MONTAGUE MINING PTY LIMITED v PETER L GORE, MICHAEL J MORROW, GEOFFREY N HARLEY, JEREMY C CHARLSTON, PAUL H CORBIERE, MICHAEL O KLUG, JOHN D ELLIOTT, DAVID G COMINOS, ROSS G PERRETT, DARRYL D McDONOUGH, TIMOTHY D FERRIER, CHRISTOPHER T COYNE, ROGER I BURNELL, RANDAL J DENNINGS, ALAN H MAGUIRE, ARCHIBALD FLETCHER, LLOYD S NASH, BRIAN C NOBLE, SIMON W LAND, DALE S BRACKIN, PAUL C CALLAGHAN, SALLY A PITKIN, BRIAN J CONRICK, KAREN M TRAINER, RUTH A COPELIN, ROGER V BYRNE, MARK W WALLER, JOHN D POWELL, ANDREW W SMITH, JENNIFER A Mcveigh, anne milner AND darren b fooks, TRADING AS CLAYTON UTZ,

AND: PETER L GORE, MICHAEL J MORROW, GEOFFREY N HARLEY, JEREMY C CHARLSTON, PAUL H CORBIERE, MICHAEL O KLUG, JOHN D ELLIOTT, DAVID G COMINOS, ROSS G PERRETT, DARRYL D McDONOUGH, TIMOTHY D FERRIER, CHRISTOPHER T COYNE, ROGER I BURNELL, RANDAL J DENNINGS, ALAN H MAGUIRE, ARCHIBALD FLETCHER, LLOYD S NASH, BRIAN C NOBLE, SIMON W LAND, DALE S BRACKIN, PAUL C CALLAGHAN, SALLY A PITKIN, BRIAN J CONRICK, KAREN M TRAINER, RUTH A COPELIN, ROGER V BYRNE, MARK W WALLER, JOHN D POWELL, ANDREW W SMITH, JENNIFER A Mcveigh, anne milner AND darren b fooks

REASONS FOR JUDGMENT WILCOX J: These reasons for judgment concern issues of the first respondents' liability for negligence and breach of contract, raised in an action for damages instituted by the applicant, Montague Mining Pty Limited ("Montague"). Montague says the first respondents breached their obligations, as its solicitors, in relation to a mining venture in the Republic of the Philippines. In particular, Montague says the first respondents failed to safeguard its interest when advising about the preparation and execution of two documents: a memorandum of agreement ("MOA") with Filipino parties and a joint venture agreement with Spinifex Gold NL ("Spinifex"), the second respondent.

The proceeding The proceeding was instituted on 16 July 1997 when Montague filed an Application naming, as first respondents, the partners in the legal firm Clayton Utz and, as second respondent, Spinifex. In a Statement of Claim filed on the same day, Montague pleaded against the first respondents - to whom I will refer as "Clayton Utz" - causes of action in negligence, breach of contract, breach of fiduciary duty and contravention of s 42 of the Fair Trading Act 1987 (NSW). As against Spinifex, Montague alleged a contravention of s 52 of the Trade Practices Act 1974. It also charged both respondents with conspiracy. Preparation of the case was complicated, and perhaps delayed, by various interlocutory applications by the respondents. On 19 December 1997, at the request of Montague's solicitors, I ordered the issue of a Letter of Request directed to the Regional Trial Court of Manila for evidence to be obtained in the Republic of the Philippines by the production of certain documents. As I understood the position, these documents primarily concerned the applicant's case against Spinifex. However, shortly after that date, Montague and Spinifex came to an agreement. As a result, on 2 February 1998, I made a consent order dismissing the proceeding as against Spinifex. I also ordered, by consent of Montague and Clayton Utz, that, as between them, the question of damages be determined separately from, and following, determination of the question of liability. I specified dates by which both parties were to file statements setting out the evidence-in-chief of their witnesses. Both parties did file statements. On Montague's side, they included a statement of Paul Montague Williams, the company's sole shareholder and director. At the trial, however, counsel for Montague, Mr M A Pembroke SC and Mr R Bromwich, elected not to call Mr Williams. They contented themselves with presenting a documentary case, supplemented only by the tender of the evidence of a solicitor, Tony Joseph Wassaf, who was not required for cross examination. Counsel for Clayton Utz, Dr G Flick SC and Mr D Pritchard, tendered the statement of Peter Lewis Gore, the partner in Clayton Utz responsible for the work done by that firm on behalf of Montague, who was cross examined, and other documentary material. In his opening address, Mr Pembroke indicated his client wished to confine its case to the allegations of negligence and breach of contract. He particularised his client's claims. I will refer to them after outlining the facts. The MOA Mr Williams is a mining entrepreneur. In 1996 he incorporated or purchased Montague. It has a paid up capital of one dollar. Mr Williams used Montague as his corporate vehicle for pursuing a gold mining prospect in the Philippines. That prospect related to two areas held under Mineral Production Sharing Agreements, one containing some 405 hectares and held by Diotrepis M Bautista, the other containing 456 hectares and held by Estrella F Bautista. Mr and Mrs Bautista controlled a company called Dopester Minerals Inc. At the hearing, counsel referred to Mr and Mrs Bautista and their company, collectively, as "the Filipino parties". I will follow that course. It is not clear when Mr Williams first came into contact with the Filipino parties. However, it seems probable he knew of them, at least, by 26 September 1996. On that day Mr Williams met Mr Gore for the first time when he visited the Brisbane office of Clayton Utz in company with a man named Mitch Garbutt. It seems Mr Williams was referred by Peter Heffernan of Ernst & Young, accountants. Mr Heffernan had told Mr Gore Mr Williams was a client of Ernst & Young who was looking at gold projects in the Philippines and that he (Heffernan) had referred Mr Williams to Clayton Utz "for legal advice on documentation" of any Philippines project. Mr Gore was then a very experienced solicitor, especially in the field of resources law. He had practised as a solicitor since 1967 and specialised in resources law since 1970. Mr Williams told Mr Gore he was going to the Philippines to look at possible projects and might need to obtain legal advice while there. There was discussion about the identity of suitable lawyers. Mr Williams asked Mr Gore to give him a letter confirming Clayton Utz were his Queensland solicitors, for production to any Filipino lawyers he might need to contact. Mr Gore said he would have a letter ready the following day and mentioned a possible contact in Manila. On the following day Mr Williams collected a letter signed by Mr Gore on behalf of Clayton Utz. It referred to the firm as "your solicitors in Queensland" and mentioned a Filipino law firm. Mr Gore enclosed two brochures concerning Clayton Utz, which he described in his letter as "one of Australia's leading law firms" with over 150 partners and offices in six cities. On 11 October 1996 Mr Williams and Mr Garbutt again visited Clayton Utz's office and saw Mr Gore. Mr Williams told Mr Gore he was "excited about the potential for Bautista's projects and that he had visited the site". A discussion ensued which Mr Gore described in these terms: "There was then a general discussion about the maps which Mr Williams had and the representations on the maps of the various potential areas. Mr Williams said: 'I want to get an option for a 70/30 percent joint venture with Bautista, with Montague to have 70 percent interest. However, I understand that there is some problem with foreigners owning 70 percent. Approval is required from the Bureau of Investment. I want to secure the contract with the Bautistas and then float the company at an appropriate time. Ron Tucker is the geologist retained by us. He has provided a very favourable report. Dopester Minerals Inc., which is the holder of one of the MPSAs, is owned by Bautista. In the agreement I want an option over any additional exploration areas which Bautista may acquire. I've found out that there is some litigation involving Bautista and a Western Australian company called Climax. I understand that the solicitors you recommended to us in the Philippines may be acting for Climax.' I said I would check that out. Mr Williams said: 'Originally Bautista was only prepared to give me 60% but when I said I would be responsible for the technical and management aspects of the project without any fee, Bautista agreed to me holding an additional 10%, giving Montague Mining 70% in all. Montague Mining will put up the capital until the project is commercial.' I said: 'I'll have to check on the legal position with the Philippines solicitors in relation to the foreign ownership issue and then we'll have to check that the titles are valid by having the Philippines solicitors carry out due diligence investigations. We'll have to ascertain how you can formalise the joint venture for a mining project in the Philippines in which Montague Mining will hold a 70% interest in view of the possible foreign investment restriction.' Mr Williams said: 'Yes there is some new legislation which has got some relevance. I've offered to pay one million pesos cash up front.' I said: 'We'll probably need about 30 days to complete due diligence on the mining titles. It would be preferable not to make any payment until that has been completed.' Mr Williams said: 'The joint venture when formed will carry out further exploration work but I am already satisfied from what I have seen that the ore is there.' Mr Williams said: 'I understand that 2% of the gross output of gold from any mine goes to the Philippine Government.' I said: 'If Bautista cannot afford to contribute to further exploration, what happens?' Mr Williams said: 'Montague Mining would fund exploration.'" After reference to other matters, Mr Gore said he would prepare a draft contract and fax it to Mr Williams for his consideration. Mr Gore has a diary note of this interview. It includes the words: "Ron Tucker was a geologist retained by Montague who had looked at the relevant areas and according to Williams had provided a very favourable report on the ore. Williams was enthusiastic about the project. Williams wanted to get a contract with the Filipino parties and at some appropriate stage float Montague on the stock exchange. In my discussions with Williams the timing of any such float was to be when the deposit had been proved up to be commercially viable. Until that had been done it was to be Montague's responsibility to fund the project. Williams never indicated any concern about his capacity to arrange the funding for exploration costs." Mr Gore also made a note recording that two payments, of one million pesos (about A$50,000) each were to be made to the Filipino parties; one immediately after the agreement was made and the other six months after the first production of gold. Towards the end of his note, Mr Gore wrote "Montague will float its 70% - how can new entity from float be recognised". He explained in his statement that his query was as to "what sort of entity could be set up in the Philippines to hold Montague's 70% interest in such a way that it could be floated in Australia". The firm of Filipino lawyers first suggested by Mr Gore apparently had a conflict of interest. So Mr Gore retained another firm, Carag Caballes Jamora and Somera, to act as his agents on behalf of Montague. During a meeting with Mr Williams on 22 October 1996, Mr Williams telephoned Carlo Carag, a principal of that firm. Mr Gore put his telephone on speaker function so Mr Williams could hear the conversation and asked Mr Carag the legal requirements for Montague to obtain a 70% interest in "the proposed joint venture". Mr Carag replied: "You should be aware that under the law of the Philippines a foreigner cannot hold directly or indirectly more than 40% in any Philippines mining venture. However there is an exception to this rule. If the Philippines Government approves an FTAA, that is, a Financial or Technical Assistance Agreement, in respect of a particular project, then a foreigner may own 70% or indeed more, of that particular venture. Application for approval of an FTAA is made once the foreigner and the Filipino parties have negotiated the terms on which the foreigner will provide financial and technical assistance to the Filipino parties. It is that financial and technical assistance which may be considered by the Government as justifying the foreigner holding more than 40% in the particular venture." Mr Carag promised to ascertain the extent of Montague's expenditure obligations under an FTAA and said he would need 30 days to complete due diligence inquiries in relation to the mining titles. After termination of the conversation with Mr Carag, Mr Gore said to Mr Williams: "It is apparent from what Mr Carag says that Montague can only obtain a legally enforceable interest of 70% in Bautista's project when an FTAA has been approved by the Philippines Government. Until that happens, the best we can obtain, from a legal point of view, is an agreement under which Montague and Mr Bautista agree to negotiate an FTAA. Whilst such an agreement is probably not legally enforceable, it is the best position Montague can hold and, in practice, is probably likely to achieve your objective of committing Bautista to Montague to the exclusion of other potential mining companies pending negotiation of the FTAA." Mr Williams replied: "I understand the position and if that is the best we can do then that is how we will have to proceed. A 40% interest is unacceptable to me. There is a high degree of urgency because of the fact that other mining companies are approaching the Bautistas, so can you have a draft agreement prepared in the next few days? I am keen to get the Bautistas signed up as soon as possible." Mr Gore suggested Mr Williams take the negotiating position with Mr Bautista that he would not pay him the initial one million pesos until 60 days after the FTAA was approved. Mr Williams agreed. In the course of checking his notes of his earlier meeting with Mr Williams of 11 October, Mr Gore said to Mr Williams: "Paul, you've told me previously that Montague is to be responsible for providing finance for the initial development of the project - is that correct?" Mr Williams answered "Yes". On 23 October Mr Gore forwarded to Mr Williams a draft MOA. He sent copies to Mr Carag and Mr Bautista. It seems all three recipients of the draft made comments about its terms. It subsequently underwent several revisions, the detail of which is not important. At about this time, a solicitor employed by Clayton Utz, Julie Brown, became involved in the matter, as Mr Gore's assistant. Also about this time, Mr Gore received some information about Mr Williams' financial resources. On 25 October Mr Heffernan sent Mr Gore a fax in which he said: "Just a note of caution as you will have no doubt guessed. Paul Williams is a Entrepreneurial individual and I cannot say with confidence all of his ideas will come off. He does not have a lot of personal wealth and I would advise that you secure your fees if these are likely to be significant." Mr Gore wrote on the fax the words: "Peter Many thanks. Understand your message. Regards", signed his name and faxed this back to Mr Heffernan. Mr Gore was in India from 30 October to 9 November. Two days after his return to Brisbane, he had a meeting with Mr Williams during which Mr Williams told him a related company, Promet Pty Ltd, would be retained to carry out exploration work on the tenement; this would involve drilling some 2,000 holes. When Mr Pembroke suggested to Mr Gore during cross examination that, in November 1996, he "had some idea of the cost of drilling holes", Mr Gore agreed he had "some idea" and said: "It costs more than $1,000, I would think, but exactly how much, I don't know". He explained he meant $1,000 per hole. Following this meeting, Mr Gore sent to Mr Bautista a copy, signed by Mr Williams, of the revised MOA. However, Mr Bautista requested further amendments and a further engrossment was sent. It was signed on 20 November. The MOA contained several recitals. Recital A read: "Montague is experienced and has the capability (financial and technical) in carrying out gold mining operations and the treatment of gold bearing ores so as to produce gold metal." Recital B referred to the tenement held by Mr Bautista (referred to as "DMB") and recital C to that of Mrs Bautista ("EFB"). Recital D referred to a pending application by Dopester Minerals ("DMI") which, if approved, was to form part of the agreement. Recitals E and F read: "E. Montague, DMB, EFB and DMI wish to enter into a Joint Venture Agreement ('JVA') and a Financial or Technical Assistance Agreement ('FTAA') in respect of the areas referred to in Recitals B, C and D on the basis that Montague will hold a 70% interest in each and all of those areas through a project vehicle or structure to be agreed between the parties. The remaining 30% interest in the project will be held by DMB, EFB and DMI in such manner and in such respective interests as they may agree and such interest shall be considered a fully paid interest in the project. Until an application for an FTAA is filed, the Filipino Parties will hold a 60% interest in the project and Montague will hold a 40% interest in the project. When the application/conversion for the FTAA is filed, the Filipino Parties will assign to Montague an additional 30% interest in the project so that Montague will hold a 70% interest in the project. F. Montague shall undertake and shoulder the costs and expenses for the exploration with detailed geological studies and/or report with a view to bringing the above-mentioned contract areas into Bankable Project within 2 years PROVIDED THAT if Montague does not bring the above-mentioned contract areas into Bankable Project within 2 years it shall otherwise be entitled to under this Memorandum of Agreement. The contract areas shall be brought into Bankable Project upon Montague's satisfaction that the project is feasible from an economical, geological, metallurgical and environmental perspective as audited and confirmed by independent sources." It is not necessary to set out all 12 clauses of the agreement. Those considered by the parties to be relevant to this case read: "1. The parties shall as soon as possible after execution of this Memorandum of Agreement negotiate the terms of a JVA and FTAA, execute the JVA and FTAA so agreed and apply for all necessary approvals of the relevant Departments of the Philippines Government for the NVA and FTAA or for conversion with respect to the areas referred to in Recitals B and C. Upon notorisation of each of the contract areas referred to in Recital D, an application shall be made for all necessary approvals of the relevant Departments of the Philippines Government for inclusion in the FTAA. 2. … 3. Within 30 days after the execution of this Memorandum of Agreement, Montague shall pay to the Filipino Parties by way of loan in such manner and in such proportions as the Filipino Parties may direct in writing the sum of 1,000,000 pesos. If the payment of 1,000,000 pesos is not made within the said period of 30 days, Montague shall be in breach of this Memorandum of Agreement and Montague will remain liable to pay the 1,000,000 pesos to the Filipino Parties. Montague shall pay to the Filipino Parties by way of loan in such manner and in such proportions as they may direct a further sum of 1,000,000 pesos in the first to occur of: (a) the approval of the conversion/application for the FTAA by the relevant Departments of the Philippines Government; and (b) six months after the application/conversion for the FTAA is filed. When first commercial production of gold is achieved pursuant to the FTAA, the aggregate amount so advanced by Montague to the Filipino Parties shall be repaid to Montague together with interest at such rate and on such terms of payment as are agreed in the FTAA. The amount so owing together with interest shall be a first charge on the Filipino Parties' share of production of gold from the project assets. 4. Montague shall be the manager and operator for the projects to be undertaken under the FTAA and shall provide all technical assistance to the project. In consideration of Montague agreeing at no charge to act as manager and operator for the project and to provide all technical assistance to the project, the Filipino Parties have, subject to the filing of an application for a FTAA, agreed to Montague holding a 70% interest in the project instead of a 40% interest. All costs and expenses incurred by Montague as operator and manager and by way of technical assistance shall be a charge on the joint venture and recoverable as provided in the FTAA. If the application for the FTAA is not approved within 12 months from the date of application therefor, Montague shall be entitled to a 40% interest in the project and the Filipino Parties shall be liable to pay to Montague the amounts calculated in accordance with clauses 3, 4, 5 and 6 on the basis that they hold an aggregate 60% interest in the project. 5. Montague shall be responsible for providing all finance for the initial development of such of the project assets as Montague determines with a view to achieving commercial production of ore at a rate of not less than 500,000 tonnes per annum. The costs to be financed: (a) include exploration, geological, metallurgical, construction and operating costs incurred prior to a project achieving commercial production of ore at a rate of not less than 500,000 tonnes per annum; but (b) do not include the value of the Filipino Parties' 30% interest in the project. At the request of Montague, the parties shall make available the project assets by way of security to support any borrowings arranged by Montague for the purposes of development of the project assets. The Filipino Parties shall be deemed to have been lent by Montague an amount or amounts equal to 30% (or 60% if the last sentence in clause 4 applies) of the construction and operating costs of a project as and when those costs are incurred by Montague unless those costs are financed by borrowings secured on the project assets. The exploration, geological, metallurgical and other costs necessary to produce a Bankable Project shall be met by Montague. The amount so owing by the Filipino Parties to Montague shall when first commercial production of gold is achieved be repaid together with interest at such rate and on such terms of payments as are set out in the JVA. The amount so owing together with interest shall be a first charge on the Filipino Parties' share of production of gold from the project assets. When commercial production of ore at a rate greater than 500,000 tonnes per annum is achieved, Montague and the Filipino Parties shall thereafter be responsible for funding the project capital and operating costs in accordance with their respective project percentages. 6. … 7. … 8. … 9. Pending negotiation of the FTAA, the Filipino Parties shall permit Montague to have access to the project assets to carry out such investigations, geological surveys, drilling operations and feasibility studies as Montague may require. All such operations shall be at Montague's own expense but such expense shall be included as project capital costs for the purposes of the FTAA. 10. Montague and each of the Filipino Parties shall keep all information relating to the project confidential and shall not disclose that information to any third party without the approval of the other parties unless required to do so by law. If Montague wishes to raise funds for the project privately or on the Australian Associated Stock Exchanges, it may disclose such information relating to the Project as it requires for that purpose. 11. … 12. If notwithstanding their best endeavours to negotiate in good faith a mutually agreeable FTAA the parties have not agreed and executed an FTAA within 6 months from the date of this Memorandum of Agreement, then either party may notify the other or others in writing that it no longer wishes to be bound by this Memorandum of Agreement. If any such notice served, the parties shall no longer be bound to each other by this Memorandum of Agreement or on any other basis." Mr Gore sent a copy of the MOA to Mr Carag. On 29 November Mr Carag responded with a fax to Mr Gore in which he said he had "gone over" the document and was pleased Montague "has been able to tie in the Filipino parties to an arrangement that we consider to be valid and enforceable under Philippine law".

Montague seeks investors In the period immediately before execution of the MOA, Mr Williams contacted a number of mining companies with a view to eliciting interest in the venture. Mr Gore knew of this activity; at least in part. On 18 November Mr Williams told him he had spoken to John Lynch, of Werrie Gold Limited, about the possibility of that company taking an equity (up to 30%) in the project. Mr Gore agreed under cross examination that he knew Werrie Gold was an established mining company with substantial resources that "dwarfed" those of Montague; indeed, he knew Montague had no financial resources. On 28 November Mr Gore and Mr Williams attended a meeting with Mr Lynch and another representative of Werrie Gold. Mr Lynch expressed concern about aspects of the project but did not reject the possibility of participation. He said he would want a majority or controlling interest in any project. There was apparently no discussion about how this might be achieved, or the terms or effect of the MOA. It seems Mr Williams visited the Philippines for a few days in early December. Apparently, he was back in Australia by 12 December. On that day he rang Mr Gore and asked him to prepare an agreement under which an investment group, "the Ellis syndicate", would purchase 1% of the shares in Montague for $25,000. Mr Gore drafted such an agreement but recommended Mr Williams consider substituting an arrangement for a 1% net profit royalty. Mr Williams was attracted by this idea and had Mr Gore fax him the essential wording of such an agreement. Shortly after that date, Montague executed an agreement with the Ellis syndicate under which the syndicate was required to make an immediate payment of $25,000.

Spinifex Mr Williams also had discussions with Ron Gajewski, a director of Spinifex. Spinifex was a Perth-based mining company that had recently been listed on the Australian Stock Exchange. Mr Williams asked Mr Gore to send Mr Gajewski a copy of the MOA. Mr Gore did so, on 16 December 1996. That afternoon Mr Williams came to Mr Gore's office and handed him correspondence that had passed between Montague and Spinifex and an agreement signed by two directors on behalf of Spinifex. The agreement was not yet signed on behalf of Montague. It read: "1. The parties ('Montague' and 'Spinifex') shall as soon as possible after execution of this Memorandum of Agreement negotiate the terms of a JVA, and further negotiate the terms of JVA and FTAA with the ('Philippine Party') so agreed and apply for the JVA and FTAA or for conversion with respect to the areas referred to in recital B. 2. Montague represents and warrants to Spinifex that it has good and valid title to the contract areas which are held under the Memorandum of Agreement signed with the Philippines Parties 20th November, 1996. 3. Montague represents and warrants to Spinifex that it can assign in the form of a Joint Venture to Spinifex any portion of its interest. 4. Spinifex to pay $25,000 to the Philippine Party by no later than 2.00 pm (W.S.T.) on Monday 16th December 1996. 5. Spinifex to pay $100,000 option fee to Montague by no later than 31st December 1996 subject to satisfactory due diligence and site visit." [Recital B does not appear on the copy of the agreement that is in evidence.] Mr Williams explained to Mr Gore that the $25,000 payable under clause 4 would be combined with the $25,000 payable by the Ellis syndicate to obtain the funds necessary for Montague to make its initial one million pesos payment to the Filipino parties. Mr Gore gave evidence that he read the agreement and commented that clause 3 provided a warranty of assignability of Montague's interest in the project. He said he told Mr Williams: "That will require the consent of the Bautistas. You can't assign any interest without their consent" and Mr Williams replied "That won't be a problem. I can arrange that with the Bautistas. I'm sure that they will consent". Mr Gore said he advised "Well if you can't obtain their consent that will be a breach of your contract with Spinifex". After discussion about other matters, Mr Williams signed the agreement on behalf of Montague. Mr Gore witnessed his signature. Apparently Spinifex and the Ellis syndicate each made their $25,000 payments and Montague paid one million pesos to the Filipino parties. On 18 December Mr Williams visited the Philippines with Klaus Eckhof of Spinifex. On 24 December, the day following his return, Mr Williams came to Mr Gore's office with a bottle of champagne and a cheque for outstanding legal fees. He told Mr Gore the visit went well, Spinifex would proceed with the project and the Bautistas were happy to accept Spinifex into the project. Mr Williams gave Mr Gore a copy of a letter, dated that day, from Spinifex to Montague which read: "Further to our execution of the above agreement on the 16th December 1996, confirmation is hereby given that Spinifex will proceed with a Joint Venture between Diotrepis M Bautista, Estrella F Bautista, Dopester Minerals Inc and Montague. As consideration for this we will transfer $125,000 into your bank account today. This represents $100,000 option fee to Montague and re-imbursement of $25,000 paid to the Philippine Party. Also as per our telephone conversation Spinifex would be interested in acquiring an additional 9% of Montague's interest by way of option. Thought should be given by yourself to this idea so that some parameters can be set. As also mentioned whilst Spinifex's share price is at current levels there will certainly be more leverage if this is entered into sooner rather than later. The Directors of Spinifex look forward to meeting with you in the future and the finalising of the above Joint Venture."

The Philippines visit On 2 January 1997 Mr Williams forwarded to Mr Gore a draft joint venture agreement between Montague and Spinifex. Mr Gore made substantial revisions and faxed the result to Mr Williams. On the following day he wrote a letter to Mr Carag in which he set out his understanding of the then situation. The relevant section of the letter read: "I refer to our telephone conversation yesterday and confirm that Montague has entered into a Memorandum of Agreement with Spinifex Gold NL in relation to the contract areas under the Memorandum of Agreement between Montague and the Filipino parties. I attach for your information a copy of the Memorandum of Agreement executed by Montague and Spinifex. That MOA was negotiated in great haste in the space of a couple of hours. Therefore, its drafting is not as precise as we would have wished. However, it achieved the desired result of Montague securing payment to itself of $100,000 and the payment by Spinifex of $25,000 towards the initial payment to the Filipino parties under the Memorandum of Agreement between Montague and the Filipino parties. In addition, a net profit royalty was negotiated with another party under which Montague secured the payment of the remaining $25,000 to the Filipino parties. I understand the Filipino parties, at least Mr Bautista, have met with Klaus Eckhof of Spinifex and that in principle they have no objection to Spinifex participating in the Philippines Joint Venture. Paul Williams has had further negotiations with Spinifex. It has in principle been agreed that Spinifex will have the right to become a party to the Filipino Joint Venture and the FTAA immediately even though it may not earn its 51 percentage point interest for two (2) years. A copy of the points which were discussed between Paul and Spinifex are attached.. I understand all points were agreed except for the critical issue of payment (point 1.5) which issue is to be discussed further." The letter suggested Mr Carag should act on behalf of both Montague and Spinifex, in the Philippines. He commented: "As I see it at the moment, Spinifex probably has no right under the MOA it has executed with Montague to be involved in the negotiations for the FTAA as it has not yet earned its interest. However, that is a rather legalistic and unreal approach because in practice Spinifex will be funding all of the exploration work up to the point where a bankable project is achieved. For that reason Paul has agreed that Spinifex may participate in the negotiations and that Spinifex should have some type of conditional interest in the FTAA prior to its earning the 51 percentage point interest which Montague has agreed to give it upon the performance of its obligations under the MOA between Montague and Spinifex." Mr Gore enclosed some draft agreements and told Mr Carag he would arrive in Manila on 7 January. He asked Mr Carag to have a draft FTAA available for perusal that evening. On 6 January Mr Gajewski faxed a letter to Mr Gore confirming the terms upon which Spinifex would employ his services during the forthcoming trip to the Philippines. The letter stated "You will be employed to assist Spinifex in finalising Joint Venture documentation between Philippine Parties and the Australian entities". In his statement Mr Gore said "To the extent that it [the fax] suggests that I was retained by Spinifex alone, it is inaccurate". Mr Gore travelled to Manila on 7 January. He met Mr Williams, Mr Gajewski and Mr Eckhof for breakfast on the following day. Later that day all four men met Mr Dio Bautista and his son, Pablo. Mr Bautista asked "Why is Spinifex here? We're not clear about their involvement". Mr Williams spoke about Spinifex's financial capacity and exploration expertise but the Messrs Bautista were not persuaded of the merits of the proposed arrangement. The meeting adjourned until the evening. During the adjournment Mr Gore dictated a letter that Mr Williams typed on his laptop computer. The letter was addressed to Mr Dio Bautista. It argued the advantages of Spinifex taking an interest in the project and sought Mr Bautista's agreement to Spinifex taking 51%. The letter failed of its purpose. At the evening meeting Mr Dio Bautista produced a cutting from "The Australian" of 30 December 1996, sent to him by his daughter living in Perth. This cutting revealed the $100,000 payment by Spinifex to Montague. Mr Bautista expressed resentment about Montague making this profit, without having done any work on the lease, while he had received only $50,000. He said he did not wish to work any more with Montague; however, he was satisfied Spinifex had the necessary financial and technical capability and he was prepared to talk further with Spinifex. Messrs Bautista then left the room. On the following morning Messrs Williams, Gore, Gajewski and Eckhof again met for breakfast. Mr Gajewski said that, if the Bautistas agreed to Spinifex being involved, Spinifex would allow Montague to keep the money already received by it and would also issue shares to Montague by way of a finder's fee. Mr Williams agreed to this. There were further conversations between Mr Williams and Mr Dio Bautista but Mr Bautista maintained his refusal to deal with Montague. Mr Gore returned to Australia. Shortly afterwards Mr Bautista entered into an agreement with Spinifex.

Expert view As mentioned, counsel for Montague put into evidence an affidavit of Tony Joseph Wassaf. Mr Wassaf is a solicitor and member of the legal firm Allen Allen & Hemsley. Since 1981 he has worked extensively in resources law. He has prepared, reviewed and negotiated numerous joint venture agreements, farm in agreements, farm out agreements and sale and purchase agreements relating to mining tenements in Australia and other countries. Mr Wassaf said: "4. I am familiar with sale and farm in arrangements for mining tenements made by entrepreneurs with very limited capital. They typically secure tenements by a sale agreement with the tenement holder and then seek to bring in a mining company with sufficient funds to explore the tenements, pay the purchase price under the sale agreement with the tenement holder and prepare a bankable feasibility study. By doing so, the mining company earns a substantial interest in the tenements and leaves the entrepreneur with a minority interest (such as a 15% or 20% interest) in the tenements. In effect, the entrepreneur gains the minority interest for securing the title in the first instance without having to provide any additional funds up to the point of the bankable feasibility study. 5. If the entrepreneur indicates that he wishes to be involved in an arrangement involving the factors in 4 above, I would expect that the tenement sale agreement with the original tenement holder would contain a provision which would allow the entrepreneur to enter into farm in arrangements with a mining company in respect of the tenements without requiring the consent of the tenement holder (or, if the tenement holder insists, requiring consent of the tenement holder with that consent not being unreasonably withheld). In a recent sale agreement prepared for the Applicant for Zimbabwe mining tenements, I acted for the Applicant and included such a provision in that agreement. 6. It has been suggested that if there is a restriction on assignment of the tenements in the tenement sale agreement, it may be possible to avoid that restriction by transferring shares or subscribing for shares in the entrepreneur's company that is a party to the tenement sale agreement. In my experience, sale of or subscription for shares in the party to a joint venture agreement has been a common way for parties to avoid pre-emptive rights in that agreement and that once this avoidance measure started to become used, additional provisions were included in the joint venture agreements to negative that avoidance technique by providing that a change in control of a party triggers pre-emptive rights. If there is no change in control provision in a joint venture agreement in respect of a party, then dealing with shares in the company which is the party to the agreement would not be prohibited nor would it trigger pre-emptive rights. No such restriction exists in the Filipino Agreement." No challenge was made to Mr Wassaf's views or his qualifications to express them. In his evidence-in-chief, Mr Gore did not refer to Mr Wassaf's evidence but, in another context, he said this: "I agree that no advice was given to Mr Williams as to Montague's inability or otherwise to assign equity in the Philippines project to a third party. In my opinion, there was no ability to assign any equity in the Philippines project pursuant to the MOA. The MOA was only 'an agreement to agree' which, from the point of view of the Filipino parties, imposed some obligation to negotiate in good faith."

The issues As I mentioned, in his opening address Mr Pembroke particularised his client's claims. He did this by handing up a document entitled "Principal Elements of Claim". It reads: "1. The respondents acted as solicitors for, and assumed a duty towards, the applicant. 2. The respondents: (a) advised the applicant in relation to its entry into, and drafted, the Memorandum of Agreement dated 20.11.96 (the MOA); and (b) advised the applicant in relation to its entry into the Spinifex Agreement dated 16.12.96. 3. The respondents were negligent and in breach of their contract of retainer by: (a) failing to appreciate the significance of the incapability of the applicant (financial or otherwise) to perform its obligations under the proposed MOA and the proposed Spinifex Agreement and to give advice in relation thereto; (c) failing to ascertain the position under Filipino law and provide any advice to the applicant in relation to the need for the inclusion of a clause in the MOA entitling Montague (with or without conditions) to assign the whole of any part of its right, title and interest under the MOA. 4. As a result of the breach, the applicant was deprived of the opportunity of having a valid and enforceable agreement with the Filipino parties which would have entitled it (with or without conditions) to assign a part of its right title and interest under the MOA and to remain as a participant in the Filipines Gold Project as to its remaining interest in the MOA." Dr Flick and Mr Pritchard did not dispute the propositions contained in paras 1 and 2 of this document. They disputed everything in paras 3 and 4.

Legal principles Before dealing with counsel's submissions, it is convenient to refer to some legal principles. First, I have already mentioned Mr Williams' failure to give evidence. No explanation was offered for this. He was available; indeed he was in court for most of the hearing. In that situation it should be inferred that Mr Williams' evidence would not have assisted Montague's case; in particular, his failure to contradict versions of conversations given by Mr Gore means I should accept those versions, they not being inherently improbable: see Jones v Dunkel (1959) 101 CLR 298. I do so. The account of facts set out above is derived from the documentary evidence and Mr Gore's narrative of events. Second, the nature of solicitors' duties to their clients has been discussed in several recent cases. Depending upon circumstances, a solicitor may be under a duty to do more than fulfil the client's express instructions. In Hawkins v Clayton (1988) 164 CLR 539. Deane J (at 578) described the roles of solicitor and client: "The solicitor, as a specially qualified person possessing expert knowledge and skill, assumes responsibility for the performance of professional work requiring such knowledge or skill. The client relies upon the solicitor to apply his expert knowledge and skill in the performance of that work." At 579 he said: "The content of the duty of care in a particular case is governed by the relationship of proximity from which it springs. It may, in some special categories of case, extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed. Apart from cases involving the exercise of statutory powers or where the person under the duty has created the risk, the categories of case in which a relationship of proximity gives rise to a duty of care which may, according to circumstances, so extend are, like those in which there is a duty of care to avoid pure economic loss, commonly those involving the related elements of an assumption of responsibility and reliance. The relationship of solicitor and client is, as has been seen, a relationship of proximity which ordinarily involves the combination of those elements with respect to foreseeable loss which may be caused to the client by the performance of professional work. It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor-client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case." (Emphasis added.) The significance of Deane J's approach was spelled out by Kirby P (with whom Hope AJA agreed) in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. His Honour pointed out the majority Justices in Hawkins had held the solicitors liable in tort. He said at 652: "The consequences of tort liability may not be the same as of contractual liability. Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care … it will not chart exclusively the perimeters of that duty. Deane J pointed out that, depending upon the circumstances of the particular case, the duty may require the taking of positive steps 'beyond the specifically agreed professional task or function', where these are necessary 'to avoid a real and foreseeable risk of economic loss being sustained by the client'." (Original emphasis.) In Waimond the respondent solicitor was held liable for failing to protect the appellant from diminution in the value of a security (a charge over land) caused by the creation of an interest in favour of another client. Hawkins and Waimond were discussed by Sheller JA (with whom Meagher JA and Abadee AJA agreed) in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398. One of the issues in that case was whether a solicitor breached his duty to clients by failing to advise them about the financial onerousness of a mortgage transaction in respect of which he acted as their solicitor. At 418 Sheller JA said a duty to give financial advice: "… would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor's duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon."" Very recently, in Yates Property Corporation v Boland (1998) 157 ALR 30, a Full Court of this Court (Drummond, Sundberg and Finkelstein JJ) discussed the standard of care required of a solicitor in respect of duties within the solicitor's retainer. "Generally", they said at 50, "the standard is expressed to be that of a reasonably competent and diligent solicitor". However, their Honours noted the recent trend towards specialisation. At 50-51 they went on: "When a client retains a firm that is or professes to be specially experienced in a discrete branch of the law that client is entitled to expect that the standard of care with which his retainer will be performed is consistent with the expertise that the firm has or professes to have. Such a client would no doubt be justifiably dismayed if he was told that the firm that he has retained because of its experience is only required to act in accordance with the standards laid down for a solicitor who has only a general or even only a little knowledge of the law that is to be applied to the facts of the client's case. Thus, the content of the standard of care that is to be owed by a solicitor to his client under the general law should not be confined to the standard of care and skill that is possessed by a person of ordinary competence exercising the same calling. The standard should reflect the fact that within any one calling practitioners have or profess to have varying degrees of expertise. The standard of care and skill required of such a person must bear some relationship to that expertise. In the case of a solicitor who is an expert in a particular branch of the law the requirement should be that the solicitor must carry out his retainer as would a reasonably competent solicitor who is an expert in that particular area of the law. That is the manner in which the content of the duty of care that is owed by a specialist medical practitioner has been described. See Rogers v Whitaker (1992) 175 CLR 479 at 483 where the High Court described the standard as 'that of the ordinary skilled person exercising and professing to have that special skill, in this case the skill of an ophthalmic surgeon specialising in corneal and anterior segment surgery.' There is no reason in principle why the standard of care of a solicitor having special skill should not be regarded in the same way." (Emphasis added.) It seems to me these authorities support three propositions relevant to the present case. (i) The scope of the matters in relation to which a solicitor has a duty of care to his or her client depends on the terms of the solicitor's retainer and the ambit of any additional assumed responsibility; (ii) In relation to matters within the solicitor's duty of care, fulfilment of the duty is not necessarily confined to carrying out the client's specific instructions; in order properly to discharge the duty and protect the client from a real and foreseeable risk of economic loss, it may be necessary for the solicitor to initiate action; (iii) Where a client engages a solicitor who professes special expertise in a particular field of law to do work within that field, the relevant standard of care is that of the ordinary skilled solicitor exercising and professing special expertise in that field. It follows from these propositions that, if an ordinary skilled solicitor exercising and professing special expertise in an area of law would foresee a real risk of economic loss to a client in respect of a matter within the solicitor's retainer or additional assumed responsibility, unless particular action was taken, the solicitor is under a duty to take that action, or advise the client to do so.

The claim concerning the MOA I have already set out counsel's summary of their client's claim. It will be recalled they allege breaches of duty in relation to two matters: the preparation, drafting and execution of the MOA and advice concerning Spinifex. In relation to the MOA, counsel for the applicant note the MOA contained no provision for assignment of any part of Montague's interest to a third party. They draw attention to Mr Gore's evidence that he gave Mr Williams no advice about that matter and they refer to Mr Wassaf's evidence that an assignment clause would usually be included in a tenement sale agreement. Counsel point out that, early in their relationship, Mr Williams told Mr Gore he was thinking of "floating" the interest. They argue this would necessarily (or at least foreseeably) involve the transfer of Montague's interest to a company suitable for listing on the Stock Exchange. Moreover, they say, Mr Gore was aware before execution of the MOA that Mr Williams was in negotiation with Werrie Gold for an assignment to that company of a portion of Montague's interest in the project. Counsel argue that, under these circumstances, it was incumbent on Mr Gore to include an assignment clause in the draft MOA prepared by him, or at least warn Mr Williams against executing a document that lacked such a clause. Mr Gore did not challenge Mr Wassaf's evidence about an assignment clause usually being inserted in a tenement agreement. His explanation of the absence of such a clause was that the MOA lacked legal efficacy. He said in his statement: "The MOA was only 'an agreement to agree' which, from the point of view of the Filipino parties, imposed some obligation to negotiate in good faith". He elaborated that view under cross examination, saying: "The exact proper characterisation either under Australian or Filipino law of the memorandum of agreement was not entirely clear. I thought it probably fell under the second category of Masters v Cameron as an agreement that was subject to the making of a further agreement but it didn't really matter. The purpose was to secure a commercial, and as far as we could, a legal benefit for Mr Williams of being able to exclude the Canadian company from dealing with the Bautistas and give him the opportunity to negotiate in good faith a joint venture agreement with the Filipinos." He later agreed his reference to "the second category of Masters v Cameron" was to what was said by Dixon CJ, McTiernan and Kitto JJ in Masters v Cameron (1954) 91 CLR 353 at 360: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. (Emphasis added.) Mr Gore said "the topic of raising funds by way of assignment was just not addressed before the MOA was entered into". Counsel for Montague say that, having regard to this evidence, the only issue in relation to the preparation, drafting and execution of the MOA is the validity of Mr Gore's view that it had no legal effect. They submit perusal of the document establishes it was intended to have legal effect; indeed, it was, in law, a joint venture agreement. To make good that claim, Mr Pembroke took me through the detail of the document. Counsel for Clayton Utz supported Mr Gore's claim about the nature of the MOA. They, also, analysed its terms. Counsel also mentioned Mr Gore's account of his conversation of 11 October 1996 with Mr Williams and Mr Garbutt in which Mr Williams said he wished to obtain "an option for a 70/30 percent joint venture with Bautista, with Montague to have the 70 percent interest". Counsel for Clayton Utz submit the MOA must be construed against the background of the parties' intention to have a later joint venture agreement; the purpose of the MOA, they say, was "to get Montague a seat at the negotiating table", the Filipino parties being under an obligation to negotiate in good faith. It is clear from the terms of the MOA that the parties envisaged a later, fuller joint venture agreement. That does not mean the MOA falls within the second category mentioned in Masters v Cameron. There is nothing in the MOA to support the view that the parties intended that, to the extent they had agreed terms of their arrangement, performance of those terms was conditional upon the execution of a formal document. Anyway, according to the three High Court Justices, agreements within the second category create "a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution". Even on Mr Gore's analysis, the MOA would have been legally enforceable under Australian law; and he accepted in cross examination he had no reason to think the situation was different under Filipino law. In that connection it will be recalled that, on 29 November 1996, Mr Carag wrote to Mr Gore advising he had "gone over" the MOA and was "glad that your client has been able to tie in the Filipino parties to an arrangement that we consider to be valid and enforceable under Filipino law". Mr Gore took the trouble to write to Mr Williams quoting Mr Carag's view. Recital E lies at the heart of the argument made by Mr Gore and counsel for his firm. I have already set out its terms. The recital refers to the wish of each of the parties "to enter into a Joint Venture ('JVA') and a Financial or Technical Assistance Agreement ('FTAA') in respect of (the subject tenements) on the basis that Montague will hold a 70% interest in each and all of those areas …" with the Filipino parties having 30%. It also recites the arrangement that, until an FTAA application is filed, "the Filipino Parties will hold a 60% interest in the project". The Filipino parties are to "assign" Montague an additional 30% interest in the project when the FTAA application is filed. While this recital reveals an intention to enter into a later agreement, it does not suggest that, in the meantime, Montague is to be without legal rights. On the contrary, Montague is to hold "a 40% interest in the project". The 60% interest in the project to be immediately held by the Filipino parties is an interest capable of partial assignment; that is how Montague's interest is to be increased from 40% to 70%. This is the language of present entitlement, not of mere agreement to agree. When one turns to the operative clauses of the agreement, the position becomes even clearer. Clause 1 requires the parties to negotiate the terms of a JVA and FTAA, execute such agreements and apply to the Philippines government for their approval. In the meantime, however, Montague is under certain obligations. Within 30 days after execution of the MOA, Montague must pay the Filipino parties one million pesos by way of loan, to be recouped out of later gold production. It must pay a further one million pesos on the first to occur of approval of the FTAA application or the expiration of six months after its filing. Moreover, cl 5 requires Montague to "be responsible for providing all finance for the initial development of such of the project assets as Montague determines with a view to achieving commercial production of ore at a rate of not less than 500,000 tonnes per annum". The project assets are to be made available "to support any borrowings arranged by Montague for the purposes of development of the project assets". Asked in cross examination about these obligations, which he accepted would cost about $4 million, Mr Gore said "they were to be matters undertaken by Montague once a joint venture agreement had been negotiated". He agreed that cl 5 did not say this but argued the clause must be interpreted in this way because it speaks of "project assets" and there would not be any project assets until execution of the joint venture agreement. He apparently had in mind that Recital E contemplates a 70/30 split of interests in each of the tenements "through a project vehicle or structure to be agreed between the parties", apparently in the JVA. One difficulty about this approach is that Recital E says that "(u)ntil an application for an FTAA is filed", presumably commencing immediately, the Filipino parties will hold a 60% [and Montague a 40%] interest in the project". In other words, the "project" antedates the JVA. Moreover, cl 9 requires the Filipino parties pending negotiation of the FTAA, to "permit Montague to have access to the project assets" to carry out investigations, geological surveys, drilling operations and feasibility studies. No doubt Mr Gore contemplated the JVA would be a lengthy document detailing the minutiae of the partners' relationship. That does not mean the MOA was not itself a joint venture agreement. The creation of a joint venture relationship does not involve any particular formality. In United Dominions Corporation Limited v Brian Proprietary Limited (1985) 157 CLR 1 at 10, Mason, Brennan and Deane JJ said: "The term 'joint venture' is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law 'adventure') will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership." The MOA recorded the making of an association between Montague on the one hand and the Filipino parties on the other "for the purposes of a particular … mining … undertaking … with a view to mutual profit". The Filipino parties were to make available their mining tenements, Montague was to pay an entrance fee by way of "loans" repayable only out of gold production, provide management and technical services and be responsible for development finance. The benefit of the venture was to be shared between the venturers in agreed proportions. The agreement fell well within the concept of a joint venture agreement, as explained in Brian. I see no conceptual difficulty in saying there may be a "joint venture agreement", that records terms of an arrangement made between parties for the conduct of their joint undertaking or activity, notwithstanding the parties contemplate (even provide for) a later, more detailed document. There will always be a question whether such an agreement was intended to have legal effect pending the making of the second agreement; but if it appears, as a matter of construction, that it was so intended, it is immediately enforceable to the limit of its terms. It seems to me that is this case. It is abundantly clear the MOA was intended to have immediate legal effect, to the extent of its agreed terms. It was in law a joint venture agreement, notwithstanding the intention of the parties to execute a later, more detailed document regulating the conduct of the venture. Mr Gore's premise is wrong; his reason for not including an assignment clause invalid. Moreover, and I regret to say this, I do not believe Mr Gore ever thought Montague's interest in the MOA was an interest inherently incapable of assignment. Had he done so, he would have been duty bound to warn Mr Williams about his belief, especially knowing Montague was to make an immediate payment to the Filipino parties of one million pesos and Mr Williams was attempting to persuade Werrie Gold to take part of the project. But, as he conceded in his oral evidence, Mr Gore never told Mr Williams he believed Montague's interest to be incapable of assignment. On the contrary, he recounted in evidence his 16 December conversation with Mr Williams during which he told Mr Williams he could not "assign any interest" without the consent of the Filipino parties. He was saying, in effect, that Montague held an interest capable of assignment but the agreement lacked a clause entitling Montague to assign without the Filipino parties' consent; therefore, Montague would have to obtain the agreement of the Filipino parties to vary the agreement in such a manner as to introduce Spinifex into the project. It seems to me this was the true position and Mr Gore's present claim represents a desperate attempt to excuse his omission from the MOA of a usual and necessary clause. In any event, the matter must be looked at more broadly. Mr Gore's retainer was a wide one. He professed special expertise in resources law, including the making of agreements regarding mining projects. Mr Williams was a young man - Mr Gore agreed about 29 years of age - who was referred to him, as a specialist resource lawyer, "for legal advice on documentation" of the project; in other words, Mr Gore knew Mr Williams was looking to him for guidance about the form of the documentation needed to enable Montague to secure an interest in the project. It was Mr Gore's duty to take an active, innovative role in devising a form of agreement appropriate to Montague's foreseeable needs. As finance would certainly be required, one way or the other, Montague's foreseeable needs clearly included the ability to assign to potential financiers part of its interest in the contract with the Filipino parties. Mr Gore agreed that, on 11 October 1996, Mr Williams came to give him "instructions about the Philippines project". Mr Gore's note of that meeting is that "Williams wanted to get a contract with the Filipino parties …" Although in his oral account of this conversation, Mr Gore attributed to Mr Williams the word "option", it is obvious he understood Mr Williams wanted to have a binding contract, a legally enforceable right. Moreover the note shows Mr Gore's appreciation that the deposit had to be proved commercially viable before there would be any prospect of floating Montague on the Stock Exchange. In oral evidence Mr Gore acknowledged this: "… And by 11 October you had begun to form at least a rudimentary understanding of the commercial aspects of the matter on which he sought your assistance and advice, is that right?---On 11 October. And it was obvious to you, was it not, that he was seeking your advice and your guidance in relation to this project?---Yes. And it was obvious to you that you were in a position to provide him with the advice and the guidance which he requested?---Yes. And you made it clear to him that you could provide that service to him, didn't you?---I did. It was apparent to you that he depended on you in relation to the exercise by you of your special skill and expertise because he didn't have what you had?---He didn't have the expertise, he had a law degree it seemed. All right. Do you understand the question?---Yes. The plan which he revealed to you was or at least which you understood whether he revealed it clearly or not was that he wanted to secure an agreement which he thought he had made in principle with the Filipino parties?---I don't believe that's correct. He wanted to secure an agreement with the Filipino parties?---He did." Mr Gore agreed he realised some funds would be required before the JVA and FTAA were signed. He mentioned the initial million pesos payment and legal costs but agreed the need for funds did not stop there: "But you understood, did you not, because you drafted the document that Montague would be required to fund at its own cost all of the exploration, geological, metallurgical, construction and operating costs prior to the project achieving commercial production at a rate of not less than 500 tonnes per annum?---Yes, that's correct. … You're not suggesting are you that none of those costs would be incurred until after a joint venture agreement was entered into?---Well they may or may not have been, but most wouldn't be." Later, in an answer to a question about cl 9, Mr Gore mentioned Mr Williams was contemplating spending about $100,000 on obtaining a report from a geologist, Mr Tucker, before the FTAA was executed. He knew Montague was a one dollar company without any other business than the Philippines project and Mr Williams had little personal wealth. It was apparent to him that Montague would need to raise funds from one or more third parties and it must have been obvious Montague had nothing to offer in return for those funds except its interest in the MOA. In his note of the 11 October meeting, after referring to the fact that the float of Montague would be only after the deposit had been proved commercially viable, as one would expect, Mr Gore wrote: "Until that had been done it was to be Montague's responsibility to fund the project. Williams never indicated any concern about his capacity to arrange the funding for exploration costs." While I accept Mr Williams did not indicate any concern about his ability to raise the finance necessary to prove up the deposit, I am astonished Mr Gore failed to ask Mr Williams what he had in mind. It was an elementary aspect of the task of documentation for Mr Gore to ensure the proposed MOA was compatible with Mr Williams' ideas about finance. This ought to have been obvious to any lawyer, let alone one with over 25 years experience in resource projects. If the need to make provision for assignment was not clear to Mr Gore all along, it surely became blindingly obvious when he learned, shortly before execution of the MOA, that Mr Williams was actively negotiating for Werrie Gold to take an interest in return for assisting Montague to fulfil its obligations under the agreement. What did Mr Gore think would happen if the negotiations were successful? Mr Gore said in evidence he "believed it was quite clear to any reasonable person who'd read the documents that no deal could be done to assign an interest until we'd reached the joint venture stage, but he could, of course … have sold shares in his company". However, asked whether he thought Werrie Gold was interested in such an arrangement, he conceded "a company filing in would prefer to be involved in the joint venture itself rather than through a company which was itself a joint venture". Notwithstanding the obvious need to do so, Mr Gore failed to structure the MOA in such a way as to enable Montague to assign its interest, or part of its interest, without needing to reopen negotiations with the Filipino parties. Of course, it is conceivable the Filipino parties would have refused to sign an MOA containing an assignment clause, but Mr Gore did not even try them out. Had he done so, and they had refused to accept such a clause, Mr Williams would at least have had early warning of the problem that confronted him in Manila in January. He probably would have been able to structure his arrangement with Spinifex in such a manner as to circumvent it.

The claim concerning Spinifex That leads to the second allegation of negligence: the failure to give proper advice in relation to the Spinifex agreement. Counsel for Montague argue that, knowing the absence of an assignment clause in the MOA, Mr Gore ought to have advised Mr Williams against signing the Spinifex agreement on 16 December 1996. In relation to 16 December, I have some sympathy for Mr Gore. Mr Williams came to him that afternoon with an agreement, which Mr Gore had not previously seen, already signed on behalf of Spinifex. Mr Williams urgently needed the $25,000 payable under cl 4 of that agreement; he needed to pay one million pesos to the Filipino parties by 19 December. Mr Gore pointed out to Mr Williams that the Spinifex agreement contained a warranty (cl 3) by Montague "that it can assign in the form of a Joint Venture to Spinifex any portion of its interest". Knowing the MOA had no assignment clause, but inconsistently with his claim in evidence that the MOA did not create an interest that was capable of assignment, Mr Gore said to Mr Williams "That will require the consent of the Bautistas. You can't assign any interest without their consent"; inferentially, he could assign with consent. Mr Williams assured Mr Gore he could arrange that with the Bautistas, but that prediction turned out horribly wrong. My sympathy with Mr Gore over the meeting of 16 December arises out of the time pressures placed upon him. He was confronted with a client who was anxious to sign the agreement and confident all would work out well. However, Mr Gore should have recommended against signing the agreement. By signing the agreement, Mr Williams was putting his company in a dangerous position; it was exposing itself to possible legal action. As Mr Gore told Mr Williams: "… if you can't obtain their consent that will be a breach of your contract with Spinifex". Worse, the statement in cl 3 was clearly a misrepresentation exposing Mr Williams to personal liability under s 75B of the Trade Practices Act 1974. The effect of the agreement was to deliver both Montague and Mr Williams into the power of other parties: the Filipino parties as to the terms of any consent or, if consent was refused, Spinifex. Although time was short, there were still three days before the due date for payment of the first one million pesos. This provided some opportunity to renegotiate the Spinifex deal. As Montague had no other business activity, one possibility was that mentioned by Mr Gore himself in his evidence, for Mr Williams to issue to Spinifex an appropriate parcel of shares in Montague. In that way, Spinifex could have achieved the desired interest in the project without renegotiation of the MOA. According to Mr Wassaf's unchallenged evidence, the issue of shares is a common way for parties to avoid pre-emptive rights in a joint venture agreement. Mr Gore must have known that in December 1996. It was a course he should have explored rather than allow Mr Williams to put Montague's head in a noose.

Conclusion Throughout the whole of his association with Montague, Mr Gore seems to have regarded himself as being under no greater obligation than to carry out Mr Williams' specific instructions and to provide advice in reponse to specific inquiries. I do not think his role was so limited. The technical feasibility and financial attractiveness of the project were not his concerns; he was a lawyer, not a geologist, mining engineer or accountant. But, as I have pointed out, his retainer was a wide one. When Mr Williams came to him, he was looking for more than an expensive clerk. Mr Williams sought out Mr Gore because he needed comprehensive, expert guidance on the legal aspects of a complex transaction. Mr Williams had no expertise in relation to the legal steps that needed to be followed, and the documents that needed to be prepared, if he was to achieve a successful result; Mr Gore had had many years experience in resources law, including the documentation of mining ventures. It was incumbent on Mr Gore to take an active role, thinking about the legal problems that confronted, or were likely to confront, Montague and advising Mr Williams how to deal with them. This he did not do. He fell well short of the standard of care fairly to be expected of a specialist solicitor advising in his field of expertise. Counsel for Clayton Utz contended that, even if Mr Gore breached his duty to Montague, no damage flowed from the breach. They said "the deal" with the Filipino parties "would have come unstuck in January in any event. Mr Williams had represented himself as having financial and technical expertise. When it emerged he did not, Bautista called off the deal". I do not accept that analysis. In my opinion, Montague had an agreement with the Filipino parties that was enforceable against them to the limit of its terms. [In saying that I refer to enforceability under Australian law but I bear in mind Mr Carag's opinion that the MOA was enforceable under Philippines law and that both parties conducted this case on the basis there was no relevant difference between Australian and Philippines law.] Although the MOA did not define all aspects of the future relationship between Montague and the Filipino parties, it obliged them to negotiate the terms of, and execute, a JVA and FTAA and apply to the Philippines government for their approval. Even in January, Montague had the right to hold the Filipino parties to their obligation to negotiate a JVA and FTAA. However, it was not entitled to insist the Filipino parties accept Spinifex. If Mr Williams had pressed his rights against the Filipino parties and, in consequence, Spinifex had been sent packing, both he and Montague would have been exposed to legal action by Spinifex. Mr Gajewski made clear Spinifex would take action to recover its loss. Moreover, Mr Williams' negotiations with Mr Bautista would now be much more difficult. Not only had he annoyed Mr Bautista by landing a $100,000 profit for Montague without doing any work on the mining tenements, he had diminished Montague's image by arguing the desirability of harnessing Spinifex's expertise. Moreover, he would have to recommence the search for a financier. Under these circumstances, it is not surprising Mr Williams felt he had no option but to accept Mr Gajewski's offer to allow him to keep the $100,000 payment, and to allocate Montague some Spinifex shares, in exchange for his withdrawal in favour of Spinifex. That does not mean Mr Williams thought that to be a satisfactory outcome. It was simply the best he could do under the circumstances created by Mr Gore's dual breach of duty towards his company.

Orders Although the extent of Montague's damage does not fall for consideration at this time, it is necessary for it to demonstrate some damage; damage is one of the elements of the tort of negligence. This presents no problem to Montague; because of Mr Gore's negligence it suffered a loss of commercial opportunity, at least. Loss of an opportunity to obtain a commercial advantage is compensable damage - see, for example, Chaplin v Hicks [1911] 2 KB 786 and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 - however difficult the task of assessment may be. Liability is made out. Montague is entitled to proceed to assessment of its damages. However, I express the hope the parties will reach agreement concerning that matter. Without going into any detail about the subject, it seems apparent the assessment of damage will involve the reaching of conclusions about many controversial and problematic issues. The range of potential damages seems extraordinarily wide. In the hope it will contribute to the possibility of a compromise, I propose to direct the holding of a settlement conference before further evidence is filed. This can be conducted by a private mediator if the parties prefer. If they do not agree to take that course, my direction will require a settlement conference to be conducted by a Registrar of the Court. If the conference fails, the applicant should within one month thereafter file statements of any further evidence it will adduce at the trial on damages. The respondent should respond within a further month. I certify that this and the preceding thirty (30) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox

Counsel for the Applicant: M A Pembroke SC and R Bromwich

Counsel for the Respondent: Dr G A Flick SC and D Pritchard

Solicitor for the Respondent: Corrs Chambers Westgarth

Date of Hearing: 24 and 25 August 1998