the negotiation of the principal agreement and gsa
138 On 10 December 2004, Mr Steven Cole, partner at Allens Arthur Robinson and solicitor for Barton International and related companies met with Mr David Williams, partner at Williams and Hughes, and solicitor for GIRL to discuss a paper entitled "Without Prejudice Discussion Paper Prospectively Leading To Terms Of Settlement And Compromise W202 of 2004 Barton - GIRL - GMA" (Discussion Paper). (The Discussion Paper and other negotiating documents referred to below were all issued on a "without prejudice" or "without prejudice subject to contract" basis.)
139 Mr Cole and Mr David Williams respectively were appointed by the Barton International interests and GIRL to represent them not only as lawyers but also as agents with a view to settling the disputes between the parties and compromising the dissolution proceedings in the Federal Court of Australia. The reason for this, which apparently emanated from a suggestion made by Mr Cole to his client, was that the respective parties otherwise would have difficulty in communicating civilly. Mr Cole and Mr Williams did not suffer from that difficulty.
140 In the course of the trial of these proceedings, objection was taken on the part of the respondent to the applicants adducing evidence of what had passed between the applicants' representative, Mr Torsten Ketelsen and Mr Aaron Williams outside the formal negotiations between Mr Cole and Mr David Williams - which the applicants sought to adduce on the basis that it was reliable evidence that would assist the Court in determining what in fact passed between and was concluded by Mr Cole and Mr David Williams.
141 In circumstances in which Mr Cole and Mr David Williams were not merely engaged by the respective clients as lawyers to draft the terms of an agreed settlement and compromise, but were charged with the primary responsibility of acting as agents for their clients for the purpose of negotiating a settlement as well as drafting the terms of the compromise, the Court upheld the respondent's objections to this evidence and ruled in the following terms.
142 In Codelfa 149 CLR 337 at 352 - 353, (as noted earlier) Mason J said, of the relevance of the intentions of a party to the meaning to be given to a term of a written contract, the following:
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.
The importance of this evolution of the law as it affects the construction of contracts is that it centres upon the presumed, rather than the actual, intention of the parties.
143 Senior counsel for the applicants drew attention to the decision of the majority in Horton Geoscience Consultants Pty Ltd v Energy Minerals Pty Ltd QCA 169, cited above, where Williams JA (with whom Holmes JA agreed) at [20] took into account the evidence of the two persons who negotiated a contract for the contending parties, to determine the mutual intention of the parties which negatived an inference to be drawn from the agreement. At [20], Williams JA stated:
The evidence I have referred to essentially amounts to an agreement between the parties limiting the operation of the second paragraph of the agreement to year 1 and in consequence it is evidence of mutual intention negativing an inference sought to be drawn from the words of the agreement to the effect that the obligation imposed by the words used in the second paragraph extended throughout the whole term of the EPM.
144 Senior counsel for the applicants contended that in assessing the objective intention of the parties as to what, if any, mutual intention the parties had in relation to certain branding requirements in cl 2.5 of the GSA, it is permissible for the Court in the present circumstances to receive the internal communications of officers of the applicants that are said to have informed communications between the applicants' lawyer/negotiator, Mr David Williams, and the lawyer/negotiator for Barton International, Mr Cole.
145 In my view, mutual intention of the parties, if any, must be found in the intentions, however expressed, of the lawyer/negotiators in their communications (whether verbal or non‑verbal; as to which see discussion of what is required to prove common continuing intention for the purposes of granting rectification, which may be considered generally relevant to proving intention in this context, in Ryledar Pty Ltd v Euphoric Pty Ltd 69 NSWLR 603, Campbell JA (with whom Mason P agreed especially at [281]), not from what may or may not have lain behind the communications in the minds of the parties themselves, or more correctly their officers who did not directly participate in the negotiations. To engage in an analysis of the latter would, in my view, be to take into account the intentions, aspirations and expectations of those who instructed their lawyer/negotiator - and would simply constitute the internal communications of the applicants.
146 In other words, as Mason J said in relation to the primary rule excluding parol evidence, to do this would be time consuming and unrewarding and give too much weight to those factors at the expense of determining the consequences of the actual communications of the parties' agents appointed for the purpose of concluding the agreement.
147 That ruling had the consequential effect, as acknowledged by the counsel for the parties, of excluding a number of other paragraphs of witness statements of Mr Ketelsen and Mr Aaron Williams and other evidence that the applicants had proposed to lead.
148 Focussing then on what evidence was received of what passed between Mr Cole and Mr David Williams in the course of their negotiations on behalf of the parties, the following events are of particular relevance to what, if any, understanding or agreement the parties commonly formed concerning the issues of blending by "Barton" of GMA garnet and marketing of GMA garnet by "Barton" in North America, and/or any representations in respect thereof.
149 Mr Cole's Discussion Paper of 10 December 2004, outlined prospective litigation outcomes, and prospective settlement outcomes. In the light of these, the paper noted (para 3.1) there was only one "remaining prospectively viable settlement outcome", namely, the prospect of Barton International selling 100% of its partnership interest and GMA Garnet shareholding to GIRL. The paper further noted (para 3.2) that Barton International was "a continuing player in the global garnet abrasives business, albeit with a different business strategic approach to that of GIRL". The paper then noted (para 3.3) that nevertheless this prospective outcome need not be an anathema to Barton International per se provided that:
(a) a sale price can be agreed upon; and
(b) absolute security and long term availability of GMA Garnet products supplied to Barton International on acceptable terms can be assured.
The paper then addressed (para 3.4) questions of price, sales terms and a long term supply contract.
150 In relation to the proposed long term supply contract, the paper specified that the contract must address Barton International's requirement for a very long term commitment, "at least commensurate with the projected life of mine", an obligatory minimum annual tonnage - in the region of 50,000 tonnes divided equally between 30/60 mesh and 80 mesh - the price per tonne of product, security of an ongoing supply with "a first ranking charge over the mine and related assets", and other miscellaneous terms.
151 Under the heading "Other Miscellaneous Terms" the paper noted as follows:
· Barton is an independent agent and not a GIRL/GMA "distributor". Therefore there are no performance KPI's applicable to Barton's sale of product.
· There are no market or territory allocations or restraints applicable.
· Barton will be granted a non‑exclusive licence to use GMA product branding.
(emphasis in original)
152 Mr David Williams in his evidence recalled little detail of what was said in meetings and telephone discussions between him and Mr Cole, and was largely dependent on the written record for any recollection of events that he had.
153 Mr Williams recalled however, that at the time of the first meeting on or about 10 December 2004 he had no involvement in the then current dissolution proceedings. His partner, Mr David Stone, was preparing those proceedings for trial on the assumption that the matter would not settle. Mr Williams' only real knowledge of the litigation was that he knew there was a trial commencing in early February 2005 and that if the settlement was to occur it needed to do so before then.
154 As explained above, Mr Williams did not recall having any real understanding of the entities within the Barton group during the negotiations. However, he acknowledged that he knew from certain correspondence there was more than one "Barton" corporate entity. However, he was not told by Mr Cole and was not instructed about what role each Barton entity played within the Barton group of companies.
155 He was also aware that Barton International was a 50% owner of GMA Garnet. He does not recall being informed by Mr Cole or ever being instructed about the role that BMC performed or how it differed from the role performed by Barton International, although he plainly was aware of the existence of BMC.
156 He was not informed by Mr Cole and was not instructed as to which Barton entity was a distributor of garnet within the Barton group of companies.
157 In particular he does not recall ever being told by Mr Cole about or instructed that Barton International did not itself carry on businesses as seller or distributor of garnet or that Barton International onsold to BMC all of the GMA garnet which it acquired.
158 Nor was he ever told by Mr Cole or instructed as to how the GMA garnet purchased under the GSA would be dealt with.
159 Mr Williams knew however, that "Barton" took its share of GMA garnet in both bags and loose bulk shipments and also knew in general terms that GMA garnet as taken was labelled with both the GMA Garnet and Barton logos, although he did not know the details of that arrangement.
160 In the course of negotiations, Mr David Williams learnt from Mr Cole's letter dated 15 February 2005 that an entity in the Barton group used warehouses in the United States. But he did not know which entity did so, nor did he know which Barton entity distributed garnet to Canada, within the USA or elsewhere, nor any of the logistics by which the garnet was labelled.
161 Mr David Williams' recollection is that in all his discussions with Mr Cole he referred to Mr Cole's clients as "Barton".
162 By letter dated 10 January 2005, Mr David Williams sent a letter by email to Mr Cole responding to the Discussion Paper, noting that the paper "has now been considered by GIRL". He noted the preferred outcome from the GIRL viewpoint of acquiring 100% of Barton International's partnership interest in the GMA Garnet shareholding.
163 He also noted that a sale of Barton International's interests not coupled with a long term supply contract was evidently not commercially attractive to Barton International. He noted Barton International's desire to have a long term supply obligation of GMA product to Barton International.
164 He further noted that:
GIRL recognises that it is an important commercial objective for Barton to be able to continue to source GMA product to feed its distribution network in the USA. At present Barton is the sole supplier of GMA product in the USA.
165 Mr David Williams then set out in his letter what GIRL considered to be "the essential terms" of acquisition irrespective of whether the acquisition was coupled with a long term supply contract. The essential terms of acquisition were stated to be:
1. GIRL purchases Barton's partnership interest and Barton's GMA shares, including the Barton held promissory notes from GMA and including all unappropriated stockpiles of product, on a going concern and walk in/walk out basis.
2. No adjustments and no profits/cash distributions are to be made at completion.
3. To the extent that any third party guarantees had been given by Barton to support the partnership or GMA which are unable to be released at completion, GIRL will provide an indemnity to Barton.
4. The terms of acquisition are subject to all necessary regulatory approvals and both parties being reasonably satisfied that the transaction does not give rise to a breach of any of the provisions of Australian Trade Practices legislation or US Antitrust legislation. The parties must be satisfied that any terms do not result in an inadvertent contravention of Sections 45 and 47 TPA; obviously there must be no breach of Section 46 TPA (ie. there must be a level playing field (in terms of price and other conditions of acquisitions) for all purchasers who supply the Australian market) and the ACCC will need to be satisfied that there are no Section 50 issues. GIRL proposes to give a copy of any final settlement proposal to ACCC, and settlement will be subject to ACCC not voicing any objection or concern about the terms.
166 The letter then stated that, subject to essential term 4 above, GIRL considered the following to be the essential terms of a long term supply agreement to supply GMA product to Barton International:
(a) Barton Mines Company LLC (New York) (hereafter "Barton Mines") be appointed the exclusive distributor of GMA product in the USA by GMA Garnet Pty Ltd; the terms of delivery shall be FOB Geraldton or FOB Fremantle;
(b) Barton Mines be entitled annually to take a quantity of up to 35,000 tonnes of GMA product, divided equally between 30/60 mesh and 80 mesh, at a price equal to cost of production (escalating annually in line with increases in the Australia Consumer Price Index) plus government royalties, plus FOB costs Geraldton or Fremantle;
(c) The entitlement to product under (b) above does not accumulate;
(d) Barton Mines also be entitled annually to take additional quantities of product at the rate of up to 5,000 tonnes escalating at 10% per annum but capped at 10,000 tonnes per annum, divided equally between 30/60 mesh and 80 mesh, at a price equal to the price referred to in paragraph (b) above plus 15%, with delivery FOB Geraldton or FOB Fremantle;
(e) The entitlement to product under paragraph (d) above does not accumulate;
(f) The above terms are for supply of GMA product to Barton Mines' USA market;
(g) In addition to (the product taken under (b) and (d)) Barton Mines may take GMA garnet, if available, at a price commensurate with the price offered by the Mine to its other distributors;
(h) Barton Mines to pay for product by irrevocable & confirmed letter of credit payable at sight;
(i) The term of the distribution/supply contract is to equate with the period of the projected life of mine;
(j) No security will be granted by GIRL/GMA to secure the distribution/supply contract;
(k) Barton Mines will not be entitled to maintain stockpile/warehousing rights at the processing plant; and
(l) Barton Mines will be granted a non exclusive licence to use GMA product branding.
For any market other than the USA, GMA product may be taken by any other Barton company, if available, at a price commensurate with the price offered by the mine to its other distributors and customers.
Barton International was invited to propose a price at which it would be prepared to sell its GMA Garnet interests to GIRL on the above terms.
167 It is apparent from the terms of this letter from Mr David Williams to Mr Cole dated 10 January 2005, that a number of the essential terms of the GSA as ultimately executed on 31 March 2005, were expressed from the outset, although a number of others went through an evolutionary process before finding final expression in the GSA. For example, the proposal by Mr David Williams on behalf of GIRL in (a) that BMC be appointed the "exclusive distributor" of GMA product in the USA by GMA Garnet, and in (f) that the terms specified "are for supply of GMA product to Barton Mines USA market", did not survive. It should also be noted that, the proposal in (k), that Barton Mines will not be entitled to maintain stockpiles/warehousing rights at the processing plant was, however, developed. The questions of stockpiling at Geraldton and possible blending issues in the stockpile were raised later in negotiations. The proposal that Barton Mines will be "granted a non‑exclusive licence to use GMA product branding" developed along the way, into cl 2.5.
168 By "Without Prejudice Memorandum of Proposal (Subject To Contract)" (Memorandum of Proposal) emailed by Mr Cole to Mr David Williams on 25 January 2005, Mr Cole provided Barton International's response to the invitation of GIRL to propose terms of settlement and compromise. The Memorandum of Proposal noted there was "common appetite" for an outcome whereby GIRL acquired Barton International's interests in the partnership, and GMA Garnet and Barton International and GIRL entered into a long term supply contract for GMA garnet. In relation to the sale and purchase of the partnership, and GMA Garnet interest of Barton International, the Memorandum of Proposal specified a price. In relation to a long term supply contract, the Memorandum of Proposal (para 4.1) stated as follows:
To minimise the risk of opportunity for future dispute interface between Barton and GIRL, to optimise the prospect of arrangements being non‑offensive to competition law regulatory intervention, and to simplify matters generally, it is Barton's strongly preferred outcome that the contract merely be an open 'product supply' contract and not an "exclusive territorial distribution" contract. If an exclusive distribution arrangement is a critical requirement of GIRL then please let us have details of the proposed terms, so that Barton can give further consideration to this aspect.
169 The Memorandum of Proposal then went on to deal with the term and product quantity, and accepted a number of the other terms already proposed in Mr Williams' last letter.
170 In respect of the topic "Territorial benefits and constraints" the Memorandum of Proposal (para 4.2(c)) noted as follows:
There be none (refer to paragraph 4.1 above). This should also facilitate ACCC (and related) clearances. Some comfort may be gained for GIRL from the first bullet point at the end of paragraph 4.2(b)(i) above [to the effect that the tonnages required of up to 50,000 tonnes primary product and up to 15,000 tonnes secondary product 'are Barton's estimates of its needs for the Americas'].
171 In other words, it was plain enough that, by its Memorandum of Proposal, Barton International then considered that while it was not prepared to enter into any territorial benefits and constraints for exclusive distribution arrangements, the fact that it required primary product of up to 50,000 tonnes and secondary product of up to 15,000 tonnes particularly for the "Americas", should be of some "comfort" to GIRL who were wanting Barton International through BMC to be its exclusive distributor in the USA.
172 Mr David Williams then emailed to Mr Cole a letter on 2 February 2005 putting a firm proposal for GIRL's acquisition of Barton International's GMA Garnet interests. First, it specified a price and then set out terms of acquisition including those referred to initially, that the terms of acquisition were subject to all necessary regulatory approvals particularly under competition law.
173 Nothwithstanding the earlier resistance of Mr Cole to the idea, in cl 2 of the letter, Mr Williams again proposed as follows:
2. DISTRIBUTION
Barton Mines LLC (New York) (Barton Mines) to be appointed the exclusive distributor of GMA product in the USA by GMA Garnet Pty Ltd. (emphasis in original)
174 Mr Williams' letter then went on to deal with production entitlement, whereby "Barton Mines" would be entitled annually to take a quantity of up to 35,000 tonnes of GMA garnet, with an additional entitlement annually to take up to 15,000 tonnes.
175 Other terms included that:
4.2 Barton Mines will not be entitled to maintain stockpiles/warehousing rights at the processing plant.
4.3 Barton Mines will be granted a non‑exclusive licence to use GMA product branding.
4.4 The exclusive distribution rights and production entitlement granted to Barton Mines will be personal to Barton Mines and not capable of assignment.
176 On 3 February 2005, Mr David Williams and Mr Cole discussed GIRL's settlement offer on a without prejudice basis. Mr Williams made a note of that conversation without reference to which he would not have had a clear recollection of the fact, or the content of the conversation. However, the note enabled him to refresh his memory in recalling some, but not all of the matters in the note. He was satisfied however, that the matters contained in the note were an accurate and reliable record of events at the time. The Court has no difficulty accepting that the note should be accepted as an accurate and reliable record of events at the time. It is a carefully written note of the telephone conversation with Mr Cole.
177 Amongst matters dealt with in the conversation on 3 February 2005 were the following:
· Aspects of the cash payment, the quantity of product and the term of the supply contract.
· Other issues noted included "territory to be Americas - not just USA" and "exclusive distrib not critical to GIRL".
· "B prefers exclusivity but does not want onerous terms (e.g. KPIs) but does want Americas. Perhaps some exclusive, some not exclusive. Also right to appoint sub‑distributors. No oblig to expand market, supply GMA products in preference to other product".
178 By letter sent by email to Mr Cole on 9 February 2005, Mr David Williams referred to his discussions with Mr Cole "over Thursday and Friday of last week" in respect of which he then had instructions to respond to. In respect of cl 1 dealing with the sale and purchase of Barton International's interests, much was agreed.
179 In respect of distribution, Mr David Williams proposed as follows:
2. DISTRIBUTION
2.1 In our discussions I advised that GIRL has structured its offer on the basis of an exclusive distribution contract in the belief that this was Barton's wish. It seems, however, that Barton's position appears to be:
(a) that it is not essential for Barton to be an exclusive distributor for the USA market - in fact its preferred outcome is that the contract be an open 'product supply' contract and not an 'exclusive territorial distribution' contract (Barton Memorandum of Proposal 25/1/05);
(b) that Barton wishes to have the (presumably non‑exclusive) right to distribute through the Americas, ie North America, Central America and South America; and
(c) if, however, Barton was to be an exclusive distributor of GMA Garnet in a specific territory it would not accept its distribution rights being tied to performance obligations.
2.2 To address these concerns GIRL proposes the following:
(a) Barton be appointed as a distributor of GMA Product on a non‑exclusive basis which it would be at liberty to distribute in any territory;
(b) Barton, along with all other GMA distributors, would be entitled to purchase GMA product on prevailing market terms;
(c) to incentivise (sic) ie the maintenance and development of the North American (USA/Canada) market, GMA product distributed into that market each year would attract a rebate/discount for the first 50,000 tonnes of product sold. This would be equivalent to the difference between the prevailing market price and;
(i) the price referred to in paragraph 3.1 in our letter of 2 February 2005 for the first 35,000 tonnes; and
(ii) the price referred to in paragraph 3.3 of our letter of 2 February 2005 for the next 15,000 tonnes;
(d) Barton would have the first right to take the first 35,000 tonnes of product on the terms of (c)(i) above;
(e) to the extent that Barton does not exercise this right the quantity not taken may be offered, on the same terms, to any other distributor in that market;
(f) the first distributor in that market to commit to at least 35,000 tonnes would also have the sole right to take up to an additional 15,000 tonnes on the terms (c)(ii) above.
2.3 GIRL would be uneasy with any distribution agreement which gives one distributor a significant price advantage over others in Australia by, in effect, being able to take product at cost or near cost. GIRL wishes to maintain a level playing field for all of the distributors/customers and is concerned that the ACCC may not authorise a settlement which gives Barton the potential to create/maintain a monopoly in the Australian market.
ACCC authorisation is fundamental to any agreement. If Barton is concerned that the structure of its distribution arrangements may be in breach of the Trade Practices Act then we are prepared to write to the ACCC on the issue now and seek its views.
180 Mr Williams' letter went on to deal with production entitlements and some other matters including the proposal that GIRL would allow Barton International to remove its existing stockpile of product over a period of six months, provided the product is removed first from the GMA Garnet shed. This proposal was a reference to the existing stockpile of product at Geraldton, Western Australia.
181 By letter dated 10 February 2005 and sent by email that day, Mr Cole responded to Mr David Williams' letter of 9 February 2005. In para 1 of his letter, Mr Cole indicated that Barton International was prepared to proceed to the negotiation of formal documents within the parameters of the principles therein set out.
182 In para 2, Mr Cole noted that Barton International had noted the distribution arrangements now proposed by GIRL "are designed in the context of the mutual desire of both Barton and GIRL to structure arrangements to minimise the prospect of adverse response from competition law regulators". Barton International however perceived that aspects of the proposed structure in para 2.2 may unnecessarily over complicate matters. Mr Cole then set out in para 3 the simplified approach to which Barton International was prepared to commit.
183 Subject to those comments, Barton International responded on the numbered paragraphs of para 2.2 of Mr Williams' letter, as follows:
(a) noted on the assumption that distribution rights will not be tied to performance obligations and that also that Barton will not be restricted in any way from distributing other than GMA product.
(b) noted.
(c) the pricing of the product within the threshold tonnage levels must be by way of a net discount at the time of payment of the primary price rather than as an after the event rebate back to Barton. Further, Barton is prepared to accept an undertaking that the discount is offered as an incentivisation with respect to the market in the relevant territory (but without performance and market growth obligations) and that the product acquired at a discount must only be distributed into that market. Further, the relevant market must not be confined to North America, but also must extend to Central America and South America.
(d) the provision is superfluous - Barton's right is an absolute right at its discretion.
(e) GIRL's intention is noted. Barton does not wish to contractually constrain or oblige GIRL in any respect whatsoever as to the price and the terms upon which it can offer product to any of its other distributors.
(f) the provision is superfluous - refer paragraph (e) above.
184 In para 3, Barton International's simplified approach to the ongoing product supply agreement was set out as follows:
(a) Barton has the right to acquire up to 50,000 tonnes of GMA Product per annum for a term until 30 June 2017.
(b) The first 35,000 tonnes is priced as per paragraph 3.1 of your letter of 2 February 2005 (i.e. not by payment and rebate back).
(c) The next 15,000 tonnes is priced as per paragraph 3.3 of your letter of 2 February 2005 (i.e. not be paid and rebate back).
(d) GMA product other than for that 50,000 tonnes, is subject to contract on commercially negotiated terms.
(e) The concessionally priced product under (b) and (c) above may only be sold/distributed by Barton into North/Central or South America ('Americas') - as incentivisation and development of that market. Barton will so undertake. GIRL can also gain comfort of this through the shipping bills of lading etc at the time of delivery.
(f) Subject to force majeure/non performance of deliveries by GIRL, annual tonnage discount entitlement is non cumulative.
(g) Barton has no restraint undertaking in its favour to restrict GMA or other GMA Distributors from entering into any market, including the Americas.
(h) Barton is also not subject to any market restraint undertaking other than in (e) above to the extent of the price discounted product (b) and (c).
(i) Barton accepts that its orders for GMA Product under (b) and (c) above must be for no more than 50% 30/60 Mesh (compared with 80 Mesh), although a greater than 50% order for 80 Mesh is acceptable to GIRL.
(emphasis in original)
185 At this point, it is important to note that Barton International was acknowledging that the concessionally priced product may only be sold or distributed by Barton International into the Americas - "as incentivisation and development of that market". Barton International was prepared to "so undertake".
186 To that letter, Mr David Williams responded by letter dated 11 February 2005 sent by email and enclosing a document entitled "Principles of Proposed Settlement GIRL/Barton" (Principles of Proposed Settlement). Clause 1 of the Principles of Settlement dealt with sale and purchase on terms that had more or less been negotiated to that point.
187 Clause 2 dealt with supply in the following terms:
2. SUPPLY
2.1 Barton shall have the right to acquire up to 50,000 tonnes of GMA product per annum for a term ending on 30 June 2017.
2.2 The proportion of 30/60 Mesh and 80 Mesh of GMA product taken by Barton shall be as Barton elects in each year provided that 30/60 Mesh constitutes no more than 50% of total GMA product taken in any year.
2.3 Barton will not be subject to any market restraint undertaking.
2.4 A commercially negotiated price shall apply to GMA product purchased by Barton save that where Barton distributes that product to the North American market (ie USA/Canada) the price shall be discounted to:
(a) for the first 35,000 tonnes of GMA product: a price equal to the 2004 Partner Transfer Price (escalating annually in line with a mutually agreed index) plus government royalties plus FOB charges at cost ex Geraldton or Fremantle; and
(b) for the next 15,000 tonnes of GMA product: a price being 15% above the price specified in paragraph (a).
2.5 To derive the benefit of the discount Barton must demonstrate the delivery of the GMA product to North America to the reasonable satisfaction of GMA, including producing the relevant bills of lading.
2.6 Barton's annual entitlement to the 50,000 tonnes of GMA product does not accumulate except where Barton has been unable to take its required tonnage through the default of GMA or an event of force majeure.
2.7 GMA, GIRL and other GMA distributors will not be restricted from distributing GMA product in any market, including North America.
2.8 Barton shall pay for all GMA product by irrevocable and confirmed letter of credit payable at sight.
2.9 Barton may deal with GMA product as it wishes and will not be restricted from assigning its above rights to acquire GMA product.
188 Clause 4 dealt with existing stockpiles, in the following terms:
Barton shall be allowed a period of 6 months from Completion to remove its product stockpiled in the GMA shed free of storage costs provided that Barton removes that product before it removes any other Barton stockpiled product.
(On one copy of the Principles of Proposed Settlement, Mr David Williams at a later date, wrote in the margin adjacent to this clause "possible blending issue". To this note I will return).
189 Clause 5 dealt with the topic of product branding in these terms:
5. PRODUCT BRANDING
Barton must label all product purchased from GMA as GMA product and will be granted a non‑exclusive licence to use GMA product branding for that purpose.
This clause is the predecessor to that which ultimately became cl 2.5 of the GSA.
190 Clause 6 confirmed that the formal contracts would be subject to all regulatory approvals including any authorisations that may be necessary for the purposes of Australian Trade Practices Legislation or US Anti‑Trust Legislation.
191 On 11 February 2005, Mr David Williams had a number of separate telephone conversations with Mr Aaron Williams and Mr Ketelsen, and also with Mr Cole. He made a note of some of those conversations. But for the note he would not have a clear recollection of the fact or content of the conversations. He refreshed his memory from the note and was thereby able to recall some, but not all of the matters recorded in the note. He had no reason to doubt that the matters contained in the note are not an accurate and reliable record of events at the time.
192 On the right hand side in the top two thirds of the note, Mr David Williams recorded the "what ifs" which Mr Ketelsen or Mr Aaron Williams instructed him to raise with Mr Cole. They are headed "For SC". On the left hand side of the file note Mr Williams made provision for Mr Cole's responses to those "what ifs".
193 Following the noting of the points for discussion with Mr Cole, Mr David Williams spoke to Mr Cole about the issues noted in the top two‑thirds of the page and made notes. Then Mr Cole raised other issues which Mr Williams noted in the bottom third of the page as follows:
S/Pile
- Removal - may be issue of blending
- Product quality: to be consistent with other suppliers
- Ops continue as is pending Compl
- Issue: do not wish to be compelled to label as GMA - may be blending.
By "S/Pile"-or stockpile-Mr David Williams said he understood Mr Cole to have been referring to the stockpile located in Geraldton. This was a continuing issue that had been referred to in the earlier negotiations. Apparently, the concern was that GMA garnet not subject to the GSA might be mixed up with GMA Garnet product provided under the GSA, and cause GSA compliance difficulties later.
194 The second and third points concerning product quality and operations speak for themselves. The last issue is, however, critical.
195 Mr David Williams says to the best of his recollection Mr Cole did not specify the nature of the blending to which he referred.
196 Mr Williams says that following his discussion with Mr Cole on this point, he raised the issue with Mr Ketelsen who said words to him to the effect:
If the product is labelled GMA, it must be 100% GMA product. The product cannot be labelled as GMA product otherwise.
197 Mr David Williams says that, to the best of his recollection, at no time did Mr Cole say anything to him regarding:
(a) the blending of GMA garnet with other garnet, save for the comment in the conversation on 11 February 2005 referred to above;
(b) the branding of bulk or loose bulk shipments of garnet;
(c) how the product received under the long term supply contract would be dealt with once it had reached North America; or
(d) future plans with respect to branding, mixing or distribution of garnet once it reached North America.
198 By the weekend of 12 and 13 February it seems the question had arisen for GIRL as to whether Barton seriously wished to conclude a compromise and settlement in relation to the existing dissolution proceedings due to what it considered a prolonged negotiating process. By email from Mr Cole to Mr Williams on Sunday 13 February, Mr Cole advised that he had been able to "speak to my people overnight" and "confirm I have instructions to proceed with formal documentation as soon as is practicable". The email concluded with the note that:
I note you are amending the draft documentation prepared by your office last October as well as incorporating into that settlement and release terms, and also documenting the proposed supply agreement. I look forward to receiving drafts for prompt consideration.
199 On 15 February 2005, Mr Cole emailed a letter to Mr David Williams enclosing copies of documents Mr Williams had prepared with Mr Cole's preliminary comments shown "by way of compare function". These related to the Principal Agreement, of which the GSA was expected to be an attachment. At this point Mr Cole indicated he had not provided his clients with these initial draft documents as he intended to refine them to the next draft stage before doing so.
200 In the penultimate paragraph of his letter, Mr Cole stated:
With respect to the proposed Supply Agreement, I look forward to receiving your draft. In this context, and as part of further discussions I have been having with my client in connection with the mechanical logistics and difficulties of stock piling the USA/Canada discounted priced GMA garnet without risk of co‑mingling with other GMA product (either existing stock piles of Barton or new fully priced product), a number of practical difficulties have been identified. As a proposed solution to these practical difficulties that have been identified, and without resiling from the principle that up to 50,000 tonnes per annum of the special contractually priced GMA Garnet must be delivered into and distributed/sold within USA/Canada, I attach a proposal for your consideration. I believe it would be beneficial if I could meet with you to talk through and work with you in explaining the various formulae proposed in order to satisfy constraint 2.
201 As can been seen from the terms of these comments, Mr Cole appreciated that in essence the 50,000 tonnes per annum of the concessionally priced GMA garnet "must be delivered into and distributed/sold within USA/Canada". The expressed concern here was that the discounted garnet to be so sold or distributed may become "co‑mingled" with stockpiled GMA garnet which was not subject to the GSA obligations.
202 Attached to that email was Mr Cole's document entitled "Barton/GIRL Settlement Proposal" (Settlement Proposal). Paragraph 2 of the Settlement Proposal stated:
The long term supply arrangements include the principle of the special contractually priced GMA garnet (up to 50,000 tonnes per annum) being delivered into and distributed/sold within USA/Canada.
Then in para 3, the Settlement Proposal provided:
Without resiling from that principle, and to manage assurance of compliance by Barton with this requirement, notwithstanding the mechanical logistics of stockpiling and co‑mingling of GMA Product within Barton's warehouse and wholesale distribution network, Barton proposes it be bound by the 2 constraints set out below in satisfaction of its obligations in the terms of that principle:
Constraint # 1
All shipments of contractually priced GMA garnet must be for delivery, and be delivered, to USA/Canada.
Constraint # 2
Z must never exceed X + Y (for each grade of GMA garnet)
and then the formula was further set out therein.
203 It appears that Mr David Williams did not respond to the stockpiling and risk of co‑mingling issue raised by Mr Cole in his emailed letter. A question arises, of course, whether this logistical "co‑mingling" and "compliance" issue is the issue to which Mr Cole drew attention and Mr Williams noted on 11 February. For reasons given later, it appears not to have been.
204 On 16 February 2005, Mr David Williams sent to Mr Cole by email a draft GSA for his review, noting that it remained subject to his client's instructions as various aspects were still being considered.
205 On 17 February 2005, Mr Cole by email returned a marked up revised GSA, noting that his client was yet to comment on the document and that he reserved the right to suggest amendments. On his copy of Mr Cole's marked up "DRAFT " of 17 February 2005 (produced as Attachment DJW 17 to witness statement of Mr Williams, exhibit I), Mr David Williams made handwritten notations.
206 There are a number of things to be noted about this draft and document:
● Mr Cole had amended the "Buyer" from BIA and Barton International to Barton International alone.
● The concept of the Buyer taking "delivery" in relation to certain rights and entitlements was introduced, for example in cl 2.2 dealing with non‑accumulation rights.
● In relation to cl 2.5, which Mr David Williams had initially drafted, Mr Cole proposed the following marked up amendments:
All garnet distributed or sold by the Buyer which is 100% Product must may be branded by the Buyer with the GMA Garnet name and logo and the Seller grants to the Buyer a non exclusive licence to use the GMA Garnet name and logo on Product for this purpose. The Buyer must not use the GMA Garnet name and logo on, or in connection with, the distribution or sale of any garnet which is not 100% Product or hold out in any way that garnet which is not 100% Product, is Product.
● In relation to cl 4.2, headed "North American market", which Mr David Williams had initially drafted, Mr Cole proposed the following marked up amendments:
If the territory to which the Buyer distributes ships and delivers product under cl 2.1 after taking delivery of the same is the United States of America or Canada, the price for Product as sold from the Seller's Geraldton storage facility to be sold pursuant to orders to be placed by the Buyer pursuant to cl 2.1 shall be:
● On his copy of this draft, Mr David Williams, in relation to cl 2.5, in handwriting struck out Mr Cole's word "may" and circled his word "must" in relation to the branding obligation.
● Mr Williams also wrote above the draft cl 2.5 the words:
(which may coexist with own branding prov that prominence of GMA no less than existing).
● In relation to the draft cl 4.2, Mr David Williams struck out the word "delivers" and wrote above it the word "discharges".
● Mr Williams also made an amendment to the beginning of cl 4.2 that inserted the prefatory words:
B[Barton] acknowledges that the Seller wishes to maintain and promote distribution of Product within USA and Canada and for that purpose the Buyer shall be allowed a concessional rate for a quantity of Prod [Product] accordingly.
207 In relation to the change of "delivers" to "discharges", Mr Williams recalled that he was instructed by Mr Ketelsen that if cl 4.2 only stated "delivers", Barton International might sail a ship into the port (which might constitute "delivery") and then sail it back out again. That is why he was instructed to replace the word "delivers" with the word "discharges" so as to avoid this possibility. Good faith dealing under the GSA plainly could not be relied upon.
208 Mr David Williams also says that in relation to the contracting Barton entity being only Barton International, and not also BIA, he did not know at the time what particular role it performed. He treated the Barton entities as a uniformly controlled corporate group. He says there was never any discussion between him and Mr Cole as to the parties or as to what Barton International or any other Barton entity would do with the GMA garnet once it was discharged into North America.
209 On 17 February 2005, Mr Williams sent by email his further revised and marked up draft of the GSA. Draft cl 2.5 and cl 4.2 then appeared in the revised marked up draft as follows:
2.5 All garnet distributed or sold by the Buyer which is 100% Product may must be branded by the Buyer with the GMA Garnet name and logo (which may co‑exist with the Buyer's own branding provided that the prominence of the GMA Garnet name and logo is not less than that which has applied during the 2004 calendar year) and the Seller grants to the Buyer a nonexclusive licence to use the GMA Garnet name and logo on Product for this purpose. The Buyer must not use the GMA Garnet name and logo on, or in connection with, the distribution or sale of any garnet which is not 100% Product or hold out in any way that garnet which is not 100% Product, is Product.
4.2 The Parties acknowledge that the Seller which is to maintain and promote distribution of Product within the United States of America and Canada and, for that purpose, the Seller shall allow to the Buyer a concessional rate for Product as provided in this agreement. Accordingly, Iif the territory into which the Buyer ships and delivers discharges Product under cl 2.1 after taking delivery of the same is the United States of America or Canada, the price for Product to be sold pursuant to orders to be placed by the Buyer pursuant to cl 2.1 shall be:
210 Mr David Williams indicated in the covering letter sent by email to Mr Cole, that the enclosed draft took in all his amendments, and to the extent that they were not acceptable and had resulted in further changes, those parts were highlighted.
211 On 18 February 2005 Mr Cole sent an email to Mr Williams, together with attachments described as "final draft documents acceptable to Barton", including the Principal Agreement and the GSA.
212 In relation to the Principal Agreement Mr Cole relevantly noted that cl 2.3(b) "picks up the opening sentence that you previously had included in cl 4.2 of the Supply Agreement (but which I am now proposing be deleted from the Supply Agreement and included in the Principal Agreement)".
213 In relation to the GSA, Mr Cole made a number of comments including the following:
(b) I confirm that the deletion of the opening sentence in cl 4.2 is proposed to be transcribed over into the new clause 2.3 of the Principal Agreement as I appreciate your client's desire for that concept to be expressly stated.
214 In the margin next to this written comment, Mr David Williams noted on his copy of the email, "no-stays in".
215 Mr Cole also amended the previous draft so that cl 2.5 now relevantly read in the first sentence:
All garnet purchased under this Agreement and distributed or sold by the Buyer which is 100% Product must be branded by the Buyer with the GMA Garnet name and logo
216 In relation to cl 4.2 as noted above, Mr Cole removed the prefatory words introduced by Mr Williams in the previous draft commencing "The parties acknowledge" and concluding with the words "accordingly", and largely replicated them in a new cl 2.3 of the Principal Agreement as follows:
2.3 Generally
The Parties acknowledge:
(a) that it is the composite transaction evidenced by the Settlement Documents that reflects the consideration under the Settlement Documents; and
(b) that as part thereof, GMA Garnet wishes to maintain and provide distribution of Product (as defined in the Supply Agreement) within the United States of America and Canada and, for that purpose GMA Garnet is allowing Barton a concessional rate for Product as provided for in cl 4.2 of the Supply Agreement
217 While the words in cl 2.3(b) were similar to those inserted by Mr David Williams in the earlier draft of cl 4.2 of the GSA, Mr Cole employed the word "provide" instead of the word "promote" in relation to "distribution of Product".
218 Mr Williams says there was no discussion between him and Mr Cole concerning the proposed changes resulting in cl 2.3 of the Principal Agreement, or to cl 4.2 of the GSA as he had previously drafted it.
219 On 19 February 2005, without further discussion between Mr Williams and Mr Cole, Mr Williams sent a number of draft agreements by email to Mr Cole including marked up drafts of the Principal Agreement and the GSA.
220 In relation to cl 2.5 of the draft GSA, Mr Williams accepted the last proposed amendments of Mr Cole, so that the first sentence then relevantly read:
All garnet purchased under this Agreement and distributed or sold by the Buyer which is 100% Product must be branded by the Buyer
221 In relation to cl 4.2 of the draft GSA, Mr Williams proposed that the prefatory words he had earlier suggested should remain in place, including the expression of the Seller's wish "to maintain and promote" distribution of Product.
222 On 19 February 2005, Mr Cole forwarded to Mr David Williams an email he had sent to Mr Brand of Barton International setting out changes Mr Cole proposed to the last version of the draft agreements. In relation to cl 2.3(b) of the Principal Agreement, Mr Cole proposed that the words "maintain and provide" be replaced with the word "promote". Mr Cole did not propose any further amendment to cl 4.2 of the draft GSA. There were a number of other, not presently relevant amendments also proposed to the Principal Agreement, the GSA and some other related agreements.
223 Mr Williams accepted the proposed change to cl 2.3 of the Principal Agreement and the consequential change to cl 4.2 of the GSA and removed the words "maintain and", with the consequence that the acknowledged wish of the Seller that then appeared in each of cl 2.3(b) of the Principal Agreement and cl 4.2 of the GSA was to "promote distribution of Product".
224 At that point, each of cl 2.3 of the Principal Agreement, and cl 4.2 of the GSA, and cl 2.5 of the GSA, found the form in which they appeared in the GSA annexed to the Principal Agreement at the time of its execution on 21 February 2005.