Prospect Resources Ltd v Molyneux

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Ward JA. I agree with her Honour's reasons and with the order she proposes.
2. WARD JA: The appellant (Prospect Resources) is a small cap mineral exploration company listed on the Australian Stock Exchange. In July 2013, it entered into a subscription agreement with the respondents (collectively, "the Consortium") for the purpose of raising money to acquire prospecting rights, and to fund the exploitation of those rights, in relation to gold mining exploration activities in the Republic of Zimbabwe.
3. Under the subscription agreement, the Consortium's obligation to subscribe, through a new company to be formed, for 325 million shares in Prospect Resources, for a total subscription amount of $3.9 million, was contingent on a number of conditions described as "conditions precedent". A dispute arose as to whether, in the events which transpired, that obligation had been enlivened or whether, as the Consortium did on 31 October 2013, the Consortium was entitled to terminate the subscription agreement. Nothing turns on whether the said conditions were in truth "conditions precedent" as their description might suggest. Rather, the dispute turned on the question whether, by the relevant time (5pm Western Standard Time on 30 October 2013), Prospect Resources had done what was necessary "reasonably [to] satisfy" the Consortium that the conditions precedent in a separate agreement (the Senior Prospecting and Mining Agreement) had been "satisfied or waived" (as required by cl 3.1(a) of the subscription agreement).
4. On 29 November 2013, Prospect Resources commenced proceedings in the Commercial Division seeking specific performance, or damages for breach, of the subscription agreement. The damages sought by it included costs thrown away by the capital raising process that had been undertaken in connection with the proposed acquisition of the project rights that did not proceed once the Consortium terminated the subscription agreement. Prospect Resources was unsuccessful in its claim (Prospect Resources v Molyneux [2014] NSWSC 1096) and was subsequently ordered to pay the Consortium's costs of those proceedings on an indemnity basis (Prospect Resources v Molyneux (No 2) [2014] NSWSC 1448). It now appeals from both decisions. The Consortium has filed a notice of contention seeking to affirm the principal judgment on additional grounds.

Subscription Agreement

1. The relevant provisions in the subscription agreement are set out in the principal judgment. They may be briefly summarised as follows.
2. Clause 1.1 recited the agreement of the Consortium members jointly to make an investment in Prospect Resources through a newly incorporated entity (Newco) which was to be owned as to not less than 60% by the second respondent (Blumont Group Ltd). Blumont was at the relevant time listed on the Singapore Stock Exchange. The subsequent suspension of its listing appears to have provided a commercial reason why the Consortium members may ultimately have preferred not to proceed with the subscription.
3. Pursuant to cl 2.1, Prospect Resources agreed to issue, and the Consortium agreed to procure Newco to subscribe for, the subscription shares at the specified subscription price on the terms of the agreement. Clause 2.4 provided that the agreement was "subject to and strictly conditional upon" the satisfaction of cl 3.
4. Clause 3, headed "CONDITIONS PRECEDENT" provided as follows: 3. CONDITIONS PRECEDENT 3.1 The obligations of the parties under this agreement are subject to and conditional upon the satisfied [sic] (or waiver) of the following conditions precedent: (a) Issuer [Prospect Resources] must reasonably satisfy the Consortium that the transaction documents (listed in Schedule 2) to acquire the Bushtick and Penhalonga projects (together the Gold Projects) have been validly executed and the conditions precedent in those transaction documents have all been satisfied or waived; (b) Shareholder Approval being having been obtained [sic]; and (c) Investec Asset Management or its nominee having executed an agreement to subscribe for not less than 33 million shares of the Main Tranche, 3.2 The conditions in clauses 3.1(a) and 3.1(c) are inserted into this Agreement for the benefit of the Consortium and may waived [sic] by notice in writing from the Consortium to the Company. 3.3 The condition in clause 3.1(b) is inserted into this Agreement for the benefit of all parties and may only be waived by mutual agreement. 3.4 If the conditions set out in clause 3.1 above are not satisfied (or waived in accordance with clauses 3.1 or 3.2) on or before 5.00pm (WST) on 30 October 2013, any party may terminate this Agreement by notice in writing to the other parties, in which case, this Agreement will be at end and the parties will be released from their obligations under this Agreement (other than in respect of any breaches that occurred prior to termination).
5. Payment of the subscription price was to be made (by the Consortium, presumably on behalf, or as agent, of Newco) within 14 days of satisfaction of all the "conditions precedent" set out in cl 3 (cl 4.1).
6. By the time of the hearing, it was agreed that all of the conditions in cl 3.1 had been satisfied other than the requirement in cl 3.1(a) that Prospect Resources reasonably satisfy the Consortium that the conditions precedent in the relevant Bushtick transaction document (the Senior Prospecting & Mining Agreement - "SPMA") "have all been satisfied or waived".
7. Similar subscription agreements (though in places with the correction of some obvious grammatical errors appearing in the Consortium's subscription agreement) were entered into by Prospect Resources with Investec Zimbabwe Recapitalisation Fund Limited (Investec) and Sirius Trustees Ltd "as trustees of the Abangane". The agreement with Sirius Trustees, unlike those with Investec and with Prospect Resources, was not made conditional on the satisfaction or waiver of any conditions precedent. The Investec agreement satisfied condition 3.1(c) of the conditions precedent in the Prospect Resources subscription agreement.

Senior Prospecting & Mining Agreement

1. The SPMA was the agreement by which the relevant project rights were to be acquired. That agreement, signed by most of the parties on 11 July 2013, was entered into by Hawkmoth Mining and Exploration (Private) Limited t/as Zimbabwe Mining Investments (an entity effectively controlled by Prospect Resources), two other Zimbabwean entities (the Falcon College Trust, which appears to have enjoyed a distinct legal personality under Zimbabwean law, and its wholly owned subsidiary Martin Gunning Investments (Private) Limited) and Prospect Resources. In colloquial terms, Hawkmoth and Prospect Resources were described as the parties "farming in" and the other two entities as the parties "farming out" of the project.
2. There was some inconsistency in the provisions of the SPMA as to the date from which the agreement was to be effective and binding on the parties.
3. Clause 4, headed "DURATION", provided that, subject to the conditions precedent (set out in cl 5), the agreement was to be effective and binding as from the "Effective Date until the Termination Date". "Effective Date" was defined as "the date upon which all of the Conditions Precedent are satisfied and/or waived". "Termination Date" was defined as the date upon which the relevant and applicable "Rehabilitation Operations" are completed by Hawkmoth.
4. Clause 5, on the other hand, expressly provided that cll 1-5 and 32-41 were to become effective immediately and those clauses were expressly carved out of the provision by which the Agreement was "subject to the fulfilment of the following Conditions Precedent". The said Conditions Precedent, relevantly, included: 5.2 by no later than the latter of 4 weeks after the Signature date and the date upon which the approval of the application contemplated in Clause 5.1 for the Special Grant has been granted, ZMI shall complete and deliver to MGI an initial environmental base line study relating to the Project Area, acceptable in terms of the laws of Zimbabwe, which shall include sufficient information so as to objectively and fairly reflect the environmental status and Rehabilitation Liabilities of the Project Area as at the date of such studies; provided that each of the Falcon Trust discloses, upon first request, to ZMI, to the best of its knowledge and understanding, the Rehabilitation Liabilities as at the Signature Date including all environmental, rehabilitation and financial exposure that has been resulted or (in its reasonable opinion) may in future result therefrom; 5.3 each of the Parties are to sign off on the environmental base line study referred to in clause 5.2, whose approval shall not be unreasonably withheld. 5.4 by no later than 45 (forty five) Business Days after the Signature Date, both MGI and the Falcon Trust shall have: 5.4.1 disclosed or delivered to ZMI all information relating to the water sources and reservoirs relating to the Project Area, including any and all natural springs, boreholes, aquifers and/or other sources of water to the knowledge or in the possession of either of the parties of the Falcon Group; 5.4.2 provided to ZMI, the result of any data to the water supply or the results of any existing water study or analysis, which includes information, without limitation, referred to in clauses 14.3.1 to 14.3.3; and 5.4.3 delivered to ZMI an independent and objective report acceptable to ZMI confirming the validity of the Project Rights, that it is in good standing and validly held by MGI, and that such company is entitled to transfer the rights contemplated herein to ZMI in accordance with this Agreement.
5. Ultimately there was no dispute that the conditions in cll 5.2 and 5.4.3 of the SPMA had not in fact been satisfied as at the relevant date, though this was only conceded by Prospect Resources during the hearing at first instance.
6. Clauses 5.5 and 5.6 made it clear for which party or parties' benefit particular conditions precedent had been inserted. Relevantly, cl 5.4 was inserted for the benefit of Hawkmoth; cl 5.2, for the benefit of all parties. There were provisions entitling the relevant party or parties for whose benefit the conditions had been inserted to extend the time periods contemplated in the relevant condition precedent "and/or to waive fulfilment of any or all of the said Conditions Precedent, in whole or in part" prior to the expiry of the relevant time period or such later date or dates as may be agreed by that party or those parties.
7. Pursuant to cl 6 of the SPMA, which in accordance with cl 5 was only to become operative on the fulfilment of the conditions precedent to the SPMA, Hawkmoth was granted the relevant project rights effective from the date on which the relevant approval relating to the Special Grant was officially granted; together with the additional rights provided for under that clause.
8. The interaction between the above clauses has the effect that the grant of project rights was to happen immediately on satisfaction or waiver of the conditions precedent in the SPMA, with a corresponding obligation arising for payment of the sum of US$50,000 within 24 hours of the satisfaction or waiver of the conditions precedent (that being the first payment required under the payment schedule set out in cl 7 of the SPMA). (It is not known whether any such payment was made by Hawkmoth, as would have been required on its characterisation of the events in October 2013.)
9. The SPMA was governed by the laws of Zimbabwe. No evidence was adduced at first instance as to the content of those laws and hence his Honour proceeded, as the parties accept this Court must also do, on the assumption that the relevant principles of the laws of Zimbabwe are the same as those here applicable.

Status of exploration projects by September/October 2013

1. Of the two Gold Projects in question (the Bushtick and Penhalonga projects), no issue arose in relation to the Penhalonga project. However, in relation to the Bushtick project, there was some doubt in the period leading up to the expiry of the time allowed for satisfaction or waiver of the conditions precedent in the subscription agreement as to whether the necessary special grant would be issued.
2. There was correspondence between Prospect Resources and the Consortium's consultant, Mr Havlin, in September 2013 in which the fact that the Special Grant had not yet issued was identified as being relevant to the question whether the Consortium would waive the condition precedent in cl 3.1(a) of the subscription agreement (see the email of 23 September 2013 from Mr Havlin to Prospect Resources). As it turned out, the Bushtick Special Grant was issued on 11 October 2013 (i.e., prior to the date by which the conditions precedent in the SPMA were to be satisfied or waived).

Deed of Variation (Blue 160)

1. On 17 October 2013, the parties to the SPMA entered into a Deed of Variation, by cl 2 of which they agreed that, on and with effect from the date of the deed, the conditions precedent which were unfulfilled as at that date (identified as cll 5.2, 5.3 and 5.4 of the SPMA) were agreed to be "conditions subsequent" to the agreement and would need to be satisfied on or before 27 November 2013. Clause 2 went on to record the agreement of the parties to the deed that "all Conditions Precedent [in the SPMA] have now been fulfilled" (presumably, on the basis that cll 5.2, 5.3 and 5.4 were no longer "conditions precedent"). It is clear from Recital B to the deed that the parties thereto were proceeding on the basis of an agreement to convert "unfulfilled conditions precedent" in cl 5 of the SPMA to conditions subsequent. In that sense, his Honour's later characterisation of this as part of an attempt to "rewrite" history can readily be understood.
2. Unsurprisingly, no reliance is now placed by Prospect Resources on that deed.

28 October 2013 letter

1. What Prospect Resources does place reliance on is the signing by the other parties to the SPMA of its letter dated 28 October 2013, thereby confirming their "understanding" that "clauses 5.2, 5.3 and 5.4 of the SPMA (and therefore, all original conditions precedent)" had been satisfied as at the date of the letter.
2. The text of that letter, under the header "Satisfaction of Original Condition Precedents" [sic], was as follows: We are pleased to confirm that clauses 5.2, 5.3 and 5.4 of the Senior Prospecting & Mining Agreement dated 12 July 2013 (SPMA) between Hawkmoth Mining & Exploration (Pvt) Limited, Martin Gunning Investments (Pvt) Limited, Falcon College Trust and Prospect Resources Limited have been satisfied as of the date of this document. This means that all the original condition precedents [sic] in clause 5 of the SPMA (before the Deed of Variation executed on 17 October 2013 converted clauses 5.2, 5.3 and 5.4 to conditions subsequent) have been satisfied as of the date of this document. Please confirm your understanding that clauses 5.2, 5.3 and 5.4 of the SPMA (and therefore, all original conditions precedent) have been satisfied as of the date of this document by signing this document, which may be signed in any number of counterparts with the same effect as if the separate signatures were on the same document. (my emphasis)
3. A copy of that letter was forwarded to the Consortium members by email at 12.12pm (presumably Western Standard Time, as Prospect Resources was based in Perth) on 29 October 2013. The letter of 28 October 2013 was described in that email as "a letter confirming that all original conditions precedent under the [SPMA] have been satisfied". As is clear from the text of the letter, there was no mention of "waiver" of any of the conditions. Neither was there in the 29 October 2013 email to the Consortium members.
4. Prospect Resources' position, on this appeal, is in effect that the signing of this letter amounted to a waiver of any of the conditions in cl 5 that had not in fact been satisfied as at that time since (whether or not the stated understanding of the other SPMA parties that the conditions had been satisfied was right or wrong) what the signatories to the letter must be understood as having thereby communicated was that they required no further performance or satisfaction of the conditions. This, it says, is the objective and commercially sensible meaning of the letter of 28 October 2013.
5. Prospect Resources maintains that the Consortium members ought reasonably to have been satisfied, by the 28 October letter alone, that the relevant conditions precedent in the SPMA had been waived and therefore it was not open to the Consortium (as it proceeded on 30 October 2013 to do) to terminate the subscription agreement.

Principal Judgment - [2014] NSWSC 1096

1. His Honour accepted (at [53]) the submission for Prospect Resources that, there being no issue as to the valid execution of the SPMA, the protective purpose of cl 3.1(a) was limited to ensuring, for the benefit of the Consortium, that the SPMA had come into full effect either by satisfaction or by waiver (by the parties to the SPMA) of the conditions precedent at cll 5.2, 5.3 and 5.4.
2. His Honour concluded (at [116]) that Prospect Resources did not reasonably satisfy the Consortium that the conditions precedent in the SPMA had been satisfied. Prospect Resources does not challenge this finding. Hence it is not necessary to canvass his Honour's reasons for that conclusion.
3. From [117], his Honour addressed the alternative case Prospect Resources had put forward, based on waiver, and concluded (at [143]) that Prospect Resources had not made good its case that the parties to the SPMA had waived satisfaction of the conditions precedent in that agreement. His Honour further concluded that the documents relied upon to demonstrate waiver were not capable of reasonably satisfying the Consortium that there had been such a waiver. Those findings are the subject of grounds 1 and 2 in the present appeal.
4. At [135], his Honour accepted that a party to the SPMA might be said to have waived its rights to fulfilment of the conditions precedent in cll 5.2-5.4 if it communicated clearly to the other parties its renunciation of those rights or its intention not to insist on fulfilment of those conditions precedent. (Prospect Resources does not challenge the correctness of this proposition.)
5. His Honour went on to say that, however expressed, any such communication must be clear and unequivocal ([135]). (While Prospect Resources does not contest the proposition that it is preferable for there to be an express waiver, it notes that in some circumstances silence can constitute waiver.)
6. His Honour did not accept that the letter of 28 October 2013 signalled clearly that each of the signatories to it had waived its right to insist on fulfilment of the conditions precedent. His Honour reached that conclusion, which was fatal to Prospect Resource's claim, for two reasons: first, that this was not what the letter said (there being no reference to any intention to renounce, give up or not insist on fulfilment of the conditions) and, second, that the context or background in which the letter was sent (by which his Honour was referring to the importance to Prospect Resources of the satisfaction of the conditions) told against the conclusion that the letter clearly signalled that there had been a waiver of the conditions.
7. In relation to the second reason articulated, his Honour referred to the statement, in the email with which the letter had been sent to the Consortium, that the letter confirmed that all conditions precedent under the SPMA had been satisfied. His Honour said that it could not be said that Prospect Resources' managing director (Mr Warner) had overlooked the concept of waiver because at one time he had inquired whether the Consortium would exercise its right of waiver under cl 3.2 of the subscription agreement (see [139]).

Costs judgment - [2014] NSWSC 1448

1. Following the principal judgment, the Consortium applied for costs to be awarded on an indemnity basis, relying on a Calderbank offer the Consortium had made on 3 February 2014, shortly after the commencement of the proceedings. That offer was to settle the proceedings, without admission of liability, on terms including a mutual release of all claims arising out of or in connection with the subscription agreement; discontinuance of the proceeding against the Consortium with no order as to costs; and for the Consortium to pay Prospect Resources the sum of AU$50,000. The offer was expressed to be open for acceptance until 14 February 2014.
2. The letter containing the Calderbank offer reiterated the view that had been expressed by the Consortium in an earlier letter of 15 November 2013 to the effect that Prospect Resources' claim would not succeed at trial. In that earlier letter, there was a clear exposition of the reasons that the Consortium contended that the claim would not succeed (albeit by reference to whether the relevant conditions had been "satisfied" rather than "waived"). There was no response by Prospect Resources to the November 2013 letter. It simply commenced the proceedings.
3. His Honour dealt with the Consortium's costs application on the papers. His Honour noted the parties' competing submissions and concluded at [17] that it was unreasonable for Prospect Resources simply to ignore the Calderbank offer. His Honour based the conclusion of unreasonableness on this not being a case in which the ground on which the defendant succeeded was one that had become apparent only at some time after its commercial list response had been filed or shortly before the hearing (referring to the letter of 15 November 2013) and that it was apparent from the evidence of its managing director that Prospect Resources had no reasonable basis for believing that it had satisfied the conditions precedent (which his Honour considered to be a matter of key importance) ([18]-[19]).
4. His Honour noted that Prospect Resources had been successful on the debate as to who had the right to waive the conditions precedent but said that did not assist it in circumstances where he had concluded, as a matter of fact, that there had been no waiver ([20]).
5. His Honour said (at [23]) that it was evident that Prospect Resources recognised before commencing proceedings that it could not demonstrate satisfaction in fact of the relevant conditions precedent and that it had sought to create a situation, first by the deed of variation and then by the 28 October 2013 letter, to overcome this - in effect by "rewriting history, in an attempt to demonstrate that something which plainly did not exist or had not been satisfied, in fact did exist or had been satisfied" ([23]).
6. His Honour ordered that costs be on an indemnity basis.

Appeal

1. The first two appeal grounds go to the question whether the obligation to subscribe for the shares was enlivened and hence whether the Consortium was in a position to terminate the subscription agreement. Although those appeal grounds, as framed, raised both 'satisfaction' and 'waiver' of the conditions precedent in the SPMA, in oral submissions on the appeal it was made clear that the only challenge was to his Honour's findings on the issue of waiver. The first two appeal grounds must be read down accordingly. As a consequence, the Consortium does not press ground 1 of its notice of contention.
2. The remaining appeal grounds deal with the appropriate remedy, if grounds 1 and 2 succeed (ground 3); and with the order for indemnity costs, which becomes relevant if grounds 1 and 2 do not succeed (ground 4).

Appeal grounds 1 and 2; notice of contention ground 2 - whether SPMA conditions precedent were "waived" and whether the Consortium ought reasonably to have been satisfied by the 28 October 2013 letter that the conditions precedent had been waived

1. Read down as indicated above, the first two appeal grounds are as follows: 1. The trial judge erred in holding that, by each executing the letter of 28 October 2013 (28 October letter) and returning it to the appellant, the parties to the "Senior Prospecting & Mining Agreement" (SPMA) had not: a. Agreed that the conditions precedent in clauses 5.1 to 5.4 of the SPMA had been satisfied, with the effect that the conditions were satisfied; or b. Waived the conditions precedent in clauses 5.1 to 5.4 of the SPMA within the meaning of "waived" in clause 3 of the subscription agreement between the appellant and the respondents (Subscription Agreement). 2. The trial judge erred in holding that the appellant, although on 28 October 2013 it had provided a copy of the 28 October letter executed by each of the parties to the SPMA to the respondents, had not reasonably satisfied the respondents that the conditions precedent in clauses [sic] 5.4 of the SPMA had been satisfied or waived within the meaning of the term "reasonably satisfy" in clause 3.1 of the Subscription Agreement. [those parts of the appeal grounds that are not pressed have been ruled through]
2. The sole ground pressed by the Consortium on its notice of contention goes to the issue raised by ground 2 of the grounds of appeal. It is contended that, in the event that the appellant succeeds on ground 1 or 2, the decision below should be affirmed on the ground that: 2. The letter of 28 October 2013 could not reasonably satisfy the respondents that the conditions precedent in the SPMA had been waived, given the trial judge's findings at [137] - [142] of his reasons in the principal judgment. [i.e., his Honour's reasons for concluding that there had been no waiver]

Ground 1

1. Prospect Resources accepts that the primary judge was correct in concluding both that the word "waived" in cl 3.1(a) of the subscription agreement meant waived by the parties to the transaction documents (i.e., the parties to the SPMA) ([52]) and that it meant waived in accordance with the relevant clause (cl 5.5 or 5.6 as the case may be) of the SPMA ([126]). Likewise, it accepts that his Honour was correct when observing that cl 3.1(a) embodies express contractual acknowledgements of the entitlement (recognised in Perri v Coolangatta Investment Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 (at 543)) of a party who has the benefit of a condition to waive it ([128]).
2. Prospect Resources maintains, however, that his Honour erred (at [129]) in equating "waiver" in the respective agreements with renunciation and that this led him into error in concluding that there had been no waiver.
3. Prospect Resources submits that the words "waive" and "waived" in cl 5 of the SPMA and cl 3.1(a) of the subscription agreement are used in the context of waiver of a contingent covenant (referring to Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418 and Perri at 543; 553; 565).
4. Certainly, at [129] his Honour concluded that the common contractual denotation of waiver in each agreement was equivalent to "renunciation of the right to rely on non-satisfaction of the condition by taking the benefit of the position, or right, engendered by that non-satisfaction". His Honour then proceeded to pose the question, by reference to what was said in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570, as to what was required for waiver in that sense.
5. Nevertheless, it is clear, from what his Honour later said at [135], that his Honour was not limiting his consideration of "waiver" in this context to waiver in the sense of renunciation. His Honour expressly proceeded on the basis that even if "waiver" in the requisite sense meant expression of an intention not to insist upon satisfaction of the conditions (as Prospect Resources here contends), the 28 October 2013 letter did not unequivocally communicate such a position.
6. Prospect Resources also takes issue with the observation by his Honour at [134] that, since the relevant question is whether the parties to the SPMA waived fulfilment of the conditions precedent, there is no question of election between inconsistent rights. It maintains that since, objectively, the purpose of the 28 October 2013 letter was to record that the parties were treating the conditions as complied with, the parties could not later treat the substantive provisions of the SPMA as not operative as to do so would be to take inconsistent positions by reference to their prior conduct. In that sense, Prospect Resources appears to suggest that the letter was an election between treating the conditions as having been satisfied and requiring actual satisfaction of the conditions.
7. Prospect Resources maintains that neither of the two reasons given by the primary judge for his conclusion that the letter did not constitute a waiver results in such a conclusion and that his Honour's reasoning was flawed.
8. As to the first reason (that the 28 October 2013 letter did not refer to an intention to renounce or give up or not insist on satisfaction of the conditions, and demonstrated that satisfaction of the conditions remained of importance), it is said: that this reasoning is dependent on the erroneous equation of waiver and renunciation; that it requires a degree of formalism not required by the authorities; that it is not directed to the determinative issue which is how a reasonable recipient would have understood the letter; and that a reasonable recipient would not have read the letter as conveying that satisfaction of the conditions remained of importance - rather, a reasonable recipient would have understood the letter to mean that the parties did not require any further acts or events constituting satisfaction.
9. As noted above, his Honour did not limit his consideration on the question of waiver to whether there had been waiver in the sense of renunciation.
10. As to the second reason (that Prospect Resources had good reason for preferring the conditions be satisfied rather than waived), again it is said that the reasoning is flawed because: to the extent that it is directed to Prospect Resources' subjective state of mind it is directed to an irrelevant consideration (since the issue is how the communication is objectively understood); it proves too much, since a party will objectively prefer that a condition be performed rather than waived, that being the prima facie reason the party bargained for that condition, and fails to take into account that the issue of the Special Grant had occurred; and because it conflates the communications between the parties to the respective agreements.
11. What was determinative in his Honour's reasoning was that the letter of 28 October 2013 made no reference to waiver and was inconsistent with the proposition that there was any contractual waiver (since, if the conditions had been satisfied, there cannot have been a waiver; nor could there remain any subsisting opportunity to waive them). That was made clear at [142] where his Honour stated that his conclusion did not turn on whether it was correct to say that satisfaction of the conditions precedent was of importance to Prospect Resources.
12. The absence of an express reference to waiver does not, of course, preclude there having been a waiver; though it is something that may be taken into account in considering the objective effect of the communication in question.
13. It is well recognised that "waiver" can be used in various senses. In Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, Brennan J (as his Honour then was) referred to "waiver" as a term of "shifting meaning" (at [8]). Its potential meanings were there identified as including: a contractual admission of liability; waiver in the sense of an election between mutually exclusive rights; waiver in the sense of an estoppel dependent on the detrimental reliance of the person relying thereon; and, as was the sense in which his Honour referred to it in Verwayen, waiver as a unilateral release or abandonment of a right (for which it would not be necessary to establish any detrimental reliance).
14. In Craine v The Colonial Mutual Fire Insurance Company Limited [1920] HCA 64; (1920) 28 CLR 305, to which decision reference was made by Brennan J in Verwayen, Isaacs J emphasised (at p 326) that waiver is a distinct and intentional act with knowledge (there citing Earl of Darnley v Proprietors & c. of London, Chatham and Dover Railway [1867] L.R. 2 H.L. 43 per Lord Chelmsford L.C. at p 57; Doe d. Nash v. Birch [1836] 1 M. & W. 402 per Parke B at p 406; Perry v Davis [1858] 3 C.B. (N.S.) 769 per Williams J at p 777; Pennant's Case 2 Co. 171 at p 173 and Matthews v Smallwood [1910] 1 Ch 777). His Honour there treated waiver as involving conduct involving an election, referring to the doctrine of approbation and reprobation (a doctrine which Brennan J noted in Verwayen was a distinct doctrine, since there could be waiver of a right even though there is not an alternative right inconsistent with it).
15. The various senses in which the term "waiver" can be used were considered in Agricultural and Rural Finance. The plurality (Gummow, Hayne and Kiefel JJ) noted (at [52]) that: … it is clear that there are cases in which the word has been used in senses other than those embraced by principles of election, estoppel or variation of contract. So, for example, waiver has been used in the sense of rescission where what has occurred is "an entire abandonment and dissolution of the contract". It has been used in connection with a party not insisting upon a term of a contract which is identified as a term for that party's sole benefit. And from time to time "waiver" has been used to describe some modification of the terms of a contract without the formalities, or consideration, necessary for an effective contractual variation. and emphasised (at [54]) the importance of identifying the principles said to be engaged in the particular case. At [90], their Honours said that: Propositions expressed in terms of abandonment or renunciation of a right, like the proposition that a contractual condition inserted in a contract for the benefit of one party has been waived by that party, are statements of conclusion. They are not statements that reveal the process of reasoning which leads to the assignment of the chosen description.
16. The sense in which Prospect Resources maintains there was a waiver by the expression of understanding by the signatories to the 28 October 2013 letter (namely, that the parties did not require any further acts or events to constitute satisfaction of any as yet unfulfilled conditions; in effect, treating the conditions as having been satisfied) appears to be a statement of conclusion of the kind referred to in Agricultural and Rural Finance as not revealing the process of reasoning leading to the assignment of the chosen description. However, ultimately, it is not necessary to enter into a taxonomical debate as to the concept of waiver in the present case.
17. There are two bases on which his Honour's conclusion that there was no waiver must be taken to be correct.
18. First, the SPMA distinguished in terms between "fulfilment" of the conditions precedent and their waiver (see cll 5 and 5.6). The subscription agreement likewise expressly distinguished between the "satisfaction" and "waiver" of the conditions precedent. The letter dated 28 October 2013 referred expressly to the understanding of the parties to the SPMA that cll 5.2, 5.3 and 5.4 had been "satisfied", and when that letter was emailed to the respondents that was how it was described.
19. The primary judge considered that there was a necessary inconsistency between a condition being satisfied and its being waived. That, perhaps, is not strictly so. A condition may in fact have been satisfied, but nevertheless the parties may be in dispute as to whether that is so (because of factual uncertainty or because they take a different view of the legal meaning of the condition precedent). After a dispute has been articulated, it would then make sense for the parties to waive any further right to complain of the non-satisfaction of the condition.
20. However, where the parties have distinguished between satisfaction and waiver, and there is no suggestion of any dispute between the parties to the SPMA, the letter of 28 October 2013 is not capable of constituting a waiver. Instead, it should be understood in terms of its unambiguous language as a statement as to the conditions having been satisfied.
21. The matter may be tested by considering the position of the recipients of the letter. The Consortium members, having seen the letter expressed in terms of satisfaction (as it turns out, incorrectly) might conceivably have reasonably held the view that the conditions had been satisfied. But there is no basis on which it could be concluded that they would reasonably be regarded as concluding that there had been a "waiver". There is no room for a statement as to conditions having been satisfied giving rise to a conclusion that they had been waived.
22. That leads to the second, and alternative, reason for the conclusion reached by the primary judge being correct. Approaching the question whether the 28 October 2013 letter amounted to a waiver in the sense propounded by Prospect Resources, what was necessary was for the letter to communicate unequivocally that compliance with the relevant conditions was no longer required or was to be taken as having been satisfied. I am not persuaded that the letter of 28 October 2013 did so. What the signatories to the letter were expressing, by signing the letter, was their "understanding" at that point that the conditions had been satisfied. They did not in terms express an agreement to treat the conditions as having been satisfied or not to insist upon further performance of the conditions. The bald statement of an "understanding" begs the question as to whether, had they later changed their minds as to the correctness of that understanding, they could have departed from that understanding and required compliance with the unfulfilled conditions. Although I am not suggesting that what was required, for waiver in the sense in which Prospect Resources uses the term in this appeal, was something in the nature of conduct giving rise to an estoppel, what is unclear from the letter is whether the signatories were doing more than expressing a current belief as to the satisfaction of the conditions. The letter did not, for example, unequivocally communicate a decision to abandon a right to insist on satisfaction of the conditions or an election not to insist on their satisfaction or to treat them as being fulfilled. The consequence of the statement of understanding was not necessarily that the parties to the SPMA could not later have taken a different view. In those circumstances, the letter does not objectively communicate or constitute a waiver of the conditions.
23. Whichever of the two ways the question is to be approached, the letter of 28 October 2013 did not in my opinion constitute a waiver of the conditions that as at that date had not actually been satisfied.

Ground 2 (and corresponding ground 2 of notice of contention)

1. As to ground 2, Prospect Resources notes that it was common ground at the hearing, and accepted by his Honour, that the words "reasonably satisfy" in the opening words of cl 3.1(a) connote an objective standard not actual subjective satisfaction. It maintains that the issue is how a reasonable recipient would have understood the communication (referring to Mannai Investments v Eagle Star [1997] AC 749 at 767, 780 and 782).
2. It is submitted that, on the hypothesis that ground 1 is upheld, the letter of 28 October 2013 constituted a waiver of the relevant conditions in the SPMA and would objectively so be understood; and that in those circumstances, nothing other than the provision of the letter was required reasonably to satisfy the Consortium that the conditions in the SPMA had been "satisfied or waived" and there was no objective reason for the Consortium to do other than to take the letter at face value. Prospect Resources points out that had there been any doubt as to the efficacy of the letter the Consortium could have asked for further information and it did not.
3. The premise on which that submission has been based has not been made good.
4. The Consortium members note that the onus was on the appellant to reasonably satisfy the respondents that the conditions had been satisfied or waived by 30 October 2013; that the relevant conditions in the SPMA were lengthy, detailed and required evaluative judgments and the provision of information and reports including from independent sources; and that Prospect Resources did not provide any such information or reports but simply forwarded the letter dated 28 October 2013 (one day before the conditions precedent had to be satisfied or waived).
5. For the same reasons that, objectively, the letter of 28 October 2013 did not constitute a waiver (see [63]-[69] above), the provision of that letter alone was not sufficient in my opinion to meet the requirement that Prospect Resources reasonably satisfy the Consortium that there had been a waiver of the conditions. The position might well have been different had the Consortium been provided not merely with the letter but also with, say, evidence that the first tranche of payment for the project rights had been made in accordance with cl 7.1.1 of the SPMA (though as noted earlier it is not known whether any such payment was ever made) because information of that kind might lead one reasonably to conclude that the parties were indeed acting upon the stated understanding that the conditions had been satisfied or could be taken for relevant purposes to have been satisfied. Similarly, had the stated "understanding" been expressed in terms of a binding agreement, the position would have been different. As it was, in my opinion his Honour did not err in concluding that provision of the 28 October 2013 letter did not satisfy cl 3.1(a) of the subscription agreement.
6. Ground 2 of the grounds of appeal is not made out. It is not necessary to deal with the corresponding ground in the notice of contention.

Ground 3 - remedy

1. Appeal ground 3 is as follows: 3. The trial judge erred in not: a. Assessing the damages payable by the respondents to the appellant in the sum of $4,400,000 (or any sum); or b. Ordering specific performance of the Subscription Agreement.
2. His Honour considered it unnecessary to deal with the question of remedy other than to note that the Consortium accepted that, if Prospect Resources were to succeed, it would be appropriate to award specific performance of the subscription agreement. That remained the Consortium's position on the appeal on the basis that otherwise Prospect Resources would obtain a windfall (in obtaining the subscription prices without issuing the shares).
3. Prospect Resources has failed on grounds 1 and 2 and therefore ground 3 does not arise.

Ground 4 - costs

1. Appeal ground 4 relates to the costs judgment, namely that: 4. In the alternative, the trial judge erred in ordering the appellant to pay the respondents' costs on an indemnity basis in circumstances where, correctly characterised, the appellant's pursuit of the litigation was reasonable, the appellant's construction argument was reasonably open (if not correct) and the Calderbank offer made by the respondents to the appellant was for slightly over 1% of the appellant's claim.
2. As this complaint relates to the exercise of his Honour's discretion, it is necessary that error in the sense explained in House v The King [1936] HCA 40; (1936) 55 CLR 499 be demonstrated. Prospect Resources submits that there are two reasons why his Honour erred in the House v The King sense in ordering indemnity costs.
3. The first is that his Honour considered Prospect Resources' case was obviously weak. A number of errors in that reasoning are identified.
4. The first is that, with respect to the waiver case, the sole foundation was that his Honour came to a different conclusion as to the effect of the letter of 28 October 2013.
5. Second, it is said that his Honour's treatment, as obvious, of the findings of fact that the conditions had not been satisfied was to take the factual findings out of context, in circumstances where all the parties to the SPMA expressed a state of mind that the conditions had been satisfied "at least to a standard [that] each was prepared to accept was adequate". Counsel for Prospect Resources emphasises that there was no case at trial that the statements in the letter of 28 October 2013 were made in bad faith or for an improper purpose or were knowingly false or misleading.
6. A third error identified in this context is that his Honour placed weight on the content of the November 2013 letter from the Consortium explaining the Consortium's position as to why the case would fail. Prospect Resources says that this letter did not engage with its waiver case and advanced no reason as to why that case was bound to fail.
7. No error in the House v The King sense has been demonstrated in his Honour's conclusion that the case put for Prospect Resources was weak. That turned on his Honour's assessment of the merits of the argument being run by Prospect Resources which, unlike the case on appeal, also encompassed an allegation, at least initially, that the conditions had actually been satisfied.
8. In circumstances where it was clear that as at 28 October 2013 the parties to the SPMA themselves considered that the conditions precedent to that agreement had not all been satisfied (since they entered into a deed acknowledging as much), and Prospect Resources did not point to anything happening between then and 29 October 2013 (when the letter was provided to the Consortium) to change the position in relation to non-satisfaction of the conditions in cll 5.2 and 5.4.3, the observation that Prospect Resources' case on "satisfaction" was weak is a charitable one. In the absence of anything on the face of the 28 October 2013 letter to indicate objectively that the signatories would be bound by the expressed understanding or could not later adopt a position inconsistent therewith, it was open to his Honour to conclude that the alternative case on waiver was also weak.
9. As to the second perceived error, his Honour did not base the costs determination on a finding that there had been bad faith on the part of Prospect Resources. The fact that the SPMA conditions had not all been satisfied at the time of the 28 October 2013 letter was obvious having regard to the terms of the deed of variation and the lack of anything to alter the position in relation to cll 5.2 and 5.4.3 thereafter.
10. As to the third perceived error, the November 2013 correspondence unsurprisingly did not expressly address the "waiver" case. That is no doubt because the position of Prospect Resources at that time, as acknowledged by its Counsel on this appeal, was that the conditions had been satisfied. It is said that between the November 2013 correspondence and the Calderbank letter the proceedings had been initiated and the commercial list statement made clear that the case had moved on to "pick up" the waiver case.
11. What the commercial list statement asserted was that the relevant conditions were "met or waived" before 30 November 2013 (see [20]), the allegation of waiver being based first on the execution of the deed of variation ([20(a)]) and then, in the alternative to the case that they had been met, that the 28 October 2013 letter had effected a waiver ([20(c)]). The basis of the alternative "waiver" case (namely that, as it was explained on appeal, the SPMA signatories' expression of understanding that all conditions were satisfied amounted to a waiver of the condition in the sense that nothing further would be required by way of satisfaction of any then unfulfilled) was not made clear. In those circumstances, the fact that the November 2013 correspondence did not address the 'waiver' case does not assist Prospect Resources' argument on costs. What that correspondence correctly drew to its attention was that the satisfaction case was doomed to fail. The "waiver" case was left unexplained by Prospect Resources at the time.
12. The second error in the House v King sense that Prospect Resources contends was made is that his Honour failed to take into account that the Calderbank offer of $50,000, in effect inclusive of costs, in a commercial cause in which the claim was for approximately $4.5 million, was not a real compromise and "invited capitulation". (Reference is made to Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [41] and [51] applying Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 386 at [16] and [31]). It is submitted that Regency Media was erroneously distinguished.
13. To the extent that his Honour distinguished the present case from the facts considered in Regency Media (noting at [26] that the latter was a case arising from non-acceptance of an offer of compromise under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)), it is clear that the costs determination did not turn on the fact that in the present case what was served was a Calderbank offer rather than an offer of compromise. Rather, it turned on his Honour's assessment that it was unreasonable for Prospect Resources not to engage with the offer that was made.
14. Prospect Resources accepts that the outcome is fact dependent in each case. Its complaint in this regard seems to be that his Honour did not refer to the applicable statements of principle in Regency Media to the effect that rejection of an offer which, if accepted, would amount to a capitulation will generally not be unreasonable. His Honour clearly had in mind the submissions made by both parties as to the unreasonableness or otherwise of non-acceptance of an offer that was said by Prospect Resources to be derisory and involving a near capitulation by it, since those were recorded at [11]-[16] of his reasons.
15. In Regency Media, the offer of compromise was made at an early stage of the proceedings and comprised an offer to settle a claim in the order of $600,000 by payment of the sum of $10,000. At [31]-[33], this Court accepted that an offer which is in substance an invitation to surrender could result in the successful triggering of the indemnity costs mechanisms under the rules (referring to UCPR r 20.26(2) and Leichhardt Municipal Council v Green [2004] NSWCA 341 at [36]-[37], [40]) but considered that the claim or defence "would have to approach something of the character of being frivolous or vexatious", referring to what was said by Basten JA in Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 (at [20]) and to Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [17]. The reason for that was explained as being that, if it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. (See also what was said by their Honours in Regency Media at [29].)
16. However, Regency Media does not lay down a rigid rule in this regard. What amounts to a derisory offer, as opposed to an offer containing a sufficient element of compromise, must to a large extent be a matter of impression; as must the assessment of whether, in all the circumstances, non-acceptance of an offer inviting capitulation would be unreasonable.
17. In Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790, for example, Bergin J (as her Honour then was), having noted that the discretion as to the cost consequences attendant under the general law upon an offer of compromise made in a Calderbank letter is to be exercised having regard to all of the relevant circumstances of the case and that "there is no rule that an optimistic offer is not a genuine offer", accepted that the offer there made by the defendant was a genuine offer of compromise (although describing it as a borderline case), where the offer represented a payment that would have covered only a portion of the plaintiff's costs incurred up to that time. There, the fact that the defendant was willing at that time to compromise what it saw as its strong position and pay a sum of $100,000 to the plaintiff persuaded her Honour that the offer was a genuine offer of compromise.
18. In the present case, the amount offered was admittedly only a very small fraction of the amount claimed by Prospect Resources. However, given the firm views that had been expressed by the Consortium as to the merits of the claim, no error is shown in his Honour's conclusion that the offer represented a genuine element of compromise. It is not inconsistent with the policy underlying Calderbank offers and offers of compromise (namely, of encouraging early settlement of litigation) to treat the offer made in this case as one that could enliven the discretion to make a special costs order. To the contrary.
19. The question then for his Honour was whether Prospect Resources was acting unreasonably in not accepting the offer or, as his Honour put it, not engaging with that offer. In essence his Honour appears to have accepted the submission for the Consortium to the effect that characterisation of the offer as derisory or as one involving a near capitulation could not be determinative and proceeded to consider the circumstances known to Prospect Resources at the time (including that the conditions had not actually been satisfied) in determining the reasonableness or otherwise of its response to the Calderbank offer. No error has been demonstrated in respect of the conclusion his Honour reached in that regard.
20. A further reason for not intervening in the exercise of his Honour's discretion as to costs is that this Court is not in a position to assess the unreasonableness of the arguments advanced in the primary case run by Prospect Resources when the matter was before his Honour. In this regard the Consortium points out that at the hearing at first instance Prospect Resources ran various arguments which have since been abandoned and were not explored on appeal. It submits that the issue that occupied most of the time in that hearing was the argument that the conditions precedent had actually been satisfied and that the Consortium should have been satisfied of that.
21. No error in the House v The King sense has been demonstrated so as to warrant appellate intervention in the exercise of the costs discretion. Ground 4 is not made out.

Conclusion

1. For the above reasons, the appeal should be dismissed with costs.
2. LEEMING JA: I agree with Ward JA.

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