Octolake Pty Ltd v 202 Ltd [2026] QDC 19

ESTOPPEL - EQUITABLE ESTOPPEL - ESTOPPEL BY REPRESENTATION - ESTOPPEL BY CONVENTION - GENERALLY - the second plaintiff (the employee) was employed by a company (the employer) which later became a subsidiary of the defendant - the employee and the defendant agreed by deed that the employee would purchase a minority interest in the employer and, upon his resignation after no less than five years, the defendant would use its best efforts to buy the employee's shares at net tangible asset value - in the defendant's annual reports in every year thereafter, it reported that, in certain conditions, it had a contingent liability to purchase senior employees' shares in the employer - whether the defendant is estopped from denying its obligation to purchase the remaining shares - whether the defendant's conduct in refusing to buy the balance of the shares is unconscionable

District Court of Queensland|2026-03-02

CONTRACTS - GENERAL CONTRACT PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - PERFORMANCE - the second plaintiff (the employee) was employed by a company (the employer) which later became a subsidiary of the defendant - the employee and the defendant agreed by deed that the employee would purchase a minority interest in the employer and, upon his resignation after no less than five years, the defendant would use its best efforts to buy the employee's shares at net tangible asset value - after the employee's resignation the defendant bought some shares but refused to buy the remainder - whether the defendant should specifically perform its obligation, under the deed or under a subsequent similar agreement, to purchase the remaining shares

CONTRACTS - GENERAL CONTRACT PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - the second plaintiff (the employee) was employed by a company (the employer) which later became a subsidiary of the defendant - the employee and the defendant agreed by deed that the employee would purchase a minority interest in the employer and, upon his resignation after no less than five years, the defendant would use its best efforts to buy the employee's shares at net tangible asset value - five years later the parties made an agreement that the original deed was "superseded, null and void and to no effect whatsoever" - the new agreement had a term of three years unless renegotiated - the parties forgot about the agreement - whether the deed revived upon the expiration of the term of the agreement - whether the agreement remained operative after the three year term - whether the agreement became terminable at the option of either party

CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT - WHAT CONSTITUTES - GENERALLY - the second plaintiff (the employee) was employed by a company (the employer) which later became a subsidiary of the defendant - the employee and the defendant agreed by deed that the employee would purchase a minority interest in the employer and, upon his resignation after no less than five years, the defendant would use its best efforts to buy the employee's shares at net tangible asset value - the employee also bought shares in the defendant - after the employee's resignation the defendant in general meeting resolved to buy the employee's shares in accordance with its undertaking - the defendant bought some shares but its directors refused to buy the remainder - whether the defendant's conduct was oppressive to the employee - whether the defendant should be ordered to purchase the remaining shares

RESTITUTION - MISTAKE - DEFENCES AND LIMITATIONS ON RECOVERY - CONSIDERATION AND GOOD FAITH - the second plaintiff (the employee) was employed by a company (the employer) which later became a subsidiary of the defendant - the employee and the defendant agreed by deed that the employee would purchase a minority interest in the employer and, upon his resignation after no less than five years, the defendant would use its best efforts to buy the employee's shares at net tangible asset value - after the employee's resignation the defendant in general meeting resolved to buy the employee's shares in accordance with its undertaking - after the employee's resignation the defendant bought some shares but refused to buy the remainder - the defendant later alleged that in fact the deed had been terminated five years after its creation and it had no obligation to buy the shares - the defendant's directors and the employee had forgotten a subsequent agreement that had allegedly terminated the deed - whether the company resolved to buy the shares by reason of a mistake as to its obligation to do so - whether it was obliged to buy the remaining shares - whether it was entitled to restitution of the difference between the price it had paid and the market value of the shares it had bought - what was the market value of the shares - whether it had received good consideration for its payment

Adrenaline Pty Ltd v Bathurst Regional Council [2015] NSWCA 123; (2015) 97 NSWLR 207

Australian Broadcasting Commission v Australian Performing Rights Association [1973] HCA 36; (1973) 129 CLR 99

Australian Financial Services and Leasing Pty Ltd v Hill Industries Ltd (2014) 253 CLR 560

Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432

Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55

Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32; (2014) 45 VR 79

CGM Investments Pty Ltd v Chelliah [2003] FCA 79

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226

Corbett v Corbett Court Pty Ltd [2015] FCA 1176; (2015) 109 ACSR 296

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353

Donaldson v Bexton [2006] QCA 559; [2007] 1 Qd R 525

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24; (2021) 388 ALR 128

Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418

Marminta Pty Ltd v French [2003] QCA 541

MCL Pty Ltd v The Agency Group Australia Ltd (No 3) [2021] FCA 1241

Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825

MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704; Wayde v New South Wales Rugby League Ltd [1994] HCA 68; (1985) 180 CLR 459

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd (2006) 1 BFRA 612; [2006] VSCA 6

Quinn Villages Pty Ltd v Mulherin [2006] QCA 433; (2007) 23 BCL 308

Redland City Council v Kozik [2024] HCA 7; (2024) 281 CLR 202

Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568

Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418

Sze Tu v Lowe [2014] NSWCA 462

Veesaunt Property Syndicate 1 Pty Ltd v Alliance Building and Construction Pty Ltd (2023) 15 QR 287

Walton's Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) [1936] HCA 6; (1936) 54 CLR 361

Wayde v New South Wales Rugby League Ltd [1994] HCA 68; (1985) 180 CLR 459

Christensen and Duncan, The Construction and Performance of Commercial Contracts (Federation Press, 2023)

Mason and Carter, Restitution Law in Australia (2nd ed, 2008)

N Seddon, Seddon on Deeds (2nd ed, Federation Press, 2022)

[1] The first plaintiff (Octolake) has been incorporated since July 1988 and is the trustee of the Johnston Family Trust (the capacity in which it sues in this proceeding). Its sole director and the principal beneficiary of the trust is the second plaintiff, Gregory Johnston (Mr Johnston or Greg Johnston).

[2] Greg Johnston was employed as managing director of Aquatec Maxcon Group Ltd (Aquatec) from 30 April 1985 to 30 July 2019, when he retired. He remained a director until 18 October 2019.[1]

[3] The defendant, 202 Ltd, is, in essence, a private investment company. Its managing director and the chairman of its board is Peter Gilchrist and its sole other director is Ross Johnston. Greg Johnston was also a director of 202 from October 1991 to March 1999 and from October 2005 to October 2019. He was not personally a shareholder, but Octolake held 116,000 shares since about the time of his first appointment as a director,[2] later increasing to 126,000. It continued to have that shareholding in November 2021.[3]

[4] 202 became the ultimate holding company of Aquatec in May 1989. Since April 1985, Mr Gilchrist has been a director of Aquatec. Ross Johnston was also a director of Aquatec between May 1989 and February 2017.

[5] As part of the process of 202 becoming the ultimate holding company of Aquatec, it made an agreement (the 1989 deed) with, among others, Mr Johnston and three other employees of Aquatec (all referred to as senior staff) which, I find, was intended to reward those employees and to encourage them to remain employed by Aquatec for at least five years after 202 and its co-investors took shares in Aquatec. In short, the deed relevantly provided that, between them, the four senior staff would purchase 100,000 shares in Aquatec at $1.00 per share and would be granted 100,000 options to purchase further shares at $1.00 per share at any time up to 31 December 1993, with the options exercisable only while employees of the company.[4] The senior staff would also enter into employment agreements for five years.

[6] The deed went on to provide that, in recognition that the senior staff would be minority shareholders in Aquatec, where a senior staff member resigned after a five year period, 202 would make best efforts to purchase the member's shares in Aquatec at net tangible asset value. How net tangible asset value was to be determined was not stated.

[7] Mr Johnston caused his trustee company, Octolake, to buy 34,999 of the 100,000 shares and he subsequently exercised options to buy an additional 35,000 shares, also bought and owned by Octolake as his nominee. Octolake also acquired one more share in June 1992, therefore having a total holding of 70,000 shares.

[8] In 1993, Aquatec conducted a 5:1 share split, resulting in Octolake then having 350,000 shares.

[9] Mr Johnston tendered his resignation as an employee of Aquatec in August 2017, to take effect after utilising his accrued leave. His resignation did not take effect formally until 31 July 2019. In December 2018, Mr Johnston asked 202 to buy Octolake's shares. In August 2019, Octolake transferred 300,000 shares to Mr Johnston, who sold them to 202 at $4.45 each (a total of $1,335,000, which 202 paid). Before 202 bought the shares, it sought and obtained the approval of its shareholders at its annual general meeting on 28 June 2019. The price per share was determined by reference to the net tangible asset value per share set out in Aquatec's 2018 accounts.

[10] At 202's request, Mr Johnston agreed to put off selling the remaining shares for 12 months. When he asked 202 to buy those shares in July 2020, Mr Gilchrist asked him to delay for a further six months, which he did. But when he pressed his request in early 2021, 202 finally refused to buy the shares. In October 2021, Mr Johnston commenced this proceeding, seeking specific performance of the 1989 deed or damages for its breach. He pleads, in the alternative, that 202's conduct, particularly in not acting in accordance with the resolution and in refusing to comply with its contractual obligation to buy Mr Johnston's shares, is oppressive and unfairly prejudicial to Mr Johnston. He seeks orders to the effect that 202 comply with the resolution and buy the remaining 50,000 shares in Aquatec.

[11] It was not until after the proceeding commenced that 202 discovered, in its records, a "Shareholder Agreement" dated 23 May 1994 (the 1994 agreement), between the parties to the 1989 deed (apart from two senior staff who apparently had already resigned or intended to resign and to sell their shares to 202 under the 1989 deed). Of most relevance, that agreement provided that the 1989 deed "is superseded by this agreement and is null and void and to no effect whatsoever." However, 202 gave an identical undertaking to make best efforts to purchase a staff shareholder's shares in Aquatec upon resignation after a five year period. It also agreed to make best efforts to purchase up to 50% of a staff shareholder's holding where the shareholder had served five years. The agreement went on to provide that the directors of Aquatec would pursue a goal of listing it (apparently on the Australian Stock Exchange) within 5 years. It also provided that:

This agreement will be renegotiated prior to May 23, 1997 or prior to any listing of [Aquatec] whichever is the earlier. In the event that agreement cannot be reached, this agreement terminates on May 23, 1997.

[12] Before discovering that document, nobody in Aquatec or 202 appears to have remembered its creation or its existence. It seems that nobody acted under it, apart from on one occasion shortly after its creation. However, having discovered it, 202 pleaded it as a defence to Mr Johnston's claim, asserting that both that agreement and the 1989 deed had terminated and no longer govern the parties' rights and obligations and therefore it had no obligation to buy the remaining shares. It also contends that, in buying the first tranche of Mr Johnston's shares, it was acting under a mistaken belief that it had such an obligation. It counterclaimed for restitution of the entire sum that it had paid for the shares and for an order that it return the shares to the plaintiffs. Ultimately (at trial), it changed that part of its counterclaim to seek only an order that the plaintiffs repay it the difference between the price of $4.45 that it had paid for the 300,000 shares and the market value of those shares at the time it bought them. On the basis of expert evidence at the trial, 202 contends that the market value of those shares was in the range of $1.80 to $2.45.

[13] The plaintiffs contend that the 1994 deed came to an end after three years, upon which the 1989 deed re-enlivened. Alternatively, they contend that the 1994 agreement never came to an end, because there had been no attempt at renegotiating it and therefore, if its effect was to terminate the 1989 deed, Mr Johnston remained entitled to sell his shares under the 1994 agreement. As a further alternative, they contend that it is unconscionable of 202 to rely on the 1994 agreement - an agreement on which nobody had ever acted and which everyone had forgotten - as having terminated his rights, as 202 had always, since that agreement was made, asserted publicly in its annual reports (and those of Aquatec) that it continued to be obliged to buy his shares upon his retirement. The plaintiffs contend that 202 is estopped from denying that obligation, or its conduct in refusing to buy the balance of the shares is oppressive conduct under s 232 of the Corporations Act 2001 and the court should order that it purchase those shares.

(a) the 1989 deed came to an end upon execution of the 1994 agreement;

(b) the 1994 agreement became voidable at the option of either party from 23 May 1997, but it was never avoided and therefore continues to regulate the parties' interests such that 202 is obliged to use its best efforts to purchase from Mr Johnston the additional 50,000 shares in Aquatec at $4.45 per share;

(c) alternatively, 202 is estopped from denying an obligation to use its best efforts to purchase those shares at that price and, on that basis, it ought be ordered to purchase the shares;

(d) alternatively, 202's conduct in refusing to purchase those shares is oppressive and unfairly prejudicial to Mr Johnston and it ought be ordered to purchase the shares;

(e) 202 made no mistake in purchasing 300,000 shares in Aquatec from Mr Johnston in August 2019 and is not entitled to restitution;

(f) therefore, there ought be judgment for the plaintiffs on the claim and on the counterclaim, with appropriate consequential orders.

[15] It is necessary to set out a detailed history of the transactions between the parties, including to determine a number of facts that are in dispute. But first I shall record my approach to the evidence, particularly that of the witnesses.

[16] As will be seen, the events most crucial to the issues in this case occurred in the late 1980s and mid-1990s: that is, between about 30 and 40 years ago. Not surprisingly, the witnesses' memories of conversations and other events that occurred during that period have faded. Although some witnesses had apparently clear recollections of some events, unless supported by contemporaneous documents I shall treat the oral evidence about those events with some caution; not necessarily because I consider that the witness was being untruthful, but because human experience is that memories fade over long times and even apparently well-remembered accounts of events may involve an unconscious process of reconstruction of what the witness believes occurred. To the extent possible, where facts are disputed and where memories are relied on, I shall rely principally on any contemporaneously created documents, objectively established facts and the apparent logic of events[5], together with inferences that I may draw from those factors. I shall consider the objective evidence such as documents in their context, as revealed by other objective evidence and, to the extent possible, the oral evidence.[6]

[17] Thus, I shall consider the oral evidence of the witnesses, where possible, in the light of objective evidence and the apparent context in which the matters the subject of the oral evidence are said to have occurred. Where the witnesses' oral evidence differs, I shall determine whether any of it is reliable, having regard to the matters that I have just described.

[18] Mr Johnston was first employed by Aquatec in March 1975, shortly after he had graduated from university with a Bachelor of Engineering degree. He remained employed by that company until his formal retirement in July 2019:[7] a total of over 44 years. Since April 1985, he held the position of managing director. He took on that role after Aquatec was purchased by a company called Eastcourt Ltd, a venture capital company with which Mr Gilchrist was associated. Mr Johnston described Mr Gilchrist as the person to whom he reported while managing director of Aquatec.

[19] Mr Gilchrist explained that, in about 1988 or 1989, Eastcourt was taken over and wanted to sell Aquatec. Mr Gilchrist, in association with Ross Johnston, formed 202 as a venture capital company, with himself as managing director. Mr Gilchrist approached a number of senior staff (those who became parties to the 1989 deed) and they agreed on undertaking a management buyout of Aquatec.

[20] Greg Johnston said that he and the other employed parties to the 1989 deed had a meeting with Mr Gilchrist before that deed was formed, to discuss the possible management buyout. At the meeting, Mr Gilchrist said he wanted to see senior staff having a serious amount of skin in the game as part of such a buyout. He said it should be at least $100,000 between them. One of the staff (Mr Middleton, then the financial controller of Aquatec), with whom the others agreed, expressed concern that they would have a minority shareholding from which it would be hard to exit. Mr Gilchrist said he would be amenable to buying back the shares after a minimum period of five years' service or in the case of financial hardship and any buy back would be at Aquatec's net tangible asset backing per share.

[21] After the senior staff were able to consider their positions and how much each might put toward a share purchase, Mr Gilchrist drew the 1989 deed, which the parties signed on 23 May 1989. Mr Johnston said that, when the time came to buy the shares, he asked Mr Gilchrist if he would have any problem with Mr Johnston putting his shares into his family trust. Mr Gilchrist said no and, as long as Mr Johnston controlled the shares, he could transfer them back to himself in order to sell them back to 202 eventually.

[22] Mr Johnston's evidence about these discussions was not challenged, either in cross-examination or by any other witness, although 202 denied (in its defence) that the conversation about the shares being held in the family trust occurred. Mr Gilchrist was not asked about this conversation, either in evidence in chief or during cross-examination. However, Mr Johnston seemed to me to have a clear recollection of both conversations and they are consistent with the steps that were later documented in the 1989 deed and in the direct transfer of shares to Octolake, both in 1989 (34,999 shares) and in 1992 when Mr Johnston exercised his options under the 1989 deed to acquire an additional 35,000 shares.[8] So I accept Mr Johnston's evidence of those conversations. His counsel relied on the pre-deed conversation as an important contextual aspect of the 1989 deed in that:[9]

it was intended as an employee share scheme that incentivised the senior staff to continue working for Aquatec on the promise that something of real value would be provided in return.

[23] One might say that it also incentivised the senior staff to use their best endeavours to maximise the value of the company so that they might ultimately benefit from a consequent increase in the value of their shares.

[24] I have broadly described the effects of the 1989 deed at [5] and [6] above. As it concerned share buybacks on resignation, the deed relevantly provided:

202 recognizes that the senior staff ... are minority shareholders and undertakes as follows: ...

(b) In cases where a senior staff member resigns after a five year period 202 will make best efforts to purchase minority interests at net tangible asset value.

[25] It also provided that the senior staff would enter into five year employment agreements similar to previous agreements.

[26] The term "net tangible asset value" was not defined. The plaintiffs contend that it means the net tangible asset value of shares based on the net tangible asset value of the company as disclosed in its accounts for the financial year preceding the sale to 202 of a senior employee's shares. 202 does not accept that meaning, but it did not clearly contend for any particular alternative construction of the term. I find that the parties intended it to have the meaning for which the plaintiffs contend. That is consistent with the fact that Aquatec commenced calculating net tangible asset value per share from the 1990 financial year, as shown in the table appearing in every set of its annual accounts from 1995. It is also consistent with the parties' selection of that value in 2019 when 202 came to purchase 300,000 shares from Mr Johnston and it is broadly consistent with the price paid by 202 for other employees' shares in 1994.[10] The difference between the later published value ($0.78) and the amount paid per share ($0.80) to those employees is explained by the fact that, at the times those employees sold their shares to 202, the accounts for the immediately preceding financial year had not yet been finalised. It seems clear that the agreed price was based on an approximation of that value.

[27] At the time, Aquatec was a private company. The deed also provided that, during 1989, the directors would cause it to become an unlisted public company with Memorandum and Articles of Association consistent with those required for Second Board Listing should shareholders elect to follow the course of listing in the future. In fact, it did not become a public company until December 1994.[11] Nothing turns on that delay. It has never been listed on the stock exchange.

[28] Mr Johnston already had one share in his name and, when the purchase was effected, he caused Octolake to buy 34,999 shares so that he controlled 35,000 shares in Aquatec (the number that he had agreed with the other senior staff). Octolake was also issued an identical number of options.

[29] In May 1992, Mr Johnston exercised 30,000 of the options granted to him under the 1989 deed and Octolake was issued that number of shares, at a cost of $1.00 per share. In November 1992, he exercised the remaining 5,000 options and Octolake was issued a further 5,000 shares so that, at that stage, it owned 70,000 shares.[12]

[30] In November 1993, Aquatec conducted a 5:1 share split, resulting in Octolake then having 350,000 shares.[13]

[31] It merits recording at this point that, in the financial year in which Mr Johnston purchased 34,999 shares at $1.00 each in the name of Octolake, the net tangible asset value of Aquatec per share as shown in its accounts was no more than $0.56. In May and November 1992, when Mr Johnston exercised his options to buy another 30,000 and 5,000 shares respectively, the net tangible assets per share shown in its prior financial year accounts were respectively $0.59 and $0.53.[14] That value, as shown in the accounts from year to year, did not reach $1.00 until 2003.[15]

[32] Between the date of the 1989 deed and May 1994, Mr Johnston continued in his role as managing director of Aquatec and Mr Gilchrist was chairman of the board. No steps were taken to have Aquatec listed on the stock exchange and it remained an unlisted public company.

[33] In early 1994, it seems, someone associated with Aquatec may have re-enlivened the possibility of floating the company on the stock exchange. Who and why is not clear, as no witness could clearly recall what occurred. As I have summarised above at [11], on 23 May 1994 Mr Johnston and the other parties to the 1989 deed (except two of the former senior staff who had apparently already resigned and subsequently sold their sh[16]es to 20216) made the 1994 agreement. Unlike the 1989 deed, the 1994 agreement was not a deed, but a simple contract. However, to the extent that it purports to affect the 1989 deed, even though it was not a deed and, at common law, a deed could only be varied consensually by another deed, equitable doctrines permit variation or cancellation of a deed by a simple contract: even an oral contract wi[17] suffice.17

[34] Following execution of the 1994 agreement, little or nothing appears to have been done to comply with or to act upon it.[18] There is in evidence what appears to be a facsimile sent on 28 September 1994 by Mr Gilchrist to a Mr O'Rourke (who was then the financial controller of Aquatec), in which he attached a copy of the agreement signed only by Mr Gilchrist and said:

(1) organise signatures

(2) start file with orig agreement plus this one.

[35] It appears that Mr O'Rourke obeyed those instructions as, after the commencement of this proceeding, Mr Coghlan (Mr O'Rourke's successor as financial controller) eventually found both the 1989 deed and the 1994 agreement signed by all parties in a filing cabinet containing old records of the company.

[36] After the creation of the 1994 agreement, Aquatec was not listed and the 1994 agreement was never renegotiated. Having been filed away, it is apparent that all parties to the 1994 agreement forgot about its existence. Nobody recalled it until Mr Coghlan found it and, even then, the witnesses' recollections of its creation were vague and all accepted that they had forgotten about it.

[37] During 1994, the senior staff who were not parties to the 1994 agreement sold their shares to 202 at $0.80 each: a price closely representing the value of shares as a proportion of the net tangible assets of Aquatec later shown in its 1994 accounts ($0.78).[19]

[38] Between 1994 and 2019, Mr Johnston continued in his role as managing director of Aquatec. In August 2017, he gave notice to Mr Gilchrist that he wanted to resign as managing director of Aquatec for a variety of personal reasons. (He did not set out those reasons in his letter, but he explained them in his evidence. It is unnecessary to set them out here, but I accept his evidence and that they justified his decision.) He said he would continue to work until February 2018, after which he would use his accumulated leave. He expressed his willingness to remain as a director.[20] As it turned out, his leave expired in July 2019 and his formal resignation occurred on 31 July 2019.[21]

[39] On 13 December 2018, Mr Johnston wrote to 202 on Octolake letterhead, saying:[22]

We hereby advise our intention to exercise our option to sell our 350,000 shares in accordance with the deed dated 23rd May, 1989. We understand that these shares would be priced at the N.T.A. to repurchase and would expect that to be as detailed in the 2018 end of Financial Year accounts which are yet to be released.

[40] Strictly speaking, when Mr Johnston wrote that letter, he had not yet resigned, as he was still employed but on leave. If either the 1989 deed or the 1994 agreement applied, he would not be entitled to exercise his option until after his resignation took formal effect on 31 July 2019 (in which case the relevant net tangible asset value would be that shown in Aquatec's 2019 accounts: $4.28.[23]) However, 202 never raised this and the parties have ignored the issue in this proceeding. I shall similarly ignore it in considering the issues in these reasons.

[41] Aquatec published its annual report for the 2018 financial year in March 2019.[24] Mr Gilchrist, Mr Johnston and another person were shown as the directors. The report included a notice of the company's annual general meeting, to take place on 5 April 2019.[25] Relevantly, the business of the meeting included the following:

3 Approval of share purchases.

Directors are seeking shareholder approval for 202 Limited to purchase 450,000 shares in Aquatec Maxcon Group Limited from Gregory Mark Johnston (see Explanatory Note 2)

Explanatory Notes:

202 Limited and its directors and their associated parties control some 6.5 million (61%) of the 10.7 million shares on issue. 202 Limited can increase its shareholding by 3% per half year (321,000 shares) without shareholder approval. 202 Limited wishes to purchase 450,000 shares (4.2% of shares on issue) from a director of the company, Gregory Mark Johnston, and seeks shareholder approval to do so.

[42] In two sections of the report, there was mention of recent share sales.[26] In the third note to the notice of the AGM, the notice referred to "the recent share sales value of $2 per share." In the Chairman's review Mr Gilchrist noted that the most recent share transaction was at $2.20 per share. In contrast to those apparent sales, the net tangible asset value per share, "excluding non-controlling interests," for 2018 was recorded as $4.45.[27]

[43] In the directors' report, it was recorded that Mr Johnston had an indirect shareholding of 731,500 shares, being a director and substantial shareholder of Octolake, which held the shares. Octolake was the third largest shareholder.[28]

[44] The minutes of Aquatec's annual general meeting on 5 April 2019[29] relevantly recorded this motion:

Ms Monita Naicker moved the motion to approve 202 Ltd being able to purchase 450,000 shares in the company indirectly owned by a director, Greg Johnston. The motion was seconded by Mr. Pero Grbin and was passed unanimously.

[45] Mr Johnston was also unanimously re-elected as a director.

[46] 202 published its annual report for the 2018 financial year on about 6 June 2019.[30] Included in it was a notice of the company's annual general meeting, to take place on 29 June 2019.[31] Relevantly, the business of the meeting included the following:

Directors are seeking shareholder approval to purchase 350,000 shares in Aquatec ... from a director, Mr Gregory Johnston (see explanatory note below).

Explanatory Note.

On 23 May 1989 202 Limited purchased a controlling interest in Maxwell Contracting Pty Ltd ("Purchase Agreement") which grew to become Aquatec Maxcon Group Limited. To facilitate that purchase, 202 Limited encouraged Mr Greg Johnston, the then managing director, to also purchase shares in Maxwell Contracting Pty Ltd. To protect Mr Johnston's minority interest, 202 Limited gave an undertaking to Mr Johnston to make best efforts to purchase his shares at net tangible asset value upon his resignation. Mr Johnston resigned his salaried role as managing director in 2018 after service to the company of 43 years, and his 350,000 shares are now offered for sale to 202 Limited under the terms of the Purchase Agreement.

These 350,000 shares are part of the total shareholding of Mr Johnston and his associated parties of 731,500 shares. The remaining 381,500 shares do not form part of the Purchase Agreement. Mr Greg Johnston is disqualified from voting on this motion.

The other two directors and their related entities support the motion.

[47] There are no minutes of the meeting in evidence, for which no explanation was given. Mr Gilchrist gave evidence that, although he was responsible for preparing the minutes, or having them prepared, he did not prepare any minutes and he did not know if any minutes are in the company's records. He did say that the motion in item 3 was passed.[32] While he did not expressly say that it was passed unanimously, Mr Johnston had earlier said that he left the room during the discussion of the motion and when he returned Mr Gilchrist told him that it had been passed unanimously.[33] There was no suggestion by 202's witnesses that it had not been passed unanimously.[34] When I asked Mr Gilchrist if he knew whether it was passed unanimously or not, he answered "Yes." While I did not ask him clearly whether it was so passed, there was no evidence to the contrary. In the circumstances, I infer that it was passed unanimously.

[48] In 202's annual report, it recorded that 202 owned 48.9% of Aquatec.[35] It also included the same table of Aquatec's performance since the 2009 financial year as was included in Aquatec's annual report, showing net tangible assets per Aquatec share at $4.45.[36]

[49] After 202's annual general meeting, on or before 15 July 2019 Greg Johnston, Mr Gilchrist and Ross Johnston met. Greg Johnston said that Mr Gilchrist and Ross Johnston expressed concern that, notwithstanding the Aquatec shareholders' resolution in favour of 202 acquiring all Greg Johnston's shares, if he did in fact sell 350,000 shares (more than 3% of Aquatec's shares) in a six month period, other shareholders might want to be able to sell their shares at the same price. They agreed that Mr Johnston would sell to 202 fewer than 3% of Aquatec's shares at any one time and, to that end, he would sell 300,000 shares immediately (being 2.8%) and delay the sale of 50,000 (at the same price) for a year.[37] That evidence was not disputed and it is consistent with the steps then taken by the parties. I find that that conversation occurred, as described by Mr Johnston.

[50] Consistently with that agreement, on 15 July 2019 Mr Johnston executed a transfer of 300,000 shares from Octolake to himself and a transfer of that number of shares from himself to 202, both at $4.45 per share.[38] Mr Gilchrist signed the latter transfer on 30 August 2019 and, on the same date, 202 drew a cheque to Mr Johnston for the stated consideration, namely $1,335,000. The cheque was negotiated and that amount was transferred to Mr Johnston on 5 September 2019.[39]

[51] Mr Johnston said (and I accept) that he spoke with Mr Gilchrist in July 2020, requesting that 202 purchase the remaining 50,000 shares. He said Mr Gilchrist told him that things had changed and he could join the queue. On 20 July 2020, Mr Johnston wrote to Mr Gilchrist requesting that 202 complete that transaction. In a response a week later, Mr Gilchrist requested that Mr Johnston delay his claim for six months, saying that Aquatec had been operating with negative cash flows since July 2018 and had limited cash resources at the time.[40] Mr Johnston did not accept that proposal and wrote to Mr Gilchrist several times requesting completion of the transaction. Mr Gilchrist did not respond to any of those emails, but Greg and Ross Johnston also exchanged emails and all three met in February 2021, when Mr Gilchrist refused to cause 202 to purchase the remaining shares. Mr Johnston commenced this proceeding in October 2021.

[52] I have summarised the 1994 agreement in paragraph [11] above. The crucial clauses of the agreement are the following.

The terms [sic] of this agreement will be three years unless agreed by all parties.
The Original Agreement is superseded by this agreement and is null and void and to no effect whatsoever.[41]
202 recognises that the staff shareholders are minority shareholders and undertakes as follows: ...

(b) In cases where a staff member resigns after a five year period 202 will make best efforts to purchase the shares at net tangible asset value from that shareholder.

(c) In cases where a staff member has served five years and wishes to sell up to 50% of the shares, 202 will make best efforts to purchase the shares at net tangible values from that staff shareholder.

This agreement will be renegotiated prior to May 23, 1997 or prior to any listing of [Aquatec] whichever is earlier. In the event that agreement cannot be reached, this agreement terminates on May 23, 1997.

Directors will pursue a goal of listing [Aquatec] as a water and wastewater specialist company within 5 years.

[53] The issues that arise concerning the 1994 agreement are, in short:

(a) whether its effect was to terminate the 1989 deed for evermore, even after the expiration date of the 1994 agreement or, upon the expiration of the 1994 agreement without any further agreement, the 1989 deed revived; and

(b) whether the 1994 agreement has in fact terminated where the parties took no steps to renegotiate it before 23 May 1997.

[54] The parties do not disagree on the principles that apply to the construction of a commercial agreement such as these. The agreement is to be construed objectively and so as to avoid it making commercial nonsense or working commercial inconvenience. The meaning of the terms of such an agreement is to be determined by what a reasonable businessperson would have understood them to mean. It requires consideration of the language used, the context of the particular term (including the entire text of the agreement and any other contract referred to in it), the surrounding circumstances known to the parties and the commercial purpose or objects of the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties were operating. If an expression is unambiguous or susceptible of only one meaning, the surrounding circumstances cannot be adduced to contradict its plain meaning.[42] Rather, if words used in a contract are unambiguous, a court must give effect to them.[43]

[55] There is a difference between resolving an ambiguity in language so as to avoid a construction which is commercially unreasonable or plainly inconsistent with the evident commercial object of the instrument and choosing between alternatives on the basis of a sense of commercial fairness. The task of the court is to construe the words used, not to remake the commercial bargain. The court should also construe commercial instruments fairly and broadly and in a practical and realistic way, not by adopting an overly theoretical approach and not being too astute or subtle in finding defects.[44]

Was the 1989 deed terminated forever by the 1994 agreement?

[56] The plaintiffs contend that the proper construction of the 1994 agreement is that it had effect in superseding the 1989 deed only for the duration of the 1994 agreement so that, upon its expiration on 23 May 1997 (under clause 1), the 1989 deed was re-enlivened and continued thereafter. Consequently, after that date 202 remained obliged, under the 1989 deed, to use its best efforts to buy Mr Johnston's shares, upon his resignation, at net tangible asset value.

[57] Counsel for the plaintiffs submitted that the context in which the 1989 deed was made is important. It was intended as an employee share scheme that incentivised senior staff to continue to work for Aquatec after its control passed to 202, on the promise that they would receive shares of real value and which they could readily sell upon their resignation (or in the other circumstances provided for by the deed).

[58] That context continued to apply as part of the context in which the 1994 agreement was made. The witnesses' evidence about the reasons for the 1994 agreement was somewhat vague (not surprisingly, given that none of them recalled the agreement). Mr Johnston said that, having read the agreement (once it was discovered during this proceeding), he remembered that there had been a requirement to renegotiate 202's funding support for Aquatec's bank facility, which had had a five year term that was expiring.[45] In cross-examination, he also recalled that, at about that time, there were discussions involving him and Mr Gilchrist about listing Aquatec on the stock exchange, although they ultimately decided against it.[46]

[59] Mr Gilchrist recalled that the possibility of listing Aquatec had been mentioned in the 1989 deed. By 1994, Aquatec was doing better and the shareholders were interested in moving the listing process forward. "So a number of the shareholders made concessions and the new agreement was agreed."[47] (He did not say what any of the so-called "concessions" were, nor was it put to Mr Johnston in his cross-examination that he or any other shareholders had made any concessions.) Mr Gilchrist said that he wrote the 1994 agreement.

[60] Ross Johnston had no knowledge of the agreement at all. He said the first time he became aware of it was when it was found by Mr Coghlan after this proceeding had commenced. Nevertheless, he said that at about that time "we (presumably meaning he and Mr Gilchrist at least) were considering listing the company, so there would have been a series of changes. ... That involved tidying up the company, getting matters into line [so] that we could take it to the market. ... We had a number of shareholders there that wanted that to happen. Joe Richardson in particular." But he had no recollection of any meetings, nor of the agreement.[48]

[61] The plaintiffs submit that, as the motivation for the 1994 agreement may have been a renewed interest in listing Aquatec, it made no commercial sense that 202 would have sought (and Mr Johnston would have agreed) to terminate Mr Johnston's right to have a ready method of selling his shares in Aquatec upon retirement, which had been given to him in 1989 and was renewed in 1994, simply because the renewed goal of listing Aquatec may not be achieved within the following three years. Mr Johnston had proved himself to be an excellent engineer and managing director and it continued to be in the interests of Aquatec and 202 that he continue to utilise those skills for the companies' benefit. The effect of the 1994 agreement was to reiterate those rights and, indeed, to add to them by permitting Mr Johnston (and the other staff shareholders), having already served for more than five years, to sell to 202 up to 50% of his shares in Aquatec during the term of the agreement.

[62] The plaintiffs submit that, in its context in the 1994 agreement, clause 2 had effect only while that agreement was on foot: either for three years or for any additional period that may later be negotiated. The agreement demonstrates an intention that it would have temporary effect only and Mr Johnston's accrued right to sell his shares upon retirement was not be taken away without either further negotiation or the listing of Aquatec. This was confirmed thereafter every year in 202's and Aquatec's annual reports, in which the directors repeatedly acknowledged a continuing obligation to purchase Mr Johnston's[49] shares in the event of his retirement.

[63] This construction is not overcome by the wording of clause 2, which had effect only during the three year term of the agreement or any agreed extension. The plaintiffs submit that that clause, in the context of the surrounding circumstances and of the agreement as a whole, was not intended to override the 1989 deed permanently, but only during the term of the 1994 agreement. They support this submission by an analysis of the words used:[50]

(a) the 1994 agreement did not cover the same field as the 1989 deed, which imposed additional obligations on the parties to it, so the 1994 agreement "superseded" the 1989 deed only to the extent that the 1994 agreement dealt with the same subject matters and only during its term; had it been intended to bring that deed to a permanent end, the parties would have used the unambiguous word "terminated" in clause 2;

(b) the term of the 1994 agreement was only three years: a shorter period than Mr Johnston was required to serve before being entitled, under that agreement, to sell his shares on retirement, so that restriction on the accrued right to sell the shares only applied during the term of the 1994 agreement or any extension of it; otherwise it reverted to the existing right;

(c) the words "null and void" mean "invalid, not binding," but again they have to be construed in context. The staff equity scheme was fundamental to all parties and contributed to the attractiveness of the proposed listing. The clause in which they appeared followed immediately after the clause limiting the term of the agreement to three years (absent re-negotiation). The 1989 deed was not similarly limited in time, but during the term of the 1994 agreement it was intended not to have any effect: that is, it was superseded and null and void and of no effect during the specified term;

(d) as discussed above, there was no commercial sense in abolishing the existing rights altogether rather than only during the term of the agreement.

[64] Notwithstanding the above discussion of the meanings of the words used, counsel for the plaintiffs urged me to keep in mind the warning by Windeyer J[51] that it is:

likely to lead to error ... to adopt first one of the familiar legal adjectives - ... "void", "unenforceable", "ineffectual", "nugatory" - and then having given an act a label, to deduce from that its results in law. That is to invert the order of inquiry, and by doing so to beg the question, and allow linguistics to determine legal rights.

[65] Counsel particularly noted that, in clause 7, the word "terminated" is used with respect to the 1994 agreement itself, in contrast to the use of the word "superseded" in clause 2 with respect to the 1989 deed. This, they submitted, was another indication of a distinction between the treatment of the two agreements.

[66] The plaintiffs also submitted that the parties' conduct (and particularly that of 202), both before and after the 1994 agreement and its alleged termination, was solely consistent with an ever-present commitment that the salaried shareholders' right to ask 202 to buy their shares at net tangible asset value after their resignation continued at all times. The most relevant conduct was that 202 (and, in most years, Aquatec) consistently included in its annual reports both the historical (and present) net tangible asset value of individual shares and notations to the effect that 202 had a contingent liability to buy staff shareholders' shares in Aquatec and at that value once a shareholder resigned his or her employment.

[67] These notations preceded the 1994 agreement, continued during the three year term of that agreement (assuming that it did end after three years) and every year thereafter, although its wording varied a little from year to year. Examples of the notations are:[52]

(a) in 202's 1994 annual report (published in October 1994), this appeared in the notes to the accounts:

Under certain conditions 202 Ltd. and Aquatec Environmental Pty. Ltd. have an obligation to repurchase shares in Aquatec Environmental Pty. Ltd. held by staff at 100% of net tangible asset backing at repurchase date. The number of shares covered by this obligation is 200,000 and 139,500 respectively.

(b) a similar notation appeared in the notes to the 1995, 1996 and 1997 accounts and every year thereafter.

[68] When I took Mr Gilchrist to the 1994 and 1997 accounts and put to him that the latter was just shortly after the 1994 agreement came to an end and that, surely, he was still aware of that agreement at that time, he responded:

Apparently not, sir. As I say, we were kept reminded of the earlier agreement. We were never -the board were never reminded by Greg Johnston of the second agreement.

He then asserted that the note was prepared by Greg Johnston, although he subsequently accepted that he did not have personal knowledge of that fact but was relying on the practice that notes to the accounts of both Aquatec and 202 were prepared by the group financial controller in consultation with Mr Johnston and he had no basis for asserting that Mr Johnston had prepared them.[53] I find that Mr Johnston was not involved in the preparation of those notes to the accounts.

[69] The plaintiffs contend that this conduct is ongoing and repeated evidence of the parties' commercial intention that the agreement under which those rights accrued and that gave rise to the contingent liability (whether the 1989 deed or the 1994 agreement) continued in existence and continued to grant those rights and 202's obligation. It is highly relevant to the proper construction of the 1994 agreement and, in particular, whether it permanently superseded the 1989 deed or the latter re-enlivened upon the 1994 agreement coming to an end (or indeed, the 1994 agreement continues to operate after May 1997).

[70] Thus, the 1994 agreement effected only a temporary stay on the operation of the 1989 deed, so that, upon the termination of the 1994 agreement at the end of its term, the 1989 deed continued to govern the parties' relationship.

[71] 202 contends that the words of clause 2 are clear and mean what they say. The 1994 agreement completely and forever superseded the 1989 deed, which was thereafter of no effect whatsoever. The word "superseded," in its ordinary meaning, relevantly means to replace in effectiveness and to set aside, as obsolete, usually in favour of something else. Similarly, an instrument that is declared "void" has no legal force or effect. Clause 2 went on to make these meanings clear and to put the matter beyond doubt by adding that the 1989 deed was "to no effect whatsoever." All of these terms made it extremely clear that, from the date of the 1994 agreement, the 1989 deed was at an end.

[72] That being so, the parties' rights and obligations were to be governed by the 1994 agreement while it was in force. By clauses 1 and 7, once it came to an end (which would occur after three years unless it was renegotiated), those rights and obligations ceased. But the clauses of the agreement that had already taken effect during its term were not rendered ineffective by the end of its term. Thus, the operation of clause 2 had taken effect and there was no room for the 1989 deed to be re-enlivened. Any reasonable businessperson would have understood clause 2 to mean that the 1989 deed was at an end. Nothing in the agreement suggests, let alone provides, that it would revive when the 1994 agreement expired. That would be an unusual proposition that would require clear words for it to occur.

[73] Counsel for 202 also submitted that this construction is consistent with the commercial purposes of the 1994 agreement, as described by the witnesses. In particular, it was made in fresh contemplation that Aquatec may be listed on the stock exchange: it was updating the contractual relationships between the parties in that anticipation. The underlying purpose of the 1994 agreement was to bring an end to the 1989 deed so as to tidy up the shareholding in order to pursue the listing of Aquatec. It is not clear to me what "tidying up" was required. In any event, that was only Ross Johnston's recollection of about that period of time, but he knew nothing of the 1994 agreement. His evidence in that respect was too vague to have any weight.

[74] Two of the parties to the 1989 deed - Mr Posselt and Mr Middleton - were not parties to the 1994 agreement and sold their shares to 202 in July 1994, at $0.80 per share. I assume, although it is not clear on the evidence, that they resigned in order to do that. Mr Evans (who was a party to the 1994 agreement) sold 50% of his shareholding at the same time and for the same price.[54] These steps were consistent with the 1994 deed, Mr Evans exercising his new right to sell half his shares.

[75] Clause 9 of the 1994 agreement makes it clear that it was made in the context of preparing to list Aquatec, if appropriate, within the following five years: a goal that had similarly been expressed in the 1989 deed. At the same time, 202 was also apparently considering listing itself within a few years, as recorded in Ross Johnston's chairman's report in 202's annual report for 1993. In its annual report for 1994, Ross Johnston instead referred to "moving towards listing Aquatec." (There was no mention of a possible listing in any of Aquatec's annual reports that are in evidence.) In 202's annual report for 1997, Ross Johnston reported that, "It is our plan to go to market to raise further funds ... A decision to float Aquatec is always on the agenda." But in its 1998 report, it was reported that, "Given the current loss and the refocus of Aquatec back to contracting, we don't believe either 202 or Aquatec in their present form are suitable for listing on the Australian Stock Exchange."[55]

[76] There was clearly a renewed interest, in 1994, in listing Aquatec on the stock exchange. That was a motivation for Mr Gilchrist drawing the 1994 agreement and appears to be the commercial object of the agreement. (It may also have been a factor that the five year employment agreements provided for in the 1989 deed were presumably due to expire in 1994, although no witness gave evidence that they were actually created or that they were relevant to the creation of the 1994 agreement.) As was the case in 1989, in order to make listing more attractive, it sought to replicate the original arrangements to "handcuff" the senior staff to the company while listing was anticipated. Clause 4(b) refers to a staff member resigning "after a five year period," thus looking to the future. The effect of that clause was that the existing right of the contracting shareholders to sell their shares upon retirement should be paused for five years from the date of the agreement, so as to tie them again to remain with Aquatec pending and after listing. Without that tie, under the 1989 deed any of them could have retired at any time. As a form of compensation for the re-imposition of that tie, the contracting shareholders were, by clause 4(c), given the right to sell up to 50% of their shares immediately and without resigning. That clause gives the new right to a staff member who "has served five years:" looking to the present and past.

[77] Counsel for 202 submitted that the five year terms in clauses 4(a) to (c) should be read as starting from the time of the 1989 deed, so that the effect of the 1994 agreement was that 202's obligation to purchase the staff shares continued, but ended after 3 years (absent any re-negotiation). With respect, I disagree, for the reasons stated immediately above.

[78] Do these objects and effects result in the 1989 deed having no further effect after the 1994 agreement was to come to an end?

[79] The effect of the plaintiffs' submissions as to the limited meaning of clause 2 is that I should read into it the words, "during the term of this agreement." However, those words were not in the clause. In their absence, the clause is clear: the 1989 deed was intended to be brought to an immediate end upon the execution of the 1994 agreement. If it had been intended that the 1989 deed would revive after three years, it could easily have been made clear. To the contrary, the words used in clause 2 were clear and had immediate effect upon the agreement being signed by all parties. The 1989 deed came to an end immediately upon that event.

[80] When an agreement is made for a limited period, any rights or obligations that have accrued or been put into effect and completed during the term of the agreement are not negated by the termination of the agreement at the end of its stated term or by some other event causing its termination. As has been said:[56]

the determination of a contract does not involve a complete severance of all legal connection between the parties so that they become legal strangers. Obligations which have already accrued continue to exist. The determination of the contract does not undo the past.

[81] Mr Gilchrist, who is a very experienced businessman, drew both the 1989 deed and the 1994 agreement. Despite his experience, I doubt that he would have had in mind the fine distinctions that the plaintiffs' counsel sought to draw between the different terms of the 1994 agreement, particularly between the effect on the 1989 deed of the word "superseded" in clause 2 and the contrast with the word "terminated" in clause 7. In my view, the entirety of clause 2 made it clear that the 1989 deed was no longer to have any effect as between the parties to the 1994 agreement, with the latter taking over as the determinant of the parties' rights and obligations.

[82] The conduct of 202 after the 1994 agreement was made and after May 1997, in continuing to record a contingent liability apparently based on either the 1989 deed or the 1994 agreement, while consistent with the plaintiffs' contention that the parties intended the deed to revive after the 1994 agreement came to an end, is also consistent with the parties simply having forgotten about the 1994 agreement by the time its period ended. All parties agree that they had forgotten about it, no doubt as the economic circumstances of the country and the companies rendered a listing no longer viable within the time frame contemplated.[57]

[83] It might have been suggested that, having made the 1994 agreement and then done nothing consistently with it, the parties abandoned it, as they never acted in accordance with it and completely forgot about it. However, no such claim was made in the pleadings, nor was any submission to that effect made. To the contrary, Mr Alexis expressly disavowed such a claim or that the facts supported active consideration by the parties of abandoning the agreement.[58]

[84] In any event, even where a contract is abandoned, if it has been partly performed it is not lightly to be supposed that parties intend to abandon accrued rights. Absent a clear indication to the contrary, it is to be inferred that the abandonment of a contract operates prospectively without prejudice to accrued entitlements.[59] In this case, the evidence does not show whether the agreement was partly performed, apart from 202 buying 50% of Mr Evans' shares in Aquatec shortly after the agreement was executed. For example, the evidence does not disclose whether directors were thereafter paid $2,000 per annum rather than $1,000 as provided in the 1989 deed. But even if it had been partly performed, the accrued position under clause 2 would still be that the 1989 deed was at an end from the commencement of the 1994 agreement. But, as abandonment was not raised, I need not consider such possible consequences further.

[85] Consequently I find that, from the inception of the 1994 agreement, the 1989 deed came to an end. Nothing in the 1994 agreement indicated, either expressly or impliedly, that the earlier deed would revive if the rights given under the later agreement came to an end. The 1994 agreement was clear, by clause 2, that the parties agreed that the 1989 deed had been terminated by the new agreement. It cannot be construed in any other way. Its terms are clear: the 1989 agreement no longer had any life left in it and it would not rise, Lazarus-like, at the end of the 1994 agreement.

[86] Therefore, upon his entry into the 1994 agreement, Mr Johnston agreed that his rights and 202's obligations under the 1989 deed were at an end. The parties' rights and obligations were henceforth to be governed by the 1994 agreement. That they subsequently forgot about the latter agreement and continued to act as if the deed were extant do not alter that position as a matter of contract law.

Has the 1994 agreement continued since May 1997?

[87] Alternatively, the plaintiffs contend that, as the parties to the 1994 agreement never renegotiated it, as contemplated (but not required) by clause 7, there was never a circumstance where agreement could not be reached. Put another way, in order for termination under clause 7 to take effect, as a condition precedent to termination it was necessary that there first be a positive engagement in re-negotiation between the parties following which they could not reach agreement. An unsuccessful renegotiation was a condition precedent to the agreement terminating: a condition that was not fulfilled. There was no such positive engagement in negotiations. The clause did not contemplate a termination merely upon the parties not conducting or attempting any negotiation. Rather, in the absence of any renegotiation, the parties would be taken to have agreed to the continuation of the agreement. Therefore, clause 7 did not have the effect of terminating the agreement and it continues in force.

[88] Such a construction, the plaintiffs submitted, brings harmony to the operation of clauses 1 and 7 of the 1994 agreement: clause 1 stated the anticipated term of the agreement, while clause 7 set out the requirements for the agreement actually to terminate. It preserves the fundamental objective of the parties' commercial bargain by construing that agreement as continuing after 23 May 1997, having regard to the limited circumstances in which it was to terminate on that date. Consequently, 202 remained obliged, upon Mr Johnston's resignation, to use its best efforts to purchase his shares in Aquatec at net tangible asset value.

[89] The defendants dispute these contentions. In their submission, both clause 1 and clause 7 would be understood by a reasonable businessperson as meaning that, at the end of three years, the 1994 agreement would terminate absent agreement between the parties to vary or extend it. They submit that clause 7 contained a positive requirement to renegotiate the agreement but, if they reached no agreement by the stipulated date, the 1994 agreement would come to an end, regardless of whether they did in fact negotiate. The effect of both clauses was that the agreement would come to an end on 23 May 1997 unless the parties agreed otherwise. Renegotiation was not a condition precedent to its termination in the absence of agreement.

[90] In the defendants' submission, it would be an absurd outcome if, despite the words of clause 1, the lack of any renegotiation meant that the contract period extended beyond three years. That would be inconsistent with the express language of clause 1.

[91] Clause 7 uses the word "will" ("This agreement will be renegotiated ...). That word is often construed as imposing a positive duty or obligation, that is, having a similar meaning to "shall" or "must". However, "will" can also be used as a word of anticipation of something occurring in the future, or as a statement of intention without obligation.

[92] In this agreement, the word "will" is used in every clause except clause 2. In each clause other than clause 7, it is used as denoting an obligation of a party or parties. For example, "202 will make best efforts to purchase the shares at net tangible asset value." Its use in clause 7 is clearly intended to have the same effect: thus it was an obligation of the parties to renegotiate the agreement. Of course, neither party took any steps to renegotiate.

[93] In the absence of such steps, two possibilities arise. The plaintiffs' case is that the parties failed to fulfil a condition precedent to termination, resulting in no termination occurring and the agreement continuing in the future. The alternative (effectively 202's case) is that the parties have effectively waived that obligation so that, no agreement having been reached by the specified date, the agreement as a whole terminated on that date.

[94] Clause 1 also uses the word "will" in providing for the term of the agreement, but is expressly subject to the parties agreeing otherwise. Clause 7 is arguably an agreement that may affect the term of the agreement, not only by allowing for an agreed extension or replacement, but also possibly by effecting a change to the term of the agreement where no further agreement is reached, either after renegotiation or in the absence of renegotiation.

[95] A condition such as clause 7, requiring the parties to renegotiate it by a certain time and to reach agreement or the contract will terminate, is a condition for the benefit of both parties. Where such a condition exists in a contract, which also provides that, if it is not fulfilled, the contract comes to an end, the clause does not always operate so as to bring the contract automatically to an end if the condition is not fulfilled. Rather, depending on the proper construction of the condition, it may have the effect that, upon its non-fulfilment, either party can thereafter terminate the contract but, if neither does, then the contract remains on foot.

[96] In Suttor v Gundowda Pty Ltd,[60] the plurality held that, where a condition of a contract was not fulfilled without default of either party, a clause that provided that non-fulfilment of that condition would result in the contract being at an end (or similarly) did not automatically end the contract but rendered it voidable at the option of either party. But neither need avoid the contract and, if one party having a right to avoid it does not clearly exercise that right, the other party may enforce the contract against the first party.

[97] Similarly, in Gange v Sullivan,[61] the plurality said this:

Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end.

[98] The effect of these decisions was later described succinctly by Jerrard JA as:[62]

that the contract - on non-fulfilment of the condition - was, despite its terms, voidable at the instance of either party, once the clause had neither been performed nor waived.

[99] In other circumstances, other courts have held that a contract terminated automatically when a condition was not fulfilled. In Rudi's Enterprises Pty Ltd v Jay,[63] the New South Wales Court of Appeal held that, where a clause of a contract provided to the effect that the contract would terminate if a condition beyond the parties' control was not fulfilled, the parties' clear intention that the contract would automatically end would be given effect if that condition was not in fact fulfilled.

[100] In MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd,[64] the relevant clause of the contract provided:

This Contract will be deemed to be automatically rescinded and of no force and effect if the condition precedents [sic] are not satisfied by [a certain date].

[101] The Court of Appeal agreed with the court in Rudi's Enterprises and held that, in the contract before it:

the wording of cl.2A(b), and particularly the use of the word "automatically", clearly shows that the parties' intention, as manifested by the words they chose, was that the contract would be automatically rescinded and that no notice was required; and that intention should prevail in the construction of the contract.

[102] The various constructions of such types of condition have been helpfully summarised in a recent publication:[65]

From these decisions it appears that if a contingent condition provides that the contract is at an end (or similar wording) in the event of non-fulfilment of a condition, which may or may not be brought about by the actions of one party, there is a constructional choice. Generally the choice is between, on the one hand, the automatic avoidance of the contract upon non-fulfilment of the condition but subject to the application of the (overarching) 'prevention principle' or, on the other, that the condition is, prima facie, construed as meaning that the contract is 'voidable' and may be brought to an end if, after the date specified, the party not in default exercises his or her option to terminate the contract. ... One disadvantage of [the former] approach is the uncertainty that may arise, for example, if one has such a contract and the invalidating event occurs through the default of one party, that party will be in doubt as to whether performance of the contract is or is not required of it, unless some notice is given by the party not in default.

The latter approach, however, arguably remains the predominant approach at least in Queensland. ... In the authors' view, as a matter of prudence, at least in Queensland, written notice of termination should be given by the non-defaulting party notwithstanding that a contingent condition is expressed as providing for automatic termination of the contract in the event of non-fulfilment.

[103] The authors referred to two Queensland Court of Appeal decisions.[66] I have already referred to a passage by Jerrard JA in Donaldson. In that case, the contract was subject to the buyer entering into a contract for the sale of his own property by a certain date, "failing which this contract will be at an end." The parties agreed that that condition should be construed as rendering the contract voidable by either party. Keane JA considered that construction "appropriate" (at [60]). Thus, the issue before me did not arise for that court's consideration. Nevertheless, the Court's reasons do assist me in considering the proper construction and effect of clause 7 in this case.

[104] The issue on appeal was described by Keane JA at [63] as:

whether the right of termination which arose in the respondents upon the non-fulfilment of the condition was lost because the appellants indicated to the respondents that the appellants wished to complete the contract before the respondents purported to terminate the contract.

[105] As Keane JA said, the question was to be answered by reference to the contractual intention of the parties, which was sovereign. His Honour said at [64]:

the parties could not have expressed more clearly their intention that, upon the failure of the condition, all parties should be released from the binding effect of the contract.

[106] Keane JA examined carefully both Suttor and Gange, as well as some other cases. As to the former, his Honour noted at [28] that the defendant, instead of taking steps available to him to terminate the contract, continued to act as if it were on foot and thereby lost the power to terminate for failure of the condition by the agreed upon date.

[107] A few weeks before the decision in Donaldson, the Court of Appeal delivered judgment in Quinn Villages. In dicta, Cullinane J (McMurdo P and Holmes JA agreeing) considered a clause that relevantly provided:

8.4 If, within 12 months from the date of execution of this Agreement, the requirements of Sub-Clause 2(a) to (d) have not been fulfilled, then this Agreement shall be at an end.

[108] Sub-clause 2(a) required that a management committee consider and approve an offer of finance. No meeting of the management committee was held which received a copy of the offer of finance as countenanced by the clause. The appellant contended that the effect of clause 8.4 was to bring the contract to an end due to non-compliance with clause 8.2(a). The trial judge had concluded that, notwithstanding the language of clause 8.4, the contract was in the event of such non-compliance voidable and not void and that in the events which happened the appellant, with full knowledge of the non-compliance alleged, had elected to affirm the contract. His Honour had found that any non-compliance in relation to the offer of finance occurred without fault of either party. Since both had failed to call a management committee meeting neither could terminate on this ground.[67]

It may be accepted that a court will if the language is sufficiently explicit give effect to a clause bringing a contract to an end in the eventualities for which it provides. There is nonetheless a plain disposition to treat such a clause as rendering the contract voidable and not void.

[110] Of particular relevance to the case before me, in which clause 7 was for the benefit of both the relevant parties and both parties had taken no steps to comply with it, his Honour said at [55]-[56]:

The appellant was of course well aware that there had been no management committee meeting called for the purposes of considering the offer of finance and in any case would not have been entitled to avoid the contract for non-compliance with this clause since both it and the respondent were in default in relation to this.

[111] His Honour went on to find that the appellant had made a binding election to affirm the agreement being fully aware of the alleged non-compliance with clause 8.2(a) so far as the conditions of finance were concerned.

[112] In a recent decision of Brown J,[68] her Honour reviewed the relevant authorities and drew from them the following principles:

Given the above authorities:

(a) the question of whether the Contract "automatically terminated" upon the Conditions Precedent not being satisfied or waived is a question of construction of the relevant clause having regard to the principles of contractual interpretation in relation to commercial contracts as stated by the High Court;

(b) the fact that satisfaction of conditions precedent may depend on action being taken by the parties and the conditions precedent may not be satisfied due to the default of a party, may indicate that the parties intend that the contract is voidable rather than void or, in the present case, that it will terminate upon the election of a party rather than automatically, but this remains a question of construction; and

(c) even if construction would generally favour automatic termination upon the occurrence of an event, the party in default will be prevented from taking advantage of its own default giving rise to the event by application of the principle a party cannot take advantage of its own wrong.

[113] The last of these principles (often referred to as the prevention principle) has no application in this case.

[114] Here, clause 7 appears to me to be for the benefit of both parties. If they had renegotiated the agreement and one party had acted unreasonably in not reaching agreement, that party would have been in default. Similarly, if one party had attempted to renegotiate but the other had refused to do so, the latter would be in default. In either case, the agreement would not have terminated on 23 May 1997, but would have been voidable at the option of the party not at fault.

[115] In the actual circumstances of this case, though, neither party[69] sought to enter renegotiations, as a result of which no agreement on variation, extension or substitution by another agreement was reached. This was clearly because all parties had forgotten about this agreement and instead continued to act as if the 1989 deed were still in effect. In the circumstances, neither party was at fault (or, one might say, both parties were at fault) in not entering negotiations and potentially reaching agreement. In those circumstances, I consider that the contract was not at an end, but became voidable at the option of either party.

[116] Clause 1 does not prevent this outcome. It provided for the three year term of the agreement, but the agreement includes clause 7, which itself provided for it to end only in the particular circumstances stated. Within the three year term, the parties failed to take steps under clause 7 and therefore, from the last day of the three year term, it became voidable but continued in operation.

[117] That being so, I consider the better view to be that, in the absence of the parties taking the steps contemplated in clause 7, the 1994 agreement did not terminate on 23 May 1997 but became voidable at the option of either party. Neither party sought to avoid it. Indeed, both parties continued to act as if it (or, more accurately, the 1989 deed) were on foot, at least by 202 repeating the statements in its annual reports as to its contingent liability and, of course, by the parties' conduct that led to the purchase by 202 of 300,000 of Mr Johnston's shares in 2019.

[118] The result, in my opinion, is that the 1994 agreement was never terminated, but remained in force at the time that Mr Johnston exercised his right to ask 202 to purchase his shares in Aquatec. Although the parties believed that they were acting under the 1989 deed, in fact the relevant rights and obligations, from the commencement of the 1994 agreement, persisted and were exercised under that agreement.

[119] In case I were wrong and neither the 1989 deed nor the 1994 agreement has remained in force, the plaintiffs contend for the alternative proposition that 202 is estopped from now being able:

(a) to resile from its represented position that it remained obliged to use its best efforts to buy Mr Johnston's shares upon his resignation and subsequent request to sell them; and

(b) to rely on any strict legal rights under the 1994 agreement (terminating the 1989 deed) contrary to the position that it had substantively represented for more than 30 years since the agreement was made.

[120] The claimed bases for an estoppel, as summarised in the plaintiffs' written outline, are:

(a) an estoppel by representation as to the state of affairs governing the legal relations between the plaintiffs and 202;

(b) an equitable/promissory estoppel insofar as the representations were as to future conduct (ie, buying the shares at net tangible asset value upon Mr Johnston's request after his resignation); and/or

(c) an estoppel by convention.

[121] Gageler J (as his Honour then was) described the principles giving rise to an estoppel by representation in Australian Financial Services and Leasing Pty Ltd v Hill Industries Ltd:[70]

The principle is that the law does not permit an unjust departure by a party from an assumption which that party has had some part in occasioning another party to adopt or accept for the purpose of their legal relations. What makes such a departure "unjust" - what might in the present context be said to be the relevant "unjust factor" - is that, if departure were permitted, the other party would be left in a position of material detriment through having made the assumption the other party caused to be adopted.

[122] The estoppel operates by establishing an assumed state of affairs in accordance with which the parties' rights are determined:[71]

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Judgment (403 paragraphs)

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Cases Cited (22)