FEDERAL COURT OF AUSTRALIA Martech International Pty Ltd v Energy World Corporation Limited [2006] FCA 1004 CONTRACT – variation – termination – interpretation – managing director of company – service contract with his private company – annual fee payable – company in financial difficulty – unilateral temporary reduction in fee by managing director – whether variation of service contract – entitlement to recover shortfall – change in status of managing director to executive director – change of duties – whether service contract terminated – whether termination fee payable – implied term – reasonable duty of care – whether breach by managing director authorising payment by company on advice from senior officer where company not liable to make payment CORPORATIONS - directors – duties – statutory duty – common law duty – fiduciary duty – reasonable care and due diligence – reasonable reliance on advice of officer – no breach of duty TRADE PRACTICES - misleading or deceptive conduct – representation of intention to enter into service contract – alleged representations by silence – no representations made – no misleading or deceptive conduct – managing director of company authorising payment by company on erroneous belief – whether constitutes misleading or deceptive conduct by managing director's private company to the company of which he is managing director – no misleading or deceptive conduct WORDS AND PHRASES 'terminate' – 'termination' Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) s 51A Trade Practices Act 1974 (Cth) Foakes v Beer [1884] 9 App Case 605 cited Vanbergen v St Edmunds Properties Ltd (1933) 2 KB 223 cited Australia & New Zealand Banking Group Ltd (ACN 005 357 522) v Ringrong Pty Ltd (ACN 005 496 855) [1995] FCA 722 cited Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 cited Brambles Nationwide Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 cited Nationwide Produce Holdings Pty Ltd v Linknarf Limited (2005) Aust Contract Reports 90-424 cited Vroon BV v Fosters Brewing Group Ltd (1994) 2 VR 32 cited British and Beningtons, Limited v North Western Cachar Tea Co Ltd [19232] AC 48 cited Morris v Baron & Co [1918] AC 1 cited Williams v Moss Empires [1915] 3 KB 242 cited United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340 cited Tallerman & Co Pty ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 cited Dan v Barclays Australia Ltd (1983) 46 ALR 437 cited Permanent Building Society (In Liquidation) v Wheeler (1993) 10 WAR 109 cited Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 cited Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 cited Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 cited Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 cited Bridge v Campbell Discount Co Ltd [1962] AC 600 cited R v Social Services Secretary, Ex parte Khan [1973] 1 WLR 189 cited Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854 cited Re HIH Insurance Limited (In Prov Liq); Australian Securities Commission v Adler and Others (2002) 41 ACSR 72 cited Darvall v North Sydney Brick and Tile Co Ltd (1989) 16 NSWLR 260 cited Carter on Contracts (Butterworths, 2002) MARTECH INTERNATIONAL LTD ACN 009 022 799 v ENERGY WORLD CORPORATION LIMITED ACN 009 124 994 WAD 65 OF 2004 FRENCH J 3 AUGUST 2006 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 65 OF 2004 BETWEEN: MARTECH INTERNATIONAL PTY LTD ACN 009 022 799 Applicant AND: ENERGY WORLD CORPORATION LIMITED ACN 009 124 994 Respondent ENERGY WORLD CORPORATION LIMITED ACN 009 124 994 First Cross-claimant AUSTRALIAN ENERGY EQUITY PTY LTD Second Cross-claimant MARTECH INTERNATIONAL PTY LTD ACN 009 022 799 First Cross-respondent FLETCHER MAURICE BRAND Second Cross-respondent JUDGE: FRENCH J DATE OF ORDER: 3 AUGUST 2006 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant has judgment against the respondent in the sum of $71,663.65. 2. The application is otherwise dismissed. 3. The parties to file written submissions as to pre-judgment interest and costs within 14 days. 4. The cross-claim is dismissed. 5. The cross-claimants are to pay the cross-respondents' costs of the cross-claim to be taxed, if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 65 OF 2004 BETWEEN: MARTECH INTERNATIONAL PTY LTD ACN 009 022 799 Applicant AND: ENERGY WORLD CORPORATION LIMITED ACN 009 124 994 Respondent ENERGY WORLD CORPORATION LIMITED ACN 009 124 994 First Cross-claimant AUSTRALIAN ENERGY EQUITY PTY LTD Second Cross-claimant MARTECH INTERNATIONAL PTY LTD ACN 009 022 799 First Cross-respondent FLETCHER MAURICE BRAND Second Cross-respondent JUDGE: FRENCH J DATE: 3 AUGUST 2006 PLACE: PERTH REASONS FOR JUDGMENT Introduction 1 In 1985 Mr Fletcher Brand set up a company now known as Energy World Corporation Ltd (Energy). He came from a marketing background but wanted to promote the use of natural gas in the transport sector. From the outset Mr Brand was the managing director of the company and provided his services in that capacity under successive agreements made between Energy and his private company, Martech International Pty Ltd (Martech). 2 Energy grew to become a substantial public company with interests in gas and power projects in Australia and overseas, including Indonesia and India. In 1999 however, it experienced financial difficulties. Its share price dropped and its principal financier the Commonwealth Bank of Australia (CBA) advised that it was not prepared to refinance or renegotiate a $115 million facility which it had provided. 3 Energy explored various options including asset sales. In the end a new investor came to its rescue in the form of Energy World International Ltd (EWI), whose principal was Mr Stuart Elliott. As an aspect of the restructuring that followed EWI's involvement, Mr Elliott replaced Mr Brand as managing director and Mr Brand became an executive director of the company. Ultimately, he resigned from the company in November 2001. 4 The parting of the ways between Mr Brand and Energy has given rise to the present litigation. Mr Brand's company, Martech, has made a variety of claims against Energy. One of the claims is for a shortfall of fees following its unilateral, but temporary, reduction in the fees paid under the service contract for the period from 1 March 2000 to 30 September 2000. That shortfall is claimed at $71,663.65. Martech also claims a substantial Termination Payment in excess of $800,000 which it says is due under the contract by reason of the change in Mr Brand's status from managing director to executive director and the change in his duties. Claims for damages for misleading or deceptive conduct are also made. 5 For the reasons that follow, I consider that Martech is entitled to the shortfall in agreed fees for the period 1 March 2000 to 30 September 2000. I do not consider that there is any entitlement to a Termination Payment. Nor do I consider that any of the other causes of action brought by Martech have been made out. 6 Energy and its subsidiary, Australian Energy Equity Ltd (AEE) cross-claim against Martech and Mr Brand arising out of a payment made in respect of a power station development in India. This development is known as the Vypeen Combined Cycle Power Project (the Vypeen Project). It is said that, in 1999, Mr Brand authorised a milestone payment in connection with the development of the Vypeen Project when the contractual condition of a Sale and Purchase Agreement, under which that payment had to be made, had not been satisfied. The relevant condition was that approvals had been obtained from the Indian Government for the importation of condensate fuel for use as an interim fuel in the proposed power station. A clearance given by one Ministry was later contradicted by another. It is alleged that Mr Brand failed in his duty to Energy and AEE by authorising the payment without taking reasonable care or exercising due diligence to ensure that it was due. 7 In my opinion because of Mr Brand's reasonable reliance on the judgment of a senior officer of Energy and the circumstances surrounding the payment, I am satisfied that he did not fail in his duty and the cross-claim against him and Martech in that respect should be dismissed. Energy World and Martech in 1999 - Background 8 Energywas incorporated in March 1985 and listed on the Australian Stock Exchange (ASX) in December 1989. Fletcher Maurice Brand has been a shareholder of Energy since its incorporation and its Managing Director from that time until 29 September 2000. His services as Managing Director were provided under consecutive agreements entered into between his private company, Martech and Energy. One such an agreement was made on or about 28 May 1999 (the Agreement). It provided that Mr Brand was to act as Energy's managing director for the period 1 July 1999 to 30 June 2003. Martech was to be paid a fee of $500,000 per annum, reviewable on 1 July in each year of its term and to be increased by at least the annual percentage increase in the CPI on each such occasion. Under Energy's Constitution, adopted in 1998, Mr Brand as managing director was not required to retire on a rotational basis as were other directors of Energy. The services of most of Energy's senior staff were provided under consultancy agreements made with companies controlled by those staff members. In 1998 all of these agreements contained provision for termination payments calculated according to the length of service and payable if termination occurred other than by resignation or for cause. 9 In October 1997 Energy negotiated a two year facility with the CBA for a maximum advance of about $115 million. Monies advanced under the facility were to be repaid or rolled over for a ten year period in January 2000. However towards the end of 1999 the CBA advised Energy that it was not prepared to refinance or renegotiate the facility. It wanted the money repaid. At that time Energy's share price had declined. It had reached a peak of about $1.60 in the middle of 1998 and had declined to between 30 and 35 cents in the second half of 1999. The shares continued to decline through 2000. Energy Board meeting - 3 February 2000 10 At a meeting of the Energy Board on 3 February 2000 Mr Brand reported that the CBA facility had been extended to 29 February 2000. The CBA had refused to commit to a longer term. It would not agree to any extension until after the settlement of the sale of one of the company's projects known as Basin Bridge. This stance created a significant liquidity problem for Energy. The Board of Directors canvassed its options including refinancing, asset sales and reduction of overheads. It also considered seeking an injection of capital from a third party. 11 Present at the Board meeting was Stuart Elliott, the managing director of an unrelated company, EWI. He was a non-executive director of Energy. Also present, by invitation, was Mr Ian Jordan an Executive Director of EWI. He had been appointed to the Board of Energy on 29 November 1999 as an alternate director to Mr Elliott. 12 There was discussion at the meeting about a possible capital injection by EWI, which had previously been under consideration. EWI had commissioned a due diligence report by Poynton Corporation which it had received in draft on 21 January 2000. Mr Elliott said that EWI had confidence in Energy's asset base and that the company had a lot of potential. His group was prepared to put in $10 to $15 million through a funding arrangement and to underwrite a rights issue. However, he wanted to see a change in Energy's management. It suffered from a negative market perception which he estimated was worth at least 10 cents per share. He expected EWI would be a bigger shareholder in the future. It had already invested substantially in Energy and was concerned about management performance, particularly because of the size of write-offs made in September 1999 for the year ended 30 June 1999. Mr Elliott also queried the level of overheads at the corporate office and was told by Mr Brand that staff levels had dropped by 20 over the preceding 12 months. 13 The minutes of the meeting record that the EWI proposal was discussed in the absence of Messrs Ellliott and Jordan. They rejoined the meeting after that discussion and were informed of the status of the CBA facility. Mr Elliott said that EWI could make $5 million available with $10 million as a standby facility. However in return he would need 'some management autonomy'. The Chairman of the Board, Ronald Punch, said it was important that Mr Elliott complete his proposal so that it would be clear to the Board what he was preparing to do and how he saw his future management role. Mr Elliott said that initially he would expect to put in some financial and/or technical personnel. He expected the Board to decide on the role of EWI appointees and the persons to whom they would report. The Board resolved that Mr Punch, Mr Brand, Mr Hayes, the executive director finance, and Mr Elliott meet with the CBA to discuss the debt reduction program. Mr Elliott also asked that his representative from Poynton Corporate attend. 14 Mr Brand said, in evidence, that he told the Board that there had been a large reduction in staff over the previous months and that he had asked Energy's consultants to take temporary reductions in their fees pending the sale of the Basin Bridge project and other assets. They had agreed and the reductions would take effect from 1 March 2000. Mr Brand said he also told the Board that he would reduce his fees temporarily from $500,000 per annum to $300,000 per annum. Mr Bill Hornaday, who was chief operating officer, had agreed to reduce his fee to $200,000. The Chairman Mr Punch, said in effect that the proposed reductions were appreciated. Mr Brand was not cross-examined on that evidence. 15 Mr Brand's evidence was that the arrangements made with Energy's consultants, other than Mr Hornaday, contemplated that their arrears of fees would be paid up when assets were sold. These arrangements covered Messrs Bridgewood, Trigalvcanin and Lindsay. The arrangement he made with Mr Hornaday was similar to his own, namely that the reduction would be temporary and arrears would be paid in options and bonuses. 16 Mr Punch said in his evidence-in-chief that he did not recall Mr Brand making a statement about his fees at the Board meeting. He said it was unlikely that he personally would have thanked him for the reduction in his fees although why that would be so is not apparent. There is no record of Mr Brand's statement in the minutes of the meeting. Mr Punch accepted in cross-examination that he had no memory of what was said at the meeting other than what appeared in its minutes. He said: 'I have no direct recollection of it. It may well have been stated, but I have no recollection of it.' However, in a letter of 12 March 2000 to Mr Elliott, referred to later in these reasons, Mr Punch acknowledged that Mr Brand had already effected a reduction in his drawings to $300,000 per annum from between February 2000 and 30 June 2001. 17 Mr Elliott and Mr Jordan both denied that Mr Brand had made, in their presence, the statements he claimed to have made at the meeting. In cross-examination Mr Elliott agreed that he was aware at the time that Mr Brand and other staff members had consultancy agreements with Energy. Neither he nor Mr Jordan was cross-examined on their evidence that Mr Brand had not informed the Board in their presence of temporary salary reductions. Given the importance accorded, in the statement of claim, to the meeting of 3 February 2000, this is surprising. On the other hand, it was not in dispute that Messrs Elliott and Jordan were absent for part of the meeting while EWI's proposal was discussed. 18 In Martech's statement of claim it is alleged that the board of Energy orally requested Martech (for which read Brand) in or about January 2000 that it forebear from claiming the entirety of the fee to which it was entitled under the Agreement of May 1999. It is then alleged that at the meeting of Energy's Board on 3 February 2000, Mr Brand proposed that Martech would forebear for the time being from claiming the entirety of the fee, would only claim $300,000 per annum, and that Energy would compensate Martech for the loss of part of the fee in a manner which would be agreed between them. It is further contended in the statement of claim, that at that meeting the members of Energy's Board orally represented to Martech that Energy was grateful for Martech's forbearance and that Energy would provide compensation in a manner which it would negotiate and agree with Martech. 19 Reference to the minutes of the Board meeting held on 3 February 2000 indicates that meetings of the Board had been held on 4 and 20 January 2000. Neither of those minutes was in evidence. There was no reference in the minutes of the meeting held on 3 February 2000 to the proposal which it is alleged that Mr Brand made at that meeting. Nor was there any reference to the members of the Board responding to any such proposal. However it is not in dispute that from 1 March 2000 to 29 September 2000 Martech was paid at the reduced rate of $300,000 per annum. 20 In my opinion, Mr Brand probably told the Board of the reduction in his fees and that of other consultants at the February meeting. It was a prudent and politic response to the parlous financial circumstances of the company. His evidence and Mr Punch's letter of 12 March 2000 support that finding. I am satisfied also that he said his fees were being reduced temporarily. That would have been consistent with a hope that the financial difficulties would be resolved. That does not imply, and the evidence does not support a finding, that Mr Brand proposed, or that the Board agreed, that he would be compensated for the shortfall in due course. Had such an agreement been reached at the meeting in February 2000 it would in all probability have been recorded or at least referred to in the minutes. It was not. I do not, in so finding, exclude the possibility that Mr Brand hoped or expected that the reduction in his remuneration could be compensated under some agreement which could be negotiated when the company's financial situation had stabilised. Energy Board meeting – 12 March 2000 21 The EWI proposal was advanced at a meeting of the Board held on 12 March 2000. Mr Punch advised that he had signed an exclusivity agreement between Energy and EWI up to 15 March 2000 as EWI was incurring third party costs in preparation of proposals to the CBA. He had forwarded a letter to the CBA with a copy of the EWI proposal for the provision of a sub-debt of $15 million. He had informed the CBA that while some procedural and statutory matters were being addressed, the principle of the proposed funding arrangements offered by EWI had been endorsed by the Energy Board. The Board ratified the letter to the CBA. This may be taken as an acceptance in principle by the Board of the EWI proposal. 22 It also emerged at the meeting of 12 March that, in the course of carrying out due diligence inquiries for EWI, Poynton Partners had reported that cl 3.2 in Mr Brand's Agreement of 28 May 1999 was in breach of cl 10.18 of the ASX Listing Rules. Clause 3.2 provided, in effect, that Martech or Energy could terminate the Agreement in the event that one party or a group of associated parties acquired 25% or more of the issued capital of the company and so altered the composition of the Board that the majority of directors would be nominated or appointed by that controlling party. Mr Elliott had received the Poynton Partners' report and passed it on to Messrs Punch and Brand. Deed of Variation of Martech Agreement – 13 March 2000 23 The day following the Board meeting of 12 March Martech and Energy executed a Deed of Variation of the Agreement of 28 May 1999. The Deed of Variation amended the Agreement with effect from 1 July 1999 by deletion of cl 3.2 and the consequential deletion of a reference to that clause in cl 8.6. The deed was prepared by solicitors then acting for Mr Brand. There was no reference in the deed to any change in remuneration arrangements. Proposals for reorganisation of Energy and officer remuneration – 16 March 2000-July 2000 24 On 16 March 2000 Mr Brand wrote to Mr Elliott reconfirming Energy's commitment to proceeding with the proposal which had been discussed over the preceding fortnight. He said: 'Please be assured that all Directors are comfortable and have committed to the process of a restructure so that the confidence and credibility of EEC can be restored. We are appreciative of your efforts to assist in the process and I thank you for your support.' The letter concluded: 'I will also provide separately the reductions in costs that have taken place following my commitment to you in early February to do so. I understand that you are comfortable with the reductions for Bill and I as working Directors as explained this afternoon.' There was no reference to any subsequent 'catch-up' compensation. 25 In a letter sent to Mr Elliott on 17 March 2000, Mr Punch wrote about the need for reorganisation and restructuring of the Board and the management of Energy. He said that this was recognised and acknowledged by directors as an integral part of the new way forward to restore confidence and credibility for Energy. The letter went on: 'Accordingly, this letter is to inform you of the commitment of all Directors in the context of assisting with and supporting the EWI proposal, with the exception of Dr Suparno, to resign from their respective Board positions at the appropriate time.' He was prepared to stand aside from his position as Chairman and to discuss a timetable for doing so. He referred to the need for discussions with Mr Bill Hornaday regarding his on-going role. He noted that Mr Hornaday had agreed to take a reduction in his drawings from $300,000 to $200,000 per annum which was put into effect during February 2000 and would continue until 30 June 2001. 26 In relation to Mr Brand, Mr Punch wrote: 'While clearly understanding the requirement for Maurice's position to be re-defined to ensure the expedient implementation of the EWI proposal, the Board believes that he has a positive role in assisting with its implementation. Maurice has suggested the position of Chief Executive Officer (with or without a Board seat), but has no difficulties with any other appropriate title.' He said that it would be appropriate for Mr Brand to continue coordinating various activities of the company and to report to him weekly so that change would be implemented smoothly. He proposed that Mr Brand continue to manage the West Kimberly LNG and Power Project which was at a critical stage in government processes. Mr Punch wrote: 'You should also be aware that Maurice has already triggered a reduction in his drawings from $500,000 to $300,000 per annum in February until 30 June 2001. An amendment to his Contract has been instigated. If these arrangements are unacceptable then Maurice has advised that he has no problem in discussing a commercial settlement to have his contract terminated at the appropriate time.' There was no reference to any foreshadowed adjustment to compensate for the reduction in Mr Brand's drawings. 27 In his written statement Mr Elliott said that he understood from Mr Punch's letter that Mr Brand had agreed to reduce his salary. Neither Mr Punch nor Mr Brand, while engaged by Energy, ever told him verbally or otherwise that the reduction in salary was not permanent or that there would be any arrears due by reason of the reduction. Mr Brand was not cross-examined on this question. As I have earlier indicated, I am satisfied that Mr Brand did say that the reduction was temporary. I am not satisfied that he made any statement in February or March about claiming back arrears of his fees. 28 On 23 March 2000 Mr Brand sent a memorandum to Mr Mark Lindsay, who was then the company secretary for Energy. The memorandum was headed 'Cash Cost Reductions'. It referred to changes in directors' annual fees and then continued: 'Please note the new annual rates for the following people, effective 1 March 2000. Maurice Brand $300,000 Bill Hornaday $200,000 Paul Bridgwood $150,000 Mark Lindsay $120,000 Garry Triglavcanin $120,000' Mr Hayes' rate was to remain unchanged pending his departure at Easter time. In his witness statement Mr Brand said that the memorandum referred to cash payment reductions which he had agreed with Energy's consultants, including, Mr Hornaday, Mr Bridgwood and Mr Lindsay. The purpose of the memorandum was to provide Mr Lindsay with information for the preparation of weekly and monthly cash flows. 29 Mr Lindsay's evidence was that he provided his services to Energy through his private company, Bracton Pty Ltd (Bracton). Because of Energy's cash flow problems he was asked by Mr Brand in February 2000 to temporarily forbear from charging the full fees which Bracton would otherwise be entitled to under its consultancy agreement. Mr Brand told him in effect that Energy was proposing to undertake a capital raising. When that was completed he expected that sufficient funds would be available to make good the arrears in the consultancy fees. Mr Lindsay agreed to the forbearance on this basis. He recalled the fee reduction being raised by Mr Brand at at least one directors' meeting at which he was present. He was not cross-examined on his statement and I accept its accuracy. 30 On 4 April 2000 Mr Punch again wrote to Mr Elliott raising topics which he thought should be discussed relevant to the content of an Explanatory Memorandum for the shareholders' meeting necessary to approve the proposed restructure. He asked Mr Elliott to let him have his thoughts on changes to the Board, which he would like to have approved by the shareholders. He referred to changes to Energy's management structure which had been generally canvassed in various discussions and would also have to be outlined in the Memorandum. He said: 'In this regard Maurice will draw up a revised staff schedule and management structure including job descriptions which can then be discussed at the earliest suitable opportunity.' Consistent with those changes and the putting in place of the new way forward for Energy would be the implementation of a revised Option Incentive Plan for Directors and senior management. Mr Elliott recalled, in his evidence-in-chief, receiving the letter. He understood at the time that Energy was taking steps to restructure its management and to reduce costs including consultants' fees. 31 Energy submitted in closing that Mr Brand, fully understanding the company's financial difficulties, unilaterally proposed the reduction of his own fee without any qualification or limitation. Martech rendered monthly invoices for its services. Invoices for the period July 1999 to November 2001 were tendered through Mr Jordan. None made any provision for deferment of payment of any amount. All claimed payments at the reduced rates applicable, according to Mr Brand's case, in that period. Mr Jordan, who became an executive director of Energy in September 2000 said that Mr Brand never told him or otherwise indicated to him that he was merely forbearing to claim his full fee entitlement rather than taking a reduction in the fee payable to him. 32 By early July 2000 the sale of the Basin Bridge project and other assets had not occurred. Mr Brand spoke to Mr Punch shortly before 10 July 2000. He told Mr Punch, in effect, that as the sale of Basin Bridge and other assets was not proceeding he would be prepared to waive Martech's outstanding fees (the arrears of payments since March 2000) on the basis of a new structure. He told Mr Punch that he proposed, in general terms, the payment of arrears in the form of options and/or bonuses which would reduce demands on Energy's cash flow. On the other hand it would ensure that Martech continued to receive the agreed return for his services to ensure that he was not disadvantaged. He said in his evidence that the proposal he made was never negotiated and never proceeded any further. He told Mr Punch, in effect, that he was prepared to continue with the reduction in his cash payments until 30 June 2001. Mr Brand's evidence to this effect was neither challenged in cross-examination nor contradicted by other evidence. Rather Energy's position in closing argument was that what Mr Brand did was not by way of temporary forbearance. The reduction in fees, it was submitted, was necessary because of the dire financial situation of Energy which Mr Brand understood intimately. 33 Mr Brand also said that in June or July 2000 he spoke with the consultants who had temporarily waived part of their fees. He asked them to continue to do so. He said that as Energy had entered into a convertible note facility with EWI, which was to be put to shareholders at the AGM due to be held in late September or early October 2000, he expected that arrears would be paid once the funds from the facility were available. He said that he asked the consultants to continue to forego part of their fees until the facility was in place when they would be paid. They agreed to do so. 34 On 10 July 2000 Mr Brand sent to Mr Punch a memorandum on the subject of directors, management structure and contracts. The memorandum contained 'information and suggestions' for discussions between Mr Punch and EWI. Mr Brand contemplated in the memorandum the probability that he would no longer be Managing Director following the EWI injection. He said: 'If I am no longer Managing Director but remain as a Director, then my appointment will also need to be submitted to the AGM and Suparno's delayed until the 2001 AGM.' Under the heading 'Executive Directors' he wrote: '2.1 FM Brand My current contract is to 30 June 2003 with an annual fee of $500,000 (adjusted annually for CPI effective 1 July 1999); and can be terminated or not renewed by EEC under a pay out provision of, currently, 21 months as at 30 June 2000 after 24 months as at 30 June 2003. In view of the Company's financial position, I agreed in February 2000 that from 1 March 2000, to decrease the amount per day to equivalent to $300,000 per annum. (sic) As a result, the drawings for 1999/2000 will be $479,000 (1998/99 $500,000) due to no leave being taken. For 2000/2001 it will be $327,500, which includes a carry over of one month as at 30 June 2000. I have previously conveyed to the Board this arrangement to 30 June 2001. No document has been executed by EEC to reflect this position. I was prepared to "waiver" the difference for the period to 30 June 2001 on the basis of a new structure.' 35 The memorandum foreshadowed that Stewart Elliott and Ian Jordan would both be acting in Energy's management. In a proposed structure which he attached to the memorandum Mr Brand said that because Messrs. Elliott and Jordan would be actively participating in other companies he had adopted for himself a dual role in relation to the company's operation in Australia and what he called 'Corporate' on the basis that he would have a reduced workload in 'the Corporate arena'. He said: 'This revised structure should be reflected in an amended contract for me for the existing contract period to 2003.' He also foreshadowed that following EWI approval of the structure, amended or new arrangements would need to be negotiated for all personnel. He suggested a base package plus cash bonuses such as a success fee for new projects or for achieving operating results ahead of budget. 36 Mr Brand explained that the purpose of the memorandum was to brief Mr Punch who was travelling to Sydney to meet with Mr Elliott to discuss, among other things, the issues raised in the memorandum. Mr Punch agreed that he had a meeting with Mr Elliott in Sydney sometime later in July 2000 and discussed the management structure for Energy. However, he did not recall whether he gave Mr Elliott a copy of the memorandum. Mr Punch was asked whether the matters contained in the memorandum were reflective of matters he had discussed with Mr Brand up until that time. His answers to these questions were not particularly responsive. He did say that he was not a party to discussions between Mr Brand and consultants engaged by Energy. 37 Mr Elliott said in his evidence-in-chief that he did not recall having seen the memorandum of 10 July 2000. He said he might or might not have seen it. He did think, however, that there had been discussion with Mr Punch about the agreement by certain of Energy's consultants to take temporary reductions in their remuneration and that they '… expected to catch up their remuneration' when 'the convertible note to be provided by [EWI] was in place'. 38 Mr Brand sent a memorandum to Messrs. Elliott and Jordan on 27 July 2000 asking to discuss the management structure and reporting arrangements with them. He attached a proposed Organisational Structure diagram. He received no response to that memorandum. Brand replaced as Managing Director – 29 September 2000 39 It was Mr Brand's evidence that in about mid-September 2000 he met with Messrs. Elliott and Jordan in Sydney. In the course of that meeting Mr Elliott told him that he wanted him to cease as Managing Director of Energy for 12 months to negotiate the repayment of the CBA facility. He also told Mr Brand that, in effect, he would be appointed an Executive Director with responsibilities to be determined from time to time. Mr Brand said that he told Mr Elliott that he would cease as managing director on a basis to be agreed. Mr Brand observed that by September 2000, Mr Elliott's company, EWI, controlled Energy in the sense that it could ultimately remove directors by a shareholders' resolution. Mr Elliott therefore controlled the composition of the Board and he had no real alternative but to accept what Mr Elliott said about his future. Mr Elliott, in his evidence-in-chief, flatly denied having had such a conversation with Mr Brand. Mr Jordan denied that Mr Elliott had told Mr Brand, in his presence, that he wanted Mr Brand to cease to be managing director for 12 months.. 40 The Sydney meeting was referred to by Mr Brand in a draft agenda for a Board meeting of 29 September 2000 which he prepared and sent to Mr Elliott on 28 September 2000. In that draft agenda, which appeared in part to take the form of draft minutes, he included a proposed resolution in the following terms: '2.3 Board Appointments. Following discussions with EWI and pursuant to their proposal outlined under the Convertible Note, Stewart Elliott is to be appointed Managing Director/Chief Executive Officer and the current Managing Director is to be retained as an Executive Director. Based on discussions with Mr Elliott, in Sydney, he has outlined a proposed organisational structure and a paper will be prepared by FM Brand and submitted to Mr Elliott for consideration by 6 October 2000. Accordingly, it would be appropriate for the formal resolution as follows: 2.3.1 Mr SWG Elliott be appointed Managing Director/Chief Executive Officer with effect from 1 October 2000 and that the EEC Chairman negotiates a remuneration arrangement and refer it to the EEC Board for approval; 2.3.2 that the Chairman of EEC negotiates a revised consultancy arrangement with the existing Managing Director, Mr FM Brand, with effect from 1 October 2000, representing his position as an Executive Director and refer it to the EEC Board for approval;' The balance of the resolution dealt with the negotiation of revised arrangements with Mr Hornaday and the appointments of Mr Jordan and Mr Gordon Trayling as Executive Directors. 41 Mr Elliott was cross examined about this part of the draft agenda. He was asked whether he told Mr Brand in Sydney at the meeting referred to in item 2.3 that he wanted him to cease to be managing director. He initially described the change as part of 'voluntary moves' by the Chairman and Directors of Energy. He had no ambition to become managing director of Energy but the CBA had requested it. He denied, however, that he told Mr Brand that he would act as managing director in order to deal with the CBA. It was Mr Brand and his fellow directors who offered to install him as managing director. 42 Notwithstanding the preceding testimony Mr Elliott eventually agreed in cross-examination that he had told Mr Brand in Sydney that the CBA had asked him to become managing director and that if they were to have any chance of saving the company they would have to accede to the CBA's request. I accept therefore that, as Mr Brand said in his evidence, Mr Elliott effectively required him to relinquish his office as managing director and become an executive director instead. Mr Elliott, in so doing, acted in his own capacity. His conduct was not to be attributed to Energy. His effective power came from EWI's status as a major shareholder. I find, moreover, that Mr Brand did not expressly assert any legal entitlement, on behalf of Martech, under which he could continue in that office. He agreed to what Mr Elliott proposed because the financial circumstances of the company, the attitude of its major creditor and Mr Elliott's control of a major shareholder, left him no practical alternative. 43 Mr Elliott was asked in cross examination whether he was aware, by reference to item 2.3.2 of the agenda, that Mr Brand expected there to be a new consultancy agreement to reflect his change of status from managing director to executive director and the change in his remuneration. Mr Elliott said he would have read the agenda but had no recollection of thinking that Mr Brand required a new consultancy agreement. 44 At the meeting of the Board held on 29 September 2000 discussion about Board appointments took place. Messrs. Elliott and Jordan retired during that discussion. The minutes record that Mr Punch noted that EWI had had the carriage of discussions with the CBA. Mr Brand observed that conditions precedent of proposed convertible notes included changes in management. He had discussed the proposed changes with Mr Elliott and it was a requirement that he step aside on a basis to be agreed. 45 Mr Elliott was appointed Managing Director and Chief Executive Officer of the company at a meeting of the Board held on 29 September 2000. (X 7) Mr Jordan was appointed as an Executive Director. It was also resolved that Mr Brand be appointed as an Executive Director. 46 Mr Punch reported that he had discussed the issue of an incentive scheme options plan with Mr Elliott and that the company should establish such a scheme at its next meeting. 47 Mr Brand said in his evidence-in-chief that up until 29 September 2000 he had, as managing director, full responsibility for all of Energy's operations in Australia and overseas and its administration, financial and accounting functions. Mr Lindsay, as Company Secretary and Financial Controller, reported to him as did Maurice Hayes. Mr Brand also had overall responsibility for Energy's Australian field operations at Barcoadine, Alice Springs, Eromanga and Gilmore. Richard Rutherford had managerial responsibility for the Australian operations and reported to Mr Brand through Mr Brand's fellow director, Bill Hornaday. Mr Hornaday had direct responsibility for the company's Indonesian operations and reported to Mr Brand on those. Energy's Indian operations were under a country manager, Mr Selvendra. He reported to Paul Bridgwood, who in turn reported to Mr Brand. Mr Brand's proposed reorganisation and redefinition of roles – 7 and 31 October 2000 48 On 7 October 2000 Mr Brand sent a further memorandum to Messrs Elliott and Jordan stating, inter alia, that they needed to tidy up the letters/arrangements/consents for their appointments and for his own position. On the same day he sent them a memorandum setting out the proposed organisational structure and cost review. His memorandum began: 'Further to our ongoing discussions and request to reduce expenditure and to propose a new organisational structure, the following information is submitted. Mark has assisted in this process and analysed the last two-year costs to assist in the evaluation.' He suggested that he was in a position to provide assistance to Richard Rutherford, who was giving management support for the Australian operations. He proposed that Mr Rutherford report to him under the new organisational structure. He reminded Mr Elliott that following his approval of Mr Hornaday's basic arrangement it was essential that his current contract be amended which would reduce Energy's outstanding liabilities in the event of termination. He noted that the team allocated to the West Kimberley LNG and Power Projects included himself. Towards the end of the memorandum he said: 'Regarding my position, I would propose a further reduction from equivalent to $300,000 to $240,000 effective to 1 October 2000 with a waiver of any arrears. I would like to participate in the Option Scheme and receive a bonus on Financial Close of the West Kimberley Project. It is important that my contract be amended so that potential liability to EEC is eliminated.' The latter sentence appears to have been intended to refer to potential liability on the part of Energy to Martech. 49 Mr Brand said that the terms of his engagement as an executive director of Energy were never expressly agreed between Energy and Martech or himself. From 29 September 2000 he ceased to discharge the duties of managing director and ceased to perform any of the duties set out in the schedule to the agreement of May 1999. Martech rendered monthly invoices for his consultancy fees as an executive director and these were paid). Mr Elliott, in his evidence-in-chief, said that there was no discussion of an agreement between Martech and Energy in his presence. 50 Mr Elliott agreed that he had received Mr Brand's memorandum of 7 October but assumed that the matters set out in it would be implemented by Mr Brand. The organisational chart attached to the memorandum was broadly consistent with his understanding of Mr Brand's role following his own appointment as managing director. The chart did not include Mr Jordan who, in effect, acted as Mr Elliott's assistant at all times. 51 Mr Elliott said that he remained based in Hong Kong after 29 September 2000. Mr Brand ran the Perth office and, according to Mr Elliott, 'was responsible for the West Kimberley project as well as the Australian operations of [Energy]'. The West Kimberley project involved a tender for the construction and operation of four power plants at Broome, Derby, Fitzroy Crossing and Halls Creek in the Kimberley region of Western Australia. 52 In cross-examination on the memorandum of 7 October, Mr Elliott seemed curiously reluctant to accept the obvious proposition that it embodied proposals directed to him. Eventually he agreed that it did contain a proposal, inter alia, for a reduction in Mr Brand's fees, participation in an option scheme and a bonus if the West Kimberley project reached a successful financial closure. He also said that he was not aware of whether he did or did not respond to the memorandum. No options were ever allotted to Mr Brand. He did say that he had offered Mr Brand a bonus if the West Kimberley project reached financial closure, but could not recall when. No such offer was put in writing. 53 I am satisfied that Mr Elliott did not respond to Mr Brand's proposals of 7 October 2000 and offered him neither participation in an option scheme nor, in any formal way, a bonus payable in respect of the West Kimberley project. I do not exclude the possibility that a bonus was raised in discussion but am satisfied that it never reached any sort of resolution. In any event, because of the fate of the West Kimberley Project, no bonus would have become payable. 54 Mr Brand sent a further memorandum to Mr Elliott on 31 October 2000 concerning the organisational structure of Energy, a cost review and a budget. He began by noting that he had been unable to discuss his memorandum of 7 October 2000 and attachments with Mr Elliott during the week of 9 October. He advised that nevertheless he had been implementing cash reductions as set out in the memorandum and documents. He listed these and included the following item: 'Reduced M Brand's drawings (as per 7 October memo) by a further $5,000 per month plus tax equals $5,300.00.' In item 16 of his memorandum he said: 'During December 2000, it is recommended that, subject to Shareholder approval of the Employee Option Plan on 29 November 2000, that revised arrangements be negotiated with all personnel who have taken reductions/deferrals to eliminate any contingent liabilities for EEC.' 55 Again Mr Elliott did not respond to the memorandum of 31 October. He said in cross-examination: 'I always saw Maurice as a very senior gentleman. He'd run the company, he had all the capabilities to run and administer and put these things in place. No one was stopping him from doing that. We look to Mr Brand to take care of the Australian office and the operations here and to see that these things were in place and he was very familiar with all the staff and what had happened.' His non-responsiveness to Mr Brand's memoranda is difficult to understand. It suggests a degree of detachment from the affairs of the company for which he was managing director. It may be that he was reliant largely upon Mr Jordan in relation to the affairs of Energy. 56 Mr Elliott's testimony conflicted significantly with the position taken by Energy in other litigation in the Federal Court between Energy and Maurice Hayes, another consultant employed by Energy. Mr Hayes sued Energy for termination payments and claims for arrears of salary due following voluntary reductions. The company's defence in that case depended, in part, upon the proposition that Mr Brand did not have authority to negotiate with Mr Hayes the conditions upon which he based his claim. Pressed with this inconsistency, Mr Elliott suggested that Mr Brand was free to make arrangements and organise the staff in Perth but would have to put such arrangements to the Board. Whether such proposals were accepted by the other Directors was '… obviously a part of the administration that we had put in place to control costs'. His responses did not resolve the apparent inconsistency between his testimony about his attitude to Mr Brand's authority and the position taken by the company in the litigation with Mr Hayes. 57 Mr Brand said that although he received no response from Mr Elliott to his memorandum of 7 October 2000 some of the changes he recommended seemed to 'evolve'. A number of those changes, which he listed, were a natural consequence of his replacement as managing director by Mr Elliott. Messrs. Lindsay and Hayes reported to Mr Elliott on financial, administrative and accounting matters. Mr Brand's responsibilities, which had previously covered all of Energy's Australian operations and its Indonesian and Indian operations, contracted to direct second tier responsibility for the proposed West Kimberley joint venture project and some smaller Western Australian development projects. In respect of these, he reported to Mr Elliott. 58 From shortly after September 2000 Energy's Australian operations staff, other than those involved with the West Kimberley project, reported to Mr Jordan. The gas venture staff reported to Mr Hornaday, who now reported to Mr Elliott. Energy's 'power and development executives' left the company in February 2001 and were not replaced. Energy had no construction activities although some of its construction staff moved into the West Kimberley project and the power project development team. 59 As Mr Brand saw the position generally he had, prior to September 2000, been responsible for about 80 people including operational staff at the company's gas and power project in India and the company and group's entire operation. By February 2001 his responsibility had shrunk to five staff and all consultants who assisted with the development of the West Kimberley project. By that time he was reporting to Mr Elliott. 60 While this was undoubtedly a matter of regret for Mr Brand it hardly gave him cause for complaint. The reduction in his responsibility was a consequence of his necessary replacement as managing director by Mr Elliott. That in turn was a consequence of Mr Elliott's financial commitment to the company which was necessary for its survival. I accept that his substitution as Chief Executive of the company was also necessary to give it credibility with its principal financier, the CBA. Brand agrees to reduce fees to $180,000 – October/November 2000 61 Mr Brand said in his evidence-in-chief that in late October or early November he met with Mr Jordan in Perth. Mr Jordan told him that Mr Elliott wanted Martech and other consultants to further reduce their fees. He agreed at a further meeting with Mr Jordan a day or two later that Martech would reduce its annual fee to $180,000 from 1 January 2001 in order to assist Energy with cashflow. Mr Jordan said in his evidence that he recalled the conversation with Mr Brand but not precisely when it had occurred. 62 On 3 November 2000 Mr Brand sent a short letter to the Directors of Energy in the following terms: 'Further to the recent request for reductions in consulting fees to assist the Company's cashflow position, Martech International Pty Ltd has agreed to reduce its consulting fee from $240,000 to $180,000 per annum, effective 1 January 2001. All other terms and conditions of the Consultancy Agreement between Martech International Pty Ltd and Energy Equity Corporation Ltd remain in force for the remaining period of the Contract.' 63 At the annual general meeting of the company held on 29 November 2000 a shareholder asked what was being done about the 'unacceptable levels of remuneration to directors and senior management'. Mr Punch, who was in the chair at the meeting, replied that substantial adjustments to Management Remuneration had already been made. Messrs. Elliott, Jordan, Trayling, Brand, Adijanto and Punch were all re-elected as directors. The meeting also resolved to authorise the company to grant Convertible Notes, Shares and Options to Martech up to $100,000. Further consideration of organisation and remuneration – January-September 2001 64 Martech rendered to Energy an invoice for the services it had provided in January 2001. According to Mr Brand, that invoice had not been paid by late February 2001. However, on 30 January 2001 Mr Lindsay had a discussion with Mr Elliott about the payment of consultants generally. He sent a fax to him on the same day following that discussion. In it he asked Mr Elliott to review a list of staff and to provide approval for their fees. The list included Mr Brand and Martech. It set out his commencement date with Energy as 1992 and his current contract as commencing on 1 January 1999 and expiring on 30 June 2003. 65 On 9 February 2001 Mr Brand wrote to Mr Elliott setting out a summary of staff consulting arrangements. In respect of each of Mark Lindsay, Maurice Hayes and Bill Hornaday he reported their agreement to reductions in their fees 'pending discussions on future arrangements'. In respect of operations staff, Richard Rutherford and Gelber Taco, he reported the extension of their base salaries '… pending discussion on future arrangements'. In respect of his own position he said simply: 'I would like to discuss my position'. In cross-examination Mr Elliott said that he understood the reductions referred to in the letter of 9 February 2001 would be permanent. He had said that to Mr Brand but did not recall exactly when. His view was that permanent cuts would form part of the 'go forward plan'. The evidence does not, in my opinion, establish that any statement was made by Mr Brand on his own behalf or that of other consultants reserving their rights to claim catch-up payments at some later time. Nor does it support any implication to that effect which, objectively speaking, should have been appreciated by Mr Elliott. 66 Mr Brand said in evidence-in-chief that on or about 23 February 2001 he had a meeting with Mr Elliott. He thought Mr Jordan was also present. Mr Elliott wanted the consultants to become employees of the company. He also said that the company should not be paying GST on invoices rendered by consultants. Mr Brand replied that Energy had sufficient input credits to be able to claim back GST paid in any event. Mr Elliott, however, maintained his position that GST would not be paid. While Mr Brand said he was prepared to become an employee of Energy he wanted existing arrangements to continue until the Agreement expired on 30 June 2003. He said that he would consider the basis upon which he might be prepared to become an employee of Energy and would provide Mr Elliott with details. Mr Elliott recalled saying, at around that time, that he did not believe Energy was obliged to pay GST in addition to the remuneration specified in the various consultancy agreements. He denied that Mr Brand said that he was prepared to become an employee of Energy but wanted existing arrangements to continue until 30 June 2003. I accept Mr Brand's account of this conversation as it was consistent with the terms of the letter that followed on 23 February 2001. This does not involve any finding about the legal status of Martech's Agreement at this time. 67 Mr Brand wrote to Mr Elliott on 23 February 2001 under the heading 'Remuneration Arrangements' and submitted points for his consideration expressed as follows: '1. Responsible to the Managing Director/Chief Executive Officer. 2. Executive Director responsibilities as nominated by the Managing Director. 3. That the existing Consultancy Agreement be amended to an annual fee of $180,000 inclusive of GST effective 1 January 2001 to its termination date of 30 June 2003, at which time any future employment would be on an employment basis as governed by the Energy Equity Corporation Ltd policy for employees. If acceptable, the existing January 2001 invoice will be cancelled and reissued on this basis. 4. That the termination provision with the existing Consulting Agreement be cancelled and that the date of service for termination be effective 1 January 2001 on the basis of one month for each year or part thereof to 30 June 2003. Thereafter, the provisions of the employee company policy apply with the effective date of 1 January 2001. 2.(sic)Subject to shareholder approval, that I can participate in the Company's Option Scheme.' The letter concluded with the statement: 'It is my sincere desire to be part of the team instrumental in the successful restoration of value for EEC Shareholders.' 68 Mr Jordan responded on behalf of Energy in a letter dated 5 March 2001. He said: 'I confirm our acceptance of your offer of termination of the Consultancy Agreement, and our intention to offer you employment with the company.' He said that the terms and conditions of employment would be conveyed to Mr Brand in the near future for his consideration and acceptance. In the meantime payment was made '"without prejudice", on account'. 69 Mr Brand denied that he had, at any time in 2001, offered to terminate the Agreement between Energy and Martech. After 5 March 2001 Energy continued to pay the consultancy fee monthly and Martech continued to invoice it. He did not receive a reply to his letter of 23 February 2001 either orally or in writing. That aspect of his evidence was not disputed. Neither Mr Elliott nor Mr Jordan referred in their evidence-in-chief to the letter of 5 March 2001. In cross-examination Mr Elliott could not remember whether he did or did not respond to the letter of 23 February 2001. 70 Mr Brand said that throughout 2001 he felt increasingly excluded from the decision-making processes at Energy. The Board did not pay a significant role in its management. No budget was presented for 2000-2001. There were no monthly management accounts and reports presented after December 2000. He said executive decisions were made by Mr Elliott and implemented by Mr Jordan. He himself was based in Perth and most executive decisions were made in Sydney without his involvement or the involvement of the Energy Board. Decisions in relation to strategic directions and funding plans were made largely without any consultation with him. This view of the company's operations in 2001 was denied by Mr Elliott who said in his evidence-in-chief that no important decisions were taken or implemented without Board approval. In cross-examination Mr Elliott initially said that after September 2000 Mr Jordan was responsible for 'part of the management' in Perth with Mr Brand. He denied that Mr Jordan had day-to-day control. Pressed with evidence he had given in other proceedings involving Mr Hayes, Mr Elliott agreed that he had designated Mr Jordan to take day-to-day control in Perth. He accepted the proposition that Mr Brand did not run the Perth office and then said that Mr Brand and Mr Jordan had worked out between them what parts they were each running. 71 In my opinion the reality throughout 2001 was that real authority in the Perth office had shifted from Mr Brand to Mr Jordan. Mr Jordan had, in effect, a direct line to the new Managing Director. The marginalising of Mr Brand is corroborated by Mr Elliott's failure to respond to his memoranda. I accept Mr Brand's evidence about his effective exclusion from decision-making processes in Energy in 2001. Rotation of Directors – Proposal September 2001 72 On 25 September 2001 Mr Brand sent a memorandum to Mr Elliott pointing out that all the directors apart from Brian Allen had been elected by shareholders at the annual general meeting in 2000. As managing director, Mr Elliott would not be required to submit himself for re-election. However under cl 53 of the company's Constitution, two of the other six directors would be up for re-election in that year, 2001, two in 2002 and two in 2003. It was therefore necessary for the directors to decide who would rotate. In order to expedite the process he had asked the company's auditors, Ernst & Young, to draw lots for the names of the directors to determine who would come up for re-election in the three successive years. The results were as follows: 2001 Dr B Littlechild and Mr M Brand 2002 Mr I Jordan and Mr S Adijanto 2003 Mr R Punch and Mr B Willcocks 2004 Mr B Allen Mr Brand recommended that directors approve that procedure. This meant that he and Brian Littlechild would retire and, being eligible for re-election, would be nominated for election and included in the notice for the annual general meeting. The proposal was agreed to by the Directors. Mr Brand foreshadows retirement as a Director – October 2001 73 A meeting of the Board of Energy was held on 22 October 2001 in Perth. The Directors considered a draft notice for the annual general meeting to be held on 30 November 2001. They also discussed the collapse of the West Kimberley project for which Mr Brand had the oversight and management. As recorded in the minutes, the Board was informed, presumably by Mr Brand, that Western Power Corporation had terminated the project and reserved its rights. Costs to be written off as at 30 June 2001 were $2,086,355. Resolutions were passed by the Board for steps to be taken to protect any rights that Energy might have against other parties in respect of the project. There was no record in the minutes of any discussion of Mr Brand's ongoing role in Energy. 74 Mr Brand gave evidence of a meeting held later the same day between himself, Mr Elliott and Mr Jordan. He made notes of the meeting after it had concluded. He said the meeting was called to discuss the scaling down of Energy's Perth office and a transfer of a number of functions performed at it to the Sydney office. He said that in the course of the meeting Mr Elliott told him, in effect, that he should think about his future with Energy overnight and that they should meet the next day to discuss it. Mr Brand believed then that Mr Elliott did not want him to continue as a director of Energy. At that time, as a result of the balloting process which he had suggested, his term as an executive director was due to expire at the annual general meeting on 30 November 2001. He had offered himself for re-election. 75 Mr Elliott's evidence was that Mr Brand appeared 'visibly upset at the Board meeting that day'. As to the subsequent meeting on the same day, he remembered a discussion with Mr Brand and Mr Jordan about organisational and administrative changes which Energy should make in light of the collapse of the West Kimberley project. He recalled Mr Brand saying something to the effect that the Perth office should be closed and moved to Sydney and that various staff members should be terminated. He denied that he told him to think about his future overnight. Mr Brand recorded that suggestion in his notes of the meeting. In my opinion, it was, in the circumstances, inherently probable that Mr Elliott would make such a suggestion. 76 Mr Jordan recalled that at about the time of the Board meeting of 22 October 2001 he and Mr Elliott met with Mr Brand to discuss moving the centre of Energy's operations to Sydney. He had not, at that time, had any discussion with Mr Elliott about Mr Brand's position with the company. 77 A further meeting was held on 23 October 2001. Mr Brand said they had some further discussions about the Perth office and agreed to meet on the following day to discuss the question of his directorship. 78 According to Mr Brand's account of their meeting on 24 October 2001, he told Messrs Elliott and Jordan that it was clear to him from their discussions over the previous two days and from the way in which Energy was now being managed, that Mr Elliott wanted a fresh start. He had not been included in various strategic management meetings and he believed that it was in the best interests of everyone for there to be an amicable parting of the ways. He said that he would withdraw his nomination for re-election as a director rather than put it to shareholders. According to Mr Brand, Mr Elliott said that he did not think that Mr Brand could continue as a director of Energy. Mr Brand replied that it would be pointless for him to continue with his nomination if EWI did not support it. Mr Elliott said that that was a matter for the directors of EWI and its shareholders, however he controlled EWI. 79 Mr Brand said that he then told Mr Elliott that he had been a director of Energy for 16 years since its formation and had been assured the year before and more recently of a continuing role with it. He said he had not been seeking alternative employment and that he had fully supported the management restructure since September 2000. While he was prepared to withdraw his nomination, a reasonable basis for him so doing would have to be agreed. 80 He claimed that Mr Elliott then raised a number of issues which were in the nature of complaints about his performance as managing director and as an executive director. These related to the CBA facility, legal action commenced against Energy by consultants for unpaid consultancy fees and the failure of the West Kimberley project. He responded to those issues and then said he wanted to conclude a number of reports he had to hand and would be able to do so by 30 November 2001. He wanted to see some payment, perhaps by way of an issue of shares and cash, to give him some time to find alternative employment. 81 Mr Brand said that Mr Elliott required a letter withdrawing his nomination by noon that day or else it would have to proceed to the annual general meeting. He wanted the letter to be independent of any negotiation of a severance arrangement. Mr Elliott said he was prepared to negotiate a severance agreement in good faith provided that Mr Brand assisted in the defence of legal proceedings brought by previous consultants of Energy for arrears of consultancy fees and for termination payments. Mr Brand said he would give an accurate account of events and would assist where possible. He prepared notes of that meeting, as he had of the other two. 82 Mr Brand's evidence was that he knew that if he did not have EWI's support his nomination as a director of Energy would not succeed. He did not want to be humiliated in front of the shareholders. He had known many of them for many years. He therefore decided to accede to Mr Elliott's request and withdraw his nomination. This he did by a letter dated 24 October 2001. The letter baldly stated: 'I hereby advise that I do not offer myself for re-election at the Annual General Meeting of Energy Equity Corporation Ltd on 30 November 2001. Accordingly, please withdraw my nomination from the Notice of Meeting. My Directorship of EEC therefore ceases on 30 November 2001.' The letter was immediately circulated by Mr Jordan under cover of a fax dated 24 October 2001 to Mr Elliott and the other directors of Energy. 83 In his evidence-in-chief Mr Elliott denied that he had agreed, on 23 October 2001, to meet with Mr Brand on 24 October 2001 to discuss his directorship. He denied without qualification Mr Brand's account of their conversation about the need for him to cease to be a director of EWI. He denied Mr Brand's evidence that he was required to provide a letter withdrawing his nomination as a director by noon that day. As to Mr Brand's statement that Mr Elliott raised complaints about his performance, this too was denied. According to Mr Elliott he had no further personal contact with Mr Brand after 22 or 23 October 2001. Mr Jordan, like Mr Elliott, denied that Mr Elliott had ever made, in his presence, the statements attributed to him by Mr Brand about not continuing as a director. 84 When cross-examined, Mr Brand agreed with the proposition that he had thought about his position prior to the meeting of 24 October 2001 and had come to the view that it was in everybody's best interests for there to be an amicable parting of the ways. He agreed to withdraw his nomination. He agreed it was his decision although he also said it was made only after he was advised that EWI would not vote for his re-election. While he contended that his experience within the LNG industry would have been beneficial to the company and said he mentioned that on 22 October, he did not offer any particular contribution. He agreed that there was no other project that he was able to offer at that stage to replace the West Kimberley project. He accepted that primarily as a result of the collapse of that project there was not a lot for him to do. 85 Mr Brand was pressed in cross-examination about his real reason for withdrawing his nomination. His position was that he had lost the support of EWI, as indicated by Mr Elliott. It was put to him, however, that his real reason for withdrawing his nomination was his wish to avoid being humiliated in front of shareholders whom he knew. He had formed the company in 1985 and by October 2001 the shares had fallen to 6 cents each from a peak of $1.60. He also agreed that he had suggested in the course of discussions that the Perth office should be closed. He did not accept that that would mean the end of his role. 86 I found Mr Brand's evidence on this question less than convincing in the light of his own account of the discussions that he had at the meetings of 22, 23 and 24 October 2001. The evidence does not support the inference that Mr Elliott unequivocally withdrew his support for Mr Brand, or that Mr Brand's decision was based upon his perception of Mr Elliott's want of support. In my opinion, the evidence rather indicates that Mr Brand reached the conclusion in his own mind and in discussions with Mr Elliott, that his position as a director of the company was no longer tenable. I make that finding on the basis that there was a discussion at the meeting of 24 October 2001 along the general lines indicated by Mr Brand. It is also consistent with his state of mind at the time that, as I have found to be the fact, he had been effectively marginalised in relation to Energy's operations after September 2000. I reject the evidence of Messrs Elliott and Jordan in so far as they deny that any such discussion took place. It seems to me to have been inherently probable that at that time, the very day that notices for the annual general meeting were to be issued, it was appropriate and practical to undertake a discussion of Mr Brand's future with the company. The PY-1 Gas Field Interest, Energy's default and duty of disclosure 87 In 2001 Energy Equity India Petroleum Pty Ltd (EEIP), a subsidiary of Energy, held a 35% interest in a gas permit, PY-1, in India under a Joint Operating Agreement (JOA) with the operator of the gas field covered by the permit. The operator was Mosbacher India LLC (Mosbacher). The other party to the JOA was Hindustan Oil Exploration Company Ltd (Hindustan). The JOA was originally made in October 1996 between Mosbacher, Hindustan and Petrodyne Inc. I infer that EEIP bought into the JOA at some earlier date which is not material for present purposes. As at 30 June 2001 the carrying value of the EEIP interest in the PY-1 gas field was shown in Energy's balance sheet as $13.4 million. At that time Energy's net assets were about $125 million. 88 It appears that by March 2001 EEIP had failed to meet cash contribution obligations under the JOA. An arrears notice was issued by Mosbacher. Mr Elliott spoke by telephone to one of its principals, Mr Rob Mosbacher, early in March and they agreed that EEIP could make up its shortfall of some $150,000 in instalments. Mr Elliott had a meeting with Mr Mosbacher and Walter Glasgow, the other principal of Mosbacher, on 31 March 2001. It appears however that Energy's difficulties were only temporarily abated. 89 On 22 August 2001 Mosbacher gave notice that under Article 8.1 of the JOA that EEIP was in arrears because of its failure to pay cash calls. The amount of the arrears was $US47,095.10. The notice, which was sent to Messrs Elliott and Jordan, stated that EEIP had remedies under the terms of the JOA in order to avoid default. These involved either demonstrating to the satisfaction of Mosbacher and Hindustan that the failure to pay was due to government hindrance or to pay the amounts due, with accrued interest, within 15 days of receipt of the notice. A default notice was issued by Mosbacher on 13 September 2001. 90 On 28 September 2001 Mosbacher sent a Withdrawal Notice to Elliott and Jordan citing EEIP's default by way of its failure to pay arrears due. The notice stated: 'Pursuant to Article 8.8 of the Joint Operating Agreement governing the PY-1 Contract Area, Mosbacher India, as Operator of record hereby notifies Energy Equity that Energy Equity as a Defaulting Party is required to completely withdraw from the Joint Operating Agreement and the Production Sharing Contract governing the PY-1 Contract Area. The effective date of withdrawal shall be October 1, 2001 as the first business day following receipt of this notice.' 91 Mr Jordan communicated with Mosbacher to try to negotiate the payment of the arrears and the cancellation of the Withdrawal Notice. He sent a fax to Mr Glasgow on 2 October 2001 and followed up with a phone call. The response he received was not encouraging. Mr Glasgow sent him an email on 3 October 2001 pointing out that Energy had been in arrears three times in the previous two years. Although Energy had been allowed time to pay it was again in arrears in August. He referred to Energy's failure to respond to Mosbacher's previous notices and said had there been some response there might have been some grounds upon which they could have worked the matter out. 92 Mr Elliott responded directly to Mr Glasgow's communication by an email dated 4 October 2001. He pointed out that the earlier notices had not been brought to the attention of Mr Jordan or himself. He referred to the restructuring of Energy and the relocation of its registered office to Sydney. In a reply dated 4 October 2001 Mr Glasgow pointed out that the notices were both faxed and delivered via FedEx or registered mail to Mr Elliott at Energy's 'address of record'. Mr Elliott had a further telephone conversation with Mr Glasgow on 12 October 2001 and followed up with a letter of that date offering to meet with Mr Mosbacher in November 2001. He referred to a current investigation 'through legal channels' of 'the delicate matter discussed with regard to our former consultants'. He sought confirmation that upon receipt of the arrears Mosbacher would withdraw the default and withdrawal notices. Mosbacher replied on 15 October 2001 saying that payment of the arrears would not result in withdrawal of the notices. 93 Despite these unpromising responses Mr Elliott said in his evidence-in-chief that because he had resolved issues in the past with Mosbacher he was optimistic that he could resolve things at a face to face meeting proposed for 5 December 2001 in the United States. 94 Mr Brand did not become aware of the Withdrawal Notice until about 8 October 2001. The effect of the Notice, as he understood it, was to require EEIP to transfer its 35% interest in the PY-1 gas field to Mosbacher for no consideration. On 15 October 2001 he sent a fax to Messrs. Elliott and Jordan and to Mr Brian Allen in which he said that it was arguable that the ASX should be notified. He also stated that the CBA should be notified and the Withdrawal Notice would have to be mentioned in the Prospectus/Information Memorandum/Independent Expert's Report in relation to the forth coming Share Offer. He was concerned that Messrs. Elliott and Allen had signed a Representation Letter to Ernst & Young on 5 October 2001 and that Mr Elliott had signed financial statements as at 5 October 2001 with no reference to the Withdrawal Notice. 95 At the meeting of the Board of Directors held on 22 October 2001 the directors were advised of the Withdrawal Notice. The minutes recorded that: 'In view of the fact that the Notice had been only served by one party and any process and action was currently incomplete, it was considered that, at this point in time, it did not warrant a separate ASX disclosure. Reference to the Withdrawal Notice would need to be incorporated into the Information Memorandum and Prospectus.' Energy's directors had signed off on the financial accounts for the year ending 30 June 2001 on 5 October 2001. The auditors had signed off on them on 8 October 2001. The Board, he said, was not advised of the Withdrawal Notice prior to the accounts being signed off. 96 At this time Energy was finalising an Explanatory Memorandum to go to shareholders for the annual general meeting to be held on 30 November 2001. The memorandum related, amongst other things, to a proposed rights issue to raise $11.331 million on the basis of the issue of one new share for every four existing shares at a price of $0.0665 per share. 97 Mr Brand was Chairman of the Due Diligence Committee which was responsible for overseeing the preparation of the disclosure documents relating to the Share Offer. When he sent his fax of 15 October 2001 he expected that the dispute with Mosbacher would be resolved as only a small amount of money had to be paid and there had been a good relationship between Energy and Mosbacher previously. 98 On 26 October 2001 the Directors passed a Circular Resolution authorising the distribution of a Notice of the Annual General Meeting together with an Explanatory Memorandum and Independent Expert's Report to shareholders together with the Annual Report. The Board also resolved that Energy announce its proposed non-renounceable share offer to raise $11.331 million on the basis of a 1 for 4 issue at an issue price of 6.65 cents per share. The offer was to close on 7 December 2001. Mr Punch was authorised to sign the Prospectus to be dated 29 October 2001. 99 On 29 October 2001 the Due Diligence Committee comprising Messrs. Jordan, Allen, Brand and Ms Ling signed its final report to the effect that it had prepared the prospectus dated 29 October 2001 and considered that it contained no material omission or error or misrepresentation known to the members of the Committee at that date. Mr Brand said that at this time he was still expecting the situation with Mosbacher would be resolved. 100 The Notice of Annual General Meeting was accompanied by an Explanatory Memorandum and Independent Expert's Report. In the Explanatory Memorandum at p 16 there was a note referring to the PY-1 gas permit which stated: 'Energy Equity India Petroleum Pty Ltd (EEIP), a wholly owned subsidiary of Energy Equity Corporation Ltd (EEC) advises that it has received a Withdrawal Notice from one of the parties to the Joint Operating Agreement, Mosbacher India LLC. EEIP and EEC are currently reviewing its position and will take whatever action is required to protect Company and Shareholders interests in the PY-1 Gasfield.' 101 Mr Brand was cross-examined on this entry. He had seen it before it appeared in the printed version of the Explanatory Memorandum. 102 A similar statement appeared at p 15 of the Prospectus for the share offer. 103 On 9 November 2001 Mr Brand sent a memo to other members of the Due Diligence Committee. In that memorandum he expressed his concern that the disclosure relating to PY-1 in the Prospectus was inadequate and that the Committee should consider the matter. He asked the other members to advise him urgently of the position from their perspective. He said: 'The reasons for my concern is that in the 2000 and 2001 Annual Reports, the Company has highlighted PY-1 as having substantial value and indeed is carried in the accounts at some $13 million or approximately 10% of net assets as at 30 June 2001. It is a key asset (and in my opinion, second to Sengkang in terms of future Shareholder value). Careful consideration should therefore be given within that context in terms of the adequacy of our disclosure.' He noted that the Prospectus had been printed and would be dispatched on Monday, 12 November or at the latest, Tuesday 13 November. Mr Punch had advised Mr Jordan and himself that he wanted the Board to agree to the document and that everything was in order prior to the dispatch on 12 November. He asked the other members of the committee to discuss the matter with him first thing Monday morning. 104 Mr Jordan sent a memorandum to the directors of Energy enclosing a copy of the final report of the Due Diligence Committee. He reported that the CBA had been advised of the default issue in relation to PY-1. He indicated that should the position with PY-1 not be satisfactorily resolved, further disclosure during the prospectus period might be required. He asked all directors to sign an attached Circular Resolution. The resolution was that the Directors had received and accepted the report of the Due Diligence Committee and that they approved the mailing of the Prospectus to shareholders. 105 Mr Brand said in his evidence-in-chief that he was still concerned about the PY-1 disclosure. However Mr Jordan told him that Mr Elliott was meeting with Mosbacher and would sort out the issue of the Withdrawal Notice. Mr Brand said he also believed that if it were not resolved adequate disclosure could be made. The Circular Resolution was executed. The Prospectus was then distributed. 106 It appears that on or about 9 November 2001 Mr Jordan had sent a fax to Mosbacher about the capital raising. Mosbacher responded on 12 November 2001 over the signature of Mr Glasgow, stating that they had not been aware of the fund raising process. It did not however excuse non-performance under the JOA. The history of default was repeated in the letter. The letter concluded by observing that if Mr Elliott were to be in the US within the next six weeks Mosbacher would be pleased to meet with him to discuss matters, referred to in the letter, which appear to have had no bearing on PY-1. 107 Mr Elliott sent a reply fax on 13 November 2001 to Mr Glasgow. He confirmed that he was planning a visit to the US. He said he would appreciate Mr Glasgow alerting Mr Mosbacher to his travel plans and confirming that a meeting could be organised with him during the week of 3 December 2001. Mr Elliott said he wanted to discuss in detail Energy's ongoing involvement in the PY-1 JOA, inter alia. He said: 'My intention is that during the course of our discussions, we can find a mutual solution to various outstanding matters with the aim to place our joint working relationship onto a go forward basis.' 108 On 15 November 2001 Mr Brand wrote to Energy's solicitor, Mr Tim Wong of Corrs Chambers Westgarth. He set out the history of the PY-1 arrears default and withdrawal notices and the issue of the Explanatory Memorandum and Prospectus. He said, inter alia: 'On 5 October 2001, EEC signed the year end accounts and on 8 October 2001 the Auditors signed. Neither the EEC Board nor the Auditors were advised, yet the Directors who knew signed Representation Letters to the Auditors. The Board of EEC were advised of the issue at the Board Meeting on 22 October 2001. As an Executive Director I became aware on 10 October 2001.' He noted the JOA was governed by Indian law and the dispute with Mosbacher could take years to resolve. He expressed his belief that the implications of the withdrawal notice could raise further market speculation with respect to Energy. He said: 'Whilst I believe that the current share price would not be materially affected by EEC spelling out the problem, the asset is considered by many shareholders to represent 'blue sky' and would materially affect the share price once a Gas Sales Agreement is signed for the substantial proved reserves.' Mr Brand expressed his opinion that there may have been a 'material omission' in the Explanatory Memorandum/Prospectus. He sought legal advice as to the adequacy of the disclosure. He said that depending on that advice and if other directors did not wish to make further disclosure his options were to withdraw his consent to the Prospectus and/or resign as a director and/or continue with his plan to step down on 30 November 2001. 109 On 16 November 2001 Mr Glasgow sent an email to Mr Elliott and stated that he and Mr Mosbacher would be available during the week of 3 December 2001 to discuss matters other than PY-1. The email said: 'As to PY-1, EEC's opportunity to cure its default expired on September 28th, 2001, and under the terms of the PY-1 JOA is deemed to have withdrawn.' 110 Mr Brand spoke with Mr Wong who told him that he could not provide him with advice as he acted on behalf of Energy. However, Mr Wong told him that the Act imposed strict obligations of disclosure on directors of matters material to share issues. Mr Brand said in his evidence-in-chief that he was more concerned about the adequacy of the Prospectus disclosure in relation to the Withdrawal Notice than the impact of the disclosure of the withdrawal notice on the share price on the ASX. He did not believe that the information would have a major impact on the traded price. 111 After he had spoken to Mr Wong, a long time shareholder, Mr Smyth, telephoned him and said that he was considering taking out his entitlement under the rights issue. According to Mr Brand, Mr Smyth told him that one of the reasons for doing so was the upside to the company represented by PY-1. Mr Brand considered he could not discuss the Withdrawal Notice with Mr Smyth. However the conversation indicated to him that the future of the PY-1 gas field was a matter affecting shareholder perception of the value of Energy shares. This amplified his concerns about the adequacy of the company's disclosure. Mr Brand tenders an early resignation – 19 November 2001 112 On the weekend of 17 and 18 November 2001, according to Mr Brand, he considered what he should do. He was due to cease being a director at the end of the month and was worried that once he was gone the Board would not make any further disclosures. He decided to resign over the issue. He was concerned to limit any personal liability he might have as much as possible. 113 In a letter dated 19 November 2001 to Mr Punch Mr Brand tendered his resignation, effective that day, as a director of Energy and associated companies. He also tendered his resignation as company secretary of Energy and associated companies. He attached another letter setting out the reasons for his resignation. The letter setting out the reasons for his resignation referred to the company's ASX Continuous Disclosure obligations and also the obligations of directors under s 730 of the Act. He said, inter alia: 'Accordingly, I believe that the EEC Directors should urgently request from the EEC Managing Director a written statement on the PY-1 position and determine, with written legal advice, as to whether the Prospectus should be updated by way of a Supplementary Prospectus or that the Share Offer is withdrawn.' 114 Mr Brand went on to refer to other matters of which directors should be aware which 'whilst not exhaustive, should be of concern to the Board'. He referred, among other things, to the absence of any budget papers for 2001 and 2002. He noted that a complete proposal had not been presented to directors in June 2001 in relation to the refinancing of the Central Energy Power assets in Alice Springs. On 20 November 2001 he went to the office. Mr Jordan then told him that Mr Elliott had advised him that his services were no longer required and that he should leave Energy's offices immediately. In departing from the Energy offices Mr Brand sent a letter to Mr Jordan, dated 20 November 2001, in which he said: 'I refer to your instructions to me this morning that the Managing Director/Chief Executive Officer of Energy Equity Corporation Ltd (EEC), Mr Stewart Elliott, had advised that my services were no longer required and that I was to leave immediately. My services are provided through a Service Agreement with Martech International Pty Ltd and accordingly EEC has terminated this Agreement.' Mr Jordan sent a memorandum to Mr Elliott confirming that he had asked Mr Brand to leave. He said: 'I merely said it was inappropriate for him to be here since he had resigned yesterday.' He denied saying that Mr Elliott had instructed him to say that. 115 In cross-examination of Mr Brand it was put to him that he had signed the final report of the Due Diligence Committee on 29 October 2001. That Committee had approved the prospectus. Yet 12 days later he was expressing his concerns that disclosure had been inadequate. Mr Brand said that they were continuing concerns. He agreed that there was no such concern expressed in the minutes of the Due Diligence Committee. He said there was some discussion about PY-1 at the meeting. In response to his memorandum to other members of the Due Diligence Committee there was a discussion on Monday 12 November 2001. That was evidently a telephone discussion. He did not recall that any minute was prepared. The Due Diligence Committee did not come to any different view. 116 It was put to Mr Brand that after he had withdrawn his nomination as a director in October he couldn't wait to leave Energy. He denied this. It was put to him that he wanted to find any hook he could possibly find to justify going earlier. He denied this also. It was put to him that in his statement of reasons for resignation he said that Energy's directors should urgently request a written statement on the PY-1 position and determine whether the prospectus should be updated. He accepted that he had not asked that this be done in order to satisfy his concerns. He didn't know whether any of that had happened. 117 In my opinion, while non-disclosure of the Withdrawal Notice may have been one of the stated justifications for Mr Brand's decision to resign, it was not the cause of that decision. I find that, having decided not to seek re-election as a director, he saw little or no point in staying on. The non-disclosure issue was a matter he relied upon, in part, to justify his decision. He himself was quite ambivalent about the question of disclosure as revealed by his own inconsistent approach to it. Energy considers disclosure of the Mosbacher dispute 118 In a memorandum to Mr Elliott dated 19 November 2001 Mr Jordan noted that while Mosbacher had issued the Withdrawal Notice it had not taken any further steps to enforce it. He said he believed that there was an avenue to reach agreement when Mr Elliott met with Mosbacher in the US in December 2001. He also advised Mr Elliott that the JOA was governed by the laws of India, with dispute resolution being either by a single expert or a board of arbitrators. Arbitration would take place in London under Uncitral Rules. 119 Mr Jordan met with Clayton Utz, the solicitors who had assisted Energy with the Prospectus on 21 November 2001. He provided them with relevant documents in relation to the PY-1 gas field including the recent correspondence with Mosbacher and requested their advice in relation to the issues raised by Mr Brand in his letter of resignation. He received advice from Clayton Utz on 22 November 2001. That advice suggested that the Board's decision on disclosure might largely turn on its perception of Mosbacher's true intentions and whether that perception was reasonable. 120 On the same day Mr Jordan discussed Mr Brand's letter of resignation and the advice from Clayton Utz with Mr Punch. Mr Punch directed him to obtain advice from Corrs about any need to alter the Prospectus. Corrs had traditionally been Energy's lawyers. Mr Jordan also had discussions with Messrs. Elliott and Allen in relation to PY-1 and prepared and circulated an agenda for a Board meeting on 30 November 2001. 121 The advice from Corrs provided to Energy on 28 November 2001, described the situation as 'borderline'. They recommended that Energy seriously consider making a further ASX announcement as soon as practicable confirming that a meeting was scheduled for the following week in an attempt to resolve the situation as well as providing further details of the reasons for the Withdrawal Notice. 122 At the Board meeting held on 30 November 2001 directors were advised that a meeting had been arranged between Mr Elliott and Mr Mosbacher for 6 December 2001 in Houston. A draft Gas Sales Agreement had been prepared in 1999 and not finalised. Directors were told of the advice received from Clayton Utz and Corrs. Disclosure of the Withdrawal Notice issued by Mosbacher had been made in the Explanatory Memorandum and in the Prospectus. The minutes recorded the view that nothing further of material interest had occurred to require further disclosure. 123 In relation to Martech the minutes recorded that directors were advised by Mr Elliott that he had had discussions with Mr Brand and had agreed to have further discussions following the annual general meeting. It was agreed that the matter be left for the managing director to deal with. Mosbacher goes to arbitration 124 The scheduled meeting between Messrs. Elliott and Mosbacher in Houston did not eventuate when Mr Mosbacher did not attend. In January 2002 Energy received legal documents from Mosbacher which, if executed, would have effected EEIP's withdrawal from the PY-1 project. On 24 January 2002 Mosbacher issued a Notice of Arbitration under the Heads of Agreement. The dispute went to arbitration and on 27 March 2003 the London Court of International Arbitration delivered a Partial Award in respect of the Heads of Agreement in which it was held that Article 8.8 was a penalty within the meaning of s 74 of the Indian Contract Act. On 9 December 2003 the London Court of Arbitration delivered its second and final Partial Award. Energy was awarded the sum of $3.1 million by way of compensation for the assessed value of its interest in the PY-1 project. Martech claims balance of fees 125 On 10 December 2001 Mr Brand wrote to Mr Elliott enclosing tax invoices for amounts he believed were then payable under the Martech consultancy agreement. He said in the letter that he was disappointed that Mr Jordan had not responded to an earlier letter he sent on 26 November 2001 and that he had not made contact with him after the Board meeting. The tax invoice enclosed was for the amount of $483,026 said to represent the balance of fees payable to 31 October 2001 and an amount payable to 20 November 2001. Also enclosed, in the name of Martech, was a tax invoice for $990,000 representing the termination fee said to be payable pursuant to cl 8.6 of the Service Agreement. 126 The invoice for amounts totalling $483,026 set out what was described as 'balance of fees' for the years 1999/2000, 2000/2001 and 1 July 2001 to 31 October 2001. The balance in each case appears to have been calculated on the assumption of a total entitlement of $500,000 per annum for each period. For the first two full year periods the amount in each case was $500,000 less fees paid. For the period 1 July 2001 to 31 October 2001 the total fees said to have been payable for the period were $166,666 against fees actually paid of $54,545. Fees payable for the period 1 November 2001 to 20 November 2001 were said to be $27,777. GST was claimed in each case, apart from the fees for the year 1999/2000 when GST did not apply. 127 Mr Jordan responded to Mr Brand on 17 December 2001 expressing his disappointment at Mr Brand's action as he understood he had agreed to discuss matters with a view to reaching a mutually agreed solution. He said: 'I totally disagree with the invoices which you have included and I am therefore returning the originals of your invoices with this letter, for you to reconsider. Please contact Stewart or myself after the holiday break to arrange discussions.' 128 By a facsimile dated 6 November 2003 Martech issued further invoices to Energy in relation to amounts which, Mr Brand said he believed, after legal advice, were due and payable. These amounts totalled $1,498,983.53. In his covering letter he referred to earlier correspondence and discussions he had had with Mr Jordan on 14, 25 and 28 February 2002. The Agreement of 28 May 1999 129 The Agreement of 28 May 1999 was made between Energy and Martech. Energy (then known as Energy Equity Corporation Ltd) was referred to as the 'Company' in the Agreement. Martech was referred to as the 'Manager'. 130 The Agreement recited that Energy carried on the business of providing alternative energy packages utilising gas as the energy source and establishing energy activities. It also recited that in order to assist in the administration, management and financial control of the business of the company and the marketing of its products and services, Energy had requested Martech to provide the Specified Services which Martech was agreeable to do for the consideration and upon and subject to the covenants and conditions set out in the Agreement. 131 Clause 1 defined the term 'Specified Services' to be provided by Martech to Energy by reference to a definition in Item 1 in the Schedule to the Agreement. The services there defined were as follows: 'To provide the services of Managing Director of the Company including, but not limited to such services as the following: (a) To assist the Company in the administration management and financial control of the business of the Company and the marketing of its products; (b) To assist the Company in the formulation of policy for the more effective operation of its business; (c) To manage supervise control and co-ordinate personnel employed and contracted by the Company in its business and ensure performance of their respective obligations in an efficient and professional manner; (d) To perform the following services and keep and maintain documents reports and material relating thereof:- (i) to establish utilise and provide professional business management methods and efficient control of the business of the Company and make appropriate revisions thereto from time to time; (ii) to establish for the business of the Company appropriate accounting procedures and cost controls in a form suitable for audit; (iii) to prepare detailed development schedules for the Company and use all reasonable efforts to conform with the time constraints of such schedules; (iv) to co-ordinate direct and inspect all phases of the business of the Company.' 132 The term of the Agreement was the period stipulated in Item 2 of the Schedule and that was: 'Four (4) years commencing on the 1st day of July 1999 and thereafter renewable by mutual agreement of the parties hereto.' The term 'Fee' was defined as the 'remuneration to be paid by the Company to the Manager pursuant to Clause 4'. 133 In cl 2.1 of the Agreement Energy engaged Martech to provide the Specified Services for the Term and upon the terms and conditions contained in the Agreement. Martech covenanted to carry out the Specified Services to the best of its skill and ability and would act under and in accordance with such lawful directions of Energy as should be given by Energy from time to time to Martech. Under cl 2.5 Martech covenanted with Energy that it would provide 'the full time services of Fletcher Maurice Brand to perform the Specified Services hereunder at all times during the term of this Agreement…'. Clause 4 provided for the payment of the Fee at the time and in the manner specified in Item 3 of the Schedule. 134 Clause 3.2 of the Agreement provided that: 'If: (a) one party or a number of associated parties ("the control party") acquires 25% or more of the issued capital of the Company; and (b) anytime thereafter the composition of the Board of Directors of the Company is altered so that a majority of the Directors are nominated or appointed by the control party then: Each of the Company and the Manager shall within 90 days of both these events occurring have the right to terminate this Agreement. If this Agreement is terminated by either party under the terms of this clause the Manager shall be paid out the balance of the Term of this Agreement from the date of termination together with any other accrued entitlements or paid for a minimum period of two years which ever is the greater.' This clause was deleted from the Agreement by the Deed of Variation of 13 March 2000 on the basis that it appeared to be contrary to the Listing Rules of the ASX. 135 Clause 8 of the Agreement provided for its termination. The relevant parts of that clause were as follows: 8. Termination 8.1 The Company may (subject to clause 8.3 hereof) by notice in writing to the Manager terminate summarily the engagement of the Manager under this Agreement if:- 8.1.1 in the reasonable opinion of the Company the Manager is not carrying out the Specified Services in a manner satisfactory to the Company; 8.1.2 the services of the said Fletcher Maurice Brand are not provided for any consecutive period of three (3) months or his services are not available for any cumulative period of Four (4) months in any period of 12 months. 8.1.3 in the reasonable opinion of the Company the Manager has committed or is preparing to commit a serious or persistent breach of any of the provisions of this Agreement; 8.1.4 the Manager, goes into liquidation or receivership or suspends payment or compounds with or assigns its estate for the benefit of its creditors; and 8.1.5 the Manager or employee is convicted of a criminal offence carrying imprisonment as a possible penalty. 8.2 Subject to clause 8.3 hereof, the Manager may be (sic) notice in writing to the Company terminate summarily this Agreement if the Company suspends payment or compounds with or assigns the Company's estate for the benefit of the Company's creditors. 8.3 The Company or the Manager can only terminate this Agreement if all of the following provisions are complied with:- 8.3.1 the Company or the Manager is in breach of their respective obligations hereunder for a continuous period of thirty (30) days; 8.3.2 the Company or the Manager serves a written notice on the other demanding rectification of the breach within thirty (30) days of the date of service of such notice; and 8.3.3 the Company or the Manager (as the case may be) does not rectify the said breach within thirty (30) days of service of the notice provided for in the sub-clause 8.3.2. 8.4 Upon termination of this Agreement for whatever reason the Manager shall deliver to the Company or its authorised representative all records, accounts and other documents and property of the Company. 8.5 In the event of the Manager wishing to terminate its services hereunder the Manager may do so upon first giving to the Company three (3) months written notice of its intention so to do. 8.6 In the event that this Agreement is terminated for any other reason other than as stated in clauses 8.1.1, 8.1.3, 8.1.4, 8.1.5 and 8.5 hereof or clause 3.2 hereof or the Term (as extended or renewed) is not renewed the Company shall pay to the Manager the Fee for a further period of twenty (20) months together with one (1) month for every complete year that this agreement operates calculated from the 1st July 1999 to the date of termination or expiration.' The reference in cl 8.6 to cl 3.2 was also deleted by the Variation of 13 March 2000. None of the other provisions of the Agreement are material for present purposes. Summary of principal findings of fact 136 The principal findings of fact which emerge from the preceding may be summarised as follows: 1. Mr Brand founded Energy in 1985 and acted as its Managing Director under a series of contracts from 1985 to 2000. 2. On 28 May 1999 Martech, a company controlled by Mr Brand, agreed with Energy to provide his services as Managing Director of Energy for a term of four years from 1 July 1999 to 30 June 2003. 3. Under the agreement Martech was to be paid an annual fee of $500,000 for Mr Brand's services. 4. In late 1999 and early 2000 Energy was in financial difficulty. Its share price had declined significantly and its principal financier, the CBA, declined to extend the $115 million facility beyond 20 February 2000. 5. At a meeting of the Board of Energy held on 3 February 2000 proposed funding and underwriting of a rights issue by EWI was considered. Stewart Elliott was the Managing Director of EWI and was assisted generally by Mr Ian Jordan. 6. At the meeting of 3 February 2000 Mr Brand, on behalf of Martech, told the Board that he would reduce the fee for his services temporarily from $500,000 per annum to $300,000 per annum. 7. Mr Brand did not say at the Board meeting, nor was any agreement then made, that he would be compensated for the shortfall at a later time. 8. On 12 March 2000 the Board of Energy accepted EWI's proposal in principle. Under that proposal EWI was to make a $15 million advance to Energy by way of subordinated debt. 9. The agreement between Energy and Martech of 28 May 1999 was varied on 13 March 2000 by deleting cl 3.2 in order that the agreement would not be in breach of the Listing Rules of the ASX. 10. On 16 March 2000 Mr Brand wrote to Mr Elliott confirming the reduction in his remuneration without reference to any later catch-up compensation. 11. Martech thereafter issued monthly invoices for its fees at the reduced rate with no reference to any outstanding balance deferred. 12. Mr Brand told the Chairman of the Board, Ronald Punch, in July 2000 that he was prepared to continue with the reduced fees until 30 June 2001. 13. Mr Brand made arrangements with other Energy consultants under which they were paid at rates reduced below their consultancy agreements on the basis that their shortfalls would be paid when the EWI facility became available. 14. In mid-September 2000, at a meeting between Mr Elliott and Mr Brand, Mr Elliott said he wanted Mr Brand to relinquish his position as Managing Director of the company and become an Executive Director instead. 15. Mr Brand agreed to Mr Elliott's request. He did not assert any legal entitlement under the agreement of May 1999. He agreed to the request because the attitude of the CBA and the financial circumstances of the company left no alternative. 16. On 29 September 2000, with Mr Brand's agreement, the Board of Energy appointed Mr Elliott managing director in his place and he was appointed executive director. 17. The terms of Mr Brand's engagement as an executive director were never expressly agreed between Energy and Martech and/or Mr Brand. 18. Mr Brand proposed to Mr Elliott on 7 October 2000 that his fees be further reduced, that he participate in an option scheme and that he receive a bonus if the West Kimberley project, of which he then had the carriage, were to come to fruition. Mr Elliott did not respond to that proposal. Mr Brand's proposed reduction in fees took them from $300,000 per annum to $240,000 per annum with effect from 1 October 2000 '… with a waiver of any arrears'. 19. Mr Brand's responsibilities within the company contracted significantly after 29 September 2000 as a consequence of his replacement as managing director. 20. Mr Brand unilaterally further reduced the fees payable to Martech from $240,000 per annum to $180,000 per annum with effect from 1 January 2001. 21. On 23 February 2001 Mr Brand wrote to Mr Elliott proposing amendment of his existing 'Consultancy Agreement' to an annual fee of $180,000 with effect from 1 January 2001 to its termination date of 30 June 2003. He proposed that thereafter he become an employee and that the termination provision of the existing Consultancy Agreement be cancelled. 22. Mr Jordan wrote, on behalf of Energy on 5 March 2001, accepting 'your offer of termination of the Consultancy Agreement, and our intention to offer you employment with the company'. 23. Mr Brand was effectively excluded from significant decision-making processes in Energy throughout 2001. 24. At a meeting with Mr Brand on 22 October 2001 Mr Elliott asked him to consider his future with Energy overnight. 25. On 24 October 2001 Mr Brand decided, following a discussion with Mr Elliott, that his existing position as an executive director was untenable. He decided to withdraw his nomination for re-election as a director of Energy. Mr Elliott however did not unequivocally withdraw his support for Mr Brand nor did Mr Brand base his decision on a perception of lack of support from Mr Elliott. 26. Mr Brand advised Energy of his decision by a letter to Mr Elliott dated 24 October 2001. The letter did not constitute a resignation from office at that time. 27. Energy, through its subsidiary, EEIP, had a 35% interest in a gas field permit PY-1 in India under a JOA with Mosbacher and Hindustan. 28. The value of the interest at 30 June 2001 was $13.4 million. 29. On 28 September 2001 Mosbacher issued a Withdrawal Notice to EEIP and, through EEIP to Energy, on the basis of EEIP's failure to meet a payment of $US47,095 due under the JOA. 30. Mosbacher rebuffed repeated attempts to negotiate a settlement of its dispute with Energy. Under the terms of the JOA EEIP could be required, after the issue of a Withdrawal Notice, to transfer its 35% interest to Mosbacher for no consideration. 31. Mr Brand became aware of the Withdrawal Notice on 8 October 2001. 32. On 15 October 2001 Mr Brand told Messrs. Elliott and Jordan that the ASX should be told of the Withdrawal Notice. 33. On 22 October 2001 the directors of Energy resolved that the circumstances did not require disclosure of the Notice to the ASX as action on it was incomplete. 34. On 29 October 2001 Mr Brand, with other directors on Energy's Due Diligence Committee, signed a final report to the effect that the prospectus for the company's share offer dated 29 October 2001 contained no material omission or error or representation known to the members of the Committee. The prospectus for the share offer contained a reference to the receipt of the Withdrawal Notice, stated that Energy and EEIP were reviewing the position and would take whatever action was required to protect the company and shareholders' interests in the PY-1 gas field. A similar notice appeared in an Explanatory Memorandum circulated with the Notice of Annual General Meeting called to authorise the share offer. 35. On 9 November 2001 Mr Brand sent a memorandum to other members of the Due Diligence Committee expressing his concern that the disclosure relating to PY-1 in the prospectus was inadequate. The prospectus was sent to shareholders without alteration. 36. In a conversation which he had with a shareholder on or about 16 November 2001 the shareholder told Mr Brand that he would take out entitlements under the rights issue because, inter alia, of the PY-1 gas field interest. 37. On 19 November 2001 Mr Brand tendered his resignation effective that day as a director of Energy and associated companies. One of the reasons he gave for tendering his resignation was his concern about the company's compliance with the ASX Continuous Disclosure obligations. 38. Mr Brand's resignation was primarily actuated by a desire to leave Energy prior to the annual general meeting. The non-disclosure question was one of a number of matters that he said should be of concern to directors. It was not, however, the cause of his resignation. The causes of action 137 The causes of action and claims arising out of the case as pleaded may be summarised as follows: 1. Misleading or deceptive conduct by Energy comprising representations made on 3 February 2000, without reasonable grounds, that it would enter an agreement with Martech under which Martech would be adequately compensated for its forbearance to enforce payment of its full fee. (s/c 8 and 23-30) 2. Misleading or deceptive conduct by Energy by its conduct and silence in paying Martech at a rate consistent with Martech's proposal of 7 October 2000 and by its silence in not responding to that proposal thereby representing, contrary to its intention and without reasonable grounds, that it would agree or substantially agree on the terms of the proposal or negotiate it in good faith. (s/c 14 and 32-37)This claim was not pressed. 3. Breach of contract arising out of Energy's failure to pay Martech its unpaid fees under the Agreement of 28 May 1999 for the period 1 March 2000 to 29 September 2000. (s/c 6-11) 4. Claim in contract for the Termination Payment payable under the Agreement of May 1999 on the basis that the Agreement was terminated by mutual consent on or about 29 September 2000. (s/c 12-13) 5. Quantum Meruit claim for reasonable fees due under a New Contract said to have come into existence between Martech and Energy on or about 29 September 2000. (s/c 13A-17)This claim was not pressed. 6. Claim in contract for a Termination Payment due under the Agreement of May 1999 or the New Contract or for damages in a like amount on the basis that the Agreement or the New Contract was terminated on 24 October 2001 by Mr Elliott's withdrawal of support for Mr Brand's re-election as a director of the company. That withdrawal is said to have amounted to a repudiation of the Agreement or the New Contract accepted by Mr Brand by the withdrawal of his nomination for re-election. (s/c 18-19AF) Alternatively, the New Contract is said to have been terminated and to support a claim for such payment. 7. Claim in contract for a Termination Payment under the Agreement of May 1999 properly terminated by Martech on account of Energy's breach of an implied term by its failure to publicly disclose the Withdrawal Notice of its subsidiary's interest in the PY-1 gas field. 8. Claim in contract for a Termination Payment under the Agreement of May 1999 on the basis that, on 20 November 2001, Energy, through Mr Jordan, terminated the Agreement by requiring Mr Brand to leave Energy's premises. (s/c 21B-22D) Contract claim for fees shortfall - March 2000 to September 2000 – Was the Contract Varied? 138 Mr Brand acted unilaterally when he informed the Board of Energy on 3 February 2000 that he would temporarily reduce the fees payable for his services from $500,000 to $300,000 per annum. He did not propose at that meeting that Energy would compensate Martech for the loss of part of the fees in a manner to be agreed or otherwise. He made the decision to reduce the fees because of the serious financial difficulties then facing Energy. He reserved the right to reinstate the full fees at a later time. That reservation was implied in his statement that the fees were being reduced temporarily. He made no reference at the meeting of 3 February 2000 to some future recovery of the shortfall. His services were invoiced monthly by Martech thereafter at the reduced rate with no reservation of a right to claim arrears. That is to say, the invoices gave no indication that Martech was extending credit to Energy. There was no evidence that any such credit was shown in the books of Energy as a debt. I infer that no such credit was shown. 139 There is no evidence that Mr Brand raised any question of arrears of his fees until July 2000. Shortly before 10 July 2000 he told Mr Punch that, because the sale of Basin Bridge and other assets was not proceeding, he would be prepared to waive Martech's outstanding fees on the basis of a new structure. He proposed that he be paid for the arrears in options and/or bonuses to reduce their impact on Energy's cashflow. He proposed extending his reduced rate to 30 June 2001. This was reflected in his memorandum to Mr Punch of 10 July 2000. There was no response from Energy's Chairman, nor from Mr Elliott who was to succeed Mr Brand as managing director. 140 Energy submitted that the Agreement was varied in February 2000 by agreement between Martech and Energy. However, even assuming that Mr Brand was acting on behalf of Martech and as managing director of Energy at the time that he announced the reduction in his fees, there was no variation of the Agreement between himself and Energy. A contract is not varied merely by the action of one party to it announcing that it will accept less than the consideration to which that party is entitled under the contract. For absent some consideration moving from the other party, there is no enforceable agreement to vary the original contract. It was no doubt politic for Mr Brand to reduce his fees as he proposed given Energy's parlous financial state and the need to retain or recover some degree of confidence from the bank and shareholders. The benefit to Energy in its dealings with its banker and its prospective rescuer arising from the fee reduction does not amount to consideration moving from it. 141 It is well established that mere forbearance by one party to a contract in requiring performance of obligations by the other does not effect a variation of the contract unless supported by consideration or recorded in a deed under seal. In Foakes v Beer [1884] 9 App Cas 605 the House of Lords held an agreement between judgment debtor and creditor that the creditor would not take proceedings on the judgment in consideration of the debtor paying part of it and the residue by instalments, was nudum pactum as without consideration. It did not prevent the creditor after payment of the whole debt and costs from enforcing payment of interest on the judgment. Lord Selborne LC said (at 613): 'If the question be … whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given, in the sense in which I have always understood that word as used in our law.' Vanbergen v St Edmunds Properties Ltd (1933) 2 KB 223 involved an indulgence solely for the benefit of one party to a creditor/debtor relationship. Lord Hanworth MR, after citing Foakes v Beer, quoted from Smith's Leading Cases, and said (at 232): '… a creditor cannot bind himself by a simple agreement to accept a smaller sum in lieu of an ascertained debt of larger amount, such an agreement being nudum pactum. But if there be any benefit, or even any legal possibility of benefit to the creditor thrown in, that additional weight will turn the scale and render the consideration sufficient to support the agreement.' In Australia & New Zealand Banking Group Ltd (ACN 005 357 522) v Ringrong Pty Ltd (ACN 005 496 855) [1995] FCA 722, Ryan J held (at p 37) that forgiveness of a debt not embodied in a deed and unsupported by consideration was 'ineffectual at law or in equity'. 142 The general position is stated in Carter on Contracts (Butterworths, 2002) at 07-170 citing Vanberger: '… consideration will not be present where a variation is exclusively for the benefit of one party so that the other has merely promised to perform an existing contractual duty.' The 28th edition of Chitty on Contracts, Vol 1 at 23-034, to similar effect, states that: 'The agreement which varies the terms of an existing contract must be supported by consideration.' Examples of consideration in Chitty include the mutual abandonment of existing rights or the conferment of new benefits by each party on the other. It may be found in the assumption of additional obligations or the incurring of liability to an increased detriment (at 23-0334): 'A mere forbearance or concession afforded by one party to the other for the latter's convenience and at his request does not constitute a variation, although it may be effective as a waiver or in equity.' 143 Quite apart from the problem that the alleged variation lacked consideration there was uncertainty about its terms. A reduction in fees for an unspecified but temporary period apparently to be determined at the will of one party, does not import certainty of obligation. In answering that question it is necessary not to demand unrealistic precision. As McHugh JA said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 (at 11,118): '… 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 a 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.' See Brambles Nationwide Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 177 (Heydon JA) and Nationwide Produce Holdings Pty Ltd v Linknarf Limited (2005) Aust Contract Reports 90-424 at 88,509 (Tamberlin J). In Vroon BV v Fosters Brewing Group Ltd (1994) 2 VR 32, Ormiston J accepted that: '… in commercial transactions the court should strive to give effect to the expressed arrangements and expectations of those engaged in business notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out.' 144 The uncertainty in the terms of the varied Agreement propounded by Energy in its defence, may not be sufficient, in the light of the authorities, to defeat its contention that there was an effective variation to the Agreement. It is notable however that it pleads that the fee was reduced 'from $500,000 to $300,000'. As pleaded, the reduction was permanent. On the facts as found it was temporary, albeit its duration was undefined. 145 In my opinion the contention that the Agreement was varied on 23 February 2000 is met by the proposition that there was no consideration moving from Energy. Mr Brand made no contract with Energy to reduce his entitlement. Mr Punch and Mr Elliott seem to have themselves to blame for that result. They took no steps, despite Mr Brand's proposals, to agree with him and his company the varied terms upon which his fees would be paid from March 2000. There was no agreement that he or Martech should receive some other benefit in lieu of the shortfall in his fees. It follows that the question of the implied term pleaded by Energy, that repayment of the shortfall depended upon a significant improvement in Energy's financial position, does not arise even if it could be given some commercially meaningful interpretation. 146 Martech remains and has been at all material times entitled to recover the shortfall in its fees due under the Agreement as follows: 1 March 2000 to 30 June 2000 $19,139 1 July 2000 to 30 September 2000 $52,524.65 The latter figures are exclusive of GST and include the contractual CPI adjustment. The total recovery of Martech is therefore $71,663.65. 147 Neither waiver nor estoppel is pleaded by Energy in relation to this aspect of Martech's claim. There was, as Martech submitted, no evidence of detriment suffered on Energy's part arising from reliance on any representation made by Martech nor any common convention or assumption to give rise to such detriment. Claim for damages for misleading or deceptive conduct on 3 February 2000 148 The claim of misleading or deceptive conduct on the part of Energy by representations allegedly made on 3 February 2000 cannot succeed. On the factual findings made above, there were no representations made by Energy that it would enter a compensation agreement with Martech. In any event, Martech suffered no loss as it retained, absent an effective contractual variation of the Agreement, its entitlement to payment of the full fees at the agreed rate of $500,000 per annum. Claim for payment for termination of Agreement on 29 September 2000 – A question of interpretation 149 Martech pleaded that the agreement of May 1999 was terminated by mutual consent by an agreement made on or about 29 September 2000. A 'New Contract' was formed under which, inter alia, Martech would provide Mr Brand's services as an executive director and such services as Energy's Board or Mr Elliott reasonably required. The fee would be $240,000 per annum. The New Contract was said to be terminable on reasonable notice. 150 Martech submitted that termination had occurred on 29 September 2000 because: (a) As Martech ceased to provide the services of Mr Brand as 'Managing Director', the basis of the Agreement was removed; (b) Mr Brand's powers and responsibilities, as a director of Energy, changed profoundly. (c) Mr Brand no longer provided the services specified in the Schedule to the Agreement. (d) Martech's remuneration from 29 September 2000 ($240,000 per annum) was significantly different from that provided in the Agreement ($500,000 per annum). (e) The change in remuneration had the consequence that the termination payment in the provisions in the Agreement (cl 8.6) (which provided for the payment of '20 months' fee' at the 'stipulated' fee ($500,000 per annum) plus one month's fee (at that rate) for every year of service thereafter), could not work fairly for both parties after 29 September 2000; moreover there would be a question as to what was the amount of the 'termination payment', as a consequence of the change of remuneration. (f) The only matters of substance 'left' for which the Agreement provided after 29 September 2000, were the parties, and the fact that Mr Brand continued to provide services to Energy. 151 Martech submitted that where parties to an agreement have agreed to vary its terms profoundly they are taken to have discharged it and to have agreed the terms of a new contract to govern their future relationship. Energy submitted however that the events of 29 September 2000 had to be seen in context. It referred to the Deed of Variation of 13 March 2000 which, by deleting cl 3.2, was said to have taken out of the right of termination the very circumstances which arose in September 2000. Although Mr Brand became an Executive Director his salary remained at $300,000 until his unilateral variation of it to $240,000. Mr Elliott did not relocate to Perth. He remained based in Hong Kong. Mr Brand had ongoing responsibility for the West Kimberley Project. Energy submitted that there was no fundamental shift in his role after 29 September 2000. 152 The questions for consideration are: 1. Was the Agreement of May 1999 discharged or varied on 29 September 2000? 2. If it was discharged, was that discharge a termination within the meaning of cl 8.6 which gave rise to an entitlement to a Termination Payment? 3. If the discharge was a termination within the meaning of cl 8.6, did it flow from an agreement which extinguished any such entitlement? 153 A longstanding distinction exists in English law between rescission and variation of contracts by subsequent agreements. It has been applied particularly in cases of contracts required by law to be evidenced in writing. A parol variation of a written agreement would, in such a case, be unenforceable. On the other hand where the subsequent parol agreement discharges the earlier agreement it is not affected by the requirement that the original agreement be in writing. In British and Beningtons, Limited v North Western Cachar Tea Co Ltd [1923] AC 48, which concerned a contract required by the Statute of Frauds to be in writing, Lord Atkinson said (at 62): 'A written contract may be rescinded by parol either expressly or by the parties entering into a parol contract entirely inconsistent with the written one, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.' The earlier decision of the House of Lords in Morris v Baron & Co [1918] AC 1, also a Statute of Frauds case, was relied upon. 154 It has been said, as a general proposition, that the result of varying the terms of an existing contract is to produce not the original contract with a variation but a new and different contract – Williams v Moss Empires [1915] 3 KB 242 at 247 (Sankey J). That approach was adopted by the Court of Appeal in Morris v Baron. Lord Sumner referred to it in British and Beningtons, Ltd (at 68) as possibly correct 'as a matter of formal logic'. However in United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340, which was a case involving money lenders' legislation in Jamaica, Lord Devlin, delivering the judgment of the House of Lords, said (at 348): 'The disadvantage of this view is that a minor variation may destroy the effect of the whole of the transaction between the parties. The alternative view, adopted by the House of Lords in Morris v Baron and again in British and Benningtons (sic) Ltd v NW Cachar Tea Company Ltd … is based on the intention of the parties. They cannot have that which presumably they wanted, that is, the old agreement as amended; so the court has to make up its mind which comes nearer to their intention – to leave them with an unamended agreement or without any agreement at all. The House answered this question by rejecting the strict view propounded by Sankey J and distinguishing between rescission and variation. If the new agreement reveals an intention to rescind the old, the old goes; and if it does not, the old remains in force and unamended. It seems that this distinction was developed in order to address the difficulties generated by requirements for contracts to be in writing, imposed by the Statute of Frauds, and in the United Dominions Corporation case by the Money Lending law of Jamaica. 155 In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93, Dixon CJ and Fullagar J described the distinction made between 'rescission' and 'variation' in the two House of Lords decisions as '… not a satisfactory distinction'. It appeared to be 'a matter of degree' (at 113). Taylor J said (at 144): 'It is firmly established by a long line of cases commencing at least as early as Goss v Lord Nugent [(1833) 5 B & Ad 58] and ending with cases such as Morris v Baron & Co and British & Beningtons Ltd v North Western Cachar Tea Co Ltd – and, indeed, including Goss v Lord Nugent itself – that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.' 156 Taylor J acknowledged that variation might involve partial rescission and cited Salmond and Williams on Contract, 2nd ed (1945) at 488 and 489: 'Partial rescission … does not completely destroy the contractual relation between the parties. It merely modifies that relation by cutting out part of the rights and obligations involved therein, with or without the substitution of new rights and obligations in their place. Partial rescission is not the extinction of the contract but the variation of it.' And further (at 144): 'A contract may be varied (1) by way of partial rescission without the substitution of new terms in place of those rescinded, or (2) by way of partial rescission with the substitution of new terms for those rescinded or (3) by the addition of new terms without any partial rescission at all.' Taylor J observed that those passages correctly stated the accepted view of the manner in which an agreement by way of variation operates. 157 The distinction between rescission and variation of contracts was indirectly an issue in Dan v Barclays Australia Ltd (1983) 46 ALR 437 (57 ALJR 442). The case concerned the construction of the terms of a guarantee of the payment of up to $500,000 owing under a bill acceptance facility which allowed for a maximum advance of $2 million. The maximum of the bill acceptance facility was increased sometime after its execution. It was held by Mason, Brennan and Deane JJ that the initial bill acceptance facility was significantly different from that subsequently granted and the guarantors were therefore not liable for interest and charges resulting from default under the later facility although, as a matter of construction of the guarantee, they were liable for the principal up to the figure specified in the guarantee. Wilson and Dawson JJ dissented. In their dissent they observed that cases dealing with the circumstances in which variation of a contract would amount to rescission did not necessarily provide the answer to the question of the construction of the guarantee in its application to 'the facility'. However they said (at 448): 'The distinction between rescission and variation is discussed in such cases as Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93; Morris v Baron and Co [1918] AC 1 and British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48. Variation of an existing contract, whilst it in one sense always gives rise to a new contract, does not always result in a substituted contract which, in order to operate, must necessarily rescind the contract which is varied. Variation may take the form of rescission of some of the terms of an existing contract but if that is to have the effect of rescission of the whole contract, the rescission must be express or by necessary implication and the determining factor must always be the intention of the parties as disclosed by contract when varied: see Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd, supra, per Taylor J at 143-4.' Owen J in Permanent Building Society (In Liquidation) v Wheeler (1993) 10 WAR 109 observed that although the statement in Dan was in a dissenting judgment, the dissent related to the application of the test. There was no reason to doubt the authoritative force of the statement of principle (at 127): 'Many of the cases arise in the area of unenforceability due to non-compliance with a formal requirement such as writing. … However, the authorities show that the task is to ascertain the intention of the parties as embodied in the contracts.' It was permissible, in searching for the intention of the parties, 'to look at the extent and completeness of the changes involved in the variation' (127). His Honour said further (at 128): 'That there may be "as a matter of formal logic" a new contract … is true to a limited extent only.' In the Permanent Building Society case the parties had expressly confirmed the original agreement and made minor changes. The varied contract was therefore a 'new' contract only to the extent that it contained terms which were not present in the original agreement. 158 In Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at 534 reference was made in the joint judgment of Gleeson CJ, Gaudron, McHugh and Hayne JJ to the passage from the judgment of Taylor J in Tallerman and its approval by Wilson and Dawson JJ in Dan. The joint judgment in Sara Lee said, in relation to the passage from the judgment of Taylor J, (at 534 [24]): 'It accords with principle and with authority.' Callinan J also acknowledged that there may be cases in which what is expressed to be a variation of an earlier agreement as a matter of construction cannot be so regarded. 159 There was no express agreement to discharge the Agreement of May 1999. If it was discharged, that discharge flowed, as a matter of implication, from the arrangements made on 24 September 2000. Professor Carter, in an essay on Termination written for the 2nd Edition of the Law of Contract in the Butterworths Common Law Series (2003), identified, at 1320-1321, two cases of consensual discharge by implication which may be paraphrased thus: 1. Where the parties to a contract enter into a second contract which is inconsistent with an intention that the contract by which the parties were originally bound should remain in force (at 1321): 'Then, what one party alleges to be a mere variation of the contract may go so much to the root of the original agreement that the parties' intention to terminate the original agreement may legitimately be inferred, for example, because it is impossible for both agreements to be performed.' 2. When the conduct of the parties to an agreement is such that an agreement to terminate or abandon the former contract may be inferred or where their conduct creates an estoppel. 160 The Agreement of May 1999 was in the nature of an employment agreement notwithstanding that it took the form of an agreement for the provision of services under a consultancy arrangement. It is a particular application of the general case of consensual discharge by subsequent inconsistent agreement that an employment agreement may be discharged by sufficiently substantial change to the terms and conditions of employment. In Chitty on Contracts (Vol 2, Sweet & Maxwell, 28th ed, 1999) 39-152, it is said: 'A termination of a contract of employment by agreement occurs also where there is an agreed change in the terms and conditions of employment, for instance by way of promotion, which is sufficiently fundamental to constitute the rescission of the original contract and its replacement by a new contract in differing terms.' 161 In Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567, Ashley J reviewed a number of authorities relating to changes to the terms of employment and when such changes would amount to discharge of a subsisting employment agreement. He accepted, at 576, the proposition in Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 that: '… where employer and employee agree to an alteration in the employee's duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old; or at least that the old contract as varied, contained terms objectively appropriate to the new relationship created.' 162 A contract under which a person is employed, whether directly or through a corporate entity controlled by that person, may be discharged by sufficiently significant changes to the duties and/or the remuneration of the person so employed. A discharge will occur when the changes are significant, not able to be accommodated by the terms of the original contract and not contemplated by the parties when the original contract was made. Whether there has been a discharge or a variation of the original agreement depends upon the intention of the parties discerned by reference to the terms of their second agreement. It is as Dixon CJ and Fullagar J said in Tallerman 'a matter of degree'. 163 In my opinion, Mr Elliott's appointment as managing director and chief executive officer of Energy on 29 September 2000 and Mr Brand's relinquishment of that office was of itself sufficient to constitute a discharge of the Agreement of May 1999. There was a very substantial difference between the office of managing director and executive director which supports the contention that objectively judged it was the intention of both parties to discharge the Agreement. The complete terms upon which Mr Brand provided his services as an executive director thereafter were never expressly agreed between Martech and Energy. Those terms and conditions would have to be considered in the context of the evolving commercial relationship between Mr Brand and Energy and their respective conduct. Mr Brand played a significant part in defining them himself, not least by unilaterally varying downwards his annual fee. 164 I do not accept the submission by Martech that Mr Brand was 'removed' from office by Energy on 29 September 2000. While the circumstances at the time made the course that he adopted the only practical course to take, that was a judgment he made for himself and to which he assented. I find that the Agreement was discharged consensually. 165 Martech submitted that it was entitled to the Termination Payment if the Agreement were terminated for any reason other than one of those set out in sub cls 8.1.1, 8.1.3, 8.1.4 and 8.1.5 or cl 8.5. Termination having occurred on 29 September 2000 for none of those reasons it says it was entitled. Energy submitted that, on its proper construction, cl 8.6 did not apply where Martech wished to terminate its services and agreed to termination. The benefit of the notice provision in cl 8.5 could be waived – Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543, 552, 560 and 565. 166 The critical question in considering the Martech submission is whether, on the proper construction of cl 8.6, the entitlement which it creates in a case in which the 'Agreement is terminated for any other reason …' arises where there is a consensual discharge of the Agreement. That constructional question depends upon a consideration of the words of cl 8.6 and the context in which they appear both within that clause and within other parts of cl 8 and the Agreement as a whole. 167 The Shorter Oxford English Dictionary definition of 'termination' is equivocal. It defines termination relevantly as a transitive verb meaning: 'bring to an end, put an end to, cause to cease; finish, end (an action, condition etc).' It is also defined as an intransitive verb meaning, inter alia: 'come to an end (in time); end, cease, conclude …' 168 Lord Radcliffe said in Bridge v Campbell Discount Co Ltd [1962] AC 600 (at 620): '"Terminate" is an ambiguous word, since it may refer to a termination by a right under the agreement or by a condition incorporated in it or by a deliberate breach by one party amounting to a repudiation of the whole contract.' Lord Denning also adverted to the uncertain scope of 'termination' in the terms and conditions of National Health Service staff contracts: 'terminate or termination is by itself ambiguous. It can refer to either of two things – either to termination by notice or termination by effluxion of time. It is often used in that dual sense in landlord and tenant and master and servant cases.' In context, he found it to refer only to termination by notice – R v Social Services Secretary, Ex parte Khan [1973] 1 WLR 187 at 189. Karminski and Buckley LJJ agreed. Buckley LJ added (at 191): 'As Mr Slynn has pointed out, the verb "terminate" can be used either transitively or intransitively. A contract may be said to terminate when it comes to an end by effluxion of time, or it may be terminated when it is determined by notice or otherwise by some act of one of the parties.' 169 There is no doubt that the word 'terminate' used in a written contract, in reference to its discharge, is capable of extending to the case in which the contract is discharged by agreement. This usage was recognised by Professor Carter in his identification of what he called 'the three principal bases for saying that a contract has been terminated'. They were: 1. Subsequent agreement by the parties. 2. Exercise of a right to terminate. 3. Frustration of the contract. (Carter op cit at 1317). Termination by agreement as he pointed out, is sometimes referred to as rescission by agreement. 170 It is necessary then to consider the way in which the word 'terminate' was used in cl 8.6 of the Agreement in order to determine whether it extended to rescission by agreement. In so doing it is necessary to have in mind the consequences of termination. As Carter observed (op cit at 1319): 'The feature which serves to distinguish termination by agreement from termination for breach is that the former will generally discharge both the primary and secondary obligations of the parties. In the latter context, only the primary obligations are discharged and accrued obligations or liabilities (giving rise to secondary obligations) are not divested. However, when the subsequent agreement is intended to release one party from a liability (or an alleged liability) the general principle is that the party in default is released from those accrued obligations or liabilities only if consideration has been given for the release.' 171 A contract may be abandoned by agreement extinguishing all unperformed primary obligations. It may be abandoned by conduct where the conduct of one party acted on by the other leads to the inference of an implied agreement between them to abandon the contract. In the alternative, the conduct of one party towards another and the other's action upon that conduct to its detriment may result in the first party being estopped from denying that the contract has been abandoned – Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854 at 914 (Lord Brandon), 915 (Lord Diplock), 924 (Lord Brightman). 172 In summary the word 'termination' when referring to the discharge of a contract has a variety of possible meanings. It may be limited to non-consensual termination by the action of one or other party to the contract. It may extend to discharge of the contract by effluxion of time. That is a consensual termination in the limited sense that it is part of the agreement from the outset. The word may also be construed as applying to a discharge of a contract by agreement or by abandonment which may be taken to amount to the same thing. Its meaning in cl 8.6 depends upon the language of that clause and related clauses of the Agreement. It is also to be construed by reference to the context of the Agreement as a whole. 173 Clause 8.1 of the Agreement concerned the circumstances in which Energy could terminate summarily Martech's services. None of those circumstances applied in this case. Clause 8.2 allowed Martech to terminate the Agreement in the event of Energy suspending payment or compounding with its creditors or assigning its estate for their benefit. That circumstance did not exist either. Clause 8.3 limited the power of both Energy and Martech to terminate for breach of obligation by requiring that the party in breach be served with a notice requiring rectification and allowing 30 days for that to occur. Clause 8.5 allowed Martech to 'terminate its services' on three months' written notice. 174 If the Board of Energy had resolved to dismiss Mr Brand as managing director other than for any of the reasons set out in cl 8.1 that could be taken as a repudiation of the Agreement and, if accepted by Martech, a termination of the Agreement giving rise to the entitlement to a payment under cl 8.6. If Energy declined to renew the term of the Agreement at its expiry, that too would give rise to an entitlement to the fee under cl 8.6. In each of these cases cl 8.6 had work to do. Each involved termination by Energy of its relationship with Martech. 175 The question arises whether by cl 8.6 Martech was entitled to a termination payment in the event of a discharge by agreement. Absent clear words, I do not construe cl 8.6 as extending to such a case. The bases and terms upon which parties to an agreement may agree to discharge it are many and various. The extension of cl 8.6 to mandate a very substantial payment in the event of an agreed discharge of the parties' contractual obligations would impose a requirement on the parties as to the terms on which they may so agree. Even if cl 8.6 expressly applied to a discharge by agreement, it would be open to the parties by agreement to discharge that obligation along with all the others. Indeed so to construe cl 8.6 is to give it, in its application to an agreed discharge, an operation rather like that of an agreement to agree. Such an agreement is not a contract. I accept in so saying that it may theoretically be possible to create an entitlement to a termination payment which vests, pursuant to the Agreement, upon the external event of a later agreement to discharge. I do not accept, however, that cl 8.6 so operated. 176 The basis upon which the Agreement was discharged did not include any obligation to pay a termination fee. Whatever the terms of the New Contract which supplanted the Agreement it included Mr Brand's continuance as an executive director, initially at the fee he was then being paid as managing director. That was a rate which he himself proposed and subsequently reduced to $240,000 per annum with effect from 1 October 2000. There was no suggestion in the discussion leading up to the Board's resolution of 29 September 2000, nor in the terms of the Board's resolution, that Martech was to be afforded a Termination Payment under cl 8.6. That would have been a very considerable sum. Mr Brand did not, on behalf of Martech, purport to reserve any rights with respect to a Termination Payment. 177 In my opinion, cl 8.6 of the Agreement did not entitle Martech to a Termination Payment upon a consensual termination. The claim for such a payment flowing from the resolution of 29 September 2000 therefore fails. Claim for Termination Payment on the basis that the Agreement or the New Contract was terminated on 24 October 2001 178 The Agreement of May 1999, having been terminated on 29 September 2000, no claim based on its termination as at 24 October 2001 can succeed. Nor, in my opinion, can any such claim succeed on the basis that it was the New Contract that was terminated. Accepting that a New Contract did come into existence after 29 September 2000, albeit that its precise terms evolved over a period of time, I am not satisfied that those terms included a Termination Payment provision along the lines set out in the Agreement. There was never any agreement to that effect. 179 In any event, the claim for a Termination Payment arising out of the events of 24 October 2001 rests upon the premise that Mr Elliott effectively removed Mr Brand from office as a director of Energy by advising him that he would not support his re-election at the annual general meeting of 30 November 2000. Martech alleged that the request that Mr Brand withdraw his nomination as a director was a repudiation of the Agreement or of the New Contract and that Martech accepted that repudiation. 180 For reasons set out earlier, I am not satisfied that Mr Elliott did, as alleged, unequivocally withdraw his support for Mr Brand or indeed that Mr Brand's decision was based upon a belief that Mr Elliott had done so. I find that Mr Brand reached the decision, on his own, to withdraw on the basis that his position as a director was no longer tenable. 181 There was no termination by Energy on 24 October 2001, either of the original Agreement which, in any event, had been terminated, or of the New Contract. The claim for a Termination Payment based on alleged repudiation of the Agreement and, alternatively, the New Contract by Energy fails. Claim in contract for payment for termination on account of misleading Prospectus and unlawful non-disclosure by Energy 182 It was said by Martech to be an implied term of the Agreement of May 1999 that it could terminate the Agreement if the affairs of Energy were conducted in a manner contrary to the Corporations Act 2001 (Cth) (the Act) or the ASX Listing Rules, or in a manner which might result in Mr Brand incurring personal liabilities. (s/c 5.2) Martech alleged also that the New Contract contained the same implied term. (s/c 18A)The existence of the implied term was denied in Energy's defence. 183 Martech alleged that the Prospectus issued by Energy on 29 October 2001 was misleading for failing to disclose that Mosbacher was entitled, upon service of a Withdrawal Notice, to sell the Participating Interest held by EEIP. This was said to be a contravention by Energy of s 728 of the Act exposing Mr Brand as a director to personal liability by virtue of s 729 (s/c 20-20D). Martech also alleged that by negligently failing to notify the ASX of the information about the effect of the Withdrawal Notice, Energy contravened s 1001A(2) of the Act (s/c 20E-20K). The implied terms pleaded were thereby breached and Martech was said to have been entitled to terminate the Agreement (and/or presumably, although it is not pleaded, the New Contract). This was done by Mr Brand's withdrawal of his nomination on 24 October 2001 and his later resignation as a director of Energy. On that basis, it was said, that Martech became entitled to the Termination Payment. The quantum claimed was the Fee for a further 22 months, being $989,326.25 exclusive of GST and allowing for a contractually agreed CPI adjustment (s/c 22). 184 Martech argued in its closing submissions that the Agreement and/or the New Contract should be construed so as to have entitled Mr Brand to resign as a director of Energy if he genuinely (and reasonably) held the view that the effect of the Actand the ASX Listing Rules, required disclosure of the Mosbacher Withdrawal Notice and that Energy's Board had decided, or would decide, not to disclose it. The Agreement, contained an implied term to that effect. The implication so submitted was considerably wider than that pleaded. 185 It was further submitted that neither the Agreement nor the New Contract should be construed as disentitling Martech to the Termination Payment if Mr Brand's resignation was on account of his exposure to liability as a consequence of a breach or reasonably apprehended breach of the Act or of the ASX Listing Rules. 186 I do not accept that there was ever, in the Agreement of May 1999 or in the contractual relationship which followed it, an implied term of the kind relied upon by Martech. As pleaded in relation to the Agreement, the implied term conferred an unqualified right to terminate in the circumstances that the affairs of Energy were conducted in a manner contrary to the Act or the ASX Listing Rules or in a manner which might result in Martech or Mr Brand incurring personal liabilities. But Martech's right to terminate under the Agreement was dependent upon Energy being in breach of its obligations under the Agreement for a continuous period of 30 days and upon Martech serving a notice of such breach. Clause 8.3 was expressed to be exhaustive of the circumstances of the conditions for a non-consensual termination of the Agreement. It opened with the words, 'The Company or the Manager can only terminate the Agreement if all of the following provisions are complied with' (emphasis added). 187 No implied condition of the kind relied upon having existed in the Agreement, there is no basis for saying that any such term was to be carried over into the succeeding contractual relationship. In my opinion therefore, whatever may be said of the conduct of Energy in relation to non-disclosure, there was no event which entitled Martech to terminate and claim a Termination Payment. Moreover there was no agreed Termination Payment provision under the contract which succeeded the Agreement. And Mr Brand's decision to resign 11 days early was made of his own accord. It did not flow from any act on the part of Energy. His services were not terminated by Energy. This aspect of the claim fails. 188 Although it is not necessary to do so for present purposes, I refer to evidence adduced by Martech on the question of non-disclosure from Mr Peter Strachan. Mr Strachan has had seven years experience in the mining industry and 22 years in the finance industry as a corporate analyst, stockbroker, investor relations manager and corporate executive. 189 Mr Strachan expressed the opinion that a reasonable person with information about the service of the Withdrawal Noticeon EEIP by Mosbacher in September 2001 would expect it to have had a material effect on Energy's share price. He pointed out that in November 2001 EEIP had a market capitalisation of about $45 million to $50 million. Its balance sheet for 30 June 2001 showed shareholders' equity of $125.5 million, a deficit of working capital of $85.4 million and total assets of $255.1 million. 190 In its prospectus Energy disclosed that its share of hydrocarbon reserves in the PY-1 Gas Field was about 111 billion cubic feet of gas. The company had previously announced that gas reserves from the PY-1 project were being positioned with potential buyers wishing to use that gas to fuel power generation plants in India. Energy had announced its intention to sell this 35% interest in order to reduce its debt level. 191 In Mr Strachan's opinion, based on the numbers supplied in Item 14 of the company's financial year 2001 accounts, a reasonable person would have concluded that the company's book value for its 35% interest in the PY-1 Contract Area from which it was asked to withdraw, was $13.5 million. Furthermore, a reasonable person could expect that if information about the Withdrawal Notice were available to the market, analysts and sophisticated investors would have been able to compare the value of the PY-1 Contract Area with the price of similar assets in the region and conclude that by losing the asset Energy would lose value of between $25 million to $35 million. That would assume a selling price of around $0.25 million to $0.35 million per billion feet of gas in the project as it stood undeveloped. 192 Mr Strachan expressed the opinion that a reasonable person could have concluded that the company's market value would have had the potential to fall by between $13 million and $25 million representing a fall of between 29% and 45% from Energy's prevailing market capitalisation. 193 He also expressed the view that an investor may have been misled by the company's announcement in the Prospectus of 29 October 2001 qualifying its 35% interest in the PY-1 Contract Area. Mr Strachan said he believed that a reasonable person would assume that the statement implied the asset had not been finally lost and that there was some mechanism by which the asset might be retrieved by the company. 194 As I have already said, it is not necessary to resolve this question. I am of the view that Energy's failure to make an early specific announcement to the ASX in relation to the Withdrawal Notice was based on an overly optimistic view of its ability to negotiate out of the problem with Mosbacher. In my opinion, however, it is undesirable to explore at large the question whether Energy was guilty of a breach of either the Act or the ASX Listing Rules. The information said not to have been disclosed was narrowly defined in par 20A of Martech's statement of claim as follows: 'Under the terms of the Joint Venture Operating Agreement referred to at paragraph 20.2 Mosbacher India LLC was entitled, having served a Withdrawal Notice, to sell the participating interest held by Energy India in the PY-1 Gas Field, without Energy India's consent.' This was a statement about an entitlement which was, as it turned out, affected by Indian law. The truth of the proposition pleaded in par 20A was not established at trial. And as it turned out when the dispute between Mosbacher was arbitrated the London Court of International Arbitration held that the article of the agreement entitling Mosbacher to sell EEIP's interest in the PY-1 Gas Field was a penalty within the meaning of s 74 of the Indian Contract Act. The truth of the proposition pleaded in par 20A as a matter of fact and law was not established. It is that proposition, which it is alleged should have been disclosed. Such evidence as there was indicated that the proposition may not have been true. I am satisfied therefore that there was no misleading or otherwise contravening non-disclosure in the terms pleaded in the amended statement of claim. That is not to say that the risk of a loss of the interest in the PY-1 Gas Field to which the Withdrawal Notice gave rise, should not have been disclosed to the ASX. But that is a different question. Claim for a termination payment on the basis of termination on 20 November 2001 195 In par 21B of the amended statement of claim it is alleged that Mr Jordan, on 20 November 2001, informed Mr Brand orally that Martech should cease to provide its services which it did. In the premises it is said Martech became entitled to a Termination Payment, namely the payment of the Fee for a further 22 month period. Alternatively, it is said that Mr Jordan's conduct attributable to Energy, was a repudiation of the New Contract. It was a repudiation which Martech accepted and on the basis of which the New Contract was terminated giving rise to an entitlement to the Termination Payment. This claim is answered by findings I have already made about the absence of any Termination Payment provision in the so-called New Contract. In any event, Mr Brand had tendered his resignation effective the previous day, that is 19 November 2001 as a director of Energy and associated companies. He, and Martech through him, had unilaterally decided to terminate the provision of his services. There is no basis for the claim made under this head. Conclusion 196 For the preceding reasons, I am satisfied that Martech has made out a claim for $71,663.65, being the shortfall in fees payable during the period 1 March 2000 to 30 September 2000. Martech will also be entitled to interest, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), calculated from 30 September 2000 to the date of judgment. Martech's claim is otherwise dismissed. Pre-judgment interest 197 Pre-judgment interest is claimed under s 51A of the Federal Court Act. Whether such interest should be awarded, what the rate of such interest should be and from when it should be award are matters within the discretion of the Court subject to the provisions of s 51A. In this case the entitlement to the shortfall of fees may be seen to have existed as at 30 September 2000. However, there was a continuing unilateral reduction of fees by Martech well beyond that point. No suggestion was made that the shortfall would be subject to interest charges. I am inclined to think that if pre-judgment interest is to be awarded, it should be from the commencement of these proceedings. However, I will give the parties an opportunity to put submissions in that respect. THE CROSS-CLAIM Factual Background 198 The cross-claim is brought by Energy and its subsidiary Australian Energy Equity Pty Ltd (AEE) against Martech and Mr Brand. It arises out of decisions taken by Mr Brand, as managing director of Energy and as a director of AEE, in connection with the development of a power plant project at Cochin in the State of Kerala in India. The project was for the development and construction of a combined cycle power plant. The proposal was known as the Vypeen Combined Cycle Power Project or the Vypeen Project for short. Energy's administrative and decision-making arrangements 199 Energy was listed on the ASX in December 1989. Mr Brand was its founder and first managing director. His background was primarily in marketing. He had 'no hands on' experience of the oil and gas industry. However he became familiar with its workings in the years that followed to the late 1990s. His original purpose in setting up the company was to promote the use of natural gas in the transport sector. The opportunity presented by natural gas was a driver in the formation of Energy and of its development. 200 In 1998 Mr Brand provided his services as managing director under a written agreement dated 27 August 1993 (the 1993 Agreement) between Martech and Energy. That agreement was the predecessor of the Agreement of May 1999, the subject of the principal proceedings. It was prepared by Mr Paul Hyland of McAlwaine & Hyland, Mr Brand's personal solicitors. Paul Hyland, through his firm, had also acted as Energy's solicitor for about five years prior to 1993. 201 The initial term of the 1993 Agreement was expressed to be two years commencing on 1 July 1993 and renewable by agreement '… to the intent that there shall be at least a term of One (1) year to run at any one time'. The services to be provided by Martech under the 1993 Agreement were set out in Schedule 1 of that agreement. They were the services of managing director including, but not limited to: '(a) To assist the Company in the administration management and financial control of the business of the Company and the marketing of its products; (b) To assist the Company in the formulation of policy for the more effective operation of its business; (c) To manage supervise control and co-ordinate personnel employed and contracted by the Company in its business and ensure performance of their respective obligations in an efficient and professional manner; (d) To perform the following services and keep and maintain documents reports and material relating thereof:- (i) To establish utilize and provide professional business management methods and efficient control of the business of the Company and make appropriate revisions thereto from time to time; (ii) to establish for the business of the Company appropriate accounting procedures and cost controls in a form suitable for audit; (iii) to prepare detailed development schedules for the Company and use all reasonable efforts to conform with the time constraints of such schedules; (iv) to co-ordinate direct and inspect all phases of the business of the Company.' 202 Mr Brand developed the internal organisation of Energy on a Divisional basis. By the middle of 1998 it had three main Divisions. They were designated 'Operations', 'Finance' and 'Business Development'. Operations was headed by Mr Bill Hornaday, Finance by Mr Maurice Hayes and Business Development by Mr Paul Bridgwood. At the time of the events the subject of these proceedings in 1998 and 1999, each of these men was a long serving employee whose judgment Mr Brand trusted. 203 Mr Hornaday was to become, in early 1999, the Chief Operating Officer of Energy and its group of companies. He was responsible for group operations which included all day to day activities, budgets, performance to budget, human resources, safety, environmental issues, drilling plans, construction activities on a project by project basis and business development in relation to oil and gas. Although in his evidence-in-chief Mr Brand said that Mr Hornaday occupied the position of Chief Operating Officer from mid 1998, he corrected that in cross-examination. He thought that he did not occupy that office until early 1999. 204 Mr Hayes was the Chief Financial Officer. He was responsible for group financial, and at times accounting, functions which included day to day financial management as well as short and long term cashflows and equity and debt plans at both corporate and project levels. 205 Mr Bridgwood was the Chief Development Officer for Energy and its group. He was employed in 1987. Before joining Energy, he worked as a consultant for an engineering firm, Worley Engineering. He was responsible for group business development with a particular emphasis on power projects, liquefied natural gas (LNG) and integrated gas to LNG/power projects. Mr Brand described Mr Bridgwood's responsibilities as covering 'development projects'. By this he meant projects during their formative stages up to what he called 'financial close'. Mr Bridgwood who was a key actor in relation to the authorisation of the payments by Mr Brand which had led to these proceedings, was not called as a witness. There was no question of his unavailability. He has not been en employee of Energy since 2001. He is now a director of Liquified Natural Gas Limited, a company which Mr Brand set up after his departure from Energy and of which he is managing director. It is a public company which was listed in September 2004. It appears that there are, or were, pending proceedings between Energy and Mr Bridgwood although the nature of those proceedings was not identified in the evidence. 206 Energy had an Executive Management Committee which usually met fortnightly. Generally it comprised Mr Brand, Messrs Hornaday, Bridgwood, and Hayes, an executive officer, Mr Bult, together with Messrs Adams and Lindsay and the Company Secretary, Mr Clarke. The Committee's meetings were conducted in a formal way and usually minuted. It would receive reports, both written and oral, from its members on matters arising in their areas of responsibility. The majority view on an item of discussion would usually prevail. Not all matters the subject of written report were discussed at Executive Management Committee meetings. The reports informed Committee members of matters occurring and issues arising within other divisions. Because Energy's business demanded a significant amount of overseas travel for several of its senior executives, particularly Messrs Bridgwood, Hornaday and Brand, they were not all able to attend all Executive Management Committee meetings although they were usually circulated with the papers. 207 The Board of Directors met monthly. An agenda and written reports were circulated before each meeting. Many of the reports were prepared by the heads of the divisions. They kept the Board up to date with the progress of Energy's projects and set out its receipts and cashflows. Often the reports were not expressly discussed at Board meetings. As a matter of practice, according to Mr Brand, absence of discussion signified that the Board collectively was satisfied with the report and had no issues with it. His own report would address and summarise critical issues facing the group. It usually dealt with operational performance, implementation of strategic plans, medium and long term financial plans, acquisition of and/or sale of assets and organisational changes and senior management appointments. 208 Mr Brand did not usually prepare reports on the progress of specific projects. They would be prepared by Messrs Bridgwood and Hornaday and if there were matters warranting mention they would speak to the reports at the Board meetings. Mr Hayes would prepare Board papers relating to Financial Division matters and would speak to them at Board meetings. 209 The practical effect of the management structure was that each of the divisional heads reported direct to the Board on many matters. These included, in Mr Bridgwood's case, the progress of development projects. It was also Mr Bridgwood's responsibility to implement Board decisions in relation to those projects. His implementation was the subject of further report to the Board which would be reviewed by Mr Brand before submission. In practical terms, each of the three divisional heads had, what Mr Brand described, as 'a significant level of autonomy'. Mr Brand agreed in cross-examination that in his position as managing director he was effectively the one person that had knowledge of all the divisions. He agreed also that this was important not only because of his role as managing director but also because he had to report to the Board in that capacity. 210 In cross-examination, Mr Brand explained some aspects of the relationship between the respective functions of Messrs Bridgwood and Hornaday. Mr Bridgwood was primarily responsible for the development of power related projects. Mr Hornaday was more responsible for oil and gas related matters. Nevertheless, no doubt because of a degree of overlap, in 'some sense' Mr Bridgwood reported to Mr Hornaday. 211 Mr Brand, in his evidence-in-chief, described some particular aspects of his role as managing director in 1998. By that time Energy had net assets in excess of A$140 million. It operated in Australia and Indonesia and employed about 180 staff. Its principal activities within Australia were in connection with the Barcaldine Power Plant, the Gilmore Gas Field, LNG and power plants at Alice Springs and the Eromanga Gas Field. In Indonesia it had an interest in the Sengkang Power Project, the Lematang Oil and Gas Field and a number of other oil and gas permits. 212 Mr Brand identified major development projects in India in which Energy was involved. These were the PPN Power Project, the Basin Bridge Power Project, the PY-1 Gas Field Project, to which reference was made in connection with the principal claim, and the Vypeen Power Project. In 1998 none was in operation. Apart from the PY-1 Gas Field Project, all were being managed by Mr Bridgwood. 213 I accept Mr Brand's description of Energy's organisational structure and the general description of the functions of the Divisional Heads, the Executive Management Committee and the Board of Directors. I also accept his description of the major development projects and other activities in which Energy was involved. None of these matters was really in dispute. They were generally borne out by the management reports, Executive Committee minutes and Board minutes which were in evidence. 214 Mr Brand said it was not possible for him to administer each of the companies on a hands on basis. Their administration required a high level of delegation, particularly in the case of projects overseas. His role, as he saw it, was to deal with the major issues facing Energy or arising from its management at the time. As a general proposition I accept that evidence also. 215 From mid 1998 to late 1999, Mr Brand focused on a limited number of significant issues. The first of these was the relationship between Energy and its financier the CBA. From late 1998 Energy was facing the real prospect that the CBA would call up its facilities or reduce the draw down commitment. This required on-going discussion. There was also a substantial dispute between Energy and PLN, the Indonesian Electricity Authority about payments due to Energy under the Project Power Purchase Agreement for the Sengkang Gas and Power Project. That had a total capital cost of US$225 million. Energy had a 47.5% interest in it. The dispute had a serious impact on Energy's cashflow. Energy was also trying to achieve financial close of a 336MW PPN power plant in Tamil Nadu in India and the sale of that project to El Paso Ltd. The capital cost of the project was US$330 million. The sale to El Paso was achieved ultimately in March and April 1999. According to Mr Brand it was of particular importance because of its positive effect on Energy's cashflows, which gave the company the ability to retire a portion of the CBA debt. 216 Another significant issue in late 1998/early 1999 arose in connection with the Cooper Basin, Queensland gas project. That involved an expenditure of $30 million and the installation of a gas plant and pipelines to supply the Pasminco Century Zinc project. There was a serious issue about Energy's capacity to meet its obligations to Pasminco under a 'take or pay' contract. There had been an unanticipated reduction in gas reserves and gas reduction. There was a possibility that Energy would sustain significant losses and would be in breach of its covenants under the CBA facility. 217 Mr Brand said that a number of these matters were of great importance and some of them involved him in extensive overseas travel. Energy was also negotiating with brokers and investment bankers about a possible capital raising and financial restructuring. He was heavily involved in those discussions. He had all the other usual responsibilities to perform including dealing with, and maintaining, good relations with brokers, analysts, the media, the governments in India, Indonesia and Australia at a regional, State and national level. The Board, he said, was aware that he was devoting his time to these important issues because he reported to the Board on the progress of his negotiations. I accept his evidence of how he saw his priorities as Managing Director at that time. The Vypeen Project – Memorandum of Understanding 18 February 1998 218 On 18 February 1998 Energy entered into a Memorandum of Understanding (MOU) with a Malaysian company called Pembinaan Redzai Sdn Bhd (PR). PR and its subsidiary held 94% of the shares in Siasin Energy Limited (Siasin) which was undertaking the development and implementation of the Vypeen Project for the State of Kerala on a 'build, own and operate basis'. According to the recitals in the MOU, Siasin had executed a Power Purchase Agreement with the Kerala State Electricity Board (KSEB) on 17 July 1996 and had obtained in-principle clearance from the Central Electricity Authority for the project. PR was looking for partners in its future development. The MOU recited that Energy wished to conduct 'due diligence' on the project with a view to becoming a shareholder of Siasin and actively involved in the development of the project. Under the MOU, Energy was to conduct its due diligence investigations for a period of 30 days. If it decided to participate in the project it would negotiate in good faith to enter into a formal agreement to set out all agreed terms and conditions in the MOU and other 'reasonable terms and conditions' for the sale and purchase in Siasin and the scope of work of each party. 219 PR undertook to make available up to 40% of the shares in Siasin for acquisition by Energy which in turn agreed to make payments for their acquisition in accordance with terms attached to the MOU. The MOU recited Energy's intention to sell 10% of its shares in Siasin to Woodside Petroleum Ltd (Woodside) at or prior to financial closure. Attached to the MOU was a table entitled 'Vypeen Combined Cycle Power Project Payment Terms'. This set out 'milestones' for payments to be made by Energy. It is not necessary to reproduce that table here. It was scheduled to the Sale and Purchase Agreement entered into in May 1998 and is reproduced below. 220 The minutes of the meeting of the Board of Directors held on 26 February 1998 include reference to a report presented by Mr Hornaday on 'Engineering, Operations & Business Development'. Mr Brand noted that Energy was undertaking 'due diligence' on the proposed '1,200 MW Vypeen Combined Cycle Power Station in Kerala India' so that it could determine whether to acquire a 40% interest. He advised that the company had signed another memorandum of understanding under which Woodside would supply condensate and LNG to fuel the Vypeen power station, if it proceeded. 221 In his evidence-in-chief Mr Brand described Mr Bridgwood's responsibilities in connection with the Vypeen Project. Mr Bridgwood, he said, was an engineer with extensive hands on experience of power project development. His experience in that area was greater than Mr Brand's. He relied on him to progress Energy's development projects, as approved by the Board, and within the parameters of that approval but using his own initiative to do so. He expected him to report to the Executive Management Committee and to himself and the Board if there were difficulties or issues upon which he needed assistance or direction. 222 Mr Bridgwood's responsibilities in relation to power development projects included dealing with Energy's joint venture partners and maintaining harmonious relations with them. He was also expected in such projects to negotiate the terms of major commercial agreements with government instrumentalities and multi-national oil companies. He was expected to maintain the progress of a project ensuring, so far as possible, that governments dealt promptly with licences, permits and authorisations. According to Mr Brand, his responsibilities extended to the monitoring of expenditure and joint venture contributions or other payments. 223 Mr Bridgwood was assisted by Mr Selvendra. Mr Selvendra was employed as Energy's India Country Manager. He is an Indian national. His principal function was to assist Mr Bridgwood with negotiations and judgments to which Indian cultural issues, business practice and government and administrative practices were relevant. He was engaged because of his knowledge of India and its approach to business. He was a senior employee with a salary of about $120,000 per year plus overseas allowances. He had an office in Chennai in India and also shared an office at West Perth. 224 Mr Brand said in his evidence-in-chief that the establishment of a power project requires high level negotiation and commercial and other dealings on matters of complexity. It involves potentially very significant expenditure. In the case of the Vypeen Project an amount in excess of US$600 million was involved. The project comprised the construction of a power plant, the construction or modification of a fuel oil terminal, the possible dredging of Cochin Harbour to permit large fuel carriers to berth, negotiations with KSEB of a power supply agreement and negotiation with multi-national oil companies of a fuel supply agreement for LNG and liquid fuel. Negotiations were also necessary with overseas banks and other financial institutions. These, according to Mr Brand, were all matters handled by Mr Bridgwood himself or in conjunction with the joint venture partners' representative, Mr Swaminathan. Mr Bridgwood conducted negotiations for the power project on behalf of the joint venture company, Siasin. 225 Ultimately, the project Mr Bridgwood negotiated had to be approved by Energy's Board at, or prior to, financial close. Mr Brand regarded him as Energy's representative in dealing with the joint venture partners. Mr Bridgwood had only limited authority to incur expenditure by Energy. Mr Brand said in cross-examination he thought it would have been up to $250,000 or thereabouts. If he wanted to incur expenditure in excess of his limit, he had to obtain Mr Brand's authority. As a general proposition, Mr Brand relied upon Mr Bridgwood's recommendation that expenditure was necessary or due as the case may be. All payments in relation to the Vypeen Project were made on Mr Bridgwood's recommendation. Mr Brand's own authority to expend company funds would have been about $500,000 in 1998. 226 Neither Mr Bridgwood nor Mr Hornaday involved Mr Brand to any great extent in the discharge of their functions. Only if there were some difficulty or issue which they felt should be referred to the Executive Management Committee or to Mr Brand personally would he become involved. Mr Brand played no real part in Mr Bridgwood's activities or decision-making. He did not review Mr Bridgwood's correspondence or emails unless they were copied to him. That was infrequent up until early 2000. Sometimes Mr Bridgwood would ask Mr Brand to sign a letter as Managing Director on a topic perceived to be of importance and generally he prepared those letters for Mr Brand. I accept Mr Brand's evidence in relation to the functions and authority and modus operandi of Messrs Bridgwood and Selvendra. It is generally consistent with the documentary record. Importance of condensate to the Vypeen Project identified – March and April 1998 227 Mr R Yamada, a consultant employed by Energy, sent a memorandum to Mr Bridgwood on 4 March 1998, pointing out that fuel supply was one of the most important factors in the project. Energy's plan was to have Woodside supply condensate as the initial fuel until an LNG terminal was commissioned. Condensate is a liquid hydro-carbon by-product of natural gas that can be refined as if it were very light crude oil. Mr Yamada was concerned about how long it would take for the LNG terminal to come into operation. He wanted long term condensate supply by Woodside to be secured. He pointed out that it was also necessary to investigate the relevant regulations and clearances required for the importation of condensate into India. A General Open Licence (GOL) was required for the importation and that GOL was given only to the bearers of fuel linkage as condensate was deemed a crude product. 228 Mr Selvendra wrote to Mr Swaminathan, the project director of Siasin, on 7 March 1998 and said, inter alia: 'If condensate is to be promoted by the Ministry of Petroleum as a recommended fuel for power projects rather than Naphtha, then it is likely that it will be deregulated and made available under OGL. Right now it is not clear how long this process will take, and we should perhaps take steps to apply for the licence to import it as an intermediate fuel until LNG is available from Petronet.' 229 On 26 March 1998 Mr Bridgwood reported to Messrs Brand and Hornaday about the main issues associated with the Vypeen power project. These he identified as fuel supply, capital costs and terms of participation. The plan was to secure condensate as an initial or backup fuel for a term which was 'bankable' but flexible enough to allow LNG as primary fuel when it became available. Woodside would supply fuel either directly to Siasin or through a major Indian oil company such as Bhara Petroleum Corporation (BPCL) or the Indian Oil Company (IOC). He referred to the MOU which had been signed between Energy and Woodside for fuel supply and for a 10% share in the power project. He described the link with Woodside for condensate supply as '… critical to the success of the project'. Mr Bridgwood then said: 'Condensate is currently not permitted to be imported into India. However, meetings in Delhi with Petroleum & Power Ministries addressed this concern. The Ministry of Petroleum and Natural Gas will recommend to the Ministry of Power that condensate be approved for importation under the Open General Licence (OGL). Both Ministries are aware of this and have stated that this will happen.' He said it might take some time before formal approval was forthcoming and the agreements were in place. 230 Mr Brand agreed in cross-examination that as a result of Mr Bridgwood's fax of 26 March 1998 he understood that the laws of India at the time did not permit condensate to be imported. Energy, through its various officers, was endeavouring to persuade the Central Government of India to change the laws so that condensate could be imported under an Open General Licence. 231 On 31 March 1998 Mr Umashankar, of Siasin in New Delhi, sent a memo to Mr Swaminathan informing him that he was in regular contact with the Ministry of Power and Petroleum. He wrote: 'It is expected that Condensate will be permitted for use by IPPs as alternate fuel.' Copies were sent to Messrs Selvendra and Bridgwood. Mr Selvendra wrote to Mr Bridgwood on 3 April 1998 reporting '… positive movement towards listing condensate on the OGL list'. Mr Brand accepted in cross-examination that this was an important matter. The project was essentially a gas-based project which required the importation of liquefied natural gas. Condensate was contemplated as the interim or alternative fuel. 232 On 3 April 1998 Mr Brand wrote to Mr Datuk Gnanalingam of PR in Kuala Lumpur. Mr Gnanalingam was the principal of the PR Group and associated with Siasin. The letter was prepared by Mr Bridgwood. Mr Brand said in the letter that the major hurdle facing the project was fuel allocation. Energy could secure fuel through its association and agreements with Woodside. Woodside had sufficient quantities of condensate and LNG to supply the Vypeen Project at a competitive price. A challenge for the Project would be: 'To obtain the necessary approvals for condensate to be classified under the OGL (Open General Licence) scheme. This will require lobbying with the Ministries of Petroleum & Natural Gas and the Ministry of Power as well as the Finance Ministry. We believe that constructive progress has been made in this area and that all approvals may be obtained in the near future. Our staff in India will continue to work closely with your staff and with Woodside to lobby for these approvals.' Mr Brand said that because fuel supply was obviously so critical to the success of the project, Energy believed that it would be appropriate for its formal entry to be conditional upon securing approval of the fuel supply. He said: 'The execution of the Fuel Supply Agreement and Government approvals should therefore be the trigger for the first payment with the other milestone payments to follow.' He said in cross-examination that the letter was prepared for him by Mr Bridgwood. They had a brief discussion and then he signed the letter. 233 Mr Brand's letter of 3 April 1998 referred to the need to lobby the relevant Ministers to ensure that the condensate could be imported for use in the power plant. There were in evidence notes for presentation to the Minister for Power and the Minister for Petroleum and Natural Gas respectively. Mr Brand was aware of them. He said that he probably saw them in March 1998. The notes were in similar terms. It is useful to set out the note to the Minister for Power because it summarises the overall position at that point. I accept that it was the position as then known to Mr Brand: 'Note to Honourable Minister for Power M/s Siasin Energy Limited, a Company incorporated in India under the Indian Companies Act, 1956 has signed a Memorandum Of Understanding (MOU) to Build, Own & Operate (BOO) a 1200 MW Power Station at Vypeen Island, Cochin, Kerala, with Kerala State Electricity Board (KSEB) and the Government of Kerala (GOK) during 1993. The company has proposed to generate the said capacity in two stages, (Stage One 680 MW and the balance will be Stage Two). This project is promoted by a leading infrastructure developer in Malaysia viz M/s Pembinnan Redzai Sdn Bhd which own and operate the biggest and the most modern sea port (West Port) in Malaysia. The Project will be developed as a Gas (LNG) fired power station, and ABB Switzerland has been chosen as the EPC Contractor. The fuel (LNG) is to be supplied from the proposed LNG receiving facility which is being developed in Vypeen Island, adjacent to our project site by the Government of India Consortium, Petronet LNG Limited, comprising of Gas Authority of India Limited (GAIL), Oil & Natural Gas Corporation (ONGC), Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation Limited (IOCL). The Government of Kerala have allocated 200 acres of land for the proposed power project at Puthuvypu, Vypeen Island to KINFRA which is to be leased out to the company. The estimated cost of the power project is approximately Rs 2200 crores (sic). The Company has obtained all mandatory clearances from the Government of Kerala and the Government of India and other related Departments/Agencies and submitted these clearances along with other technical inputs to Central Electricity Authority (CEA) for the issue of Techno-Economic Clearance (TEC) which is the final approval for the project. The meeting of the Standing Projects Appraisal Committee (SPAC), which is mandatory for the issue of Techno Economic Clearance (TEC), will be convened shortly. The power station will be developed primarily as a gas based station, however, the turbines will have dual firing capability. M/s GAIL (through Petronet LNG) have promised to supply LNG by beginning of 2003 as per their schedule. But Siasin Energy will be completing the project works by the year 2002. Hence a backup/interim fuel become all the more necessary to commence commercial production of electricity immediately after the construction works are over. One type of interim fuel contemplated by the company is Condensate which is being used extensively in Australia for power generation. Siasin Energy can make arrangements to bring Condensate as interim fuel directly on OGL or channelise the import through any of the Government owned oil companies. A firm supply arrangement of an interim fuel is absolutely necessary for the financial closure of Siasin Energy Limited which in turn is required for the financial closure of GAIL's LNG Project. It is understood that the Ministry of Power is considering Condensate as a fuel for power generation based on recommendation from the Ministry of Petroleum and Natural Gas. Hence, it is requested that the Honourable Minister may kindly initiate action so that Condensate is approved as a fuel for power generation.' 234 In a letter of 4 April 1998 Mr Swaminathan replied on behalf of Mr Gnanalingam to Mr Brand's letter of 3 April 1998. In his reply he informed Mr Brand that in the previous week the Ministry of Power had indicated to the Ministry of Petroleum and Natural Gas to consent to the use of condensate as a fuel for power generation. The Ministry of Petroleum and Natural Gas and the Commerce Ministry would have to reclassify import and tariff classifications to facilitate the importation of condensate by power plants. That process was expected to take at least three to six months. He said that it was unlikely that fuel security would be a complete non-issue by the time any sale and purchase agreement was signed. At that stage the signing was planned for 20 April 1998. He said: 'It will likely remain as a development risk to be addressed on the several fronts we are pursuing. But given the encouraging developments mentioned above, we are surprised that you now perceive it as a threshold criteria before you are prepared to proceed with the milestone payments.' Condensate import permission – indications from Government – April 1998 235 On 7 April 1998 Mr Selvendra sent Mr Bridgwood a copy of a memo from Rakash Kacker, Joint Secretary Policy and IPPs of the Ministry of Petroleum to Shri Devi Dayal, an Additional Secretary at the Ministry of Petroleum and Natural Gas. In the memo Mr Kacker referred to a recommendation made in November 1997 to the then Secretary of Power and Natural Gas that liquid fuel policy be amended to permit usage of condensate crude as a primary fuel for power generation. He enclosed a minute of discussions held at that meeting and said: 'It is once again requested that the use of condensate may be permitted, subject to the conditions indicated in the record notes and further follow up action taken accordingly.' Mr Selvendra's handwritten note on the faxed copy of this memorandum to Mr Bridgwood was 'Positive note on Condensate'. 236 On 20 April 1998 Mr Selvendra sent Mr Bridgwood a 'Compromise Payment Schedule' arrived at in discussions with Mr Swaminathan. He said that he hoped that it would be acceptable to Energy. The payment schedule set out payments to be made at various stages in the progress of the project. Against 'GOI Approval of Fuel' a figure of US$2 million was indicated. 237 On 23 April 1998 Mr Selvendra sent a memorandum to Mr Yamada. He had been to dinner with a Mr Justin Paul and had discussed the possible impact of intended government policy on Independent Power Projects in Tamil Nadu. Indications from the conversation were that the policy on the use of Naphtha for power generation was likely to change in favour of other fuels made available on OGL. Mr Selvendra's memorandum also stated: 'According to Umashankar (Siasin New Delhi) the new fuel policy is likely to allow those with fuel linkage to import condensate. It will not be available to power projects without fuel linkage. We must however wait for the official announcement.' The Energy Board approves Vypeen expenditure in principle – 7 May 1998 238 An Executive Summary in relation to the Vypeen project was prepared by Mr Bridgwood for the Energy Board on 5 May 1998. It requested Board approval for US$7.6 million in milestone development payments and internal/third party costs to reach financial closure on the project. In principle approval was also sought for a total investment by Energy expected to be US$71 million including US$22 million in premium and US$49 million in equity to acquire a 30% share in the project. In setting out the benefits of the project for Energy Mr Bridgwood stated that it was the company's most promising power project opportunity since Sengkang and PPN. In setting out the risks, he wrote: '. This project does not currently have a fuel allocation from the Indian Government. Consequently it is dependent on obtaining approval from the Indian Government to import condensate. The Ministry for Petroleum and Natural Gas, Ministry of Finance and Ministry of Power have all indicated that this approval will be forthcoming.' Under the heading 'APPROVALS' he stated: 'Government land has been earmarked for the project by Kerala Infrastructure Development Corporation (KINFRA), a state government body. The land will be leased for the 30 year term of the PPA. The Techno-economic clearance (TEC) from the Central Electricity Authority (CEA) is expected in June 1998 following the Standing Project Appraisal Committee meeting scheduled for 15 May 1998. Formal approval for condensate to be imported under OGL is expected in the next 3 months.' 239 The Board of Energy met on 7 May 1998. The Directors reviewed the Board paper on the Vypeen Project. Mr Brand advised that Energy was seeking Board approval for an initial commitment of A$10 million to fund its equity commitment to financial close. The payments were on a milestone basis with an initial amount of US$750,000 to be paid when the Share Purchase and Sale Agreement and Shareholder Agreement were signed. The US$10 million commitment had already been unanimously approved by the Executive Management Committee. The funding plan for the project had not been finalised but Energy could furnish the first 12 months equity through its existing capacity. 240 The Directors reviewed the risks. They noted that Energy would not be capable of undertaking another large project until the Vypeen Project was funded. $4 million was being placed at risk prior to the PPA being executed. Mr Brand noted that the key document for the project was the Fuel Supply Agreement. It was also necessary for the Government of India to approve the importation of fuel other than Naphtha. The Board resolved to approve: 'i) in principle, the US$7.6m (A$10 million) commitment to the project, with each milestone payment to be approved by the Board; ii) the execution of the Sale and Purchase Agreement and Shareholders Agreement.' The Vypeen project – Sale and Purchase Agreement – 8 May 1998 241 On 8 May 1998 a Sale and Purchase Agreement was made between Prenergy Investments Ltd (Prenergy) and AEE. Mr Brand signed it on behalf of AEE. The agreement recited that Prenergy owned 57% of the share capital of Asian Resources Ltd (ARL) which in turn was beneficial owner of 94% of the share capital of Siasin. Siasin Trading and Services Pte Ltd (SS) held 43% of the share capital of ARL. Prenergy and SS were together referred to as the PR Group. The definition provision, cl 1 of the agreement, defined 'Shares' to mean 188,789 ordinary fully paid shares of ARL, representing 42.56% of its issued share capital. 242 Under cl 3.01 of the agreement Prenergy agreed to sell and AEE agreed to purchase the shares on terms and conditions therein set out. Clause 3.09 provided: 'AEE agrees to make payments, of the premium for the acquisition of the Shares in accordance with Schedule 2 of this Agreement entitled "Vypeen Combined Cycle Power Project Payment Terms" (hereinafter called the "Payment Terms"). Each of the payments in Schedule 2, other than the first payment shall be made by AEE within 14 days of the receipt of a notification from PRENERGY of the achievement of the particular payment milestone and the receipt of proper evidence available to AEE that the particular payment milestone has been achieved.' The Agreement provided for five representatives to be nominated by the parties to form a Working Committee for the project, of whom three would be nominated by the PR Group and two nominated by AEE. 243 Schedule 2 to the Agreement set out the milestone payment terms as follows: 'Vypeen Combined Cycle Power Project Milestone Payment Terms Payment Milestone Amount Payable (in US$,000) Execution of Shareholders and Sale & Purchase Agreements 750 Receipt of acceptable Techno-Economic Clearance 1,000 Lease of entire land for the Project from Kerala Infrastructure Development Corporation for the Vypeen Power Project 450 Execution of amended and restated Power Purchase Agreement, Escrow Agreement and State Government Guarantee acceptable to Working Committee 1,000 Execution of a Fuel Supply Agreement, acceptable to Working Committee 2,000 All applicable State and Central Government of India approvals for alternative fuel for Vypeen Project 2,000 Sub-Total 5,700 Balance of Premium2:- 50% of balance At financial closure (achieving pre-disbursement conditions) 50% of balance As and when equity is drawndown in accordance with schedule agreed with lenders Notes: 1. Milestone Payments to be made within 14 days of receipt of notification and proper evidence that the milestone has been achieved unconditionally. 2. The amount of premium calculated as per this Agreement minus Sub-Total above.' 244 Mr Brand said in cross-examination that he read the agreement and was familiar with cl 3.09 when he signed it. He agreed it was an important clause. He had also read and was familiar with the milestone schedule. He agreed that the reference to 'All applicable State and Central Government of India approvals for alternative fuel …' was a reference to condensate. He played no part in obtaining for the company any legal advice before the agreement was signed. 245 In his evidence-in-chief Mr Brand said that, although structured as a share purchase, the Vypeen Project was 'really' a joint venture between Energy and Prenergy. The milestone payments 'viewed commercially' were contributions to development costs likely to be incurred by Prenergy prior to financial closure. In his experience, decisions about the timing of such payments involved commercial judgment. Typically, a question to be judged, was whether, as a matter of substance, the project had reached a stage at which, consistent with the spirit of the agreement, payment should be made and whether the joint venture party considered it was entitled to payment. Judgments of this kind were made by Mr Bridgwood in respect of projects which he administered. Mr Brand said he relied upon, and respected, Mr Bridgwood's judgments. Mr Brand also said that it is not uncommon to renegotiate milestone payments in the course of a project. Circumstances change. An unforseen development may make it inappropriate to make a particular payment on the happening of an event. 246 Although Mr Brand's general observations in his evidence-in-chief may be seen as to some extent self-serving, I accept them as reflecting the dynamic character of contractual relationships between parties to large scale project development joint ventures. No contract can anticipate all eventualities in such a relationship and commercial realities demand a degree of flexibility on all sides. This is not to say that contractual obligations are to be disregarded, but rather that they are amenable to variation or waiver and/or subject to a degree of mutually satisfactory 'interpretation' from time to time. The development of the Vypeen project – the Working Committee – June 1998 247 On 1 June 1998 Messrs Bridgwood and Hornaday were coopted to the Board of Siasin as 'Additional Directors' until the next annual general meeting. 248 A meeting of the Vypeen Working Committee set up under the contract took place on 9 and 10 June 1998. Messrs Bridgwood, Yamada and Selvendra were present, representing Energy. Mr Swaminathan represented Siasin along with Mr Hyder Ali. The minutes show that Mr Hyder Ali submitted a list of permits and licences and was to take the lead in obtaining the permits and licences necessary from the Indian authorities. One of the necessary clearances, included in the list which he submitted to the meeting, was from the Chief Controller of Explosives for approval of siteport and storage of condensate/LNG under Rule 14 of the Petroleum Rules 1976. 249 The minutes of the Working Committee meeting of 9 and 10 June 1998 attached a summary of the current status with respect to 'Policy announcement for Condensate and LNG' provided by Mr Umashanka. This was in the form of a fax dated 9 June 1998. It was addressed to Mr Selvendra. It stated, inter alia: ' - New fuel policy is still to be approved by Cabinet which may take somemore (sic) time - Condensate is likely to be on OGL as information available. We cannot commit anything at this stage till the Fuel Policy comes out. From the information available, condensate will not be tied up with the fuel linkage. Any IPPs will be permitted to import directly as their actual requirement. - Allocation of interim fuel will be definitely be made available to the projects based on LNG. This will be done on the basis of State Govt's recommendation.' (sic) 250 At a further meeting of the Board of Siasin on 11 June 1998, Messrs Swaminathan, Bridgwood and Hornaday were present. Reference was made to the minutes of the meeting of the Vypeen Working Committee and a resolution passed that: '… the development and implementation of the project be and is hereby vested solely in the hands of the WC and no other person should unilaterally represent the Company and/or the project except employees of the Company and the following persons: (a) Mr M Swaminathan as Managing Director; (b) Mr Paul Bridgwood as Technical Director; and (c) Mr Ryota Yamada as Commercial Director.' Mr Brand did not usually attend meetings of the Working Committee. He did, however, usually see its minutes or summaries which were circulated to members of the Energy Executive Management Committee by Mr Bridgwood. A promising announcement from Government – July 1998 251 Mr Brand was told by Mr Bridgwood in either July or August 1998 that the Government of India had released a new fuel policy allowing developers of Independent Power Plants (IPPs) to import condensate as an approved fuel without obtaining a 'fuel linkage'. He accepted that that was the case. The approval had been anticipated at the time that the Energy Board gave approval to the project. 252 On 3 July 1998 Mr Swaminathan sent a fax to Mr Brand with a copy to Mr Bridgwood which included the following statement: 'I suppose Paul would have given you the good news by now. The Government of India has just released the much awaited liquid fuel policy, in which condensate has been placed under OGL. We are therefore free to use Condensate as a fuel for power generation and import it without needing any linkage or special license. Accordingly, the duty on condensate is expected to be reduced from 30% to 10%. This will make Condensate cheaper than naphtha. I would like to record my gratitude to the staff at EEC who have worked with us to achieve this important and critical milestone for the project.' Mr Brand responded on 6 July 1998 thanking Mr Swaminathan for his note. He said 'Paul Bridgwood has mentioned the good news and this augurs well for our Kerella Project' (sic). 253 Mr Brand agreed in cross-examination, and I find, that he had received no supporting documentation with Mr Swaminathan's fax. He did not instruct Mr Bridgwood to obtain supporting documentation or to do anything further to establish whether Mr Swaminathan's assertions were correct. He did not direct Mr Bridgwood to do anything 'to prove up or investigate what Mr Swaminathan had said'. The Energy Board's knowledge – August/September 1998 254 In August 1998 Energy prepared a report to its major financier, the CBA. The report contained a review of existing projects and projects under development. In relation to the Vypeen Project, it reported the execution of the Sale and Purchase and Shareholders Agreements with PR, the signing of Heads of Agreement between Woodside and Siasin for the supply of condensate fuel for the Project and the MOU signed with Woodside in February 1998 under which it would have the option of acquiring a 10% interest in the Project. The report went on: 'The Government of India recently released a new policy allowing developers to import condensate as an approved fuel for IPP's without obtaining the previously required fuel allocations from the Government of India. EEC's investment in this project is linked to major project milestones with the large proportion of premium payable at Financial Close of the Project.' Mr Hayes, the Chief Financial Officer for Energy, prepared the report. 255 Management papers prepared for a meeting of Energy's Board on 25 August 1998 included a report for which Mr Hornaday had responsibility under the heading 'Engineering, Operations & Business Development'. This related to 'Indian Activities'. It said, inter alia: 'GOI announced a new policy on 6 July 1998, which allows IPP promotor to import condensate without the fuel linkage.' 256 A further set of management reports for the Energy Board meeting held on 22 September 1998 repeated the statement that the Government of India had announced a new policy on 6 July 1998 allowing importation of condensate without the fuel linkage. To the extent that they related to the Vypeen Project, the management reports were prepared by Mr Bridgwood. In Mr Brand's view, the reference to the Government of India policy change appeared to remove the 'fuel risk' from the project. He said he formed the belief in July and August 1998, which he held until August 1999, that the Vypeen Project as an IPP was permitted by the Government of India to import condensate. His belief was reflected in the update report for the CBA prepared by Maurice Hayes. I accept that this was his belief. It was not suggested that he did not honestly hold it albeit his lack of inquiry was criticised. 257 In August 1998 Mr Brand visited Cochin with Mr Bridgwood and inspected the site of the proposed power station. They met with the chief engineer of the KSEB and with representatives of IOC and BPCL. They inspected a fuel terminal, which was to be converted to handle condensate. The terminal was owned or controlled by BPCL. They discussed their proposal with BPCL officials. Nothing was said in those discussions to suggest to Mr Brand that the condensate could not freely be imported into India under OGL. Indeed, the discussions proceeded on the premise that it would. Mr Brand reported on that visit to the Board in his management report for the 22 September 1998 meeting. 258 On 25 September 1998 the Vypeen Project obtained its Techno-economic clearance from the Central Electricity Authority of India. Mr Brand sent a memorandum to Mr Swaminathan at Siasin congratulating him and his team. As a result of that clearance AEE paid US$1 million to Prenergy as a milestone payment due under the terms of their agreement. A green light for condensate imports? 259 In the minutes of the Vypeen Working Committee meeting of 6 and 7 October 1998 which was held at Energy's West Perth office, reference was made to deviations in Woodside's condensate specification from those required by the plant manufacturer ABB. The deviations related to carbon residue requirements and the final boiling point of the condensate. ABB had advised, on 5 October 1998, that Woodside should be able to agree with its carbon residue requirements without any problem. Woodside would have some difficulty in lowering the final boiling point of its condensate. ABB said it was reviewing this internally. Mr Bridgwood was to coordinate with ABB and Woodside to have them discuss the matter directly. 260 Under the heading 'Open General Licence for Condensate'the following was recorded in the minutes: 'Ministry of Commerce will release an official notice to allow the importation of condensate in the next few weeks. Subsequent to the official notice, Director General, Foreign Trade (DGFT) of MOC will release an official notice on the application of the OGL to condensate by the end of October 1998. MSN will monitor and advise other committee members of the progress.' MOC was a reference to the Ministry of Commerce. MSN was a reference to Mr Swaminathan. The Working Committee meeting of 6 and 7 October 1998 comprised Mr Swaminathan and Messrs Bridgwood, Yamada and Selvendra. It was also noted in the minutes that an OGL for the importation of condensate would be granted to an actual end user. This note, if correct, meant that Siasin would be able to import the condensate into India. 261 In cross-examination Mr Brand agreed that he did not see any subsequent official notice nor did he make any further inquiry to determine whether such a notice had issued. 262 On 15 October 1998 the Ministry of Power published a notice of 'RESOLUTION: FU-32/97/IPC.1'. The 'Resolution' was stated to relate to Liquid Fuel Based Power Plants. The text of the decision or notice adduced in evidence was illegible in parts. However it included an announcement that: 'The government has reviewed the policy on use of liquid fuel for power generation and the following decisions have been taken: (i) All non traditional fuels such as condensate and orimulsion would be permitted for power generation.' Energy under financial pressure – milestones renegotiated 263 In October 1998 Energy was experiencing financial stress. Mr Brand wrote to the Directors on 19 October 1998 on the subject of a financing plan and a budget for the 1998/1999 financial year. Since the previous Board meeting a range of strategic issues had been considered within the context of Energy's current market capitalisation, business focus, financial condition and growth prospects. Its key objectives were, inter alia, to maintain covenants with the CBA debt facility and to position the company to negotiate acceptable debt facilities in the second quarter of 1999 within a predictably more cautious debt market. He made recommendations in relation to various projects and activities and, in particular, recommended that Energy '… develop a plan to hold 20% of the Vypeen Project, with a credible 20% partner introduced by [Energy] to fund the balance of the 40% available'. 264 A Management Report to the Board meeting of 20 October 1998 again contained the statement that the Government of India had announced a new policy on 6 July 1998 allowing the importation of condensate without fuel linkage. 265 On 30 October 1998 Mr Brand sent a memorandum to members of the Board and of the Executive Management Committee setting out the minutes of a strategy review held on 27 October 1998. Directors and executives of the company had been present at that meeting. Mr Bridgwood was an apology. Messrs Brand, Hornaday and Hayes were among those present. Mr Brand said in cross-examination that he regarded the meeting as having the status of a Board meeting. The minutes recorded a review of all existing projects. In respect of the Vypeen Project they said: 'It was noted that progress was being made on the Vypeen project, with financial close expected late 1999/early 2000. A further review of the milestone payments was required in order to minimise EEC's development expenditure in the next twelve months. Furthermore, the development of both an equity and debt plan needs to commence to ensure adequate funding capacity at financial close. Action (a) Endeavour to delay milestone payments. (b) Develop a funding plan to ensure adequate funding at financial close.' Mr Brand was cross examined about the implementation of the plan to delay milestone payments. He agreed that he treated the resolution as equivalent to a Board resolution. He accepted that the best outcome for Energy would have been that the money was not payable. Asked whether he agreed that the first thing would be to check whether the milestone payment was payable he said 'yes'. Asked whether he personally did anything in that regard, he said: 'That was given to Bridgwood to follow through.' I do not take that response to mean that Mr Brand expressly instructed Mr Bridgwood to make such inquiry. Rather, it was a matter for which Mr Bridgwood was responsible. Mr Brand did not do anything personally to check the liability. His recollection was that at the next Management Committee meeting they reviewed the minute. Each of the staff was given particular assignments to implement what had been agreed. 266 On 2 November 1998 Mr Swaminathan sent an email to Mr Bridgwood saying, inter alia: 'Please revert on your decision on milestone payment for fuel security. I will have to settle this before I need to respond to Umashankar before I leave as well. Also, if you decide to stagger in two payments, I have to "sell" to my management.' Mr Bridgwood responded on 3 November 1998 stating that Energy's preference was to pay US$1 million in December, followed by US$1 million in February on receipt of the actual User Licence. Mr Swaminathan responded to him by a handwritten endorsement on the email which he faxed back to Mr Bridgwood. Siasin claims US$1 million milestone payment for condensate import approval – December 1998 267 On 18 December 1998 Mr Swaminathan sent a fax to Mr Bridgwood in which he stated that he was pleased to advise that the following clearances/approvals had been received: '1. Letter from KSEB allowing the use of Condensate as alternate fuel for the Vypeen project 2. Letter from the GOK allowing the use of condensate 3. Notification from Ministry of Power allowing the use of condensate as fuel for power generation on OGL basis' The letter continued: 'As discussed and agreed between us recently, pursuant to clause 3.09 of the Shareholders Agreement between Prenergy Investments Limited and Australian Energy Equity Pty Ltd dated 8th May, 1998, EEC will pay Prenergy the sum of US$1,000,000 now. The balance of US$1,000,000 will be paid upon SEL obtaining the clearance from the Director General of Foreign Trade (DGFT), Ministry of Commerce, Government of India or by 15 February, 1999, whichever occurs later.' Attached to the fax was a letter from the KSEB to the Principal Secretary of the Power Department at the Government of Kerala. The letter was dated 17 October 1998 and included the following statement: ' Kindly refer to the Govt letter cited in which interim allocation of naphtha was recommended for the 680 MW CCPP at Vypeen. M/s Siasin Energy in their letters dtd (sic) 22-7-98 and 28-8-98 have informed that they propose to use condensate as interim fuel. The suitability of condensate for the GT has been confirmed by the equipment suppliers M/s ABB Power Generation. As per the new liquid policy No FU-32/97-IPC-1 dated 6-7-98 of the GOI, condensate has been approved as an alternate fuel for power generation and is permitted to be imported on actual user basis under OGL.' Also attached was the notice of Resolution FU-32/97-IPC.1 from the Ministry of Power dated 15 October 1998 referred to earlier. The third attachment was a letter dated 17 December 1998 from an official designated 'The Principal Secretary to Government' addressed to the General Manager of Siasin and stating, inter alia: ' I am to invite your attention to the references cited and to inform you that as per the new liquid fuel policy of Government of India announced as per No FU-32/97-IPC-I dated 6/7/1998, condensate has been approved as an alternative fuel for power generation and is permitted to be imported on actual user basis under OGL. Hence, I am to convey the approval of the State Government for the use of Condensate as interim fuel for the Vypeen Combined Cycle Power Project till LNG is available.' Mr Brand's involvement in the condensate approval milestone payment – December 1998 268 Mr Brand did not see the letter of 18 December 1998 from Mr Swaminathan at the time it was received. In hindsight he would have expected either Mr Bridgwood or Mr Selvendra to have raised it with him. The first time he saw it was in June 2001. At that time Mr Bridgwood had departed from Energy. The letter was on a file which Mr Brand was asked to review and on which he was asked to provide a report to Mr Jordan. I accept his evidence in that respect. 269 It was Mr Brand's evidence-in-chief that sometime in December 1998 he had a discussion with Mr Bridgwood at Energy's West Perth offices. He said that, in the course of that meeting, Mr Bridgwood told him, in effect, that the milestone payment in relation to the alternative fuel was payable and had been requested by Mr Swaminathan. Mr Bridgwood told him Prenergy had obtained governmental approvals for the use of condensate as an alternative fuel. He had not raised with Mr Brand any question or issue as to whether the milestone payment was payable and Mr Brand said he assumed that there was none. 270 Mr Brand said in cross-examination that he had given Mr Bridgwood authority to renegotiate the milestone. The arrangement described in the letter for the payment of US$2 million in two tranches did not flow from any discussion or direction he gave to Mr Bridgwood. Mr Bridgwood told him in December 1998 that he had had discussions with Mr Swaminathan about the milestone payments but didn't give him any details of the discussions. Mr Brand didn't ask what those discussions were, nor whether any agreement had been reached. Mr Bridgwood did not tell him that he had reached an agreement with Mr Swaminathan. Mr Bridgwood did not tell him in December 1998 that there was an agreement to pay US$1 million at the time and US$1 million in addition at the latest by 15 February 1999. 271 Mr Brand agreed that what he had said in his statement in evidence-in-chief was inconsistent with his replies in cross-examination. He was asked to reflect on which was the correct position. He said the correct position was as set out in his statement of evidence-in-chief. He then said that Mr Bridgwood had told him that Prenergy was asking for their US$2 million because the milestones had been met. He said that was about the extent of the discussions he had with Mr Bridgwood in December 1998. 272 I am inclined to think that Mr Brand's recollection was a little confused which is not surprising given that he is being asked about conversations that occurred seven and a half years earlier. In light of what had passed before, I am satisfied that he believed that the necessary approvals had been secured and that he instructed Mr Bridgwood to try to renegotiate the milestone payments in order to ease financial pressure on Energy. 273 Mr Brand agreed in cross-examination that he did not seek any legal advice about whether Energy was obliged to make the milestone payment nor did he direct Mr Bridgwood to obtain such advice. He did not personally investigate whether Energy was so obligated. He did not call for documents to see what the position was. Nor did he direct Mr Bridgwood to investigate the matter further. 274 Mr Bridgwood was not called to give evidence by any party. He is being sued by Energy. I was invited to draw inferences adverse to Martech and Mr Brand from the failure to call him. In my opinion, however, any such inferences would be speculative. It may be that Mr Bridgwood was perceived as an unwilling or unreliable witness or one who, in the light of the proceedings between himself and Energy, would be too concerned to protect his own position. I do not draw any inference from his absence as a witness for Martech and Mr Brand. 275 On 5 January 1999 Ms Tan, on behalf of Mr Swaminathan, sent a fax to Mr Bridgwood referring to the letter of 18 December 1998 and asking whether AEE had remitted the milestone payment of US$1 million to Prenergy's bank account. On 18 January 1999 Mr Swaminathan sent a personal email to Mr Bridgwood making what he called a 'plea for the US$1 million milestone payment'. 276 Mr Brand had a discussion about the milestone payments with Mr Bridgwood at Energy's West Perth office in mid to late January 1999. Mr Bridgwood told him that the Vypeen Project was under funding pressure and that Prenergy required the payment to keep the Project moving forward. Mr Bridgwood, he said, told him that it was important that a payment be made to ensure progress be made. 277 A Management Report prepared for the Board meeting of 29 January 1999 noted that Woodside was reviewing the specification of condensate with ABB. ABB was to conduct some tests to verify condensate as an acceptable fuel. That verification would be given in the middle of 1999. Mobil was also interested in the supply of condensate and an initial meeting had been held with Mobil Singapore in October 1998. Approvals milestone payment further renegotiated – February 1999 278 A meeting of the Vypeen Project Working Committee was held at Energy's West Perth office on 1 and 2 February 1999. Messrs Swaminathan, Bridgwood, Yamada and Selvendra were all present. The minutes do not record discussion of milestone payments at that meeting, but it is an agreed fact that such discussion did occur. 279 Mr Brand did not attend the meeting but did meet afterwards with Messrs Bridgwood and Swaminathan. One or other of them told him that they had reached an in principle agreement to amend the milestone schedule. The amendments were reflected in a revised milestone schedule given to Mr Brand at the meeting by Mr Bridgwood. Mr Bridgwood explained the effect of the revised schedule to him. It provided for US$1 million to be paid on 15 February 1999 as a milestone payment for government approvals for alternative fuel. Mr Brand said he was told at the time that the government approvals for alternative fuels had been achieved. He assumed that they had been discussed at the Vypeen Project Working Committee meeting. He noted that a new milestone payment of US$1 million would be made when the condensate quality was approved by ABB. 280 Mr Brand told Mr Bridgwood and Mr Swaminathan that Energy could not make a US$1 million payment on 15 February 1999. It could manage the payment if it were divided into two tranches of $500,000 each, the first to be paid on 15 February 1999 and the second on 15 March 1999. The proposed new milestone schedule was amended accordingly. This was the only amendment which Mr Brand suggested. The words 'acceptable to the Working Committee' were included in the revised milestone schedule in relation to the approvals. Mr Brand did not realise at the time of his discussion with Mr Bridgwood that this requirement was an amendment to the schedule. Mr Brand also told Mr Swaminathan at the meeting that ABB's approval of the condensate specification was critical. 281 The first version of the revised schedule shown by Mr Bridgwood to Mr Brand bore Mr Bridgwood's hand writing. On 2 February 1999 Mr Bridgwood sent a letter to Mr Swaminathan in the following terms: 'Reference is made to our meeting on 1 and 2 February 1999 regarding the Milestone Payment schedule for the Vypeen Power Project. We can confirm that the payments relating to Government approvals for alternate fuel will be made as follows: 1. US$500,000 – before 15 February 1999. 2. US$500,000 – before 15 March 1999. Other Milestone payments and target dates have been agreed as per the attached revised schedule.' There were a number of other changes to the milestone payment schedule. It is not necessary to set them out here. 282 Mr Brand thought that the agreement reflected in the proposed milestone schedule served the interests of Energy and AEE. Energy did not have the cash to pay Prenergy US$2 million in the immediate future. Payment of US$1 million in two tranches over two months was manageable. The liability to pay the second US$1 million, originally included in the US$2 million payment due when necessary approval for alternative fuel were secured, arose when ABB was satisfied that the quality of Woodside and Mobil condensate was suitable for the approved turbines. It was also in Energy's interests that the immediate cash needs for the project were met to some extent. In addition, the amendment allowed Energy to maintain good relations with its joint venture partner, Prenergy. 283 Mr Brand said that Energy would have the capacity to sell its interest in the project when financial closure was achieved. A sale of its interest would generate cash to enable it to retire a portion of the CBA debt. A sell down of Energy's interests had been discussed at the September 1998 Board meeting and the October 1998 strategy meeting. Mr Brand told Messrs Bridgwood and Swaminathan that the amended milestone schedule was acceptable. Mr Brand authorises payment of US$500,000 – February 1999 284 On 4 February 1999 Mr Swaminathan sent a fax to Mr Brand 'to touch base … on two of the matters we discussed during our meetings'. The first matter related to fuel testing by ABB. Mr Brand had evidently proposed to speak to the head of ABB to get it to push ahead with the test. The second was: '2. Milestone payment. I would appreciate if the first tranche of US$500,000 could be sent as scheduled on 5 February, 1999 as we require to "deploy" the funds early next week.' 285 Mr Brand sent a fax to Mr Swaminathan on 5 February 1999 which he copied to Mr Bridgwood. He said that he would arrange to speak with the head of ABB in the following week to ascertain their ability to push ahead with the turbine testing. He also said: 'I have today authorised the transfer of funds as discussed, which may not physically happen until Monday, but please be assured that the funds are on their way.' 286 On 11 February 1999 Mr Brand wrote to Mr Bergmann, the Chairman and Managing Director of ABB. He referred to the Vypeen Project and said that one of the most critical issues for its success was for ABB to guarantee the performance of its plant using condensate fuel. All parties involved in the development of the Project understood the importance of the matter being resolved in order for the Project to reach financial closure. He sought Mr Bergmann's support to ensure that ABB was making all efforts to ensure timely acceptance of condensate as a viable fuel for the Project. He said: 'I am told that your technical team in Baden has taken this matter on board, however, I would appreciate your effort as a Board Member of ABB to do whatever you can to ensure that all possible efforts are made to prove condensate as a viable turbine fuel within the shortest possible timeframe.' Milestone payment made and reported to the Board – February/March 1999 287 On 15 February 1999 Energy made the first tranche of the fuel milestone payment in the sum of US$500,000. It was unable, however, to meet the balance payment of US$500,000 by 15 March 1999 as required under the revised milestone schedule. 288 The revised milestone payment schedule was reported to the Board of Energy at its meeting held on 26 March 1999. The relevant part of the Management Reports to the Board relating to the Vypeen Project informed the Board that the final Techno-economic clearance had been issued on 25 September 1998 and that Siasin had provided a progress report on 2 February 1999. It reported that: 'GOI announced a new policy on 6 July 1998, which allows IPP promotor (sic) to import condensate without the fuel linkage.' It reported also that ABB would conduct tests to verify condensate as acceptable fuel and that the verification would be given in July 1999. 289 Against the heading 'Milestone Payments' the Management Reports set out Energy's milestone payments to the PR Group as revised and agreed. The relevant entry for present purposes relating to approvals was framed as follows: 'All applicable State and Central Government 500 15 February 1999 of India approvals for alternative fuel for Vypeen Completed Project acceptable to Working Committee. 500 15 March 1999' 290 The minutes of the Board meeting of 26 March 1999 showed that the directors 'reviewed and noted the Engineering and Operations reports for the month covering: the Australian Activities, Indonesian Activities, Indian activities and the Accident & incident report summary'. Mr Brand said in evidence-in-chief that in accordance with Energy's usual Board procedures and management practice this reflected Board approval of the Management Report. It also reflected Board approval of the agreement made on 2 February 1999 and the payment of US$500,000 already made under that agreement in relation to the alternative milestone as well as the scheduled further payment of US$500,000 which had been scheduled to be made on 15 March 1999, but which had not, at the date of the meeting, in fact been made. 291 I accept that the reference to these matters as reviewed and noted by the Board indicates its acceptance, on the materials before it, of the steps which had been taken in relation to the milestone payments. A further revised milestone payment programme – March 1999 292 On 24 March 1999 Mr Brand had met Mr Swaminathan in Perth when they discussed a further revised program for payments. They agreed that the second tranche of US$500,000 would be paid in instalments of US$100,000 on 25 March 1999, US$100,000 on 31 March 1999, and US$300,000 before 15 April 1999. 293 Mr Swaminathan sent Mr Brand a fax on 27 March 1999 confirming the revised schedule for payment of the second tranche of US$500,000 and said: 'I would appreciate if we could adhere to the above schedule to avoid any further inconvenience.' 294 On 31 March 1999 Mr Brand wrote to Mr Swaminathan saying: 'I have today authorised the release of US$100,000 as discussed. We are planning to release the further US$300,000 in April, hopefully to coincide with PPN settlement.' 295 On 31 March 1999 Mr Brand received a document entitled 'Vypeen Power Project – Status Report' which was prepared by the Business Development Division of Energy and almost certainly by Mr Bridgwood. It appears from the initials at the top of the document that it was circulated to the members of the Energy Executive Committee. Mr Brand said he read the document which stated that no fuel linkage was necessary for the Vypeen Project because 'Gas and condensate on OGL'. At the time he received this report part of the outstanding milestone payment had not been made. It is an agreed fact in these proceedings that Mr Brand, on behalf of Energy and AEE, approved payment to Prenergy of the second tranche of US$500,000 in four instalments; US$100,000 on 25 March 1999, US$100,000 on 31 March 1999, US$150,000 on 30 April 1999 and US$150,000 on 6 May 1999. It was also common ground that no further payments were made to Prenergy. Doubts as to the approvals – May 1999 296 On 22 May 1999 Mr Swaminathan sent a fax to Messrs Bridgwood, Yamada, Selvendra and Hyder Ali enclosing a report from Mr Umashankar. The report related to a visit by Mr Umashankar to LNG Petronet. Among other things it said: 'Re:Issue of notification for Consensate (sic) to come under OGL: Ministry of Power are giving maximum pressure with Min of Petroleum and Natural Gas to issue letter to Ministry of Commerce for issue of Public Notice. It is expected to be issued anytime. I shall keep a watch and inform you.' Mr Bridgwood made a handwritten note on the email to Mr Selvendra saying: 'We were advised by Nathan that ALL approvals had been received for use of condensate as per PR Milestone Schedule. We have paid US$1 million for this milestone. Please make sure that all necessary approvals are in place incl Ministry of Commerce (contact Umashanka (sic) direct?). Regards PB' 297 In Management Reports prepared for an Energy Board meeting to be held on 28 May 1999 Mr Brand reported, as previously: 'GOL announced a new policy on 6 July 1998, which allows IPP promotor (sic) to import condensate without the fuel linkage.' He reported in a schedule of the milestone payments that the approvals payments had been made. 298 On 1 June 1999 an overview of the project status was prepared for a meeting of the Siasin Board of Directors. This was in similar terms to that dated 31 March 1999 prepared for the Energy Board. Under the heading 'Non Statutory Clearances' the following appeared: '13 Fuel Linkage Min of Petroleum Not applicable. Gas and Condensate on OGL' Nothing was said to Mr Brand at Siasin's Board meeting on 10 June 1999 which suggested that, in truth, the condensate was not on OGL. Fuel supply was discussed at the meeting. He was aware that there was a Vypeen Working Committee meeting to be held in Kuala Lumpur on 11 June 1999, but he did not attend it. In preparing his statement of evidence, Mr Brand reviewed emails which passed between Mr Swaminathan, Mr Bridgwood, Mr Selvendra and Mr Yamada after mid-May 1999. He had not been given copies of these emails at the times they were sent. He was not aware of their contents at the time. He said that they indicated that by mid-May 1999 a question had arisen as to whether further GOI approvals were required for the import of condensate. He was not informed by Mr Bridgwood, Mr Selvendra or anybody else about those issues. Approval not forthcoming – June 1999 299 On 24 June 1999 the Ministry of Petroleum and Natural Gas published a notice under the title 'Subject:- Request to put Condensate and Orimulsion under OGL'. Paragraph 4 of the notice stated: 'As for condensate, since this item is being treated at par with crude oil, it may be mentioned that as per this Ministry's notification No 224 dated 24th November, 1997 pertaining to phased dismantling of APM import of crude oil continuous to be canalised through IOC except for private and Joint Ventures refineries. Thus condensate will be governed under the existing policy applicable for import of crude oil and cannot be put under OGL.' It appears from the endorsements on the copy of the notice in evidence, that it was faxed to Messrs Bridgwood, Yamada and Selvendra on or about 17 July 1999. There is a handwritten reference to an email about it but no email was in evidence. Nor was any relevant email discovered. 300 An agenda for a meeting of the Energy Board of 25 June 1999 set out in a report on the Vypeen Project that there were no applicable statutory clearances as gas and condensate were on OGL. The agenda also set out by way of report the position with respect to the milestone payments. At that stage milestone payments remained to be made in relation to the execution of an 'Escrow Agreement' and State Government guarantee acceptable to the Working Committee, the execution of a Fuel Supply Agreement acceptable to the Working Committee and approval of alternative fuel quality by the EPC contractor. The latter appears to be a reference to ABB. 301 Mr Brand said that, to the best of his recollection, he was not informed that condensate would not be placed under OGL until some time in August 1999. He was then told by Mr Bridgwood, who said to him, in effect, that he and Mr Swaminathan were considering and pursuing approvals for diesel or HSD as the alternative fuel for the Vypeen power station. Mr Bridgwood told him that there was no question about the suitability of diesel for the ABB turbines. Mr Brand told Mr Bridgwood at a meeting at about that time that he should pursue approvals for diesel as quickly as possible. 302 The information that condensate was not approved for import under OGL came as a complete surprise to Mr Brand. From July and August 1998 until August 1999 he had been informed, in conversations and documents, that GOI approval had been given for the import of condensate for use in the Vypeen power station or that the import of condensate was permitted 'under OGL' or similar statements. It was on that basis that he authorised the amended milestone payments at the meeting on 2 February 1999. Having regard to the finding I have already made about his belief that relevant approvals had been given, I accept that evidence. 303 On 5 August 1999 Mr Swaminathan sent to Messrs Bridgwood and Yamada a copy of an email that he had received from Arvind Bansal of SSKI Corporate Finance Limited. In that email Mr Bansal was reporting to Messrs Swaminathan and Selvendra on a meeting he had with representatives of the Ministry of Power, the Ministry of Petroleum and Natural Gas and the Director-General for Foreign Trade. He reported as follows: Condensate: MoP had made an announcement last year about acceptability of Condensate as a fuel last year and to bring it under OGL. However, MPNG has now decided that condensate will not be put under OGL. MPNG has recommended to DGFT that the product may be allowed to be imported on a case-to-case basis by issue of a special Actual Users' Licence for power projects. However, DGFT has not taken a view on this as yet. As of today, the position is that condensate is not on OGL and neither is there a mechanism for power projects to get a licence on this product. SO we have to wait for DGFT to allow.' Mr Bansal also reported that six weeks earlier the Ministry of Power had recommended the use of Distillate Oil No 2 as fuel for power projects. The Ministry of Petroleum and Natural Gas agreed to allow its use but was yet to come out with a notification which would set out the conditions attaching to that use. Mr Bansal continued: 'I think while the news on condensate is bad, the news on Distillate is good. We now need to determine where can this product be sourced. I am told that ABB turbines should have no problem burning this fuel and indeed there is enough experience on this fuel worldwide. If it is indeed true, then we are actually in a better position and in a better negotiating stand with ABB and to develop the project faster. HSD storage facility will be cheaper than that for condensate and its transportation also will not be a problem.' 304 On 19 August 1999 Mr Yamada sent a fax to Messrs Bridgwood, Swaminathan and Bansal attaching a memorandum which he had received from Woodside on that day. The Woodside memorandum referred to messages from Mr Yamada concerning the Fuel Supply Agreement. They recognised the need for documentary evidence of progress on a draft Fuel Supply Agreement to assist Siasin in its discussions with KSEB. In the memorandum they identified specific areas of concern which marked the project as being at 'an immature phase in a number of areas'. In particular they said: 'The regulatory position regarding condensate imported for use as a power station fuel. The letter provided by yourselves indicating KSBB's support for the use of condensate for the Vypeen project and the reference therein to a Ministry of Power regulation authorising use of condensate and its import under OGL contradicts our latest information on the position of the Ministry of Petroleum and Natural Gas in this matter. Our consultants in New Delhi have obtained letters indicating that condensate imported for power station consumption will be classified as Crude Oil and will be a canalised item. We need to stress the critical importance of this item to us. If condensate is to be a canalised item we will not be able to support this project. We seek the input and active support of Siasin in lobbying the appropriate bodies at state and central level to resolve this issue as soon as possible.' They also indicated that failure to make consistent use of the term 'Liquid Turbine Fuel' rather than condensate had contributed to problems arising in two critical areas. One of these was the apparent ability of Woodside to supply a variety of hydrocarbon liquids including Naphtha. The second was that condensate had become a politically charged label. 305 On 22 August 1999 Mr Swaminathan sent an email to Mr Bridgwood following a meeting which he, Mr Arvind Bansal and Hyder Ali had with Mr Velumani, the Director at the Ministry of Petroleum and Natural Gas responsible for liquid fuel allocation. From the discussions that followed they concluded that condensate would not be allowed as fuel for power generation. Mr Velumani was said to have been 'very categorical about this'. He said that the Ministry would never give an allocation or a recommendation for an actual user's licence for condensate even if the IPP could prove that it had secured a source for the fuel. The Ministry would consider approving a Naphtha allocation if it were recommended by the Government of Kerala and the Ministry of Power. In Siasin's case the situation was better as it was only being used as an interim fuel. Energy demands repayment from Siasin – November 1999 306 On 18 November 1999 Mr Bridgwood sent an email to Mr Swaminathan pointing out that the milestone payments had been made on the basis that all approvals had been received for condensate. This, however, was subject to approval by the Ministry of Petroleum and Natural Gas which was not forthcoming. Since they were now targeting diesel as the preferred alternative fuel, there were approvals relating to diesel which were outstanding. On that basis Mr Bridgwood requested that the milestone payment previously made for fuel be refunded. Mr Swaminathan responded asking for an official request for the refund citing the reasons. Mr Bridgwood followed up with a letter which he sent by fax to PR for attention Mr Swaminathan. The letter repeated the substance of his earlier email. No refund was forthcoming. The aftermath – September 1999 to June 2001 307 In his evidence-in-chief Mr Brand said that between August and September of 1999 until he ceased to be a director of Energy in November 2001, he had very little direct involvement with the Vypeen Project. He knew that Messrs Bridgwood and Selvendra had pursued approvals for diesel as an alternative for the Project. Until that time and possibly after, there was some prospect of selling down Energy's interest in the Project to the proposed operations and maintenance contractor PSEG. That sell down had been discussed at meetings of Energy's directors on 22 April and 28 May 1999. It was also discussed at Siasin's Board meeting of 10 June 1999. It was, according to Mr Brand, the principal reason that he was invited to attend that meeting. Negotiations were conducted with PSEG and other parties during that period. He believed they were conducted by Mr Swaminathan. The object was to complete the sell down after the Power Purchase Agreement had been renegotiated with the KSEB and an Escrow Agreement made. Messrs Bridgwood and Swaminathan negotiated those matters with KSEB until December 1999. 308 In September 1999 Energy had breached covenants in its facility agreement with the CBA. As a result, Mr Brand was heavily involved in negotiations with the CBA and exploring the proposed sale of Australian assets with a view to retiring the CBA debt. Issues with PLN in relation to payments under the Sengkang gas and power project were ongoing. In September, October and early November 1999 Energy's Board negotiated with the American multinational company, Enron, for the latter to become a 51% shareholder in Energy. Mr Brand described this as a major transaction in which he was heavily involved. All of these matters occupied almost all of his time in late 1999. 309 During this time Mr Brand had discussions with Mr Bridgwood about the progress of the Project. He told Mr Bridgwood that he should endeavour to secure the repayment of the US$1 million or come to some agreement with Prenergy under which that payment could be used to fund ongoing project costs or that Energy could take over the Project. 310 In December 1999 Mr Brand was told that Mr Swaminathan had resigned. Thereafter no progress was made in negotiations with Prenergy. In early 2000 Mr Bridgwood tried to take over the management of the Project for Energy. He did that with approval from the Board and reported progress. Mr Brand was kept in closer touch with the progress of the Project in early 2000 than he had been up until that time. 311 On 2 May 2000 Mr Brand wrote to Dato Gnanalingam referring to earlier discussions and correspondence on the Vypeen Project. He identified the main issues that had to be resolved namely: '1. Provide the most competitive tariff solution in order to defeat competing projects and obtain escrow. 2. Secure the most appropriate fuel, both interim and long term. 3. Attract an equity partner that can progress the project and add value.' 312 Towards the end of the letter he said: 'Other than the above, EEC would also like to resolve the matter of overpayment of the fuel milestone of US$1 million. This has been outstanding now for some time and needs to be resolved together with future funding for project development and possibly a revised agreement between EEC and PR.' 313 In August 2000 a Status Report on the Vypeen Project was prepared for the Energy Board. The position with respect to fuel was summarised thus: 'The original intention was to use condensate as the interim fuel for the project supplied by Woodside until LNG becomes available. This was necessary since no naphtha fuel allocation was available for the Vypeen Project. A MOU was signed with Woodside and a condensate FSA almost finalised. Condensate, however will not been (sic) approved by the MoPNG, despite being approved by the MoP, so this option is no longer being pursued. Note that various companies, including Woodside have been attempting to have condensate approved as an alternative fuel in India for several years without success.' 314 After looking at other difficulties attending the Project, including projected reductions in profits because of strong competition, the KSEB's inability to determine escrow facility and select which IPP project should proceed, the fuel option problem and difficulties with the cost of the ABB plant, it was recommended that Energy continue to pursue the Project under a tight development budget subject to conditions. The conditions were: '1. [Energy] agrees with its partner to take control and management of the project by end September 2000 and reaches agreement on the revise (sic) terms of the Sale and Purchase Agreement by end November 2000. 2. SEL enters into a MOU with PTC or recommences PPA discussions with KSEB by end December 2000. 3. SEL obtains a commitment on escrow from KSEB or another form of security to obtain financing acceptable for financiers by March 2001. 4. SEL obtains a Fuel Supply Agreement for liquid and/or LNG fuel with BPCL by end December 2000.' 315 Mr Brian Allen, now an Executive Director of Energy with substantial experience in the financing of major power projects in Asia, said that the Vypeen Project has not advanced at all since June 2000. He referred to the status report of August 2000 and inferred from it that at the time Energy did not consider that any of the key documents for project finance were available. In January 2001 Mr Jordan told Mr Brand at a meeting in Energy's West Perth office, that Mr Elliott who had become Energy's Managing Director in September 2000 had decided not to incur any further expenditure on the Project. 316 Mr Bridgwood resigned from Energy in February 2001. Mr Selvendra resigned in April 2001. Mr Hyder Ali also ceased to work for Energy in about April 2001. 317 In May 2001 Mr Brand travelled to India with the new Managing Director, Mr Elliott and Mr Jordan, together with Mr Prux, an American adviser to Mr Elliott, to review Energy's Indian assets. They returned to Australia shortly before 25 May 2001. 318 The Vypeen Project was discussed at a meeting of Energy's Board on 26 May 2001. Mr Elliott raised the question of the US$1 million milestone payment and said he proposed to recover it from Prenergy. Mr Jordan asked Mr Brand, after the meeting, to prepare a report about the circumstances in which that payment had been made. At that time neither Mr Bridgwood nor Mr Selvendra were employed by Energy. Mr Brand said that if they had been still employed he would have asked them to prepare the report because much of his knowledge was second hand. The report he did prepare is based on a review of Mr Bridgwood's file. 319 The report took the form of a one and a half page memorandum. It set out a chronology of the events, which have already been referred to. Paragraph 6 of the report said: 'Based on the 18 December 1998 information; 2 February 1999 letter and that proper evidence was provided in relation to "all applicable State and Central Governments of India approvals for Vypeen Project acceptable to the Working Committee", a payment of US$500,000 was made on 8 February 1999 and the balance of US$500,000 paid over four payments (25/3/1999 – US$100,000; 31/3/1999 – US$100,000; 30/4/1999 – US$150,000; and 6/5/1999 – US$150,000). The payment dates were deferred to meet EEC's cashflow.' Mr Allen said in his evidence, and I so find, that no further payments have been made by Energy to Prenergy since those described in the preceding paragraph. Nor has Energy been asked to make any such payments. The relevant Indian Law 320 Expert evidence of Indian law relevant to the approval process for the importation of condensate was given by Mr Guruprasad Pal who has been a legal practitioner in India since 1982. Mr Pal's experience was initially in property, banking and constitutional law. His practice is general corporate law, 'foreign collaborations', joint ventures, mutual funds and technology transfer. He has been involved in privatisation and project financing in the oil, gas, power, telecom and mining sectors. 321 Mr Pal was asked to consider two questions: '1. As at January/February 1999 what approvals, if any, were required from the Ministry of Petroleum and Natural Gas ("MPNG") of the Central Government of India, for the importation and use of condensate as a source of fuel for power generation at a power plant which was to be constructed in the State of Kerala ("the Vypeen project")? 2. What advice would an Indian lawyer with experience in the oil and gas industry have given, had he or she been asked in January/February 1999, whether any necessary approval from the ("MPNG") (sic) for the importation and use of condensate at the Vypeen project had been obtained.' He was provided with a copy of the Liquid Fuel Policy for Power Generation dated 6 November 1995 issued by the Ministry of Power, Resolution No FU-32/97-IPC.I, dated 15 October 1998 from the Ministry of Power and the letter dated 17 October 1998 from the KSEB to the Power Department at the Government of Kerala. He was also provided with a copy of the letter dated 17 December 1998 from the Principal Secretary of the Government of Kerala to Siasin. 322 Mr Pal was asked to assume that it was intended to import condensate in large commercial quantities as an interim fuel for up to three years for the purpose of power generation at the Vypeen Project and not for use in designated private or joint venture refineries. The condensate intended to be used had a flashpoint above 23C and therefore fell within either Petroleum Category B or C. He was also asked to assume that it was intended that condensate would be imported directly into India by the Vypeen proponents. He assumed the definition of condensate as a 'liquidate hydro-carbon by-product of natural gas that can be refined as if it were very light crude oil and is treated at par with crude oil'. 323 Mr Pal gave a brief overview of the relevant legal and regulatory regime in India. The Ministry of Petroleum and Natural Gas regulates and develops oil fields and mineral oil resources, petroleum and petroleum products, other liquid and substances declared by Parliament by law to be dangerously inflammable. Responsibility for exploration and production of oil and natural gas, their refining, distribution and marketing, import, export and conservation of petroleum products and Liquified Natural Gas falls under the scope of the Ministry. The Petroleum Act 1934, is a consolidated law relating to import, storage, production, refining and blending of petroleum. The Act defines petroleum as meaning any liquid hydro-carbon and mixture of hydro-carbons and any inflammable mixture (liquid, viscous or solid) which contains any liquid hydro-carbon. Mr Pal was of the opinion that condensate, being a liquid hydro-carbon, would fall within the definition of petroleum. The Petroleum Rules 1976 are made to give effect to the Act's purposes. 324 Section 3 of the Act says that no one shall import, transport or store any petroleum save in accordance with the Rules. It is not necessary for present purposes to refer to the various Rules cited by Mr Pal. It is clear enough that approval for the importation of petroleum is effectively controlled under Indian law by, inter alia, the Ministry of Petroleum and Natural Gas. 325 By its Resolution No 224 dated 21 November 1997, the Ministry of Petroleum and Natural Gas notified that all petroleum products except crude condensate, inter alia, would be decanalised with effect from 1 April 1998. This left condensate on the canalised list. The term 'canalised' in this context, means that the goods can only be imported by designated State-owned corporations. 326 The Ministry of Commerce in a policy circular dated 28 August 1998 addressed to all licensing authorities, customs authorities and others regarding imports of canalised items stated that items which are canalised can be imported by the canalising agency only and not by any individual importer. An individual importer would require an import licence issued under par 4.8 of the Export and Import Policy 1997-2002 known as the EXIM Policy. 327 Under par 4.8 of the EXIM Policy any goods, the import or export of which is canalised, may be imported or exported by the canalising agency specified in what are called Negative Lists. The Director-General of Foreign Trade appointed under the Ministry of Commerce may grant a licence to any person to import or export any canalised goods. According to the Negative Lists of the EXIM Policy, canalised goods can only be imported through the IOC, a public sector undertaking, acting as a canalising agent. An application for the grant of a licence for import or export of items included in the Negative Lists can be made in a format set out in Appendix 24 to the EXIM Policy to the licensing authorities. 328 Mr Pal noted that the Ministry of Power, in its Resolution No FU-32/97-IPC.I dated 15 October 1998, permitted the use of condensate for power generation. 329 Against the preceding background Mr Pal answered the questions posed to him as follows: 'ANSWER 1 The following licences/approvals were required for "importation" of condensate directly for the Vypeen Project: 1. A license from MPNG to import and store condensate in bulk. 2. A licence from MC to import canalized goods as specified in Paragraph 4.8 of the EXIM Policy. ANSWER 2 An Indian lawyer would if asked in January/February 1999 would advice (sic) that the following licences/approvals were not obtained for "importation" of condensate directly for Vypeen Project: 1. A license from MPNG to import and store condensate in bulk. 2. A licence from MC to import canalized goods as specified in Paragraph 4.8 of the EXIM policy.' In cross-examination Mr Pal agreed that the licenses and approvals referred to in Answer 1 applied to 'direct' importation of condensate by the proponent of the project. It would always be open for the proponent to arrange with the IOC to import condensate. In answer to a question from the Court, however, he said that the IOC was only a 'canalising agent' and that a licence would still be needed to import condensate through that company. 330 Mr Pal was then referred to the notice from the Ministry of Petroleum and Natural Gas dated 24 June 1999 which stated, inter alia: '… it is suggested that condensate may also be classified under this Code (No 27.09) for Customs Tariff purposes.' He accepted that the import and tariff code for condensate was 27.09. He was then referred to a notification of 31 March 2001 by the Ministry of Commerce and Industry and agreed that its effect was that condensate could be imported freely into India without restriction after that date. 331 I infer from Mr Pal's evidence, which I accept, and from the evidence relating to the attitude of the Ministry of Petroleum and Natural Gas, that all necessary approvals for the importation of condensate for use as an interim fuel for the Vypeen Project were not in place at the time that the milestone payments were made. I accept also that the attitude adopted by the Ministry of Petroleum and Natural Gas contradicted all other indications previously given by the Ministry of Power and the State of Kerala. The value of the Vypeen Project today 332 Before becoming an Executive Director of Energy, Mr Allen was employed for 18 years by the HongKong and Shanghai Bank Corporation Ltd as a director of its investment bank. He was responsible for determining whether or not the Bank would finance power projects in China and elsewhere in Asia similar to the Vypeen Project. 333 Mr Allen agreed with Mr Brand that the establishment of a major power project such as Vypeen, required high level negotiations and commercial and other dealings on complex matters. It also involved considerable expenditure on development costs that are not recoverable in the event that the project does not go ahead or in the event that another party secures the project. In Mr Allen's opinion, for a project such as Vypeen to secure finance, a number of key agreements must be negotiated to the satisfaction of lenders. It is not necessary to set out that catalogue of agreements here. It is sufficient to note Mr Allen's opinion that none of the key documents necessary to establish a bankable project were in place in respect of the Vypeen Project. Moreover, many of the approvals which had been obtained were now out of date. In his opinion, if Energy or any other person wished to re-establish the Project it would need to be the subject of a complete and comprehensive negotiation. He considered it very likely that any documentation previously drafted would have little or no bearing on future events. 334 There have been ongoing negotiations between Energy and Prenergy. In August 2004, Prenergy was planning to wind up its subsidiary, ARL. Mr Allen wrote to Mr Choong of Prenergy on 19 August 2004 pointing out that if ARL were wound up then all past connections between it and the Vypeen Project and all historical records registered with Indian authorities would cease to be of any value. In cross-examination he somewhat implausibly denied that this carried the implication that there was some residual value in the Vypeen Project. 335 In its 2001, 2002 and 2003 financial reports, Energy included the value of its investment in the Project at $4,296,000 as a non-current asset. This reflected the expenditure which it had undertaken. It necessarily included the milestone payments which had been made. Those payments, it should be noted, were to be credited, under the Sale and Purchase Agreement, against the overall purchase price for the shares being acquired by AEE. 336 In 2004 the Board of Energy decided to write down the value of that investment to zero. In a letter to the auditors of Energy relating to the writing off of a number of assets, including Vypeen, Mr Allen said: 'Whilst the Company remains confident that the investment made in the Vypeen Project can eventually be recovered as a consequence of the future development and implementation of the project the prospects for achieving this recovery in the near term foreseeable future remain remote.' In cross-examination Mr Allen said that was a correct statement of his opinion at that stage. 337 Since 29 November 2005 Energy has advanced a proposal to Prenergy under which, in effect, Prenergy would transfer its shares in ARL to Energy. Energy would grant Prenergy an option to acquire a percentage of the Vypeen Project or of the shares in ARL when the project went into operation. The precise number of shares to be transferred would be found by a calculation bringing into account development costs incurred by both Energy and Prenergy. The development costs would, in all probability, include the US$1 million milestone payment which is the subject of these proceedings. Mr Allen suggested that the extent to which particular payments could be brought into account in negotiations would depend upon demonstration in good faith of their relevance. He said, inter alia: 'We haven't worked out what we propose to bring into account yet.' 338 To the extent that Mr Allen was giving evidence as a person experienced in the financing of power projects, he was not giving it as an independent expert. He is a director of the first cross-claimant. His responses in the witness box at times tended to be argumentative and dismissive of the questions put to him. At times he presented more as an advocate than as a witness concerned to give factual answers to the questions put to him. In so saying, I do not suggest that he was anything other than honest. However, because of his adversarial approach, I treat his opinions with a degree of reserve particularly to the extent that they suggest that the Vypeen Project is, in effect, of no current value. I am left at the end of his evidence unable to draw any firm conclusion about the extent to which payments previously made in relation to the development of the Project are likely to be reflected in a future asset based on the negotiations which have been undertaken with Preneregy. Causes of action 339 The common base of the causes of action alleged against Martech and Mr Brand is the proposition that Mr Brand failed to exercise reasonable care or due care and diligence in determining whether or not all applicable State and Central Government of India approvals for the use of condensate fuel at the proposed Vypeen Project in the State of Kerala in India had been obtained at the time that he authorised the relevant milestone payment. His conduct is also attributed to Martech, of which he was the principal at all material times. 340 The causes of action raised upon this common foundation are as follows: 1. Misleading or deceptive conduct on the part of Martech incorrectly representing to Energy that all applicable approvals had been obtained and that it had exercised due care and diligence in arriving at that determination (c/c 20). 2. Breach of an implied term of the deed between Martech and Energy that Martech would exercise reasonable care and diligence in carrying out the services provided (c/c 5 and 28). 3. Breach of common law duties of care owed by Mr Brand and Martech to Energy and AEE (c/c 11 and 11A, 28 and 31). 4. Breach of a fiduciary duty owed by Mr Brand to Energy and AEE to exercise reasonable care in the performance of his duties as a director of Energy and AEE (c/2 12 and 31). Whether Martech and Mr Brand failed to exercise reasonable care or due care and diligence in breach of their duties to Energy and AEE 341 It may be accepted for present purposes that Martech and Mr Brand owed Energy and AEE the various duties alleged in the cross-claim. Although the formulations of those contractual, common law, fiduciary and statutory duties vary from one to the other, they are for practical purposes, subsumed in the one standard of reasonable care. As was submitted on behalf of Martech and Mr Brand, the duties which were imposed on directors by s 232(4) of the Corporations Law, which was in force at the relevant time, are essentially the same as the duties of directors under the common law and, a fortiori, in equity. The submission referred to authorities cited by Santow J in Re HIH Insurance Limited (In Prov Liq); Australian Securities and Investments Commission v Adler and Others (2002) 41 ACSR 72 at [372]. Plainly enough a director and, a fortiori, a managing director, may rely on the advice and information of officers of a company whose task it is to provide such advice and information. Reliance may also be placed upon judgments made by officers of the company which fall within their sphere of responsibility. That reliance would, of course, not be reasonable if a director or managing director knew, or by the exercise of ordinary care should have known, any facts which would raise a question about the judgment, information or advice offered. 342 The question whether reliance by a director upon an officer of the company or delegation of a function to such an officer is reasonable falls to be determined in the circumstances of each case. In Re HIH Insurance, Santow J listed, non-exhaustively, factors which may be important in determining reasonableness: '1. [whether] the function that has been delegated is such that "it may properly be left to such officers"; 2. the extent to which the director is put on inquiry, or given the facts of a case, should have been put on inquiry; 3. [whether] the relationship between the director and the delegate, must be such that the director honestly holds the belief that the delegate is trustworthy, competent and someone on whom reliance can be placed…; 4. the risk involved in the transaction and the nature of the transaction. 5. the extent of steps taken by the director, for example, inquiries made or other circumstances engendering "trust"; 6. whether the position of the director is executive or non-executive.' (Citation of authorities omitted) 343 It was further submitted on behalf of Martech and Mr Brand that Mr Brand's decision to make the reduced milestone payment was an aspect of a wider agreement to vary the terms of the milestone schedule to the Vypeen agreement. This, it was said, was a 'business decision' which involved the balancing of a range of circumstances and factors. It was Energy and AEE which wished, for their own reasons, to revise the milestone schedule and which had to reach a compromise acceptable to Prenergy. It was submitted that courts properly refrain from assuming the management of corporations and substituting their own decisions and assessments for those of directors. Directors can be expected to have much greater knowledge and more time and expertise at their disposal to evaluate the best interests of the corporation, rather than the court – Darvall v North Sydney Brick and Tile Co Ltd (1989) 16 NSWLR 260 at 281. 344 In their submissions, Energy and AEE relied upon the formulation of the condition for the making of the milestone payment, namely the satisfaction of 'All applicable State and Central Government of India approvals for alternative fuel for the Vypeen Project'. They submitted that Mr Brand accepted that the law of India effectively prohibited the import of condensate for use in the Vypeen Project and that the way to address that situation was to seek to persuade the Indian Government to change the law. What was necessary was a change in the law generally not just a facilitation for the purpose of the Vypeen Project. The law in relation to importation of condensate did not change between 1998 and 1999 and for that reason applicable approvals had not been obtained. It was also emphasised that no application for approval was ever made. On that ground, it was submitted, that objectively speaking there was no basis upon which the milestone payment should be made. 345 Energy and AEE relied upon Mr Brand's understanding of certain important facts. He knew that the supply of condensate fuel was the most critical component and the key to financing the project. This appeared from the memorandum dated 27 February 1998 which he had received. He also knew from a fax dated 26 March 1998 from Mr Bridgwood that condensate was not then permitted to be imported into India. Of course that fax added that the Ministry of Petroleum and Natural Gas would recommend to the Ministry of Power that condensate be approved for importation under the Open General Licence (In fact the position seems to have been the other way round). He was aware of the proposed lobbying of the Ministry of Power and the Ministry for Petroleum and Natural Gas. The text of the brief to the relevant Ministers has been set out earlier in these reasons. 346 Energy and AEE also referred to Mr Brand's letter to Mr Gnanalingam on 3 April 1998 on the condensate issue and Mr Swaminathan's response of 4 April 1998. It was put that at this time he knew that the approval of both the Ministry of Commerce/Finance and the Ministry of Petroleum and Natural Gas was required for the importation of condensate. They pointed out that Mr Brand had read the executive summary of 5 May 1998, being part of the papers considered by the Board before it entered into the Sale and Purchase Agreement. He attended the meeting of 7 May 1998 and made a presentation in relation to the Vypeen Project in the absence of Mr Bridgwood. He had read the Sale and Purchase Agreement prior to entering into it. He was familiar with the payment clause 3.09 and the milestone schedule. He also received the fax of 3 July 1998 from Mr Swaminathan and replied to it on 6 July 1998. 347 It was submitted that until July 1998 Mr Brand was aware that there had to be a change in the law in India in order to enable condensate to be imported. There was no evidence of any change in that position other than the fax of 3 July 1998 from Mr Swaminathan to Mr Brand which attached no supporting documentation or provided any official indications which would support the proposition advanced by Mr Swaminathan. The source for Mr Swaminathan's views were said to remain 'entirely unknown and undisclosed'. 348 It was submitted by Energy and AEE that Mr Bridgwood was not the source of the information about the proposed change of the law. That source was Mr Swaminathan. It was in Mr Swaminathan's interest to promote Prenergy's position. It was submitted that the provisions of cl 3.09 of the Sale and Purchase Agreement underscored the fact that it was for Energy to consider its position before agreeing that it was obliged to make any milestone payment. 349 Energy and AEE pointed out that Mr Brand agreed in cross-examination that in deciding to make the payment he had in mind commercial considerations. They contended that Mr Brand's approach was that because Energy was in financial difficulties it was important to keep the Project moving, almost no matter what. As a result, he made a decision without regard to whether the milestone payment had fallen due because he wanted to keep Prenergy happy. As to the latter proposition I observe, as earlier found, that Mr Brand acted, at all material times, in the belief that the relevant approvals had been secured and saw the restructuring of the milestone payments as entirely to Energy's advantage. 350 In my opinion, Energy and AEE seek to hold their former managing director to an unrealistically high standard of care. I am satisfied that: 1. At the time he authorised the milestone payments, Mr Brand believed that the relevant condition for making those payments had been satisfied. 2. Mr Brand formed his belief in July 1998, based on advice from Mr Bridgwood and a confirming fax from Mr Swaminathan. 3. Mr Brand regarded Mr Bridgwood as a senior, long-serving, experienced and trusted officer of the company. While it would have been reasonable for him to have requested precise documentary verification of the satisfaction of the milestone condition, it did not amount to a failure on his part to take reasonable care or to exercise due diligence as a director that, in the circumstances, he relied upon Mr Bridgwood's judgment. 4. The reasonableness of Mr Brand's conduct in relying upon Mr Bridgwood's judgment and advice can be viewed against the range of responsibilities that Mr Brand had as managing director and the variety of issues, including the question of the CBA debt, with which he was directly involved. 5. Although his authorisation of the milestone payments was founded upon the belief that the relevant condition was satisfied, Mr Brand also had legitimate concerns that the Project should be kept moving and that a harmonious relationship should be maintained with Prenergy. A close and searching scrutiny of the claimed approvals, having regard to his belief that they had been obtained, would, on that hypothesis, merely cause delay in the progress of the Project and disruption to the relationship with Prenergy. 351 It is important to bear in mind in assessing the reasonableness of judgments made by a managing director that they are not always to be tested against the criteria which a legal practitioner might apply in giving advice on the matter for decision. Commercial decisions, in the dynamic context of an ongoing commercial relationship and a complex development project, even important decisions, are not unusually taken on imperfect or partial information and reasonably in reliance upon the advice of colleagues and other officers in the common enterprise, whether it be a corporation or some other business structure. In my opinion, having regard to the circumstances to which I have referred, Mr Brand did not breach his common law duty of care nor his duty as a director of Energy and AEE. Martech did not, by reason of his conduct, breach any implied duty of care in the agreement under which it provided his services as managing director. 352 So far as the cause of action based in misleading or deceptive conduct is concerned, I do not consider that the representations attributed to Martech were made. Mr Brand was Chief Executive and Managing Director of Energy. If he formed a belief based upon advice given to him by a senior officer of the company, that belief is attributable to Energy. His actions upon that belief including reports to the Board of Directors are not capable of amounting to representations to Energy for the purposes of the Trade Practices Act. 353 For the preceding reasons, each of the causes of action alleged against Martech and Mr Brand fails. The cross-claim should be dismissed. Causation 354 It was submitted on behalf of Martech and Mr Brand that to show a causal link between any breach of duty by Mr Brand, it would have to be shown that Energy would not have made the fuel milestone payment absent that breach. It was submitted that given the new Liquid Fuel Policy announced by the Ministry of Power and the subsequent actions of Government of India Ministries, the KSEB and the State Government of Kerala consistent with the subsistence of the new Liquid Fuel Policy, the Board might well have regarded final placement of condensate under OGL as a formality likely to be satisfied in the immediate future. 355 Whether members of the Board, provided with all relevant documentation which was known to Mr Brand and/or Mr Bridgwood, would have come to a different view is a matter of some speculation. None of the former directors was called to say what they would have done in the circumstances. It may be that if they had had the benefit of advice from an Indian lawyer such as Mr Pal that there was a further step to be taken with the Ministry of Petroleum and Natural Gas, the milestone payment would have been deferred. It may be that they would have been prepared to make the payment even if the condition was not finally satisfied given the apparent likelihood of its approval and the availability of alternative modes of importation and alternative fuels, such as diesel. It may well have been relevant to such consideration that the milestone payment was an element of the ultimate purchase price of the shares under the contract. The causation hypothesis is based upon the assumption that Mr Brand had a duty to procure or request that legal advice be procured and that his failure to take reasonable care or to act with due diligence arose from that failure. 356 As Mr Pal pointed out, condensate could be imported into India from 31 March 2001. Had the Project continued to that point then, the alternative fuel milestone would have been satisfied and a payment of US$2 million due under the terms of the original agreement. In that connection it may be noted that in its 2001 Annual Report, Energy stated, at p 10: 'In the southern State of Kerala, EEC has executed a Sale and Purchase and Shareholders' Agreement with Pembinaan Redzai of Malaysia for a 40% interest in a 680 MW Vypeen Power Project. The Techno Economic Clearance to proceed with the project was issued by the Central Electricity Authority of India in September 1998. The clearance gives approval for local government, the Kerala State Electricity Board and the Government of Kerala to proceed with the project. Negotiation of the Amended and Revised Power Purchase Agreement, Fuel Supply Agreement and Escrow Facilities to permit project financing are still continuing, albeit more slowly than planned. The probability is that the development of the power plant will be achieved in phases leading up to a total capacity of 680 MW rather than a single development.' The preceding statement was contained in the Company Review signed by the new managing director, Mr Elliott and dated 5 October 2001. Mr Allen had been appointed to the Board as an executive director at that time. The company accounts disclosed the shareholding in ARL and identified their costs as $4,296,000. Loss and damage 357 For the reasons which I have already outlined in discussing Mr Allen's evidence, I do not think the evidence enables me to conclude that, even had Mr Brand breached his duty as alleged, Energy and/or AEE have suffered the loss claimed. To make out the relevant loss it would be necessary for Energy and AEE to show that the milestone payment represented an irrecoverable cost associated with the Vypeen Project. 358 As was pointed out in submissions made on behalf of Martech and Mr Brand, Energy carried the value of the Vypeen Project up until 30 June 2004 at $4,296,000 represented by its 42% shareholding in ARL. Although it wrote off the carrying value of the Vypeen Project on 30 June 2004 this appeared from evidence given by Mr Allen in relation to a letter written by him in February 2004 to flow from the reluctance of financiers to lend to IPPs in India following the collapse of Enron. His explanation to Energy's auditors for the write off included the statement that the company remained confident that the investment made in the Project could eventually be recovered as a consequence of the future development implementation of the Project. Mr Allen did not express any view that the Vypeen Project has no value, or that the shares in ARL had no value. Nor did he express a view about what the value of the Project and the shares was. 359 Energy's argument, advanced by its counsel, that the Vypeen Project has no value, was based on the assertion that the Vypeen agreements were of no utility. The state of the Vypeen agreements has not altered since 2000. As contended by Martech and Brand, the submission is contrary to contemporary statements by Energy and, in particular, the statement made to its auditor on 26 August 2004. It was submitted for Martech and Mr Brand that Energy does see the value in the Vypeen Project because it has negotiated over time to acquire Prenergy's shares in ARL and continues to do so. When Prenergy threatened to wind up ARL in August 2004, Mr Allen asked it not to do so because the loss of connection to records held by Indian authorities in relation to the development of the Project meant that it would cease to have any value. 360 I am left in the position that I am not, on the balance of probabilities, able to say whether the Vypeen Project has any value and if so what value it has. Nor am I able to say that all or any part of the payments made in relation to the development of the Project are irrecoverable. At the very least it would appear that those payments provide a basis for negotiation with Prenergy for the acquisition of its shareholding in ARL so that Energy itself may be in a position to proceed with the Project subject to re-entry by Prenergy on some agreed formula. In my opinion, however, the evidence as to the actual loss, if any, suffered by Energy and/or AEE as a result of the alleged breaches of duty by Mr Brand and Martech is inconclusive. I certify that the preceding three hundred and sixty (360) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 3 August 2006 Counsel for the Applicants and Cross-respondents: Mr DM Stone Solicitor for the Applicants and Cross-respondents: Williams & Hughes Counsel for the Respondents and Cross-claimants: Mr P McGowan Solicitor for the Respondents and Cross-claimants: Christensen Vaughan Date of Hearing: 19, 20 and 21 September 2005 13, 18, 19 and 21 April 2006 Date of Judgment: 3 August 2006