Imperial Chemical Industries plc v Echo Tasmania Pty Limited

26 Under the heading 'Review of operations' the following appeared: 'The Company ceased the importation and distribution of pigment as from 30 April 1999. From this date, the remaining employees at the Ascot Vale marketing branch were made redundant and no trading activities have since occurred. The Company's current operations now relate to the continued rehabilitation of the Burnie site that was previously used for the manufacture of pigment.'

27 The statement of financial position of Tioxide Australia Pty Limited as at 31 December 2001 showed current assets of $24,317,000 made up of $15,204,000 held on deposit with Australia and New Zealand Banking Group Limited and $9,011,000 on loan to a related corporation and 'other debtors' of $102,000. The only other asset of Tioxide Australia Pty Limited was shown as property, plant and equipment ($310,000) comprising freehold land ($229,000), freehold building ($48,000) and plant and equipment, less accumulated depreciation ($33,000). The net assets of Tioxide Australia Pty Limited were shown in the statement of financial position as at 31 December 2001 at $25,046,000. 28 The relevant liabilities were shown in the statement of financial position as $100,000 for trade creditors, $5,000 for other creditors, $137,000 for loans from other related corporations, $482,000 as 'provision for closure costs' and $100,000 for income tax. Given an allowance of $1,243,000 for 'costs yet to be reimbursed', the liabilities of Tioxide Australia Pty Limited in fact increased the net asset position by $661,000. At the conclusion of note 10 to the accounts dealing with 'provisions' the following entry appeared: 'A provision for closure costs at Burnie has been established in the books of a related company. At 31 December 2001, the balance remaining in this provision is approximately $1,807,000. This related company reimburses closure costs to the company on a periodic basis based on invoices raised by the company. To the extent that future closure costs exceed this provision, the excess will be funded from the company's reserves.'

29 According to Mr R L G K Ross, Vice-President Corporate Finance at the applicant, who in 2002 was Senior Taxation Manager with the applicant and a member of the applicant's team that worked on the sale of Tioxide Australia Pty Limited, Tioxide Australia Pty Limited had approximately $24 million in cash as at 1 October 2002. In his affidavit sworn 9 July 2007 he deposed: '19 … Prior to the sale, TAPL [referring to Tioxide Australia Pty Limited] management had estimated the total cost of the ongoing remediation work to be $23 million, and this had been verified by independent consultants to the Tasmanian Government. There were also plans to develop a visitors' centre at the Heybridge site. Of the original funds, $6 million was earmarked for construction of the visitors' centre. The balance of $18 million (together with investment income arising on these funds over the twenty year project) was expected to cover all the remediation costs, in the absence of a significant catastrophic incident, particularly one in the first few years.' 30 Australian Titanium Products Pty Limited was registered on 31 October 1985. It would appear that on 14 February 2003 it was wound up under a members' voluntary winding up. On 5 June 2004 it was dissolved and deregistered. 31 Between 1999 and 2003 a Mr Christopher Ian James Hartley served the applicant as its Country Manager in Australia. Mr Hartley previously served the ICI group as Chief Executive Officer of National Starch & Chemical Pty Limited and then as Chief Executive Officer of ICI South Pacific Holdings Pty Limited. Mr Hartley was appointed as a director of Tioxide Australia Pty Limited on 3 July 1998. As at 31 December 2001 the directors of Tioxide Australia Pty Limited were Mr Hartley and Mr Roderick A McLeod, who had been appointed as a director on 1 December 1999. 32 The first respondent was registered on 16 August 2002 at the instigation, so it would seem, of Mr Hartley, who apparently became its sole director and company secretary on that day. This step was clearly undertaken with the blessing of the applicant. 33 The register of members of the first respondent shows Mr Hartley as having acquired one ordinary share in the first respondent on 16 August 2002, that being the only issued share in the capital of the company at that time. Further shares in the capital of the first respondent would appear to have been issued on 1 April 2003 and further mention of them will be made shortly. 34 On 1 October 2002 Australian Titanium Products Pty Limited entered into a Share Purchase Agreement with the first respondent whereunder the first respondent acquired Tioxide Australia Pty Limited for a purchase price of $1.00. The Share Purchase Agreement was apparently signed by A K Cornell as agent for Australian Titanium Products Pty Limited and by Mr Hartley as the sole director and secretary of the first respondent. 35 On 3 July 1996 three separate Environment Protection Notices (numbers 39/1, 40/1 and 41/1) had been issued to Tioxide Australia Pty Limited under the Environmental Management and Pollution Control Act 1994 (Tas). These all related to decommissioning and rehabilitation works at the Heybridge site. The notices alleged that environmental harm had occurred for which Tioxide Australia Pty Limited was responsible and in respect of which remediation was required. 36 Under cover of a letter from the Acting Director of Environmental Management in the Department of Environment and Land Management of the State of Tasmania to Tioxide Australia Pty Limited dated 15 June 1998 three Environment Protection Notice Compliance Certificates were provided to Tioxide Australia Pty Limited recording that, on the evidence available to the Acting Director of Environmental Management, Tioxide Australia Pty Limited had complied with the requirements of the three Environment Protection Notices (numbers 39/1, 40/1 and 41/1). The Acting Director's letter concluded as follows: 'I will advise the Recorder of Titles of the Compliance Certificates, pursuant to Section 46(6) of the Environmental Management and Pollution Control Act 1994 (EMPCA),with a view to cancelling the currently registered EPNs, under Section 46(7) of the EMPCA. At that time, I propose to issue a new EPN, specific to the sludge dams and landfill land parcels, for lodgement with the Recorder of Titles, pursuant to Sections 44(1)(a) and 46(1)(b) of the EMPCA.'

37 On 20 July 1998 a further Environment Protection Notice was issued to Tioxide Australia Pty Limited in respect of the Heybridge site. The covering letter of the Acting Director of Environmental Management included: 'As outlined in that letter [dated 15 June 1998], I am now issuing a new EPN no. 323/1, replacing all the environmental requirements of EPN no. 39/1.'

38 The land the subject of Environment Protection Notice number 323/1 was identified as Lot 1 in plan registered number D109263 having an area of 185.1 hectares. The ground upon which the notice was issued was expressed as follows: 'It is necessary to ensure appropriate environmental management of the decommissioned and rehabilitated leach residue dams and site landfills, as the potential exists to cause environmental harm, if not managed appropriately.'

39 An 'environmental requirement' was imposed by the Environment Protection Notice number 323/1 which called for management and monitoring of the subject land to be undertaken in accordance with a revised 'Tioxide Site Environmental Monitoring Program' approved by the Acting Director of Environmental Management on 11 June 1998 or as otherwise requested by the Acting Director. The Tioxide Site Environmental Monitoring Program called for sampling of surface water in eight different locations and for sampling of ground water in four different locations. Testing of surface water was to be undertaken quarterly for the first twelve months and thereafter subject to a review of available data. Sampling of ground water was to be undertaken on a six monthly basis with reports submitted in the first instance after six and twelve months. The environmental requirement contained in the Environment Protection Notice number 323/1 included: '6 The nominated effluent discharges must comply with the following limits: Arsenic <0.05 mg/L Cadmium <0.01 mg/L Chromium (hexavalent) <0.05 mg/L Chromium (trivalent) <0.5 mg/L Copper <1.0 mg/L Iron and Manganese (combined total filtrable) <1.0 mg/L Lead <0.05 mg/L Mercury <0.002 mg/L Zinc <5.0 mg/L'

40 A brochure published by Tioxide Australia Pty Limited incorporated a number of photographs depicting the Heybridge site with the following captions: 'The way we were' 'The way we ended' 'Our Environmental Commitment' 'The Demolition' 'The Clean Up' 41 The text of the brochure included: 'The original Tioxide plant was constructed at Heybridge, … in 1948. The company enjoyed 50 years of successful operation … … The Tasmanian operation was small by global standards. The plant was distant from raw materials supply and markets. These factors, with increasing globalisation and competition … made closure inevitable. Tioxide Australia and parent company ICI are committed to the rehabilitation of the site. To date, a total of $A30 million has been spent on the remediation program. … The Environmental Decommissioning and Rehabilitation Plan features two phases - demolition, then remediation. The demolition of the factory site was conducted in accordance with strict occupational health and safety provisions and was undertaken free of any accidents or injuries. The demolition was completed on time and within budget. The initial clean up involved the safe removal of 140,000 cubic metres of material from the site. The three sludge dams were filled and capped with clay and systems developed to collect the acidic and iron-rich leachate for biological filtering.'

42 Each page of the brochure incorporates an ICI logo. The final photographs appear to indicate a bare site with all structures removed. 43 According to Mr Ross' affidavit, the applicant authorised Mr Hartley to negotiate an arrangement with the Tasmanian government on the applicant's behalf which allowed the applicant to sell Tioxide Australia Pty Limited in a manner which met both the applicant's commercial needs and the Tasmanian Government's requirement to have sufficient financial and organisational resources in place to ensure the remediation of the Heybridge site. Mr Hartley apparently took direct charge of the project and handled all the main negotiations, reporting to the applicant's main board and the applicant's team which was working on the sale of Tioxide Australia Pty Limited, including Mr Ross. 44 In July 2002 a proposal was put to the applicant which was approved by the applicant's main board that included the following elements: (a) a new company [ultimately the first respondent] was to be incorporated with Mr Hartley as its shareholder and sole director; (b) Tioxide Australia Pty Limited was to be sold to the new company for $1 with the new company thereafter responsible for the remediation of the Heybridge site; (c) remediation was to be effected with the $24 million-odd held by Tioxide Australia Pty Limited at the time of its sale; (d) a separate $15 million bank guarantee arrangement was to be set up with Westpac Banking Corporation to meet specifically-identified classes of expense for the first five years after the sale with the applicant standing behind such a guarantee and the applicant's interests to be protected by an independent 'probity auditor'. 45 The protection afforded to the applicant by the sale documents in respect of any potential liability under the bank guarantee arrangement was not what one might call fulsome. 46 The Share Purchase Agreement of 1 October 2002 made no provision for the first respondent to ensure that the environmental requirements imposed upon Tioxide Australia Pty Limited by Environment Protection Notice number 323/1 of 20 July 1998 were duly satisfied. 47 By virtue of clause 2.1 of the Share Purchase Agreement there were two conditions precedent to the contract proceeding to completion. Clause 2.1 provided: '2.1 Completion will not proceed unless: (a) a notice in writing is issued by, or on behalf of, the Director of Environmental Management confirming his consent to the parties entering into and completing this Agreement either unconditionally or on terms reasonably acceptable to the Buyer; and (b) the Bank [defined to mean Westpac Banking Corporation] provides the Banker's Undertaking in the form set out in Annexure C.'

48 Clause 4.1 of the Share Purchase Agreement provided for completion to take place at Hobart, Tasmania on the day of satisfaction or waiver of the last of the two conditions precedent or such later time as may be agreed by the parties. There is no express evidence as to when the Share Purchase Agreement was completed but it may be inferred from the date of the other documents required to be provided at completion that the agreement was completed contemporaneously with its execution, that is to say on 1 October 2002. 49 Under clause 4.2 of the Share Purchase Agreement Australian Titanium Products Pty Limited was required to give certain documents to the first respondent at completion. These included : '(e) a counterpart of each Transaction Document executed by each party (other than the Buyer) …'

50 'Transaction Documents' was defined in clause 1.1 of the Share Purchase Agreement to mean: '(a) Deed Appointing Probity Auditor between the Buyer and Ernst and Young and in the form set out in Annexure A; (b) Deed of Access and Indemnity between the Seller and Christopher I. J. Hartley in the form set out in Annexure B; and (c) Westpac Banker's Undertaking given to the Buyer in the form set out in Annexure C …'

51 The form of 'Deed of Appointment of Probity Auditor' set out in Annexure A to the Share Purchase Agreement was recorded on 13 typed pages to which four schedules, identified as Schedule 1, Schedule 2, Schedule 3 and Schedule 4, were attached. 52 Annexure B to the Share Purchase Agreement was a form of 'Deed of Access and Indemnity' to be completed on the letterhead of Australian Titanium Products Pty Limited and to which minutes of a resolution of Australian Titanium Products Pty Limited were to be attached. 53 The letter was to acknowledge the resignation of Mr Hartley as a director of Australian Titanium Products Pty Limited on 19 September 2002 and the provision to him of an indemnity and release in consideration of the payment by him of $100 to Australian Titanium Products Pty Limited. 54 It would appear that another 'Release' was given by the applicant to Mr Hartley on 10 March 2006. A letter from Mr Hartley's solicitors to the applicant of 30 August 2007 included: 'Our client is aware of his obligations to ICI PLC and related companies both at general law and pursuant to the Release dated 10 March 2006. …'

55 Annexure C to the Share Purchase Agreement set out the form of an undertaking under the heading 'WESTPAC BANKER'S UNDERTAKING'. It provided for the provision of an undertaking by Westpac Banking Corporation to pay up to $15 million to the first respondent in certain circumstances. 56 It would appear that on 6 June 2006 a claim for payment was made on Westpac Banking Corporation by the first respondent which resulted in the payment by Westpac Banking Corporation of $4,063,367 to the first respondent in early June 2006. The claim would appear to have consisted of two duplicate copies of a letter from the first respondent to Westpac Banking Corporation dated 5 June 2006 which were apparently re-executed by Julian Homer and T T Harrison for the first respondent on 6 June 2006, their respective signatures being witnessed by a notary public in Sydney, in the case of Mr Homer, and a notary public in Hobart, in the case of Mr Harrison. The payment request was accompanied by a Probity Audit Notice provided by the second respondent to the first respondent and dated 31 May 2006. 57 On 7 June 2006 Westpac Banking Corporation demanded payment of a like amount from the applicant 'within five days of the date of this demand' pursuant to an 'Indemnity Re: Bonds and GX Guarantees dated 26 September 2002' issued by the applicant in favour of Westpac Banking Corporation. 58 It would appear that the demand made by Westpac Banking Corporation on the applicant was not met until 9 October 2006 when $4,165,210.23 was remitted to Westpac Banking Corporation. 59 A further payment request was made by the first respondent on Westpac Banking Corporation under the Westpac Banker's undertaking on 1 November 2006. The relevant payment request was signed for and on behalf of the first respondent by Julian Homer and Tony Harrison whose signatures were witnessed by a notary public. The payment requested on this occasion was $1,009,110.30. The payment request was supported by a further Probity Audit Notice issued by the second respondent to the first respondent on 1 November 2006. 60 The payment request of 1 November 2006 would appear to have been presented to Westpac Banking Corporation on 6 November 2006. Presumably it was met by a payment in the amount requested in early November 2006. By letter dated 6 November 2006 Westpac Banking Corporation demanded payment of a like amount from the applicant within five days of the demand made by Westpac Banking Corporation in accordance with the 'Indemnity Re: Bonds and GX Guarantees dated 26 September 2002'. 61 On 23 November 2006 the applicant appears to have met Westpac Banking Corporation's demand by remitting an amount of $1,011,654.81 to Westpac Banking Corporation. 62 The first respondent's payment request which was lodged with Westpac Banking Corporation on 6 June 2006 was expressed as follows: 'Payment Request and Claim Certification We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited dated 1 October 2002 and as amended by the Deed of Appointment of the Replacement Probity Auditor dated 27 March 2006 The sum of $4,063,367 is payable to Echo Tasmania Pty Limited The payment amount must be paid as follows: [a] to account number Echo Tasmania 017010 837670989 [b] by no later than 11 am on the 6 June 2006 The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for the probity (sic) by the Probity Auditor under the Deed. Conformation of the Probity Auditor's determination is set out in the attached notice This Payment Request is dated 5 June 2006'

63 The attached notice referred to in the payment request was a Probity Audit Notice issued by the second respondent to the first respondent in the following terms: 'Probity Audit Notice We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited (Echo) dated October 2002 (Deed) as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006. Terms defined in the Deed have the same meaning in this notice. In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in Clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment event: 1.1 Payment Event: Failure of reduction system giving rise to a payment event pursuant to clauses 3.1(a) and 3.1(b) of the Deed. 1.2 Payment Request: $3,742,301 2.1 Payment Event: Decontamination caused by leakage from a buried fuel tank, giving rise to a payment event pursuant to Clause 3.1(b) of the Deed. 2.2 Payment Request: $321,066'

64 On 6 June 2006 Dobson, Mitchell & Allport, the then solicitors for the first respondent, forwarded a facsimile to Westpac Banking Corporation in which the notary public who witnessed the execution of the Probity Audit Notice by the second respondent said: 'I certify that Simon Lester of Deloitte is a director of Deloitte Growth Solutions Pty Ltd ACN 010 764 306, which is the successor to the probity auditor Ernst & Young.'

65 The first respondent's second payment request, which was lodged with Westpac Banking Corporation on 1 November 2006, was expressed as follows: 'Payment Request and Claim Certification We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited dated 1 October 2002 ("Deed") as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006. Terms defined in the Deed have the same meaning in this notice. The sum of $1,009,111.30 is payable by the Bank to Echo Tasmania Pty Limited. The Payment Amount must be paid as follows; (a) to account number 837670989 bsb 017 010 (b) by no later than 11.00am on 6 November 2006 The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for probity by the Probity Auditor under the Deed. Confirmation of the Probity Auditor's determination is set out in the attached notice. This Payment Request is dated 1 November 2006.' 66 The attached notice referred to in the second payment request was a Probity Audit Notice issued by the second respondent to the first respondent in the following terms: 'Probity Audit Notice We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited (Echo) dated October 2002 (Deed) as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006. Terms defined in the Deed have the same meaning in this notice. In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in Clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment event: Payment Event: Removal of infrastructure giving rise to a payment event pursuant to clause 3.1(b) of the Deed. Payment Request: $1,009,111.30'

67 The Probity Audit Notice was signed by S Lester as a Director of the second respondent. The notary public who witnessed the execution of the probity audit notice by Mr Lester provided a confirmation in the following terms: 'I confirm that this document has been signed, and witnessed by myself, by Simon Lester, who is a partner from the Australian Office of Deloittes (sic) Growth Solutions Pty Limited, who are the appointed Probity Auditor. I confirm that Simon Lester has provided me with sufficient proof to (sic) his identity.'

68 It is plain from the arrangements that the applicant put in place in 2002 to rid itself of the Heybridge site that it contemplated the possibility of a liability to contribute more funds to the disposal of Tioxide Australia Pty Limited than the $24 million which it left in Tioxide Australia Pty Limited at the time of its sale to the first respondent for $1. 69 The question which presently arises is whether circumstances arose which came within the purview of the 'Deed of Appointment of Probity Auditor' such that: (a) Westpac Banking Corporation was obliged to make the payments to the first respondent pursuant to the first respondent's payment requests referred to above, and (b) the applicant was obliged to make the payments mentioned above to Westpac Banking Corporation. 70 The applicant submits that there exists reasonable cause to believe that it may have the right to obtain relief in the Court from each of the respondents for misleading and deceptive conduct within the meaning of the Trade Practices Act 1974 (Cth)and for negligence in respect of the issue by the second respondent of the probity audit notices and the making by the first respondent of payment requests to Westpac Banking Corporation based on those probity audit notices. 71 One of the 'Transaction Documents' which Australian Titanium Products Pty Limited was required to give to the first respondent at completion of the Share Purchase Agreement was a Deed Appointing Probity Auditor executed by Ernst & Young. 72 As it transpires such a Deed was made between Ernst & Young and the first respondent on 1 October 2002. Amongst other things the Deed contemplated the retirement of Ernst & Young as Probity Auditor and the replacement of that firm by another Probity Auditor. Clause 2.3 of the Deed provided: '2.3 Retirement of Probity Auditor (a) Subject to Clause 2.3(b), the Probity Auditor may retire by 1 month's written notice to Echo [referring to the first respondent]. (b) The Probity Auditor may not retire unless a replacement Probity Auditor has been appointed and has agreed to be bound by the terms of this Deed as if named in this Deed as the original Probity Auditor but in any event the Probity Auditor will not be required to continue to act for a period greater than 3 months from the date of the notice referred to in Clause 2.3(a) and may retire at the end of this period even if a replacement Probity Auditor has not been appointed. (c) On receipt of a retirement notice under Clause 2.3(a), Echo must in good faith seek a replacement Probity Auditor. If agreement with a third party is not reached within 30 days of receipt of retirement notice Echo must appoint any person nominated by the President of the Institute of Chartered Accountants in Australia as replacement Probity Auditor. (d) On retirement, a retiring Probity Auditor is released from all obligations under this Deed.'

73 No agreement by the second respondent with Ernst & Young and the first respondent or either of them has been tendered in evidence on the present application, under which the second respondent agreed to be bound by the terms of the Probity Deed made 1 October 2002 as if named in that Deed as the original Probity Auditor. Each of the first respondent and the second respondent has issued documents referring to the Deed Appointing Probity Auditor between Ernst & Young and the first respondent 'as amended by Deed of Appointment of (the) Replacement Probity Auditor dated 27 March 2006'. 74 Notwithstanding requests for the production of the amending Deed dated 27 March 2006 neither the first respondent nor the second respondent has produced same for inspection by the applicant. 75 Clause 2.1 of the Deed of Appointment of Probity Auditor provided for the appointment of Ernst & Young as 'a probity auditor for the purposes of this Deed' and provided for the payment of consideration by the first respondent to Ernst & Young as the Probity Auditor calculated upon the time and expertise necessarily involved at Ernst & Young's standard rates, less a discount of 20 per cent. Clause 2.1 also provided for the appointment to be subject to Ernst & Young's Terms and Conditions of Business as set out in Schedule 4 to the Deed to the extent that they were not directly in contradiction with the other terms and conditions of the Deed. 76 The applicant submits that, in the absence of the 'Deed of Appointment of Replacement Probity Auditor dated 27 March 2006', the use of the words 'as amended' inclines one to the view that the second respondent did not simply agree to be bound by the terms of the 1 October 2002 Deed as if named in it as the original Probity Auditor, thus providing reasonable cause to believe that the second respondent lacked authority to act as a replacement Probity Auditor under the Deed made 1 October 2002. 77 Another Transaction Document which Australian Titanium Products Pty Limited was required to give to the first respondent at completion of the Share Purchase Agreement was Westpac Banking Corporation's 'Banker's Undertaking' in the form of annexure C to that agreement. Such an undertaking was given by Westpac Banking Corporation to the first respondent by a Banker's Undertaking dated 26 September 2002, executed by an attorney for the Bank under a registered power of attorney. The Banker's Undertaking consisted of two pages of typed script to which a Schedule 1 comprising two pages was attached and a Schedule 2 comprising one page. The Banker's Undertaking relevantly provided: ' Banker's Undertaking By: Westpac Banking Corporation ABN 33 007 457 141 To: Echo Tasmania Pty Limited In consideration of Echo Tasmania Pty Limited (the Favouree) accepting this undertaking and subject to satisfaction of the conditions below, Westpac Banking Corporation (Westpac) undertakes to pay any sum or sums which may from time to time be demanded by the Favouree up to a maximum aggregate sum of $15,000,000.00 (Fifteen million dollars) Australian Currency (the Sum). This undertaking is to continue until the first to occur of: (a) Westpac receives written notification from the Favouree that the Sum is no longer required by the Favouree; or (b) this undertaking is returned by the Favouree to Westpac; or (c) payment to the Favouree by Westpac of an amount equal to the whole of the Sum or such part as the Favouree may require; or (d) 4-00 p.m. on the 5th anniversary of the date of this undertaking provided that any letter of demand for payment must be delivered into the hands of a Manager of Westpac, at Level 3, 255 Elizabeth Street, Sydney prior to that time. Westpac agrees to pay to the Favouree the whole or any part or parts of the Sum provided the following conditions are satisfied:- (i) Westpac receives a certificate which in Westpac's reasonable opinion is substantially in the form annexed hereto as Schedule 1 ("the Certificate"); and (ii) The Certificate:- (a) is duly notarised by a Notary Public practising in Australia confirming that it has been signed by a partner (or person of similar authority) from an Australian office of Messrs Ernst & Young (or any authorised signatory of any successor Probity Auditor from time to time thereof); and (b) purports to be signed by two authorised signatories of the Favouree whose names and specimen signatures are set out in Schedule 2 hereto (as amended from time to time by notice to Westpac in writing). … Westpac agrees that other than as set out above, payments claimed in accordance with this undertaking will be made to the Favouree forthwith without reference to any third party. … … SCHEDULE 1 Westpac Banking Corporation Level 3 255 Elizabeth Street Sydney NSW 2000 Dear Sirs Payment Request and Claim Certification We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited dated [date] 2002 ("Deed"). Terms defined in the Deed have the same meaning in this notice. The sum of $[amount] ("Payment Amount") is payable by the Bank to Echo Tasmania Pty Limited. The Payment Amount must be paid as follows: (a) to account number [account number]; (b) by no later than 11.00 am on [date]. The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for probity by the Probity Auditor under the Deed. Confirmation of the Probity Auditor's determination is set out in the attached notice. This Payment Request is dated [date]. Signed for and on behalf of ECHO TASMANIA PTY LIMITED Acting by Authorised Signatory Authorised Signatory The Company Secretary Echo Tasmania Pty Limited 1st Floor Cnr Reiby and Victoria Street Ulverstone TAS 7135 Dear Sir Probity Audit Notice We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited ("Echo") dated [date] 2002 ("Deed"). Terms defined in the Deed have the same meaning in this notice. In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment Event: (a) [insert description of Payment Event] (b) [insert amount of Payment Request] Signed sealed and delivered ) by ERNST & YOUNG ) in the presence of: ) Notary Public Partner Name (please print) …'

78 It may be seen that Westpac's agreement to pay monies under its Banker's Undertaking was dependent upon its receipt of a certificate which in the Bank's reasonable opinion was substantially in the form of Schedule 1. Schedule 1, of course, comprised two documents being a Payment Request and Claim Certification from the first respondent to the Bank and a Probity Audit Notice from the Probity Auditor to the first respondent providing confirmation of the Probity Auditor's determination, it being a requirement that the second document be attached to the first. 79 Returning to the Deed Appointing Probity Auditor made 1 October 2002 between Ernst & Young and the first respondent, regard should be had to the following provisions of that Deed: 'BACKGROUND A. Echo is proposing to purchase all of the issued shares in Tioxide Australia Pty Ltd (ACN 004 214 439) (the "Company"). The Company owns the Site which is the subject of a remediation project. B. Westpac Banking Corporation (the "Bank") is providing a Banker's Undertaking for the costs of undertaking any remediation work at the Site as a result of specific natural disasters or uncontrollable circumstances and for other specified liabilities of the Company in existence at the date of sale. C. The Probity Auditor has agreed to report to Echo whether the process for making a claim has been carried out with probity. THIS DEED WITNESSES: 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Deed: … "Completion" means completion of the sale and purchase of all of the issued shares of the Company under the Share Sale Agreement; "Completion Date" means the date on which Completion occurs; "Confidential Information" means all: (a) information relating to the existence of or the terms of this Deed; (b) information contained in or relating to any Payment Request or deliberation thereon (including, without limitation, the existence of the Payment Request and the liability asserted to be the basis for the Payment Request); (c) trade secrets and all financial, marketing and technological information, contracts, negotiations, ideas, concepts, know how, technology, processes and knowledge which is confidential or of a sensitive nature, but excludes that which is in the public domain; … "EPN" means Environmental Protection Notices numbers 323/1, 39/1, 40/1 and 41/1 issued by the Department; "Expert" has the meaning given by Clause 3.4(a); "Expert Report" means the report issued by an Expert pursuant to Clause 3.4(b); "Excluded Liability" has the meaning given in Clause 3.2; … "Payment Event" has the meaning given in Clause 3.1; "Payment Notification" means the notice of intention by Echo to make a Payment Request on the Bank delivered under Clause 3.3(a); "Payment Request" means the request made by Echo to the Bank for any loss or cost of Echo or the Company arising out of a Payment Event; "Probity Audit Notice" has the meaning given in Clause 3.5; … "Share Sale Agreement" means the share sale agreement between Echo and Australian Titanium Products Pty Limited … pursuant to which Echo is to purchase the shares in the Company; … … "Term" means the period from the Completion Date until the earlier of the date: a) 5 years from the Completion Date; b) when monies paid by the Bank to Echo or the Company total A$15,000,000; c) that any person other than Echo or a Related Corporation of Echo assumes all the actual, contingent and prospective liabilities of the Company [meaning Tioxide Australia Pty Limited] in existence as at the date of assumption; and d) that there is a change in the controlling shareholder of Echo. … 2.4 Term Echo will notify the Probity Auditor immediately should any of the events referred to in paragraphs (b), (c) or (d) of the definition of "Term" in Clause 1.1 occur. 3. REQUEST FOR PAYMENT 3.1 Payment Events For the purposes of this Deed, each of the following is a "Payment Event": (a) the Site has been adversely affected by fire, flood, storm, drought, natural disaster or reed death; and (b) Echo or the Company becomes aware of any actual or contingent liability of the Company which: (i) was in existence as at the Completion Date; or (ii) arose after the Completion Date as a direct or indirect result of an act or omission by any person (including, without limitation, the Company or officers, employees, or agents of the Company) prior to the Completion Date. 3.2 Limitations on Payment (a) Echo is not entitled to make a Payment Request in respect of an Excluded Liability. For the purposes of this Deed, each of the following is an "Excluded Liability": (i) a liability arising under the EPN or any liability for works required to be undertaken to comply with the EPN or any Environmental Law with respect to the Site except when it arises directly out of an event referred to in Clause 3.1(a); (ii) a liability to make any payment or lodge any form of performance bond or surety arising under the EPN or any Environmental Laws; (iii) a liability for which a provision was made in the Accounts but where that provision is insufficient to meet that liability. To the extent only of that deficiency, the liability is an Excluded Liability; or (iv) a liability that is less than $50,000. (b) Echo must reimburse to the Bank an amount equal to any sum paid by the Bank in accordance with any Payment Request which is subsequently recovered by or paid to the Company by any third party (including without limitation any insurer). 3.3 Notice of Payment Event (a) Echo may at any time during the Term give written notification to the Probity Auditor of its intention to make a Payment Request to the Bank for any loss or cost arising out of a Payment Event ("Payment Notification"). (b) A Payment Notification must include the following information: (i) an outline of the circumstances under which Echo considers that a Payment Event has occurred; (ii) if Echo considers that a Payment Event under Clause 3.1(a) has occurred, the amount that Echo considers necessary to be paid by the Bank for application by Echo to rectify the damage or otherwise necessary to enable remediation of the Site to be undertaken in accordance with the EPN; (iii) if Echo considers that a Payment Event under Clause 3.1(b) has occurred, the amount of that liability; and (iv) all information regarding the appointment by Echo of Expert(s) in respect of the Payment Event; (v) all information and documentation relating to the Payment Event; and (vi) any other information reasonably requested from time to time by the Probity Auditor to be provided in a Payment Notification. (c) Echo may issue more than one Payment Notification in respect of the same Payment Event. 3.4 Consideration of Payment Notification (a) The Probity Auditor must consider each Payment Notification and in consultation with Echo conduct an independent review of the probity of Echo's processes for validating the Payment Event. Echo's processes will include the appointment of one or more appropriate experts ("Expert(s)") qualified to make the reports and determinations required under Clause 3.4(b) and which is sufficiently independent of Echo to act impartially. (b) The Expert(s) shall determine: (i) whether a Payment Event has occurred; (ii) if the Payment Event arises under Clause 3.1(a), the amount required by Echo to rectify the damage the subject of the Payment Event or otherwise necessary to undertake remediation of the Site in accordance with the EPN; and (iii) if the Payment Event arises under Clause 3.1(b), the amount required by Echo to meet the liability the subject of the Payment Event, and issue a report in respect of these matters. (c) Echo must provide the Expert(s) with any information reasonably required to review any request for payment under a Payment Request. (d) The Probity Auditor shall review and evaluate all processes adopted by Echo to validate the Payment Event. (e) The Probity Auditor's procedures will include but not necessarily be limited to: (i) ensuring that the processes adopted by Echo for appointing the Expert(s), as well as the process for monitoring and review of the Expert(s) work, are fair and reasonable and likely to lead to an impartial and reliable Expert Report; (ii) monitoring communications between Echo and any Expert(s) during Echo's validation of the Payment Event and the final recommendation by the Expert(s) and it shall be Echo's responsibility to provide the Probity Auditor with copies of all such communications as reasonably requested by the Probity Auditor; and (iii) reporting to Echo on any issues raised that relate to the probity of the above processes as they arise. (f) The Probity Auditor will consider the Expert Report(s) and the report made by Echo and report to Echo as expeditiously as possible and in any event within 1 month of receipt by the Probity Auditor of the Expert(s) Report and the report made by Echo as to whether the processes adopted by Echo to validate: (i) whether a Payment Event has occurred; and (ii) if such an (sic) Payment Event has occurred the amount Echo determines is payable under the Payment Request, have been fair and equitable and conducted with due probity. (g) In making its report under Clause 3.4(f), the Probity Auditor acts as an expert and not as an arbitrator. The Probity Auditor is an independent observer and advisor, who will not be held responsible for the conclusions reached by Echo and/or the Expert(s) but is merely retained to monitor the probity of the processes undertaken by Echo. 3.5 Probity Audit Notice When the Probity Auditor issues its report to Echo pursuant to Clause 3.4(f), if the results of that report confirm that all processes relating to the Payment Event adopted by Echo have been fair and equitable and conducted with due probity, it shall also provide Echo with a notice in the form of Schedule 1 (a "Probity Audit Notice"). 4. CONFIDENTIALITY 4.1 Confidentiality Undertaking A Party: (a) must keep confidential any Confidential Information and all Confidential Information disclosed to, by or on behalf of a Party, or of which the Party becomes aware (whether before or after the date of this Agreement); and (b) may only disclose any Confidential Information in respect of which the Party has an obligation of confidentiality: (i) to those of its officers, employees, agents, consultants or advisers who: (A) have a need to know for the purpose of this Deed and transactions contemplated by it; and (B) undertake to be bound by the confidentiality undertakings in this Clause; (ii) if required to do so by any Applicable Law; or (i)(sic) with the prior written approval of the other Party to this Deed. …'

80 Schedule 1 to the Deed of Appointment of Probity Auditor of 1 October 2002 took the same form as the second page of Schedule 1 to the form of 'Westpac Banker's Undertaking' referred to above, being in the form of the 'Probity Audit Notice'. 81 In consideration of Westpac Banking Corporation giving the Banker's Undertaking to the first respondent, the applicant gave Westpac Banking Corporation an 'Indemnity Re: Bonds and GX Guarantees' under which the payments of $4,165,210.23 and $1,011,654.81 to Westpac Banking Corporation were made by the applicant on 9 October 2006 and 23 November 2006 respectively. That indemnity relevantly provided: 'Indemnity Re: Bonds and GX Guarantees To: Westpac Banking Corporation ABN 33 007 457 141 (Westpac) In consideration of Westpac at the request of IMPERIAL CHEMICAL INDUSTRIES PLC (the Applicant) executing an undertaking (the "Instrument") in favour of Echo Tasmania Pty Limited (the "favouree") in the form annexed to this Indemnity and provided that Westpac has paid out in compliance with the terms of the Instrument, the Applicant agrees: 1. (General indemnity): To fully indemnify Westpac against all claims, proceedings, losses and liabilities of any kind whatsoever which may be made or arise by reason of the Instrument. 2. (Indemnity for amounts paid): Within 5 days of a demand being made by Westpac to pay any amount which Westpac may be called upon to pay (or may in its discretion pay pursuant to Clause 14 of this Indemnity) under or in connection with the Instrument. … 7 (a) (Payment against documents without reference): That without limiting or in any way affecting any of the provisions of this indemnity: Westpac may pay to the favouree any amount which Westpac may be called upon to pay under the Instrument without reference to the Applicant Provided Always that each payment shall be made in accordance with the terms contained in the Instrument and without making any enquiry or requiring or receiving any evidence other than that specified in the Instrument; and (b) Other than as specified in the Instrument Westpac has no responsibility to investigate the correctness of any statements or information or documents furnished to Westpac in pursuance or purported pursuance of any condition contained in the Instrument or to investigate the authenticity of any signature or purported signature appearing upon any such document or that any signatory or purported signatory of any such document possesses any title office or position which in such document he claims or purports to possess or the capacity or entitlement of any such signatory or purported signatory to make/sign any document being or purporting to have been made/given pursuant to the terms of the Instrument. … 9 (Demands): In making any demand for payment hereunder, Westpac shall provide such documentation to the Applicant as is reasonably necessary to evidence the amount which is the subject of the demand. …'

82 The indemnity was provided to Westpac Banking Corporation by the applicant by an instrument dated 26 September 2002. 83 It will be recalled that the Banker's Undertaking given by Westpac Banking Corporation to the first respondent had a life of five years (see [77]). The Banker's Undertaking, the form of which was Annexure C to the Share Purchase Agreement, contemplated that no liability to make a payment would arise unless a Payment Request and Claim Certification with an attached Probity Audit Notice was received by the Bank no later then 4:00 pm on the fifth anniversary of the date of the Banker's Undertaking. Notwithstanding this limitation, it was implicit, from the terms of the Deed Appointing Probity Auditor of 1 October 2002, that the Probity Auditor could not provide the first respondent with a Probity Audit Notice if, prior to 1 October 2007, a change in the controlling shareholder of the first respondent had occurred. There was certainly reasonable cause to believe that that was the case. 84 An ASIC [Australian Securities and Investments Commission] Historical Company Extract as at 7 March 2007 showed the directors of the first respondent as Tony Tasman Harrison (Appointment Date: 3 September 2003) and Julian Charles Homer (Appointment Date: 1 April 2003). Mr Hartley was identified as a former director who ceased to hold office on 3 September 2003. 85 In relation to issued shares, the ASIC Historical Company Extract indicated that the first respondent had 10 'class A' shares on issue and 995 'class C' shares on issue. 86 The ASIC Historical Company Extract indicated that all of the ten Class A shares were held by Mr Homer and all of the 995 Class C shares were held by 104 293 129 Echo Foundation Pty Ltd ABN 48 104 293 129. 87 The ASIC Historical Company Extract for the first respondent identified the 'Ultimate Holding Company' as 104 253 705 North West Foundation Pty Ltd ABN 23 104 253 705. 88 By letter dated 26 April 2007 the then solicitors for the first respondent forwarded a copy of what was said to be the first respondent's share register to the solicitors for the applicant. The copy register of members suggested that the one ordinary share in the first respondent had been allotted to Mr Hartley on 16 August 2002 and that that share had been transferred by him to 'Echo Foundation A.C.N. 104 253 705' (sic) on 1 April 2003. In another folio of the first respondent's register of members it was suggested that the owner of that share had become 'Echo Foundation Pty Ltd A.C.N. 104 293 129' on 1 April 2003 and that it had been converted into a 'C Class' share. 89 The register of members suggests that on 1 April 2003 a further 994 C Class shares in the capital of the first respondent had been allotted to Echo Foundation Pty Ltd ACN 104 293 129, bringing that company's total shareholding in the first respondent up to 995 C Class shares. 90 A further folio in the first respondent's register of members suggests that on 1 April 2003 ten 'A Class' shares in the first respondent had been allotted to Mr Hartley who proceeded to transfer one only of those shares to Julian Charles Homer on that day, leaving Mr Hartley as the owner of nine A Class shares and Mr Homer as the owner of one A Class share, contrary to what was later revealed in the ASIC Historical Company Extract. 91 On or about 23 April 2007 it would appear that the first respondent lodged a 'Request to withdraw a lodged document' with the Australian Securities and Investments Commission. That request was apparently signed by Mr Homer as a director of the first respondent on 20 April 2007. By his signature he certified 'that the information in this form is true and complete'. The 'lodged document' which the first respondent sought to 'withdraw' was described as a 'change to company details changes to (members) share' form lodged on 7 March 2005 as ASIC document number 020919648. 92 The reason why the withdrawal of the document was requested was said to be that 'A notified event has failed to occur'. The relevant 'specific details' provided by the first respondent were as follows: 'A TRANSER OF A CLASS SHARES FAILED TO VALIDLY OCCUR BECAUSE THE SHARE TRANSFER FORM WAS NEVER SIGNED BY THE TRANSFEROR AND NO CONSIDERATION WAS EVER PAID. FURTHERMORE, THE SHARE TRANSFER FORM WAS NEVER STAMPED FOR STAMP DUTY PURPOSES AND NO ENTRY WAS MADE ON THE REGISTER OF MEMBERS. ACCORDINGLY, CHRISTOPHER IAN JAMES HARTLEY IS STILL THE LEGAL OWNER OF 9 A CLASS SHARES IN THE COMPANY.' 93 Somewhat curiously the ASIC Historical Company Extract never showed Mr Hartley as being an owner of one or ten A Class shares in the first respondent. It simply showed him as being a former owner of nine A Class shares (cf [90] above). 94 As it transpires a 'Change to Company Details Changes to (Members) Share Holdings' form was apparently lodged with the Australian Securities and Investments Commission by the first respondent, as document number 020919648, on 7 March 2005. That document had apparently been signed by Julian Charles Homer on 1 March 2005. Mr Homer purported to sign the document as a director of the first respondent and by his signature he certified that 'the information in this cover sheet and the attached sections of this form are true and complete'. Section C of the form suggested that there had been a transfer of shares in the first respondent, with Mr Hartley ceasing, on 3 September 2003, to be the owner of nine A Class shares and Julian Charles Homer becoming the owner of nine A Class shares on that day. 95 In a letter dated 30 August 2007 from Truman Hoyle Lawyers, who claimed to be the solicitors for Mr Hartley, to the applicant, that firm said: 'Our client has never disposed of his 9 A Class shares in Echo. He has never authorised any such transfer verbally or in writing.'

96 However, there is an unstamped 'Standard Transfer Form' in evidence which was forwarded by the current solicitors for the first respondent to the solicitors for the applicant on 28 August 2007. That Standard Transfer Form bears a signature against the word 'transferee'. It shows as the 'Date of Purchase' 3 September 2003 and is said to relate to a transfer of nine A Class shares in the first respondent from 'Christopher Hartley' to 'Julian Homer'. The form does not bear a signature against the word 'transferor'. 97 Under clause 159 of the constitution of the first respondent provision was made for the capital of the first respondent to be divided into a number of different classes of shares. By virtue of clause 160, 'A' Class shares were voting shares, as were ordinary shares, and 'C' Class shares were non-voting shares. 98 Clause 85 of the constitution empowered the directors to allot and issue unissued shares and clause 124 made provision for the transfer of shares by members. Clauses 124-126 of the constitution provided as follows: '124. Subject to this Constitution, a Member may transfer one or more Shares the Member holds by an instrument of transfer which is in writing, is in any usual form or in any other form approved by the Directors that is otherwise permitted by law, and is executed by or on behalf of both the transferor and the transferee. 125. An instrument of transfer of Shares must be delivered to the Company for registration at the place where the Register is kept together with the certificate (if any) of the Share to be transferred and any other evidence as the Directors require to prove the title of the transferor to that Share, the right of the transferor to transfer that Share, and the proper execution of the instrument of transfer. 126. A person transferring a Share remains the registered holder of that Share until the transfer for that Share is registered and the name of the person to whom the Share is being transferred is entered in the Register as the holder of that Share.'

99 Section 1274B(2) of the Corporations Act 2001 (Cth) ('the Corporations Act') provides: '1274B(2) In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary.' 100 Section 1305 of the Corporations Act provides: '1305(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. (2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1)'

101 Under s 176 of the Corporations Act a register of members may be taken to be proof of the matters shown in the register in the absence of evidence to the contrary. 102 No evidence was given by Mr Homer to explain his certification of the 'Change to company details' form lodged with ASIC number 020919648 on 7 March 2005 in respect of an alleged change of ownership of nine A Class shares in the first respondent on 3 September 2003 from Mr Hartley to himself. Nor was any evidence called to explain the disclosure of 104 253 705 North West Foundation Pty Ltd as the 'Ultimate Holding Company'. 103 Notwithstanding the evidence of the Standard Transfer Form in respect of a purchase on 3 September 2003 of nine A Class shares in the first respondent, which bears a signature that vaguely resembles that which appears against Mr Homer's name on the ASIC form lodged on 7 March 2005 and no transferor's signature, nevertheless, in my opinion, there is reasonable cause to believe that Mr Hartley may have transferred nine A Class shares in the first respondent to Mr Homer at some stage prior to 1 March 2005.

Share transfers under the Corporations Act 104 Whoever coined the expression 'as clear as mud' must have been slaving over the extraordinarily, and unnecessarily, complex provisions of the Corporations Act and the Corporations Regulations 2001 (Cth) ('the Corporations Regulations') relating to the transfer of shares in a proprietary company at the time. Gaining an understanding of the relevant law on this subject back in 1961 involved a five minute exercise, reference being had to a couple of consecutive sections in the then Uniform Companies Act along with a couple of clauses in the relevant company's Articles of Association or in a set of 'Table A' Articles as recorded in the Fourth Schedule to that Act. Today, a like exercise requires hours of study, reference to numerous sections and regulations, which themselves make no sense without reference to numerous definitions, often shrouded in obfuscation, and, needless to say, strewn throughout the Corporations Act and the Corporations Regulations in various places such as ss 9 and 761A and regulations 1.0.02 and 7.11.01. 105 The starting point seems to be s 1070A(1) of the Corporations Act, which provides as follows: '1070A(1) A share … in a company ... : (a) is personal property; and (b) is transferable … as provided by: (i) the company's … constitution; or (ii) the operating rules of a prescribed CS facility if they are applicable; and (c) is capable of devolution by will or by operation of law.'

106 The next step along the tortuous road towards discovering the requirements of the Corporations Act in relation to share transfers is to go to Subdivision A of Division 2 of Part 7.11 of the Corporations Act. That Subdivision commences with s 1071A, which relevantly provides: '1071A(1) This Subdivision applies to the following securities: (a) shares in a company; …'

107 One then turns to s 1071B of the Corporations Act, the next section that falls within Subdivision A of Division 2 of Part 7.11. It relevantly provides: '1071B(1) This section does not apply to a transfer of a security through a prescribed CS facility. (2) Subject to subsection (5), a company must only register a transfer of securities if a proper instrument of transfer (see subsections (3) and (4)) has been delivered to the company. This is so despite: (a) anything in its constitution; … … (3) An instrument of transfer is not a proper instrument of transfer for the purposes of subsection (2) if it does not show the details, specified in the regulations, in relation to the company concerned. (4) If the transfer of the securities is covered by Division 3 of this Part, then (in addition to subsection (3)), the instrument is not a proper instrument of transfer for the purposes of subsection (2) unless it is a sufficient transfer of the securities under regulations made for the purposes of that Division. (5) Subsection (2) does not prejudice the power of the company to register, as the holder of securities, a person to whom the right to the securities has devolved by will or by operation of law. …'

108 It may be observed that s 1071B(2) of the Corporations Act clearly proscribes the registration of a share transfer in the absence of a proper instrument of transfer. Such an instrument of transfer must meet the requirements of s 1071B(3) showing the details specified in the relevant regulations, and also s 1071B(4), if it applies, and the relevant regulations. 109 Division 3 of Part 7.11 of the Corporations Act deals with the 'Transfer of certain securities effected otherwise than through a prescribed CS facility'. It commences with s 1073A and concludes with s 1073F. 110 Section 1073A(1) relevantly provides: '1073A(1) This Division applies to the following securities: (a) shares in a company; …'

111 By virtue of s 1073F of the Corporations Act, Division 3 of Part 7.11 of the Act and the regulations made for the purposes of that Division are rendered paramount. Section 1073F relevantly provides: '1073F(1) This section deals with the effect of the provisions of: (a) this Division; and (b) the regulations made for the purposes of this Division. (2) The provisions apply in relation to a transfer of securities despite anything to the contrary in: (a) this Act (other than this Division); or (b) another law, or instrument, relating to the transfer of the securities. … (6) Nothing in the provisions prevents or affects the use of: (a) any other form of transfer of securities; or (b) any other mode of executing a document transferring securities; that is otherwise permitted by law. …'

112 A curious feature of Division 3 of Part 7.11 is that it empowers the making of regulations in relation to transfers of securities that are not effected through a prescribed CS facility but focuses almost exclusively on transfers of securities between persons represented by brokers and says virtually nothing about transfers of shares directly from a company member to a third party. 113 Section 1073D provides, inter alia: '1073D(2) The regulations may specify: (a) the way in which a security may be transferred, including: (i) the forms (if any) to be used; and (ii) what amounts to a proper or sufficient transfer of a security; and (b) the legal effect of a proper or sufficient transfer of a security; and (c) the rights, liabilities and obligations of a person in relation to the transfer of a security, including the rights, liabilities and obligations of: (i) the transferor and transferee; and (ii) any other person involved in the transfer; and (d) the circumstances in which a person will be taken to be involved in the transfer of a security for the purposes of the regulations; and (e) the circumstances in which a person is required not to register, or give effect to, a transfer. 1073D(3) Without limiting paragraph (2)(a), the regulations may: (a) specify the requirements for a document to be a sufficient transfer of a security; and (b) provide that a document meeting specified requirements may be used: (i) as a proper instrument of transfer for the purposes of section 1071B; and (ii) as an instrument of transfer for the purposes of any other law or instrument governing or relating to the security. …'

114 The obscurity of meaning of the relevant provisions of the Corporations Act dealing with the transfer of shares is compounded by the regulations that are relevantly to be found in Part 7.11 of the Corporations Regulations, which commence with regulation 7.11.01 and conclude with regulation 7.11.22. It is also necessary to have regard to Forms 1 - 4 inclusive which are to be found in Schedule 2A to the Corporations Regulations. 115 The first matter to address by reference to the Regulations is the identification of the 'the details, specified in the regulations' which an instrument of transfer of a share must show in order to be a proper instrument of transfer for the purposes of s 1071B(2) of the Corporations Act (see s 1071B(3)). 116 Given that the shares in the first respondent are 'unquoted securities' within the meaning of regulation 7.11.22(2) of the Corporations Regulations, the details required by s 1071B(3) may be found in regulation 7.11.22(1), which provides as follows: '7.11.22(1) For subsection 1071B(3) of the Act, for a transfer of unquoted securities, the State or Territory in this jurisdiction in which the company is taken to be registered is a prescribed detail.'

117 The effect of this regulation when taken with s 1071B(2) - (3) of the Corporations Act is such that, given that the first respondent was taken to be registered in the State of New South Wales, then a proper instrument of transfer of shares in it would need to show that fact (see also s 119A(2) of the Corporations Act). So much for s 1071B(3) of the Corporations Act. 118 The next task is to ascertain what is necessary to render an instrument of transfer of a share, a proper instrument of transfer within the meaning of s 1071B(4) of the Corporations Act. When will an instrument of transfer answer the description of 'a sufficient transfer of the securities under regulations made for the purposes of [Division 3 of Part 7.11 of the Act]'? 119 Division 3 of regulation 7.11 of the Corporations Regulations commences with regulation 7.11.10 and concludes with regulation 7.11.22. Regulation 7.11.10 provides: '7.11.10 This Division is made under section 1073D of the Act, and applies to transfers of Division 3 securities [defined in regulation 1.0.02(1) to include "Division 3 assets", which in turn is defined in regulation 1.1.02(1) to include "(a) shares mentioned in paragraph 1073A(1)(a) of the Act"] effected otherwise than through a prescribed CS facility.'

120 Regulation 7.11.11(1) provides for a document to constitute 'a sufficient transfer of Division 3 assets' if, amongst other things, it is duly completed in accordance with documentation meeting the requirements of the relevant parts of Forms 1, 2, 3 or 4, none of which appear to have any application to a transfer otherwise than through a broker. 121 Regulation 7.11.14 provides an express link to s 1071B(4) of the Act. It relevantly provides: '7.11.14(1) A document that is a sufficient transfer of Division 3 assets may be used: (a) as a proper instrument of transfer for section 1071B of the Act; … …'

122 In the case of the transfer of shares in accordance with one or other of the Forms 1 - 4 inclusive, regulation 7.11.15 provides for transferees under 'sufficient transfers' to become bound by the relevant company's constitution. 123 Regulation 7.11.15 provides as follows: '7.11.15(1) If Division 3 assets are transferred by means of a sufficient transfer: (a) the transferee is taken to have agreed at the execution time to accept the Division 3 assets subject to the terms and conditions on which the transferor held them at that time; and (b) the terms and conditions are the terms and conditions applicable as between: (i) the issuer in relation to the Division 3 assets; and (ii) the holder for the time being of the Division 3 assets. (2) If the Division 3 assets are shares, the transferee is also taken to have agreed, at the execution time: (a) to become a member of the issuer; and (b) to be bound, on being registered as the holder of the shares, by the issuer's constitution.'

124 The absurdity of trying to apply these provisions of the Corporations Act, the Corporations Regulations and Forms 1 - 4 under the Corporations Regulations to transfers of shares otherwise than through a broker may well be overcome by s 1073F(6) of the Act. Notwithstanding the paramountcy conferred on Division 3 of Part 7.11 of the Act and the regulations made for the purposes of that Division, it may be that s 1073F(6) prevails even over the other provisions of Division 3 of Part 7.11 of the Act and the Regulations made for the purposes of that Division. As noted above it provided that nothing in the provisions of Division 3 of Part 7.11 and the regulations made for the purposes of that Division should prevent or affect the use of 'any other form of transfer of securities [which would include shares]' that is 'otherwise permitted by law'. 125 I would conclude that a traditional form of share transfer signed by a transferor and transferee in relation to shares in a company effected otherwise than through a broker could constitute a 'proper instrument of transfer' within the meaning of s 1071B(2) of the Corporations Act, notwithstanding the provisions of s 1071B(4) and the lack of a 'sufficient transfer' within the meaning of that subsection. What I have just said does not imply that an instrument of transfer which fails to comply with regulation 7.11.22(1) could be validly registered under s 1071B(2) of the Corporations Act.

Documents covered by Order 15A rule 6(c) 126 In the foregoing circumstances there is, in my opinion, reasonable cause to believe that the first respondent has or is likely to have or has had or is likely to have had possession of a number of documents relating to the question whether the applicant has the right to obtain relief in the Court from the first respondent, the inspection of which by the applicant would assist it in making a decision whether to commence a proceeding in the Court to obtain such relief. The documents would appear to include: (a) the Deed of Appointment of Replacement Probity Auditor dated 27 March 2006; (b) minutes of meetings of directors of the first respondent dealing with the allotment, conversion and transfer of its shares; (c) the first respondent's register of members set up and maintained in accordance with ss 168-9 of the Corporations Act; (d) minutes of meetings of directors of the first respondent in relation to the changes that occurred on or about 3 September 2003; (e) documents recording or relating to the adverse effect on the Heybridge site of fire, flood, storm, drought, natural disaster or reed death, if any, between 1 October 2002 and 1 November 2006; (f) documents recording or relating to actual or contingent liabilities or claims in respect of such liabilities of Tioxide Australia Pty Limited which were in existence as at 1 October 2002 or arose after 1 October 2002 as a direct or indirect result of an act or omission by any person prior to 1 October 2002; (g) documents relating to any failure of any reduction system at the Heybridge site which predated 31 May 2006; (h) documents relating to decontamination caused by leakage from a buried fuel tank which gave rise to an actual or contingent liability of Tioxide Australia Pty Limited; (i) documents relating to the removal of infrastructure for which a provision had not been made in the accounts of Tioxide Australia Pty Limited as at 31 December 2001; (j) documents relating to liabilities arising under Environmental Protection Notices numbers 323/1, 39/1, 40/1 and 41/1 or any of them or for works required to be undertaken to comply with them or any of them or any environmental law with respect to the Heybridge site between 1 October 2002 and 1 November 2006; (k) documents relating to the provisions referred to in note 10 of the notes to the financial statements of Tioxide Australia Pty Limited for the year ended 31 December 2001; (l) copies of written notifications given to Ernst & Young and/or the second respondent of the first respondent's intention to make a payment request or requests to Westpac Banking Corporation; (m) documents relating to the appointment of experts by the first respondent to make reports and determinations in respect of payment events said to have occurred which were the subject of notifications to Ernst & Young and/or the second respondent recording the first respondent's intention to make a payment request or requests to Westpac Banking Corporation; (n) reports of experts appointed by the first respondent in respect of Payment Events said by the first respondent to have occurred; (o) reports made by Ernst & Young and/or the second respondent and provided to the first respondent between 1 October 2002 and 1 November 2006. 127 Furthermore, there is, in my opinion, reasonable cause to believe that the second respondent has or is likely to have or has had or is likely to have had possession of a number of documents relating to the question whether the applicant has the right to obtain relief in the Court from the second respondent, the inspection of which by the applicant would assist it in making a decision whether to commence a proceeding in the Court to obtain such relief. The documents would appear to include documents within the categories identified in paragraph 126(a), (l), (m), (n) and (o) and, possibly, paragraph 126(g), (h) and (i) also. 128 In his affidavit sworn 9 July 2007 Mr Ross deposed, inter alia, as follows: '29 In the May Probity Audit Notice, the first Payment Event is described as: "Failure of reduction system giving rise to a payment event pursuant to clauses 3.1(a) and 3.1(b) of the Deed". As I understand it, the reduction system was a system that was to be implemented in order to decontaminate the site for the purposes of complying with the EPN and relevant environmental legislation. I am not aware of there being any event of the kind described in clause 3.1(a) of the Probity Deed that could have caused this system to fail. 30 In the May Probity Audit Notice, the second Payment Event is described as: "Decontamination caused by leakage from a buried fuel tank, giving rise to a payment event pursuant to Clause 3.1(b) of the Deed". … I am not aware of any such liability nor, so far as I am aware, is anyone else within ICI. Further, there is no statement that the liability was not an excluded liability under clause 3.2 of the Probity Deed. The general description of the event, and in particular the reference to "decontamination", gives me reason to believe that, if there was a liability at all, it was one that may fall within clause 3.2(a)(i) of the Probity Deed. 31 In the November Probity Audit Notice, the Payment Event is described as: "Removal of infrastructure giving rise to a payment event pursuant to clause 3.1(b) of the Deed". … I am not aware of any such liability nor, so far as I am aware, is anyone else within ICI. As I understand it the only infrastructure on the site following its sale to Echo [referring to the first respondent] was infrastructure that was put on to the site and was being used on the site by Echo for the purposes of performing work to comply with the EPN and environmental law, and for that reason, if there was a liability at all, I believe it may be an excluded liability under clause 3.2 of the Deed. 32 … ICI has requested Echo to supply it with documents concerning each of the events described in the notices, but Echo has refused to do so. 33 ICI is attempting to decide whether to commence legal proceedings against Echo in relation to these matters and I am involved in that process. The decision includes whether to sue Echo for damages for misleading conduct and negligence. 34 I have not been able to make a decision about whether ICI should commence proceedings because, although I believe from the matters described in this affidavit that the position may be that the amounts Echo claimed from Westpac were not in respect of Payment Events (and therefore not claimable), I have not had access to sufficient information relating to that matter. … 36 … having regard to the cost of litigation and ICI's desire not to commence and pursue proceedings which would ultimately fail because of information not known to it when the proceedings were commenced, I do not believe that ICI has sufficient information to enable a decision to be made as to whether it should commence proceedings against Echo. … 43 Without more information about the circumstances of the purported appointment of Deloitte as Probity Auditor, I do not know whether Echo's claims have been supported by valid Probity Audit Notices. … 45 ICI is attempting to decide whether to commence legal proceedings against Deloitte and I am involved in that process. The decision includes whether to sue Deloitte for damages for misleading conduct and negligence. I have not been able to make a decision about whether ICI should commence proceedings … … 47 … I do not believe that ICI has sufficient information to enable a decision to be made as to whether it should commence proceedings against Deloitte. 48 … ICI has sought information from Deloitte … but Deloitte has not provided that information. …' 129 In schedules one and two to the outline of submissions for the applicant, the applicant has set out the 'causes of action that ICI has within its reasonable contemplation' against the first respondent and, similarly, against the second respondent. 130 The categories of documents in respect of which the applicant seeks an order that the first respondent make discovery, referred to in the Application filed 11 July 2007, were: '(a) the Deed of Appointment of Replacement Probity Auditor dated 27 March 2006 between the first and second respondents ("Replacement Probity Deed"); (b) each and every notification given to a person appointed as "Probity Auditor" under the Deed Appointing Probity Auditor, between Echo [referring to the first respondent] and Ernst & Young, dated 1 October 2002 ("Probity Deed") as amended by the Replacement Probity Deed, in respect of any one or more of the events the subject of: (i) the letter from the second respondent to Mr Julian Homer at Echo Tasmania Pty Ltd [referring to the first respondent], dated 31 May 2006 and entitled "Probity Audit Notice" ("May Probity Audit Notice"); and (ii) the letter from the second respondent to Mr Julian Homer at Echo Tasmania Pty Ltd [referring to the first respondent], dated 1 November 2006 and entitled "Probity Audit Notice" ("November Probity Audit Notice"); (c) all documents and records of information provided to a Probity Auditor in relation to any one or more of those events; (d) all documents recording any instructions, information or documents given by the first respondent to any expert in relation to any one or more of those events; (e) all documents recording any and all communications between the first respondent and any expert in relation to any one or more of those events; (f) each and every report, including any expert report, provided to the first respondent in respect of any one or more of those events; (g) all documents recording any and all communications between the first respondent and a Probity Auditor in relation to any one or more of those events; (h) any other document relating to the extent to which each event the subject of the May Probity Audit Notice and the November Probity Audit Notice was a "Payment Event" falling within clause 3.1 of the Probity Deed and not excluded by clause 3.2 of the Probity Deed; … (j) all documents regarding: (i) the transfer of shares in the first respondent from Christopher Ian James Hartley to Julian Charles Homer on 3 September 2003 which was notified to ASIC in the share transfer notification lodged with ASIC on 7 March 2005; and (ii) why that share transfer notification to ASIC was withdrawn, excluding the first respondent's share register and documents lodged with ASIC. (k) all documents regarding the first respondent's verification processes for determiningwhether there had been a change in controlling shareholder of the first respondent prior to it making each of the June claim and the November claim.

131 In respect of the second respondent the categories of documents in respect of which the applicant seeks an order that the second respondent make discovery were as follows: '(a) the Replacement Probity Deed; (b) documents recording communications with the second respondent in relation to it being retained to act as "Probity Auditor"; (c) documents recording any information provided to the second respondent, or any consideration given by the second respondent, in relation to the reason(s) why the role of probity auditor had been created; (d) documents held by the second respondent relating to the extent to which it knew that the applicant may be liable to pay to Westpac Banking Corporation all or any part of sums paid by Westpac Banking Corporation to the first respondent; (e) any copy of any one or more of the following documents: (i) the Share Purchase Agreement between Australian Titanium Products Pty Ltd (ACN 009 553 995) ("ATP") and the first respondent, dated 1 October 2002; (ii) the Probity Deed; (iii) the Westpac Banker's Undertaking to the first respondent, dated 26 September 2002; (iv) the applicant's indemnity to Westpac Banking Corporation, dated 26 September 2002; (f) each and every notification given to the second respondent in respect of any one or more of the events the subject of the May Probity Audit Notice and the November Probity Audit Notice; (g) all documents and records of information given to the second respondent that relate to any one or more of the events the subject of the May Probity Audit Notice and the November Probity Audit Notice; (h) documents relating to any consideration given by the second respondent to any such notification, documentation and information; (i) documents relating to any review undertaken or consideration given by the second respondent of the probity of the first respondent's processes for validating the existence of a Payment Event as defined under clause 3.1 of the Probity Deed; (j) documents relating to any consideration given by the second respondent to the report of any expert retained by the first respondent.'

132 Having regard to the facts of this case, the first respondent would, in my opinion, have reasonably expected that Australian Titanium Products Pty Limited or the applicant or another company related to Australian Titanium Products Pty Limited would have given an indemnity to Westpac Banking Corporation in respect of any payments made by the Bank to the first respondent under the Banker's Undertaking. Furthermore, the second respondent would, in my opinion, have reasonably expected that another person would have given an indemnity to Westpac Banking Corporation in respect of the commitments undertaken by the Bank under the Banker's Undertaking. 133 Given the fact that the Deed Appointing Probity Auditor between Ernst & Young and the first respondent was apparently 'amended' by the Deed of Appointment of Replacement Probity Auditor dated 27 March 2006; the peculiar circumstances relating to the issue and transfer of A Class shares in the first respondent with the unexplained certification by Mr Homer, a director of the first respondent, that he had become the owner of nine A Class shares in the first respondent, previously held by Mr Hartley, on 3 September 2003; the narrow compass of payment events within the meaning of the Deed Appointing Probity Auditor made on 1 October 2002; the width of Excluded Liabilities under the Probity Deed; the provision for the shortening of the term covered by the Probity Deed and the identification by the second respondent of the Payment Events mentioned in the Probity Audit Notices issued by the second respondent on 31 May 2006 and 1 November 2006, when taken with the matters to which Mr Ross deposed in his affidavit sworn 9 July 2007, it seems to me, applying the tests formulated above, that: · there is reasonable cause to believe that the applicant may have the right to obtain relief in the Court from each of the first respondent and the second respondent as foreshadowed by it; · after making all reasonable inquiries, the applicant does not have sufficient information to enable a decision to be made whether to commence proceedings in the Court to obtain that relief; and · there is reasonable cause to believe that each of the first and second respondents has or has had or is likely to have had possession of documents relating to the question whether the applicant has the right to obtain relief in the Court from each of them; and, finally · inspection of the documents by the applicant would assist it in making the decision whether to commence a proceeding in the Court to obtain the relevant relief against the first respondent and/or the second respondent. Accordingly, orders should be made that each of the first respondent and the second respondent make discovery to the applicant of the documents of which discovery has been sought in the Application filed 11 July 2007. 134 I am satisfied that each of the three elements has been satisfied in relation to each of the prospective respondents. This is not a case where the applicant was placing reliance upon mere assertion, conjecture or suspicion. What's more, Mr Ross' evidence was unchallenged and no evidence was forthcoming from Mr Hartley, Mr Homer or Mr Harrison for the first respondent or from Mr Lester for the second respondent. 135 In my opinion the respondents should be ordered to pay the applicant's costs of the application, subject to orders being made that the costs of making the relevant discovery be paid by the applicant. I certify that the preceding one hundred and thirty-five (135) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Counsel for the Applicant: I M Jackman SC and M R Elliott

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Second Respondent: F Gleeson SC

Dates of Hearing: 22, 23 October 2007

Date of Judgment: 13 November 2007