under Stage 2. For the reasons I have already stated, the issue of the shares immediately before, rather than after, the payment of $250,000 on 9 January 2009 is not inconsistent with GBX assuming that the Deed, as varied, was in force and GBX was the sole funder under Stage 2.

170 Mr Moore says that at about this time Mr Kirke discussed GBX's proposed capital raising with him and said that GBX expected to have a 30 - 40% shortfall on its capital raising objective. Mr Moore says he understood from this that GBX was not going to be able to fund Protean to an adequate extent and around that time he started speaking with Main Sheet, PKF and Worley Parsons in relation to potential investment in and funding of Protean. Mr Kirke says the conversation never occurred. He says that GBX had in hand a capital raising and intended to have the issue fully underwritten. I find that there were discussions between Mr Moore and Mr Kirke about GBX's proposed capital raising. Those discussions caused Mr Moore concern that GBX would not be able to raise sufficient capital to meet the costs of the further development of the WEC. However, I find that Mr Kirke did not say that GBX was not going to be able to fund Protean to an adequate extent or that GBX would not be able to provide the Stage 2 funding of $2.1 million in due course.

171 Mr Moore says that at a further meeting with Mr Kirke and Miles Ashton Mr Kirke proposed that Mr Moore and Mr Fiegert sell their shares in Protean to the directors of GBX, or to GBX itself, and use the proceeds of the share sale to support GBX's capital raising by buying GBX shares. Mr Moore says the proposal was not attractive to him and he said so to Mr Kirke. Mr Kirke says he did discuss with Mr Moore the possibility of him being a direct investor in GBX but the discussions did not relate to the Deed or to the parties' obligations under it. Mr Kirke says that they were commercial discussions at which possibilities for consideration were outlined.

172 On 2 April 2009 Mr Moore drafted a letter requesting that GBX pay Protean the second tranche of Stage 2 funding pursuant to the Deed. Mr Moore says that Miles Ashton had told him that he would prepare a request to GBX for further funding because Mr Kirke had instructed him that the request needed special wording or else it would not be approved. Mr Moore says he made two verbal requests for Miles Ashton to prepare the request but because Miles Ashton was busy he told Mr Moore to prepare the request for further funding from GBX and said it had to include reference to the funding deed. Miles Ashton denies that those conversations ever took place. He says that Mr Moore, after informing Miles Ashton that he would be drafting a letter requesting further funding from GBX, drafted the first version of the letter himself. Miles Ashton says he had no input to the first version prior to it being emailed to him.

173 On 2 April 2009 Mr Moore emailed to Miles Ashton a draft of the letter requesting payment of the second tranche. The email said:

I have done up a letter for the request of the second tranche. Have a look and if its OK we will get it off this afternoon.

I am writing to request GB Energy pay Protean Power Pty Ltd the second tranche as described in the Funding and Subscription Deed entered into by our two companies. Protean Power would like to request that the second tranche be paid in 2 instalments, the first being made up of AUD$250,000 and due by Friday the 24th of April 2009. The second instalment of AUD$250,000 should be paid by Friday the 29th of June 2009.

Once the second tranche has been paid and in accordance with the above mentioned Deed, Protean Power will issue to GB Energy the second lot of 2,500 Protean Power shares. Protean Power would like to extend to GB Energy the option to have the second lot of 2,500 shares also issued in two instalments. These instalments will correspond to two issuances of 1,250 for each instalment, thus totalling 2,500 after the payment of the second half of the second tranche has been completed.

Protean Power would like to extend its thanks to GB Energy for its support and looks forward to a long and mutually beneficial relationship.

Mr Moore says that Miles Ashton was in the same room when he sent the email and Miles Ashton said to Mr Moore words to the effect:

Graeme won't approve that. You'll have to add in a reference to the Funding Deed. I'll email you more words to include.

Miles Ashton denies that that conversation ever took place. I accept the evidence of Miles Ashton on this point. The communications between Mr Moore and Miles Ashton concerning the second tranche payment were all by email except for the conversation alleged by Mr Moore. There is no contemporaneous note or documentary evidence to support Mr Moore's recollection. Mr Moore said that Miles Ashton said that he would have to add in a reference to the Deed. However, Mr Moore's first draft already included a reference to the Deed.

175 There was then an email exchange between Miles Ashton and Mr Moore. Miles Ashton suggested that the draft letter be amended by inserting at the beginning the words:

Pursuant to pt 5 of the Funding and Subscription Deed between Protean Power Pty Ltd and GB Energy Ltd - Share Transfer and Issue, 2nd Tranche of Stage 2 funding ... I am writing.

The final letter was sent by Mr Moore to Mr Kirke by email at 1.10 pm on 2 April 2009. The letter commenced:

Pursuant to Part 5 (Share Transfer and Issue, 2nd Tranche of Stage 2 funding), of the Funding and Subscription Deed between Protean Power Pty Ltd and GB Energy Ltd, I would like to request that GB Energy pay Protean Power Pty Ltd this second tranche.

176 On 3 April 2009 Mr Kirke sent an email to Miles Ashton, Ross Ashton and Mr Robinson. He said he believed they needed to refer to the funding and subscription agreement to resolve the due diligence to the board's satisfaction. After referring to provisions of the funding and subscription agreement Mr Kirke said 'Stage 1 was completed and satisfied the requirements of 2.2 [ie the completion of Stage 1] and Annexure A at the Hillarys deployment'. Later in his email Mr Kirke said that 'Mick Rogers' report is a Stage 2 event as Stage 1 is complete even though the device being reported on is not the Stage 2 device but does go to efficiency of energy conversion issue'.

177 Counsel for the defendants submitted it is significant to note that in the email Mr Kirke was, as he said in cross-examination, arguing that Stage 2 had been reached. Counsel submitted that if GBX did in fact assume that it was sole funding Stage 2 in accordance with the terms of the Deed there would have been no need for Mr Kirke's email. I do not accept that submission. The terms of the email show that Mr Kirke was addressing the directors' duty to GBX shareholders. In his email Mr Kirke said to his fellow directors that they were fulfilling their obligations to their shareholders and, in effect, put his argument in support of that proposition. Mr Kirke appears to have been concerned to argue that they had carried out proper due diligence. In his email Mr Kirke said that Stage 1 was completed and GBX was funding Stage 2.

178 On 3 April 2009 Mr Kirke sent an email to Tony Fairweather of Fairweather & Lemonis solicitors, with a copy to Mr Moore and Miles Ashton. The email referred to the funding and subscription agreement and then said:

We are now into Stage 2 although we appear not to have completed the Notice of Completion (2.2) or the Exercise of Option (4.2 & 3) process as required by the Agreement. Perhaps we should execute an agreement remedying this oversight?

179 Mr Moore says that on 3 April 2009, after Mr Kirke had sent him the email, Mr Kirke came to see him and they had a discussion to the following effect:

KIRKE: We just need to tidy up the Funding Deed, otherwise someone could argue that we haven't been proceeding in its terms.

MOORE: The Funding Deed is gone. You didn't exercise your option and now you want to bring the funding Deed back to life? I don't understand.

Mr Kirke says that he and Miles Ashton met with Mr Moore. Mr Kirke agrees he would have said 'we need to tidy up the Funding Deed' but he did not say 'otherwise someone could argue that we haven't been proceeding in its terms'. Mr Kirke says Mr Moore did not say anything along the lines he claims, it is a fabrication and is untrue. Mr Kirke says he said to Mr Moore words to the effect of 'we are in Stage 2, let us just get a document drafted up reflecting that' and Mr Moore said words to the effect of 'no problem, let's do it'. I do not accept that Mr Moore said, 'The Funding Deed is gone'. There is no contemporaneous record that supports Mr Moore's assertion. It is inconsistent with Mr Moore's letter of 2 April 2009 to GBX. It is inconsistent with Mr Moore's draft quarterly report contained in his email of 3 April 2009 to Miles Ashton. It is inconsistent with Mr Moore's letter of 14 April 2009 to GBX. I accept that Mr Kirke said words to the effect of, 'We are in Stage 2, let us get a document drafted up reflecting that'. That is consistent with Mr Kirke's email to Mr Fairweather.

180 Mr Fairweather responded to Mr Kirke's email on 6 April 2009 saying that a letter issued by one party countersigned by the others was probably appropriate and asked to be sent an executed copy of the funding and subscription agreement.

181 On 8 April 2009 Mr Fairweather sent to Mr Kirke, with copies to Mr Moore and Miles Ashton, a draft letter to be issued by Protean to the other parties to the Deed. Mr Fairweather said that the letter was essentially confirmation by which the parties acknowledged the status of the development of the WEC and the current shareholdings in Protean and additionally the parties agreed to waive any requirement for a notice of Stage 1 completion and notice of exercise of option to have been issued.

182 Mr Moore says that after he received the email he strongly objected to Miles Ashton about the letter saying words to the effect:

Protean and the Founding Shareholders would be crazy to sign the waiver, as the terms of a new funding agreement have not been finalised. Further, the deed is not in good standing.

Miles Ashton says that no such conversation ever took place. I do not accept Mr Moore's evidence. Mr Moore's assertion is not supported by any contemporaneous record. It is inconsistent with his letters of 2 April 2009 and 14 April 2009 to GBX and with his draft quarterly report contained in his email of 3 April 2009 to Miles Ashton.

183 On 9 April 2009 Miles Ashton sent an email to Mr Fairweather in which he queried whether eNGN and Sunset should be signatories to the letter of confirmation and also said that it had been raised that since the other share transfers had not happened then stating the deed is in good standing may be an issue to the other shareholders. Mr Fairweather responded by saying that all parties should sign so that the waiver was clear and if the deed was not in good standing then they should remove reference to it in the letter.

184 I find that Mr Kirke's email to Mr Fairweather of 3 April 2009 reflects the assumption then made by GBX. GBX assumed that the Deed, as varied, was binding on the parties and that GBX had commenced funding Stage 2.

185 On 14 April 2009 Mr Moore, on behalf of Protean, emailed to Mr Kirke the letter in which he referred to his letter of 2 April 2009 in which he had requested that the first $250,000 portion of the second tranche of the funding of Stage 2 be completed by 24 April 2009. Mr Moore said that due to unforeseen circumstances he requested that the date be moved forward to 15 April 2009. The further $250,000 was paid by GBX.

186 On 22 April 2009 at 4.56 pm Mr Moore emailed to Mr Kirke a letter which stated, amongst other things:

As you are aware, GB Energy has failed to exercise the option to sole fund Stage 2, in accordance with the Funding and Subscription Deed dated 22 November 2007.

In our letter of 2 April 2009, we extended to GB Energy an offer for an option to have further shares issued in 2 instalments. That offer is hereby withdrawn.

It is our view that, due to the non-compliance with the terms of the Deed, that the time has arisen that we should meet to discuss our future relationship.

187 I find that at all times before GBX received Mr Moore's letter of 22 April 2009 GBX assumed that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 under the terms of the Deed at all times prior to 22 April 2009.

9.3 Departure from assumption would be unconscionable

188 In Commonwealth of Australia v Verwayen Deane J said that the central principle of the doctrine of estoppel is that the law will not permit an unconscionable 'departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation' (444). Deane J went on to say:

The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party: (a) has induced the assumption by express or implied representation; (b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption; (c) has exercised against the other party rights which would exist only if the assumption were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. In cases falling within category (a), a critical consideration will commonly be that the allegedly estopped party knew or intended or clearly ought to have known that the other party would be induced by his conduct to adopt, and act on the basis of, the assumption. Particularly in cases falling within category (b), actual belief in the correctness of the fact or state of affairs assumed may not be necessary. Obviously, the facts of a particular case may be such that it falls within more than one of the above categories (444) - (445).

189 I find that Protean induced the assumption by GBX that GBX and Protean were bound by the Deed. Protean did so by its Request for Retraction Notice, the emails and other communications between Protean and GBX to which I have referred, Mr Moore's contributions to GBX's quarterly activity and other activity statements to which I have referred, the Due Diligence Guidelines, Mr Moore's contribution to the GBX annual report of 2008, Protean's application to the Western Australian Department of Environment and Conservation for a grant from the LEED fund the terms of which were, to the knowledge of Mr Moore, known to GBX through Miles Ashton, and the sending of tax invoices and receiving payment of them.

190 I find that from at least January 2009 Protean induced the assumption by GBX that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. On 16 January 2009 GBX made an ASX announcement. GBX announced the successful completion of Stage 1 and said that it had provided the initial $500,000 of Stage 2 expenditure. The first draft of the announcement was drafted by Miles Ashton. By email of 12 January 2009 to Mr Moore, Miles Ashton said that GBX would like to make the announcement and asked Mr Moore to approve it. Mr Moore said that it looked fine to him and made one comment that did not relate to the statements that Stage 1 had been successfully completed or that GBX had provided $500,000 of Stage 2 funding.

191 On 2 April 2009 Mr Moore sent the letter to GBX which requested that GBX pay Protean the second tranche as described in the Deed and said that once the second tranche had been paid then, in accordance with the Deed, Protean would issue to GBX the second lot of 2,500 shares. Miles Ashton suggested further words be added to Mr Moore's initial draft. Mr Moore says that he made his initial draft after Miles Ashton had said that it had to include reference to the funding deed. I am unable to make any finding whether Miles Ashton said to Mr Moore that the request for further funding would have to include reference to the funding deed. It is unnecessary to make a finding either way. Mr Moore made the initial draft. Mr Moore accepted the amendment suggested by Miles Ashton and included it in his letter. Mr Moore adopted the words of the final letter as his own. He did not say or do anything that would have led a reasonable person in the position of Mr Kirke or Miles Ashton to believe that Mr Moore did not mean what he said in his letter. The letter requests payment of the second tranche pursuant to the Deed. It is a representation that the Deed was binding on GBX and Protean, that Stage 1 had been completed and GBX is funding Stage 2 pursuant to the Deed.

192 On 3 April 2009 Miles Ashton drafted a quarterly activity statement which referred to the Deed, said that Stage 1 had been successfully completed and GBX had provided the initial $500,000 of Stage 2 expenditure. Miles Ashton asked Mr Moore for his comments. Mr Moore added a sentence but did not contradict any of the statements in the draft quarterly statement.

193 On 14 April 2009 Mr Moore sent the further letter to GBX requesting payment of the first instalment of the second tranche of Stage 2 funding. The letter is another representation that GBX was providing Stage 2 funding to Protean.

194 I infer that the requests by Protean for payment of the second tranche of Stage 2 funding and Mr Moore's participation in GBX's ASX report of 16 January 2009 and the quarterly report drafted on 3 April 2009 induced GBX to adopt, or to continue to adopt, the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed.

195 From 8 January 2009 Protean conducted its relationship with GBX on the basis of the assumption. On 2 April 2009 Mr Moore, on behalf of Protean, requested that GBX pay Protean the second tranche 'pursuant to Pt 5 (share transfer and issue, second tranche of Stage 2 funding) of the [Deed]'. On 14 April 2009 Mr Moore, on behalf of Protean, requested that the second tranche of the funding of Stage 2 be completed by 24 April 2009. The further $250,000 was paid by GBX and received by Protean.

196 Protean knew that GBX assumed that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. Mr Moore, on behalf of Protean, commented on GBX's ASX announcement of 16 January 2009 before the announcement was made. Mr Moore made no comment upon the statements that Stage 1 had been completed and that GBX had acquired an interest in the capital of Protean by making Stage 2 funding. Mr Moore received a copy of Mr Kirke's email of 3 April 2009 to Mr Fairweather in which Mr Kirke said that 'we are now into Stage 2 although we appear not to have completed the notice of completion (2.2) or the exercise of option (4.2 & 3) process as required by the agreement'. Mr Moore sent to GBX the letters of 2 April and 13 April 2009 requesting payment of the second tranche of Stage 2 funding pursuant to pt 5 of the Deed. Protean refrained from informing GBX that it was mistaken in its assumption, when it was its duty to do so, if the parties were no longer bound by the Deed. To the contrary, Protean received payment of the $250,000 requested in its letters of 2 and 14 April 2009.

197 Prior to 8 January 2009 GBX relied upon the assumption that the Deed, as varied by the Stage 1.1 Agreement, was binding on GBX and Protean. GBX refrained from exercising the Option. GBX made payment of the invoices rendered to it by Protean. It is to be inferred from GBX's public announcements and its communications with Protean that GBX did so in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement, was binding on GBX and Protean. GBX also expended its own resources, at least the time and energy of its directors and Miles Ashton, in pursuing the project in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement remained in force.

198 On 14 April 2009 GBX paid a further $250,000 to Protean. It did so in response to the requests made by Protean in its letters of 2 April and 14 April 2009. Those letters requested the payments as the second tranche of Stage 2 funding pursuant to the Deed. I infer that GBX made the payment in reliance upon the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed.

9.5 GBX will suffer detriment if the assumption is not fulfilled

199 GBX will suffer detriment if the assumption is not fulfilled. GBX refrained from exercising the Option, or at least deciding whether or not to exercise the Option, in July 2008 in reliance on the assumption that Stage 1 had been extended by Stage 1.1 and GBX would decide whether or not to exercise the Option at the completion of Stage 1.1. GBX devoted the time and energy of its directors and Miles Ashton in pursuing the project and paid the invoices rendered by Protean in reliance upon the assumption.

200 From 8 January 2009 GBX continued to pursue the project in reliance upon the assumption that the Deed, as varied by the Stage 1.1 Agreement and the Tranching Amendment, was binding on GBX and Protean. GBX paid $250,000 to Protean on 14 April 2009 in reliance upon the assumption that GBX and Protean were bound by the terms of the Deed as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed. If the assumption is not fulfilled GBX will have paid funds to Protean, and expended its own resources in pursuing the project, without receiving the further shares in Protean that the Deed provides it will receive progressively through providing Stage 2 funding.

9.6 It would be unconscionable for Protean to resile from the assumption

201 In all the circumstances departure by Protean from the assumption that the Deed is binding on GBX and Protean as if Stage 1 had been completed and GBX was the sole funder of Stage 2 pursuant to the Deed would be unconscionable. It was reasonable for GBX to act upon the assumption. The assumption was induced and confirmed by Protean on numerous occasions. The detriment which GBX would sustain by acting upon the assumption if departure from the assumption is permitted is considerable. GBX would have provided substantial funding to Protean, as well as devoting its own resources in the form of the time and energy of its directors and its employee Miles Ashton, and not be able to acquire the 50% interest in the project, by way of a 50% interest in Protean, that was the consideration it expected to receive upon entering upon Stage 2 funding.

202 Protean knew or ought to have known that GBX would act on the basis of the assumption when Protean sent its letters of 2 and 14 April 2009 requesting payment of the second tranche of Stage 2 funding.

203 I do not accept the evidence of Mr Moore that he made statements to the effect that the Deed was no longer binding before he sent his letters of 2 and 14 April 2009. Protean refrained from stating that the Deed was no longer binding and GBX did not have the right to sole fund Stage 2 and earn a 50% interest in Protean until Protean had received payment of the $250,000 requested in its letters of 2 and 14 April 2009.

204 Clause 3(b) provides that from the date of execution of the Deed, Mr Moore and Mr Fiegert agree to appoint Mr Kirke and Ross Ashton as two further directors to the board at the nomination of GBX. Clause 3(d) provides that Mr Kirke will be appointed as chairman but during Stage 1 Mr Kirke will not have a casting vote. I find that the Deed remains binding on Mr Moore. The conduct of Protean which gives rise to the estoppel estopping Protean from denying that the Deed remains binding on GBX and Protean was conduct by Mr Moore. Mr Moore is estopped from denying that he is bound by the Deed, as varied by the Stage 1.1 Agreement and the Tranching Amendment, for the same reasons that Protean is estopped. Mr Moore is bound by the terms of the Deed to vote in favour of the appointment of Mr Kirke as a director of Protean.

205 Mr Fiegert played a much lesser role in the affairs of Protean. However, Mr Fiegert did participate in meetings with GBX representatives and was a party to relevant communications concerning the relationship between GBX and Protean. Mr Fiegert attended the meeting on 31 December 2008 with Mr Moore, Mr Kirke and Miles Ashton. On 2 January 2009 Mr Kirke sent an email to Mr Fiegert and others in which he purported to summarise the significant elements of the meeting. The email stated that GBX's position was that it cannot give up the right to fund $2.1 million. That statement assumes that GBX had the right to fund $2.1 million and was stating that it would not give up the right. The email stated that GBX had funded the first $250,000 of Stage 2 and was ready to fund the second $250,000. The email stated Protean's position. There was no statement to the effect that GBX did not have the right to fund $2.1 million or had not subscribed the first $250,000 of Stage 2. The position of Protean stated in the email was that the $250,000 tranche structure was potentially destabilising in the next phase of the project and that a different form of funding would be preferable. The email stated the 'summary of position subject to review and approval' to be 'if no alternate agreement reached then the original agreement operates (logical legal position)' and 'tranching can continue on the understanding that it will be withdrawn if delayed or frustrated by GBX'. In effect, the email said that if no new agreement was reached in relation to funding then the original agreement operates and the Tranching Amendment could be withdrawn if delayed or frustrated by GBX. The original agreement must be a reference to the Deed. Mr Fiegert replied to the email by saying that he was satisfied that Mr Kirke's summary of the meeting was an accurate assessment of what was discussed.

206 On 12 February 2009 Miles Ashton sent an email to Mr Moore and Mr Fiegert. The email included a draft strategy paper for discussion. Under the heading 'Capital Markets and Funding' the draft paper said:

GB Energy: committed to funding AUD2.1M. So far 500k + 140k (proof-of-concept) have been provided.

207 On 2 April 2009 Mr Moore sent his letter to GBX requesting that GBX pay Protean the second tranche 'pursuant to Part 5 (Share Transfer and Issue), Second Tranche of Stage 2 funding), of the [Deed]'. The letter concluded: 'Protean Power would like to extend its thanks to GB Energy for its support and looks forward to a long and mutually beneficial relationship'. Mr Moore sent a copy of the letter by email to Mr Fiegert. In his letter of 14 April 2009 to GBX Mr Moore requested that the first portion of the second tranche of the funding of Stage 2 be completed by 24 April 2009. He sent a copy of that letter by email to Mr Fiegert.

208 Mr Fiegert did not give evidence. I infer that if he had given evidence Mr Fiegert's evidence would not have assisted his case.

209 I draw the inference from the communications to which I have referred that Mr Fiegert knew that GBX assumed that the Deed was binding on the parties to it. Mr Fiegert refrained from informing GBX that the assumption was incorrect when it was his duty in conscience to do so. It was his duty in conscience to do so because he was a director of Protean and knew that Protean was requesting payment of $250,000 from GBX on the basis that the payment was requested under pt 5 of the Deed. In all the circumstances departure from the assumption would be unconscionable. I find that Mr Fiegert is estopped from denying that the Deed was binding upon him. Mr Fiegert is bound by the Deed to vote in favour of the appointment of Mr Kirke as a director of Protean.

10.3 Obligations under the Shareholders Agreement

210 Clause 11.1 of the Shareholders Agreement provides that each of Mr Moore and GBX is entitled to appoint directors whilst he or it holds 20% or more of the shares. GBX holds 20% of the shares.

211 The defendants say that the Shareholders Agreement executed in November 2007 did not come into effect. The defendants submit that on the proper construction of the Deed and the Shareholders Agreement the transfer and issue of shares in accordance with cl 5 of the Deed is a condition precedent to the Shareholders Agreement coming into effect.

212 The Shareholders Agreement is an annexure to the Deed. The Deed is referred to in a recital to the Shareholders Agreement and in cl 19. The Deed and the Shareholders Agreement were executed at the same time and form part of a package of agreements. The Deed, and its terms, are part of the matrix of circumstances to which regard may be had in construing the Shareholders Agreement.

213 Recital B of the Shareholders Agreement states the number of shares held by the Shareholders. They are 7,500, 1,900, 600 and 10,000 (or 37.5%, 9.5%, 3% and 50%) held by Mr Moore, Sunset, eNGN and GBX respectively. Those are the number of shares which, under the terms of the Deed, would be held by each of those persons or companies at the completion of Stage 2 funding. However, cl 7 of the Deed says that the Shareholders will enter into the Shareholders Agreement at the time of first transfer and issue of shares in accordance with cl 5. Under cl 5.1 of the Deed the first transfer and issue of shares is to occur at the completion of $500,000 of Stage 2 funding.

214 Recital C of the Shareholders Agreement says that the Shareholders wish to enter into the agreement in order to regulate the affairs of the company and their rights and obligations as members of the company. Upon its proper construction, the Shareholders Agreement is only to have effect upon GBX becoming a shareholder.

215 Clause 11.1 of the Shareholders Agreement provides that each of Mr Moore and GBX is entitled to appoint two directors whilst it holds 20% or more of the shares in Protean. GBX holds 20% of the shares. Clause 11.3 says that Mr Kirke is the chairman of the board. Upon its proper construction, that clause provides that Mr Kirke is the chairman of the board when GBX holds 20% or more of the shares. Clause 4 provides that each shareholder must, by exercise of its Shareholder Control, do, or procure to be done, all such acts and things as that shareholder is able to do, or procure to be done, to give full effect to the provisions of the Shareholder Agreement. Shareholder Control is defined to mean any voting power or other rights that a shareholder is able to exercise by reason of its ownership of shares in Protean.

216 The effect of the provisions of the Shareholders Agreement is that when GBX holds 20% of the shares in Protean, the Shareholders, who are parties to the Shareholders Agreement, must, by the exercise of their voting power, do, or procure to be done, all such acts and things as that Shareholder is able to do, or procure to be done to appoint two directors nominated by GBX and appoint Mr Kirke as chairman. Mr Moore is a Shareholder and hence is under that obligation. Mr Fiegert is not a Shareholder, or a party to the Shareholders Agreement, and is not obliged by the terms of the Shareholder Agreement to vote for GBX's nominees as directors or for Mr Kirke to be chairman of the board.

10.4 Mr Moore and Mr Fiegert failed to appoint Mr Kirke as a director

217 There was a meeting of the Protean board on 24 April 2009. Miles Ashton proposed that Mr Kirke be appointed a director. Mr Moore and Mr Fiegert voted against it. On 24 April 2009 Mr Kirke wrote to Mr Moore stating that his nomination was in accordance with the Deed and was not capable of being rejected by Protean. Mr Kirke requested that Mr Moore arrange to give immediate effect to Mr Kirke's nomination. The minutes of the Protean board meeting state that the board refused to appoint Mr Kirke on the basis that the Deed was invalid.

218 Miles Ashton called for a meeting of the directors of Protean on 8 May 2009 and gave notice of agenda items including the appointment of Mr Kirke as a director and confirming the validity and operation of the Shareholders Agreement.

10.5 Mr Moore and Mr Fiegert breached the Deed

219 GBX pleads that in breach of the defendants' obligations under the Deed and the Shareholders Agreement the defendants have refused, and have continued to refuse, to appoint Mr Kirke to the board of directors of Protean or to appoint him as chairman. GBX says that Mr Fiegert and Mr Moore were under an obligation to appoint Mr Kirke as a director and chairman pursuant to cl 3 of the Deed and pursuant to cl 11.1 and cl 11.3 of the Shareholders Agreement.

220 I find that by refusing to appoint Mr Kirke as a director and chairman of Protean Mr Moore has breached his obligations under the Deed and the Shareholders Agreement. By refusing to appoint Mr Kirke as a director Mr Fiegert breached his obligation under cl 3(b) of the Deed. Mr Fiegert is not a party to the Shareholders Agreement and did not breach any obligation under that agreement. Protean did not refuse, or fail, to appoint Mr Kirke as a director and is under no obligation to do so. Indeed, it could not.

221 GBX pleads that Mr Moore and Mr Fiegert induced, and or caused, Protean to breach its obligations under the Deed and the Shareholders Agreement by refusing to appoint Mr Kirke as a director. Protean was under no such obligation and hence Mr Moore and Mr Fiegert did not induce or cause any such breach.

222 In its statement of claim GBX claims damages for breach of the terms of the Deed and the Shareholders Agreement. At trial counsel for GBX abandoned the claim for damages other than in respect of the costs of the proceedings. In closing submissions counsel for GBX abandoned any claim for damages in respect of the costs of the proceedings.

223 Protean counterclaims a declaration that the Deed terminated on 21 July 2008, alternatively on the date the parties entered into the New Agreement and is of no force and effect. For the reasons stated, the Deed did not terminate on 21 July 2008, the New Agreement was not made and no declaration will be made that the Deed is of no force and effect.

224 Protean seeks a declaration that the requirements of cl 7 of the Deed in respect to entering into the Shareholders Agreement have not been fulfilled and the Shareholders Agreement is of no force and effect. No such declaration should be made.

225 Protean seeks a declaration that it is under no obligation to accept funding for Protean pursuant to the New Agreement. I have found that the New Agreement was not made and hence this issue does not arise.

226 For the reasons stated, the Deed remains binding on GBX, Protean, Mr Moore and Mr Fiegert as if Stage 1 has been completed and GBX is the sole funder of Stage 2 pursuant to the terms of the Deed.

227 I find that Mr Moore and Mr Fiegert are obliged by the Deed to appoint Mr Kirke as a director and chairman of the board of Protean.

228 In the course of the trial, GBX abandoned its claim for damages and it is not necessary to say anything further about that pleaded claim.