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.