Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd

(A) results in a completed takeover, merger or other business combination being effected between the Company and the bidder; or

(B) is successfully defended by the Company in circumstances where the majority of directors of the Company recommend to shareholders that they reject the Offer or otherwise determine to defend the Offer,

the Company will pay JPMorgan a Defence Response Fee which will comprise the aggregate of two components (i) and (ii) below: (i) Base Defence Response Fee · for advice in relation to an Offer that proceeds to completion, a fee equal to 0.75% of the Transaction Value; or · in the event the Company successfully defends an Offer, a fee equal to 1.0% of the proposed Transaction Value; plus

The Incentive Fee will recognise the achievement of additional value to the Company's shareholders beyond that contemplated at the announcement of an unsolicited Offer or initially proposed in relation to a friendly Offer. The Incentive Fee will be equal to: · 3.0% of any increase in the Offer price, up to 25% above the initial Offer price which was communicated to the Company publicly or privately; plus · 5.0% of any increase in the Offer price in excess of 25% above the initial Offer price which was communicated to the Company publicly or privately.

The Defence Response Fee (Base Defence Response Fee plus Incentive Fee) will be invoiced and is payable within 30 days of the relevant Completion Date.

The Company must reimburse JPMorgan for all reasonable expenses JPMorgan incurs in connection with this engagement including, without limitation, reasonable fees and disbursements of legal counsel and other professional advisers to JPMorgan. Where JPMorgan proposes to appoint its own legal counsel or other professional advisers, JPMorgan will choose those advisers at its sole discretion. The Company must pay these expenses to JPMorgan within thirty (30) days of receipt of invoice regardless of whether the Transaction occurs or this agreement expires or is terminated provided that such expenses are incurred prior to the expiry of termination of this agreement. Notwithstanding the above, JPMorgan will not incur any single out-of-pocket expense exceeding A$5,000 without the prior written consent of the Company.

The Company must pay the fees and expenses in this clause 3 without any deduction or set-off and without deduction for any withholding or similar taxes or charges. If the Company is required by applicable law to make any deduction or withholding on account of taxes with respect to any amount payable hereunder, then it shall (i) pay such additional amounts so that the net amount received by JPMorgan of such payment is not less than the amount which JPMorgan would have received had no such deduction or withholding been made and (ii) promptly deliver to JPMorgan all tax receipts evidencing payment of taxes so deducted or withheld.

The fees in this clause 3 are quoted exclusive of any applicable GST. If GST is applicable to any supply (including the supply of any goods, services, other rights, benefits or other things) made under or in connection with this agreement (including without limitation this clause 3), JPMorgan may, in addition to any amount or consideration payable or to be provided under this agreement, recover from the Company an additional amount on account of GST, such amount to be calculated by multiplying the value of the consideration payable or to be provided by the Company for the relevant supply by the prevailing GST rate.

"Completion Date" means the date on which the transaction the subject of the Offer is completed in accordance with its terms or the date on which an Offer is withdrawn or successfully defended, as applicable.

(i) in respect of non-cash consideration consisting of securities, shall be determined as: (A) the closing sale price for such securities on the relevant national securities exchange providing the primary market for such securities on the last trading day prior to the relevant Completion Date; or (B) if such securities are not so traded, the mid point of the Independent Valuation of the relevant securities or, if there is no specific Independent Valuation to that effect, the sum determined by agreement between the Company and JPMorgan; and

(ii) in respect of non-cash consideration other than securities, shall be determined by agreement between the Company and JPMorgan.

"Independent Valuation" means a valuation to be conducted by an independent third party appointed by agreement between the Company and JPMorgan, or failing such agreement appointed by the President of the Institute of Chartered Accountants in Australia, the cost of such valuation to be borne by the Company.

"Transaction Value" means the total proceeds and other consideration paid and to be paid or contributed and to be contributed in connection with the Offer (which shall include amounts paid and to be paid into escrow, and includes any proceeds and other consideration transferred directly or indirectly, pursuant to a merger, acquisition or scheme of arrangement) to the Company and/or its shareholders (whether all or selectively), including, without limitation:

(ii) net debt (including all interest bearing liabilities);

(ii) notes, securities and other property (including all options, warrants or other instruments or arrangements convertible into or exercisable for any of the foregoing) at the Fair Market Value of such property;

(v) contingent payments (whether or not related to future earnings or operations).

In the event that the Company successfully defends an Offer, "Transaction Value" shall be calculated using the Offer price as at the Completion Date for that Offer. THE TAKEOVER PROPOSALS 7 On 12 October 2006, Pallinghurst Resources LLP of London ("Pallinghurst") wrote to the chairman of the defendant, saying that it was finalising a proposal which envisaged a "combined cash and paper offer" by means of which Pallinghurst intended to acquire a majority stake in the defendant. The letter stated that the total offer price would represent a significant premium to recent pre-speculation trading in the defendant's shares and would incorporate a substantial cash component. 8 In a letter dated 23 October 2006, Pallinghurst conveyed to the defendant what it described as a "non-binding proposal". The proposal envisaged a "friendly transaction" fully supported by the defendant's board of directors and executed via a Scheme of Arrangement. It described the proposal as comprising three components: · a cash element of $1.70; · thirty per cent of the shares in a new special purpose wholly owned subsidiary of Pallinghurst which would acquire all of the shares in the defendant; and · a share of the incremental future upside which the Pallinghurst team expected "to unlock for the benefit of all shareholders". 9 On 15 February 2007, Pallinghurst made a further "refined" proposal, under which the cash component would be reduced to $1.38 per share and the defendant's shareholders' percentage in the new special purpose vehicle would be increased from 30 to 40 per cent. 10 On 23 February 2007, the defendant publicly announced that its board of directors unanimously recommended the revised Pallinghurst proposal, which, it said, valued the defendant at an enterprise value of $2.28 per share. The proposed transaction was to be achieved through Schemes of Arrangement with the defendant's shareholders, option holders and convertible note holders. The defendant's shareholders would receive $1.38 plus two shares in the new vehicle for every five shares held in the defendant. 11 On 8 June 2007, the Supreme Court of Victoria made orders convening the required scheme meetings. The defendant issued a scheme booklet recommending that shareholders vote in favour of the then Pallinghurst proposal in the absence of a superior alternative offer. 12 On 25 June 2007, Pallinghurst increased the cash component of its offer by 30 cents per share to $1.68 per share. The share component remained unchanged. 13 From 13 July 2007, Palmary Enterprises Limited ("Palmary Enterprises"), a mining investment company with manganese interests in Africa, commenced to acquire shares in the defendant on market. 14 On 17 July 2007, Territory Resources Limited ("Territory"), an Australian resources company, announced a takeover offer for the entire issued share capital of the defendant. It offered $2 cash per share and 1½ Territory shares for each share in the defendant. Territory lodged its Bidder's Statement with the Australian Securities and Investments Commission on 30 August 2007. 15 On 20 July 2007, Pallinghurst announced an all cash takeover offer for shares in the defendant at $3.30 per share.

16 By 6 August 2007, Palmary Enterprises had acquired 32,800,858 shares in the defendant, representing 14.29 per cent of its shares on issue ("the pre-bid stake"). 17 On 29 August 2007, Pallinghurst publicly announced to the Australian Stock Exchange ("ASX") an on-market offer for shares in the defendant at $3.60 per share.

18 On 30 August 2007, the defendant's board of directors announced that it recommended acceptance of the then Pallinghurst offer in the absence of a superior one. 19 On 31 August 2007, the defendant publicly announced that it would review Territory's Bidder's Statement and provide guidance to shareholders as soon as possible. 20 On 31 August 2007, Palmary Enterprises (Australia) Pty Ltd ("Palmary"), an indirect, wholly-owned subsidiary of Palmary Enterprises Limited, announced an all cash takeover offer for shares in the defendant at $3.95 per share. I will refer to this offer as "the initial Palmary offer". 21 On 3 September 2007, the defendant announced that its directors unanimously recommended the initial Palmary offer in the absence of a superior proposal. They withdrew their recommendation in favour of the then Pallinghurst proposal. 22 On 6 September 2007, Pallinghurst announced an increase in its offer to $4.10 per share. It also announced its intention to provide a potential "Top-Up Payment" to shareholders who had accepted its cash offer so as to match the offer price under any subsequent higher off-market takeover offer made by a rival bidder. 23 On 6 September 2007, the directors of the defendant withdrew their recommendation of the then Palmary offer and recommended the then Pallinghurst offer. They recommended that shareholders take no action in relation the Territory offer. 24 On 12 September 2007, Palmary increased its offer to $4.50 per share. 25 On 13 September 2007, the directors of the defendant withdrew their recommendation in favour of the then Pallinghurst offer ($4.10 per share). 26 On 13 September 2007, the directors of the defendant unanimously recommended that the Territory offer be rejected, pending receipt of a bidder's statement in respect of the then Palmary offer ($4.50 per share). 27 On 12 October 2007, Pallinghurst increased its offer to $4.50 per share, together with a revised Top-Up Payment. 28 On 14 October 2007, the Territory offer expired. 29 On 18 October 2007, the directors of the defendant reaffirmed their recommendation that shareholders accept the then Palmary offer in the absence of a superior proposal and recommended that the then Pallinghurst offer not be accepted. 30 On 29 October 2007, the directors of the defendant recommended to shareholders that they reject the then Pallinghurst offer of $4.50 per share. 31 On 13 November 2007, as a consequence of a decision of the Takeovers Panel, Pallinghurst withdrew its offer of the Top-Up Payment and offered $4.50 cash per share. I will refer to this offer as "the final Pallinghurst offer". 32 On 14 November 2007, Palmary increased its offer to $4.70 per share. 33 On 4 December 2007, Palmary increased its offer to $5 per share. I will refer to this offer as "the final Palmary offer". 34 On 4 December 2007, Pallinghurst announced that it would not extend its last offer ($4.50 per share), that it had accepted the final Palmary offer for part of its holding of shares in the defendant and that it would accept that offer for all of its remaining and future holdings of shares in the defendant. 35 On 6 December 2007, the directors of the defendant unanimously recommended to its shareholders that they accept the final Palmary offer. On the same day, the final Pallinghurst offer expired. 36 By 18 December 2007, Palmary and its associates held an interest of 61.77 per cent of the defendant's shares. 37 The final Palmary offer closed on 8 January 2008. On 15 January 2008 Palmary announced that it would proceed with compulsory acquisition of the remaining shares in the defendant. 38 On 25 January 2008, the defendant's shares were removed from the official list of the ASX. EVENTS LEADING UP TO THIS DISPUTE 39 During the currency of the various takeover offers described above, the defendant owned significant manganese mining interests. 40 Pallinghurst's first proposal in October 2006 offered cash of $1.70 and 30 per cent of a new special vehicle, representing, according to the plaintiff, a combined offer value of $2.08 per share. Palmary's final (and successful) cash offer was $5 per share. At least part of the reason for the significant increase in the amount offered was an increase (described by one of the plaintiff's analysts as a massive spike) in the price of manganese. 41 Under the Engagement, the Base Defence Response Fee payable where an Offer results in a completed takeover or where it is successfully defended, is a percentage of the Transaction Value, as defined. The Incentive Fee on the other hand is calculated by reference to any increase between "the initial Offer price" and "the Offer price". Offer price is not a defined term in the Engagement. 42 As the value of the offers progressively increased, so did the potential fees which the plaintiff might earn in accordance with the Engagement. Between the original Pallinghurst proposals in October 2006 and the final Palmary offer at the end of August 2007, what was being offered to shareholders had approximately doubled.

43 By September 2007, there was concern within the plaintiff as to how it might collect its entitlement under the Engagement. On 3 September 2007, Mr Jonathan Gidney (one of a number of Managing Directors, Investment Banking of the plaintiff) had a discussion with Mr John Abbott (the defendant's Company Secretary) in which he said that on the basis of the initial Palmary offer of $3.95 per share, the Defence Response Fee was approximately $32 million including Goods and Services Tax ("GST"). Mr Abbott expressed surprise that it was so high. He said that he was expecting it to be closer to $20 million. In an email of that date which Mr Gidney sent to Mr Andrew Pridham (the plaintiff's Executive Chairman and Co-Head of Investment Banking), Mr Gidney described the defendant's reaction as a "[b]it of sticker shock". This, I am given to believe, is an expression intended to describe the shock of a would-be purchaser at a price on a sticker showing the price of goods for sale (presumably because it is too high). 44 On 6 December 2007, the plaintiff's calculations indicated that its fee entitlement under the Engagement might be as much as $46 million plus GST. Mr Gidney sent an email to Mr Rod Baxter (the defendant's Managing Director) referring to the fact that where a change of control occurs, it can be quite difficult for target advisors to collect fees due; and expressing a preferred mechanism for dealing with this difficulty by way of the establishment of a letter of credit in the plaintiff's favour. 45 On 11 December 2007, Mr Gidney and Mr David Hine (a Vice-President and Executive Director, Investment Banking of the plaintiff) met Mr Abbott and Mr Garth Higgo (a General Manager of the defendant) in Perth. According to Mr Gidney, Mr Higgo expressed concern about the amount of the fee. He said that the board of directors of the defendant believed that $20 million was more reasonable being more than a year's profit for the defendant. He expressed the view that a significant part of the additional transaction value came from an increase in the price of manganese and not as a result of the work performed by the plaintiff. 46 On 18 December 2007, Mr Gidney wrote to Mr Baxter setting out the plaintiff's calculation of its fee totalling $50,617,996. The letter said that the plaintiff would be issuing an invoice shortly. 47 On 8 January 2008, the plaintiff generated an invoice claiming the amount of $50,818,436.08 made up as follows: Base Defence Fee 0.75% of Transaction Value A$ 10,249,331.00 Subject to GST A$ 1,024,933.10

Incentive Fee 3.0% of any increase in the offer price, up to 25% above the initial Offer price A$ 4,133,981.00 5.0% of any increase in the offer price, in excess of 25% above the initial Offer price A$ 31,662,058.00 Subject to GST A$ 3,579,603.90

Retainer Fee A$ 63,001.00 Subject to GST A$ 6,300.10

Out-of-pocket Expenses A$ 92,356.18 Subject to GST A$ 6,871.80

Total Amount Payable including GST A$ 50,818,436.08

48 The Incentive Fee claimed was based on the Offer price being $5 and the initial Offer Price being that first offered by Pallinghurst. 49 On 1 February 2008, Mr Abbott wrote a memorandum to the defendant's board of directors, in which he referred to the plaintiff's calculation of the fee of over $50 million. The memorandum stated that management was of the view that the fee was excessive and not reflective of the work undertaken by the plaintiff. He sought directors' approval for an offer of $20 million inclusive of GST to the plaintiff in full and final satisfaction of the plaintiff's claim for fees. 50 On 5 February 2008, in a telephone conversation, Mr Abbott informed Mr Gidney that he had board and shareholder approval to draw a cheque for $20 million against the invoice. Mr Abbott said that this reflected the defendant's view that the Incentive Fee should be based on the difference between the initial Palmary offer and the final Palmary offer. 51 Under cross-examination Mr Gidney accepted that it was likely that he said to Mr Abbott words to the effect that the plaintiff would obviously need to think about it and get back to Mr Abbott. 52 On 6 February 2008, the defendant wrote to the plaintiff in the following terms: "We refer to our previous correspondence concerning the fees payable by Consolidated Minerals Limited to JP Morgan Australia Limited pursuant to an engagement letter executed in September 2006. We note your letter of 18 December 2007 and your invoice of 8 January 2008. As foreshadowed in our letter of 24 December 2007, we do not accept the quantum of fees JP Morgan is claiming as payable. We have reviewed the engagement letter and we consider that an appropriate payment in respect of the transaction is $20,000,000.00. Accordingly, we are pleased to enclose a cheque for $20,000,000.00 in full and final settlement of this matter. We trust that this brings this issue to a close."

53 On receipt of the 6 February 2008 letter, Mr Gidney called Mr Abbott because he had not received the letter dated 24 December 2007 referred to in it. Mr Abbott sent the 24 December 2007 letter to him by email on 8 February 2007. It had been in the following terms: "We refer to your letter dated 18 December 2007 concerning the fees payable by Consolidated Minerals Limited to JP Morgan Australia Limited pursuant to an engagement letter executed in September 2006. While Consolidated Minerals Limited acknowledges that a fee is payable to JP Morgan, we dispute the level of fees that you are claiming will be payable. For present purposes, we believe that a fee is payable in relation to an "Offer" that proceeds to completion. The fee will therefore be payable when completion has occurred and is calculated according to the Transaction Value (as defined). That value will vary depending on the percentage of CSM shareholding that is acquired under the Offer. We also note that the engagement letter refers to an Incentive Fee which "will recognise the achievement of additional value to the Company's shareholders beyond that contemplated at the announcement of an unsolicited Offer". In our view, any incentive fee based on the additional value achieved should be referable to the efforts of JP Morgan in securing that additional value. In light of the above, we are of the view that the fee ultimately payable to JP Morgan is substantially less than that which you are claiming. We would be pleased to discuss these matters with you and look forward to reaching an amicable agreement." 54 On 12 February 2008, the plaintiff banked the $20 million cheque. The cheque went through both parties' bank accounts on that day. Also on that day the plaintiff wrote to the defendant in the following terms: "We refer to the above matter and to your letter dated 6 February 2008 enclosing the cheque in the sum of $20,000,000 (the "Cheque"). JPMorgan does not accept the Cheque in full and final settlement of this matter. We remind you that JP Morgan is owed the amount of $50,818,436.08 by Consolidated Minerals Limited, as outlined in our previous correspondence, and our tax invoice no. 2055 dated 8 January 2008. Nevertheless, JP Morgan will retain and bank the Cheque and deduct the amount of $20,000,000 from the amount owing to it by Consolidated Minerals Limited. We look forward to the prompt payment of the outstanding amount of $30,818,436.08. JP Morgan reserves its right to commence legal action against Consolidated Minerals Limited to recover the outstanding amount should prompt payment not be forthcoming." 55 The letter was sent by overnight courier and was received by the defendant the next day. By then the cheque had been banked. THE PROCEEDINGS 56 Mr T F Bathurst QC together with Ms K Barrett of counsel appeared for the plaintiff. Mr R G McHugh SC together with Mr E Muston of counsel appeared for the defendant. 57 The plaintiff sues the defendant for the balance it claims is owing, after taking into account the $20 million already received, in respect of the Ongoing Retainer Fee, Base Defence Response Fees, Incentive Fee and expenses. 58 The defendant pleads in bar to the whole of the plaintiff's claim an accord and satisfaction brought about by the plaintiff's accepting and banking the defendant's cheque. 59 Leaving aside for the moment that plea, the parties are agreed on the Ongoing Retainer Fee (US$5,000 per month) and expenses to which the plaintiff would otherwise be entitled. Those amounts are $69,301.10 (including GST) and $99,227.98 (including GST) respectively. 60 Again leaving aside the defendant's plea in bar, the parties are at issue in respect of the Defence Response Fees and Incentive Fee to which the plaintiff would otherwise be entitled. 61 The plaintiff articulated its entitlements to a Base Defence Response Fee (or Fees) and Incentive Fee on a number of alternative (in some respects cascading) bases described as claims 1 to 5 respectively.

62 There is no dispute that the final Palmary offer at $5 per share resulted in a completed takeover within the meaning of cl 3(b)(A) of the Engagement and that the plaintiff thereby became entitled to a Base Defence Response Fee "for advice in relation to an Offer that proceeds to completion". Under cl 3(b)(i) of the Engagement the fee is equal to 0.75 per cent of the Transaction Value, as defined.

63 The plaintiff's primary position is that it is entitled to a Base Defence Response Fee in respect of the completed Palmary takeover plus the Incentive Fee calculated by reference to the increase in the price initially offered by Pallinghurst and the price ultimately offered (and paid) by Palmary. The defendant's position is that the Incentive Fee is to be calculated between the initial Palmary offer and the final Palmary offer. 64 The plaintiff puts that Pallinghurst's letter of 12 October 2006 was an Offer within the meaning of the Engagement and that the calculation of the Incentive Fee should be referable to that date. 65 The defendant puts that Pallinghurst's letter of 12 October 2006 was not an Offer because, amongst other reasons, it did not specify a price. It puts that Pallinghurst's letter of 23 October 2006 which offered cash and shares was also not an Offer for the purposes of the Incentive Fee calculation because it was not comparable with the final Palmary offer, which was all cash. It puts that "the Offer" and "the initial Offer" must be construed as references to Offers on the same or materially the same terms. Hence, it puts, Pallinghurst's first "Offer" (within the meaning of the Engagement) was its first all-cash offer ($3.30) in its letter of 20 July 2007. 66 The parties are agreed that if the 12 October 2006 Pallinghurst letter was an Offer, the Offer price was $2.08 per share.

Claim 2 67 The plaintiff's next position is that it is entitled to a Base Defence Response Fee as under claim 1, but an Incentive Fee calculated on the basis that the initial Offer price was that under the 23 October 2006 Pallinghurst proposal. 68 The parties are agreed that if Pallinghurst's 23 October 2006 letter was an Offer, the Offer price was $2.24 per share. Claim 3 69 As claim 3, the plaintiff claims an Incentive Fee calculated on the basis that the initial Offer price was that under the first Palmary offer and the Offer price was that under the final Palmary offer plus a Base Defence Response Fee in relation to the final Palmary offer (as an Offer that proceeded to completion) plus Base Defence Response Fees in relation to both the Territory offer and the final Pallinghurst offer (as Offers that were successfully defended).

Claim 4 70 As claim 4, the plaintiff claims the Incentive Fee calculated on the basis that the initial Offer price was that under Pallinghurst's offer of 20 July 2007 (its first all-cash takeover Offer) and the Offer price was that under the final Palmary offer a Base Defence Response Fee in relation to the final Palmary offer (as an Offer that proceeded to completion) plus a Base Defence Response Fee in relation to the Territory offer (as an Offer that was successfully defended). 71 The parties are agreed that the Offer price under Pallinghurst's offer of 20 July 2007 was $3.30 per share.

Claim 5 72 As claim 5, the plaintiff claims the Incentive Fee calculated on the basis that the initial Offer price was that under the Pallinghurst offer of 20 July 2007 and the Offer price was that under the final Palmary offer plus a Base Defence Response Fee in relation to the final Palmary offer (as an Offer that proceeded to completion).

Order of consideration 73 I propose to deal first with the fees to which the plaintiff became entitled on the Palmary takeover being completed, which occurred no later than 25 January 2008, and then with the defendant's plea of accord and satisfaction, which is alleged to have occurred on 12 February 2008.

THE LAW WITH RESPECT TO CONSTRUCTION OF THE ENGAGEMENT 74 The plaintiff's entitlements depend upon the proper construction of the Engagement in the context of the events that occurred culminating in Palmary's takeover of the defendant. The facts are not in dispute. It will suffice to briefly set out the principles which govern the construction of commercial contracts such as the Engagement. They are as follows: a the meaning of words used in the Engagement is to be determined by what a reasonable person would have understood them to mean. This requires consideration of the language used, the surrounding circumstances known to the parties, the purpose of the transaction and the objects which it was intended to secure: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; International Air Transport Association v Ansett Australia Holdings Ltd (Subject to Deed of Company Arrangement) (2008) 242 ALR 47 at [8]; b a commercial contract should be given a business-like interpretation. The nature and extent of the commercial aims and purposes of the agreement or parts of it are part of the essential background circumstances: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350. See too the summary of principles in Franklins Pty Limited v Metcash Trading Ltd [2009] NSWCA 407 [19] and following; c the whole of the instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole of an instrument: Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 at 529; and

d if the words used are unambiguous, the Court must give effect to them. If the language is open to two constructions, that will be preferred which avoids consequences which appear to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109.

75 The plaintiff referred to the recent speech of Lord Hoffmann in Chartbrook Limited v Persimmon Homes [2009] 1 AC 1101 at 1112 [14] in which his Lordship said the following: There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that "we do not easily accept that people have made linguistic mistakes, particularly in formal documents" (similar statements will be found in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 , 269; Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667 , 681-682 and Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 , 296) but said that in some cases the context and background drove a court to the conclusion that "something must have gone wrong with the language". In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had.

It does not seem that this approach is any different to that prescribed by decisions of courts which bind me. BASE DEFENCE RESPONSE FEE IN RELATION TO THE COMPLETED PALMARY OFFER 76 The parties are in dispute as to how Transaction Value is to be determined in the calculation of this fee.

77 The plaintiff puts that Transaction Value in the case of the completed Palmary takeover includes both: a the consideration paid for the pre-bid stake; and b the defendant's current net debt on completion of $44,339,475. 78 The defendant takes issue with both propositions.

Pre-bid stake 79 The plaintiff puts that the acquisition cost of the pre-bid stake was part of "the total proceeds and other consideration paid and to be paid or contributed and to be contributed in connection with the Offer (emphasis added)…to the Company and/or its shareholders" within the meaning of the definition of Transaction Value in the Engagement. 80 In support of its submission that the acquisition cost of the pre-bid stake was paid in connection with the Offer, the plaintiff referred to what was said by Wilcox J in Claremont Petroleum NL v Cummings & Anor (1992) 9 ACSR 1 at 42: The phrase "in connection with" is one of wide import, as I had occasion to observe in a different context in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at 479-80 ; 77 ALR 577 at 591-2: The words 'in connexion with'…do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163 ; 63 ALR 237 at 238, 244, 247. They may be used to describe a relationship with a contemplated future event: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364, Johnson v Johnson [1952] P 47 at 50-1. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given 'jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act', had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase 'in connection with' covered matters leading up to, or which might lead up to an assessment. He said…: 'One of the very generally accepted meanings of "connection" is "relation between things one of which is bound up with or involved in another"; or, again "having to do with". The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase "having to do with" perhaps gives as good a suggestion of the meaning as could be had.' This statement was upheld on appeal. 81 It puts that the acquisition of the pre-bid stake was made in anticipation of a takeover being made and that this is sufficient for the relevant connection. 82 In response, the defendant puts that no part of the acquisition cost of the pre-bid stake can properly be said to have been paid or contributed in connection with the final Palmary offer, and that the Court should not infer a connection between an acquisition of shares on-market prior to the initial Palmary offer with that offer. It puts that there are many reasons why a shareholder might build up a stake once a bidding war has begun and that there was no evidence of what motivated the acquisition of the pre-bid stake.

83 Although there was no direct evidence of either Palmary's or Palmary Enterprises' intentions, to my mind, the inference that the pre-bid stake was acquired in anticipation of a takeover offer being made is irresistible. But that does not establish the necessary connection. The question here is, whether the payments which Palmary Enterprises made to the sellers of the shares comprising the pre-bid stake were made "in connection with the Offer". The reference to Offer is not a reference to offers at large, but to the particular Offer which in this case "results in a completed takeover". 84 Even giving an expansive meaning to the words, "in connection with the Offer", I do not think that the money that Palmary Enterprises paid to the various sellers of the shares which ultimately formed the pre-bid stake was consideration paid by Palmary in connection with "the Offer" it made to the defendant's remaining shareholders. 85 The acquisition of the pre-bid stake was made in anticipation of a takeover offer being made, but it was not, in my opinion, made in connection with the Offer, that is the particular Offer to the defendant's shareholders which resulted in Palmary's takeover of the defendant. 86 The words "in connection with the Offer" are, like any other words in the Engagement, to be construed having regard to the purpose of the transaction and the objects it was intended to secure. 87 In my view, the definition of Transaction Value contemplates and requires that the payment or contribution concerned be connected to the particular Offer, not to the contributor's takeover intentions in general. The payment or contribution must be connected with the Offer in the sense that it can properly be seen as part of what is paid or undertaken by the offeror by reason of the Offer, that is, that the Offer requires it, contemplates it or brings it about directly or indirectly. 88 In my view, Palmary Enterprises made the payments concerned not in connection with the Offer, but rather in connection with the acquisition of the pre-bid stake. 89 I should mention that in its submissions, the defendant did not distinguish between Palmary and Palmary Enterprises. As will appear below, however, the plaintiff relied on the distinction between the two entities. If they are to be distinguished, as the plaintiff suggests and I think is correct, this puts further distance between the cost of acquisition of the pre-bid stake, which was borne by Palmary Enterprises and the Offer, which was made by Palmary.

Net debt 90 The plaintiff puts that par (ii) of the definition of Transaction Value expressly includes the net debt which the defendant had at the date the Palmary takeover was completed. 91 It puts that upon completion of its takeover of the defendant, Palmary became the owner of the defendant's underlying enterprise and thereby, in effect, assumed the burden of the defendant's net debt. In this way, it puts, the assumption of that burden is in reality part of the consideration paid by Palmary for the shares in the defendant. Correspondingly, it puts, the former shareholders, (as the former owners of the underlying enterprise), were in reality released from that burden. 92 The defendant puts that the definition of Transaction Value includes only amounts paid or contributed by Palmary in connection with the Offer and that the defendant's net debt as at the date of the takeover does not qualify. The defendant puts that Palmary itself neither paid, nor undertook any obligation with respect to the defendant's net debt, albeit that the extent of the defendant's net debt on acquisition would affect the value of the underlying enterprise owned by the defendant.

93 In my view, the defendant's net debt on acquisition was not part of the consideration paid, to be paid, contributed or to be contributed, in connection with the Offer. 94 Paragraph (ii) of the definition of Transaction Value contemplates that the offeror might pay or assume the burden of the defendant's net debt as part of the consideration in connection with the Offer. There are no doubt transactions where this occurs, but that is not this case. Also, it should be borne in mind that the Engagement contemplates under the definition of Offer a takeover or merger or other business combination offer. 95 The total consideration paid or contributed by Palmary in connection with the Offer was $5 per share. There is nothing to suggest that it undertook liability in its own right for the net debt of the defendant. It undoubtedly took into account the extent of the defendant's net debt in reaching its Offer price, but that debt was not part of what it was paying or contributing in connection with the Offer. The plaintiff's submission does not take account of the established distinction between a company and its shareholders: Salomon v Salomon & Co Ltd [1897] AC 22.

96 The Base Defence Response Fee for advice in relation to an Offer that proceeds to completion is accordingly to be calculated on the consideration paid by Palmary for shares in the defendant excluding the cost of the pre-bid stake, and without taking into account the net debt of the defendant.

INCENTIVE FEE 97 The plaintiff puts that where cl 3(b)(ii) of the Engagement refers to "any increase in the Offer Price…above the initial Offer Price which was communicated to the Company publicly or privately", the clause requires and permits a comparison between the price in an initial Offer which does not succeed and the price in a different Offer which does. 98 It puts that "Offer" is defined in cl 3(b) of the Engagement to mean "any (emphasis added) solicited or unsolicited formal or informal proposal by any third party in relation to a takeover…offer". Accordingly, it puts, reference to "the initial Offer price" (for the purpose of determining any increase to the ultimate Offer price) means any proposal by any person. 99 Hence, it puts, the initial Pallinghurst offer price satisfies the requirement of being "the initial Offer price" and the final Palmary offer price is "the Offer price". 100 In this way, it puts, the clause operates in the present case to make the Incentive Fee calculable by the increase in the Offer price under the final Palmary offer above the initial Offer price in the earliest Pallinghurst proposal. 101 The plaintiff puts that if the comparison is to be between Offers made by the same person, it would receive no Incentive Fee where the ultimately successful offeror makes only one Offer. There would, it puts, be no incentive for the plaintiff to solicit an Offer from a fresh offeree when there had already been more than one Offer by a different offeree. It puts that such an outcome would be arbitrary and irrational and would attribute to the parties an intention which a reasonable person would not have understood them to have: Chartbrook Ltd v Persimmon Homes [2009] 1 AC 1101 at 1113 [20]. 102 The defendant puts that the references in cl 3(b)(ii) to the Offer price and the initial Offer price are references to the increase in the price offered by the same party, being the party whose Offer results in a completed takeover.

103 I prefer the defendant's construction. It better accords with the words used in, and the commercial objects of, the Engagement. It also supplies a congruent operation to the relevant components of the Engagement.

104 Clause 3(b)(ii) requires a comparison between "the (emphasis added) Offer price" and "the (emphasis added) initial Offer price" which was communicated to the Company. This contemplates the amount being offered in a particular Offer being increased.

105 The Incentive Fee recognises the achievement of additional value beyond that contemplated at the announcement of an unsolicited Offer and is calculated by reference to the percentage of any increase in the Offer price above the initial Offer price. The starting point for the comparison is the price in an Offer at its announcement or initiation, and the end point is the final price which the Offer offers.

106 The Incentive Fee is only payable (and nothing to the contrary was suggested) when there has been a completed transaction. That this must be so is demonstrated by the fact that the Incentive Fee recognises "the achievement of additional value to the Company's shareholders". There will be no such achievement where there is no completed transaction. The additional value is that beyond that contemplated at the announcement of an Offer and is referable to the percentage of the increase in the Offer price above the initial price "which was communicated to the Company publicly or privately". This calls for a comparison between the announced or initially proposed price and the ultimate price in the same Offer when it succeeds. 107 A basic underlying commercial purpose of the Engagement was to enable the defendant to obtain the plaintiff's assistance and expertise in bringing about the best outcome for the defendant and its shareholders. The plaintiff undoubtedly had a duty to do the best it could for the defendant and its shareholders. In the context of a successful takeover, this is achieved by obtaining the best offer price. Its reward in respect of an Offer that succeeds is a fee, calculated by reference to the Transaction Value, which does not depend upon any comparison. 108 The commercially sensible and reasonable operation of the Engagement is one which is consistent with the plaintiff discharging its duty to the defendant and being appropriately rewarded. 109 The plaintiff's proposition that on the defendant's construction it would lack incentive is consistent with neither. 110 Anyway, it is far from inevitable (and so much was accepted by counsel for the plaintiff) that the plaintiff will receive less where it is entitled only to a Base Defence Response Fee for advice in relation to a single Offer that proceeds to completion, than it would receive if it were entitled as well to an Incentive Fee where there has been an initial Offer price and an increase in it. 111 It follows, in my opinion, that $3.95 (the initial Palmary offer) and $5 (the final Palmary offer) are the initial Offer price and Offer price respectively from which the plaintiff's Incentive Fee is to be calculated. 112 The terms of the Engagement do not specify to what total figure the percentages are to be applied. The Engagement, however, undoubtedly contemplates that these percentages are to be applied to an amount derived by multiplying the price per share by a number of shares. 113 As with the Base Defence Response Fee, the parties were at issue whether the value of the pre-bid stake was to be included or excluded in arriving at the figure to which the percentages are to be applied.

114 The plaintiff puts that it should be included because the final Palmary offer was made in respect of all of the defendant's shares and the pre-bid stake was in fact owned by Palmary Enterprises and not Palmary itself. 115 The defendant puts that it should be excluded because the pre-bid stake was not acquired under the final Palmary offer and because its acquisition gave no additional value to the Company's shareholders as the Incentive Fee provision contemplates. 116 I prefer the plaintiff's submission. 117 The Incentive Fee (in contrast to Base Defence Response Fee) is not calculated by reference to Transaction Value. It does not involve measurement of proceeds or consideration paid in connection with the Offer. 118 In my view, by "any increase in the Offer price" is meant the increase in the dollar value per share offered multiplied by the number of shares of the defendant on issue on the basis that that will be the extent of achievement of additional value to the Company's shareholders. Coincidentally, this is in any event technically correct in the present case, because the pre-bid stake was acquired by a company other than Palmary itself and the shareholder, Palmary Enterprises, achieved additional value.

119 My conclusion renders it unnecessary to determine whether the Pallinghurst letter of 12 October 2006 was an Offer under the Engagement (claim 2). It also renders it unnecessary to consider whether the Incentive Fee is to be calculated between the final Palmary offer and the Pallinghurst proposal of 20 July 2007 (claims 4 and 5). 120 Nevertheless, I should say that in my view Pallinghurst's letter of 12 October 2006 was not an Offer. In it, Pallinghurst's Chairman referred to a proposal being finalised. The letter itself did not put one. It did not disclose any price or method by which a price could be calculated. The terms of the letter do not enable the calculation exercise required by the Engagement to be done. To reach a value the parties worked backwards from the Pallinghurst 23 October 2006 letter. 121 The Pallinghurst 23 October 2006 letter, on the other hand, albeit informal and non-binding, specified terms and conditions sufficiently comprehensively to be considered an Offer under the Engagement. In my view, it was the first Offer by Pallinghurst. Even though it was a cash and "paper" Offer, there would be no difficulty (and the parties have had none) in determining the Offer price. The defendant did not provide any, or any satisfactory basis why, as a matter of construction, the Offer and the initial Offer are to be construed as references to Offers on the same, or materially the same terms. Even with the heavily conditional Territory offer, the parties had no difficulty in agreeing that its Offer price was $3.72 per share. 122 Although it does not affect the outcome, in my view, the Pallinghurst proposal of 20 July 2007 was an Offer. However, it was not Pallinghurst's initial Offer.

BASE DEFENCE RESPONSE FEES IN RELATION TO THE NON-COMPLETED PALLINGHURST AND TERRITORY OFFERS 123 As is apparent from what has been said earlier, the plaintiff's claim 1 does not include a contention that it is entitled to one or more Base Defence Response Fees in relation to the Offers that did not proceed to completion. 124 Claim 3 does not seek an Incentive Fee calculated by reference to the initial Pallinghurst offer. It accepts the initial Palmary offer as the initial Offer for the purposes of determining the Incentive Fee.

125 The defendant puts that neither the final Pallinghurst offer, nor the Territory offer was "successfully defended" within the meaning of the Engagement. 126 With respect to the final Pallinghurst offer, it puts that at no time did the defendant expressly recommend that its shareholders reject it. 127 With respect to the Territory offer, it puts that although the defendant's directors recommended its rejection: a the Territory offer was highly conditional; b at all times during its currency, a superior Offer was also open to the shareholders for acceptance; and c on each occasion the defendant's directors recommended against the Territory offer, at the same time they recommended acceptance of an alternative superior one. 128 It does not follow from the fact that the Territory offer was highly conditional that it was not an Offer which was successfully defended. 129 In support of its claim 3, the plaintiff puts that each of the final Palmary offer, the final Pallinghurst offer and the Territory offer was an Offer which on the plain language of the Engagement was to be separately assessed as having either resulted in a completed takeover or having been successfully defended with the consequential payment of the relevant fee. In response to this, the defendant puts that no reasonable person in the position of the parties would have understood the Engagement to provide for the payment to the plaintiff of multiple fees referable to various Offers which were part of the same takeover process and where one of them resulted in a completed takeover of the defendant. 130 As a matter of construing the Engagement, the question is what the parties contemplated was meant by the defence, or rather successful defence, of a takeover. 131 I am inclined to think that successful defence of a takeover means the repulsion of an Offer in its own right so that the battle ends there. 132 However, whatever the outer limits of what the parties may have contemplated by successfully defending a takeover, I do not think it can fairly be said that what was contemplated was the rejection of or non-acceptance by the shareholders of an Offer where a better one is accepted. 133 In my view however, in the circumstances that occurred, neither the final Pallinghurst offer, nor the Territory offer were defended within the meaning of the Engagement. There was no need for either of them to be repelled or warded off. As early as 30 August 2007, the defendant's board of directors announced their recommendation in favour of the then Pallinghurst offer. From then on, it can hardly be said that the defendant was defending itself against Pallinghurst, when all that occurred was that a bidding war ensued, ensuring that the price being offered continued to burgeon. As the two main protagonists progressively increased their offers, the directors adjusted their recommendations accordingly. 134 So far as the Territory offer is concerned, the defendant publicly reacted to it on 31 August 2007 by announcing that the defendant would review Territory's Bidder's Statement and provide guidance to shareholders as soon as possible. By 12 September 2007, Palmary's offer had reached $4.50 per share. The defendant's directors withdrew their recommendation of the then Pallinghurst offer at $4.10 per share. On 21 September 2007, the directors unanimously recommended the rejection of the Territory offer pending receipt of a bidder's statement in respect of the Palmary offer of $4.50 per share. Pallinghurst increased its offer to $4.50 per share on 12 October 2007. On 14 October 2007, the Territory offer expired. Once again, I do not consider that on any realistic view what the defendant did can aptly be described as having successfully defended the Territory offer. 135 There is considerable force in the defendant's submission. However, it seems to me that the answer lies in what the parties contemplated by the successful defence of a takeover. 136 In my view the construction and operation of the Engagement contended for by the plaintiff would result in an outcome which would be capricious, unreasonable and unjust. 137 Perhaps the fact that the plaintiff did not put this outcome as part of its primary contention is implicit recognition of its limitations.

The law 138 In McDermott v Black (1940) 63 CLR 161 at 183-4 Dixon J said: The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised.

139 The question is whether the parties entered into a binding agreement under which the plaintiff agreed to take the defendant's cheque in satisfaction of its existing claim: Osborn v McDermott [1998] 3 VR 1 at 10; Illawong Village Pty Limited v State Bank of New South Wales [2004] NSWSC 18 at [261]-[264]. The plaintiff must show "a concurrence of minds, a consensus": FT Jeffrey v Evington Holdings Pty Ltd (Receiver and Manager Appointed) (Supreme Court of Victoria, Full Court, 24 November 1977, unreported) per Fullagar J at 135. 140 Whether an agreement has been entered into is to be objectively assessed: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [25]; Franklins Pty Limited v Metcash Trading Ltd [2009] NSWCA 407 at [4]; McMahon's (Transport) Pty Ltd v Ebbage [1995] 1 Qd R 185 at 195. The objective theory of contract requires an external manifestation of assent to an offer. Whether there has been such an assent turns on whether a reasonable bystander would regard the conduct of the offeree as signalling to the offeror that his offer has been accepted: Empirnall Holdings Pty Limited v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534-5. 141 Where a cheque is sent in full settlement of existing liabilities, the mere retention is not conclusive of an accord. It is a question of fact as to what the terms upon which the cheque is retained are: Day v McLea (1889) LR 22 QBD 610; Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421; Wiseman v MQH Developments (Supreme Court of Victoria, Chernov J, 19 May 1997, unreported). 142 Instances where acceptance of a cheque in full and final settlement has been found to have brought about an accord and satisfaction include Wicks v First National Picture (Australasia) Ltd (1931) 31 SR (NSW) 427 and Homeguard Products v Kiwi Packaging [1981] 2 NZLR 322. 143 In Wicks v First National Picture (Australasia) Ltd (1931) 31 SR (NSW) 427 the plaintiff sued to recover damages for wrongful dismissal. He was handed a cheque and asked to sign an acknowledgement of the receipt of the sum "in lieu of notice and in full settlement of all claims against the company". He signed, adding the words "received under protest" and collected for his own use the amount for which it was drawn. He then brought his action. Street CJ, giving the judgment of the Full Court, said: On the plaintiff's own account of what took place, and on the documents which he signed, it is manifest that he was being dismissed from his service with the defendant company and that he was being paid four weeks' salary in lieu of notice: and by his receipt of the money in full settlement of all claims against the defendant company it is manifest that he accepted the situation and acquiesced in what was done. I think that by his acquiescence he has cut the ground from under his feet. 144 With respect to the plaintiff's contention that he had received the money "under protest", Street CJ held: How can a person who receives money in such circumstances be heard to say at the same time 'Although I take this money in full settlement of all claims I still reserve my right to assert further claims.'

145 In Homeguard Products v Kiwi Packaging [1981] 2 NZLR 322 a cheque was sent in "full settlement of our account" which was disputed. The offeree made no reply to that communication but instead banked the cheque some days later. The offeree later wrote asserting a right to payment of the higher amount. The Court held that the inevitable inference was that the banking of the cheque was done "in conformity with the condition by which it was accompanied", that is, in full settlement of the account. The Court held that the offeree had only two choices: either to accept the payment (giving rise to an accord and satisfaction) or to return the cheque. The offeree was precluded from disclaiming the condition on which the cheque was tendered and treating the cheque as payment towards the original amount, "for it could only adopt that course by committing against the appellant the tort of conversion". 146 However, in McMahon's (Transport) Pty Ltd v Ebbage [1995] 1 Qd R 185 at 195 Pincus JA said: The principal argument put forward on behalf of the receivers, challenging the primary judge's view that there was no accord, was that stated in the New Zealand case of Homeguard Products v. Kiwi Packaging [1981] 2 N.Z.L.R. 322 at 331, where it was said in effect that in this sort of situation the creditor's retaining and banking the cheque - "… is conclusive evidence of his assent to the conditions upon which the cheque was sent. So what really matters, irrespective of his intent, is the conduct of the creditor." Counsel referred to the "objective theory of contract", by which was meant that the intention of a party negotiating a contract is in law that which would be reasonably deduced by the other party, not the subjective intention. But objectivity does not assist the receivers much here; no-one reading the landlord's responses to the receipt of the cheque could have read them as accepting the condition on which the cheque was proffered. The question, so far as contract is concerned, is whether an offeree who chooses to retain or to dispose of property which has been obtained by him on stipulated terms, while purporting to reject those terms, is bound by them. Here, the problem arises in relation to payment of a cheque, but the same principle is involved if one postulates that some other sort of property - say, cash - is sent on the basis that if the person to whom it is sent keeps it or spends it, he is to be taken to be bound by certain stipulations, as a matter of contract. The basis on which it is said that one party may effectively force an agreement on another, by telling that other that a certain sort of action (other than assent to the proposal) will be taken to be assent to the terms of the proposed agreement, is unclear. One can understand why, in this area, a distinction is drawn between the case in which the contract when made imposes no obligations on the offeree, as in Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256, and that in which it is sought to impose an obligation on the offeree, the obligation coming into existence because the offeree has performed an act stipulated by the offeror - such as, to take Corbin's example (Vol. 1 p. 310), hanging out a flag on Washington's birthday. The question is obviously not merely one of fact, but involves matters of legal principle, such as those just alluded to. The cases on conditional tender of payment, although numerous, give no clear guidance. I, like the primary judge, prefer to follow those in which the Court has rejected the offeror's assertion that there has been an accord; I do so on the basis that the question is whether there is a contract and that the answer to that question is that there is none, because in general the law does not allow the imposition of an obligation in contract to be achieved by a stipulation that it shall be deemed to be imposed if the prospective obligor performs a stipulated act (other than one by way of express assent to the terms proposed), or does nothing as in Felthouse v. Bindley (1862) 11 C.B.(N.S.) 869;142 E.R. 1037. Since writing the above, I have noticed the decision of this Court in Citibank Ltd v. Amos (App. 243/1994; 10 May 1996, unreported); the views there expressed are consistent with my conclusion: see pp. 5, 7 of the principal judgment. I should add that there may be another question, namely whether the property in the cheque passed, as it was proffered on a condition which the profferee would not accept; but that issue has not been raised, the lawfulness of the banking of the cheque being unchallenged.

147 Undoubtedly, each case must be considered on its own facts. The issues

148 The two issues which arise for determination (both of which are to be determined objectively) are: a whether the defendant's letter of 6 February 2008 constituted an offer, a condition of which was that the plaintiff gave up its claim in consideration of the defendant paying $20 million; and b if so, whether the plaintiff accepted the offer by banking the cheque which the letter enclosed. The parties' contentions

149 The defendant puts that: a by 6 February 2008 the parties were at odds with respect to the fee to which the plaintiff was entitled; b its 6 February 2008 letter, objectively construed against the surrounding circumstances known to the parties, was an offer on terms that if the plaintiff banked the cheque it gave up any further claim to fees; c no reasonable person reading the letter could have been in any doubt that it constituted the making of an offer by the defendant to settle the fee dispute; d by banking the cheque, the plaintiff accepted the offer; e the plaintiff's letter of 12 February 2008 had no effect because it was sent by overnight courier and came after the plaintiff had banked the cheque and at a time when the defendant could no longer countermand payment; and

f the plaintiff had no title to the cheque except on the limited terms on which it had been tendered, that is, as part of an offer to settle the dispute between the parties. On the hypothesis that the plaintiff was rejecting the offer, it had no title to the cheque and was bound to return it. 150 In support of its submission that the 6 February 2008 letter was an offer, the defendant sought to rely on a concession by Mr Gidney under cross-examination that by 12 February 2008 he understood that it and the cheque accompanying it amounted to an offer. It also relied on the fact that before the cheque was banked the plaintiff had undertaken calculations of its entitlement on different bases, one of which indicated that its fees might be as low as $18,335,603.

a the 6 February 2008 letter was not an offer but that it simply said "this is what we are prepared to pay, take it"; b the letter did not say the cheque was being tendered on the basis that if it was accepted, there was a binding agreement under which the plaintiff gave up its claims; c on established authority, its banking the cheque did not on its own establish an accord and satisfaction; and d if the 6 February 2008 letter was an offer, the plaintiff did not accept it because it immediately wrote its 12 February 2008 letter in which it made clear that it did not accept the cheque in full and final settlement and called for the prompt payment of what it asserted was the outstanding balance. Consideration

152 There is no doubt that as at 12 February 2008 the parties were in disagreement as to the extent of the plaintiff's entitlements, although there was no dispute that some money was owed. On 5 February 2008, Mr Abbott on behalf of the defendant told Mr Gidney that there was approval for $20 million against the plaintiff's invoice. Mr Gidney said the plaintiff would need to think about it and get back to the defendant. Before that happened, the defendant sent the 6 February 2008 letter. 153 In my opinion, objectively viewed, the defendant's 6 February 2008 letter was not an offer at all, let alone one which articulated a condition to the effect that if the plaintiff kept the cheque it was giving up any further claim. Rather, by it the defendant informed the plaintiff how much it thought it should pay under the Engagement and that it was paying that amount in discharge of what it considered to be its obligations. Far from stipulating a condition that taking the cheque would end the matter, the letter left the matter open by concluding with a statement of "trust" that the payment would bring the matter to a close.

154 On the assumption that Mr Gidney's concession that he understood the letter and cheque to be an offer was an admission which might bind the plaintiff (which I doubt - see Bond Media Ltd v John Fairfax Group Pty Ltd (1988) 16 NSWLR 82), it does not assist the defendant because the objective theory of contract applies. Moreover, the concession did not extend to Mr Gidney accepting that it was an offer which, on acceptance meant the end of any further claims by the plaintiff. 155 If, contrary to what I have found, the letter was an offer, it stipulated no mode of acceptance. Objectively viewed, the plaintiff's conduct in banking the cheque did not amount to acceptance of the offer, because at the same time it dispatched a letter making it clear that this was not so. 156 In addition, and adopting the analysis of the Queensland Court of Appeal in McMahon's (Transport) Pty Ltd v Ebbage [1995] 1 Qd R 185, even if upon its proper construction, the 6 February 2008 letter purported to impose on the plaintiff a binding condition under which if it banked the cheque it gave up its rights, the attempt to do so was ineffective because the general law does not so allow.

157 It follows that I would not uphold the defendant's plea of accord and satisfaction so that if the plaintiff were entitled to more than the amount paid, the acceptance of the cheque would amount to part payment and the plaintiff would be entitled to pursue its rights.

CONCLUSION 158 The parties agreed that matters of arithmetic should be left to be dealt with by the parties after publication of my reasons. Accordingly, the arithmetical conclusions which follow are provisional only, and I will afford the parties a further opportunity to be heard if they wish. Base Defence Response Fee 159 Excluding the pre-bid stake, Palmary acquired 231,646,728 shares in the defendant at $5 per share yielding a transaction value of $1,158,233,640 of which 0.75 per cent is $8,686,752. Together with GST, the total is $9,555,427. 160 This is the Base Defence Response Fee to which the plaintiff became entitled in relation to the completed Palmary Offer.

Incentive Fee 161 The Incentive Fee to which the plaintiff became entitled is the following: 3.0% of the increase in the Offer price, up to 25% above the initial Offer price $7,834,260 5.0% of the increase in the offer price, in excess of 25% above the initial Offer price $826,399 $8,660,659 Add GST $866,065 Total $9,526,724

Ongoing retainer fee $69,301.10 Expenses $99,227.98 Base Defence Response Fee $9,555,427.00 Incentive Fee $9,526,724.00 Total $19,250,680.08

162 It follows that the $20 million payment on 12 February 2008 fully discharged any liability of the defendant to the plaintiff. 163 The defendant correctly did not persist with its cross-claim to recoup any amount from the plaintiff. It follows on the above calculations that the plaintiff's claim and the defendant's cross-claim are each to be dismissed with costs.

164 I will stand the matter over to a date to be fixed to enable the parties to bring in short minutes, and if required, before they do so, to be heard on any further issues which require determination, including anything arising from my provisional calculations, and costs. **********

18/03/2010 - addition to sentence after the word "Offer" - Paragraph(s) 132

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