Montague Mining Pty Ltd v Gore

Mr Wassaf's evidence 19 Mr Wassaf said he had been asked to consider the relevant documents and make two alternative sets of assumptions. The first set of assumptions was, first, that the MOA between Montague and the Filipino parties had been structured in such a way as to enable Montague to assign its interest to Spinifex without needing to reopen negotiations with the Filipino parties; and, second, the commercial terms embodied in the 16 December Montague-Spinifex agreement had been included in the final version of the joint venture agreement between Montague, Spinifex and the Filipino parties. The second set of assumptions was that the Filipino parties had refused to agree to the inclusion of an assignment clause; or agreed to assignment of the MOA only with their consent, and this was not forthcoming. 20 In Mr Wassaf's opinion, it made little difference which set of assumptions was adopted. He thought that, on the first set of assumptions, a solicitor specialising in international mining joint venture agreements would have advised Montague to sign a joint venture agreement incorporating the terms of the MOA and 16 December agreement. On the second set of assumptions, a solicitor would have structured the arrangement between Montague and Spinifex in such a way as to procure the same commercial result. He said there were at least two ways in which this could be done: "A. Spinifex could agree to provide equity funds to the Applicant and in return it would have the right to receive shares in the Applicant such that Spinifex could end up with 51/70 of the issued shares in the capital of the Applicant. Spinifex would then have an indirect interest equivalent to its 51% direct interest in the project through equity ownership in the Applicant on the basis that the Applicant had no assets and liabilities except its rights in the project. This may be regarded as an equivalent commercial result (disregarding tax considerations). B. Spinifex could agree to provide funding for the project to the Applicant to bankable project status and in return receive from the Applicant the right to receive the quantity of minerals extracted from the contract areas which it would have received had it held a 51% interest in the project. This contractual right to receive minerals has a number of disadvantages but it has been used in previous transactions - see for example the case of Mount Isa Mines Limited v. Seltrust Mining Corporation Pty Ltd and other (1985 - reported at Volume 13(4) AMPLA Bulletin 172-198). This arrangement was also used by an Arimco NL subsidiary in 1986 as a way to purchase indirectly various interests in joint ventures from Cyprus Minerals Australia Company. Over time, the Arimco NL subsidiary was able to negotiate for a direct interest in those joint ventures. I acted for the Arimco NL subsidiary in those transactions. The disadvantages associated with the contractual right include a lack of security of title including the risk of the holder of the title being liquidated. Issues relating to title security can be dealt with by providing for a charge over the title holder's assets to be given to the funding party and by having irrevocable payment directions so that funds are paid directly to suppliers. One advantage of this alternative was that the tax advice at the time was that the tax benefits were generally equivalent to holding a direct interest in the project." Mr Wassaf's evidence was not the subject of rebuttal or serious challenge.

Mr Lawrence's evidence 21 Mr Lawrence is a chartered practising geologist, a chartered engineer and a licensed investment advisor. He has had 33 years experience in the mineral industry at a senior executive level, mostly as a consultant to major companies in Australasia, Southeast Asia and the Pacific. Mr Lawrence specialises in technical audits and reviews of mineral and coal projects and their financial analysis and evaluation, especially in connection with merger and acquisition proposals. He operates through a company called Minval Associates Pty Limited. Mr Lawrence is the current President of the Australasian Institute of Mining and Metallurgy. He represents the Institute on a committee formed with the Australian Securities and Investment Commission and the ASX. He played a significant role in developing what is generally called "the Valmin Code"; its full title being "Code and guidelines for technical assessment and/or valuation of mineral and petroleum assets and mineral and petroleum securities for independent expert reports". This code was amended in some respects in 1997, effective from 1 April 1998. 22 Mr Lawrence undertook two valuation exercises in relation to the present case. His major task was to value, as at 8 January 1997, the rights held by Montague in the four Mindanoa properties pursuant to its MOA with the Filipino parties. His minor task was to assess the value to Montague, at that time, of the right of first refusal contained in cl 7 of the MOA, whereby the Filipino parties gave Montague "the first right of refusal to join with them or any one or more of them in respect of exploration for gold and other minerals outside the project areas". In carrying out the latter task, Mr Lawrence assumed certain identified deeds of assignment "would have the effect that a further eight tenements would have been included in the venture" the subject of the MOA. He called these tenements "Eight Additional Mindanao Properties". 23 In determining the value of Montague's interest in what he called "Four Original Mindanao Properties" (that is the four tenements identified in the 1996 and 1997 documents), Mr Lawrence first considered the total value of the tenements. He assessed a "low" value of $5,670,000, a "high" value of $7,900,000 and a "preferred" value of $5,800,000. He reached those figures, primarily, by extrapolating the terms of the option agreement of 6 January 1997, whereby Montague gave Spinifex an option to take its FTAA interest from 51% to 60%. The option was available for exercise on or before 30 June 1997. The consideration payable by Spinifex, apparently at the time of exercise of the option, was stated to be "reimbursement of $10,000 in legal fees" and "the issue of 1,895,000 ordinary fully paid 20 cents shares in Spinifex or the payment of $500,000 to Montague and/or its nominee". Except for a few periods of short duration between 8 January and 30 June 1997, the market price of Spinifex shares remained above 25 cents. In what he called "scenario 1", Mr Lawrence assumed Spinifex would have chosen to pay the consideration in cash. He took the total cash consideration, $510,000, as an indication of the value of 9% of the project. On that basis, its total value was $5,666,666, which he rounded to $5.7m. 24 Mr Lawrence's "scenario 2" assumed that Spinifex would have paid the option consideration in shares, issued on one or more of four days in the period to 30 June 1997 when Spinifex's share price was at its lowest, and that these shares would have been sold by Montague in an orderly manner over ten day periods immediately following each of these four days. On this basis, the shares would have realised $523,020. Adding that figure to the $10,000 reimbursement of legal costs, Mr Lawrence calculated a value for 100% of the tenements of $5.92m. Combining the two scenarios, he adopted a preferred value of $5.8m. 25 It is convenient to say immediately that I reject scenario 2. There is no reason to think Spinifex would have exercised the option until the last minute; that is, 30 June. The purpose of taking an option, as distinct from making a binding contract to purchase, is to enable a prospective purchaser to "wait and see" ; to make a decision on the basis of information that will become available only in the future. It seems that, in early January, both Montague and Spinifex expected there would be significant exploration activity in the period up to 30 June 1997; plainly it would have been sensible for Spinifex to await its results. Given that Spinifex's closing share price on 30 June was 28 cents, the only realistic assumption is that the cost of any exercise of option would have been met by a cash payment. Even if it is permissible to derive the total value of the tenements by extrapolation from the option agreement, that value cannot be put higher than $5.66m. 26 Mr Lawrence also valued the four tenements by a method of valuation that he called the "Multiple of Exploration Expenditure Method". In his written report, he explained this method of valuation: "The MEE Method of valuing a resource asset, which is most useful for grassroots and advanced exploration prospects, is poorly understood. It is quite erroneous to see it as a simple formula where one identifies all past exploration expenditure and then factors it up by a multiple. In MINVAL's view, the method derives the required value from only the relevant and effective exploration expenditure that generated technical data that remains confidential and is not in the public domain. In effect, this usually restricts the expenditure (the Expenditure Base) to that disbursed by only the present holder of the tenement. The Expenditure Base comprises past expenditure (including reasonable administrative overheads, but not expenditure which has been deemed ineffective and written off for tax purposes) and future expenditure that the holder has not only budgeted for, but also firmly committed to (which definitely excludes expenditure which may have been 'budgeted for', but is not covered by funds presently held). If the holder of the tenement obtained it by purchase, the purchase price (which is a legitimate exploration expense) would have included appropriate reimbursement of the seller's relevant and effective expenditure on it, plus any perceived increase in value resulting from that expenditure to that date. The MEE Method involves the factoring of the Expenditure Base (up or down) by a PEM that the Valuer selects to appropriately reflect a tenement's prospectivity. PEMs can range between 0 and 5.0 but are usually between 0.5 and 3.0." [Emphasis added] The acronym "PEM" stands for Prospectivity Enhancement Multiplier. 27 Mr Lawrence purported to apply the MEE method in the present case by taking what he understood to be the actual cost of Spinifex's exploration activities to 30 June 1998, in relation to each of the four tenements, and applying a PEM that reflected his understanding of the prospectivity of each tenement. The figures are as follows:

. Alegria Expenditure to 30 June 1998 $350,141 Preferred PEM 3.0 Preferred value $1,050,400 . Mainit/Canaga Expenditure to 30 June 1998 $525,836 Preferred PEM 3.0 Preferred value $1,577,500 . Sison Expenditure to 30 June 1998 $206,963 Preferred PEM 2.6 Preferred value $538,100 . Agusan/Dopester/Jabonga Expenditure to 30 June 1998 $194,387 Preferred PEM 2.6 Preferred value $505,400 After rounding off some preferred values, Mr Lawrence totalled them at $3.68m. 28 Shortly before the hearing, Mr Lawrence became aware of the contents of the letter of 8 January 1997 from Montague to Mr Bautista. That letter set out an exploration program as follows: "Phase #1 - (11 January 1997 - February 1997) a) Line cutting (preparation of grid) on Mainit and Alegria. b) Soil and Rock chip sampling in known areas of mineralisation. c) Establishment of infrastructure - ie: access for drill rigs. d) Preparation of drill pads. Establishment cost to commencement of drilling - USD$250,000 Phase #2 - (March - June 1997) a) Drilling RC2000 meters on each area on established grid. b) If good results are established then an infill drilling program will be conducted. Estimated cost USD$500,000 Phase #3 - (June 1997 - December 1997) a) Resource drilling, minimum estimated cost USD$2,000,000 depending on orebody size. Phase #4 - (January 1998 - June 1998) a) Feasibility study on Mainit and or Alegria. Estimated cost USD$750,000 - USD$1,500,000" These estimates total $US3.5 million to $US4.25 million. In a supplementary report, Mr Lawrence stated: "If a geologist/valuer applies a PEM of 3.0 to a prospect, it normally means that in his/her opinion, the project has high prospectivity and is worth exploring by spending money on it. The current value of the tenement has been enhanced by completed exploration work so that, in the valuer's opinion, the tenement is worth three times the sum of the holder's investment on the completed work and his fully committed investment on the next stage of exploration. He would argue strongly to the owner that the project should not be sold to an interested potential purchaser for less than that. In the case of each of the Four Original Mindanao Tenements at 10 January 1997, there was no past expenditure, but Spinifex was prepared to commit the sums … that I used as each relevant Expenditure Base (as evidenced by the fact that they spent funds). This view is reinforced by the recent knowledge of the size of the US$3.5m to US$4.25M proposed exploration budget agreed between the parties." 29 In relation to this aspect of Mr Lawrence's evidence, it should be noted that Mr Eckhof gave evidence that the sums specified in the latter of 8 January were chosen by him. He also said they were specified simply to satisfy Filipino administrative requirements and that Spinifex would have been willing to continue to expend money only to the extent this seemed worthwhile in the light of the exploration results being obtained. He also made it clear that, considered as estimates of the cost of each stage, the figures were probably too low. 30 In his first report, Mr Lawrence set out detailed information about the eight additional Mindanao tenements. He thought some of the tenements had no value. Their combined preferred values amounted only to $75,000. He applied a figure of 95% as an estimate of the value of the lost right of first refusal, leaving a figure of $71,300. 31 Mr Lawrence set out in tabular form his estimates (low, high and preferred) of the value of Montegue's interests. I will quote only his preferred figures: Spinifex shares/cash $1,160,000 Four original Mindanao properties 928,000 Eight additional Mindanao properties 11,400 Option 391,100 $2,490,500 32 Mr Lawrence calculated the first figure by assuming the receipt by Montague of $1.1m, or four million Spinifex shares, pursuant to cl 9.2.5 of the draft agreement of 3 January 1997. On the assumption of cash, the item was worth $1.1m. On the assumption of shares, and sale of those shares on the market during the period January to April 1997, he calculated a preferred value for receipts of $1.2m. He derived the figure of $1.16m by averaging the two assumptions. At the damages hearing, counsel for Montague abandoned this item, conceding it was not shown that Spinifex ever agreed to cl 9.2.5. 33 Mr Lawrence derived the figure of $928,000, for the four original Mindanao properties, from his preferred value for the whole of the interests in these properties ($5.8m). First, he took 40% of $5.8m, to take account of the fact that Montague held only a 40% interest in the tenements, yielding $2.32m. He then applied a probability factor of 0.4 to take account of the chance that "Spinifex would not earn its interest (i.e. an effective 16% interest in the total value)". Forty per cent of $2.32m is $928,000. 34 Mr Lawrence reached the figure of $11,400, for the eight additional Mindanao properties, by taking 16% of 91% of the preferred value of $75,000, the 91% representing the effect of Spinifex exercising its option. 35 The option figure of $391,000 represented Mr Lawrence's view that there was a 75% probability of Spinifex exercising the option. He calculated the figure by amalgamating cash and shares scenarios.

Mr Goldner's evidence 36 Mr Goldner is a geologist with over 30 years experience in mining investments. During that time he has been engaged in the valuation of numerous exploration and mining projects, including for the purpose of publishing information in prospectuses. Mr Goldner was asked by Mr Cole to prepare an assessment of the four Mindanao tenements. 37 Mr Goldner's report covered a number of matters. He gave a general account of the climate for exploration in the Philippines, especially in Mindanao, in 1996-97. It appears a significant number of foreign investors was then involved in exploration, interest having been stimulated by changes to Philippines' mining law in 1995. However, interest decreased in 1998, partly because of bureaucratic delays and partly because of a gradual deterioration in gold prices. Dealing with the four subject tenements, Mr Goldner stated they "are in the 'right address' and appear to have the correct underlying geology to be prospective for both epithermal gold and porphyry copper results". He said that, at 10 January 1997, the four tenements were essentially untested. He went on: "All four project areas were underlain by favourable rock types and situated in a region with recognised epithermal gold and porphyry copper potential. In addition historical exploration indicated some positive indications of gold mineralisation as well as wide spread geochemical anomalism. Given this situation it is the writer's view that in early January 1997, they could be considered to have a high apparent prospectivity for discovery of economically viable mineralisation and would have been attractive projects by international companies interested in exploring in the Philippines." 38 Mr Goldner summarised the exploration activity, as he understood it, and commented this provided "sufficiently encouraging results justifying continuing exploration activity. In general terms these areas would still be considered attractive targets for the discovery of viable deposits." After noting exploration activity to 30 June 1998, Mr Goldner said: "The writer is of the opinion that the results from the Alegria project have not upgraded (and in reality have probably downgraded) the areas prospectivity compared to 30 June 1997. Nevertheless the results do suggest there is some residual prospectivity in the area although in a difficult exploration environment and a falling gold price regime funding further exploration would be difficult. The available results from the Canaga/Mainit project have not been encouraging and the prospectivity of this area, in the writer's opinion has been significantly downgraded. With respect to the Agusan/Dopester/Jabong and Sison areas, the continuing dispute with Climax has prevented substantial exploration. While the areas may have potential for discovery the protracted dispute is a significant negative factor and many companies would consider withdrawing from these 2 projects." 39 Mr Goldner's summary assessment was as follows: "The work undertaken by Spinifex and indeed the earlier historical exploration/mining activity by others has not indicated the presence of an economically viable deposit in any of the four areas. In the writers view even the two most thoroughly explored projects (Alegria and Canaga/Mainit) are still at an early stage of exploration with only minimal drilling on a few targets. In a robust exploration climate (i.e. abundant exploration funds available and attractive metal price regime) there could be justification for continuing exploration on the Alegria project and probably to a significantly lesser degree on Canaga/Mainit even though early results have not been encouraging. Both areas remain in a 'good address' and have the appropriate geology and other features (alteration, known mineralisation etc) that might encourage the continuation of exploration. With respect to the Agusan/Dopester/Jabonga and Sison areas the inability to resolve the tenement disputes, given that a period of over two years has elapsed, suggests that persisting with these areas is not justified."

Mr Cole's evidence 40 Mr Cole is a metallurgical engineer. He is not a qualified geologist but has had 31 years experience in the assessment, analysis and valuation of projects, mostly gold projects. From 1981 to about 1987 he was editor of the quarterly professional journal of the Securities Institute of Australia. Since then he has been a member of the journal's Editorial Advisory Board. In 1986 Mr Cole was invited by the National Companies and Securities Commission to join a committee that framed regulations for unregistered prospectuses and drafted an NCSC Policy Statement dealing with independent expert valuation and assessment reports. In 1991 Mr Cole was appointed to the committee that framed the Valmin code. 41 Mr Cole described his task, in the present case, as being to determine "the fair market sale value at 10 January 1997, 30 June 1997, 30 June 1998 and 30 October 1998 of the 17.5 per cent of the interests which Montague was to have been entitled to, on the assumption that an interested purchaser would have had full access to exploration results up to each of those times". He commenced by considering the "fair market value" of the four original tenements. He said: "Value is both time and circumstance specific and may change in response to variations in overall market conditions, commodity prices and exchange rates, legal and political factors, native title claims and sovereign risk …. The value of a specific asset at a particular point in time can be dependent upon ongoing exploration results and the nature of the interests of the actual or potential stakeholder(s) …. The valuation of tenements in the early stages of exploration, where mineral resources or ore reserves have yet to be identified, involves the application of more subjective processes as compared to the discount cash flow approach which is the preferred method for the properties currently in or approaching production. The valuation of exploration tenements considers the costs of identification, application and obtaining the tenements, the exploration expenditures incurred within previous activities which contribute an advantage to proposed exploration, the costs of proposed exploration for the tenements and may include a premium. The valuation accounts for past exploration findings, the prospectivity of the tenements and neighbouring exploration successes which contribute additional confidence to the prospectivity of the tenements. The valuation of exploration areas has to be undertaken with an awareness of exploration economics and the likelihood of exploration success, based locally or more generally. In the writer's experience and opinion, the most appropriate method for valuing the Four Exploration Areas is the past expenditure method, which considers that the amount of money invested in exploring a property is a measure of the value of the property. Assuming the funds have been spent in an efficient manner, the expenditure will have enhanced the prospectivity, and thus the value of the property to the present owner, or it will have downgraded the prospectivity of the property. A multiplier, known as the prospectivity enhancement multiplier ('PEM') is commonly applied to the effective expenditure ('the Expenditure Base') to assess the value of the property at a particular stage of its development. In application of the past expenditure method, the widely accepted view is that PEMs can range between nil and 5.0, with the usually reported range of 0.5 to 3.0, with a very high value, eg 3.0 justifiable perhaps by extremely exciting exploration results. PEM values above or below unity reflect an enhancement or a deterioration of prospectivity, in the judgment of the valuer, as a result of the application of Expenditure Base amount of work. The choice of the appropriate multiplier to use is a matter of subjective judgement. In applying this method it is common to regard that part of future committed exploration as part of the expenditure already incurred." [Original emphasis] 42 Mr Cole dealt separately with each of the four areas, detailing the claim and exploration history of each. He concluded by expressing the opinion that none of the exploration results "justify further exploration expenditures with those prospects". Under the heading "Thresholds of Viability", Mr Cole said: "Montague, Spinifex and the Filipino Parties had consistently identified late in 1996 and early in 1997 the objective of establishing a minimum 500,000 tonnes per annum mining operation. In terms of the mineral resources and ore reserves necessary to support the establishment of such a project, it is likely that a minimum four year operation would have to be foreshadowed, ie a target ore reserve of two million tonnes of ore, which in turn with mining dilution and other mine planning parameters would tend to imply the need to locate say three million tonnes in mineral resources. In terms of grades, although it was apparently not referred to in the early exploration planning, the target grades would realistically be up to say 5 g/t. A two million tonne mining reserve at 5 g/t gold contains some 320,000 ounces of gold, or an average 72,000 ounces per annum of gold production, if an average plant recovery factor of 90 per cent is assumed. It is the opinion of the writer that at no stage from the time that active exploration was started by Spinifex on the Four Exploration Areas was there any indication that any of the projects was within reach of any threshold of economic viability. The reason for this opinion is that it is not possible from the available data to estimate or even to conceive of the existence of mineral resources sufficient in terms of tonnes and grade for the establishment of any sort of mining operation, even an operation of the type mounted elsewhere in the Philippines by artisanal miners." [Original emphasis] 43 In considering the matter of value, Mr Cole opined that "the deal which Montague achieved in November 1996 was an arm's length deal, on fair market value terms and the more costly deal which Spinifex was prepared to enter in January 1997, for a lesser equity, was at more than fair market value". He based this opinion on a number of factors, including "an overall annual work commitment estimated at $70,000 (Section 8.4.1) for two years". Section 8.4.1 of the report deals with the work done by Spinifex after January 1997. Mr Cole seems to have reached the figure of $70,000 per annum by rejecting Spinifex's recorded field expenditure of $360,399 (before office overheads) in favour of his own estimate that the Historical Expenditure Base for the period January 1997 to June 1998 was $100,000. 44 Mr Cole referred to the agreement between Spinifex and the Filipino parties of 10 January 1997. He accepted that Spinifex "accepted a significantly greater liability in assuming the position negotiated at arm's length by Montague" with the Filipino parties. He went on: "However the fact that Spinifex may have accepted a less advantageous position than Montague does not impact on the value to be attributed to the projects. Rather, it may impact on the value of Spinifex's interests in the projects, having regard to the expenditure obligations it has accepted in earning the interest available to it by exploration work or by exercising the option available to it." [Original emphasis] 45 Mr Cole then expressed the view that, "at January 1997, the assessed fair market value for 100 per cent of the Four Exploration Areas is in the range of $490,000 to $1.25 million, with a preferred value of $860,000 …". At that time, he said, the assessed fair market value for 17.5% of the four properties was in the range of $86,000 to $220,000, with a preferred value of $150,000. 46 Mr Cole broke up his preferred value of $860,000 between the four areas. In the case of Alegria, he assumed an historical expenditure of $50,000 and projected expenditure of $350,278. He applied to these figures a "Back-calculated PEM range" - that is, a range selected on the basis of the post January 1997 exploration results - of 0.55 to 1.5 with a preferred value of 1.0. Applying that preferred value, he valued the tenement at $400,000. In the case of Canaga/Mainit, Mr Cole took a similar course, the assumed historical expenditure being $50,000 and projected expenditure $459,406, totalling $509,406. His selected PEM range was 0.55 to 1.1, leading to a preferred value of $440,000. Mr Cole allowed $10,000 for each of the other two areas, exploration of which had not commenced. 47 It should be noted that Mr Goldner disclosed under cross-examination that, when he considered Mr Cole's draft report, he formed the opinion that Mr Cole's PEMs for Alegria and Canaga/Mainit were too low. In notes prepared for the purpose of discussing the draft with Mr Cole, he wrote: "PTG would disagree with the PEM range - the lower PEM I believe should be somewhat greater than 1. It was only after Jan 97 that sampling and drilling done with poor results (Need to see Morgan report) - Same comment is applicable to 17.1.2 Canaga." Later he noted: "PTG would apply a PEM for Alegria and Canaga in the range of 1.5 to 2.00 as the areas are located in a good expln address, with known gold mineral and at that date no negative results obtained". Mr Goldner said this was "just a philosophical difference I guess between myself and Mr Cole". He did not reveal the philosophical difference in his report because "my report doesn't deal with the PEM range". Mr Cole did not reveal the difference either, despite the fact that Mr Goldner had been chosen by him, and retained by Clayton Utz's solicitors, for the specific purpose of advising Mr Cole on geological matters. 48 Mr Cole also offered valuations of the four tenements as at 30 June 1997, 30 June 1998 and 30 October 1998, the figures becoming progressively lower in line with reduced PEMs.

Assessment of valuation evidence 49 Notwithstanding the long experience of Mr Lawrence and Mr Cole, I am unable to accept either of their valuations. Both valuations contain fundamental flaws. 50 To take Mr Lawrence's primary valuation first; it cannot be correct to derive the value of 100% of the four Mindanao areas by a straight extrapolation of the consideration ($500,000 or 1,895,000 Spinifex shares) payable by Spinifex in the event of its exercise of the 6 January option to increase its ultimate holding from 51% to 60%. I do not accept the submission of counsel for Clayton Utz that it is never permissible for a valuer to have regard to a transaction that falls short of being a binding commitment; see my discussion of the point in Goold v Commonwealth of Australia (1993) 42 FCR 51 at 57-60. However, it is essential to bear in mind the difference between such a transaction and a contract. A contract commits both parties to a sale at the agreed price; an offer (if it is genuine) is merely evidence of the offeror's interest in a sale at that price. Even a genuine offer may subsequently be withdrawn. An option differs from an offer in that it binds one party. The importance of that difference depends upon the circumstances of the case. If the critical question concerns the price at which the owner would have let the property go, evidence that the owner gave an option binding itself to sell at a particular price may be of considerable, even decisive, importance. But if the critical question is the amount a purchaser would have been prepared to offer, it will be less significant. Although the option may furnish some guidance as to the parameters of the market, it does not prove there was a purchaser at the option price; the option might not have been exercised. 51 In the present case, the option establishes two matters: first, that Montague was prepared to sell down the interest it retained after the 16 December agreement with Spinifex (40% immediately, rising to 70% at FTAA stage); second, that Montague was prepared to accept $500,000 (or 1,895,000 Spinifex shares) for a 9% interest in the tenements. But it does not establish that Spinifex, or anyone else, was prepared to pay $500,000 for a 9% interest. Indeed, the fact that the transaction took the form of an option, rather than an outright sale, is an indication that Spinifex was not then prepared to pay $500,000. It might later have been prepared to do so, but this would have depended upon the results of the exploration intended to be conducted between 6 January and 30 June. 52 Another problem about a straight extrapolation of a 9% interest to 100% is that it assumes each percentage point has an equal value. In the world of commerce, that is a doubtful assumption. It is commonplace for a purchaser to be prepared to pay a higher rate for the shares critical to the obtaining of control of a company than it would pay for all shares in the company. A person may be prepared to pay a higher rate for the percentage points necessary to boost its interest in a mining project to a vendible or mortgagable parcel than it would for all percentage points. While I agree that there is not necessarily a difference in the rate appropriate to a 9% interest and a 100% interest, I think a valuer needs to consider matters such as these before making the kind of extrapolation made by Mr Lawrence. Mr Lawrence did not do so. 53 I appreciate that Mr Lawrence discounted his figure of $5.8m, not only to 40% to allow for the fact that Montague held only a 40% interest in the tenements, but also to only 40% of that figure. As will appear, I do not think his end figure of $928,000 was wildly astray; but his methodology was erroneous. A valuer in the position of Mr Lawrence might legitimately note the price of a 9% interest if the option was exercised, and take it into account as one of many factors in coming to an overall judgment about the total value of the tenements; but not carry out a calculation that simply assumes that price is in fact the value of a 9% interest. 54 My criticism of Mr Lawrence's secondary assessment raises more fundamental matters. As I have indicated, this assessment was derived from what Mr Lawrence understood to be the exploration expenditure actually incurred on the four tenements in the 18 months after 8 January 1997. It makes no sense to use that expenditure for the purpose of calculating value as at 8 January. It is permissible to use hindsight to determine the quantum of damages suffered by a person as a result of another's breach of duty or breach of contract. However, that was not the exercise on which Mr Lawrence was engaged. Although it was intended by the solicitors instructing him that Mr Lawrence's valuation would be used in support of Montague's damages claim, his task (in his own words at the commencement of the report) was "to prepare a valuation, as at 10 January 1997, of the total value of four tenement interests … on the island of Mindanao, Republic of the Philippines" Mr Lawrence went on to say: "The Fair Market Value of a mineral asset as the estimated amount of money or the cash equivalent of some other consideration for which, in the opinion of the Expert reached in accordance with the provisions of the VALMIN Code, the asset should change hands on the valuation date between a willing buyer and a willing seller in an arm's length transaction, wherein each party acted knowledgeably, prudently and without compulsion." Plainly the hypothetical vendor and purchaser, negotiating at arm's length on 8 January 1997 the price at which the four tenements would change hands, would have no regard to the exploration expenditure actually incurred between that date and 30 June 1998; the money had not yet been spent and its quantum was unknown. 55 This is not to say that future expenditure is necessarily irrelevant to a determination of value. On the contrary, any predictable future expenditure is something that the valuer needs to take into account, because it is something the hypothetical vendor and purchaser would take into account. The significance of predictable future expenditure varies from case to case. In some situations it is likely to be of decisive importance. Take a hypothetical example remote from the present case. Assume that, for compensation purposes, it is necessary to value a compulsorily acquired property containing a dilapidated building. It seems the best price for the property, on resumption day, would have been offered by a builder interested in renovating the building and reselling. In the absence of reasonably contemporaneous sales of comparable properties, the best approach is likely to be for the valuer to determine, by sales evidence or rental capitalisation, the likely value of the renovated building; and to deduct from that figure the estimated cost of the renovations and the profit the hypothetical builder-purchaser would have expected to realise. In that example, the cost of carrying out the renovations must be taken into account; but the relevant figure is the cost predictable at valuation day. It would be erroneous for the valuer to take into account subsequent variations in the cost of materials or labour, if these were not reasonably foreseeable at resumption day. The reason, of course, is that the hypothetical parties would not have been able to take those variations into account; so they would not have affected the price agreed between them. 56 If, on valuation day, it is known that a stranger to the hypothetical transaction (perhaps a public authority, perhaps a neighbour) will or may spend a particular sum of money on works on or near the property under valuation, this is a relevant matter for the valuer to consider. The hypothetical parties would take those works into account, assessing both the likelihood that the expenditure will be made and its effect on the value of the subject property. Even then, the relevant question is the effect on value, not the amount of the projected expenditure. 57 Another situation in which future expenditure will be relevant is where a promise to expend a particular sum of money constitutes part of the consideration for a transaction the valuer has to analyse. If the purchaser entered into a binding commitment to spend a particular sum of money, that was part of the consideration flowing from the purchaser in respect of the transaction. However, the relevant figure is what the purchaser agreed to spend, not what the purchaser actually spent. If there is reason to think the hypothetical vendor might have doubted that the hypothetical purchaser would fulfil its agreement, that factor should be taken into account by discounting the value of the promise, not by having regard to what eventually happened. The discount should be calculated by reference to what was known at transaction date. 58 I can envisage no circumstances under which it is correct, in assessing the value of a property at a particular day, to have regard to the quantum of expenditure actually incurred after that day, as distinct from what might have then been predicted. The quantum of actual expenditure is not something the hypothetical parties could have known in negotiating their agreement. 59 In fairness to Mr Lawrence, he did not rely on actual expenditure as the basis of his primary assessment of the value of the four tenements. That cannot be said about Mr Cole. In his report, Mr Cole recorded he had been asked to provide an opinion as to "the fair market sale value" at 10 January 1997, 30 June 1998 and 30 October 1998 of Montague's interest. He understood what that meant. In stating his valuation methodology, he said: "The fair market value of a mineral asset is the estimated amount of money or the cash equivalent or other consideration for which the asset should change hands on the date of the valuation within an arm's length transaction between a willing buyer and a willing seller, where each party acts knowledgeably, prudently and without compulsion …." Yet Mr Cole's valuation as at 10 January was based upon exploration expenditure incurred after 10 January 1997 and on PEMs chosen on the basis of that exploration, matters that would necessarily have been unknowable to the postulated willing buyer and willing seller on 10 January 1997. 60 It is not clear to me whether this defect attaches to the valuations as at the three later dates. Mr Cole adopted what he called an "Expenditure Base" and PEM range for each tenement, in respect of each of these dates, but he did not explain the source of his figures. Even if the expenditure was past expenditure, in relation to these three dates, it is clear from Mr Goldner's evidence that, even today, the tenements are at an early stage of exploration. This is important because, during the course of cross-examination, counsel drew Mr Cole's attention to a Part B statement relating to a company called Resolute Resources Limited. Mr Cole acknowledged that the statement was signed by him with an affirmation as to his capability to assess the value of Resolute's assets. In discussing one of those assets, the Part B statement said: "The exploration properties discussed above are generally at a very early stage of exploration and therefore the past exploration method of valuation is not appropriate for assessing the value of these properties. We have used the joint venture terms methods where applicable, otherwise we have adopted a yardstick method based on the budgeted exploration expenditure for the following year." Mr Cole gave the following evidence about the statement: "And that was a statement of valuation principle for the purposes of informing shareholders in these companies of the independent expert's view which you signed?---Well, yes, and I don't think it was the correct choice of words now that they are pointed out to me. They have never been pointed out to me before. It was checked by others. I took responsibility for it. It appears a mistake was made. But this was a part B statement going to the shareholders to tell them about the value of their interest in their own company, wasn't it?---Yes. Are you saying that you disagree with the statement of valuation principle there?---Yes, I think I've mentioned - I said I believed a mistake had been made. HIS HONOUR: So what is the mistake?---Well, your Honour, I think I'm being - the point being put to me is that the words the past exploration expenditure method of valuation is not appropriate is inconsistent with the views I have expressed elsewhere and in the present proceedings. That may be what's going to be put to you but what you are being asked to do now is to agree that what's set out there is what you took responsibility for?---Yes, I agree with that. Are you now saying that although you did that what's written there is wrong?---Yes. And what is it that you would wish to say was wrong?---That the past exploration expenditure method of valuation is not appropriate. So you think it is appropriate?---Yes. Even though the properties are at a very early stage of exploration?---Yes." 61 As Mr Cole was aware, the purpose of the Resolute Part B statement was to advise shareholders in Resolute about the value of their company, in order that they could decide whether to accept an offer for their shares. Mr Cole's task required the utmost care. In the statement, he stressed the detailed consideration he had given to the matters with which the statement dealt. Yet he claimed, in evidence in this case, that he held an opinion to the exact opposite of that expressed in the quoted passage; a mistake was made, presumably by others. This is nonsense, as can be seen from the second sentence in the quoted passage. The joint venture method was used because the past exploration method was inappropriate. The word "not" in the first sentence was not a typographical error. Mr Cole stands revealed as a person unworthy of belief.

The Court's task 62 My task is to assess the damages to which Montague is entitled as a result of Clayton Utz's negligence. The prejudice or disadvantage suffered by Montague was the loss of its opportunity or chance of securing commercial benefits from the rights it held under the agreements it had made with the Filipino parties and Spinifex. The principles to be applied in such a situation were expounded by the High Court of Australia in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. At 350 Mason CJ, Dawson J, Toohey J and Gaudron J explained the important difference between proof of historical facts, on the one hand, and, on the other hand, proof of future possibilities and past hypothetical situations. Their Honours said the civil standard of proof applies to the first category but not to the second, particularly when it is necessary to determine future possibilities and past hypothetical situations for the purpose of assessing damages. They adopted - and applied to a non-personal injuries claim - something said in Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 at 643: "If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. … But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability." 63 I mention these matters because there was a tendency at the hearing, from time to time, for the parties to conduct the case as if the Court's ultimate task was to value the tenements, or Montague's interest in them, at a particular date. That would only be so if it could properly be held that, absent the negligence, Montague would certainly have disposed of the whole of its interest on a particular day. The evidence does not support such a case. However, I agree that, in carrying out the ultimate task of assessing damages, it is important to take into account the value of what was lost to Montague on 8 January 1997, when the company was excluded from further participation in the exploitation of the four tenements. In determining that value, I derive little assistance from Mr Lawrence and none from Mr Cole. I must do the best I can from other materials.

Assessment of value 64 Fortunately for the valuation process, there are several arm's length transactions that cast light upon the value of Montague's interest in the four Mindanoa tenements in January 1997. No one transaction, nor the group of transactions considered as a whole, establishes the correctness of a particular figure. It is necessary to consider them all and then make a judgment as to the appropriate figure. As is not uncommon in valuation cases, it is not possible to demonstrate mathematically the correctness of any particular figure. There are four relevant transactions: (a) The Montague-Filipino parties MOA of 20 November 1996; (b) The Montague-Spinifex agreement of 16 December 1996; (c) The Montague-Spinifex option agreement of 6 January 1997; and (d) The Spinifex-Filipino parties agreement of 10 January 1997. 65 The terms of the Montague-Filipino parties MOA were set out in my 1998 reasons for judgment. Under the MOA, Montague immediately acquired a 40% interest in the four Mindanoa tenements, rising to 70% at FTAA stage. In order to procure these benefits, Montague had to make two one million peso ($50,000) loans to the Filipino parties, the first immediately and the other at FTAA stage. The loans were repayable only out of production, so there was a real prospect they would never be repaid. It is realistic to analyse the transaction on that basis. 66 Perhaps the more significant obligation incurred by Montague under the MOA was the provision of finance for exploration and development. However, in contrast to the position under later transactions, Montague was not required to shoulder the ultimate burden of the Filipino parties' share of exploration and development costs. Although Montague had to find the money to carry out exploration and development, the Filipino parties' share was to be treated as a loan by Montague to them. The effect of the agreement, therefore, was that Montague obtained a 40% interest in the unexplored tenements for about $50,000 in cash and obligations in respect of finding finance in respect of, and then organising, exploration and development. The cost to Montague of a 70% interest at FTAA stage would be a further $50,000 plus 70% of the exploration and development costs. The only evidence of the likely magnitude of these costs is Mr Eckhof's evidence they would probably exceed the costs set out in the letter of 8 January 1997. It will be recalled that letter estimated exploration and development costs to be in the range $US3.5m - $4.25m, (say $US3.8m or $A5.775m at an exchange rate of US66.6 cents to the Australian dollar). Seventy per cent of the latter figure is $A4.04m. If that figure is adopted, the result is that, under the MOA, for expenditure amounting to about $4.1m Montague would have had 70% of an operating mine. 67 The cost to Montague of putting itself into that position was extremely low - only $50,000. That might suggest the market value of an interest in the unexplored tenements was extremely low in November; or, perhaps more accurately, October, when the Montague-Filipino parties deal was negotiated. Possibly it was low; but it seems the market picked up between then and December/January. In December, Spinifex was prepared to commit itself, and did commit itself, to paying $125,000 ($25,000 to the Filipino parties and $100,000 to Montague) for the right to buy into the project. It also undertook to bear the whole cost of bringing the tenements to bankable project stage within two years. At that stage, Spinifex would take a 51% interest. This would leave Montague with 19%, subject to its obligation to pay 1% of profits to the Ellis syndicate. Montague would hold its 19% interest at no cost; indeed at a capital gain of $100,000 less legal costs. It was not even necessary for Montague to deduct from that computation its initial one million peso ($50,000) payment to the Filipino parties; Ellis and Spinifex each provided $25,000 for that purpose. As Mr Cole agreed in cross-examination, this agreement represented "a very good deal for Montague". 68 Notwithstanding the terms of the 16 December agreement, I accept Mr Eckhof's evidence that Spinifex would have undertaken development expenditure only if exploration results proved satisfactory. It is not realistic to think Spinifex would have developed a mine it knew to be economically unviable. However, it is realistic to think that Spinifex, in January 1997, intended to carry out a comprehensive exploration program; if it failed to do this, it would waste the money it was putting into the project. Moreover, Spinifex was newly listed, "cashed up" and keen to establish an impressive exploration record. The letter of 8 January 1997 estimated the cost of a comprehensive exploration program (phases 1 and 2) at $US750,000; say $A1,125,000 I think it is commercially realistic to see the 16 December agreement as a commitment by Spinifex to expend this sum, on top of the $125,000 down payments, in order to obtain a 51% interest in explored tenements. That approach values the totality of interests in the tenements, as at 16 December 1996, at $2,450,000. 69 At 16 December 1996, Montague held a 40% interest in the tenements. Accordingly, when this approach was under discussion during the hearing, counsel for Montague suggested it indicated that Montague's interest, at 16 December 1996, was worth 40% of $2,450,000; that is, $980,000. Counsel for Clayton Utz argued this approach was illogical; the computation assumes Spinifex will carry out its obligations under the agreement and thereby earn a 51% interest, remitting Montague to only 19%, subject to a 1% profit obligation to Ellis. 70 There is force in the Clayton Utz submission. On the other hand, it would be wrong to calculate Montague's interest at 19% of $2,450,000; that is $465,500. That is because Spinifex would not earn its 51% merely by funding the exploration; it would also have to incur the cost of bringing the project to bankable stage. To do this it would have to incur the expenditure for phases 3 and 4, estimated in the letter of 8 January as lying between $US2,750,000 and $US3,500,000 ($A4,125,000 to $A5,250,000). Montague would have a free ride in respect of that expenditure; it would eventually hold 19% (subject to the 1% profit obligation) in a project upon which Spinifex had spent something like $US5m - 6m (say $A7.5 - 9m); and which was sufficiently prospective to justify going to bankable project stage. The entitlement to obtain that free ride was an element in the value of Montague's 40% interest that would not be reflected in a computation that simply took 19% of $2,450,000. 71 On the other hand, of course, an exploration program might establish that none of the tenements contained commercially viable deposits. In that case, Spinifex would not develop any of them to bankable project stage and thus earn its 51% interest. Montague would be left with a 40% interest, but in tenements that had been demonstrated to have little or no worth. For that reason it would be wrong to adopt the figure of $980,000. 72 It is impossible to put a precise figure on the value of Montague's interest immediately after 16 December. However, it was significantly above $465,000, representing the prevailing confidence that one or more of the tenements would prove economically viable. 73 That assessment is supported by the Spinifex-Montague option agreement of 6 January. I use this agreement only for a limited purpose. As explained, I think it is incorrect to extrapolate from the option a value of 100% of the tenements. However, the option being a genuine arm's length agreement, it is legitimate to take it into account in assessing the market mood in January 1997. Mr Eckhof visited the Philippines between 16 December 1996 and 6 January 1997. He was impressed by what he saw. It seems the visit heightened his enthusiasm for the project. He wanted to ensure that, if it worked out well, Spinifex would have a greater share. Spinifex would need to raise finance for the development stage and, as Mr Eckhof said, it is easier for a company to raise finance if it has 60% rather than 51%. While I accept that Spinifex would have exercised the option only if exploration results were encouraging, the presently relevant point is that Spinifex accepted that, if this were so, it would be reasonable for it to pay $500,000, in cash or shares, for only an additional 9%; if the tenements showed encouraging exploration results, they would be worth several millions of dollars. As encouraging results were regarded in January 1997 as a serious possibility, it is necessary to add a substantial premium to the figure of $465,000 referred to in para 72 above. In my judgment, it justifies a loading of 50% on the figure of $465,000, resulting in $697,500 which I round out to $700,000. 74 The 10 January agreement between Spinifex and the Filipino parties must be treated with some caution. The obligations of Spinifex under that agreement were probably diminished by the fact that Montague was no longer in the market. As Montague's withdrawal was a result of Mr Gore's negligence, it would be wrong to base a valuation directly upon the terms of that agreement. 75 However, once again, the agreement is useful as an indication of the market mood in the period immediately after 8 January. The agreement made on 10 January required Spinifex immediately to provide to the Filipino parties two "loans" totalling approximately $75,000 and one million Spinifex shares (worth about $250,000). Spinifex had already paid Montague $125,000 in cash (in December) and agreed (on 8 January) to issue it 250,000 shares, worth about $62,500. So the effect of the 10 January agreement was to bring Spinifex's "entry fee" to approximately $512,500, in cash and shares. For this it obtained a 39% interest in the unexplored tenements. On that basis, a 100% interest was worth $1,314,102 and a 40% interest $525,641. However, Spinifex also agreed to bear all the exploration costs, previously assumed to be the equivalent of $1,125,000. The addition of that figure to $512,500 results in the conclusion that the costs incurred by Spinifex, up to the end of exploration, would total some $1,637,500. At the end of exploration, Spinifex would hold 69% of the project. If the cost of obtaining that interest is extrapolated to the whole project, it would value 100% of the tenements at $2,373,188; and therefore 19% at $450,905. This is much the same as the figure derived by analysis of the 16 December agreement. However, the 10 January agreement, unlike the 16 December agreement, did not oblige Spinifex to bear the whole of the development cost; so there is no justification for adding a 50% loading to the figure of $450,905. 76 If I had reason to believe that the omission of Spinifex's obligation to bear the whole development cost stemmed from something affecting the market generally, between 16 December and 8 January, I would need to take that matter into account in considering whether the ultimate valuation of Montague's interest on 8 January should include the 50% loading. However, there is nothing to indicate that the more favourable position negotiated by Spinifex stemmed from changes in the general market. The evidence suggests that interest in Philippines prospects remained buoyant throughout January. It seems probable that Spinifex took advantage of the absence of Montague to negotiate an arrangement more favourable to itself, the Filipino parties being almost certainly unaware that Spinifex had previously committed itself (to Montague) to bear all development costs to bankable project stage. I do not think the agreement of 10 January requires reconsideration of the figure of $700,000 previously mentioned. 77 However, before settling on a final figure for the value of Montague's 40% holding, it is necessary to take account of some matters that were mere possibilities, but were possibilities inherent in the 40% holding. The first possibility is that, on or before 30 July 1997, Spinifex would exercise the option to acquire a further 9%; or, at least, purchase an extension of the option, as Mr Eckhof suggested would have been the case if exploration was not sufficiently advanced by 30 June to enable a decision to be made about exercise of the option. The second possibility is that Montague's continuing involvement in the four tenement areas would lead to its being involved in other tenements. There was general agreement amongst the witnesses that it is commonplace in the mining industry for a company that is involved with a partner in one project to invite the partner to participate in another. No doubt that is more likely where the partner has access to significant human and financial resources, which Montague did not. Nonetheless, the proposal put by Spinifex to Montague on 3 January 1997 included this term: "Under normal joint venture arrangements both within Australia and overseas any ground would be offered to the Joint Venture within a 20km radius of the existing J.V. This would be offered on the same terms and conditions. This shows that the parties are working together and not against each other." The proposal also included the term that "(a)ny new areas brought to Spinifex by Montague exceeding the 20km radius and within a zone of influence of 100km" would be on the basis of Spinifex 70% and Montague 30%. Further Spinifex would pay Montague a daily fee for commercial services provided to the joint venture. Although these proposals were not accepted, they show it is not wholly fanciful to suppose Montague might have derived indirect benefits from the retention of its interest in the four original tenements. I think the prospect that Montague would have derived benefits under the option agreement, or its extension, is more significant than the prospect of indirect benefits. If the two be taken together, I think they add an additional $100,000 to the value of Montague's 40% interest in the four tenements as at 8 January 1997, taking that value to $800,000.

Montague's damages 78 As I have pointed out, the ultimate question is not the value attributable to Montague's interest at 8 January 1997 but the damage it sustained by reason of Clayton Utz' breach of duty. There is no evidence to suggest Montague would have sold out its interest on 8 January, absent the breach of duty. Mr Williams, who controlled Montague, was not called to give evidence, even though he was available; indeed, he was in court during part of the hearing. Under those circumstances, I must conclude he could not have given evidence, advantageous to Montague's case, about any intended course of action. On the other hand, there is ample reason to believe Montague would have taken advantage of any opportunity for sale that presented itself. In my earlier reasons, I described Mr Williams as "a mining entrepreneur"; that is, a person who deals in mining interests. Montague has a paid up capital of one dollar. As Mr Gore knew and recognised, Mr Williams is a person of limited means. According to Mr Eckhof, in January 1997 Mr Williams had substantial debts. So there might have been good reason for him to sell down Montague's interest. In fact this what he did. No sooner had Mr Williams negotiated rights over the Filipino tenements than he set about attempting to persuade other, more substantial, companies to take part of that interest. It seems he was willing to sell whatever part he could, provided the price seemed right. He sold Spinifex 51% on 16 December; there is no suggestion it then wanted more. He responded to Spinifex's proposal, on 2 January 1997, that it take an option to increase its equity from 51% to 70% by suggesting an immediate upgrading of the nature of Spinifex's right to 51%; to take effect immediately, rather than at FTAA stage. That suggestion not being accepted, Mr Williams agreed to Montague giving an option for an additional 9%. I have no doubt that, if Spinifex had asked for a greater share of the project - for example, to reach the 70% which Mr Eckhof thought most desirable - Mr Williams would have agreed, provided he thought the price was right. And I think he would have been especially attracted to an offer in cash or immediately saleable shares. 79 On the other hand, it is unrealistic to think Montague could readily have sold its residual interest to anyone other than Spinifex. Except at a bargain price, a mining company unassociated with Spinifex would probably have been reluctant to invest money in the tenements on the basis it might end up with only a 19% holding. The situation might have been different if the company could also obtain Spinifex's interest. At a price, that would probably have been possible, but the price might have been high. Spinifex was a mining exploration company. It would probably have preferred, before selling, to add value to its holding by a successful exploration program. 80 Of course, Montague is entitled to have the Court take into account what might have happened if it had retained its 40% interest. The evidence does not suggest that, if that had happened, there would have yet been development to bankable project stage. There has been exploration of two tenements but the results have not been exciting. However, the exploration was not as intensive as that contemplated in the letter of 8 January 1997; perhaps it would have been if Montague had remained involved. 81 Despite Mr Cole's view, I do not think there is reason to write off the tenements as worthless; two of them have not been explored at all. In reply to a question whether he would today condemn the tenements, Mr Goldner said: "Not on the information I have available because there were no maps. I don't know where the holes were drilled in geography to the boundaries of the properties and I don't know what other target, if any, might have been there and nor do I even have a good feel for my view of how well they might have tested the target they did test. I might come up and look at it in detail and say, 'Oh, they have missed this. It is staring me in the face. I should - they should have drilled some holes here.' I mean, it happens all the time. People go back into prospects where other companies have walked away and they find an ore deposit. So with the information available I could not categorically say that you would not do any more work, you know, ever." On the other hand, there has been a slackening of interest in Philippines gold prospects since January 1997. It is not suggested the tenements would be readily saleable in the present market. 82 Taking into account all these considerations, I conclude that an appropriate figure for damages, before allowing for the value of the 250,000 Spinifex shares promised on 8 January 1997, is one well below the figure selected to represent the value of the tenements at 8 January 1997. A proportion of 5/8ths seems appropriate, although it cannot be demonstrated to be correct. That yields a figure of $500,000. From this should be deducted $62,500, representing the value of 250,000 Spinifex shares at 25 cents. To the resultant figure of $437,500 should be added interest at 10% per annum for 34 months, that is, $123,958. I round off the total at $561,460.

Orders 83 I will enter judgment in favour of Montague against Clayton Utz in the sum of $561,460. Clayton Utz must pay the costs of Montague, including in relation to the 1998 hearing on liability issues. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Associate: Dated: 5 November 1999 Counsel for the Applicant: S Rares SC and A Bell

Solicitor for the Applicant: Maurice Blackburn Cashman

Counsel for the First Respondents: D J S Jackson QC and D R Pritchard

Solicitor for the First Respondents: Corrs Chambers Westgarth (Qld)

Date of Hearing: 18 - 21 October 1999