KYRWOOD & ORS. v. DRINKWATER & ORS. [2000] NSWCA 126

KYRWOOD & ORS. v. DRINKWATER & ORS. [2000] NSWCA 126 - NSWCA 2000 case summary — Zoe

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2 POWELL JA: This is an appeal by four of the six defendants - the other two are said (T.1) now to be in liquidation - against Judgments delivered by Young J on 25 September 1997, 23 October 1997 and 28 November 1997 and against orders made by his Honour pursuant to those Judgments on 23 October 1997 and 28 November 1997, in proceedings which had been brought by the Respondents following the breakdown of an agreement made in July 1996 between the personal Respondents - Peter Drinkwater and John Drinkwater - and the personal Appellants - Terry Kyrwood and Geoffrey Kyrwood. That agreement had been intended to effect a settlement of the disputes which had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood and companies controlled by them respectively concerning the activities of two companies, Caddyrack Pty. Limited ("Caddyrack") - which had been the First Defendant in the proceedings before Young J - and Caddyrack Inc - the Fourth Respondent - which companies had been formed at the behest of the Messrs. Drinkwater and the Messrs. Kyrwood for the purpose of having manufactured, and marketing, a product which came to be called a "Caddyrack" which had been invented by Geoffrey Kyrwood. 3 Although the principal issues debated on the hearing of the appeal were whether or not the Messrs. Kyrwood had repudiated their obligations under the agreement of 26 July 1996 and whether the Messrs. Drinkwater had validly terminated that agreement, by reason of the Messrs. Kyrwood's repudiation of their obligations under it, a proper understanding of the circumstances which gave rise to the execution of that agreement and the various matters dealt with in it, calls for a more extended record of the background facts than the statement of the issues debated on the hearing of the appeal would otherwise seem to call for. 4 The product known as a "Caddyrack" is a golfing accessory which fits on the top of golf bags for the purpose of organising and protecting clubs within golf bags. The product, as I have already indicated, was invented by Geoffrey Kyrwood. In February 1994 Geoffrey Kyrwood, his brother Terry Kyrwood and the Messrs. Drinkwater, entered into what was described as an "Exploitation Agreement" (Blue AB 398), which Agreement, after reciting that Geoffrey Kyrwood had assigned to each of Terry Kyrwood and the Messrs. Drinkwater a one-quarter share in the invention and that he, Terry Kyrwood and the Messrs. Drinkwater, had jointly filed an application for a patent to the invention, provided (inter alia) that the parties agreed that the subject matter of the patent application would only be jointly exploited by them and would not be exploited by any one of them acting other than in the furtherance of the joint exploitation of the invention with the full knowledge and consent of the remaining parties. 5 On 28 June 1994, Caddyrack was incorporated pursuant to the provisions of the Corporations Law. Although they were not the corporators, the Appellants Gedrot Pty. Limited ("Gedrot") and Gavros Pty. Limited ("Gavros") which were respectively trustees of the family trusts of Geoffrey Kyrwood and Terry Kyrwood - and the Third Respondent, Lustray Pty. Limited ("Lustray") - which was a trustee for the family trusts of the Messrs. Drinkwater - came to hold the issued shares in the capital of Caddyrack in the proportions 25% on the part of each of Gedrot and Gavros and 50% on the part of Lustray. 6 In the evidence which was tendered on the hearing before Young J it was said (Blue AB 18-19) that at about this time it was agreed between the Messrs. Drinkwater and Messrs. Kyrwood that the benefit of the application for the patent and the benefit of the application for the registered design in respect of the "Caddyrack" would be held by an overseas company in which each of the Messrs. Drinkwater and the Messrs. Kyrwood would hold the shares in the issued capital in equal proportions. 7 Despite this, it would appear that, on 10 October 1994, the Messrs. Drinkwater and the Messrs. Kyrwood executed an assignment to Caddyrack of the patent application, the invention the subject of the application and the right to apply for or obtain corresponding letters patent for the invention in any country (Blue AB 653-654). 8 Although the time at which it did so is not entirely clear, it seems clear enough that, at some time between the date of its incorporation and December 1994, Caddyrack had International Tool & Gauge NSW Pty. Limited ("ITG") manufacture what came to be known as "the Australian tool" - a two part injection mould to be used for the manufacture of the "Caddyrack", which then took the form of a 9 slot golf club holder - the cost of that mould being in the order of $100,000.00. Although the "Caddyrack" itself is not large, the two parts of the mould are far larger than might be imagined - each part of the mould is about 600 mm square on one face and about 150 mm deep and each part has cavities carved into it, the two parts being connected to the arms of an injection moulding machine which clamps the two halves together so that plastic might be injected into the cavities in the mould. The two parts together weigh something of the order of a tonne and when clamped together need to be moved with a forklift (Black AB 54). The Australian tool was capable of producing only right handed Caddyracks. 9 Production of Caddyracks using the Australian tool commenced in December 1994. Caddyrack did not itself produce the Caddyracks but subcontracted the injection moulding of the product and also subcontracted the task of putting the various components in boxes for distribution and sale, Caddyrack's activities being limited to advertising and marketing the product (Black AB 53-54). 10 Although the evidence does not clearly demonstrate that this was so, it seems tolerably plain that, at some time prior to February 1995, the Messrs. Drinkwater and Messrs. Kyrwood had agreed that steps should be taken to have Caddyracks manufactured and marketed in the United States. 11 On 7 February 1995 Mr. Berrey, the managing director of ITG forwarded to John Drinkwater by facsimile a letter providing a quote for the production of an injection mould to produce a modified Caddyrack, that mould to be manufactured in such a way that "the finned area (could) be interchanged with left and right hand inserts", the mould to come complete with right hand inserts; to produce a complete set of left hand inserts; and providing for extra pattern costs, the total cost being $99,790.00 and the terms of payment being 30% with order, 30% after 60% progress and 25% after 80% process and the balance on approval (Blue AB 736). At the foot of the quotation is the handwritten addition "extra $20,000.00 for USA modifications". A further quotation dated 6 March 1995 provided for extra pattern work. 12 Thereafter, on 6 April 1995, Peter Drinkwater wrote to ITG confirming Caddyrack's order for completion of the "right and left handed tool". 13 It would seem that, at about the same time, the Messrs. Drinkwater and the Messrs. Kyrwood at a meeting of directors of Caddyrack resolved that a company should be set up in America, that company to be known as Caddyrack Inc, for the purpose of marketing Caddyrack products in the United States and ultimately for the purpose of manufacturing such products, that company to be managed by John Drinkwater (Blue AB 92). 14 Shortly thereafter John Drinkwater went to the United States to arrange for the setting up of Caddyrack Inc and to oversee the introduction of Caddyracks into the United States market (Blue AB 92). 15 At a meeting of the directors of Caddyrack held on 8 May 1995 Peter Drinkwater "confirmed an overdraft facility in the order of $500,000 was to be established to provide initial working capital for the US operations and (that) he had currently been discussing with their local bank to organise facilities at which it was confirmed that there were no problems at (that stage)". (Blue AB 533) 16 Caddyrack Inc was incorporated in May 1995, at which time John Drinkwater had himself appointed as president and sole director of the company. 17 On 15 May 1995, Caddyrack entered into an agreement with the internationally known golfer Greg Norman whereby, in consideration of the payment to him of the sum of $1 million payable by instalments over the first year, Greg Norman granted to Caddyrack the exclusive right and licence to use in the United States, his signature or likeness in connection with the advertisement, promotion and sale of Caddyracks. The agreement provided for payment of those sums being guaranteed by the Messrs. Drinkwater and the Messrs. Kyrwood, but a copy of the agreement which is with the papers (Blue AB 656-662) while bearing the signature of Peter Drinkwater and each of the Messrs. Kyrwood, does not bear the signature of John Drinkwater. 18 On 1 June 1995, Caddyrack assigned to 505 Pty. Limited - a company which, since it had the same registered office as Caddyrack, appears to have been incorporated, or the shares in which appear to have been acquired, at the behest of, or by, the Messrs. Drinkwater and the Messrs. Kyrwood or Caddyrack - the benefit of Application B640,821 which had been made for the registration of the trademark "Caddyrack" in Class 28 of the Register (Blue AB 663-664). 19 On 1 July 1995, Caddyrack assigned to Golf Products Promotions Limited ("Golf Products") a company incorporated in the island of Guernsey in the Channel Islands, presumably at the behest of the Messrs. Drinkwater and the Messrs. Kyrwood or Caddyrack - the benefit of the applications for letters patent which it had made in (inter alia) Australia, the Republic of South Africa and Thailand (Blue AB 665-666) and, on the same day, assigned to Golf Products the benefits of registered design number 122985 which it had earlier obtained in respect of Caddyrack (Blue AB 667). 20 It is said (Blue AB 92) that, in or about July or August 1995, Caddyrack acquired 57% of the issued share capital in Caddyrack Inc, the remaining shareholders being Gavros, Gedrot, Golf Products, Lustray, David Drinkwater and ITG, the directors of Caddyrack Inc being the Messrs. Drinkwater and David Drinkwater. 21 It is also said (Blue AB 420) that prior to 17 June 1996, the issued shares in Caddyrack Inc were held as follows:

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one can but assume that, even by that stage, certain tensions had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood as to the company's future. 28 The agreement provided (inter alia): "NON COMPETITION 11. No director shall at any time during the term of his directorship and for a period of one year after the termination of his office, whether directly or indirectly, and whether as a principal, agent, director of a company, servant or otherwise, carry on or be engaged or concerned or take part in the business of supplying/making caddyracks and in the event of a failure to observe or perform his obligations under this clause, he shall be liable for liquidated damages for its consequential loss. RESTRICTION ON SOLICITING CUSTOMERS 12. No director shall at any time during the term of this agreement and for a period of 1 year after his resignation or removal from office either on his own account or for any person, firm or corporation contact, solicit the custom of or endeavour to entice away from the Company any person, firm or company who at any time during or at the termination of his office was a client or customer of or in the habit of dealing with the Company. CONFIDENTIAL INFORMATION 13. All records, materials, information, trade secrets and copies of them which are obtained or reviewed by a Director in the course of his directorship are confidential and shall remain the exclusive property of the Company. No Director shall at any time during the term of or at any time after the termination of his office, disclose any of such confidential information to any person other than the Directors and authorised servants or agents of the Company and other than as may be required by law and then only following notice to the Company and he shall not after the termination of his office use the contents of any such records or information for any purpose whatsoever. ……… DIRECTORS' SHAREHOLDING AND INSURANCE 15. No Director shall charge or in any way encumber his shareholding in the Company unless with the written consent of the Board of Directors is first obtained. 16(i) Upon the removal or resignation or death of a Director/Shareholder the surviving Shareholders shall purchase the share owned by the deceased Shareholder in the capital of the company. In the event of the death or the total and permanent disablement of a Director/Shareholder the shares owned by that deceased Shareholder shall be purchased by means of life assurance effected by the Company/Shareholders and the parties hereto agree to execute an agreement in the form annexed hereto and marked with the letter 'A'. (ii) For the purpose of valuing the shareholding the goodwill of the business of the Company shall be determined by multiplying by two(2) the average of the profits derived by the Company during the previous two years. 'Profit' shall mean the sales effected during the previous two years after deduction of expenditure incidental to the conduct of the business plus the sum of $2.00 for every rack sold during that period.. (iii) In the event of a death of a Director/Shareholder, the Company shall pay to his legal personal representative (or the Trustee of the Family Trust of that Director/Shareholder if directed by his legal personal representative) in addition to the value of the shareholding, a monthly amount equivalent to fifty cents for every for every rack sold during each month for a period of ten years from the date of death. ……… 18. Upon resignation or removal of a Director the shareholding of that Director shall be purchased by the remaining Shareholders in the following manner: 25% of the purchase price payable within one month of the date of resignation or removal and the balance payable by thirty-six equal monthly instalments with no interest to accrue on the unpaid balance however interest shall accrue at the prime lending rate imposed by Banking Institutions at the particular time upon amounts not paid in accordance with the provisions herein and such interest shall accrue until such payment is made except in the case of default by the Company pursuant to this clause. ………"

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The agreement also provided (Cl 19 Blue AB 610) a means of resolving any deadlock arising at directors meetings, and, as well(Cl.11 Blue AB 611), provided for a process of dispute resolution to be followed. 29 Although the evidence does not clearly demonstrate when it was that this occurred, it would seem likely that it was at about this time when Peter Drinkwater, who had been appointed general manager of Caddyrack when John Drinkwater had gone to the United States to set up operations there, went to the United States to join John Drinkwater to assist him (Blue AB 275). About a month later Geoffrey Kyrwood went to the United States where he stayed for a time before returning to Australia in late 1995. Peter Drinkwater stayed in the United States until January 1996 when he returned to Australia (Blue AB 275). While he was in the United States Peter Drinkwater received no remuneration from Caddyrack (Black AB 67). 30 It would seem that Caddyrack Inc began marketing Caddyracks in the United States in the latter part of 1995, the Caddyracks until February 1996 having been manufactured in Australia using the Australian tool. In this early period, Caddyrack Inc employed as a sales manager one Chris Phillips and utilised the services of an American company known as All Counties Secretarial to process its sales, invoices, receipts and payments for Caddyracks sold in the United States. 31 As from about February 1996, Caddyracks marketed by Caddyrack Inc in the United States were manufactured in the United States using the US tool which had been produced by ITG pursuant to the order which had been delivered to that company during 1995. The Caddyracks produced using the US tool were better than those produced in Australia using the Australian tool and, as will be apparent from what I have earlier recorded, in addition to right handed Caddyracks, it was possible by the comparatively minor adjustment of the mould also to produce left handed Caddyracks. The Caddyracks which were manufactured and marketed in the United States after February 1996 were not manufactured by Caddyrack Inc but were manufactured for it by the United States company Performance Engineered Products Inc. 32 The underlying tensions between the Messrs. Drinkwater and the Messrs. Kyrwood to which I have earlier referred appear to have surfaced at, or shortly after, the time of Peter Drinkwater's return to Australia in early 1996. That this was so is made clear by the minutes of a meeting of the directors of Caddyrack held on 14 February 1996 at which both of the Messrs. Drinkwater and both of the Messrs. Kyrwood were present. Those minutes record the following (Blue AB 25): "MATTERS DISCUSSED The focus of the meeting was to resolve the management structure of the company as the Kyrwoods and Drinkwaters acknowledged that both parties have different management styles. Peter Drinkwater advised that in order for the Company to have any chance of success there had to be a change. This was acknowledged by all. A number of different options were tabled and discussed at length. Peter offered that he and John resign from the day to day management and allow the Kyrwoods to run the operations. In principle this was accepted as being the only alternative due to the circumstances. The following were agreed to: 1. Peter and John to resign as directors; 2. Personal asset security from Peter and John to be transferred to the Kyrwoods as priority; 3. Remuneration of the outgoing directors was set at - $1,000.00 per week for three months - $500.00 per week for second three months - Nil thereafter 4. Shareholding to remain unchanged; 5. Peter and John to be available to undertake duties on a task by task basis as directed by the Directors; 6. A monthly meeting would be held so that the Directors could report to shareholders in regard to company activities; 7. Terry Kyrwood was appointed Secretary."

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It is said (Blue AB 36) that during the course of the meeting there was an adjournment while Geoffrey Kyrwood telephoned Terry Kyrwood in America following which Geoffrey Kyrwood told the resumed meeting that the Messrs. Kyrwood agreed to the various matters which Mr. Abrams was later to record in his memorandum. 37 Although the materials which are before the Court do not clearly demonstrate that this was so, it seems tolerably plain that, after 14 February 1996, the Messrs. Kyrwood excluded the Messrs. Drinkwater from any part in the activities of Caddyrack and continued to assert that they were no longer directors of Caddyrack. That this was so seems to be made clear by the fact that, on 22 May 1996, there was filed on behalf of the Messrs. Drinkwater a Summons in Proceedings No. 2205 of 1996 in the Equity Division of the Court, in which Summons the Messrs. Drinkwater sought against the Messrs. Kyrwood and Caddyrack the following (inter alia) relief (Blue AB 26-27): "1. A declaration that the Plaintiffs are directors of Caddyrack Pty. Limited ACN 065 368 032. 2. An order that the Defendants complete all or any documents required to up date the records held by the Australian Securities Commission to reflect the declaration made in Order 1. 3. An order that the Defendants file the documents referred to in Order 2 with the Australian Securities Commission to up date the records held by such Commission. 4. Until further Order the Defendants not exclude the Plaintiffs from any Directors' Meetings held by the Third Defendant. 5. Until further Order the Defendants give notice to the Plaintiffs of any Directors Meetings held by the Third Defendant in accordance with the Memorandum and Articles of Association of the Third Defendant. 6. An Order that any resolutions passed by the Third Defendant between 14 February 1996 and the date of those Orders at which the Plaintiffs or each (sic) of them were excluded or not provided with notice in accordance with the Memorandum and Articles of Association of the Third Defendant are invalid."

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41 On 3 June 1996, John Drinkwater forwarded by facsimile addressed to each of David Drinkwater, ITG, Caddyrack, Gavros, Gedrot, Lustray and Golf Products - the latter in care of Brien Cornwell, who was also the solicitor for Caddyrack - a letter (Blue AB 540) advising the Caddyrack Inc was in urgent need of funds - he estimated that $40,000.00 "should be sufficient to see (Caddyrack Inc) through to the stage were (sic) (he could) stabilise the position of the Company and have the Company return to supporting itself through regular income" and indicating that he proposed "to sell" additional shares in the capital of Caddyrack Inc, those shares to be offered to all shareholders on the ratio of their current shareholding and indicating that if some shareholders chose not to take up the offer, a further offer would be made to those shareholders, if any, who did, and, in the event that no shareholder chose to take up the offer, an offer would be made to any potentially interested third parties. At the same time, John Drinkwater forwarded by facsimile to Brien Cornwell a further letter (Blue AB 543) indicating that, as Golf Products was owned as to one-quarter each by the family trusts of each of the Messrs. Drinkwater and Messrs. Kyrwood, that company would not be able to apply for shares in the proposed issue as it would be unable to reach a majority decision. 42 On 5 June 1996, Brien Cornwell forwarded by facsimile to John Drinkwater, a letter (Blue AB 544-545) in which he suggested that the "Notice of Meeting (sic) in regard to issue of additional shares in Caddyrack Inc would be invalid for (a variety of) reasons" which he then set out. 43 On 9 June 1996, John Drinkwater forwarded by facsimile to the Messrs. Kyrwood, a letter (Blue AB 546) which, so far as is relevant for present purposes, was as follows: "I would also like to acknowledge your decision not to participate in the recent call for capital and inform you that Lustray Pty. Ltd. & David Drinkwater were the only shareholders who chose to take up the offer. This call is not yet finalised, as the required funds have not been obtained, but the immediate crisis has been averted. The shareholding as of today is that, between them, Lustray and David Drinkwater now own 52% of the shares in Caddyrack Inc. I have appointed Mr. David Drinkwater and Mr. Ray Berry as the 2 additional Directors required by the By Laws and I am awaiting their signed consent forms."

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46 Having recorded those matters, I now return to the strict order of the narrative. 47 Although it would appear that the Messrs. Drinkwater and the Messrs. Kyrwood met on a number of occasions following the delivery of Brownie J's Judgment and before 24 July 1996, it is doubtful whether any of those meetings could properly be characterised as a meeting of directors and there is considerable dispute as to whether any matters of any relevance were decided - as best as one can judge it from such materials as are before the Court, and in the absence of any relevant findings of fact made by Young J, it would appear that all that occurred were acrimonious and inconclusive discussions as to the possibility, and the manner, of settling the disputes which had arisen between the Messrs. Drinkwater and the Messrs. Kyrwood. The chronologies which have been filed on behalf of both the active Appellants and the Respondents would suggest that, among those meetings, was one held on 24 July 1996 which meeting was attended by the Messrs. Drinkwater, the Messrs. Kyrwood and Mr. Brien Cornwell. 48 On 25 July 1996, Mr. Cornwell, having first telephoned Mr. Hewitt, forwarded to Mr. Hewitt a draft of an agreement which he had prepared as the possible basis for a settlement and invited the Messrs. Drinkwater and Mr. Hewitt to comment on it (Blue AB 189) - although the materials which are before the Court do not demonstrate that this was in fact so, one assumes that Mr. Cornwell made a similar telephone call to Mr. Doyle and forwarded a copy of the draft agreement to him in order that the Messrs. Kyrwood and Mr. Doyle might comment on it. 49 Having apparently considered with the Messrs. Drinkwater Mr. Cornwell's draft, Mr. Hewitt then prepared a fresh draft agreement and forwarded it by facsimile to Mr. Cornwell's office (Blue AB 189, 195-200). According to Geoffrey Kyrwood (Blue AB 487-488), on the same day Mr. Peter Drinkwater gave him a copy of what he (Geoffrey Kyrwood) believed to have been a copy of the agreement which had been prepared by Mr. Hewitt. 50 Further, according to Mr. Kyrwood, (Blue AB 488) at some stage on 25 July 1996 he had a conversation with Mr. Peter Drinkwater in the course of which he (Geoffrey Kyrwood) said: "We still have to make some arrangements in relation to ITG. I have promised them that they will be paid for the tool in the US."

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52 Mr. Berrey also says (Blue AB 596) that on 26 July 1996, Geoffrey Kyrwood telephoned him and that, when he (Geoffrey Kyrwood) telephoned him, he (Mr. Berrey) "had a conversation with him about the possible upgrading of the tool, how much it would cost and how long it would take. I also recall having a discussion with him concerning the terms on which ITG would agree to be paid for the American tool and who would have the ownership of the tools until ITG had been paid its $120,000.00." 53 The several conversations to which I have just referred and of which Geoffrey Kyrwood and Mr. Berrey gave evidence are difficult to reconcile with the evidence given by Mr. Doyle in an Affidavit sworn by him on 2 April 1997 and also with an Affidavit sworn by Mr. Hewitt sworn on 2 May 1997. 54 In his Affidavit, Mr. Doyle deposed (inter alia) (Blue AB 293-294): "12. During the meeting I recall that John Drinkwater said words to to the following effect: 'I will need a letter from you (referring to the Kyrwoods) relinquishing any interest you may have in the US Tool. If this is not done, I will not be able to do anything in the US.' Geoff Kyrwood said the following words, or words to the following effect: 'You must think I am mad John. I am not going to release the US Tool and be left with the inferior Australian Tool.' I said: 'What is so inferior about the Australian tool?' Geoff Kyrwood said: 'It does not have a left hand insert and is the old style mould.' I said: 'Can it be made the same as the US Tool?' Geoff Kyrwood said: 'It can never be the same but it can be made better than it is.' John Drinkwater said: 'Well there won't be any agreement unless the US Tool is relinquished. I need to be able to manufacture caddyracks anywhere that I want to' Geoff Kyrwood said: 'John, if I am going to relinquish the Tool, how am I going to get left handed racks?' There was then discussion between the parties as to how the Australian Tool could be upgraded. Either John Drinkwater or Geoff Kyrwood then suggested that the Tools could be swapped after the Australian Tool had been upgraded. Subsequently, there was a further conversation between Geoff Kyrwood and John Drinkwater to the following effect: Geoff Kyrwood said: 'I have spoken to Ray Berry (of ITG) he says that the upgrade will cost about $20,000.00. He says the job will take about 3 months.' Geoff Kyrwood said: 'I suppose you want me to pay for the upgrade John?' John Drinkwater said: 'Yes, but you don't think I should pay for it?' Geoff Kyrwood said: 'Well, we have agreed to pay ITG for the US Tool. You don't expect us to also pay for the upgrade.' Peter Drinkwater said: 'That's your problem Geoff. You should not have agreed to pay for the US Tool. They agreed to take the shares - they knew the deal.' There was then further discussion following which agreement was reached that the Drinkwaters would pay up to $20,000.00 for the upgrading of the Australian Tool following which there would be an exchange of the US Tool with the Australian Tool with each party being responsible for freight."

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57 The agreement, the alleged breaches of which gave rise to these proceedings, appears to have been engrossed in its final form at about 9.00 p.m. following which it was executed. 58 No doubt because of the speed with which the agreement was drafted and finalised and the varying hands which appear to have had a part in the drafting of it, the agreement is anything but a shining example of the draftsman's art. Although the provisions of the agreement which appear to have attracted the greatest attention at trial are cll. 6, 10 and 12, it is as well that I set it out in full. It is as follows (Blue AB 39-43): "THIS AGREEMENT dated 26 day of July 1996. BETWEEN: PETER DRINKWATER and JOHN DRINKWATER (hereinafter also referred to as 'the Drinkwaters.') AND: GEOFFREY KYRWOOD and TERENCE KYRWOOD (hereinafter also referred to as 'the Kyrwoods.') WHEREAS: 1. The Drinkwaters and Kyrwoods are directors and/or shareholders in Caddyrack Inc and Caddyrack Pty Limited. 2. The parties have the authority to bind their respective shareholders to do all acts and sign all transfers and the like, in order to complete the terms of this agreement as expeditiously as possible. 3. The parties either directly or indirectly have the collective rights to the patent and trademark for the golfing accessory known as 'the caddyrack.' 4. The shareholders of Caddyrack Pty Limited are the parties (sic) respective Family Trusts. 5. Caddyrack Pty Limited owes certain monies (sic) to Greg Norman and/or Great White Shark Enterprises under a contract dated May 1995; and 6. The parties are desirous of settling all matters between themselves and settling the repayment of the debt to Great White Shark Enterprises. IT IS HEREBY AGREED AS FOLOWS: 1. The Drinkwaters will: 1.1 have the exclusive non assignable rights to the patent and trademark of the nine slot rack and bag in Continental North and South America and including Hawaii; 1.2 have the exclusive rights to marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in Continental North and South America including Hawaii; 1.3 take responsibility for half the debt payable to Great White Shark Enterprises. Caddyrack Inc is not liable to pay any monies (sic) to Great White Shark Enterprises Incorporated until the later of the following dates: (a) the date which is ten (10) months after the date of this agreement; or (b) the date when Caddyrack Pty. Limited has paid its half of the monies (sic) due to Great White Shark Enterprises Incorporated. 1.4 transfer all shares owned or controlled by them or their respective family trusts in Caddyrack Pty. Ltd, to the Kyrwoods or their assigns, except that Peter Drinkwater or his wife or child or an entity controlled by Peter Drinkwater retain five per cent (5%) of the issued shares in Caddyrack Pty. Ltd. 1.5 resign as directors of Caddyrack Pty. Limited; 1.6 Each of the above sub clauses shall not merge on completion. 2. Peter Drinkwater is to: 2.1 have the exclusive non assignable rights to the patent and trademark of the nine slot rack and bag in Korea except for the initial order of five hundred (500) units where the value of the sale is to be paid to Caddyrack Pty. Ltd; 2.2 have the exclusive rights to marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in Korea; 3. The Kyrwoods will: 3.1 have the exclusive non assignable rights to the patent, trademark and nine slot rack and bag in the balance of the world (excluding the Americas and Korea). 3.2 have the exclusive right to the marketing, manufacturing and distribution of the nine slot caddyrack and caddyrack bag in this designated area; 3.3 have the responsibility for the payment of half the debt for Great White Shark Enterprises with responsibility for that half share commencing from the date of this agreement; 3.4 transfer all shares owned or controlled by them, or their respective family trusts in Caddyrack Inc to the Drinkwaters or their nominees and all parties will authorise the director of Golf Products Promotion Limited and Caddyrack Pty. Limited to transfer all shares in Caddyrack Inc to John Drinkwater and Peter Drinkwater. 3.5 Each of the above sub clauses shall not merge on completion. 4. Caddyrack Pty. Limited will be responsible for the patent registration and maintenance of the patent and trademark both domestically and internationally during the life of the patent. 5. All parties are to have the non exclusive rights for any developments of the existing product, eg seven or eight slot racks etc. If in the event that either party develops and markets a similar rack (ie seven or eight slot unit) in the non exclusive market, the margin between the new product wholesale and/or distributor price will not be less than 84% of the wholesale/distributor price of the nine slot caddyrack during the period of the Great White Shark debt. Wholesale price is defined as in United States of America and Australia the price to retail shop eg US$29.50 and AUS$37.50. Distributor price is defined as the price paid by the distributor anywhere else in the world. The developer of the seven or eight slot unit agrees to sell at cost plus fifty per cent (50%) to the other party, (the cost price allows a maximum of $1.00 AUS as the royalty payment until the tool is paid for) with each party having the right to use the trademark in its exclusive area. 6. The Kyrwoods will replace within fourteen (14) days the security over the residential property of Peter Drinkwater at 44 Skye Point Road, Coal Point currently held by the National Australia Bank provided all conditions in this agreement have been satisfied. Peter Drinkwater is to make that property or any substitute property available for security for Caddyrack Pty. Limited if required and Peter Drinkwater is to have priority security by way of a fixed and floating charge over the assets of Caddyrack Pty. Limited the security to be released within twelve (12) months from the date of advance. If Peter Drinkwater fails to provide such security then his shares in Caddyrack Pty. Limited will be transferred to the Kyrwoods. 7. If Caddyrack Inc fails to meet and maintain its commitment to its agreed $250,000 US owing to Great White Shark, the rights in Clauses 1.1 and 1.2 of the agreement vest in Peter Drinkwater, Terence Kyrwood and Geoffrey Kyrwood as tenants in common in equal shares between them. In this event, any sum still owing to Great White Shark Enterprises is to be paid by Peter Drinkwater, Terry Kyrwood and Geoff Kyrwood equally. Any payment made to Great White Shark by Caddyrack Inc will be refunded to the directors of Caddyrack Inc by Peter Drinkwater, Terry Kyrwood and Geoff Kyrwood in equal shares. These three parties are then to have the exclusive non assignable rights as set out in Clause 1.1 and 1.2 of this agreement. Similarly if Caddyrack Pty. Limited fails to meet its obligations under the Great White Shark agreement all its interests are to vest in the Drinkwaters or their nominee. 8. Caddyrack Inc. is to supply left handed caddyracks at cost as required to Caddyrack Pty. Limited. Cost is defined as actual manufactured cost from the injection moulder. 9. All loans between the companies are to be written off. All actions currently pending are to cease with any costs to be paid in accordance with the order of the court with payment of taxed costs being deferred for eight (8) months from the date hereof. 10. The parties agree that they will not, nor will their agents or servants, do any act or say anything that will be derogatory to the reputation or product of the other party. Both parties agree not to be active in any way in marketing or distributing into the other parties (sic) country for a period of six (6) months. 11. This agreement is subject to satisfactory arrangements being met (sic) for the repayment of the debt to Great White Shark Enterprises. The parties agree that terms not more onerous than the following are satisfactory arrangements for repayment of the debt to Great White Shark Enterprises:- (a) The sum of US$20,000 per month for six months; (b) The sum of US$30,000 per month for six months; (c) The balance of US$200,000 by six equal payments over six months. Provided that Caddyrack Pty. Limited is liable only for the first US $250,000 and Caddyrack Inc is liable for the balance. 12. That Drinkwaters pay to International Tool and Gauge up to $20,000 for the upgrading of the Australian tool and when the upgrade is complete will exchange the United States tool for the Australian tool with each party being responsible for freight. 13. When the United States tool is in Australia, Caddyrack Pty. Limited agrees to be bound on the same basis as Caddyrack Inc in Cl 8 hereof. 14. John Drinkwater agrees that he will not move the tool in the United States for a period of three (3) months provided that the Kyrwoods and International Tool and Gauge provide a letter relinquishing all interests (if any) in such tool within seven (7) days of the date hereof. This clause will not merge on completion. 15. This agreement is also conditional upon International Tool and Gauge Pty. Limited agreeing to transfer its shares in Caddyrack Inc to John Drinkwater or his nominee."

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80 Thereafter, on 13 August 1996, McDonald Johnson forwarded by facsimile to Hansens a letter (Blue AB 337-338) which was in the following terms: "RE: CADDYRACK PTY. LIMITED Thank you for your letters of 9 August 1996. As you know the parties entered into an Agreement dated 26 July 1996. That Agreement was entered into after extensive negotiations and with all parties having the benefit of independent legal advice. I acted for the Kyrwoods and you acted for the Drinkwaters. The Agreement dated 26 July 1996 was conditional on: 1. Satisfactory arrangements being met (sic) for the repayment of the debt to Great White Shark Enterprises (clause 11). 2. International Tool & Gauge providing a letter relinquishing all interests (if any) in the tool situated in the United States (clause 14). 3. International Tool & Gauge agreeing to transfer its shares in Caddyrack Inc to John Drinkwater or his nominee (clause 15). Satisfactory arrangements have been made with Great White Shark Enterprises Inc. We refer you to our letter to you of 7 August 1996 enclosing a copy of a letter from Cornwells, signed by Paul Erickson on behalf of Great White Shark Enterprises. Separately, we have had Paul Erickson confirm to us in writing that the arrangements are satisfactory. If you have any concerns, we suggest you write direct to him in view of the fact that he has been writing to you. The letter we sent to you from International Tool & Gauge states 'International Tool & Gauge hereby relinquishes any interest it has in the die to make Caddyracks currently situated at Performance Engineering Products in the United States …'. This satisfies the condition in clause 14. International Tool & Gauge have now separately advised us that it is happy to transfer its shares in Caddyrack Inc and is awaiting on the appropriate documentation. May we suggest you send it to them or contact them direct should you have any queries. We do not propose to otherwise comment on the matters raised in your two letters of 9 August 1996 as they are clearly outside the terms of the Agreement dated 26 July 1996. However, we understand that Mr. Kyrwood, Mr. Drinkwater and Mr. Cornwell have had a 'without prejudice' meeting to consider what arrangements our clients may be prepared to make to assist your client with the rights he has under clause 2 of the Agreement. Naturally, any further agreement in that regard would not effect of existing Agreement as it would be totally separate. The Kyrwoods are ready, willing and able to complete the Agreement dated 26 July 1996 and have carried out their relevant obligations under that Agreement. In particular, Caddyrack Pty. Limited has made the first payment to Great White Shark Enterprises Inc and has paid a substantial amount of money to protect the patent. The Kyrwoods have also put in place the arrangements with the National Australian (sic) Bank (see the bank's letter dated 9 August 1996). Please make immediate arrangements for Peter Drinkwater and John Drinkwater to attend a meeting with the Kyrwoods to effect the resignations and transfer the shares. If this meeting has not taken place by 5.00 pm Thursday 15 August 1996 we have instructions to commence proceedings in the Supreme Court for specific performance of the Agreement dated 26 July 1996."

[70]

85 On 5 September 1996, McDonald Johnson forwarded by facsimile to Hansens a letter (Blue AB 343-344) reading as follows: "RE: CADDYRACK PTY. LIMITED & CADDYRACK INC. Thank you for your letter of 29 August, 1996 addressed to Brien Cornwell. We cannot see how the payment of monies to Chris Phillips has any relevance to our clients. The undertakings given to the Court concerning the assets of Caddyrack Inc was (sic) as follows: 'The first and second defendants through their Counsel until 16 July, 1996 to deliver … to Caddyrack Inc. within seven (7) days or advise Caddyrack Inc. of the location of such assets in Annexure 'D' to the Affidavit of T. Kyrwood as are in the possession of the first and second defendants.' The assets which you write about were not in the possession of our client (sic). Even if they were, our clients advised Caddyrack Inc of their location. As previously advised, we cannot see how the Sandpiper sale is relevant. You might refer us to the appropriate Clause of the Agreement dated 26 July, 1996. Clause 12 of the Agreement dated 26 July, 1996 requires 'the Drinkwaters to pay to International Tool & Gauge up to $20,000.00 for the upgrading of the Australian Tool and when the upgrade is complete will exchange the United States of America Tool for the Australian Tool with each party being responsible for the freight. You will see that the Drinkwaters are liable to pay for the refurbishment of the Tool. Please confirm that they have made arrangements for payment of the sum of $20,000.00 to International Tool & Gauge. The Kyrwoods do not have to release the mortgage over Peter Drinkwater's house until all conditions have been satisfied. They will do this at settlement, as previously advised. They want the arrangements concerning the Tool as set out in the agreement to be complied with. The proposal set out in the penultimate paragraph of your letter is not acceptable. The Kyrwoods require compliance with the Agreement of 26 July, 1996 and they are ready, willing and able to complete that Agreement. In fact, the Kyrwoods have been waiting for sometime (sic) for you to confirm that you have signed Share Transfers and Resignations. The Kyrwoods have performed their obligations of the Agreement of 26 July, 1996 in some cases at great expense. If the Drinkwaters are not prepared to complete that Agreement then the Kyrwoods will be forced to seek specific performance. Please make an appointment for settlement."

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91 It would appear that, on 10 October 1996, but before Peter Drinkwater and Mr. Hewitt attended the meeting, a meeting of directors of Lustray was held by tele-conference between Peter Drinkwater and John Drinkwater, at which meeting it was resolved that Mr. Hewitt be appointed an alternative director of Lustray for the purpose of signing share transfers of Lustray's shares in Caddyrack Pty. Limited (Blue AB 191, 201). 92 Shortly before 3.00 pm on 10 October 1996, Peter Drinkwater and Mr. Hewitt attended at the offices of Rees Pritchard at 10 Murray Street, Hamilton (Blue AB 62). At the time, Mr. Hewitt had with him the signed resignations of Peter Drinkwater and John Drinkwater as directors of Caddyrack and share transfers in respect of the shares in Caddyrack held by Lustray except for the transfer of 5% of those shares in accordance with clause 1.4 of the agreement of 26 July 1996 (Blue AB 64, 757-761). 93 At approximately 3.05 pm the Messrs. Kyrwood arrived. At that time Mr. Hewitt inquiries whether Mr. Doyle was to attend the meeting, to which Terry Kyrwood replied "He is on his way." 94 When Mr. Doyle arrived at approximately 3.25 pm, Peter Drinkwater, Mr. Hewitt and the Messrs. Kyrwood and Mr. Doyle then moved into a room where they were joined by Stephen Pritchard and a clerk from the office of Brian Cornwell who, so Mr. Hewitt said (Blue AB 63), he believed was in attendance to hand over a number of share certificates of Caddyrack Inc, which certificates were being held by Brian Cornwell. 95 In his Judgment (Red AB 44-45) Young J recorded what then is said to have occurred in the following way: "Mr. Hewitt says that he told Mr. Doyle, 'This meeting was called by you to complete the agreement of 26 July. It was supposed to occur at 3.00 o'clock. You served the Notice to Complete requiring us to be here at 3.00 pm to complete the agreement. It is now 3.25 and you have now only just arrived. I reserve my clients' rights in respect of your failure to comply with your own Notice.' The parties then agreed to talk off the record, following which Peter Drinkwater and Phillip Hewitt left the room. Upon their return to the room, the clerk from Mr. Cornwell's office had left and the package she had been carrying, which Mr. Hewitt thinks contained share transfers, was in the possession of Steven (sic) Pritchard. Mr. Doyle then said to Mr. Pritchard, 'Do we have all the share transfers for Caddyrack Inc?'. Stevn (sic) Pritchard looked through the documents that had been given to him by Brian (sic) Cornwell's clerk and said 'No, I don't have the share transfer for Caddyrack Pty. Ltd in Caddyrack Inc. I do not know where it is. It may be with Brian (sic) Cornwell.' Mr. Hewitt says that during the time he was at the offices of Rees Pritchard, no one on the Kyrwoods side made any reference to the notice of 24 September or required him to hand over any document or thing. The parties then agreed to hold further discussions the next day, which I assume came to no resolution."

[82]

which letter was followed by a further letter from McDonald Johnson to Hansens dated 22 October 1996 (Blue AB 79-80) in the following terms: "RE: CADDYRACK PTY. LIMITED - DRINKWATERS & KYRWOODS We refer to our letter of 15 October 1996 and your letter of 16 October 1996. Since 26 July 1996 your clients have done nothing to complete their obligations under that agreement. We have not heard from your client (sic) in any way in relation to the procedure for settlement set out in our letter of 15 October 1996 nor have we received from your client any other proposal. The agreement of 26 July 1996 is still on foot and our clients have been ready, willing and able to settle same since early August 1996, whereas your clients have taken no steps to implement the settlement arrangements notwithstanding that the 3 months envisaged to modify the Australian Tool to your clients' requirements will expire on 26 October 1996. Your clients have made no contact with ITG in relation to modification of the Tool. Our clients are ready, willing and able to comply with all their obligations under the Deed. Our clients are the owners of the US Tool pursuant to the agreement, the completion of which is only being delayed by your clients failing to comply with their obligations under it. In these circumstances, where your clients take no steps to implement the agreement reached, do not rely to correspondence, make no settlement proposals despite the suggestion in your letter of 15 October 1996 and generally act with disregard to the agreement reached, it appears that our clients will have no alternative but to go back to the Court seeking Orders. In the circumstances our clients will make such an application if the agreement is not settled in accordance with its terms within the next 3 days. This notice may appear to be short but your clients have had plenty of notice. They have indicated that they have been ready, willing and able to settle the matter since August 1996, but have done nothing."

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104 Peter Drinkwater first became aware of the existence of International and of the fact that it was marketing Caddyracks on 7 November 1996 when, at the Aussie Golf Warehouse in Newcastle, he purchased a Caddyrack which was enclosed in a box bearing the name of International and the address, telephone and facsimile numbers used by Caddyrack. The Caddyrack which Peter Drinkwater purchased bore the "Patent Pending Number" which had been allotted when the application for the patent for Caddyrack was made and also bore the "Registered Design Application Number" which had been allotted when the application to register the design of Caddyrack was made in December 1994. 105 Although the materials which are before the Court do not contain a copy of the Summons which was filed to commence the proceedings, it is agreed between the parties that that Summons was filed on 11 November 1996. 106 In the Amended Statement of Claim (Red AB 3-12) which was filed on behalf of the Respondents, there were sought a wide variety of declarations and orders which, except to the extent to which I set out below, I do not think it necessary to record in detail. Suffice it to say that there were sought orders the effect of which would be to give effect to clause 6 of the Agreement of 26 July 1996 and the following (inter alia) particulars orders: "(vi) A declaration that Gavros Pty. Limited and Gedrot Pty. Limited hold their shares in Caddyrack International Pty. Limited on trust for Caddyrack Pty. Limited. ……… (viii) In the alternative to order (vi) an order that Caddyrack International Pty. Limited account to Caddyrack Pty. Limited for the profits obtained by Caddyrack International Pty. Limited from the sale of the Caddyrack products. (ix) An order that an accounting of profits be taken by the Master to determine the profits made by Caddyrack International Pty. Limited from the sale of the Caddyrack products. ……… (x) An order that Gedrot Pty. Limited and Gavros Pty. Limited purchase the shares in Caddyrack Pty. Limited owned by Lustray Pty. Limited for an amount determined by this Court. (xi) In the alternative to order (x) an order that the second plaintiff purchase the shares in Caddyrack Pty. Limited owned by the fifth and sixth defendants for an amount determined by this Court. (xii) In the alternative to orders (ix) and (x) the first defendant be wound up pursuant to s.260 of the Corporations Law. ………"

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116 When the proceedings were listed before Young J in October 1997 for the purpose of his Honour dealing with the Short Minutes which had he had contemplated would be brought in, little progress had been made as appears from his Honour's Judgment on 23 October 1997 (Red AB 70-71) in which his Honour said: "I gave reasons for judgment in this matter on 25 September 1997. The companies involved are companies which appear to be trading profitably and exploiting a product for which there is a demand. I am conscious that the Court should not wind up such enterprises if there is any other viable course open. I had contemplated that the parties would be able to work out some arrangement whereby the shares could be valued and one of the parties could buy the others out. However, the two sets of short minutes that were handed up this morning show that the parties would seek to value different things, that both parties want to be the buyer and that it is extremely difficult for the parties to work out a regime for the purchase or sale of each others interest. It seems then that if the path of permitting one side to buy the other side out is to be followed, there will need to be a lengthy and extensive inquiry before the Master. This will take time and whilst it is happening something has to be done to ensure that the business of the company is running in the interests of the company as a whole rather than in the interest of one party. Both parties have shown in the past that they will, if they can, take any commercial advantage open to them to prefer their own interests. There are some existing undertakings as to the running of the business and it is also agreeable to both parties at the moment that Miss Lesley Pickering continue as manager. It seems to me that the only way out of the present deadlock is to appoint a liquidator. This is, under the Act, a course of last resort. The interim arrangement could hold together for a further 21 days during which the parties may be able to realise that further battles are only likely to mean that both of them will lose to the benefit of the legal or accounting professions or the person who buys the business."

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120 On 22 December 1997, there was filed a Notice of Appeal on behalf of all six Defendants. However, as an Amended Notice of Appeal was filed on the hearing of the appeal on behalf of the Second, Third, Fifth and Sixth Defendants, it is unnecessary to set out the grounds taken in the original Notice of Appeal. 121 In the Amended Notice of Appeal, the grounds which were taken were as follows: "1. That his Honour erred in finding that the appellants repudiated the Agreement. 1A. His Honour erred in holding that the notice of 24 September 1996 made time essential or that the Kyrwoods were estopped from denying that it made time essential. 1B. That the Kyrwoods did not breach or repudiate the Agreement by not completing on 10th October 1996. 1C. His Honour erred in his construction of cl. 6 of the Agreement of 26th July 1996. 1D. His Honour erred in failing to hold that the Drinkwaters were in breach of cl. 12 of the Agreement and had repudiated their obligations under that clause and their implied obligations to co-operate to do all things necessary to enable the exchange of tools to take place. 1E. His Honour erred in failing to hold that by reason of such breach and repudiation and being unable, unready or unwilling to complete, the respondents were not entitled to terminate the agreement. 2. That his Honour erred in finding that the issuing of the notice dated 24 September 1996 was conduct sufficient to amount to a repudiation of the Agreement. 3. That his Honour erred in determining that the respondents could rely on the conduct of the appellants as repudiatory when such conduct was brought about by the non-performance of the Agreement by the respondents. 4. His Honour erred in not finding that the Respondents affirmed the Agreement by developing the eight slot rack under the name 'Clubrack'. 5. That his Honour failed to consider the totality of evidence filed on behalf of the appellants and wrongly failed to direct himself to that evidence and found against the appellants. 6. That his Honour should have found that the Agreement was valid and subsisting and granted the appellants the relief as sought in their cross-claim. 6A. His Honour erred in holding that the Kyrwoods had breached their fiduciary duty and that justification for their conduct could not be maintained because the Agreement had been breached in terminated. 7. That his Honour erred in holding that in the circumstances of this case the loan from the first respondent to the first and fourth appellants was repayable immediately it was made. His Honour should have found that before such monies were repayable a demand was necessary and that as no demand was made prior to the commencement of the proceedings his Honour erred in ordering the money to be repaid."

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124 When the appeal was called on for hearing, Mr. R.W. White SC appeared with Mr. A. McInerney for the Messrs. Kyrwood, Gedrot and Gavros, while Mr. B.A.J. Coles QC appeared with Mr. M. Ashhurst for the Respondents. 125 Despite the form of the Amended Notice of Appeal, the written submissions which were filed on behalf of the Messrs. Kyrwood, Gedrot and Gavros commenced with the following: "TRIAL JUDGE'S REASONING AND ISSUES ON THE APPEAL 1. The orders of 28 November 1997 that Gedrot Pty. Limited and Gavros Pty. Limited purchase the shares of Lustray Pty. Limited (Red AB 84.R-85) were made pursuant to the former s.260 of the Corporations Law. The trial Judge appears to have found that the Kyrwoods conducted the affairs of Caddyrack Pty. Limited oppressively in that they redirected the business activities and opportunities of Caddyrack Pty. Limited to Caddyrack International Pty. Limited in breach of their fiduciary duty to the company or the Drinkwaters. His Honour found that they could not rely on the agreement of 26 July 1996 ('the Agreement') as justification for their conduct given his finding that the Kyrwoods had breached (repudiated) that agreement and it had been terminated (Red AB 66.Q-67.H, 68.R). The orders under s. 260 may also have been made on the basis that, as the defence that the parties had already settled their differences by contract failed, the company was deadlocked and there must be a 'commercial divorce' (Judgment of 28 November 1997, Red AB 73J). 2. The reasoning supporting the decision of the declaration that Caddyrack International Pty. Limited held its assets and undertaking on trust for Caddyrack Pty. Limited (Red AB 82.H) must also have been that the Kyrwoods breached their fiduciary duty to Caddyrack Pty. Limited by deflecting corporate opportunities to Caddyrack International Pty. Limited, and that the justification of their actions based on the Agreement failed because of the Kyrwoods breach and the subsequent termination of that Agreement by the Drinkwaters (Red AB 66.S-67.I). 3. The respondents have not contended that the orders should be upheld on any other basis. 4. It was essential to the trial judge's reasoning that the Kyrwood repudiated the Agreement and that the Drinkwaters accepted that repudiation and terminated the Agreement (Red AB 64.U-65.E). It appears from the first declaration made that his Honour found that the Drinkwaters terminated the agreement on 16 October 1996 (Red AB 82). 5. Accordingly, the central issues raised by the appeal are: * whether the Kyrwoods repudiated the Agreement; * whether the Drinkwaters were precluded from terminating the Agreement by reasons of the repudiation, because they were themselves in breach of cl. 12 and the duty to co-operate to do all things necessary to enable the exchange of tools to take place and were not ready, willing and able to complete; * whether the Drinkwaters elected to affirm the agreement of 26 July 1996. 6. His Honour appears to have found there was repudiation by an actual breach justifying termination (failure to complete when time had been made essential) (Red AB 59.F-59U), and a persistent maintenance of an untenable construction on an essential matter (refusal to discharge security until the American tool was received) (Red AB 54.N, 55.G, 55, 64.V)."

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should the context in which it appears in the instrument render the meaning to be attributed to some word or phrase doubtful, then the court which is called upon the interpret the instrument may admit evidence of surrounding circumstances in order to identify the meaning to be attributed to that word or phrase (see, for example, Riordan Smith Line v. Hansen-Tangen [4] ; DTR Nominees Pty. Ltd v. Mona Homes Pty. Ltd. [5] and Jacobs JJ ; Burns Philp Hardware Ltd. v. Howard Chia Pty. Ltd. [6] 128 It is to be observed, at the outset, that, while clause 6 of the Agreement appears to impose on the Messrs. Kyrwood an obligation within fourteen days of the date of execution of the agreement to replace the security over Peter Drinkwater's house, many of the provisions in the later clauses of the agreement relate to matters which are to, or may require to be, done at a point or points of time well beyond fourteen days of the execution of the Agreement. Thus, clause 8 appears to impose on Caddyrack Inc the obligations whilesoever the US tool is under its control, to supply left hand Caddyracks to Caddyrack at cost. Further, clause 11 appears to impose on Caddyrack - assuming the appropriate arrangements have been made - to make payments over the better part of 12 months towards the discharge of the debt to Great White Shark Enterprises and to impose on Caddyrack Inc the obligation thereafter to make payments in discharge of the balance of that debt, while clause 7 appears to impose on Peter Drinkwater and the Messrs. Kyrwood, the obligation to pay the balance of that debt in the event that Caddyrack Inc fails to do so. Further still, clause 12, upon which the Messrs. Kyrwood place so much stress, appears to impose upon the Messrs. Drinkwater, the obligation to pay, up to the sum of $20,000.00, thecost of upgrading the Australian tool - that cost not being fully ascertainable until the upgrading has been completed - a process which the parties contemplated to take some three months - and thereafter to exchange the US tool for the Australian tool. Finally, clause 13 appears to impose on Caddyrack the obligation, following the exchange of the Australian tool for the US tool, to supply left handed Caddyracks at cost as and when required by Caddyrack Inc. 129 If the provisions of clauses 7, 8, 12 and 13 and so much of clause 11 as appears to impose on Caddyrack and Caddyrack Inc the obligation to make payments in reduction of the debt to Great White Shark Enterprises are to be regarded as

[119]

conditions required by clause 6 to be fulfilled before the Messrs. Kyrwood were to be required to replace the security over Peter Drinkwater's home, that result would seem to render absurd the use in clause 6 of the opening words "the Kyrwoods will replace within fourteen days". 130 This being so, it seems to me that, if there are other provisions in the Agreement which might properly be described as conditions and which might have been complied with within fourteen days of the execution of the Agreement of 26 July, then the phrase "provided all conditions in this agreement have been satisfied" appearing in clause 6 of the Agreement ought to be held to be restricted to those other provisions and should not be held to extend to the provisions of clauses 7, 8, 12 and 13 and so much of clause 11 as imposes on Caddyrack and Caddyrack Inc the obligation to make payments in reduction of the debt to Great White Shark enterprises. 131 There are, as it seems to me, two provisions of the Agreement which might properly be regarded as conditions and which could - as, indeed they appear to have been - have been fulfilled within fourteen days, they being the first sentence of clause 11 and the provisions of clause 15 - although the Agreement by John Drinkwater contained in clause 14 is conditional upon there being provided within seven days a letter of the type described, that condition would not seem to me to be a condition within the meaning of clause 6. 132 The letter of 13 August 1996 from McDonald Johnson to Hansens (Blue AB 337-338) which I have earlier (see para. 79) set out would indicate that the Messrs. Kyrwood accepted that the conditions contained in the first sentence of clause 11 and in clause 15 had been fulfilled. That being so - and as the Messrs. Kyrwood do not appear then to have disputed - they then became obliged to replace the security on Peter Drinkwater's home. 133 I turn, then, to the question whether the Messrs. Kyrwood are, in the light of all the circumstances, to be regarded as having repudiated the Agreement. Young J's conclusion that they were so to be regarded appears to be founded upon one or other - or perhaps both - of two bases, they being:

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if not, was the conduct of the Messrs. Kyrwood up to and including the meeting of 10 October 1996 sufficient to demonstrate that they had repudiated the Agreement. 136 Notwithstanding the time stipulation contained in clause 6 of the Agreement, it does not follow that that clause is to be regarded as a condition or an essential term of the Agreement. The general principle to be applied when dealing with time stipulations is that a contractual term specifying the time for the performance of a contractual obligation is not to be construed as a condition unless, either, the parties have expressly so provided, or, the nature of the subject matter or the surrounding circumstances indicate that time was intended to be of the essence of the contract. If, therefore, a time stipulation is not to be regarded as a condition, breach of it will not justify the promisee treating himself as having been without more discharged from further performance; however, the breach remains a breach of contract capable of giving rise to a claim for damages and may, in an appropriate case, entitle the promisee to give a notice to complete, noncompliance with which - if the time allowed for completion be reasonable - will justify the promisee in then treating himself as discharged from further performance. 137 The general test to be applied in determining whether or not a term of a contract is to be regarded as essential may be found in the Judgment of Jordan CJ in Tramways Advertising Pty. Limited v. Luna Park (NSW) Ltd.[7] where his Honour said [8]: "The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v. Booth ((1834) 1 Bing. (NC) 370, 377; 131 ER 1160, 1162-1163), Bettini v. Gye ((1876) 1 QBD 183, 188), Bentsen v. Taylor, Sons & Co. (No. 2) ([1893] 2 QB 274, 281) , Fullers Theatres Limited v. Musgrove ((1923) 31 CLR 524, 537-538), Bowes v. Chaleyer ((1923) 32 CLR 159), Clifton v. Coffey ((1924) 34 CLR 434, 438, 440). If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight."

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138 Although it seems tolerably plain that securing the release of the mortgage on his home was a matter of some importance to Peter Drinkwater, it does not seem to me that it could be said that Peter Drinkwater would not have entered into the Agreement unless assured of a strict and literal performance of the provisions of clause 12 - important though that clause was, it was part of an overall agreement designed to enable the Messrs. Drinkwater and the Messrs. Kyrwood to sever their commercial arrangements. This being so, I conclude that clause 6 was not to be regarded as a condition, or an essential term, of the Agreement, it following that the failure of the Messrs. Kyrwood to comply with the provisions of that clause did not, without more, justify the Messrs. Drinkwater in treating themselves as discharged from further performance of the agreement. 139 The question which then arises is whether, in the light of all that occurred up to and including 10 October 1996, the Messrs. Kyrwood are to be regarded as having repudiated the Agreement 140 There having been no express repudiation by the Messrs. Kyrwood of the Agreement, it is convenient, first, to indicate the circumstances in which a court will be justified in implying repudiation. A succinct statement in this regard is to be found in the joint Judgment of Gavan Duffy CJ and Starke J in Dimond v. Moore[9]: "Before examining the facts it is desirable to state the rule of law applicable to this branch of the case. A convenient statement of that rule may be found in the Judgment of Lord Alverstone MR in the Court of Appeal in Rhymney Railway v. Brecon & Mythyr Tydfil Junction Railway ((1900) 69 L.J.Ch. 813, 818):- 'It will be well to consider … what conduct on the part of one party to a contract justifies the other party in treating it as at an end. If there is a distinct refusal by one party to be bound by the terms of the contract in the future, the other party may … treat the contract as at an end … Short of such refusal … the true principle … is that you must ascertain whether the conduct of the party who has broken the contract is such that the other party is entitled to conclude that the party breaking the contract no longer intends to be bound by its provisions.' See General Bill Posting Co. v. Atkinson ([1900] AC 118). A refusal by one of the parties to an agreement 'to recognise it as subsisting' may evince an intention no longer to be bound by it. Compare Marsden v. Sambell ((1880) 43 L.T. 120)."

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141 In Satellite Estate Pty. Limited v. Jaquet [10] Asprey JA with whom Wallace P agreed said [11]: "'Repudiation' is a word which has a number of meanings (see Heyman v. Darwins Ltd. ([1942] AC 356, per Lord Wright at pp. 378-379 and per Lord Porter at p. 398). Where one party to a contract persists in maintaining that it will only perform an obligation of essential importance in accordance with an untenable instruction of that obligation, that should be regarded as amounting to a total repudiation of the contract on the part of that party (see Withers v. Reynolds ((1831) 2 B & Ad. 882; 109 ER 1370); Morris v. Baron & Co. ([1918] AC 1, 41) per Lord Parmoor; Summers v. The Commonwealth ((1918) 25 CLR 144, 152) per Isaacs J; Martin v. Stout ([1926] AC 359, 363-364); Dimond v. Moore ((1931) 45 CLR 159, 169, 184-185); Luna Park (NSW) Ltd. v. Tramways Advertising Pty. Ltd. ((1938) 61 CLR 286, 304-305) per Latham CJ). The case may be different where there is a bona fide dispute as to the true construction of 'a not very perspicuous document' (cf. Sweet & Maxwell Ltd. v. Universal News Services Ltd. ([1964] 2 QB 699), but in the present case the respondent was claiming wilfully to be entitled to perform the contract in a manner to which it knew it had no shadow of right ( Carr v. J. A. Berriman Pty. Ltd. (1953) 89 CLR 327, 351) per Fullagar J; Robert A. Munro & Co. v. Meyer ([1930] 2 KB 312, 331); see Corbin on Contracts vol. 4, par. 973 at pp. 910-911). 142 In DTR Nominees Pty. Limited v. Mona Homes Pty. Limited[12] Stephen, Mason and Jacobs JJ said [13] "… the respondent's case as pleaded … was not one of rescission for actual breach of essential term, but one of rescission for repudiation and renunciation for so-called 'anticipatory breach'. Their case is accordingly to be considered on that footing. The relevant question therefore is whether the events which we have recounted evidence an intention on the part of the appellant to repudiate or to renounce the contract or more precisely whether such an intention is to be inferred from those events. For the respondents it was submitted that such an intention should be inferred from the appellants continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect interpretation of the contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognise his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. As Pearson LJ observed in Sweet & Maxwell Ltd. v. Universal News Services Ltd. ([1964] 2 QB 699, 734): 'In the last resort, if the parties cannot agree, the true construction will have to be determined by the court. A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments …' In this case the appellant acted on its view of the contract without realising that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement."

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144 The fact that the Messrs. Kyrwood did not within fourteen days of 26 July 1996 replace the security over Peter Drinkwater's home coupled with the fact that, although having given the notice which accompanied McDonald Johnson's letter of 23 September 1996, they were not in a position to settle on 10 October 1996, and coupled with the further fact that, on 10 October 1996, they made it clear that, unless they had in fact received the US tool, they would not replace the security on Peter Drinkwater's house, in my view evinced an intention on their part to fulfil the Agreement only if and when it suited them. This being so, I conclude that Young J was correct in holding that the Messrs. Kyrwood had repudiated the Agreement. 145 This then raises the question whether, as the Messrs. Kyrwood assert, the Messrs. Drinkwater were precluded from terminating the Agreement by reason of their repudiation because, as they (the Messrs. Kyrwood) would have it, the Messrs. Drinkwater "were themselves in breach of cl. 12 and the duty to co-operate to do all things necessary to enable the exchange of tools to take place and were not ready, willing and able to complete". 146 It is thus necessary to determine at the outset whether, upon its proper construction, or as the result of the implication into it of a term to that effect, cl. 12 of the Agreement imposed on the Messrs. Drinkwater a duty to cooperate to do all things necessary to enable the exchange of tools to take place. 147 As is the case with most, if not all, of the provisions of the agreement, the drafting of cl. 12 leaves much to be desired. However, it is clear, particularly when it is coupled with cl. 13, that cl. 12 contemplates that the Australian tool - which, if not in the possession, was under the control, of Caddyrack - was to be delivered to ITG, which was to be commissioned for the purpose, in order to be upgraded, and then to be sent to the United States in exchange for the US tool which was to be forwarded to Caddyrack. It is equally clear that that object could not be attained without the co-operation of both Caddyrack - or the Messrs. Kyrwood - and the Messrs. Drinkwater, for Caddyrack would need to deliver the Australian tool to ITG, Caddyrack - or the Messrs. Kyrwood - or the Messrs. Drinkwater would need to commission ITG to carry out the update, Caddyrack would need to forward the Australian tool to the United States when the upgrade was completed and the Messrs. Drinkwater - or Caddyrack Inc - would need to forward the US tool to Australia. This being so, it seems to me that the case is one which calls for the application of the general rule enunciated by Lord Blackburn in Mackay v. Dick [17]: "… Where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there be no express words to that effect."

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148 As cl. 12 appears to impose on the Messrs. Drinkwater the obligation to pay - up to the sum of $20,000.00 - ITG for the cost of upgrading the Australian tool, it seems to me that cl. 12 ought so to be construed as to impose on the Messrs. Drinkwater the obligation, first, to commission ITG to carry out the upgrade, and to undertake to pay up to the sum of $20,000.00 for that being done, and, further, to comply with such conditions as to the payment of the cost as might reasonably have been required by ITG as a condition of accepting the commission to carry out the upgrade. The terms as to the payment of a deposit set out in the letter (Blue AB 599 - para. 65 (above)) forwarded by facsimile by Mr. Reuthlinger to John Drinkwater on 2 August 1996 appear to me to have been reasonable. 149 As the Messrs. Drinkwater did not, nor did Caddyrack Inc, thereafter commission ITG to carry out the upgrade or agree to the terms of payment indicated by Mr. Reuthlinger in the letter of 2 August 1996, I conclude that the Messrs. Drinkwater failed to comply with the obligation imposed on them by cl. 12 of the Agreement. 150 The question which then arises is whether the Messrs. Drinkwater were, by reason of that breach, disentitled from accepting the repudiation by the Messrs. Kyrwood and terminating the agreement. 151 In his work on Breach of Contract, Professor Carter, in Chapter 10 - Exercise of the Right to Terminate - when dealing with "impediments to termination" states the principle in the following way (op cit 1 Ed. p.347; 2 Ed. 345-346): "BREACH NOT NECESSARILY AN IMPEDIMENT Article 57(1) The fact that a party who has elected to terminate performance of the contract was, at the relevant time, in breach of contract or not ready and willing to perform contractual obligations, does not necessarily operate to impede the effectiveness of the election. (2) In deciding whether a breach of contract or absence of readiness or willingness precluded termination, regard may be had to: (a) the terms of the contract; and (b) the relevant circumstances, including - (i) the nature of the breach; and (ii) the extent to which the party in question was not ready and willing to perform. Breach by the promisee may or may not be an impediment to termination. Similarly, the fact that the promisee was not ready and willing to perform, while not always an impediment to termination, may operate as such."

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152 The way in which, at trial, the Messrs. Kyrwood sought to rely upon the breach by the Messrs. Drinkwater of the provisions of clause 12 is revealed in the following passage from Young J's Judgment (Red AB 60): "Mr. Campbell QC's next point is that what he calls 'the prevention principle' operates so that the Drinkwaters cannot take advantage of a situation that has been brought about by their own wrong to justify a termination. Mr. Campbell QC says that the prevention principle 'has been recognised most often in the context where a party who is himself in breach of a clause of a contract and has thereby contributed to delay is not entitled to rely on a liquidated damages clause in a contract ( Dodd v. Churton [1897] 1 QB 562, 566, 567, 568; SMK Cabinets v. Hili Modern Electrix Pty. Ltd. [1984] VR 391; Aurel Forms Pty. Ltd. v. Graham Karp Developments Pty. Ltd. [1975] VR 202; Percy Bilton Ltd. v. Greater London Council [1982] 1 WLR 794)'. However he puts that the proposition has been more widely articulated in cases such as New Zealand Shipping Co. v. Societe des Ateliers et Chantiers de France [1919] AC 1. He further submits that the principle applies to stop a person relying upon his own wrong as a basis for alleging that a contract is terminated or frustrated, and also to stop a person relying on his own wrong to obtain a benefit under a continuing contract citing for this last proposition: Alghussein Establishment v. Eton College [1988] 1 WLR 587, 594 and TCN Channel 9 Pty. Ltd. v. Hayden Enterprises Pty. Ltd. (1989) 16 NSWLR 130, 147. The 'role' which Mr. Campbell QC attributes to the Drinkwaters is their non-co-operation in paying the $10,000.00 deposit to have the Australian tool modified. There is no doubt that there is some such principle as Mr. Campbell QC submits. I do not consider that there is any general principle that a person cannot take advantage of his or her own wrong, though there are a series of instances where this is the result. In most situations, the reason is that there is an interdependence between the failed act and the wrong of the other party. Where there is no such interdependence, the principle does not apply. The problem comes about by treating a maxim as if it was of universal application. It should be remembered that in Cheall v. Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 189, Lord Diplock said, 'This rule of construction, which is paralleled by the rule of law that a contracting party cannot rely upon an event brought about by his own breach of contract as having terminated a contract by frustration, is often expressed in broad language as : 'a man cannot be permitted to take advantage of his own wrong'. But this may be misleading if it is adopted without defining the breach of duty to which the pejorative word 'wrong' is intended to refer and the person to whom the duty is owed."

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The same approach was taken by this Court in Roadshow Entertainment Pty. Ltd. v. CEL/Vision (ACN 053 006 269) Pty. Ltd. [20] where in the Judgment of the Court, the following passages appear [21] : "As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party: see J. W. Carter, Breach of Contact 2nd ed. (1991) at 347 and Halsbury's Laws of Australia vol. 6 'Contract' (1992) par. 110-9520, by the same author. The question is whether there is an exceptional qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon: see Nina's Bar Bistro Pty. Ltd. (formerly Mytcoona Pty. Ltd.) v. MBE Corporation (Sydney) Pty. Ltd. (at 614, 620-621, 632); and compare Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 at 440-442. ……… Readiness and willingness to perform imports capacity to do so: see De Medina v. Norman (1842) 9 M & W 820 at 827; 152 ER 347 at 350 and Foran v. Wight (at 391, 424, 451). By early October at the latest, CEL/Vision were no longer ready and willing to perform their obligations under the agreement until 31 December 1994 when they could terminate without breach. In the words of Lord Sumner in British & Benningtons Ltd. v Northwestern Cachar Tea Co Ltd. [1923] AC 48 at 71-72, referred to by Dixon CJ in Rawson v. Hobbs (1961) 107 CLR 466 at 481, CEL/Vision had 'become wholly and finally disabled from performing essential terms of the contract'. They had 'a substantial incapacity' which would prevent them 'doing in the future what the contract requires' and had 'neither the means nor the intention of performing': see also Foran v. Wight (at 404-406, 409, 424-425 and 453). The incapacity of a party to perform essential terms of a contract may involve an anticipatory breach: see Universal Cargo Carriers Corporation v. Citati [1957] 2 QB 401 at 436 per Devlin J; Foran v. Wight (at 406, 423-424). 'The injured party is allowed to anticipate an inevitable breach' per Devlin J (at 438). It is arguable that Roadshow might have rescinded before 6 December relying on CEL/Vision's incapacity due to insolvency. However this could have imposed the heavy onus of proof on Roadshow and it wisely elected to wait. A party in breach of non-essential terms, who has not repudiated may rescind for fundamental breach: see Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kasen Kaisha Ltd. [1962] 2 QB 26; State Trading Corporation of India Ltd. v. Golodetz Ltd. (at 286-287) a party in breach of an essential but independent term may also rescind for fundamental breach: see State Trading Corporation of India Ltd. v. Golodetz (at 285-287); compare Geraldton Building Co. Pty. Ltd. v. Christmas Island Resort Pty. Ltd. (1992) 11 WAR 40 at 50-51. Roadshow, we consider, was not by reason of its conduct, unable to terminate on the ground of CEL/Vision's repudiation."

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158 It is to be noted, at the outset, that, whereas the present case was one of repudiation or anticipatory breach, what was involved in Foran v. Wight was a case of actual breach, the purchaser not having elected to accept the earlier repudiation by the vendor but having waited until the time for completion had passed before terminating. Although this fact does not affect the general principle to be applied, it does affect the application of that principle to the present case, as the following passage from the Judgment of Mason CJ [22] makes clear: "On this aspect of the case it remains for me only to mention the alternative approach advocated in such cases as Pontefax v. Wilkinson ((1845) 1 CB 75; 135 ER 464) and adopted by Lord Campbell CJ and Kitto J, namely, to ask whether the contract went off through the wrongful default and conduct of the plaintiff or defendant. If the issue is to be looked at in this way, the result would be no different, as indeed the discussion in the judgments makes clear. Insistence on the plaintiff being ready and willing is a means of ensuring the plaintiff will not succeed in an action for breach of contract if the contract has gone off through his wrongful default or conduct. The burden this places on a plaintiff will vary from case to case. But it will generally be true to say that a plaintiff relying on anticipatory breach or claiming the benefit of some dispensation with complete performance will be faced with a burden capable of being displaced without undue expense or inconvenience. Moreover, it would be arbitrary and unjust if a plaintiff who could not show that he did not cause the contract to go off were able to succeed in an action against a defendant who has been open and forthcoming about the difficulties he is facing in his own performance. There are therefore good reasons in policy for the position revealed by the authority. Accordingly, in relation to termination for actual breach, the principle is that established by the earlier decisions - the plaintiff is required to show that he was ready and willing to perform the contract if it had not been repudiated by the plaintiff (sic). In other words, the requirement is that the plaintiff be ready and willing to perform except to the extent the defendant dispensed with his performance. In the case of an anticipatory renunciation accepted by the plaintiff, the requirement of readiness and willingness extend only up to the time of acceptance because then the earlier repudiation results in an early termination of the contract. Accordingly, in the case of actual breach, the requirement of readiness and willingness is more stringent; it continues through to the time for performance. That is because the termination of the contract does not antedate the time for performance. Subject to this difference and to the possibility of a difference in the onus of proof, the principle to be applied in the case of actual breach is consistent with that to be applied in the case of termination for anticipatory breach. The difference in the onus of proof arises because in the case of termination for anticipatory breach, the plaintiff will generally be able to show at the time of termination that he would have been able to perform at the time for performance by demonstrating that he was not then disabled or incapacitated from such performance. As Dixon CJ noted in Rawson v. Hobbs ((1961) 107 CLR at p. 481) one 'must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires, is counted as an absence of readiness and willingness.'"

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159 Although, as I have earlier indicated, it is my view that the Messrs. Drinkwater were, by mid-October 1996, in breach of the obligations cast upon them by cl. 12, I do not consider that the evidence reveals that, at that time, they had exhibited a definitive resolve or decision against doing in the future what the Agreement required. As will be apparent from what I have earlier written, they were in a position on 10 October 1996 to deliver to the Messrs. Kyrwood the transfers of the shares in the capital of Caddyrack which were held on their behalf, or on behalf of their family trusts, and although - because they appear then to have been of the view that it was for Caddyrack or the Messrs. Kyrwood to commission ITG to upgrade the Australian tool - they had not themselves commissioned the upgrade nor paid the deposit sought by ITG, it is clear that they accepted that it was their obligation to pay - up to the sum of $20,000.00 - the cost of the upgrade and that, at the meeting of 10 October 1996, Mr. Hewitt offered, on behalf of the Messrs. Drinkwater instalment payments towards the upgrade of the tool and, later, on behalf of Peter Drinkwater, offered the Messrs. Kyrwood security over his home for the payment of the instalments which had earlier been suggested - the latter offer appears at first to have been accepted (see para. 96), but rejected some days later (para. 97). 160 In the result, therefore, I conclude that, at the time of the repudiation by the Messrs. Kyrwood, the Messrs. Drinkwater remained ready and willing to perform the obligations which were cast on them by the Agreement, and were accordingly entitled to terminate the Agreement. 161 Although, as I have earlier (para. 124) noted, the written submissions which were filed on behalf of the Appellants contained a short submission on "Affirmation: The Development of Clubrack", the whole of the oral submissions advanced by Mr. White on the hearing of the appeal were directed to the first two of the "central issues raised by the appeal" to which I have earlier (para. 124) referred. This being so, I do not consider it necessary to deal with the question of "affirmation". 162 For the reasons which I have recorded above, I propose that the Appeal be dismissed with costs.

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163 FITZGERALD JA: The comprehensive judgment of Powell JA has enabled me to express my judgment more briefly than would otherwise have been possible. For example, letters and other documents which I have referred to but not reproduced are set out in his Honour's reasons. Further, his Honour has set out the amended grounds of appeal and the contents of the Notice of Contention. For convenience, I have referred to Peter Drinkwater and John Drinkwater and their family company / family trusts as the "Drinkwater interests" and Terrance Kyrwood and Geoffrey Kyrwood and their family companies / family trusts as the "Kyrwood interests". Broadly stated, the Kyrwood interests are the appellants and the Drinkwater interests are the respondents in this appeal. The companies to which most reference is made are Caddyrack Pty Ltd ("CPL"), Caddyrack International Pty Ltd ("International"), [23] Caddyrack Inc. ("Inc.") and International Tool and Gauge NSW Pty Ltd ("ITG"). Two other companies, 505 Pty Ltd and Golf Products Promotions Ltd, appear to have been subsidiaries of, or at least controlled by, CPL. 164 The Drinkwater interests and the Kyrwood interests joined in a commercial venture to exploit a golf accessory known as a "caddyrack". CPL was formed for that purpose. Inc. was later formed to operate in the United States of America. 165 Two tools were obtained from ITG for the manufacture of caddyracks. The first tool, which was obtained in 1994, was used in Australia by or on behalf of CPL (the "Australian tool"). The other tool, which was better, was obtained in 1995 and used in the United States by or on behalf of Inc. (the "United States tool"). Only right-handed caddyracks could be manufactured with the Australian tool. Both right-handed and left-handed caddyracks could be manufactured with the United States tool. It seems that ITG had been issued shares in Inc. either in lieu of, or as security for, payment for the United States tool, which cost approximately $120,000 166 After a long history of disputes, the Drinkwater interests and the Kyrwood interests appeared to have resolved their differences by a poorly drafted agreement dated 26 July 1996 (the "Settlement Agreement"). Broadly stated, the Settlement Agreement aimed at:

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(g) the Drinkwater interests and the Kyrwood interests were each to pay half of CPL's debt to Great White Shark Enterprises, although the Drinkwater interests were not required to make any payment until the Kyrwood interests had satisfied their obligation or 10 months had elapsed from the date of the Settlement Agreement. If either party failed to meet its obligations to Great White Shark Enterprises, the "rights" in respect of the caddyrack and the obligations to make payments to Great While Shark Enterprises were to be adjusted between the Drinkwater interests and the Kyrwood interests. 168 In addition, clauses 5, 6, 12 and 14 of the Settlement Agreement provided: "5. All parties are to have the non exclusive rights for any developments of the existing produce, eg seven or eight slot racks etc. If in the event that either party develops and markets a similar rack (ie seven or eight slot unit) in the non exclusive market, the margin between the new product wholesale and/or distributor price will not be less than 84% of the wholesale/distributor price of the nine slot caddyrack during the period of the Great White Shark debt. Wholesale price is defined as in United States of America and Australia the price to retail shop eg US$29.50 and AU$37.50. Distributor price is defined as the price paid by the distributor anywhere else in the world. The developer of the seven or eight slot unit agrees to sell at cost plus fifty per cent (50%) to the other party, (the cost price allows a maximum of $1.00 AUS as the royalty payment until the tool is paid for) with each party having the right to use the trademark in its exclusive area. 6. The Kyrwoods will replace within fourteen (14) days the security over the residential property of Peter Drinkwater at … Coal Point currently held by the National Australia Bank provided all conditions in this agreement have been satisfied. Peter Drinkwater is to make that property or any substitute property available for security for [CPL] if required and Peter Drinkwater is to have priority security by way of a fixed and floating charge over the assets of [CPL] the security to be released within twelve (12) months from the date of advance. If Peter Drinkwater fails to provide such security then his shares in [CPL] will be transferred to the Kyrwoods. …… 12. That Drinkwaters pay to International Tool and Gauge up to $20,000 for the upgrading of the Australian tool and when the upgrade is complete will exchange the United States tool for the Australian tool with each party being responsible for freight. 14. John Drinkwater agrees that he will not move the tool in the United States for a period of three (3) months provided that the Kyrwoods and International Tool and Gauge provide a letter relinquishing all interests (if any) in such tool within seven (7) days of the date hereof. This clause will not merge on completion." 169 The Settlement Agreement was :

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condition that it [was] not to come into effect" until the Drinkwater interests' had complied with their obligations under clause 12, and that the two clauses were not interdependent. Nonetheless, once the Settlement Agreement had become unconditional, the Kyrwood interests' obligation under clause 6 and the Drinkwater interests' initial obligation under clause 12, i.e., to arrange and pay for the upgrading of the Australian tool, were effectively required to be performed contemporaneously. Clause 6 provided for the mortgage over Peter Drinkwater's house to be discharged (and replaced) "within fourteen … days". Once the Settlement Agreement had become unconditional, clause 12 imposed an immediate obligation on the Drinkwater interests to arrange and pay for the Australian tool to be upgraded. It was estimated that that would take 12 weeks. The tools were to be exchanged "when the upgrade is complete". 173 After a brief lull following the Settlement Agreement, the parties soon resumed hostilities. After an exchange of correspondence and at least one further meeting, the Drinkwater interests sued the Kyrwood interests in the Equity Division on 11 November 1996. The Kyrwood interests cross claimed. The pleadings were amended at the beginning of the trial on 10 June 1997, when the Drinkwater interests filed an Amended Statement of Claim, the Kyrwood interests filed an Amended Defence to the Amended Statement of Claim and an Amended Cross Claim, the Drinkwater interests filed an Amended Defence to the Amended Cross Claim and the Kyrwood interests filed an Amended Reply to the Amended Defence to the Amended Cross Claim. 174 The trial took place on 10, 11, and 12 June and 22 September 1997. The trial judge's reasons for judgment were published on 25 September, when the parties were directed to bring in short minutes. Once again, they were unable to agree. The matter was relisted on a number of occasions. On 23 October 1997, the trial judge published further reasons and made orders which he suspended until 13 November "to give the parties one last opportunity". The parties agreed on some matters and disagreed on others. There was another hearing on 27 November 1997, and a further judgment on the following day. 175 The trial judge held that the Kyrwood interests repudiated the Settlement Agreement, and his Honour's first order declared that the Settlement Agreement was validly terminated by the Drinkwater interests on 16 October 1996. That declaration was based on a conclusion that the Drinkwaters had not affirmed the Settlement Agreement consequent upon its repudiation by the Kyrwoods but had accepted that repudiation. 176 The trial judge described one consequence of the termination of the Settlement Agreement in the following paragraph: "In terminating the contract, the Drinkwaters were excused performance of any obligation that had not at that stage become crystallised and were entitled to sue in damages for the defaults before that time including loss of bargain." 177 Inconsistently, a little later his Honour seems to have held that an activity undertaken by the Kyrwood interests in the United States from 24 - 28 January 1997 was a breach of the Settlement Agreement which he had found had been terminated some months earlier. 178 However, the trial judge placed more importance upon the termination of the Settlement Agreement in connection with the Drinkwater interests' allegation of a breach of fiduciary duty by the Kyrwood interests. His Honour found that, when the Settlement Agreement was terminated, CPL "remained in the joint control of the Drinkwaters and the Kyrwoods" and the Kyrwood interests' acquisition of (most of) the Drinkwater interests' shares in CPL pursuant to the Settlement Agreement "now never can be put into effect". His Honour also found that "the Kyrwoods [had] redirected the business activities and opportunities of [CPL] to [International], a company controlled by [the Kyrwood interests] in which the Drinkwaters have no interest", and that that "deflection of corporate opportunities cannot be justified" when CPL "has … remained in the joint control of the Drinkwaters and the Kyrwoods…". [27] 179 Accordingly, the next order made by the trial judge was a declaration that "[t]he assets

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"3. Unless within 14 days of these orders the defendants make such other arrangement as is acceptable to Peter Drinkwater for the release of the mortgage presently held by the National Australia Bank over the property known as 44 Skye Point Road Coal Point which secures the said loan account, [CPL and International] Forth defendants are to pay to Peter Drinkwater within 14 days of these orders an amount equivalent to the balance then owing including any fees and charges payable under the National Australia Bank Limited loan account number 683315446 (BSB number 082 654)." 185 As is apparent from the Amended Notice of Appeal and the Notice of Contention, the parties have chosen to limit the issues which this Court is required to consider. The major issue is whether or not the Settlement Agreement was validly terminated by the Drinkwater interests for the Kyrwood interests' repudiation of the agreement. 186 Shortly after the parties executed the Settlement Agreement, "satisfactory arrangements" were made with Great White Shark Enterprises. In accordance with the Settlement Agreement, the Kyrwood interests caused CPL to make payments to Great White Shark Enterprises. As required by the arrangement with Great White Shark Enterprises, those payments continued after the Drinkwater interests instituted the present litigation. 187 On 1 August 1996, the Kyrwood interests' solicitors forwarded forms for the transfer of shares in CPL by the Drinkwater interests to the Kyrwood interests and for the resignation of Peter Drinkwater and John Drinkwater as directors of CPL. The letter which forwarded those forms proposed that they be signed and held in escrow and that "a formal settlement then take place, attended by the National Australia Bank so that all matters can be concluded." 188 On 31 July 1996, the Kyrwood interests had approached ITG for a letter relinquishing any interest it might have in the tool referred to in clause 14 of the Settlement Agreement. A reply was received by facsimile on 2 August in the following terms: "TO WHOM IT MAY CONCERN, International Tool & Gauge hereby relinquishes any interest in the die to make Caddyracks currently situated at Performance Engineering Products in the United States provided that: 1. The die remains in Performance Engineered Products until 26 October, 1996; [30] and 2. We have upgraded the die currently situated in NSW within that period (we will use our best endeavours to do so); and 3. The agreement between the Kyrwoods and Drinkwaters dated 26 July, 1996 becomes unconditional. 4. Which ever tool in Australia remains the property of International Tool & Gauge until a total of $120,000.00 has been paid."

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189 On the same day, 2 August 1996, the Kyrwood interests wrote to the Drinkwater interests as follows: "We have satisfied I.T.G. with arrangements for the USA tool. They have acted accordingly by relinquishing their interest in such tool, but for you to abide by our agreement you are responsible for the payments of any alterations to the Australian tool. I.T.G. have indicated that they cannot commence alterations without a deposit from you. Please cooperate with them so that the three months schedule for transfer of these tools can be achieved." 190 ITG also wrote to the Drinkwater interests that day as follows: "International Tool & Gauge Pty. Ltd. requires a deposit of $10,000.00 for the modification on the Caddyrack Aus. mould as instructed and as agreed to be paid for by Caddyrack Inc. As set down in the agreements between the KYRWOODS and DRINKWATERS. Balance of payment ($10,000.00) to be paid to International Tool & Gauge Pty. Ltd. on completion of modification. Looking forward to an urgent reply." 191 On 5 August 1996, the Kyrwood interests' solicitors wrote to the Drinkwater interests' solicitors as follows: "RE: CADDYRACK PTY. LIMITED We refer to our letter of 1 August, 1996 and enclose a copy of draft Minutes for a proposed meeting of the directors to be held at the offices of Rees Pritchard at 3.00pm on Wednesday 7 August, 1996. At that meeting it is proposed that a discharge of the mortgage over your clients property be handed over in exchange for signed Transfers and Resignations. Please confirm these arrangements as a matter of urgency". 192 On 6 August, the Drinkwater interests' solicitors replied as follows: "RE: CADDYRACK PTY. LIMITED We refer to your letter of 1 August in regard to the above. Could you please confirm that the outstanding matters between Caddyrack Pty. Limited and Great White Shark Enterprises have been finalised. Upon written finalisation of same our clients will be in a position to execute the transfers and resignations requested." 193 The Kyrwood interests' intention to perform the Settlement Agreement was confirmed by letters from their solicitors to the Drinkwater interests' solicitors dated 7 and 8 August, which provided:

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(b) Letter dated 8 August 1996: "RE: CADDYRACK PTY. LIMITED The National Australia Bank has advised that it cannot take the mortgage of Peter Drinkwaters (sic) at 44 Skye Point Road, Coal Point because it secures other financial arrangements of Peter Drinkwater. The National Australia Bank, however, is prepared to provide a letter acknowledging that the loan involving Peter Drinkwater and Caddyrack Pty. Limited has been extinguished and that the property no longer secures this loan. We trust that this will suffice. We will contact you as soon as we have this letter so that settlement can take place. We still hope that settlement can take place on 9 August, 1996." 194 When those letters were written, less than a fortnight had passed since the parties had made the Settlement Agreement. Although there were matters still to be attended to, the Settlement Agreement could have been performed at that time with the Drinkwater interests' cooperation. However, the Drinkwater interests were unwilling to arrange and pay for modification of the Australian tool (which, until it was modified, limited the Kyrwood interests' production capacity) or to exchange the United States tool for the Australian tool until it had been modified (if at all). There was little incentive for the Drinkwater interests to exchange the superior United States tool for the Australian tool. On the other hand, it was obviously important to the Kyrwood interests to obtain the superior United States tool (which could be used to manufacture both right handed and left handed caddyracks) at the earliest opportunity. Until that occurred, they had only the less satisfactory, unmodified Australian tool. The Kyrwood interests could only obtain timely performance of the Drinkwater interests' obligation to exchange the United States tool for the Australian tool if there was timely performance by the Drinkwater interests of their obligation to arrange and pay for the upgrading of the Australian tool or the Drinkwater interests waived or lost their right to postpone the exchange of the tools until the Australian tool had been upgraded. 195 On 6 August 1996, the Drinkwater interests had written a patently inaccurate and provocative letter to the Kyrwood interests as follows: "Part of the deal was that you were to obtain a letter from ITG, within 7 days, confirming that they have no interest in the US tool. As yet I have not received this confirmation from ITG. Please attend to it and avoid defaulting on the deal. In regard to the payment for the modification of the Australian tool, it was to be taken care of by you and when it was completed and test run only then was I to pay for it and exchange the tools. I received a fax from Heinz on Aug 2 which indicates that you told him that I would be paying the deposit as set out in our agreement. This is not true and you know it. It was your responsibility to get the tool altered and then we would pay and exchange." 196 The Drinkwater interests no longer seek to maintain that position. Their Notice of Contention did not challenge the trial judge's rejection of their proposition "that they were not to pay the bill of ITG but merely to contribute to its payment so that there was no obligation for them to pay money until the upgrading [of the Australian tool] was effected" or his Honour's conclusion that there was an obligation on them to pay the deposit required by ITG. 197 The Kyrwood interests were prepared to proceed and leave the Drinkwater interests to attend to modification of the Australian tool if and when they chose to do so provided that the Kyrwood interests received the United States tool as the Settlement Agreement envisaged. On 7 August 1996, the Kyrwood interests wrote to the Drinkwater interests as follows: "…. In regard to the payment for modifications of the Australian Tool I bring your attention to clause 12 of the agreement of the 26th July, 1996. You are totally responsible for payment of any such modifications. If you are not prepared to co-operate maybe you could forget about modifications and have the tools exchanged now. ….." 198 On 9 August 1996, the Kyrwood interests again sought completion of the Settlement Agreement. They were prepared to make the necessary payment to the National Australia Bank to discharge CPL's debt which was secured on Peter Drinkwater's house, and their solicitors' letter of that day enclosed the letter from the National Australia Bank which had been foreshadowed in their letter of 8 August [31]. However, three letters of 9 August from the Drinkwater interests' solicitors introduced new obstructions to performance of the Settlement Agreement, including additional matters which were not the subject of the agreement. Importantly, the Drinkwater interests' refusal to arrange and pay for the upgrading of the Australian tool or to exchange the United States tool for the Australian tool until it had been modified continued. 199 Notwithstanding that the Drinkwater interests had not arranged with ITG to upgrade the Australian tool or made the payment which ITG required, the Kyrwood interests made another attempt to obtain completion of the Settlement Agreement by a letter from their solicitors dated 13 August 1996. That letter concluded: "The Kyrwoods are ready, willing and able to complete the Agreement dated 26 July 1996 and have carried out their relevant obligations under that Agreement. In particular, Caddyrack Pty Limited has made the first payment to Great White Shark Enterprises Inc and has paid a substantial amount of money to protect the patent. The Kyrwood's have also put in place the arrangements with the National Australia Bank (see the bank's letter dated 9 August 1996). Please make immediate arrangements for Peter Drinkwater and John Drinkwater to attend a meeting with the Kyrwoods to effect the resignations and transfer the shares. If this meeting is not taken place by 5.00pm Thursday 15 August 1996 we have instructions to commence proceedings in the Supreme Court for specific performance of the Agreement dated 26 July 1996." 200 On 15 August 1996, the Drinkwater interests' solicitors wrote to the Kyrwood interests' solicitors stating that there were "a number of outstanding issues in respect of John Drinkwater which we are currently waiting instructions" and asking that instructions be obtained from the Kyrwoods. The letter did not identify the "outstanding issues". 201 On 29 August 1996, a letter was written by the Drinkwater interests' solicitors to Cornwells, a firm of solicitors who had acted for the joint venture between the Kyrwood interests and the Drinkwater interests. That letter contained the following paragraphs: "… The agreement signed on 26 July last does not envisage any undertaking from Caddyrack Inc to pay for refurbishment of the tool. Our client instructs us to advise that in the circumstances they shall retain the current tool in America and supply left handed Caddyracks at cost as required to Caddyrack Pty. Limited pursuant to clause 8 of the agreement. Caddyrack Pty Limited can then upgrade the Australia (sic) tool if and when it is required. ……" 202 Not surprisingly, that gross departure from the Settlement Agreement was unacceptable to the Kyrwood interests. Their solicitors wrote a letter dated 5 September 1996 to the Drinkwater interests' solicitors which referred to their letter of 29 August 1996 to Cornwells and said: "…. Clause 12 of the Agreement dated 26 July, 1996 requires 'the Drinkwaters to pay to International Tool & Gauge up to $20,000.00 for the upgrading of the Australian Tool and when the upgrade is complete will exchange the United States of America Tool for the Australian Tool with each party being responsible for the freight. You will see that the Drinkwaters are liable to pay for the refurbishment of the Tool. Please confirm that they have made arrangements for payment of the sum of $20,000.00 to International Tool & Gauge. The Kyrwoods do not have to release the mortgage over Peter Drinkwater's house until all conditions have been satisfied. They will do this at settlement, as previously advised. They want the arrangements concerning the Tool as set out in the agreement to be complied with. The proposal set out in the penultimate paragraph of your letter is not acceptable. The Kyrwoods require compliance with the Agreement of 26 July, 1996 and they are ready, willing and able to complete that Agreement. In fact, the Kyrwoods have been waiting for sometime (sic) for you to confirm that you have signed Share Transfers and Resignations. The Kyrwoods have performed their obligations of the agreement of 26 July, 1996 in some cases at great expense. If the Drinkwaters are not prepared to complete that Agreement then the Krywoods will be forced to seek specific performance. Please make an appointment for settlement." 203 The correspondence barrage continued, without significant change in the position of either party until 23 September 1996. On that day, the Kyrwood interests' solicitors served a notice requiring completion of the Settlement Agreement in the following terms: "Take notice that: (1) The Kyrwoods are ready, willing and able to complete the Agreement and will hand over executed share transfers of the shares in Caddyrack Inc and will replace the security over the residential property of Peter Drinkwater at 44 Skye Point Road, Coal Point and will exchange the die situated in Australia for the die situated in the United States (or arrange for it to be freighted simultaneously); (2) You, the Drinkwaters, are required to attend at the offices of Caddyrack Pty. Limited at 10 Murray Street, Hamilton at 3.00pm on 10 October, 1996 with: (i) signed Resignations as Directors; (ii) signed Transfers in Caddyrack Pty. Limited; (iii) the die used for the manufacture in caddyracks located in the United States (or arrange for it to be freighted simultaneously). In default of you complying with this Notice on or before 3.00pm on 10 October, 1996 the Kyrwoods will either sue you for damages and/or seek specific performance of the agreement."

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204 The Drinkwater interests' solicitors reply dated 30 September 1996 provided (in part): "RE: CADDYRACK PTY. LIMITED & CADDYRACK INC. We refer to your letter of 24 September last in regard to the above. Clause 14 of the agreement does not provide for International Tool and Gauge to impose conditions in the agreement between the Kyrwoods and the Drinkwaters. Whatever arrangements arrived at (sic) between your client and International Tool and Gauge is (sic) a matter for those parties. We note your reference to the obligation to pay up to $20,000.00 in clause 12 of the agreement as being John Drinkwater's obligation. Clause 6 of the agreement provided for the Kyrwoods to replace the security over Peter Drinkwater's house within 14 days of the date of the agreement. This has not occurred. On our instructions your clients have consistently said that they will not do that until they are satisfied that the agreement has been complied with so far as they are concerned. Clause 12 so provides that when any upgrading of the tool is complete the respective tools will be exchanged. Clearly until the upgrade is complete no exchange can take place. …. We hold resignations of our clients as Directors of Caddyrack Pty. Limited and the share transfers previously forwarded. We are instructed by our client (sic) that they have been advised by International Tool and Gauge that the earliest any completion of an upgrade of the Australian tool would be complete is approximately 4 months. In light of that your client should release the security over Peter Drinkwater's property as you clearly acknowledge that any monies payable in respect of the upgrade are to be paid by John Drinkwater only. Any costs incurred by our client in defending any action commenced by your clients in respect of their failure to comply with the agreement shall be sought on an indemnity basis." 205 Of course, the Settlement Agreement was not completed on 10 October. Reliance has been placed by the Drinkwater interests on their solicitor's account of part of the conversation which took place that day. In the passage which follows, Mr Hewitt is the Drinkwater interests' solicitor and Mr Doyle is the Kyrwood interests' solicitor: "Hewitt: "If the matter is going to settle, the most important thing for Peter is to the get his house back." Doyle: "We don't have to release the house until we have the tool." Hewitt: "That is not what the agreement says. The agreement is that Peter's house is to be released and the transfer of the shares and the resignations handed over irrespective of whether or not the tools have been exchanged. My client needs his house. He needs that to continue in business. As you (sic) clients know he has no other employment. He needs the security to be released otherwise he can't borrow any further monies against it." Doyle: "My clients are not prepared to do that. They believe they will never get the US tool back if they release the house." Hewitt: "What if my clients make instalment payments for the upgrade of the tool?" Doyle: "No. Without the tool there will be no release of the house." Goeff Kyrwood: "We can't trust John Drinkwater. We must have the house." 206 Mr Hewitt made reference to the possibility that the Drinkwater interests might "make instalment payments for the upgrade of the [Australian] tool" but did not promise or offer to do so, and the Drinkwater interests continued to ignore their obligations under clause 12 of the Settlement Agreement notwithstanding that most of the 12 week period for the upgrade of the Australian tool had elapsed. Further, the demand for Peter Drinkwater's house to enable him to borrow against it for his business (with the implication that he had no other property to offer as security) ignored his obligation under clause 6 to "make [his house] property … available for security for [CPL] if required…" in those circumstances. The Kyrwood interests' belief that "they [would never get the U.S. tool … if they [released] the house" was amply justified. Any other inference from the Drinkwater interests' attitude to that point would have been extremely naive. 207 On 15 October 1996, the Kyrwood solicitors modified their position but still insisted on postponement of performance of their obligation under clause 6 until they received the United States tool. Their solicitors wrote a letter that day to the Drinkwater interests' solicitors which included the following: "… Our clients are ready willing and able to comply with clause 3.4 and we enclose a copy of the relevant share transfers. Please confirm that your clients are, as indicated in your letter of 6 August 1996 ready to comply with clauses 1.4 and 1.5. Subject to the above, the only difficulty with settlement seems to be the logistics of implementing clause 12 and the exchange of the Australian and US Tools. Clause 12 of the Agreement relates to upgrading the Australian Tool. This clause was inserted to meet your client's apparent requirement that when the Australian Tool was moved to America it would be capable of producing a product with an appearance as close to the American product as possible. The requirement for the upgrade is a requirement solely to meet your clients' needs and, if no longer required by your client, our client is happy to dispense with it. During the 3 months originally envisaged as the time required to carry out the modifications, our client has always had the die available so that ITG could do the work. However, it appears that little, if any, contact has been made by your clients with ITG to carry out any upgrading of the Tool. To assist in reaching a settlement our client is still prepared to assist your client in carrying out any upgrades it requires by making the Tool available to ITG provided that each separate upgrade is carried out independently of the others so that at the completion of each separate upgrade, our client can use the Tool for production of product whilst the upgrading is being carried out. Your client can have the opportunity to inspect the Tool at the conclusion of each upgrade stage and would, of course, have the option of cancelling any further upgrades at any time. We suggest therefore that your client provide to ITG immediately a specification of the upgrades it requires (if any) and at the same time provide us with a copy of that specification. Your client should also make satisfactory financial arrangements with ITG and advise us when those arrangements have been completed. As far as our client is concerned the upgrade work can commence immediately and be completed with minimal inconvenience to any party. As we understand it it will take ITG about 3 Months to do the work. The upgrade work should be completed by ITG on their certification to your client that the upgrades have been complete and that the die will produce saleable product. Immediately the upgrade is complete, the US Tool will be transported to Australia at your client's expense as envisaged by the agreement and immediately upon its inspection in Sydney by a representative of ITG and he being satisfied that the Tool is capable of producing marketable product, our clients will comply with clause 6 by payment to the National Australia Bank of $250,000.00 in return for which payment the Bank will confirm that it has no interest in Mr Drinkwater's property at 44 Skye Point Road, Coal Point relative to advances afforded to Caddyrack Pty Limited. The balance of the terms of the agreement speak for themselves. Please confirm your client's agreement with this proposal, whereupon we implement the share transfers forthwith and the resignation as Directors forthwith and assist your client to set in motion the modification of the Tool." 208 On 16 October 1996, the solicitors for the Drinkwater interests wrote a letter which concluded as follows: "…. Our clients rely on your clients' failure to complete the agreement in accordance with your notice and that you have thereby repudiated the agreement of 26 July 1996. If the parties are unable to reach an alternative settlement arrangement by 5.00pm 17 October 1996 our client will rely on the repudiation of 26 July agreement by your clients on 10 October 1996 and seek damages." 209 The Kyrwood interests' solicitors replied that day, denying that the Kyrwood interest had repudiated the Settlement Agreement, and reiterating that they were willing to procure the discharge of the mortgage provided that the tools were exchanged. 210 On 22 October 1996, the Kyrwood interests' solicitors wrote a further letter, part of which stated: "…. The agreement of 26 July 1996 is still on foot and our clients have been ready, willing and able to settle same since early August 1996, whereas your clients have taken no steps to implement the settlement arrangements notwithstanding that the 3 months envisaged to modify the Australian Tool to your clients' requirements will expire on 26 October 1996. Your clients have made no contact with ITG in relation to modification of the Tool. Our clients are ready, willing and able to comply with all their obligations under the Deed. Our clients are the owners of the US Tool pursuant to the agreement, the completion of which is only being delayed by your clients failing to comply with their obligations under it. In these circumstances, where your clients take no steps to implement the agreement reached, do not rely to correspondence, make no settlement proposals despite the suggestion in your letter of 15 October 1996 and generally act with disregard to the agreement reached, it appears that our clients will have no alternative but to go back to the Court seeking Orders." 211 Although the Drinkwater interests increasingly relied on the refusal of the Kyrwood interests to complete the Settlement Agreement on 10 October 1996 after they had issued a notice requiring completion that day, the correspondence between 22 and 30 October 1996 was generally repetitive of earlier assertions [32]. 212 The Drinkwater interests argued that, if the trial judge's declaration that they terminated the Settlement Agreement on 16 October 1996 is incorrect, they terminated the agreement by their solicitors' letter dated 30 October 1996. That letter repeated the Drinkwater interests' assertion that the Kyrwood interests had repudiated the Settlement Agreement, returned transfer of shares in Inc. in favour of the Drinkwater interests and foreshadowed an extremely limited claim for damages by the Drinkwater interests if the Kyrwood interests did not continue "servicing the National Australia Bank loan." 213 The Drinkwater interests did not allege repudiation by the Kyrwood interests, acceptance of that repudiation or termination of the Settlement Agreement in either their initial Statement of Claim in the Equity Division in November 1996 or even the Amended Statement of Claim delivered on 10 June 1997, the first morning of the trial. Nor were damages claimed for breach of contract. On the contrary, as Powell JA has noted in his reasons for judgment, the Amended Statement of Claim continued to seek "orders the effect of which would be to give effect to the clause 6 of the [Settlement] Agreement." Thus, para 17(ii) of the Amended Statement of Claim alleged that it was an express term of the Settlement Agreement that the Kyrwood interests "would procure a discharge" of the mortgage over Peter Drinkwater's house and the first order sought in the prayer for relief was an order that the Kyrwood interests" procure a discharge "of that mortgage within 28 days …". The first pleaded allegation by the Drinkwater interests that the Kyrwood interests had repudiated the Settlement Agreement was made in the Drinkwater interests' Defence to the Kyrwood interests' cross claim for specific performance of the Settlement Agreement. That was also the first occasion on which it was alleged that the Drinkwater interests had accepted the Kyrwood interests' repudiation of the Settlement Agreement. The allegation initially made, and accepted by the trial judge, was that the Drinkwater interests had accepted the Kyrwood interests' repudiation of the Settlement Agreement on 16 October 1996. It was only when the Amended Defence to Cross Claim was delivered by the Drinkwater interests on the first day of the trial (10 June 1997) that reliance was also placed by the Drinkwater interests on their solicitors' letter of 30 October 1996. 214 The Drinkwater interests' "multiple choice" approach to their claim that they terminated the Settlement Agreement for the Kyrwood interests' repudiation of that agreement disguised some weaknesses. There appear to be four matters put forward by the Drinkwater interests as repudiation by the Kyrwood interests and there are two letters from their solicitors which are relied on by the Drinkwater interests as acceptance of the Kyrwood interests' repudiation. Shortly stated, the various matters upon which the Drinkwater interests' based their claim that the Settlement Agreement was terminated for the Kyrwood interests' repudiation of the agreement were:

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Neither letter expressly asserted that the Settlement Agreement was terminated. 215 It is unnecessary to consider whether the Kyrwood interests repudiated the Settlement Agreement by adopting the position set out in their solicitors letter of 5 September 1996. [34] If they did, the Drinkwater interests elected not to terminate the Settlement Agreement for that reudiation: see, for example, the letter from their solicitors dated 30 September 1996. 216 The Kyrwood interests' notice of 23 September 1996 also preceded the Drinkwater interests' solicitors letter of 30 September 1996. However, on 10 October 1996, the date which the Kyrwood interests had themselves fixed for completion of the Settlement Agreement, they refused to complete unless the United States tool was "freighted simultaneously" from the United States to the Kyrwood interests in Australia. Although they had modified their position (by their solicitors' letter of 15 October 1996) prior to the Drinkwater interests' solicitors' letter of 16 October 1996, the Kyrwood interests continued to insist that performance of their obligation under clause 6 be postponed until the United States tool arrived in Australia. 217 The trial judge declared that the Settlement Agreement was terminated by the Drinkwater interests on 16 October 1996, presumably by their solicitors' letter that day which concluded: "If the parties are unable to reach an alternative settlement arrangement by 5.00pm on 17 October 1996 our client will rely on the repudiation of [the Settlement Agreement] by your clients on 10 October 1996 and seek damages. 218 However, the statement by the Drinkwater interests in their solicitors' letter of 16 October 1996 that, they would rely on the Kyrwood interests' repudiation on 10 October 1996 and "seek damages" if an alternative settlement arrangement had not been made by 5.00pm on the following day, was not a sufficiently clear and unequivocal [35] communication that the Settlement Agreement was either immediately terminated or would be automatically terminated at 5.00pm on the following day unless the parties had previously reached an "alternative settlement arrangement". Their solicitors' letter of 16 October 1996 stated the Drinkwater interests' then intention to terminate the Settlement Agreement at 5.00pm the following day unless there were "alternative settlement arrangements", but did not irrevocably commit them to termination unless they withdrew that decision prior to that time. Their option

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to require performance or terminate was not restricted to that period but remained open until they elected to follow one course or the other or their right of election was lost by effluxion of time. [36] 219 As at 30 October 1996, the Kyrwood interests still maintained their insistence that performance of their obligation under clause 6 of the Settlement Agreement be postposed until the United States tool was "freighted". They did not argue that, once the 12 week period required for the upgrading of the Australian tool has passed without any attempt by the Drinkwater interests to have it upgraded, they were entitled to the United States tool (in exchange for the Australian tool although it had not been upgraded) so that their position was no longer a repudiation of the Settlement Agreement after 26 October 1996. 220 If, contrary to my opinion, the Settlement Agreement had been terminated by the Drinkwater interests' solicitors' letter of 16 October 1996, their letter of 30 October 1996 is immaterial. There is no suggestion that the parties agreed to revive the Settlement Agreement after 16 October 1996, and neither could do so unilaterally. On the other hand, if - as I think - the Drinkwater interests' solicitors' letter of 16 October 1996 did not terminate the Settlement Agreement, there is no suggestion that they did so unless their letter of 30 October had that effect. 221 That letter asserted that the Kyrwood interests had repudiated the Settlement Agreement, returned transfers of shares in Inc. in favour of the Drinkwater interests which the Kyrwood interests' solicitors had submitted with their letter of 28 October and contained the following paragraph: "Our client Peter Drinkwater will hold your clients responsible for any loss and/or damage and costs incurred in the event that they cease servicing the National Australia Bank loan, the benefit of which continues to be received by your clients." 222 Confirmation that the letter was not a clear and unequivocal assertion that the Settlement Agreement was at an end but merely a refusal to complete while the Kyrwood interests continued to insist on exchange of the tools at the time of completion was provided by the Drinkwater interests' claim for specific performance of clause 6 of the Settlement Agreement in the Statement of Claim which they filed at the commencement of their Equity Division proceeding about a week later. 223 Even if the Drinkwater interests purported to terminate the Settlement Agreement by their solicitors' letters of 16 or 30 October 1996, the question remains whether they were entitled to do so. It is not in dispute that, unless the Drinkwater interests were entitled to terminate the Settlement Agreement, their solicitors' letters of 16 October and 20 October 1996 were ineffective to bring the agreement to an end. [37] 224 The Kyrwood interests had been ready, willing and able to perform clause 6 of the Settlement Agreement within the 14 days referred to in that clause. As early as 6 August 1996, i.e., within 11 days of the Settlement Agreement, the Drinkwater interests denied their obligation to perform clause 12. The Kyrwood interests still sought to proceed, and remained ready, willing and able to perform clause 6. Timely performance of the Drinkwater interests' obligation to arrange and pay for the upgrading of the Australian tool became impossible. Timely performance of the Drinkwater interests' obligation under clause 12 to exchange of the United States tool for the Australian tool became impossible unless the exchange took place without waiting for the Australian tool to be upgraded. The importance of the United States tool to the Kyrwood interests was obvious, as was the incentive for the Drinkwater interests not to exchange the tools. On 29 August, the Drinkwater interests categorically rejected their entire obligation under clause 12. The material portion of their solicitors' letter merits repetition: "… The agreement signed on 26 July last does not envisage any undertaking from Caddyrack Inc to pay for refurbishment of the tool. Our client instructs us to advise that in the circumstances they shall retain the current tool in America and supply left handed Caddyracks at cost as required to Caddyrack Pty. Limited pursuant to clause 8 of the agreement. Caddyrack Pty Limited can then upgrade the Australia tool if and when it is required. ……" 225 The Drinkwater interests' refusal to arrange and pay for the upgrading of the Australian tool or to exchange the United States tool for the Australian tool until it had been upgraded accompanied by their solicitors' letter of 29 August 1996 was a plain indication that they did not intend to be bound by the Settlement Agreement or to perform it unless, to the extent that and when it suited them to do so. That constituted a repudiation of the Settlement Agreement by the Drinkwater interests, which was affirmed by their continued refusal to arrange and pay for the upgrading of the Australian tool or to exchange the United States tool for the Australian tool. 226 At the time when the Drinkwater interests' repudiated the Settlement Agreement (which was no later than 29 August 1996), the Kyrwood interests remained ready, willing and able to perform that agreement. 227 The Kyrwood interests did not act to terminate the Settlement Agreement, which remained in existence for the benefit of both the Drinkwater interests and the Kyrwood interests. 228 The Drinkwater interests' repudiation of the Settlement Agreement persisted up to and including 30 October 1996. At that time, they still had not taken any step to perform any part of clause 12 of the Settlement Agreement. Their ongoing refusal to perform their obligation to pay ITG "for the upgrading of the Australian tool" and exchange the United States tool for the Australian tool caused the Kyrwood interests to believe that, if they performed their obligations under the Settlement Agreement, and their obligation under clause 6 in particular, without receiving the United States tool, "they would never get [it]". The Drinkwater interests' repudiation of the Settlement Agreement was the effective cause of the Kyrwood interests' repudiation of that agreement although it did not legally entitle them to adopt that position. 229 The hypothesis upon which it has been declared that the Drinkwater interests terminated the Settlement Agreement is that at the material date, 16 October 1996, the Kyrwood interests' position constituted a repudiation of the Settlement Agreement. The same reasoning would lead to a conclusion that, if the Settlement Agreement was not terminated on 16 October, the Kyrwood interests continued to repudiate it on 30 October. 230 On both those dates, the Drinkwater interests also continued to repudiate the Settlement Agreement. The Drinkwater interests' repudiation of the agreement had commenced on 29 August 1996, preceded the Kyrwood interests' repudiation of the agreement and continued throughout the Kyrwood interests' repudiation of the agreement. The question for determination is whether the Drinkwater interests were entitled to terminate the Settlement Agreement for the Kyrwood interests' repudiation of that agreement when the Kyrwood interests were themselves repudiating the agreement; that is to say, when the Drinkwater interests were not themselves ready, willing and able to perform the Settlement Agreement. [38] 231 In Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd Receiver and Manager Appointed, [39] this Court held that Roadshow had been entitled to terminate its contract with the respondent. However, Roadshow had not repudiated [40] or even breached the contract. [41] Further, Roadshow's obligation was not a condition precedent to the obligations repudiated by the respondent and was independent of those obligations. [42] Understandably, the Court emphasised that "a comprehensive analysis of the effect of a breach on a party's right to rescind" was not required. [43] 232 Two (obiter) propositions are deducible from Roadshow, namely that:

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According to that passage, a party which is itself repudiating a contract, i.e., not ready, willing and able to perform the contract, can terminate it for the other party's fundamental breach or repudiation, at least unless both parties are in breach of interdependent essential terms 234 It is unlikely that the Court in Roadshow [51] intended to endorse the full ambit of what had been said by Kerr LJ in State Trading Corporation of India, [52] especially without any discussion of Foran v Wight, [53] which was referred to at the same point in Roadshow, [54] or DTR Nominees Pty Ltd v Mona Homes Pty Ltd [55], which had been referred to a little earlier. Proposition (b) extracted above from Roadshow [56]can be limited to a party who had earlier breached an essential but independent term but was ready, willing and able to perform the contract at the time when he or she acted to terminate it for the other's breach. That was the basis on which Lennon v Scarlett and Co [57] was explained in DTR Nominees Pty Ltd v Mona Homes Pty Ltd.[58] 235 Further, there was no reference in State Trading Corporation of India [59] to the decisions of the House of Lords in Bremen Vulkan Schiffbau und Maschinerfabrick v South India Shipping Corporation Ltd [60] or Paal Wilson and Co A/S v Partenreederei (The Hannah Blumenthal). [61] In the second of those decisions, the House of Lords reversed a decision of the Court of Appeal [62] was a member of the Bench. which had not applied the earlier House of Lords decision. In both Bremer Vulkan [63] and Paal Wilson, [64] there was no suggestion that the parties' "mutual" obligations were interdependent. 236 In Bremer Vulkan, [65] the plaintiffs were respondents to an arbitration commenced by the defendants in which they claimed to have been seriously prejudiced by the inordinate and inexcusable delay of the defendants in prosecuting the arbitration. The plaintiffs sought injunctions restraining the defendants from continuing with the arbitration. It was held by the trial judge that the defendants' conduct constituted a repudiatory breach of the agreement to submit the dispute to arbitration and injunctions were granted. The defendants' appeal was dismissed by the Court of Appeal, which held that the plaintiffs were entitled to treat the defendants' conduct as a repudiation of the arbitration agreement and, as they had elected to rescind it, the injunctions were correctly granted. The House of Lords allowed an appeal. By three to two majority, it was held that, since both parties were under an obligation to keep the arbitration procedure moving forward, both were under an obligation to apply to the

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arbitrator to prevent inordinate delay. Since the plaintiffs had made no such application, they were not entitled to treat the defendants' breach as giving them the right to treat the agreement as at an end. One of the majority, Lord Diplock, stated that the parties were "under a mutual obligation to one another to join in applying to the arbitrator for appropriate directions to put an end to the delay." [66] Later, his Lordship said: [67] "For failure to apply for such directions before so much time had elapsed that there was a risk that a fair trial of the dispute would not be possible, both claimant and respondent were … in breach of their contractual obligations to one another; and neither can rely upon the other's breach as giving him a right to treat the primary obligations of each to continue with the reference as brought to an end." 237 Lord Diplock was again a member of the Bench which decided Paal Wilson, [68], but the leading judgment was delivered by Lord Brandon of Oakbrook. There, plaintiffs sought and initially obtained a declaration that an arbitration agreement had been discharged by reason of frustration because of the other parties' delay. That decision was upheld by a majority in the Court of Appeal. The House of Lords upheld an appeal on the basis that the operation of the doctrine of frustration was excluded by the "default" of each of the parties. Lord Brandon of Oakbrook said: [69] "The Court of Appeal in Bremer Vulkan had held that the claimant had been guilty of such inordinate and inexcusable delay in proceeding with the reference there concerned as to amount to a repudiation of the agreement to refer; that the respondents were entitled to accept, and had accepted, that repudiation as such; and that the agreement to refer had accordingly been discharged by breach. What Lord Diplock was saying was that, since the delay concerned was the consequence of breaches on the part of both the claimant and the respondent of their mutual obligation owed to one another, neither could rely on the other's conduct as amounting to repudiation. … Lord Diplock's mutual obligation concept was an essential part of the ratio decidendi of the Bremer Vulkan case in your Lordships' House." 238 In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, [70] purchasers sought a declaration that they had validly rescinded a contract for the sale of land and the vendor cross claimed seeking a declaration that it had validly rescinded the contract. Broadly stated, the purchasers alleged that the vendor's failure to lodge a plan in accordance with a term of the contract was a repudiation of the contract and the vendor alleged that the purchasers' purported rescission constituted a wrongful repudiation of the contract, which it had accepted. Both parties accepted that the contract was at an end, but there was a dispute as to who was entitled to the deposit. The purchasers succeeded. 239 A majority of the High Court held that the vendor had breached the contract by not lodging the plan in accordance with the relevant term but that the term was not an essential term in the sense that its breach entitled the purchasers to terminate the contract. Further, the vendor did not repudiate the contract by requiring the purchasers to complete when they were not obliged to do so. Accordingly the purchasers' attempt to terminate the contract was ineffective. 240 It was also held that the purchasers' attempt to terminate the contract was not a repudiation of the contract which entitled the vendor to rescind, because the purchasers did not evince an intention not to proceed with the contract properly interpreted. However, both parties had abandoned or abrogated the contract by their conduct before the commencement of proceedings. Accordingly, the deposit was repayable to the purchaser. 241 Stephen, Mason and Jacobs JJ delivered a joint judgment with which Aickin J agreed. The passage in the joint judgment which is material for present purposes is as follows: [71] "But the question remains whether the appellant was entitled to rely on this ineffective rescission of the contract by the respondents as itself a repudiation of the contract and thereupon to rescind as it purported to do by its letter of 25th July 1974. This is the question raised by the cross-action. In our opinion the appellant could not rely on the respondents' purported rescission as a repudiation. The respondents purported to rescind only upon the basis that the appellant would not complete the contract as correctly interpreted. They were in error in regarding themselves as entitled to rescind at the stage when they purported to do so but they were not in error in their interpretation of the contract. The actions of the parties must now be considered in the light of the true interpretation of the contract. The purported rescission of 19th July did not evince an intention not to proceed with the contract correctly interpreted; it did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by the appellant. That cannot be regarded as a repudiation which would entitle the appellant to rescind when it was itself the party in error. A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages. By insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondents were relying on the different but correction interpretation, the appellant by that stage showed that "definitive resolve or decision against doing in the future what the contract" (required) which is referred to by Dixon C.J. in Rawson v. Hobbs (1961) 107 CLR 466 , at p 481 . Whether or not the respondents could by then have rescinded certainly the appellant could not do so. (at p433) The appellant never accepted that the contract be performed according to its correct interpretation and thus the facts are different from those in Lennon v. Scarlett & Co. (1921) 29 CLR 499 . There a plaintiff had, after the making of the contract, sought to insist on additional terms. The defendant then called off negotiations, in effect purporting to rescind. It was held that the attempt by the plaintiff to add new terms did not amount to a repudiation. It was further held that the defendant had repudiated. But the difference between that case and the present case is that there the plaintiff, after the defendants purported rescission, offered to complete the contract on its true terms. The defendant declined to do so. By that tim the plaintiff was willing to complete the contract according to its true terms and he could therefore treat the defendants act as a repudiation and could rescind accordingly". 242 Although the majority judgment in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [72] stated that only an "innocent party", that is a party "willing to perform the contract on its proper interpretation", can terminate a contract for the other party's "anticipatory repudiation", [73] it is apparent from both the circumstances of the dispute in that case and the explanation [74] which was there given for the decision in Lennon v Scarlett and Co [75] that the same principle is applicable if the repudiation of the party other than the party seeking to terminate is not an anticipatory repudiation. 243 Foran v Wight [76] involved a contract for the sale of land which was due to be completed on a specified date with time of the essence. A special condition required the vendors to obtain registration of a right of way before completion. Two days before the date specified for completion, the vendors' solicitor told the purchasers' solicitor that the vendors would not be able to settle on the specified date because the right of way had not been registered. Neither party attempted to settle on the specified date. Two days later, the purchasers gave the vendors a notice of rescission. The purchasers succeeded in their claim for a declaration that they had rescinded the contract and for the return of the deposit. The vendors' cross-claim that the purchasers were not entitled to terminate the contract and that the vendors had validly terminated the contract and were entitled to the deposit failed. The vendors' contention that the purchasers' notice of rescission was invalid on the ground that the purchasers were not ready and willing to complete on the specified date for want of funds was rejected. The basis for the rejection of the vendors' contention was that the need for the purchasers to be ready, willing and able to complete the contract had been dispensed with by the vendors' solicitors' statement that they would not be able to complete that day. However, a majority [77] approached the matter on a different basis from the other members of the Court. of the High Court accepted that, but for that dispensation, the purchasers could not have terminated if they had not been ready and willing to perform the contract. [78] 244 Mason CJ dissented in the result only because he considered that the purchasers had not been ready, willing and able to complete. The following passages from his judgment are sufficient for present purposes: "Accordingly, in relation to termination for actual breach, the principle is that established by the earlier decisions - the plaintiff is required to show that he was ready and willing to perform the contract if it had not been repudiated by the plaintiff. In other words, the requirement is that the plaintiff be ready and willing to perform except to the extent that the defendant dispensed with his performance. In the case of an anticipatory renunciation accepted by the plaintiff, the requirement of readiness and willingness extends only up to the time of acceptance because then the earlier repudiation results in an early termination of the contract. Accordingly, in the case of actual breach the requirement of readiness and willingness is more stringent; it continues through to the time for performance. That is because the termination of the contract does not antedate the time for performance. Subject to this difference and to the possibility of a difference in the onus of proof, the principle to be applied in the case of actual breach is consistent with that to be applied in the case of termination for anticipatory breach. The difference in the onus of proof arises because in the case of termination for anticipatory breach the plaintiff will generally be able to show at the time of termination that he would have been able to perform at the time for performance by demonstrating that he was not then disabled or incapacitated from such performance." [79] … "However, in the present case, the anticipatory breach of the vendors was not accepted. The case is one of termination for actual breach. The time for determining whether or not the purchasers would have been ready and willing to perform the contract had it not been for the dispensing conduct of the vendors is therefore the time for performance. The purchasers have not discharged the onus of showing that at that time they would have been so ready and willing. It follows that the purchasers are unable to justify their termination by reference to the ordinary principles of contract law. It is necessary now to turn to the doctrine of estoppel in order to ascertain whether the application of that doctrine enables the purchasers to succeed." [80] … "The purchasers cannot by invoking the doctrine of estoppel avoid the need to show that the vendors' conduct caused them not to perform the contract. The contract went off for two reasons: first, because the purchasers lacked the financial resources to complete on the appointed day; secondly, because the vendors were unable to complete on the appointed day as the right of way could not be registered in time. Accordingly, the failure of the contract was as much due to the purchasers' incapacity as that of the vendors. But in order to terminate the contract the purchasers needed to show that the vendors were at fault. The consequence is that the purchasers did not validly terminate the contract. In this situation it might at first seem just and fair that the purchasers should recover their deposit but it is conceded that, if the purchasers did not validly terminate, the vendors' later termination of the contract was valid and it was not contested, in this event, that the purchasers' claim to recover the deposit should fail." [81] 245 Brennan J held that, at the time when the vendors' solicitor told the purchasers' solicitor that the vendors would not be able to complete on the specified date, the purchasers were, in the material sense, ready and willing to complete. The vendors' indication that they were unable to complete on the specified date dispensed with the purchasers' obligation to tender performance. His Honour's opinion that a party seeking to terminate for another's repudiation must be ready, wiling and able to complete is encapsulated in the following passage: "Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v. Hobbs, at pp 480-481. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v. Norman (1842) 9 M & W 820 at p 827 ( 152 ER 347 , at p 350). Since a party's right to rescind an executory contract for the other party`s repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives."

[176]

The question whether the purchasers satisfied this onus is not without some difficulty because the trial judge directed his attention to the situation on the date stipulated for settlement rather than the situation two days before. However, the purchasers did not have to prove that they could have raised the amount needed to complete the financing of their purchase by the time stipulated for settlement. They merely had to prove that, at the time of the defendants repudiation, two days before the settlement date, they were not incapacitated from raising that amount and had not resolved or decided against doing so. That was a relatively light burden to discharge and, upon the evidence, I think that the plaintiffs did discharge it. There is nothing in the trial judges findings which requires a contrary conclusion." 248 In this Court, McHugh JA had also recognized that a party who is repudiating a contract is not entitled to terminate it for the other party's repudiation. [84] 249 The Drinkwater interests' repudiation of the Settlement Agreement, which commenced no later than 29 August 1996 and continuing past 30 October, precluded them from terminating the agreement for the Kyrwood interests' repudiation. 250 In the circumstances, it is unnecessary to consider proposition (a) from Roadshow. [85] However, a party who is not itself repudiating a contract cannot terminate if that would involve taking advantage of its own wrong;[86] for example, as was indicated in Roadshow, because of the causal relationship between the conduct of the party seeking to terminate and the other party's repudiation. Arguably, a wider test is appropriate in which consideration is given to the terms of the contract and the total conduct of the respective parties, including any breaches of contract and the importance of the terms breached. It is now established that the Court has power to grant relief in respect of an unconscionable or inequitable termination. [87] 251 The position adopted and persisted in by the Drinkwater interests, the importance of the United States tool to the Kyrwood interests and the causal relationship between the Drinkwater interests' attitude and conduct and the Kyrwood interests' repudiation of the Settlement Agreement precluded the Drinkwater interests from terminating the agreement. Even if they were not, at the time, repudiating the Settlement Agreement, the Drinkwater interests were plainly not ready, willing and able to perform it according to its terms. 252 The declaration that the Settlement Agreement was terminated by the Drinkwater interests in October 1996 was wrongly made. As I understand the position, the Drinkwater interests do not dispute that, if they did not validly terminate the Settlement Agreement in October 1996, the appeal should be allowed and the orders made by the trial judge should be set aside. It is unnecessary to consider whether the orders sought by the Kyrwood interests in their notice of appeal would be appropriate if the appeal was allowed since the other members of the Court consider that the appeal should be dismissed. END NOTES

(1824) 2 Sim & St 174 at 177; 57 ER 311 at 312 per Leach V-C.
(1837) 2 My & Cr 192 at 202; 440 ER 613 at 617 per Lord Cottenham LC.
(1956) 95 CLR 420, 426-427 per Dixon CJ and Fullagar J.
[1976] 1 WLR 989, 995-996 per Lord Wilberforce.
(1978) 138 CLR 423, 429 per Stephen.
(1987) 8 NSWLR 642)
(1938) 38 SR 632
supra at 641-642
(1931) 45 CLR 159, 166
(1968) 71 SR 126
supra at 149
(1977-1978) 138 CLR 423
supra at 431-432
(1988-1989) 166 CLR 623, 634
supra at 647-648
supra at 657-659
(1881) LR 6 App. Cas. 251, 263
(1896) 7 QLJ 68, 70-71
[1984] 3 NSWLR 613
(1997) 42 NSWLR 462
supra at 479-480
(1989) 168 CLR 385, 407-409
CPL and International are now in liquidation.
It is not clear how long these rights were to continue: see cl. 10 of the Settlement Agreement.
It is not clear how long these rights were to continue: see cl. 10 of the Settlement Agreement.
See the letter dated 2 August 1996 from ITG, which is referred to below.
The trial judge did not hold that this conduct by the Kyrwood interests was itself a repudiation of the Settlement Agreement, and the Drinkwater interests' Notice of Contention did not assert that his Honour should have done so.
Although each party had wanted to purchase the other's shares in CPL, they eventually agreed that the Kyrwood interests would purchase from the Drinkwater interests. A "very substantial sum" is involved, although CPL is now in liquidation.
(1981) VR 1041. Reference was also made to Stage Club v Millers Hotels Pty Ltd (1981) 150 CLR 535, 569 per Brennan J.
As all parties were aware, ITG estimated that the modification of the Australian tool could be completed in about 12 weeks.
This is elaborated upon in the letter from the Kyrwood interests' solicitors to the Drinkwater interests' solicitors dated 23 September 1996.
A letter dated 28 October 1996 from the Drinkwater interests' solicitors to the Kyrwood interests' solicitors is missing from the appeal record and might not have been tendered.
As to what constitutes repudiation, see, for example, Laurinda Ltd v Capabala Park Shopping Centre Pty Ltd (1988) 166 CLR 623.
Under the Settlement Agreement, both the Kyrwood interests' obligation under clause 6 and the Drinkwater interests' obligation under clause 12 to arrange and pay for the upgrading of the Australian tool were overdue for performance at 5 September 1996. Compare Morris v Baron and Company (1989) 1 AC 9 and Fercometal SARL v Mediterranean Shipping Co SA (1989) 1 AC 788.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (178 paragraphs)

Cases Cited (25)