Harpur & ors v Ariadne Aust Ltd & ors [1996] QCA 483

Court of Appeal (Qld)|1996-11-29|Before: Before Fitzgerald P, Davies J, Thomas J, Mr J, Fitzgerald P

On 16 December 1994, a Judge of the Trial Division dismissed an action brought by the appellants and others against the respondents and others. The lengthy trial had been concerned only with issues of liability, and if this appeal were to succeed it is common ground that it would be necessary for the material claims to be returned to the Trial Division to determine what, if any, relief should be granted. The appellants, Paul Henry Harpur, Arlaw Holdings Pty Ltd and High Tech Exports Pty Ltd, were not the only plaintiffs in the action, nor the respondents the only defendants; claims by other plaintiffs and against other defendants which were dismissed, and some of the appellants' unsuccessful claims against the respondents are no longer pursued. Further, not all the appellants and all the respondents are interested in all the issues on appeal, which is primarily concerned with the first appellant's claims for damages for:

(i) breach of contract against the respondents Ariadne Australia Limited and NZI Corporation Ltd; and

There is also a claim for an account and/or equitable damages in respect of an alleged breach of confidence which, according to the notice of appeal, is pursued by all appellants against all respondents; however, as will be seen, that goes well beyond the case pleaded in the statement of claim, although it is convenient to postpone further reference to that matter until later.

Although the action was not tried and decided until 1994, the material events occurred in 1982, and the writ was issued on 4 December that year. The trial judge, who delivered a careful judgment of 144 pages, referred to the length of the trial, the complexity of the issues and noted that, so long after the material events, "human memories were taxed beyond acceptable limits in the course of oral evidence". Fortunately, his Honour made very detailed findings.

Both corporate appellants, Arlaw and High Tech, were controlled by the other appellant, Harpur, a solicitor specialising in property law and taxation who was described by the trial judge as "a widely experienced business and professional man". Prior to 1982, his interests included a company, of which he was chairman, which was involved in the development of a number of computer software products.

A defendant in the action, David John Hartley, controlled a group of companies involved in the computer industry, including Hartley Computer Applications Pty Ltd ("HCA"), Hartley Computer Pty Ltd, Hartley Finance Pty Ltd and others.

HCA was the holding company in the Hartley Group, and, until March 1981, the issued shares in HCA were held by Hartley (34,648), his then wife (8,662), and Howbry Pty Ltd (21), a total of 43,331 shares of $1.00 each.

In about February 1981, HCA borrowed $1.7 million from Trans City Holdings Limited and gave by way of security a floating charge over all of its assets. The Minister for Industrial Development, acting pursuant to the provisions of the Industrial Development Act 1963-1979, guaranteed repayment of the money advanced by Trans City. Guarantees were also provided by Hartley, Hartley Computer and the other companies in the Hartley Group, with floating charges given to support the guarantees.

Hartley's then marriage had broken down by 1981, and a resolution of property disputes resulted in either Hartley or Howbry acquiring the shares in HCA formerly held by Hartley's wife. Harpur or a company under his control lent $90,000.00 by an interest-free, unsecured loan for that purpose, together with a further $15,000.00 on or about 14 April 1981.

Harpur had earlier been approached by Hartley, who was seeking additional funding of about $1.5 million to save the Hartley Group, which was in financial difficulties, from liquidation.

Harpur established a trust, "The Revitalisation Trust", by a trust deed dated 18 March 1981; Arlaw was appointed trustee, and, broadly speaking, the beneficiaries were members of Harpur's family. Arlaw borrowed $1.5 million from Minplex Resources Pty Ltd, and advanced that amount to HCA between March and May 1981. Those advances were governed by loan agreements between HCA and Arlaw, which received 1,156,669 fully paid $1.00 shares in the capital of HCA. Arlaw gave a mortgage over the shares, dated 19 March 1981, to Minplex to secure the loan which it received from Minplex.

In March 1981, Harpur and other persons nominated by him were appointed directors of HCA, and the trial judge found that "after about March 1981 all companies in the [Hartley] Group were effectively under Harpur's control". On or about 26 August 1981, Harpur became managing director of HCA, and thereafter "he was engaged virtually full-time on the affairs of the [Hartley] Group".

Between May 1981 and May 1982, trusts under Harpur's control lent a further $50,000.00 to the Hartley Group.

"The High Tech Exports Trust" was constituted pursuant to a trust deed dated 8 July 1982 with High Tech as trustee and again, broadly speaking, the beneficiaries were members of Harpur's family. Harpur was concerned that Minplex was about to exercise its rights as mortgagee of Arlaw's shares in HCA, and accordingly caused the following resolution to be passed at a meeting of directors of HCA on 19 July 1982 and confirmed later that day at an extraordinary general meeting of HCA's shareholders:

"That the company issue and allot 1,800,00 ordinary shares of $1.00 each at par to High Tech Exports Pty Ltd, an application from that company for those shares having been received.

That the 1,800,000 $1.00 ordinary shares referred to above resolution [sic] be paid to 1 cent, and that subject to the requirements of s. 114(2) of the Companies (Queensland) Code, the capital remaining uncalled on the said shares not be capable of being called up except in the event and for the purposes of the Company being wound up.

That pursuant to Article 13 of the articles of association of the company, the application and allotment moneys at 1 cent per share payable by High Tech Exports Pty Ltd be payable as to $1,800 on the date of allotment and as to the balance by grant of our option from High Tech Exports Pty Ltd to take a ten year exclusive licence to exploit rights in the nature of copyright in a computerised hotel bar inventory system known as `Barman'.

That High Tech Exports Pty Ltd be granted an option to fully pay the 1,800,000 $1.00 ordinary shares issued to it at any time during a period of ten years after the date hereof by the transfer to the company of a ten year exclusive licence to exploit all rights in the nature of copyright in a computerised hotel bar inventory system known as `Barman', and that such transfer will be in full satisfaction of the remaining 99 cents per share outstanding on the 1,800,000 One Dollar ordinary shares, and that in the event of a call being made by the company on the said shares pursuant to the terms of these resolutions at any time High Tech Exports Pty Ltd shall have the option of fully paying the said shares to $1.00 by the transfer of the licence to the company.

Notwithstanding that the shares issued to High Tech Exports Pty Ltd are partly paid, it is expressly declared that the holder of the said shares from time to time shall be entitled to attend and vote at a meeting of the company called pursuant to its articles of association or under the Companies (Queensland) Code."

Following those meetings, a share certificate was issued to High Tech as the holder of 1,800,000 shares of $1.00 each in the capital of HCA paid to one cent, and Harpur signed and delivered to Hartley a written undertaking entitling Hartley to receive at least 4% of the shares in HCA issued to High Tech in order to ensure that Hartley's shareholding in HCA remained at 4%.

NZI was an insurance company, with investments in other companies including H.W. Smith Ltd, a company of which a New Zealand businessman, B.R. Judge, was a director. In or about May 1982, H.W. Smith Ltd took over a public listed company, Ariadne (formerly South Pine Quarries Ltd), which had considerable assets but was trading at a loss. Judge was chairman of Ariadne, and R.S.J. Binning was its managing director; Gibbs (now deceased), Cobham and Conde were other executives of Ariadne who participated in relevant events, while the person who had most involvement on behalf of NZI was its "Controller Administrator", B.W. Stevenson, a reasonably senior officer; its Chief Executive Officer, D.N. Chalmers, also attended various meetings.

On or about 28 May 1982, the Minister for Industrial Development appointed two accountants, Messrs Harris and Wilde to be receivers and managers of HCA and other companies in the Hartley Group, including Howbry, and, in December 1982, the receivers agreed to sell the assets of HCA and Hartley Computer to Ariadne, or rather to its subsidiary, acquired for that purpose, Solution 6. The sale proceeds were required to pay creditors, and the shares in HCA became worthless. As will appear, it was the appellants' wish to sell not the assets but the shares.

Shortly stated, it is the appellants' contention that, prior to the sale of the assets by the receivers, an agreement was entered into on 8 November 1982 between Harpur and either Ariadne or Aridane and NZI, which Ariadne (or Ariadne and NZI) repudiated on or about 19 November 1982. That agreement was allegedly in the following terms according to a schedule (which was amended during the trial) which was attached to both the statement of claim and the notice of appeal:

"1. [NZI] agreed to provide the funds referred to below and [Ariadne] agreed to act as conduit through which [NZI] would furnish those funds to [HCA].

2. [Ariadne] agreed to provide loan funds to a maximum of $3.6 million to [HCA] for a term of three (3) years at a rate of interest of 2% in excess of the A.M.B.A. rate and secured by a first floating debenture over all [HCA's] assets subject to a prior first mortgage on certain property of [HCA] in Sydney.

3. In consideration for the provision of that finance, [Harpur] granted to [Ariadne] an option to purchase 61% of the issued share capital of [HCA] for the sum of $1,000.00.

4. [Harpur] agreed to relinquish any claim whatsoever to any further existing equity interest or option in the share capital of [HCA].

5. [Harpur] granted to [Ariadne] or its nominee an option to purchase the balance share capital of [HCA] being 39% of the issued share capital of [HCA] for a sum equal to 39% of three times the audited pre-tax operating earnings of [HCA] in its immediately preceding financial year plus the sum of $1.5 million, such operating earnings to include annualized earnings from the sale of technology. The option was exercisable by [Ariadne] or its nominees at any time within five (5) years from the date of the agreement by a notice in writing to [Harpur] within six (6) weeks of receipt by [Ariadne] of the audited accounts of [HCA] in respect of any financial year but not to be given prior to completion of the audited account for the year ending 30th June, 1985. The notice of exercise of option was to be deemed to be delivered once posted to [Harpur's] last known address as specified in [Ariadne's] company reports. In calculating the pre-tax operating earnings, all research and development expenditure up to an amount of $650,000.00 for the year ending 30th June, 1983, $1 million for the year ending 30th June, 1984 and $1.2 million for the year ending 30th June, 1985 was to be written off and any further amount which the Board of Directors of [HCA] deemed necessary to spend on research and development was to be notionally capitalised. In the calculation of pre-tax operating earnings all normal remuneration, commissions and other payments to the company staff were to be taken into account as an expense.

6. It was agreed that [Harpur] was to remain Managing Director of [HCA] subject to [NZI's] reasonable satisfaction as to the performance of [HCA] while he retained his interest in the equity of [HCA] and in any event was to remain a Director until completion of the purchase of the shares the subject of the second of the above options.

7. [Harpur] agreed to provide to [Ariadne] an irrevocable Power of Attorney, as to 61% of the voting rights in respect of 61% of the issued share capital of [HCA] to be retained by Ariadne until the money secured by the abovementioned debenture was either repaid, converted into share capital or [Ariadne] elected not to exercise its option to purchase 61% of the issued shares in the capital of [HCA].

8. It was agreed that the Board of [HCA] was to comprise four nominees of [Ariadne] (two of whom were to be members of the staff of [Ariadne] and two members of the staff of [NZI], [Harpur] and [Hartley]. [Ariadne] was to be entitled to cause two persons, one having specialist knowledge of the Australia [sic] Computer Industry, and the other having specialist technical knowledge, to be appointed as Directors.

9. [Harpur] warranted that he had disclosed to [Ariadne] all aspects in relation to Hartley within his knowledge concerning, and reasonably and materially relevant to the transaction.

10. It was agreed that the Queensland Resident Secretary of [HCA] was to be D.A. Conde.

(a) Completion and execution of the abovementioned mortgage debenture security to the satisfaction of the Solicitors for [Ariadne].

(b) Approval of the Foreign Investment Review Board.

(c) Approval of the Queensland Government to the reconstruction and to the $1.4 million debt of [HCA] presently guaranteed by the Government remaining outstanding and ranking after the Mortgage debenture of [Ariadne].

(d) Approval of a scheme of arrangement whereby the creditors (other than S.T.C. (USA)) were to receive 20 cents in the dollar.

12. It was agreed that the options granted to [Ariadne] were granted to it were exercisable by it only as nominee for and on behalf of [NZI] as principal and if not exercised the benefit of them would revert to [Harpur] once the loan funds provided pursuant to the agreement were repaid.

13. It was agreed that there was to be no change to the capital of [HCA] without the prior written consent of [Harpur] and [Ariadne] and [NZI]."

The respondents denied that any binding agreement was reached on 8 November 1982, and alternatively contended that:

iv) the agreement was subject to conditions which were not fulfilled;

vi) the agreement was induced by misrepresentations made by Harpur and the respondents rescinded on that ground.

It is appropriate at this point to set out the trial judge's findings in relation to the negotiations leading up to 8 November 1982. His Honour said:

Prior to the appointment of the receivers on 28 May 1982 Harpur had been active in trying to find an investor who was prepared to inject sufficient capital to enable the companies in the [Hartley] Group to overcome their financial difficulties. Negotiations were continuing with a number of possible saviours as at the date the receivers were appointed. Notwithstanding that appointment all concerned considered that the Group had a sound future. ..., the hardware and software products were highly regarded in the marketplace, and the Queensland Government considered it to be in the interests of the State to keep the companies actively in business. Against that background the receivers hoped that an investor could be found who would, if necessary, take over the companies and continue to operate the business. The receivers were quite happy to give Harpur a free hand in that regard, and if anything encouraged him in his attempts to obtain funds. On all the evidence there appears to have been good and close co-operation between Harpur and the receivers in the months immediately following their appointment.

One consideration which was vital to the attitude adopted by Harpur and the receivers was that the business of the Group depended on customers being assured of an on-going commitment particularly to maintenance of purchased products. Sales were important to maintain a cash flow enabling the Group to meet wages and other regular out-goings, but potential buyers were wary of buying computer products from a company in receivership. Because of that, both Harpur and the receivers were constantly attempting to reassure the public that there would be an on-going commitment with respect to the products.

But despite all their efforts nothing had materialised by August 1982. The receivers then decided that they should take the step of calling for tenders for the sale of assets and undertakings of the companies ... Advertisements were placed in newspapers, but whilst a number of interested parties obtained the tender documents no tenders were in fact received.

In or about July 1982 Harpur composed a lengthy document entitled `Hartley Finance Submission'; ... . That was a document prepared for circulation to possible investors. One of the organisations Harpur approached was Bancorp Pty Limited ..., a Sydney based merchant bank. As a result of that one of its senior employees, D W O'Neil, contacted Harpur. He was provided with relevant documentation, including a statement of assets and liabilities, and discussed the situation with Harpur. O'Neil was told that the [Hartley] Group was looking for `an equity investor to take a substantial proportion of the company'. Harpur indicated that he wanted to retain at least a 50 percent equity. Statements were also made on that occasion to the effect that there would need to be a scheme of arrangement with unsecured creditors, payment out of secured creditors, and an injection of capital over and above that. Harpur indicated to O'Neil that something of the order of $5 million would be required. That discussion took place early in September 1982.

By telex dated 10 September O'Neil informed Harpur that he had submitted to an insurance company a proposal that they invest in the Group. The telex stated:

`Whilst the structure of this proposed investment is not yet defined, we have indicated a minimum investment of $5 million.'

O'Neil went on to say that he was in the process of `compiling a submission from the information you have supplied us'. Though not named in that telex the insurance company referred to was N.Z.I.

On or about 16 September O'Neil indicated to Harpur that the New Zealand investor wished to meet with them and discuss the proposal. Harpur and O'Neil flew to New Zealand on or about 19 September and were involved in discussions with officers of N.Z.I. over a period of two days. Harpur in particular was subjected to intensive questioning. Amongst other matters the shareholding in H.C.A. was canvassed and I am satisfied that at that time N.Z.I. was made aware of the fact that the bulk of Harpur's shareholding in H.C.A. was held by Arlaw.

I am satisfied that towards the end of that meeting Stevenson indicated that N.Z.I. would need to send experts and consultants to Australia to have a look at the companies; words along the lines `go right through it' were used, as were the words `due diligence'.

Finally the officers of N.Z.I. produced [a] letter of 21 September 1982 ... That was not a letter which either reflected the discussions which had recently been held or was drafted after input from Harpur. It was prepared solely by N.Z.I. and was given to Harpur as an indication of what was in the contemplation of N.Z.I. Though rather lengthy it is helpful to set out the full terms of that letter here:

`I confirm that [NZI] is interested in becoming involved with the Hartley Group. I believe the next stage is to have two/three people visit Brisbane to look over the detailed technical and financial side of your operation. This may well have to happen next week.

I believe to be fair to all concerned, it will be helpful to give you an idea of what we are contemplating. Naturally, any transaction would be subject to our findings on the visit and for a transaction of this size, it would have to be placed before our Board for approval. Also, you will be aware that there will be a number of statutory approvals which are required. However, our present thinking is along the following lines:-

(a) [NZI] will provide, or arrange for a line of credit of up to A$5 million for the Hartley Group. This credit will be secured by a first charge over the assets of all companies of the Group. This may well take the form of redeemable preference capital for tax effectiveness, in which case the repurchase agreement would be secured by a first charge. The assets charged including systems would need to remain as disclosed to us in the various papers we have received.

(b) All or part of these funds may, at our option, be converted into ordinary capital at par.

(c) We will also require the right (probably by issuing $1,000 of A shares and amending the Articles of Association) to appoint the majority of the Board and have 51% of the effective voting rights in the company.

(d) It is our intention for you to continue on as Chief Executive.

(e) That $2 million advance by [Arlaw] is to remain in the business on unsecured basis [sic] bearing interest.

(f) A Scheme of Arrangement with unsecured creditors would need to be entered into deferring payment for a minimum of twelve months.

(g) We would require to know a lot more about the disputed payment with the American supplier, however, we may well ask that if any payment is needed to be made under this liability then [Arlaw's] loan account would be similarly adjusted.

(h) We would have the right for a period of five years to purchase the ordinary shares, not held by us, at a price equivalent to three times pre-tax trading earnings subject to a minimum of asset backing per share valued on liquidation basis.

(i) We would wish to have the right to arrange employment contracts with Key Personnel.

You will appreciate that this letter is only an indication of our intent and does not bind [NZI]. However, to disclose our present line of thinking does indicate that we are interested in the transaction, and if you feel it is worth taking the matter to the next stage then we will arrange for the proposed visit to be made next week.'

As a result of that meeting various reports on the [Hartley] Group were prepared. Harpur compiled the Business Plan ... and it was completed on or about 2 October. O'Neil worked on and completed the `Preliminary Report' of Bancorp; it is dated October 1982 ... . Nixon of Ferris Norton Associates Pty was commissioned by N.Z.I. to prepare a `Technical Report'; it was completed on 1 October 1982 ...

During about the last week of September there was a `task force' of five people in Brisbane investigating the Hartley Group on behalf of N.Z.I.; O'Neil, Nixon, Stevenson, Purcell, and Schultz. In the course of those investigations the books of account were perused, the manufacturing process examined, and technical experts evaluated the hardware and software. At that time the accounts to 30 June 1982 were available and given to the investigators, but they were not audited; but the examination of books of account included consideration of audited accounts for earlier years.

I am also satisfied that Harpur and Stevenson at a meeting in Brisbane on or about 28 September discussed at length the terms of the letter [of 21 September 1982]. The evidence also satisfies me that Stevenson was more than happy with the inquiries made during that period, and said so to Harpur.

The proposal in [the letter of 21 September 1982] was considered at a Board meeting of N.Z.I. on 12 October 1982. The decision is of some significance and I set out the terms of the Minute ...

`Report from Management was submitted on the subject of a possible arrangement in relation to the Hartley Group whereby [NZI] would guarantee a loan of A$5 million to Hartley which would enable it to come out of receivership and, in consideration, [NZI] would acquire 51% of the Capital of the company at no cost with an option to acquire the remaining 49% of the Capital at a time of [NZI's] choice at three times current earnings. [NZI] would be entitled to 76% of the total voting rights of Hartley from the outset.

i) that [NZI] should not enter into the arrangement outlined above.

ii) that [NZI] should explore the possibility of acquiring the Hartley software business and staff supporting it.

iii) to authorise Mr Clark and the Group Chief Executive Officer to investigate the possibility referred to in (ii) and any appropriate alternatives which may become apparent and report to the next Meeting of Directors.'

I am satisfied that the terms of that resolution were not drawn to Harpur's attention; he was not aware of that resolution until after the litigation had commenced.

But on the next day, 13 October, Stevenson telephoned Harpur and said that there would be `three people from [NZI]' coming to Brisbane to meet him and senior executives because they `wanted to get a feel for our hardware operation because they were concerned about how we competed with major companies in the hardware area'. Stevenson stated there was concern in N.Z.I. that `the receivership had so affected the ongoing situation as to make it difficult to resuscitate the company', but he also indicated that the report from Ferris Norton was `very favourable'.

Stevenson, Chalmers and Don Clark were in Brisbane from about 15 to 20 October. During that period Stevenson spoke to the receivers and also made contact with personnel in the Department of Industrial Development. ... The proposal as advanced by Stevenson at the meeting was that N.Z.I. would invest $3.5 million in the Hartley Group `in the form of debt with the Government loan to remain in place'. N.Z.I. would be in the position of first mortgagee. The telex confirmed the meeting and indicated that the Industries Assistance Board would recommend to the government `that the existing Government loan together with accrued interest ... remain in place. However, the government may require the option to replace this loan with a guarantee at a suitable time in the future on the same terms and conditions with a lending institution'. One gets the impression from those documents that the Department considered the role of N.Z.I. to be important.

In this context brief reference should also be made to the letter of 19 October 1982 from N.Z.I. to the Department ... . Whilst there is no mention therein of share acquisition, it is clear that N.Z.I. proposed to `provide the managerial direction' for the companies in the [Hartley] Group.

I am also satisfied that in Brisbane on or about 20 October Stevenson discussed with Harpur the percentage shareholding that N.Z.I. should acquire in H.C.A. The letter, ... referred to a 51/49 split, but on this occasion Stevenson stated that it may be more appropriate to have a 61 percent/39 percent division. Harpur was not happy with that proposal. The discussion ended on the basis that Stevenson would be putting a submission to his Board along the lines he indicated.

I am satisfied that during this visit to Brisbane there where discussions between Harpur and Stevenson about the tax scheme that the [Hartley] Group had been party to some years previously. Stevenson admitted that he was aware from an early date of the tax scheme, but could not recall precise conversations. I am by no means convinced that the precise conversation deposed to by Harpur in his evidence-in-chief occurred but I am satisfied that as a result of a conversation dealing with that topic Stevenson was broadly aware of the nature of the tax scheme in question.

During this time instructions were also given to solicitors (Mr McNamara of Cannan and Peterson) acting on behalf of the receivers with respect to the drafting of a scheme of arrangement. McNamara's evidence indicates he saw Harris, Wilde, Harpur and Stevenson on 20 October and was asked to commence work on drafting an appropriate scheme.

The next communication of significance was a telephone call on 27 October from Stevenson to Harpur. In the course of that the former indicated that the `deal would go ahead with slightly different structuring'. Mention was apparently made of Idaps, a subsidiary of N.Z.I., being involved. In a later conversation Stevenson indicated that H W Smith Limited would be the company involved. That was the first occasion on which Harpur became aware that Bruce Judge would play some role in the transaction. Harpur's evidence is vague as to the mechanism of the transaction referred to in that conversation. According to Harpur he stressed that the `fundamentals of the deal' must remain the same. There was a subsequent telephone conversation on or about 28 October between and [sic] O'Neil and Harpur in which the former emphasised that it was still `the same deal' but being `done through an intermediary'. Harpur was concerned that the [Hartley] Group would no longer have the N.Z.I. name directly linked with it, but he was reassured by O'Neil that there would be an continuing involvement of Stevenson and N.Z.I. That was confirmed in a telephone conversation between Stevenson and Harpur on 29 October in the course of which the former said:

`I want to assure you that you shouldn't be concerned about Mr Judge. He will be kept on a short leash.'

`You have to understand this is purely cosmetic - this is to deal with our concern about dealing directly with a company in receivership.'

That position was confirmed by Stevenson in a further telephone conversation with Harpur on 1 November; he then indicated that there would be two representatives of N.Z.I. on the Ariadne Board.

The changes in the type of transaction involved were recorded in a resolution of the Investment Sub-Committee of N.Z.I. ... . It spoke in terms of advancing $3.5 million to Ariadne `for about one month on a secured basis'. Throughout the trial it was accepted that in 1982 Ariadne never had the funds to put into the [Hartley] Group and in consequence it was necessary that N.Z.I. provide the necessary money. Further, it should be noted that that resolution also spoke in terms of N.Z.I. guaranteeing `a value of the software and hardware of up to $1 million.' The Committee's resolution was confirmed by Directors on 9 November.

Harpur first met Judge and Binning on the weekend of 30-31 October. They indicated that they were having a Mr Holdsworth `go through the company' during the ensuing week and that provided he was `happy' Ariadne would be proceeding with the investment.

Holdsworth did spend a number of days investigating the affairs of the [Hartley] Group, and I am satisfied that he had full access to accounts and other documents he required. I am satisfied that he was generally aware of the tax scheme previously referred to, but I am not satisfied that the detailed conversation referred to by Harpur on that topic occurred.

The next relevant communication was the telephone call from Stevenson to Harpur on 2 November; in the course of it the former said that the `deal is all go'. After that Harpur rang Harris and informed him that the deal was proceeding. Something was said in the course of that telephone conversation to the effect that there would be a public announcement once the deal was finalised.

There was a discussion between Stevenson and Clarke on 5 November; the former made a note of it ... . That shows that N.Z.I. were still involved in the discussions and were concerned with what the investigators had turned up. It also establishes that they were fully aware of the forthcoming meeting on 8 November: `They are hoping that the Heads of Agreement could be done on Monday with an announcement later in that day'.

Before leaving the events prior to the meeting of 8 November it should be recorded that everybody concerned in the negotiations during that period had access to the reports ... ; all key persons in the negotiations were familiar with the contents thereof. Stevenson had obtained copies of each of those reports by early October at the latest, and he was very familiar with their contents. Others in the N.Z.I. organisation were less familiar with the reports, though they were readily available to be read. Binning saw each of those three reports some time in October, and I am satisfied that all were readily available to key personnel in Ariadne. Judge gave evidence that he could not recollect seeing any such reports but I am satisfied that he was familiar with them prior to the November meeting. Stevenson gave Holdsworth copies of each of the three reports before the latter left New Zealand to undertake his investigation on behalf of Ariadne.

It should also be noted that the receivers and McNamara were kept informed of developments (see letter Harris to Cannan and Peterson, 4 November 1982, ... ). The reference therein to the position of Data General Pty Ltd is significant, as is also the reference to the [Arlaw] shareholding in H.C.A. Further, the receivers' letter of 4 November 1982 to F.I.R.B. shows the importance they placed on the involvement of N.Z.I."

After establishing the events which preceded it, the trial judge turned to the meeting of 8 November 1982, at which the appellants contend a binding agreement was made. Those present were Judge, Binning, Gibbs, Stevenson, O'Neil and Harpur. His Honour said:

The critical meeting took place on 8 November in the offices of Ariadne in Queen Street, Brisbane. On his arrival Harpur was met by O'Neil and Stevenson; the latter then handed him a typed document headed `Draft Heads of Agreement'. Harpur read it and then said to Stevenson and O'Neil words to the effect that it did not `reflect the deal'. Stevenson replied by acknowledging that some detail was different and asked Harpur to discuss it with them. At that stage Harpur probably made the point that it had a `quite different . . . financial impact on my situation'.

I will not set out here in full the terms of the `Draft Heads of Agreement'. The following summary is sufficient for present purposes. Ariadne was to provide $3.6 million secured by a first floating debenture. Harpur was to give Ariadne the option to purchase 61 percent `of the equitable capital of Hartley' in consideration of the loan and a further option to purchase the remaining 39 percent at a price fixed by a formula set out. Harpur would immediately give a power of attorney to Ariadne with respect to the voting rights attaching to the 61 percent of shares. There should be four nominees of Ariadne (including two from N.Z.I.) plus Harpur and [Hartley] on the Board; Harpur would continue as managing director. The proposal was expressly subject to the following:

`A Completion and execution of the first debenture security to the satisfaction of Ariadne's solicitors;

B. Foreign Investment Review Board approval to the exercise of an option to acquire ownership of the Hartley assets by [NZI];

C. Queensland Government approval to the reconstruction;

D. Creditors agreement to the Scheme of Arrangement whereby they are set for a payment of 20 cents in the dollar. The disputed debt to S.T.C. (U.S.A.) is to be treated as a separate case and will not participate in the Scheme of Arrangement'.

Once all the participants had arrived the meeting began. Seated around the table were Judge, who was presiding, Binning, Gibbs (now deceased), Stevenson, O'Neil, and Harpur. I am satisfied that it was agreed that the meeting should go through the draft clause by clause; each person present had a copy of the draft before him. Four of those drafts are still extant and became exhibits;

Each of those persons made notations on his draft as the clauses were discussed. To facilitate comparison the [appellants'] legal advisers have put together a composite document ...

All persons then present who are still living were called to give evidence. Judge and O'Neil did not have the advantage of possessing the document each had before him at he meeting. Stevenson had no recollection of what transpired apart from his notes, and even then he could not in most instances recall the discussion. Harpur on the other hand proffered a detailed recollection of the discussions. I am satisfied that much of Harpur's evidence in that regard was the result of reconstruction after years of thinking about what went on at the meeting. In the main I have not acted upon his evidence unless it was supported in some way by a written note or by evidence from someone else. My assessment is that Binning endeavoured to give an honest account of his recollection of what transpired, but again I treat his evidence with caution except where there is some confirmation. Judge was rather arrogant in the witness box, and I am certain that was a character trait he demonstrated in chairing the meeting. His recollection was not good as to specific matters, and again I have hesitated before acting on any of his evidence. O'Neil was probably the most independent person present and it is unfortunate his notes have been destroyed. Because of the time lapse his recollection must be regarded as suspect, but I am satisfied that he gave his honest assessment of what occurred at the meeting whilst giving his evidence.

When cl. 1 was discussed Harpur stated that his understanding was that his total shareholding could not be purchased until a period of three years had elapsed, and it was in consequence accepted by the others that the $3.6 million should be advanced for a period of three years. Apparently the meeting also agreed that it was better to refer to Ariadne providing funds rather than making a loan.

Clauses 2 and 3 were agreed to with minor amendments mainly to correct typing errors. Harpur put forward an argument in favour of inserting the word `existing' before the word `equity' in cl. 3 and that was accepted.

It will be noted that each of the four copies of the `Heads of Agreement' evidence the amendments to which I have already referred. On the first page of [his copy], Harpur has written at the top `Guarantee by Ariadne', alongside cl. 1 `loan agreement', and in the bottom left hand corner `option - right to exercise'. Those words do not appear on other copies of the document. I am satisfied on the whole of the evidence that such matters were not discussed but were notes made by Harpur for his own benefit, indicating what future action would have to be taken.

In the bottom right hand corner of the first page of [his copy] Harpur has written `which shall be a carried interest as to 39%'. I am satisfied that something was said about the `residual equity interest' carrying interest but on the whole of the evidence I am satisfied that no agreement was reached with respect thereto.

I am satisfied that there was discussion as to what was meant by `operating earnings' and that broad agreement was reached; Harpur wrote on his copy of the document: `annualised earnings from the sale of technology are to be included as operating earnings for the purpose of this definition'. Words to similar effect were written in on the other copies.

It will be noted that on all copies there is some marking near the reference to $1.5 million on the fourth line of p. 2. I am satisfied that Harpur queried that figure; he would have preferred it to be $2 million but after discussion agreed to leave it at $1.5 million.

The typed script provided that the option referred to in cl. 4 was not to be exercised until the completion of audited accounts for year ending 30 June 1985. Harpur has written in 1986 on his copy, but no similar alteration has been made to other copies. In the circumstances I am not satisfied that the parties agreed to any alteration as might be suggested by a reading of [Harpur's copy].

There is then reference in the typed script of cl. 4 to `pre-tax operating earnings' and `research and development expenditure'. I am satisfied that there was some discussion about those concepts. Harpur claimed it should incorporate both research and development expenditure, and application software development (ASD). I am satisfied some such discussion occurred. There is a reference to `ASD' on Stevenson's copy of the Draft. There was probably also some reference to `royalties' but it is not clear what was agreed in that regard.

Harpur wrote the words `market development' and `interest' in the left hand margin of his copy towards the bottom. Again I find that such notations were for his own information; they were matters to be followed up. Harpur was unable to recall the significance of the figures `15/3' and `$10 million' to the top right of p. 2.

Harpur suggested the insertion of the word `normal' before the term `remuneration' in the second line on p. 4; that was agreed to and all copies of the document bear that alteration.

Harpur has then made a notation against the term `commission' - `discretion to MD'. That does not appear on the other copies. Each copy then has the words `and directors' crossed out but only Gibbs made a substitution, namely `consultants' fees'. Along side all of that Harpur has written the words `bonus - board with my agreement'. The evidence does not establish to my satisfaction that there was any agreement with respect to the inclusion of any such qualification.

In the typed script of cl. 5 there was reference to Harpur being retained as managing director with the qualification that it was `subject to the Board's satisfaction as to his performance'. That latter qualification was discussed and it was agreed that in lieu of that qualification it should be to the `reasonable satisfaction of [NZI] as to the performance of H.C.A.'. All copies of the document have made an amendment to that broad effect which confirms my acceptance of Harpur's evidence that such an alteration was agreed to.

I am also satisfied that when cl. 7 was discussed it was agreed that Ian Turk, Ed Boyes, and Ian Mackay should be alternate directors.

Agreement was reached as to an amendment to Draft cl. 8. The words `and materially' were to be inserted before the word `relevant' in the second line, and the words `and within his knowledge' to be inserted after the word `transaction' in the third line. Again that is something that is noted on all copies of the document.

After discussion it was agreed that Draft cll. 9 and 11 in the typed script should be deleted. It was also agreed that cl. 10 of the Draft (to be re-numbered 9) should be amended by making it clear that Conde would be the Queensland Resident Secretary of H.C.A.

I should say that on the balance of probabilities I reject Harpur's evidence that the question of tax schemes was discussed in the course of the debate on cl. 11 in the original typed script. No one else has an recollection [sic] of such a topic being discussed at the meeting and there is no written memorandum or other contemporaneous document supporting the contention.

I am further satisfied that after some debate there were two further clauses agreed to, and they were in the following terms:

`Ariadne shall only exercise its option to take up equity capital as nominee for or on behalf of [NZI] as principal. If those options are not exercised the benefit of them shall revert to Harpur once all loan funds of Ariadne are paid.

No changes in capital of Hartley without prior written consent of Harpur, Ariadne, and [NZI].'

Notwithstanding the evidence of Harpur (and a vague general reference by Binning) I am not satisfied that the partly paid shares issued to High Tech were discussed at the meeting. It is possible that cl. 3 had some relevance in this regard, and I have taken note of what Stevenson wrote on his copy of the Heads of Agreement. I have also had regard to what is written by Harpur on the back of [his copy]. But, having regard to the whole of the evidence, I am not satisfied that there was discussion of the minute pursuant to which High Tech became the holder of partly paid shares. Further, and more importantly, I am not satisfied that either prior to or at the meeting of 8 November representatives of Ariadne and/or N.Z.I. were aware of such matters.

The last topic discussed at the meeting was the extent to which the matters on which agreement had been reached should be recorded. Because of the time lapse between the meeting and the date on which oral evidence was given I am satisfied that no witness had a clear, independent recollection of precisely what was said in that regard. Such oral evidence as was given was significantly affected by what some of the participants had recorded on paper at the time, and was also to some extent affected by what happened subsequently. It is instructive to note what was written at the time.

Harpur recorded: `Subject to signature of a formal agreement satisfactory to each party's solicitors'. Gibbs wrote: `Subject to execution of a formal agreement based on this Heads of Agreement and to the satisfaction of both party's solicitors'. The note made by Stevenson was as follows: `Subject to signature of the formal agreement satisfactory to each party's solicitors'. Binning made no note on his copy, but he did give some oral evidence on the topic.

I now turn to the oral evidence given by each of the witnesses who was present at that meeting with respect to the insertion of those words. Harpur's evidence-in-chief was as follows:

A. I shook hands with Stevenson first because it was his deal. I then shook hands with Judge and then there was a general shaking of hands. Now, Bruce Judge said, "I shall get this typed and signed, but I've got to go to an interview, got to race off." And I said, "Well, I've already had a draft prepared by my partner in Melbourne, Robert Clemente." And I said, "He's coming up here tomorrow morning with that. It was given on the instructions of the deal, as I understood it last week, but it can clearly incorporate all of these amendments and be brought into line with it."

A. Brian Stevenson said, "If this is to go to the lawyers it can't be an longer than this and this is the deal." Judge similarly said, "This can't be - if we're going to have that done, this is still the deal. They're to have no right to expand it or change it." And as a result of that we then - people were moving around the room and there was not the same formalism about the clause, but there was a clause written in and what I wrote in my copy under (e) . . .'

`Q. Can you remember at the - after the break up of the meeting, as you have described before, any mention by anybody of the topic about getting something signed or getting things re-typed or anything of that kind? Any talk about . . . ?

A. The agreement, and Judge is emphatic about this - the agreement has been reached on that document and it is to be re-typed, but that is the document. Those were, in fact, his words, "That is the document".

Q. You don't remember anything else about - you see, the words there are "subject to signature of a formal agreement satisfactory"?

A. That was not there when that statement was made. That was entered later.

Q. Can you remember anybody talking later then about perhaps there should be a formal agreement, satisfactory or something of that sort, or to record this - can you remember any conversation of that afterwards which might have caused Gibbs to write in "E"afterwards?

A. No. There were just groups of people talking as would normally go on after a meeting. Who Gibbs is talking to at that stage I'm not sure.'

There are two passages in the evidence of O'Neil which summarise his position on this matter:

A. Judge and Harpur and Stevenson. "The deals done".

A. It was Judge. I recall Judge. Harpur then turned around and said, "Let's get this reduced to writing, legal". Judge said, "Look, if we're going to have it put into legal, I don't have time this afternoon because I've got this important press - this announcement to put out and also I've got this T.V. interview I've got to do. I don't have time this afternoon", was his words. Harpur was then insisting, saying, "Look, I want this in writing". He said, "Look, you can have it legalised but so long as it's not any longer than the exact document that's there at the moment. I don't want a long involved document", and then we basically - Judge then went off. We basically sat down to work out what was necessary to do next . . .'

`Q. You give your honest recollection of what was said in relation to the matter which is recorded in front of you as item (e)?

A. Harpur wanted to reduce this down to a legal document. Judge said so long as the legal document is no longer than this, so the clause was inserted.'

Again it is sufficient if I refer to two passages from the evidence of Judge; those passages amply demonstrate his position. He was asked about the inclusion of the `subject to contract' words written on some of the drafts, and how they came to be there; he replied:

`It was just simply that as we hadn't had a chance of having legal advice - and clearly in the purchase of any company, in the shares of any company, there would be standard clauses and indemnities that would be required, and that it was over to the lawyers to agree these and complete these and have the appropriate warranties and anything else, and I recall that Mr Harpur agreed that he would also need to consult his lawyers on those points, so there were a lot of points lawyers still had to sort out between themselves.'

Then he was asked whether he had any expectation as to the size of any document the lawyers might produce and he replied:

`I believe obviously they would have to be quite extensive. There would have been loan documents with [NZI] and extensive documentation with normal warranties that you would expect with something of this nature.'

Finally it should be recorded that Stevenson had no recollection other than what he had noted on his copy of the Heads of Agreement.

Although the general tenor of O'Neil's evidence was that an agreement was reached on 8 November, under cross-examination he conceded that he `expected a series of documents' would have been executed to evidence that agreement; he particularised an option agreement, a first debenture security document, a purchase and sale agreement, and other documents.

I should also state that I am satisfied that at the end of the meeting there was some shaking of hands and statements made to the broad effect that agreement had been reached. At the time Judge probably indicated that the formal agreement should be kept as brief as possible."

"Before proceeding to analyse what occurred on 8 November for the purpose of determining whether or not a legal binding contract was then made, I will deal with relevant subsequent events.

Immediately after the meeting broke up Binning made a statement to the staff of Ariadne. According to Binning he `advised the staff that Ariadne had formally in collaboration with [NZI] acquired the business of Hartley Computers'.

Subsequently Binning joined Harpur at the Toowong premises of the [Hartley] Group and both of them made statements to the staff there assembled. Harpur claims he said that `we had done the deal and that we would be going forward'. Both Binning and Harpur gave general evidence of what the former said to the assembled group but neither was very specific as to what was said. According to Harpur, Binning spoke of `looking forward to working with us', while Binning contented himself with saying that he `repeated the message that had been given to the Ariadne staff'.

The following day Ariadne sent a message to the Brisbane Stock Exchange concerning the matter and relevantly that said:

`Following South Pine Quarries Limited's announcement of intention to seek shareholders' approval for change of name to Ariadne Australia Limited and the disposal of the major part of its quarry activities, South Pine Quarries Limited has now commenced the introduction of new business activities.

The Directors of South Pine Quarries Limited announce that the shareholders and directors of Hartley Computer Applications Pty Ltd have agreed on an arrangement designed to take the Hartley Group of companies out of receivership.

It has been agreed that South Pine Quarries Limited will provide both first debenture finance to pay out certain secured creditors and working capital. A scheme of arrangement will be offered to unsecured non-preferential creditors.

The proposal is subject to acceptance of the scheme of unsecured creditors and also to a number of other formalities and statutory consents being obtained.

South Pine Quarries is acting on behalf of an institutional client and at a later date it is intended that the Hartley Group will become a member of a major financial group which will secure its financial base. ... `

A copy of that was sent to the receivers and they in turn forwarded it to the Department of Commercial Industrial Development under cover of a letter merely stating that enclosed therewith was a copy of an announcement which Ariadne would make to shareholders through the Stock Exchange that day. The statement to the Stock Exchange received wide press publicity.

There was then a meeting on 9 November between Harpur and Stevenson; at some stage Clemente also was involved. According to Harpur he told Stevenson there were `a couple of things about the agreement that I thought didn't quite reflect our agreement'. According to him they then discussed a number of matters including cl. 4 of the Heads of Agreement; Stevenson indicated there was `no problem with the query raised'. Harpur went on in his evidence to detail a number of other specific matters about which there was discussion between the two on that day; generally Stevenson would not agree to changes from the agreement reached the previous day. Then, according to Harpur, Clemente was introduced and produced a draft of a share acquisition agreement he had prepared prior to 8 November. Harpur alleges he said:

`This is my partner from Melbourne, Robert Clemente and, as you know, he done [sic] a draft of the agreement, as we thought it was, and I'm now giving him the agreement reached yesterday to bring him into line.'

`Fine. Just remember one thing, it's not to change in any way and I don't want it much longer than that either.'

Stevenson denied making that latter comment, and I accept his evidence. At all times ... Stevenson's understanding was that N.Z.I. would only have a contractual relationship with Ariadne, and H.C.A.'s contract would be with Ariadne alone. (See also Chalmer's letter of 11 November, ... ).

Consistently with the tenor of Stevenson's note ... of what occurred on 8 November, he set to work on his return to New Zealand drafting the form of option which N.Z.I. hoped to obtain from Ariadne. Under cover of a letter dated 12 November 1982 ... Stevenson forwarded to Judge `a draft of an exchange of letters which seems to cover the ground that Ariadne and [NZI] should be in agreement on'. In broad terms that provided that for a period of three years N.Z.I. should have the right to acquire all the equity held by Ariadne in H.C.A. The draft also dealt with the consideration payable on the exercise of that option.

... on 9 November the Board of N.Z.I. confirmed the decision of the Investment Sub-Committee to make $3.5 million available to Ariadne for about one month to enable it to lend that amount to H.C.A. in return for an option over 61 percent of the shares ... . It would seem that the date of the meeting had been fixed before the meeting in Brisbane on 8 November, and indeed there is no evidence that the Directors knew on 9 November what had taken place on 8 November. The fact that the resolutions referred to $3.5 million where the Heads of Agreement state $3.6 million is perhaps an indication the Directors were not so aware. It may also be important to note that the `exchange of letters' prepared by Stevenson did not provide for the provision of $3.5 million (or $3.6 million) from N.Z.I. to Ariadne. As already noted Ariadne had no funds of its own to advance to H.C.A. The evidence does not establish any binding agreement between N.Z.I. and Ariadne for the loan of the necessary funds prior to 19 November. Indeed even as late as 9 December nothing in that regard had been finally agreed; ... there was at that time a dispute as to whether the loan should be `until the sale of the Quarries' or `for the whole of the exercise'.

Before leaving the position of N.Z.I. two further letters written by Stevenson on 11 November should be noted. In [a letter] to O'Neil he placed on record `appreciation of all your assistance during the project on the Hartley Group'. Other evidence establishes the 'success fee' was paid to Bancorp after the sale of assets to [Solution 6]. [Stevenson's other letter of 11 November] was to Nixon of Ferris Norton; it referred to the fact that `an announcement was being made on Hartley'. Both letters suggest that the input of each recipient was concluded, or at least passing to a new phase, because a conclusion of some kind had been reached. But neither letter throws any light on the terms of any contract entered into.

Of more significance for present purposes is the `action list' written out by Harpur on 9 November. The first item mentioned was the payout of Wang; Turk was to attend to the `Wang reconciliation'. Turk was also to ascertain the payout figure for the `receivership accounts'.

Then under the heading `Formalities', Harpur listed the following:

That is clearly a list of the matters that had to be attended to before any agreement was finalised. Given that a central issue in the case was whether or not the parties reached a binding legal agreement on 8 November or whether it was then intended there was to be no such agreement until a formal legal document had been executed, it would have been interesting to hear what Harpur had to say about point (f). But that was disposed of by his counsel stating as the introduction to a question: `(F), That was all right, that's Clemente'. One can take from that, at least, that Harpur was contending that his reference to `legal version agreement' in the action list was a reference to the type of agreement being prepared by Clemente, a draft of which had been produced at the meeting with Stevenson on 9 November. That is a matter to which I will turn in a moment.

Item 3 on the `action list' related to announcements to the press and Stock Exchange, item 4 related to re-organisation of the executives, and item 5 was in these terms: `Letter from Brian guaranteeing statements re: [Ariadne]'. Harpur explained that in his evidence-in-chief as follows:

`That's just a jogger to me on the morning . . . whether I need a letter from Brian guaranteeing his statements about [Ariadne], and that meant - he'd said that they were purely cosmetic, that they would do as they were told and that they would stick to the business plan and make sure that the R. and D. wasn't in any way cut back, all of those statements, and whether I needed a letter or whether it was OK.'

I now turn to consider the evidence, particularly that given by Harpur, with respect to the draft Share Capital Acquisition Agreement prepared by Clemente. Harpur accepted that he was the principal person who gave instructions thereon, and it was only with respect to the fourth or fifth drafts that there was any input from the other side. As already noted, the first draft ... was prepared by Clemente prior to 8 November; it was based on instructions given by Harpur on his understanding of what the ultimate agreement might contain. That draft did not provide for options to purchase shares; rather it provided for a straight out sale of 61 percent of the shares in H.C.A. for $1.8 million. That draft also provided for an increase in the capital of the company so that the newly issued shares together with the shareholding of High Tech would amount to 61 percent of the total issued shares in H.C.A.

It was Harpur's evidence that on 9 November he provided Clemente with a copy of the Heads of Agreement (being a photocopy of [Harpur's copy]) ... and that at that time he gave instructions that the draft share acquisition agreement was to be amended to make it conform with the Heads of Agreement. Again he accepted that he was solely responsible for instructions given to Clemente. The second draft bears date 9 November ... . That draft provides for an option fee of $446,683.40 which is payable in addition to the $3.6 million referred to in the Heads of Agreement. Apparently Harpur discussed with Clemente the proposition that money received by his interests from the Scheme of Agreement should be applied to making the High Tech shares fully paid, and that in turn he should recover that amount from Ariadne on the exercise of the option. No such arrangement had previously been discussed with Ariadne; but nevertheless Harpur swore that he `thought it might find its way into the formal legal document'. That explains how the precise figure of $446,683.40 was arrived at, and Harpur contended that such an approach would be economically neutral, in the sense that it would not cost Ariadne anything more in total if the deal was done that way. I am not entirely persuaded by that logic, but it is not necessary to explore the matter further. What is of more importance is that Harpur conceded that `on 8 November my mind had not been turned to that at all'.

It is also not without significance to record Harpur's evidence that he instructed Clemente that the document should be drawn on the basis that the shares held by High Tech would be fully paid before transfer.

I do not find it necessary to refer to the third draft (dated 11 November - ... ) in any detail; it is sufficient to go to the fifth draft, dated 18 November ... . By this time, as will be noted shortly, there had been a meeting with Williams and Williams, the solicitors for Ariadne. Whilst the document was described as Share Acquisition Agreement, it was made a condition thereof (cl. 4) that Ariadne would loan H.C.A. `no less than' $3.6 million for a period of three years. Probably nothing turns on the change of phraseology from the Heads of Agreement which referred to a loan `up to' that amount. It should be noted that N.Z.I. was not a formal party to this draft agreement, but [Hartley] was. Clause 11 provided for a number of `conditions precedent'; the clause stated that the agreement was `subject to and conditional upon' the stated matters. The first condition was that Ariadne obtain F.I.R.B. approval to enter into `this Agreement and to related transactions' between it and N.Z.I. Secondly, it was subject to approval of the Reserve Bank of Australia and the Reserve Bank of New Zealand `in respect of borrowings by' Ariadne from N.Z.I. `to provide the funds to make' the loan of $3.6 million. I pause here to again make the observation that there is nothing in all of the oral and documentary evidence before me indicating that any agreement between Ariadne and N.Z.I. with respect to a loan of $3.6 million had been reached prior to 19 November.

The third condition precedent was the approval of a Scheme of Arrangement with unsecured creditors in terms of which they would be bound to accept 20 cents in the dollar in full satisfaction of unsecured debts. The clause in the draft defined the unsecured creditors for purposes of that provision, and importantly for present purposes the Queensland Minister for Industrial Development was excluded. Again it should be noted that there is nothing in either the oral or written evidence indicating the Minister's agreement to that precise situation. True it is that certain persons speaking on behalf of the Minister indicated broad satisfaction with a proposed restructuring whereby N.Z.I. would take over the Hartley Group provided the Minister's $1.4 million was `left in'. But that falls far short of any agreement to so act and accept the precise terms of the [fifth] draft agreement ... . Ministerial consent to those precise terms was expressly made a condition precedent and there is nothing to suggest that such consent was either sought or obtained.

It is also of interest, if not of significance, to note cl. 13(2) of [the fifth draft] which provides:

`The parties hereto agree that any prior agreements relating to the same subject matter, whether express or implied, oral or in writing, and any contract collateral hereto, is absolutely null, void and of no effect whatsoever.'

I have already mentioned Stevenson's letter of 12 November to Judge enclosing draft exchange of letters between their respective companies. On the same date Chalmers wrote to Harpur ... saying:

`Just a note to say how pleased I am that all is well on the way now towards Hartley Computers coming out of receivership.

Obviously much remains to be done, but I know you will now be able to look to the future with more confidence.

For our part, we will do anything we can to assist [Ariadne] and you in improving the fortunes of your Company.

Please give my best wishes to those of your staff that I met on my visit.'

Whilst that indicates a co-operative spirit, it in no way evidences that N.Z.I. was party to any particular binding agreement.

In my view the meeting between Harpur and Clemente on the one side and Binning, Maloney, and Standish on the other at the offices of Williams and Williams on 16 November is of great importance. Before dealing specifically with it I should record that Maloney, who is now deceased, was then a senior partner in the firm of Williams and Williams, solicitors. Some time probably around early 1983 he became a director of Ariadne. However, as at 16 November his role was merely that of a solicitor acting in an advisory capacity. Standish was a solicitor employed by Williams and Williams, and he had been briefed by Maloney and Binning prior to the meeting with Harpur and Clemente. Standish was obviously the person who would have been involved in any drafting work on behalf of Ariadne.

There is a marked conflict between Harpur and Standish as to what was said that [sic] this meeting; Binning's reference to it is so vague it is impossible to say that he supports one or other of those accounts. After having considered the evidence given by each of Standish and Harpur, and taking into account factors such as demeanour and the extent to which notes were taken of the meeting, I have come to the conclusion that the evidence of the former should be accepted and acted upon.

Harpur's account of the meeting given in chief is very terse; the sum total of his evidence relating thereto is as follows:

A. On 16 November there was a meeting in the city at the offices of Williams and Williams.

A. It was a meeting called - I can't remember . . . who actually summoned it.

A. At Williams and Williams. Present were Robert Clemente, Mr Standish, Mr Maloney, and Mr Binning.

Q. And did any - you weren't there yourself, or were you?

A. Yes, I was there. I just haven't put myself down. "RJC'"- means my partner - "had notes of matters that were being discussed". "Binning: We want to be able to exercise option in our own right". That was the point that he . . .

A. That's what he said, yes, discussed. I said, "That wasn't the agreement. The agreement is clear on the point". He backed off and said, "We'll need to speak to Bruce and Brian and get back to you", and we then had a drink with them and that was all there was to it. They expected the whole thing to be wrapped up. Once they'd spoken to Bruce and Brian it was to be done.'

Contrary to that, I accept the evidence of Standish that the meeting in question lasted around an hour and a half or two hours. During the meeting Clemente produced a copy of his draft share acquisition agreement; it is not altogether clear, but it was probably a copy of [the third draft dated 11 November]. I am satisfied that early on in the course of the meeting Standish raised `the question of the status of the transaction generally'. I am satisfied that he said words to the effect that `as far as Ariadne was concerned, there was no agreement and we were here to document an agreement which would be the legally binding document and that as far as we were concerned, there was no binding transaction at that stage'. I am equally certain that Harpur and Clemente took issue on that, stating that there was `a binding agreement'. I accept that Standish said words to the effect that `the Heads of Agreement were far too vague and uncertain and that there were numerous matters of quite important technical problems which had to be resolved if you were to implement any such transaction'. There was in the course of the discussion reference to the fact that in the Heads of Agreement there was a statement that it was `subject to contract'. That led to a lengthy discussion about that phrase and there was reference to, inter alia, Masters v. Cameron [(1954) [1954] HCA 72; 91 C.L.R. 353].

I am also satisfied that during that meeting Standish specifically raised the question of the partly paid shares on which there was `a very substantial uncalled liability'. That in turn led to discussion of the `Barman process' and Standish expressed concerns about what it might be worth. As an experienced solicitor he was concerned that the share issue might be attacked on the basis that there had been a `discount issue'.

Then there was discussion about the options; the option to take up 61 percent of the shares and the further option to take up the remaining 39 percent. The timing of the exercise of those options was a matter of some dispute, and there was also in that regard `extensive discussion about the role of [Ariadne] and its relationship with N.Z.I'. Standish informed Harpur that his instructions `were that Ariadne ... was in the transaction on its own behalf and it wished to be able to exercise the options on its own account and was not there simply to do what N.Z.I. told it'. It is that small portion of the whole discussion which has imprinted itself on Harpur's mind. Certainly Harpur objected to that proposition, and said that such was not in accord with his understanding of the agreement reached on 8 November.

At some stage both Harpur and Binning left the meeting leaving Clemente and Standish to debate the details of any arrangement and the terms of the Share Acquisition Agreement in particular. That also included some discussion about the terms of a Scheme of Arrangement.

I am also satisfied that at that meeting the fact that there were potential liabilities in the Hartley Group in relation to some tax schemes was raised and discussed. That was raised primarily in relation to the Scheme of Arrangement and the priority which may have been given to the Commissioner of Taxation.

I will not detail further what happened at the meeting. Suffice it to say that generally I accept the evidence of Standish in that regard. What I have recorded indicates the extent to which certain issues had to be resolved before any formal agreement could be executed.

I propose to follow the sequence revealed by Harpur's evidence-in-chief and next deal with a telephone conversation which took place, according to him, between himself and Harris [one of the receivers] on 18 November. Harpur's evidence is he said to Harris:

`I seem to be getting a bit of a slow campaign from [Ariadne]. Have you heard anything?'

Relevantly Harris replied to the effect that they had `some concerns' and in response to Harpur's question as to what they were he said:

`Well, the scheme would be through in five weeks, but they're concerned about the tax liability for schemes.'

`Look, that's a nonsense thing. They know about that. It's been discussed at a number of meetings. It's been discussed on the 8th. They know all about it.'

According to Harpur a little later in the conversation Harris said something about Holdsworth looking at an alternative approach. To that Harpur says he replied:

At a glance

Court

Decision date

Before

Source

Judgment (426 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)