Biodiesel Producers Limited (ACN 099 165 876) v Stewart

The History 4 The applicant was incorporated on 7 June 2002 at the instigation of the second respondent. On that day, the first respondent was appointed company secretary. Shortly after its incorporation, Dr Donald McCully became chairman of directors and the second respondent effectively managing director, although there was never any Board resolution appointing him to that position. On 28 June 2002 Mr Rae Davison and Mr John Pearce became directors. 5 The first respondent is a Chartered Accountant. He became involved with the second respondent because his partner was a long-standing friend of the second respondent. The first respondent's position was part-time with the applicant. Indeed, on 10 December 2002 he contracted through his service company to provide business consultancy services to Clinipath (for a period of 12 months commencing on 20 January 2003). He remains a business consultant to Clinipath. 6 The applicant was incorporated to establish an operating plant in Albury/Wodonga to produce biodiesel from tallow and waste oils for markets in New South Wales, Victoria and the Australian Capital Territory. 7 Biodiesel is made by using methanol and potassium hydroxide as a catalyst to chemically alter fats and oils. The process is known as 'transesterification'. It produces an alternative fuel which is cheaper to produce than petroleum diesel and provides better engine lubrication. Ordinarily, it is blended with petroleum diesel to create a biodiesel blend. 8 The applicant adopted the ideas of the second respondent. It was the intention of the applicant to build an 'off the shelf' plant supplied by a European technology supplier, Biodiesel International of Graz Austria ('BDI') under licence from that company. That company was able to build a plant which would produce in the order of 56 million litres per annum of biodiesel and, as a side product, 4,000 tonnes of glycerol. By July 2003 the second respondent had identified a suitable site for the construction of the 'off the shelf' plant. 9 Seed capital of in the order of $500,000 was introduced by a number of investors, including members of the Board, to conduct feasibility studies, prepare a marketing plan and to apply for a government grant. It was necessary, of course, for the applicant to raise sufficient funds to purchase a site, build the plant and conduct the business. It was estimated that $14.5 million in equity capital or debt finance would be required. 10 Two sources of funds, apparently, became available to the applicant in 2003. Some time in 2002 the Commonwealth Government announced it would support the establishment of biofuel industries and announced the availability of $50 million in funding under the Greenhouse Gas Abatement Program for participants in that industry. That announcement was confirmed in the May 2003 Federal Budget. 11 In August 2003 the second respondent made a presentation to ANZ Infrastructure Services Limited ('ANZIS') for the purpose of inducing ANZIS to invest in the applicant either by way of equity or debt or both. 12 At the applicant's Board meeting on 22 August 2003 the first respondent advised the directors that he had met with Mr John Clarke, the managing director of ANZIS, who had told him that ANZIS wanted to finance most of the project by either debt or equity. The Chair and Mr Davison expressed concern about ANZIS' potential control of the applicant. The second respondent wrote to the applicant's shareholders inviting them to consider making further investment in the applicant. 13 On 10 September 2003 the managing director of ANZIS, John Clarke and a director, Ross Beames, wrote to the second respondent indicating that ANZIS had undertaken a preliminary review of the applicant's project and was prepared to undertake a more detailed review in the future. On 17 September 2003 the first respondent instructed the applicant's solicitors, Hardy Bowen, to draft agreements. On 18 September 2003 the second respondent sent a draft Heads of Agreement, to which ANZIS and the applicant were to be parties, to his fellow directors and to the first respondent. That agreement was executed by the parties on 13 October 2003. Before going to the Heads of Agreement it is worth noting that on the same day the first respondent took advice from Mr Grant Burgess of BDO Consultants (WA) Pty Ltd seeking advice on 'vendor shares'. The relevance of these kinds of shares will emerge shortly. 14 Mr Burgess responded on 14 October 2003: 'Tony I have used converting preference shares to good effect in the past. As discussed previously, I think they would suit your purposes. You will still need a valuation for tax purposes. The issue of shares at a discount is caught by Division 13A of the 1936 Tax Act. Under this Division, the Commissioner requires the market value of unlisted shares to be determined by a "qualified person". A qualified person is defined as a registered company auditor. Consequently, you will need a valuation of the company done. The assessable discount that will need to be brought to account will be the market value of the preference shares less anything paid to acquire them. I will call you to discuss this further.' 15 Accompanying the Heads of Agreement was a letter dated 13 October 2003 from Mr Clarke who wrote: 'Dear Dennis Re: Confirmation of interest in equity investment ANZ Infrastructure Services Ltd ("ANZIS") is a specialist equity investment division of ANZ Investment Bank and specialises in investment in the energy sector, including renewable energy. As part of its core investment mandate, ANZIS is examining the opportunity to invest in a biodiesel project ("Project") presented by Biodiesel Producers Ltd ("BPL"). ANZIS understands that the Project is planned to be built in the Wodonga area and to be constructed next year. Subject to finalising due diligence and the finalisation of Project contracts, it is the intention of ANZIS to arrange sufficient funding for the Project including new equity for BPL and debt funding. Our preliminary review of the Project indicates that the project is viable and we are encouraged by the progress being made by PBL (sic). One key factor for this project is the availability and pricing of raw materials such as tallow. Therefore it is essential that BPL obtains appropriate supply contracts for tallow and this letter is to support is (sic) endeavour. Should you have any questions, please contact me on 02 9226 6925.' 16 The Heads of Agreement recited: '(a) BPL has been formed to develop, own and operate a biodiesel plant in Albury/Wodonga to produce around 56 million litres per annum of biodiesel from tallow and waste oils for the markets in NSW, Victoria and the ACT ("the Project"). (b) ANZIS has held discussions with BPL with a view to an investment trust managed by ANZIS ("the ANZIS Fund") participating in structuring and funding of the Project. (c) The Parties may also work together through BPL, after the completion of the Project, on other biodiesel plants initially within Australia but later internationally. (f)(sic)The Parties have agreed to enter into this Heads of Agreement ("HOA") to set out their initial understandings and intentions pending due diligence of the Project to the satisfaction of ANZIS and finalisation and execution of formal Project documentation.' 17 The scope of the agreement was to address the basis for ANZIS injecting equity and procuring debt funding to allow the applicant to fund its project. The term of the agreement was until a definitive agreement had been entered into or 30 June 2004, whichever first occurred. 18 The parties agreed in clauses 2(b) and 2(d): '(b) The Parties agree that the ANZIS Fund is the preferred equity provider to the Project and shall have first right of refusal to provide the initial equity capital for the development of the Project subject to BPL having the right to allocate performance based shares ("Free Carry Shares") to Dennis Gerard Barron and Anthony Paul Stewart (collectively called "Management") subject to agreed numbers of shares and terms, more fully detailed in clause 5. The Free Carry Shares will be ordinary shares ranking pari passu with other ordinary BPL shares other than as defined in clause 5 and will be issued at no cost to Management. ... (d) Following execution of this HOA, ANZIS and BPL agree to develop a detailed work-plan ("Work-Plan") for: (1) the development of a financial model; and (2) achieving financial close.' 19 It can be seen that clause 2(b) contemplated that the applicant would allocate performance based shares to both respondents at no cost to those respondents. The further detail was included in clause 5 which provided: '5 Financial Arrangements Subject to execution of the Definitive Agreements referred to in clause 8 and the finalisation of the financial model: (a) ANZIS has assumed that the Project will have total costs of around $17 million funded by around $6 million of debt and around $11 million of equity arranged by ANZIS. (b) The expected shareholding of BPL at financial close based on the assumption in (a) above, prior to the issue of Free Carry Shares, is expected to be as follows: (1) there are currently 11.5 million shares on issue split between 7.5 million Founder Shares granted to Dennis Gerard Barron at nil cost and 4 million Seed Shares issued at 10 cents per share; (2) an additional 500,000 Seed Shares at nil cost might need to be issued to Grange Securities for financial advisory services provided to date; (3) Pledged Shares from the latest capital raising round total 8 million to be issued at 20 cents per share and these include 2 million shares to be issued to acquire land at Albury Wodonga for the Project; and (4) an additional 48 million shares, or such other number in accordance with the financial model, to be subscribed for by ANZIS or its nominee at 20 cents per share, to complete the equity funding for the Project. (c) ANZ or the ANZIS Fund will subscribe for the required equity in BPL following agreement with BPL on the financial model of the Project; (d) BPL will pay to Management, as a bonus, a transaction fee at financial close of A$0.5 million paid at Management's option either in cash or by the issuance of 2.5 million Free Carry Shares; (e) BPL will pay to ANZIS a transaction fee for debt arrangement and equity raising at financial close of A$0.5 million; (f) BPL will issue additional Free Carry Shares to Management at nil cost as follows: (1) 3 million shares when the Project achieves commercial operations date; (2) 4 million shares when the Project achieves a sustainable net profit after corporate taxation in a financial year ("NPAT") of $4 million in a financial year; and (3) 5 million shares when the Project achieves a sustainable NPAT of $6 million. (g) The Free Carry Shares described in 4(f) above will only be issued so long as Management continues to be employed by BPL.' 20 This document speaks of 7.5 million founder shares and a further 14.5 million free carry shares. The latter shares would issue to management in the number and on the occasions provided for in clauses 5(d) and 5(f). There were a total of 14.5 million free carry shares. Clause 5(g) provided that the free carry shares referred to in clause 5(f) (wrongly described as 4(f)) would only issue so long as the respondents continued to be employed by the applicant. Presumably, because no reference is made, that restriction did not apply to the free carry shares referred to in clause 5(d). There may be a reason for that. The first respondent, although he was the company secretary, was not employed at the time the Heads of Agreement was signed. The second respondent was employed by the applicant although his terms of employment were not defined. It was contemplated that the first respondent would be employed when the applicant could afford his services. In those circumstances, there may have been a deliberate discrimination between clause 5(d) and clause 5(f) to allow the first respondent to become employed after financial close. The number of shares that were to issue to the respondents in the event of certain criteria being met never changed but was always 14.5 million shares. The description of the shares and the circumstances in which they might issue did change. 21 There were other conditions which are unimportant. The transaction fee in clause 5(e) is not better defined in the Heads of Agreement, but nothing turns on that. 22 The Heads of Agreement was signed by the second respondent on behalf of the applicant. It was tabled at a meeting of the Board on 11 November 2003. Mr Davison indicated that he was 'unhappy with the fees charged (by ANZIS) and the ongoing charge of $10,000 per month'. 23 The Heads of Agreement and the parties themselves anticipated a more definitive agreement would be entered into at least before 30 June 2004. To that end, on 11 November 2003, the first respondent prepared a Term Sheet which was to be used to determine a common starting point for negotiation of a shareholders agreement between the parties. It was contemplated that the shareholders agreement would be executed by all of the existing shareholders and ANZIS. The shareholders agreement would provide for terms upon which ANZIS would invest in the applicant. 24 In relation to performance shares, the Term Sheet provided: CLAUSE TERM Performance Shares ● Barron & Stewart will be issued the following Performance Shares on execution of the Shareholders Agreement: ● Barron 9,000 ● Stewart 5,500 ● The Performance Shares will be convertible preference shares issued at one cent per share. ● One Performance Share will convert into 1,000 ordinary shares if the performance criteria is met. ● One Performance Share will convert one ordinary share if the performance criteria is not met. ● The performance criteria for the Performance Shares is set out below: Performance Criteria Barron's Performance Shares Stewart's Performance Shares

Financial close with ANZ 2,000 500

Construction and completion the Biodiesel Plant 1,000 2,000

Sustainable NPAT of $4 million 3,000 1,000

Sustainable NPAT of $6 million 3,000 2,000

● Reasonable time limits will be agreed to satisfy performance criteria having regard to the project timetable.

● Performance shares convertible in the event that ANZ elects to sell its shareholding within 4 years from financial close

● The Board must not make any decision that will adversely affect Barron's and Stewart's performance criteria of the Performance Shares without first adjusting the performance criteria of the Performance Shares to the reasonable satisfaction of Barron and Stewart.

● NPAT calculated in accordance with Australian GAAP providing plant capital expenditure and project development costs written off over 10 years and extraordinary items excluded from NPAT calculation.

25 It is common ground that the performance shares addressed in the Term Sheet are the 'Free Carry Shares' referred to in the Heads of Agreement. The Heads of Agreement had not identified what number of shares each respondent would receive but only identified the total number of shares. The Term Sheet shows how many shares each would receive. The Term Sheet also addressed the respondents' employment. There were further draft Term Sheets created in that year. A Term Sheet distributed in January 2004 provided for remuneration to the respondents. Relevantly, on that Term Sheet the first respondent would be employed for a term of five years and would receive a remuneration of $140,000 plus 9% superannuation. 26 On 6 January 2004 Mr Beames, who was a director of ANZIS, emailed the first respondent with comments on the shareholders agreement term sheet. In relation to performance shares he wrote: 'Performance Shares are automatically convertible if ANZ sells within 4 years (a) why? and (b) we believe that the inclusion of this clause has a -ve [negative] impact on the value of our investment and do not agree' 27 The first respondent replied to Mr Beames on 7 January 2005: 'Founders agreed to shares being issued on performance and not up front. As performance shares are issued on performance, we must have opportunity to perform. We assume that a purchaser would be buying on the basis of good returns thus founders should not be disadvantaged in the event of a quick exit.' 28 Whilst that Term Sheet was still under consideration, the applicant applied to the Commonwealth Government for a Biofuels Capital Grant. The application anticipated a capital structure which included the issue of a further 14.5 million shares 'upon the attainment of certain milestones'. The proposed milestones were: 2.5 million shares upon financial close; 3.0 million shares upon completion of the operating plant; 4.0 million shares upon achieving a NPAT of $4.0 million; and 5.0 million shares upon achieving a NPAT of $6.0 million. 29 On 21 January 2004 Hardy Bowen forwarded to the applicant a draft of the shareholders agreement and a memorandum. In the memorandum which addressed 'Outstanding Issues' they wrote: '9. Performance shares/free carry shares: the understanding of the performance shares/free carry shares to be issued to Baron (sic) and Stewart are inconsistent in the HOA and Term Sheet. Clarification of the intention is required.' 30 The draft shareholders agreement provided that both respondents were entitled to apply at completion for performance shares. The draft shareholders agreement contained a Schedule 3 which was to address the terms of the performance shares but no terms were included. The document addressed both respondents' employment. The draft contemplated that the first and second respondents would be paid a $500,000 transaction fee but no provision was made as to how that amount would be divided between the respondents. ANZIS was to receive a like amount. 31 A Board meeting was held on 26 February 2004 at which all directors and the first respondent were present. There is a reference in the minutes: 'D McCully expressed desire that an option should be included in the Employment Contract. He said that Employment Contract for Rod Hawkins should be registered for say 3 years after a probationary period of 6 months.' 32 On 2 March 2004 the first respondent sent a draft employment contract to both Mr Beames and Mr Clarke of ANZIS with copies to Dr McCully, Mr Pearce and Mr Davison. Mr Pearce replied (on 24 March 2004) 'for good corporate governance (as we have no "remuneration committee" yet) the Board should have its own independent remuneration consultant to confirm that the terms are in line with current market conditions - unless of course Hardy Bowen already qualifies as that - in which case OK'. 33 On 10 March 2004 Mr Clarke sent the respondents and Mr Beames a marked up copy of an Executive Service Agreement. That document addressed termination. The termination clause is in a similar but unfinished form to the termination clause contained in the executed Executive Service Agreement. 34 A further draft shareholders agreement was circulated by Mr Clarke of ANZIS on 10 March 2004. In this further draft the proposed payment of $500,000 by way of transaction fee to the respondents was deleted. That draft was sent to Mr Paterson on 14 March by the first respondent. On 16 March Mr Paterson wrote to the first respondent: 'Dear Tony Biodiesel Shareholders Agreement We refer to the marked up Shareholders Agreement which you forwarded to us on 14 March 2004 and to my telephone conversation with you today. We confirm as follows: 1. We understand that mark ups contained in the Shareholders Agreement forwarded to us have been drafted by you as a result of negotiations with ANZIS Infrastructure Services Limited ("ANZIS"). 2. The document is generally not adequate and not in an acceptable form for execution. By way of illustration the return on investment and distribution policy contained in clauses 12.2, 12.3 and 12.4 in our view does not achieve the stated objectives previously communicated to us. There are numerous other inconsistencies and ambiguities contained in the Agreement which should also be addressed. 3. The Shareholders Agreement does not address the variation of existing shareholders' rights nor is it capable of creating the new A and B classes of shares. In effect what the Agreement does is alter the rights of the shareholders by contract. An amendment of the Constitution and/or a resolution of shareholders at general meeting are required to vary existing shareholders' rights and to create a new class of shares. To finalise this procedure we will need to review the Constitution of Biodiesel. 4. There may be tax implications for the shareholders of Biodiesel as a result of the rights to a return on investment and distribution policy as currently drafted. The right as currently drafted may give rise to an assignment of income for tax purposes. We confirm that we have not been requested to give tax advice nor have we given tax advice in respect of the operation of the return on investment and distribution policy contained in the Shareholders Agreement. 5. The Shareholders Agreement contains numerous agreements to agree. For example, clause 4.3(c) provides that the directors of the company agree to amend the performance criteria of the performance shares issued to Barron and Stewart in the event that they make an adverse decision affecting the ability of Barron and Stewart to meet the performance criteria. Generally, agreements to agree are unenforceable at law. Notwithstanding the above, you have advised us that the Agreement is to be engrossed in its current form for execution by the parties. Please call me to discuss.' 35 The shareholders agreement continued to evolve until it was finally executed on 20 April 2004. The drafts and the executed shareholders agreement dealt with both the issue of performance shares to the respondents and the respondents' employment. There are differences in the documents but I do not discern nor did either party contend that the changes assisted either with the construction of the executed shareholders agreement or any other document. 36 The parties to the shareholders agreement were the applicant, ANZIS, both respondents and the seed capitalists who, by then, held 4 million shares in the applicant. 37 Clause 4.1(b) and clause 4.1(c) provide for the second and first respondents to apply to the applicant at completion, in the case of the second respondent, for the issue of 9,000 and in the case of the first respondent, for the issue 5,500 performance shares each at $0.01. 'Completion' is defined to be the date that the condition precedents are satisfied. The condition precedents were that ANZIS was satisfied with its due diligence investigations and all final documentation for the acquisition of shares was satisfactory. Clause 4.3 provides that the performance shares would issue on the terms and conditions in Schedule 3 of the shareholders agreement. 38 Schedule 3 provides: '2. Type and price The Company will issue performance shares to Barron and Stewart which will be known as "Performance Shares" each at the Issue Price as Details (sic) in the table below.' 'Issue price' was defined to be $0.01. The performance criteria and the number of shares to be issued to each respondent was contained in the table: Performance Criteria Number of Shares to be Numbers of Shares issued to Barron to be issued to Stewart

Satisfaction of Conditions 2,000 500 Precedent

Completion of the construction 1,000 2,000 of the Facility

NPAT of $4,000,000 3,000 1,000

NPAT of $6,000,000 3,000 2,000

39 Each performance share was to convert into 1,000 B Class shares in accordance with clause 5 which reads: '5. Conversion Each Performance Share will convert into 1,000 B Class Shares when the performance criteria in clause 2 are satisfied or in the event that a Drag Along Notice is issued under Clause 18.1. 5.1 Statements As soon as practicable after conversion of any Performance Share, the Company shall dispatch statements or certificates in respect of the B Class Shares issued as a result of the conversion. 5.2 After Conversion The B Class Shares issued on conversion of any Performance Share will as and from 5.00pm (WST) on the date of allotment rank equally with and confer rights identical with all other B Class Shares then on issue.' 40 'B Class Shares' is defined to mean the B Class shares as defined in the shareholders agreement: ' "B Class Shares" means shares with the rights of ordinary shares in the capital of the Company with the exception of the rights referred to in clauses 12.2, 12.3 and 12.4 and includes the 7,500,000 ordinary shares currently issued to Barron or associated parties.' 41 Performance shares have no entitlement to a dividend: clause 3. They are not reviewable: clause 4. The performance shareholders have no right to vote: clause 11. Performance shares are not transferable: clause 9. Schedule 3 contemplated that B Class shares would issue for no consideration: clause 6. Clause 8 of Schedule 3 addresses winding up. It provides: '8. Winding up If the Company is wound up prior to conversion of all of the Performance Shares into B Class Shares then the Performance Shareholders will have the right for each Performance Share held and not converted in B Class Shares to be paid cash for the Issue Price but will have no right to participate beyond the extent specified in this clause 8 in surplus assets or profits of the Company on winding up.' 42 The Drag Along Notice was addressed in the shareholders agreement itself but is irrelevant for the purpose of this proceeding. 43 Schedule 2 identified the company's capital at completion and conversion of performance shares: 'Schedule 2 Company Capital at Completion and Conversion of Performance Shares BIODIESEL PRODUCERS LTD PROJECTED CAPITAL STRUCTURE Shares No. of Shares Price Amount Fully diluted

Seed 4,000,000 $0.10 $400,000 4%

Directors 250,000 $0.00 $0 0%

Consultants 250,000 $0.00 $0 0%

New Investors(assumed) 10,000,000 $0.20 $2,000,000 9%

Land vendor shares (assumed) 2,000,000 $0.20 $400,000 2%

ANZIS (assumed) 72,000,000 $0.20 $14,400,000 65%

Total A Class Shares 88,500,000 $17,200,000 80%

D Barron founder 7,500,000 $0.00 $18,182 7%

Financial close 2,500,000 $0.00 2%

Operations date 3,000,000 $0.00 3%

$4m NPAT Target 4,000,000 $0.00 4%

$6m NPAT Target 5,000,000 $0.00 5%

Total B Class Shares 22,000,000 $18,182 20%

Total Capital 110,500,000 $17,218,182 100%

44 The shareholders agreement contemplates a class of shares apart from the applicant's ordinary shares. The applicant's Constitution permits the directors to issue shares either as ordinary shares or shares of a named class with such rights in regard to dividend, voting, return of capital or otherwise: Article 2.1. 45 The Constitution also provides that if shares are divided into different classes, the rights attaching to any class may be varied with the consent in writing of the holders of three-quarters of the issued shares of that class or if authorised by special resolution passed at a separate meeting of the holders of the shares of that class: Article 2.3. That clause also provides that any variation of the rights under that sub-Article is subject to s 246B of the Corporations Act 2001 (Cth) ('Corporations Act'). 46 Like the second draft, there was no provision for any transaction fee to be paid to the respondents. Clause 14 addresses the appointment of the respondents to their offices in the applicant and reads: '14. Personnel 14.1 ... 14.2 Appoint of Barron as Managing Director (a) The Company shall appoint Barron in the capacity of managing Director of the Company for a period of 5 years commencing on Completion. Barron will be paid an annual salary of $190,000 per annum plus superannuation at 9%. (b) A formal executive services agreement will be executed by the Company and Barron. 14.3 Appointment of Stewart as Chief Financial Officer and Company Secretary (a) The Company shall appoint Stewart in the capacity of Chief Financial Officer and Company Secretary of the Company for a period of 5 years commencing on Commercial Operations Date. Stewart will be paid an annual salary of $140,000 per annum plus superannuation at 9%. (b) A formal executive services agreement will be executed by the Company and Stewart. 14.4 Management bonus Barron and Stewart are entitled to a bonus payment of the amount equal to 5% of any Government Grant received by the Company. Management costs during development of the Project The costs of management during the construction of the Facility will be capitalised in accordance with the Financial Model. Management will not receive Directors Fees as outlined above in 7.10(a).' 47 The shareholders agreement was subject to conditions precedent in favour of ANZIS. Clause 2.4 provided that if the conditions precedent had not been satisfied or waived by 30 September 2004 or any later date agreed to by ANZIS, the applicant and the second respondent, the shareholders agreement would automatically terminate. The respondents' Executive Service Agreements were executed some time before July 2004. The exact date of their execution is unclear because the documents are undated. Later evidence suggests they may have been executed in May. The applicant entered into separate Executive Service Agreements with the respondents. The relevant document for this proceeding is, of course, the agreement between the applicant and the first respondent. The agreement was executed by Dr McCully and Mr Davison 'in accordance with s 127 of the Corporations Act'. Section 127 allows two directors to execute a document without using the company seal and, if so executed, any person may assume that the document has been duly executed by the company: s 129(5) of the Corporations Act. It may be assumed that the agreement between the applicant and the first respondent was entered into after the shareholders agreement because Recital B said: 'B. The Company has entered into a Heads of Agreement with ANZ Infrastructure Services Ltd (ANZIS) to reach financial close for the raising of the required debt and equity capital.' 48 Clause 3 provides for the first respondent's engagement: '3. Engagement The Executive will serve the Company on a full-time basis as Company Secretary and Chief Financial Officer for the Term. The Executive will relocate permanently to the Location to undertake the Business and will receive Relocation Expenses as reimbursement for such relocation.' 49 The 'Term' there referred to is the period which begins from the commencement date and ends five years thereafter unless otherwise terminated in accordance with the provisions of the agreement. 'Commencement Date' is defined to be the date on which clause 2 is satisfied or an earlier date if approved by the Board. Clause 2 provides: '2. Conditions This Agreement is conditional on the: (a) The Company and ANZIS reaching financial close for the funding of the biodiesel plant; (b) The commencement of operations of the biodiesel plant; and (c) the ratification of this Agreement by the board of directors of the Company.' 50 The 'Location' referred to in that clause is 'Albury/Wodonga' and the 'Relocation Expenses' are defined to be the 'reasonable expenses properly incurred by the Executive moving from Perth to [Albury/Wodonga] as approved in advance by the Board'. 51 Clause 6 of the agreement provides for the first respondent to receive a remuneration package totalling $140,000 which comprises a base salary (payable monthly) and any other components and any Fringe Benefits Tax applicable to those other components. It also provides for superannuation. The remuneration package was to be increased on each anniversary of the commencement date in accordance with CPI. The agreement further provides that the first respondent would receive 1.25% of any Federal or State Grant received by the applicant and a bonus of $50,000 per annum if the applicant achieved a NPAT of $8 million. The agreement also provides for the usual emoluments of office. Clause 13 of the agreement addresses termination and allows the applicant to terminate 'at any time during the Term for any reason'. Clause 13 is in similar form to that contained in the draft Executive Service Agreement circulated on 2 March 2004 and commented on by Mr Clarke and responded to by Mr Pearce. However, if the applicant terminates for any reason, other than illness, poor performance, or if the applicant ceases trading, or if the applicant has grounds under clause 13.5 to summarily terminate the employment, the applicant must pay the first respondent an amount equal to the remuneration package for the remainder of the term. The agreement also provides that the first respondent could terminate on giving not less than three months written notice. 52 The 7.5 million shares contemplated to be held by Mr Barron were founder shares which had been allocated shortly after the applicant was incorporated. 53 During 2003 and 2004 Mr Barron negotiated with land owners in the Albury/Wodonga district for the purchase of land upon which the plant would be built. It was contemplated that the plant would be, as I have mentioned, designed by BDI and it would be erected by Process Design and Fabrication Pty Ltd ('PDF'). Both before and after the execution of the shareholders agreement, steps were taken to enter into offtake and tallow agreements with suppliers in the Albury/Wodonga area so as to ensure the adequacy of supply of the raw material needed for the production of the biodiesel. 54 At the meeting of the Board of directors on 1 July 2004 Mr Barron reported that BDI was prepared to enter into an exclusive Australian arrangement with the applicant for the provision of the plant and he was pushing PDF for a fixed price contract. He reported to the Board on the conditions of the shareholders agreement regarding ANZIS' subscriptions and contributions and the 30 September 2004 deadline. 55 On 1 July 2004 the first respondent received, by email, advice from Mr Paterson of Hardy Bowen. It said: 'Tony Attached are: 1. Written consent of shareholders to variation of rights of existing shares; 2. Circular directors resolution relating to the completion of the Shareholders Agreement. You have instructed me that you require resolutions for the issue of shares to ANZIS, Barron and yourself and the appointment of the ANZIS director; 3. Circular directors resolution relating to the issue of A Class Shares to further seed investors. There are various details that you will need to confirm or complete in the above documents. The written consent in item 1 above need to be attended to prior to the issue of the shares in items 2 and 3 otherwise the parties in items two and three will need to be included as shareholders and provide their written consent to the variation of shareholder rights. Notice to all shareholders of the variation of their rights is required to be given within 7 days of such variation. ASIC must also be notified within 14 days of dividing the ordinary shares into classes of shares by lodging the appropriate ASIC form with the written consent of shareholders. Of course you will need to advise ASIC of the issue of the shares in the resolutions above I can assist with this if you would like. As biodiesel is a public company it must also comply with Chapter 2E of the Corporations Act. This provides that a related party can not be given a financial benefit (the issue of shares is a financial benefit) unless shareholder approval is obtained or an exemption applies. A related party is defined widely and includes all related parties of directors. We can provide you with further information of who is a related party if you require. The issue of Performance Shares to Dennis falls within the provisions of Chapter 2E. Shareholder approval will not be required for the issue of these shares where the issue falls within the arms length exception. This exception provides that shareholder approval is not required where the financial benefit is given on terms that would be reasonable in the circumstances if the company and the related party were dealing at arms length. We are not aware who the new "seed" shareholders are, but advise that Chapter 2E should be considered in relation to the issue of shares to them. I confirm that we have not been asked and have not given any advice in relation to the disclosure requirements for the issue of shares in the above resolutions or to the existing shareholders of the company. I can provide this advise (sic) if you require but would first require further information form (sic) you. Please advise if this is required.' 56 There are two aspects of Mr Paterson's advice which are important. He first drew to the first respondent's attention his concern that the issue of B Class shares might give rise to a consideration of s 246B of the Corporations Act. That section deals with the procedure to be applied for the variation of rights attached to shares in a class of shares. I have already mentioned the procedure provided for in the applicant's Constitution. Next, he drew attention to s 208 contained in Chapter 2E of the Corporations Act which provides that a public company cannot give financial benefit to a 'related party' unless the company obtains the approval of its members and gives the benefit within 15 months after approval or members' approval is not needed because an exception applies. A director is a related party. A secretary is not. The advice given related to the issue of performance shares to the second respondent. Section 210 of the Corporations Act provides for an exception to s 208 if the financial benefit is reasonable and the company and the related party are dealing at arms length. 57 On 6 July 2004 the second respondent was advised that the applicant's funding of up to $9,600,000 under the Biodiesel Capital Grants Program had been successful. The funding was available in tranches. Before payment could be made, it was necessary there be a final investment decision which needed to be made within 12 months. If that occurred, $2,400,000 would become available on commencement of construction; $2,400,000 on commencement of the plant; and $4,800,000 on the first commercial sale into the domestic transport fuels material. 58 On 16 September 2004 the second respondent wrote to PDF advising that it intended to enter into an agreement with PDF for the construction of the plant at Barnawartha. 59 On 21 September 2004 Mr Clarke wrote to the directors of the applicant and the second respondent referring to the shareholders agreement and, in particular, clause 2.4 which provided for termination if a condition precedent had not been satisfied or waived prior to 30 September 2004. He wrote: 'As you are aware, the project to develop a biodiesel plant at Barnawatha (sic) has been delayed and the conditions precedent will not be achieved by 30 September 2004. Nevertheless, good progress is being made, the project continues to appear viable and we expect that financial close will occur within the next two months. ANZIS continues to be completely committed to the finalisation of the project and is prepared to increase its level of equity in the project if a higher level of equity is required once a final capital structure is agreed. Given this, we propose that the date in Clause 2.4 of the Agreement becomes 31 December 2004 with the Clause otherwise staying the same. If BPL and Mr Barron agree to this amendment, please countersign the attached copies of this letter and return one to us prior to 30 September 2004.' 60 On 27 September the second respondent emailed the directors and the first respondent advising that he and the first respondent had taken legal advice concerning ANZIS' request to extend the shareholders agreement to 30 December. He advised that the applicant was in a very strong position and that the applicant could obtain from ANZIS a greater amount by way of finance for the issue of fewer shares. He suggested that the applicant ought to be valued. He invited the directors to consider those matters ahead of the directors' meeting scheduled for 30 September 2004. 61 Mr Pearce was not due to be present at that meeting. He emailed the directors and the respondents agreeing that the agreement with ANZIS should be tightened 'so that we get more than $14.4m for 65%. How much more I leave to you'. 62 On 29 September 2004 Mr Clarke sent the respondents a paper on capital alternatives. In the email accompanying that document he wrote: '... Given that the project has taken longer to complete than originally envisaged, we are willing to also review the fees payable to both of you on financial close, given the uncertainty arising from the Govt grant. ...' 63 The shareholders agreement was to expire on 30 September 2004 unless agreement in writing was otherwise reached. A meeting of the directors of the applicant was held on that day. Mr Pearce was not present. The first respondent was. The second respondent reported to the directors that he had had discussion with other potential investors. He recommended, and the Board unanimously resolved, that ANZIS' request to extend the shareholders agreement be rejected. The Board resolved that ANZIS be invited to reconsider their proposal. At the same time, the Board resolved to ask ABN Amro to prepare a valuation of the applicant. 64 ANZIS was informed that the applicant would not extend the shareholders agreement. The second respondent emailed his fellow directors advising ANZIS' reaction: 'The result of my telling ANZIS that we would not extend the shareholders agreement was disappointing. John Clarke went to BDI and told them BPL may not get the Govt Grant and may not get funding at all. BDI was concerned and has delayed the trip to Australia by 4 Engineers by 2 weeks. The result of this action is that we have a delay and that BDI is now asking for another 10% or $1.3 million to be paid by October 15th. I want to raise another $500,000 by share issue. Andrew White has indicated he will put in $200k and has another investor as well. Tony has perhaps $100k from others and I have asked Trafigura for $50-$100k. Our strategy is to continue to talk to ANZIS, pay the money but I have already gone out to Cargill, QAF and Sumatomo. Once BDI come in 2 weeks and we have a teaming agreement with PDF we are in a strong position. We may need $200k by next week so if anyone has someone who wishes to invest and can do it by next week, please let me know. ANZIS will have an offer to us later this week and we can look at it. Please let me know your thoughts.' 65 On 5 October 2004 the first respondent emailed Dr McCully: 'The reaction from ANZIS was not as good as I expected!' On 5 October 2004 ANZIS wrote to Mr Barron. Relevantly, it wrote: 'We refer to the request that we made to extend the Shareholders Agreement ("SHA") for the above, your rejection of that and our subsequent discussions about your areas of concern. We have discussed this position internally. ANZIS is committed to proceeding with this project and has stated that, subject to final documentation, it will seek approval to invest up to $30 million in the project. As you are aware, we have worked with you intensively for over a year to develop the project to a point where we believe that financial close of the project is only about 8 weeks away. As the daily loss in value for any delay in the project totals around $30,000, we believe that it is [in] the best interests of BPL, its shareholders' (sic), BDI, BDF and ANZIS if we resolve these concerns quickly so we can all move forward in the most expeditious way. We understand from your brief email and discussions with Tony Stewart the areas of concern and we attempt to address these below. This would recorded by way of a revision to the lapsed SHA that would be re-instated. 1. Shareholding. In recognition of the significant time it has taken to finalise the project, we are prepared to change the basis of the shareholding as follows: ● On financial close, 2,500,000 founder shares will be issued to you and Tony as A Class Shares. ● On Financial close, 19,500,000 shares will be issued to you and Tony as B Class shares. The immediate issue of these shares should remove your concern about the previous uncertainty of their issue. ... 3. Financial Close. We believe that we are about four weeks away from finalising the necessary EPC documentation for BDI and PDF. When this is agreed, there still remain other documents and approvals to obtain before any financial close can be achieved; these include environmental approvals, development approvals, raw material contracts and off-take contracts. Regardless of this, as soon as the SHA is signed, ANZIS would seek approval to fund the next tranche of monies due to BDI with payment made as soon as EPC contracts are signed. This will then enable BDI to prepare detail engineering draws. While this is being completed, all other project approvals could be obtained so that we can commence construction as soon as the DA is issued, expected to be in late January 2005. 4. Fees. We have previously discussed the additional time it has taken to develop this project. Dennis, both you and ANZIS have invested significant time in this project. To compensate, we propose that BPL pay you a fee on financial close of $500,000 and $100,000 to Tony. In addition, on project completion but subject to receipt of the Biofuels Capital Grant, we propose that BPL will pay another work fee to you of $500,000. In recognition of the intensive effort that ANZIS has made, it will receive $1,000,000 on financial close once all the equity has been subscribed for the project. This fee will be payment to us for the responsibility for the raising of debt on completion, as mentioned above. 5. Salaries. Given the time that has passed since we agreed salary levels, we believe that these levels should now be $220,000 for you as MD and $165,000 for Tony as CFO. ... Dennis, we hope that this package goes a long way to reducing the concerns we understand that you had about the previous SHA. We believe that we should be able to commence construction of the project in January 2005 and complete in within 9 months. We are willing to work with you to finalise these arrangements as quickly as possible so that we can recommence and progress.' 66 ANZIS' proposals contained in that letter, if accepted and completed, would have substantially advantaged both respondents. This was the first time it had been suggested that the respondents should be entitled to additional founder shares. Moreover, it was proposed that the number of B Class shares to be allotted should be increased to 19.5 million. Fees would become payable to both respondents. It was proposed that the salaries they were to receive be increased. The letter indicates ANZIS' keenness to remain or to become the applicant's financier. It also shows that ANZIS thought it was necessary to have the support of the respondents to achieve that end and that support could more readily be obtained by the proposed inducements. The second respondent circulated that letter to Dr McCully, Mr Davison and Mr Pearce. 67 On 8 October 2004 ANZIS wrote again to the second respondent. Relevantly, it stated: 'In our letter of 5 October, we detailed our thoughts about the level of value that you, as the sponsor, should receive for your efforts to date. The value of this was as follows: ● 2,500,000 7,500,000 A class shares with a subscription value of $500,000 to be issued at financial close; ● $500,000 payable on financial close to you and $100,000 payable to Tony; ● $500,000 payable on completion and receipt of the grant; ● 19,500,000 B Class shares issued on financial close but these participate in distributions only if the project performs above an agreed hurdle rate for financial equity. Note that under current assumptions, it appears that the project will perform materially in excess of the currently specified hurdle. In total, this represents $1.5m of immediate consideration for you from the project that has projected costs of around $40m. This represents 3.75% of the project cost. However, the most important part of this consideration is in the B Class shares and we estimate that these have a value of between $5m to $10m depending on what assumptions are made for the key future value drivers for the project.' 68 In that letter of 8 October, ANZIS increased the proposed benefits which would flow to the respondents. The number of A Class shares increased to 7,500,000 although in this proposal they were to be paid for. They were no longer described as 'founder shares'. 69 Mr Davison, who had been distrustful of ANZIS for some time, was unimpressed by ANZIS' conduct both in its delay and in its later attempt to remain the financier. He emailed the respondents after receipt from the second respondent of ANZIS' letter of 5 October 2004: 'Hi Denis I personally want nothing to do with them. 1 They over ran the time frame. 2 They have cost the company a lot of money paying there (sic) fancy but inefficient lawyers. 3 There (sic) are wanting to bribe us with handfulls (sic) of money they haven't invested. 4 They go behind our backs to both BDI & PDF which is costing us both time and money. 5 I would never trust them again as partners in our project. They have behaved in a unprofessional manner akin to spoilt children. They need to learn some business ethics. 6 I feel very strongly about this as I do not do business with cowboys and I can not be brought (sic). They should be informed that we will be seeking redress for any action initiated by ANZIS that in any way delays and or costs BDP additional money's (sic). Regards Rae' 70 On 15 October 2004 ANZIS wrote to the directors of the applicant seeking to participate in the applicant's project. In relation to shares it wrote: 'A Class Shares Based on the capital cost estimates outlined above, a total of $19.4m of equity is required for the project comprising $2.8m which has already been committed or subscribed by the current shareholders and a further $16.6m of new equity. This new equity will be provided by the issue of around 83m new A Class shares issued at $0.20 per share. After discussion with D Barron and A Stewart ("Sponsors"), ANZIS proposes that 5.5m A Class shares be issued to the Sponsors at financial close for the development effort to date including the successful application for a Biofuels Capital Grant. This comprises a combination of 2.5m shares issued in lieu of B Class shares as described in the paragraph below and 3m shares issued in lieu of fees as described in Section 4. This will result in a total of 104.5m A Class Shares on issue. B Class Shares Under the previous Shareholders Agreement, the Sponsors were to be allotted 22m B Class shares, which were performance related. ANZIS now proposes that the Sponsors are issued 19.5m B Class shares at financial close, the balance being issued as 2.5m A Class shares as noted above. It is proposed that distributions on the B Class shares are subject to the A Class shares receiving a Threshold Return of 20% to equity, based on internal rate of return methodology, as more fully defined in the previous SHA. This change is expected to increase the benefits flowing to the Sponsors and reduce slightly the returns to A Class shareholders. ANZIS is comfortable with this change given the time and effort that has been provided by the Sponsors. ... 4. Fees In recognition of the additional time taken and intensive effort required to develop the project, ANZIS proposes an increase in fees to both the Sponsor and ANZIS as follows: ● an additional Sponsors Fee of $500,000 to be paid at commencement of operations after receipt of the Biofuels Capital Grant. This is in addition to the fee of $500,000 to D Barron and $100,000 to A Stewart which will be paid at financial close by way of issue of A Class shares as noted above. ... 5. Executive Remuneration Given the time that has passed since the setting of executive remuneration we propose that the total salary package including superannuation contributions for D Barron as Managing Director should be $220,000 pa and for A Stewart as Chief Financial Officer, $165,000 pa.' 71 ANZIS was still clearly keen to have the respondents' support. This proposal was even more advantageous to the respondents than the earlier proposals. Under this proposal the respondents did not have to pay for the A Class shares which were to issue to them. All three ANZIS' proposals after 30 September 2004 clearly recognised that the respondents would be entitled to shares at financial close. In the latest proposal they would become entitled to both A Class and B Class shares at financial close. 72 ABN Amro Morgans reported to the Board of the applicant in November 2004. In that report it valued the applicant at $71 million using a composite Discounted Cash Flow Analysis, Capitalisation of Future Maintainable Earnings and Net Tangible Asset Value. 73 At or about the same time, the applicant published an information memorandum in which it identified its achievements: '● Federal Government Biofuels Capital Grant of $9.6 million ● Acquiring land at Barnawatha, (sic) Victoria ● Obtaining Shire planning approval ● Lodging EPA application ● Finalising technology and construction contracts ● Teaming agreement for Australian use of BDI technology ● Entering into raw material contracts for 100% of requirements ● Signing offtake agreements for 76% of biodiesel output ● Expressions of interest for additional 86% of biodiesel output ● 162% of production under contract or subject to expression of interest ● Export agency agreement for glycerine by-product.' 74 The information memorandum referred to the proposed location of the plant. The plant location was to be at Barnawartha which is about 22 kilometres south of Wodonga. The site was a former abattoir which the applicant assessed as being appropriate for a biodiesel plant. The adjoining land owner was a producer of tallow. The site was close to the Hume Highway. It was zoned 'Noxious Trade'. The applicant had obtained Shire approval. It was necessary to obtain Environmental Planning approval. 75 In that information memorandum the applicant identified a project timeline: 'The expected timetable of key events is: Plant and equipment ordered January 05 Construction commencement on site February 05 Plant practical completion August 05 Purchase raw materials August 05 Plant commissioning and start of production September 05' 76 The information memorandum also identified the current shareholding and referred to the proposed allocation of 14.5 million shares to the respondents: '(a) includes an additional 14.5 million shares issued to Founders upon achievement of the following milestones: 4.0 million shares upon raising required capital; 4.5 million shares upon receiving a government grant of $9.6 million; and 3.0 million shares upon achieving a NPAT of $6.0 million.' 77 The information memorandum referred to BDI and said: 'BDI has entered into an agreement to build a biodiesel plant at Barnawartha in Victoria and has drafted a teaming agreement for further plants in Australia.' 78 A Board meeting of the applicant was held on 4 November 2004. All directors were present. The second respondent reported to the directors at this meeting that there had been an appeal against the Shire approval for the construction of the plant at Barnawartha. He explained that the appeal would be heard in the Victorian Civil Administrative Tribunal ('VCAT'). 79 The question of the allocation of the shares to the respondents was discussed. The minutes record: 'DBarron discussed remuneration for past services equivalent to 5% of grant. Resolved that such an amount be paid when funding finalized but some performance hurdle re NPAT for founder shares. TStewart to send circular resolution' 80 A circular resolution had been provided to the first respondent on 1 July 2004. It was item 3 in Mr Paterson's email of that date. It does not appear to have been circulated at any time before this Board meeting. The directors agreed at this meeting to hold the applicant's Annual General Meeting on 30 November 2004. They also agreed that the next Board meeting would be held on 15 December 2004. 81 On 8 November 2004 the first respondent sent Mr Paterson a copy of the circular resolution that Mr Paterson had provided him with his advice of 1 July 2004 'to assist with tomorrow's discussion'. It may be assumed that the meeting took place because, on 9 November 2004, Mr Paterson of Hardy Bowen emailed the first respondent enclosing a draft notice for the Annual General Meeting of the applicant to be held on 30 November 2004. In that email Mr Paterson wrote: 'Tony Attached is the draft Notice of AGM for Biodiesel. I have not included any resolutions for the issue of shares. The issue of shares by Biodiesel is at the discretion of Directors. The issue of shares with restricted rights that convert into ordinary shares on the achievement of performance criteria can be issued without approval of the shareholders provided that the shares do not have preferential right to dividends. The recipients of the convertible shares will need to obtain tax advice to ensure that roll over relief is available on conversion. Chapter 2E of the Corporations Act provides that a public company may only give a financial benefit to a related party (which includes a director or a related party of a director) if Chapter 2E exempts the giving of the financial benefit or shareholders approval is obtained for the giving of the financial benefit. The most commonly relied on exemption in chapter 2E is the arms length exemption. Member approval is not required to give a financial benefit if the public company and the related party are dealing a (sic) arm's length. We understand that: 1. Biodiesel is proposing to raise approximately $20,000,000 by way of share issue at an issue price of 50 cents per share to sophisticated investors only. It is proposed that one of the directors may participate in the issue by taking up to $1,000,000 worth of shares on the same terms and conditions as all other shareholders. 2. Biodiesel wishes to issue the performance shares to Dennis Barron consistent with the initial proposal. We are advised that all seed investors were informed of the pending issue of these performance shares prior to becoming a shareholder of Biodiesel. Provided that the directors are comfortable forming the view that the issue of the above shares are at arms length then no shareholder approval is required to issue the shares. The Notice is prepared on the basis that the directors of Biodiesel are comfortable to form the view about arms length of the above share issues. If this is not the case please advise and we can add the relevant resolution and the prescriptive information required by Chapter 2E. Tony I am out of the office for the remainder of the week from lunch time tomorrow. Please call me or Michael Bowen if you wish to discuss.' 82 This advice addressed the same topics that Mr Paterson had raised in his email sent to the first respondent on 1 July 2004. In particular, it raised for consideration Chapter 2E of the Corporations Act and the issue of shares to the second respondent. The advice highlighted that shareholder approval was not required if the directors were comfortable in forming the view that the transaction was an arms length transaction. The draft notice of the Annual General Meeting did not contemplate that the shareholders would be asked to approve the issue of the shares to the second respondent. 83 The applicant was continuing to have difficulty in reaching an agreement with BDI. Near this time it became known to the applicant that ANZIS was having secret correspondence with BDI seeking to obtain a commercial advantage in the event that the applicant did not accept ANZIS' funding offer. On 9 November 2004 the second respondent wrote to Mr Clarke: 'Dear John, BPL would like to make an offer to ANZIS to take up 50% of the share capital. We need to agree on a price per share to take that forward. Before we give you our suggested price we would like you to confirm ANZIS will; 1.Abide by the Banks Code of Conduct 2.Not breech (sic) the signed confidentiality agreements. 3.Not use information obtained in our dealings to allow ANZIS to compete with BPL. 4.Not damage BPL by contact with any parties BPL is dealing with, especially BDI. Please confirm your agreement with the 4 points above and we will confirm our offer. Look forward to your reply.' 84 On 16 November 2004 the first respondent wrote to Mr Paterson enclosing a draft resolution, presumably for his consideration and advice. His proposed resolution stated: 'Resolve to vary the share capital Of Biodiesel Producers Limited on the following basis:

1. Directors continue to seek debt and equity funding for the Albury Wodonga biodiesel project subject to the further issue of shares be limited to 50% of the total share capital of Biodiesel Producers Limited,
2. The B class ordinary shares be converted to 1,000 ordinary A class shares on attainment of following milestones: Barron Stewart Total ● Raising required capital; 4.0 million 3.0 million 7.0 million ● Receiving government grant; 3.0 million 1.5 million 4.5 million ● Achieving NPAT of $6 million2.0 million 1.0 million 3.0 million Total 9.0 million 5.5 million 14.5 million' 85 Also enclosed with that draft resolution was a document which the first respondent described as a 'history of founder shares': '1. BPL issued 7.5 million shares to Dennis Barron (Barron) in January 2002. 2. An Information Memorandum was prepared in support of a seed capital raising of $400,000 around March 2003. ● The IM advised that Barron would receive a further 19.5 million shares upon the attainment of certain milestones as follows: ▪ 9.0 million shares upon raising required capital ▪ 2.5 million shares upon completion of the operating plant; ▪ 2.0 million shares upon receiving a government grant of at least $2 million; ▪ 3.0 million shares upon achieving a NPAT of $4.0 million; and ▪ 3.0 million shares upon achieving a NPAT of $6.0 million. 3. Barron agreed to grant Tony Stewart 5.5 million shares from his abovementioned entitlement based upon the attainment of similar milestones as follows: ▪ 0.5 million shares upon raising required capital ▪ 2.0 million shares upon completion of the operating plant; ▪ 1.0 million shares upon receiving a government grant of at least $2 million; ▪ 1.0 million shares upon achieving a NPAT of $4.0 million; and ▪ 1.0 million shares upon achieving a NPAT of $6.0 million. 4. The abovementioned share allocation for Barron and Stewart were formalised in the Shareholders Agreement dated 20 April 2004 whereupon Barron and Stewart were required to subscribe at 1 cent each to 9,000 and 5,500 performance shares respectively on. 5. The performance shares were each convertible to 1,000 ordinary shares upon the attainment of certain milestones as follows: Barron StewartTotal ● Financial close 2.0 million 0.5 million 2.5 million ● Completion of operating plant 1.0 million 2.0 million 3.0 million ● Achieving a NPAT of $4.0 million 3.0 million 1.0 million 4.0 million ● Achieving a NPAT of $6.0 million 3.0 million 2.0 million 5.0 million Total 9.0 million 5.5 million 14.5 million 6. The Shareholders Agreement should now be extended/varied so that ordinary shares are issued upon the attainment of certain milestones as outlined in the original IM follows: Barron StewartTotal ● Raising required capital; 4.0 million 3.0 million 7.0 million ● Receiving government grant; 3.0 million 1.5 million 4.5 million ● Achieving NPAT of $6 million 2.0 million 1.0 million 3.0 million Total 9.0 million 5.5 million 14.5 million' 86 The resolution which the first respondent had been seeking from Mr Paterson had not been prepared at the time that a meeting of the Board of directors was held on 17 November. The directors, apart from Mr Davison, were present. So also was Mr Clarke of ANZIS. The first respondent was present and outlined the number of founder shares. The minutes do not disclose what was said. 87 The chairman, Dr McCully, raised the issue of continued delays and Mr Clarke apparently expressed a willingness for ANZIS and Argent Energy to invest $15 million in the applicant immediately. 88 The second respondent advised the Board that the VCAT hearing was scheduled for 28 January 2005. He also said that he was meeting with BDI in November. The minutes do not disclose when the next Board meeting was to take place. The minutes of the previous meeting had not anticipated this meeting on 17 November 2004. 89 During November the second respondent was meeting with other financiers. He reported to his fellow directors on 19 November 2004 that ABN Amro had offered $20 million in term debt, whilst ANZIS was offering $15 million in equity at a price of $0.45 per share and $10 million in term debt. He also reported that he was 'expecting the G.E. offer very soon'. 90 On 18 November the second respondent wrote to BDI advising that ANZIS would 'come back to me tomorrow with a solid proposal' and that the applicant now appeared to be able to go forward without interruption. 91 On 22 November 2004 ANZIS wrote to the directors stating that the offers and proposals contained in that letter superseded all previous offers and proposals made by ANZIS. ANZIS offered to fund the proposal in two separate ways; either by way of debt and equity funding, or by equity funding. The offer addressed the question of Mr Barron and Mr Stewart's remuneration: '5. Executive Remuneration We confirm agreement with the BPL Board's proposal that the total salary package plus superannuation contributions for D Barron as Managing Director should be $190,000 pa and for A Stewart as Chief Financial Officer, $140,000 pa.' 92 This was not in fact the last offer made by ANZIS prior to the Annual General Meeting to be held on 30 November 2004. In fact, on 29 November 2004, ANZIS wrote again to the directors putting a further proposal which, again, was said to supersede all previous offers and proposals. It wrote: 'If BPL's board is agreeable to these arrangements, we would be pleased to move immediately to: ● work with you to finalise a new Shareholder Agreement ("SHA"); ● finalise the Pdf and BDI contracts and negotiate these changes; ● discuss in detail BPL's debt funding plan and assist BPL in securing and finalising these debt funding arrangements; ● start our approval process. We believe that the project can achieve financial close before 31 Jan 2005 and construction could commence when Development Approval is received and final engineering designs are received from BDI in February 2005.' 93 Again it addressed two separate proposals; debt and equity funding, and all equity funding. In this letter it discriminated between the 7,500,000 founder shares which were to be issued to the second respondent and the 14,500,000 B Class shares which were to be issued eventually to both respondents. Its proposal in relation to executive remuneration was the same as in the previous letter. Those two letters show that the previous generous inducements in the correspondence after 30 September 2004 were no longer available to the respondents. 94 The second respondent emailed the ANZIS proposal to the first respondent and the directors of the applicant. He said: 'Gentlemen, This is the new ANZIS offer. I think it is a very good one. They are offering to put in $12.4m or $10m with a further $2m from Rae, Max and Andrew White. I will ask Tony to present the offer tomorrow at 4 pm. The offer at $10m will give ANZIS 30.3%, existing shareholders 33.3% and Tony & Dennis 33.3%. I think this gives us great comfort. See you tomorrow at 4pm.' 95 In November 2004 the second respondent received advice from Mr Grant Burgess of BDO Consultants (WA) Pty Ltd relating to the tax implications of the issue and conversion of promoter shares. Mr Burgess had previously offered advice on preference shares in his letter of 14 October 2003. It appears clear from the correspondence that the second respondent met with Mr Burgess on 23 November 2004. On 29 November he emailed the first respondent: 'Tony Further to our earlier conversation, I have undertaken a high-level review of the tax issues associated with the assignment of dividend income. I understand that the assignment will only take place if a specified rate of return is not achieved. I also understand that the assignment is in consideration of ANZ contributing funds to the project. My preliminary high-level review revealed the following: ▪ The contingent assignment will give rise to a CGT event. The question being what is the value of the consideration received [i.e. what portion of ANZ's contribution is given for the contingent assignment]? It could well be that the value of the consideration is minimal [since I would assume that ANZ place little value on this right]. ▪ The assignment should be effective for income tax purposes since consideration has been given for the right. This means that ANZ alone would be required to include the dividends in their assessable income. ▪ ANZ is unlikely to be entitled to the imputation credit associated with the dividends. This is because they do not hold the shares [refer to Part IIIAA, Division 1A and the 45 day rule]. It may be possible to circumvent this by having a fixed trust hold the shares where a beneficiary has a contingent right [this option would need to be examined closer]. Let me know if you require us to explore this matter further.' 96 On 30 November Mr Burgess wrote in a letter to the first respondent: 'Dear Tony TAX IMPLICATIONS ASSOCIATED WITH CONVERTING PROMOTER SHARES Further to our meeting on 23 November 2004, as instructed we have briefly addressed the tax implications associated with the issue and conversion of certain promoter shares. 1.1 Background We understand that: ▪ Dennis Barron and yourself have been issued with a number of converting promoter shares. ▪ These shares convert into a predetermined number of ordinary shares upon the achievement of certain milestones. ▪ These shares convert into a nominal number of ordinary shares if milestones are not achieved. ▪ The converting promoter shares were issued at a point in time when Biodiesel Producers Limited ("BPL") had a minimal market value. 1.2 Acquisition of Converting Promoter Shares The acquisition of the converting promoter shares is likely to be subject to Division 13A of the Income Tax Assessment Act 1936 ("1936 Act"). In particular, the converting promoter shares are likely to be treated as having been acquired under an "employee share scheme": Sections 139B - 139C of the 1936 Act. Unfortunately, since the converting promoter shares are not ordinary shares (Refer section 139CD of the 1936 Act), the assessable discount in relation to the acquisition of the shares must be brought to account in the income year in which the shares are acquired. However, as the market value of the shares at the date of issue is likely to be minimal, the amount of the assessable discount should not be material. 1.3 Conversion In general, the conversion of a share does not result in a Capital Gains Tax ("CGT") event. This principle is supported by Class Ruling 2001/5 which states that: "No CGT event will happen if the converting preference shares are later converted into ordinary shares without being redeemed or cancelled." This position is strengthened by Taxation Ruling TR 94/30 which states: "A variation in rights does not constitute a deemed disposal under subsection 160M(6): Former CGT Provision. However a variation in share rights for money or other consideration does give rise to a deemed disposal under subsection 160M(7) where the other requirements of that subsection are met." TR 94/30 further reinforces this view by including an example (Example 4) which clearly establishes that there are no CGT consequences from the mere conversion of a converting preference share into an ordinary share. 1.4 Conclusion Prima facie, BPL's share distribution to Dennis Barron and yourself will be subject to Division 13A. As such, any assessable discount in relation to the issue of the shares will have to be included as taxable income. Further, upon the conversion of the shares into ordinary shares, there should be no capital gains event and therefore no tax payable. The ultimate disposal of the shares will give rise to a CGT event. If you have any other queries regarding this matter, please do not hesitate to contact me.' 97 The first respondent emailed the advice of 29 November to the second respondent saying: 'Hi Dennis No franking credit kills the assignment route. John Clarke is happy with earlier of "2 consecutive full financial years achieving IRR of 12.5% or issue of an IPO". I have instructed Grant Paterson to prepare circular directors resolution along those lines for tomorrow. I also discussed with John that we should avoid another SHA & get Board to approve controls etc. as required in an ANZIS subscription agreement. Please confirm your agreement or otherwise.' 98 It is not entirely clear but I think it can be inferred that the Board was presented with a document entitled 'ANZIS EQUITY PROPOSAL 29 NOVEMBER 2004'. It stated: '1. 20 million shares @ 50 cents. Refer attached capital structure. 2. Assist finalisation of 5 years lease facility with ABM (sic) Amro Morgans. 3. Immediate irrevocable funding commitment from Energy Infrastructure Trust with new Shareholders Agreement (SHA) 4. John Clarke has indicated that a new SHA may not be necessary if Board approves various management control issues & matters included in Subscription Agreement 5. 31 January financial close 6. Conditions precedent: ● Due diligence on BPL ● Development approval ● Finalise Pdf & BDI contracts ● Contracts for 3 years for 100% supply requirements & offtake sales

Raising of Capital 4,000 3,000

Completion of the construction of the Biodiesel Plant 3,000 1,5000

NPAT of $6,000,000 2,000 1,000'

105 There is obviously some confusion in clause 2. First, it identifies the shares as being 'B Class Shares' rather than 'Performance Shares'. Secondly, it talks of the company issuing performance shares 'on achievement of the performance criteria as detailed in the table below'. 106 The performance shares do not carry any entitlement to a dividend: clause 3. They are not redeemable: clause 4. They are not transferable: clause 9. They carry no entitlement to vote: clause 11. They convert into B Class shares in accordance with clause 5: '5. Conversion Each Performance Share will convert into 1,000 B Class Shares when the performance criteria in clause 2 are satisfied. 5.1 Statements As soon as practicable after conversion of any Performance Share, the Company shall dispatch statements or certificates in respect of the B Class Shares issued as a result of the conversion. 5.2 After Conversion The B Class Shares issued on conversion of any Performance Share will as and from 5.00pm (WST) on the date of allotment rank equally with and confer rights identical with all other B Class Shares then on issue.' 107 Annexure A provides that the company would allot and issue B Class shares for no consideration on conversion. 108 Clause 8 of Annexure A addresses winding up: '8. Winding up If the Company is wound up prior to conversion of all of the Performance Shares into B Class Shares then the Performance Shareholders will have the right for each Performance Share held and not converted in Shares to be paid cash for the Issue Price but will have no right to participate beyond the extent specified in this clause 8 in surplus assets or profits of the Company on winding up.' 109 That clause contemplates that a winding up might occur where not all of the performance shares have been converted into B Class shares. It contemplates that some B Class shares might have issued which must mean that one or two of the milestones, but not all three of the milestones, have been met. 110 B Class shares are defined to mean shares with the terms and conditions contained in Annexure 2 to the document. Annexure 2 addresses B Class shares. It provides that the B Class shares could convert into ordinary shares in two circumstances. First, where an IRR of 12.5 per cent is achieved by the company in respect of the shares for two consecutive financial years. 'IRR' was defined to mean 'the theoretical, post entity tax, equity internal rate of return for the Biodiesel Plant including any new project (as the case may be) calculated using the combination of actual distributions and the Financial Model'. Secondly, the shares would convert if the company undertook an initial public offer and achieved listing on the Australian Stock Exchange Ltd. The 'Biodiesel Plant' referred to in the definition of IRR was defined to be the biodiesel plant to be constructed by the applicant in Barnawartha. 111 On 30 November 2004, the same day as the directors resolved in accordance with the circulation resolution, the directors resolved to accept funding from ANZIS. The parties contemplated on this occasion that no shareholders agreement of the kind which had been entered into on 20 April 2004 would be entered into. Rather, a letter would be written by the applicant to ANZIS inviting ANZIS to subscribe for capital in the company to which ANZIS would agree. The first respondent had described such an agreement as a 'subscription agreement' in his email of 29 November although sometimes it was described as a 'placement letter'. Indeed, that is how the document which was subsequently executed describes itself. On 1 December 2004 the second respondent emailed Mr Clarke: 'Dear John, Further to our discussion today and acceptance of the ANZIS offer on equity in BPL, I put forward the following:

1. A meeting is being arranged for next week in Sydney with ABN AMRO, ANZIS and BPL re term debt. Details to be confirmed today.
2. The BDI & PDF contracts to be finalised ASAP. Last week Kate's mark up went to BDI and Stephen James had a response today. We need to move. PDF are ready to go and work has continued with them over the last 2 months.
3. SHA has been looked at and Tony will send you a term sheet this week.
4. Tallow & Biodiesel contracts are in pdf and can be sent to you now. Where do you want them?
5. Due diligence - please give me a road map.
6. Statement by ANZIS to BPL. I want you to sign a statement that will include no unauthorised contract with BDI. Also some other motherhood issues. I will have that by next week. We have a great project ahead of us, lets get going!!!' 112 On 1 December 2004 the first respondent wrote to Mr Paterson advising that the circular resolution had been signed by all directors. 113 On 2 December 2004 the second respondent emailed Mr Clarke: 'Hi John, Sorry, I have been a bit sick today but we need to move along. Rae Davison is lacking a little trust at this stage but will support us going forward with you. A statement from ANZIS would be:
7. No contact with BDI without BPL knowledge and agreement.
8. ANZIS to use best endeavours to assist BPL to reach financial targets in keeping with the timetable agreed.
9. Commitment to the mutual confidentiality agreement. Also John, lets think about board membership. What would 2 ANZIS members contribute? What about 1 board member and 1 observing non-director. BDI are not going to Asia this year. I have spoken to Ross and we need to focus on the BDI contract and the SHA. I am working on the timetable but would like the BDI contract signed in the next 2 weeks.' Mr Clarke responded the next day: 'Dennis,

1. Would you like these undertakings included in our letter?
2. Regarding Rae, would it assist if I rang him and gave him personal undertakings regarding out commitment to the project? I am concerned that he holds this opinion.
3. Re BDI, we need to exclude me talking to Wilhelm re NZ at the behest of Andy Hunter. That said, I want our relationship to flower and I will do everything to achieve this objective.
4. Re Andy Hunter, do you want me to ask him if he is interested in Plant 1 participation?
5. Board participation. I asked for 2 on the basis that Andy might join us. If he is not, then 1 of 5 is fine.
6. BDI Contract. I have not seen this yet but I will get a down load from Ross & revert. The most important thing is to understand exactly what Wilhelm's issues are. He sent me a "blistering email" re the contract saying that we have "Hungarian blood Salami tactics" whatever that means!' 114 The first draft of the proposed subscription agreement seems to have been created on 6 December 2004 by Mr Paterson. On 6 December 2004 he sent an email in the following terms: 'Tony Attached is a draft placement letter. My comments in relation to the shareholders agreement and ANZIS letter are based on the understanding that ANZIS as a shareholder of Biodiesel has no further rights other than those that a 30% shareholder in a company has except that they have an entitlement to nominate 2 directors to the board of Biodiesel on completion of subscribing. On this basis there is no need for a new shareholders agreement. Limits on the authority of management can be incorporated into a board resolution setting out the authority of management without seeking the approval of the board. I have reviewed the ANZIS letter and comment as follows: 1. I understand that Scenario 2 Funding is not currently being considered by BPL. The placement letter does not include this option. 2. A Class and B Class Founder Shares - I understand that these concepts were no longer to be used. I understood that the capital structure had been greatly simplified. All shares (including Barron's existing holding) are Ordinary Shares. I understood that Barron and Stewart were to be issued Performance Shares that convert into B Class Shares on satisfaction of performance criteria (as set out in the circular resolution which I understand was executed at the last board meeting). Each B Class Share has all of the same rights an Ordinary Share except that each Ordinary Share must return the 12.5% IRR (using a combination of actual distributions and the Financial Model) prior to B Class Shares receiving a dividend. If the Ordinary Shares return the 12.5% IRR in two consecutive years or BPL lists on the ASX then each B Class Share converts into an Ordinary Share. If you have not already, BPL should provide a copy of the terms and conditions of the Performance Shares and B Class Shares to ANZIS. 3. Conditions to completion of Placement - completion is conditional on financial due diligence and execution of construction contracts by 31 December 2004. I understand that BPL is not prepared to accept the condition in relation to Development Approval. This is a risk that ANZIS must assume. ANZIS has been kept advised of the development approval process and should be able to make an assessment of this. I understand that BPL does not agree to the condition in relation to the Tallow Supply and Offtake Agreements. ANZIS has been provided with all of the current Agreements, which BPL understands are acceptable to ANZIS. The extent that all supply of tallow required or production is not covered by agreements is a risk that ANZIS must accept. 4. Time of Subscription - I understand that BPL requires subscription for all of the shares immediately on satisfaction of the conditions. The Placement letter provides for this. 5. Fees - the ANZIS fees have been included in the Placement letter. I understand that the sponsor fees have been agreed to by the board of BPL. 6. Governance - The Placement letter gives ANZIS the right to appoint two nominee directors. This right is not an on-going right. I understand that all decisions of BPL are to be made by majority decision of the board rather than by unanimous decision. Please call me if you wish to discuss.' 115 That first draft had as an annexure to it the circular resolution. The first draft and the circular resolution were submitted to ANZIS and substantial alterations were made to the draft. More particularly and more relevantly, ANZIS amended the circular resolution by deleting the words 'B Class' opposite the words 'Performance Criteria' and including the word 'Performance' so that clause 2 referred only to 'Performance Shares' and not to 'B Class shares'. That amendment corrected, if it had any effect at all, the error which was contained in the original circular resolution. Further amendments were made to Annexure 2 which defined the terms of the B Class shares. 116 On 9 December 2004 the first respondent sent a copy of the circular resolution to Mr James Henderson of the Transocean Group and to Mr Clarke. Transocean was also a financier. 117 On 14 December 2004 the applicant's directors held a Board meeting at Cambria Island Retreat, Mandurah. The first respondent was also present. The second respondent reported on continuing negotiations with ABN Amro. He also reported that the BDI contract would be finalised within a week and the PDF contract would follow soon after. Lastly, he informed the Board that the VCAT case would last two days and a decision would be made in a fortnight. 118 The applicant and ANZIS continued to exchange drafts of the subscription agreement. On 24 December 2004 Mr Beames sent an email to Mr Barron with a draft of the subscription agreement of the same date with the comment 'no further correspondence to be entered into'. That draft contained the changes to Annexure A and Annexure 2 to the circular resolution to which I have already referred. The change to Annexure A was to rectify the error contained in the original circular resolution. The changes to Annexure 2 were in relation to the conversion of the B Class shares into ordinary shares. The proposed amendment read, 'Each B Class share will convert into one share on the earlier to occur of: the minimum return as achieved in respect of the shares for two consecutive financial years but no earlier than the third anniversary of the start of commercial production of the plant; or the company undertaking an initial public offer and achieving listing on the Australian Stock Exchange Ltd'. The terms of conversion were more onerous than those contained in the original circular resolution. 119 Although Mr Beames indicated that no further correspondence was to be entered into, the first and second respondents sought further legal advice and continued to negotiate on the terms of the draft including the terms of conversion from performance shares to B class shares. 120 The subscription agreement was signed by the second respondent on 14 January 2005. It required signed acceptance by ANZIS to be received by 5.00 pm on 17 January 2005. The final placement letter contained the terms in relation to the performance shares as I have outlined above. The alterations made by ANZIS were accepted by the second respondent. 121 Some other terms of the subscription agreement need to be noticed. The subscription agreement is subject to conditions precedent in favour of ANZIS which, if not met by the 'Final Date for Satisfaction of Conditions', terminated ANZIS' obligations under the agreement. The conditions precedent were: '3. Conditions Your commitment to meet your obligations under the Firm Allocation is conditional on the satisfaction or waiver of the following conditions (Conditions) for the Project: (a) completion of tax and financial due diligence; (b) the execution of contracts and all other necessary documentation for the construction of the Company's biodiesel plant with Pdf and BDI; (c) written confirmation of the receipt of all development and environmental approvals required to allow construction of the plant; (d) written confirmation by the Commonwealth government of the award of a $9.6m Biofuels Capital Grant to the Company; (e) other than the Shares or B Class shares which will be issued after conversion of the Performance Shares in the Company issued or to be issued to shareholders shown in attached Schedule 1, no further shares have been issued at a subscription price of less than 50 cents per share; (f) the satisfaction of the requirements of section 10(a); (g) the Company has less than 50 shareholders; (h) the Company providing a copy of the board resolution delegating the authority to the Managing Director to execute this document; (i) execution by the Directors of the Company of the circular resolution regarding performance shares attached in Schedule 2; and (j) the Company arranging, in addition to the equity subscribed, debt funding on terms and conditions to your satisfaction for an amount which you reasonably believe will cover all of the construction and development costs, an appropriate construction contingency and working capital requirements for the Project. ANZIS may terminate this Subscription Agreement if a Condition is or becomes incapable of being satisfied on or before the Final Date for Satisfaction of Conditions in which case your obligations and those of the Company under this letter will terminate save for as set out in Sections 7, 9 and 10. These conditions are solely for your benefit but you may waive any or all of these Conditions in writing.' The 'Final Date for Satisfaction of Conditions' was 31 March 2005. 122 On 17 January 2005 Mr Beames sent an email to the second respondent, in which he said 'As I confirmed, ANZIB SAM is ready to return the placement letter subject to ANZIS receiving and considering the capital cost information which is a critical part of the requirement for it to carry out the tax and financial due diligence as described in Condition (a) of Section 3 of the 14 January 2005 offer letter. Given the delay in the provision of information to you by Pdf, we propose that the date that the signed acceptance must be received by you be extended to 5pm, 19 January 2005 on the assumption that we receive this information by close of business (COB) tomorrow, 18 January. … If you agree that the time to receive the Application Form be extended to 5 pm, 19 January 2005, please confirm your acceptance by a return email.' The second respondent agreed to the extension of time. 123 On 19 January 2005 Mr Beames requested a further two day extension of time. The second respondent agreed and extended the time. ANZIS did not return a signed copy of the subscription agreement. ANZIS was concerned about the progress of the PDF contract and was not satisfied with the information with which it was provided. It is not clear when the subscription agreement was signed but ANZIS and the respondents, and thereby the applicant, proceeded as if it were. 124 On 26 January the first respondent, in his capacity as company secretary of the applicant, filed a Change to Company Details with the Australian Securities and Investments Commission ('ASIC'). That form provided two pieces of information. First, that 14,412,500 ordinary shares at $0.1965 had been issued on 10 January 2005. The document filed with ASIC does not disclose to whom those shares were allotted. Secondly, that 14,500 performance shares had issued at $0.01 per share on the same day. 125 On 22 February 2005 VCAT handed down its decision in which it refused the grant of a permit by the Shire Council for the construction of the plant. Instead, it made a decision that no permit issue. The decision which was received by the applicant on 28 February 2005 was a severe set back for the project because it meant that the applicant was without a site for construction. At that time, therefore, the project was in a state where no finance was in place and no site was available. 126 On 7 March 2005 the applicant reported to its shareholders. It said: 'Late February 2005, BPL was advised that the Victorian Civil and Administrative Tribunal (VCAT) had overruled the development approval granted by the Indigo Valley Shire for our preferred site at Plemings Road, Barnawatha (sic). In short, VCAT rules that such land should strictly be used for agricultural purposes. To minimise delays arising from this setback, the Board has taken the following steps: ▪ Commenced negotiations to purchase 40,000 square metres of industrial estate land in Wangaratta. This land will be substantially cheaper than the Barnawatha (sic) site, ▪ Obtained assurances from the Indigo Valley Shire that development approval on such land should be readily obtained, and ▪ Prepared a revised EPA application. Following the VCAT decision, BPL has received strong expressions of support from the local Federal Minister, Sophie Panopoulus, the Indigo Valley Shire and the Victorian State Government.' 127 On 15 March 2005 two share certificates were created and signed by the first and second respondents, as respectively company secretary and managing director of the applicant. These documents showed that the first respondent held 5,500 performance shares and the second respondent held 9,000 performance shares. The certificates did not say when the shares were issued. 128 On 21 March 2005 ANZIS wrote to the applicant's directors formally terminating the agreement reached in the 14 January 2005 subscription agreement. It said: 'In light of the refusal by ABN Amro to provide construction funding and the successful appeal in the Victorian Civil and Administrative Tribunal against the planning permit approval for the Barnawatha (sic) site, we have reviewed the conditions precedent (the "Conditions") in Section 3 of the Offer Letter of 14 January 2005 (the "January Placement Letter") from Biodiesel Producers Ltd ("BPL") to ANZ Infrastructure Services Ltd ("ANZIS"). Given these recent events, it is clear that the Conditions are incapable of being satisfied prior to 31 March 05 and we therefore formally terminate our obligations under that agreement. As we have discussed, we have provided strong support and valued input in the Project. We maintain our strong commitment to be an equity participant in the Project but on modified terms given the changes to the Project as outlined above. We wish to agree terms for our investment with BPL as soon as possible to provide funding certainty for the Project.' The letter identified two alternative funding arrangements; the first an equity option, and the second a combined debt and equity option. The letter outlined the capital structure of the applicant under each option. Relevantly, it was headed 'Share structure after Perf. Shares converted'. The offer contemplated that the performance shares would be issued and convert to B class shares at some later point in time. 129 Following the VCAT decision significant tension developed between the non-executive directors and the first and second respondents. The directors were concerned that the project was not progressing under the second respondent's management. On 22 March 2005 Mr Davison emailed the second respondent enclosing a document entitled 'Biodiesel Points to Clarify'. There is no need to set out the points raised, however, the document makes it clear that Mr Davison was concerned with the lack of progress in the project and the failure to achieve milestones. 130 The Board met on 24 March 2005. Mr Pearce and Mr Davison attended, as did the second respondent. Dr McCully apologised. The first respondent was also present. It is recorded in the minutes that the second respondent advised that the applicant had a strong case to have the VCAT decision reversed; the BDI contract was 99% complete; in relation to the PDF contract the Australian Standards contract would be adopted that week; and ABN Amro will not provide debt funding. The second respondent also advised the meeting that he intended to visit Austria to sign the BDI contract and inspect the 'Motherwell plant'. The minutes record: 'Other Business: Resolved that R Davison takeover the management of BPL with a view to coordinating all operations in consultation with D Barron. R Davison will advise D McCully and will put together a team to arrange :- 1. Acquisition of land 2. DA Application 3. EPA Application 4. Funding 5. Communication to Shareholders Resolved to freeze payments for accounts outstanding, until the review is completed by R Davison.' 131 On 25 March 2005 the second respondent emailed Mr Davison stating that he did not want Mr Davison to take over the running of the applicant but 'would really like some help'. He outlined the help he needed. 132 On 29 March 2005 the first respondent emailed the applicant's directors and enclosed a letter which read: 'Directors of Biodiesel Producers Limited Dear Don, Rae and John DENNIS BARRON I wish to formally express my disappointment with the recent treatment of Dennis Barron. I acknowledge that some assistance is now required but I feel that this can be achieved in a more productive manner without resorting to sacking him as managing director in an aggressive, insulting and non-consultative way. ACHIEVEMENTS I respectfully remind you that he has worked full-time for BPL for the last 4 years or around 7,000 hours. He has been paid only $47,500. He has achieved the following: ● Federal Government Biofuels Capital Grant of $9.6 million ● Negotiating to acquire land at Wangaratta with the local Council ● Lodged a planning application with a final objection date of 1 April 2005 ● Lodged EPA application ● Entering into raw material contracts for 100% of requirements ● Signing offtake agreements for 81% of biodiesel output ● Export agency agreement for glycerin by-product ● Finalised due diligence reports for diesel, tallow and engineering ● Negotiated the EPC contracts with BDI, lawyers for BDI, Pdf, ANZIS and lawyers for BPL ● Minimal expenditure of shareholders' funds ● Maintained commitment from ANZIS whilst negotiating term debt with ABN Amro and GE Capital. Remember BDI have always favoured the ongoing commitment of ANZIS. RECOMMENDATIONS The disappointment of the VCAT decision should not detract from the progress made to date. We have all learnt that project financing is a long haul with many problems to overcome. Many decisions have been made by Dennis and/or the Board, which may not have been made with the benefit of hindsight. We should now focus on the way forward and I recommend that BPL take the following steps: 1. Dennis Barron meet BDI, RAB Capital, James Henderson, Argent plant management and the Wangaraatta site neighbour as already arranged in Motherwell 2. Rae Davison finalise the BDI contract so that it can be signed by Dennis and BDI on 4 April. There now appears to be only one point of difference concerning the performance guarantee. 3. Rae Davison finalise the Pdf contract by mid April. The Australian standard will now be adopted. 4. Rae Davison prepare a conditional offer on the Wangaratta land 5. Rae Davison and Dennis Barron prepare funding proposals to be presented to the BPL Board at the next Board meeting to be held around 20 April 6. Delay any public announcements until BPL has reached a final decision on funding arrangements EUROPE TRIP Dennis' trip to Europe is essential to BPL for the following reasons: ● RAB Capital PLC, a □1 billion investment fund introduced by James Henderson, expects to meet Dennis. They have indicated that they are prepared to invest $10 million ● BDI invited Dennis to Austria to sign the contract. They may lose confidence in BPL if they perceive that the Board is not behind Dennis. ● A meeting has been arranged with the agent, who will be selling BPL's glycerin ● The Wangaratta Council is paying for the site neighbour to check the noise level at the Argent plant ● The Managing Director needs to establish a relationship with Argent management at the Motherwell plant to assist with BPL's construction and early operations I respectfully remind you that Dennis has not wasted BPL's funds and is critical to the success of BPL. He will be the "keyman" relocating to the BPL plant and has won the confidence of BDI, investors, suppliers and customers. His knowledge and commitment cannot be replaced overnight. The VCAT decision does not change this. Boardroom solidarity and loyalty is critical at this stage. I understand that at no stage has the Board requested to see copies of the various contracts and reports obtained by Dennis. Also, the Board has been prepared to hold meetings on an ad hoc basis rather than on a fixed monthly basis. These practices can be easily changed. To "replace" Dennis and put a halt to the European trip is presumptive and will send the wrong message to parties vital to the success of BPL. Accordingly, I request that you consider the abovementioned recommendations.' 133 Notwithstanding both respondents' communications, matters did not improve. On 30 March 2005 the second respondent sent an email to the directors and the first respondent. He wrote: 'WITHOUT PREJUDICE Dear Don, Rae and John, I am very sad of the developments over the past week, I feel I have been stabbed in the back by friends. It is so unnecessary and very dangerous to BPL. No matter what happens on Friday at your meeting, it will still not be too late [to] change direction and find an alternative way forward. The way I see it, you 3 have the following ways forward;

1. Sell your shares now, I will buy them or arrange someone to buy them.
2. Assist me by working on the PDF contract and alternative funding. This could be done by the time I get back.
3. Take over BPL as Rae has indicated he will do. This may cause BPL to loose (sic) the BDI and the contact (sic) looks like being agreed today. Final discussion to take place in Austria next week. Without me in the system all the major contracts are at risk. The ball is now in your court.' 134 On the same day, the second respondent called a meeting of shareholders to remove Dr McCully, Mr Davison and Mr Pearce as directors of Biodiesel. He wrote: 'Messrs R Davison, D McCully and J Pearce cc. Tony Stewart - Company Secretary Dear Sirs NOTICE OF MEETING OF BIODIESEL PRODUCERS LIMITED Pursuant to Article 9.1 and in accordance with section 249C of the Corporations Act, it is my intention to call a meeting of the shareholders of Biodiesel Producers Limited as soon as possible. The business of the meeting will be the removal of Mr Rae Davison, Dr Don McCully and Mr John Pearce as directors of Biodiesel Producers Limited. I hereby instruct the company secretary to prepare the necessary documents to convene the general meeting of shareholders. Until this meeting is held, you may only act in the capacity of caretaker directors of Biodiesel Producers Limited. I will ask Hardy Bowen to provide advice to the directors of Biodiesel Producers Limited on their duties and obligations as caretaker directors. Any resolution of the directors to remove me as managing director should not be considered until the shareholders have had the opportunity to consider the appropriate composition of the board of directors of Biodiesel Producers Limited.' 135 On 1 April 2005 the directors were provided with advice from Hardy Bowen as to their position, having regard to the second respondent's call for a general meeting for their removal. That advice was obtained by the second respondent. 136 A notice of general meeting was created calling a general meeting of the applicant on 5 May 2005 and the first respondent was instructed to mail it to all shareholders by 5.00 pm on 5 April 2005. 137 The notice included separate resolutions for the removal of Dr McCully, Mr Davison and Mr Pearce. It also contained a resolution for the removal of all persons appointed as directors of the applicant prior to the meeting, with the exception of the second respondent. It was accompanied by an explanatory memorandum which set out the second respondent's reasons for his actions. In that explanatory memorandum the second respondent recited his reasons for calling for the removal of the other directors. He cited difference of opinion and their attempt to have him replaced 'in an aggressive and non-consultative manner without due regard to the following': '● I have worked full-time for BPL for the last 4 years or around 7,000 hours. I have been paid consulting fees of only $47,500. ● I have established long-standing contacts with BDI, investors, suppliers and customers. This knowledge and commitment cannot be replaced overnight. ● I am committed to relocating to Country Victoria to oversee the construction and operation of the biodiesel plant.' He proposed that Mr Andrew White, a chartered accountant in Albury, 'well known to several of our Eastern States investors, customers and suppliers' be appointed a director. He proposed that, in the meantime, the first respondent who 'has worked unpaid for over 3,000 hours in the last 3 years' should be appointed a director. 138 While this dispute was developing the first and second respondents continued to attempt to negotiate financing arrangements with ANZIS. Between the beginning of April and the end of May the first and second respondents pursued various options to ensure the ongoing viability of the company. They also attempted to negotiate a debt finance option with GE. However, those negotiations broke down. 139 The first and second respondents also attempted to negotiate an agreement with Transocean Securities Pty Ltd, RAB Capital PLC and ANZIS to purchase the directors' shares in the applicant but the agreement was never completed. The respondents attempted to involve ANZIS in the financing of the acquisition of the directors' shares. 140 In the week ended 23 April 2005, the first respondent went to Sydney to conduct a week of meetings on behalf of the applicant. He met with employees of ANZIS, John Clarke and AusIndustry. 141 On 24 April 2005 Mr Clarke sent to the respondents and Mr White a long letter in which he was highly critical of the second respondent's strategies and, in particular, the second respondent's preference to obtain loans to finance the project. The first respondent replied saying that he hoped to persuade the second respondent 'to reach funding certainty ASAP'. 142 On 26 April 2005 a final contract for execution by the applicant and BDI was produced. BDI was clearly anxious to have the contract signed. So much is clear from an email from BDI to the first respondent dated 27 April 2005. However, it was not signed at that time. 143 On the same day Mr Andrew White wrote to the second respondent advising that the Board needed to be reconfigured. He posed the question as to what would induce the directors to resign. He suggested the management team should consist of the first and second respondents, himself and a project manager, and the Board consist of the second respondent, himself, ANZIS, an investor Mr Curt Leonard, and possibly one other. He addressed the financial backing available and continued: '3. BDI Contract - needs to be signed. I anticipate it needs one to two weeks work to make sure we are on top of it and by then we have the financials sorted out which removes the remaining obstacle for BDI? 4. Land - we proceed with Wangaratta and will know the outcome in 21 days. We have a very important meeting with Council, Maunsells, the Ministers department next Thursday 5 May re the Barnawartha land. There is agreement that if the Ministers department cannot provide a firm indication of a resolution in eight weeks then Barnawartha action will cease. Back up options are Myrtleford (not preferred though directly available due to its zoning as heavy industrial) and Wodonga's Logic park - which whilst more expensive is better than being stalled at a cost of maybe $50,000 a day in non production. 5. Dennis Barron - what now motivates him to proceed with the project. That is a question for you but no doubt the answer sits with the first two paragraphs and in knowing that you have a team in place that you have confidence in - similar to the issues raised above for the other directors. 6. Need to regain support of other influential shareholders - by meeting with them and presenting a plan of attack possibly as outlined in this memo or an alternative that is developed. 7. Other alternatives - someone makes an attractive offer to buy the business now that is available to all shareholders to consider and make a fully informed decision on. As discussed - I personally see the project as a once a decade opportunity. The opportunity is real and is presenting itself right now. I have supported the project in a number of ways through and with Terry McKenna, Greenfreight, Border Express, BFB, a range of investors, my personal money and personally in supporting you - the project is exciting and I see it as a winner. I would see my remuneration as being generous though realistic and would welcome the discussion on that when your thoughts on all of the above have settled.' The general meeting of 5 May 2005 did not materialise. 144 On 4 May 2005 Dr McCully wrote to Mr Clarke inviting him to attend the Board meeting which was to be held on Monday, 9 May. He said that he understood ANZIS had formulated a plan to overcome the current impasse. He asked Mr Clarke to provide all Board members with the details of the proposed business plan 24 hours before the meeting by emailing it to the first respondent. 145 On 5 May the second respondent emailed the first respondent about a proposed investment by Mr Leonard. He said that he felt 'under fire'. 146 On 5 May 2005 the second respondent emailed the first respondent a proposed draft structure to resolve the dispute between the directors and management. The draft foreshadowed a change to the share structure as part of a wholesale restructuring of the company. It said: 'STRUCTURE OF THE BOARD DIRECTORS TO RESIGN Rae Davison, John Pearce, Don McCully asap. New Directors Curt Lenard, Jim Harris, Andrew White MANAGEMENT TEAM Andrew White to be MD and form management team BDI Contract - AW to review contract and talk to BDI PDF contract - AW & Jim Harris to look at draft Terming agreements - AW to revisit agreements Performance Shares - reduce shares to 20% for shares at milestones or to 10% cash value 5% Grant bonus - to be looked at by the new board FINANCIAL STRUCTURE Preferred levels 30% ANZIS, 30% RAB Resolution clauses; Set levels at say 80% that would be needed to pass certain actions at board level. For example commit to plants 2&3, go to IPO, other major decisions. Question for ANZIS and Argent involvement. What roll (sic) do they play? Limit total % to 40%. SHARE STRUCTURE NOW AT NEW CAPITAL Total Shares 26,412,500 $35m or 100m shares at 35c,40,45,50 $200k Curt 26,812,500 $1000k Curt 31,412,500' 147 On 6 May 2005 the first respondent sent a copy of letters from Dr McCully to Mr Clarke for the Board meeting. An agenda was prepared. 148 On 6 May 2005 the first respondent emailed Mr Bowen and Mr Paterson of Hardy Bowen. He advised: 'Eastern States investors have just taken Dennis Barron out of BPL. They are threatening to cancel my performance shares unless I accept their offer. I would like a quick meeting today to hear what my legal position is regarding these shares. I can get to your office any time. I have not spoken to anyone but Dennis to date. I believe that I will be negotiating over the weekend.' 149 Some time between 6 and 9 May 2005 the second respondent and his wife executed a binding term sheet in which White Associates Pty Ltd agreed to acquire their shareholding. It provided: 'This Terms Sheet sets out the terms upon which White Associates Pty Limited (White) (ACN 111 380 360) (or its nominee) agrees to acquire the shareholding of Dennis Barron and Yvonne Baron (Shareholders) held by each of them in Biodiesel Producers Limited (BPL) being 5,000,000 shares and 2,500,000 shares respectively. This Terms Sheet Supersedes any and all previous correspondence, agreements or understandings between the parties. Acquisition White agrees to acquire: (a) the 5,000,000 fully paid ordinary shares in BPL held by Dennis Barron and the 2,500,000 fully paid ordinary shares in BPL held by Yvonne Barron; and (b) any entitlements payable to Dennis Barron under his existing employment agreement with BPL now or in the future (including but not limited to the benefit of the 9 million performance shares in BPL to which he may in the future become entitled (Performance Shares), any termination payment, success fees or other bonuses however described, accrued annual and long service leave) (post tax) (entitlements) (Acquisition) If the Acquisition is implemented, in the event that Dennis Barron is issued the Performance Shares, those Performance Shares shall be held by Dennis Barron on trust for and on behalf of White and shall be transferred to White for no consideration upon their conversion into fully paid ordinary shares in BPL. Consideration The consideration for the Acquisition will be $2 million exclusive of GST (if any). The consideration will be apportioned amongst the Shareholders in accordance with their respective proportionate shareholdings in BPL. Upon execution by all Parties of a formal agreement incorporating the terms of this Terms Sheet, White will provide a refundable deposit of $200,000 into a trust account on terms agreed between the Parties. Conditions Precedent The Acquisition is conditional upon the satisfaction or waiver of the following conditions precedent: (a) the entry by BPL into a signed agreement with "BDI", the company which proposes to supply the technology to BPL on terms satisfactory to White in its discretion; (b) White obtaining finance of $35,000,000 from ANZ and/or another financial institution on terms satisfactory to White; (c) Dennis Barron terminating his employment contract with BPL; and (d) Dennis Barron spending a minimum of 4 weeks fulltime in Albury, New South Wales assisting BPL at the direction of White free of charge. If the conditions set out above are not satisfied or waived by White on or before 5.00pm (WST) on 5 May 2006, the agreement constituted by this Terms Sheet will be at end and the parties will be released from their obligations under this Terms Sheet. The Parties will use their best efforts to ensure that the conditions precedent are met. ... Consultancy Upon settlement of the Acquisition, Denis Baron (sic) agrees to enter into an agreement with BPL on terms satisfactory to White pursuant to which he will consult to BPL at a rate of $100 per hour as and when reasonably required by BPL up to 31 May 2007.' Agreement

The other terms contained in the Term Sheet are not relevant here. 150 Prior to the Board meeting on 9 May 2005 Mr White met with the first respondent and offered to buy his and his partner's 500,000 shares in the applicant for the sum of $800,000, and otherwise on the same terms as had been accepted by the second respondent, but the first respondent refused. 151 The Board met on 9 May 2005. In attendance were Dr McCully, the second respondent, Mr Davison, Mr Jim Harris (alternate for Mr Pearce), Mr White and the first respondent. Mr White indicated that he was acting 'on behalf of all shareholders'. He said he represented Mr Max Fremder, Mr Curt Leonard and companies who were contracted for offtake and raw material. 152 The minutes of the 9 May 2005 meeting state: 'Dennis Barron outlined the problems wth the project in relation to BDI and ANZIS. He stated that all his shares had been sold for 26.7cents per share. He indicated ANZIS were willing to go ahead with a $20 million investment and BDI would sign exclusively within 2 weeks.' The minutes then record that Mr White suggested how the Board should be restructured and how the applicant should be managed. Mr White suggested that the Board should be comprised of Mr Leonard as Chairman, himself and Mr Harris, with another two positions to be filled when the fund raising was complete. He proposed that he should be Chief Executive Officer and that his accounting partner should be responsible for accounting and tax. 153 He told the Board that although the Biofuels Capital Grant had been executed on 23 April 2005 there was some risk with regard to the grant. He said the BDI contract was not exclusive; had not been executed; the contract terms were onerous; and the applicant had no rights to the NZ operations. He said that the PDF contract was still in its early stages. He told the Board that the North Wangaratta Council had stated that only one week remained to lodge a VCAT appeal and there were real difficulties in meeting the 30 June deadline for commencement. The Barnawartha position was 'still running'. He said the owner was trying to get it rezoned and the Minister might be approached for that purpose. Mr White said that ANZIS had behaved badly. He said that $35 million was required; $20 million from ANZIS and $15 million from Transocean. He said he wanted to restrict ANZIS to less than 50% of the shares and to nominating one director. He said that all shareholders would be offered $0.26.7 per share but all shareholders were invited to stay in the project. 154 Dr McCully and Mr Harris, on behalf of Mr Pearce, said that they would resign as directors. Mr Davison indicated he would like to stay on the Board until the equity investors were determined. He said he wanted to ensure ANZIS acted ethically. The minutes then record: 'The Board requested that DBarron and TStewart absent themselves from 11.00am to 1.30pm. Upon their return, they were presented with a 15 point plan for BPL. This plan contains proposed resolutions and is attached for the avoidance of any doubt. Meeting was adjourned to consider the attached Draft Resolutions and seek legal advice.' 155 The minutes are accurate in that the respondents were presented with a 15 point plan for the applicant. The 15 point plan is handwritten and contains many abbreviations. It is as follows: '1. CL $200K at .20 Issue share certificate @ 20c p.s. 2. DB resigns effective 9/5/05 3. DMcM + JP resign eff 9/5/05 ST 4. Terminate COY SEC eff 9/5/05 5. O/Going Directors release indemnity from Board AW 6. New Board Composition CL/AW/RD until finance/JH/ Finance 1 2 AW 7. Chairman CL Casting Vote 8. Indepe legal advice paid by Coy 9. J Henderson fee to be determined New Board 9/5/05 10. AW fee to be determined New Board Suggest base + performance (2 tier on whether continued beyond 3 months) 11. AW remuneration to be determined New Board 12. Suggest $300K CL @ .25 to provide working capital because of ----- (1) DB Agrees to 1-14 Abstains from 15 (2) AW to discuss 5 with others (3) JH wants legal advice on 15 13. $500K to be returned to CL Old Board 14. Old Board acknowledge all points above 15. Old Board resolve to cancel personal performance shares as criteria not met and criteria never finalised and shareholders agreement never signed.' 156 A Board meeting was held by telephone on 10 May. Present (by telephone) were Dr McCully, the second respondent, Mr Davison and Mr Harris (alternate for Mr Pearce). The minutes state that 15 resolutions were passed. In fact, 16 resolutions were passed. They are not the same in all respects as the 15 point plan given to the first and second respondents on 9 May. The resolutions were: '1. Curt Leonard to be issued $200,000 worth of $0.20 shares. (1 Million) 2. Dennis Barron resigns effective 10/5/05. 3. Andrew White has reached agreement with Dennis Barron and Tony Stewart to acquire their total interest in Biodiesel Producers Limited and if possible the Board proposes to cancel all their performance shares. 4. Don McCully and John Pearce resign effective 10/5/05. 5. Termination of Company Secretary, effective 10/5/05. 6. Out going Directors indemnity release from the Board, agreed by Andrew White. (Andrew White to discuss with Curt Leonard.) 7. New Board composition - Curt Leonard, Andrew White, Jim Harris, Rae Davison until finance approval, two Directors from Financiers - agreed Andrew White. 8. Chairman Curt Leonard to have the casting vote. 9. Independent legal advice given to Don McCully, Jim Harris as alternate Director for John Pearce and Rae Davison to be paid by BPL. 10. Jamie Henderson's fee for past services to be determined by the new Board. 11. Andrew White's fee for past services to be determined by the new Board. And suggested base salary plus performance and in two tiers depending on whether continued beyond three months as Managing Director. 12. Andrew White's remuneration to be determined by the new Board. 13. Suggest $300,000 of Curt Leonard's funds held by BPL to be converted into $0.25 shares to provide working capital. 14. $500,000 of Curt Leonard's funds to be returned to Curt Leonard. 15. The old Board acknowledges all the above points. 16. In the event of the previous discussions held between Dennis Barron and Andrew White and others, requiring certain milestones to be achieved or agreements reached, not taking effect, resolutions 1 - 15 become null & void and will be rescinded.' 157 White Associates Pty Ltd produced a binding term sheet to buy the shares of the first respondent and those of the first respondent's partner. It contained the same terms as the term sheet which White Associates Pty Ltd executed with the second respondent. It was not executed. The first respondent sought legal advice in relation to his situation. His solicitor wrote to the applicant's directors on 12 May 2005. In that letter the solicitors wrote: '... Our client, Mr Stewart: a. has a valid contract of employment which our client intends to honour. Our client expects the company to honour the contract of employment; and b. our client is the holder of validly issued performance shares. The period of time in which the performance criteria is to permit has not expired. The shares constitute valuable remuneration for years of work that Mr Stewart has put into the company. He does not intend to enter into any agreement relinquishing his rights under the performance shares nor his shareholding. In plain terms, Mr Stewart has faith in the company, belief in its future work and intends to maintain his position as shareholder.' 158 Notwithstanding the directors had passed 16 resolutions on 16 May 2005, Dr McCully emailed the first respondent: 'Tony, please organise a continuation of the meeting adjourned on Monday 9 May, the agenda is still the same except 9 and 10 come out and replaced by - 9. Discussion of offer, the significance to the company-. All company directors should receive minutes of the 9 May meeting and up to date financials to the 18 May. The meeting is for Wednesday 18 May, at Swanline 15 Ord St West Perth, 1.00pm Don McCully Chairman BDP I request a reply you have received this email and will take the appropriate action.' The reference to '9 May' is in error. 159 On 18 May ANZIS wrote to the directors of the applicant 'Attention Mr (sic) Don McCully' with 'a conditional proposal to provide equity funding of $38.3m on behalf of Argent Energy Ltd (Argent) and Energy Infrastructure Trust (EIT)'. In that letter they wrote: 'The commitment of ANZIS and Argent to proceed to seek funding approval is conditional on the satisfaction or our waiver of the following conditions: (a) The existence of the 14.5m performance shares results in significant dilution to all other shareholders of the Company and if these shares remained, it would cause the subscription price contained in this proposal to be materially below the 20c price invested by most shareholders. We believe that in the current circumstances, this is grossly unfair to these shareholders. Therefore, a condition of this proposal is that the directors of BPL finalise the exit of Messes (sic) Barron and Stewart from the Company including acquisition all of (sic) their 8,000,000 ordinary shares and cancellation of all the 14,500,000 performance shares held directly or indirectly by them, together with consideration for termination of employment contracts, for a total sum of $2 million, payable on financial close. This payment to must settle all claims between the Company and Messes (sic) Barron and Stewart. The directors must provide written advice to ANZIS that such agreement has been reached (including details of the arrangements) prior to this commitment to seek funding becoming binding on us. We require assistance from Mr Barron for the next three months to assist with the orderly transition with the affairs of the Company and the Project. (b) The directors must provide written confirmation from the Company that other than the performance shares that will be cancelled pursuant to (a) above, the capital structure of the company is as shown in attached Schedule 1 and there are no other shares or options issued or due either conditionally or unconditionally. (c) The directors will negotiate a full and final settlement with Messes (sic) White and Henderson regarding various claims that they purport to have against the Company for services provided for an amount not greater than $250,000 each, payable on financial close. The directors must provide written advice to us that this has been achieved (including details of the settlement) prior to this commitment to seek funding becoming binding on us. (d) The directors will reach agreement with Mr Leonard to issue him shares at the subscription price outlined in this proposal, in consideration for the $1.0m invested by Mr Leonard in BPL earlier this calendar year.' 160 On the same day the first respondent wrote to Dr McCully: 'Dear Don BIODIESEL PRODUCERS LIMITED I am unable to make today's meeting because of a severe sore throat and attach a copy of a doctor's certificate for the record. I have not been able to update the financial statements as I have not received the requested further information. As discussed with you, I enclose a copy of the minutes of the 9 May 2005 meeting of directors and 4 copies of today's agenda. I refer to the "Fifteen resolutions passed by the Board" on 10 May 2005 and express my disappointment that my appointment as Company Secretary has been terminated effective 10 May 2005. I request that the Board confirm this in writing and make the appropriate notification with ASIC. Finally, I received a telephone call from John Clarke whilst driving to work at 8.15am this morning. He was fully aware of the terms recently offered to me. I am appalled at this breach of confidentiality. As I told John Clarke, I repeat that I will not be discussing my position as a shareholder in BPL unless in the presence of my lawyer, Mr Martin Bennett. I advise that I will be leaving for Broome tomorrow evening and returning on Monday night.' 161 Again, notwithstanding the resolutions of the Board of 10 May, a meeting of the applicant's Board was held on 18 May at which Dr McCully, the second respondent and Mr Harris (as alternate for Mr Pearce) were present. Mr Davison apologised. The minutes record: '9. Offers to BPL 9.1 ANZIS - Chairman had spoken to John Clarke the previous day and outlined company position. John Clarke agreed to put position to Board for today's meeting. Proposal has been circulated to all Directors. Significant impediment to proceeding is the condition that the performance shares of Barron and Stewart and all their other arrangements e.g. employee contracts etc etc are eliminated as they create an unacceptable dilution to other equity participants. With Stewart's current position (and refusal to accept what in the Director's view is a generous settlement), the Board feels it is unable to proceed with this offer at this stage. 9.2 Denis Barron - DB offered to inject $300,000 by Friday this week as equity or loan to cover all O/S creditors and provide short term working capital. A condition of input is resignation of DMCC JP and RCD. DMCC indicated if other offers did not progress he would accept and felt JP would too. JH stated he would not speak on behalf of JP on this issue without his consent and felt that RCD would not resign under those terms. However JH would speak to him if required. DB's offer would cover all O/S creditors and provide short term funding while he negotiated with other financers. 9.3 Andrew White - Board discussed whether A White proposal was still on table with Stewarts apparently intransigent position. Conference call was made to A White who indicated proposal may still proceed with Stewart in situation. Five questions were asked:- 1. Can deal proceed if Stewart not out at this stage. - yes. 2. Is your agreement with Barron still valid/current - yes. This was confirmed by Dennis. 3. Are 15 points from 10/05/05 meeting still valid - yes. Apart from present situation with Stewart. 4. Is short term funding/equity injection possible by Friday - yes. 5. Can we have non binding proposal in writing - yes. To finalise his position he sought authority from Board to approach ANZIS on its behalf. This was given. He also needed to speak to Curt Leonard. When proposal received Board will hold special meeting to review.' 162 On or about 24 May 2005 the applicant's directors (Dr McCully, the second respondent, Mr Davison and Mr Harris (alternate for Mr Pearce)) signed a circular resolution in the following terms: 'Circular Resolution of the Directors of Biodiesel Producers Limited ACN 099-165-876 By signing this resolution in its counterparts the Board hereby resolves:- 1. To issue Curtis Leonard or his nominee a total of 5,000,000 shares in Biodiesel Producers Limited at 20 cents per share. 2. 1,000,000 shares are to be issued forthwith for the $200,000 already received by Biodiesel Producers Limited. 3. 1,000,000 shares are to be issued by Friday 27th May on input of a further $200,000 to the Company. 4. The balance of 3,000,000 shares are to be issued progressively as funds are input by Mr Leonard or his nominee to provide working capital for Biodiesel Producers Limited. 5. Subject to receipt of "Consent to Act as Directors" the Board invites Curtis Leonard, Andrew White and James Harris to join the Board effective May 30 2005. 6. To accept the resignations of Donald McCully (effective May 30 2005) and John Pearce (effective May 30 2005) subject to items 3 and 5 above. 7. To accept the resignation of Dennis Barron which is the subject of an agreement between himself and Andrew White et al. A. It is accepted that this resolution can be signed in counterpart by the various Directors. B. Until the Board changes are effected, the Board will operate in caretaker mode and not make any formal or significant commitments on behalf of the Company. C. Rae Davison has agreed to resign on finalisation of financial close for the project.' 163 On 27 May Mr Harris wrote to the first respondent: 'Tony, The Board has requested that you deliver all Company records (originals and copies) to my office. The Board wishes to carry out a complete review of all activities relating to BPL since inception. We would like to receive them prior to close of business Tuesday 31/05/05. If you are unable to deliver them please notify me and I will arrange collection. If you wish to prepare an inventory, I am authorized to provide a receipt to you.' 164 On 30 May the first respondent replied: 'Dear Jim BIODIESEL PRODUCERS LIMITED ("BPL") I refer to your email dated 27 May 2005 requesting I deliver all BPL records maintained by me as company secretary to you by Tuesday 31 May 2005. I am unable to comply with your request for a number of reasons. 1. As far as I am concerned I am still the company secretary. It is my duty to maintain the records of BPL. I received a copy of a document described as "15 Resolutions Passed by the Board" on 10 May 2005. I wrote on 18 May 2005 to the Chairman, Dr D J McCully asking whether this document did constitute resolutions passed by the Board and whether it was intended to convey a repudiation of my contract. If it was repudiation of my contract I am not obliged to accept that repudiation and to date I have not done so. 2. As I have statutory obligations (breach of which would expose me to penalties pursuant to the Corporations Act) to maintain the records of BPL, I will only pass the records over upon a resolution by the Board of Directors. At this stage, given my uncertainty as to whether the "15 Resolutions" constitute valid and effective resolutions or whether they are in fact resolutions by the Board at all, I am unsure who are the directors of BPL. Of particular concern to me is the terms of what purports to be resolution 16 which as I read it casts doubt as to whether resolutions 1 to 15 are valid resolutions - given that they can become "null and void" and be "rescinded". Are you aware whether there have been formal changes to the Board and have these been notified to ASIC as required under the Corporations Act? 3. Of course I am happy to provide immediate access to the records of the company to a bona fide Director of BPL. 4. If the valid Directors of the company resolve by circular resolution that the records of the company be located at a different address then I of course will comply with such a resolution. This will provide me with protection against my statutory obligations. 5. Before I hand over the records I would like to complete the outstanding matters, namely: a. I have not received the additional financial information that I have requested from Mr Dennis Barron to enable me to update financial statements as previously requested by the Chairman; b. issue share certificates to Ellise Investments Pty Ltd; and c. issue share certificates in respect of any share transfers. 6. You inform me that "The Board wishes to carry out a complete review of all activities relating to BPL since inception". Once again I am unsure as to who now constitutes the Board. You will be aware that BDO have audited the financial statements for the 2002, 2003 and 2004 financial years and these have been adopted by the Board of BPL as reflecting a true and fair view of the financial position of the company. Can I suggest that the Board's review include: a. responses to the repeated request for information from GE Capital and Sumitomo Corporation that I have passed on to the Board; and b. payment of outstanding accounts and, in particular, the amount owed to our auditors as I understand this account has been referred to a debt collector. Whilst the position of the company is being reviewed, I attach a personal expense reimbursement claim in the sum of $1,598.25 in relation to my last trip to Sydney on behalf of BPL. I also attach my invoice for $120,000 in relation to my fees pursuant to my employment contract. I acknowledge that payment of the fees may be deferred until financial close although I suggest a two percent prompt payment discount if these fees could be paid at the moment. If the fees cannot be paid at the moment please let me know in writing when these amounts will be paid. I look forward to your reply.' The invoice for $120,000 was attached which was said to be payable 'at financial close'. 165 Mr Harris emailed the second respondent in relation to the first respondent's invoice: 'Good morning Dennis, I have just received from Tony an account for $120,000 for "Remuneration for services to date". Could you please advise me if there is any agreement (written or oral) that would justify such fees. My understanding is that Tony is and has been employed full time by Clinipath!' The second respondent replied: 'Hi Jim, There is no agreement for payment to Tony. He is setting up a claim for performance shares, he was given the performance shares for the work he was doing. Certainly no cash payment was ever discussed. Dennis' 166 On 6 June 2005 the applicant's Board met. Present were Mr Curt Leonard, Mr Andrew White, Mr James Harris and Mr Rae Davison. Mr Leonard held a proxy for the second respondent. The circular resolution of 24 May 2005, which evidenced the resignations of Dr McCully and Mr Pearce effective 30 May 2005 and 'the appointments' of Mr Leonard, Mr White and Mr Harris, was tabled. Mr Leonard was appointed Chairman. Mr White was appointed company secretary 'effective immediately'. It was resolved: 'To terminate the appointment of Mr Tony Stewart as Company Secretary with effect from the close of this meeting. Andrew White to advise Mr Stewart in writing.' The minutes record: 'It was noted that there are various issues being reviewed in relation to Tony Stewart. These include his performance as Company Secretary. There are a number of allegations that his performance and behaviour in that role has been unsatisfactory. It is alleged inter alia, that he has been requested to supply information and documents to Directors of the company on a number of occasions and has failed to do so - resulting in serious impairment to the company's ability to trade or finalise significant contracts. It is alleged by former Directors of the company that the financial affairs of the company have not been reported to the Board with any regularity or judiciousness. He has failed to respond to a direct request to provide up-to-date Financial Statements of the Company for a Board meeting on 18 May 2005. The company is now being pursued by debt collection agencies for a number of outstanding invoices. The present cash flow position of the company is tenuous and requires immediate remedial action most likely at some financial disadvantage to the company. It is alleged that Mr Stewart entered into negotiations without authority and against the express instructions of the Board, the Managing Director and the company's legal advisors (whilst the Board was in caretaker mode). Further to this it is alleged that the results of those discussions were recorded in a document with ANZIS which was intentionally withheld from the Board and ultimately the terms of which were deemed entirely unacceptable. Mr Stewart has made a number of statements and claims against the company through a letter from his lawyer, Mr Martin Bennett dated 12 May 2005 and in a personal letter dated 30 may 2005. It was noted that the Board objects to a number of the claims in terms of their accuracy and content and to the nature and tone of the allegations and claims. RESOLVED that due to the serious nature of the issues, allegations and claims outlined above Jim Harris would engage legal advice to assist him, on behalf of the company, to investigate all of the claims mentioned above, to conduct a review of Tony Stewarts performance and any and all matters in relation to the allegations made by Tony Stewart, his role and relationship with the company and any alleged Employment Contracts, Agreements or entitlements he may have with the Company.' 167 The Board then considered Management. The minutes record: 'Mr Dennis Barron has indicated verbally, and in a contract for the sale of his shareholding in the company, his intention to resign as a Director of the company and from his role as Managing Director. This was also noted in the abovementioned Circular Resolution. RESOLVED to appoint Mr Andrew White as Managing Director/CEO of the company on a fixed six month contract. An Employment Agreement to be executed containing the following broad terms. Appropriate legal advice to be obtained by both the company and Andrew White. Salary of $250,000 for the six months ($500,000 pa) payable fortnightly. In addition to this a Bonus for meeting performance targets as follows a. Obtaining Finance of $35m on terms approved by the Board - 200,000 Ordinary Shares b. Extension of the Federal Government Grant on Board approved terms - 200,000 Ordinary Shares c. Securing BDI Contract on terms approved by the Board - 200,000 Ordinary Shares d. Executing contracts with PDF for plant construction on terms approved by the Board - 200,000 Ordinary Shares e. Obtaining acceptable tenure of land and relevant Council and Environmental Approvals on terms approved by the Board - 200,000 Ordinary Shares The board acknowledged the existence of Chapter 2E of the Corporations Act and believe that in the circumstances of the Company and the Company's current objectives and given the role that Mr White will be undertaking as CEO that the proposed remuneration is reasonable.' The Board resolved to relocate to Albury. 168 The Board considered the following: 'c. Project financing i. ANZIS The last formal offer of finance from ANZIS contained an offer for equity at 20c per share and also contained a number of conditions precedent (that cannot be met) together with an unacceptable fee structure. Andrew White to increase significantly the rigor and commerciality of the negotiations with ANZIS with a view to securing project finance with ANZIS. It was noted that the terms of the Grant with the Federal Government require ANZIS funding of $10m in equity and total approved finance of $35m. ii. Argent Meetings to be held with Argent in London, UK next week to ascertain their genuine intentions and interest, their ability to provide real assistance in the project and the nature of their relationship with BDI. d. Land acquisition i. Wangaratta The Council has issued a Notice of Decision to Issue a Planning Permit (subject to various conditions in relation to Environmental and other matters that are able to be complied with). An objection to that Decision has been referred to the Victorian Civil and Administrative Tribunal (VCAT) on a number of grounds. Andrew White to pursue the acquisition of land and relevant town planning and works approvals and engage legal and consulting assistance, as required. ii. Barnawartha A panel to review the Application for Special Purpose Zoning will be convened in July. This will provide a binding decision on the Barnawartha site. iii.Other Options It was agreed that we should pursue other land options to ensure we are able to commence construction by December 2005 latest. e. Government Grant The contract for the Government Grant has been signed. It contains timelines that we are unable to meet. The first milestone is 31 May 2005 which requires executed contracts with BDI and PDF. Andrew White and John Clarke from ANZIS met with AusIndustry on 27 May 2005 to advise them of the changes to the Management and Board of BPL that were underway and to update them of the status of the business. AusIndustry have indicated they will be flexible in their approach to the timelines as long as genuine progress is being made in the business and in the Biofuel project. BPL is to provide a written update of the changes in the business and on the status of the project. AusIndustry also reminded BPL of the Reporting requirements of the Funding Program. f. BDI relationship and contract Correspondence has been received by Dennis Barron advising that BDI are now pursuing alternative partners for further plants in Australia. This is a major issue for BPL and compromises seriously the long term potential of the business. We also do not have a signed contract with BDI notwithstanding that we have paid an estimated $2.5m for concept drawings and preliminary details about the plant and the process. This is critical to the viability of the business and Andrew White will pursue all avenues to obtaining a contract for the plant at Wangaratta or Barnawartha and further to negotiate exclusivity for Australia. It was noted that a number of investors and stakeholders have always understood that BPL held an exclusive licence for Australia for the BDI technology. g. PDF relationship and contract This contract is not understood by the company at this point and remains an issue to be reviewed and negotiated in detail and with the proper legal assistance. It is understood that significant money may have been expended on this (and/or the BDI contract) and the status of any advice or draft agreements needs to be ascertained.' 169 On 8 June 2005 Mr Andrew White wrote to the first respondent in the following terms: 'Dear Tony Re: Removal as Company Secretary On Monday 6 June 2005 the Board of Directors of Biodiesel Producers Limited resolved to remove you as Company Secretary of Biodiesel Producers Limited with effect from closure of the board meeting. Would you please arrange for the company register and all books (as defined in the Corporations Act) of Biodiesel to be returned to the company by delivering such information to Mr. James Harris at 15 Ord Street, West Perth by 15 June 2005.' 170 On 9 June 2005 the first respondent was appointed Finance Manager of Clinipath Pathology effective 1 July 2005 on a salary of $136,385 'including minimum superannuation guarantee contribution'. The offer was for permanent employment. He accepted the appointment on 15 June 2005. On 17 June 2005 Hardy Bowen wrote to the first respondent requesting the return of all the applicant's books. Thereafter, correspondence ensued between the solicitors for the applicant and the first respondent. 171 On 27 June 2005 the first respondent's solicitors wrote to the applicant's solicitors stating: 'Further, while the Board is considering that, perhaps they could indicate whether they do in fact repudiate Mr Stewart's contract.' 172 The applicant's solicitors replied on 29 June 2005 and in answer to the question posed above said: 'The contract is amongst Biodiesel's books and records which Mr Stewart holds. None of the current directors have seen a copy of it. I am accordingly not in a position to deal with the question of the contract at this stage - but I will take instructions and write to you about it shortly after the books and records are retrieved.' 173 On 6 July 2005 the applicant's solicitors wrote to the first respondent's solicitors: '2. I have reviewed the "Executive Service Agreement" and the file of directors minutes. Clause 2 of the Executive Service Agreement provides as follows:- "2. Conditions This Agreement is conditional on the: (a) The Company and ANZIS reaching financial close for the funding of the biodiesel plant; (b) The commencement of operations of the biodiesel plant; and (c) the ratification of this Agreement by the board of directors of the Company." 3. My review of the directors minutes, and circular resolutions, discloses that the Executive Service Agreement has not been ratified by a meeting of the board of directors. Given my concerns as to the completeness of the Biodiesel books and records, would you confirm that there has been no ratification, or if Mr Stewart says there has, when and how did that occur. If ratification has not occurred, is there any reason why the question of ratification should not be considered at an upcoming board meeting? Does Mr Stewart say that the Agreement should be ratified, and if so, could you let me have whatever submissions Mr Stewart wishes to make in favour of ratification.' 174 The Board of BPL met on 18 July 2005. In attendance were the new Board members consisting of Mr Curt Leonard (Chairman), Mr Andrew White, Mr James Harris and Mr Rae Davison. The minutes record that the resignation of the second respondent as managing director was accepted. The Board discussed the performance shares and the circular resolution. The minutes record: '6. Current Issues a. Mr Tony Stewart - Employment Contract Mr Stewart's position was discussed at the last meeting and minuted that Mr Harris and Mr White would investigate the claims and all matters relevant to Mr Stewart's position with the company and claims against the company. Some of these were detailed in letters from Mr Stewart dated 30 May 2005 and from Mr Stewart's lawyer - Mr Martin Bennett dated 12 May 2005. A letter was forwarded to Mr Stewart's lawyer on 6 July 2005 requesting his views on whether his Employment Contract had been ratified as required under its terms and if not what submissions Mr Stewart could provide to warrant its ratification. No response has been received on either question. Mr Stewart's performance has been unsatisfactory and he does not hold the confidence of the Board for a range of reasons including those discussed at the last meeting. RESOLVED The Employment Agreement of Mr Anthony Stewart is not ratified and he be advised accordingly. b. Mr Tony Stewart/Mr Dennis Barron - Performance Shares The Circular Resolution marked 30 November 2004 was tabled and reviewed. The Resolution purported to provide rewards for performance to Mr Barron and Mr Stewart for the achievement of certain milestones with the ultimate possibility of rewarding them with 9 million and 5.5 million shares respectively. Noted by Messrs Leonard, White and Harris that this level of reward was unusually high. It seemed exorbitant given the stages of development of the company at that time and currently and that a number of representations had now proven to be untrue. The circular resolution was also not clear as to time frames for achievement of the milestones. In discussion it was submitted and agreed that the Resolution was unsatisfactory in its terms. It should be modified to be commercially realistic and properly reflect achievements of the individuals and their personal efforts. Mr Davison submitted that he had signed the resolution based on representations that a number of the milestones had been achieved or were imminent. On that basis, that is, the milestones that had been achieved to date and on the time frames he was told, arguably the level of shares could be satisfactory because the performance could be argued as outstanding. However, since that time, he had discovered that a number of things had not occurred or were not true. This included BPL not having exclusivity for Australia with BDI, no agreement for funding with ANZIS or ABN Amro, the Barnawartha land was not secure and was subject to a number of objections which ultimately led to a VCAT hearing which BPL lost under Mr Barron's and Mr Stewart's direction. Also noted that all of the Performance Shares had been issued in January 2005. At this point, none of the milestones had been achieved and the shares had possibly not been paid for. RESOLVED To seek an order from the Court setting aside the issue of Performance Shares and rectifying the company's Register of Members. RESOLVED Clarify or amend the circular resolution of 30 November 2004 so that the Performance Criteria were to be satisfied by the dates following:- a) Raising the capital by 31 December 2004; b) Completion of construction of the Biodiesel Plant by 31 December 2005; c) NPAT of $6,000,000 by 30 September 2006, Or within a reasonable time thereafter, and imposing the condition on the issue of the Performance Shares that:- d) In the case of the issue of Performance Shares to Mr Stewart, in the reasonable opinion of Biodiesel Board, Mr Stewart had played a significant part in the satisfaction of the Performance Criteria; e) In the case of the issue of Performance Shares to Mr Barron, in the reasonable opinion of Biodiesel's Board, Mr Barron played a significant part in the satisfaction of the Performance Criteria. FURTHER RESOLVED to seek a Curial Declaration that BPL is entitled to clarify or amend the conditions of its issue of Performance Shares (contained in Annexure A) in this way.' 175 The applicant commenced this proceeding on 27 July 2005 seeking the following relief on the claim: '1. An order setting aside the issue of Performance Shares as defined in the Statement of Claim. 2. An order rectifying Biodiesel's register of members pursuant to Section 175 Corporations Act. 3. An order pursuant to Section 1317H Corporations Act. 4. A declaration as to the true construction of the Circular Resolution. 5. A declaration that Biodiesel is entitled to clarify or amend the Circular Resolution in the manner referred to at paragraph 10 of the Statement of Claim.' 176 On 19 August 2005 the applicant and the second respondent executed a Deed under which the applicant paid the second respondent $480,000 in exchange for the second respondent resigning as an employee of the applicant. It was a term of the Deed that the second respondent would file an appearance in this proceeding and 'a notice to effect that he proposes to take no part in the Proceedings and that he will abide the outcome of the Proceedings'.

Evidentiary Issues 177 It will be necessary, because of the issues which the parties have agreed are raised by the pleadings, to have regard to the witnesses' evidence on a number of issues; the circumstances in which the Executive Service Agreements were executed; the advice received by the first respondent from Mr Paterson on 1 July 2004; the circumstances surrounding the three Board meetings in November 2004 including the advice received by the first respondent from Mr Paterson on 9 November 2004; the taxation advice received from Mr Burgess by the first respondent in November 2004 and, in particular, on 29 and 30 November; the circumstances surrounding the passing of the circular resolution; the circumstances giving rise to the subscription agreement; the matters leading up to the Board meeting of 24 March 2005; the events between 25 March 2005 and 6 May 2005; the further events until 8 June 2005; the dismissal of the first respondent on 8 June 2005 following the Board meeting of 6 June 2005; and the Board meeting of 18 July 2005.

Witnesses 178 The applicant called Dr McCully, former Chair of the applicant, Mr Pearce, a former director of the applicant, and Mr Davison, who was a director at the relevant time and who remains a director of the applicant. All three were very good witnesses. At the beginning of his evidence Dr McCully was nervous but gained confidence during the giving of his evidence. I am quite confident that all three witnesses were attempting to assist the Court in reaching a just result. I accept their evidence. 179 The applicant also called Mr White, who is now the managing director of the applicant. He was defensive and clearly uncomfortable with the matters put to him in cross-examination as to how he had obtained his shares and positions since the resignation of the second respondent and the dismissal of the first respondent. However, his evidence on the more relevant matters relating to the progress of the applicant after June 2005 was not challenged nor contradicted. 180 The applicant also called Mr Beames of ANZIS. His evidence was mainly directed to the work performed by the first respondent. He was a good witness and I accept his evidence. 181 Both respondents gave evidence. I was impressed by the evidence of the second respondent. Even though he was a respondent he had no interest in the proceeding when it came to trial. I gained the distinct impression that he was truthful and doing his best to assist me in the resolution of this matter. His answers were direct and relevant. He did not attempt to avoid any question. I accept his evidence. I prefer his evidence to the evidence of the first respondent. 182 The first respondent was not a good witness, at least not as good as any of the other witnesses who were able to give evidence of the same events as he did. The first respondent was defensive. His answers were sometimes non-responsive and were sometimes argumentative. He contradicted himself. I accept the criticisms of his evidence as detailed in the applicant's written submissions. I would describe his evidence as being of a lesser quality than that given by the other witnesses. 183 On some matters I do not accept his evidence. In particular, I would not have accepted his evidence of the hours he worked for the applicant from June 2003 or, more relevantly, from 1 December 2004. On that topic I would have accepted the evidence of Mr Beames and Mr White. However, for reasons which I will give, I do not need to address that matter. 184 Where his evidence conflicts with the evidence of the second respondent or the applicant's witnesses, I prefer the evidence of those other witnesses to his. I only accept his evidence insofar as it is consistent with the evidence of the other witnesses. 185 Three expert witnesses were called. The most impressive of those witnesses was Mr Costello, who was called by the applicant and who gave his evidence by video link. 186 In the end, however, I do not need to address the issues upon which the experts gave evidence. One aspect was abandoned by the applicant. The other does not fall to be decided. If I had had to decide that issue, I would have relied upon Mr Costello's evidence and only accepted the other experts' evidence where it accorded with Mr Costello's. Both of the experts, whose evidence I would not accept, made an error in their valuation technique which made me doubt their judgment

The Executive Service Agreement 187 The Term Sheet distributed on 11 November 2003 contemplated that the respondents would be employed on contract for five years and the second respondents paid $190,000 and the first respondent $140,000 plus superannuation. The draft shareholders agreement, and later the executed shareholders agreement, contemplated that 'an executive services agreement' would be entered into between the applicant and the respondents: clauses 14.2(b) and 14.3(b). 188 The first mention of any such agreement appears to be at the Board meeting of 26 February 2004 but in the context of another potential employee. 189 The first respondent's evidence was that in early 2004 he requested Mr Paterson to provide a standard contract which would be suitable for the respondents' employment contracts. He circulated the drafts on 2 March 2004. The first respondent said that the Executive Service Agreements were effectively ratified at the Board meeting on 26 February 2004 when Dr McCully said something to the effect that the respondents ought to protect themselves against ANZIS. The first respondent's Executive Service Agreement, he said, was approved by Mr Clarke in Mr Clarke's email dated 10 March 2004. 190 The first respondent had a substantial input into the content of the Executive Service Agreement. 191 Dr McCully was able to recall receiving the draft Executive Service Agreements which he discussed with Mr Davison. His memory was that they were both satisfied or, as he put it, 'happy' with the documents. His memory was that he signed the documents at a Board meeting but he could not remember which Board meeting or whether the documents had already been signed by the respondents. He was not able to say whether the Executive Services Agreements were signed prior to the shareholders agreement on 20 April 2004. Dr McCully's evidence is that he thought the agreements appropriate. 192 Mr Pearce remembers that two draft Executive Service Agreements, or employment contracts as he called them, were circulated to the Board on 2 March 2004 prior to the execution of the shareholders agreement. He said that his view was as contained in the email to Dennis Barron on 24 March 2004, to which I have earlier referred. He thought independent advice ought to be obtained. 193 Dr McCully was not aware that Mr Pearce had suggested that a remuneration consultant be engaged to advise whether the remuneration to the respondents was fair. If he had been aware of that he would have requested a review by a remuneration consultant and would not have signed the Executive Service Agreements. 194 Mr Davison remembers receiving the Executive Service Agreements from the first respondent some time in April 2004. He noted that they had been prepared by the applicant's solicitors and his usual practice was to rely on documents prepared by the applicant's lawyers or accountants. 195 He said that the execution of the Executive Service Agreements had not been authorised by resolution of the Board of the applicant prior to execution nor were they ever ratified by the applicant. He was present at the meeting of the Board on 18 July 2005 which resolved not to ratify the first respondent's Executive Service Agreement. 196 Mr Pearce said he heard nothing more of the Executive Service Agreements and was not aware that they had been signed by Dr McCully and Mr Davison. He only became aware of the execution of those Executive Service Agreements some time in October 2004 when he returned from an extended trip to the United Kingdom. He said that up until that time he assumed the agreements 'had not been progressed or executed'. If the agreements had been taken to the Board he would have pressed his view that they ought to be subject to an independent review by a remuneration consultant. 197 The first respondent said the Executive Service Agreements were signed in or about May 2004. He said that Mr Pearce did not object after he learned that the Executive Service Agreements had been executed by Dr McCully and Mr Davison. 198 The draft Executive Service Agreements were circulated on 2 March 2004. The only director to respond was Mr Pearce who suggested they be subject to an independent review. The Executive Service Agreements could not have been ratified at the meeting of 26 February 2004 because they had not been seen by the directors at that time. What Dr McCully said could not amount to ratification by the Board. Mr Clarke marked up the draft Executive Service Agreements on 10 March 2004. However, Mr Clarke was not in a position to approve or ratify those agreements. He was an outsider. It was for the Board to resolve whether it wished to enter into these agreements. The Executive Service Agreements were being considered at the same time as the shareholders agreement. On 16 March 2004 Mr Paterson wrote to the first respondent advising that the proposed shareholders agreement was not adequate and not in an acceptable form for execution. The first respondent did not communicate that advice to the Board. The Executive Service Agreements were signed probably some time in May 2004. As I have said earlier, I think that follows from the reference to the agreement in the recital, although it is a reference to the Heads of Agreement not the shareholders agreement. 199 The Executive Service Agreements were largely in accordance with the provisions of the shareholders agreement and previous Term Sheet and, indeed, the Heads of Agreement. 200 The material matter contained in the Executive Service Agreements is contained in clause 13 which provides that in the event that the first respondent's employment is terminated he is entitled to be paid for the full period. 201 In my opinion, even on the first respondent's own evidence, that was never brought to the attention of the Board. It was not brought to the attention of the Board at the meeting of 26 February 2004 or, indeed, at any other meeting of the Board after that time. It was brought to the attention of members of the Board by the circulation of the draft Executive Service Agreements on 2 March 2004 but that is as much notice as was given. 202 Mr Pearce's comment was not brought to the attention of the other directors. Mr Davison's unchallenged evidence was that he was unaware of Mr Pearce's comments. Dr McCully and Mr Davison were never aware that Mr Pearce thought that the Executive Service Agreements should be submitted to an independent remuneration consultant. If Dr McCully had been aware of that view he would not have signed the document. 203 The Executive Service Agreements were not ratified by the Board prior to 8 June 2005. On 18 July 2005 the Board resolved not to ratify the first respondent's Executive Service Agreement.

Mr Paterson's advice of 1 July 2004 204 The first respondent admitted that he received this advice. The advice was not communicated to the Board. It was Mr Stewart's evidence that it was not communicated to the Board because he received an instruction from Mr Barron. It was the third piece of important advice that the first respondent had not communicated to the Board. He had not told the Board of Mr Paterson's advice of 16 March 2004 in relation to the inadequacy of the shareholders agreement. He had also not told the Board of Mr Pearce's comments in relation to the Executive Service Agreements. Dr McCully and Mr Davison had signed those documents without knowing that Mr Pearce had suggested the agreements be reviewed by an independent remuneration consultant. The Board executed the shareholders agreement without knowledge that their solicitors had offered the opinion that the document was not adequate and did not address matters of substance. 205 In this case, the Board was not acquainted with the two pieces of information relating to the variation of rights and the provision of a financial benefit to a related party in Mr Paterson's email of 1 July 2004. Mr Stewart said that he had communicated the advice to Mr Barron and he was instructed, he said in cross-examination, not to acquaint the Board with the knowledge. 206 Mr Barron's evidence-in-chief (which was in written form) did not address either of these advices from Mr Paterson, although he did say in his evidence-in-chief that he had read the advice in Mr Paterson's email of 9 November 2004.

The circumstances surrounding the three Board meetings in November 2004 including the signing of the circular resolution 207 There were three Board meetings in November 2004; on 4, 17 and 30 November. The minutes of the first two meetings lack detail. There are no minutes at all of the meeting of 30 November. It was the first respondent's responsibility as company secretary to keep the minutes of the Board meetings. 208 On 30 September 2004 the Board had resolved not to extend the shareholders agreement and ANZIS had been informed of that matter in early October. ANZIS responded in two ways, as the documents show. First, it approached BDI contrary to the applicant's interests. Secondly, and at the same time, it offered significant inducements to the respondents in an endeavour to persuade the respondents, no doubt, to convince the Board to continue with ANZIS as the financier. 209 At the 4 November Board meeting the situation with ANZIS remained unresolved. It is in that context that the question of the allocation of shares to the respondents and their remuneration was discussed at that meeting. That matter and the remuneration for past services were, no doubt, matters of concern to the respondents. That was the reason for instructing the first respondent to obtain a circular resolution. No doubt a circular resolution was thought to be appropriate because there was to be no Board meeting before the Annual General Meeting. 210 The first respondent approached Mr Paterson with the draft circular resolution which had been provided to him by Mr Paterson on 1 July 2004. It had been in the contemplation of the directors since before the execution of the Heads of Agreement that the respondents would be issued with performance shares. I think there was, as Mr Barron said, confusion about the description of the shares which were to issue, but I do not think there was any confusion about the number, or the reasons for the issue, of the shares. The description of the shares changed from time to time. Sometimes they were wrongly called founder shares. Sometimes they were called free carry shares. 211 The second respondent had been issued founder shares. Those shares were issued to reward him for the ideas which the applicant adopted. The performance shares were to issue to induce the respondents to perform such as to cause the applicant to achieve the milestones contemplated in the performance criteria. 212 The first respondent was instructed to obtain a circular resolution for the consideration of the Board. There is no company record of the instruction given to the first respondent in relation to the content of the circular resolution. I find that the instructions generally were that the circular resolution would be in accord with the Heads of Agreement and the provisions of the shareholders agreement. That was the thrust of Dr McCully's evidence and also the evidence of Mr Barron. I do not think the instruction was that the circular resolution had to mirror the contents of the shareholders agreement. 213 On 9 November 2004 the first respondent met with Mr Paterson who provided the first respondent with his advice in relation to the Annual General Meeting which was to take place on 30 November 2004. 214 This was the second time Mr Paterson had given advice in relation to the two topics raised in the email. That advice was never provided to the Board or any other director, apart from the second respondent. The first respondent, who well understood the advice, made a conscious decision not to report the advice to the Board. There is no doubt that the first respondent understood the advice given by Mr Paterson. He said in his cross-examination that he withheld the advice from the Board because it was his view that the shares were issued at arms length and because the performance shares had always been earmarked for the respondents. He said he discussed the matter with the second respondent who instructed him that the matter was irrelevant. 215 The first respondent was re-examined on this topic and his evidence became quite unsatisfactory when it was put to him that he had said in his cross-examination that he and Mr Barron had decided not to put the advice to the Board. When asked for an explanation he said: 'Well, basically because the shares that had been promised to Mr Barron had been arrived at in the very early days around - between - somewhere - March to June 2002 in discussions with Grange Consulting and basically reflected remuneration - or reward for Mr Barron bringing the biodiesel project to BPL. It was through Mr Barron that BPL had the relationship with BDI, the Austrian technology provider, and it was recognised that Mr Barron should be rewarded by the issue of founder shares, and it was agreed that he should receive those founder shares upon the attainment of various milestones which were outlined in the information memorandum.' I then said: 'Mr Stewart, that explains what was to happen and the circumstances why the shares might issue, but did it occur to you on this aspect and on the previous aspect to which Mr Bennett has drawn your attention that the board was entitled to be fully informed before it made its decision?---Well, in relation to--- The question is quite straightforward?---Okay. I was instructed by Mr Barron that there was no need to take it to the board.' I said: 'But that would be the very reason to take it to the board, wouldn't it, because it conferred a benefit on Mr Barron?---Well, it was unnecessary to take it to the board because the shareholders agreement was still running. All shareholders agreed that those shares were to be issued and the ---' 216 I reject Mr Stewart's evidence. The advice was relevant and should have been provided to the directors so that they could consider the resolution having regard to that advice, especially so that they would meet their responsibilities under the Corporations Act. The directors should have been advised that the issue of shares to the second respondent was governed by Chapter 2E of the Corporations Act and, unless the shareholders' approval was obtained for the issue, the directors needed to be satisfied that the company and the second respondent were dealing at arms length. 217 The first respondent had two opportunities to advise the Board of the advice of 1 July and 9 November at the Board meetings on 17 and 30 November. If the Board had been advised of Mr Paterson's advice, the circular resolution would not have been signed. Dr McCully said he would have only considered signing it after taking advice. Mr Davison and Mr Pearce both said they would not have signed the resolution. Because the second respondent had an interest in the resolution and could not validly participate, it follows that if the first respondent had communicated Mr Paterson's advice, twice given on 1 July and 9 November 2004, to the Board the circular resolution would not have been approved by the Board and signed by the applicant's directors. 218 Both respondents were under a duty to communicate Mr Paterson's advice to the Board. It is right, as was contended, that Mr Paterson's advice did not impact directly upon the issue of performance shares to the first respondent. He was not a related party: s 228. Therefore, s 208 did not apply in his case. 219 However, that is not to the point. The subject of the issue of performance shares was part of one transaction. The second respondent had agreed that the performance shares to which he should otherwise be entitled were to issue to the first respondent. 220 It was inconceivable that performance shares might issue to the first respondent and not to the second respondent. The first respondent did whatever he did at the direction of the second respondent. It would not have been contemplated by anyone that performance shares ought to issue to the first respondent and not to the second respondent. 221 It was therefore in the first respondent's interests that the circular resolution in which both respondents benefited be passed. The first respondent must have known that if the Board resolved not to proceed with a resolution to issue performance shares to the second respondent the Board would also not proceed with a resolution to similarly benefit him. 222 No circular resolution was produced at the Board meeting of 17 November 2004. If the minutes are accurate, the subject matter was not discussed. 223 On 29 and 30 November 2004 the first respondent received the advice from Mr Burgess, after a meeting with Mr Burgess on 23 November 2004. The tax advice was relevant in that it showed the two stage process for conversion contended for by the respondents. This advice follows Mr Burgess earlier advice on 14 October 2003. 224 Mr Burgess assumed in his 30 November advice that the respondent would receive 'promoter' shares which would convert into a predetermined number of ordinary shares upon achievement of milestones. If the milestones were not achieved the shares would convert into a nominal number of ordinary shares. Importantly, he assumed the promoter shares would issue when the applicant had a nominal market value. In that way the tax effect would be minimal. Conversion into B Class shares would not give rise to Capital Gains Tax. 225 A considerable body of evidence was directed to the taxation implications affecting the structure of the resolution. I think that the taxation implications were important but probably only from the respondents' point of view. There is nothing to indicate that the directors, apart from the second respondent, had any regard to the tax advice at all. The tax advice supports the first respondent's contention that the performance shares issue in the first instance and when the applicant was of minimal value. They then convert in later tax years. 226 The Board meeting of 30 November 2004 was held immediately before the Annual General Meeting. All directors attended. There are no minutes of that meeting. 227 At the meeting the second respondent instructed Dr McCully on his presentation for the Annual General Meeting which was to be held. He also reported on the funding agreement with ANZIS and I think, for the reasons already given, produced to the meeting the two documents entitled 'ANZIS EQUITY PROPOSAL 29 NOVEMBER 2004' and 'WHAT ARE THE REASONS TO GO WITH ANZIS'. 228 Mr Davison said that he was firmly against proceeding with ANZIS. Mr Pearce also indicated that he was not in favour. The second respondent said that the deal which had been negotiated was a very good deal and eventually the Board agreed to accept ANZIS' proposal. 229 At some stage during the meeting Dr McCully recalls being given the circular resolution which he signed without any discussion. Dr McCully's evidence was that he thought the issue of performance shares was part of the proposed transaction between the applicant and ANZIS. Mr Davison cannot recall signing the circular resolution but does not deny that he did so. Mr Pearce can also not remember signing the circular resolution but also agreed that he did. He has no memory and nor has Mr Davison of any discussion about performance shares. 230 On 30 November 2004 the directors also resolved to accept ANZIS' offer contained in its letter of 29 November. In those circumstances, the circular resolution had to be in a form which broadly reflected the agreements which had previously been reached with ANZIS otherwise negotiations with ANZIS would be jeopardised. 231 It was to the respondents' advantage that the directors resolve in accordance with the circular resolution as at 30 November 2004 because thereafter, in any negotiations with ANZIS, the issue of the performance shares was a fait accompli rather than a matter for negotiation, although as events show some amendments were made to the circular resolution in the subscription agreement. 232 It was for those reasons that it was important for the respondents that the resolution be adopted by the directors at the same time as the directors resolved to accept ANZIS' latest proposal. 233 The applicant contended that the Board should have been advised of the differences between the shareholders agreement and the circular resolution in relation to performance shares. 234 Clause 1 of Schedule 3 of the shareholders agreement contains the definitions for Schedule 3. Clause 1 of Annexure A to the circular resolution defines the terms in the circular resolution. Some of the definitions in Schedule 3 have not been repeated in Annexure A, e.g. 'sustainable NPAT', probably because the definition played no part in Schedule 3 itself. The differences in the definitions are immaterial. 235 Clause 2 of Schedule 3 provides for the issue of the shares. There is a typographical error where it talks about the issue of the shares 'as Details' in the table below. Not only is that a typographical error, but it gives rise to a latent ambiguity. In the circular resolution the ambiguity is removed to the extent that the clause talks about issuing the performance shares 'on achievement of the performance criteria'. Whilst that deals with the ambiguity in Schedule 3, it creates its own ambiguity to which reference has to be made. 236 There are four performance criteria in Schedule 3 and only three in Annexure A. In Schedule 3 there are two criteria in relation to Net Profit after Tax. Moreover, the performance criteria are different. In Schedule 3 the first criterion is the satisfaction of the conditions precedent in the shareholders agreement. The conditions precedent are in favour of ANZIS. There are two conditions precedent, ANZIS being satisfied with its due diligence and all final documentation being satisfactory. In Annexure A the first criterion is Raising of Capital. The number of performance shares which was to issue when the first criterion was achieved was different. In Schedule 3 the first respondent would receive 500 performance shares. In Annexure A the first respondent would receive 3,000. Annexure A is more favourable to the first respondent than Schedule 3. In Schedule 3 the shares would convert to B Class shares on one of two events; where the performance criteria have been met or a Drag Along Notice is issued. In Annexure A the performance shares would convert 'when the performance criteria in clause 2 are satisfied'. 237 In Schedule 3 the B Class shares are defined to be the B Class shares in the shareholders agreement. B Class shares are defined in the shareholders agreement: ' "B Class Shares" means shares with the rights of ordinary shares in the capital of the Company with the exception of the rights referred to in clauses 12.2, 12.3 and 12.4 and includes the 7,500,000 ordinary shares currently issued to Barron or associated parties.' 238 Clauses 12.2, 12.3 and 12.4 provide: '12.2 Return on Investment (a) The Seed Capitalists and ANZIS shares issued pursuant to Clause 4.1 are entitled to a Threshold Return before any Distributions are made to the B Class Shareholders; and then (b) The B Class Shareholders are then entitled to their pro-rata share of Distributions; and thereafter (c) Any cash lawfully available for Distribution shall be distributed to the A Class Shareholders and B Class Shareholders pro-rata. 12.3 Distribution Policy (a) The distribution policy for the Company shall be that 100% of the cash lawfully available for distribution (as determined in accordance with the Financial Model) is distributed either by return of capital, including through share issue and buy-back, or dividend after the Directors have made proper allowance for reserves in accordance with their duties and any necessary shareholder or regulatory approvals are obtained. (b) In considering whether to resolve to make any distribution the Directors will have regard to the requirements of the law, including in relation to solvency issues and procedures for the declaration of a dividend or the reduction of capital. (c) The Company or the A Class Shareholders are not entitled to claw back any distribution once it has been made notwithstanding that the Threshold Return of the Class A Shareholders may not be met in future years. 12.4 Distribution reduction (a) The Financial Model will be applied at each distribution date, or such other date as the Board agrees, to determine the IRR of the A Class Shares and B Class Shares for the Project based on the relevant proportion of the Distributions generated by the Project. (b) The Distributions to B Class Shareholders will be reduced or cease if for any reason the level of Distributions paid to date or forecast to be paid (including undistributed free cash) for the period in accordance with the latest Financial Model causes the returns to A Class Shares to fall below the Threshold Return. (c) Distributions to the B Class Shares will only resume, in full or in part, when the A Class Shares achieve the Threshold Return. (d) The Shareholders agree and the Directors must not retain profits for any other reason other than to make provision for future losses.' 239 In the circular resolution, Annexure 2 deals with the terms of B Class shares. The rights attaching to the B Class shares in the shareholders agreement and the B Class shares in Annexure 2 are not the same. For example, in Annexure 2 the B Class shares will convert to one share when either of the events in clause 4 of Annexure 2 occurs. Those events being the Minimum Return being achieved or the applicant undertaking an initial public offer and achieving listing on the Australian Stock Exchange. The Minimum Return in Annexure 2 is defined to mean an IRR of 12.5%. An IRR is an internal rate of return calculated using the combination of actual distributions and the Financial Model. 240 The applicant's contention that the circular resolution is not in accord in all respects with Schedule 3 of the shareholders agreement and the shareholders agreement is correct. The contention that the circular resolution offered the respondents advantages not offered by the shareholders agreement is also correct. 241 In those circumstances, the applicant's contention that the Board needed to be fully informed of the terms of the circular resolution and how it differed from the shareholders agreement into which the applicant had previously entered should be accepted. 242 I find that the circular resolution was signed by the directors on 30 November 2004. There was no discussion about performance shares nor any discussion about the contents of the circular resolution. The circular resolution was signed in circumstances where a presentation was to be made to the Annual General Meeting which indicated that the applicant had made considerable progress in relation to its project. It was signed in haste. 243 I repeat that no member of the Board was ever advised of Mr Paterson's advice of 1 July or 9 November 2004 prior to the signing of the circular resolution. It was not, of course, brought to the attention of the shareholders at the Annual General Meeting nor was its contents. The Board was not advised of the differences between the shareholders agreement and the circular resolution.

The circumstances giving rise to the subscription agreement and the issue of the performance shares 244 There was only one Board meeting between 30 November 2004 and the signing of the subscription agreement. That occurred, as I have said, on 14 December 2004 at Cambria Island Retreat, Mandurah which was also the occasion of the Board's Christmas party. The meeting was very quick. It commenced at 6.45 pm and closed at 7.15 pm. As I have already mentioned, the second respondent outlined negotiations with ABN Amro, referred to the BDI contract, the PDF contract, the EPA application and the VCAT case. The minutes do not disclose that ANZIS' position was discussed. 245 It seems remarkable that the Board was not advised of the correspondence which had passed between the applicant and ANZIS in relation to ANZIS' further funding propositions. 246 The subscription agreement was signed by the second respondent on 14 January 2005 without first having obtained the authority of the Board. There is no evidence to suggest that the Board was ever advised that the subscription agreement was to be signed or the terms of it. The subscription agreement was probably signed by ANZIS on 17 January, 18 January or 21 January. The parties treated the subscription agreement as if it had been signed at about that time. 247 The circular resolution which is attached to the subscription agreement is in different terms, although not markedly so, to the circular resolution which had been agreed by the directors on 30 November 2004. That was not brought to the Board's attention either. 248 After the subscription agreement was signed, the first respondent, on 26 January 2005, notified ASIC of the issue of the shares to which I have referred. It was the first respondent's evidence that he believed that ANZIS wanted the performance shares issued before 31 March which was the date of financial close in the subscription agreement. 249 Whilst it was on 26 January 2005 that the first respondent notified ASIC of the change of the company details relating to the issue of the performance shares, the performance shares, according to that notification, issued on '10 January 2004'. The year is obviously wrong, but the date of the issue of the shares is before the signing of the subscription agreement. 250 As I have previously noted, it was important for the respondents to have their position settled so that they were not left to further argue with ANZIS about the issue of performance shares at some later time. 251 For that reason, in my opinion, the first respondent recorded that the shares issued on 10 January 2004 (sic), prior to the signing of the subscription agreement by the second respondent. 252 Although the circular resolution required the performance shares to issue at $0.01, in fact the performance shares were not paid for, in the case of the first respondent, until 29 March 2005 and, in the case of the second respondent, until 31 March 2005, well after the events of the Board meeting of 24 March 2005. 253 I reject the applicant's contention that the performance shares could not issue until such time as the performance criteria were met. I reject that contention because I reject the applicant's construction of the circular resolution. 254 In my opinion, if the circular resolution was valid, and that raises other issues, the first respondent was entitled to cause the performance shares to issue on 10 January 2005 provided that the respondents paid the issue price for the shares. No further resolution or authorisation of the Board was required.

The matters leading up to the Board meeting of 24 March 2005 255 The first respondent's evidence was that he was especially busy in January fulfilling his duties as company secretary of the applicant. That evidence is at odds with the documentary evidence which was tendered at the trial. A close reading of the documentary evidence shows little happening between the execution by the second respondent and ANZIS of the subscription agreement and the Board meeting of 24 March 2005. The subscription agreement was signed in circumstances which suggested particular urgency. It is to be remembered that ANZIS sought two extensions before signing the document. However, nothing much, at least from the applicant's point of view, seemed to have happened after that time. ANZIS, presumably, was continuing with its due diligence, although it might be suspected that ANZIS was waiting to see if the conditions precedent in the subscription agreement could be met. One of the conditions precedent was that the applicant execute contracts and all other necessary documents for the construction of the biodiesel plant with BDI and PDF. 256 The VCAT decision of 22 February 2005 meant that the applicant was without a site upon which to construct any plant as from that date. That meant that there was little or no chance that the conditions precedent in the subscription agreement could be met by 31 March 2005 which also meant that there could not be financial close by that time unless ANZIS was inclined to waive the conditions precedent. On 21 March 2005 that possibility evaporated when ANZIS advised that it formally terminated the subscription agreement. 257 The Board meeting, therefore, of 24 March 2005 was held in circumstances where there was no site available to the applicant; no financier in place; no agreement for the supply of a plant; and no contractor to build that plant. 258 Dr McCully was not present at the Board meeting of 24 March 2005. At that meeting, after the first respondent had provided a report on the applicant's position, Mr Davison said that the present position was completely unsatisfactory and that he doubted the second respondent's ability to bring the project to completion. By this time, the applicant, apparently, had a substantial liability to BDI which it could not meet unless funding was in place. Mr Pearce said he agreed with Mr Davison. He told the second respondent that whilst he was not being critical of him it was obvious that he needed a significant amount of help. It was agreed at that meeting, as the minutes show, that Mr Davison was to take over the management of the applicant. 259 The second respondent said that he was shocked by Mr Davison's 'back-stabbing behaviour' because Mr Davison had contributed so little to the progress of the project. I think that the second respondent would have been shocked. However, I think, in the end, the evidence supports the finding that he acquiesced in the resolution that Mr Davison would take over the management of the company. Whilst the second respondent might have been shocked by Mr Davison's behaviour, to an outsider it appears perfectly reasonable having regard to the applicant's lack of progress over the period since the Heads of Agreement was entered into on 13 October 2003. By 24 March 2005 the applicant was in no better position than it had been at that time. Indeed, in a sense, it was in a worse position. In October 2003 the applicant had executed a Heads of Agreement with ANZIS, a term of which was to move to a shareholders agreement. As well, in October 2003, its relationships with BDI and PDF were better than they were in March 2005. It also understood that it had a site upon which to build the biodiesel plant. Whilst the applicant had a Commonwealth grant it was conditional upon commencement of construction on site by 6 July 2005. Having regard to the absence of funding and contracts with BDI and PDF, that grant was obviously at risk. In those circumstances, it seems almost inevitable that the directors would have taken managerial control from the second respondent. 260 The first respondent did not advise any of the directors that the subscription agreement had been signed by the second respondent and had been submitted to ANZIS for signature. Nor did he advise the directors when the subscription agreement had been executed by ANZIS. More particularly, the first respondent did not advise the Board that ANZIS had terminated the subscription agreement. This is another instance of the respondents failing to communicate with the Board in relation to important and, indeed, essential matters. The Board needed to consider the subscription agreement before it was signed and needed to consider whether it would resolve to execute the agreement. It might have been in similar terms to the letter of offer of 30 November 2004 but that is not to the point. The final form of the subscription agreement needed to be considered by the Board prior to it being executed on behalf of the applicant. But even more significantly, the Board needed to know that the second respondent had executed the agreement and ANZIS had terminated because the conditions precedent could not be met.

The events between 25 March 2005 and 6 May 2005 261 Initially, the second respondent seemed to cooperate with the directors. His email of 25 March 2005 to Mr Davison was conciliatory. 262 However, by 28 March 2005 the second respondent had instructed the first respondent to call a general meeting to remove Dr McCully, Mr Davison and Mr Pearce as directors. Notwithstanding that call, on 29 March 2005 the first respondent wrote to the other directors expressing concern about the treatment that had been given the second respondent. On the same day, the first respondent paid the issue price for the performance shares which had been issued him on 10 January 2005 and, two days later, the second respondent paid the issue price for the performance shares issued him. 263 It is clear that the respondents were trying to get their house in order, as it were, whilst they were in dispute with the directors. On 30 March notice of a meeting of shareholders to remove the other directors was given. 264 The timing was inconvenient so far as the respondents were concerned because, on the same day, the second respondent left for overseas. The first respondent had intended to travel at his own expense with the second respondent to Scotland to inspect the Argent Energy Biodiesel plant at Motherwell. That plant had been designed by BDI with the same capacity as the applicant's proposed plant. 265 Apparently, although there are no minutes of this, the directors met on 1 April 2005. There were probably no minutes because it was not a Board meeting as such. Also present were Mr Kevin Bond, an accountant who was an associate of Mr Harris, who acted as alternate for Mr Pearce and the first respondent. 266 The first respondent said that it became apparent to him that the other directors wanted to sell their shares at a price of about $0.40 per share. He said he spoke to Dr McCully who said that he would sell for $0.50 per share. 267 The first respondent spoke to Mr Beames about the sale. On 7 April he received a call from Mr Clarke who told him that ANZIS and Transocean Securities intended to acquire the shares held by the directors and their associates. 268 During the week that the first respondent was in Sydney, the second respondent instructed the first respondent not to proceed with the acquisition of the other directors' shares. He said that he was uncomfortable about the proposed sale because other shareholders did not benefit. I accept that evidence. I think that the second respondent thought it was inappropriate for the directors to benefit without a similar benefit being offered to the other shareholders. 269 The dispute between the directors and the respondents during April 2005 meant that the applicant had little or no chance of progressing its negotiations with ANZIS and with BDI. The dispute escalated to the point where harsh words were said by Mr Davison to the second respondent and to the first respondent. Eventually, the second respondent met with Mr White on 5 May 2005 who made the second respondent an offer on behalf of Mr Leonard and others to purchase his shares. The second respondent signed the Term Sheet the next day. He agreed to attempt to persuade the first respondent also to exit the applicant but the first respondent was not prepared to sell his interests in the applicant.

The events between 6 May and 8 June 270 The second respondent understood that when he sold his shares his association with the applicant would come to an end sooner rather than later. The first respondent was not, however, initially prepared to sell his shareholding in the applicant. He and his partner owned 500,000 ordinary shares in the applicant. He was offered $480,000 for those shares, his performance shares and any rights he had to his employment contract. He told Mr White that he would not sell because he thought that the shares would be worth $5.5 million by December 2006. Two hours after the meeting with Mr White, the applicant's Board met. All of the directors were present, as was Mr Harris and the first respondent. 271 After Mr White had made the presentation to which I have already referred, the respondents were asked to leave the meeting and when they returned they were presented with the 15 point plan, to which I have also referred. 272 The first respondent said that he told the meeting that the performance shares could not be cancelled without his agreement. He told the meeting he wished to stay in the project. He said that Mr White told him that Mr Clarke of ANZIS had no regard for him. Mr White agrees he said that. He said that Mr White also said that the applicant could be insolvent. Mr White denies saying that and I accept his evidence. Mr White said that the question of administration was raised and Mr White warned those at the meeting that they ought to be very careful before they put the company into administration because of the consequences. 273 It was the first respondent's evidence that Mr White also said that if the first respondent did not accept the offer of $480,000 ANZIS and Mr Leonard would not invest in the applicant. Mr White denies saying that and I accept his evidence in that regard. 274 The first respondent said that he told Mr White that Mr White was holding a gun to his head. Mr White has no recollection of that being said. It is not necessary to make a finding in that respect. 275 The first respondent said that he was also under pressure from Dr McCully and Mr Harris to accept the offer and that if he did not the rescue package would not go ahead. Dr McCully agrees that he said something to that effect. 276 Some time during this meeting the offer made to Mr Stewart was increased to $700,000. The applicant's offer was increased by $20,000. The second respondent offered to contribute $100,000; Mr Davison $50,000 and Dr McCully $50,000. 277 That offer was not accepted but at some time the first respondent indicated that he would accept $800,000 and, some two days later, he received the Term Sheet to which I have referred. I do not think it was ever signed. 278 In those circumstances, it does not matter much what pressure was brought to bear upon the first respondent to induce him to cease his involvement with the applicant. It was not suggested that he was bound by any agreement. 279 I think it is clear that on 9 May the parties understood that the first respondent would accept the offer made of $800,000. That follows, it seems to me, from the oral evidence and also from the objective facts. The Board meeting of 10 May assumes that the first respondent had agreed to sell his shares. 280 Thereafter, the matter proceeded inexorably to the Board meeting of 6 June 2005 which gave rise to the resolution that the first respondent's appointment as company secretary be terminated. On 8 June 2005 the first respondent was advised in writing.

Board meeting of 18 July 2005 281 By this date, the first respondent and the applicant were in dispute about the first respondent's employment contract and his entitlement to shares. This Board meeting was held so that the Board could pass resolutions to protect the applicant's position. That is the reason for the resolution of 18 July not to ratify the first respondent's Executive Service Agreement. That is also the reason for the Board amending the criteria attaching to the performance shares.

The Issues 282 In his opening the applicant's counsel, Mr Stone identified the issues which he said arose on the pleadings on both the claim and the cross-claim. The first respondent's counsel, Mr Bennett accepted that the issues raised in the opening were an accurate identification of the issues on the claim and cross-claim. The identification of those issues means that the pleadings do not need to be addressed in detail although some reference is necessary to better understand the issues. The parties addressed those issues in their closing submissions. Although it was convenient for the parties to approach the matter in this way, because of my findings, it became difficult to make certain assumptions on the issues raised. In respect of one matter, I am not satisfied that the issue is raised on the pleadings. 283 I shall deal with those issues in the same order as counsel but first, I will deal with a matter the applicant's counsel described as a non-issue.

The Non-Issue 284 Mr Stone, in his closing, identified one matter which he said was a non-issue but which, he submitted, had been the subject of considerable cross-examination of both Mr White and Mr Beames and was the subject of evidence of the respondents. Mr Stone described it as the 'irrelevant unpleaded issue'. 285 Mr Bennett cross-examined both Mr White and Mr Beames to establish that Mr White had been opportunistic and had deliberately conducted himself so as to seize control of the applicant by ousting both the first and second respondents. The same matter was put to Mr Beames in his cross-examination. As well, Mr Beames was cross-examined in an endeavour to show that ANZIS had acted badly or, indeed, unethically vis a vis the applicant and the first and second respondents. Mr Stone submitted that both respondents had given evidence of a similar kind in an endeavour, so it was put, to 'influence the outcome (grab the moral high ground)'. 286 The parties, of course, must be confined to their pleadings especially in a case such as this. Mr Stone raised the subject matter of the cross-examination during the trial on more than one occasion and, indeed, early in the first witness', Mr White's, cross-examination. He submitted that these issues had not been raised. The first respondent has not attempted to seek leave to amend the pleadings to raise any further issues. 287 A reading of the considerable number of documents which were tendered tends to give a flavour to both the conduct of ANZIS during the relevant period and of Mr White and others associated with Mr White. 288 The first respondent contended that the applicant was the vehicle to promote the second respondent's ideas and that he and the second respondent put in a lot of time and energy for little reward. He urged me to compare the rewards the respondents obtained with the rewards that Mr White has already obtained and is likely to obtain. 289 I am not sure why so much effort was put into this issue when it did not arise on the pleadings, although it might be thought that it was done, as Mr Stone contended, for the purpose of exciting the Court's sympathy. 290 Sympathy cannot create legal rights or stand in the way of legal rights. Nor should it persuade the Court to pass moral judgments on commercial behaviour. 291 There are good reasons why these issues should not be addressed in these reasons. The issues were not raised on the pleadings and the applicant was not forewarned that the issues were live. The issues were more about the conduct of ANZIS and Mr White than of the applicant or the first respondent. ANZIS and Mr White were not represented in this proceeding and had no inkling that their conduct would be the subject of this kind of scrutiny. The issues which they would have understood they were to give evidence about related to the conduct of the first respondent and perhaps the applicant. Because these issues were not raised on the pleadings, none of the pre-trial processes have been directed to the issues and therefore discovery has not been sought or given. It may be that there are documents not discovered, because they are not relevant on the issues, which would throw a different light upon these matters. 292 The issues were explored, in part, in cross-examination because they were said to be relevant to the credit of the two witnesses. It was permissible, of course, to cross-examine Mr White and Mr Beames upon their credit provided that the evidence had substantial probative value: s 103(1) of the Evidence Act 1995 (Cth). Whilst the evidence is relevant to assess their credit, the issues themselves are not relevant and they do not need to be resolved. 293 I therefore intend to resist the temptation of passing any judgment or making any observation about the way in which ANZIS behaved or about the way in which Mr White came to assume control of the Board and become the Chief Executive Officer of the applicant. I will confine myself, as I should, to the issues raised on the pleadings.

The Abandoned Issue 294 The applicant pleaded in paragraph 8A of its statement of claim that the respondents induced the non-executive members of the Board to reach a common assumption or belief about the prospects of the applicant which, in turn, led to the issue of the 14,500 performance shares. It was pleaded there was in fact a reasonable prospect of the steps relating to finance and construction taking place within the time represented. As a result, it was pleaded it would be unconscionable for the respondents, and in particular the first respondent, to take the benefit of the performance shares. During closing submissions that plea was abandoned. The abandonment was subsequently confirmed in writing.

Construction of the Documents 295 The two documents under consideration (the circular resolution and the Executive Service Agreement) must be construed in accordance with the principles laid down by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. The principles which may be extracted from those decisions are: 1. The subjective beliefs or understanding of the contracting parties are irrelevant. 2. The rights and liabilities of the parties to a contract will be determined by reference to the objective intention of the parties. 3. The common intention of the parties will be discerned by considering what a reasonable person would understand the parties to have intended to have meant by the terms. 4. The documents will be construed having regard to the purpose and object of the commercial transactions. 5. Reference must be made to the text and the context of the terms under consideration. 6. Reference should be had to the surrounding circumstances known to the parties.

Did a circular resolution of BPL's directors (30 November 2004) authorise an issue of Performance Shares to Mr Barron and Mr Stewart (made on 25 January 2005) and if not, what are the consequences? 296 I have already made my findings in relation to the factual matrix in which the circular resolution was created and signed. 297 The controlling resolution in the circular resolution is free from ambiguity. It provides that the directors resolve to issue the relevant number of performance shares to each of the respondents subject to the receipt of the subscription money. 298 The resolution is quite clear. On receipt of the subscription money the shares will issue. The performance shares which are to issue are defined to be the shares in the applicant with the terms contained in Annexure A. 299 Clause 2 of Annexure A, however, is not free from ambiguity. In the heading of the table the clause refers to the number of B Class shares to be issued to the respondents. The applicant contended that the reference to 'number of B Class shares' in the table was an error. It contended that the parties intended the table to refer to the number of 'performance shares' to be issued to the respondents. The applicant contended that that error was addressed by Mr Beames in a consideration of the subscription agreement and the subscription agreement rightly refers to the number of performance shares. 300 The first respondent agreed there was an error in clause 2 but the error was not in the description of the shares but in the numbers of shares to issue. 301 There is another ambiguity contained in clause 2. The resolution was that the performance shares would issue subject to the receipt of the subscription money. The performance shares, as I have mentioned, are the shares with the meaning in clause 2 of Annexure A. The terms in clause 2 do not relate to the terms of the shares but to the terms of their issue. The terms of the performance shares are those contained in paragraphs 3, 4, 5, 7, 8, 9, 10 and 11. 302 The applicant contended that clause 2 meant that the performance shares could not issue until the performance criteria in clause 2 had been achieved. It was the applicant's contention that as each criterion was met the number of performance shares relevant to that performance criterion referred to in the table would issue. That is certainly one way of reading clause 2. However, clause 2 cannot be construed in a vacuum but must be construed having regard to the whole of Annexure A. 303 The applicant further contended that although the performance shares would issue as each criterion was met none of the performance shares would convert to B Class shares until all of the criteria had been met. In that regard, the applicant relied on clause 5 which provides that each performance share will convert into 1,000 B Class shares when the performance criteria in clause 2 are satisfied. The applicant contended that that meant all criteria had to be satisfied. Again, that is a construction that might be given to clause 5. However, clause 5 also must be construed having regard to the context in which it appears. 304 If the applicant's contention were right, it would mean that no performance shares could issue until the first criterion is satisfied. When that first criterion is satisfied the performance shares which would issue would remain as a class of performance shares until all of the criteria in clause 2 were met. 305 The difficulty with that construction is that the issue of the performance shares on the meeting of the first and second criteria has no practical effect because it is not until the third criterion is met that the respondents will become entitled to any B Class shares. Of course, any performance shares that did not convert are almost worthless. 306 The first matter to be decided is whether the error in the table in clause 2 is as the applicant contends or as the first respondent contends. 307 The first respondent's contention should be accepted. The applicant's contention would mean that the issue of the discrete groups of performance shares would depend upon the satisfaction of the discrete performance criteria. The subsequent conversion would only occur when all the performance criteria are met. In my opinion, that is a strained construction. There would be no point in issuing performance shares step by step when the performance shares could only have value if all criteria are met. The issue of the performance shares has no commercial utility on the applicant's construction. The applicant might as well just resolve to issue 14.5 million B Class shares to the respondents on satisfaction of the performance criteria. There is no need to have the intermediate step of the issue of the performance shares. I think that the first respondent's contention is correct that the error in the table is the reference to the number of B Class shares to issue. 308 The other clauses of Annexure A support that construction. Clauses 5.1 and 5.2 speak of the conversion of 'any' performance shares. That would suggest, contrary to the applicant's contention, that the performance shares might convert at different times. 309 Clause 2 of the circular resolution ought to be understood to mean that the performance shares would issue to the respondents for the consideration of the issue price on payment of the subscription money. The circular resolution provides, in my view, that the performance shares should issue immediately or at least on payment of the subscription money which means the issue price. They would convert to B Class shares as each criterion is met. The objective intent of the circular resolution is that when capital is raised, in the case of the first respondent, 3,000 performance shares would convert to B Class shares. On the happening of the next event, the completion of the construction of the biodiesel plant, 1,500 performance shares would then convert to B Class shares. On the happening of the third event a further 1,000 performance shares would convert to B Class shares. 310 Clause 8 expressly recognises the issue of performance shares and a period of time before the performance shares are converted into B Class shares. It speaks of a point of time 'prior to conversion of all the performance shares into B Class shares'. Clause 8 contemplates, contrary to the applicant's contention, that the performance shares could convert into B Class shares at different times. 311 Therefore, in my opinion, the objective intent of the circular resolution is to provide that the performance shares issue immediately. 312 In my opinion, the performance criteria apply for the purpose of determining when it is that the performance shares convert to B Class shares. That is indeed what clause 5 says when it talks about each performance share converting into B Class shares when the performance criteria in clause 2 are satisfied. 313 That is consistent with the resolution which provides that the applicant will issue 9,000 performance shares to the second respondent and 5,500 performance shares to the first respondent. The resolution does not speak of issuing the performance shares in tranches. It speaks of issuing performance shares with terms contained in Annexure A. It is the resolution which governs the issue. Annexure A deals with the terms of the shares once issued. The performance criteria govern the conversion of the performance shares to B Class shares. That is consistent with clauses 3 and 4 which provide that the performance shares have no entitlement to a dividend and are not redeemable. 314 If it were otherwise, it would mean that the respondents could deliver two of the criteria in clause 2 but not be entitled to any recognition by way of shares if they were not able to deliver the third criterion. That is not the purpose or object of the circular resolution. In my opinion, the answer to this issue must be that the circular resolution did authorise the issue of performance shares to the respondents on 26 January 2005. It is the case, as the applicant contends, that the respondents did not pay the issue price at the time of the issue of the shares. However, in my opinion, when they paid the issue price on 29 and 31 March they became entitled to the performance shares. 315 I should add that the applicant did not suggest that the performance criteria regulated both the issue of the performance shares and the conversion to B Class shares such that the performance shares were issued and converted simultaneously. If that were the case, again, there would be no purpose in issuing the performance shares. 316 There is another reason why the applicant's contention is not a commercially realistic construction of the circular resolution. As Mr Burgess' advice shows, there would be significant tax advantages if the performance shares issued when the applicant had minimal value and converted at a later date. If the applicant's contention were correct, the tax advantages would be mainly lost. The parties objectively intended that the respondents have those tax advantages.

Was the circular resolution passed as a consequence of a breach of a statutory or fiduciary duty by Mr Stewart and/or Mr Barron and, if so, what are the consequences? 317 For the reasons I have already given, the first respondent should have and did not advise the Board of Mr Paterson's advices of 1 July and 9 November 2004. 318 The advice given by Mr Paterson did not affect the transaction insofar as it related to the first respondent who was not a person to whom Chapter 2E of the Corporations Act applied: s 228 of the Corporations Act. However, the applicant contended that the circular resolution evidenced the one transaction and therefore the first respondent was in breach of his fiduciary duty for failing to advise the applicant of Mr Paterson's advice relating to the second respondent. 319 The applicant's Board had considered issuing 'Free Carry Shares' or 'Performance Shares' for a period of time before the Heads of Agreement was entered into on 13 October 2003. Originally, it was proposed that the second respondent would be entitled to all of those shares. The first respondent's entitlement arose because the second respondent agreed with him that he could take part of the second respondent's entitlement. Thus, at an early stage, it was contemplated that both respondents would be issued with performance shares which had the same performance criteria. 320 On each occasion the issue arose, certainly after 13 October 2003, it was understood by all parties, including the financier ANZIS, except on one occasion when ANZIS suggested a greater number of shares, that if the performance criteria were met the second respondent would become entitled to 9 million shares and the first respondent 5.5 million shares. It was always assumed that the performance shares would issue to the respondents simultaneously. Indeed, they had to issue simultaneously because the performance criteria attaching to each respondents' shares were the same. In other words, when a performance criterion was satisfied both respondents became entitled to their shares to be issued. In those circumstances, the applicant is correct. The contemplated transaction was one transaction involving both respondents. 321 If performance shares were issued to only one of the respondents and a criterion satisfied, the other respondent would not obtain the benefit of the satisfaction of the criterion. 322 As at 30 November 2004 the respondents were aware, as was the Board, of the latest ANZIS proposal contained in its letter of 29 November. In that letter ANZIS said it believed that the project could achieve financial close by 31 January 2005. It is inconceivable that, if the Board had been told of Mr Paterson's advice of 1 July and 9 November, the Board would have resolved to issue performance shares to the first respondent but not to the second respondent. Indeed, the first respondent agreed that the issue of performance shares to the respondents was never the subject of separate consideration. The consideration was always of the issue of performance shares to both respondents. 323 Mr Paterson's advices were never provided to the Board. The advice was clearly that if the exception in s 210 were to apply it was that the directors who had to form the view that the giving of the financial benefit to the second respondent was at arms length. He said: 'Provided that the directors are comfortable forming the view that the issue of the above shares are at arms length then no shareholder approval is required to issue the shares'. Moreover, the advice given was that the notice of the Annual General Meeting was given on that basis. Mr Paterson was offering the Board, if it had been made aware of his advice, the opportunity to put the transaction to the Annual General Meeting to obtain the applicant's members' approval under s 208 of the Corporations Act. 324 The first respondent understood Mr Paterson's advice. He understood the advice was that it was for the Board to reach a conclusion as to whether the transaction was at arms length. I have already referred to his rather unsatisfactory evidence for failing to provide the advice. He did not give the advice to the Board because he was instructed by the person to whom the advice related (the second respondent) not to. 325 I reject that evidence. The first respondent made a conscious decision not to inform the Board of the advice for fear of jeopardising the passing of the resolution. He knew that if the Board would not approve the resolution to issue performance shares to the second respondent it would not resolve to issue those shares to him 326 It is to be remembered that this was the third time that the first respondent had not advised the Board of Mr Paterson's advice on a material matter, being Mr Paterson's advice of 16 March, 1 July and 9 November. It was the second time that Mr Paterson had given advice on this particular topic. 327 The advice also impacted directly upon each director. The provision of a financial benefit to a director, if not approved under s 208 or not excepted under s 210, gives rise to the potential for a civil penalty: s 209(2). 328 The Board would not have signed the circular resolution if the members had known of the advice. Mr Davison and Mr Pearce both said unequivocally that they would not have signed the circular resolution if they had known of the advice. Mr Davison said he would have required shareholder approval in accordance with s 208. I accept their evidence. Dr McCully would not have signed but would have caused the applicant to seek legal advice. I accept his evidence. Of course, the second respondent also signed the circular resolution. He should not have. First, because he was the beneficiary of the resolution. Secondly, he was aware of Mr Paterson's advice and, even more importantly, aware that Mr Paterson's advice had not been imparted to the Board. For the first reason above, he had to declare his interest and take no part in the consideration of the resolution. 329 In any event, I find the circular resolution would not have been signed if Mr Paterson's advice had been communicated to the Board. Whether it might have passed if further legal advice was obtained is a matter of speculation. 330 The first respondent was the company secretary of the applicant. As such he was an officer of the applicant: s 9. Because he was an officer of the applicant he owed a statutory duty to exercise his duties with the degree of care and diligence that a reasonable person would exercise if they were a secretary of the applicant in the applicant's circumstances: s 180(1). He also owed a statutory duty to act in good faith and in the best interests of the applicant and for a proper purpose: s 181(1). Further, he had a statutory duty not to improperly use his position to gain an advantage for himself or someone else or cause detriment to the applicant: s 182(1). 331 The statutory duties owed by the first respondent are in addition to the common law and fiduciary duties which rest upon a company's officers. The first respondent owed corresponding fiduciary duties to those of his statutory duties. He also owed fiduciary duties: (a) not to prefer his own interests to those of the applicant; (b) to act with reasonable care in the discharge of his duties as a company secretary; and (c) not to place himself in a position where his duty to the applicant conflicted with his own self-interest or where there was a possibility of such a conflict arising: Bordman v Phipps [1967] 2 AC 46 at 123; Chan v Zacharia (1984) 154 CLR 178 at 198. 332 The Board had de facto delegated, if any delegation was necessary, to the first respondent all communications with the Board's professional advisers. The Board was entitled to expect that the first respondent would communicate to it any relevant piece of information which the Board needed in considering any matter before the Board. In particular, where the members of the Board might become personally liable for a civil penalty under the Corporations Act, the Board could have expected that the secretary would have discharged his statutory and fiduciary duties to bring the advice of its lawyers to its attention. The first respondent could only discharge his statutory and fiduciary duties by bringing to the Board's attention Mr Paterson's advice. His failure to do so meant that he placed his own interests ahead of the applicant's interests. 333 The applicant contends that, in the circumstances, there should be an order that the circular resolution be set aside or, as it put alternatively, an order setting aside the issue of performance shares. On the other hand, the first respondent argues that even if there were breaches of statutory duty or fiduciary duty on the part of the first respondent no such order should be made because s 209 of the Corporations Act provides that if a public company contravenes s 208 by giving a financial benefit to a related party the contravention does not affect the validity of any transaction connected with the giving of the benefit and the company is not guilty of an offence. 334 There can be no doubt, on my findings, that the first respondent has acted improperly and in breach of his statutory and fiduciary duties. He consciously failed to bring to the attention of the Board material information which would have impacted upon the Board's decision to pass a resolution to issue shares to him. In my opinion, the first respondent did what he did because he knew that if Mr Paterson's advice were given to the Board the resolution would not pass because the directors would either seek further legal advice or, alternatively, require that the matter be put to the shareholders generally. He preferred his interests to that of the applicant. He placed himself in a position of conflict. 335 In the circumstances of this case, the circular resolution benefited both respondents. I am not called upon to determine whether or not the second respondent breached his statutory or fiduciary duties. I do not need to do so because the matter was not directly addressed in the trial. It is as well unimportant because the second respondent has now reached a settlement with the applicant such that he no longer enjoys the benefit of the circular resolution. 336 In those circumstances, the only beneficiary of the circular resolution is the first respondent. There seems to me to be no reason why he should enjoy the benefits of that resolution and the issue of the performance shares in circumstances where he has consciously failed to bring to the Board's attention advice which would have meant that the circular resolution was not passed. 337 In those circumstances, there should be an order rescinding the resolution of 30 November 2004 contained in the circular resolution; subject to the repayment of the subscription money of $55.00 an order setting aside the issue of the performances shares; and an order rectifying the applicant's register of members pursuant to s 175 of the Corporations Act. 338 There are a number of other issues which are raised by the applicant which do not need to be decided having regard to my conclusion on this issue. However, for completeness, and in case I am wrong about this issue, I should address them.

Was the circular resolution a variation of class rights requiring the approval of 75% of the ordinary shareholders of the applicant and, if so, what are the consequences? 339 The applicant contends that as at 30 November 2004 when the directors resolved in accordance with the circular resolution the applicant had one class of share only and the issue of performance shares which converted into B Class shares was a variation of the rights of the ordinary shareholders. The applicant thereby purported to create a new class of shares. The applicant contended that by issuing the performance shares which converted into B Class shares, the applicant was creating a new class of shares. In that regard, the applicant relied on s 246C(5) of the Corporations Act which provides that if a company has one class of shares and issues new shares the issue is taken to vary the rights attached to the shares already issued if the rights attaching to the new shares are not the same as the rights attached to the shares already issued and those rights are not provided for in the company's constitution. The first respondent did not contend otherwise. 340 Section 246B(1) of the Corporations Act provides that a company with a constitution that sets out a procedure for varying (or cancelling) the rights attached to shares in a class of shares, those rights may be varied (or cancelled) only in accordance with the procedure in the constitution. If a company does not have a constitution that sets out such a procedure, those rights may be varied (or cancelled) only by special resolution of the ordinary shareholders of the company. The applicant's Constitution provides that when shares are divided into different classes the rights attached to any class may be varied 'with the consent in writing of the holders of three-quarters of the issued Shares of that class, or if authorised by special resolution passed at a separate meeting of the holders of the Shares of the class': Article 2.3. 341 The applicant did not attempt to comply with s 246B of the Corporations Act. The directors, apart from the second respondent, were not aware that s 246B impacted upon the resolution. They should have been so advised. The applicant did not comply with its Constitution unless it can be said, as the first respondent contends, that by the shareholders entering into the shareholders agreement the appropriate authority had been given. In my opinion, it cannot be said that the shareholders approved the variation of rights attaching to their shares by entering into the shareholders agreement. Recital E to the shareholders agreement provides: 'Accordingly the Parties have entered into this Agreement to regulate their rights and obligations as members of the Company.' 342 The shareholders agreement is subject to the conditions precedent in clause 2 which conditions precedent were never met. Thus the agreement never became 'effective'. Clause 2.1 provides: 'This Agreement, other than Clause 15, will not become effective unless and until: ...'. The clause then addresses the conditions precedent. 343 That by itself is enough to answer the first respondent's contention that the shareholders agreement was the means by which the applicant complied with its Constitution. Because the shareholders agreement never became effective, it was not possible to issue the performance shares pursuant to clause 4.2(b) even if requested so to do by the respondents pursuant to clause 4.1(b) or (c). There was thus no authority given to the applicant in the shareholders agreement to issue the performance shares because it did not become effective. Clause 8 provided: '8. Meetings of Shareholders 8.1 Procedure General meetings of Shareholders shall take place in accordance with the applicable provisions of the Constitution subject to the terms of this clause 8. 8.2 Notice and Agenda The notice of meeting shall (unless otherwise agreed by each of the parties) set out an agenda identifying in reasonable detail the matters to be discussed. 8.3 Circular Shareholder Resolutions A resolution in writing signed for approval by representatives of the parties duly authorised for such purpose (including signature by facsimile transmission) shall be treated in all respects as if such resolution had been made at a general meeting of the Company. 8.4 Reserved Matters The following resolutions require a Special Resolution held at a general meeting: (a) the appointment of independent non-executive Directors; (b) the issue of further securities by the Company; (c) the amendment of the Constitution; (d) sale of substantially all of the assets of the Company; (e) any exit strategy under clause 19; and (f) fundamental changes in corporate structure such as capital reduction, share buy backs and schemes of arrangement.' 344 Clause 8 assumes that the applicant's Constitution will be complied with. However, in particular, clause 8.4 required the applicant to convene a meeting for the purpose of a special resolution to issue further securities by the company. That clause denies the first respondent's contention that by the shareholders agreement the shareholders agreed or resolved to issue securities pursuant to some other resolution. 345 The shareholders agreement was not intended by anyone to override the applicant's Constitution. It was not intended to act as the consent in writing or as a special resolution of the members of the applicant. It could only have fulfilled that function if it was brought to the members' attention that that was its purpose. No shareholder was advised that by signing this agreement they were consenting or resolving, in accordance with the applicant's Constitution, to vary the rights attaching to shares. In my opinion, the first respondent's contention that the execution of the shareholders agreement meant that s 246B was complied with must be rejected. 346 But, in any event, there were material differences between the performance shares which were contemplated in the shareholders agreement and those contemplated in the circular resolution. I have already discussed the differences between the performance shares contemplated in the shareholders agreement and those provided for in the circular resolution. The terms of the performance shares in the circular resolution were more advantageous to the respondents than those contemplated in the shareholders agreement. For that further reason, it cannot be said that the signing of the shareholders agreement by the shareholders satisfied the requirements of s 246B of the Corporations Act or the applicant's Constitution.

Was the failure to obtain shareholder approval for the variation of class rights a procedural irregularity (s 1322 of the Corporations Act)? Should the issue of performance shares be validated under s 1322 or s 254E? 347 This issue arises out of the first respondent's alternative plea in answer to the applicant's claim that the issue of the performance shares contravened s 246B of the Corporations Act. The first respondent pleaded: '4E.1 Denies paragraph 5J of the Amended Statement of Claim; 4E.2 Says if that if, which is denied, there was any defect or deficiency in the making of the Circular Resolution as pleaded in paragraphs 5C to 5I of the Amended Statement of Claim: 4E.2.1 such defect or deficiency constitutes a procedural irregularity; 4E.2.2 By reason of the terms of section 1322 of the Corporations Act the Circular Resolution is not invalid of void as alleged or at all; 4E.2.3 No substantial injustice has been or is being caused by such irregularity. PARTICULARS By Shareholders Agreement dated the 20th April 2004 the shareholders of the applicant approved the issue of the performance shares upon terms no more favourable to the respondents. Thereafter persons acquiring shares in the applicant did so with knowledge of the agreement to issue such shares. 4EE. Alternatively such issue of shares should be validated by order of this Honourable Court pursuant to section 254E of the Corporations Act 2001 (Cwlth) PARTICULARS The First Respondent repeats the particulars to paragraphs 4E23.3 (sic) hereof.' 348 The first respondent contended that even if the applicant had failed to comply with s 246B, the Court ought to exercise its power under s 1322 of the Corporations Act to make an order that the issue of the performance shares was not invalid by reason of any contravention of s 246B. 349 Section 1322(1) and (2) provide: '1322(1) In this section, unless the contrary intention appears: (a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and (b) a reference to a procedural irregularity includes a reference to: (i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and (ii) a defect, irregularity or deficiency of notice or time. 1322(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.' 350 The plea in paragraph 4E rather suggests reliance upon subsection (2). That follows from paragraph 4E.2. Paragraph 4E.2 refers to the applicant's plea that the consent of its members was not obtained pursuant to s 246B where the issue of performance shares effected a variation of the rights attaching to ordinary shares. Paragraph 4E.2.1 says that failure was a procedural irregularity and paragraph 4E.2.3 addresses substantial injustice. The first respondent's closing submissions also addressed s 1322(2). However, in his oral closing submissions the first respondent's counsel also seemed to rely upon s 1322(4)(a). 351 Section 1322(4)(a) provides: 'Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;' 352 If an order is to be made under s 1322(4) the Court must have regard to s 1322(6) which provides: 'The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; and (iii) that it is just and equitable that the order be made; and (b) ... (c) ... that no substantial injustice has been or is likely to be caused to any person.' 353 Section 1322(2) operates automatically to validate a proceeding involving a procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court. Section 1322(4)(a) allows the Court, on the application of an interested person, to make an order declaring that any act, matter or thing, or any proceeding purporting to have been done under the Act, is not invalid by reason of any contravention of the provision of the Corporations Act or a provision of the company's constitution. 354 The first respondent has pleaded the effect of s 1322(2) as a defence to the applicant's claim but has not sought any order. I think if the first respondent relies only upon s 1322(2) which relates to a procedural irregularity that might be permissible. However, notwithstanding the reference in paragraph 4E.2 to a procedural irregularity, in his closing address the first respondent's counsel also relied upon s 1322(4)(a). That subsection requires an interested person to seek an order. It was not contended by the applicant that the first respondent was not an interested person and thereby not entitled to the order. Nor was it contended that the defence was not available in the absence of an application for such an order. 355 Paragraph 4EE also raised by way of an alternative plea that the issue of shares should be validated under s 254E of the Corporations Act. Section 254E(1) provides: '254E(1) On application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if: (a) the issue is or may be invalid for any reason; or (b) the terms of the issue are inconsistent with or not authorised by: (i) this Act; or (ii) another law of a State or Territory; or (iii) the company's constitution (if any).' That subsection also requires an application to the Court. Again, no application has been made but, again, no point has been taken by the applicant in that regard. Both parties have assumed that if I reach the conclusion that an order would be made under any of the subsections that, therefore, I would reject the applicant's plea that the circular resolution is of no effect by reason that there was no compliance with s 246B. 356 There is a difficulty with that approach. The judgment in this proceeding will bind the parties to this proceeding but no other party. It may be, if I acceded to the first respondent's argument that s 1322(4)(a) or s 254E(1) applies, later a court, if an application were made for an order under those sections, would find otherwise on other or different evidence. 357 It is unsatisfactory to ask this Court to rule on whether a court would validate the issue of shares when no application is made to the Court for an order to that effect. Of course, if an application were made in this proceeding it would be dismissed because I have already found the circular resolution should be set aside because of the breach by the first respondent of his fiduciary duty. 358 However, the parties have asked me to proceed to resolve this issue upon the basis that the circular resolution was otherwise valid. With a good deal of hesitation I will address the issue. 359 Section 1322 is a remedial provision and should be given a liberal interpretation: Re Insurance Australia Group Ltd (2003) 45 ACSR 702. The power to validate given in s 1322 and s 254E must be exercised by reference to the purposes of the sections in the Corporations Act. 360 The purpose of s 1322 is to empower the Court to relieve a company of the consequences of non-compliance with a proceeding under the Corporations Act. It allows the Court to make orders to validate procedures or transactions where there has been non-compliance with a provision of the Corporations Act. The power is to be exercised in favour of the company unless, in the case of s 1322(2), the irregularity which is the subject matter of the application has caused or may cause substantial injustice but cannot be remedied by any order of the Court. 361 A proceeding under s 1322(2) is not limited to a legal proceeding: Langton v Forsayth Mineral Exploration NL (1975) 1 ACLR 227. A proceeding extends to 'every type of procedure which might be undertaken by a company or in relation to a company's affairs': Broadway Motors Holdings Pty Ltd (In Liq) and the Companies (New South Wales) Code (1986) 6 NSWLR 45 at 55. 362 In this case, the applicant has failed to obtain the consent in writing of the holders of three-quarters of the issued shares of the applicant or an authority by special resolution passed at a separate meeting of the applicant's shareholders before proceeding to resolve to issue the shares to which different rights attach. 363 The applicant's counsel contended that s 1322(2) has no application because the failure to obtain the requisite approval was not a proceeding involving a procedural irregularity. In my opinion, that contention should be accepted. A procedural irregularity is defined, although not exclusively, to be the absence of a quorum at a meeting of the corporation, the directors or the creditors or of a joint meeting of creditors and members or a defect, irregularity or deficiency of notice or time. Here the corporation failed to obtain the consent or hold the meeting. Section 1322(2) does not apply to a failure of that kind. That is not a procedural irregularity. 364 It was put by the applicant's counsel that if the first respondent was entitled to rely on s 1322 it was only entitled to rely on s 1322(4)(a). The applicant's counsel seemed to accept that the first respondent was entitled to rely upon s 1322(4)(a) notwithstanding, as I say, the plea in paragraph 4E seems only to address s 1322(2). I agree (subject to that caveat) that because the first respondent cannot bring himself within s 1322(2), the first respondent is entitled only on s 1322(4)(a). 365 An application under s 1322(4)(a) is not confined to a procedural irregularity. The subsection clearly has a wider application: Jordan v Avram (1997) 25 ACSR 153 at 157; Deputy Commissioner of Taxation v Partinex (2000) 34 ACSR 391. 366 If an application is made under s 1322(4)(a), the Court will exercise the power to declare that any proceeding is not invalid by reason of a contravention of a provision of the Act if the proceeding is essentially of a procedural nature; that the person or persons concerned in or party to the contravention or failure acted honestly; that it is just and equitable that the order be made; and that no substantial injustice has been or is likely to be caused to any person: s 1322(6) of the Corporations Act. 367 In my opinion, the Court could make an order under s 1322(4)(a) validating the issue of the performance shares notwithstanding the contravention of s 246B. 368 I am also of the opinion that s 254E, which is also remedial in character, would also empower the Court to make an order of the kind referred to in the first respondent's pleading. 369 Whilst s 254E is silent on the question of substantial injustice, in my opinion, no order would be made under s 254E unless the applicant could show that no injustice would be caused to any other party. In Re Wave Capital (2004) 47 ACSR 418 at [29], French J said: 'Like the discretion to validate invalid share issues under s 254E, the power conferred by s 1322 must be exercised having regard to the requirements of the purposes of the Corporations Act and any other relevant statutes whose application may be in issue. It must also be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with statute law and company constitutions. Evidence of a blatant disregard of the provisions of the Act or the constitution of the company may lead to refusal of relief: Re Onslow Salt Pty Ltd (2003) 198 ALR 344; 45 ACSR 322 and cases there cited.' 370 No order can be made under s 1322(4)(a) unless the party applying can satisfy paragraphs (a) and (c) of s 1322(6). The matters in s 1322(6)(a) are disjunctive: Re Westpac Banking Corporation (ACN 33 007 457 141) and Others (2004) 53 ACSR 288. It was contended by the applicant that such an order would not be made because the first respondent has not discharged his obligation of establishing that a validation order would be unlikely to result in a substantial injustice to any person. 371 It was contended that the applicant had given as its particular in its plea in paragraph 4E.2 and paragraph 4EE that no substantial injustice has been or is likely to be caused to any person; that the applicant had approved the issue of performance shares on terms no more favourable in the shareholders agreement; and that thereafter any person who had acquired shares did so with knowledge of the agreement to issue those shares. For the reasons already given, that particular has not been made out. The performance shares in the circular resolution were to issue on more favourable terms to the respondents than the performance shares contemplated in the shareholders agreement. 372 The applicant pleaded in reply to the first respondent's defence that the failure to comply with s 246B of the Corporations Act has resulted in substantial injustice in that the applicant's shareholders would have or may have refused to approve the issue of the performance shares. No other particular of any substantial injustice is given by the applicant in that pleading. 373 In support of that plea the applicant contended that there was no evidence from which one can infer that if consulted and given full information about the proposal the ordinary shareholders would have passed a special resolution approving issue of performance shares in the terms of the circular resolution. 374 I think that contention must be considered in circumstances where there has been no breach of the first respondent's fiduciary duty and where the shareholders are on notice that they have been called upon to resolve to issue the performance shares to a related party. 375 In my opinion, having regard to the Heads of Agreement, the Term Sheet, the shareholders agreement and the information memoranda which were published from time to time, it is likely that the shareholders would have approved the issue of the performance shares. All of the shareholders had been on notice for some time that performance shares were to issue to the respondents and of the number which were to issue. All of the shareholders had entered into the shareholders agreement which provided for the issue of performance shares in accordance with Schedule 3 of that agreement. 376 It is right, as the applicant has contended, that the terms of the performance shares which were to issue as a result of the circular resolution were more favourable to the respondents than the terms attaching to the performance shares envisaged in the shareholders agreement but not, in my opinion, such that the ordinary shareholders would not have approved of the issue. 377 In my opinion, if the shareholders had been asked either to consent in writing or to pass a special resolution approving the issue of the performance shares as defined in the circular resolution it is more probable than not that they would have approved. The shareholders would be asked to approve performance shares which might in the future convert to B Class shares. Those shares did not have all of the entitlements attaching to the ordinary shares. In those circumstances, the ordinary shareholders would be even more likely to approve the issue of the shares. I make that finding notwithstanding that that particular has not been pleaded because the issue was live during the trial. In those circumstances, no substantial injustice would be caused to any person if an order were made validating the issue of the shares and an order could be made under s 1322 or s 254E. I should add, for completeness, it was not argued by the applicant that the first respondent could not bring himself within s 1322(6)(a). That matter was simply not addressed, I think because it was assumed that clause could be met by the first respondent or that because of the provisions of s 254D which do not require a like qualifying condition that such an argument would be fruitless. It follows therefore that if the first respondent had not been in breach of his statutory and fiduciary duties, and if the first respondent applied for an order under s 1322(4)(a) or s 254E, the Court would make an order declaring the issue of the performance shares not invalid by reason of the contravention of s 254B of the Corporations Act and the provision of Article 2.3 of the applicant's Constitution.

On a true construction of the circular resolution, did Mr Stewart and Mr Barron become entitled to an issue of performance shares when the applicant, under new management: (1) raises capital; (2) completes the construction of the biodiesel plant; (3) achieves NPAT of $6 million? 378 This issue raises the true construction of the circular resolution and whether the respondents became entitled to the issue of performance shares. For the reasons I have given, I do not accept the applicant's contention that the performance shares only issued when the performance criteria were met. For the reasons I have already given, in my opinion, the performance shares could issue immediately after 30 November and did issue on 10 January 2005 or, at the latest, on 29 and 31 March 2005 when the respondents, respectively, paid the issue price. I think the real issue is whether the first respondent is entitled to claim that he is entitled to have the performance shares convert to B Class shares if the performance criteria has been met by the new management. To address this issue Mr White's evidence needs to be considered. 379 As at any of 6 May, 8 June or 18 July, the applicant had not raised capital nor, of course, completed construction of the BDI biodiesel plant. Mr White's evidence was that on his becoming managing director of the applicant on 6 June, five steps needed to be achieved to stabilise the business before the biodiesel plant could be commenced. In his written evidence he identified those five steps as: '72.1 the confidence of BDI had to be restored, the BDI technology contract had to be reviewed and executed and the exclusivity agreement (teaming agreement) must be concluded; 72.2 the ANZIS funding (or any alternative funding) must be negotiated and secured - in particular unconditional funding to pay the up front instalment under the BDI contract of approximately A$4,000,000 must be secured; 72.3 land needed to be secured; this included either achieving the necessary re-zoning of the Barnawartha Site (against strenuous public opposition), securing the Wangaratta site (against strenuous public opposition) or finding another site suitable for the business; 72.4 the Commonwealth Government grant must be extended or possibly renegotiated (the conditions precedent to the payment of the grant had not been satisfied within the time stipulated in it); 72.5 the EPC contract with PDF (the EPC contractor) needed to be concluded. The draft was only at an early stage. (The Government grant was conditional on agreement with PDF and BDI. BDI had also approved PDF as Project Manager for construction of the BPL plant).' 380 His evidence was that as at 6 June 2005 the negotiations between the applicant and ANZIS, and the applicant and BDI, had stalled. The applicant was, he said, locked in a circle because the two contracts which needed to be completed with ANZIS and with BDI were each conditional upon each other. Further, the government grant was conditional upon the completion of a contract with ANZIS and a contract with BDI. He said that the respondents had not been able to break the circle and bring the negotiations to an end. 381 I accept that evidence. It seems to me to be apparent from the way in which the negotiations were continuing after the Heads of Agreement was executed on 13 October 2003 that any agreement with ANZIS was conditional upon the applicant entering into a contract with BDI for the supply of the plant whilst any agreement with BDI was conditional upon entering into a funding agreement with ANZIS. 382 Mr White went to Austria and met with BDI in an attempt to re-engage that company's support for the project in Australia. He reviewed the draft contract with Austrian representatives in July 2005. Mr White negotiated a teaming agreement with BDI which gave the applicant exclusive rights to the BDI technology in Australia, except for a pre-existing agreement in relation to a plant in Queensland. On 11 July the BDI contract was executed. Immediately after his appointment, Mr White commenced negotiations with ANZIS for a funding agreement which was entered into on 5 August 2005. The ANZIS funding arrangement differed from that which had previously been negotiated by the respondents. ANZIS provided $4 million upfront to enable the applicant to pay a deposit to BDI which enabled the BDI contract to be entered into. That provision broke the circle. The funding offered by ANZIS was 100% equity but at a subscription price of $0.30 per share which represented a value uplift to the existing shareholders of 50%. Mr White also arranged other funding of $4 million. 383 Mr White caused the applicant to proceed with the rezoning of the application for the Barnawartha site. He instructed consultants for a meeting with the relevant Minister. He retained solicitors and an expert. On 22 August 2005 the independent panel recommended that the Barnawartha site be rezoned. The Minister accepted the recommendation and, on 17 November 2005, the rezoning of the land was gazetted. Mr White renegotiated the contract for the purchase of the Barnawartha site with Mr McKenna which was accomplished on similar terms to those which had been previously negotiated by the respondents. 384 The PDF teaming contract was to expire on 30 June 2005. Mr White renegotiated that agreement for a further 12 months. Eventually, a new teaming contract was negotiated. The evidence was at trial that the biodiesel plant was to complete in March 2007. 385 The Federal Government Grant was due to expire on 6 July 2005. Mr White negotiated an extension of that grant. All of those matters meant the conditions precedent in favour of ANZIS had been met. 386 In construing this resolution it is appropriate, for the reasons already given, to have regard to the factual matrix surrounding the circumstances giving rise to the circular resolution. That factual matrix includes the previous agreements between the parties which were to effect the same transaction. 387 The Heads of Agreement entered into on 13 October provided that the 'Free Carry Shares' were only to be issued so long as the respondents 'continue to be employed by (the applicant)': clause 5(g). The shareholders agreement also contemplated that the respondents had to achieve the performance criteria themselves so as to be entitled to the issue of the shares under that agreement. In my opinion, regard can be had to those two previous transactions to discern the objective intention of the parties in relation to the circular resolution: HIH Casualty & General Insurance Ltd v New Hampshire Insurance Company [2001] 2 Lloyd's Report 161 at [83]. 388 The very purpose of performance shares, in my opinion, is to induce the person to whom the shares are given to perform. That was the purpose for their issue in this case because it was important for the applicant to have those who had the responsibility of managing the applicant achieve the performance criteria. The performance shares were issued with the objective intention that the performance criteria in the performance shares would be met by the holders of the performance shares themselves. That means that the respondents had to cause the applicant to achieve the performance milestones. 389 It was contended by the applicant that the respondents had to raise capital with ANZIS in accordance with ANZIS' offer of 29 November 2004 because that transaction was later embodied in the subscription agreement. Because that particular capital raising did not occur, then that criteria was not achieved. I do not think that the circular resolution necessarily obliged the respondents to raise capital only in accordance with ANZIS' offer of 29 November 2004. I think the criterion that needed to be met was to raise sufficient capital so as to allow the second criterion also to be met. It did not need to be with ANZIS or, if it was with ANZIS, it did not need to be only in the terms of the offer made on 29 November 2004. It was only necessary that the respondents raised sufficient capital to allow the second criterion to be met. In any event, that does not weaken the applicant's case because, whatever the criterion was, it was not met by either or both the respondents. 390 In my opinion, the first respondent is not entitled to claim that the performance shares converted to B Class shares after the applicant satisfied the performance criteria in the circular resolution under its new management. 391 It follows that if I am wrong about my conclusion that the resolution contained in the circular resolution should be rescinded and the issue of the performance shares set aside and the first respondent is entitled to the performance shares, the first respondent will never be entitled to have those shares convert to B Class shares because he and the second respondent did not satisfy the performance criteria. 392 It was also contended by the applicant that a term had to be implied into the circular resolution such that the performance criteria had to be satisfied within a reasonable time from the date of the circular resolution. It was put that the failure to satisfy the performance criteria was costing the applicant of in the order of $40,000 per day and, in those circumstances, it was an implied term of the circular resolution that the performance criteria must be satisfied within a reasonable time. Of course, if I am right and the performance criteria had to be satisfied personally by the respondents, then this issue does not arise because the first respondent did not satisfy any of the criteria which would give rise to the conversion of the performance shares into B Class shares. 393 However, in case I am wrong, I should address the contention. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, a majority of their Lordships in the Privy Council said in their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: '(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express terms of the contract.' That case was approved by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. 394 The performance criteria themselves announce that they need to be met as soon as possible. The term which the applicants contend should be implied satisfies each of the conditions referred to in the authorities. In my opinion, a term of the kind contended for by the applicant would be implied into the circular resolution so as to give the circular resolution business efficacy.

What is a reasonable time for the satisfaction of the performance criteria? 395 At the Board meeting of 30 November 2004 the Board had ANZIS' latest offer contained in its letter of 29 November 2004. I think, for the reasons already given, it also had the two documents entitled 'ANZIS EQUITY PROPOSAL 29 NOVEMBER 2004' and 'WHAT ARE THE REASONS TO GO WITH ANZIS'. 396 The first document said that financial close would occur on 31 January 2005. The ANZIS offer contained in the letter of 29 November 2004 proposed a financial close 'before 31 January 2005'. 397 In determining what is a reasonable time for the satisfaction of the performance criteria, regard must be had to the events which preceded 30 November 2004. 398 The applicant had, through the respondents, been dealing with ANZIS since August 2003. As early as 10 September 2003 ANZIS had written to the second respondent indicating that it had completed its preliminary review and was undertaking a more detailed review. Within a week draft agreements had been commissioned by the first respondent. Heads of Agreement were entered into on 13 October 2003. It is to be recalled that at the time the Heads of Agreement were entered into, Mr Clarke wrote that ANZIS' understanding was that the plant would be built in the Wodonga area in 2004. 399 In the Heads of Agreement itself the parties had agreed that the applicant and ANZIS would develop a detailed work plan for the development of a financial model and achieving financial close. 400 The shareholders agreement was entered into on 20 April 2004. That document was subject to conditions precedent in favour of ANZIS. The document contemplated that if a condition precedent had not been met by 30 September 2004 the agreement would terminate. The relevant condition precedent in favour of ANZIS was that it be satisfied with its due diligence investigations with respect to and concerning the company and its affairs. 401 The condition precedent was apparently not satisfied insofar as ANZIS was concerned and on 21 September 2004 Mr Clarke wrote seeking an extension of time until 31 December 2004. On the advice of the second respondent the Board refused that extension and the shareholders agreement terminated in accordance with clause 2.4 of that agreement. The second respondent and ANZIS continued to negotiate in October and November 2004. 402 By 30 November 2004 members of the Board were frustrated by the delay. The directors' frustration was evidenced by Mr Davison's letter to the second respondent on 5 October 2004. He also exhibited that frustration at the meeting of the Board on 30 November 2004. Correspondence with BDI shows it was also frustrated by the failure of the applicant and ANZIS to come to terms in order to reach a financial close. By that date there was a real risk that the BDI opportunity might be lost. The further failure to meet financial close had put in jeopardy the government grant. 403 When the Board therefore came to consider the circular resolution of 30 November 2004 and the ANZIS proposal contained in its letter of 29 November 2004, it did so with knowledge of the history of the dealings with ANZIS. 404 In my opinion, a reasonable time for satisfaction of the first performance criterion was by 31 January 2005. That was the date that ANZIS represented it could meet. The second respondent urged the Board to accept the ANZIS proposal. 405 After the meeting of 30 November 2004, the second respondent negotiated the subscription agreement which, again, was subject to conditions precedent solely for the benefit of ANZIS. That agreement provided for the final satisfaction of the conditions precedent by 31 March 2005. If I am wrong that a reasonable time for satisfaction of the first performance criterion was 31 January 2005, then at the very latest that reasonable time would be 31 March 2005. 406 Of course, ANZIS wrote on 21 March 2005 advising that it formally terminated its obligations under the agreement because the conditions precedent could not be met by 31 March 2005 for the reasons it gave. 407 The second and third performance criteria have not been met. The Court has not been asked to decide what is a reasonable time for the satisfaction of those criteria. If the first respondent was entitled to satisfy the first performance criterion within a reasonable time, that reasonable time was by 31 January 2005 or by the latest 31 March 2005. Of course, for the reasons already given in relation to issue 2, the resolution contained in the circular resolution should be rescinded and the issue of the performance shares set aside.

On the assumption that no performance shares were issued, could BPL's directors, at a time before the performance criteria was satisfied, modify the terms of the circular resolution so as to: (1) impose time limits within which the performance criteria must be satisfied; and (2) provide that the performance shares would only be issued if, in the reasonable opinion of the Board, Mr Barron and Mr Stewart had played a significant part in the satisfaction of the performance criteria? 408 For the reasons I have already given, in my opinion, the performance shares did issue. If I am right about that, once they issued the Board could not by resolution, in my opinion, alter the terms upon which the shares issued unless, perhaps, with the consent of the shareholders. On my findings, this issue does not arise. The assumption I am being asked to make, therefore, is predicated upon the construction of the circular resolution propounded by the applicant. 409 The applicant contended that the Board was entitled to vary the circular resolution in accordance with the resolution passed on 18 July 2005. The first respondent argued that the authorities relied on by the applicant for that proposition did not support the proposition. However, by the same token, no other argument was put. 410 There is nothing in the applicant's Constitution which would prevent the directors rescinding a resolution to issue shares to any person. Subject to at least one matter, the directors of a company must have the ability to vary, revoke or rescind any previous resolution of its Board. The power may not exist if the resolution has been put into effect. However, that is not the case here. Upon the assumption that I have been asked to make, if a company could not vary, revoke or rescind a previous resolution, the company could not change its corporate mind. That would leave a company hamstrung by its previous decisions. In my opinion, if the performance shares did not issue, the directors were entitled to amend the circular resolution.

Is the applicant estopped from rescinding or modifying the circular resolution? 411 This issue is said to arise by the pleas in paragraphs 10 and 11 of the applicant's statement of claim and the first respondent's reply in paragraph 29 of the first respondent's defence. 412 In paragraphs 10 and 11 the applicant pleaded: '10. Further, by resolution dated 18 July 2005, Biodiesel's Board clarified and or amended the Circular Resolution to provide that the Performance Criteria will only be satisfied if:- 10.1 the raising of capital was achieved by 31 December 2004; 10.2 the completion of the construction of the Biodiesel Plant occurs by 31 December 2005; 10.3 NPAT of $6,000,000 occurs by 30 September 2006; 10.4 in the case of the issue of Performance Shares to Mr Stewart, in the reasonable opinion of Biodiesel's Board, Mr Stewart has played a significant part in the satisfaction of the Performance Criteria; 10.5 in the case of the issue of Performance Shares to Mr Barron, in the reasonable opinion of Biodiesel's Board, Mr Barron has played a significant part in the satisfaction of the Performance Criteria. 11. None of the Performance Criteria have been satisfied.' 413 In paragraph 28 of the first respondent's defence, the first respondent denies paragraph 10 of the applicant's statement of claim and pleads that 'the purported amendments is (sic) of no force and effect'. 414 In paragraph 29 the first respondent pleads: '29. Further, if which is denied, the Applicant's Board purported to amend the Circular Resolution then by reason of the performance of works carried out by the First Respondent referred to in paragraph 8 hereof in so far as the work was performed after 30 November 2004 the Applicant is estopped from refusing to give force and effect to the terms upon which the performance shares were issued to the First Respondent.' 415 The pleas, in a sense, do not meet. The applicant's plea must be based upon its claim that the performance shares issued when each of the criteria was met. That is clear from the arguments to which I have already referred and from paragraph 7 of the statement of claim which relevantly reads: '7. In support of the averment at paragraph 6, Biodiesel says:- 7.1 by the terms of Annexure A, the Performance Shares were not to be issued until the following performance criteria (the Performance Criteria) had been achieved. On the achievement of each of the Performance Criteria, Mr Stewart and Mr Barron were to be issued with the number of Performance Shares set forth below:- Mr Stewart Mr Barron (a) raising of capital 3,000 4,000 (b) completion of the construction of the Biodiesel plant 1,500 3,000 (c) NPAT of $6,000,000 1,000 2,000 ________ ________

5,500 9,000 ... 7.3 as at the date of issue of the Performance Shares:- (a) none of the Performance Criteria had been achieved; (b) Mr Stewart knew that the Performance Criteria must be achieved before the Performance Shares could be issued. PARTICULARS Mr Stewart caused the preparation of Annexure A by Hardy Bowen, solicitors, and was aware of its terms. (c) Mr Stewart knew that none of the Performance Criteria had been achieved.' 416 The applicant could not plead an inconsistent case: O 11 r 8(1) of the Federal Court Rules. Paragraph 11 is not pleaded as an alternative case: O 11 r 8(2) of the Federal Court Rules. It must be assumed therefore that paragraph 10 of the statement of claim is predicated upon the same basis as paragraph 7. That, indeed, is how it was put at trial. The first respondent has pleaded on the other hand an estoppel on the basis that the performance shares were issued. That is consistent with his plea in paragraph 6 of his defence in answer to the applicant's plea in paragraph 7 of the applicant's statement of claim. It is also consistent with the first respondent's submissions at trial. 417 It follows, therefore, that the pleas do not engage. The applicant addresses circumstances where the performance shares have not issued whilst the first respondent's plea assumes the performance shares have issued. 418 There is no point in addressing the issue on the applicant's assumption because the first respondent does not claim an estoppel if the performance shares have not issued. Nor could he it would be thought. If the performance shares had not issued by 18 July 2005 because none of the performance criteria had been met, the variation or amendment of the performance criteria after that time could not have any practical effect. There is no point in addressing the plea on the respondent's assumption for two reasons. First, the applicant could not amend the terms relating to the conversion of the performance shares into B Class shares once the performance shares had issued. That would be a contravention of s 246B(1) of the Corporations Act because it would be varying the rights attaching to a class of shares. That would have to be done in accordance with Article 2.3 of the applicant's Constitution which would require the consent of the respondents. Secondly, the performance criteria attaching to the performance shares which would allow the performance shares to convert into B Class shares were never met prior to 18 July 2005 or at any time thereafter. Therefore, the performance shares could never convert into B Class shares even assuming the performance criteria attaching to the performance shares before amendment or variation. An estoppel can never arise. 419 Because the parties are not addressing the same assumptions, the issue cannot be resolved. Of course, on my findings, it does not need to be resolved. 420 In any event, on the findings made, whether an estoppel arises or not is theoretical. If it be assumed that the performance shares had not issued as the applicant contends by 18 July 2005 and the first respondent is right that by reason of the work performed after 30 November 2004 the applicant is estopped from resiling from its promise, what would be the result? The most favourable result for the first respondent would be that the applicant would have to issue the performance shares as and when the performance criteria are met by the respondents. That takes the matter back to the earlier issues which have been decided adversely to the first respondent. The plea of estoppel in paragraph 29 of the defence, however it is understood, does not advance the first respondent's cause. For that further reason, this issue does not need to be addressed or resolved.

Is Mr Stewart's Executive Service Agreement valid and has it taken effect? 421 I have already found that the Executive Service Agreement was signed by Dr McCully and Mr Davison in ignorance of Mr Pearce's comments relating to an independent remuneration consultant. Moreover, I have found that Dr McCully would not have signed the document if he had been aware of Mr Pearce's comments. Mr Davison would not have signed the Executive Service Agreement until he had received advice from that independent consultant. 422 The Executive Service Agreement was not executed under the authority of a Board resolution and that fact was known to the first respondent. Because the first respondent was the company secretary and privy to the resolutions of the Board, he cannot rely on the assumptions contained in s 129 of the Corporations Act: s 128(4). In particular, he cannot rely on s 129(5). 423 The Executive Service Agreement was subject to conditions precedent. None of the conditions precedent were met prior to the first respondent's position as company secretary being terminated by the applicant's Board's resolution on 6 June 2005. On any understanding, the last condition precedent has never been met. The resolution of 18 July made it clear, beyond doubt, that the conditions precedent could never be met. 424 In my opinion, because the conditions precedent were never met prior to the first respondent's dismissal, the Executive Service Agreement ceased to have any practical effect. The first respondent's employment with the applicant never commenced because the commencement date was not to occur until the conditions precedent had been met. Moreover, there could not be a commencement date having regard to the applicant's directors' resolution not to ratify the Executive Service Agreement. 425 It follows that the Executive Service Agreement has never taken effect.

Is Mr Stewart entitled to damages for the applicant's breach (repudiation) of the Executive Service Agreement and, if so, what damages? 426 In my opinion, having regard to the answer to the previous issue, this issue must be answered adversely to the first respondent. That follows because of the finding that the Executive Service Agreement never took effect. If it did not take effect then it was incapable of repudiation. There was no repudiation in the classical sense because condition 2(c) empowered the Board to refuse ratification of the agreement. But I have been asked to assume, contrary to my conclusion, that the Executive Service Agreement did take effect. For the reasons which follow, the assumption is difficult to make. 427 It was contended that the applicant repudiated the Executive Service Agreement by resolving on 9 May to terminate the first respondent's position as company secretary. I think that is not factually correct. No resolution of that kind was passed on 9 May. On 9 May the first respondent was provided with the 15 points which were considered in a somewhat different form on 10 May 2005. 428 At the meeting on 10 May 2005 the Board recorded that Mr White had reached agreement with the first respondent to acquire his total interest in the applicant and 'if possible the Board proposes to cancel all their performance shares'. That accurately recorded what was understood to be the agreement between White Associates Pty Ltd and the first respondent as at 10 May 2005. Moreover, item 16 shows that if agreements were not reached resolutions 1 to 15 became null and void and would be rescinded. 429 There can be no doubt that the resolutions, if they be resolutions, which were passed on 10 May 2005 were passed on the common understanding then existing between the participants that the first respondent had agreed to terminate his relationship with the applicant. Nothing done on 10 May could be construed as being an act of repudiation. 430 Next it was said that the applicant had repudiated the Executive Service Agreement by Mr Harris demanding, in an email of 27 May 2005, that the first respondent deliver all of the applicant's records. I do not agree that that was an act of repudiation of the Executive Service Agreement. In the circumstances then existing, Mr Harris was entitled on behalf of the Board to require the first respondent to deliver up the applicant's records and the request, in my opinion, is not evidence of any repudiation. But, in any event, if it were, on 30 May 2005 the first respondent wrote to Mr Harris saying that he was not obliged to accept that repudiation. 431 Next it is claimed that the resolution of 6 June terminating the first respondent's appointment as company secretary was a repudiation of the Executive Service Agreement. In my opinion, that is correct. If the Executive Service Agreement was valid and had come into effect, the resolution of 6 June 2005 was an act of repudiation. Moreover, the letter of 8 June 2005, which communicated the applicant's decision to the first respondent, was further evidence of the applicant's repudiation of the Executive Service Agreement. 432 The first respondent also claimed that the applicant's solicitors on 17 June 2005, referring to the Board's decision of 6 June and requesting the delivery up of the applicant's books, was an act of repudiation, as was the letter from the applicant's solicitors of 27 June 2005 seeking delivery of the applicant's books. In my opinion, those actions were also acts of repudiation by the applicant, because they were unequivocal expressions by the applicant that there was no binding contractual relationship between the applicant and the first respondent. It follows that, upon the assumption the Executive Service Agreement was valid and had come into effect, the applicant repudiated the agreement. 433 It was contended by the applicant that there was no acceptance by the first respondent of the applicant's repudiation. I reject that contention. 434 On 27 June 2005 the first respondent's solicitors wrote to the applicant's solicitors enquiring whether the applicant repudiated the first respondent's contract. I assume that the reference to the first respondent's contract is to the Executive Service Agreement. On 29 June 2005 the applicant's solicitors responded saying that the applicant was not in a position to consider that matter because the contract was part of the applicant's records which were still in the possession of the first respondent. Some time between that date and 6 July 2005 the first respondent delivered the applicant's books and records to Mr Harris. 435 The first respondent contended that the delivery of the books and records constituted an acceptance of the repudiation. The applicant contended otherwise and submitted that the delivery of the books and records to Mr Harris was merely an acceptance by the first respondent of his obligation to hand over the books and records. 436 In my opinion, the first respondent's act was more than that. The books and records were delivered by the first respondent to Mr Harris in circumstances where it was clear that the applicant had repudiated the Executive Service Agreement. In my opinion, the delivery up of the books and records constituted an acceptance of that repudiation. 437 It follows, therefore, that if I am wrong about the Executive Service Agreement not coming into effect and if it did commence, as contended for by the first respondent, it was repudiated by the applicant. That repudiation was accepted by the first respondent. The first respondent would on that assumption and those findings be entitled to damages. That raises the question of the first respondent's damages. The first respondent claimed damages calculated as follows: '9.1 Remuneration Package for 5 years @ $140,000 p.a. $ 700,000 9.2 Superannuation @ 9% p.a. for 5 years $ 63,000 9.3 1.25% of Biofuels Grant of $9.6 million $ 120,000 9.4 Bonus of $50,000 p.a. upon achievement of Net Profit After Tax of $8 million $ 250,000 Sub Total $1,133,000 9.5 Less actual earnings for 5 years @ $128,875.50 p.a. $ 644,380 9.6 Less superannuation @ 9% p.a. on actual earnings $ 57,994 Sub Total $ 430,626 9.7 Less 25% for contingencies and discount for present value $ 107,657 Total $ 322,969' 438 The first head of damage assumes that the first respondent is entitled to an amount equal to the emoluments contained in the Executive Service Agreement over the whole period of the agreement. That assumption is based on clause 13.1(b) which, as mentioned above, provides that if the applicant terminates for any reason other than specified in clause 13.2, clause 13.3, clause 13.4 or clause 13.5 the applicant must pay an amount equal to the remuneration package for the remainder of the term. The applicant contended that clause 13.1(b) amounted to a penalty. 439 In Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1915] AC 79 at 86-87, Lord Dunedin said: '3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach ...' 440 Lord Dunedin said in relation to the task of construction (at 87): ' 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. ... (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid ... (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage" ...' 441 Lord Dunedin's speech was recently followed in the High Court in Ring Row Pty Ltd v BP Australia Pty Ltd (2005) 222 ALR 306, subject to the caveat at 309. 442 At the time that the Executive Service Agreement was entered into the first respondent was a chartered accountant in full-time employment which was apparently available to him for the foreseeable future. 443 The applicant was liable under clause 13.1(b) of the Executive Service Agreement to pay the full amount of the first respondent's remuneration package unless the contract of employment was terminated for illness, poor performance, including summary termination, or if the company ceased to trade. 444 The remuneration package included the base salary and superannuation together with CPI increases. It also included 1.25% of any Federal or State grant received by the company and a bonus of $50,000 per annum if the company achieved a net profit after tax of $8 million. The remuneration package only serves to establish that the Executive Service Agreement contemplated that it had to have commenced before it was terminated by breach or otherwise. The Executive Service Agreement was not to commence until, amongst other things, the commencement of operations of the biodiesel plant. That could only have occurred if the Federal grant which was under contemplation had been received prior to the commencement of the Executive Service Agreement. The Executive Service Agreement assumed that the plant would be operating and the first respondent would have relocated permanently to Albury/Wodonga. 445 The clause will amount to a penalty if it advantages the first respondent beyond that which would flow from a genuine pre-estimate of the first respondent's damages by reason of the breach of the contract by the applicant. 446 Having regard to my conclusions thus far, the question which is posed is not easy to answer. That is because it must be assumed, contrary to my earlier conclusion, that the Executive Service Agreement gave rise to contractual rights before the commencement date and in circumstances where it had not been ratified by the Board. That assumes that it is capable of being breached even though none of the conditions precedent had been met at the time that the contract was terminated by the breach. 447 If one makes those assumptions, then clause 13.1(b) will be a penalty because it requires the applicant to pay the whole of the remuneration package to the first respondent which includes the base salary together with the amount of 1.25% of the biofuels grant and, so it was contended by the first respondent, the bonus of $50,000 over the full five years. Those amounts would be payable even though the grant had not by then been received and the applicant was by then not earning any profits. 448 That would not be a genuine pre-estimate of the first respondent's loss and the clause must be construed as amounting to a penalty. 449 In a sense, because of the way in which the first respondent has put his claim for damages, the question is more theoretical than practical. The first respondent has properly, in my opinion, recognised that if he be entitled to the remuneration package over the period, together with the superannuation and the other emoluments of office, he would have to bring into account his actual earnings and superannuation received over the same period. The first respondent has also recognised that it would not be appropriate to take in CPI in relation to his claim for damages, notwithstanding the provisions of clause 6(d) of the Executive Service Agreement, because it would be an offsetting deduction for the CPI which would have to be assumed in relation to his actual earnings. 450 That leaves the question as to how the first respondent's damages are to be calculated if clause 13.1(b) is ignored. In my opinion, the first respondent has not proved any damage upon the assumptions that the termination by a breach occurred before the commencement date and before any of the conditions precedent had been met. All he has lost is the opportunity that might have arisen if all of the conditions precedent had been satisfied. That opportunity has no value because the third condition precedent was never met. 451 In my opinion, therefore, the cross-claim must be dismissed.

Orders 452 I would make the following orders: 1. That the resolution of the Board of directors of the applicant made on 30 November 2004 whereby it was resolved: (1) to issue 9,000 performance shares to Mr Dennis Barron subject to the receipt of the subscription money; (2) to issue 5,500 performance shares to Mr Anthony Stewart subject to the receipt of the subscription money; be rescinded. 2. Subject to the applicant paying to the first respondent the subscription money of $55.00 paid by the first respondent on 29 March 2005, the issue of the performance shares to the first respondent be set aside. 3. The applicant's register of members be corrected by deleting any reference to the issue of the performance shares to the first respondent on 10 January 2005 (wrongly described in the register as 2004). 4. The cross-claim be dismissed.

I will hear the parties as to the costs of the claim and of the cross-claim. I certify that the preceding four hundred and fifty-two (452) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Counsel for the Applicant: Mr D Stone with Ms L Del Fuoco

Solicitor for the Applicant: Williams & Hughes

Counsel for the First Respondent: Mr M Bennett with Ms J Crawford

Date of Hearing: 28, 29, 30, 31 August; 1 September; 9, 10, 11, 12, 13 October 2006