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

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:

`We've got an agreement. I hope you're not in any way going to weaken that agreement.'

It was expressly put to Harpur under cross-examination by counsel for the receivers that there was no such conversation in which Harris said he did not want to `weaken that agreement'. Certainly there is no reference to any such statement in Harpur's notes of that telephone conversation, ... .

Harpur was not cross-examined about the first part of that conversation, that is the part involving a reference to tax liabilities; there is a reference in [Harpur's notes of that telephone conversation] to that topic.

Under cross-examination Harris could not recall such conversation on 18 November with Harpur, but Cobham had told him on 17 November that Ariadne was concerned about possible tax liabilities.

I am by no means certain that such a telephone conversation occurred. My doubts primarily arise because of other evidence which was given after Harpur referred in his evidence-in-chief to that conversation; in particular I refer to evidence as to when Harpur became aware of the fact that tax assessments had issued with respect to Hartley Computer for income tax for the years 1979, 1980 and 1981 in the total sum of $532,593 ... .

Harpur did not refer in chief to any conversation with Harris about those income tax assessments. He did not even concede that tax assessments had come to his notice prior to the events of 19 November. The question was first raised by Mr Muir during his cross-examination. Harpur readily agreed to having seen such tax assessments `when they were drawn to my attention by the receiver'. He then said he could not remember the date, but he thought it would have been `prior to the 18th'. He went on to say that he had no warning that tax assessments might issue and reiterated:

`I actually saw them when Mr Harris brought them to my attention.'

He further readily agreed that he did not inform either Ariadne or N.Z.I. of the existence of those assessments when they came to his attention. He gave the following reason for that:

`Because at that stage there seemed to be a lot of movement on behalf of [Ariadne]. They didn't seem to be sticking with the agreement of the 8th and I thought this would merely inflame the situation.'

Mr McMurdo took the matter further during his cross-examination of Harpur. Again there was a ready admission that `Mr Harris and I did discuss the tax assessments', but he could not recall where the discussion took place. It was put to him that it took place outside the MMI Building in Queen Street but he said he could not remember. When it was further put to him that he said the assessments were incorrect and should be subject to an objection he replied:

`When I discussed the tax assessment with Mr Harris, I certainly said that an objection should be prepared.'

He said that he would have `gone on and elaborated my views'. He said he did not remember saying, `Forget about the tax assessments', or using words like, `Whatever you do, don't tell [Ariadne], it could blow the deal'. But he expanded on the answer by saying:

`If it was in the latter part of the second week, I certainly would have been concerned despite the fact that the schemes had been disclosed. I certainly would've been concerned that assessments could be used as an excuse by [Ariadne] to try and knock over the deal. Now, that would have been my view.'

In his evidence-in-chief Harris said that he discussed the assessment he received with Harpur. Relevantly he said:

`I actually met him in the street outside the MMI Building in Queen Street, I was coming from an appointment with Shane McNamara. . . . I stopped Mr Harpur and I said, "Have you" - "Do you know about these assessments?", and he said, "No, what are they?", and I showed them to him and he said, "Don't worry about those. They are incorrect. They will be capable of being objected to. Whatever you do, don't show them to the" - whatever it was - "the other side, as it could blow the deal".'

If there was any doubt as to the date on which that conversation occurred it was removed during cross-examination of Harris; it is abundantly clear that he says the conversation took place on 16 November, and there is no reason not to accept that evidence.

However, under cross-examination the account given by Harris of the precise conversation with Harpur differed from that which he gave in evidence-in-chief. Given the lapse of time that is not surprising. I am of the view that Harris was at all times endeavouring to give his best recollection of the conversation, and I am satisfied that it occurred in the general circumstances outlined by him. I am also satisfied that Harpur asserted that the assessments were `incorrect' and should be made the subject of an objection. More importantly, I find that Harpur used words to the effect that Harris should not tell Ariadne or N.Z.I. about the assessments because it `could blow the deal'. I am also satisfied that at the time Harris had the assessments in his possession because he had been speaking to his solicitor, McNamara, about them.

Accepting that evidence really makes nonsense of Harpur's assertion that in a telephone conversation with Harris on 18 November there was reference to Ariadne's concern about tax liability, without there being further reference to the specific tax assessments which by then both Harris and Harpur were aware of. Except where there is agreement between Harris and Harpur as to what was said on 18 November, I reject the evidence of the latter on that point.

It is sufficient for present purposes to record that on or about 18 November [Hartley] was involved in some discussions with representatives of Ariadne. Harpur became aware of that, and also of the fact that [Hartley] was meeting with Binning and Ariadne's solicitors on 19 November. In consequence he went to the offices of Ariadne on the 19th and there Binning spoke to him. I am satisfied that Harpur asked a question designed to elicit what was `happening' to which Binning replied to the effect:

When asked why, Binning replied that Ariadne was concerned about `tax liabilities in Hartley's' and about Harpur's `authority to trade ... shares'.

That was followed by a flurry of communications between the parties. The first letter on that date was one from Harpur to Binning. It is necessary to set the letter out in full:

`I refer to our conference this morning when you informed myself that your company did not wish to proceed with the agreement reached with myself on behalf of myself, Hi Tech Exports Pty. Ltd. and Arlaw Holdings Pty. Ltd. on 8th November, 1982.

(1) that you were concerned about potential tax liabilities in the Hartley Group,

(2) that I did not have the authority to provide the options over 61% and 39% of the issued capital of Hartley Computer Applications Pty. Ltd.,

(3) that your arrangements with myself would have to be disclosed to the proposed meeting of unsecured creditors.

In respect of the first allegation it has at all times been made quite clear that the company had, prior to my involvement, entered into tax minimisation arrangements in the past. This information was known to your Chairman for he commented on it in the meeting of the 8th November, 1982 and suggested that after a reasonable period the assets of the Hartley group should be transferred to a new company before [NZI] exercised its rights to take up the option granted to [Ariadne]. The rights of all parties were to be preserved under any such arrangement. This is also set out in the draft heads of agreement prior to their being settled in the meeting of the 8th November, 1982.

In relation to the second allegation I most certainly do have authority to deal with the capital of the company and stand ready to fulfil all obligations pursuant to the agreement of 8th November, 1982.

Finally, I had already informed the Receiver and Manager and Solicitors for the Receivers and Managers of the terms of the agreement between us and alerted them to the fact that the formal agreement prepared by our Solicitors to give effect to the agreement reached on 8th November, 1982 would be provided to them to ensure that my statement of directors material interest conformed with the law.

As I indicated this morning, none of the stated reasons justify your notice of intention to withdraw from our existing contractual obligations and I shall advise my solicitors to take immediate action to protect my interests and those of the existing shareholders.

I must also advise that your breach of our agreement will result in funds not being available to some of my associate companies who will consequently not be able to proceed with commitments they have entered into since the 8th November, 1982. They will naturally look to you to recover any losses that result.

Your announcements to the Press, myself, the Receiver and Manager, the Department of Commercial and Industrial Development, the Group's staff and all others with whom you have communicated have led to their relying on your statements to their detriment. Accordingly, the responsible course would be for you to reconsider your decision urgently.'

Harpur sent a copy of that letter to Stevenson of N.Z.I.; the covering letter was initially sent by telex but a hard copy followed. The letter to Stevenson was in the following terms:

`I am enclosing a copy of the letter I have this day forwarded to [Ariadne] which I believe is self explanatory.

After the exhaustive and frank discussions we have been involved in and the mutual respect which I believe was generated out of them, I greatly regret the turn of events. However, they are not of my making and I must advise that I have instructed my solicitors to take appropriate action against your company to protect my interests and those of my associated companies.

The current situation is that [Ariadne] on behalf of your company reached an agreement with myself representing myself and the owners of the capital of the company. That agreement was reduced to writing by amending and adding agreed clauses to a document styled Draft Heads of Agreement between Ariadne Australia Limited and Paul Harpur in relation to Hartley Computer Applications Pty. Ltd. on the 8th November, 1982.

During the past week solicitors for [Ariadne] and myself have been formalising documents to give effect to the agreement enshrined in the document of the 8th November, 1982 as settled in conference. Negotiations as to possible amendments have resulted in adherence to that agreement and consequently it stands unvaried. [Ariadne] have now sought to breach that agreement for the most spurious of reasons and accordingly I must proceed against them.

Since the introduction of [Ariadne] negotiations have been conducted in a manner inconsistent with the spirit of our discussions and agreement. I would hope that even at this stage you have the foresight to intervene and re-establish a direction consistent with the agreement of 8th November, 1982.'

The response from Ariadne was a telex from their solicitors in these terms:

`As you are aware we act for [Ariadne]. We have been instructed by our client that it is not prepared to negotiate with you any further with relation to the purchase of your shares in Hartley Computer Applications Pty Ltd. Our client regards the negotiations at an end.'

Harpur sent a telex in reply which was in the following terms:

2. A binding agreement was reached on 8 November 1982 between your client and myself.

3. The agreement of 8 November, 1982 is clear and discussions since then as to possible amendments have not been successful consequently the agreement of 8 November, 1982 stands as is.

5. A letter has already been hand delivered to your client outlining the situation.

There was no immediate reply from N.Z.I., and Harpur sent a further telex on 23 November stating that he was `most distressed' that he had `not been given the courtesy of a reply'. He went on to say, `I believe it is in our mutual interests to discuss the statements of your agents in relation to our agreement directly as a matter of urgency'; undoubtedly the reference to `your agents' was a reference to Ariadne.

A reply was forthcoming from Chalmers on behalf of N.Z.I. on 25 November; so far as is material it was in the following terms:

`The situation you describe relates to discussions between [Ariadne] and yourself. [Ariadne] were neither acting on behalf of [NZI] nor acting as its agent. We have no agreement with you. Please refer to [Ariadne].'

Williams and Williams also sent a telex to Harpur on behalf of Ariadne; it was in these terms:

`We have been instructed by our clients with respect to same and advise as follows:

A) No agreement was reached on 8 November or at any other time. This is supported by your own statement in the above referred to telex that discussions were continuing subsequent to that date.

B) If an agreement was reached, which is denied, the conditions precedent were not and could not be complied with.

C) Representations made and which were intended to induce our client to enter into an agreement were found to be incorrect.

As mentioned earlier, the writ by which the present action was commenced by the appellants and others was issued on 4 December 1982, and, later that month, the receivers sold the assets of HCA and Hartley Computers to Solution 6.

The principal issue contested in this Court was whether there was a binding agreement concluded on 8 November 1982. As noted, the trial judge held that there was not. His Honour said:

"... No side seriously contended that a consensus was not reached at the meeting [on 8 November 1982]; the real dispute was whether the agreement then reached constituted an immediately enforceable contract between identified parties or whether the position reached on that day was either that the parties then present agreed upon the broad framework within which legal documents should be prepared and executed giving force and effect to the agreement then reached in principle or that the parties had agreed upon the framework within which negotiations should continue. If either of the latter propositions represented the outcome of the meeting on 8 November, the [respondents] contended there was no binding contract unless and until a contract was formally executed or formally agreed upon.

If I conclude that the parties did intend that the agreement reached on 8 November 1982 was to constitute an immediately binding contract then a number of consequential questions would have to be determined. Firstly, what were the terms of that agreement; and secondly, have any of the defences to the continued existence of such a contract been made out."

His Honour went on to say that he considered that the events which preceded the meeting on 8 November 1982,[1] conduct subsequent to the meeting,[2] and the nature of the transaction,[3] could all be regarded in determining whether a contract was concluded at that meeting, adding in relation to the third matter mentioned:

"... If in all the circumstances the Court concludes that it was inherently unlikely that the parties would have entered into a binding but informal agreement given the inherent nature of the transaction, that is a matter which may be taken into account in determining in the light of all the evidence whether or not a binding contract was in fact made."

The significance of the parties' reference at that meeting to the preparation of a formal contract was also noted, and Masters v. Cameron [1954] HCA 72; (1954) 91 C.L.R. 353 was cited.

Later, after the passages quoted above in relation to the meeting of 8 November 1982 and the prior and subsequent events, the trial judge said:

It is now necessary to determine in the light of the foregoing findings of fact whether or not on 8 November there was an immediately binding contract entered into in the terms of the Schedule to the statement of claim. I have already referred to a number of authorities which are relevant to that question, and I will not repeat here what has been said earlier.

I have no hesitation in concluding that all that transpired on 8 November was predicated on the proposition that there would be the execution of a formal agreement satisfactory to each parties' solicitors. The notations made by Harpur, Gibbs and Stevenson were in almost identical terms and it matters not which of those forms one takes as the basis for determination. Each of those formulations was also in accord with the oral evidence of Judge.

The words in question here are not dissimilar to those considered by the Court of Appeal in Spottiswoode Ballantyne and Co. Limited v. Doreen Appliances Limited [1942] 2 K.B. 32; there the words were:

`... prepared to proceed with the letting, subject in the usual way to your references being satisfactory and to the terms of a formal agreement to be prepared by their solicitors.'

`The real fact of the matter is that the language used here is equivalent to the common and more concise phrase "subject to contract" and it is well settled that that phrase makes it clear that the intention of the parties is that neither of them is to be contractually bound under a contract is signed [sic] in the usual way.'

That passage was quoted with approval in Masters v. Cameron at 364. In that case Dixon C.J., McTieran and Kitto JJ, stated at 363 that words such as `subject to contract' and expressions of similar import `prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract'. Even if one assumes here that the formal contract was to be `based on the Heads of Agreement' or `no longer than' the document then in hand, that would not necessarily alter the position. As the High Court said in Masters v. Cameron at 364:

`The formal contract, it is true, is to be "on the above terms and conditions", but it is to be acceptable to the vendor's solicitors, and the meaning is sufficiently evident that the contract shall contain, not only the stated terms and conditions expressed in a form satisfactory to the solicitors, but also whatever else the solicitors may fairly consider appropriate to the case.'

Whilst it is not conclusive, the mere reference to solicitors provides some basis for the inference that the parties intended the transaction to be the subject of a formally drawn contract or contracts.

Finding as I do that all of those present at the meeting on 8 November concluded that their agreement should be `subject to signature of a formal agreement satisfactory to each party's solicitors' or an expression of similar import I am of the view that, considered objectively, there was no immediately binding contract reached on 8 November. What the parties then agreed upon was the intended basis for a future contract to be entered into between them. To that extent there was agreement reached on 8 November, but such agreement did not constitute an immediately binding contract.

I can see nothing in the prior negotiations nor in the conduct between 8 November and 19 November which would displace that conclusion. My reasons for so holding can be inferred from what is said subsequently.

Even if the agreement reached on 8 November did not contain words to the effect that it was subject to the execution of a formal agreement satisfactory to each party's solicitors, I would conclude that there was no immediately binding contract entered into on that date. I have already referred to some authorities which establish that it is permissible for a Court to have regard to the nature of the transaction when considering this question. To those should be added the very forceful observations of Knox C.J., Rich and Dixon JJ, in Sinclair Scott & Co. Ltd v. Naughton [1929] HCA 34; (1929) 43 C.L.R. 310 at 316. That case was concerned with the sale of a leasehold station property and cattle thereon. There some documents were signed, but reference was made to signing `the contract of sale as soon as the same is available'. The Court there said:

`We do not think the parties gave their final consent to terms by which they were content to be bound as a complete and exhaustive statement of their rights and liabilities. The transaction was one of some magnitude. It related to the transfer of an undertaking as a going concern, and unless the parties were entirely inexperienced they must have known that many subsidiary questions would require attention and arrangement before such a piece of business could be satisfactorily carried through. They could scarcely have regarded the sale of Queensland Crown leases as a dealing needing no special provisions or investigations. But, naturally enough, what the parties had done was to discuss and agree upon the matters of financial importance and one or two obvious practical questions.'

That is particularly apposite here in the light of the subsequent drafts prepared by Clemente in an endeavour to provide for all of the ramifications of the share dealings referred to in the Heads of Agreement. The simply [sic] fact of the matter is that by 19 November the parties had not been able to agree upon the terms of the contract carrying into effect the share dealings contemplated in the Heads of Agreement.

There are even further reasons justifying a conclusion that no legally binding contract was made on 8 November. Whilst the receivers had been kept informed to a large extent as to the negotiations leading up to 8 November, neither they nor the Department of Industrial Development were represented at the meeting on that date. There are a number of important points which should be made in this context. As noted during the narration of relevant facts it was N.Z.I. which had contact with the Minister and officers of the Department. In that context the Minister had intimated a favourable response to a rescue package involving N.Z.I. But by 8 November the proposal was that, to put it broadly, N.Z.I. would play a subsidiary role to that of Ariadne. At no time prior to 8 November did Judge or Binning personally contact the Minister or officers of the Department, and there is nothing one way or the other to indicate what their attitude might have been to the arrangement agreed to at the meeting of 8 November. Counsel for the [appellants] repeatedly submitted that the position of the Minister and the receivers was no different to that of a mortgagee who would be paid out on settlement of a sale transaction. But the analogy is not apposite because here the Minister was not being paid out; the agreement of 8 November provided that the $1.4 million owing to the Minister would be `left in'. In view of that the attitude of the Minister and the receivers was important.

There was another significant change effected at the meeting on 8 November which could have affected the thinking of the Minister and the receivers. As noted above the receivers had been requested to prepare a Scheme of Arrangement for unsecured creditors. On the information given to the receivers prior to 4 November, the [Arlaw] loans were not to be included in the Scheme of Arrangement; the receivers made that clear in their letter to Cannan and Peterson of 4 November 1982 ... . But according to the Heads of Agreement of 8 November, the [Arlaw] loans, totalling more than $2 million, were to participate in the Scheme along with the other unsecured creditors other than S.T.C. The attitude of the Minister to that was never revealed. Up until then, the Minister understood that not only would his $1.4 million remain invested in H.C.A., but also that company would not have an immediate obligation to repay some or all of the [Arlaw] loans. Obviously that could be regarded as very relevant to the future prospects of the [Hartley] Group, and a matter on which the Minister and the receivers may have had a view.

There is, of course, no reason why there could not be an immediately binding contract conditional upon the fulfilment of certain specified conditions, such as the approval of the Minister. The [appellants] argues that such a position results from cl. 11(c) and (d) of the Agreement as set out in the Schedule. But it is obvious that a lot of work would have to be done before the approval of the Queensland Government to the `reconstruction' could be obtained. That Government would need to know the terms of the mortgage debenture in favour of [Ariadne], but the terms thereof cannot be known until `the satisfaction of the Solicitors for [Ariadne]' is obtained. That is but another indication that what was agreed to on 8 November was no more than a basis upon which a series of complex legal documents were to be prepared for execution by a variety of affected parties.

Further, everything depended upon N.Z.I. making the necessary funds available to Ariadne. Whilst the Board of N.Z.I. was aware to some extent of negotiations which took place prior to 8 November, no decision could be reached on that funding until the precise terms of the agreement were known. Clearly there would have to be documentation evidencing the terms of the advance and securing its repayment, and there had been no attempt to finalise those matters prior to 19 November.

As the work done by Clemente between 8 November and 19 November, and the evidence of Standish, amply demonstrate the matters agreed to on 8 November involved questions of considerable complexity and required detailed investigation by lawyers, along with their considered advice, before documents creating immediately binding legal rights and obligations could be executed.

In my view what occurred between 8 November and 19 November clearly pointed to a continuance of negotiations rather than conduct evidencing the fact that the parties had already entered into a binding legal contract determining all relevant rights and obligations.

Other matters which, in my view, tend to support the conclusion that there was no immediately binding contract entered into on 8 November are the following:

i) No copy of the Heads of Agreement was signed or even initialled on 8 November when it would have been easy to have taken that step if one of those documents was to evidence the binding contract;

ii) The [appellants] have had difficulty in accurately stating what were the terms of the alleged immediately binding contract; the amendments to the Schedule to the statement of claim are sufficient of that;

iii) [Hartley] was not a party to the agreement of 8 November but, inter alia, shares he owned were subject to that agreement;

iv) It would be necessary to refer in the proposed Scheme of Arrangement to the position of Harpur in particular in the overall reconstruction; any preference he obtained would have to be spelt out and contained in some executed document.

Finally on this point I must deal with some submissions said by counsel for the [appellants] to suggest the existence of an immediately binding contract:

a) All persons who attended the meeting on 8 November believed they had made an agreement. That is undoubtedly so, but it is the nature of the agreement which is of the utmost importance. In my view they had agreed to no more than a broad basis upon which contractual documents giving effect to their agreement in principle would be prepared;

b) There was a degree of urgency in arriving at a conclusion. Again that is undoubtedly so, even if only because of the precarious financial position in which the Group was then placed. But the fact that agreement in principle was required as a matter of urgency does not mean that an agreement in principle so reached automatically constitutes an immediately binding contract.

c) The shaking of hands at the conclusion of the meeting. Again that is consistent in my view with an agreement having been reached as to the basis upon which contractual documents would be prepared.

d) There was extensive publicity after the meeting to the effect that an agreement had been reached and no one claimed that such assertions were wrong. There is some force in this contention, but again it must be said that it is consistent with there having been only an agreement reached as to the basis upon which documents were to be prepared and formally executed.

e) During the meeting, and at subsequent discussions, there was reference to `agreement' and `agree'. Again that carries some weight but the observation of Mahoney J.A. in B Seppelt & Sons at 9152-3 is instructive:

`Anyone who has had experience of transactions in relation to the purchase of land can recall letters written by vendors saying that they agree to sell at a named price, or the purchasers agree to purchase at a named price. The use of the word 'agree' in such a context may or may not involve a contractual result. On the other hand, if you say that the price has been agreed when the contract is being negotiated, you do not use the word "agree" in the sense that any binding contract has been entered into. All you mean is that that particular element in the contract which you are negotiating has been decided. You are agreeing that that is the figure which will be put into the contract and then you go on to debate other matters which fall for decisions. Therefore, words like 'agree', 'offer', 'accept', when used in relation to price are not to be read necessarily as indicating an intention to make, then and there, a contract or an offer as the case may be. Whether they do or do not must depend entirely on the construction of the particular contract.'

In the circumstances the use of those terms here is in no way conclusive.

f) The formal announcement to the Stock Exchange. Again that is a matter which must be carefully weighed up in all the circumstances. In my view the choice of language such as `agreed on an arrangement designed to take the Hartley Group of companies out of receivership' tends to suggest that a final takeover stage has not yet been reached. That is confirmed by the later statement that the proposal is subject `to a number of other formalities'. The announcement was obviously carefully worded and in my view on proper analysis it does not support the contention of the [appellants].

I would also make a passing reference to the problems created by the partly paid shares held by High Tech. It is clear that Ariadne was only interested in fully paid shares, and I am satisfied that Ariadne was not aware of the partly paid shares as at 8 November. The difficulties faced by Clemente in his drafting is sufficient evidence of the nature of the problem that had to be overcome.

For all of those reasons I have come to the conclusion that there was no immediately binding contract entered into on 8 November."

According to the appellants' notice of appeal, the parties to the binding agreement which they contend was made on 8 November 1982 were Harpur and Ariadne, or, alternatively, Harpur, Ariadne and NZI, and the agreement was "for the grant of an option to purchase shares in [HCA] and the provision of loan funds by [Ariadne] to [HCA] on the terms and conditions set out in the Schedule" to the notice of appeal, the terms of which coincided with the schedule to the statement of claim as amended prior to the end of the trial. In substance, the appellants' case on this issue depended on criticism of some of the points made by the trial judge, and reliance on matters which they asserted were indicative of a binding agreement (with an intention to be contractually bound). While it does not necessarily follow that the appellants must fail on this issue, it is desirable to observe both that it is common for such disputes to possess features which can be pointed to in support of each of rival positions, and that the party or parties asserting the informal conclusion of a binding contract confront formidable obstacles when the transaction is complex, potentially affects or will affect the position of a number of persons - especially if some are not present during the material discussions - and express provision is made for the preparation and signature of formal documentation, with the involvement of legal advisers.

I propose first to note the criticisms made by the appellants of the reasoning of the trial judge, using so far as possible the language of their written argument, and commenting briefly where that seems necessary.

"First, the Trial Judge considered the `nature of the transaction' (in particular its magnitude and complexity):

(a) But essentially, the `deal' was simple. In consideration of NZI through Ariadne making a loan to HCA, Harpur agreed to grant an option over the shareholding in that company which could be exercised by Ariadne for NZI. Viewed in terms of the essential requirements for such a transaction there needed to be agreement as to principal, interest, duration and parties (for the loan) and, for the option, the property the subject of the option and its price. On the Trial Judge's findings the parties went beyond those essential requirements embellishing the agreement with terms designed to protect the investment and precisely identifying not just when the option could be exercised but the manner of its exercise.

(b) There is no logical basis for the observation that, because the parties did not in fact agree upon the fine detail of the transaction some weeks later, that they could not have intended their agreement to be binding.

(c) Nor is there any logical basis for the observation that, because a lawyer at a later date formulated an agreement in a complex document, his client had not previously intended to be bound upon rather simpler (although legally effective) terms particularly as the Trial Judge has found that clause 11E was agreed in the context of Judge saying `The formal agreement should be kept as brief as possible.' "

The appellants' description of the transaction grossly understates its magnitude and complexity, as the parties, especially perhaps Harpur, who was both lawyer and businessman, would have realised. Not only did the parties agree at the meeting of 8 November on the need to involve their lawyers, but Harpur already had his partner in his legal practice, Clemente, working on documentation when he attended that meeting and maintained Clemente's participation throughout the subsequent discussions and drafting until the transaction was aborted on 19 November; Harpur also prepared an "action list" on the day after the meeting on 8 November, and obviously recognised that there were a number of parties potentially affected who would have to be satisfied and associated agreements, consents, etc. to be arranged. The "Draft Heads of Agreement" and related discussion at the meeting were concerned with fundamental commercial issues which needed to be resolved for the transaction to proceed but, when resolved, did not provide an exhaustive statement of rights and obligations. Documentation subsequently produced, including that drafted by Clemente, clearly demonstrates the range of important points left for later decision by the discussion at the meeting on 8 November.

I will briefly refer to this matter again at a later juncture, but do not regard it as necessary in relation to this or various other issues to attempt to record and discuss all the submissions made by the respondents.

The appellants' second criticism of the trial judge's reasons for judgment concerned his reference to the absence of representatives of the receivers and the Government from the meeting of 8 November. It was submitted that they were not necessary parties to any agreement and needed only to continue to be kept informed, although the Government's cooperation was needed, and, it was submitted, it had been ascertained that it could be obtained. It was said that the trial judge's approach "confuses the issue of intention to be legally bound with a different but related question of whether the condition subsequent will be met".

It is sufficient at this point to state that I consider that the importance which the trial judge attributed to this matter and the extent to which the receivers and the Government had been accurately informed and it had been ascertained that the Government's approval was achievable have been exaggerated in the appellants' submissions, while the importance of the related transactions, consents, etc., and the other parties who would necessarily be involved in any final resolution of the matter with effect on the necessary documentation has been somewhat understated.

Three points made by the respondents merit noting in this connection; (i) the Hartley Group was in imminent danger of financial collapse, and the receivers had to be persuaded to permit trading to continue and provide the necessary funds; (ii) the receivers had control of Howbry's shares in HCA; and (iii) the receivers had responsibility for the proposed scheme of arrangement with unsecured creditors.

The appellants' third criticism of the trial judge's reasons concerned his Honour's reference "to the fact that the Board of NZI had not agreed with Ariadne as to the funding of the deal". One assertion was that that fact was not referred to at the meeting of 8 November 1982 and was unknown to Harpur. That is not consistent with the trial judge's findings and unsupported by any evidence which he accepted, and is not easily reconciled with the appellants' statement that "a senior representative of NZI was present and participated in the agreement". Indeed, the assertion made that the fact that funding had not previously been agreed between NZI and Ariadne was not referred to at the meeting and unknown to Harpur is quite remarkable given that cl. 1 of the agreement which the appellants allege was made at the meeting, as stated in the schedule to the statement of claim and notice of appeal, obliged NZI to provide Ariadne with the funding which it needed for "the deal".

The appellants also asserted that "the fact that the Board of NZI had not agreed with Ariadne as to the funding of the deal" was "of little significance", and "not surprising", since "[t]here was no need for funds from NZI until ... conditions [which would take some time to be satisfied] were satisfied". Further, "funding documentation could not be in place until the nature of Ariadne's agreement [with Harpur] had been settled". I am unable to discern why the appellants find comfort in this notion, or the basis for the contention that the lack of agreement with respect to funding was unimportant, given cl. 1 of the alleged agreement according to the schedule to the statement of claim and notice of appeal and the fundamental practical importance of such funding if Ariadne was in turn to lend to HCA.

The fourth and fifth criticisms of the reasons of the trial judge relate to matters which seem to me to have played only limited roles in his Honour's decision; the appellants stated that his Honour "observed":

"(i) that the parties had not signed or initialled the `Heads of Agreement' and

(ii) that the [appellants] had difficulty in accurately stating the terms of the agreement."

The latter point related to the amendments made to the terms of the agreement alleged in the schedule to the statement of claim prior to the conclusion of the trial.

Both observations made by his Honour related to legitimate considerations; he would have been criticised for disregarding the points referred to had the "Draft Heads of Agreement" been signed or initialled or if there had been clear oral evidence which he accepted of the discussion at the meeting, and it was appropriate that he note that the position was otherwise. Related matters in the appellants' favour were also noted, including handshakes, statements indicative of consensus, the abrupt termination of the meeting because Ariadne's chairman, Judge, had another meeting to attend, and the post-meeting announcements.

The appellants added contentions that there was "no real point in having the amended draft heads of agreement engrossed", and that "the legal representatives prepared formal documents to give effect to what had been agreed"; although "some differences ensued in this procedure", "in settling the formal document the solicitors were [not] entitled to depart from the essential terms of the agreement made by their respective clients".

While it was not essential to the appellants' case to have the "Draft Heads of Agreement" amended by the addition of mutually agreed wording, or re-engrossed, or signed or initialled, any such activity would have provided an additional factor in favour of the appellants which was missing in the circumstances which occurred.

Further, there is an ambiguity in the proposition that the lawyers "were [not] entitled to depart from the essential terms of the agreement made by their respective clients". While the amount to be lent by Ariadne to HCA and the term and interest rate had been decided by Harpur and Ariadne and could not be changed by the lawyers, it does not follow that there were not important matters still to be negotiated which would emerge in the course of working out the documentation, as in fact occurred. The existence of a legally binding agreement, involving an immediate intention to be contractually bound, is not demonstrated merely by pointing to some matters which the clients had determined which defined the parameters of the lawyers' instructions at a particular point in time and were immutable by the lawyers of their own volition.

The appellants' sixth criticism of the trial judge's reasons was that he "pointed to the fact that Mr Hartley was not a party to the agreement even though his shares were dealt with thereunder". Harpur had been told by Hartley "that he was prepared to go along with the deal being negotiated by Harpur. That was the only apparent way to rescue the [Hartley] Group".

Hartley's absence from the meeting of 8 November 1982 was not a crucial factor, and there is no reason to think that the trial judge thought that it was. However, two points should be noted. A number of "Hartley's shares" were not owned by him but by Howbry, and the receivers' cooperation was essential; Harpur had no authority to bind the receivers to grant an option over Howbry's shares to Ariadne. Further, all drafts of the legal documentation prepared on Harpur's behalf by Clemente provided for Hartley to be a party and signatory.

The appellants' final criticism of the trial judge's reasons related to his reference "to the fact that Harpur's position in relation to the Scheme of Arrangement would need to be documented". It was said that the scheme of arrangement was "sufficiently dealt with" by a clause "which made the agreement subject to the creditors' agreement to a scheme of arrangement", which was "not a matter which was required to occur before a binding agreement could be made" between Harpur, Ariadne and NZI.

The latter statements are correct at least if it is meant that a binding conditional agreement could have been made, but there is nothing to suggest that the trial judge thought otherwise. However, it should also be noted that evidence before his Honour demonstrated how complex the scheme of arrangement needed to be, and the extent to which important matters had been left undetermined at the meeting on 8 November 1982 and remained unresolved on 19 November 1982. For example, while the "Draft Heads of Agreement" provided for only the disputed American creditor, STC, to be excluded - apparently without its consent - from the distribution of the fund of $3.6 million which HCA was to obtain on loan from Ariadne, later documentation also provided for a number of other creditors to be excluded, including the Minister for Industrial Development and a number of companies in the Hartley Group.

In another part of their argument, the appellants submitted that the trial judge erred in his approach to a clause added to the "Draft Heads of Agreement" at the meeting on 8 November 1982 which provided "E. Subject to Execution of a Formal Agreement satisfactory to each parties' solicitor", but it is convenient to postpone discussion of that clause at this juncture.

The appellants' positive case that a legally binding contract had been concluded at the meeting on 8 November 1982 started from the "Draft Heads of Agreement" presented to Harpur when he arrived at the meeting of 8 November, and pointed to discussions and investigations which had preceded that meeting, including the favourable indications to the transaction as then proposed which had been given to Harpur by Ariadne and NZI, the urgency of a solution for the Hartley Group, the discussion of the "Draft Heads of Agreement" document clause by clause at the meeting, the consensus reached, the language indicative of contractual intent which was used, the mutual wish that formal documentation not depart from the decisions at the meeting and be kept as brief as possible, and the shaking of hands as a symbolic expression that a bargain had been concluded. Reference was also made to the immediately subsequent events, including the statements to staff and the Stock Exchange announcement.

Although it will involve a degree of repetition, it is appropriate I think, to set out, so far as possible in the appellants' own words, the "factors which strongly indicate an intention by the parties to be legally bound on 8 November".

"First, this was not a transaction which was required by law to be in writing and signed by the parties. It was not a conveyancing transaction of the kind considered in cases such as Masters v. Cameron: Associated Grocers Co-operative Limited v. Hubbard Properties Pty. Ltd. (1986) 42 SASR 321 at 334.1-334.6; The Commercial Bank of Australia Ltd. v. G.H. Dean and Co. Pty. Ltd. [1983] 2 Qd.R. 204 at 210A Sheehan v. Zaszlos app.no. 130/1993 Sup.Ct.Qld.CA Macrossan CJ, Davies JA, Pincus JA, J/ment 13.5.94.

Secondly, this transaction was between commercial parties who believed that they had made an agreement. In such circumstances, there is a strong presumption that the parties intended to create legal relations: Banque Brussels Lambert v. Australian National Industries Ltd. (1989) 21 NSWLR 502, 512 (Rogers CJ Comm D); Edwards v. Skyways Ltd. [1964] 1 WLR 349, 355. A finding that parties who believed they had a `deal' had not legally bound themselves is one which tends to undermine certainty in dealings between commercial parties and so should not be favoured.

Thirdly, this agreement was made: (i) after extensive investigations and negotiations by NZI and Ariadne; (ii) in circumstances where there was an urgent need to finalise matters; (iii) in circumstances where the parties were expecting to negotiate a deal; (iv) at a meeting where parties with apparent authority to make a binding deal were present; and (v) after a methodical process of agreement to specific terms was undertaken.

Fourthly, the consensus was accompanied by the indicia of contract: (i) the document was entitled `Heads of Agreement' and uses the language of contract: Barnett v. Ira L. & A.C. Berk Pty. Ltd. (1952) S.R.(NSW) 268; (ii) the parties used the term `agreement' to describe what had been achieved; and (iii) the parties concluded by shaking hands.

Fifthly, this agreement was made after negotiations in which no disagreement remained about any substantive topic. No other topic was raised as requiring consideration: Air Great Lakes Pty. Ltd. v. K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 318-319, 330-331, 336-337; Hall v. Gilmore & Rogers [1968] Qd r 406."

Reference was also made in this context to the "subject to formal agreement" clause, which I will again pass over for the moment. The remaining "factor" in favour of a binding agreement put forward by the appellants was that "the subsequent conduct of the parties was consistent with an agreement having been made" at the meeting on 8 November. Particular reference was made to three matters. The first was that although the matter was urgent and discussion at the meeting included agreement "that the formal agreement should be kept as brief as possible", no arrangement was made to meet again and no "deadline" was imposed on the lawyers: this seems to me a poor basis for a conclusion that the parties believed they "were already legally bound". Another matter relied on was Harpur's "action list" of 9 November 1982, which it was said - incorrectly in my view - "was only consistent with Harpur having the belief that the formal document to be prepared was simply a `legal version' of the agreement". Thirdly, reliance was placed on the announcement made to the Stock Exchange, which it was said had the "plain meaning ... that a legally binding agreement had been made"; in my view, contrary to the respondents' argument, the Stock Exchange announcement, although "obviously carefully worded" as the trial judge said, does assist the appellants' case, as the trial judge correctly appreciated. The appellants' case derives further support, in my opinion, from the statements made by Harpur and Binning to Hartley Group and Ariadne employees on 8 November, another matter adverted to by the trial judge.

There was considerable debate between the parties concerning the character and significance of the discussions and activities which occurred between 8 and 19 November, with the appellants arguing that there were no further negotiations except in relation to machinery matters to give effect to what had been agreed on 8 November, while the respondents submitted, correctly to my mind, that there were substantive matters involved in the discussions; further, new issues emerged, namely High Tech's shareholding in HCA and HCA's tax assessments. I think it unnecessary to canvass what occurred in this period comprehensively; it is covered in detail in the trial judge's reasons. NZI, which was not named as a party in the "Draft Heads of Agreement", did not instruct lawyers, while Harpur, Ariadne and the receivers' legal representatives drafted and negotiated in relation to both the "Draft Heads of Agreement" and a variety of other matters, many of which were important and some of which were of considerable complexity.

Clemente's drafts, on behalf of Harpur, did not confine themselves by reference to the "Draft Heads of Agreement", and the trial judge noted a number of differences between the "Draft Heads of Agreement" and Clemente's documentation on behalf of Harpur. Additional parties were added, and one of Clemente's drafts, perhaps his latest draft, provided for matters such as:

(i) $1,798,200 of the Arlaw loans to be applied in the payment up in full of the 1,800,000 $1 ordinary shares in the capital of HCA paid to 1 cent which had been issued to High Tech;

(ii) High Tech to be allotted 76,923 $1 fully paid ordinary shares in the capital of HCA;

(iii) High Tech to have power to nominate two directors to HCA;

(iv) payment by Ariadne of an option fee of $88,389 for the "first option"; and

(v) working capital in the sum of $1 million to be available to the Hartley Group.

Nonetheless, the appellants' contention that agreement had been reached and that the parties considered themselves bound on 8 November 1982 is not without force. Certainly, the parties initially expected the transaction to proceed, and acted accordingly. It can be accepted that such events as have been described might in some, perhaps many, circumstances, be sufficient to support a conclusion that a binding contract was concluded, and it is plain that the significance of the matters referred to was recognised by the trial judge.

However, on closer analysis, the appellants' case is flawed. The "Draft Heads of Agreement" which forms the foundation of the appellants' case cannot easily be transformed into the agreement asserted in the schedule to the statement of claim and the notice of appeal. The "Draft Heads of Agreement" was plainly expressed as an agreement between Harpur and Ariadne, and provided for Harpur to grant Ariadne an option to purchase the issued capital of HCA (as nominee for NZI after discussions at the meeting), and for Ariadne to lend $3.6 million to HCA; however, Harpur did not own or control all shares in HCA, and, as Harpur knew, Ariadne did not have the money to lend HCA.

Perhaps the first deficiency could be put on one side; Harpur controlled Arlaw and High Tech and might have been in a position to influence Hartley and the receivers of Howbry to grant an option over Hartley's shares in HCA, or shares which were owned by companies which he controlled. However, Ariadne's loan to HCA was plainly dependent on Ariadne first borrowing the money to be lent from NZI; significantly, cl. 1 of the agreement for which the appellants contend (according to the schedule to their statement of claim and notice of appeal) involves a promise by NZI "to provide the funds" to be lent by Ariadne (acting "as conduit") to HCA. While it was mentioned in a number of places, and sometimes expressly and sometimes implicitly acknowledged as entitled to various benefits, NZI was not subjected to any obligations by the "Draft Heads of Agreement", which did not envisage it as a contracting party; indeed, the appellants' argument before this Court asserted that the "Draft Heads of Agreement" "had been prepared on the premise that [NZI] would not have the involvement that resulted from the agreement reached at the meeting". Although a representative of NZI was present at the meeting of 8 November, the trial judge found, as was open to him on the evidence, that NZI intended to contract only with Ariadne, and the terms of their transaction, upon which Ariadne depended for funds in order to make the proposed loan to HCA, had not been agreed when the meeting of 8 November took place and required the approval of the NZI Board.

As at the date of the meeting, the only decision by NZI and Ariadne, taken within NZI with respect to a loan to Ariadne was a decision of its Investment Sub-Committee, which awaited Board ratification, to make $3.5 million (not $3.6 million) available to Ariadne for about one month in connection with a proposed loan to HCA; obviously, it would have been envisaged that documentation, on appropriate terms, would be finalised before such a sum was advanced. It was accordingly always open to NZI to cause the contemplated loan from Ariadne to HCA to collapse by declining to lend the requisite funds to Ariadne. The trial judge was also entitled to find, as he did, that the necessary agreement between NZI and Ariadne had not been finalised by 19 November 1982, when NZI and Ariadne declined to proceed. Leaving aside any question as to the justification for that decision, in the circumstances it cannot be concluded that the meeting of 8 November 1982 resulted in a binding contract; such a conclusion would depend upon a finding, contrary to the evidence, in my opinion, and contrary to what the trial judge held, that at that meeting NZI bound itself to Harpur to lend to Ariadne, on unspecified terms, the money Ariadne was known to need to borrow from NZI if it was to make the loan of $3.6 million to HCA.

Another major obstacle to the appellants' contention of an informal binding contract exists in the complexity of the transaction. Some elements of this were referred to by the trial judge, and I will not attempt to be exhaustive. HCA had a shareholding divided between Harpur (and/or his trusts) and Hartley (and/or his companies) with some of Harpur's shares mortgaged to Minplex, some which were paid only to one cent and the subject of the unusual (to say the least) resolution of 19 July 1982, and all which were subject to Harpur's promise to Hartley concerning the percentage interest in HCA to which he was entitled. The financial affairs of HCA were even more complex; HCA and the other companies in the Hartley Group were insolvent, securities existed, with associated guarantees, there was a dispute with an American supplier ("STC"), a past involvement in a "tax scheme" and income tax assessments (which were to be contested) which were unknown at 8 November but emerged within, at most, the next eight days, and the Ariadne transaction could not proceed unless HCA's unsecured creditors accepted a scheme of arrangement and the Queensland Government agreed to the postponement of the debt which was owed to it; that was by no means certain since, as was pointed out by the trial judge, discussions at the meeting on 8 November 1982 introduced substantial changes from what had previously been told to the Minister and the receivers: for example, Ariadne, not NZI, was to play the lending role in the "rescue" of the Hartley Group, at least initially, and Arlaw was to participate as a creditor in the scheme of arrangement in respect of its loans.

It is little wonder that, at the meeting of 8 November 1982, what was agreed was made "subject to execution of a formal agreement satisfactory to each parties' solicitors". Any other course would have been commercially imprudent, as was confirmed by both the matters - such as the shares in HCA held by High Tech and the tax assessments - which emerged between 8 and 19 November and the negotiation and drafting difficulties which occurred during that period. Surprisingly, and certainly not adding to the weight of their case, the agreement for which the appellants contend, as set out in the schedule to their statement of claim and notice of appeal, omitted any reference to the provision "[s]ubject to execution of a formal agreement satisfactory to each parties' solicitors", which was added to the "Draft Heads of Agreement" at the meeting of 8 November 1982.

The only attempted justification for this course which is to be found in the appellants' submissions was their proposition that agreement had been reached and handshakes had been exchanged prior to the "subject to ... formal agreement" clause being added. The factual basis for this argument seems incorrect, but, putting that to one side, the appellants said that the clause "cannot have been intended to manifest an intention by the parties to release each other from their previous obligations"; "can only be understood in [the] context as creating machinery", and (or perhaps or) was intended merely to record one further condition subsequent qualifying the parties' contractual rights. The temporal distinction between different points in a single meeting which, if factually correct, is the foundation of this argument strikes me as artificial in the extreme, and unsupported either by evidence which the trial judge accepted or his findings. While in the circumstances I think it unnecessary to decide the point, it is also far from clear to me what advantage would accrue to the appellants if the clause were held to be a condition subsequent in circumstances in which additional matters of significance emerged after the meeting of 8 November and there were difficult negotiations continuing in relation to matters of both substance and drafting; given the urgency asserted by the appellants, it might well be the proper conclusion that such a condition subsequent had not been, and was unlikely to be, satisfied.

Curiously, elsewhere in their submissions the appellants argued that, not only was the "subject to ... formal agreement" clause part of the agreement (which the trial judge incorrectly considered favoured the respondents), he should have held that it supported the appellants' case because of its requirement that the "Formal Agreement" be satisfactory to the solicitors for both parties - on the hypothesis that NZI was not a party - or all parties - on the hypothesis that NZI was a party although not named as such in the "Draft Heads of Agreement".

The argument put forward for the appellants was that, although the "natural sense" of an expression such as "subject to contract" is that "the parties do not presently intend their arrangement to be binding", this derives from "dealings concerning land in jurisdictions in which contracts are exchanged" (and implicitly is so confined), and/or is confined to circumstances in which only one party's solicitor must be "satisfied" with the formal documentation. Between them, the parties cited many of the numerous decisions which have involved "subject to contract" clauses, and I hope that I do not underestimate the difficulty of the present problem by eschewing a detailed analysis of the cases in favour of a simple expression of opinion that neither authority nor logic confines the effect of such clauses in either of the ways asserted by the appellants.

It does not follow that the clause under consideration necessarily defeats the appellants' claim, and I do not consider that the trial judge intended to suggest otherwise. The appellants pointed to matters in both the content of the clause and the surrounding context which it was submitted indicated that the clause permitted the inclusion in the formal documentation of only additional subsidiary or machinery matters, not matters of substance. I do not propose to attempt to deal with everything which was argued in support of the appellants' view. There was an underlying premise, similar to that noted earlier, that there was a binding contract unless the solicitors were empowered to "vary" - or as was said elsewhere "depart from" - what their clients had agreed. In my opinion, that is fallacious; there might or might not be a binding contract when some matters have been agreed, even if those matters are to be taken as finally settled; what, if any, matters have not been finalised, and the importance or otherwise of those matters, are also of potential importance, as is the parties' intention concerning what is to occur in the various circumstances which might eventuate. In the present case, both the number and nature of outstanding matters and the complexity and difficulty of the subsequent negotiations provide clear indicia, in my opinion, that the "subject to ... formal agreement" clause was at least an added pointer to the absence of a legally binding contract resulting from the meeting of 8 November 1982.

It follows from what I have said that I would dismiss the appeal insofar as it relates to the appellants' claims which depend upon the existence of such a contract. In the circumstances, it is unnecessary to say more on that topic, and I do not propose to discuss the various arguments raised by the respondents against the appellants' claims in the event that it was held that a binding contract had been entered into. However, there are one or two additional matters which can usefully be mentioned at this point before the breach of confidence claim is considered. According to the alleged agreement set out in the schedule to the statement of claim and notice of appeal, Harpur was the only person who contracted with Ariadne, or Ariadne and NZI. However, the loans for which the alleged contract provided were from NZI to Ariadne and from Ariadne to HCA in which Harpur was not even a shareholder, at least directly in respect of any substantial number of shares, at most, he was one of the beneficiaries or possible beneficiaries under the Revitalisation Trust and/or the High Tech Exports Trust. Secondly, the alleged agreement did not bind Ariadne or NZI to buy shares in HCA or any other company in the Hartley Group, but provided an option to do so.

There remains for consideration the claims for accounts and /or equitable damages in respect of the alleged breach of a duty of confidence. The case now sought to be advanced on this basis is very different from that pleaded in the statement of claim.

Although there was an allegation that Hartley, as a director, owed a duty to Arlaw and High Tech as shareholders in HCA and Hartley Computer "to act in the interest of [HCA and Hartley Computer]", there is no allegation that any breach of that duty had any adverse consequence for Arlaw, High Tech or Harpur; and, although they allegedly knew of Hartley's breaches of duties and obligations which he allegedly owed, there is no suggestion that NZI, Ariadne or Solution 6 bear any legal responsibility for his acts or omissions. The allegations and claims made against Hartley, who was initially named as a respondent to this appeal, which was dismissed against him, by consent, at the hearing, were that:

(i) he was at all material times a director of HCA and Hartley Computer and, from about 2 December 1982, a director (and chairman) of Solution 6, which was a wholly owned subsidiary of Ariadne;

(ii) in breach of his duty to HCA, Hartley Computer, Arlaw and High Tech "to act in the interest of HCA and Hartley Computer" and his "fiduciary duties and obligations" to HCA and Hartley Computer, he "rendered" assistance to Solution 6 "to enable it to enter into [an] asset sale agreement" referred to below, and made "secret profits by himself and Duec Pty Ltd (a company controlled by him) from the "... assets [sold to Solution 6] and the use made of them" by Solution 6;

(iii) in the premises, he "is liable to account to" HCA and Hartley Computer "for all fees, profits and other considerations received by him, Duec Pty Ltd, or other entities on his behalf ...";

(iv) by reason of his breaches of his duties and obligations, HCA and Hartley Computer "suffered damage".

In summary, what was otherwise alleged in the statement of claim with respect to breach of confidence was that:

(i) Between 3 September and early October 1982, Harpur "on behalf of" HCA and Hartley Computer, gave to NZI "information relating to [HCA and Hartley Computer's] assets and liabilities and their business prospects for the purpose of the provisions of loan funds to [HCA] and the acquisition by [NZI] of a substantial shareholding in [HCA] to secure the future of [HCA and Hartley Computer]";

(ii) "[s]uch information was confidential to" HCA and Hartley Computer, and NZI and Ariadne knew that the information was confidential and the purpose for which it was "given in confidence";

(iii) by an agreement dated 2 December 1982, Solution 6 acquired the assets of HCA and Hartley Computer at a gross undervalue;

(iv) in entering that agreement, Solution 6 "improperly misused the [confidential] information";

(v) in "agreeing to provide financial accommodation to [Solution 6] to enable it to perform its obligations under the said agreement", NZI "misused" the confidential information;

(vi) during or before January 1983 "[Ariadne] gave to [NZI] an option to purchase all of the shares in [Solution 6] for the sum of $500,000.00 and a share in the profits derived from the said assets";

(vii) "[t]hereafter, [NZI] exercised such option thereby acquiring the said shares and indirectly ownership of the assets and has thereby profited";

(a) Ariadne [wrongly named as NZI] "is liable to account to [HCA and Hartley Computer] for the sum of $500,000.00 representing the option fee and any share of profits so paid together with any profits made by use of the said assets";

(b) NZI "is liable to account to [HCA and Hartley Computer] for such assets and the profits derived thereon".

Claims were made for an account by each of the respondents, and, although there is no allegation that any damage was caused by the acts or omissions of any of the respondents, there is an alternative claim, in general terms, for "equitable damages". Neither Arlaw nor High Tech is anywhere mentioned in the material parts of the pleading, and Harpur is only mentioned once, where it is said that, "on behalf of" HCA and Hartley Computer, he provided confidential information to NZI. A restriction on the purpose for which such information was provided is asserted in the pleading; namely, "the provisions [sic] of loan funds to [HCA] and the acquisition of a substantial shareholding in [HCA] to secure the future of [HCA and Hartley Computer]".

The appellants' written argument before this Court was initially summarised in the following terms:

"The action for breach of confidence arose because all Respondents used confidential information, which had originally been supplied by Harpur in connection with the original agreement, to assist in the decision to purchase the assets of Hartley direct from the receivers. The Trial Judge rejected this claim primarily because of a finding that the duty of confidence was owed to the receivers and could be waived by them. This finding (inter alia) gives rise to the sixth ground of appeal."

Later in their written submissions, the appellants' argument was expanded as follows:

"7. Sixth Ground of Appeal: Confidential Information

7.1 The Trial Judge's finding concerning the action for breach of confidence rests upon the proposition that the duty of confidence was owed only to HCA not to Harpur.

(a) Harpur was not acting as an officer of HCA (as receivers had been appointed), but was acting on his own account as a shareholder seeking to sell his shares.

(b) Harpur not only disclosed to NZI and Ariadne documents and information in the possession of HCA, but created new documents (including a business plan) for the purpose of the negotiations embodying the benefit of his own expertise [the Hartley Business Plan].

(c) In these circumstances, there was a clear duty of confidence owed by Ariadne and NZI to Harpur.

7.3 Once this point is reached, the Trial Judge's finding that all information was provided to NZI and Ariadne on the basis that it could be used by them (or companies in their group) for any kind of acquisition is clearly unsustainable:

(a) It may be conceded that the receivers of HCA no doubt were content with such a use of their information.

(b) Harpur, however, was only involved in the negotiations because of his wish to sell his shares. He had no interest in a sale of HCA assets to NZI or Ariadne. Indeed, he had a strong interest in such a sale not occurring. That was, objectively speaking, clear to NZI.

(c) There is no basis for a finding that Harpur authorised NZI and/or Ariadne to use his confidential information for a purpose which was contrary to his interest. Indeed that finding is contrary to the evidence of Stevenson as to the basis upon which the information was received.

(d) Nor could these rights be waived by the receivers.

(e) The finding that `there is nothing in [the Hartley Business Plan] which was not readily available from other sources' mistakes the nature of the confidentiality which the law protects: see e.g. Ansell Rubber Co. Pty. Ltd. v. Allied Rubber Industries Pty. Ltd. [1967] VicRp 7; [1967] VR 37 at p. 44.]

7.4 The Solution 6 acquisition was therefore based upon the unauthorised use of Harpur's confidential information and the cause of action has been made out."

The trial judge dealt with the breach of confidence claim in the following terms:

There are two legal questions which should be addressed before the relevant facts are considered. It is important in this case to determine in whom the cause of action for breach of confidence was vested. Then one has to consider the consequences of the appointment of receivers and managers.

In broad terms the cause of action is vested in the entity to whom the duty of confidence is owed. That was the approach adopted by the Court of Appeal in Fraser v. Evans [1969] 1 Q.B. 349, which was followed and applied by Brownie J in Bacich v. Australian Broadcasting Commission (1992) 29 N.S.W.L.R. 1. When the duty of confidence relates to the business or trading affairs of a company, normally the duty would be owed to the company, and in a sense it could be said that the right to the confidence was vested in the company. But, as Brownie J concluded in Bacich, the duty of confidence may be owed to more than one person. Relevantly he said at 15:

`The more difficult question now thrown up is whether, because the business activities in question were the activities of the company, and the company was entitled to keep its business affairs secret (to the relevant extent), the directors and/or the shareholders have the same, or a generally similar entitlement. In the case of a very large company with, say, a dozen directors and thousands of shareholders, the answer will almost always be that the duty of confidence is not owed to someone, just because that person is a director or a shareholder, but on the other hand there are many companies where one person is the sole beneficial owner of the shares, and also the sole director, or the sole director with actual power to control the affairs of the company, and in the case of many such companies it is difficult to see any reason in principle why that person should be treated any differently to the company, when it comes to considering whether a duty of confidence is owed in respect to the business affairs of the company, and to that extent of that person.

On the evidence, Mr and Mrs Bacich were the only directors of the company. They both appear to have been actively engaged in the conduct of its affairs, and there is no suggestion that anyone else played any significant role in the conduct of its affairs overall. They were also the only shareholders in the company. In those circumstances, and in the absence of any evidence, or indeed any suggestion that the business affairs of the company were significantly different from their own business affairs, I conclude that, at least on the present evidence, there is no distinction to be drawn, as between the company and Mr and Mrs Bacich, when deciding to whom the duty of confidence is owed. That is, on the present evidence, there was a duty of confidence owed to each of Mr Bacich, Mrs Bacich and the company.'

In this case Harpur was the major beneficial owner of the shares in H.C.A. and was its managing director. The situation is not as clear cut as it was in Bacich, because here the shares were held by trustee companies, and there were a number of directors of the company, which had wide ranging extensive business operations. But nevertheless it could be established by evidence that both Harpur and H.C.A. had rights to protect some particular confidentiality relating to the activities of the company. Whether or not in a given situation Harpur personally had such a right would be a matter to be established by evidence.

It is clear that the Group, particularly H.C.A., had the right to maintain the confidentiality of its manufacturing processes and trading activities. (See, for example, Coco v. A N Clark (Engineers) Ltd (1969) R.P.C. 41). Generally it was for each company to decide the extent to which details of those activities should be disseminated to persons interested in either acquiring shares in or purchasing the assets of the company, and the limitations which should attach thereto. Once receivers and managers were appointed the right to make that decision rested with the receivers and managers (see cl. 18(o) of the mortgage debenture). As Street J said in Hawkesbury Development Co. Ltd v. Landmark Finance Pty Ltd (1970) 92 W.N.(N.S.W.) 199 at 209:

`Receivership and management may well dominate exclusively a company's affairs in its dealings and relations with the outside world. But it does permeate the company's internal domestic structure. That structure continues to exist notwithstanding that the directors no longer have authority to exercise their ordinary business-management functions. A valid receivership and management will ordinarily supersede but not destroy, the company's own organs through which it conducts its affairs. The capacity of those organs to function bears a direct inverse relationship to the validity and scope of the receivership and management.'

As noted earlier, after their appointment the receivers and managers gave Harpur the broad authority to attempt to find a financier who was interested in either taking over the Group or acquiring its assets. Pursuant to that authority Harpur prepared a number of reports and submissions designed to interest financiers in such a deal. In these circumstances it was not necessary for him to obtain specific authority from the receivers before approaching any potential investor. But clearly no deal could be concluded without the involvement of, and specifically the approval of, the receivers.

It was whilst Harris was on holidays that Harpur first made contact with N.Z.I. through O'Neil of Bancorp. The first Harris knew of the interest of N.Z.I. was after Harpur had been to New Zealand and arrangements had been made for a team to visit Brisbane to investigate the affairs of the companies more thoroughly. The receivers co-operated with the people carrying out such investigations, and the only conclusion I can draw is that impliedly the receivers allowed those investigators to obtain what otherwise might have been regarded as confidential information as to the affairs of the Group.

N.Z.I. commissioned and paid for the reports prepared by O'Neil and Nixon of Ferris Norton ... . The receivers, acting for the companies in the Group, waived any confidentiality relating to information needed in the preparation of those reports; but impliedly such waiver was limited to the purposes for which N.Z.I. required those reports. I will for the moment put aside consideration of the significance of the Business Plan ... prepared by Harpur.

It will be recalled that in August 1982 the receivers had invited tenders for the sale of the assets and undertaking of the companies under receivership. Though the evidence does not establish directly that in September/October N.Z.I. knew of that fact, it would be extremely surprising if that fact was not known to N.Z.I. and the people carrying out investigations on its behalf. The N.Z.I. letter of 21 September 1982 (quoted in full above) must be read in the light of that. It provided some detail `of what we are contemplating', but it is clear that N.Z.I.'s interest was not limited to the specific proposal outlined therein. Certainly Harris considered in October 1982 that any investment from N.Z.I. might be effected in a number of ways; inferentially that means that in October Harris recognised the possibility of N.Z.I. acquiring assets of the companies. He was certainly prepared at that time to allow N.Z.I. access to whatever confidential information it reasonably required to satisfy itself as to the value of the assets of the Group.

To the extent that the submission of the plaintiffs involved the proposition that information as to the manufacturing processes and trading affairs of the companies was provided to N.Z.I. for the limited purpose of enabling it to make an offer to acquire shares in H.C.A. it must be rejected; the information was not made available on such a restricted basis. On the evidence I find that such information was made available to enable N.Z.I. to consider making an offer either for the shares in, or the assets of, companies in the Group.

Certainly it is true to say that the information in question was made available to N.Z.I. and not specifically to Ariadne. But at the same time as Harpur was given the letter of 21 September from N.Z.I. he received the brochure which [was enclosed]. The schematic diagram of the corporate structure of N.Z.I. contained therein showed that there were a large number of subsidiaries, and it must have been obvious to anyone who gave the matter any consideration at all that the proposal outlined on 21 September could be implemented through one or more of those subsidiaries. I am satisfied that any confidential information supplied to N.Z.I. was supplied on the basis that it could be used either by that corporation itself or by a subsidiary or associated company interested in making an offer for the shares or assets.

I have referred earlier in these reasons to the reaction of Harpur on learning that Ariadne and Judge were likely to be involved in any offer resulting from the investigations carried out by and on behalf of N.Z.I. What is important for present purposes is that Harpur then did not demur to Ariadne relying on the information supplied to N.Z.I. Much of the discussion which took place on 8 November was predicated on Ariadne's knowledge and understanding of the manufacturing processes and trading position of the Group.

Further, and more importantly, when the receivers became involved in discussions with Ariadne on 18 November they were prepared to make any information, reasonably required, available to Ariadne to enable it to make an offer for the assets. On the 18th, Ariadne specifically requested a copy of the tender documents from the receivers and they were readily supplied. Clearly, on the whole of the evidence, the receivers on behalf of the Group made all information as to the manufacturing processes and trading position available to Ariadne, and to that extent consented to the use by Ariadne of any such confidential information previously supplied to N.Z.I. Ariadne made use of the information with the knowledge of the Group, with the consent of the Group, and for the benefit of the Group.

It follows that I am not satisfied on the evidence that the plaintiffs have proved that there was any improper use made either by N.Z.I. or Ariadne of any confidential information supplied or made available.

Counsel for the plaintiffs in final addresses made much of the Business Plan ... prepared by Harpur. It was submitted that without knowledge of the contents of that Business Plan most of the other information received as to the manufacturing processes and trading affairs of the companies would have been of little value or relevance. After having given careful consideration to the contents of that document I conclude that there is no substance in the submission. When one has regard to documents such as [the Hartley Finance Submission dated 30 June 1982, the October 1982 Bancorp Preliminary Report on the Hartley Group, the Ferris Norton Technical Report on HCA, and the HCA and Hartley Computer Tender Documents], particularly in the light of the `due diligence' investigations carried out in Brisbane, there is nothing in [the Hartley Business Plan] which was not readily available from other sources.

In any event I am not satisfied that with respect to [the Hartley Business Plan] there was any confidence vested to Harpur separate from that vested in the companies. Harpur prepared [the Hartley Business Plan] pursuant to the general authority conferred on him by the receivers and managers to take such steps as he considered necessary to interest investors in the companies, and the companies, through the receivers, consented to the use in fact made by N.Z.I. and Ariadne of the information contained therein.

At the end of the day the critical fact is that the companies, through their receivers and managers, entered into the agreement of 2 December with knowledge that Ariadne had had full access to all information relating to the companies' manufacturing processes and trading affairs which otherwise might have been regarded as confidential.

Nothing that happened with respect to that transaction gives rise to a claim for damages for breach of confidence."

Especially in view of their pleaded claim, the appellants' breach of confidence case plainly lacks merit. The breach of confidence claim apparently asserted, but not pleaded, by Arlaw and High Tech was based on a notion that, as shareholders in HCA, they have a derivative right to claims which it (or Hartley Computer) might have had for breach of confidence. Assuming that that might be permissible in an appropriate case, this was clearly not such a matter. All information provided was authorised by the receivers, who controlled HCA and the Hartley Group, and the use of the information by Ariadne, NZI and Solution 6 was for a purpose authorised by the receivers, who caused the sale of assets to Solution 6 to be effected.

Harpur is personally introduced as a claimant only by resort to the "Business Plan" which he prepared; but, at the time, he was the managing director of HCA and, as the statement of claim alleges, acting on its behalf. It is true that his wish was for a sale of the shares in HCA, not its assets, because a share sale was necessary for his purposes, or more specifically to benefit his family trusts which held shares in HCA; however, there is nothing to indicate that the receivers of HCA had such a narrow perspective, or that Harpur was required or authorised to act to procure a sale only of HCA's shares, not a sale of its assets. Further, the attempt to distinguish between activities taken by Harpur "on behalf of" HCA and those taken in his personal capacity, with the "Business Plan" included only in the latter category, seems to me extremely artificial; while his sole intent was a share sale, the "Business Plan" was also material to a prospective purchaser of the assets, and the trial judge found that it was created pursuant to the receivers' authority and contained no information which was not otherwise available from HCA. Further, there is no suggestion that, at the time, Harpur drew the distinction now asserted between himself and HCA, of which he was managing director.

In my opinion, the findings made by the trial judge were not only open to him, but were correct. This final aspect of the appellants' case also fails.

The appeal should be dismissed, with costs to be taxed.

I agree with the learned trial Judge and with the President that, on balance, the evidence was against the probability that on 8 November 1982 the parties to the contract alleged by the appellant agreed to be contractually bound and I agree generally with their reasons. Nevertheless, in deference to the arguments advanced in this Court, I shall state briefly the main factors, also relied on and discussed in much greater detail in the reasons for judgment of the learned trial Judge, which led me to that conclusion.

The first was the complexity of the transaction; that it extended well beyond the matters the subject of the draft heads of agreement or which were discussed on 8 November and that it required the agreement of persons other than the parties represented on that date. As the learned trial Judge pointed out, the difficulty encountered by the appellant's solicitor Clemente in drawing a document which gave legal effect to the draft heads of agreement, the complexity of that document which went well beyond what was discussed on 8 November and the appellant's amendments to the contract as pleaded are some evidence of this.

Central to the alleged contract was a promise by Ariadne to lend up to $3.6M to Hartley Computer Applications. On 8 November Ariadne had no funds to lend and, although a representative of New Zealand Insurance was present at the meeting on that date, the draft heads of agreement contained no promise by it of funds. Indeed it does not even appear to be a party to the draft heads of agreement. And, as the evidence showed and the learned trial Judge found, it had not agreed to lend any money to Ariadne.

Of course Ariadne could have contractually bound itself to lend to Hartley Computer Applications money which it did not then have. But that is not what was alleged. The alleged agreement contained a promise by New Zealand Insurance to provide the funds to enable Ariadne to make the loan. But that term is inconsistent with the finding that New Zealand Insurance had never committed itself to lend the funds to Ariadne and his Honour's finding was plainly justified.

As to parties, it is perhaps sufficient to mention only the absence from the draft heads of agreement, and the meeting on 8 November, of the receivers who would have been necessary parties to any agreement involving Howbry's shares in Hartley Computer Applications or the scheme of arrangement, both of which were integral to the alleged agreement.

Secondly, and consistently with the apparent lack of completeness of terms and parties, was the fact that negotiations appeared to continue after 8 November. It was only then that matters such as the shares held by High Tech in Hartley Computer Applications and Hartley Computer Applications' tax assessments, apparently arising from its involvement in tax minimization schemes, were discussed. More importantly Clemente, acting on Harpur's instructions, felt free to add to his draft agreement, for submission to Adriane, and Ariadne felt free to consider and reject, substantial terms which had never been discussed on 8 November. The fact that these terms were added on Harpur's instructions and that their addition was not objected to on the basis that there was already a concluded contract, rather than that they were subsequently rejected by Ariadne, is of importance in rejecting Harpur's contention that there was already a binding contract. There was also other evidence of continuing negotiations after 8 November.

I do not think that the clause contained in the draft heads of agreement making it subject to the execution of a formal agreement satisfactory to each party's solicitor would have been of great persuasive value had it not been for the context in which it was inserted; the complexity of the transaction, the summary nature of the draft heads of agreement and the plain fact that there were substantial terms of the complex transaction which had still to be resolved and potential parties to it who had not yet become involved. In that context it is not surprising that Clemente, on Harpur's instructions, added further terms to his drafts.

I agree with the reasons of the President for dismissing the appellant's claims based on alleged breach of a duty of confidence and that, in consequence, the appeal must be dismissed with costs.

The detailed reasons of the President make it possible for me to state my conclusions very briefly.

On the principal question, whether a binding contract was made on 8 November 1982, numerous factors have been thrown into the balance by the respective parties, and it is not a case where a single decisive point can be isolated which carries all before it. In my view whilst not all factors favour the respondents, most of them do. Points which particularly confirm the correctness of the learned trial judge's decision include that the negotiations after 8 November 1982 were in relation to quite substantial matters which had not been adequately clarified on 8 November; the difficulty in concluding that multiple parties were ad idem in such circumstances with respect to the complex subject matter; the absence of a number of persons or entities that would be significantly affected by such an agreement; the inclusion of additional parties and terms in the drafts prepared over the ensuing weeks by Mr Clemente; the difficulty of converting the "draft heads of agreement" into the agreement that is pleaded or argued upon the appeal; the problem created by the fact that the draft heads of agreement did not apparently contemplate NZI as a contracting party; the absence of evidence or finding that NZI made a collateral agreement with Mr Harpur to lend to Ariadne whatever money was needed to enable a loan of $3.6 million to be made to HCA; the associated difficulty that if the contract was to be conditional upon such finance being granted, no such condition was mentioned or pleaded; and the express provision for the preparing and signing of formal documentation.

With respect to the last mentioned point, the agreement as pleaded did not contain the additional clause written by each person present upon the draft heads of agreement to the effect that it was subject to execution of a formal agreement satisfactory to each party's solicitor. The appellant submitted that the present case should be distinguished from the usual view of expressions such as "subject to . . contract", namely that parties do not presently intend their arrangement to be binding. In particular the appellant contended that the clause was distinguishable from that discussed in Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353, 364, namely an agreement subject to the preparation of a formal contract acceptable to the solicitors for the vendors. The submission is that the reservation to one party's solicitor of a discretion to vary the terms is very different from a reservation to the solicitors for all parties to vary the terms. I should have thought that the latter reservation was perhaps an a fortiori example of recognition that a number of matters may yet need to be adverted to. Whether that is so or not, the submission is at best a damage-control submission on behalf of the appellant with respect to the last-mentioned point.

I agree with the reasons stated by the President and in general with the reasons stated by the learned trial judge for holding that no concluded agreement was made between the parties on 8 November 1982.

There were additional grounds upon which the learned trial judge held that the action must fail. These include His Honour's view that the agreement (if made) was void for uncertainty; and his view that it was induced by misrepresentations made by Harpur, and duly rescinded on that ground by the respondents. The uncertainty ground overlaps with the subject matter of the failure to reach a concluded agreement and I do not propose to discuss this issue further.

The submissions on the issue of misrepresentation are more complex. In order to succeed the appellant must demonstrate that the learned trial judge's conclusions on this point were erroneous. In order to do so the appellant found it necessary to challenge essential findings of fact. Whilst there is some merit in the criticism of His Honour's finding "I am not satisfied that the partly-paid shares issued to Hi-Tech were discussed at the meeting", I do not find any similar vulnerability in His Honour's findings that "I am not satisfied that there was discussion of the minute pursuant to which Hi-Tech became the holder of partly-paid shares" and "more importantly, I am not satisfied that either prior to or at the meeting of 8 November representatives of Ariadne and/or NZI were aware of such matters". Such findings are supported by the contrasting wording of the draft heads of agreement and the Clemente drafts; the absence of provision in the draft heads of agreement for the partly paid shares; and evidence that Ariadne ascertained the existence of partly paid shares through searches conducted by its solicitors. I do not consider that the appellant has been able to point to errors which would require a Court of Appeal to set aside the findings of primary fact by the trial judge with respect to these matters.

Once this position is reached, there is sufficient to support His Honour's findings with respect to two allegations of non-disclosure and one of misrepresentation. The express misrepresentation was Harpur's statement that he had authority from the third defendant/respondent to act on his behalf in negotiations and dealings with Ariadne and NZI. The first matter of non-disclosure was of the fact that the Hi-Tech shares were only partly paid and the other was of the terms and conditions of allotment of those shares. Harpur warranted in the heads of agreement relied upon, as follows:

"Harpur as vendor, warrants that all aspects, in relation to Hartley and reasonably and materially relevant to this transaction and within his knowledge, have been disclosed to Ariadne."

Despite this he disclosed neither the part-paid status of the shares, nor the tax position of the plaintiff companies. There was evidence to justify His Honour's findings of material misrepresentation and of valid rescission of any agreement on that ground.

I do not wish to add to what Fitzgerald P has written in relation to the claim for alleged breach of confidence.

I agree that the appeal should be dismissed with costs.

[1] Prenn v. Simmonds [1971] 1 W.L.R. 1381; Film Bars Pty Ltd v. Pacific Film Laboratories Pty Ltd (1979) 1 B.P.R. 9251; Air Great Lakes Pty Ltd v. K.S. Easter (Holdings) Pty Ltd (1985) 2 N.S.W.L.R. 309.

[2] Brogden v. Metropolitan Railway Co. [1877] 2 App.Cas. 666; Hussey v. Horne-Payne [1879] 4 App.Cas. 311; Bellamy v. Debenham [1890] 45 Ch.D. 481; Perry v. Suffields Ltd [1916] 2 Ch. 187; Howard-Smith & Co. Ltd v. Varawa [1907] HCA 38; (1907) 5 C.L.R. 68; Barrier Wharfs Ltd v. W. Scott Fell & Co. Ltd [1908] HCA 88; (1908) 5 C.L.R. 647; Allen v. Carbone [1975] HCA 14; (1975) 132 C.L.R. 528; B. Seppelt & Sons Ltd. v. Commission for Main Roads (1975) 1 B.P.R. 9147; Film Bars; Air Great Lakes.

[3] Clifton v. Palumbo [1944] 2 All E.R. 497; B. Seppelt & Sons.