Perception Pty Ltd & Anor v Myalong Pty Ltd & Anor

FILE NUMBER: IRC661 of 2000 CORAM: Peterson J CATCHWORDS : Unfair contract - retention of payment of advance against commission and expenses - capital raising for purpose of advancement of business - letter of agreement - oral arrangements agreed between parties - restitution of advance against commission - offset of expenses allowed - variation of clause 6 of agreement - order made. LEGISLATION CITED : Industrial Relations Act 1996 s106 CASES CITED : Savage v Digital Corporation (Australia) Pty Ltd (Glynn, Hungerford and Schmidt JJ. - Unreported, 17 May 1999, IRC195 of 1998. Chrysler Jeep Automotive Distributors Australia Pty Limited v. Canberra Star Motors Pty Limited and Ors (1997) 79 IR 452 at 460. HEARING DATES: 04/09/2001; 04/10/2001 DATE OF JUDGMENT: 07/17/2001

APPLICANTS Mr R Alkadamani of counsel

SOLICITOR John Ajaka ROCKDALE.

LEGAL REPRESENTATIVES: RESPONDENTS Mr J D Smith of counsel

SOLICITOR Fetter Gdanski Solicitors & Consultants MELBOURNE.

JUDGMENT: - 15 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

PERCEPTION PTY LTD AND ANOR v MYALONG PTY LTD AND ANOR

Application under s106 of the Industrial Relations Act 1996 JUDGMENT 1 The second applicant, Benjamin Lenzo, is the personification - "the controlling mind" - of the first applicant, Perception Pty Limited. Perception is a private company, nine of the ten shares in which are held by Mr Lenzo, the tenth share being held by his mother on what appears to be a nominal basis. The business of Perception is the creation of computer, video and arcade type games. Mr Lenzo had commenced a degree course in Computer Science at Wollongong University but after completing one year discovered through one of his lecturers that the degree would be less than useful in the pursuit of the work he intended. He therefore withdrew from the degree course and commenced his business. Although Mr Lenzo is only 25 years of age, in 1998 Perception was employing 15-16 persons in the production of its games. At the date of hearing of this application, Perception was employing two persons apart from Mr Lenzo. 2 The proceedings involve an application by Perception and Mr Lenzo for an order under s106 of the Industrial Relations Act 1996 ("the Act") seeking to affect a contract or arrangement entered into between the applicants and the second respondent, Emmanuel Foundas and his nominee company, the first respondent, Myalong Pty Ltd, of which Mr Foundas was the Managing Director, a Director and shareholder.

3 The claim is limited by the further amended summons for relief to: (1) the repayment of an amount of $30,000 paid by the applicants to the respondents which the applicants understood to be an advance against commission and expenses involved in the respondents undertaking a capital raising for the purpose of the advancement of the business of Perception; and (2) the avoidance of a term in the contract between the parties which it is suggested means that Myalong would be entitled to a fee of 5.5% of any capital raising effected by or on behalf of Perception within two years, whether Myalong were involved or not.

4 In August 1998 Mr Lenzo discussed with his father his belief that there was a need to raise about $7 million in development funds for Perception. His father suggested that he speak with an old friend of his, Vincent Rizza, a commodities broker in Melbourne. His father said "he may be able to point you towards someone who could raise some funds for Perception". On or about 12 August 1998 Mr Lenzo and his father flew to Melbourne and met with Mr Rizza who, in due course, suggested that he contact Mr Foundas at Salomon Smith Barney in Sydney. In due course the parties met at the offices of Salomon Smith Barney and Mr Lenzo explained the nature of Perception's business. He indicated that they were looking for about $7 million in capital to develop more arcade games. He provided Mr Foundas with an Information Memorandum which Mr Foundas took to read. This meeting occurred on or about 19 August 1998.

5 Mr Lenzo's evidence was that in the middle of September 1998 he had a telephone conversation with Mr Foundas as follows: Mr Foundas: "We should have no problems raising this kind of capital very quickly with what you're doing".

Mr Lenzo: "How? We want to give away as little of the company as possible. That's a key issue for us".

6 On 5 October 1998 Mr Foundas wrote to Mr Lenzo proposing the services Myalong would provide, together with the fees which would apply in relation to a capital raising of approximately $5 million. 7 This letter was intended by Mr Foundas and understood by Mr Lenzo at the time, to be a draft proposal. Three fees would be payable:

· $30,000 upfront fee. · $20,000 payable immediately on completion/delivery of document. · 10 per cent of total equity capital raised, payable immediately on receipt of the capital.

8 One or two days later Mr Lenzo telephoned Mr Foundas and indicated that Perception would not pay anything upfront. He declined to accept the $20,000 fee and indicated a willingness to pay $30,000 on account of expenses but on the basis that any residue would be refunded or offset against commission. Mr Lenzo claimed they said: Mr Lenzo: "You want a sign on fee of $30,000 and you want another $20,000 on completion of the Information Memorandum, in addition to your fee. We can't pay all that. We won't pay anything upfront. We'll pay you the $30,000 on account of expenses and if any money is left over then it's to be refunded to us or offset against any commission you are entitled to. We won't give you the $20,000 because you'll be earning a fee if you're successful". Mr Foundas: "All right."

9 This was disputed by Mr Foundas who claimed their conversation was:

"During the telephone conversation Ben said that - "I've got the okay from Dad to pay the $30,000 in cash as an up front fee." I said "That's great. That basically takes out the first two points of the draft letter of offer and that the 5.5 per cent success fee would cover the other items."

I think it was the 5 October letter that I separated out an up front fee for taking of my services, a fee for preparation of the mandate memorandum that was to be done and a success fee on the raising of any capital.

What happened was that I had said that the $30,000, since it was agreed, payment would be made. I said that then covers the first two items that we have agreed upon in our original discussion of when it was brought up when we negotiated the $30,000 - -

This is the $30,000 for the first two items on that draft letter of offer so I will exclude those from the matter because it sets out - it steps outside of that and we will go forward on a detailed mandate letter which I will forward and which he agreed to. He said "That's fine."

10 Mr Lenzo in the course of his earlier discussions with Mr Foundas made it clear that they wished to give away as little of Perception as possible and that it was a key issue. However, in about the middle of October 1998 Mr Foundas and Mr Lenzo had the following conversation: Mr Foundas: "No investor is going to invest in something and take a minority share. They're going to want control".

Mr Lenzo: "We need to at least try and retain control".

Mr Foundas: "Perception is unproven. It's produced some great software, Thunderboats and Top Down Racer but it hasn't made any sales".

11 Mr Lenzo determined to accept Mr Foundas' view on this matter because of his reliance upon Mr Foundas' knowledge and experience in this area.

12 Later in October Mr Lenzo was undertaking a publishing deal with a French company which he anticipated could give Perception a $1 to $2 million advance on sales. He informed Mr Foundas of this and indicated that this reduced the need for equity funds by about $1 million.

13 On 29 October 1998 Myalong wrote to Perception seeking to confirm the engagement in connection with a capital raising of up to $6 million. The letter read:

The purpose of this letter is to confirm the engagement of Myalong Pty Ltd ("Myalong") by Perception Pty Limited (the "Company") on an exclusive basis to render financial advisory and investment banking services to the Company in connection with the capital raising of upto $6million (the "Transaction").

Myalong will perform such of the following financial advisory and investment banking services as the Company may reasonably request:

• assist in analysis of potential alternative strategies

• assist in preparation of information memorandum for potential equity investors

• arrange for presentations by management to potential equity investors

• represent the Company in negotiations with potential equity investors

(b) Myalong will render such other financial advisory and investment banking services as may from time to time be agreed upon by Myalong and the Company.

The Company shall pay to Myalong for all of the above services the following cash fees:

(a) a fee of 10% of the capital raised, such fee to be contingent upon and payable promptly following the receipt of the capital under the Transaction, or as otherwise agreed in writing between the parties.

In addition to any fees that may be payable to Myalong under this agreement, whether the Transaction is completed or not, the Company hereby agrees, upon written request, to promptly reimburse Myalong for all reasonable fees and disbursements of Myalong's legal advisers and all of Myalong's reasonable travel and other out-of-pocket expenses incurred in connection with the proposed Transaction or otherwise arising out of Myalong's engagement under this agreement. Any travel will be paid by the Company prior to it being incurred by Myalong.

The Company will ensure that Myalong is supplied with whatever information Myalong may reasonably request in this matter. It is acknowledged that Myalong: · may use and rely on the information provided to it by the Company and its officers and on any information available from public sources in performing the services described above without independently verifying that information; · does not assume responsibility for the accuracy or completeness of that information; and · accepts no liability to any person other than stated in this letter.

The Company indemnifies and holds harmless each of Myalong and its related bodies corporate, directors, officers, agents and employees ("Indemnified Persons") from and against and, the Indemnified Persons will have no liability to the Company for, any losses, expenses, claims, proceedings or regulatory investigations ("Losses") relating to or arising out of this engagement or any transaction or conduct in connection with this engagement except for Losses of an Indemnified Person that are finally judicially determined to have resulted primarily from the bad faith or gross negligence of that Indemnified Person. This indemnity shall be a continuing indemnity and will indemnify and keep indemnified the Indemnified Persons.

Myalong's engagement under this agreement may be terminated by either the Company or Myalong at any time, with or without cause, upon written advice to that effect to the other party; provided , however , that Myalong will be entitled to its full fee under paragraph 2 above in the event that at any time prior to the expiration of two years after such termination a Transaction is entered into; and provided, further, that the provisions of this paragraph 6 and paragraphs 3, 5 and 7 hereof shall survive such termination.

(a) This letter agreement shall be governed by the laws of Victoria. Each party irrevocably submits to the non-exclusive jurisdiction of the courts of Victoria.

(b) The Company expressly acknowledges that all opinions and advice (written or oral) given by Myalong to the Company in connection with Myalong's engagement are intended solely for the benefit and use of the Company (including its management, directors, agents and representatives) in considering the transaction to which they relate and the Company agrees that no such opinion or advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, nor shall any public references to Myalong be made by the Company (or such persons), without the prior written consent of Myalong. These opinions are not in any manner or form legal opinions.

(c) The Company expressly acknowledges that Myalong has been retained solely as an advisor to the Company, and not as an advisor to or agent of any other person, and that the Company's engagement of Myalong is not intended to confer rights upon any person not a party hereto (including shareholders, employees or creditors of the Company) as against Myalong, Myalong's related bodies corporate or their respective directors, officers, agents and employees.

(d) The Company acknowledges that it will comply with all applicable legal requirements in relation to the Transaction.

On acceptance by the Company this letter will set forth the entire understanding of Myalong and the Company relating to the engagement of Myalong as the Company's adviser. Any prior communication understanding or agreement between Myalong and the Company will then be superseded. Once accepted by the Company no terms contained in this letter may be modified, changed or waived except by writing signed by Myalong and the Company. * * *

Please confirm that the above is in accordance with your understanding and agreements with Myalong by signing and returning the enclosed duplicate of this letter.

Yours sincerely, Emmanuel Foundas Managing Director

ACCEPTED AND AGREED BY PERCEPTION PTY LTD AS OF THE ABOVE DATE:

14 The letter set out in its opening paragraph the definition of what it refers to thereafter as "the Transaction". It provided for Myalong to be paid a fee of 10 per cent of the capital raised and received. It also required Perception to properly reimburse Myalong for all reasonable fees and disbursements of Myalong's legal advisers and all of Myalong's reasonable travel and other out of pocket expenses incurred in connection with the proposed transaction whether completed or not. It required travel to be paid by Perception prior to it being incurred by Myalong.

15 Clause 8 provided that the letter was to set forth the entire understanding of the parties with respect to the engagement and that any prior communication, understanding or agreement was superseded thereby.

16 Importantly, cl.6, Termination of Engagement, provided that the agreement may be terminated by either party "at any time, with or without cause, upon written advice to that effect to the other party; provided, however, that Myalong will be entitled to its full fee under paragraph 2" (that is the 10 per cent of capital raised) "above in the event that at any time prior to the expiration of two years after such termination a Transaction is entered into; and provided, further, that the provisions of this paragraph 6 and paragraphs 3, 5 and 7 hereof shall survive such termination".

17 Clause 7, Miscellaneous, included this: (a) This letter agreement shall be governed by the laws of Victoria. Each party irrevocably submits to the non-exclusive jurisdiction of the courts of Victoria.

18 Mr Lenzo then spoke a number of times with Mr Foundas, including this:

Mr Lenzo: "We will pay you a success fee based on capital that you raise yourself. What would be your fee to raise say $7m in development funds for Perception"?

Mr Lenzo: "That's a bit high. As far as we're aware it should be about five percent".

Mr Foundas: "I'll do it for 5.5% but you'll have to reimburse me for all my expenses".

Mr Lenzo: "OK. What exactly does it mean that you get 5.5%? Is the percentage just on working capital, or the total amount raised? Some of it we're going to use to pay off debt".

Mr Foundas: "It's 5.5% of the total amount raised".

Mr Lenzo: "So if you raise say five million, no matter what we use it for, you get 5.5% of the five million?"

Mr Lenzo: "What about expenses? I need evidence and some limit".

Mr Foundas: "I'll send you details and it can be limited to the $30,000 we had previously discussed".

19 On 4 November 1998 Myalong wrote again to Perception in terms closely following the letter of 29 October 1998 but making these amendments:

· The capital to be raised was specified as up to $7 million;

· The fee in clause 2 was to be 5.5% of the capital raised and received.

20 Mr Lenzo took no legal advice regarding the terms of the letter. He said in evidence that he understood cl.6 to mean that should Perception, after the termination of the agreement for any reason, pursue a transaction of the kind with which the agreement was concerned, namely, one which depended upon the prior efforts of Myalong, the fee would be payable. He later came to understand Mr Foundas' view of the clause was that any capital raising effected by Perception quite independently of Myalong would give rise to a right in Myalong to receive a fee of 5.5 per cent of the amount raised. Mr Foundas in evidence deposed to his view being consistent with that. He said that he had communicated to Mr Lenzo late in 1999 this view: "It doesn't matter where the funds come from or how the money is raised, I still get my fee."

21 On 4 November 1998 Mr Lenzo signed the letter of that date from Myalong setting out the agreement of the parties, and returned a copy to Mr Foundas.

22 On or about 20 November 1998 Mr Foundas telephoned Mr Lenzo on a number of occasions. They had a conversation to the following effect:

Mr Lenzo: "But that's not in the agreement we signed".

Mr Foundas: "But you agreed to give me $30,000 on account of expenses and any commission".

Mr Lenzo: "What expenses? You haven't given me any details of these."

Mr Foundas: "Expenses for the work I'm doing for you".

Mr Lenzo: "It's only been two or three weeks, you can't need that much".

Mr Lenzo: "We agreed to pay your expenses as and when they arise and you present them to us".

Mr Foundas: "Look, I've got some real financial problems and I need the advance so I can continue to work on raising the funds".

23 It appears that from here the parties intentions may have diverted. Mr Foundas deposed that on 27 November he attended the office of Perception to enquire about "my $30,000.00 payment owing to me for the preparation of the information memorandum".

24 About three days before that Mr Lenzo had spoken with his father about his organising $30,000 "on account of expenses" for Mr Foundas. His father said: "Yes, Dino Parlapiano in Melbourne owes me some money. But I can only do $20,000 now. I'll tell him to pay $20,000 to Emmanuel" (Foundas).

25 Mr Foundas deposed that on 27 November 1998 Mr Lenzo had informed him that his father was owed a fair bit of money by a fellow in Melbourne and that his father was going to get that person to pay Mr Foundas the money direct. Mr Foundas said there was no argument that the fee was due to him.

26 On or about 24 November Dino Parlapiano contacted Mr Foundas and on about the same date an employee of Mr Foundas attended Mr Parlapiano's business premises and collected $20,000 in cash for which she supplied a receipt. There then appears to have been some toing-and-froing in obtaining further cash from Mr Parlapiano but ultimately an additional $5,000 was paid on 23 December 1998 and on 28 January 1999 the balance of $5,000 was paid by Mr Parlapiano.

27 There is a dispute in the evidence about the work which Mr Foundas had done to justify, on his version of the arrangement, a $30,000 fee at this early point. He deposed to having done quite a lot of work on the Information Memorandum which was prepared to outline Perception's business and circumstances to a prospective investor. Mr Lenzo, on the other hand, contended that the Information Memorandum which had been previously prepared by him and his staff and supplied to Mr Foundas, had been altered in a relatively minor way, including the addition of some financial statements which were extracted and developed from material supplied by Perception.

28 It is convenient to summarise the work to which Mr Foundas referred in the context of what he described as an upfront fee. He arranged a meeting between Mr Lenzo and representatives of a company in Sydney known as Kolback Group Limited which was represented by John Rouse and John Messara, Mr Lenzo, one of his employees, Mr Macbeth and Mr Foundas attended on behalf of Perception. The Kolback representatives attended Perception's office, and inspected one of its video games called "Thunderboats". Over the next few weeks Mr Foundas said he had many conversations with Kolback representatives about its future involvement in Perception. On 17 December 1998 Mr Foundas again flew to Sydney meeting with Messrs Lenzo and Rouse. By 24 December 1998 a deal between Kolback and Perception was coming together although Kolback wanted to move into a control position rather than just inject equity. In January further correspondence took place and on 27 January Mr Foundas had a business dinner with Mr Rouse in Melbourne. Further discussions took place on 3 February and he had a meeting again on 26 March 1999. Mr Foundas met with Messrs Rouse and Messara in Sydney again on 2 April at the Sydney yearling sales and also on a number of other occasions with Mr Rouse during the week to discuss the Perception deal. It appears that Mr Foundas has a particular interest in racehorses. By 29 April, Kolback's solicitors, Moray & Agnew, had drafted Heads of Agreement as to the proposal. Correspondence was continuing between the various parties in much of which Mr Foundas played an active role and indeed appeared to be the guiding hand. After a number of amendments were made to the Heads of Agreement the document was executed by Mr Lenzo and his mother in preparation for exchange of contracts. On 8 June 1999 Kolback advised they were prepared to sign the Heads of Agreement subject to some amendments and to due diligence. After Kolback's consultant met with Mr Lenzo for the purposes of conducting due diligence checks, Kolback withdrew from the deal.

29 I need make mention of a further meeting Mr Foundas undertook with Mr Ralph of Far East Capital in Sydney on 26 March 1999. Mr Ralph expressed some interest in investing in Thunderboats only. This was taken no further at that time given the then developments with Kolback.

30 On 29 July 1999 Mr Foundas e-mailed Mr Lenzo with a list of new potential investors. Between that date and November 1999 it appears that Mr Foundas prepared a number of redrafts of the Information Memorandum although the evidence does not establish that very much was done in the way of pursuing alternative sources of capital.

31 In late November 1999 Mr Lenzo informed Mr Foundas that he may have another potential investor and that he would not require Mr Foundas' services in that respect. It was in this context that Mr Foundas informed him that "It doesn't matter where the funds come from or how the money is raised, I still get my fee".

32 On 17 January 2000 Myalong wrote to Perception seeking the payment of disbursements. The letter included the following: Pursuant to the letter of engagement dated 4th November 1998, between Perception Pty Ltd and Myalong Pty Ltd, such letter being duly executed by both parties, an amount for reimbursement of expenses is now owing.

For the period 4th November 1998 to 1st January 2000 the total expenses relating to the mandate, which remains current and active, is in the amount of $5,250.

This amount includes such items as telephone, taxis, airfare, games testing and incidentals for the entire period.

33 On 19 January Perception wrote to Mr Foundas in these terms:

I refer to your letter of the 4/11/98 and note that since we commenced our association, you have failed to fulfil any of your promises or obligations.

Put simply, you have done little to assist us in obtaining any capital, even though a period of 14 months has elapsed.

Because of your failure to assist us in raising any capital, and due to the fact that 14 months has elapsed, we see no purpose in continuing the agreement.

We feel it more appropriate that if necessary, we appoint another company to raise capital. Therefore, we give notice that we are terminating any agreement between our two companies.

34 It is also necessary to note that the trips made to Sydney by Mr Foundas in respect of, in particular, the meetings with representatives of Kolback, were paid for by Perception. This occurred on two occasions. On the occasion of Mr Foundas' trip to Sydney over Easter 1999, during which he attended the Sydney yearling sales, Perception paid his plane fare one way but not the return fare.

Conclusions 35 The first issue for determination is whether the contract or arrangement between the applicants and the respondents was one whereby work was performed in an industry in and of New South Wales. This is the jurisdictional prerequisite which the circumstances of the case must satisfy (see judgment of the Full Bench of the Commission in Court Session in Savage v Digital Corporation (Australia) Pty Ltd (Glynn, Hungerford and Schmidt JJ. - Unreported, 17 May 1999, IRC195 of 1998). One consideration in that question is a determination of the proper law of the contract which, on the facts here, seems clearly enough to be that of the law of Victoria. However, the contract or arrangement was initially investigated between the parties in Sydney. The applicant signed the letter of agreement in Sydney. Work was necessarily undertaken in Sydney by the applicants in pursuance of the agreement, namely, the preparation of relevant information, the making of telephone calls to Mr Foundas, meetings with Mr Foundas, meetings with prospective clients involving both the applicants and the respondents. Mr Foundas himself was active in both New South Wales and Victoria in pursuit of an agreement with prospective investors. In these circumstances, while much of the work done by the respondents was done in Victoria, the degree of involvement in New South Wales is substantial indeed. The circumstances establish a "real and sufficient connection with the State of New South Wales" (Chrysler Jeep Automotive Distributors Australia Pty Limited v. Canberra Star Motors Pty Limited and Ors (1997) 79 IR 452 at 460). The agreement between the parties could not operate in those circumstances to displace or oust the jurisdiction of the court under s106.

36 I now turn to a consideration of the scope and terms of the agreement between the parties. It is clear from the evidence of both parties that the letter of agreement of 4 November 1998 did not constitute the entire agreement between them. Both parties attest to a conversation relating to the advance payment of $30,000 but they differ as to its purpose. Mr Lenzo, understanding the payment to be for expenses and any balance credited against commission on a successful capital raising. Mr Foundas claims it was for his work in relation to the preparation of the Information Memorandum but that it would be outside of the letter of agreement. I find his evidence attempting to explain why this was so quite unconvincing. There is a direct inconsistency between the inclusion in the letter of agreement of the functions to be performed but the deliberate exclusion from the letter of particular payments if they were intended to be made in relation thereto.

37 The letter of agreement of 4 November 1998 purports to ensure that the letter constitutes the entire agreement between the parties. Were that so, there would be no foundation for the initial payment made by the applicant to the respondent totalling $30,000. That letter purports to give the respondent a right to receive what is in effect a success fee of 5.5 percent of the capital sum raised ($385,000 for a capital raising of the maximum suggested of $7 million) together with legal costs and disbursements and reasonable travel and other out of pocket expenses incurred. Clause 3, Expenses, of the Agreement could in its terms operate only retrospectively and not prospectively. Accordingly, the advance payment of $30,000 must be referable to some other element. There is no room for a conclusion that it could relate to an upfront payment of the kind which was initially mooted by the respondents but rejected by the applicants.

38 There can be no doubt that on the face of the letter of 4 November no such fee was due as an upfront payment to Mr Foundas. The only basis for the view that such a payment was due was the earlier discussion between the parties which I have set out in paragraph 18 hereof.

39 The only complication with this view of the events is that if the $30,000 payment was attributable to expenses then the question arises why Perception, in addition, provided air tickets to Mr Foundas for travel to Sydney. Mr Lenzo's explanation in evidence was that at the time this was done the whole of the payment of the $30,000 fee had not been paid. This explanation does not seem to go as far as would be necessary to justify the separate payment of the airfares, because the subsequent advance of $30,000 in three tranches of $20,000, $5,000 and $5,000 respectively need not have been paid to that full extent given the prior payment of airfares.

40 In the light of Myalong's initial proposal that there be an upfront fee, which was rejected by Mr Lenzo and accordingly removed by Mr Foundas from the first draft letter of agreement written by him on 29 October 1998, and excluded from the final agreement, the payment of the airfares seems to me to be wholly insufficient itself to alter the character to be given to the $30,000.

41 Despite the criticisms made by counsel for the respondents of his evidence, on this issue I prefer the evidence of Mr Lenzo. I conclude that the $30,000 payment made by the applicants to the respondents was pursuant to an agreement that it would be applied for the purposes of meeting the respondents' expenses in pursuing the capital raising and as a setoff towards commission payable in the event of success. I consider that this is a feature which ought be taken into account in an adjustment of the matter between the parties when dealing with final orders.

42 The next issue involves the dispute between the parties concerning the meaning and effect of cl.6, Termination of Engagement of the Agreement, (see paragraph 13). I have great difficulty interpreting the letter in the way the respondents have done. The opening paragraph of the letter of agreement refers to "the Transaction" in terms which makes clear that the transaction in respect of which the parties were agreeing was not merely a capital raising but the performance of the work necessary to be performed by the respondents in order to achieve a successful capital raising.

43 Clause 6 uses the term "a Transaction" rather than "the Transaction". On one view of the juxtaposition of those expressions in the letter of agreement, cl.6 might be read as referring more widely to any transaction rather than "the Transaction" referred to in the opening paragraph of the letter of agreement. However, I am inclined to the contrary view. The utilisation of the capital T in the word Transaction in both cases indicates an intention to refer to not any transaction to which the applicants were party, but rather that which involved both parties in a capital raising in pursuit of their intentions. It is conceivable that Myalong could have set in train a capital raising which might take many months to complete (Kolback was one such possibility). It is obviously necessary in those circumstances that the respondents' position be protected to ensure that it cannot, by termination of the agreement, be caused to forfeit its right to commission. Alternatively, subsequent to termination, Perception might achieve a capital raising quite independently of the prior efforts of Myalong, even to the extent of merely approaching its bankers. That this could give rise to a fee of the order of hundreds of thousands of dollars for Myalong would seem to produce a windfall benefit to Myalong.

44 Mr Foundas in evidence described the purpose of cl.6 to be: "to ensure that you don't do work and then lose the fruits of that labour purely because the client has decided to terminate the agreement. So effectively what it does is binds the client to you for that service and it ensures that you can't be terminated one day and then three months down the track, low and behold, the client has got the fee or the capital that is required because it's been working on its own. What it does is it binds the two parties to work together to the end goal. If that means the client is pursuing other angles, that is fine, but because under this agreement you still get paid so there is not a conflict of interest, whereas the client could otherwise be talking to five or six different counter parties while you are pursuing your transaction and then, when he gets a feeling he is okay and then terminate the agreement and go off and subsequently do a deal, and you would not get your fee."

45 There has been no suggestion in the evidence that the effect of the applicants' being successful in this application would actually impose any loss upon the respondents in the sense that they would be deprived of a fee for work which they had done and which led to a successful capital raising by the applicants or that there was a capital raising likely to come to fruition which had been worked on by the applicants inconsistently with the earlier concurrent efforts of the respondents.

46 I consider that in the interests of justice between the parties, it would be appropriate to amend cl.6 to provide that the entitlement to a fee would be confined to capital raising resulting from the independent efforts of Myalong such that those efforts contributed substantially to the achievement of the capital raising.

47 I do not consider that the two year period provided by the letter of agreement should be shortened. Mr Lenzo in evidence indicated that he was content to pay a success fee of the sum involved in the context of the agreement and his understanding of cl.6. If cl.6 be amended to conform with his understanding then the agreement should otherwise be left standing.

48 On any view of the matter, the excess over $5,250 in the $30,000 advance payment cannot be justified as a payment to the respondents, in accordance with the parties arrangements, for work done. However, it is clear from my summary of the work undertaken by Myalong and Mr Foundas, including the trips to Sydney, telephone calls, meetings with the representatives of the applicants and prospective investors and the like, that a considerable effort was expended by the respondents although unsuccessfully. I have considered whether, in making an order designed to effect a virtual restitution of the parties according to the terms of their arrangement, as I have found them, I should leave the respondents with an amount contributing a degree of compensation for their unsuccessful efforts. This, of course, was not debated before me, both parties adopting quite conflicting views which did not encompass this possibility. Nevertheless, I have concluded that the nature of the arrangement between the parties was one in which had the capital raising, for example with Kolback, been successful, then the respondents would have received a fee of a very substantial kind which, on any view, would have been adequate compensation for effort. It seems to me that the consequence of such an arrangement was that success was to be remunerated at a reasonably high level but no provision was made for remuneration in the event of failure. Accordingly, I would not consider that the respondents are entitled to retain any portion of the $30,000 which exceeds the expenses claimed. I intend to accept the sum of $5,250 advanced in the proceedings as an appropriate amount of compensation on account of expenses.

49 I am satisfied that the circumstances of this case satisfy both the jurisdictional aspects to which I have earlier referred and also that the arrangement between the parties, taking into account the letter of agreement and the external oral arrangements agreed between the parties, as found, constitute a contract which is unfair within the meaning of s.106. That unfairness relates to the retention of $30,000 fee in the absence of a justifiable expense claim in excess of $5,250. It also relates to the entitlement asserted by the respondents to a success fee in relation to any capital raising in respect of which it has performed no substantial work. I make a declaration accordingly.

50 In these circumstances I would make the orders which I have referred to, namely, the variation of cl.6 and an order for the repayment of the sum of $30,000 by Myalong to Perception save for the sum of $5,250 expenses claimed.

51 The applicant should have the usual order as to costs, namely, as agreed or as assessed.

52 The applicant is directed to file and serve within 14 days a draft order to give effect to this judgment.

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