Hudson Investment Group Limited v Australian Hardboards Limited & Ors

The proceedings concern the rights of the respective parties arising from a number of interrelated agreements. The complex of agreements require a close analysis of events generally covering the period 1999 through to 2003 and dealt with in materials in evidence covering some 4,000 pages. Without purporting to be exhaustive it is fair to say that the issues litigated concerning those events include contests as to what agreements or arrangements were entered into, the proper construction of such agreements as were entered into, allegations that rectification of a written agreement should be ordered, allegations that instruments were ineffective for want of authority, allegations that directors breached their duties to particular companies in committing the companies to and in purporting to cause the execution of instruments and claims that obligations set out in arrangements or agreements were abandoned. The plaintiff

The plaintiff, Hudson Investments Group Ltd ["HIG"] incorporated in 1967 [as JF & H Roberts (Australia) Pty Limited] has at all material times been a public company listed on the Australian Stock Exchange. Insofar as concerning issues anterior to the 2003 Group restructure, the principal shareholders in HIG were at all material times held by Mr Vincent Tan and his family and associates. As at 1 March 2002, HIG had 751 shareholders and HTP 357 [cf Annual Reports PX 536, 2/579].

Prior to the undermentioned Share Purchase agreement being entered into: · HIG owned both 100% of the first defendant, Australian Hardboard Ltd ["AHL"] [an unlisted company] and approximately 92% of the second defendant, Hudson Timber Products Ltd ["HTP"]; · CSR which had owned the Hardboards business sold that business and associated assets to HIG. [AHL was incorporated on 22 June 1999 under the name Hudson Frame and Truss Limited. It changed its name to its current name on 3 September 1999. HTP was incorporated on 27 February 1998. It changed its name to Hudson Timber & Hardware Limited on 8 April 1998 and listed on the Australian Stock Exchange (ASX) on 23 December 1998. On 4 June 2003, it changed its name to Hudson Timber Products Limited.] Acronyms

One can become quickly confused by reason of the different acronyms utilised by the parties in their submissions and by witnesses in their affidavits. It may be convenient then to keep in mind that: · Hudson Investment Group Ltd was variously referred to as "HIG" [presently adopted], "Group" and "HGL"; · Australian Hardboards Ltd was variously referred to as "AHL" [presently adopted] and "Hardboards"; · Hudson Timber Products Ltd was variously referred to as "HTP" [presently adopted] and "Timber". Directorships

At all material times anterior to the 2003 Group restructure the directorships of each of HIG, AHL and HTP included the fourth defendant, Mr McLeod and the first defendant, Mr Holland. Mr Hughes was at all material times company secretary of HIG, AHL and HTP. The present post 2003 restructure circumstances of relevance involve Mr McLeod remaining a director of HTP and AHL and Mr Hills remaining a director of AHL. AHL’s factory

AHL at all material times operated a factory in Ipswich, Queensland located 25 kilometres south-west of Brisbane. Its manufacturing operations were profitable. It owned over 300 hectares of land. The timber and building products manufacturing operations are located on 22 hectares of this land. For the purposes of the issues raised in these proceedings it is apparent that the most significant of the associated assets was the land ["the Land"] utilised by the factory to discharge process waste water. The factory produced large quantities of waste water, approximately one million litres per day, and discharged this waste water via an irrigation system over the otherwise unused 300+ hectares of land. Wingate Properties Pty Ltd

Some short time after AHL was acquired by HIG, the Land was identified by a property developer, Wingate Properties Pty Limited [“Wingate”] as having significant development potential. It was decided that, were the factory to dispose of its water through a water treatment facility (to be constructed on the grounds of the factory site), the remaining 300+ hectares of land could be then used for property development purposes. Heads of Agreement – 27 November 2000

On 27 November 2000 Heads of Agreement [“the Heads of Agreement”] were entered into between Wingate, AHL and HIG for the purpose of considering proposals for the development of the Land. Clause 4 was in the following terms: “4. Project Stages – Development Stage 4.1 After the Post Approval Valuation has been obtained, the JV Value will be determined as follows: JV Value = Pre Approval Valuation plus ( PostApprovalValuation less PreApproval Valuation ) 2 4.2 Upon calculation of the JV Value, the parties will enter into negotiations to form a formal joint venture to commercially exploit the Land, based on the Master Plan and in accordance with the approvals obtained. The parties must negotiate in good faith and use their best endeavours to reach an agreement. The Joint Venture will provide for Wingate to be entitled to receive an amount equal to 50% of the first $4,000,000 of profit and thereafter an amount equal to 25% of the profit over the $4,000,000. 4.3 If the parties are unable to reach agreement on a joint venture to progress the development of the Land within 2 months of the parties agreeing (or receiving an arbitrated decision as to) the Post Approval Valuation (‘Joint Venture Deadline’) then within 30 days from the Joint Venture Deadline, Wingate may give notice to Hudson demanding payment under this Agreement. 4.4 Within 6 months of the receipt of such demand from Wingate, Hudson, or its nominee, must pay Wingate an amount equal to 50% of the first $4,000,000 of difference between the Pre Approval Valuation and the Post Approval Valuation and thereafter 25% of the remaining amount of difference. 4.5 If the parties are unable to reach agreement on a joint venture to progress the development of the Land by the Joint Venture Deadline and: (a) Wingate makes no demand within the time referred to in clause 4.3; or (b) Wingate makes a demand and is paid in accordance with clause 4.4, then Wingate shall have no claim whatsoever against any of the Hudson Group in relation to this Agreement. Without limiting the generality of the preceding, Wingate shall have no: (a) claim in relation to costs incurred by it under this Agreement except any duly payable and unpaid; (b) claim for services rendered to Hudson Group; (c) claim for lost opportunity in relation to the failure of the parties to agree on a joint venture; (d) claim, right, title or interest in the Land or the Schedule B Land. 4.6 Wingate acknowledges and agrees with each party, jointly and severally that unless stated otherwise, in the absence of default or repudiation of this Agreement by Hudson Group or any one of the Hudson Group: (a) nothing in this Agreement entitles Wingate to a fee for services rendered in relation to the preparation of the Master Plan or provision of any advice of any nature to the Hudson group in relation to the Land or the Schedule B Land or the provision of the Project Management Services referred to in clause 3.2, other than those fees approved for 50% payment by the PCG; (b) it is not entitled under any circumstances to be reimbursed its 50% share of the costs and expenses under this Agreement. (c) nothing in this agreement entitles it to claim, right or title to, or interest in, the Land or the Schedule B Land.

As is common ground the joint venture did not proceed and there was no post-approval valuation.

The Land had previously been re-valued (specifically with the contemplated joint venture in mind) from a nominal value in the books of Hardboards to $10 million. The Share Purchase agreement – 8 June 2001

The next significant event was the sale by HIG of the whole of the issued shares in AHL to HTP. That sale was effected by an agreement ["the Share Purchase Agreement"] entered into on 8 June 2001 some six months after the Heads of Agreement. The purchase price fixed by the agreement was the sum of $25 million. HTP remained at the time of the sale, a 92% owned subsidiary of HIG.

The Share Purchase Agreement sought to improve the capital position of HTP. Sales revenue for the 6 months to 30 June 2001 in HTP was down as the residential construction market remained sluggish post the introduction of GST and subsequent projects associated with the Olympic Games.

The Share Purchase Agreement contained [clause 2] certain conditions precedent requiring the approval of shareholders of Group and Timber which were required under the applicable Chapters of the ASX Listing Rules. The Entitlement Deed – 8 June 2001

By a second agreement ["the Entitlement Deed"] also entered into on 8 June 2001 as part of the same transaction, HIG and AHL included a number of provisions beneficial to HIG calculated to have the effect that HIG (notwithstanding the sale) would benefit from the development and disposal of the Land.

The critical provisions of the Entitlement Deed were as follows: " 4 Payment The parties agree that if the ultimate control over or, ultimate beneficial ownership in the Land changes in any way (a "Disposal") on or before the Sunset date [2009], [AHL] must, on the date of the Disposal, pay to HIG the lesser of the following amounts: (a) $10 million less the Deposit [defined as $3.5 million], and (b) the value of the aggregate consideration received by [AHL] in relation to the Disposal less the Deposit. 5 Disposal Undertaking AHL agrees that it will not undertake a Disposal: (a) which does not involve AHL ceasing to have all control over, or all of its beneficial ownership in, the Land; and (b) unless it is on arms length terms and the consideration to be received is cash payable as at the date of the Disposal 6 Best Endeavours (a) AHL shall use its best endeavours to develop and Dispose of the Land before the Sunset Date on the best possible commercial terms. (b) AHL shall not do anything, suffer, or permit anyone else to do anything which may have the effect of diminishing the value of the Land. 8 Security AHL shall grant HIG the Mortgage as and when required by HIG [This provision constituted an obligation of AHL to grant a mortgage over the land to secure the payment of the amounts stipulated by clause 4] [Clause 1 defined deposit to mean “$3.5 million”, mortgage to mean “the mortgage in the form required by Hudson”, and “Sunset date” to mean “the fifth anniversary of this deed”.] AH Bremer Park Pty Limited

In August 2000, the third defendant, AH Bremer Park Pty Limited [“Bremer”] [previously “AH Group Limited”] was incorporated. Mr McLeod and Mr Holland were appointed directors. Mr Hughes was appointed as company secretary. The shareholdings of Bremer consisted of two shares, both held by AHL.

Between December 2001 and January 2003, Bremer acquired the Land which had been owned by AHL. It appears that Bremer was intended to be the vehicle by which the land would be developed and the profits shared between HIG/AHL and Wingate, the property developer. References to defendants

As a matter of convenience the first three defendants, AHL, HTP and Bremer will be referred to as "the defendants" and fourth and fifth defendant, Mr McLeod and Mr Holland will together be referred to as "the defendant directors". 2003 restructure

On an overview basis it is apparent that in about May and June 2003, HTP underwent a major restructure which involved: · the sale of its timber and hardware division; · the change of the company’s name from "Hudson Timber & Hardware Limited" to "Hudson Timber Products Limited"; · HTP buying back and cancelling 220,000,000 of its shares from HGL for $17.6 million which was satisfied by a discharge of $17.6m intercompany loan owed by HIG to HTP; · the sale by HIG of 14,000,000 shares in HTP which raised $2.1 million, which was then paid by HIG to HTP to discharge the balance of HGL's indebtedness to HTP; · the disposal by HTP of other non-core assets including Hudson Imports Pty Ltd; and · a raising of capital by HTP through the offer of shares under a prospectus dated 28 May 2003 (the Prospectus) (the Restructure).

On completion of each of the steps referred to above, HIG’s shareholding interest in HTP decreased from 91.69% to 22.2%. HTP remained the owner of 100% of the share capital of AHL.

Over the period from around July 2003 to August 2003, HGL sold the balance of its shareholding in HTP on market. AHL proposal of partial sale of its shares in Bremer to Wingate – March 2003

In March 2003, AHL proposed to sell one of its shares in Bremer to Wingate for $200. This agreement has not been carried out to date. The Bremer Share Sale Agreement

In a separate 2003 transaction ["the Bremer Share Sale Agreement"] HTP is said to have agreed to sell one-half of the issued shares in Bremer, to HIG for $100. The sale was approved by HTP in general meeting on 16 June 2003 pursuant to an Explanatory Memorandum dated 16 May 2003. HIG contends that the agreement was effected by a countersigned letter dated 23 July 2003. HTP has refused to execute a transfer of the Bremer shares. The context concerned the above-described agreement that 220,000,000 of HIG’s shares in HTP would be cancelled in return of the cancellation of $17,600,000 of debt owed by HIG to HTP. HTP proceeded to issue a prospectus for public subscription of 47,381,167 shares in order to raise approximately $7.1 million. The prospectus issued in relation to the HTP shares referred to the proposal that the one share in AH Bremer held by AHL would be sold by AHL to HIG for $100.

A Masters v Cameron issue arises as to whether the Bremer Share Sale Agreement was intended to have binding effect. The First Deed of Amendment

The defendants contend that a First Deed of Amendment which bears the date 20 June 2001 is valid and has the effect of deleting HIG’s mortgage entitlement from the Entitlement Deed. The instrument is sealed and witnessed, for HIG, by Mr McLeod and the company secretary and, for AHL, by Mr Holland and the company secretary. [The plaintiff contends that the Board of HIG never approved entry into this instrument so that the instrument is said to be ineffective for want of authority. Further, as the instrument is said to have been beneficial to AHL and detrimental to HIG, Mr McLeod and Mr Holland are said to have breached their duties to HIG as directors in purporting to cause its execution]. The Second Deed of Amendment

The defendants also contend that a Second Deed of Amendment [Bundle 2016] which is undated, is valid. The defendants contend that it was executed on 5 September 2001. If valid it has the effect of significantly reducing the amount to be paid to HIG on a Disposal of the Land [for example, if the sale price was $10 million, HIG would not receive any amount at all]. The instrument is sealed and witnessed, for HIG, by Mr McLeod and the company secretary and, for AHL, by Mr Holland and the company secretary. [The plaintiff contends that the Board of HIG never approved entry into this instrument so that the instrument is said to be ineffective for want of authority. Further, as the instrument is said to have been beneficial to AHL and detrimental to HIG, Mr McLeod and Mr Holland are said to have breached their duties to HIG as directors in purporting to cause its execution] Relief sought by HIG

In the result HIG brings the proceedings principally: (1) seeking to have declared void [or set aside] each of the two purported amendments to the Entitlement deed and seeking specific performance: · of the Entitlement Deed [including the obligation that AHL provide it with the mortgage required under clause 8]; · of the Bremer Share Sale Agreement. (2) seeking declarations and relief against Messrs McLeod and Holland for breach of their statutory and equitable duties owed to it. The cases pursued by the first three defendants

AHL, HTP and Bremer contend that the Entitlement Deed requires to be rectified by reference to the alleged common intention of AHL and HIG at the time of entry into this Deed. This contention forms a cornerstone of the case of these defendants. The matters litigated require the Court to look in two directions in resolving the rectification issue. The first is to examine the Heads of Agreement anterior to the Entitlement Deed. The second is to examine the run-up to the Entitlement Deed itself and also the events which followed entry into of the Entitlement Deed.

Central to the cases pursued by the defendants is the proposition that their rectification case is entirely congruent with the arrangements proposed in the November 2000 Heads of Agreement entered into with Wingate. The proposition is that the new factor which emerged in 2001 involved the principal lender, that is to say the ANZ Bank, being dissatisfied with the arrangements proposed in the Heads of Agreement. The case is that once the ANZ's concern was determined to be satisfied by HIG selling its interest in AHL to HTP, it became necessary for arrangements to be made in the altered environment to accommodate the 20 November 2000 Heads of Agreement.

The 2003 restructure is also relied upon by the defendants in aid of their alternative cases that the Deed of Entitlement was abandoned in 2003 and/or that specific performance of the Deed of Entitlement should be refused on discretionary grounds. Principal issues litigated on the summons

Principal of the issues which arise concerning the Entitlement Deed are the following: (1) whether HIG conferred upon Mr McLeod authority to execute the amending deed dated 20 June 2001 (the “First Deed of Amendment”) amending the Entitlement Deed by, amongst others, deleting the benefit of the mortgage (B 1305); (2) whether if Mr McLeod had such authority his committing HIG to the First Deed of Amendment constituted behaviour by him in breach of his statutory and fiduciary duties to HIG in that what he did was not for the benefit of HIG but to its detriment and to the benefit of HTP and was a failure by him to avoid a conflict of interest and duty; (3) whether HIG conferred upon Mr McLeod authority to execute the Second Deed of Amendment amending the Entitlement Deed by, amongst others, deleting the benefit of the first $10 million proceeds on sale and substituting for it a share of proceeds after receipt of the first $10 million; (4) whether, if Mr McLeod had such authority, his committing HIG to the Second Deed of Amendment constituted behaviour by him in breach of his statutory and fiduciary duties to HIG in that what he did was not for the benefit of HIG but to its detriment and to the benefit of HTP and was a failure by him to avoid a conflict of interest and duty; (5) whether Mr Holland as a director of both companies breached his fiduciary duty to HIG by permitting the Deeds of Amendment to go forth to the detriment of HIG; (6) whether in the circumstances the Deeds of Amendment should be set aside; (7) whether in the circumstances there should be an order for specific performance of the Entitlement Deed as unamended. The Cross Claim

The cross claimants [AHL, HTP and Bremer] contend that the common intention of the parties was that if AHL disposed of all of its control over or all of its beneficial ownership in the Land on or before 8 June 2006 then either: (a) The first cross claimant must on the date of the Disposal, pay to the cross defendant an amount determined in accordance with the following table less the Deposit: The value of the aggregate consideration received by the first and/or the second cross claimant in relation to the Disposal (“AC”) Payment Amount AC is less than or equal to $10 million Nil AC is greater than $10 million and less than or equal to $14 million [AC - $10 million] x 0.5 AC is greater than $14 million and less than or equal to $24.667 million $2 million + [AC - $14 million) x 0.75] AC is greater than $24.667 million $10 million In the event that the Payment Amount is: (i) less than the Deposit, the first cross claimant is entitled to part of the Deposit equal to the Deposit less the Payment Amount; and (ii) Equal to the Deposit, the first cross claimant is not required to pay any amount to the cross defendant. Or alternatively; (b) The first cross claimant must on the date of Disposal pay to the cross defendant an amount up to $10 million from the net profit received by the first cross claimant on the development and disposal of the Land in accordance with the Heads of Agreement between Wingate, the cross defendant, the first cross claimant and A H Group dated 27 November, 2000. [Declaratory relief and rectification of the Entitlement Deed to reflect this alleged common intention is sought in the cross-claim] The issues concerning the directors

It is plain that the case against the fourth and fifth defendants is confined to the events of 2001 and to the First and Second Deeds of Amendment. Notwithstanding that no complaint is made against the directors in relation to the Bremer Sale Agreement or in relation to the events of 2003, should the defendants case in relation to abandonment prove successful, this would impact on the question of damages should the Court find that the directors were in breach of their fiduciary duties.

No contention was advanced by Mr McLeod or Mr Holland to the effect that they wished to contend that the plaintiff had not always been understood as pleading breaches of fiduciary obligation [transcript 670,671]. And this notwithstanding the precise state of the Summons.

Should HIG succeed in setting aside the first and second Deeds of Amendment any questions of equitable compensation in HIG's claims against the directors fall away. The Evidence Reliability of witnesses Mr McLeod

Mr McLeod was an unreliable witness. Reasons for this finding are given in a number of places throughout the judgment. Under cross-examination his evidence was given haltingly and it was quite clear that in many of his answers he was about assessing the reasons for the question and promoting the interests of the defendants in the litigation. On many subjects in high contention he prevaricated, now giving an answer to one effect and later altering that answer. His evidence cannot be accepted as reliable unless corroborated by contemporaneous documents or the evidence given by other witnesses who are accepted as reliable. His continued failure to accept the reality which was that so-called 'single agenda' meetings were really never meetings at all, is only one example of the reason why his evidence cannot be regarded as reliable. When asked whether he considered the practice of the company in terms of single agenda meetings, later referred to in the judgment, to be an ' honest practice', his answer was that he thought it was an ' acceptable practice' .

It is appropriate to note that the gravity of the findings concerning the backdating of minutes has required that these reasons include a deal of detail in particular pertinent to the credit of Mr McLeod. I make no apology for setting out certain sections of Mr McLeod's cross examination verbatim for the reason that a paraphrasing of that evidence does not provide the same emphasis as is sought to be highlighted by those excerpted sections. Mr Holland

Mr Holland was also an unreliable witness. His evidence cannot be accepted save where corroborated by contemporaneous written documents or by evidence given by witnesses who are regarded as reliable. His evidence was inconsistent with the evidence given by a number of the other witnesses, who far more openly accepted that in truth the so-called 'single agenda' meetings were not meetings at all when one looked closely at what actually happened. His evidence was unreliable for many reasons mostly only able to be understood by a full reading of the transcript of his cross-examination. Some examples of that evidence included: Negotiation of the Entitlement Deed and his understanding of that Deed · His evidence that notwithstanding that he had played no part in the negotiation of the Entitlement Deed [Transcript 385] his understanding of the Entitlement Deed simply gained from what the document said, was that AHL would pay HIG $10 million out of profit of the side of the land [Transcript 381.46]. [However he could not recall Mr McLeod ever telling him that 'the deal' was with respect to profit, nor discussing with Mr McLeod whether profit was intended or not-(transcript 382.47, 385.26)]. He could not recall whether or not at the time when he read the Entitlement Deed he did not see any reference to any profit in the Deed. He could not even say in the witness box, whether or not the document made any reference to profit, because, so he contended in the witness box, he had not read the document since it was signed. But he was quite firm in his evidence that the sole source of his understanding that the deal had concerned profit was his reading of the Entitlement Deed [Transcript 388.11]. Yet his evidence was that he had no understanding in this context of the difference between profit before tax or profit returns above a pre-approved valuation and that this was not something that entered his mind [Transcript 387.5]] Second Amending Deed and his understanding in that regard · His evidence was that his understanding of the change to the Entitlement Deed leading to the Second Amendment Deed "was to clarify issues in the Deed [Transcript 390.12]. [Yet in being asked what these issues were, his answer was that he simply did not know and could not recall [transcript 390.17]]. Understanding as to what is asserted against him in the proceedings · He was asked whether he understood what was asserted against him in the proceedings and his answer was "not particularly" [transcript 390.43]. He was asked whether he understood that it was asserted against him that he had breached a fiduciary duty to the Hudson Group. His answer was that he did not so understand. Evidence concerning conflict of interest · In relation to minutes [cf for example the meeting of the board of HTP of 17 May 2001 PX 655] in which the minutes stated that he had not attended a meeting as it was considered that conflict of interest issues arose pursuant to his respective positions as directors of certain of the companies within the Group , his evidence was that he did not turn his mind to the question of whether or not the fact that different companies in the Group had interests which were not the same. This was, he accepted because he did not understand as a director of the different companies that he ought to look at the interests of each separately.

His lack of recall of detail is a further indicator of the need to treat his evidence with the greatest of care. I formed the view that on the balance of probabilities he simply carried out the requests of Mr McLeod without giving the matters the subject of such requests, any or any real consideration. He had originally been a petty officer in the Navy. Mr Holland readily accepted that he had had no expertise in the construction of complex commercial documents or the restructuring of companies: his expertise was in the building industry at the level of building industry operations. Reliability of other witnesses

It is unnecessary to specifically treat with questions concerning the reliability of other witnesses. The judgment is generally self-explanatory where the evidence of a particular witness is found to be unreliable. Generally the findings concerning the unreliability of many of the documents purporting to be minutes of meetings, carries with it a finding rejecting as unreliable the evidence given by any witnesses to the effect that any such meeting had taken place. Sometimes that finding may be consistent with Mr McLeod having discussed certain matters [later appearing in minutes] with one or other of those persons. For reasons given in the judgment, discussions of that type have not been shown to constitute 'meetings' within accepted principle.

Some of the structural background has already been set out in the opening sections of the judgment. In order to hand down findings as to what actually happened, it seems to me convenient to deal with the several steps taken in the commercial dealings seriatim. These findings are as to the balance of probabilities and are reached taking into account all of the material evidence before the Court.

It is important to note the interrelationship between the issues. The issues of fact underlying the rectification causes of action are central; however the entirety of the factual matrix requires to be taken into account in the determination of the respective cases. The Heads of Agreement

There is an immediate threshold problem in relation to any attempt to determine questions concerning the claimed rectification of the Deed of Entitlement. This flows from the state of the evidence as to what occurred between the parties to the Heads of Agreement prior to its being entered into. No evidence given by Mr Tan

No evidence was given by Mr Tan.

No evidence was given by Mr Williams who had represented the Wingate interests. Mr McLeod’s evidence

The evidence given by Mr McLeod on this topic [as well as on the topic of conversations with Mr Tan anterior to the signing of the Entitlement Deed] was unsatisfactory in the extreme. So much appears from his cross-examination. His affidavit evidence cannot be read in isolation from that cross-examination which is examined below. Further and as is apparent from the judgment below, the defendant's rectification case as pleaded does not conform with the evidence as to his own understating, given by Mr McLeod who was the defendants principal witness on the issue. Mr McLeod’s evidence as to the earlier background

It is convenient to first shortly outline Mr McLeod's evidence of the earlier background.

His evidence was that by early March 2001 HTP had experienced a significant drop in its revenues placing it in breach of a number of financial covenants required by ANZ as part of its financing arrangements. Hence he commenced discussions with ANZ with a view to HTP restructuring its balance sheet by reducing debt, the most effective way to carry out which objective would be to raise equity. His evidence was that HTP directors resolved on 20 March 2001 to in principle seek to raise $5 million by way of a preference share issue. Mr Tan however is said to have indicated that his shareholding group would not support a raising of equity as this would dilute their shareholding.

Thereafter there were further discussions with ANZ turning to the alternative of a transfer of the shareholding in AHL to HTP, the fact being that AHL should generate approximately $5 million in free funds over the following 12 months.

The discussions included the integer that the Master Plan for Bremer was anticipated to be completed by the middle of 2002 and that this would generate extra funds in the group which could then be used to repay debt.

The ANZ generally agreeing in principle to the proposed sale of the shareholding in AHL to HTP, Mr McLeod became involved in negotiating the terms and conditions of the transfer, in which negotiation he represented the interests of HTP and Mr Tan represented the interests of HIG. These negotiations took place in late April/early May 2001.

Mr Tan had proposed that the Surplus Land be transferred to HIG for no cost prior to the sale. Mr McLeod had opposed that suggestion making the point that neither AHL nor the ANZ would permit any such course.

It is in the suggested evidence of Mr McLeod as to what then occurred in the negotiation, that the evidence of Mr McLeod as to the parameter of HIG obtaining a pre-determined profit share is rejected as unreliable. The precise evidence given by Mr McLeod in his affidavit was in this regard as follows: · [They] had a conversation to the following effect: “Mr Tan: I agree that the deal should be done where the land is sold with Hardboards but that an agreement is put in place recognising [HIG's] entitlement to some of Hardboards' future upside in the development of the land. In a way, it doesn’t really matter as [HIG] owns around 90% of Timber [HTP] and at some future date we might acquire the remaining 10% anyway. Mr McLeod: I agree. I think [HIG] getting a pre-determined profit share is a more equitable way to deal with this situation.” · On the basis of that agreement, they then commenced negotiations as to the consideration to be paid by HTP to [HIG]. The negotiation as to price took place over the next couple of weeks.

Mr McLeod's further evidence was that at that time, discussion took place in relation to how to determine [HGL's] profit share over the Surplus Land, and he recalled having a conversation with Mr Tan in words to the following effect: “Mr Tan: With the [HIG] profit share why don't we tie it into the Wingate Agreement? Mr McLeod: That makes sense. Mr Tan: Well then, as part of the deal then it means Timber [HTP] will need to pay more for Hardboards [AHL]. Mr McLeod: That is fine, but ultimately the value will need to be signed off by the Independent Expert. Mr Tan: On that basis we should use the Land [Surplus Land] value in the Heads of Agreement, of $10 million. I will speak to Kevin Grice to prepare a new balance sheet for Hardboards [AHL] showing the Surplus Land on the Hardboards [AHL] balance sheet at an agreed $10 million. Mr McLeod: It will need to be at Directors' Valuation as the independent valuation is only around $3.5 million. Mr Tan: I agree, although Stephen [Williams] believes the value to be higher so it will not be hard for the directors to justify the higher value.”

For reasons given later in the judgment. Mr McLeod's above-described evidence of having reached an arrangement/agreement that HIG would be obtaining a pre-determined profit share requires in the light of all of the evidence , to be rejected as unreliable. Preparation of the later documentation

If one bears in mind the principal documents of concern which followed the November Heads of Agreement and the order in which they are said to have been entered into [the Share Purchase Agreement, the Entitlement Deed, the first Deed of Amendment and the Second Deed of Amendment] it is next convenient · to deal with the evidence given by Mr Restas of Atanaskovic Hartnell who was heavily involved in the preparing the material documentation.; · thereafter to treat with the evidence given by Mr McLeod on a number of topics and to deal with the other evidence. Evidence given by Mr Restas

Mr Restas had been admitted to practise as a solicitor in South Australia in November 1995 and had moved to Sydney in about October 1998 when he commenced to work with Atanaskovic Hartnell in Sydney. His evidence is accepted as reliable. Late May 2001

In late May 2001 he was asked by Mr Simmons, a partner of the firm, to assist him with the documentation of the sale and purchase of AHL. Mr Simmons handed to him two draft documents entitled "Share Purchase Agreement" and Entitlement Deed, informed him that Mr Kyriac [also of Atanaskovic Hartnell] had prepared these documents, and asked him to look after the matter from that moment on.

Importantly he assumed that Mr Kyriac had captured the instructions in his drafts and that he was being required to effect those drafts [PX2/18 page 473]. [Transcript 123,45, 125.1]. He was not shown a letter from Mr McLeod to Mr Simmons of 8 May 2001 [Tab 35 PX Volume 2] giving instructions and including the following: "As part of the Purchase and Sale Agreement it has been agreed that the first $10 million profit earned by AHL on the JV on a pre-tax basis will be paid to HIG. A deposit of $5 million will be paid on the signing of the purchase and sale agreement and the balance of $5 million will be paid as J. V. profit are realized…”

It appears that on the morning of 30 May 2001, Mr Kyriac had sent to Mr McLeod an e-mail enclosing the same draft documents which had been furnished to Mr Restas. The e-mail had stated inter alia: "Attached is a deed in which I have attempted to document what I understand to be the arrangements in place between Hudson Investment Group and Australian On boards in respect of the development of certain land and the payment of 10,000,000 to HIG Given my limited knowledge of the details of this agreement we will need to discuss the agreement to review its accuracy in documenting the arrangements . Also, while I have discussed this agreement in principle with Danny Simmons he has not yet had a chance to review it, so for those reasons please treat the attached as a draft agreement only." [PX3/0750]

Mr Restas gave evidence that he had not seen this covering e-mail in the course of his preparation of the documents and only came to see it at the time of preparing his affidavit in these proceedings. [Transcript 126.5]

In the days following his having first been asked to assist Mr Simmons with the documentation, Mr Restas made a number of amendments to the Share Purchase Agreement with respect to the view that he had formed that various approvals were required by the shareholders either of HTP or of HIG and his view that Chapter 11 of the Listing Rules may be relevant. Atanaskovic Hartnell acting for HIG

Mr Restas’ evidence was that on about 31 May 2001 he had a telephone conversation with Mr McLeod in which he confirmed that his firm were acting for HIG and receiving instructions from Mr McLeod on its behalf [which Mr McLeod said was correct] [cf confirmatory email PX3/751]. Mr Restas recommended that HTP retain independent lawyers to act on its behalf but was informed by Mr McLeod that HTP would not do that. Rather HTP would get an independent director plus Mr Scadden to review the contract on behalf of HTP.

Further communications passed between Mr Restas and Mr McLeod between 31 May 2001 and 5 June 2001 by way of routine drafting and regulatory issues. 6 June 2001

On 6 June 2001 Mr McLeod telephoned Mr Restas and they had a discussion concerning options which Mr McLeod said would now be issued to HIG. Mr McLeod also raised a need to amend the entitlement Deed to reflect the fact that AHL would pay HIG a deposit of $3.5 million.

On 6 June 2001 Mr Restas reviewed the draft of the Entitlement Deed and made a note of certain points which he wished to discuss with Mr McLeod. That handwritten note reads as follows: “- Issue regarding 1st $10 mill - Financial Assistance Issue - Security - Options ensure get approval under Item 7 of 611 Bruce McLeod 6/6/01 - Ist 10 mill goes to AHL - Fin Assistance – could be seen to be (he said had been agreed before – not related – draft minutes were prepared by MTH and more money) - even if fin assistance he does not believe that it would mutually prejudice interests of creditors or co – he will get directors to look at this - Security – need to speak to Queensland lawyers to prepare.” [PX3/902; TAB 13 of JR1]

Mr Restas deposed in his affidavit that the first bullet point referred to his concern that some of the documentation with which he had been provided [drafts of minutes of a directors meetings of HTP of 17 May 2001 and of a directors meeting of AHL of 2 May 2001] referred to the payment of the first $10 million of profit to HIG and elsewhere it was recorded that the land had been revalued to $10 million.

He deposed that specifically, and in the context of acting for HIG, he queried whether HIG should receive the first $10 million of any consideration received for the sale of the land, rather than the first $10 million of profit. He deposed that this was due to the fact that he considered the latter to be unreasonable from the point of view of HIG in the event that no profit was made from the development of the land.

Later on 6 June 2001 he telephoned Mr McLeod and a conversation to the following effect took place: Mr Restas: “I have reviewed the Entitlement Deed and I have a number of issues I would like to run through with you. Firstly , is the Entitlement Deed really required? I believe that it would be simpler and neater to increase the purchase price to $35 million and have $28.5 million of the consideration paid at completion with the balance paid at the time that the land is disposed of. I also think that it would be more appropriate if the first $10 million of consideration was paid to Hudson Investment rather than the first $10million of profit, given that the asset is worth $10million. I do not think Hudson Investment should wear any risk of the development not making any profit . Thirdly, I think there is an issue of financial assistance by Hardboards paying the money to HIG. Amending the Share Purchase Agreement would avoid this problem. Shareholder approval would be required if the financial assistance would materially prejudice Hardboards’ creditors, shareholders or Hardboards itself.” Mr McLeod: “Even if it is financial assistance, I do not think it would materially prejudice those interests. I will get the other directors to look at this.” Mr Restas: “ Finally , if a mortgage needs to be given to Hudson Investment to secure the remainder of the money, I would need to speak to Queensland lawyers to document that as the land is based in Queensland.” Mr McLeod: “That is fine.” Restas: “I will send to you a revised Share Purchase Agreement which sets out the amendments I suggest be made in order to reflect the issues I have raised.” Mr McLeod: “Okay.”

Under cross-examination [transcript 128] Mr Restas gave evidence as follows: “Q. But you don't give any account, do you, of what response Mr McLeod gave you to the first two issues you raised? A. No, I do not record that. Q. And in particular, you don't give any account of Mr McLeod's response to your suggestion which starts at line 6 in the first words attributed to you, in the sentence, "I also think", do you? A. No, I do not. Q. And Mr McLeod did give you a response to that suggestion, didn't he? A. Not that I recall, no. Q. And you have recorded that response to that suggestion in your diary note, haven't you? A. That note was an error on my part . It should have referred to Hudson Investment Group. Q. I think you are referring, aren't you, to the words you have written at page 902 of the bundle, "First 10 mill" arrow "goes to AHL"? A. Yes. Q. Well, that as note you wrote, isn't it, at the time of your conversation with Mr McLeod? A. Yes. Q. And that was, wasn't it, his response to your suggestion that the first $10 million consideration go to Group rather than profit? A. No, my - the documentation that I prepared reflected the proposition I put forward, that the first 10 million of consideration should go to Hudson Investment Group. Q. I know that's what you did, but you say in paragraph 17 that the reason that this issue arose in your mind was because documentation, which you agree was the minutes, referred to the payment of the first million dollars profit to Group and elsewhere referred to $10 million as being the value of the land, that's right, isn't it? A. That is correct. Q. And the minutes that you saw made clear to your mind, didn't they, that what had been resolved, according to those minutes, was that the first $10 million of profit, not consideration, go to group? A. That is correct, that I raised it as an issue with Mr McLeod. Q. And isn't it the case that, consistently with the minutes, what Mr McLeod said to you was exactly what you have written down in your note ? A. I wrote down in my note the first 10 million. I didn't write down the first 10 million profits . Q. The first 10 million goes to Hardboards? A. I acknowledge that my note says that, but as reflected in the documentation, it was Hudson Investment Group and I believe that I made an error in my notes at the time of the conversation. Q. Well, I suggest that in fact your note is an accurate record in your own handwriting of what Mr McLeod said to you? A. No.”

Mr Restas further deposed that after his conversation with Mr McLeod he had a conversation with Mr Simmons to the following effect: Mr Restas: “I think this transaction can be simplified by having the Share Purchase Agreement deal with the passing of the $10 million consideration in relation to the land. It could be simplified by increasing the purchase price to $35 million and having $28.5 million of the consideration paid at completion with the balance paid at the time that the land is disposed of.” Mr Simmons: “I agree.”

Mr Restas then sent an e-mail to Mr McLeod attaching a draft Share Purchase Agreement reflecting their conversation [Exhibit JR1 tab 14]. 7 June 2001

On 7 June 2001 Mr McLeod telephoned Mr Restas and said that he had reviewed the new Share Purchase Agreement and wished to revert back to the use of two documents, that is to say the Share Purchase Agreement and Entitlement Deed. Mr Restas said that he would prepare a revised version of the Entitlement Deed and send it to Mr McLeod. He did that [PX3/932]. That draft provided for payment, on disposal, of the lesser of $10 million and the value of the aggregate consideration received by AHL in relation to the disposal of the land as referred to in the above described conversation which he had had with Mr McLeod. In the covering e-mail Mr Restas referring to the Entitlement Deed, said in the second bullet point: "Clause 3 deals with the requirement to pay the balance of the $10 million in the event of a "Disposal." [Enclosed with the email was a draft of the Entitlement Deed containing a provision in exactly the same form as it appeared in the document ultimately executed]

Under cross-examination Mr McLeod gave the following evidence: “Q. Now, Mr Restas there attached for your review the latest draft of the entitlement deed, telling you that he had made significant amendments to a previous draft and summarising those amendments? A. Yes. Q. The second dot point is that clause 3 deals with the requirement to pay the balance of $10 million in the event of a disposal, right? A. Yes. Q. And that was your understanding, that what the deed required was that in the event that there was a disposal the balance would have to be paid up to the amount that was received, correct? A. Yes, the balance of the profits, that is right. Q. Mr McLeod, no reference to profits. That says the requirement to pay the balance of the 10 million in the event of a disposal. There is no reference to profits. A. But this is a summary of three points-- Q. There is no reference to detail and there is no reference to profit in the agreement, in the deed, is there? A. No. Q. And if it was intended to be profit why didn't you tell Mr Restas, "Jamie, stick in the word 'profit' please"? A. Because we'd - well, we had discussed that previously. Q. No, Mr McLeod, if you wanted there to be "profit", why didn't you give instructions to the lawyer to put in "profit"? A. As I noted before, assuming the joint venture was in place, aggregate consideration could be considered the same as profit. Q. … I suggest to you that it clearly does not mean "profit"? Q. It certainly, even on what you say, does not mean in clear terms "profit", does it? A. Within the terms of a joint venture it could do and it would do. Q. Forget about the joint venture. The term "aggregate consideration" does not clearly mean "profit", does it? A. As I said before, if the joint venture was in place it would. It was assumed the joint venture would be in place by myself. Q. … The words "aggregate consideration" do not clearly mean, in any way shape, or form as you understand it, "profit", do they? A. They do not clearly--… -- define the word "profit". Q. Now, if you had "profit" in mind when the lawyer came back to you and said, "Clause 3 deals with the requirement to pay the balance of 10 million in the event after disposal", why didn't you tell him, "Please make it the first 10 million of pre-tax profit"? A. Because I didn't need to. Q. Why, because you thought the words were clear? A. In my mind the structure of the agreement as it was was clear at that point in time. That is why it was amended. It wasn't clear to all parties, and even to myself when we went through different scenarios. Q. I am dealing with you with respect to June 7th. A. Yes. Q. Mr Restas wrote to you and said, "I've made substantial changes. Clause 3 deals with the requirement to pay the balance of the 10 million", of which 3.5 had already been paid… …"upon a disposal". A. Yes. … Q. … Do you tell his Honour that when you received this e-mail from Mr Restas your understanding was that he was telling you in dot point 2, clause 3, that clause 3 dealt with the requirement to pay the balance of the 10 million, representing pre-tax profit, in the event of a disposal? A. My understanding on receipt of that e-mail, and I can't remember receiving that e-mail, had not changed. Q. You say you don't recall this e-mail? A. No, I don't specifically recall that e-mail, no. Q. You will agree with me now, as you read it, Mr McLeod, as you understand it, the second dot point makes no reference to profit ? A. No, it doesn't .” [Transcript 228-230]

His later cross-examination included the following: “Q. Now, on 6 June you had another conversation with Mr Restas, didn't you, in which Mr Restas said to you that he had reviewed the deed and he had a number of issues to run through with you. Do you recall that conversation? A. I don't recall the conversation. Q. First was he said to you the entitlement deed, he thought - he asked you whether it was really needed? A. I recall that, yes. Q. And he said it would be simple and neater simply to increase the price to 35 million and have 28.5 million of the consideration paid at completion, with the balance paid at the time the land is disposed of? A. Yes, I recall that. Q. He also said that it would be more appropriate if the first 10 million of consideration was paid to Hudson Investment rather than the first 10 million of profit, given that the asset is worth 10 million? A. Yes, they were his comments . Q. Right, and you understood, therefore, Mr McLeod, that on 6 June that Mr Restas was drawing a distinction, which you understood, between consideration and profit ? A. Yes . …. Q. And you understood, I suggest to you, Mr McLeod, on 6 June that the lawyer was drawing a distinction between consideration and profit and that the agreement referred to the former? A. And that's why he changed the agreement back to the original consideration. Q. Correct. You knew that the lawyer was making a terminological difference between the term "profit" and the term "consideration", right? A. Yes. Q. And you knew that the agreement that you signed contained the words "consideration", not "profit "? A. Yes . Q. And you want to tell his Honour that you understood that the term "consideration" in that context was understood by you to mean "profit"? A. I do.” [Transcript 234-235]

Also on 7 June 2001 Mr Restas advised Mr McLeod that the terms of the Entitlement Deed meant that relevant shareholder approvals should be obtained including that of Hardboards (of which Group was the sole shareholder) for the giving of financial assistance which Mr Restas considered Hardboards was doing by undertaking the obligations in the Entitlement Deed in connection with the purchase and sale of its own shares (B 3/940).

The draft Entitlement Deed submitted to Mr McLeod also contained a provision (clause 7 – B 3/935) requiring Hardboards to grant Group a mortgage to secure Hardboards’ obligations under the Deed.

On 7 June 2001 Mr Restas wrote to Mr Glass of James King Lawyers in Brisbane asking for their assistance in preparing the mortgage over the Land. His letter included: "I act for Hudson Investment Group Ltd… a company listed on the Australian Stock Exchange Ltd. Hudson is the holding company of Australian Hardboards Ltd ("AHL"), which is the owner of some land in Queensland…AHL and Hudson entered into a Heads of Agreement late last year pursuant to which the Land is to be developed. Hudson is proposing to sell AHL to another company, however prior to selling AHL Hudson will enter into an agreement with AHL which effectively provides that in the event the Land is developed and sold within a certain period of time AHL will pay Hudson $10 million . Hudson has instructed us that the contingent liability needs to be secured by a mortgage over the Land." [PX 941] [emphasis added] Execution of the Share Purchase Agreement – 8 June 2001

On 8 June 2001, the Share Purchase Agreement between HGL and HTP and the Entitlement Deed between HGL and AHL were respectively executed under the common seal of the companies.

Atanaskovic Hartnell also assisted the parties in the preparation of notices of meeting. Mr McLeod vetted them (See PX 3/922, PX 3/1056, PX 4/1111, PX 4/1161, PX 4/1265, PX 4/1353, PX 4/1584).

Atanaskovic Hartnell also assisted in the preparation of minutes of directors of Hardboards for the grant of financial assistance under the Entitlement Deed, and the necessary resolution of members as well as for the appointment by Group of Mr McLeod as Group’s representative (being the only shareholder in Hardboards) to vote at the general meeting of Hardboards (PX 3/1382 – 1404). Execution of the Entitlement Deed – 8 June 2001

The Entitlement Deed was executed on 8 June 2001 by Mr McLeod on behalf of Group and Mr Holland on behalf of Hardboards. 13 June 2001 – Explanatory Memorandum

Following further discussions between Mr Restas and Mr McLeod and written communications, on 13 June 2001 Mr Restas forwarded to Mr Hughes an Explanatory Memorandum of Shareholders including an independent expert's report. In his affidavit he deposed as follows: “I note that at the foot of the second page and the top of the third page it refers to consideration being payable by AHL as the lesser of $10 million and the value of the aggregate consideration received by AHL in relation to the disposal of the land. This was in accordance with the understanding which I had following my discussions with Mr McLeod, that it was the first $10 million of proceeds which was to be paid and not the first $10 million of profit .” The mortgage issue

Mr McLeod gave the following evidence in his affidavit: · I believe at some time around mid June 2001, I provided a copy of the Entitlement Deed and the Share Purchase Agreement to the ANZ and discussed the requirement of the mortgage with ANZ account executives. An ANZ representative came back to me, who's name I cannot now recall, and I recall having a conversation where he said words to the following effect: “ANZ Rep: We are not prepared to consent to HGL taking a mortgage over any asset of AHL.” · the refusal by ANZ to consent to the mortgage meant that as it remained the principal financier of the Hudson Group, that part of the Entitlement Deed could not be performed; · about the same time, I was aware that the entry into the mortgage would result in a significant amount of mortgage stamp duty being payable. As I knew that stamp duty would be payable on the proposed mortgage, I believe I had a conversation to the following effect with Mr Restas, the Associate with whom I had contact at Hartnells: Mr McLeod: Can you give me an estimate of the mortgage duty payable? Mr Restas: Told me [x] amount. (I cannot now recall the figure). Mr McLeod: That is crazy. I will go and speak to Vincent about this. · I also recall that at or about the same time, I had a conversation with Mr Tan to the following effect: “Mr McLeod: Do you realise that entering into a mortgage will result in a liability in stamp duty in the order of [$x] Mr Tan: As HGL owns around 90% of HTP, it is not worthwhile paying the money to the Stamp Duties Office. Mr McLeod: I will get Hartnells to amend the document by deleting the requirement for a mortgage. ANZ have told me they will not consent to a mortgage anyway. Mr Tan: Okay, I agree.” · afterwards I had a telephone conversation with Mr Restas during which we said words to the effect: Mr McLeod: I have discussed the requirements of the mortgage with Vincent and due to costs associated with stamp duty and that HGL will own over 90% of Timber [HTP], there is no need for the mortgage. Mr Restas: Fine, in that case I will draw up an amendment to the Entitlement Deed reflecting that. First Deed of Amendment

The First Deed of Amendment was executed under the common seal of AHL [Mr Holland signing as a director] and HIG [Mr McLeod signing as a director] and dated by Mr Hughes signing as secretary in each case on 20 June 2001. 20 June 2001

On 20 June 2001 Mr Restas received an email from Ms Jerenko and thereafter a telephone call from Mr McLeod to the following effect: Mr McLeod: “No mortgage will be provided to Hudson Investment Group under the Entitlement Deed due to the amount of the stamp duty that would need to be paid. In addition, interest on the deposit is always payable to Hardboards [AHL]. Can you prepare an amending deed. Mr Restas: “Okay. If we’re going to amend the Entitlement Deed then we may want to tighten it up by providing that the sale of Hardboards by Hudson Investment Group to Hudson Timber is not a disposal for the purposes of clause 4. Also, you may want to amend clause 4(b) to refer to any consideration received by Hudson Timber or any other holding company of Hardboards.” Mr McLeod: “Okay.” Mr Restas: “Do you want to amend clauses 5 and 6 to place an obligation on the holding company.” Mr McLeod: “There is no need as Hudson Timber and Hardware will be controlled by Hudson Investment Group.” Evidence of Mr Restas concerning the Second Deed of Amendment

Mr Restas gave the following evidence in relation to the Second Deed of Amendment: 29 August 2001 · At 10.22am on 29 August 2001 I received a facsimile from Mr McLeod... At that stage I had not had any conversation with him concerning the subject matter of that facsimile. Later that morning Mr McLeod telephoned me and said to me words to the following effect: Mr McLeod: “The auditor has an issue with the entitlement deed. The entitlement deed will or may need to be amended to reflect the discussion paper which I just faxed to you where it refers to the first $10 million in profit income on development of the property. I am meeting with Willie Seaton [of Pricewaterhouse Coopers] at 9am on [30 or 31 August 2001, I don’t presently recall which].” · During this conversation I made annotations on the second page of the facsimile... Mr McLeod did not seek any advice in this conversation nor did he instruct me to undertake any further work. I understood that he was simply informing me of an issue raised by the auditor which he was going to meet with the auditor to discuss. I believe my reference to “ACC” on that page is a reference to the accountant, Mr Willie Seaton. 4 September 2001 · On the morning of 4 September I received a telephone call from Mr McLeod. A conversation ensued to the following effect: Mr McLeod: “I had a meeting with Willie Seaton and we need to amend the Entitlement Deed. The Entitlement Deed needs to be amended to reflect that Hudson Investment [HIG] will receive half of the consideration above the $10 million, less the deposit.” I do not now recall whether he gave any reasons for that decision. Mr Restas: “I will look at preparing a deed of amendment and consider whether further shareholder approval is required to amend the Entitlement Deed.” · During the conversation Mr McLeod did not say anything to me which suggested that the Entitlement Deed had not been correctly drafted to reflect the instructions given by HIG to Atanaskovic Hartnell. Following the conversation I prepared a draft deed of amendment which I emailed to McLeod at 12.11pm... · Following that consideration and later that afternoon I telephoned McLeod and had a conversation with him to the following effect: Mr Restas: “I have considered the legal issues and am of the view that no shareholder approval is required to amend the Entitlement Deed.” Mr McLeod: “That is fine. The formula in the deed of amendment needs to be played with to be consistent with the joint venture agreement. I will amend the formula.” · Mr McLeod then sent me a facsimile… I reviewed his amendments and considered that it would be easier to prepare a consolidated version of the Entitlement Deed, incorporating all of the amendments. At 5.06pm I sent through an email attaching my proposed deed... · On the following morning, I sent an email to Mr McLeod at 10.16am containing the advice referred to in my email of the previous afternoon. In that email I confirmed both my instructions and my advice that I had given to that point. In particular I recorded at the second bullet point that the proposal put forward to amend the Entitlement Deed, which provided that HIG change its right to the first $10 million received in connection with a “disposal” to a right to receive $10 million only if the amount received in connection with the “disposal” was equal to or greater than $24.667 million, amounted to HIG giving to AHL a “financial benefit” for the purposes of the Corporations Act … The final paragraph of my email contemplates that I would prepare a draft ASX announcement in relation to the change. 6 September 2001 · On 6 September 2001 I received from Mr Hughes a facsimile attaching copies of the previous ASX announcements, as requested by me in my email... · I do not recall any further conversations with Mr McLeod or Mr Hughes concerning this further amendment to the Entitlement Deed prior to my leaving the employ of Atanaskovic Hartnell on 11 October 2001. Evidence given by Mr Knox

Before proceeding further it is convenient to shortly summarise the evidence given by Mr Knox [the Group chief financial officer] which is accepted as reliable. Effectively what occurred is that in August 2001, during the course of preparation of the financial statements for the two companies for the half year ended 30 June 2001 (they each have December year ends), Mr Seaton, a partner in PricewaterhouseCoopers informed, Mr Knox, that the terms of the Entitlement Deed required that the first $10 million of value of the surplus land (being its then entire value at directors’ valuation) could not be shown as an asset in the books of Hardboards. This was because under the terms of the Entitlement Deed the first $10 million of proceeds were to go to Group.

Mr Knox had not previously been shown the Entitlement Deed and upon reading the Deed, it was clear to him that the Entitlement Deed meant that the first $10 million of proceeds for the land was to be paid to Group; consequently Hardboards could not have it in its books at $10 million. That meant a reduction in the net assets of the Timber side of the group of $10 million and the inclusion of an insupportable figure for goodwill on the acquisition of Hardboards which would have to be written down thereby producing a loss in the books of Timber. This was a serious issue.

Mr Knox accepted that the only way this could be fixed was if the terms of the Entitlement Deed were changed so that there “didn’t have to be shown up a big black hole of $10 million in the books of the Timber group” (“T 346-351”) with the critical passage at T 349 Line 56 to T 351 line 27).

Under cross-examination Mr McLeod gave the following evidence: “Q. That's right, it is not inconsistent with the Wingate heads of agreement because Wingate doesn't share in it? A. No, that first $10 million goes to-- Q. AHL. A. As the JV V, that's right. Q. So there is nothing inconsistent with the first $10 million being required to be paid by AHL to HIG, is there? A. There is. Q. What? A. Because the land is in the books of AHL at $10 million--… A. --pay the $10 million to HIG, otherwise…..Otherwise AHL would post a loss of $10 million. Q. Yes, that's where the truth lies, Mr McLeod. Why you changed the entitlement deed is because you came to realise that the deal that you get meant that AHL's financial position was unacceptable to the bank because the deal you did meant it could not ascribe $10 million to the value of the land in its books, correct?… Q. …You subsequently came to realise after a discussion with Mr Seton at the bank that AHL - at Pricewaterhouse I should say, that AHL had put that land in its books at $10 million, which it couldn't have there if it had to pay the $10 million to HIG, and that's why you changed the deed. A. That's exactly right. Q. It had nothing to do with it being inconsistent with the Wingate heads of agreement or anything else. It had to do with a mistake that you had made in putting it into the books of AHL at $10 million which you shouldn't have done. A. That is wrong. Q. And in fact, I want to suggest to his Honour that when you come to give evidence on your oath that the real intent of the agreement was as set out in that little schedule in clause 4 of the amended deed, that evidence is deliberately false? A. That is wrong. Q. Because what happened was, Mr McLeod, in August or September of 2001 you went to an audit meeting at Pricewaterhouse with a Mr Seton and Mr Seton drew to your attention, at a time at which the bank was on your back, that you had to deduct $10 million in the value of AHL because you were obliged to pay that money to HIG? A. It's wrong. Q. And that's why you changed it, because you were in a hole. That's what I want to suggest to you. A. Well, I suggest you are totally wrong.” [Transcript 252-253] Share sale approval by shareholders – 6 August 2001

The share sale was approved by the shareholders of both HIG and HTP in their respective general meetings of 6 August 2001 both meetings having been called pursuant to Notices of General Meeting dated 5 July 2001 which included Explanatory Statements (B 5/1854 –1608; 1609 – 1652).

The final form of the Explanatory Memoranda were mirror images of one another insofar as describing the Entitlement Deed relevantly, as in earlier drafts, including the following: “Entitlement Deed In connection with the sale of AHL, HIGL and AHL have entered into a deed (the “Entitlement Deed”) under which AHL has agreed to pay HIGL an amount not greater than $10 million in certain circumstances. As AHL and HIGL entered into a Heads of Agreement with other parties in November 2000 to develop an industrial and service park on land owned by AHL at Bundaba in Queensland (the “Land”), HIGL, as a condition to the sale of AHL, wishes to ensure that it retains the ability to participate in, and have the benefit of, some of the potential future benefits associated with the development and future disposal of the Land. It has therefore been agreed between HIGL and AHL that in the event the Land is disposed of by AHL on or before 8 June 2006, AHL will pay HIGL the lesser of: · $10 million; and · the value of the aggregate consideration received by AHL in relation to the disposal of the Land, in both cases less the deposit of $3.5 million already paid by AHL to HIGL (such deposit to be refunded if the conditions precedent below are not satisfied by 10 August 2001). In addition, under the terms of the Entitlement Deed AHL will also need to provide HIGL with a mortgage over the Land to secure the payment referred to above. As the Entitlement Deed was entered into in connection with the disposal of AHL by HIGL, the promise to pay given by AHL to HIGL and the grant of the mortgage over the Land constitutes financial assistance for the purposes of the Corporations Law and that assistance requires the approval of: · AHL’s sole member (i.e. Hudson) in accordance with section 260B(1) of the Corporations Law; and · the Company’s shareholders in accordance with section 260B(2) of the Corporations Law, Before it can be given. In this regard, the promise to pay and the requirement to grant the mortgage over the Land are both conditional upon and has no effect until: · the relevant shareholder approvals have been obtained in accordance with the requirements of section 260B of the Corporations Law to the giving of the above financial assistance to the Company; and · 14 days have elapsed from the date of AHL lodging with the Australian Securities and Investments Commission the notice required by section 260B(6) of the Corporations Law. Resolution 5 seeks shareholder approval to the giving of financial assistance by AHL to the Company as described above. Hudson has already passed the requisite resolution approving the giving of the financial assistance by AHL to the Company as described above.” Returning to the cross-examination of Mr McLeod

It is now convenient to return to the cross-examination of Mr McLeod which naturally principally focused upon the material communications leading up to the execution of the Entitlement Deed but also dealt with a number of associated matters.

The evidence given by Mr McLeod may shortly be summarised as follows: · Mr McLeod did not at any stage in his affidavit of 17 February 2005 give any evidence as to the content of conversations or correspondence between himself and Mr Tan [or between himself and any other person or company] immediately leading up to the entry into of the Entitlement Deed. · The very limited evidence which Mr McLeod gave as to later conversations with Mr Tan resulting in the Second Deed of Amendment was confined to the above described occasion [mentioned by Mr McLeod to Mr Restas on 4 September] when in late August 2001 Mr Seaton, the audit partner at PwC, raised with those present at the meeting [including Mr McLeod and Mr Tan], Mr Seaton's understanding of the Entitlement Deed to the effect that the value of the land in the consolidated accounts of HTP would be nil as there was an obligation to pay HIG the first $10 million of proceeds. Mr McLeod deposed that at that time he had cause to carefully review the Entitlement Deed and " first appreciated that the Entitlement Deed did not reflect the commercial agreement that had been reached between [himself] and Mr Tan". · He further deposed that he had responded to Mr Seaton’s observation during the meeting by saying: "That is incorrect as Hig [HGL] is entitled to the first $10 million in profits received by Hardboards [AHL] from any sale of the land [Surplus Land]. As shown in the discussion papers, these profits are generated after the first $10 million being the book value of the land is recovered by Hardboards [AHL]. Hardboards [AHL] will pay Hig [HGL] from the share of profits it receives. As such, the land should be shown in Hardboards' [AHL's] books at $10 million, being the value of the land when the shares in Hardboards [AHL] were acquired." · He deposed that Mr Tan had said that a way would be worked out to resolve the matter " as the parties know what has been agreed ". · He deposed that after the meeting he had had a conversation in his own office with Mr Tan during which Mr Tan said that there was no need for any money to be spent on lawyers in relation to clarification of the Entitlement Deed " as it is an in-house deal anyway and as far as I am concerned, it is clear enough ". · His evidence was that during the same meeting the following had been said: “Mr Seaton: I am of the view that the documents do not accurately reflect this and as such I will want this clarified prior to us finishing the accounts. Mr McLeod: You have these discussion papers prepared by Mat [Knox] and myself, are these okay? Mr Seaton: No, the issue is this. One day, for example, the companies may be separated and a clear and precise description of the proposed workings of the Entitlement Deed will be required.” [McLeod affidavit paragraphs 149, 151] · Mr McLeod further deposed as follows: "At some time later, Mr Tan came into my office and we had a conversation to the following effect: Mr Tan: Here are copies of the minutes confirming that it is a share in profits. Why don’t you write a letter to Willie explaining the position and attach these minutes and this should then be right? Mr McLeod: I don’t think this will be adequate, however I am quite happy to write a covering letter setting out how the Entitlement Deed will be implemented. I took the minutes handed to me by Mr Tan and sent them to PwC under cover of a letter dated 27 August 2001. …” [I interpolate to note that the plaintiff has submitted that the subject minutes of 17 May 2001 of an alleged meeting of the directors of HIG were not authentic – transcript 705.45] “Some time thereafter I received a telephone call from Mr Seaton and we had a conversation to the following effect: Mr Seaton: The minutes are not sufficient having regard to the form of the Entitlement Deed. Mr McLeod: How best do you think this can be fixed? Mr Seaton: I would suggest a new agreement be drafted to make the position clear. Mr McLeod: Okay. Mr Seaton: Go ahead and do it because I will need it to sign off the audit clearance report. I then instructed Hartnells to prepare a deed of amendment to the Entitlement Deed (Second Deed of Amendment). I recollect there being a great degree of urgency in ensuring that the Entitlement Deed was amended to reflect the position as it was intended to be, as the half-yearly accounts were due to be lodged at the ASX in early September 2001. My understanding was that if the accounts had not been lodged by their due date, shares in both HTP and HGL would be suspended from trading and if the problem had not been dealt with within 3 days of the suspension, this could have had the serious consequence of both companies being de-listed. I was therefore anxious to ensure that the amendments were effected quickly so that the accounts could be lodged on time." [Affidavit paragraph 152-156]

The transcript of Mr McLeod’s cross examination [transcript 201 -210, as well as following pages] involved a very close questioning as to whether or not his evidence was that the commercial arrangement which he contended had been reached between himself and Mr Tan was oral or in writing, and as to the content of the material conversations or documents. Mr McLeod gave a considerable number of inconsistent answers in relation to these questions: “Q. ... Do you say, Mr McLeod, that the amending deed signed 5 September 2001 reflects in its terms the arrangement you say you reached with Mr Tan? A. Correct. Q. This arrangement that you reached with Mr Tan, was that oral or in writing? A. The arrangement was set out quite clearly in the series of correspondences and other public documents. Q. Your arrangement with Mr Tan that you say you reached with him, was that in an oral conversation or was it in writing? A. It ultimately ended up in a series of public documents. Q. ...The deal that you say you struck with Mr Tan, did you strike it with him in a conversation or by some exchange between you of letters? A. Well, I have answered the question the best way I can. Q. Right, so the deal that you say you reached with Mr Tan was not in any conversation, was it? A. It was in a series of conversations. Q. And is the deal that you say you reached, was it reached in those conversations? A. It was reached in a number of conversations and other documents which were made public. … Q. Yes. I am asking you whether the conversations that you say you had with Mr Tan, leaving aside documents, where the deal was done, are those conversations set out in your affidavit? A. Yes, they are . Q. And are they fully set out in your affidavit? A. They wouldn't be. Q. Are there other conversations you say you had with Mr Tan which are not in your affidavit? A. A series of conversations took place over a long period of time. Q. Are there conversations that you had with Mr Tan concerning the striking of this deal that are not in your affidavit, Mr McLeod? A. There would be. … Q. Can we assume, therefore, that the affidavit as you set it out is not a full and faithful recording of all conversations you had with Mr Tan in which you say this deal was done?… A. The situation in terms of the coming to a conclusion on or an agreement on the transaction took place over a period of time. There would have been many conversations, which obviously some I recall, some I don't. They weren't all put into my statement. I couldn't recall them all. Q. Right, and is this a position that the only conversations you can recall are in your affidavit? A. No, there probably would have been other conversations. There would have been other aspects related to the deal. Q. …Is it the fact that the only conversations that you recall are in your affidavit or there other conversations that you recall that you haven't put in your affidavit? A. I recall there being other meetings. I can't specifically recall the conversations. Q. And insofar as you have recounted conversations with Mr Tan, are those the only precise conversations you can recall? A. They are conversations that I recall to the best of my recollection. Q. And are there any further conversations concerning the deal of which you have any specific recollection? A. I don't - at this point in time I would say no. Q. So can we assume therefore that the only conversations concerning this deal that you recall you had with Mr Tan are the ones which you have set out in your affidavit? A. The ones that I can recall specifically, yes. … Q. You don't suggest, do you, that in any conversation with Mr Tan you agreed a formula on those terms, do you? A. Yes . Q. Which conversation is that? A. That formula relates back to the heads of agreement. Q. No, which conversation is it? A. The conversation was the conversation that was had with the auditors, PricewaterhouseCoopers, a meeting with PricewaterhouseCoopers with Matthew Knox and other parties, when the entitlement deed was discussed at length to ensure it was clarified so all parties understood the exact position of the entitlement deed.. Q. Mr Hammerschlag is asking you to tell us about one or more conversations which you had, if you had them, in a particular period of time with Mr Tan - point 1…And point 2 - he is asking you to focus upon the points in time before the entitlement deed was entered into, and he is not asking you to construe or, unless you had these documents in your hand or Mr Tan had them in his hand at the time of the conversation, he is not interested in documents. He only wants to know when, if ever, before the entitlement deed was entered into you had one or more conversations with Mr Tan in which, as I gather he wants to know, you say this formula in these boxes was discussed and agreed to...It is a simple question: Were there any conversations? If so, when and what was said? A. My recollection is that the entitlement deed had to be based on the heads of agreement that was in existence. Q. I am asking you, Mr McLeod, I will ask it one more time and then I will move on: Is there any conversation that you say occurred with Mr Tan where you and he discussed or agreed a formula such as that which appears in paragraph 4 on page 2023? A. Yes. Q. Which conversation in your affidavit is that, sir? A. It is not in there. … Q. Did you say that there is a conversation with Mr Tan when you agreed that formula that is not in your affidavit? A. It is in the affidavit in terms of the heads of agreement. I have attached the heads of agreement of November to my statement. Q. Mr McLeod, is there a conversation that you say occurred with Mr Tan where you discussed and agreed a formula such as appeared in paragraph 4 of the document or not? A. We discussed and agreed the entitlement deed would be based on the heads of agreement . Q. So may I take it that the answer to my question is no, there is no discussion that you can point to with Mr Tan where a formula such as that appearing in paragraph 4 of the agreement was agreed between you and Mr Tan? A. The discussion that would come closest to that in my affidavit is the discussion with the meeting of the auditors, PricewaterhouseCoopers, which took place in August, late August 2001. Q. That is way after the entitlement deed was entered into in June 2001? A. That is correct. Q. Right, so at least let's get this straight, Mr McLeod. There is no conversation before the entry into of the entitlement deed in June 2001 that would give rise, as you understand it, to an agreement as to a formula set out in paragraph 4? A. Not in my affidavit.” [Transcript 202-209]

Later Mr McLeod made quite plain that he was not contending that the commercial agreement with Mr Tan was that there would be a formula as appears in clause 4 of the Second Amending Deed. [Transcript 210.1]

Hence Mr McLeod prevaricated: · at times contending that the arrangement which he had reached with Mr Tan was reached in conversations but then being unable to identify any such conversations as appearing in his affidavit; · at times suggesting that he did agree a formula in the terms related to be found in clause 4 of the Second Amending Deed and later accepting that he did not contend that the commercial agreement with Mr Tan was that there would be a formula as appears in that clause. Mr McLeod’s understanding

Mr McLeod gave evidence that: · the underlying commercial agreement was that AHL was to receive the first $10 million of proceeds from the sale of the land and HIG was to receive the first $10 million in profits on a pre-tax basis; [Transcript 210.12] · his understanding at the time was that the words "aggregate consideration" so used might mean/meant profit. [Transcript 223-224] His evidence in this regard was that his interpretation at this time was that assuming the joint venture was in place " aggregate consideration received by AHL would be the same as profit "; [Transcript 224.11; 229.10]

In re-examination Mr McLeod gave the following explanation to how he contended he had understood that aggregate consideration might mean profit: "Once the joint venture is in place, and I use an example, it sells some land, it generates revenue. From that revenue are deducted the costs. You have net proceeds which then go into the joint venture account and from that joint venture account, depending on the terms of the joint venture, those surplus funds are distributed to the joint venture partners. They would be considered profit or aggregate consideration. It's a distribution of aggregate proceeds, consideration or profits." [Transcript 333]

He added to this explanation further in his re-examination [transcript 334] as follows: "Of course, under the heads of agreement were two scenarios. One was the scenario of pre a joint venture agreement being entered into and the second scenario is after the joint venture was entered into. Though both offer differently. In the second case, where the joint venture had been entered into, AHL wouldn't have any entitlement to revenues, the joint venture would have entitlement to the revenues." Subsequent events

The subsequent events of relevance largely involve the high contest which was litigated as to which meetings of directors of the respective companies were held and when and in what terms. The evidence in this regard also includes: · the late August 2001 audit compliance meeting [earlier referred to in this judgment] at which Mr Seaton had raised his understanding of the Entitlement Deed to the effect that the value of land in the consolidated accounts of HTP would be nil as there was an obligation to pay HIG the first $10 million of proceeds; · the circumstances [already described earlier] in which Mr McLeod gave evidence of his instruction to Atanaskovic Hartnell prepare the Second Deed of Amendment to the Entitlement Deed.

The essential underlying event was that on 5 September 2001 Mr McLeod on behalf of Group and once again Mr Holland on behalf of Hardboards executed the Second Deed of Amendment amending the terms of the Entitlement Deed on the terms set out in the further deed. As will have already been observed the critical feature was the amendment to clause 4 which amended Group’s entitlement from the first $10 million aggregate consideration received on Disposal to half of such consideration above $10 million up to $14 million, three-quarters of such consideration up to $24.667 million and $10 million if the aggregate consideration received exceeded $24.667 million.

The subsequent events also involve the 2003 Bremer Share Sale Agreement earlier referred to.

It seems convenient to first treat with the issues concerning minutes. Reasons for the close focus on minutes

It may be convenient initially to note that the reason for the following close examination of the minutes in terms of the issues in the case at least include: · the important question of whether or not the affixation of the HIG companies seal on the Second Deed of Amendment was authorised by: - the 5 September 2001 single agenda HIG board meeting and/or by, - the scheduled HIG board meeting of 20 November 2001 of and/or by, - the scheduled HIG board meeting of 31 December 2001 [at which it is said that approval was given for the chairman to sign the minutes of the 20 November 2001 scheduled HIG board meeting as a true record of the proceedings at the 20 November 2001 meeting]. · whether particular minutes provide assistance in establishing what the directors had understood that HIG was to receive from the development of the Land in terms of the parties respective contentions before this Court [an issue going to the defendant rectification case]. Articles of Association of HIG

The Articles of Association of HIG include: “General Meetings 67. The Statutory Meeting of the Company shall as required by Section 135 of the Companies Act be held at such time not being less than one month nor more than three months from the date at which the Company shall be entitled to commence business and at such place as the Directors may determine. Powers and Proceedings of Directors 115. The Directors may meet together for the dispatch of business adjourn and otherwise regulate their meetings as they think fit. A Director may at any time and the Secretary upon the request of a Director shall convene a meeting of Directors. Such meeting shall be called by giving notice in that behalf to each Director either personally or by posting the same in a prepaid letter or by telegraphing such notice by prepaid telegram. Any notice which shall be posted or telegraphed shall be addressed to the Director at his last known or usual place of business or abode and shall be deemed to be given immediately the same shall be posted or lodged at the Telegraph Office. Except where in the opinion of the Director calling the meeting the matter to be dealt with is urgent such notice shall be given to each Director at least three days prior to the date of the meeting. It shall not be necessary to give notice of any meeting of Directors to any Director in the event of such Director being incapacitated through illness or accident or out of Australia but in any such event the above notice of meeting shall be given to his alternate Director where on is appointed. 116. Two Directors for the time being in office shall be a quorum and may exercise all the powers and authorities vested in the Directors generally. …. 119. Questions arising at any meeting shall be decided by a majority of votes and every Director present shall have one vote except that in the case of an equality of votes the Chairman shall have a second or casting vote. 120 The Directors may if and when they think fit delegate any of their powers other than their powers to borrow money or make calls to committees consisting of such members or member of their body as they think fit. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed on it by the Directors. The meetings and proceedings of any such committee shall be governed by the provisions herein contained for regulating the meetings and proceedings of the Directors so far as the same are applicable thereto and are not superseded by any regulations made by the Directors under this clause. … 122 A resolution in writing signed by all the Directors shall be as valid and effectual as if it had been passed at a Meeting of the Directors duly called and constituted. The Seal 136. The Directors shall provide a Common Seal with the name of the Company inscribed thereon and may change the same from time to time and shall provide for the safe custody thereof and it shall not be used except by the authority of the Directors. 137. Every Deed or instrument to which the seal is required to be affixed shall be signed by one Director and countersigned by the Secretary.” General practices in minute taking

A very large part of the cross-examinations concerned an attack upon the authenticity of and practices adopted in relation to minute taking. Hence it becomes necessary to examine the evidence very carefully particularly because so much depends upon findings as to what occurred at meetings.

The evidence given by Mr McLeod and a number of other of the witnesses called was that the general practice of the Hudson Group was that Board Meetings broadly followed one of two formats, being either: · regular monthly meetings [Scheduled Meetings]; or · ad hoc meetings [Single Agenda Meetings]

Mr McLeod had deposed as follows: “ Scheduled meetings As regards Scheduled Meetings, the practice was that the Company Secretary would produce a board pack which would be circulated to all directors, generally a week or so prior to the Board Meeting. This board pack would include the following documents: an Agenda; copies of previous Board minutes to be ratified and approved; a register of the use of the company seal; share movement register; financials; presentation papers from senior management; and other papers or presentations that were topical at the time. An official copy of the board pack itself was contained in a manila file and filed in lever arch folders in the office of the Company Secretary. Whilst the board packs that were circulated were used as the basis for items discussed at the board meetings to which they related to, it was sometimes the case that items were brought up or tabled at board meetings that were not the subject of the board pack. Single Agenda Meetings Single Agenda Meetings were held outside the Scheduled Meetings at times when it was necessary for one of the Hudson Group Companies to undertake a specific action or set of actions prior to the next Scheduled Meeting, for example during an acquisition, financing, lodgement of accounts or other similar one-off requirements, and the action was considered to be of a nature that directors' consent needed to be obtained prior to the next Scheduled Meeting. In the usual course, minutes for a Single Agenda Meeting would be drafted by one or either of the Company Secretary (at the relevant times in question being Mr Hughes or Mr Scadden), the company’s lawyers (for example Hartnells or in New Zealand, Chapman Tripp), or myself. A Single Agenda Meeting did not have the formality of a Scheduled Meeting. They would consist of less formal discussions between directors. I was involved in all of these discussions. I would discuss matters with each board member with a view to ascertaining their agreement or disagreement (as the case may be) to the proposed course of action. Once a consensus was obtained, a minute would be prepared to record that consensus. The action recorded in the minute would then be ratified at the next Scheduled Meeting of the Company through the formal adoption of the relevant minute. In relation to my discussions with the directors, the mode of my communication with each depended upon their locality at the time of the discussion. More particularly: Peter Meers' office was located across the corridor from me, and therefore I was usually able to simply walk across to his office to discuss matters. David Sutton worked from an office outside the Hudson Offices. Accordingly, unless he had attended the Hudson Offices for other reasons and the issue was discussed on the occasions of his attendance, it is likely that discussions with him would have been over the telephone. I would usually speak with Peter Holland, (who utilised an office at the Hudson Offices whenever required but who also worked from different plants or branches), about 2 to 4 times a day, so it was not difficult to arrange a time to ensure that he could participate in Single Agenda Meeting discussions where necessary. If the directors were permanently located at another site, for example Rex Hills and Kevin Grice (directors of AHL located at Ipswich) or Rudy Mendez (non-executive director of HTP located in Singapore), the usual method of communication was by telephone. When the draft minutes from Single Agenda Meetings were tabled for approval during a later Scheduled Meeting there was often a discussion between directors as to their contents, sometimes resulting in correction. It was my practice when acting as Chairman, …that the draft minutes would not be signed off until agreement had been reached as to their content. In respect of the terminology I used when preparing a minute: · where I have referred to a matter being "resolved" or "agreed", that is a reference to a discussion I have had with each of the directors in which the matters recorded were agreed; · where I have referred to a document being "tabled", that is a reference to the document being specifically circulated prior to and discussed during the conversations on that day or at that meeting; and · where I have referred to a matter being "noted", that records specific aspects of the conversations that were relevant to the agreements made. In so far as I was involved in creating a note from a Single Agenda Meeting, the practice I followed was either: · if the minute was to be prepared prior to the proposed meeting date, I would dictate it and endeavor to circulate the draft prior to the date recorded; · if the minute was prepared subsequent to the meeting, I would follow the following practice: - In my discussions with the persons recorded as attending the meeting, I would write down the major points of what we had discussed and agreed. - I would then use my draft notes as an aide memoir when dictating the minute recording the resolutions/agreements for typing by my secretary; and - Upon receiving the draft minute from my secretary, I would make further amendments if warranted, and once satisfied with the form of the minute, it would be provided to Hughes to act upon, if required, and for inclusion in the board pack for the following Scheduled Meeting.” Cross-examination of Mr McLeod as to practices in minute taking

Mr McLeod was then minutely tested under cross-examination in relation to these suggested practices. He gave evidence as follows: “…It was under the practice of the company in terms of single agenda meetings that the parties may not necessarily be all there together at the same time. They may be involved in the minutes or in the meetings or in the process of the meetings at different points in time. Q. And you consider that to be an honest recounting of the affairs of this public company, do you? A. I am saying that was the practice of the company. Q. Do you consider it to be an honest practice, Mr McLeod? A. I think it was an acceptable practice. Q. You consider it acceptable for a public company to reflect in minutes that a meeting took place which didn't take place and people were there who weren't there? A. Yes, I do. Because the minutes are actually presented to the whole board at the scheduled board meetings to be ratified.” [Transcript 267]

Mr McLeod gave the further evidence as to the general practices: “Q. Now, it is a fact, is it, Mr McLeod, that you are aware that there are minutes which are signed and dated which were not signed on the date that they show? A. Sorry, how do you mean? The date of the meeting or the date they were signed? Q. Signed. On some minutes there is a date under a signature. A. Yes. Q. And you are aware that in respect of some of those minutes the date under the signature is not the date upon which the signing took place? A. In some cases that's right. Q. Now, is that in accordance with practice also, that documents are dated wrongly? A. No, in some cases it may be the company secretary made amendments to the minutes after a board meeting and then they were brought back to whoever it was to sign them and they may have dated them on the day they actually signed them as opposed to the date of the meeting. Q. And they may also be dated on days not on which they were signed, is that also your understanding? A. Yes, and I think there are some minutes I have seen that aren't dated at all. Q. And in fact you have put dates on minutes, have you not, reflecting when you signed them and it wasn't the date upon which you signed them? A. I may well have done. Q. Is that in accordance with honest or appropriate corporate practice? A. Well, it depends on the circumstance. Q. Right, if the circumstances require that you date a document incorrectly, is that what you tell his Honour? A. No, I think in one case, which is in the documents, there is a memo where David Hughes brought all the minutes back to me after the board meeting and I signed them about two weeks later. Q. Yes, and dated them two weeks earlier? A. I can't recall what I dated them. Q. In respect of Mr Hughes, you say that where he is reflected as being in attendance, it could mean one of four things. A. Yes. Q. It could mean that he was in physical attendance. This is paragraph 53. A. Right. Yes. Q. It could mean that he could have been involved in the settlement of the form of the draft minute for inclusion in the board pack in the next scheduled meeting? A. Yes. Q. Are you serious, Mr McLeod? A. Yes. Q. Do you tell his Honour that you were party to the bringing into existence of minutes reflecting someone as being present because he may have been involved in the settlement of a draft minute for inclusion in a subsequent meeting? A. Yes. Q. Is the third possibility that he could have drafted the minutes himself prior to the meeting? A. Yes. Q. Do you tell his Honour seriously that you were far party to bringing into the existence of minutes reflecting people as present because they drafted the minutes in their capacity as company secretary before the meeting? A. Yes. Q. Do you not see anything wrong with that, sir? A. It happened on a number of occasions, with minutes drafted by David Hughes himself. Q. Do you not see anything wrong with that, sir? A. No, it is a means of communication. Q. And finally, his attendance could have meant that he was required to act and acted upon certain resolutions passed by the meeting. Are you serious that you understood that the words "in attendance" could cover that? A. Yes. Q. In other words, if after a meeting had taken [place] and after the minute was brought into existence reflecting him as present the minute required them to go and buy ten litres of milk at the local milk bar, the minute could justifiably be read as him having attended? A. I don't think that was the intent. Q. Mr McLeod, you are not serious, are you, that the words "in attendance" could fairly and honestly cover the matters in paragraph 53(a) to (d) of your affidavit? A. Well, I - the only way I can answer that is that was the process and the policy adopted by the company for single agenda meetings and it worked.” [Transcript 274-276]

Mr McLeod's explanation as to why it was that he was not in a position to swear that he had signed a particular minute on a particular date was given in cross examination as follows: “A. As I explained during the questioning, often with minutes at the board meeting, at the scheduled board meetings there would be discussion on the minutes and there would be some amendments made to them. The company secretary would take them away and make those amendments and then bring the minutes back to sign them and that would be within a day or at some future point in time he would ask me to sign them and I would sign them at that point. Q. And on the following page you were asked at line 5, "Are you able to tell us the date upon which you actually signed?" And you answered, "I can't. I can explain why I can't." Is what you have just said what you meant to refer to there? A. Yes.” [Transcript 336.1-336.16]

The transcript includes the following: “HIS HONOUR: Q. Can I just ask this: Do I gather, correct me if I am wrong, from your evidence about what you have called single agenda meetings, minutes of them, that the only way one could [give] any credence to such a document is if one later found at, I think you have called it, scheduled meeting earlier minutes were referred to and adopted? A. That was the process exactly. Q. And do I understand that that is the only way in which, on your evidence, one could place any reliance upon what may or may not have occurred at a single agenda meeting? A. To place full reliance on it, I would suggest that would be the case. Q. Well, you wouldn't know who was at the meeting by just looking at a single agenda minute, because whatever was said could quite easily be quite incorrect ? A. Yes. Q. X and Y are present but [that] may well have been quite incorrect? A. That's exact, that's right. Q. Therefore, if a later scheduled meeting was to confirm those minutes--… Q. --wouldn't it simply be confirming what was incorrect, because it would be confirming to have been the case-- A. No, the minute-- Q. --certain minutes which incorrectly would state that X, Y and Z had been present at a meeting when they hadn't been? A. No, the process was that at the scheduled meetings the minutes would be reviewed by the directors at that meeting and if they had any uncertainties or if they believed they weren't there for any reason or they were somewhere else, amendments to those minutes would be made and that is when the company secretary would take the minutes and make those adjustments and sometimes it would take one day, sometimes it might take two weeks before the minutes are adjusted to reflect everyone's input on those minutes, and then the minutes would come back to the chairman and then they would be signed. Q. So should I assume that there are presumably many many, many scheduled meeting minutes which will have required amendments to many, many, many single agenda item minutes for reasons of inaccuracy, such as there wasn't a particular person present as the minutes may have had one otherwise believe, the secretary may not have been there or the chairman may not have been there, et cetera? A. I think in most of the single agenda meetings it was the content that was amended and I think most of the - in most cases the directors were happy with what was in or the content of those minutes for the single agenda meetings and they were ratified at that scheduled board meeting and then they were signed. Q. A gentleman, for example, who hadn't been present at a single agenda meeting, may presumably or may not have been able to remember some time into the future whether or not what was printed on a page was accurate? A. In most cases the scheduled meetings took place every month. Hudson Investment Group they probably took place on average every two months. So there was never a long gap of time between the scheduled meetings and in some cases you will find that there may be seven or eight single agenda meetings attached to a board pack for a scheduled meeting to be ratified and signed.” [Transcript 288-290]

I have absolutely no doubt based upon the evidence before the Court that the so-called 'single agenda' meetings, to the extent that any of them may have actually been otherwise than fictional, could never have been regarded as meetings of the directors within established principle referred to below. Leading counsel for the defendants was forced to acknowledge that his researches "had not been able to find any case like this". [transcript 570.43]. The requirements of a valid meeting of directors

In R v Byrnes ; R v Hopwood (1996) 20 ACSR 260 (at [270]) Olsson J referred to the fundamental concept of the manner in which the executive functions of corporate entities of carried out: “It is trite law to say that a purported meeting of directors is invalid if due notice of the meeting is not given to all directors ( Re Merchants and Shippers SS Co Ltd (1916) 17 SR(NSW) 21 at 27-8, Mitropoulos v The Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134, Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 668), or unless all directors are present and agree to the conduct of business without notice: Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756, Versteeg v R (1988) 14 ACLR 1. The concept involved is that matters important enough for board decision ought only to be decided after all directors have been given the opportunity to attend a proposed meeting and participate in a debate as to the business sought to be conducted: Pulbrook v Richmond Consolidated Mining Co (1878) 9 Ch D 610 at 612. The passing of an ultimate resolution represents the net impact of the considered views of at least a majority of the directors, at a duly convened meeting, in light of all of the opinions and arguments exchanged at the relevant board meeting... ” [emphasis added]

Olsson J then referred to the circumstances which obtained when there was not even the obtaining of separate informal approval without the conduct of an actual meeting, describing that process as generally invalid: Harris v English Canadian Co (1905) 3 Western Law Reporter 5, Re Bankruptcy of Associated Colour Laboratories Ltd (1970) 73 WWR 566, Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 565; 15 ACLR 325 at SASR 603.

To similar effect Ipp J in Poliwka v Heaven Holdings Pty Ltd (No2) (1992) 8 ACSR 747 at 785-786 said: “A valid resolution of directors can be taken at an informal meeting; there must, however, at least, be a demonstrable expression of will, on the part of the directors, approving of the resolution. As was said by Sir James Bacon VC in Re Bonelli’s Telegraph Co (Collie’s (Claim) (1871) LR12Eq 246 at 258: If you are satisfied that the persons whose concurrence is necessary to give validity to the act did so concur, with full knowledge of all that they were doing, in my opinion the terms of the law are fully satisfied… See also Re Great Northern Salt and Chemical Works ; Ex parte Kennedy [1890] 44 Ch D 472 at 480–1. Moreover, while it may not be necessary for a director consciously to apply his or her mind to the fact that the decision is being taken at a meeting of directors, the concurrence with the resolution must be expressed by each director in that capacity, and for the purpose of resolving, as a director, upon affairs of the company: Re East Norfolk Tramways Co (Barber’s Case) (1877) 5 Ch D 963 at 966– 7.” [Cf Company Directors – Principles of Law and Corporate Governance, Austin Ford and Ramsey, Lexis Nexis Butterworths 2005 at 2.79 identifying the minimum pre-requisites for a formal meeting as: · all directors had prior notice of the meeting or when together, they waived notice; and · directors amounting to a quorum made themselves available at the same time to act in their capacity as directors and to consult together as necessary about the company’s affairs.]

This is, of course, not to deny the capacity of a corporation to include in its articles a provision that a resolution in writing agreed by all directors may be deemed to have been passed at a duly constituted board meeting. [cf Article 122 set out above] The 'single agenda meetings' did not constitute directors meetings within the meaning of that concept known to the law

The Court's finding in the present proceedings is none of the so-called 'single agenda meetings' were valid meetings of directors. The clearest evidence before the Court is to the effect that no such meetings ever took place. What actually occurred is not able to be reliably established from the evidence. Most likely Mr McLeod oversaw the preparation of the so-called 'minutes' of what he was minded to call 'single agenda meetings'. It is possible that from time to time he may have spoken to one or other of his fellow directors about some matters which may or may not have been included in the so-called minutes. It is impossible to tell in relation to any particular purported single agenda meeting, whether or not he spoke to all of the directors, in any particular terms, or whether or not all or some of the other directors and if so which, spoke to one another about any particular matters which may have been raised with any of them by Mr McLeod. The fact is that this extraordinary state of affairs amounts to little more than a fiction, the legal effect being that the so-called "single agenda meetings' did not constitute directors meetings and the purported ‘minutes’ of such ‘meetings, as a matter of law, were nothing more than writ in water [that is to say having no validity in law whatever].

Mr Stevenson accepted [transcript 569] that the articles did not permit the conduct shown under the cross-examination to have occurred.

The separate issue of the evidence as to the 'scheduled meetings' will be examined in more detail below in the judgment. The Court's finding for reasons given below deals carefully with whether or not material minutes of alleged single agenda meetings may on the evidence be seen to have been adopted or ratified at particular later scheduled meetings

I do not cavil with the proposition that it would have been possible for duly convened later scheduled meetings to have concurred in a resolution affirming or ratifying or relevantly approving a set of inaccurate minutes purporting to record [but not in fact recording] events said to have taken place at informally held earlier meetings. This could for example have happened where a later scheduled meeting could, on the evidence, be seen to have demonstrated an expression of the will of the directors attending such scheduled meeting, where [whatever the particular words used at the later scheduled meeting may have been], directors in attendance can be seen to have effectively concurred and adopted and effectively ratified that which the minutes of the earlier meeting [albeit not being authentic], recorded as matters to which the directors [shown in the earlier minutes to have attended the single agenda meeting], appear to have assented or to have recorded as resolutions that particular steps be taken by the relevant company.

The analysis is certainly somewhat difficult and it is important to be extremely cautious in this regard. It seems to me that essentially one is dealing with a question of fact as to what precisely occurred at any particular later scheduled meeting. The whole of the circumstances which obtain at the later scheduled meeting require to be examined, including the precise words used, as for example the word "ratify" or the words "adopt as a true record of earlier proceedings" .

The possibilities at least include: " The notation analysis " · The circumstance that the board's action at a particular scheduled meeting [when using some form of words generally confirmatory of earlier minutes] is seen not to have been about signifying any consensus at all about a previous event: rather the board has simply been about noting what appeared to have been taken place and to have been resolved at a previous meeting. This may be regarded as more of a mechanical exercise where the minutes of a previous meeting are effectively being no more than noted " The imprimatur analysis " · The circumstance that the scheduled meeting [when using some form of words generally confirmatory of earlier minutes] is about lending its now consensus and imprimatur to whatever is recorded as having been the material earlier occurrence, intending to do so notwithstanding any possible irregularity attending the events purportedly recorded in such purported previous set of minutes: effectively a decision to adopt the earlier events/acts "at all events and under all circumstances". In this case the scheduled meeting is about achieving a consensus and adopting a particular corporate position.

Overlaying all of this and making the analysis even more difficult are questions concerning whether or not there is any relevance of the state of knowledge of the directors at any of the scheduled meetings: if relevant raising the question of whether or not they were acting on an informed basis as to the past events. In this regard I proceed upon the basis that outside of questions arising in relation to other issues such as ratification of breaches of fiduciary duty, all that is necessary to represent the informed knowledge of directors who purport to adopt the earlier minutes is that this is what they are doing.

In the main the finding is that two of the critical scheduled meetings [namely the HIG meetings of 5 September and 20 November] simply did not take place. But even if they had taken place, the facts proven by the evidence shows that those meetings stand a dimension apart from establishing what I have called the "imprimatur analysis". The irregularities, mistakes and uncertainties exposed by the evidence are examined below. They extend not only in relation to the supposed single agenda earlier minutes, but also in relation to the supposed later scheduled meeting minutes.

It is presently convenient to turn directly to the challenges to the accuracy of particular minutes. Evidence given by Mr Nicholas Johnson

Before proceeding further it is appropriate to shortly deal with the evidence given by Mr Johnson put forward by the plaintiff as a computer specialist in support of the Plaintiffs allegation that particular minutes of meetings said to have been held many months earlier were altered by Mr McLeod on 27 August 2001.

One assertion made by the plaintiff is that Mr McLeod falsified documents. The submission is that Mr McLeod wished to convince the auditors that the words of the entitlement deed did not reflect the intention of the directors. To this end, he is alleged to have changed the words in two minutes (2 May 2001 and 17 May 2001) to convince the auditors thus. This was, so the plaintiff’s submits, a dishonest act, as Mr McLeod is said to have known that the directors had signed and approved of the unmodified minutes, but not the modified version. In short, Mr McLeod is said to have presented documents to the auditors which purported to have been approved by the directors, when in fact, they had not been.

In seeking to make good this submission, the plaintiff relies upon three electronic files that are supposedly the electronic versions of the hard-copy document forwarded to the auditors, representing the minutes of 2 May 2001 and 17 May 2001. There is no issue that these electronic files are the one’s from which the hard-copy documents were produced.

The plaintiff submits that the ‘properties’ summary of these three files show that the files were ‘last modified’ on 27 August 2001. 27 August 2001, it must be remembered, is the date on which Mr McLeod submitted the 2 May 2001 and 17 May 2001 minutes to the auditors. On the plaintiff’s case, this is not a mere coincidence, but shows that the document was modified on that date to achieve the aim of deceiving the company’s auditors.

Mr Johnson, a computer specialist formerly employed by Coudert Brothers, gave evidence as to what this ‘last modified’ date of 27 August 2001 may mean.

His evidence was that, first, he was unable to tell what changes were made to the electronic file on 27 August 2001. Further, his evidence was that the 27 August 2001 ‘last modified’ date could have been a result of what might (in light of the allegations made against Mr McLeod) be termed ‘innocent’ reasons. The 27 August 2001 ‘last modified’ date could have been a result of one or more of a number of technical factors, vide: (a) the dates and times displayed in a properties box are generated by the computer's date and time settings. If the computer's date and time settings are incorrect, then the properties box will be incorrect; (b) depending on the email system installed on the computer, if a file is emailed, the modified time can be rewritten as the time the file was sent; (c) there exists certain software, the specific purpose of which is to change the properties of files. This means that, with the use of this software, an author could manually change the dates or times recorded in a properties box of a file; (d) if one were to open a file, make a change (such as merely capitalize a letter), but then delete that change, the user would be prompted to save the document and thus the modified date could be changed, even though no net change had been made to the file; (e) if one opens a file (for example to print or look at it), moves the cursor around but does nothing to the actual content of the document, and then saves the file through force of habit before closing it, the modified date could change without the actual content of the file being altered; and (f) if a document is created on a system which uses some sort of document management system, it is entirely feasible that that system could automatically save that document every time it is closed, whether or not the user has manually asked the system to save the document. Every time that document is automatically saved by the system a new 'modified' date could appear in the properties box.

In summary, Mr Johnson could not conclude that Mr McLeod had made the changes to the electronic file on 27 August 2001 which the plaintiff asserts he made.

Mr Johnson’s evidence was that the forensic electronic evidence could not decide one way or the other as to whether Mr McLeod amended certain words in the two minutes on 27 August 2001.

On the balance of probabilities, I am unable to decide what happened to the three electronic files in question on the 27 August 2001. The sinister explanation contended for by the plaintiff is not proved by the evidence of this witness. Challenges to the accuracy of minutes of directors meetings

During the cross-examination of many of the witnesses much time was taken in challenging the accuracy of documents in evidence purporting to be minutes of directors meetings.

In what follows examples of the matters the subject of the cross-examination are given. 2 May 2001 minutes [AHL]

The minutes of the meeting [of what is said to have been a single agenda meeting] of the directors of AHL purporting to have been held on 2 May 2001 [PX 0601] state that Mr Hughes was present as secretary and record as present: Mr Holland (Chairman) Mr McLeod, Mr Little, Mr Grice by phone, Mr Hills by phone Mr McLeod conceded [transcript 264.32] that Mr Hughes may not have been at the meeting.

Mr Hughes in his affidavit had deposed that he was not present at this meeting and that he had not prepared the minutes. This evidence is accepted on this issue as reliable.

In paragraph 92 of his affidavit Mr McLeod in relation to this minute deposed that he did not recall whether Mr Holland and Mr Little were present at the same time.

In respect of Mr Grice and Mr Hills he deposed that he had spoken to them by telephone but could not recall whether he had spoken to them both by way of teleconference at the same time.

His evidence included: “Q. There was no meeting and it didn't occur at 3pm, did it? A. I would suggest there was a meeting. Q. And who was there? A. I would suggest Peter Holland, myself and Kerry Little. Q. You would suggest but you don't know if they were all there at the same time? A. I can not recall. Q. And you don't know if Mr Grice and Mr Hills were there at the same time? A. They supplied information for the meeting. Q. And you don't consider that a document that indicates that all people were present at a particular time is false when that's not the case, do you? A. As I said it was the policy and procedures followed by the company, had been for some time. Q. That's a dishonest policy and procedure of a company of which you were chairman? A. I am not saying it is the best process to follow. In the times it was what was followed by the company and it worked well for the company. Q. It worked well for the company to bring into existence false documents, did it? A. It's not a false document. It reflected the intent of those directors at that point in time. It was circulated. It was put in a board pack for the next full board meeting and it was ratified by all those people at that meeting. If they had any problem with that minute at that point in time they could have brought it up and they would have altered it at that point in time.” [Transcript 270]

There were in evidence two versions of the minutes of directors of AHL of 2 May 2001: · the draft PX 1224/1123 [part of the Board Working papers for a meeting of 19 June 2001] recording that Mr McLeod had been chairman and recording a resolution: "that the Company formalise HIG's right to the first $10 million of profit before tax derived from the development of [the Land] resulting from AHL's acquisition of the land from CSR Ltd on behalf of the Company and which is within the terms and conditions of the joint venture agreement between the Company and Wingate Properties Pty Ltd." · the signed version PX 0601 recording that Mr Holland had been chairman and recording a resolution: "that the Company formalise HIG's entitlement to profit returns above the Pre Approval valuation of $10 million derived from the development of the [land], within the terms and conditions of the joint venture agreement between the Company and Wingate Properties Pty Ltd." [It was the latter apparently signed version PX 601-602 which were enclosed under cover of Mr McLeod's 27 August 2001 letter to Mr Seaton - cf exhibit BWM 1 Volume 2 tab 58] 10 May 2001 - purported meeting of HTP

As to the purported meeting of Timber of 10 May 2001, the only remnant of a Timber meeting is a draft minute at 2/601. There is no explanation as to how that minute came to be in existence. There is a similar minute, unexecuted, in the name of Group (B 2/609). Purported meeting of HIG of 17 May 2001 [PX 647]

The minutes of a so-called 'single agenda' directors meeting of HIG said to have been held on 17 May 2001 also dealt with the proposal for HIG to sell 100% of its shareholding in AHL to HTP. Those recorded as present are Mr McLeod (Chairman), Mr Holland (by telephone) and Mr Meers. Mr Hughes is recorded as in attendance as the Secretary. The minutes PX 647 include: "Further, Mr McLeod described how the AHL Board had previously agreed that profit above the pre approved valuation of $10 million generated from the Bremer Business Part Joint Venture Development will be payable to [HIG]… Any profits generated from the Bremer Business Park Development after this initial pre approved valuation of $10 million will be shared between AHL and Wingate Properties as per the AHL/Wingate Joint Venture Agreement. AHL has agreed to assign profits generated by the JV until the Company receives in total $10 million."

Mr McLeod had difficulty giving evidence as to the date on which these minutes were signed being unable to be clearer as to that day. The Company Secretary, who is recorded as in attendance, said he did not attend any such meeting and did not prepare the minutes (Hughes, 19/11/2004, para 7). Mr Meers, who was a director recorded as having been in attendance, gave evidence which is accepted as reliable that he did not attend any such meeting, did not receive a board pack for any such meeting, had never seen any valuation of the land at $10 million and was not ever present when the board of Group resolved to revalue the surplus land. The meeting is not noted in the diary kept by Mr Meers. He could not recall having seen at that time any valuation of the property and he would have recalled this had he been notified of such valuation for the reason that he was so heavily involved in the negotiations for refinancing from various banks. Mr Holland gave evidence that he did not recall any Hudson company board ever resolving to revalue the surplus land to $10 million. This evidence is accepted as reliable as it is consistent with the evidence inter alia given by Mr Meers. 17 May 2001 minutes – HTP

The minutes of a meeting of a so-called 'single agenda' directors of HTP said to have been held on 17 May 2001 dealt with the acquisition by HTP of 100% of the issued capital in AHL. Mr Hughes is recorded as in attendance as secretary. His evidence accepted on this issue as reliable, was that he had not been in attendance and had not prepared the minutes. The version of the minutes [appearing at PX 655/656] include a statement that Mr McLeod declared "that he had a conflict of interest in relation to the transaction by virtue of his position as a director of HIG and abstained from voting on the transactions". The minutes record Mr Holland, Mr Little and Mr Grice as not having attended the meeting "as it was considered that a conflict of interest issue arose pursuant to their respective positions as directors of either or both of HIG and AHL". The proposition put to Mr McLeod in cross-examination was that after he had learned at the audit meeting of the problem, he had written to Mr Seaton on 27 August 2001 [PX1956] enclosing a copy of the minutes dated 17 May 2001, which minutes he had amended so as to include a reference to a pre-approval valuation [transcript 312.32].

Under cross-examination Mr McLeod gave evidence [transcript 279] that it was possible that he signed this minute [which bears his signature as "17 May 2001"] on 27 August 2001 [his explanation (transcript 280.5) was that he did not believe that he would have signed this minute that far after the date of the meeting unless that was the next time that there was a scheduled board meeting]. He was asked: “Q. If it be the case, Mr McLeod, that the minutes of 17 May 2001 were altered on the computer to their form, as appears at 655, on 27 August 2001, would there be any explanation as to why it bears a date under your signature of 17 May 2001? A. I would have no idea.” [Transcript 281.15] Board working papers for scheduled HTP directors meeting of 22 May 2001

A further problem with respect to the minutes of directors of HTP concerns the board pack for the meeting to be held on 22 May 2001 [PX 667 et seq]. The agenda includes a statement that minutes of the previous directors meetings held inter alia on 17 May 2001, were tabled at the meeting for review by the directors and that approval was sought for the Chairman to sign the minutes of those meetings as a true record of the proceedings at those meetings. In those circumstances Mr McLeod was not able to give any explanation as to how it came about that the minutes for the meeting of 17 May had been signed on 17 May 2001 [transcript 283.33]. It will be recalled that Mr Hughes gave evidence that he had not been present at the 17 May HTP meeting.

Yet a further problem in this regard concerns the version of the HTP minutes of 17 May 2001 to be found within the same Board Working Papers for the meeting [PX 677]. This version of the minutes includes handwritten alterations to a different form of the minutes than the form that had been signed on 17 May 2001. The working papers version of the minutes reads as originally typed: "The Company will benefit from the development of Bremer Park being 322 hectares of land adjacent to AHL plans at Ipswich. This land will be developed in a joint venture with Wingate Properties Pty Ltd over the next 3-5 years. Mr McLeod noted that the first $10 million of profit from the development of land from Bremer Park land will revert to [HIG] as part of the Purchase and Sale Agreement. The profit will be paid to [Hickson] on an after-tax basis." Relevantly the handwritten changes to these words led to the paragraph reading as follows: "The Company will benefit from the development of Bremer Business Park being approximately 322 hectares of land adjacent to AHL plans at Ipswich. This land will be developed in a joint venture with Wingate Properties Pty Ltd over the next 3-5 years. Mr McLeod noted that the profit returns above the Pre Approved Valuation of $10 million derived from the development of Bremer Park land will revert to [HIG] as part of the Purchase and Sale Agreement. The profit will be paid to [Hickson] on an after-tax basis." [The handwritten changes are reflected in the words which I have italicised] [PX 677]

Under cross-examination Mr McLeod gave evidence that the handwritten words "Bremer" and "Business" was in the handwriting of Mr Hughes and that the balance was in his own handwriting [transcript 284.10].

The proposition that the singular agenda minutes for the meeting of HTP of 17 May 2001 received authentication [in the imprimatur sense described above] by reason of the events at the scheduled HTP meeting of directors of 22 May 2001 is rejected. The minutes of the scheduled HTP meeting of 22 May 2001 purported to resolve that approval be given for the chairman to sign inter alia the tabled minutes of the meeting of 17 May 2001 "as at true record of proceedings at [that meeting]”. However the board pack version of the minutes of the 17 May 2001 meeting before the scheduled meeting of 22 May 2001 was a version with the handwritten amendments to the explanation of the first $10 million earlier referred to. This is yet another example of a circumstance in which the evidence did not establish that the later scheduled meeting retrospectively approved, ratified, or assented to or authenticated as signifying the consent of those present at the scheduled meeting, inchoate events which had not occurred at a previous meeting as if they had occurred.

The purported meeting of HTP on 17 May 2001 refers to a conflict of interest in respect of Messrs Holland, Little, Grice and McLeod. The only persons alleged to have been present were DH Sutton and R Mendez, neither of whom was called by the defendants to give evidence. Minutes of 19 June 2001 – AHL – Scheduled meeting

This scheduled meeting records as being present, Mr Holland as chairman, Mr McLeod, Mr Grice Mr Little and Mr Hills. Mr Hughes is recorded as in attendance as Secretary. The minutes record as tabled at the meeting minutes of previous directors meetings including that of 2 May 2001. The minutes purport to resolve that approval be given for the chairman to sign the minutes of inter alia the 2 May 2001 meeting "as a true record of proceedings at that meeting].

Bearing in mind the significant problems earlier indicated in the Court accepting the authenticity of the 2 May 2001 minutes of AHL, it is clear that even if the 19 June 2001 meeting took place and resolved as is noted in those minutes [PX 1204], that resolution is ineffective. The board pack for the 19 June 2001 meeting [PX 1217 et seq] included the version of the minutes of the meeting of AHL said to have been held on 2 May as a meeting where Mr McLeod was chairman. Yet what was apparently signed or said to be signed, on 19 June [PX 601], was a version of the minutes which recorded Mr Holland as chairman. Hence at the very least what the 19 June 2001 meeting, if it took place, resolved to approve, presumably in accordance with the version of the minutes in the board pack, was not what was in fact signed. Further the significant problems identified above in there having been two versions of the minutes of AHL of 2 May 2001 also has the result of the exploding any suggestion that the 19 May 2001 scheduled meeting could have authenticated the earlier minutes. This is another example of a circumstance in which the evidence did not establish that the later scheduled meeting retrospectively approved, ratified, assented to or authenticated as signifying [in the imprimatur sense] the consent of those present at the scheduled meeting inchoate events which had not occurred at a previous meeting as if they had occurred. The balance of probabilities favours a finding that the directors attending the meeting neither discussed nor resolved to accept nor assented to nor lent their approval in the imprimatur sense discussed above to the matters set out in whatever version of the 2 May 2001 AHL minutes may have been before the 19 June meeting. Minutes of 21 June 2001 - AHL - single agenda meeting

The minutes of a meeting of AHL of 21 June 2001 [PX 1382] include a statement that those present were Mr Holland as chairman, Mr McLeod, Mr Little, Mr Grice and Mr Hills. Mr McLeod gave evidence that he believed that Mr Grice and Mr Hills would not have been in physical attendance at the meeting. This it was said was a typographic error. Scheduled Minutes of meeting of directors of HIG for 3 July 2001

The board pack for this meeting is to be found at PX 1443 et seq. The document purporting to be the actual minutes passed at the meeting is to be found at PX 1418 and following. This was a meeting which Mr Hughes is noted as having been in attendance he having given evidence that he drafted the typed minutes and attended the meeting.

However the problems with the Court accepting that at the 3 July 2001 meeting the directors may be seen to have authenticated the events of the purported HIG 17 May 2001 meeting include: · the fact that the version of the 17 May 2001 HIG minutes which were before the 3 July 2001 alleged meeting: - recorded Mr Hughes as having been in attendance at the 17 May meeting whereas his evidence was that he had not been in attendance; - purport to be signed on 3 July 2001 whereas the actual minutes of the earlier meeting appear to have been signed on 17 May 2001 although, as earlier indicated, Mr McLeod gave evidence that it was possible that he had signed the minutes on 27 August 2001. · the fact that there is a clear difference between the wording which appears in the board pack version of the minutes and the wording which appears in the purported former minutes which were in fact signed. The version of the minutes set out in the board pack said to have been before the meeting of 3 July 2001, include the words: "Any further profits generated from Bremer Business Park Development after this initial pre approved valuation of $10 million will be shared between AHL and Wingate Properties as per the AHL/Wingate Joined Venture Agreement" [PX for 47]. The version of the minutes in fact signed relevantly read: "Any [ ] profits generated from Bremer Business Park Development after this initial pre approved valuation of $10 million will be shared between AHL and Wingate Properties as per the AHL/Wingate Joined Venture Agreement. AHL has agreed to as signed profits generated by the JV until the Company receives in total $10 million " [PX 647]. [italics and square brackets used to point up the differences] [It was the latter version PX 647 which were enclosed under cover of Mr McLeod's 27 August 2001 letter to Mr Seaton - cf exhibit BWM 1 Volume 2 tab 58]

This is yet another example of a circumstance in which the evidence did not establish that the later scheduled meeting retrospectively approved, ratified, assented to or authenticated as signifying [in the imprimatur sense] the consent of those present at the scheduled meeting, to inchoate events which had not occurred a previous meeting as if they had occurred. The balance of probabilities favours a finding that the directors attending the meeting neither discussed nor resolved to accept nor lent their approval in the imprimatur sense, to the matters set out in whatever version of the HIG 17 May meeting minutes may have been before the 3 July meeting. 5 September 2001 meetings

As to the meetings of directors of Group and of AHL of 5 September 2001, the purported minutes of Group are at PX6/1999 and Hardboards at PX6/2013. Both of the minutes of 5 September 2001 refer to a requirement for clarification and purport to authorise Mr McLeod and Mr Hughes to execute the Second Deed of Amendment under the common seal of the company. HIG meeting - 5 September 2001

The minutes record as being present Mr McLeod (Chairman), Mr Holland and Mr Meers. Mr Hughes (Secretary) is recorded as in attendance. The minutes state that with the permission of those directors in attendance the agenda was restricted to approving the Deed of Amendment.

As to the purported HIG meeting of 5 September 2001, the uncontested evidence of Mr Hughes is that he had not before seen the email from Mr Restas to Mr McLeod dated 5 September 2001 recorded in the minute as having been tabled (PX6/2012). These HIG “minutes” were not dated by Mr McLeod and the date it bears (namely 20/11/01) is not in his handwriting. Mr Hughes gave evidence accepted as reliable that he did not recognise the handwriting of which person had dated the minutes. Mr Meers’ evidence was also that he had not seen Mr Restas email and had no recollection of a meeting of directors of Group on that day. He did, however, have a meeting earlier that day with Messrs Paul and Mizen which he recalls. He has no recollection of any meeting of directors approving any amendment to the Entitlement Deed (Mr Meers, 16/11/04, paras 14-16).

The Court's finding is that on the balance of probabilities no such meeting took place. In consequence no authority was given to any person on 5 September 2001 to attend the company seal to the second Deed of Amendment. No resolution was passed to the effect of that suggested by these fictional minutes. AHL meeting - 5 September 2001

These purported minutes identify as being present, Mr Holland (Chairman) and Mr McLeod. Apologies are noted as having been given by Mr Grice, Mr Hills and Mr Little. Mr Hughes is recorded as in attendance as Secretary. He could not recall attending any such meeting. His evidence was that the minutes were in a format which he commonly used when preparing minutes but he could not recall specifically whether or not he had prepared these minutes. His evidence was that it was possible that he prepared the minutes without such meeting being held if he was asked to do so by the directors.

The minutes record that a Deed of Amendment was tabled at the meeting it being noted: "that the amendments to the Entitlement Deed were to provide clarification in respect of the right of [HIG] to receive the first $10 million in connection with the disposal of the subject land" The minutes record a resolution following discussion by the directors: "that the proposed amendments to the Entitlement Deed as set out in the Deed of Amendment be adopted and that Messrs Holland and Hughes are hereby authorised to execute the Deed under the Common Seal of the Company."

It appears that no subsequent minute of AHL purporting to ratify or approve the document purporting to be the minutes of the AHL meeting of 5 September 2001 was tendered [Transcript 500-501]. The Court's finding is that on the balance of probabilities no such meeting took place. In consequence no authority was given to any person on 5 September 2001 to append the company seal to the second Deed of Amendment. No resolution was passed to the effect of that suggested by these fictitious minutes. Minutes of meeting of directors of HIG of 6 September 2001

These minutes [bundle 2066] were signed by Mr McLeod but dated by someone else. He could not recall how this had happened. On occasion minutes were adjusted at a meeting, taken away to be changed and brought back for his signing and then dated by the company secretary. [Transcript 314] HIG Directors Meeting of 20 November 2001 - Scheduled meeting

The events of 20 November 2001 become important in relation to the issues in these proceedings for the reason that the purported minutes [PX 2205] record that at this meeting, minutes of the previous directors meetings held on 5 September 2001, 6 September 2001, 27 September 2001, 28 September 2001 and 31 October 2001 were tabled. There is a head-on factual dispute as to whether any such 20 November meeting took place. The significance of this dispute is that it was at this meeting that Group is asserted by the defendants to have ratified the 5 September 2001 minutes (PX7/2205). Interestingly, as earlier noted, there appears to be no minute purporting to ratify the minutes of Hardboards of 5 September 2001.

The minutes then record that the above described tabled minutes were taken as read and that following a review of the tabled minutes, it was resolved that approval be given for the chairman to sign the minutes of 5 September 2001, 6 September 2001, 28 September 2001 and 31 October 2001. It was further resolved "that the chairman having signed the minutes of the Directors meeting held on 27 September 2001 as a true record of the proceedings at that meeting, be (sic) and is hereby ratified."

The purported minute of Group records Messrs McLeod, Holland and Meers as present with Mr Hughes in attendance as secretary. Mr Hughes gave evidence that he had no recollection of attending any such meeting (Mr Hughes, 19/11/04, paragraph 27). Mr Meers gave evidence that he did not recall receiving a board pack for the meeting (Mr Meers 16/11/04, para 18) and there is no evidence of any notice to him of the meeting.

The plaintiff submits that if it be the fact that no such meeting occurred the ratification of a document as a true record of it is nothing more than a fraud. It is submitted that it cannot be characterised as a valid and legitimate resolution of any decision where the directors are applying their mind to the business concerned. They are not on its face even purporting so to do. Mr Meers 50th birthday – his evidence

20 November 2001 was the date of Mr Meers 50th birthday. He gave evidence and was closely cross-examined. His evidence is accepted as reliable. His evidence was that he did not attend the Group board meeting of 20 November 2001. He could not recall whether or not he had received Board papers for that meeting. He had deposed as follows in his affidavits: “Document [PX2205] 10 purports to be minutes of a meeting of directors of HIG held at 3.50pm on 20 November 2001. It records that I attended the meeting. I am certain that I did not attend any such meeting. That was my 50th birthday. My diary for that day indicates that I had a luncheon appointment at Wyong at 12.30 with Neil Rose the mayor of Wyong Shire and Kerry Yates of Wyong Shire Council. I recall attending that lunch with John Farey and the lunch continued until at least 2.30pm. Following the lunch I recall that Mr Farey and I drove to a property at Warnervale owned by Hudson Timber to inspect adjacent lands for the possibility of redevelopment. I recall that inspection took in the order of 1 hour then Mr Farey drove me back from Wyong to Sydney. At that time of day that drive would ordinarily take in the order of 2 hours. It is simply not possible that I attended a meeting of directors of HIG at 3.50pm at 130 Macquarie Street, Sydney on that day. My recollections of the events of 20 November 2001 are: · that I left for work by car at approximately 8am from my house in Pymble. Annexed hereto and marked “B” is a copy of my mobile phone account for the period including 20 November 2001. I note that it records that at 8.08am I received a call directed via the Turramurra Optus base station which is near my home. I further note that it records that at 8.10am I made a call via the Koola Shop Optus base station to telephone number 9904 6774 which is my mother’s telephone number. The fact that this call went via the Koola Shop base station suggests to me that it was made on my way to work as I was driving through Koola Park; · I arrived at work at the Hudson offices on Macquarie Street at approximately 8.45am. On arrival, as always, my first task was to review the amounts due and overdue for settlement on trades on the ASX; · following this at around 9am there was a small gathering in the boardroom in honour of my 50th birthday. I recall that I was presented with a birthday card, a copy of which is annexed hereto and marked “C”, and that a birthday cake was also presented to me; · at approximately 10am I left Hudson’s offices in Macquarie Street and drove to my home at Pymble. When I arrived at home at approximately 10.30am I met John Farey who drove there independently and we had a cup of tea with my wife; · at approximately 11am I left home in John Farey’s car with him driving and we drove to Wyong, on the Central Coast, and arrived there at approximately 12 noon; · at approximately 12 noon we met Paul Coffey of C4ES Pty Limited for a cup of coffee in Wyong near Wyong Shire Council Chambers. The three of us had a cup of coffee and then walked a short distance to the Council Chambers where we met Neil Rose (the Mayor), Greg Best (SP Mayor) and Ian McNicol (Senior Planner). We then had a meeting with the Council representatives and shared a sandwiches lunch with them in Council chambers. Copies of Mr Rose’s, Mr Best’s and Mr McNicol’s business cards, as well as the business card of Mr Coffey, all of which I received from them on 20 November 2001, are annexed hereto and marked “D”; · at approximately 2.00pm the meeting and lunch at Council Chambers concluded and Mr Farey and myself drove in Mr Farey’s car to HIG’s property in Warnervale (the Warnervale Land) for the purpose of inspecting a property which was part of the Warnervale Land. The Warnervale Land had been the subject of our meeting with members of Wyong Shire Council. I recall that on our way to the Warnervale Land we got lost. Mr Coffey called us on to enquire where we were and gave directions to get to the Warnervale Land. The inspection of that property with Mr Farey and Mr Coffey took a short time, following which Mr Farey drove me back to my home in Pymble; · we arrived at my home at approximately 4.00pm and my wife greeted us at the car. My wife invited Mr Farey into our home for a drink with us however I recall that he declined; and · for the remainder of the evening I remained at home and had dinner with my family as has been my practice for many years on my birthday. I note that my mobile phone account records a telephone call made by me at 6.23pm via the St Ives Optus base station which is also near my home.”

Mr Stevenson put to Mr Meers inter alia the proposition that he had become confused as to his recollection about when he had travelled to Wyong Council and that he had confused a meeting which he had with the Council on 27 September 2001 with the meeting which he now gave evidence had occurred on 20 November 2001.

It does not seem appropriate to go through the whole of this cross-examination in detail. Other matters were raised. Essentially Mr Meers evidence to which he had deposed was not departed from. Under cross-examination he said: “It was my [50th] birthday, I remember very clearly that particular morning, what happened that morning, the trip to, the trip to Warnervale, sorry, Wyong Shire Council. I don't recall much of that. I certainly can still recall the meeting had with Mia Rose and I can recall a trip up to Warnervale land that I had with Mr Farey where we unfortunately got lost for a short time and then subsequently met Mr Coffey at the Warnervale site. And I can certainly recall coming home, meeting my wife, inviting Mr Farey into our place and Mr Farey leaving and I enjoying my family for a function that night. Plus also I have tabled a record of my mobile phone for that particular day which gives me further substance to what I am saying to you of my location as of around 6pm that night.” [Transcript 71.1] Mrs Meers evidence

Mrs Meers had deposed as follows: · “20 November 2001 was my husband’s 50th birthday; · it was a school and work day for my husband and our children, and I recall them leaving for work and school respectively at some time on that morning; · it was my understanding and belief that my husband was required to attend on that day a luncheon engagement for his work somewhere on the Central Coast or Newcastle, and that he also had to attend something else on the Central Coast, though I do not now recall where precisely (the Luncheon Engagement); · at some point before 12 noon I recall my husband arriving home to our house in Pymble to drop his car off prior to the Luncheon Engagement; · shortly thereafter, Mr John Farey (Mr Farey), who I know is a work colleague of my husband, arrived at our house in Pymble to pick up my husband for the Luncheon Engagement; · I recall that I chatted with Mr Farey for a short while but I do not now recall the substance of that conversation; · subsequently, Mr Farey and my husband left for the Luncheon Engagement in Mr Farey’s car; · at approximately 3.30pm to 4pm I recall that Mr Farey and my husband arrived back at our home in Pymble in Mr Farey’s car. I can recall the time of their arrival as our daughter, Katherine, had just arrived home from school, which normally occurred between 3.00pm and 3.30pm; · when Mr Farey and my husband arrived at our home in Pymble I went out to Mr Farey’s car to greet my husband and invited Mr Farey for a cup of tea, however I recall that he declined; · my husband and I then went inside and prepared for a family birthday dinner which was to occur at home with our family (the Birthday Dinner); · I recall that at approximately 6 or 6.30pm one of our children (I cannot now recall which) telephoned us to pick him or her up from Pymble railway station, which I did. This was approximately a 10 minute round trip; · subsequently, with all of our family home, we had the Birthday Dinner for my husband. From the time that my husband arrived home with Mr Farey at approximately 3.30pm or 4pm, and for the remainder of the evening, he remained at home. It is our family’s usual practice to celebrate each other’s birthday with a family dinner at our home in Pymble. On the very rare occasions that this has not occurred, we have had dinner at a restaurant to celebrate, however as this rarely occurs I recall specifically that this did not occur on the night of the Birthday Dinner, which was at our home.”

Mrs Meers was also cross-examined closely on her recollections. She was asked whether she actually recalled her daughter being home when her husband and Mr Farey had arrived. Her answer was in the affirmative.

Other answers of hers in relation to her recollections that she had picked her daughter up between 3 pm and 3.30 pm on the day and her daughter having just arrived home from school, may well have been because it was her practice to pick her daughter up every day and she seemed in one of her answers to elide an assumption as to what usually happened with evidence of actual recall. However her general evidence was given strongly and I was impressed with her demeanour. I accept her evidence as reliable particularly because this was the day of her husband's 50th birthday. Evidence given by Mr John Farey

Mr Farey was not required for cross-examination by the defendants on his affidavit. His evidence had been as follows: Initial affidavit 16 November 04 · “he is a director of HIG and was appointed on 1 February 2002; · he was previously a director of HTP appointed on 2 April 2003 and resigned on 10 July 2003; · he had checked his diary for 2001 and confirmed that it recorded that he attended Wyong Shire Council, in Wyong, New South Wales, for a luncheon meeting with the Lord Mayor on 20 November 2001; · he recalled attending this meeting with Mr Peter Meers and that the meeting commenced at about 12.30 p.m. on He also recalled that the meeting lasted for approximately 2 hours; · he also recalled visiting a Hudson Pacific Group’s property at Warnervale, New South Wales with Mr Peter Meers after the meeting. His recollection was that this visit lasted for approximately an hour or so; · after that site visit he drove Mr Peter Meers back to Sydney. In his experience, at that hour of the day, it would have taken over an hour to drive to Sydney. The earliest possible time at which Mr Peter Meers and he could have arrived back in Sydney would have been 4.30pm, although he could not recall now exactly what time he had arrived back in Sydney.” Subsequent more detailed affidavit of 31 March 05

His more detailed evidence in his subsequent affidavit was as follows: · “In my previous affidavit, I recorded events primarily concerning the afternoon of 20 November 2001. I will now set out my full recollection of the events of that day. · As at 20 November 2001 I had been working full time in the offices at 131 Macquarie Street, Sydney (Hudson Offices) for approximately 5 years. It had been my practice during that time to arrive at the Hudson Offices at approximately 8am each day. I do not recall arriving any earlier or any later on 20 November 2001. · I was aware on that morning that it was Peter Meers’ (Mr Meers) 50th birthday. When I arrived at the Hudson Offices, I asked one of the secretaries, Daria Clark, to purchase a cake and birthday card for Mr Meers. I recall that the card was brought around to each office in a manila folder so that it could be signed discretely. Annexed hereto and marked “A” is a copy of Mr Meers’ birthday card and I recognise my signature on that card. I recall that early that morning there was a gathering on level 2 of the Hudson Offices for Mr Meers’ 50th birthday. I do not now recall precisely where it was held but it must have been on level 2. I do not now recall who was present but I do recall that a chocolate cake was presented to Mr Meers. · Shortly thereafter I drove by myself in my car to Mr Meers’ house in Pymble. I arrived at around 10am. When I arrived I went inside and had a cup of tea with Mr Meers and his wife. At around 10.30am I left in my car with Mr Meers as a passenger and headed towards Wyong, on the Central Coast. · At about 11.30am we arrived outside the Wyong Shire Council Chambers and Paul Coffey, an environmental consultant, was waiting for us. We went to a nearby coffee shop to discuss the strategy for our meeting. At around 12.30pm we arrived at the Chambers of the Lord Mayor, Neil Rose. We met the Lord Mayor and his executives and had lunch with them. There were extended discussions concerning the re-zoning of the land at Warnervale owned by Hudson Pacific Group Limited. We also inspected various plans of the site. · At around 2.00pm we both left council chambers and drove to the Warnervale site. Shortly after leaving the chambers I took a wrong turn which resulted in us arriving late at the Warnervale site at around 2.30pm. When we arrived, Paul Coffey was already at the site. · After inspecting the site, Mr Meers and I left in my car at around 3.00pm. I drove him to his home at Pymble, arriving at approximately 4.00pm. When I arrived, Mrs Meers invited me inside for a coffee but I declined. I drove by myself back into the city and arrived at the Hudson Offices at approximately 5.00pm. I went directly to my office of level 2 of the Hudson Offices. I did not see Mr Meers return to the Hudson Offices that day. · Annexed hereto and marked “B” is a copy of my diary for 20 November 2001. At the foot of the column for 20 November 2001 there is some “white out”. I recall that I had to undergo blood tests on the morning of 21 November 2001 and I had to remind myself to “fast from 12 [midnight]” for the blood tests. The blood test was rescheduled for 22 November 2001 and I “whited out” the entry to fast as it would no longer be necessary to do so for 21 November 2001.” Evidence of Mr Holland/Mr McLeod

Mr Holland gave evidence to the contrary which is rejected. Mr McLeod gave evidence to the contrary which is rejected [transcript 292] He could not recall there being a small gathering in the board room to honour Mr Meers 50th birthday nor did he have any recollection of the presentation of a birthday card to him. [Transcript 293]

Mr Holland's unreliability as a witness has already been dealt with. His evidence on this 20 November issue is rejected as unreliable. Further examples of his general lack of reliability include: · he was shown the document purporting to be minutes of the meeting of directors of AHL of 2 May 2001 [PX 601]. He accepted that he had signed these minutes on the 19 June 2001 [Transcript 379]. It was put to him that neither Mr Grice nor Mr Hills were present, the minutes recording them having been present by phone. Mr Holland could not recall the meeting. He was asked how it had come about that Mr Hills could have tabled a recent letter at the meeting when he was not present. His answer was that he did not know how Mr Hills had done that [Transcript 380.20]. His evidence included: “Q. It then shows at the foot of the page that Mr McLeod noted something, how denote it? A. He would have spoken it. Q. Where, separately, before the meeting? A. At the meeting. Q. But there was no meeting, Mr Holland? A. I don't recall the meeting but the meeting is recorded as having taken place. Q. You know that this is a single agenda meeting and you told his Honour that those meetings never occurred, it was done by prediscussion and then some minute was brought into existence, right? A. That's the way informal meetings worked, yeah. Q. That's not a meeting. How is that a meeting? A. It's an informal meeting that is conducted by phone.” [Transcript 380] · Mr Holland was asked about the meeting of AHL of 2 May 2001 and shown the version of draft minutes part of the board pack for the meeting of 19 June 2001 PX1123 [also PX 1200] [Transcript 378]. This draft recorded Mr McLeod as chairman. Mr Holland's evidence under cross-examination included: “Q. Now this draft minute shows Mr McLeod as the chairman, right? A. I haven't got the minutes in front of me. Q. 1123? A. 1123, okay. Q. Does it not show Mr McLeod as the chairman? A. It does. Q. In so far as the meeting of 2 May is concerned you accept that no such physical meeting took place? A. Correct. Q. Now, can you tell me then what your understanding was of who was the chairman of that meeting? A. 2 May? Q. Yes. A. It was me . Q. Well, this minute, the draft shows Mr McLeod, don't it? A. It does. Q. Right. A. Between 2 May and 19 June meeting it was decided that McLeod would take over as chairman . Q. Right. So take over as chairman in respect of what, a meeting that had already taken place? A. No, meetings subsequent to that. Q. But this minute reflects in draft Mr McLeod as chairman, right? A. It does. Q. On 2 May. The actual minute which you signed shows you as the chairman, doesn't it? A. It does. Q. Well who was the chairman of this nonexistent meeting? A. Between 2 May and 19 June a decision was made that Mr McLeod would be chairman because of the complex nature of the things taking place and because he was at the Macquarie Street all his time and I was hardly ever at Macquarie Street .” [Transcript 378-379] · under cross-examination his evidence included that he could not specifically recall a directors meeting of HTP on 23 October 2001, a directors meeting of AHL of 2 May 2001, a directors meeting of HTP of 10 May 2001, a directors meeting of HIG of 17 May 2001, a directors meeting of HTP of 17 May 2001, a directors meeting of AHL of 19 June 2001, a directors meeting of HIG of 3 July 2001, a directors meeting of AHL of 21 June 2001, a directors meeting of HIG of 26 June 2001. He used the words "informal meeting" from time to time. · in relation to the minutes of a purported meeting of 21 June 2001 he gave evidence including: “Q. Right. What do you understand by the word "Tabled" where it appears in minutes? A. That something was tabled at a meeting. Q. What that means is that there is a physical meeting of people and a document is placed on the table, correct? A. That's correct. Q. What does it mean when it appears in minutes that somebody attended a meeting? A. It means that they were there. Q. Right. Could you then just have a look at minutes for a meeting on 21 June, which you will find in volume 5. First page, 1382. This was a minute that was prepared for the purposes of the shareholding change and entitlement deed transaction in June 2001, correct? A. Correct. Q. Is that your signature on page 1384? A. It is. Q. Go to page 1382 you see there it says, "Present PC Holland, Chairman"? A. That's right. Q. BW McLeod, KJ Little, K Grice and R Hills? A. That's right. Q. That wasn't true, was it. Mr Grice and Mr Hills weren't there, were they? A. This looks like to me it wasn't a scheduled meeting. Q. Well, if it wasn't a scheduled meeting what has that got to do with whether someone is present or not present, Mr Holland? A. These meetings were sort of conducted by phone . Q. This meeting you say of the directors of 21 June was conducted by the phone, do you? A. It's one of the meetings where McLeod would have rang each of the directors-- Q. --no, no, Mr Holland. I am talking about a meeting, I am not talking about communications on the telephone that take place before a meeting. I am suggesting to you that you have signed a minute that shows Mr Grice and Mr Hills as being present where the truth was they were not. What do you say about that? A. I don't recall this particular meeting. Q. Mr Holland, let's get down to brass tacks; you signed minutes just because they were placed in front of you, not because they were true, correct? A. No. Q. If it be the case that Mr Grice and Mr Hills were not there - I withdraw that. Is it possible Mr Holland, that you signed a minute showing them as being present when the truth was they weren't? A. They weren't present at any of the informal meetings . Q. Right. Now, is there anything on this document that indicates that this is an informal meeting? A. The minutes aren't prepared in the normal format. Q. Is there anything on this minute that indicates it's an informal meeting? A. It doesn't say that it's an informal meeting, no. Q. What was a quorum? A. It means the minimum number of people required are there. Q. Yes. And it reflects there a quorum was present and the chairman declared the meeting open. Did you declare this meeting open? A. I don't recall this meeting specifically. Q. Let's assume it's an informal meeting, that's a meeting which never took place as a meeting in your language, correct ? A. That's correct . Q. Well, how was the meeting declared open by you? A. These are prepared-- Q. --Mr Holland, how was the meeting declared-- A. --it wasn't declared open by me. Q. That's a false statement, isn't it? A. The meeting wasn't declared open by me . Q. That is a false statement, isn't it ? A. Yes .” [Transcript 373-3 74]

His critical evidence in relation to the events of 20 November 2001 given in the witness box in chief by leave was: “Q. I ask you the question again, can you tell his Honour what your recollection is of the events of 20 November 2001 so far as your observations of what Mr Meers did? A. I recall 20 November was Mr Meers' 50th birthday. Early on that morning a card went around the office to be signed. We had a birthday cake for Mr Meers. Mr Meers left the office then to visit the mayor in Wyong. I recall the Hudson Timber meeting taking place that morning. I recall sitting round the office that afternoon, around about 1500 when the Hudson Group meeting should have taken place, waiting for Mr Meers to come back. I recall Mr Meers coming back into the office at around about 3.30 to 3.40. The Hudson Group meeting taking place. I recall having a drink with Mr Meers in the office after this meeting that afternoon. Q. Do you have a recollection of what was drunk? A. Specifically we opened a bottle of Hanwood chardonnay.” [Transcript 362]

He had not however in his affidavit evidence made any mention of the birthday cake or of Mr Meers leaving and coming back together with the Hanwood Chardonnay.

He could not recall to whom he had made telephone calls during the afternoon between approximately 3 p.m. and the time when he said Mr Meers had arrived.

I was not impressed with his evidence in terms of his demeanour nor in terms of his very poor recall of specifics. As earlier found he obviously worked extremely closely with Mr McLeod and on the balance of probabilities simply complied with his command.

In the result Mr Holland’s evidence in relation to the critical 20 November meeting is rejected. Evidence of Mr Hughes

Mr Hughes had given evidence in the affidavit which was read before me that he did not recall attending the meeting of the board of HIG of 20 November 2001. However under cross-examination [Transcript 95-96] he agreed that on 23 November 2004 he had had a conversation with Mr Knox words to the following effect: Mr Knox: "I have got a copy of your affidavit and it says you did not attend the meeting of HIG on 20 November 2001 Mr Hughes: "That's not what I believe I would have said. My original draft says that in all probability the meeting did take place with me attending as I distributed the board pack and the minutes within a form that I usually prepared, but the fact is I can't physically remember attending the meeting" [Mr Hughes [Transcript 95.45] said under cross-examination that this was true] Mr Knox: "No, I am sorry, what it says [referring to the affidavit of Mr Hughes] is you say you don't remember attending Mr Hughes: “Well, that's true, I don't remember attending that meeting. The affidavit is correct but I am concerned that it omits to say that in all probability the meeting was held because I prepared the Board papers and minutes"

This evidence reflects adversely on the credit of Mr Hughes. The matter was not the subject of cross-examination of Mr Knox. Certainly the balance of probabilities bearing in mind the strong evidence given by Mr and Mrs Meers and the uncontested affidavit evidence given by Mr Farey is not outweighed by this evidence given by Mr Hughes. Decision - The scheduled HIG meeting of 20 November 2001 never took place

All that Mr Stevenson was able to submit in seeking to justify the forensic decision by the defendants not to cross-examine Mr Farey, was that his evidence had been that he dropped Mr Meers at home in Pymble at approximately 4 pm, and that this only tended to indirectly support the evidence on the subject given by Mr Meers. The submission is not of substance. Mr Farey's evidence very significantly supports the version of events given by both Mr and Mrs Meers particularly where his evidence was not tested at all.

The consequence of this finding is that the purported ratification on 20 November, of the minutes of a directors meeting held on this 5 September 2001, never occurred. Notice of the purported meeting

Additionally the finding is that the evidence does not establish the requisite giving of notice of the meeting to each director either personally or by posting of a notice in a prepaid letter: the outdated reference to telegrams no longer requires to be dealt with. Mr Meers was shown by Mr Stevenson, a bundle of documents which became MFI D (1) (2) but was never tendered. Mr Stevenson put to Mr Meers that this bundle was in fact the original of the board pack for the meeting of 20 November 2001. Mr Meers had no memory of receiving a board pack for the meeting in the form of the documents shown to him or at all. The further contention by the defendants that notice was given by a written schedule of board meetings circulated at the beginning of the year has no substance. The proposition is not sustained by the materials in evidence. In any event, any such schedule would not constitute a notice in the form necessary to comply with the relevant Article of Association. 21 December 2001 - Scheduled HIG board meeting

There is in evidence a board pack for a meeting of HIG to be held on 21 December 2001 [PX 2366] and minutes of such a meeting [PX 2359]. The minutes record Mr McLeod as chairman being present, Mr Meers being present and Mr Holland being present (by telephone) and Mr Hughes being in attendance as secretary. The minutes record that there was tabled at the meeting, minutes of previous directors meetings including that held on 20 November 2001 and that following a review of the tabled minutes it was resolved that approval be given by the chairman to sign the tabled directors minutes as a true record of proceedings at those meetings.

Mr Meers was cross-examined by Mr Stevenson in relation to these documents. He could not recall receiving the board pack for the meeting [Transcript 55.20/57.35]. Later his evidence was that it could have happened that he received Board papers for the 21 December meeting although he had no memory of that [Transcript 61.1 2]. On being shown the version of the 20 November 2001 minutes forming part of the board pack in the documents he did recall the substance of matters dealing with Clean Energy Products as particularly relating to himself [in that part of that company's relationship with HIG was part of his particular responsibility]. What was recorded in this version of the 20 November 2001 minutes was consistent with his recollection of what was happening in relation to Clean Energy Products Pty Ltd prior to 21 December 2001

Likewise he had no memory of having participated on 21 December 2001 in a resolution approving inter alia the minutes of a previous meeting held on 20 November 2001. His evidence was that he not only had no memory of attending a meeting of 21 December 2001, but that if that meeting did occur he had no memory of documents relating to that meeting.

His evidence was that had he seen the Board papers and noticed the 20 November date referred to in them as recording an earlier directors meeting, he believed he would have objected but his memory was not very clear on the matter generally [transcript 61]. At [transcript 62.5] in being asked whether he was present at the meeting of 21 December, his evidence was that he had no memory of this "but I think there is good reason to say that I would have been there". As to the resolution recorded in the minutes of the 21 December 2001 as having approved the minutes of 20 November 2001, his evidence was as follows: “Q. And you participated in that resolution, didn't you? A. I said more than likely I probably was at this meeting. Q. And you participated in the resolution, didn't you? A. If I was there, yes.” [Transcript 63.1-.9]

The defendants tendered the handwritten notes of Mr Hughes taken of the events of the meeting of 21 December. The notes did record Mr McLeod and Mr Meers as being present, and Mr Holland as being present by telephone. Decision in relation to the 21 December 2001 HIG board meeting

Notwithstanding the many problems attending other evidence of meetings already set out above, the balance of probabilities likely favours the proposition that the 21 December 2001 HIG board meeting did take place. However the finding is that there was no review of the tabled minutes by the directors and that there was no discussion about the fact that the 20 November 2001 meeting had never taken place, nor about the fact that the document purporting to be minutes of that meeting were entirely fictitious. Further the finding is that the directors attending the meeting neither discussed, nor resolved to accept, nor assented to, nor lent their approval [in the imprimatur sense] to the resolution [approving the Chairman signing the tabled directors minutes as a true record of proceedings at the earlier meetings] being accepted as authenticating a fictitious resolution which: · albeit appearing in the minutes of the HIG board meeting purporting to have been held on 20 November 2001, had never been held; · had in turn, purported to ratify the minutes of yet another fictitious meeting of HIG purporting to have been held on 5 September 2001 [resolving that the proposed amendments to the Entitlement Deed as set out in the Second Deed of Amendment be adopted and resolving that Mr McLeod and Mr Hughes were authorised to execute that Deed under the Common Seal of the company].

Additionally it should be noted that the actual resolution passed on 21 December 2001 fell well short of purporting to ratify the minutes of a board meeting of 20 November 2001. The resolution was that approval be given by the chairman to sign the tabled directors minutes as a true record of proceedings at [the 20 November 2001 meeting]. This seems to me to fall far more likely into what I earlier referred to as "the notation analysis" than into 'the imprimatur analysis'. This was only a mechanical exercise noting the previous minutes.

At this point it is material also note that the Court finds that clearly Mr Meers acted mechanically without noticing the reference to be 20 November 2001 minutes. The finding is that in all of the circumstances which obtained, the directors who participated in the meeting did not intend by the above described form of resolution to ratify [in terms of conferring validity upon an ineffective execution of the Second Deed of Amendment] the minutes of the alleged board meeting of 20 November 2001 or to ratify [in terms of conferring that former validity] the minutes of the 5 September 2001 alleged meeting. Retrospective alteration and backdating of minutes

Clearly enough the allegations as to the backdating of the minutes of the board meetings of AHL of 2 May 2001 [PX 601], and of the board meeting of HIG of 17 May 2001 [PX 647] are serious in the extreme. The irregularity in the documents purporting to be authentic minutes, not only of these meetings but of the many others earlier referred to, make plain that the Court requires to treat extremely carefully in presently endeavouring to work through the precise genealogy of any particular set of minutes. Notwithstanding the gravity (cf Evidence Act 1995 section 140(2)(c); Amalgamated Television Services Pty Limited v Marsden [2002] NSWCA 419 at [61]) of the allegation that the minutes of the board meetings of AHL of 2 May 2001 [PX 601], and of the board meeting of HIG of 17 May 2001 [PX 647] which were sent to Mr Seaton on 27 August 2001 were changed and backdated [after Mr McLeod had learned from Mr Seaton that on Mr Seaton's understanding of the Entitlement Deed the value of the land in the consolidated accounts of HTP would be nil as there was an obligation to pay HIG the first $10 million of proceeds], the finding based upon all of the evidence is that this is in fact what occurred. The further finding is that the minutes before the HTP board meeting of 17 May 2001 were at or about 27 August 2001 likewise altered and backdated. Ultimately the issue is one of credit based upon all of the evidence before the Court.

The following matters must be kept in mind: · Mr McLeod was quite adamant that the first time he came to appreciate that the Entitlement Deed did not reflect what he contended had been the commercial agreement reached between himself and Mr Tan was when Mr Seaton made the above observation; · Mr McLeod took no action to prevent, but to the contrary oversaw, both shareholders meetings of HIG and HTP going forward on the above described basis where shareholders had been informed: It has therefore been agreed between HIGL and AHL that in the event the Land is disposed of by AHL on or before 8 June 2006, AHL will pay HIGL the lesser of: $10 million; and the value of the aggregate consideration received by AHL in relation to the disposal of the Land, in both cases less the deposit of $3.5 million already paid by AHL to HIGL (such deposit to be refunded if the conditions precedent below are not satisfied by 10 August 2001) · The alleged meeting of AHL of 2 May 2001 has the two versions of minutes, one of which records Mr Holland as chairman [PX 601], and the other of which records Mr McLeod as chairman [PX 1224]. Bearing in mind the significance of the altered versions the only evidence which could be given by Mr Holland as to how this could have happened was entirely unacceptable, that evidence [transcript 379] being that: “between 2 May and 19 June a decision was made that Mr McLeod would be chairman because of the complex nature of the things taking place and because he was at the Macquarie Street all his time and I was hardly ever at Macquarie Street.” · The version of the minutes of the meeting of 2 May 2001 provided to Mr Restas and reviewed by him [leading to his discussions with Mr McLeod of 6 June 2001] was the version to be found at PX 1224: in short he was not provided with the version to be found at PX 601 which refers to [HIG's] entitlement to profit returns above the pre approval valuation of $10 million; · In relation to the minutes of the HIG 17 May 2001 board meeting [PX 647-649] which bear his signature and are dated 3 7 01, Mr McLeod, initially said that he would not have thought that he signed those minutes on or about 27 August 2001 and not on 3 July, then gave evidence that he did not think it was possible that this could have occurred, and then gave evidence that he could not say what was the date upon which he actually signed the minutes. [His explanation in re-examination as to why he was not able to give precise evidence of any signed the minutes was: “…often with minutes at the board meeting, at the scheduled board meetings there would be discussion on the minutes and there would be some amendments made to them. The company secretary would take them away and make those amendments and then bring the minutes back to sign them and that would be within a day or at some future point in time he would ask me to sign them and I would sign them at that point”] · In relation to the minutes of the HTP 17 May 2001 board meeting [PX 655-657] which bear his signature and are dated “17 5 01”, Mr McLeod said that he did not know whether or not he had signed those minutes on 27 August 2001 but it could be possible that he did; he did not recall signing minutes and he did not believe that he would have signed them that far after the date of the meeting unless that was the next time when there was a scheduled meeting. [cf the above explanation given in re-examination]; · The version of the minutes of the HTP 17 May 2001 board meeting provided to Mr Restas and reviewed by him leading to his discussions with Mr McLeod of 6 June 2001 was the version to be found at PX 677 [but excluding the handwritten changes]: in short he was not provided with the version to be found at PX 655 which refers to [HIG's] entitlement to profit returns above the pre approval valuation of $10 million; · Mr McLeod's evidence was that after the meeting with Mr Seaton, Mr Tan in a private meeting with Mr McLeod said that no money was required to be spent on lawyers in relation to clarification of the Entitlement Deed "as it is an in-house deal anyway and as far as I am concerned, it is clear enough"; · No credible evidence was adduced from Mr McLeod or any other witness as to the dates when or circumstances in which the subject minutes were altered.

In short the evidence simply does not reveal any other explanation as to any occasion prior to 27 August 2001 when it would for some reason have been necessary for earlier minutes to have been amended. Affixation of the HIG companies seal on the Second Deed of Amendment un-authorised

The consequential finding is that the affixation of the HIG company seal on the Second Deed of Amendment was unauthorised. Authority to fix the company seal cannot be found as given by: - the 5 September 2001 single agenda HIG board meeting and/or by, - the scheduled HIG board meeting of 20 November 2001 of and/or by, - the scheduled HIG board meeting of 31 December 2001

However even if above findings concerning these meetings be incorrect it is clear for reasons given below that Mr McLeod breached his fiduciary obligations to HIG in each aspect of his conduct concerning the Second Deed of Amendment. He was disentitled from participating in any resolution that HIG enter into the Second Deed and he was disentitled from affixing the HIG common seal to the Deed. In consequence the Deed cannot be enforced as against HIG. The First Deed of Amendment

The position with respect to the First Deed of Amendment is a fortiori. Deletion of the mortgage was an act entirely for the benefit of AHL and entirely in disregard of the interests of HIG. As too with the deletion of the benefit of interest on the deposit payable to the party entitled to it under clause 2(d).

It is clear that deletion of the mortgage [and the deletion of the benefit of interest on the deposit payable to the party entitled to it under clause 2(d)], were acts entirely for the benefit of AHL and entirely in disregard of the interests of HIG.

It has not been suggested by any of the defendants that there was any commercial justification for this or that it was in the interests of HIG in any way.

Moreover, the signatories to the First Deed of Amendment were Mr McLeod and Mr Holland and so knowledge of the breach is to be attributed to AHL, against whom the transaction is voidable.

It is not suggested that those matters were the subject of any agreement or were contemplated by either the form or the substance of the proposed commercial arrangements.

There was some dispute at the Bar table as to the references [at PX 2069 in a set of minutes of HIG] to Deeds of Amendment dated 25 June 2001 [the submission from Mr Nell being that a typographical error is apparent and that one of the deeds referred to was the First Deed of Amendment]. The context involves no minutes at all purporting to record a meeting of AHL relating to the First Deed of Amendment. From a date perspective Mr Restas had given evidence of forwarding the First Deed of Amendment to Mr McLeod on 20 June 2001. Further it is necessary to compare the document purporting to record minutes of the meeting of HTP of 17 July 2001 [PX 1678 at 1680]: here one has a reference to a Deed of Amendment of 25 June 2001 describing an amendment to the terms of the Share Purchase Agreement of 8 June 2001. Additionally it is to be noted that the Explanatory Memoranda for the shareholder's meetings of HIG and HTP of 6 August 2001 [called pursuant to Notices of General Meeting of 5 July 2001] both made plain that under the terms of the Entitlement Deed, AHL would need to provide HIG with a mortgage over the Land to secure the payment promised to be made to HIG.

The state of the minutes being in the order of disarray examined in this judgment, the finding is that there is no reliable evidence of any meeting of directors of either HIG or AHL authorising the execution of the First Deed of Amendment. As the plaintiff has submitted, the very existence of this Deed is a clear example that Mr McLeod and those under his direction were prepared to execute any document which they thought convenient to their purposes at the time, without regard to its legitimacy or their fiduciary obligations.

It is appropriate to add that the proposition that there was little prospect of obtaining the approval of the ANZ Bank to such mortgage does not detract from simple fact that HIG had obtained a contractual entitlement which was then simply withdrawn from it.

It plainly follows that the First Deed of Amendment should be declared void. Rectification The principles

There was no serious issue as to the principles underpinning relief in the form of rectification: · the remedy is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention as to the effect that the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. Proof of an intention which persists to the moment the document to be rectified is executed must be convincing but is not limited to the existence of outward acts: Commissioner of Stamp Duties (NSW) v Carlenka Pty Limited (1995) 95 ATC 4620 (CA) (per Sheller JA, 4626) cf Fowler v Fowler (1859) 4 De G & J 250 at 265; 45 ER 97 at 103; Australian Gypsum Ltd & Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54 at 65; Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 669; Joscelyne v Nissen [1970] 2 QB 86 at 98; Etablissements Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67 at 73; Pukallus v Cameron (1982) 180 CLR 447 at 452.); · it has often been said in proceedings for rectification that the most clear and strong evidence is required and that a court is very chary of acting on the evidence of a single witness (Meagher, Gummow and Lehane’s Equity Doctrines & Remedies, 4th edition, paragraph 26-050); · in Fowler v Fowler (1859) 4 De G & J 250 at 265; 45 ER 97 at 103, Lord Chelmsford LC, said that: “It is clear that a person who seeks to rectify a deed … must be able to show exactly and precisely the form to which the deed ought to be brought. [Applied in (Australian Gypsum Ltd & Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54 at 64; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 349)]”

Proof of mistake in a rectification case must be "convincing" and "mere suspicion although strong" is likely insufficient: Chamberlain v Thornton (1892) 18 VLR 192 [applied in Lloyd v Stanbury [1971] 1 WLR 535.

Drawing together a number of these principles, White J in Muriti v Prendergast [2005] NSWSC 281 (at paragraph [105], [132]-[137]) put the matter as follows: · “rectification on the basis of the parties’ common intention requires proof that at the time when the contract was executed, both parties had an intention to include in their agreement, a term which, by mutual mistake, was omitted from the agreement, or not properly expressed. ( Pukallus v Cameron (1982) 180 CLR 447 at 452, 456; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350–351)…. “In Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 669, Simonds J said: “It is, of course, true that, for the purposes of rectification, one must find that which was specifically intended, but the exact form of words in which the common intention is to be framed appears to me to be immaterial as long as in substance and in detail their intention is to be ascertained.” Earlier his Lordship said (at 665), “ … it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was.” This passage was cited with approval by the High Court in Slee v Warke (1949) 86 CLR 271 at 281. To like effect, in Pukallus v Cameron (at 452), Wilson J said that to obtain rectification the plaintiff must, “ … advance ‘convincing proof’ that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties.” The emphasis is in demonstrating with clarity that the parties had a sufficiently precise intention that effect can be given to it, without making a contract for the parties. ( Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] 3 VR 526 at 531). Thus the plaintiff must be able to show precisely the form to which the instrument should be brought to give effect to that intention. In GPI Leisure Corp Ltd v Herdsman Investments Pty Ltd (No 4) (1990) 9 BPR 17,461 Young J (as his Honour then was) (at 17,465–6) accepted the submission of counsel that: A party seeking rectification … must be able to demonstrate … that the parties … held a common intention that a particular term be a term of their agreement, which term was not included, or not accurately included, in the instrument. It is insufficient that they hold a common intention on a subject matter which, before it could be reduced to a term of the contract, would have to be the subject of further agreement on matters of detail, let alone substance. Although it may not be necessary that the parties held a common intention as to the precise words in which the term should be expressed, it is necessary that there be a common intention as to the substance and detail of the precise variation which it is said should be made to the instrument. The last sentence of this passage should not be taken as suggesting a more stringent requirement, ( State Bank of South Australia v Macintosh (NSWSC, 31/5/95 unreported, BC9504827 at 21; Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467 at 15,470). In Bush v National Australia Bank Ltd Hodgson J said (at 407): It is necessary that the common intention be such that the Court can conclude, with the appropriate clarity, both the substance and the detail of the precise variation which needs to be made to the wording of the instrument. The parties are not required to have a common intention as to the precise words in which the term should be expressed. It follows, in my view, that it is not necessary for a plaintiff to show that the parties had a common intention as to the detail of the precise variation to be made to the instrument. It is sufficient that the Court can ascertain the parties’ common intention with sufficient clarity, that it can be satisfied that the substance and the detail of the precise variation to be made to the wording of the instrument will give effect to, and not go beyond, the intention which both parties held.” The case pursued by the defendants

It is clear that the case pursued by the defendants was that the Deed of Entitlement was intended to document an agreement that AHL would pay to HIG the first $10 million profit received by it on the development of the Land. In tabular form the defendants contention as to the formula for distribution of the funds amounts to the following: HIG AHL Wingate If aggregate consideration received by AHL is less than or equal to $10,000,000 Nil Aggregate consideration received Nil If aggregate consideration received by AHL is greater than $10,000,000 and less than or equal to $14,000,000 50% of aggregate consideration received in excess of $10,000,000 $10,000,000 50% of aggregate consideration received in excess of $10,000,000 If aggregate consideration received by AHL is greater than $14,000,000 and less than or equal to $24,666,666.66 $2,000,000 plus 75% of aggregate consideration received in excess of $14,00,000 $10,000,000 $2,000,000 plus 25% of aggregate consideration received in excess of $14,00,000 If aggregate consideration received by AHL is greater than $24,666,666.66 $10,000,000 $10,000,000 plus 75% of aggregate consideration received in excess of $24,666,666.66 $4,666,666.66 plus 25% of aggregate consideration received in excess of $24,666,666.66 The case pursued by the plaintiff

The competing case pursued by the plaintiff was that the Deed of Entitlement was intended to document an agreement which would produce the following formula for distribution of the funds: HIG AHL Wingate If aggregate consideration received by AHL is less than or equal to $10,000,000 Aggregate consideration received Nil Nil If aggregate consideration received by AHL is greater than $10,000,000 and less than or equal to $14,000,000 $10,000,000 50% of the aggregate consideration in excess of $10,000,000 50% of the aggregate consideration in excess of $10,000,000 If aggregate consideration received by AHL is greater than $14,000,000 and less than or equal to $24,666,666.66 $10,000,000 $2,000,000 plus 75% of the aggregate consideration in excess of $14,000,000 $2,000,000 plus 25% of the aggregate consideration in excess of $14,000,000 If aggregate consideration received by AHL is greater than $24,666,666.66 $10,000,000 $2,000,000 plus 75% of the aggregate consideration in excess of $14,000,000 $2,000,000 plus 25% of the aggregate consideration in excess of $14,000,000 Prior agreement

It is apparent that Mr McLeod squarely grounds his claim to having reached an agreement with Mr Tan [intended to be reflected in the Entitlement Deed] upon the anterior Heads of Agreement. Hence the principal document to which the Court may have regard in the endeavour to ascertain the parties common intention at the time of entry into the Entitlement Deed is constituted by no more and no less than the Heads of Agreement document.

Further it is quite plain from the cross-examination of Mr McLeod that the only basis which he contends he had available to him and relied upon in committing HIG to the second amendment Deed was to bring the Entitlement Deed into line with the commercial agreement which he contended had been struck between himself and Mr Tan [transcript 192,202.22]. Heads of Agreement

Returning then to the Heads of Agreement it is apparent that on the basis that the development would proceed via a joint venture agreement, prima facie, the Heads of Agreement provides that the parties (subject to certain pre-conditions not in issue) will enter into a joint venture agreement which will provide for Wingate to receive 50% of the first $4,000,000 of profit and 25% of any profit in excess of $4,000,000. Accordingly, the remaining 50% of the first $4,000,000 of profit and 75% of any profit in excess of $4,000,000 would be remaining to be distributed between the other parties to the heads of agreement. I have summarised this in a table below: Wingate Shared between HIG and AHL (in unspecified proportions) If Profit is less than or equal to $4,000,000 50% of profit 50% of profit If Profit is more than $4,000,000 $2,000,000 plus 25% of profit over $4,000,000 $2,000,000 plus 75% of profit over $4,000,000 Original Entitlement Deed

Prima facie, the words of the Entitlement Deed provide that AHL must pay to HIG, on the ultimate transfer of the Land, whatever it receives in consideration from the transfer less the deposit of $3.5 million. This amount is capped at $6.5 million. I have summarised this in a table below: HIG AHL If aggregate consideration received by AHL is less than or equal to $10,000,000 Aggregate consideration received Nil If aggregate consideration received by AHL is more than or equal to $10,000,000 $10,000,000 Aggregate consideration received less $10,000,000Note: the deposit of $3,500,000 must be subtracted from the amounts otherwise payable to HIG. Comparison of Concepts

If one looks at either the Wingate heads of agreement, the entitlement deed or second deed of amendment, one can see that the formulae stated therein (in order to calculate the distribution of funds), are functions of one concept. In the case of the heads of agreement, this concept is ‘profit’, in the case of the Entitlement Deed and Second Deed of Amendment, the concept is ‘aggregate consideration’. The defendants’ case simply contends that "it is beside the point that the word 'profit' is not used in clause 4 of the Second Deed of Amendment".

Originally the defendants had pleaded that on the true construction of the Entitlement Deed it had the effect of the Second Amending Deed. That contention has now been abandoned. It is quite apparent in any event that the terms of the Entitlement Deed are clear. It provides for the first $10 million of aggregate consideration received on sale of the Land.

The relation between the two concepts, it appears from the papers, is that whereas ‘aggregate consideration’ is the total amount received by AHL for the sale of its land (presumable after development), ‘profit’ only represents that amount of moneys received by AHL for the sale of its land which exceed its expenses. It also appears that whatever expenses are incurred, at the very minimum, they include the $10,000,000 agreed pre-development value of the Land, even though $10,000,000 was never spent by AHL in acquiring such.

Albeit that the evidence given by Mr McLeod left so very much to be desired in terms of clarity and internal consistency, he appears to have sought to contend that it had always been his intention and that of Mr Tan that: · the first $10 million of gross proceeds would be paid to AHL; · the first $10 million of profit would be paid to HIG.

Plainly the defendants case does not conform with this evidence given by their principal witness.

The true formula as put forward by Mr McLeod is a function of two concepts, ‘profit’ and ‘gross proceeds’. The two concepts, on Mr McLeod’s evidence, are related. The relationship being that gross proceeds less total expenses equals profit Worked Example

The mismatch between the formula asserted by Mr McLeod and the formula in the pleadings can be shortly shown.

Assume the land is sold for $24 million, the total cost of development having been $6 million. The cost of the land is agreed at $10 million. Therefore the profit is $8 million (being $24M less $6M less $10M).

Under the case as pleaded by the defendants, in regard to the distribution of the $24 million in funds received: · the first $10 million goes to AHL; · the remaining $14 million is shared between HIG and Wingate.

Under the formula put forward by Mr McLeod: · the first $10 million goes to AHL (being the first $10 million of gross proceeds); · there is only $8 million in profit, and this is shared between HIG and Wingate; · the remaining $6 million is not accounted for directly. However, because it forms no part of profit, it can be presumed to go to AHL (as HIG only shares in profit under Mr McLeod’s formula, and Wingate only shares in profit in the Wingate heads of agreement.).

Under the defendants pleaded case, AHL receives $10 million, and HIG and Wingate share in $14 million. Under Mr McLeod’s asserted formula, AHL receives $16 million and HIG and Wingate share in $8 million.

In the result the foundational proposition for which the defendants have contended in terms of the rectification case which is pleaded is rejected. In short the broad overview circumstances are quite simply as follows: · the essential witness who has given evidence before the Court in relation to what is said to have been the intent in respect of the arrangement documented by the Heads of Agreement is Mr McLeod; · for reasons given in the judgment his evidence is unreliable; · even if his evidence was able to be regarded as reliable, that evidence supports an intent/arrangement quite disparate from that pursued in the defendants case; · whilst it is true that there is some contemporaneous documentary material which may be said to be consistent with either Mr McLeod's evidence as to what the real arrangement was or with the arrangement posited by the defendants case, the difficulties in reaching a finding of fact upholding the defendants case include: - the very circumstance that there is such doubt as to what the arrangement was: - it being necessary to follow the somewhat uncertain context in which words to be found in the Heads of Agreement were used; - the Court not having the benefit of reliable evidence from those persons principally involved at the time when the Heads of Agreement were negotiated [only Mr McLeod gave evidence, Mr Tan did not. Mr Williams of Wingate did not] - the circumstances in which the Deed of Entitlement was: - quite clear as to its terms; - the subject, on the crucial issue, of a clear discussion between Mr Restas and Mr McLeod where the evidence of Mr Restas is accepted as reliable; - described to shareholders in crystal clear terms supporting the case of the plaintiff and negating the case of the defendants. - the very clear situation outlined to the shareholders in the Explanatory Memoranda issued for the purposes of the General Meetings of 6 August 2001.

In relation to the discussion which took place between Mr Restas and Mr McLeod it should be recalled that under cross-examination Mr McLeod conceded that Mr Restas had said to him on 6 June 2001 that it would be more appropriate if the first 10 million of consideration was paid to HIG rather than the first 10 million of profit, given that the asset was worth 10 million and that he, Mr McLeod, had understood that Mr Restas was drawing a distinction between consideration and profit and was pointing up a terminological difference between the term "profit" and the term "consideration". [Transcript 234]

Returning to the contemporaneous materials and first to the 17 May letter from Mr McLeod to the ANZ enclosing a copy of draft announcements of the same day by HTP and HIG to the ASX it is to be noted that: · the announcement on behalf of HTP states, inter alia, “HGL has the rights to the first $10 million in development profit generated from the 322 hectares of land; · the announcement on behalf of HIG states, inter alia, “the Company [HIG] will receive the first $10 million of pre-tax profits generated from the development of the Bremer Park joint venture”.

It has to be recalled in this context that Mr McLeod’s evidence was that aggregate consideration can mean profits in certain situations. This proposition likely carries within it the opposite as also being the case (that is, that profits can mean aggregate consideration). This loose approach to language was made clear by Mr Restas when discussing the drafting of the Entitlement Deed. As mentioned above Mr Restas made clear to Mr McLeod that ‘profits’ and ‘aggregate consideration’ were different concepts, in the context of the significance of the Entitlement Deed requiring to be quite clear as to what was proposed.

These difficulties in following Mr McLeod's loose use of language considerably lessen such weight as otherwise might have been able to be given on the rectification case both to these communications as well as to the 8 May 2001 letter of instructions sent to Mr Simmons.

The defendants’ submission that the form of the Entitlement Deed "was born of an error of drafting on the part of Atanaskovic Hartnell " cannot stand is exploded by the very clear evidence given by Mr Restas of his specific telephone conversation with Mr McLeod in which he raised the very issue of the initial $10 million. The rejection of the evidence given by Mr McLeod carries with it a rejection of his evidence that he did not read the critical clause of the Entitlement Deed as being inconsistent with the instructions which he had given to the solicitors. The explanatory memoranda describe the Entitlement Deed in crystal clear terms and the Court rejects as against the balance of probabilities the proposition that Mr McLeod would have been twice mistaken on such a critical issue. Likewise the explanation proffered by Mr McLeod that he read the critical clause of the Entitlement Deed on the assumption that the proposed joint venture arrangements between AHL and Wingate were in fact in place cannot be accepted as reliable evidence and is in any event imprecise in the extreme.

No submissions were addressed to the alternative version of the claim to rectification which uses the words "net profit". For that reason it is not necessary to deal with that alternative save of course to make the point that rectification claims made in the alternative often have obvious problems. The alleged breaches of fiduciary duty The principles

The following matters of principle are unexceptional: · in exercising their powers, directors occupy a fiduciary position whereas the members in general meetings do not (Ford’s Principles of Corporations Law, 11th ed, para 7.120); · a director must exercise his powers and discharge his duties in good faith, in the best interests of the corporation and for a proper purpose; Whitehouse v Carlton Hotel Pty Limited (1987) 162 CLR 285, Bailey v Mandala Private Hospital Pty Limited (1987) 12 ACLR 641; · each company in a group must be treated as having its own interest even where they are wholly owned subsidiaries; Walker v Wimborne (1976) 137 CLR 1 at 6-7, Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 92 ff, Sydlow Pty Limited (in liq) v Melwren Pty Limited (in liq) (1994) 13 ACSR 144 at 147 per McClelland CJ in Eq [wrongly referred to in Ford at para 8.140 as Santow J], ANZ Executors and Trustee Company Limited v Qintex Australia Limited (1990) 2 ACSR 676. Equiticorp Finance Ltd v Bank of New Zealand

In Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 Clarke and Cripps JJA had occasion to examine the principles which obtain in respect of breaches of fiduciary duty where directors of a number of companies within a group are required to act.

Notwithstanding the complexity of the group structure under consideration in Equiticorp Finance it may be seen that relevantly there was a vertical structure such that Equiticorp Financial Services Ltd (Aust) was a wholly-owned subsidiary of Equiticorp Australia Ltd which was in turn wholly-owned by the New Zealand company Equiticorp Finance Group Ltd. This latter company was wholly-owned by the ultimate holding company Equiticorp Holdings Ltd.

In the judgment of Giles J [quoted by Clarke and Cripps JJA at 139-140] the following appeared: “In truth, it was said, in the application of the liquidity reserve towards discharge of the Uruz Pty Ltd debt no consideration was given to the interests of Equiticorp Finance Ltd or Equiticorp Financial Services Ltd (Aust) as such (or indeed of Equiticorp Australia Ltd), but rather those companies were deprived of their liquidity reserve for what was perceived to be the interests of the Equiticorp group as a whole. That, in the submission of Equiticorp Finance Ltd and Equiticorp Financial Services Ltd (Aust), necessarily meant that there had been a breach of the fiduciary duty owed by their responsible officers to Equiticorp Finance Ltd and Equiticorp Financial Services Ltd (Aust). In the words of Pennycuick J in Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62 at 74, an intelligent and honest man in the position of a director of Equiticorp Finance Ltd or Equiticorp Financial Services Ltd (Aust) could not in the circumstances have reasonably believed that the transaction was for the benefit of those companies.”

As their Honours observed: “It is trite law that directors must exercise their powers for the benefit of the company: Kinsela (at 729). If they exercise those powers for other, and improper, purposes they will breach their duty to the company. Where a case of breach of fiduciary duties on the part of the directors is raised upon the ground that they have acted otherwise than for the benefit of the company it will be necessary for the court to determine, as a factual issue, whether the directors did exercise their powers for the benefit of the company. This is a straightforward question of fact which can, in most cases, be answered in the affirmative or negative.” Failure to give separate consideration to the interests of the company in the group which is about to participate in the transaction

Clarke and Cripps JJA then turned to the particular difficulty arises when the directors of the particular company enter into the transaction on behalf of that company because they consider that the transaction is of benefit to the group as a whole and fail to give separate consideration to the benefit of their company continuing: “Problems may, however, arise when particular companies form part of a group of companies. Mason J referred to them in Walker v Wimborne and pointed out that each transaction must be viewed according to the criterion of the interests of the company in the group which is about to participate in the transaction . Nonetheless, his Honour recognised that a transaction involving two companies in a group may benefit one of the companies directly but as well have derivative benefits for the other company: see also Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at183, per Brennan J. It may be accepted, therefore, that actions carried out for the benefit of the group as a whole may, in particular circumstances, be regarded as benefiting as well one or more companies in the group. This may occur even where, for instance, a company is providing a guarantee for its holding company or another company in the group. Similarly a transaction carried out for the benefit of one of the companies in the group, company A, may be seen to be for the benefit of another company in the group, company B… It was this difficulty which faced Pennycuick J in Charterbridge . He referred (at 74 - 75) to the submission of counsel for the company saying: “Mr Goulding contended that in the absence of separate consideration, they must, ipso facto, be treated as not having acted with a view to the benefit of Castleford. That is, I think, an unduly stringent test and would lead to really absurd results, ie, unless the directors of a C company addressed their minds specifically to the interest of the company in connection with each particular transaction, that transaction would be ultra vires and void, notwithstanding that the transaction might be beneficial to the company.” Having considered the competing contention his Lordship went on to say: “The proper test, I think, in the absence of actual separate consideration, must be whether an intelligent and honest man in the position of a director of the company concerned, could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company.”” The test accepted in Equiticorp Finance

Their Honours then made the point that this was the test which was applied by Giles J, that all parties had advised the Court that the same test should be applied on the appeal and that although their Honours were content to deal with the issues in the case upon the basis put by counsel they clearly had reservations about the test proposed by Pennycuick J. Clarke and Cripps JJA then continue: “ The directors are bound to exercise their powers, bona fide, in what they consider is in the interests of the company and not for any collateral purpose. Whether they did so or not is a question of fact. The traditional approach of the courts to this question is best explained by Viscount Finlay's statement in Hindle v John Cotton Ltd (1919) 56 Sc LR 625at 630-631 which was cited in Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 77: “Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye motive, G possibly of personal advantage, or for any other reason.” (See also Re Halt Garage (1964) Ltd [1982] 3 All ER 1016 per Oliver J at 1032.) Of course it should be borne in mind that the directors are involved in making a business decision and courts have traditionally not pronounced upon the commercial justification for such decisions. Specific reference was made to the reluctance of courts to interfere in business decisions in Howard Smith (at 74): “There is no appeal on the merits from management decisions to courts of law; nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.”” (See also Gower, The Principles of Modern Company Law , 5th ed (1992) at 586; Re Smith and Fawcett, Ltd [1942] Ch 304 at 306 and Kinsela B (at 733)) The difficulties involved in utilising the objective test

Importantly Clarke and Cripps JJA then outlined the difficulties which seemed to be involved in substituting an objective test (How would an intelligent and honest man have acted?) for the factual question raised in the proceedings: “ It may be that if a director bluntly states that he or she did not consider the interests of the particular company at all and solely had regard to the interests of the group then difficulties would arise in resolving that factual question. But the position will rarely be such a black and white one and it would usually be possible to discern whether in deciding to take certain action for the benefit of the group the directors perceived, and were justified in their perception, that in so doing they were acting for the benefit of the particular company. On the other hand it may be possible to discern that the directors embarked on a course to support the group unconcerned about the detrimental effect of the action on the particular company or were prepared to sacrifice that company for the good of the other companies in the group. A careful analysis of the factual situation will usually reveal the answer to the factual question posed although no doubt on some occasions the problem may very well be a difficult one. We are mindful of the fact that Pennycuick J was not substituting the objective test for the subjective one which had traditionally been applied. In his view the occasion to apply the objective test only arose when it was clear that the directors had not considered the interests of the relevant company at all. In a sense he proposed a legal test to be applied only in limited cases to avoid what he regarded as an absurd situation. Nonetheless we have reservations about this means of resolving those difficulties. A preferable view may be that where the directors have failed to consider the interests of the relevant company they should be found to have committed a breach of duty. If, however, the transaction was, objectively viewed, in the interests of the company, then no consequences would flow from the breach. Such an inquiry would not require the court to consider how the hypothetical honest and intelligent director would have acted. On the contrary it would accept that a finding of breach of duty flows from a failure to consider the interests of the company and would then direct attention at the consequences of the breach. However the approach adopted by the parties in this case both before Giles J and this Court requires that the Charterbridge test be applied and absolves the Court from further considering this tantalising question.”

There are a number of later decisions where Equiticorp Finance has been considered and applied or has been cited [cf Ford's Principles of Corporations Law Butterworth 2000 by Ford, Austin and Ramsay [8.140], Company Directors - Principles of Law and Corporate Governance by Austin, Ford and Ramsey, LexisNexis Butterworth's 2005 at 7.14].

The following extract is taken from the last mentioned work: “In Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd (2001) 38 ACSR 404, Bryson J also expressed reservations about the test in Charterbridge and stated (ACSR at 452) that he preferred the alternative test put forward by the Court of Appeal of the Supreme Court of New South Wales in Equiticorp Finance. However, his Honour did apply the test in Charterbridge and found that the two defendant directors had breached their duty to act in the interests of the company (ACSR at 479). “The two defendants (Duncan and Ambler) were directors of Maronis Holdings Ltd. Its principal asset was a single property, for which there existed development plans. Maronis Holdings Ltd was a member of the Girvan group of companies. At the top of the group of companies was Girvan Corp Ltd, a company listed on the Australian Stock Exchange. Girvan Corp Ltd had many subsidiaries. One of these was Girvan Corp (New Zealand) Ltd, a New Zealand company with shares listed on the New Zealand Stock Exchange. Girvan Corp Ltd, through a 100% owned subsidiary held 74% of the shares in Girvan Corp (New Zealand) Ltd. The remaining 26% of the shares were held by others, mostly members of the New Zealand public. Girvan Corp (New Zealand) Ltd, through a chain of subsidiaries, beneficially owned all of the shares in Maronis Holdings Ltd. The two defendant directors were directors of Girvan Corp Ltd, Girvan Corp (New Zealand) Ltd and Maronis Holdings Ltd. Nippon Credit provided a loan of $15m to Girvan Corp Ltd. The loan to be used exclusively by Girvan Corp Ltd and was of no commercial benefit to Maronis Holdings Ltd. The two defendant directors caused Maronis Holdings Ltd to mortgage the company’s property to Nippon Credit to secure the loan to Girvan Corp Ltd. At the time the security was provided, Duncan and Ambler were aware that Girvan Corp Ltd was experiencing serious cash-flow problems and there was a real possibility that it might not be able to discharge the loan of $15m. The two defendant directors did not consider what protection Maronis Holdings Ltd needed against the risk of Girvan Corp Ltd defaulting on the loan. Bryson J found: · The powers of directors of a company must be used for the purposes of that company. · This does not preclude the exercise of a power with a view to an advantage to be received by another company if the transaction is one for the benefit of the company entering into it. The benefit need not be direct and immediate; it may arise indirectly. The purpose of obtaining an advantage for a related company does not necessarily result in a breach of duty. There would not be a breach of duty where a benefit is derived from a transaction by two or more companies or if the company entering into the transaction receives some indirect benefit. Considering the interests of the group does not automatically result in a breach of duty. What does result in a breach of duty is lack of regard for the interests of the company entering into the transaction. · A reasonable person in the position of a director of Maronis Holdings Ltd would have been aware that there was a real possibility that Girvan Corp Ltd would be unable to discharge the loan to Nippon Credit. · The two defendant directors did not consider the interests of Maronis Holdings Ltd when having that company grant security for the loan to Girvan Corp Ltd. The interests of Maronis Holdings Ltd were wholly disregarded by the defendant directors and no person in the position of a director of Maronis Holdings Ltd could have reasonably believed that the transaction was for the benefit of Maronis. The company obtained no tangible benefit from the loan yet gave security over all its assets without obtaining protection of any kind.” “In Sydlow McLelland J (in liq) v Melwren Pty Ltd (in liq) (1994) 13 ACSR 144 at 147, Santow J found that the process by which two directors restructured operations within a group breached their duty to act in good faith for the benefit of Sydlow (S). In that case, the group restructure resulted in one of the companies, S, of which the two defendants were directors, relinquishing its assets to another group company. The recipient company was to carry out the operations. No consideration was provided by the recipient company to S other than an agreement to guarantee S’s overdraft. His Honour found that the directors’ decision to relinquish assets in such circumstances amounted to a breach of their duty to S, as being an act not in the best interests of S.”

In terms of the New South Wales Court of Appeal there has been no further development since Equiticorp Finance. In consequence although it seems to me that the objective test favoured by the Court of Appeal is clearly the correct approach I propose to consider the breach of fiduciary obligation cases pursue in the present litigation by reference to each of the alternative tests. Returning to the facts

Ultimately there are relatively few facts which require to be referred to on the subject of breaches of fiduciary obligation. As earlier outlined, although AHL was a wholly owned subsidiary of HTP and although the controlling shareholding interests in both HTP and HIG were apparently common, the critical foundational structure involved there being shareholders in HIG who were not shareholders in HTP and vice versa. Hence the structure was different from that before the Court in Equiticorp Finance.

Clearly enough at some material time Mr McLeod appreciated that he had a conflict of interest in relation to the acquisition by HTP of AHL "by virtue of his position as a director of [HIG]". The purported minutes of HTP's board of 17 May 2001 included precisely such an express declaration. The very same minutes include in the statement of those who were said not to have attended, the proposition that “likewise Mr Holland [as well as Messrs Little and Grice] did not attend this meeting as it was considered that conflict of interest issue (sic) arise pursuant to their respective positions as directors of either or both [HIG] and [AHL]”.

Mr McLeod in those circumstances gave evidence that he had abstained from voting on the transaction. He was asked why he had not abstained from voting on the transaction when the Entitlement Deed was amended. His evidence was "I have no answer for that" [transcript 285.35-45]. The real reason which underlay the Second Deed of Amendment

As already stated, prior to the Second Deed of Amendment, the auditors, PricewaterhouseCoopers, advised that the $10,000,000 value attributed to the Land in the books of AHL could not be maintained. This was so because, under the wording of the original entitlement deed, AHL was not entitled to the first $10,000,000 of monies receivable from the ultimate sale of the land. Accordingly, as I interpolate, AHL could not show in its books that it had a certain entitlement to $10,000,000 when, as the Entitlement Deed provided, it only had a certain entitlement to share in whatever was recoverable surplus to this $10,000,000.

As the evidence established, a reduction in the value of assets of AHL of $10,000,000 would result in a corresponding increase in the goodwill of AHL of $10,000,000. However, because this increased value of goodwill would not be a true and accurate representation of the position of AHL, the result would be that this increase in goodwill would have to be written-off. Hence the ultimate result would be a loss of $10,000,000 being entered into the books of AHL.

Because AHL was a wholly owned subsidiary, this $10,000,000 loss would also be reflected in the books of its parent company, HTP and correspondingly, HIG.

Accordingly, the advice of the company auditors was that without an amendment to the entitlement deed, the books of AHL would have to be changed to record a $10,000,000 loss.

The Second Deed of Amendment sought to meet this predicament.

As the financial advice went, if the Second Deed of Amendment had the effect of reserving to AHL the first $10,000,000 of monies receivable from the sale of the Land, it would not have make any change to the asset value, and therefore, would not have to book a $10,000,000 loss in its financial reports.

An important finding in terms of the whole of the evidence is that Mr McLeod was at all material times aware that the Deed of Entitlement was intended to document an agreement whereunder HIG would receive the total of the aggregate consideration received by AHL upon the sale of the land up to the amount of $10 million.

In light of: · that finding as to Mr McLeod's material state of mind · the finding reached on all of the evidence before the Court that the Deed of Entitlement: - was never intended to document an agreement that AHL would pay to HIG the first $10 million profit received by it on the development of the Land but rather - was intended to document an agreement where under HIG would receive the total of the aggregate consideration received by AHL up to the amount of $10 million there can be no doubt but that Mr McLeod breached his relevant fiduciary obligations owed to HIG in the circumstances. And this whether one applies the subjective or the objective test.

The real gravaman of the defence by the defendants and Mr McLeod to the allegation that he had breached his relevant fiduciary obligations owed to HIG was that the Second Deed of Amendment accurately recorded the true arrangement between the parties. The finding is to the contrary. These findings carry with them the necessary further finding that Mr McLeod breached his fiduciary obligations owed to HIG. This flows from the fact that the Second Deed of Amendment contained terms which were clearly adverse to HIG and favourable to AHL. It was only if the true arrangement between the parties intended to have been recorded in the Entitlement Deed had been incorrectly therein recorded as later corrected by the Second Amending Deed, that the defence to the breach of fiduciary obligation may have succeeded.

HIG was deprived of its entitlement to receive the total of the aggregate consideration received by AHL upon the sale of the Land up to the amount of $10 million. No consideration moved to HIG in this regard. Nor could there be any defence by way of a suggestion that both HIG as well as AHL were receiving a benefit from the transaction, as they were not. Nor could it be suggested that HIG was to receive some indirect benefit from the transaction. The only factor which could have justified the Second Deed of Amendment was if it had been the case that a mistake had been made in the terms of the Deed of Entitlement. Such a mistake would have been made if the Deed of Entitlement had always been intended to provide the terms which the Second Deed of Amendment sought to put in place. No such mistake had been made. Mr McLeod was well aware of that fact. In all of those circumstances an intelligent and honest man in the position of Mr McLeod as a director of HIG, could not have reasonably believed that the transaction was for the benefit of HIG.

The position in relation to Mr Holland is that he acted in ignorance, entirely unaware of what had been the anterior position and entirely unaware that the effect of the Second Deed of Amendment would be to dramatically alter the position ante. His duty was to seek to be informed as to what the anterior position was and as to what the effect of the Second Deed of Amendment would be and as to precisely why it was necessary to enter that Deed of Amendment. He did none of these things. He acted only [and unthinkingly] at the dictate of Mr McLeod. Whilst on the balance of probabilities he may have been told at the time that the purpose of the Second Amendment Deed was to clarify ‘issues’ in the Entitlement Deed, he had to do more to become properly informed and did not. He had to endeavour to find out precisely what was happening and why. He did not. Objectively viewed, the Deed was adverse to the interests of HIG. Finally he simply accepted that he did not turn his mind to the question of whether or not the fact that different companies in the Group and interests which were not the same and this because he did not understand that as a director of the different companies he had an obligation to look at their interests separately. Hence he also breached his relevant fiduciary obligations owed to HIG in the circumstances and this whether one applies the subjective or the objective test. The position is a fortiori in regard to his breaches of fiduciary obligation. Claim to be excused from breaches of fiduciary duty

Both Mr McLeod as well as Mr Holland have sought to be excused from any breaches of fiduciary duty pursuant to s 1317S or alternatively 1318 of the Corporations Act 2001 . Had it been necessary to proceed to make findings on the matter the holding would be that there are no grounds for the court acceding to that application. The position is quite clear insofar as Mr McLeod is concerned. His pivotal position is dealt with in detail in the judgment.

Whilst the position with respect to Mr Holland is a considerably different one the holding would be that there are also no grounds for acceding to his application to be so excused. The matter is discretionary. He occupied an important position as a director of HIG, a public listed company. Shareholders were entitled to his attention being given to his acts as director. His general approach having been found to simply act unthinkingly at the direction or dictate of Mr McLeod, the particular circumstances revealed in the evidence make it clear that the discretion to excuse would also not have been exercised in his case.

In any event as is made plain at the end of the Judgment, in the light of the findings the plaintiff apparently will not be seeking equitable compensation from the director. AH Bremer Share Sale Agreement The Issues

The issues raised in respect of the 23 July 2003 letter are as follows: Issue 1 · Did the parties, by the letter, rescind or abandon the Entitlement Deed as amended (to the extent that it was not abandoned by or prior to the prospectus)? Issue 2 · Is the agreement recorded in the 23 July 2003 letter legally binding? This issue requires a consideration of the terms of the letter, and of events subsequent to it. Issue 3 · If so, what were the terms? In particular, - were there conditions precedent to completion of the agreement, and, if so, - what are they and have they been fulfilled? and - what are the other terms of the agreement? [The resolution of this issue requires, to the extent of ambiguity in the terms of the letter, regard to extraneous material including commonly known circumstances] Issue 4 · What factors are relevant to the grant of specific performance, including appropriate conditions to any order.

There are of course a number of principles which require to be kept in mind in relation to these issues. It seems to me that in the first instance it is convenient to set out principles which inform the proper approach to: · the Masters v Cameron issue; · issues concerning commercial contracts with the focus upon certainty and the proper approach to construction; · ascertaining whether or not one is dealing with a condition precedent or with a condition subsequent.

It is convenient to commence with issues 2 and 3. Masters v Cameron - the principles

In Masters v Cameron (1954) 91 CLR 353 Dixon CJ, McTiernan and Kitto JJ set out the following three classes: Class 1 · Where the parties have reached finality in regard to all aspects of their agreement, but propose to have the terms restated in a formal document; Class 2 · Where the parties have reached finality in regard to all aspects of their agreement and intend no departure from this agreement, however have agreed that the performance of one or more of the terms is conditional upon the execution of a formal document; Class 3 · Where the parties intend that they will not legally bind themselves to an agreement unless a formal document is executed.

The joint judgment in Masters v Cameron made the point [at 360] that in each of the first and second classes there is a binding contract: · in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; · in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. The fourth class

McLelland J, in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 decided that “there is in reality a fourth class additional to the three mentioned in Masters v Cameron ”. This fourth class was where the parties have reached agreement to be bound immediately and exclusively by certain terms, however they envisage the making of a further contract which will replace the first, this latter contract containing, by consent, additional terms. This decision was recently affirmed by Young CJ in Eq in Helmos at [69] but has been approved on many earlier occasions. The proper approach to determination of a Masters v Cameron issue

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61, Mason P, Heydon JA and Ipp AJA was a case in which the “difficulties” of pressing too far the classical theory of contract formation based upon offer and acceptance (see also Pobije Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 per Mason P at paragraph 1). Heydon JA said in that case, whilst considering the principles of the law of contract that: “Offer and acceptance analysis does not work well in various circumstances.” [at paragraph 71]

In that case, Heydon JA set out succinctly the conventional and accepted principles of the law of contract: “The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352. The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong. The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found.”

Hence in determining the circumstances surrounding the formation of the agreement, the matrix of facts, it is the objective intent that is paramount. Whether any relevant individual representative thought that an agreement existed or that it did not exit, is irrelevant to the exercise unless there exists an argument concerning estoppel. As Lord Wilberforce has said: “When one speaks of the intention of the parties to the contract one speaks objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties.” [ Reardon -Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989]

Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1907) 5 CLR 647; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549; Geebung Investments (supra); Anaconda Nickel (supra) are also authorities supporting the proposition that in ascertaining the relevant intention, that is the intention to contract, relevant circumstances may include prior negotiation and subsequent conduct.

A fundamental question falling for consideration is whether the conduct of the parties viewed in the light of surrounding circumstances shows or is indicative of an agreement having come into existence. “In an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at any particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal; rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.” [Per McHugh JA in Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (unreported, NSWCA, McHugh, Mahoney and Hope JJA, 23 December 1988); see also Raguz v Sullivan (2000) 50 NSWLR 236 at 251]

Questions of the relevance and probative value of evidence in circumstances in which the issue concerned whether or not an enforceable contract had been entered into were also before the court in Film Bars Pty Ltd v Pacific Film Laboratories (1979) BPR 9251. As McClelland J. put it, such questions cannot properly be considered independently of a consideration of the relevant issue namely what it is in point of fact that constitutes the making of a contract in circumstances such as here obtained. As his Honour points out, such a contract is made " by the mutual communication between the parties of their respective assents to being bound by identifiable terms otherwise capable of having contractual force, the mutual communication typically taking the form of offer and acceptance ". As his Honour (citing Williston on Contract, 3rd ed, Vol 1 paragraph 21) points out, one is not concerned with the subjective thing known as meeting of the minds, but the objective thing, the manifestation of mutual assents which is essential to the making of a contract. [At page 9254]

Film Bars [at page 9255] is also authority for the proposition that: “In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances."

I approach the evidentiary issues reserved for decision in the final judgment in precisely the way in which McClelland J. approached the issues in Film Bars . In short subsequent communications may have probative value depending upon the light they throw on the proper interpretation of earlier communications alleged to constitute the contract. Post contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed [cf Brambles Holdings supra].

Subsequent communications can also legitimately be used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract.

The matter was put in the following terms by the Chief Justice (at 550 and following) with whose reasons for judgment Hope and Mahoney JJA agreed: "…The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications : Allen v Carbone (1975) 132 CLR 528 at 531-532. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated. The position is by no means so clear, however, in connection with internal memoranda… or statements as to subjective intention made by individuals in the course of giving evidence. As it happens, although the learned judge had a good deal of material of this kind put before him at the hearing, it was not particularly helpful even if admissible. In the first place, a great deal of it was equivocal and individual pieces of evidence were contradictory in effect. Some of the persons who participated in the negotiations in question were called to the witness box and vigorously examined as to what was going on inside their minds at particular times. This process in the end principally served to demonstrate what might have been expected to be the case, that is to say, that the witnesses, not being lawyers themselves, were in a state of considerable confusion about the issue that ultimately emerged as determinative of the rights of the parties …….. In so far as acts or statements of the kind referred to, not involving communications between the parties, are claimed to be relevant in a case such as the present upon the ground that they constitute an admission, it seems to me that it will often be necessary to identify with some care the fact which is said to have been admitted. As was noted, there may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not their subjective state of mind but their “intention as expressed” (cf Inland Revenue Commissioners v Raphael [1935] AC 96 at 142 per Lord Wright) and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant.” [emphasis added] Commercial contract/certainty/construction

The court is dealing with a commercial document. In endeavouring to discern the parties intent and in construing the meaning of the words used, the Court will strive to give the document a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310.

There is abundant authority that "the court should be astute to adopt a construction which will preserve the validity of the contract": per Mason J, Meehan v Jones (1982) 149 CLR 571 at 529; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 132, per Kirby P. Further the court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document [here suggested as amounting to a binding contract] that the court must attend looking in that regard to the whole of the document to discern the parties’ intent.

Where mechanical provisions intended to operate over an extended period of time are concerned the court endeavours to follow the mechanics and provisions expressed in the contract in the endeavour to follow, always by looking at the manner in which the matter is expressed, how the parties saw the contract as a working guide to the way forward . As pointed out in Biotechnology at 135, the court will however not be in a position to in effect spell out that which the parties have for themselves failed to agree upon. Nor will the court be in a position to clarify that which is irremediably obscure. Nor will the court accept for itself a discretion which the parties have, by their agreement, reserved to one or other of them. To do so would not be to give effect to the contract but to change it: Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 at 250 (PC).

Generally the proper approach is summarised in Halsbury’s Laws of Australia volume 6 as follows: "Faced with a conflict between, on the one hand, the desire to avoid making such efforts to enforce an uncertain or incomplete agreement that what is enforced is something that the parties did not in fact agree to and, on the other hand, upholding the reasonable expectations of parties who believed they had a contract and to avoid the reproach of being the destroyer of bargains, the courts give primacy to the need to uphold agreements, particularly executed agreements and commercial arrangements, wherever possible. However, account must always be taken of the nature of the agreement contemplated and a court will be less inclined to ignore elements of uncertainty and incompleteness where the transaction is one of magnitude, particularly where terms which are usually found in an agreement of the type before the court are absent" [110-460]

An agreement may be uncertain where the language used by the parties is such that the court is unable to attribute to it a sufficiently precise and clear meaning in order to identify the scope of the rights and obligations agreed to. An agreement may be incomplete; although the language used in the agreement is perfectly clear in its meaning, part of the transaction may still remain to be agreed upon so that there is no completed agreement and the alleged agreement will fail.

Most recently, the High Court has observed in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293 that: “In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating". Such statements exemplify the point made by Brennan J in his judgment in Codelfa : “The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.””

To similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord Hoffmann in Investors Compensation Scheme [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting.

In Investors Compensation Scheme at 912 – 913, it was said that: “The background knowledge which a reasonable person in the position of the parties will be regarded as having, for the purposes of the construction of contracts, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man with the proviso that it should have been reasonably available to the parties”. “There is of course no doubt but that the court is entitled to inquire beyond the language and to "see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view": Prenn v Simmonds [1971] WLR 1381 at 1384 per Lord Wilberforce : Lakatoi Universal & Walker [2000] NSWSC 113 at par [1039].”

Clearly primacy must be given to the actual words used in a written contract. McColl JA in her judgement in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [66] enunciated the following principles: “[69] If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109–110 per Gibbs J (as he then was). However, in construing written contracts it should be presumed that the parties did not intend their terms to operate unreasonably. The more unreasonable the result a party’s construction would produce, the more unlikely it is that the parties would have intended it. If the parties did intend an unreasonable result, it is essential that that intention be made “abundantly clear”: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251 per Lord Reid. [70] Dealing with the circumstances where there are internal inconsistencies in a contract, Gibbs J said “it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument.”: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. [71] Gibbs J’s statement in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 that “the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", finds reflection in the statement in International Fina Services AG v Katrina Shipping Ltd (“The Fina Samco”) [1995] 2 Lloyd’s Rep 344 at 350 per Neill LJ (with whom Roch and Auld LL.J agreed) that the primary focus is the agreement itself which “must speak for itself, but … must do so in situ and not be transported to a laboratory for microscopic analysis”. [72] Consistently with this approach, it has been held that if detailed semantic and syntactical analysis of a written contract lead to a conclusion that flouts business commonsense the contract must be made to yield to business commonsense: Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 per Lord Diplock; applied by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd , above, at 198 [43]. In Maggbury, after referring to Lord Diplock’s observations, Gleeson CJ, Gummow and Hayne JJ added: “what in respect of a particular contract comprises ‘business commonsense’, as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible”.”

In Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Santow JA [with whom Meagher JA and Stein AJA agreed] [22] after referring to the above extract from Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292–3 continued: “To this I would add the observation of Lord Steyn, writing extra-judicially on “The Intractable Problem of the Interpretation of Legal Texts” (2003) SLR 1 at 7. After pointing to the shift from literal to purposive interpretation, he adds the caveat that it would be an oversimplification to say that there has been a homogenous shift towards a purposive interpretation of all legal texts. Nonetheless he says: “ In a network of contracts governing a construction project, parties ought generally to be able to rely on the obvious meaning of the interlocking texts”.

Hence I take it as axiomatic that: · the Court endeavours to give primacy to unambiguous words used in a written contract, this matter generally being approached in the manner outlined by McColl JA in Peppers Hotel Management supra; · the proper approach seeks the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably been available to the parties in the situation in which they were at the time of the contract” ( Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 citing Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114; Peppers Hotel Management Pty Ltd supra at [66 et seq]; · commercial contracts should be construed so as to be given a sensible commercial operation: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide and Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA at [64].

Against that setting of principle I return to the issues principally commencing with issues 2 and 3 as described above. Was the 23 July 2003 letter legally binding? If so, what were its terms?

Clearly enough one commences with the background leading to the 23 July 2003 letter but also requires to deal with the events following the signing of that letter in order to ascertain the parties objective intent in signing the letter. The background Events leading up to letter of 23 July 2003 Late 2002

In late 2002, steps were taken by Group, Timber and Wingate to endeavour to agree on the terms of the joint venture contemplated by the Heads of Agreement.

In December 2002 Timber entered into a Facility Agreement with GE Capital Finance Pty Limited.

At around this time Timber business was under capitalized and trading results were poor (eg. T318.45). The GE facility

The GE facility comprised a Revolving Loan Facility Limit of $40 million, which was reducible to $30 million no later than 30 June 2003 and a Bridging Loan Facility of $5.1 million which was repayable no later than 30 June 2003 (B13 Tab 373 at 4412).

From a reading of the facility agreement, it is clear that one concern that GE Capital had was that HTL might not recover the debt of $20 million [in the Facility described as the “Inter-Company Loan] that was owing to it from HIG. An outstanding debt of this magnitude would adversely affect HTL’s liquidity and potentially its capacity to meet its obligations to GE Capital. To this end, clause 15.1(s) was included in the facility agreement. This clause provided that HTL would be in default if it failed to prove by 31 March 2003, to GE Capital’s satisfaction, that $8 million of this inter company loan debt had been repaid to HTL.

Apart from this clause of the facility agreement, HIG was otherwise under pressure to repay at least part of the $20 million owing to HTL [see email at PX Vol 9, tab 242]. To this end, a meeting of directors of HTL and Mr Tan and Mr Knox was held on 21 March 2003 at which it was agreed that: · HIG would capitalise $13 million of the loan owed to HTL; · HIG would cancel 234.4 million shares its held in HTL; · HTL would raise $5 million in share capital; · AH Bremer would be transferred to HIG; and · The remaining $4.5 million owing to HTL would be paid by HIG from the sale proceeds of the Land, however, a minimum of $2 million would be paid immediately from the proceeds of another project (Capral). [see PX, vol 8, tab 243] 31 March 2003 - Hardboards- Shareholders Agreement

On 31 March 2003 Hardboards entered into the Shareholders Agreement with Wingate pursuant to which Hardboards agreed to transfer to Wingate one of the two shares it held in AH Bremer Park Pty Limited for $200.00 (Clause 2.1 at 3107). The purpose of the agreement was to set out the basis upon which the shareholders of AH Bremer would regulate its operations: (Clause 3.1).

In the agreement it was acknowledged that the share in AH Bremer was subject to the GE ‘s charge and that Hardboards’ obligation to transfer the share to Wingate only arose once GE’s requirements were satisfied (Clause 2.1 and 4.1).

The Shareholders Agreement also contained conditions that:- (a) Wingate would advance to AH Bremer $3 million which would be used to repay debt to Hardboards (Clause 4.4); (b) Wingate would advance a further $1 million to AH Bremer to reduce debt to GE Capital (Clause 4.5); and (c) AH Bremer would build for Hardboards the WTP, and that until the WTP was completed, AH Bremer would make available to Hardboards the land to enable Hardboards to dispose of waste water to meet the needs of its obligations (Clause 11).

By clause 12.2(j) of the Shareholders Agreement (at 3120) neither party was permitted without the consent of the other to “in any way attempt to give any other person an interest in the Project of in AH Bremer Park”. The sale of shares in AH Bremer was regulated by clauses 12.3 and 12.4. The grant of an interest in AH Bremer Park otherwise than in accordance with the Agreement is an event of default: clause 16.1(c) at 3122. The Minter Ellison letter-8 April 2003

The Shareholders Agreement was submitted to GE Capital which indicated conditions of its consent in a letter from its solicitors, Minter Ellison of 8 April 2003. Minters recorded as one of the commercial terms to which GE had agreed, that GE be satisfied that arrangements were in place for funding the construction and operation of the WTP at no cost to Hardboards. That letter was emailed to Mr McLeod, who circulated a copy to all directors of Group, Timber and Hardboards (affidavit 184).

The GE conditions have never been met. The Shareholders agreement has therefore never been completed. AHL currently retains legal title to both the shares in Bremer. These proceedings will determine whether or not HIG may specifically enforce the claimed binding 23 July 2003 letter/agreement.

Mr Tan (by now a director of HIG) was aware of the negotiations concerning the Shareholders Agreement. He was sent a copy of the executed document on 31 March 2003. HTP Share Offer - Prospectus - 28 May 2003

The Prospectus (dated 28 May 2003 – at B10 Tab 262 at 3410) issued for the purpose of offering shares in HTL to the market contained the following statements (at 3428):- “It is assumed that the remaining 50% of AH Bremer will be sold to HGL prior to 30 June 2003. The impact of this transaction will be to reduce $4.0 million of property specific borrowings from [Timber’s consolidated balance sheet”] and at 3432: “Waste water is currently disposed by means of irrigation on the 319 hectares of vacant land surrounding the plant. A water treatment plant is planned to enable the Hardboards operations to be fully self-contained on the 24 hectares immediately surrounding the plant. On 31 March 2003, subject to GE approval, AHL entered into an agreement to sell a 50% shareholding in AH Bremer which will hold, subject to the completion of a land subdivision, 295 hectares of the vacant land surrounding the plant. AHL will retain full land usage rights for the distribution of waste water over the land held by AH Bremer until the water treatment plant is made available by AH Bremer on a cost and performance basis acceptable to AHL”.

Clause 3.7 of the prospectus made clear that the current Board of HTP was finalising negotiations for the appointment of two non executive directors to the board of the company and that on the appointment of the non executive directors, Mr McLeod intended to retire as chairman but would continue in his capacity as an executive director [PX 3424].

Clause 3.8.2 of the prospectus [PX 3428 at sub paragraph 4] indicated particular assumptions in terms of the forecast net interest expense issues concerning timing and amount of cash flows including the following: "AH Bremer-It is assumed that the remaining 50% of AH Bremer will be sold to [HIG] prior to 30 June 2003. The impact of this transaction will be to reduce $4 million of property specific borrowings from the Company's consolidated balance sheet Referred to Section 3.11.4 for further details on AH Bremer."

Clause 4 of the Prospectus included the following under the heading "Balance Sheets”: “To illustrate the effect of the Offer on the Company, a pro-forma consolidated balance sheet of the Company as at 30 April 2003 is set out below. In addition to the Offer, the pro-forma consolidated balance sheet shows the effect of: i) significant transactions which have occurred since 30 April 2003; and ii) proposed significant transactions. The significant transactions and proposed significant transactions, in addition to the Offer are: i) The sale on 16 May 2003 of surplus land held by the Company for $2 million. The proceeds of the sale have decreased debt by an equivalent amount; ii) The completion of the sale of THD on 30 May 2003, for approximately $14.25 million which represents net asset value. The proceeds from the sale will be applied against the Company’s borrowings and to improve working capital balances; iii) The proposed sale of Hudson Imports and AH Bremer to HGL for nominal consideration. This increases the intercompany loan owing by the Vendors to the Company from $18.5 million to $25.1 million; and iv) The cancellation of 220 million shares owned by HGL in satisfaction of $17.6 million owed by the Vendors to the Company. The balance of the intercompany loan owing by the Vendors to the Company will be repaid following the sale of 14 million shares subject to this Offer and the sale of property. The Company will retain a mortgage over the shares in AH Bremer until any outstanding portion of the intercompany loan is fully repaid to the Company. In summary, the effect of the Offer and the transactions identified above, is that net tangible assets per share will increase from 11 cents per share to 21 cents per share after allowing for estimated costs associated with the Offer.” 5 June 2003 - Attachment 1 to Shareholder Agreement

On 5 June 2003 Mr McLeod and Mr Tan signed a document called “Attachment 1 Shareholder Agreement between AHL, AH Bremer and Wingate and HGL to be included” (“Attachment 1”) (B10 Tab 265 at 3477).

That document recorded a proposal that Group and Timber/Hardboards effect a sale of the remaining share in AH Bremer to Group, on terms consistent with the 31 March 2003 Shareholder Agreement with Wingate, on the basis that HGL would replace AHL in the existing Shareholding Agreement. Thus attachment 1 provided that:- (a) AH Bremer would build a WTP to Hardboard specification “as per Shareholders Agreement” (paragraph 7); and (b) AH Bremer would grant Hardboards a “lease” to dispose waste water over the property (paragraph 6); (c) The cost of the WTP would be borne by AH Bremer, with Group paying the other prospective shareholder (Wingate) half the anticipated cost of the WTP out of its profit share (paragraph 10). That is, Group would bear the whole cost of the WTP; (d) AH Bremer will repay to AHL $3 million (clause 3), leaving a liability of $2.5m to be repaid from Group future profit share (clause 4).

The proposed amendments to the Shareholders Agreement appear never to have been effected. Letter from Chairman of HIG to shareholders forming part of notice of general meeting of shareholders for 16 June 2003

This letter from Mr McLeod included the following: “I am writing on behalf of the Board to let you know about the forthcoming meeting to be held on 16 June 2003 and to seek your approval for a proposed transaction involving the Company and Hudson Timber & Hardware Limited (HTH), a 91.2% owned subsidiary of the Company. The proposed transaction is designed to reduce the Company’s shareholding in HTH, increase the liquidity of HTH Shares and repay the debt owed by the Company to HTH. The proposal, if approved, enables the Company to largely extinguish the significant loan payable to HTH, leaving the Company effectively debt free. In addition, the proposal will allow HTH to focus independently on its core businesses, being the manufacture of timber products. The Company will retain an approximate shareholding of 22% in HTH, after completion of the proposed recapitalisation of HTH…. The proposal the subject of the Resolution has been reviewed by an independent expert, Court & Co. Their report concludes that the proposal is “not fair but reasonable”. The Independent Expert believes that cancellation price of 8 cents per share is “not fair” given that the underlying net tangible asset backing of HTH equates to 10 cents per share. However, the cancellation is “reasonable” as the Company is extinguishing a significant debt that it would otherwise be unable to pay, a portion of which is currently due and payable. This report is set out in Appendix A to the Shareholder Booklet.” 17 June 2003 - HTP letter to ASIC

On 17 June 2003 Timber sent a letter (signed by Mr Scadden) to ASIC summarizing the proposed transaction (B10 Tab 279 at 3630). By then Mr Scadden was the joint Company Secretary of Group (B12 tab 360 at 4318), Timber (tab 357 at 4261) and AHL (tab 358 at 4300). That letter included the following: “Hudson owns 100% of the shares in Australian Hardboards Limited (AHL) which in turn owns 100% of the shares in AH Bremer Park Pty Ltd (“AH Bremer”). In March 2003, AHL entered into an agreement with Wingate Properties Pty Ltd (“Wingate”), subject to Hudson’s financier’s approval, to acquire 50% of AH Bremer from AHL for $200, (see J1). Wingate is a property development company. All transactions and estimates are based on the April 2003 Balance Sheet. Transactions The following explains the sale of the remaining 50% of AH Bremer to Hudson Investment Group Ltd (“HGL”) for nominal consideration of $100, following the sale of the initial 50% to Wingate. 1. The sale of AH Bremer should be seen in context of what is being sold to HGL and it is best portrayed in terms of the balance sheet of AH Bremer, (see G) which in summary is the following: - Prior to the Prospectus being issued the Board of Hudson requested that an independent valuation of the land be undertaken by Chesterton Corporate Property Advisors. - Chesterton issued a valuation on 30 April 2003 valuing the 269 ha of the land, not part of the factory land, at $3.82m, (see B1). - In addition, following the sale of apportion of Lot 4 to Capral which is discussed below, a further 26 ha of land contained in Lot 4 will be transferred to AH Bremer which would be valued at $370,090 (based on the same Chesterton valuation of $14,200 per ha). - Total land value in AH Bremer, at independent valuation of $4.2m for the 295 ha, (see B1 and E1). - AH Bremer acquired the land from the AHL for $9.15m (295 ha), (see G). - In addition AHL transferred debt obligations of $5m to AH Bremer, (see G and J2), which has subsequently been partially reduced to $4m. - Following the transfer of the debt there remains a further payable from AH Bremer to AHL of approximately $5.5m as at 30 April 2003, (see G). 2. Steps of the sale transaction: - Before AHL transfer any AH Bremer shares, to either Wingate or HGL , a sum of $3m, being part of the $5.5m receivable owing to AHL by AH Bremer, as noted above, must be paid to AHL, see (C1 & J3). - The remaining $2.5m receivable will be paid to AHL from HGL profit share generated by AH Bremer in the future development of the land, (see C2). - The financial obligations (estimated to be $7.4m, see J4) to build the Water Treatment Plant (“WTP”) will remain with AH Bremer. Once built and operating at the satisfaction of AHL, the WTP will be transferred to AHL at nominal cost, (see C3 & J5). 3. In relation to the Company entering into an agreement to sell 20 ha of land for $2m, this must be seen in isolation. · The land was sold to enable the Capral Aluminium Limited project to proceed. Capral are undertaking a $130m Aluminium extrusion works project on the site. · Due to the large number of employees this would bring to the region, the Ipswich City Council allowed this project to be “fast tracked” and the land to be rezoned “industrial”. As stated above a portion of the un-rezoned property was retained by AH Bremer. · Hudson received $2m and utilised these proceeds to pay down debt ($1m), as noted above, and for working capital purposes ($1m), (see H). · If a rezoning of the land is finally made by the Ipswich City Council in the future, there will be significant upfront costs to as a result of this rezoning. These costs will include items such as council contributions, park land allocations, development costs, environmental, EPA requirements etc. Ah Bremer has the responsibility for these costs. · All profits, under a profit Sharing Deed with Wingate (see E), expected to be around $1.5m to $2.0m, generated from the Capral project accrue to AHL, (see E2). 4. The sale of AH Bremer is dependent on both GE Finance and AHL agreeing to the following: i) $3m of the receivables outstanding being paid to AHL on the transfer of the shares to both Wingate and HGL; and ii) a suitable financing structure be put in place for the construction of the WTP to ensure no operating or financial risk to AHL; iii) an Agreement for the distribution of the remaining profits to pay out the AHL $2.5m receivable as noted in 2 above. Summary Although the independent land valuation is $4.82m, the directors have re-valued the land to $9.2m, creating a receivable to AHL of $5m, (see H). The net assets of AH Bremer remain zero therefore the nominal consideration in the sale of AH Bremer: · A reduction of $4m in non-current liabilities, being third party loans following the sale of 100% of the shares in AH Bremer. · A receivable of $5.5m, of which $3m is payable on the transfer of shares in AH Bremer. This brings the cash flow availability forward. · The consideration, at no risk to AHL, of the WTP for an estimated cost of $7.4m (see J4). In total this is a maximum value of $16.9m that will accrue to Hudson/AHL. This should be compared to the current AH Bremer independent land valuation of $4.2m. This cashflow as it is generated will enable Hudson to develop opportunities as they arise. The rationale for HGL to acquire a 50% interest in AH Bremer is that it can take a medium to long terms approach to develop a large track of land in conjunction with Wingate. There are no estimates of the value this land development will generate, but the upfront costs are so large that a funding joint venture partner to take 50% of the project is being identified, see J.” The 23 July 2003 letter

The letter which bears HIG letterhead and is addressed to Bruce McLeod is set out below. I have inserted numbers in square brackets, at the beginning of each paragraph of the letter as an aid to analysis: “Dear Bruce AH BREMER PARK PTY LIMITED AND THE IPSWICH LAND [1] We refer to the Hudson Timber & Hardware Limited Notice of Meeting and Explanatory Statement dated 16 May 2003 (‘Notice of Meeting’) and the ensuing shareholders meeting held on 16 June 2003. [2] Hudson Timer Products Limited (formerly Hudson Timber & Hardware Limited) (‘HTL’) have agreed to sell and Hudson Investment Group Limited (‘HIG’) has agreed to purchase for $100.00 Australian Hardboards Limited (‘AHL’) [sic] remaining 50% shareholding in AH Bremer Park Pty Limited (‘AHB’), as described in paragraph 2.3.4 of the abovementioned Notice of Meeting for $100.00. [3] HIG acknowledges that for AHL to transfer the 50% shareholding in AHB, GE Capital Finance Pty Limited have confirmed that the release of the fixed and floating charge over AHB will be subject to: i) the payment of $3m to AHL, being a part payment of the receivable owing by AHB to AHL; and ii) a fully funded, EPA approved, Water Treatment Plant for approximately $7.5m. [4] Following the transfer of the 50% shareholding HIG agrees that AHL will retain a mortgage over HIG’s 50% shareholding in AHB until payment of the remaining, approximately, $1m owing to AHL by AHB. [5] Further, HIG understands that the liabilities of AHB are approximately $10m and include: a) an intercompany loan between AHB and AHL for $4.7 million to be repaid from the sale of the Ipswich land; as set out in the Shareholder Agreement dated 31 March 2003 between AHL, AHB and Wingate Property Pty Limited (‘Shareholder Agreement’). This will be reduced by $3 million following the payment set out in i) above; b) an intercompany loan due from AHB to HIG for $1 million resulting from the recent sale of part of Lot 4 of the AHB land; and c) loan to external financiers amounting to $4 million (Perpetual Trustee $1.5 million and Pacific Portfolio Investments Pty Limited $2.5 million). [6] The Shareholders Agreement dated 31 March 2003 between AHL, AHB and Wingate Properties Pty Limited (‘Wingate’) required Wingate to loan $3 million to AHB, such funds will then be used by AHB to repay the $3 million intercompany loan due to AHL, as per i) above. [7] The above letter has been prepared to set out the general terms agreed between Hudson, AHL and AHB and is in no way meant to replace or prejudice the Shareholder Agreement or the Profit Share Deed dated 11 April 2003 between AHL, AHB and Wingate and further both HIG and Hudson, agree that Atanaskovic Hartnell be instructed to prepare an agreement to reflect the above matters. Yours faithfully [signed] Vincent Tan Director Hudson Investment Group Limited I agree to the above requests [signed] Bruce McLeod Managing Director Hudson Timber Products Limited” Mr McLeod's evidence as to the circumstances in which the letter came into existence

Mr McLeod gave affidavit evidence that on or about 23 July Mr Tan handed to him a draft of what became the 23 July letter, informing Mr McLeod that the letter was needed to be supplied to Mr Tan's bankers. Mr McLeod gave affidavit evidence that following his having briefly reviewed the letter he indicated that it could not be signed as it would need the approval of both HTP and GE Capital but that if something was needed for Mr Tan's bankers, Mr McLeod was prepared to review the draft and to have Mr Simmons review it. Mr Tan is said to have indicated that he needed the letter straight away and Mr McLeod to have said that in that circumstance, all he could give to Mr Tan was an understanding that HTP would undertake certain actions to ensure the progress of the transaction. Mr McLeod's further affidavit evidence was that he then made substantial changes to the original draft. His evidence was that he had some misapprehension about the intent and urgent need for the letter as they had already agreed the terms of the proposed sale in the 5 June 2003 Agreement. His affidavit evidence was that in his next conversation with Mr Tan the following was said: “Mr McLeod: Vincent, why do you need this letter, surely the agreement we signed in June is okay? Mr Tan: No that’s fine and that is what the lawyers should be working off. I just need something that is a little less formal and simpler for my banker.”

Mr McLeod gave affidavit evidence that he assumed Mr Tan was utilising this letter in an attempt to raise finance for the water treatment plant. On the basis of that assumption, he had made the changes to Mr Tan's letter, with the intention that it was not to form a new agreement, but rather it was a confirmation that the parties intended that certain steps would be undertaken in accordance with the 5 June Agreement.

Under cross-examination it was put to Mr McLeod that Mr Tan had in Mr McLeod's presence, asked Mr Scadden to review the letter and that Mr McLeod subsequently signed the letter. He was unable in cross-examination to recall any involvement in the process by Mr Scadden at all. Under cross-examination Mr McLeod continued to maintain that he had said that there was no way he could sign the letter although it was put to him that this was never said by him.

As earlier indicated Mr McLeod’s evidence was not generally reliable unless corroborated by other acceptable evidence. In those circumstances it is particularly difficult to reach a finding as to whether or not this particular section of the evidence should be accepted. To my mind the only and correct approach to take is to accept that some conversation took place between Mr McLeod and Mr Tan at the time when the letter was drafted but to reject as unreliable, Mr McLeod's evidence that the gist of his discussion with Mr Tan amounted to the letter being no more than indicative of an understanding that HTP would undertake certain actions to ensure the progress of the transaction and that the letter had only the limited purpose of being provided to Mr Tan's bankers. The defendant’s submissions

The defendants in support of their proposition that what occurred is seen to have been an objective intention by the parties that they were not binding themselves to an enforceable agreement unless a formal document was executed, not only rely upon the anterior documents but also point to the course of correspondence between the parties post 23 July 2003, this correspondence being put as an indicator that the parties conducted themselves as if no binding or enforceable agreement was in place. The contention is that in particular, the parties refrained from describing the letter of 23 July 2003 in a manner which suggested it contained the terms of any agreement between them.

The defendants rely upon the following matters in their written submissions: · The 30 June 2003 annual report of Timber (dated 17 September 2003: at 2996 and thus published when there was no dispute between the parties) recorded its arrangement in relation to AH Bremer in the following terms (B9 Tab 237 at 3013): “(d) proposed sale of AH Bremer Park Pty Limited The prospectus lodged with the Australian Stock Exchange on 29 May 2003 contemplated the disposal of A H Bremer Park Pty Limited. The disposal was subject to certain pre-conditions which are not satisfied at the date of this report. The preconditions relate to the receipt of $3,000,000 in cash and the construction of a water treatment plant at the cost of the developers of A H Bremer Park Pty Ltd.” · After 23 July 2003, Atanaskovic Hartnell were instructed to prepare documentation to “reflect” the matters referred to in the letter. · Atanaskovic Hartnell, Mr Tony Hartnell and Mr Chris Todd acted for Group and Mr Danny Simmons and Mr Lance Sacks acted for Timber. · Analysis of the correspondence between those parties, and of correspondence passing between Group’s current solicitors, Deacons, and the solicitors then acting for Timber (Withnell Hetherington) shows that Group did not assert that the 23 July 2003 letter comprised a legally binding obligation. · Especially significant in this respect is the letter from Deacons to Timber of 24 October 2003, at B10 Tab 302 page 3686. If it had been thought by Group in October 2003 that the terms of a binding agreement were contained in the letter of 23 July 2003, then Deacons’ would have made such a contention in that letter. [I interpolate to note that this letter included: “In relation to the…transfer of shares in AH Bremer, HIG is ready willing and able to complete this transfer of shares and HIG has requested on many occasions for HTP to complete this transfer of shares. In order to expedite the transfer of shares in AH Bremer, as a matter of urgency, would you please advise what remaining action is required to be undertaken by HTP for it to be able to complete the transfer of 50% of the shares in AH Bremer to HIG”] · A response by the solicitors for Mr McLeod, Withnell Hetherington Solicitors, on 6 November 2003 states: “We are instructed by Mr McLeod that he has forwarded to, and discussed with, Mr Vincent Tan, Director of Hudson Investment Group Limited, the requirements for the transfer of shares in AH Bremer. We are instructed that these requirements are well documented and have been known by Mr Tan since April 2003.” · Deacons’ reply of 10 November 2003 (B10, tab 305 page 3690) asserts that the obligation of Timber to transfer a 50% shareholding to Group is “acknowledged by HTP as follows” and then lists the relevant passages of the prospectus and supplementary prospectus and explanatory memorandum without reference to the letter of 23 July 2003. The letter of 23 July 2003 is enclosed and referred to, with no suggestion that it provides the basis for the obligation to sell a share of AH Bremer. Indeed the Deacons letter indicates that Group is “ready, able and willing to consummate this transaction on the basis that has been disclosed to HTP’s shareholders”. The transaction was disclosed to Timber shareholders in the prospectus and annual report of Timber as including an obligation on AH Bremer to build a water treatment plant, repay debt, and give Timber rights over the land until completion of the WTP. · As at November 2003, the parties agreed that the terms of the sale were not yet finalized and that there were conditions precedent to be satisfied (McLeod paras 234 to237 and the 6 November 2003 note at B10 Tab 303 at 3688). · After 23 July 2003 Group continued to negotiate critical terms of the agreement, both directly (see B10, tab 303 page 3688) and through its legal representatives, including:- · Whether the matters stated in the 23 July 2003 letters as being relevant to GE Capital’s agreement to release its charge were matters of mere acknowledgement or conditions precedent (see for example B11 Tab 311 page 3725, tab 321 page 3766 (Group ultimately agreed they should be conditions precedent: see B11 Tab 323 page 3828). · The issue of an easement by AH Bremer in favour of Hardboards (a matter not referred to in the 23 July 2003 letter). · Whether the agreement should incorporate what was described as a “drop dead” date (see B10 Tab 307 page 3693). · Whether, and the terms on which, Group should guarantee various payments. · The manner in which the requirements of GE Capital should be accommodated (GE Capital’s solicitors contributed to correspondence from late January 2004 – see B11 tab 345 page 4071). · The draft agreement prepared in November 2003 (B11 Tab 316 page 3731), and provided by the solicitor for Group as reflecting the “agreement reached between the parties” contains terms for the funding of the WTP and repayment of debt (page 3737) and includes as a condition precedent AH Bremer’s obligation to provide a lease containing the right to dispose of water on the land until construction of the WTP (page 3739). · In December 2003 McLeod was able to provide to GE Capital (Tab 322 page 3767) documents relating to the sale of shares in AH Bremer including an easement, fixed and floating charge and loan agreement, and to anticipate the provision of a novation deed, equitable mortgage of shares and guarantee and indemnity, demonstrating that the documentation required to effect the deal greatly exceeded the terms of the letter agreement. · In the result, so far as the evidence reveals, negotiation towards final documentation of the deal ceased in February 2004 without final agreement being reached. Dealing with the issue

There is no doubt but that the task of determining on the materials in evidence, whether or not the parties intended to enter a legally binding agreement in terms of the 23 July 2003 letter, poses difficulties. The problem really lies in the shifting sands of the parties anterior proposals essentially reaching as far back as the original Heads of Agreement. The background history chronicled above records the movements in the thinking of those who were involved in the late 2002 – 2003 restructuring proposals. The concerns of GE Capital had also to be taken into account as without its acquiescence very little could be achieved.

There are different possible indicators to assist in the determination of what was the parties objective intent in signing the 23 July 2003 letter. Representations to shareholders

One approach to endeavouring to ascertain the parties objective intent in signing the letter is to focus upon the fact that by the date of the letter, the proposals had moved through into representations made to shareholders. As is apparent, the very first paragraph of the letter makes express reference to the HTP Notice of Meeting and Explanatory Statement dated 16 May 2003 and to the shareholders meeting held on 16 June 2003.

The Shareholder Booklet for the meeting to be held of shareholders of HTP for 16 June 2003 had included [PX 3541] the following: “2.3.4 Sale of Shareholding in AH Bremer Business Park Pty Limited The Company proposes to sell its remaining 50% shareholding in AH Bremer to HIG for $100, which approximates its net asset value. The Board of the Company believes that this transaction is an arm’s length transaction for the purposes of the related party provisions of the Corporations Act, and, as a result, Shareholder approval is not required to approve the sale. Following the Company’s proposed sale of its 50% shareholding in AH Bremer to HIG, the intercompany loan balance owed by HIG to HTH will increase by $5,000,000 (refer Section 2.3.1) as the Debt will be outside the HTH controlled group of companies. To ensure this balance is recoverable, the Company proposes to obtain a charge over HIG’s shares in AH Bremer until the entire intercompany loan of $5 million is repaid.” [I note that the Explanatory statement issued by HIG in its Shareholder Booklet in relation to its proposed General Meeting for 16 June 2003 included a very similar explanation reading (at [PX 3378]) in paragraph 2.3.2: “2.3.2 Purchase of Shareholding in AH Bremer Park Pty Limited The Company proposes to purchase a 50% shareholding in AH Bremer from HTH for $100, which approximates the net assets of AH Bremer. The Board of the Company believes that this transaction is an arm’s length transaction for the purposes of the related party provisions of the Corporations Act and, as a result, shareholder approval is not required to approve this purchase. Following the proposed purchase of the 50% shareholding in AH Bremer, the Company’s consolidated loan due to HTH will increase by $5 million, as AH Bremer has a $5 million loan payable to a wholly owned subsidiary of HTH (refer Section 2.3.1). To ensure this balance is recoverable, HTH proposes to obtain a charge over the Company’s shares in AH Bremer until the entire intercompany loan of $5,000,000 is repaid by AH Bremer. AH Bremer is required to repay $3,000,000 of this loan on or before 30 June 2003.”]

Clearly enough having presaged the proposed share sale in these communications to shareholders, it is arguable [“the presage perspective”], that the balance of probabilities favours an intent to achieve some form of documentation to confirm the proposed arrangements. Hence the Masters v Cameron issue. [Arguably however if communications to shareholders are to be given primacy in the attempt to discern the objective intent of the letter, the HTP Annual Report dated 17 September 2003 provides a counter balancing picture referring as it does, to the disposal of Bremer being subject to unsatisfied pre-conditions including the construction of the water treatment plant.] The Minter Ellison Letter

It may be thought that there is a further factor which is consistent with the presage perspective mode of looking at the parties objective intent. I refer here to the letter from Minter Ellison of late April 2003. The letter identified a number of shortcomings in the Shareholders Agreement of 31 March 2003, one being that there was as yet no binding obligation on any party to buy out AHL's shareholding and to assume AHL's obligations under the Shareholders Agreement to fund the Project [as defined in the Shareholders agreement]. This left AHL exposed to the risk that it would remain a shareholder and not be in a position to fund as required under the Shareholders Agreement. [PX 3169.2]

One reason for the 23 July letter may very well have been an attempt to treat with the stated concern by Minter Ellison. Hence it is therefore arguable that on the balance of probabilities, this may, at least in part, have been a reason for the 23 July letter being drawn and intended to bind the parties. The instrument itself

As earlier indicated the instrument itself is given primacy on the matters of construction where unambiguous words are used. Although the Masters v Cameron question is somewhat different in it’s focus it remains clear that a very close examination of the instrument said to bind the parties will usually be foundational, or at least of the utmost significance in the task of ascertaining objective intent.

Form is also sometimes of special relevance. Hence together with other considerations I have taken into account the degree of formality in the letter. It is of course important to take into account the fact that such a document is prepared by, one assumes, laymen who will often not be expected to use the terms of art which will later be used once the lawyers become involved.

Paragraph 2 uses the words " has agreed ". Paragraph 4 uses the word " agrees ". Paragraph 6 uses the words " will then be used " which it seems to me are reasonably formal. Paragraph 7 expressly states that the letter has been prepared to set out “ the general terms agreed " between the named parties.

Whilst it is true that the word "request" is a curious one to find at the point where one of the parties is executing such an agreement, the fact is that the document is formally signed by HIG by its then director Mr Tan, and by HTP by Mr McLeod as managing director. The signatures provide an indication of a real degree of formality attached by the parties to the letter, although the effect of the word ‘request’ may suggest something less than a binding agreement. If indeed Mr Tan had had the above described discussion with Mr Mcleod to the effect that the letter was to be submitted to Mr Tan’s bankers, use of the word ‘request’ may be explicable. The issue cannot be resolved on the state of the evidence. Remaining uncertainties

Another particularly significant approach to the question of objective intent concerns a very close focus upon the number of remaining uncertainties which still required clarification and the fact that when one looks at the whole of the material transaction proposed, the ultimate Agreement foreshadowed in the last sentence of the letter would have to be executed by a number of additional parties in order for it to be binding on all necessary parties. This is likely why the final paragraph refers to “the general terms agreed" and seeks confirmation that the letter is in no way meant to replace or prejudice the Shareholder Agreement or the Profit Share Indeed of 11 April 2003 between AHL, AHB and Wingate. Decision

Notwithstanding what I have referred to above as the 'shifting sands', the events leading to the signing of the letter seem ultimately to have thrown up a fairly clear set of proposals and one might easily infer that by the time the letter was signed, it had become reasonably important to have the agreement documented, even if only within the Group. It seems clear from the materials leading up to the 23 July 2003 letter that the bald proposition that HIG was simply to purchase the AHL remaining 50% shareholding in Bremer Park for $100, does not in any way shape or form explain the whole of the transaction in terms of what is objectively seen to have been intended. The context seems to have been clearly explained in the letter from HTP to the ASIC of 17 June 2003 signed by Mr Scadden. This letter followed many months of negotiations and thought given by companies within the Group to permit compliance with the pressure being placed upon the Group by GE. GE's Facility Agreement required a pay down of the inter-company loan owned by HIG of $8 million by 31 March 2003. The complicated arrangements contemplated to cope with this situation have been chronicled above, importantly involving the prospectus offering of HTP shares.

Having carefully considered: · the terms of the letter; · all of the material documents anterior to the signing of the 23 July 2003 letter; · all of the material documents post the signing of the 23 July 2003 letter; the Court's finding is that the letter falls within third Masters v Cameron category: the terms of the letter/agreement were not intended to have, and did not have any the binding effect of their own.

As earlier indicated, one of the considerations which to my mind suggests that the parties objective intent is seen, in the light of all of the relevant evidence, not to have been to bind themselves by the letter to an enforceable agreement simply concerns the number of "loose ends" remaining to be ‘tied’, notwithstanding the terms of the letter. These are pointed up in the subsequent correspondence/negotiations between the solicitors for the parties but of course, importantly, include the manner in which the requirements of GE Capital should be accommodated, as well as the difficulties to be apprehended in obtaining a consensus as to precise details with respect to the funding of/arrangements concerning the proposed Water Treatment Plant. To my mind the “acknowledgment” [paragraph 3 of the letter] is insufficient to demonstrate that the letter coped with the loose ends. The many matters dealt with in the documents provided by Mr McLeod to GE Capital in December 2003 make plain the complexity of the arrangements and terms which remained to be agreed upon, and importantly agreed upon not only by the parties who had signed to the 23 July letter but also by the other parties affected.

Reference has already been made to the document entitled "Attachment 1" Shareholder Agreement dated 5 June 2003 and signed by Mr McLeod on behalf of HTP and by Mr Tan on behalf of HIG. That document had no independent contractual effect if only for the reason that Wingate was not a party to the document but additionally because the document simply reads as a type of action statement as opposed to an agreement. But the very matters which were dealt with in the document point up the number and type of arrangements/agreements remaining to be negotiated, not only on 5 June 2003 but also as at 23 July 2003.

Another consideration concerns the whole of what the parties 2003 path seemed to comprise. Clearly enough the 23 July letter proceeded on the presumption that HIG as well as HTP/ AHL would not contribute to the costs of the development and would not share in any of the profits: witness the timetable set out in both the Shareholders Agreement and the 23 July letter under which AHL would be repaid any and all debts owing to it by Bremer.

An important consideration it seems to me is to be found in the fact that the 23 July letter was clearly intended not to replace or prejudice the Shareholder Agreement of 31 March 2003 and it would plainly become necessary for Wingate to sign to a Shareholders Agreement which would comprehend the sale by HTP to HIG of the remaining 50% shareholding in Bremer. If it be that the parties were [as the defendants case would have it] proceeding against a background to the effect that the First and Second Deeds of Amendment were unexceptionable and enforceable, it would seem to have been necessary for the agreement contemplated in the last paragraph of the 23 July letter to treat with whether or not that agreement, either by itself, or read together with the earlier restructuring events of 2003, constituted the parting by AHL of its control or beneficial ownership of the Land otherwise than on arms length terms and in a circumstance where the consideration to be received was cash payable at the date of the disposal [cf Entitlement Deed clause 5]. This is the type of complexity which would require to be unravelled presumably by some form of agreement. Whilst the intent was for AHL to part with its shareholding in Bremer for the sum of $100 [AHL of course to receive other benefits from the disposal of its interest in Bremer], yet still these other benefits, at least as expressed in the subject documents to date, did not constitute "cash payable". Further there may have been debate concerning the question of the proper construction of clause 5 of the Deed of Entitlement [immaterially varied by the Second Deed of Amendment] and whether or not the terms of the agreement to be negotiated and signed by all necessary parties could or would amount to a "Disposal" within the meaning of clause 5. That matter would seem to have been important to be treated with.

In the above reference to the earlier restructuring events of 2003, I do not suggest that entry into the 31 March 2003 Shareholders Agreement would have constituted a "Disposal" within the meaning of clause 5 of the Entitlement Deed [immaterially varied by the Second Deed]. It seems clear that the entry into that Shareholders Agreement was wholly consistent with the commercial regime which both AHL and HIG had envisaged would be entered into at the time when the Entitlement Deed was signed. Nonetheless the path which had been taken during 2003 raised sufficiently closely, the question of the possible engagement of clause 5, to have meant that looking at the matter objectively, the parties would have needed to at least deal with the issue in the agreement which was to be negotiated. Abandonment The principles

It is clear that a contract can be terminated by abandonment. In Summers v Commonwealth (1918) 25 CLR 144 Isaacs J at 151-152 put the principle as follows: "Whatever the terms of a contract may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it… In my opinion, that is the legal position here. Informally, but effectively, the parties have so acted in relation to each other as to abandon or abrogate the contract".

In that case a contract for the supply of blocks of marble was entered into and each party adopted a different view as to what the seller was bound to do in performance of the Contract. After months of disputation, the purchaser purported to give a notice of cancellation of the contract which was held to be ineffective. Thereafter the plaintiff took no step towards performing his contract, which originally was to have been completed in four months. He appeared to have maintained his determination not to proceed on the defendant's basis, and to have acquiesced in considering his obligation at an end. The Commonwealth also apparently considered it as at an end, because they procured the marble elsewhere. [cf Hope JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 324].

There has in recent times been some consideration of differences in approach taken in the United Kingdom. In CGM Investments Pty Ltd v Chelliah [2003] FCA 79 Finklestein J [whose opinion as to principle was not departed from by the Full Court [2003] FCAFC 279 sub nom Wallera Pty Ltd v CGM Investments Pty Ltd ] set out the position in the following terms: “[18] In my view, the authorities to which I have referred establish not only that an agreement can be abandoned by conduct, but also that the question whether an agreement has been abandoned does not require one to examine whether the parties actually had the intention of abandoning the agreement; only whether their conduct, when objectively viewed, manifests that intention. This conclusion accords with the objectivist theory of contract which is now irrevocably entrenched in our law: Taylor v Johnson (1983) 151 CLR 422. See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, where McHugh JA (as his Honour then was) said (at 336) that “[t]he weight of authority in favour of the objective theory is too great”. [19] The position seems to be different in England. In Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854 the question that arose for consideration by the House of Lords was whether an arbitration agreement had been abandoned by delay. The speeches of the Law Lords disclose three different approaches to the resolution of that question. One approach (which I might describe as being similar to the Australian approach) is that of Lord Brandon who stated (at 913) that “[t]he question whether a contract has been abandoned or not is one of fact”. He went on to add that (at 914): "Where A seeks to prove that he and B have abandoned a contract in this way, there are two ways in which A can put his case. The first way is by showing that the conduct of each party, as evinced to the other party and acted on by him, leads necessarily to the inference of an implied agreement between them to abandon the contract. The second method is by showing that the conduct of B, as evinced towards A, has been such as to lead A reasonably to believe that B has abandoned the contract, even though it has not in fact been B’s intention to do so, and that A has significantly altered his position in reliance on that belief. The first method involves actual abandonment by both A and B. The second method involves the creation by B of a situation in which he is estopped from asserting, as against A, that he, B, has not abandoned the contract.” [citation omitted] But these views may be contrasted with those of two other Law Lords. Lord Diplock said (at 915): "To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply. To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other, what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide. That is what English lawyers mean when they resort to the Latin phrase consensus ad idem and the words that I have italicised [underlined] are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law.” Lord Brightman said (at 924): "To entitle the sellers to rely on abandonment, they must show that the buyers so conducted themselves as to entitle the sellers to assume, and that the sellers did assume, that the contract was agreed to be abandoned sub silentio. The evidence which is relevant to that inquiry will consist of or include: (1) What the buyers did or omitted to do to the knowledge of the sellers. Excluded from consideration will be the acts of the buyers of which the sellers were ignorant, because those acts will have signalled nothing to the sellers and cannot have founded or fortified any assumption on the part of the sellers. (2) What the sellers did or omitted to do, whether or not to the knowledge of the buyers. These facts evidence the sate of mind of the sellers, and therefore the validity of the assertion by the sellers that they assumed that the contract was agreed to be abandoned. The state of mind of the buyers is irrelevant to a consideration of what the sellers were entitled to assume. The state of mind of the sellers is vital to a consideration of what the sellers in fact assumed.” The principal differences between the speeches of Lords Diplock and Brightman on the one hand and Lord Brandon on the other is the former Law Lords insistence that a party must in fact understand that the other is intending to abandon, or is consenting to the abandonment (as the case may be) of the arbitration contract; Lord Brandon however appears to impose no such requirement. However, the difficulty with the views of all the Law Lords is the emphasis they place on the classic principles of formation by “sequential offer and acceptance”. Phillips LJ in Tankrederei Ahren Keil GmbH v Frahuil SA (The Multitank Halsatia) [1988] 2 Lloyd’s Rep 486, 491, criticised this approach, correctly in my view, saying that “[s]uch an analysis necessarily provides a somewhat formal and artificial process by which an agreement to abandon an arbitration is reached by silence.” [20] As to the differences in approach of Lord Brightman and Lord Diplock, Phillips LJ said (at 492): "Lord Diplock [indicated] however, that the claimant must subjectively understand that the respondent is consenting to the abandonment of the arbitration. It is at this point that his speech conflicts with that of Lord Brightman who indicated that the state mind of the claimant as to the proper inference to be drawn from the conduct of the respondent was irrelevant. In recent cases Lord Justice Neill has expressed tentative approval of Lord Diplock’s conclusion, in The Agrabele, Lord Justice Nicholls tentative disapproval in The Anticlizo and Lord Justice Bingham has stated that the position is unclear [in] the same case”. (Citations omitted) As an illustration of the confusion see also: Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA [1985] 2 Lloyd’s Rep 18; Thai-Europe Tapioca Service Ltd v Seine Navigation Co. Inc (The Maritime Winner) [1989] 2 Lloyd’s Rep 506. [21] In Australia this controversy need not be entered. First the cases to which I have referred, have opted for the objective ascertainment of the intention to abandon a contract. Further, a number of cases make it quite clear that the existence of a contract does not depend upon the strict application of the doctrines of offer and acceptance. It is sufficient in this regard to refer to Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, a case in which Ormiston J (as he then was) had to consider that very issue. After a comprehensive review of Australian and overseas authorities he concluded (at 81) that a contract “can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances”. So it must be with an implied agreement to abandon a contract. [22] In my opinion to show that a contract has been abandoned by inactivity on both sides it is necessary to establish that the inactivity (which may sometimes amount to no more than silence on one side) produces the clear inference that one party does not wish to proceed with the contract and the other party consented to that situation.”

With respect I entirely adopt the above summary by Finklestein J of the applicable principles. Nothing therein said departs from the principle as generally summarised in Summers .

The defendants contended that a contract may be abandoned where parties enter into inconsistent contractual obligations. Nothing in the principles enunciated by Finklestein J would take issue with this proposition. The operative word is "may". Exposing the Issue

The proposition for which the defendants contend is that the contract constituted by the Entitlement Deed is seen to have been abandoned for the reason that the parties in relation to the 2003 restructuring arrangements, are seen to have entered into inconsistent contractual obligations.

The defendants argument runs as follows: Proposition 1 · On any version of the Entitlement Deed, AHL covenanted to make a payment to HIG from the proceeds of the sale of the Land. Proposition 2 · That covenant could only be performed by AHL whilst it owned the Land and was entitled to receive the proceeds of sale. Proposition 3 · The letter/agreement of 23 July 2003 for the transfer by AHL to HIG of 50% of its shareholding in Bremer [when read the light of the anterior Shareholder Agreement of 31 May 2003] meant that following crystallisation of the agreement referred to in the last paragraph of the 23 July 2003 letter, AHL would transfer the other 50% of its shareholding in Bremer to Wingate, hence leaving AHL with no shareholding interest in Bremer. Proposition 4 · Absent any shareholding interest in Bremer, AHL could not perform its Deed of Entitlement covenant to make a payment to HIG from the proceeds of the sale of the land. Proposition 5 · The Entitlement Deed is therefore seen to have been abandoned as the parties had entered into a new contract entirely [or to an extent going to the very root of their earlier contract], which earlier contract is inconsistent with the latter contract. Decision on Abandonment

There is no substance in the abandonment contention.

The Entitlement Deed was entered into on 18 June 2001 being the same date as the Share Purchase Agreement and being part of the same transaction. At that time HIG ceased to hold the issued shares in AHL and HTP acquired those shares, HTP continuing to be a wholly owned subsidiary of HIG.

The operative provision in the Entitlement Deed was the event of the ultimate control over or ultimate beneficial interest in the Land changing in any way ["the Disposal"], in which event AHL covenanted, on the date of the Disposal, to make the material payment to HIG.

HIG was to be secured by the mortgage provided for in the Entitlement Deed whereunder AHL was to grant a mortgage to secure the payment of the amounts to which HIG would be entitled in the event of a Disposal.

In December 2001/January 2002 AHL transferred the title of the Land to Bremer, then its wholly owned subsidiary. [PX 2341]

At that time there was no change in the ultimate control over or ultimate beneficial ownership in the Land. That control/beneficial ownership still remained with AHL. Hence even by this time, the defendants proposition 2 did not hold true. AHL was no longer the owner of the Land and strictly speaking had no entitlement [save of course in the looser sense of its capacity as shareholder], to receive the proceeds of sale. However even in this situation it was possible that the ultimate control over or ultimate beneficial ownership in the Land could change hence triggering the Disposal provision in clause 4 of the Entitlement Deed. So that the fact that AHL was no longer the owner of the Land did not mean that the operative provisions of the Entitlement Deed fell away or became impotent/ otiose. And the mortgage provided for in the Entitlement Deed continued to protect HIG in this circumstance.

Arguably the parties to the Entitlement Deed were entitled to proceed upon the assumption that in reality as long as AHL remained a shareholder in Bremer, in the event that the Land was developed by a joint venture agreement with an outside party [the likelihood being Wingate], HIG's clause 4 Entitlement Deed benefit would filter down to it from AHL's shareholding entitlement, as on distribution.

In any event it is apparent from the terms of the 2003 restructuring arrangements leading up to in the 23 July 2003 letter/agreement, that what was proposed was that AHL would transfer 50% of its shareholding in Bremer to HIG and what was anticipated was that the agreement contemplated in the last paragraph of the 23 July letter/agreement would be negotiated and that as part of that agreement, AHL would transfer the other 50% of its shareholding in Bremer to Wingate.

It was not impossible that the agreement contemplated in the last paragraph of the 23 July letter/agreement may never be consummated. The uncertainties at least included the need to obtain GE's approval to the Shareholder Agreement. That would have left HIG with its 50% shareholding in Bremer and AHL with the other 50%. In that circumstance it simply cannot be said that the 23 July letter radically or at all changed the contractual position which had obtained from the date of the Entitlement Deed, through the circumstance that saw the title to the Land transferred to Bremer.

Whilst it is not necessary to go further into the possibilities, the above reasoning makes quite clear that the parties had not by 23 July 2003, entered into a new contract which was inconsistent with the Entitlement Deed. And on the above Masters v Cameron findings the 23 July letter was itself not a binding agreement.

The other approach taken by the defendants was to refer to the lack of mention of the Entitlement Deed in the documentation throughout 2003 and to focus upon the Prospectus which went out to shareholders without any mention of the Entitlement Deed. The matter is dealt with below in relation to discretionary defences. However, in terms of the principles earlier set out, the lack of mention of the Entitlement Deed does not produce the inference necessary to establish an abandonment of the Entitlement Deed.

The abandonment submission is rejected. Discretionary defences

The defendants have contended that as a matter of discretion the Court ought not grant specific performance of the Entitlement Deed to HIG.

The central proposition for which the defendants contend relies upon the following factors: · the lack of mention of the Entitlement Deed in the May 2003 prospectus or in any of the explanatory memoranda published in respect of the prospectus; · the prospectus recording the Land as a $10 million asset on the consolidated balance sheet of HTP; · the prospectus dealing not only with an offering of new shares but also involving an offering by HIG of 14 million of its existing shares in HTP: that offering made in conjunction with the proposal whereunder the bulk of HIG's shareholding in HTP would be cancelled in satisfaction of HIG's indebtedness of $17.6 million to HTP; · HIG having sold it’s shares for value on the basis that the Entitlement Deed did not exist: the current owners of HTP having invested in HTP and purchased shares from HIG, on that basis; · the now attempt by HIG to enforce the entitlement Deed which was not disclosed to prospective purchasers. Dealing with the issue

The Court is dealing with suggested hardship or unfairness to shareholders who subscribed for the prospectus offering, effectively being third parties to the proceedings.

Clearly in some circumstances hardship suffered by a third-party will afford a defence to a suit for specific performance: Meagher, Gummow and Lehane's Equity Doctrines Remedies, Fourth edition Butterworths LexisNexis 2002 at [20-110]; Spry Equitable Remedies, 4th ed, 198 et seq.

The hardship or unfairness which specific performance may cause, whether to a defendant or a third party, is to be balanced against the hardship and inconvenience that would be caused to the plaintiff should it be denied specific enforcement and confined to other remedies. Relief is granted or refused accordingly as the balance of justice is found to incline one way or the other: cf Spry supra at 183.

It is clear that the prospectus was verified as being not misleading or deceptive by the directors of both HIG as well as HTP and of Raffles Equities Ltd [a wholly owned subsidiary of HIG which also held shares in HTP].

In truth at least as between HIG and HTP, it cannot be suggested that any blame for the failure to refer to the Entitlement Deed should be sheeted home only to HIG.

There are considerations which speak against a principled exercise of the Court's discretion being to refuse to grant specific performance of the Entitlement Deed on the above described grounds of suggested hardship/unfairness.

At a threshold level it is somewhat doubtful to be precise as to what is the hardship or unfairness caused to those prospective shareholders who viewed the HTP prospectus. This is highlighted by comparing the prospectus which was propounded [‘the actual position’] against a hypothetical prospectus which recognised the original Deed of Entitlement (and not the Second Deed of Amendment) as in force [‘the correct position’].

Under the actual position, the prospective shareholders were made aware that HTP was losing an asset worth $10 million for an aggregate sum of $200, plus other benefits (for example, the water treatment plant).

Under the correct position, the Bremer asset would be valued at nil in HTP’s accounts (in accordance with the advice provided by the company’s auditors in August 2001), with possibly a contingent liability of $10 million. Prospective shareholders would have thought that HTP was receiving the $200 plus other benefits for the cost of an asset which had no value, or for the cancellation of a $10 million contingent liability. The reason why prospective shareholders would think that the $10 million contingent liability was being cancelled was because, after the proposed disposal of Bremer to Wingate and HIG, it would not be receiving any monies as a result of the joint venture development, and accordingly, would not have to pay any monies to HIG.

As this shows, the prospective shareholders were shown, in the actual prospectus, a picture which involved HTP giving up more than the correct prospectus would have shown to be given up.

This is regardless of whether, under the correct position, this $10 million contingent liability was disclosed. To put it another way, under both the actual and the correct positions, HTP was receiving exactly the same thing: $300 plus other benefits (the water treatment plant for example). However, under both positions, HTP is shown to be giving up a different thing for what it is to receive. Under the actual position, the shareholders were told HTP was giving up a $10 million asset. Under the correct position, they would have been told that HTP was giving up a nil value asset.

That the plan that AHL would dispose of all its shares in Bremer has not been fulfilled to date is immaterial to this analysis, as in either situation regarding the prospectus, the position of the shareholders is the same. Under the actual and correct prospectuses, shareholders would have been led to believe that the plan to dispose of Bremer would be completed.

In those circumstances it is difficult to see that an order for specific performance should be refused on discretionary grounds in terms contended for by the defendants.

However in any event, and even if the above analysis be flawed, the balancing exercise [in weighing the hardship or unfairness which specific performance may cause, whether in a defendant or a third party, against the hardship and inconvenience that would be caused to the plaintiff should it be denied specific enforcement and confined to other remedies] seems to me to incline on HIG's side. The whole of the complex of circumstances is taken into account and against the whole of the background matrix, the principled exercise of the Court's discretion is to grant specific performance of the Entitlement Deed. Short minutes of Order

The above reasons ought to be sufficiently clear to enable the parties to bring in short minutes of order: · Appropriate declarations will be made declaring void each of the two purported amendments to the Entitlement Deed; · Specific performance is to be ordered in respect of the Entitlement Deed; · The specific performance suit in respect of the Bremer Share Sale Agreement fails; · The defendant's rectification cross-claim proceedings fail.

In the manner in which the plaintiff’s claim proceeded, bearing in mind the above findings, I did not understand the plaintiff to pursue equitable compensation on its causes of action against the directors.

The parties will be given an opportunity to address on costs on the occasion when short minutes of order are brought in. I certify that paragraphs 1 - 385 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 12 August 2005 ___________________ Susan Piggott Associate 12 August 2005