New South Wales Supreme Court CITATION : Climit Pty Ltd v Captech Group Limited [2003] NSWSC 491 HEARING DATE(S) : 15 May 2003 JUDGMENT DATE : 6 June 2003 JURISDICTION: Equity Division JUDGMENT OF : Windeyer J at 1 DECISION : Plaintiffs' claim dismissed. CATCHWORDS : CONTRACTS - specific performance - contract for transfer of options to take up shares - options subject to stock exchange escrow agreement - same parties involved in both agreements - no supervening event - no termination by frustration - specific performance not available as plaintiffs had by conduct accepted repudiation of defendants CONTRACTS - termination - frustration - whether agreement incapable of performance CONTRACTS - termination by acceptance of repudiation - whether plaintiffs repudiated by conduct after defendants/purchasers refused to complete or whether repudiation by purchasers/defendants held the latter - no claim for damages for breach of contract LEGISLATION CITED : Corporations Act 2001 s793C Supreme Court Act 1970 s68 Boyns v Lackey (1958) 58 SR(NSW) 395 CASES CITED : Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 Godelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Climit Pty Limited (First Plaintiff) Dalycoy Pty Limited (Second Plaintiff) Kelandrews Corporation Inc (Third Plaintiff) Page Services Pty Limited (Fourth Plaintiff) Active Quest Pty Limited (Fifth Plaintiff) PARTIES : Geraldine Page (Sixth Plaintiff) Robert Page (Seventh Plaintiff) Captech Group Limited (First Defendant) Gerard Amal Wahab (Second Defendant) Mark Roberts Davison (Third Defendant) Capital & Technology Partners Pty Limited (Fourth Defendant) FILE NUMBER(S) : SC 1378 of 2002 COUNSEL : Mr N. Cotman SC with him Mr G Colyer (Plaintiffs) Mr P E Hack SC with him Ms D Hogan-Doran (Defendants) SOLICITORS : Simpson Freed (Plaintiffs) Hopgood Ganim Lawyers (Defendants) - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J FRIDAY 6 JUNE 2003 1378/02 CLIMIT PTY LIMITED & ORS V CAPTECH GROUP LIMITED & ORS JUDGMENT 1 The plaintiffs seek an order for performance of part of an agreement under which they were to transfer certain options to take up shares in the first defendant company to the second and third defendants or their nominees in consideration of payment of $175,000. The defendants say that the agreement has been terminated by frustration or by their acceptance of the plaintiffs' repudiation of it. Facts 2 The plaintiffs, other than the fourth and fifth plaintiffs, were described in the document the subject of these proceeding as "Page Family and Associates" and I will continue with that. They were engaged in litigation in Queensland against a company then called "Technology Licensing Limited" (TLL) but later called "Captech Group Limited" (Captech), the first defendant. There had been other litigation in which TLL successfully obtained an order setting aside a statutory demand with an order for costs in favour of TLL. This is not apparent from the evidence but was stated without objection to be a fact. 3 By deed dated 15 June 2001, to which all parties to the present proceedings were parties, it was agreed inter alia: 1. The Page Family and Associates would vote the shares they held in Captech in support of a resolution that Captech acquire 57.5% of the issued capital of Capital & Technology Partners Pty Limited, the fourth defendant. 2. In consideration of their doing so and conditional upon the resolution being passed and the acquisition completed, or on or before 3 July 2001 whichever was the earliest, Captech and Capital & Technology Partners Pty Limited would pay to the Page Family and Associates the sum of $200,000. The deed included the following additional provisions. The company referred to is Captech: 3.1 The Page Family and Associates have further agreed to transfer to Gerard Amal Wahab and Mark Roberts Davison or their nominees two million (2,000,000) of the Twenty cent ($0.20) options held in the Company conditional upon completion of 2.1, 2.2 and 2.3 above. 3.2 In consideration of the Page Family and Associates transferring to Gerard Amal Wahab and Mark Roberts Davison or their nominees two million (2,000,000) of the Twenty cent ($0.20) options held by the Page Family and Associates in the Company, the Company will pay the Page Family and Associates on 30 September 2001 of which time is of the essence the sum of One hundred and seventy-five thousand dollars ($175,000.00) by bank cheque in favour of Page Services Pty Ltd on the basis that Gerard Amal Wahab and Mark Roberts Davison will have caused $50,000 of this amount to be paid to the Company. 3.3 The liability of Gerard Amal Wahab and Mark Roberts Davison to make payment of $50,000 of such payment will be joint and several and time shall be of the essence. 4.1 The Company will upon the signing of this Deed immediately adjourn the application for assessment of costs filed in the Supreme Court of Queensland on 18 May 2001. Upon this deed becoming unconditional, the Company will immediately discontinue that application and agrees to waive payment and release the Page Family and Associates from payment of those costs made pursuant to the costs order. 4.2 Upon this Deed becoming unconditional, the Company agrees to release and indemnify both for past and future liability the Page Family and Associates, including Melissa Page and Nathan Page, from any guarantees entered into on behalf of and for the benefit of the Company, including leases entered into with Capital Finance and Esanda Finance, but not limited to, as guarantors for Workmen Industries Pty Ltd or Active Quest Pty Ltd, and the company agrees that it will substitute itself as guarantor and discharge those guarantees in respect of those leases and will provide the Page Family and Associates with evidence thereof within twenty-eight (28) days of the Deed becoming unconditional. 5. Upon payment of the amount of One hundred and seventy-five thousand dollars ($175,000.00) on 30 September 2001 by bank cheque as set out in paragraph 3.2 above the Page Family and Associates will discontinue the Supreme Court of Queensland proceedings No. S3038 of 2001 commenced against the Company and the parties agree that each will bear their own legal costs in respect thereof. 6.1 Subject to payment of the amounts set out in paragraphs 2.2 and 5 above the parties to this deed shall give up release and forever quit any claim each has against the other and their past and current officers arising from the proceedings set out in paragraphs 4.1 and 5 above including but not limited to any disputes arising from consulting, employment or service agreements and this deed shall be pleaded as a bar to any claim carried on, commenced or made in respect of any disputes, actions or proceedings. 4 There were other provisions not relevant here. The meeting was held. Page Family and Associates voted as agreed and the sum of $200,000 was paid pursuant to the agreement. 5 It is admitted that the options referred to in clause 3.1 of the agreement were held by Kelandrews Corporation Inc., the third plaintiff (Kelandrews). In December 1999 the Australian Stock Exchange, in response to an application for admission to the official list by TLL, imposed certain conditions, one of which was that certain securities, including 3 million options held by Kelandrews be subject to an escrow agreement for a period of 24 months from the date of official quotation of the company's securities on the Australian Stock Exchange. There was also a requirement that the exercise price of options be varied from 10 cents to 20 cents. The evidence does not establish the date on which quotation commenced, but it is accepted that it was round about 20 December 1999, so the escrow period would have ended on about 20 December 2001. 6 To comply with the requirements of the Stock Exchange an escrow agreement was entered into between TLL, Kelandrews and Mr Robert Page, the seventh plaintiff as controller of the relevant securities, under which Kelandrews as holder agreed not to dispose of or agree to dispose of the options within the escrow period of two years. There were other provisions requiring TLL to do whatever was within its powers to enforce the agreement. The restriction agreement included a provision that it would not be amended or waived without the consent of the Australian Stock Exchange. The Stock Exchange was not a party to the agreement. 7 The relevant option deed is dated 27 October 1999. As I have said, the options granted to Kelandrews were to take up the shares at $0.10, but this was varied to $0.20. Clause 4.5.2 of the option deed is as follows: The Kelandrews options will not be listed on the ASX and are not transferable. 8 On 6 September 2001 Mr Gourlas the solicitor for the Page interests, wrote to Mr Davison asking to whom the options were to be transferred. Mr Davison responded on 10 September 2001 stating "please leave transferees in blank". In spite of some prevarication in the witness box there was no suggestion at the time that the agreement for transfer of the options and payment of the sum of $175,000 would not proceed. 9 Mr Davison was not aware of the restraint agreement, nor the restrictions on transfer when the deed, dated 15 June 2001 was executed. However, he was aware of this shortly before 25 September 2001. 10 Captech in its former guise as TLL advised the Stock Exchange in June 2001 that certain Queensland proceedings were to be discontinued on payment of the net amount of $325,000 to the Page and Associates interests and that this was regarded as being in the best interests of the company. The $325,000 was the $200,000 plus the $175,000 less the sum of $50,000 payable to the company by Davison and Wahab. 11 For some reason, some of the correspondence which might have been relevant was not put into evidence. It is apparent however that Mr Mares, the company secretary of Captech, advised Mr Davison of the escrow agreement and the fact that the options were not transferable by letter of 25 September 2001, and I am also satisfied that he had given him verbal advice of this some short time prior to the letter. Settlement did not take place on 30 September 2001 as Captech said the escrow agreement made this impossible. 12 At the end of October there were discussions by telephone between Mr Gourlas, the solicitor for the Page interests, and Mr Davison and subsequently between Mr Gourlas and Mr Gorman, another director of Captech. There is some dispute about the precise words but it does not really matter. I am satisfied that Mr Davison said that the sum of $175,000 would not be paid as the options were in escrow and not transferable and that Mr Gourlas said that in that case the Queensland proceedings could be continued and asked who would be acting for Captech in the future. Mr Davison replied that he would get "Lyall" to ring. Subsequently Mr Lyall Gorman rang with the name of the solicitors. 13 On 30 October 2001, Mr Gourlas wrote to the Australian Stock Exchange in the following terms: Re: Page & Associates and Captech Group Limited We refer to the above matter and to the Company's announcement to shareholders on 19 June 2001 of an agreement reached between the Company and our client for the discontinuance of all legal proceedings against the Company. We wish to advise that the agreement between the parties has fallen over and we have been instructed by Page and Associates to continue conducting the Queensland Supreme Court proceedings against the Company. We would appreciate if you would kindly notify the market. Pleadings 14 The plaintiffs claim that on the proper construction of the deed of 15 June Captech was required to pay to the Page interests, $125,000 on or before 30 September 2001 and that Captech was required to pay $50,000 to the Page interests on transfer of the options. This can be said to be the construction issue. It is further claimed that the Page interests offered to transfer the relevant options conditional upon receipt of $175,000, that the Page interests were and remain ready willing and able to discontinue the Queensland proceedings and that in breach of its obligations Captech has failed the sum of $175,000 or the two separate sums of $125,000 and $50,000 and it has failed to procure the releases provided for by the deed. Accordingly the plaintiffs seek an order that the obligations under the deed which remain unperformed be specifically performed and carried into effect. 15 By way of defence and leaving aside the construction issue which can be relatively easily disposed of, the defendants say that the Page interests were not ready willing and able to transfer the options as they were subject to the restriction agreement. Although it has not been pleaded it was also stated, at least in opening without objection, that the options could not be transferred because they were personal to Kelandrews and were not transferable. The second ground of defence was that Mr Gourlas, as agent for the plaintiffs' interests, in the telephone conversation on or about 26 September, repudiated the agreement and that this was accepted by Mr Davison as agent for Captech. Construction of the deed issue 16 It is pleaded that upon the construction of the deed, Captech was required to pay to the Page interests $125,000 on 30 September 2001 by reason of the agreement to settle the Queensland proceedings and that Captech was required to pay $50,000 to the Page interests on transferring the options. No reading of the relevant clauses could give rise to that construction. 17 It was also argued that the proper construction of clause 3.2 made time of the essence for the payment of $175,000 but not for transfer of the options. Despite the somewhat unfortunate wording of the clause, that could not be so. The consideration of $175,000 was payable for the transfer of the options. On no basis could it be thought to be payable by 30 September 2001 with transfer to take place at some later date. If payment was required, as it was, by 30 September 2001, that being an essential term, then transfer was required for the payment to be due. Frustration 18 At the outset I point out that the fact the options were said not to be transferable was not pleaded as a matter relevant to frustration; neither was it mentioned in the written submissions of the defendants. It did seem however to have been relied upon by senior counsel for the defendants in opening, and there was no objection to this, but as there was no really serious discussion about it I do not think that it should be allowed to go forward as a basis for frustration without amendment of the pleadings. In any event it is obvious enough that the parties considered the options were transferable with consent as they must be taken to know of their terms. The restriction agreement strictly construed did not relate to option exercise, as exercise would not, I consider, fall within the words "dispose of". In those circumstances the fact that options were stated not to be transferable was not a basis upon which frustration could be claimed. 19 The serious argument on frustration was based upon the existence of the escrow or restraint agreement. The parties to that agreement were TLL and Kelandrews. It is obvious that both companies had knowledge of the agreement being parties to it. Whether Mr Davison knew of it is irrelevant. There is no evidence that those with the corporate knowledge of Kelandrews did not know of it at the time the deed of 15 June 2001 was executed. The provisions of the latter deed were such as to conflict with the provisions of the escrow agreement if those in the later deed had become binding upon satisfaction of the conditions precedent which would bring them into operation. This was not something brought about by the conduct of one party; nor was it something which arose after the execution of the deed making its performance impossible or removing the sub-stratum upon which the contract was based. It was not illegal, in the sense it was not a breach of the Corporations Act 2001, to act contrary to the escrow agreement, although action could be taken under s793C for enforcement. The defendants in their written submissions accept this. Consent of the Australian Stock Exchange might have been obtained. Mr Davison said that there was no chance of this, although he did say that he had told Mr Gourlas that Captech would support an application by the Page interests for consent. As it was the company's listing status at risk it would, I think, have been for the company to make application. If the company was prepared to tell the Stock Exchange that the settlement arrived at through payment of $375,000 was in the interests of the company, and that settlement required transfer of the options, it is not at all clear to me that consent of the Australian Stock Exchange would not have been given if sought. I do not understand it to be the position that just because one agreement is contrary to an earlier agreement this brings about the frustration of the later agreement. 20 Lord Radcliffe in his speech in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 said at page 729: [F]rustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. … It was not this that I promised to do. And at page 721: The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end. 21 Both of these passages were adopted in Godelfa Constructions Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 per Stephen J at 345, Mason J at 357 and Aicken J at 367-77. The contract did not, because of a supervening event, become incapable of performance; and it was a contract capable of performance. In these circumstances it was not terminated by frustration. Was the agreement terminated by repudiation and acceptance and if so, by whom? 22 Both sides claimed repudiation by the other. The difference was that the Page interests claimed that they had not accepted the repudiatory conduct of the defendants. 23 On whatever version of the conversations is accepted there can be no doubt that: (a) the defendants refused to settle because they said the escrow agreement prevented this; (b) Mr Gourlas did not agree, although he suggested a staged settlement; (c) there was no termination as a result of settlement not taking place by the essential date; (d) Mr Gourlas said that if the agreement was not honoured the Queensland proceedings could or would proceed and asked the name of the solicitor for the defendants' interests and was told of this; (e) Mr Davison said that if the deed was at an end he would look for repayment of the $200,000 paid and (f) Mr Gourlas wrote the letter dated 30 October 2001 to the Australian Stock Exchange. 24 I have concluded that the defendants repudiated the contract by refusing to complete. I am also of the view that the plaintiffs, by their solicitor, accepted this repudiation thereby bringing the contracts to an end by stating that the Queensland proceedings would be brought back to life and by confirming this in the letter to the Stock Exchange. By electing to treat the agreement as at an end the right to seek specific performance was abandoned. The plaintiffs' remedy became one for damages for breach of contract. 25 The difficulty with this however is that there is no claim for damages for breach. The claim of the plaintiffs is for specific performance and in addition damages and in the alternative to specific performance, damages. This is a claim for equitable damages if specific performance were not a sufficient remedy or for damages in lieu of performance if the court in its discretion refused to order performance. In other words damages under Lord Cairns' Act now s68 of the Supreme Court Act 1970. On any basis it is not a claim for damages at common law for breach of contract. It could not be as in their pleaded reply the plaintiffs have denied acceptance of repudiation. While the separation in administration of law and equity, which existed at the time of the decision in Boyns v Lackey (1958) 58 SR(NSW) 395 no longer applies, that does not enable me to award damages to the plaintiff. 26 Even if it were open to me to award damages there is no evidence to enable damages to be assessed. As I understood it the options may now be worthless, but that is not proved. On the other hand the Queensland action may produce a result favourable to the plaintiffs. The result therefore is that quite fortuitously for the defendants the plaintiffs' claim as pleaded will be dismissed in spite of the defendants being without real merit. In those circumstances I should give the parties an opportunity to argue the question of costs. I will refrain from making formal orders to enable the parties to consider these reasons. ********** Last Modified: 06/20/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.