CLC Corporation v Cambridge Gulf Holdings NL & Ors [1997] FCA 236

IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) No. WAG 74 of 1996 GENERAL DIVISION ) B E T W E E N : CLC CORPORATION Applicant/First Cross-Respondent CAMBRIDGE GULF HOLDINGS NL First Respondent PENALE PTY LTD Second Respondent/First Cross-Claimant BRIAN JAMES DENNIS CONWAY Third Respondent/Second Cross-Claimant ROBERT GUY PITTORINO Second Cross-Respondent COUNTY NATWEST SECURITIES AUSTRALIA LIMITED Third Cross-Respondent ROBERT BAIN THOMAS Fourth Cross-Respondent CORAM: CARR J. PLACE: PERTH DATE: 9 APRIL 1997 MINUTE OF ORDERS THE COURT ORDERS THAT: 1. Unless the second respondent pays into Court the sum of Two Million Dollars ($2,000,000) on or before 22 May 1997, judgment be entered for the applicant against the second respondent for damages to be assessed, but the operation of the order contained in this paragraph be stayed for 7 days to enable the second respondent to apply for a variation of its terms and the second respondent has leave to do so.

-2- 2. If the second respondent makes the above payment into Court then the applicant's motion filed on 23 December 1996 seeking summary judgment be adjourned generally with liberty to apply. 3. If the second respondent makes the abovementioned payment into Court, that sum shall be paid into an interest-bearing account to be opened by the District Registrar on behalf of the Court. 4. The second respondent and its officers servants and agents be restrained until 5.00 pm on 29 May 1997 from disposing of, or in any manner whatsoever dealing with, the net proceeds of sale of its shareholding in Cambridge Gulf Holdings NL to Nautica Investment Fund Pty Ltd save for the purpose of: (a) making the payment into Court referred to above; (b) depositing those proceeds to its credit in any account in Australia maintained in its name by any bank, building society, trustee corporation [within the meaning of that expression in the Trustees Act 1962 (W.A.)], or firm of solicitors; or (c) discharging legal fees properly incurred in the defence of this application. 5. The applicant's motion filed on 20 March 1997 be adjourned generally with liberty to the applicant, on two days written notice to the second respondent, to apply to have it relisted. 6. The costs of the applicant's motions filed on 23 December 1996 and 20 March 1997 be reserved. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) No. WAG 74 of 1996 GENERAL DIVISION ) B E T W E E N : CLC CORPORATION Applicant/First Cross-Respondent CAMBRIDGE GULF HOLDINGS NL First Respondent PENALE PTY LTD Second Respondent/First Cross-Claimant BRIAN JAMES DENNIS CONWAY Third Respondent/Second Cross-Claimant ROBERT GUY PITTORINO Second Cross-Respondent COUNTY NATWEST SECURITIES AUSTRALIA LIMITED Third Cross-Respondent ROBERT BAIN THOMAS Fourth Cross-Respondent CORAM: CARR J. PLACE: PERTH DATE: 9 APRIL 1997 REASONS FOR JUDGMENT Introduction The Court has before it two motions filed on behalf of the applicant. The first is a motion, notice of which was filed on 23 December 1996, for judgment to be given in its favour against the second respondent, Penale Pty Ltd ("Penale") pursuant to Order 20 rule 1 of the Federal Court Rules. In its second motion, filed on 20 March 1997, the applicant seeks an interlocutory injunction restraining Penale from disposing of certain funds being the proceeds of sale of its shareholding in the first respondent, Cambridge Gulf Holdings NL. Factual Background The following factual background is taken largely from the statement of claim. The applicant, CLC Corporation is a company duly incorporated in the Bahamas. Its incorporation, although not denied, is simply not admitted by the respondents. As part of its resistance to the summary judgment motion, Penale contends that the applicant's incorporation has not been proved. I return to that subject below. CLC Corporation sues the first respondent, Cambridge Gulf Holdings NL ("Holdings"), Penale and the third respondent Mr Brian James Dennis Conway. Holdings and Penale are companies duly incorporated under the Corporations Law. Mr Conway was at all material times a director of both Holdings and (on the applicant's case) Penale. The essence of the applicant's case against Penale is that on 15 or 16 May 1994, during the course of a telephone conversation between Mr Conway in Perth and a Mr Robert Pittorino in France (acting for CLC Corporation) an agreement was reached concerning the subscription of $4 million for the issue of two million shares in a company called Cambridge Gulf Exploration NL ("Exploration"). This agreement is referred to in the statement of claim as "the Penale Agreement". The applicant says that the Penale Agreement was an oral one whereby, in consideration of the applicant subscribing and paying Exploration for the two million shares referred to above, Penale would on 8 July 1995, transfer or cause to be transferred to the applicant, or its nominee, ten million fully paid shares ("the Shares") in Exploration when the Shares came out of escrow. By way of particulars, the applicant further pleads that the Penale Agreement was evidenced by a letter written by Messrs Bennett & Co, Penale's then solicitors, to Mr Pittorino on or about 19 May 1994 ("the Letter"). The Shares were apparently then held by Penale or an entity controlled by Penale, probably Holdings. The applicant says that pursuant to the Penale Agreement, it paid, through its agent Westpac Custodian Nominees Ltd, the sum of $4,000,000 to Exploration on or about 25 May 1994 and subscribed for the issue of two million shares in Exploration. There is evidence from Mr Conway that in late April and early May 1994 the price quoted on the Australian Stock Exchange for shares in Exploration dropped dramatically. Through the months of March and April 1994 they traded at between about $1.80 to $2.25. By 5 May 1994 a parcel of the shares had sold at 82 cents per share. There is no evidence that the price had risen significantly by 19 May 1994. The applicant further says that Penale has failed and refused to perform the Penale Agreement in accordance with its terms. In particular, the applicant complains that the Shares have not been transferred to it. The applicant says that it was and at all material times has been, ready willing and able to perform its obligations under the Penale Agreement. The applicant claims damages for breach of the Penale Agreement, quantified as the loss of the value of the Shares. There is uncontradicted evidence that at the close of business on 7 July 1995 (8 July 1995 was a Saturday) shares in Exploration were trading at 60 cents with the volume traded on that day being 180,500 shares. Depending upon the marketability of a parcel of ten million shares, the amount in issue in this case, apart from interest, would seem to be approximately $6 million. [The claim against Penale is pleaded in the alternative. Earlier in its statement of claim the applicant pleads that the agreement was substantially the same as recited above except that the entity which contracted with the applicant and which was to transfer the Shares to the applicant was to be Holdings. That agreement is referred to as "the Cambridge Gulf Agreement".] By way of further alternatives the applicant pleads that what Mr Conway said to Mr Pittorino during their telephone conversations amounted to representations made by Mr Conway on behalf of Holdings or, in the alternative, on behalf of Penale. It is not necessary for the purposes of these motions to set out the details of those representations. It is sufficient to say that the applicant claims that these representations (each in the alternative) constituted misleading or deceptive conduct in trade or commerce as that expression is used in the Trade Practices Act 1974 (Cth) ("the Act") and the Fair Trading Act 1987 (WA). The applicant contends and pleads that Mr Conway was knowingly concerned in the contravention of s.52 of the Act by Holdings and, in the alternative, by Penale. The applicant says that, acting in reliance upon the (alternative) representations, it subscribed for two million shares in Exploration and paid $4,000,000 to that company. It claims damages comprising the difference between the subscription money of $4,000,000 and the market value of the two million shares in Exploration at the date of allotment together with the lost opportunity to invest $4,000,000 in other more profitable investments. The essence of Penale's defence as currently pleaded and as intended to be pleaded in its proposed amended defence can be summarised as follows: . it denies that the Penale Agreement was made; . it does not admit that CLC Corporation paid and subscribed for the issue of two million shares in Exploration and denies that any such subscription was pursuant to the Penale Agreement; . it admits that the Shares have not been transferred to CLC Corporation; . in the current form of its defence, Penale denies all the other allegations made against it and (in brief summary here) pleads that, if it entered into any agreement with the applicant, such agreement was procured by the applicant in circumstances of economic duress or, alternatively, of unconscionability. Those factual circumstances are set out fully in some 27 paragraphs; . on 27 March 1997 Penale and Mr Conway filed notice of a motion to amend their defence. That motion is yet to be heard, but the parties to the present motions were content to argue them on the basis that the defence would be amended in the manner proposed. The more important parts of the proposed amendments include (a) a denial that, in his discussions with Mr Pittorino, Mr Conway was acting on behalf of Penale, and an assertion that he was speaking to Mr Pittorino as chairman of Exploration; (b) an allegation that County Natwest Securities Australia Limited ("County Natwest") as underwriter/placement manager (to the extent of 8.5 million shares) to an issue by way of placement of 10 million shares in Exploration had unlawfully demanded that Exploration place, or cause to be placed, the Shares with Mr Pittorino; (c) the Letter is not stamped and (d) that "in the premises" there was no agreement between the applicant and any of the respondents. The allegations of economic duress and unconscionability are to be abandoned. At the same time as the original defences were filed (on 15 August 1996), Penale and Mr Conway filed a cross-claim against CLC Corporation, Mr Pittorino, County Natwest and a Mr Robert Bain Thomas of County Natwest. The cross-claim alleged unconscionable conduct on the part of the cross-respondents in relation to the abovementioned transaction. The cross-claimants sought, among other things, an order declaring the whole of any contract made between Penale and the applicant to be void ab initio. On 25 October 1996 the applicant (as first cross-respondent) filed notice of a motion to strike out the cross-claim. Mr Pittorino filed a similar notice of motion on the same day. The cross-claim was amended, by leave, on 13 December 1996. On 20 February 1997 I heard argument on the first cross-respondent's (CLC Corporation's) motion and its present motion for summary judgment. I ordered that insofar as the cross-claim sought relief against the first cross-respondent, it be struck out with liberty to re-plead. I gave the cross-claimants leave to file and serve a further amended cross-claim on or before 7 March 1997. I adjourned the applicant's motion for summary judgment (together with three other motions) for hearing on 13 March 1997. I gave Penale (and Mr Conway) leave to file and serve affidavits in reply, being substantive affidavits dealing in particularity with the evidence which they proposed to adduce at trial, verifying that defence. I did this because I considered that, apart from the matters raised in the cross-claim and substantially pleaded as well in the defence, there was only a denial of paragraph 9 of the Statement of Claim. Paragraph 9 pleads the Letter, which was exhibited to an affidavit filed in support of the applicant's motion. The Letter (which was addressed to Mr Pittorino) omitting formal parts, reads as follows: "We act for Penale Pty Ltd. We are instructed to confirm that our client undertakes to deliver to you ten million shares in Cambridge Gulf Exploration NL once those shares are free of escrow."

When the various motions came on for hearing on 13 March 1997, the second and third respondents sought an adjournment of all of the matters which were then before the Court. The reason given was that a conflict of interest had arisen between them and the firm of solicitors which had acted for them until that date. That firm was Messrs Bennett & Co who (as Mr Conway deposes in the first of three affidavits sworn by him) were instructed by Mr Conway to send the Letter to Mr Pittorino. The new firm of solicitors had been engaged and counsel briefed. However, neither that firm of solicitors nor counsel, so it was submitted, were in a position properly to advise and represent the first and second respondents. The applicant opposed that adjournment application. It complained, with some justification, that the manner in which the second and third respondents had conducted their case had effectively delayed the applicant in the prosecution of its claim for some considerable time. This included failure on their part to provide security for costs, as ordered, in respect of their cross-claim. With some reluctance, I adjourned the various motions (including the applicant's motion for summary judgment) on terms. The terms included a requirement that the second and third respondents should on or before 27 March 1997 file and serve an affidavit setting out their respective assets and liabilities as at 13 March 1997 and as at the date of swearing such affidavit. I adjourned all of the motions for hearing on 4 April 1997. The second and third respondents did not take the opportunity provided, by the leave granted on 20 February 1997, to file and serve a further amended cross-claim. Instead, on the eve of the hearing of the two motions now before the Court i.e. on 3 April 1997, the cross-claimants filed a notice of discontinuance of their cross-claim.

The Relevant Legal Principles Not surprisingly, there is little (if any) dispute between the parties concerning the legal principles to be applied when deciding an application for summary judgment. However, it is useful briefly to set out those principles. First, I refer to Express Newspapers Plc v. News (UK) Ltd & Ors [1990] 3 All ER 376 at p.379: "Summary judgment under Ord 14 [the equivalent to Order 20 rule 1 of the Federal Court Rules] is a judgment given in the clearest cases before an ordinary trial has taken place. Summary judgment is only given where it is clear that there is no arguable defence to the claim. If there is an arguable issue to be tried, in particular where there are matters of fact to be resolved which can only be resolved at trial, the court gives leave to defend and the case goes to trial to be heard out. Summary judgment is a means of short-circuiting that system in the clear case where it is shown that, even if it went to trial, the defence could not succeed." Closer to home, there is the following observation in the reasons for judgment of Mason CJ, Deane and Dawson JJ in Webster v. Lampard (1993) 177 CLR 598 at pp.602-603: "It is important to note at the outset that the issue before the learned Master on the application for summary judgment was not whether Mr and Mrs Webster would probably succeed in their action against Sergeant Lampard. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. The power to order summary judgment must be exercised with "exceptional caution" and "should never be exercised unless it is clear that there is no real question to be tried". ... Nowhere is that need for exceptional caution more important than in a case where the ultimate outcome turns upon the resolution of some disputed issue or issues of fact." It is true that Webster's case involved striking out a claim not a defence, but the principles are essentially the same. I give one last further example. In Fancourt v. Mercantile Credits Ltd (1983) 154 CLR 87 at p.99 the High Court emphasised that: "The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: [authorities cited]. In our view, it is not possible to say without doubt, on the whole of the material, that there is no question to be tried ...". Is there no arguable defence to the claim or is there a real question to be tried? In Mr Conway's affidavit in opposition to the application for summary judgment he sets out the circumstances which gave rise to his instructions to Messrs Bennet & Co to send the Letter. I shall endeavour to summarise the relevant circumstances as deposed to by Mr Conway. It would appear that in February and March 1994 Exploration's corporate solicitor (Mr Mark McNamara) negotiated an agreement with County Natwest to place 6.05 million shares in Exploration at $2.00 per share. Although previous draft placement agreements between Exploration and County Natwest had not contained a condition precedent that the total placement had to be not less than 10 million shares, the placement agreement as signed on 15 March 1994 contained such a condition precedent. Mr Conway swears that when he signed the placement agreement, he had not read it and was not aware of this condition precedent. Its significance will emerge shortly. There were simultaneous arrangements between Exploration and a company controlled by one of its directors, Zephyr Capital Sdn Bhd ("Zephyr") pursuant to which Zephyr had agreed to place up to 4 million shares. This was eventually reduced, at the instance of County Natwest, to 3.5 million shares when County Natwest apparently exercised a right to place 6.55 million shares. Shortly after the dramatic drop in the quoted price of shares in Exploration, referred to above, Exploration sought and obtained an assurance from Zephyr that it would place 3.5 million shares in accordance with the placement timetable. As it transpired, Zephyr defaulted in that obligation. This became apparent on or about 13 May 1994, which was the very date upon which Zephyr was obliged to provide the subscription monies. It appears that those controlling Exploration were able to place 1.5 million of the shares in respect of which Zephyr defaulted. County Natwest had found subscribers for 6.5 million shares. That left a potential shortfall of 2 million shares. By 5 May 1994 Mr Conway says that he had become aware, for the first time, of the existence of the condition precedent in the placement agreement with County Natwest. He says that late in the afternoon of 13 May 1994 Mr Thomas of County Natwest telephoned him and they discussed the problem. Mr Thomas (so Mr Conway deposes) told Mr Conway that he would see what he could do and would start ringing around and would talk to his associates including Mr Pittorino and a Mr Peter Newton. Early in the hours of 14 May 1994 Mr Thomas again telephoned Mr Conway. He told Mr Conway that Mr Newton and Pittorino had "got things pretty well covered in that Pittorino would take 2 million shares at $2 each from the placement, but they wanted an incentive". Mr Conway asked him what sort of incentive and Mr Thomas said that he (Mr Conway) should put something in writing for discussion purposes. There is evidence, from another source, of a fax sent by Mr Conway to Mr Thomas on 14 May 1994. I shall return to that document below. For the time being it is sufficient to explain that that fax refers to a proposal to offer a separate party "that Peter, Bobby or yourself" come up with, the 2.5 million shares that [Zephyr] had not taken up. In that context the fax states "CGH will provide as a sweetener a further 5 million shares by [word indistinct] ... once our shares are out of escrow in July 1995." When Mr Conway swore his affidavit, he did not have a copy of that fax and believed that Mr McNamara had destroyed it. The fax was exhibited to an affidavit sworn on behalf of the applicant in these proceedings. Mr Conway's evidence about his recollection of the contents of the fax is, broadly speaking, generally consistent with its contents, although there are some differences (which might be expected in the circumstances). Mr Conway swears that he was telephoned by Mr Pittorino on or about 14 or 15 May 1996. Mr Pittorino told Mr Conway that the proposal in his fax was "not a doable deal". Mr Pittorino said that he wanted 10 million shares in Exploration and various other things. Mr Conway says that he told Mr Pittorino "... we could not do business". Mr Conway says that on 16 May 1996 Mr Thomas telephoned him during the course of a meeting of the board of directors of Exploration. He names eight other people as having been present at that meeting and says that the call was put on loudspeaker so that Mr Thomas' voice could be heard by all present. Mr Conway says that Mr Thomas told the meeting that Mr Pittorino would take 2 million shares and County Natwest would guarantee him, "so that was set". Mr Thomas said that the whole placement would be concluded on time but it "would cost more than an arm and a leg, it would take half a body". Mr Thomas said that there would be an extra cost to Exploration for the additional placement by County Natwest, but did not quantify that cost. At the end of that discussion Mr Conway says that he believed that the problem with the placement had effectively been resolved. On 19 May 1994 County Natwest wrote to Exploration confirming that it would subscribe or procure subscriptions for 2 million shares, over and above the 6.5 million shares already contracted for by it, provided that it [County Natwest] received evidence satisfactory to it by noon on 20 May 1994 that the total subscription funds (other than the $4 million for the extra 2 million shares) had been received in cleared funds. In other words, that funds of approximately $3 million had been received in cleared funds. There was apparently no difficulty in that condition being met. A copy of County Natwest's letter of 20 May 1994 is exhibited to Mr Conway's affidavit. Mr Conway says that he regarded the placement in practical terms as having been completed and departed to Perth airport on the afternoon of 19 May 1994 to travel to Singapore. On his way to the airport Mr McNamara telephoned him. Mr McNamara told Mr Conway that Mr Thomas had telephoned to say that he wanted a fax sent to Mr Pittorino stating that 10 million shares in Exploration would be transferred to Mr Pittorino, otherwise County Natwest would not provide the balance of the funds for the placement, which would collapse. At first, Mr Conway said that he refused to agree. He received a further call from Mr McNamara while he was waiting at the check-in counter at the airport. When Mr McNamara told him that Exploration "... would effectively be destroyed ..." if the Letter was not sent, Mr Conway telephoned Mr David Shaw of Messrs Bennett & Co and instructed him to send the Letter. He told Mr Shaw that he was doing this under duress and wanted an affidavit or a statutory declaration prepared to that effect when he returned from Singapore. The evidence is that the Letter was despatched at 2.55 pm on 19 May 1994. I set out below three key paragraphs from Mr Conway's principal affidavit: "34. At no time through the course of my discussions with Pittorino did I agree that either I or the other respondents would provide 10 million shares to Pittorino or any party on Pittorino's behalf. I considered the requirement that 10 million shares be provided to be commercially unacceptable as there was no consideration for it. Accordingly, I deny the allegations in the statement of claim to the effect that any such agreement was reached between me and Pittorino.

35. I also deny that I told Pittorino that 10 million shares would be provided. The only occasion in my communications with Pittorino in which I may have referred to the possible provisions of shares to him in CGE [Exploration], other than through the placement of 2 million shares at $2.00 each, was in my fax, the contents of which I have deposed to in paragraph 23. 36. With respect to Exhibit "BC12" [the Letter], this letter did not reflect any agreement that I had previously reached with Pittorino. Rather, I told Shaw to send this letter because of what McNamara had told me about Thomas's telephone conversation with him. I would not have told Shaw to send the letter but for the fact that I believed from McNamara's statements that County would improperly breach its agreement with CGE unless the letter was provided." There is evidence that County Natwest claimed and received a fee for the placement of 10 million shares in Exploration. That fee was calculated at a rate of 5% on the sum of $19 million. The fee payable under the original placement agreement between Exploration and County Natwest was 4% - an effective difference of $190,000. Finally, Mr Conway exhibits correspondence between Messrs Herbert Geer & Rundle, Melbourne solicitors acting for the applicant and Messrs Bennett & Co in June 1995. The essence of that correspondence (which includes a draft Supreme Court writ and a copy of an affidavit sworn by Mr Pittorino on 27 June 1995 - "Mr Pittorino's affidavit") was that the applicant was claiming that Holdings and Mr Conway had contracted to transfer the Shares to it and had breached that agreement. Mr Pittorino's Affidavit The applicant relied upon Mr Pittorino's affidavit, which was sworn by him in support of a proposed application to the Supreme Court of Western Australia for an interlocutory injunction. Those proceedings were never issued but arose out of the same circumstances as arise in this matter. The applicant was the proposed plaintiff, Holdings was the proposed first defendant and Mr Conway was the proposed second defendant. Senior counsel for the second respondent, although criticising the use of Mr Pittorino's affidavit in this manner and describing that course as being "most curious", did not object to its tender. Accordingly I shall refer to it, in summary, and as briefly as possible. Mr Pittorino described how, as the former managing director of County Natwest (which was the sponsoring broker in relation to the float of Exploration) he became involved with the affairs of Exploration, Holdings and Mr Conway. He became aware, in about March 1994, of the proposed placement by Exploration of 10 million shares at $2 per share. He was also aware that County Natwest had agreed to place $13 million worth of that issue with its clients and that it was proposed that a director of Exploration would arrange placement of the balance of the issue, namely $7 million. Mr Pittorino referred to the sharp price fluctuation in Exploration's shares in late April and early May 1994, and that the Exploration director was unable to arrange the placement of shares to the full value of $7 million. Mr Pittorino specifically deposed to the fact that he was told by Mr Thomas that Exploration was desperate to complete the issue, that the $13 million raised through County Natwest's clients would not be forthcoming if the full subscription of $20 million were not obtained and that there seemed to be a likely shortfall of about $4 million. He said that Mr Thomas asked him whether he could suggest any solution and in particular whether he [Mr Pittorino] knew anyone who might be prepared to take a long-term view of an investment in Exploration and provide $4 million. Mr Pittorino said that he then discussed the matter of the possible shortfall of $4 million with Mr McNamara. At paragraph 12 of Mr Pittorino's affidavit he referred to the first of his relevant telephone conversations with Mr Conway. On Mr Pittorino's evidence, it was Mr Conway who first said that, given the market price of the shares at that time, (well below $2.00) some incentive would be needed for someone to subscribe for shares at $2.00. Mr Conway had said that he would be prepared to offer an additional 5 million shares from "his parcel" on the basis that there would be an option to re-purchase those shares at a pre-determined price. Mr Conway said that the shares were held in escrow and would not be released from the escrow until 8 July 1995. [The broad similarity between this evidence and the contents of Mr Conway's fax of 14 May 1994 is something which I take into account]. Mr Pittorino swore that although he could not specifically recall whether the name Cambridge Gulf Holdings NL was mentioned in that conversation, he understood from his knowledge of the affairs of Exploration, that it was the shares held by Holdings to which Mr Conway was referring when he spoke of his shares and the additional shares. Mr Pittorino said that he knew there was no other shareholder in Exploration which held 5 million shares, that Mr Conway was a director of Holdings and that a company owned and controlled by his family company, Penale, held a controlling interest in Holdings. Mr Pittorino told Mr Conway that he [Mr Pittorino] was not personally able to participate in the share issue but undertook to speak to a Mr Kim Oxenham. Mr Oxenham had been until mid-1993 the branch manager of County Natwest at Monaco and had business contacts with people who might be able to provide funds at short notice. Mr Pittorino said that he spoke to Mr Oxenham several times over that weekend. Mr Oxenham had told him that it would require an offer of not less than 10 million shares before he believed he would be able to convince one of his clients to assist. If Mr Pittorino could obtain an offer of 10 million shares he [Mr Oxenham] would try hard to achieve a $4 million commitment within 24 hours. The following are key paragraphs of Mr Pittorino's affidavit:

"15. I then rang Brian Conway in Perth. I cannot recall whether that was on the Sunday or Monday, although it is more likely that it was on Monday, 16 May 1994. I told Brian Conway that Kim Oxenham may have a client who might be prepared to invest $4,000,000 in CGE but only on the basis that in addition to the 2 million shares the subject of the initial subscription, a minimum of a further 10 million fully paid shares in CGE were to be delivered upon the expiry of the escrow period. Brian Conway responded that he thought ten million shares was "a bit rich". I told him that was the proposal and that there was nothing further that I could do for him. 16. In a telephone conversation that day, which I believe was 16 May 1994, Brian Conway told me that he agreed to offer 10 million shares in accordance with the proposal I had put to him. I cannot recall whether he did so in the same telephone conversation as that in which I put the proposal, or whether shortly afterwards he telephoned me back with his answer. I then contacted Kim Oxenham. He told me he would speak to his client. 17. Subsequently Kim Oxenham rang me back and said that his client would go ahead. He also said that his client wanted some written confirmation of the agreement. 18. Having received Kim Oxenham's client's agreement to the offer, I telephoned Mark McNamara at CGE and told him of the agreement and that the funds would be available. 19. I left France on Tuesday, 17 May 1994 and arrived back in Sydney on Thursday, 19 May 1994. 20. Shortly afterwards I had further telephone discussions with Mark McNamara regarding confirmation in writing of the agreement. In the last of those, Mark McNamara told me that Brian Conway had given instructions to Bennett & Co to write confirming the agreement. Later that day I received a facsimile from Bennett & Co, a copy of which is now produced and shown to me and marked "RP1". 21. Upon receipt of the facsimile from Bennett & Co of 19 May 1994, I forwarded a copy to Kim Oxenham. In that facsimile, Bennett & Co said they act for Penale Pty Ltd. I knew that Penale Pty Ltd held a controlling interest in CGH, and that it was closely associated with Brian Conway. Accordingly, I did not raise any question about the letter. 22. CLC Corporation ("CLC") provided $4,000,000 to County on 23 May 1994, and County arranged for Westpac Custodian Nominees Limited, as nominee for CLC to complete the application form for two million shares and to pay the funds to CGE. 23. I had subsequent discussions with Brian Conway on 24 July 1994 in London and by telephone in November 1994 and in the course of both those discussions Brian Conway stated that CGH would transfer 10 million fully paid shares on 8 July 1995. 24. On 16 March 1995 I attended a meeting at the office of CGE in Perth with Kim Oxenham, David Shaw of Bennett & Co, Brian Conway and Anton Gans, a technical director with CGE, to discuss the general position of CGE. In the course of that meeting, I raised the issue of the ten million shares due to be transferred on 8 July 1995 but Brian Conway refused to discuss the matter with me."

Mr D.M. Stone, counsel for the applicant, presented a very persuasive case for the proposition that summary judgment should be entered on behalf of his client against Penale. First, he referred to the matter of the cross-claim as having had the effect of seriously delaying the trial of the applicant's claim which turns, so he submitted, in effect on the resolution of a few short issues on confined facts. I have summarised above what transpired in relation to the cross-claim. I accept Mr Stone's submission that the cross-claim (which has so recently been abandoned) has had the effect of delaying the trial of his client's claim. My assessment is that the cross-claim and all the interlocutory matters which arose out of the cross-claim, before it was abandoned, had the effect of delaying the disposal of the application by about six months. Given the state of the list of cases awaiting hearing, my further assessment is that this application would by now have been heard with a reasonable prospect of judgment having been delivered. Whether that judgment would have been in favour of the applicant is another matter, but I feel that I should take this factor into account (and I do so) when deciding the application for summary judgment. In particular, if I refuse that application, I think it is a relevant factor when I consider what terms (if any) should be imposed as a condition of such refusal. Mr Stone also referred to the matter of delay in conjunction with the prejudice to his client arising out of certain transactions which occurred during the period of the delay. There is evidence that Penale has sold all of its shares in Holdings. It was through Penale's former control over Holdings that the Shares (i.e. the shares in Exploration) could have been made available as a "sweetener". The sale agreement, although executed, is undated. Other evidence puts the date of its execution at about 20 February 1997. The sale agreement states that the purchase price is $2.25 million. It also contains a condition that it "constitutes the sole and entire Agreement between the parties." On its face, the sale agreement would indicate a purchase price of $2.30 per share. But that impression, on the current state of the evidence, is wrong. There is evidence of another sale agreement relating to the balance of the shares in Holdings to the same purchaser at a price of $5.58 per share. On first impression, it might be thought that the majority shareholder was obtaining a very substantial premium. However, it emerges from Mr Conway's affidavit, sworn 27 March 1997, of his and Penale's assets and liabilities ("the Penale affidavit") that the premium is not as substantial as it would seem. From the attachments to the Penale affidavit it is clear that in addition to paying Penale $2.25 million for its shares in Holdings, the purchaser has agreed to "assume" certain debts. Those debts were identified as loans owing to: . Holdings ($171,197); . Prosin Investments Pty Ltd ($1,329,269). There is evidence that a Mr Igor Prosin is a director of the purchaser; and . M. Lanyon ($500,000). The evidence before the Court is that Penale has no charges registered against any of its assets. From that I infer that the above creditors are unsecured creditors of Penale. The debts owing to these creditors are described in the documents filed on its behalf as "non-current liabilities". Another non-current liability shown in the financial statements is a loan of $430,000 from "FCTP Discretionary Trust". Note 3 to Penale's statement of assets and liabilities as at 13 March 1997 reads: "Penale Pty Ltd has entered into a Loan Facility Agreement with FCPT (sic) Discretionary Trust where the facility is for $2.25 million." FCTP is the purchaser's nominee (see Recital D of the Sale Agreement). Mr Conway's evidence is that Penale was to draw down the loan facility with FCTP on 7 April 1997 and thereby receive $2.25 million. I am unable to reconcile that figure with the fact that $430,000 has apparently already been advanced. Mr Conway says that after Exploration's shareholders have approved the sale, Penale will pay back the loan of $2.25 million with the sale proceeds. It is apparent from the evidence that if, as at 13 March 1997, the applicant had obtained judgment against Penale for, say, $6 million and levied execution, then there would not have been sufficient assets to satisfy that judgment. The deficiency in trust funds (Penale is the trustee company for the Conway Family Trust) as at that date was $227,363. Mr Stone annexed to his outline of submissions what I would describe as a pro forma statement of assets and liabilities of Penale prepared on the assumption that the terms of the sale agreement are carried into effect i.e. that Penale receives $2.25 million for the shares and that the creditors listed above are paid. Although this pro forma statement indicates (subject to the occurrence of the above events) an excess of assets over liabilities of $2,971,145, a very substantial current asset is shown as a loan owing by Mr and Mrs Conway of $1,292,998. No evidence is currently before the Court concerning Mrs Conway's means. However, Mr Conway's own evidence is that he has an excess of liabilities over assets amounting to approximately $1,342,998. It is common ground that this is probably over-stated (by arithmetical error) by $100,000. This, I accept, places (at least potentially) the recoverability by Penale of the loan of $1,292,998 in some doubt. Mr Stone relies upon these matters for two reasons. First to put in question "the bona fides of the defence". Secondly, as being relevant to his application for a Mareva injunction. At this stage I am concerned only with the summary judgment application; I deal with the application for a Mareva injunction below. I am not prepared to make a finding of bad faith on the state of the evidence to date. I have not had an opportunity to see the witnesses give their evidence or be cross-examined, although the importance of demeanour and the manner in which a witness gives evidence may be over-estimated. However, I am concerned about these transactions and the timing of them. Those concerns are increased by the fact that the series of transactions started at a time when these proceedings were held up by the existence of the cross-claim and the interlocutory procedures associated with it. For example, the cross-claimants had not complied with orders that required them to provide for security for costs, failing which the cross-claim was stayed. I suspect that there was a degree of tactical manoeuvring involved on Penale's part to place obstacles in the applicant's path, but I am not prepared, as I say, to make a finding of bad faith at this stage. I take into account the effect of what has happened and what is planned. Mr Stone submits that the arrangements in relation to Penale's unsecured creditors (referred to above) have the effect of "putting out of the way" of the general body of Penale's creditors (including the applicant) some 47% of the true purchase consideration for the sale of Penale's shares in Holdings. He relies on the fact that the true purchase consideration was not revealed in the announcement to the Australian Stock Exchange Ltd nor in the sale agreement itself because there was no reference to the assumption of Penale's debts to the extent of $2,000,466. Next Mr Stone referred to what he described as "Penale's changes of position". Until 3 April 1997, when it discontinued its cross-claim Penale had adopted the following position: . the applicant was a foreign corporation within the meaning of s.51(xx) of the Constitution - this is now put in issue; . Mr Pittorino was the applicant's agent - that also is now in issue; and . Penale pleaded and relied upon the Letter as founding a cause of action against the cross-respondents. Mr Stone submitted that Penale was seeking to "approbate and reprobate", something which it was not permitted to do. He relied upon the Express Newspapers case for that proposition. I should interpolate that in my view that case is distinguishable from the present matter. In Express Newspapers the plaintiff had obtained summary judgment (and was seeking to retain it before the Court of Appeal) on the basis that there was no defence to its claim. The plaintiff then sought to defend a counterclaim on facts which were found to be relevantly indistinguishable from those of its claim. In the present matter, the cross-claim has been withdrawn and the defence is to be regarded as re-pleaded. Nevertheless I take into account Penale's recent and very belated changes in its position when considering whether summary judgment should be entered against it and, if not, whether terms should be imposed and what those terms should be. As I understand the authorities, the discretion is a composite or "global" one. See, for example, the decision of the Full Court of the Supreme Court of Queensland in DMS Shipping & Trading Co Ltd v. Lionheart Asia Ltd (1996) 2 Qd R 20 and, in particular, at pp.21 and 23. Mr Stone then turned to the question whether there were triable issues. First, there was the issue whether Mr Conway had authority to bind Penale. Mr Stone contended that, on the evidence to date, Mr Conway was a director of Penale within the meaning of s.60 of the Corporations Law because he was a person occupying or acting in the position of director of that company, even though the evidence shows that he was not formally appointed to that position until 17 November 1996. I was referred to the evidence that: . Mr Conway held one of the three issued shares in Penale and that his wife and one other member of his family held the other two shares; . Penale is the trustee of Mr Conway's family trust; . Mr Shaw felt able to accept Mr Conway's instructions on behalf of Penale when he sent the Letter; and . in his affidavit of 3 March 1997, Mr Conway speaks of "his" administration of the Trust. I agree with Mr Stone's submission that, on the evidence to date, so much of the defence as is based on the contention that Mr Conway did not have the ostensible authority of Penale is not likely to succeed. The next issue identified was whether Mr Pittorino was the applicant's undisclosed agent. At this stage there is Mr Pittorino's uncontradicted evidence to that effect. There is also the evidence of Mr Norman Leighton. Mr Leighton is a director of the applicant. On 3 April 1997 Mr Leighton swore an affidavit stating that the applicant was a company duly incorporated in the Bahamas and that throughout the transactions referred to in paragraphs 15, 16, 18 and 20 of Mr Pittorino's affidavit, Mr Pittorino acted as the applicant's agent. On the present state of the evidence the applicant's prospects of establishing that Mr Pittorino was the applicant's agent are, in my view, quite good. In the same paragraph of his submissions, Mr Stone contends "... the only issue is whether or not Conway agreed to that request [Mr Pittorino's request for 10 million shares in Exploration]." That may be so, but in my view it is a very basic issue. I return to that subject below. The applicant submits that Mr Conway's contention that he acted under some form of "duress" in causing Mr Shaw to send the Letter evidencing an agreement which he did not make is "glaringly improbable" in the circumstances. Those circumstances were that shares in Exploration were trading at about 80 cents. The applicant poses the question: "Was anybody likely to take a placement at $2 a share unless they were offered some additional consideration to do so?" I must say that, on the evidence to date, the most probable answer to that question is - no. Another circumstance was the fact that, on Mr Conway's case, before he spoke to Mr Pittorino he wrote to Mr Thomas offering (not to County Natwest, but to the proposed subscriber) a transfer of extra shares as an incentive or "sweetener". Finally, so it was put, Mr Conway is not to be taken to be a man of particular vulnerability or lack of commercial experience. I do not think that there is sufficient evidence before me to form any opinion on that last particular point. The next issue which Mr Stone identified was whether there was any consideration for the promise confirmed in the Letter. That brings one back to what I have described as a very basic issue i.e. whether an agreement was made with Penale in the terms alleged by the applicant and sworn to by Mr Pittorino. Part of Penale's case is that additional fees were paid to County Natwest for placing the extra 2 million shares. This was the increase in the rate of commission from 4% to 5% applied to the full amount subscribed. However, Mr Conway's evidence is that Mr Thomas had said (on 16 May 1994) that to conclude the placement on time "... would cost more than an arm and a leg, it would take half a body." The extra percentage commission amounts to $190,000. As a tentative, provisional, view in all the circumstances I would not regard the payment of an extra $190,000 as falling within that description. In his fax of 14 May 1994 Mr Conway had already suggested "a sweetener" of a further 5 million shares (admittedly this was in the context of a subscription for 2.5 million, not 2 million shares). Even at that proposed rate (Mr Conway's opening proposal) with Exploration's shares trading at 80 cents each, the amount involved to "sweeten" a subscription of $2 million would be in the vicinity of $400,000. I am acutely aware of the weight of all the submissions that Mr Stone put about the strength of the applicant's case on the evidence adduced to date. Central to that case is, of course, the Letter which provides very persuasive corroboration of what Mr Pittorino has sworn were the facts. [Mr P.M. Nisbet QC, who with Mr A.J. Gabrielson appeared for the respondents, submitted that the Letter was inadmissible because it was not stamped. He claimed that the Letter was chargeable with duty as a conveyance or transfer of property, being marketable securities. The parties addressed me at some length on this issue. However, I do not propose to give detailed reasons for my ruling (which I now make) that the Letter is not stampable and is admissible into evidence as being a most relevant document. Its relevance is that it strongly corroborates Mr Pittorino's sworn evidence of what took place between the parties. It is sufficient, at this stage, for me to say that in my opinion the Letter does not "effect" the agreement pleaded but rather is evidence that there was such an oral agreement - see Metro Taxi Management Pty Ltd v. Commissioner of State Taxation (W.A.) (1995) 95 ATC 4,671 at p.4,673 and Peko-Wallsend Operations Ltd v. Commissioner of State Taxation (W.A.) (1989) 89 ATC 4,569 at p.4,579 and the authorities there cited.] Next I deal briefly with some objections taken on behalf of Penale to the evidence adduced by the applicant in support of the motion for summary judgment. First there was the objection that the corporate nature of the applicant had not been sufficiently verified. In my view, the uncontradicted evidence of Mr Leighton (a director of the applicant) to that effect (which is uncontradicted by other evidence) is sufficient in the circumstances. Then it is said that Mr Leighton's affidavit of 17 January 1997 does not identify Mr Pittorino as an officer, servant or agent of the applicant. It will be remembered that until 3 April 1997 Penale in its cross-claim was alleging that matter as a fact. I consider that there is sufficient evidence both in Mr Pittorino's affidavit and in Mr Leighton's later affidavit (referred to above) to identify Mr Pittorino as an agent of the applicant. Then Penale complains that Mr Leighton's affidavit does not swear to the material facts in support of the cause of action. Again, all that Order 20 rule 1 of the Federal Court Rules requires in that regard that "there is evidence of the facts on which the claim ... is based". In my view there is such evidence. I refer to Mr Pittorino's affidavit. Furthermore, Mr Leighton as a director of the applicant has sworn to his belief that Penale has no defence to its claim [see Order 20 r.1(1)(a)]. Mr Leighton exhibits (to his first affidavit) the Letter. The Letter would, in my view, justify Mr Leighton in holding such a belief. On the other hand, Mr Conway has, on oath, set out what he says are the facts. If Mr Conway's oral evidence at the hearing is to the same effect and if he is believed then the claim against Penale will quite probably fail. I do not regard Mr Conway's versions of the facts as "inherently incredible" (the words used by the High Court in Webster v. Lampard at p.608). My assessment of the whole of the material is that I cannot say without doubt that there is no question to be tried on the issue whether or not Mr Conway on behalf of Penale reached the alleged agreement with Mr Pittorino on behalf of the applicant. Nevertheless my view is that the material as to the merits of the defence are only just sufficient to raise a triable issue. Mr Conway, on his own evidence, was aware that a "sweetener" would be required by the proposed subscriber for the 2 million shares in Exploration. He sent a fax on 14 May 1994 suggesting how many shares could be made available as such a "sweetener". Then there is the Letter sent five days later confirming that Penale will transfer the Shares. The authorities talk about a defence as being "shadowy". I would not use that adjective because of the connotations of that word. Rather, I have formed the opinion that, on the evidence at this stage, the applicant's case is a strong one and the defence (when assessed in all the surrounding circumstances) is not a particularly strong one. I appreciate, however, that Mr Conway's credibility will be critical in the eventual disposal of the matter. In short, I consider that Penale is entitled to its day in Court, subject to an appropriate condition. I consider that an appropriate condition would be that Penale should make a payment into Court. In those circumstances, the applicant submitted that the payment into Court should be of the total proceeds of the sale of Penale's shares in Holdings i.e. $4,250,466. Mr Stone referred to Mr Conway's evidence that the terms of sale are presently the subject of further negotiation. He described the arrangements as being still "fluid". Mr Stone submitted that there was no evidence of any binding agreement relating to the assumption of debts totalling $2,000,466, being the debts referred to above. Alternatively Mr Stone sought an injunction restraining Penale from dissipating, transferring or realising any of its assets without first giving his client 14 days notice of its intention to do so and giving full details of each of the transactions proposed. By way of a further alternative, if settlement did not take place in respect of the sale, Mr Stone sought a similar injunction in respect of the Holdings shares. The effect of an order for payment into Court of the amount sought by the applicant would be to provide it with security to the extent of about 70% of its claim - see Commercial Banking Company of Sydney Ltd v. Colonial Financiers of Australia Pty Ltd [1972] VR 702 at p.705. Given how much turns on Mr Conway's credibility, I do not think that such an order would be just. I think that there should be an order for payment into Court, but not to that extent. In drawing that conclusion I have had regard to the present and likely future financial circumstances of Penale. In all those circumstances, I consider that as a condition of not having summary judgment entered against it for damages to be assessed, Penale should pay into Court an amount of $2 million. I deal below, in the context of the applicant's motion for a Mareva injunction, with Mr Stone's submissions that a similar injunction should be imposed as a condition of giving Penale "leave to defend". I put that phrase in quotations because there is no specific provision in the Federal Court Rules for granting leave to defend either conditionally or on terms. Such a provision is commonly found in rules of court providing for summary judgment - see for example Order 14 rule 4(3) of the Rules of the Supreme Court 1971 (W.A.). However, in Tomlinson v. Cut Price Deli Pty Ltd (1992) 38 FCR 490 Drummond J took a course which effectively gave the cross-respondents leave to defend, on terms. I respectfully propose in this matter to adopt a course which, in principle, I consider to be similar. Whether a Mareva injunction should be granted The principles upon which a Mareva injunction may be granted are now well-established. I propose, without reciting them, to apply them to the facts of this case. First, for the reasons which I have set out above, I consider that the applicant has established a good prima facie case. Next, I am satisfied that, unless restrained, Penale will deal with its assets in a fashion so that if the applicant is successful, it will not be able to have its judgment satisfied. That conclusion is subject always to the matter of the payment into Court of $2 million. Mr Nisbet submitted that, on the evidence before the Court to date, the applicant was already in that position. In my view the answer to that submission is that, where appropriate, a Mareva injunction is available to prevent the situation from becoming worse i.e. a lesser degree of recovery. I do not consider that it is necessary to show an intent on the respondent's part to frustrate an applicant. I think it is sufficient to show the necessary effect - see Riley McKay Pty Ltd v. McKay [1982] 1 NSWLR 264 at p.276. The current state of the evidence is that the real consideration for the sale of Penale's shares in Holdings is $4,250,466 of which $2,000,466 is to be applied in assumption of the debts referred to above. Although these debts are unsecured, there is no evidence that they are not real debts of Penale. In other words, they should be taken into account when assessing the net worth of Penale. To a considerable extent the application for a Mareva injunction has, in my view, been subsumed in my decision in relation to the motion for summary judgment i.e. the applicant will have (assuming it is successful in the principal application) security to the extent of $2 million if the monies are paid into Court. A Mareva injunction does not provide an applicant with security, it simply prevents dissipation. I do not consider that it would be, in all the circumstances of this matter, a proper exercise of the discretion to make an order which would preclude Penale from making what appear to be bona fide arrangements for the discharge of existing indebtedness. The dissipation to which I have referred above is rather to the use to which Penale proposes to put the cash component of the purchase consideration namely $2,250,000. On Mr Conway's evidence, almost half that amount is to be advanced to his wife to settle the purchase of a house in Mosman Park. The balance, so it is proposed, is to be applied in relation to the purchase of shares in a French fishing company and litigation in the United Kingdom. If I had not made an order for payment into Court, I would probably have made orders that the monies to be advanced to Mrs Conway be secured by first mortgage and that the balance of the cash be the subject of a Mareva injunction. However, because of the various matters which I have mentioned above in relation to the motion for summary judgment, I consider that the adjustment of the respective interests of the parties requires that Penale make a payment into Court. That consideration overrides, in my view, the interest which Penale has in advancing some $900,000 to Mrs Conway, which I would otherwise have ordered to be secured. Accordingly, I do not propose to grant a Mareva injunction in any of the forms proposed by the applicant. Nevertheless, I do not propose to dismiss the motion for a Mareva injunction. It may be necessary, depending upon how events transpire, to protect the applicant's interests, for example if Penale does not make any payment into Court. Accordingly, that motion will be adjourned generally, with liberty to apply. I propose to make orders in terms of the minute of orders which precedes these reasons for judgment. However, I will hear counsel in relation to the terms of the orders. I certify that this and the preceding twenty-nine (29) pages are a true copy of the Reasons for Judgment of Justice Carr. Associate: Date: 9 April 1997 Counsel for the Applicant: Mr D M Stone Solicitors for the Applicant: Williams & Hughes Counsel for the Second Respondent: Mr P M Nisbet QC (with him Mr A J Gabrielson) Solicitors for the Second Respondent: Messrs Deacons Graham & James Date of Hearing: 4 April 1997 Date of Judgment: 9 April 1997