BETWEEN : PS HOLDINGS LTD (A company incorporated with limited liability under the laws of Cayman Islands, British West Indies)

Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VicLawRp 47; [1947] VLR 332

Banque de Paris et des Pays-Bas (Suisse) SA v Costa de Naray [1984] 1 Lloyds Rep 21

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd, unreported, FCt SCt of WA; Library No 970739; 23 December 1997

Fancourt v Mercantile Credits Limited [1983] HCA 25; (1983) 154 CLR 87

Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59 CLR 348

Jacob v Booth's Distillery Co (1901) 85 LT 262

Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [ 1976] WAR 109

National Westminster Bank PLC v Daniel [1993] 1 WLR 1453

White v Johnston (1886) 8 ALT 53

1 MASTER SANDERSON: This is the plaintiff's application for summary judgment. Pursuant to the chamber summons, the plaintiff sought judgment against the defendant in the sum of $1,307,688.80 together with interest and costs. After all affidavits were filed it became apparent that the plaintiff's claim was in fact for $1,046,487.38 plus interest and costs. The chamber summons will be amended accordingly.

2 At the commencement of the hearing the plaintiff sought leave to rely upon two affidavits in reply. These were the affidavits of Mr Yeo Ean, sworn 27 January 2000 and Mr Abdul Aziz Hussain, affirmed 27 January 2000. The defendant objected to either or both of these two affidavits being read into evidence. Counsel for the defendant submitted that both affidavits did nothing more than join issue with matters raised by the defendant in his affidavit in response to the application and, accordingly, leave should not be given to read either affidavit into evidence: see Colonial Bank of Australia Ltd v De Faro [1894] VicLawRp 50; [1894] 20 VLR 241 at 243. As I indicated to the parties during the course of the hearing, I am satisfied that both affidavits should be admitted into evidence. Neither affidavit simply joins issue with evidence put by the defendant. In the case of Mr Yeo's affidavit, it attaches a schedule which calculates how the amended amount is calculated and explains certain transactions. Mr Hussain's affidavit deals with matters raised by the defendant in his affidavit and goes on to explain the certain circumstances surrounding various transactions. It is the case that, to an extent, the evidence of Mr Hussain joins issue with what is said by the defendant. However, the affidavit does more than that. It offers a version of events which is different from that put by the defendant while being consistent with documents before the court. The affidavit is more than simply responsive and in my view contains material which it is proper to consider in the context of the application.

3 In large measure, the parties are in agreement as to the facts which give rise to this claim. The position can be properly summarised by quoting par 4 and par 5 of the statement of claim. They read as follows:

"4 By a written Call and Put Option Agreement made between PSH and Verheggen dated 6 August 1997 ('Option Agreement'), PSH and Verheggen agreed that:

(a) PSH would be granted an irrevocable and unconditional put option ('Put Option') to sell 2.5 million ordinary shares in Max Resources Limited, a company incorporated in New Zealand ('Option Shares') that it would acquire on the Acquisition Date (as that term is defined in the Option Agreement) whereby Verheggen would be bound to purchase the Option Shares from PSH at NZ $0.62 ('Put Option Price') during the period commencing 366 calendar days and expiring on 380 calendar days from the Acquisition Date ('Put Option Period'), if PSH exercised its Put Option;

(b) Verheggen would be granted the option to purchase at any time during the period commencing from the Acquisition Date and expiring on 365 calendar days from the Acquisition Date ('Call Option Period') the Option Shares whereby PSH would be bound to sell the Option Shares to Verheggen at NZ $0.62 each ('Call Option Price');

(c) by clause (v) of the Option Agreement, under the heading 'Exercise of the Put Option', PSH would be entitled to sell the Option Shares in the event that Verheggen fails to pay the Put Option Price for the Option Shares;

(d) by clause (viii) of the Option Agreement, also under the heading 'Exercise of the Put Option', PSH would be entitled to take 'such steps as it deems necessary to recover the Put Option Price and all sums due to PS Holdings'; and

(e) Verheggen would provide PSH with 5 million ordinary shares in Max Resources Limited and 5 million Max Resources Limited Options ('the Pledged Shares'), as collateral for the Put Option (see bottom of page 1 of the Option Agreement).

PSH will refer to the Option Agreement at trial for its full terms and effect.

5 Also on 6 August 1997, PSH and Verheggen entered into a Memorandum of Deposit ('Memorandum') pursuant to which certain shares and options were provided by Verheggen to PSH as collateral for Verheggen's obligations under the Option Agreement, and by which the parties agreed that upon the default of Verheggen in making payment of the Put Option Price in accordance with the terms of the Option Agreement, PSH could sell or dispose of the Pledged Shares.

PSH will refer to the Memorandum at trial for its full terms and effect."

4 On 14 August 1997 the plaintiff acquired the option shares pursuant to the terms of the Option Agreement. In mid 1997 the defendant deposited the pledged shares with the plaintiff. (The number of shares and options deposited was slightly below the number of shares and options referred to in the Option Agreement. Nothing turns on this shortfall and no issue was taken by either party in this regard.) On 23 March 1998 the New Zealand Stock Exchange suspended the trading and quotation of the securities in Max Resources Ltd. On 17 August 1998 the plaintiff exercised its put option and required the defendant to make full payment of the amount due to the plaintiff by 21 August 1998.

5 On 16 September 1998 the defendant sent a fax to the plaintiff requesting time to "finalise his position". A copy of this facsimile appears as Annexure "AH1" to the affidavit of Hussain affirmed 27 January 2000. Subsequent to this letter, the plaintiff and the defendant agreed to vary the Option Agreement by allowing the defendant until February 1999 to pay the debt outstanding to the plaintiff. A copy of this variation appears as Annexure "YE6" to Yeo's affidavit of 14 December 1999. The date for payment was further extended to 21 May 1999. This extension was agreed in writing and is to be found as Annexure "YE7" to Yeo's affidavit of 14 December 1999. It is common ground between the parties that payment has not been made and these proceedings were issued.

6 The defendant does not deny he entered into the Option Agreement with the plaintiff, as alleged, nor does he deny that he entered into the two extensions of the Option Agreement. What he now says is that, pursuant to a separate agreement, he is not now obliged to make payment of what is claimed by the plaintiff under the Option Agreement. In par 8 of his affidavit of 14 January 2000 the defendant explains his position in the following way:

"In approximately June or July 1998 in the course of numerous telephone calls between myself and Hussain, it was agreed that to progressively reduce and ultimately discharge the amount owing by me, I would make recommendations to the Plaintiff for the purchase and sale of various shares listed on, amongst other exchanges, the Australian Stock Exchange Limited ('the Agreement'). In consideration of my undertaking to apply my knowledge and skills in this way to the advantage of the Plaintiff, the Plaintiff (through Hussain) agreed not to enforce against me personally, the obligation to pay the sum due under the Option Agreement. The telephone conversations took place whilst I was in Perth, Western Australia and I believe Mr Hussain was in Kuala Lumpur in Malaysia."

7 The defendant goes on to say that there was no time limit on when he was to make recommendations or how long the agreement would continue in force and effect. He also does not detail any other terms of the agreement. For instance, there is no indication with what frequency investment recommendations were to be made, there is no indication of what happened if a recommendation was made and a loss was suffered. There is no indication as to whether recommendations made to the plaintiff had to be acted upon and, if they were not and a profit could have been made, whether the defendant was entitled to a credit for the putative profit. In short, the agreement alleged by the defendant is lacking in detail.

8 In support of his claim in relation to the agreement, the defendant refers to three transactions which he says were entered into pursuant to the agreement. These transactions are referred to as the "Conquest Deal", the "Transcom Deal" and the "Reefton Deal". The Conquest Deal involved the transfer by the defendant of 1,000,000 options in Conquest Mining Ltd, a listed public company, to the plaintiff. It is not entirely clear how this transaction fits with the agreement alleged by the defendant. There was no advice given by the defendant to the plaintiff, but rather simply a transfer of securities from one to the other. In my view, this transaction can be put to one side.

9 The Transcom Deal involved the defendant arranging for the plaintiff to sub-underwrite an issue of options by Transcom International Ltd in July 1998. As a consequence of this transaction, the plaintiff made a profit of $252,168.95. In his second affidavit, Yeo allows the defendant credit for this transaction and it was deducted from the indebtedness under the Option Agreement. The defendant claims this is evidence of the agreement he entered into with the plaintiff. The Reefton Deal was to like effect. The defendant recommended the plaintiff purchase 3,000,000 shares and 3,000,000 options in Reefton Mining NL, a listed public company. The plaintiff in fact purchased 1,000,000 Reefton Mining NL shares which it subsequently sold for a profit of $134,531.48. Once again, this is said by the defendant to be evidence of the agreement he entered into with the plaintiff.

10 The plaintiff, for its part, denies there was any agreement in the terms alleged by the defendant. Clearly, there is a conflict on the evidence between the plaintiff and the defendant and such a conflict cannot be resolved in the context of a summary judgment application. Unless the version of events offered by the defendant is inherently incredible, that version must be accepted for the purposes of a summary judgment application: see Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 at 608.

11 In my view, there are a number of reasons why the agreement alleged by the defendant cannot stand, with the effect that there is no defence to the plaintiff's application. First, there is a difficulty about the agreement itself. The Option Agreement contained an "entire agreement" clause in the following terms (Annexure "YE2" to Yeo's affidavit of 14 December 1999):

"This Agreement including the Schedules hereto constitute the entire Agreement between the Parties and it is expressly declared that no variation shall be effective unless made in writing and signed by the Parties hereto."

12 It is nowhere alleged that the Option Agreement was varied in writing by the parties in the way alleged by the defendant. Nor is it alleged by the defendant that it was agreed that this clause should be ignored so that the agreement could take effect. That means that the agreement cannot amount to a variation of the Option Agreement. If it is a collateral agreement then it is at odds with the written Option Agreement. The collateral agreement cannot be effective in such circumstances: see Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133. In all the circumstances then, it is difficult to see how the agreement is binding on the parties and has any force and effect.

13 In addition to these legal impediments, in my view the claim put by the defendant is inherently incredible. The defendant says that the oral agreement with Hussain was entered into in June or July 1998. The put option was exercised in August 1998 and in his fax of 16 September 1998 the defendant makes no mention of the agreement. What is more, the Option Agreement was extended twice in writing and on neither occasion was the agreement mentioned. Surely, if the plaintiff had reached the agreement with the plaintiff as alleged, the extensions would not have been necessary. What is more it is difficult to see why, if the extensions were documented, the defendant would not have ensured the agreement was documented. Furthermore, the agreement, as alleged, is too nebulous. The defendant has entirely failed to explain the terms of the agreement and how the agreement was to operate in practice. It is difficult to see how the agreement benefited the plaintiff at all. If the plaintiff accepted the investment recommendations of the defendant, it was investing its own money - that is to say, putting its capital at risk - yet any profit would be credited against the indebtedness of the defendant to the plaintiff. Taken as a whole, the defendant's case is inherently incredible.

14 Against all of that, the defendant says that the Transcom Deal and the Reefton Deal can only be explained if the agreement existed. In relation to these and the Conquest Deal, they had the effect of lowering the exposure of the plaintiff to the defendant under the agreement. It does not seem to me to be unreasonable that on each occasion the plaintiff should have looked to reduce its risk under the Option Agreement. But, in my view, the fact of these transactions does not translate into support for the defendant's claim that there was a firm and binding agreement. In other words, the fact that these transactions occurred does not render the defendant's version of events in any way credible.

15 In all the circumstances, I am satisfied that there is no defence to the plaintiff's claim. There will be judgment for the plaintiff in terms of the amended chamber summons.