'Accordingly, I believe that the EEC Directors should urgently request from the EEC Managing Director a written statement on the PY-1 position and determine, with written legal advice, as to whether the Prospectus should be updated by way of a Supplementary Prospectus or that the Share Offer is withdrawn.'
114 Mr Brand went on to refer to other matters of which directors should be aware which 'whilst not exhaustive, should be of concern to the Board'. He referred, among other things, to the absence of any budget papers for 2001 and 2002. He noted that a complete proposal had not been presented to directors in June 2001 in relation to the refinancing of the Central Energy Power assets in Alice Springs. On 20 November 2001 he went to the office. Mr Jordan then told him that Mr Elliott had advised him that his services were no longer required and that he should leave Energy's offices immediately. In departing from the Energy offices Mr Brand sent a letter to Mr Jordan, dated 20 November 2001, in which he said:
'I refer to your instructions to me this morning that the Managing Director/Chief Executive Officer of Energy Equity Corporation Ltd (EEC), Mr Stewart Elliott, had advised that my services were no longer required and that I was to leave immediately.
My services are provided through a Service Agreement with Martech International Pty Ltd and accordingly EEC has terminated this Agreement.'
Mr Jordan sent a memorandum to Mr Elliott confirming that he had asked Mr Brand to leave. He said:
'I merely said it was inappropriate for him to be here since he had resigned yesterday.'
He denied saying that Mr Elliott had instructed him to say that.
115 In cross-examination of Mr Brand it was put to him that he had signed the final report of the Due Diligence Committee on 29 October 2001. That Committee had approved the prospectus. Yet 12 days later he was expressing his concerns that disclosure had been inadequate. Mr Brand said that they were continuing concerns. He agreed that there was no such concern expressed in the minutes of the Due Diligence Committee. He said there was some discussion about PY-1 at the meeting. In response to his memorandum to other members of the Due Diligence Committee there was a discussion on Monday 12 November 2001. That was evidently a telephone discussion. He did not recall that any minute was prepared. The Due Diligence Committee did not come to any different view.
116 It was put to Mr Brand that after he had withdrawn his nomination as a director in October he couldn't wait to leave Energy. He denied this. It was put to him that he wanted to find any hook he could possibly find to justify going earlier. He denied this also. It was put to him that in his statement of reasons for resignation he said that Energy's directors should urgently request a written statement on the PY-1 position and determine whether the prospectus should be updated. He accepted that he had not asked that this be done in order to satisfy his concerns. He didn't know whether any of that had happened.
117 In my opinion, while non-disclosure of the Withdrawal Notice may have been one of the stated justifications for Mr Brand's decision to resign, it was not the cause of that decision. I find that, having decided not to seek re-election as a director, he saw little or no point in staying on. The non-disclosure issue was a matter he relied upon, in part, to justify his decision. He himself was quite ambivalent about the question of disclosure as revealed by his own inconsistent approach to it.
Energy considers disclosure of the Mosbacher dispute
118 In a memorandum to Mr Elliott dated 19 November 2001 Mr Jordan noted that while Mosbacher had issued the Withdrawal Notice it had not taken any further steps to enforce it. He said he believed that there was an avenue to reach agreement when Mr Elliott met with Mosbacher in the US in December 2001. He also advised Mr Elliott that the JOA was governed by the laws of India, with dispute resolution being either by a single expert or a board of arbitrators. Arbitration would take place in London under Uncitral Rules.
119 Mr Jordan met with Clayton Utz, the solicitors who had assisted Energy with the Prospectus on 21 November 2001. He provided them with relevant documents in relation to the PY-1 gas field including the recent correspondence with Mosbacher and requested their advice in relation to the issues raised by Mr Brand in his letter of resignation. He received advice from Clayton Utz on 22 November 2001. That advice suggested that the Board's decision on disclosure might largely turn on its perception of Mosbacher's true intentions and whether that perception was reasonable.
120 On the same day Mr Jordan discussed Mr Brand's letter of resignation and the advice from Clayton Utz with Mr Punch. Mr Punch directed him to obtain advice from Corrs about any need to alter the Prospectus. Corrs had traditionally been Energy's lawyers. Mr Jordan also had discussions with Messrs. Elliott and Allen in relation to PY-1 and prepared and circulated an agenda for a Board meeting on 30 November 2001.
121 The advice from Corrs provided to Energy on 28 November 2001, described the situation as 'borderline'. They recommended that Energy seriously consider making a further ASX announcement as soon as practicable confirming that a meeting was scheduled for the following week in an attempt to resolve the situation as well as providing further details of the reasons for the Withdrawal Notice.
122 At the Board meeting held on 30 November 2001 directors were advised that a meeting had been arranged between Mr Elliott and Mr Mosbacher for 6 December 2001 in Houston. A draft Gas Sales Agreement had been prepared in 1999 and not finalised. Directors were told of the advice received from Clayton Utz and Corrs. Disclosure of the Withdrawal Notice issued by Mosbacher had been made in the Explanatory Memorandum and in the Prospectus. The minutes recorded the view that nothing further of material interest had occurred to require further disclosure.
123 In relation to Martech the minutes recorded that directors were advised by Mr Elliott that he had had discussions with Mr Brand and had agreed to have further discussions following the annual general meeting. It was agreed that the matter be left for the managing director to deal with.
Mosbacher goes to arbitration
124 The scheduled meeting between Messrs. Elliott and Mosbacher in Houston did not eventuate when Mr Mosbacher did not attend. In January 2002 Energy received legal documents from Mosbacher which, if executed, would have effected EEIP's withdrawal from the PY-1 project. On 24 January 2002 Mosbacher issued a Notice of Arbitration under the Heads of Agreement. The dispute went to arbitration and on 27 March 2003 the London Court of International Arbitration delivered a Partial Award in respect of the Heads of Agreement in which it was held that Article 8.8 was a penalty within the meaning of s 74 of the Indian Contract Act. On 9 December 2003 the London Court of Arbitration delivered its second and final Partial Award. Energy was awarded the sum of $3.1 million by way of compensation for the assessed value of its interest in the PY-1 project.
Martech claims balance of fees
125 On 10 December 2001 Mr Brand wrote to Mr Elliott enclosing tax invoices for amounts he believed were then payable under the Martech consultancy agreement. He said in the letter that he was disappointed that Mr Jordan had not responded to an earlier letter he sent on 26 November 2001 and that he had not made contact with him after the Board meeting. The tax invoice enclosed was for the amount of $483,026 said to represent the balance of fees payable to 31 October 2001 and an amount payable to 20 November 2001. Also enclosed, in the name of Martech, was a tax invoice for $990,000 representing the termination fee said to be payable pursuant to cl 8.6 of the Service Agreement.
126 The invoice for amounts totalling $483,026 set out what was described as 'balance of fees' for the years 1999/2000, 2000/2001 and 1 July 2001 to 31 October 2001. The balance in each case appears to have been calculated on the assumption of a total entitlement of $500,000 per annum for each period. For the first two full year periods the amount in each case was $500,000 less fees paid. For the period 1 July 2001 to 31 October 2001 the total fees said to have been payable for the period were $166,666 against fees actually paid of $54,545. Fees payable for the period 1 November 2001 to 20 November 2001 were said to be $27,777. GST was claimed in each case, apart from the fees for the year 1999/2000 when GST did not apply.
127 Mr Jordan responded to Mr Brand on 17 December 2001 expressing his disappointment at Mr Brand's action as he understood he had agreed to discuss matters with a view to reaching a mutually agreed solution. He said:
'I totally disagree with the invoices which you have included and I am therefore returning the originals of your invoices with this letter, for you to reconsider.
Please contact Stewart or myself after the holiday break to arrange discussions.'
128 By a facsimile dated 6 November 2003 Martech issued further invoices to Energy in relation to amounts which, Mr Brand said he believed, after legal advice, were due and payable. These amounts totalled $1,498,983.53. In his covering letter he referred to earlier correspondence and discussions he had had with Mr Jordan on 14, 25 and 28 February 2002.
The Agreement of 28 May 1999
129 The Agreement of 28 May 1999 was made between Energy and Martech. Energy (then known as Energy Equity Corporation Ltd) was referred to as the 'Company' in the Agreement. Martech was referred to as the 'Manager'.
130 The Agreement recited that Energy carried on the business of providing alternative energy packages utilising gas as the energy source and establishing energy activities. It also recited that in order to assist in the administration, management and financial control of the business of the company and the marketing of its products and services, Energy had requested Martech to provide the Specified Services which Martech was agreeable to do for the consideration and upon and subject to the covenants and conditions set out in the Agreement.
131 Clause 1 defined the term 'Specified Services' to be provided by Martech to Energy by reference to a definition in Item 1 in the Schedule to the Agreement. The services there defined were as follows:
'To provide the services of Managing Director of the Company including, but not limited to such services as the following:
(a) To assist the Company in the administration management and financial control of the business of the Company and the marketing of its products;
(b) To assist the Company in the formulation of policy for the more effective operation of its business;
(c) To manage supervise control and co-ordinate personnel employed and contracted by the Company in its business and ensure performance of their respective obligations in an efficient and professional manner;
(d) To perform the following services and keep and maintain documents reports and material relating thereof:-
(i) to establish utilise and provide professional business management methods and efficient control of the business of the Company and make appropriate revisions thereto from time to time;
(ii) to establish for the business of the Company appropriate accounting procedures and cost controls in a form suitable for audit;
(iii) to prepare detailed development schedules for the Company and use all reasonable efforts to conform with the time constraints of such schedules;
(iv) to co-ordinate direct and inspect all phases of the business of the Company.'
132 The term of the Agreement was the period stipulated in Item 2 of the Schedule and that was:
'Four (4) years commencing on the 1st day of July 1999 and thereafter renewable by mutual agreement of the parties hereto.'
The term 'Fee' was defined as the 'remuneration to be paid by the Company to the Manager pursuant to Clause 4'.
133 In cl 2.1 of the Agreement Energy engaged Martech to provide the Specified Services for the Term and upon the terms and conditions contained in the Agreement. Martech covenanted to carry out the Specified Services to the best of its skill and ability and would act under and in accordance with such lawful directions of Energy as should be given by Energy from time to time to Martech. Under cl 2.5 Martech covenanted with Energy that it would provide 'the full time services of Fletcher Maurice Brand to perform the Specified Services hereunder at all times during the term of this Agreement…'. Clause 4 provided for the payment of the Fee at the time and in the manner specified in Item 3 of the Schedule.
134 Clause 3.2 of the Agreement provided that:
'If:
(a) one party or a number of associated parties ("the control party") acquires 25% or more of the issued capital of the Company; and
(b) anytime thereafter the composition of the Board of Directors of the Company is altered so that a majority of the Directors are nominated or appointed by the control party then:
Each of the Company and the Manager shall within 90 days of both these events occurring have the right to terminate this Agreement. If this Agreement is terminated by either party under the terms of this clause the Manager shall be paid out the balance of the Term of this Agreement from the date of termination together with any other accrued entitlements or paid for a minimum period of two years which ever is the greater.'
This clause was deleted from the Agreement by the Deed of Variation of 13 March 2000 on the basis that it appeared to be contrary to the Listing Rules of the ASX.
135 Clause 8 of the Agreement provided for its termination. The relevant parts of that clause were as follows:
8. Termination
8.1 The Company may (subject to clause 8.3 hereof) by notice in writing to the Manager terminate summarily the engagement of the Manager under this Agreement if:-
8.1.1 in the reasonable opinion of the Company the Manager is not carrying out the Specified Services in a manner satisfactory to the Company;
8.1.2 the services of the said Fletcher Maurice Brand are not provided for any consecutive period of three (3) months or his services are not available for any cumulative period of Four (4) months in any period of 12 months.
8.1.3 in the reasonable opinion of the Company the Manager has committed or is preparing to commit a serious or persistent breach of any of the provisions of this Agreement;
8.1.4 the Manager, goes into liquidation or receivership or suspends payment or compounds with or assigns its estate for the benefit of its creditors; and
8.1.5 the Manager or employee is convicted of a criminal offence carrying imprisonment as a possible penalty.
8.2 Subject to clause 8.3 hereof, the Manager may be (sic) notice in writing to the Company terminate summarily this Agreement if the Company suspends payment or compounds with or assigns the Company's estate for the benefit of the Company's creditors.
8.3 The Company or the Manager can only terminate this Agreement if all of the following provisions are complied with:-
8.3.1 the Company or the Manager is in breach of their respective obligations hereunder for a continuous period of thirty (30) days;
8.3.2 the Company or the Manager serves a written notice on the other demanding rectification of the breach within thirty (30) days of the date of service of such notice; and
8.3.3 the Company or the Manager (as the case may be) does not rectify the said breach within thirty (30) days of service of the notice provided for in the sub-clause 8.3.2.
8.4 Upon termination of this Agreement for whatever reason the Manager shall deliver to the Company or its authorised representative all records, accounts and other documents and property of the Company.
8.5 In the event of the Manager wishing to terminate its services hereunder the Manager may do so upon first giving to the Company three (3) months written notice of its intention so to do.
8.6 In the event that this Agreement is terminated for any other reason other than as stated in clauses 8.1.1, 8.1.3, 8.1.4, 8.1.5 and 8.5 hereof or clause 3.2 hereof or the Term (as extended or renewed) is not renewed the Company shall pay to the Manager the Fee for a further period of twenty (20) months together with one (1) month for every complete year that this agreement operates calculated from the 1st July 1999 to the date of termination or expiration.'
The reference in cl 8.6 to cl 3.2 was also deleted by the Variation of 13 March 2000. None of the other provisions of the Agreement are material for present purposes.
Summary of principal findings of fact
136 The principal findings of fact which emerge from the preceding may be summarised as follows:
1. Mr Brand founded Energy in 1985 and acted as its Managing Director under a series of contracts from 1985 to 2000.
2. On 28 May 1999 Martech, a company controlled by Mr Brand, agreed with Energy to provide his services as Managing Director of Energy for a term of four years from 1 July 1999 to 30 June 2003.
3. Under the agreement Martech was to be paid an annual fee of $500,000 for Mr Brand's services.
4. In late 1999 and early 2000 Energy was in financial difficulty. Its share price had declined significantly and its principal financier, the CBA, declined to extend the $115 million facility beyond 20 February 2000.
5. At a meeting of the Board of Energy held on 3 February 2000 proposed funding and underwriting of a rights issue by EWI was considered. Stewart Elliott was the Managing Director of EWI and was assisted generally by Mr Ian Jordan.
6. At the meeting of 3 February 2000 Mr Brand, on behalf of Martech, told the Board that he would reduce the fee for his services temporarily from $500,000 per annum to $300,000 per annum.
7. Mr Brand did not say at the Board meeting, nor was any agreement then made, that he would be compensated for the shortfall at a later time.
8. On 12 March 2000 the Board of Energy accepted EWI's proposal in principle. Under that proposal EWI was to make a $15 million advance to Energy by way of subordinated debt.
9. The agreement between Energy and Martech of 28 May 1999 was varied on 13 March 2000 by deleting cl 3.2 in order that the agreement would not be in breach of the Listing Rules of the ASX.
10. On 16 March 2000 Mr Brand wrote to Mr Elliott confirming the reduction in his remuneration without reference to any later catch-up compensation.
11. Martech thereafter issued monthly invoices for its fees at the reduced rate with no reference to any outstanding balance deferred.
12. Mr Brand told the Chairman of the Board, Ronald Punch, in July 2000 that he was prepared to continue with the reduced fees until 30 June 2001.
13. Mr Brand made arrangements with other Energy consultants under which they were paid at rates reduced below their consultancy agreements on the basis that their shortfalls would be paid when the EWI facility became available.
14. In mid-September 2000, at a meeting between Mr Elliott and Mr Brand, Mr Elliott said he wanted Mr Brand to relinquish his position as Managing Director of the company and become an Executive Director instead.
15. Mr Brand agreed to Mr Elliott's request. He did not assert any legal entitlement under the agreement of May 1999. He agreed to the request because the attitude of the CBA and the financial circumstances of the company left no alternative.
16. On 29 September 2000, with Mr Brand's agreement, the Board of Energy appointed Mr Elliott managing director in his place and he was appointed executive director.
17. The terms of Mr Brand's engagement as an executive director were never expressly agreed between Energy and Martech and/or Mr Brand.
18. Mr Brand proposed to Mr Elliott on 7 October 2000 that his fees be further reduced, that he participate in an option scheme and that he receive a bonus if the West Kimberley project, of which he then had the carriage, were to come to fruition. Mr Elliott did not respond to that proposal. Mr Brand's proposed reduction in fees took them from $300,000 per annum to $240,000 per annum with effect from 1 October 2000 '… with a waiver of any arrears'.
19. Mr Brand's responsibilities within the company contracted significantly after 29 September 2000 as a consequence of his replacement as managing director.
20. Mr Brand unilaterally further reduced the fees payable to Martech from $240,000 per annum to $180,000 per annum with effect from 1 January 2001.
21. On 23 February 2001 Mr Brand wrote to Mr Elliott proposing amendment of his existing 'Consultancy Agreement' to an annual fee of $180,000 with effect from 1 January 2001 to its termination date of 30 June 2003. He proposed that thereafter he become an employee and that the termination provision of the existing Consultancy Agreement be cancelled.
22. Mr Jordan wrote, on behalf of Energy on 5 March 2001, accepting 'your offer of termination of the Consultancy Agreement, and our intention to offer you employment with the company'.
23. Mr Brand was effectively excluded from significant decision-making processes in Energy throughout 2001.
24. At a meeting with Mr Brand on 22 October 2001 Mr Elliott asked him to consider his future with Energy overnight.
25. On 24 October 2001 Mr Brand decided, following a discussion with Mr Elliott, that his existing position as an executive director was untenable. He decided to withdraw his nomination for re-election as a director of Energy. Mr Elliott however did not unequivocally withdraw his support for Mr Brand nor did Mr Brand base his decision on a perception of lack of support from Mr Elliott.
26. Mr Brand advised Energy of his decision by a letter to Mr Elliott dated 24 October 2001. The letter did not constitute a resignation from office at that time.
27. Energy, through its subsidiary, EEIP, had a 35% interest in a gas field permit PY-1 in India under a JOA with Mosbacher and Hindustan.
28. The value of the interest at 30 June 2001 was $13.4 million.
29. On 28 September 2001 Mosbacher issued a Withdrawal Notice to EEIP and, through EEIP to Energy, on the basis of EEIP's failure to meet a payment of $US47,095 due under the JOA.
30. Mosbacher rebuffed repeated attempts to negotiate a settlement of its dispute with Energy. Under the terms of the JOA EEIP could be required, after the issue of a Withdrawal Notice, to transfer its 35% interest to Mosbacher for no consideration.
31. Mr Brand became aware of the Withdrawal Notice on 8 October 2001.
32. On 15 October 2001 Mr Brand told Messrs. Elliott and Jordan that the ASX should be told of the Withdrawal Notice.
33. On 22 October 2001 the directors of Energy resolved that the circumstances did not require disclosure of the Notice to the ASX as action on it was incomplete.
34. On 29 October 2001 Mr Brand, with other directors on Energy's Due Diligence Committee, signed a final report to the effect that the prospectus for the company's share offer dated 29 October 2001 contained no material omission or error or representation known to the members of the Committee. The prospectus for the share offer contained a reference to the receipt of the Withdrawal Notice, stated that Energy and EEIP were reviewing the position and would take whatever action was required to protect the company and shareholders' interests in the PY-1 gas field. A similar notice appeared in an Explanatory Memorandum circulated with the Notice of Annual General Meeting called to authorise the share offer.
35. On 9 November 2001 Mr Brand sent a memorandum to other members of the Due Diligence Committee expressing his concern that the disclosure relating to PY-1 in the prospectus was inadequate. The prospectus was sent to shareholders without alteration.
36. In a conversation which he had with a shareholder on or about 16 November 2001 the shareholder told Mr Brand that he would take out entitlements under the rights issue because, inter alia, of the PY-1 gas field interest.
37. On 19 November 2001 Mr Brand tendered his resignation effective that day as a director of Energy and associated companies. One of the reasons he gave for tendering his resignation was his concern about the company's compliance with the ASX Continuous Disclosure obligations.
38. Mr Brand's resignation was primarily actuated by a desire to leave Energy prior to the annual general meeting. The non-disclosure question was one of a number of matters that he said should be of concern to directors. It was not, however, the cause of his resignation.
The causes of action
137 The causes of action and claims arising out of the case as pleaded may be summarised as follows:
1. Misleading or deceptive conduct by Energy comprising representations made on 3 February 2000, without reasonable grounds, that it would enter an agreement with Martech under which Martech would be adequately compensated for its forbearance to enforce payment of its full fee. (s/c 8 and 23-30)
2. Misleading or deceptive conduct by Energy by its conduct and silence in paying Martech at a rate consistent with Martech's proposal of 7 October 2000 and by its silence in not responding to that proposal thereby representing, contrary to its intention and without reasonable grounds, that it would agree or substantially agree on the terms of the proposal or negotiate it in good faith. (s/c 14 and 32-37)This claim was not pressed.
3. Breach of contract arising out of Energy's failure to pay Martech its unpaid fees under the Agreement of 28 May 1999 for the period 1 March 2000 to 29 September 2000. (s/c 6-11)
4. Claim in contract for the Termination Payment payable under the Agreement of May 1999 on the basis that the Agreement was terminated by mutual consent on or about 29 September 2000. (s/c 12-13)
5. Quantum Meruit claim for reasonable fees due under a New Contract said to have come into existence between Martech and Energy on or about 29 September 2000. (s/c 13A-17)This claim was not pressed.
6. Claim in contract for a Termination Payment due under the Agreement of May 1999 or the New Contract or for damages in a like amount on the basis that the Agreement or the New Contract was terminated on 24 October 2001 by Mr Elliott's withdrawal of support for Mr Brand's re-election as a director of the company. That withdrawal is said to have amounted to a repudiation of the Agreement or the New Contract accepted by Mr Brand by the withdrawal of his nomination for re-election. (s/c 18-19AF) Alternatively, the New Contract is said to have been terminated and to support a claim for such payment.
7. Claim in contract for a Termination Payment under the Agreement of May 1999 properly terminated by Martech on account of Energy's breach of an implied term by its failure to publicly disclose the Withdrawal Notice of its subsidiary's interest in the PY-1 gas field.
8. Claim in contract for a Termination Payment under the Agreement of May 1999 on the basis that, on 20 November 2001, Energy, through Mr Jordan, terminated the Agreement by requiring Mr Brand to leave Energy's premises. (s/c 21B-22D)
Contract claim for fees shortfall - March 2000 to September 2000 - Was the Contract Varied?
138 Mr Brand acted unilaterally when he informed the Board of Energy on 3 February 2000 that he would temporarily reduce the fees payable for his services from $500,000 to $300,000 per annum. He did not propose at that meeting that Energy would compensate Martech for the loss of part of the fees in a manner to be agreed or otherwise. He made the decision to reduce the fees because of the serious financial difficulties then facing Energy. He reserved the right to reinstate the full fees at a later time. That reservation was implied in his statement that the fees were being reduced temporarily. He made no reference at the meeting of 3 February 2000 to some future recovery of the shortfall. His services were invoiced monthly by Martech thereafter at the reduced rate with no reservation of a right to claim arrears. That is to say, the invoices gave no indication that Martech was extending credit to Energy. There was no evidence that any such credit was shown in the books of Energy as a debt. I infer that no such credit was shown.
139 There is no evidence that Mr Brand raised any question of arrears of his fees until July 2000. Shortly before 10 July 2000 he told Mr Punch that, because the sale of Basin Bridge and other assets was not proceeding, he would be prepared to waive Martech's outstanding fees on the basis of a new structure. He proposed that he be paid for the arrears in options and/or bonuses to reduce their impact on Energy's cashflow. He proposed extending his reduced rate to 30 June 2001. This was reflected in his memorandum to Mr Punch of 10 July 2000. There was no response from Energy's Chairman, nor from Mr Elliott who was to succeed Mr Brand as managing director.
140 Energy submitted that the Agreement was varied in February 2000 by agreement between Martech and Energy. However, even assuming that Mr Brand was acting on behalf of Martech and as managing director of Energy at the time that he announced the reduction in his fees, there was no variation of the Agreement between himself and Energy. A contract is not varied merely by the action of one party to it announcing that it will accept less than the consideration to which that party is entitled under the contract. For absent some consideration moving from the other party, there is no enforceable agreement to vary the original contract. It was no doubt politic for Mr Brand to reduce his fees as he proposed given Energy's parlous financial state and the need to retain or recover some degree of confidence from the bank and shareholders. The benefit to Energy in its dealings with its banker and its prospective rescuer arising from the fee reduction does not amount to consideration moving from it.
141 It is well established that mere forbearance by one party to a contract in requiring performance of obligations by the other does not effect a variation of the contract unless supported by consideration or recorded in a deed under seal. In Foakes v Beer [1884] 9 App Cas 605 the House of Lords held an agreement between judgment debtor and creditor that the creditor would not take proceedings on the judgment in consideration of the debtor paying part of it and the residue by instalments, was nudum pactum as without consideration. It did not prevent the creditor after payment of the whole debt and costs from enforcing payment of interest on the judgment. Lord Selborne LC said (at 613):
'If the question be … whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given, in the sense in which I have always understood that word as used in our law.'
Vanbergen v St Edmunds Properties Ltd (1933) 2 KB 223 involved an indulgence solely for the benefit of one party to a creditor/debtor relationship. Lord Hanworth MR, after citing Foakes v Beer, quoted from Smith's Leading Cases, and said (at 232):
'… a creditor cannot bind himself by a simple agreement to accept a smaller sum in lieu of an ascertained debt of larger amount, such an agreement being nudum pactum. But if there be any benefit, or even any legal possibility of benefit to the creditor thrown in, that additional weight will turn the scale and render the consideration sufficient to support the agreement.'
In Australia & New Zealand Banking Group Ltd (ACN 005 357 522) v Ringrong Pty Ltd (ACN 005 496 855) [1995] FCA 722, Ryan J held (at p 37) that forgiveness of a debt not embodied in a deed and unsupported by consideration was 'ineffectual at law or in equity'.
142 The general position is stated in Carter on Contracts (Butterworths, 2002) at 07-170 citing Vanberger:
'… consideration will not be present where a variation is exclusively for the benefit of one party so that the other has merely promised to perform an existing contractual duty.'
The 28th edition of Chitty on Contracts, Vol 1 at 23-034, to similar effect, states that:
'The agreement which varies the terms of an existing contract must be supported by consideration.'
Examples of consideration in Chitty include the mutual abandonment of existing rights or the conferment of new benefits by each party on the other. It may be found in the assumption of additional obligations or the incurring of liability to an increased detriment (at 23-0334):
'A mere forbearance or concession afforded by one party to the other for the latter's convenience and at his request does not constitute a variation, although it may be effective as a waiver or in equity.'
143 Quite apart from the problem that the alleged variation lacked consideration there was uncertainty about its terms. A reduction in fees for an unspecified but temporary period apparently to be determined at the will of one party, does not import certainty of obligation. In answering that question it is necessary not to demand unrealistic precision. As McHugh JA said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 (at 11,118):
'… in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.'
See Brambles Nationwide Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 177 (Heydon JA) and Nationwide Produce Holdings Pty Ltd v Linknarf Limited (2005) Aust Contract Reports 90-424 at 88,509 (Tamberlin J). In Vroon BV v Fosters Brewing Group Ltd (1994) 2 VR 32, Ormiston J accepted that:
'… in commercial transactions the court should strive to give effect to the expressed arrangements and expectations of those engaged in business notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out.'
144 The uncertainty in the terms of the varied Agreement propounded by Energy in its defence, may not be sufficient, in the light of the authorities, to defeat its contention that there was an effective variation to the Agreement. It is notable however that it pleads that the fee was reduced 'from $500,000 to $300,000'. As pleaded, the reduction was permanent. On the facts as found it was temporary, albeit its duration was undefined.
145 In my opinion the contention that the Agreement was varied on 23 February 2000 is met by the proposition that there was no consideration moving from Energy. Mr Brand made no contract with Energy to reduce his entitlement. Mr Punch and Mr Elliott seem to have themselves to blame for that result. They took no steps, despite Mr Brand's proposals, to agree with him and his company the varied terms upon which his fees would be paid from March 2000. There was no agreement that he or Martech should receive some other benefit in lieu of the shortfall in his fees. It follows that the question of the implied term pleaded by Energy, that repayment of the shortfall depended upon a significant improvement in Energy's financial position, does not arise even if it could be given some commercially meaningful interpretation.
146 Martech remains and has been at all material times entitled to recover the shortfall in its fees due under the Agreement as follows:
1 March 2000 to 30 June 2000 $19,139
1 July 2000 to 30 September 2000 $52,524.65
The latter figures are exclusive of GST and include the contractual CPI adjustment. The total recovery of Martech is therefore $71,663.65.
147 Neither waiver nor estoppel is pleaded by Energy in relation to this aspect of Martech's claim. There was, as Martech submitted, no evidence of detriment suffered on Energy's part arising from reliance on any representation made by Martech nor any common convention or assumption to give rise to such detriment.
Claim for damages for misleading or deceptive conduct on 3 February 2000
148 The claim of misleading or deceptive conduct on the part of Energy by representations allegedly made on 3 February 2000 cannot succeed. On the factual findings made above, there were no representations made by Energy that it would enter a compensation agreement with Martech. In any event, Martech suffered no loss as it retained, absent an effective contractual variation of the Agreement, its entitlement to payment of the full fees at the agreed rate of $500,000 per annum.
Claim for payment for termination of Agreement on 29 September 2000 - A question of interpretation
149 Martech pleaded that the agreement of May 1999 was terminated by mutual consent by an agreement made on or about 29 September 2000. A 'New Contract' was formed under which, inter alia, Martech would provide Mr Brand's services as an executive director and such services as Energy's Board or Mr Elliott reasonably required. The fee would be $240,000 per annum. The New Contract was said to be terminable on reasonable notice.
150 Martech submitted that termination had occurred on 29 September 2000 because:
(a) As Martech ceased to provide the services of Mr Brand as 'Managing Director', the basis of the Agreement was removed;
(b) Mr Brand's powers and responsibilities, as a director of Energy, changed profoundly.
(c) Mr Brand no longer provided the services specified in the Schedule to the Agreement.
(d) Martech's remuneration from 29 September 2000 ($240,000 per annum) was significantly different from that provided in the Agreement ($500,000 per annum).
(e) The change in remuneration had the consequence that the termination payment in the provisions in the Agreement (cl 8.6) (which provided for the payment of '20 months' fee' at the 'stipulated' fee ($500,000 per annum) plus one month's fee (at that rate) for every year of service thereafter), could not work fairly for both parties after 29 September 2000; moreover there would be a question as to what was the amount of the 'termination payment', as a consequence of the change of remuneration.
(f) The only matters of substance 'left' for which the Agreement provided after 29 September 2000, were the parties, and the fact that Mr Brand continued to provide services to Energy.
151 Martech submitted that where parties to an agreement have agreed to vary its terms profoundly they are taken to have discharged it and to have agreed the terms of a new contract to govern their future relationship. Energy submitted however that the events of 29 September 2000 had to be seen in context. It referred to the Deed of Variation of 13 March 2000 which, by deleting cl 3.2, was said to have taken out of the right of termination the very circumstances which arose in September 2000. Although Mr Brand became an Executive Director his salary remained at $300,000 until his unilateral variation of it to $240,000. Mr Elliott did not relocate to Perth. He remained based in Hong Kong. Mr Brand had ongoing responsibility for the West Kimberley Project. Energy submitted that there was no fundamental shift in his role after 29 September 2000.
152 The questions for consideration are:
1. Was the Agreement of May 1999 discharged or varied on 29 September 2000?
2. If it was discharged, was that discharge a termination within the meaning of cl 8.6 which gave rise to an entitlement to a Termination Payment?
3. If the discharge was a termination within the meaning of cl 8.6, did it flow from an agreement which extinguished any such entitlement?
153 A longstanding distinction exists in English law between rescission and variation of contracts by subsequent agreements. It has been applied particularly in cases of contracts required by law to be evidenced in writing. A parol variation of a written agreement would, in such a case, be unenforceable. On the other hand where the subsequent parol agreement discharges the earlier agreement it is not affected by the requirement that the original agreement be in writing. In British and Beningtons, Limited v North Western Cachar Tea Co Ltd [1923] AC 48, which concerned a contract required by the Statute of Frauds to be in writing, Lord Atkinson said (at 62):
'A written contract may be rescinded by parol either expressly or by the parties entering into a parol contract entirely inconsistent with the written one, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.'
The earlier decision of the House of Lords in Morris v Baron & Co [1918] AC 1, also a Statute of Frauds case, was relied upon.
154 It has been said, as a general proposition, that the result of varying the terms of an existing contract is to produce not the original contract with a variation but a new and different contract - Williams v Moss Empires [1915] 3 KB 242 at 247 (Sankey J). That approach was adopted by the Court of Appeal in Morris v Baron. Lord Sumner referred to it in British and Beningtons, Ltd (at 68) as possibly correct 'as a matter of formal logic'. However in United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340, which was a case involving money lenders' legislation in Jamaica, Lord Devlin, delivering the judgment of the House of Lords, said (at 348):
'The disadvantage of this view is that a minor variation may destroy the effect of the whole of the transaction between the parties. The alternative view, adopted by the House of Lords in Morris v Baron and again in British and Benningtons (sic) Ltd v NW Cachar Tea Company Ltd … is based on the intention of the parties. They cannot have that which presumably they wanted, that is, the old agreement as amended; so the court has to make up its mind which comes nearer to their intention - to leave them with an unamended agreement or without any agreement at all. The House answered this question by rejecting the strict view propounded by Sankey J and distinguishing between rescission and variation. If the new agreement reveals an intention to rescind the old, the old goes; and if it does not, the old remains in force and unamended.
It seems that this distinction was developed in order to address the difficulties generated by requirements for contracts to be in writing, imposed by the Statute of Frauds, and in the United Dominions Corporation case by the Money Lending law of Jamaica.
155 In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93, Dixon CJ and Fullagar J described the distinction made between 'rescission' and 'variation' in the two House of Lords decisions as '… not a satisfactory distinction'. It appeared to be 'a matter of degree' (at 113). Taylor J said (at 144):
'It is firmly established by a long line of cases commencing at least as early as Goss v Lord Nugent [(1833) 5 B & Ad 58] and ending with cases such as Morris v Baron & Co and British & Beningtons Ltd v North Western Cachar Tea Co Ltd - and, indeed, including Goss v Lord Nugent itself - that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.'
156 Taylor J acknowledged that variation might involve partial rescission and cited Salmond and Williams on Contract, 2nd ed (1945) at 488 and 489:
'Partial rescission … does not completely destroy the contractual relation between the parties. It merely modifies that relation by cutting out part of the rights and obligations involved therein, with or without the substitution of new rights and obligations in their place. Partial rescission is not the extinction of the contract but the variation of it.'
And further (at 144):
'A contract may be varied (1) by way of partial rescission without the substitution of new terms in place of those rescinded, or (2) by way of partial rescission with the substitution of new terms for those rescinded or (3) by the addition of new terms without any partial rescission at all.'
Taylor J observed that those passages correctly stated the accepted view of the manner in which an agreement by way of variation operates.
157 The distinction between rescission and variation of contracts was indirectly an issue in Dan v Barclays Australia Ltd (1983) 46 ALR 437 (57 ALJR 442). The case concerned the construction of the terms of a guarantee of the payment of up to $500,000 owing under a bill acceptance facility which allowed for a maximum advance of $2 million. The maximum of the bill acceptance facility was increased sometime after its execution. It was held by Mason, Brennan and Deane JJ that the initial bill acceptance facility was significantly different from that subsequently granted and the guarantors were therefore not liable for interest and charges resulting from default under the later facility although, as a matter of construction of the guarantee, they were liable for the principal up to the figure specified in the guarantee. Wilson and Dawson JJ dissented. In their dissent they observed that cases dealing with the circumstances in which variation of a contract would amount to rescission did not necessarily provide the answer to the question of the construction of the guarantee in its application to 'the facility'. However they said (at 448):
'The distinction between rescission and variation is discussed in such cases as Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93; Morris v Baron and Co [1918] AC 1 and British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48. Variation of an existing contract, whilst it in one sense always gives rise to a new contract, does not always result in a substituted contract which, in order to operate, must necessarily rescind the contract which is varied. Variation may take the form of rescission of some of the terms of an existing contract but if that is to have the effect of rescission of the whole contract, the rescission must be express or by necessary implication and the determining factor must always be the intention of the parties as disclosed by contract when varied: see Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd, supra, per Taylor J at 143-4.'
Owen J in Permanent Building Society (In Liquidation) v Wheeler (1993) 10 WAR 109 observed that although the statement in Dan was in a dissenting judgment, the dissent related to the application of the test. There was no reason to doubt the authoritative force of the statement of principle (at 127):
'Many of the cases arise in the area of unenforceability due to non-compliance with a formal requirement such as writing. … However, the authorities show that the task is to ascertain the intention of the parties as embodied in the contracts.'
It was permissible, in searching for the intention of the parties, 'to look at the extent and completeness of the changes involved in the variation' (127). His Honour said further (at 128):
'That there may be "as a matter of formal logic" a new contract … is true to a limited extent only.'
In the Permanent Building Society case the parties had expressly confirmed the original agreement and made minor changes. The varied contract was therefore a 'new' contract only to the extent that it contained terms which were not present in the original agreement.
158 In Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at 534 reference was made in the joint judgment of Gleeson CJ, Gaudron, McHugh and Hayne JJ to the passage from the judgment of Taylor J in Tallerman and its approval by Wilson and Dawson JJ in Dan. The joint judgment in Sara Lee said, in relation to the passage from the judgment of Taylor J, (at 534 [24]):
'It accords with principle and with authority.'
Callinan J also acknowledged that there may be cases in which what is expressed to be a variation of an earlier agreement as a matter of construction cannot be so regarded.
159 There was no express agreement to discharge the Agreement of May 1999. If it was discharged, that discharge flowed, as a matter of implication, from the arrangements made on 24 September 2000. Professor Carter, in an essay on Termination written for the 2nd Edition of the Law of Contract in the Butterworths Common Law Series (2003), identified, at 1320-1321, two cases of consensual discharge by implication which may be paraphrased thus:
1. Where the parties to a contract enter into a second contract which is inconsistent with an intention that the contract by which the parties were originally bound should remain in force (at 1321):
'Then, what one party alleges to be a mere variation of the contract may go so much to the root of the original agreement that the parties' intention to terminate the original agreement may legitimately be inferred, for example, because it is impossible for both agreements to be performed.'
2. When the conduct of the parties to an agreement is such that an agreement to terminate or abandon the former contract may be inferred or where their conduct creates an estoppel.
160 The Agreement of May 1999 was in the nature of an employment agreement notwithstanding that it took the form of an agreement for the provision of services under a consultancy arrangement. It is a particular application of the general case of consensual discharge by subsequent inconsistent agreement that an employment agreement may be discharged by sufficiently substantial change to the terms and conditions of employment. In Chitty on Contracts (Vol 2, Sweet & Maxwell, 28th ed, 1999) 39-152, it is said:
'A termination of a contract of employment by agreement occurs also where there is an agreed change in the terms and conditions of employment, for instance by way of promotion, which is sufficiently fundamental to constitute the rescission of the original contract and its replacement by a new contract in differing terms.'
161 In Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567, Ashley J reviewed a number of authorities relating to changes to the terms of employment and when such changes would amount to discharge of a subsisting employment agreement. He accepted, at 576, the proposition in Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 that:
'… where employer and employee agree to an alteration in the employee's duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old; or at least that the old contract as varied, contained terms objectively appropriate to the new relationship created.'
162 A contract under which a person is employed, whether directly or through a corporate entity controlled by that person, may be discharged by sufficiently significant changes to the duties and/or the remuneration of the person so employed. A discharge will occur when the changes are significant, not able to be accommodated by the terms of the original contract and not contemplated by the parties when the original contract was made. Whether there has been a discharge or a variation of the original agreement depends upon the intention of the parties discerned by reference to the terms of their second agreement. It is as Dixon CJ and Fullagar J said in Tallerman 'a matter of degree'.
163 In my opinion, Mr Elliott's appointment as managing director and chief executive officer of Energy on 29 September 2000 and Mr Brand's relinquishment of that office was of itself sufficient to constitute a discharge of the Agreement of May 1999. There was a very substantial difference between the office of managing director and executive director which supports the contention that objectively judged it was the intention of both parties to discharge the Agreement. The complete terms upon which Mr Brand provided his services as an executive director thereafter were never expressly agreed between Martech and Energy. Those terms and conditions would have to be considered in the context of the evolving commercial relationship between Mr Brand and Energy and their respective conduct. Mr Brand played a significant part in defining them himself, not least by unilaterally varying downwards his annual fee.
164 I do not accept the submission by Martech that Mr Brand was 'removed' from office by Energy on 29 September 2000. While the circumstances at the time made the course that he adopted the only practical course to take, that was a judgment he made for himself and to which he assented. I find that the Agreement was discharged consensually.
165 Martech submitted that it was entitled to the Termination Payment if the Agreement were terminated for any reason other than one of those set out in sub cls 8.1.1, 8.1.3, 8.1.4 and 8.1.5 or cl 8.5. Termination having occurred on 29 September 2000 for none of those reasons it says it was entitled. Energy submitted that, on its proper construction, cl 8.6 did not apply where Martech wished to terminate its services and agreed to termination. The benefit of the notice provision in cl 8.5 could be waived - Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543, 552, 560 and 565.
166 The critical question in considering the Martech submission is whether, on the proper construction of cl 8.6, the entitlement which it creates in a case in which the 'Agreement is terminated for any other reason …' arises where there is a consensual discharge of the Agreement. That constructional question depends upon a consideration of the words of cl 8.6 and the context in which they appear both within that clause and within other parts of cl 8 and the Agreement as a whole.
167 The Shorter Oxford English Dictionary definition of 'termination' is equivocal. It defines termination relevantly as a transitive verb meaning:
'bring to an end, put an end to, cause to cease; finish, end (an action, condition etc).'
It is also defined as an intransitive verb meaning, inter alia:
'come to an end (in time); end, cease, conclude …'
168 Lord Radcliffe said in Bridge v Campbell Discount Co Ltd [1962] AC 600 (at 620):
'"Terminate" is an ambiguous word, since it may refer to a termination by a right under the agreement or by a condition incorporated in it or by a deliberate breach by one party amounting to a repudiation of the whole contract.'
Lord Denning also adverted to the uncertain scope of 'termination' in the terms and conditions of National Health Service staff contracts:
'terminate or termination is by itself ambiguous. It can refer to either of two things - either to termination by notice or termination by effluxion of time. It is often used in that dual sense in landlord and tenant and master and servant cases.'
In context, he found it to refer only to termination by notice - R v Social Services Secretary, Ex parte Khan [1973] 1 WLR 187 at 189. Karminski and Buckley LJJ agreed. Buckley LJ added (at 191):
'As Mr Slynn has pointed out, the verb "terminate" can be used either transitively or intransitively. A contract may be said to terminate when it comes to an end by effluxion of time, or it may be terminated when it is determined by notice or otherwise by some act of one of the parties.'
169 There is no doubt that the word 'terminate' used in a written contract, in reference to its discharge, is capable of extending to the case in which the contract is discharged by agreement. This usage was recognised by Professor Carter in his identification of what he called 'the three principal bases for saying that a contract has been terminated'. They were:
- Subsequent agreement by the parties.
- Exercise of a right to terminate.
- Frustration of the contract.
(Carter op cit at 1317).
Termination by agreement as he pointed out, is sometimes referred to as rescission by agreement.
170 It is necessary then to consider the way in which the word 'terminate' was used in cl 8.6 of the Agreement in order to determine whether it extended to rescission by agreement. In so doing it is necessary to have in mind the consequences of termination. As Carter observed (op cit at 1319):
'The feature which serves to distinguish termination by agreement from termination for breach is that the former will generally discharge both the primary and secondary obligations of the parties. In the latter context, only the primary obligations are discharged and accrued obligations or liabilities (giving rise to secondary obligations) are not divested. However, when the subsequent agreement is intended to release one party from a liability (or an alleged liability) the general principle is that the party in default is released from those accrued obligations or liabilities only if consideration has been given for the release.'
171 A contract may be abandoned by agreement extinguishing all unperformed primary obligations. It may be abandoned by conduct where the conduct of one party acted on by the other leads to the inference of an implied agreement between them to abandon the contract. In the alternative, the conduct of one party towards another and the other's action upon that conduct to its detriment may result in the first party being estopped from denying that the contract has been abandoned - Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854 at 914 (Lord Brandon), 915 (Lord Diplock), 924 (Lord Brightman).
172 In summary the word 'termination' when referring to the discharge of a contract has a variety of possible meanings. It may be limited to non-consensual termination by the action of one or other party to the contract. It may extend to discharge of the contract by effluxion of time. That is a consensual termination in the limited sense that it is part of the agreement from the outset. The word may also be construed as applying to a discharge of a contract by agreement or by abandonment which may be taken to amount to the same thing. Its meaning in cl 8.6 depends upon the language of that clause and related clauses of the Agreement. It is also to be construed by reference to the context of the Agreement as a whole.
173 Clause 8.1 of the Agreement concerned the circumstances in which Energy could terminate summarily Martech's services. None of those circumstances applied in this case. Clause 8.2 allowed Martech to terminate the Agreement in the event of Energy suspending payment or compounding with its creditors or assigning its estate for their benefit. That circumstance did not exist either. Clause 8.3 limited the power of both Energy and Martech to terminate for breach of obligation by requiring that the party in breach be served with a notice requiring rectification and allowing 30 days for that to occur. Clause 8.5 allowed Martech to 'terminate its services' on three months' written notice.
174 If the Board of Energy had resolved to dismiss Mr Brand as managing director other than for any of the reasons set out in cl 8.1 that could be taken as a repudiation of the Agreement and, if accepted by Martech, a termination of the Agreement giving rise to the entitlement to a payment under cl 8.6. If Energy declined to renew the term of the Agreement at its expiry, that too would give rise to an entitlement to the fee under cl 8.6. In each of these cases cl 8.6 had work to do. Each involved termination by Energy of its relationship with Martech.
175 The question arises whether by cl 8.6 Martech was entitled to a termination payment in the event of a discharge by agreement. Absent clear words, I do not construe cl 8.6 as extending to such a case. The bases and terms upon which parties to an agreement may agree to discharge it are many and various. The extension of cl 8.6 to mandate a very substantial payment in the event of an agreed discharge of the parties' contractual obligations would impose a requirement on the parties as to the terms on which they may so agree. Even if cl 8.6 expressly applied to a discharge by agreement, it would be open to the parties by agreement to discharge that obligation along with all the others. Indeed so to construe cl 8.6 is to give it, in its application to an agreed discharge, an operation rather like that of an agreement to agree. Such an agreement is not a contract. I accept in so saying that it may theoretically be possible to create an entitlement to a termination payment which vests, pursuant to the Agreement, upon the external event of a later agreement to discharge. I do not accept, however, that cl 8.6 so operated.
176 The basis upon which the Agreement was discharged did not include any obligation to pay a termination fee. Whatever the terms of the New Contract which supplanted the Agreement it included Mr Brand's continuance as an executive director, initially at the fee he was then being paid as managing director. That was a rate which he himself proposed and subsequently reduced to $240,000 per annum with effect from 1 October 2000. There was no suggestion in the discussion leading up to the Board's resolution of 29 September 2000, nor in the terms of the Board's resolution, that Martech was to be afforded a Termination Payment under cl 8.6. That would have been a very considerable sum. Mr Brand did not, on behalf of Martech, purport to reserve any rights with respect to a Termination Payment.
177 In my opinion, cl 8.6 of the Agreement did not entitle Martech to a Termination Payment upon a consensual termination. The claim for such a payment flowing from the resolution of 29 September 2000 therefore fails.
Claim for Termination Payment on the basis that the Agreement or the New Contract was terminated on 24 October 2001
178 The Agreement of May 1999, having been terminated on 29 September 2000, no claim based on its termination as at 24 October 2001 can succeed. Nor, in my opinion, can any such claim succeed on the basis that it was the New Contract that was terminated. Accepting that a New Contract did come into existence after 29 September 2000, albeit that its precise terms evolved over a period of time, I am not satisfied that those terms included a Termination Payment provision along the lines set out in the Agreement. There was never any agreement to that effect.
179 In any event, the claim for a Termination Payment arising out of the events of 24 October 2001 rests upon the premise that Mr Elliott effectively removed Mr Brand from office as a director of Energy by advising him that he would not support his re-election at the annual general meeting of 30 November 2000. Martech alleged that the request that Mr Brand withdraw his nomination as a director was a repudiation of the Agreement or of the New Contract and that Martech accepted that repudiation.
180 For reasons set out earlier, I am not satisfied that Mr Elliott did, as alleged, unequivocally withdraw his support for Mr Brand or indeed that Mr Brand's decision was based upon a belief that Mr Elliott had done so. I find that Mr Brand reached the decision, on his own, to withdraw on the basis that his position as a director was no longer tenable.
181 There was no termination by Energy on 24 October 2001, either of the original Agreement which, in any event, had been terminated, or of the New Contract. The claim for a Termination Payment based on alleged repudiation of the Agreement and, alternatively, the New Contract by Energy fails.
Claim in contract for payment for termination on account of misleading Prospectus and unlawful non-disclosure by Energy
182 It was said by Martech to be an implied term of the Agreement of May 1999 that it could terminate the Agreement if the affairs of Energy were conducted in a manner contrary to the Corporations Act 2001 (Cth) (the Act) or the ASX Listing Rules, or in a manner which might result in Mr Brand incurring personal liabilities. (s/c 5.2) Martech alleged also that the New Contract contained the same implied term. (s/c 18A)The existence of the implied term was denied in Energy's defence.
183 Martech alleged that the Prospectus issued by Energy on 29 October 2001 was misleading for failing to disclose that Mosbacher was entitled, upon service of a Withdrawal Notice, to sell the Participating Interest held by EEIP. This was said to be a contravention by Energy of s 728 of the Act exposing Mr Brand as a director to personal liability by virtue of s 729 (s/c 20-20D). Martech also alleged that by negligently failing to notify the ASX of the information about the effect of the Withdrawal Notice, Energy contravened s 1001A(2) of the Act (s/c 20E-20K). The implied terms pleaded were thereby breached and Martech was said to have been entitled to terminate the Agreement (and/or presumably, although it is not pleaded, the New Contract). This was done by Mr Brand's withdrawal of his nomination on 24 October 2001 and his later resignation as a director of Energy. On that basis, it was said, that Martech became entitled to the Termination Payment. The quantum claimed was the Fee for a further 22 months, being $989,326.25 exclusive of GST and allowing for a contractually agreed CPI adjustment (s/c 22).
184 Martech argued in its closing submissions that the Agreement and/or the New Contract should be construed so as to have entitled Mr Brand to resign as a director of Energy if he genuinely (and reasonably) held the view that the effect of the Actand the ASX Listing Rules, required disclosure of the Mosbacher Withdrawal Notice and that Energy's Board had decided, or would decide, not to disclose it. The Agreement, contained an implied term to that effect. The implication so submitted was considerably wider than that pleaded.
185 It was further submitted that neither the Agreement nor the New Contract should be construed as disentitling Martech to the Termination Payment if Mr Brand's resignation was on account of his exposure to liability as a consequence of a breach or reasonably apprehended breach of the Act or of the ASX Listing Rules.
186 I do not accept that there was ever, in the Agreement of May 1999 or in the contractual relationship which followed it, an implied term of the kind relied upon by Martech. As pleaded in relation to the Agreement, the implied term conferred an unqualified right to terminate in the circumstances that the affairs of Energy were conducted in a manner contrary to the Act or the ASX Listing Rules or in a manner which might result in Martech or Mr Brand incurring personal liabilities. But Martech's right to terminate under the Agreement was dependent upon Energy being in breach of its obligations under the Agreement for a continuous period of 30 days and upon Martech serving a notice of such breach. Clause 8.3 was expressed to be exhaustive of the circumstances of the conditions for a non-consensual termination of the Agreement. It opened with the words, 'The Company or the Manager can only terminate the Agreement if all of the following provisions are complied with' (emphasis added).
187 No implied condition of the kind relied upon having existed in the Agreement, there is no basis for saying that any such term was to be carried over into the succeeding contractual relationship. In my opinion therefore, whatever may be said of the conduct of Energy in relation to non-disclosure, there was no event which entitled Martech to terminate and claim a Termination Payment. Moreover there was no agreed Termination Payment provision under the contract which succeeded the Agreement. And Mr Brand's decision to resign 11 days early was made of his own accord. It did not flow from any act on the part of Energy. His services were not terminated by Energy. This aspect of the claim fails.
188 Although it is not necessary to do so for present purposes, I refer to evidence adduced by Martech on the question of non-disclosure from Mr Peter Strachan. Mr Strachan has had seven years experience in the mining industry and 22 years in the finance industry as a corporate analyst, stockbroker, investor relations manager and corporate executive.
189 Mr Strachan expressed the opinion that a reasonable person with information about the service of the Withdrawal Noticeon EEIP by Mosbacher in September 2001 would expect it to have had a material effect on Energy's share price. He pointed out that in November 2001 EEIP had a market capitalisation of about $45 million to $50 million. Its balance sheet for 30 June 2001 showed shareholders' equity of $125.5 million, a deficit of working capital of $85.4 million and total assets of $255.1 million.
190 In its prospectus Energy disclosed that its share of hydrocarbon reserves in the PY-1 Gas Field was about 111 billion cubic feet of gas. The company had previously announced that gas reserves from the PY-1 project were being positioned with potential buyers wishing to use that gas to fuel power generation plants in India. Energy had announced its intention to sell this 35% interest in order to reduce its debt level.
191 In Mr Strachan's opinion, based on the numbers supplied in Item 14 of the company's financial year 2001 accounts, a reasonable person would have concluded that the company's book value for its 35% interest in the PY-1 Contract Area from which it was asked to withdraw, was $13.5 million. Furthermore, a reasonable person could expect that if information about the Withdrawal Notice were available to the market, analysts and sophisticated investors would have been able to compare the value of the PY-1 Contract Area with the price of similar assets in the region and conclude that by losing the asset Energy would lose value of between $25 million to $35 million. That would assume a selling price of around $0.25 million to $0.35 million per billion feet of gas in the project as it stood undeveloped.
192 Mr Strachan expressed the opinion that a reasonable person could have concluded that the company's market value would have had the potential to fall by between $13 million and $25 million representing a fall of between 29% and 45% from Energy's prevailing market capitalisation.
193 He also expressed the view that an investor may have been misled by the company's announcement in the Prospectus of 29 October 2001 qualifying its 35% interest in the PY-1 Contract Area. Mr Strachan said he believed that a reasonable person would assume that the statement implied the asset had not been finally lost and that there was some mechanism by which the asset might be retrieved by the company.
194 As I have already said, it is not necessary to resolve this question. I am of the view that Energy's failure to make an early specific announcement to the ASX in relation to the Withdrawal Notice was based on an overly optimistic view of its ability to negotiate out of the problem with Mosbacher. In my opinion, however, it is undesirable to explore at large the question whether Energy was guilty of a breach of either the Act or the ASX Listing Rules. The information said not to have been disclosed was narrowly defined in par 20A of Martech's statement of claim as follows:
'Under the terms of the Joint Venture Operating Agreement referred to at paragraph 20.2 Mosbacher India LLC was entitled, having served a Withdrawal Notice, to sell the participating interest held by Energy India in the PY-1 Gas Field, without Energy India's consent.'
This was a statement about an entitlement which was, as it turned out, affected by Indian law. The truth of the proposition pleaded in par 20A was not established at trial. And as it turned out when the dispute between Mosbacher was arbitrated the London Court of International Arbitration held that the article of the agreement entitling Mosbacher to sell EEIP's interest in the PY-1 Gas Field was a penalty within the meaning of s 74 of the Indian Contract Act. The truth of the proposition pleaded in par 20A as a matter of fact and law was not established. It is that proposition, which it is alleged should have been disclosed. Such evidence as there was indicated that the proposition may not have been true. I am satisfied therefore that there was no misleading or otherwise contravening non-disclosure in the terms pleaded in the amended statement of claim. That is not to say that the risk of a loss of the interest in the PY-1 Gas Field to which the Withdrawal Notice gave rise, should not have been disclosed to the ASX. But that is a different question.
Claim for a termination payment on the basis of termination on 20 November 2001
195 In par 21B of the amended statement of claim it is alleged that Mr Jordan, on 20 November 2001, informed Mr Brand orally that Martech should cease to provide its services which it did. In the premises it is said Martech became entitled to a Termination Payment, namely the payment of the Fee for a further 22 month period. Alternatively, it is said that Mr Jordan's conduct attributable to Energy, was a repudiation of the New Contract. It was a repudiation which Martech accepted and on the basis of which the New Contract was terminated giving rise to an entitlement to the Termination Payment. This claim is answered by findings I have already made about the absence of any Termination Payment provision in the so-called New Contract. In any event, Mr Brand had tendered his resignation effective the previous day, that is 19 November 2001 as a director of Energy and associated companies. He, and Martech through him, had unilaterally decided to terminate the provision of his services. There is no basis for the claim made under this head.
Conclusion
196 For the preceding reasons, I am satisfied that Martech has made out a claim for $71,663.65, being the shortfall in fees payable during the period 1 March 2000 to 30 September 2000. Martech will also be entitled to interest, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), calculated from 30 September 2000 to the date of judgment. Martech's claim is otherwise dismissed.
Pre-judgment interest
197 Pre-judgment interest is claimed under s 51A of the Federal Court Act. Whether such interest should be awarded, what the rate of such interest should be and from when it should be award are matters within the discretion of the Court subject to the provisions of s 51A. In this case the entitlement to the shortfall of fees may be seen to have existed as at 30 September 2000. However, there was a continuing unilateral reduction of fees by Martech well beyond that point. No suggestion was made that the shortfall would be subject to interest charges. I am inclined to think that if pre-judgment interest is to be awarded, it should be from the commencement of these proceedings. However, I will give the parties an opportunity to put submissions in that respect.