Supreme Court New South Wales Medium Neutral Citation: Carlow Castle Pty Limited trading as Greenhill Capital Partners -v- Aztec Resources Limited [2013] NSWSC 188 Hearing dates: 28 February 2013 Decision date: 12 March 2013 Jurisdiction: Equity Division - Commercial List Before: Hammerschlag J Decision: Summons dismissed with costs Catchwords: CONTRACT - construction - where agreement provided for the payment to a corporate advisor of a success fee in the event that a bidder acquired 50% or more of the shares in the defendant under an offer which had been recommended by a majority of the defendant's board of directors - where a bidder made an offer which the board did not recommend but opposed - notwithstanding opposition the bidder succeeded in obtaining more than 50% of the shares in the defendant, thereafter the board changed its recommended - whether success fee payable - RECTIFICATION - the plaintiff claimed that if the construction of the agreement was not as it contended, the agreement should be rectified as not reflecting the continuing common intention of the parties - requirements for the establishment of such intention - whether such requirements were met Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137 Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Westland Savings Bank v Hancock [1987] 2 NZLR 21 Muriti v Prendergast [2005] NSWSC 281 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 Pukallus v Cameron (1982) 180 CLR 447 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Category: Principal judgment Parties: Carlow Castle Pty Limited trading as Greenhill Capital Partners - Plaintiff Aztec Resources Limited - Defendant Representation: Counsel: A.S. Bell SC with J.R. Williams - Plaintiff B.A.J. Coles QC with K. de KERLOY - Defendant Solicitors: Slater & Gordon - Plaintiff Herbert Smith Freehills - Defendant File Number(s): 2012/225319 Judgment INTRODUCTION 1HIS HONOUR: The plaintiff, a corporate advisor which trades as Greenhill Capital, sues the defendant ("Aztec"), a mining company, for a Success Fee of $5,850,570 which it claims is payable under the terms of a Deed of Settlement and Release ("the Deed") made between them on 14 February 2006. 2On 22 November 2006 pursuant to a scrip for scrip takeover offer which it had made to the shareholders of Aztec on 24 July 2006, Mount Gibson Iron Limited ("Mount Gibson") acquired over 50% of the shares of Aztec. 3The Deed provides that a Success Fee is payable when Success occurs. Success occurs, relevantly, when a bidder acquires 50% or more of the shares in Aztec pursuant to or after a takeover offer where the acquisition was recommended by a majority of Aztec's board of directors (that is to say, the bidder formally acquires a controlling interest). 4Up to and including 22 November 2006 when Mount Gibson acquired a controlling interest in Aztec, the Aztec board unanimously opposed and recommended against acceptance of the offer. However, on 28 November 2006, once Mount Gibson had succeeded in acquiring a controlling interest, the Aztec board changed position and instead of opposing it, recommended its acceptance. 5The parties are divided first as to whether the Success Fee is payable only if (as Aztec contends) at the time of the acquisition of 50% or more of Aztec, a majority of its board had recommended acceptance of the bid, or (as the plaintiff contends) it suffices that the Aztec board, at some time before the offer closed, recommended acceptance of it even though the Aztec board did not recommend acceptance of the bid at the time the controlling interest passed to the bidder. Resolution of this issue involves determining the proper construction of the terms of the Deed. 6The parties are divided secondly as to whether, if the Deed does not operate as the plaintiff contends, it should be rectified so to operate. BACKGROUND 7By letter dated 12 November 2002 ("the Engagement") Aztec retained the plaintiff to assist it in developing and implementing its corporate strategy, which might include funding the development of an iron ore project in Western Australia known as the Koolan Iron Ore Project, takeover advice, joint venture or strategic alliance with partners, or other corporate transactions. The terms of the retainer were amended by a letter from the plaintiff to Aztec dated 24 February 2004, the terms of which are not presently relevant. 8By letter dated 22 March 2005 ("the Macquarie letter") Aztec retained Macquarie Bank in relation to the project code named 'Project Spear', which involved providing advice and assistance to Aztec, initially in relation to formulating a response strategy for Aztec and then subsequently executing that response strategy in the event a takeover offer or merger proposal was made for Aztec ("the Offer"). Paragraph 3 of the Macquarie letter provided for the payment to Macquarie Bank of various fees, including a transaction responsibility fee, a monthly retainer fee, a performance fee and an incentive fee. Under the heading "Performance Fee", the Macquarie letter provided, relevantly, as follows: Upon Success, a "Performance Fee" ("PF") shall become payable, calculated as follows: ... For the purposes of this clause 3, "Success" would be: I) A bidder acquires 50% or more of the shares in the company under an Offer which has been recommended by a majority of the Aztec Board (ie. formally reaches a controlling interest); or II) The Offer is not recommended or is rejected by a majority of the Aztec Board and a bidder does not acquire greater than 50% of the shares in the company; or III) Shareholders of Aztec receive or are presented with some other course of action (eg. scheme of arrangement, reconstruction, merger, reduction of capital or liquidation) on terms acceptable to a majority of the Aztec Board and recommended by them and all pre-conditions for completion have been satisfied. 9On 24 March 2005 Aztec wrote to the plaintiff, which at all times has been represented by Mr Richard Shemesian, as follows ("the Second Amending Letter"): I refer to our recent discussion in relation to Greenhill's mandate to assist Aztec on corporate advisory assignments and the company's desire to appoint an investment bank to advise on various strategic issues. A proposed way forward would involve an amendment of the existing mandate with the following terms: 1. Greenhill consents to Aztec's appointment of a leading investment bank at the discretion of the board. 2. A payment of $250,000 in consideration for work performed and outcomes achieved for the company since the commencement of the mandate including assistance in engaging a major Australian investment bank to provide services to the company. 3. A success fee of 2.0% payable to Greenhill or its nominee on Initial Bid Capitalisation or value of the Transaction based on Success as defined by Macquarie with $150,000 of the fee payable on announcement the transaction and the remainder on Success as set out and defined in Macquarie's letter dated 22 March 2005 (paragraph 3). Aztec would continue to engage Greenhill on corporate, strategic and investor relations matters based on the current monthly retainer of $10,000 per month with the term of the engagement being 12 months after which the engagement may be terminated by either party providing 3 months notice. 10At some point Aztec desired to terminate the engagement of the plaintiff and a dispute arose about the plaintiff's entitlements upon that termination. Each party retained a lawyer to assist in the negotiation of a formal agreement. The plaintiff retained Kanjian and Co, and Aztec retained Blake Dawson Waldron. 11On 5 January 2006 Blake Dawson Waldron sent a draft Deed of Settlement and Release to Kanjian and Co for comment and also a copy to Mr Shemesian. (The draft contained no clause equivalent to what became cl 11 of the Deed referred to below). 12After taking instructions from Mr Shemesian, Ken Kanjian of the plaintiff's solicitors sent a redrafted proposed deed inserting cl 11 dealing with the Success Fee. In the email under cover of which the redraft was sent, Mr Kanjian wrote, relevantly, as follows: Richard believed that a reference merely to the second amending letter was insufficient to enable the parties to know precisely how the fee was to be calculated if it ever arose. My instructions were therefore to import into the deed such parts of the Macquarie Bank letter (also referred to in the second amending letter) as fleshed out the proper basis for calculation - I endeavoured to confine clause 11 within the scope of paragraph 3 of the second amending letter. For your convenience, I attach a copy of the MBL letter. 13On 24 January 2006 Adrian Chai of Blake Dawson Waldron wrote to Mr Kanjian (copy to Mr Shemesian) that Aztec had agreed to the insertion of cl 11 "only to the extent that it fleshes out the terms of the Macquarie Bank letter and no more". 14On 2 February 2006 Mr Kanjian wrote to Mr Chai that Mr Shemesian had accepted Aztec's position. 15On 14 February 2006 the plaintiff and Aztec entered into the Deed. 16Clause 1.1 of the Deed provides relevantly as follows: Engagement means the letter from Greenhill Capital to Aztec dated 12 November 2002. First Amending Letter means the letter from Greenhill Capital to Aztec dated 24 February 2004. Second Amending Letter means the letter from Aztec to Greenhill Capital dated 24 March 2005. Success Fee means the success fee of 2% referred to in the Second Amending Letter as amplified by clause 11 of this deed. Success Fee Event means the event or events referred to in the Second Amending Letter as amplified by clause 11 of this deed which give rise to Aztec's liability to pay the Success Fee. 17Clause 2.1(b)(ii) provides as follows: 2.1 In full and final settlement of the Claims: (b) the Parties agree that: (ii) the Success Fee is only payable if the Success Fee Event occurs any time during the period of 18 months from 1 January 2006. 18Clause 11.1 provides as follows: The succeeding provisions of this clause 11 amplify the entitlement of Greenhill Capital to the Success Fee envisaged by clause 2.1(b)(ii) in the context of: (a) paragraph 3 of the Second Amending Letter; and (b) relevant parts of the letter dated 22 March 2005 from Macquarie Bank Limited to Aztec. 19Clause 11.3 provides as follows: Subject to clause 2.1(b)(ii), on Success, Aztec must pay Greenhill Capital or its nominee the balance of the Success Fee being 2% of the Initial Bid Capitalisation less the Announcement Fee. 20Clause 11.5 provides as follows: For the purpose of clause 11.3, "Success" occurs when: (a) a bidder acquires 50% or more of the shares in Aztec pursuant to or after the Initial Offer where the acquisition was recommended by a majority of the Aztec board (that is to say, the bidder formally acquires a controlling interest); or (b) the Initial Offer is not recommended or is rejected by the majority of the Aztec board and the bidder subsequently does not acquire more than 50% of the shares in Aztec; or (c) shareholders of Aztec receive or are presented with some other course of action (for example, scheme of arrangement, reconstruction, merger, reduction of capital or liquidation) on terms acceptable to the majority of the Aztec board and recommended by the majority with all preconditions for completion having been satisfied. 21On 24 July 2006 Mount Gibson announced a scrip for scrip takeover offer for Aztec, offering Aztec shareholders one new Mount Gibson share for every three shares held in Aztec. One of the conditions of the offer was that at the end of the offer period, Mount Gibson would have relevant interests in at least 90% of the Aztec shares on a fully diluted basis. 22To put it mildly, the offer was not favourably received by the board of Aztec. 23In a newsletter released by Aztec to the Australian Stock Exchange ("ASX") on 4 August 2006 the offer was described as "opportunistic." In a joint ASX and media announcement Aztec's directors advised shareholders to take no action in relation to the offer until they made their formal response. 24On 11 August 2006 Mount Gibson provided its Bidder's Statement, in accordance with the Corporations Act 2001 (Cth) ("the Act"), to the ASX. The offer period was to expire on 27 October 2006. 25On 14 August 2006 Aztec's board, via an ASX announcement, urged shareholders to take no action in respect of the "unsolicited bid." The board expressed disappointment with the lack of detail in Mount Gibson's Bidder's Statement and stated that they believed it did little to alleviate a number of serious concerns including Mount Gibson's financial position and recent financial performance. 26On 22 August 2006 Aztec made an application to the Takeovers Panel for a declaration of unacceptable circumstances under s 657A of the Act with respect to the bid and sought interim and final orders including for corrective disclosure. 27On 25 August 2006 the board of directors of Aztec met. Amongst the subjects discussed was a proposal to a third party to acquire a blocking position and the possibility of a management buy out. The minutes of the meeting record the following: Macquarie Mandate Letter The meeting was informed that Macquarie was concerned that it would not be paid if there is a change of control of the Company. At present their success fee is conditional on the Board recommending the offer, and takeover is successful, or the Board rejecting the offer and the takeover is unsuccessful. The Board did not accept Macquarie's suggested wording to amend the conditions under which the success fee will be paid. It was agreed that independent advice be sought on this matter. 28On 8 September 2006 the Aztec board formally recommended to shareholders that they "REJECT Mount Gibson's inadequate offer." 29On 12 September 2006 Aztec lodged its Target's Statement with the ASX recommending rejection of Mount Gibson's offer and stating that the directors unanimously so recommended. The offer was described as "inadequate" and "not fair". 30In a letter to shareholders dated 25 September 2006 Aztec referred to supplementary bidder's statements which Mount Gibson had released. Amongst others, the Aztec directors stated that they were very concerned that Mount Gibson had been very selective and therefore misleading with its disclosure. 31On or around 16 October 2006 Mr Shemesian flew to Perth to meet with Mr Ian Burston, a director, and Mr Peter Bilbe, the Managing Director of Aztec. He was accompanied by his accountant Mr Vince Fayad of PKF Chartered Accountants. Mr Shemesian's evidence was that a conversation to the following effect took place: SHEMESIAN: Will Aztec be paying Greenhill's success fee in the event Mount Gibson obtains 50% or more Aztec? [sic] BURSTON: There is no problem. The success fee will be paid in the event of a takeover by Mount Gibson. BILBE: The bank facility which Aztec is negotiating for the mine development of the project includes an amount sufficient to pay Greenhill and Macquarie Bank's takeover fees in full. 32He says that after the Perth meeting he remained concerned that the board of Aztec would be put under pressure by Mount Gibson not to pay the plaintiff's fee and that his experience working in the investment banking industry is that following successful takeovers, bidders would sometimes try and avoid paying fees to the target company's advisors or seek to reduce them. He says that after the meeting he had a conversation with Mr Fayad to the following effect: SHEMESIAN Can you please obtain from Ian Burston and Peter Bilbe their agreement in writing that the Greenhill success fee will be paid so there is no dispute. FAYAD: It's not necessary. Greenhill has a written agreement in the form of the Deed. I have already had a discussion and email confirmation from Peter Bilbe on 20 October 2006 in which Peter Bilbe agreed that the success fee would be paid to Greenhill when Mount Gibson obtained more than 50% acceptances and the Aztec Board recommended the offer at any time during the offer period. I am confident the fee will be paid as Bilbe told me that Aztec's banks have factored the $5 million fee to Greenhill into their bank facility. There is nothing to worry about. 33On 19 October 2006 Mount Gibson announced to the ASX that when the first of the offers was made it had a relevant interest in 15.25% of Aztec's shares and that by 19 October 2006 its relevant interest in Aztec was 33.30%. Mount Gibson extended the offer period to 3 November 2006. 34On 20 October 2006 Mr Bilbe emailed Mr Fayad as follows: As promised please find attached our calculation/s [sic] of the success fee ($5.4687 million) that may be payable to Carlow Castle as a result of the takeover bid for Aztec by Mt Gibson. The second calculation assumes that all of the 21,150,000 options currently on issue are exercised and fall into the bid by the closing date. In reality not all of the options are likely to be exercised so the second success fee amount would be less than $5.5795 million. 35Mr Fayad responded as follows later that day: Thanks for your email. The calculation looks fine and I agree that the lower amount of $5.4687 million, plus GST is likely payable by Aztec. As discussed when we meet at your offices, the only other issue that we should clarify is the meaning of "Success". It is in everyone's interest to ensure that the circumstances in which the Success fee is payable is clearly understood. In short, if Mt Gibson achieves a level of acceptances above 50% and at any time during the offer period, the Aztec board recommends acceptance of the offer, the Success Fee is payable to Greenhill/Carlo [sic] Castle. Of course, if the Aztec does not recommend accpetance [sic] of the offer and MT Gibson does not achieve 50%, the Sucess [sic] fee is also payable. I'd be grateful if you would confirm your agreement to the above. 36Mr Bilbe responded later that evening as follows: Yes, that is our understanding of the meaning of success. 37Mr Fayad forwarded this email to Mr Shemesian. 38On 27 October 2006 Aztec's directors sent a letter to shareholders informing them that Mount Gibson had declared the offer unconditional and had extended it to 3 November 2006. They wrote, amongst others: This does not have any impact on your Directors' recommendation for shareholders to REJECT the Offer. As of 26 October 2006, Mount Gibson had only received acceptances for 1.68% of Aztec shares (excluding acquisition and acceptances from Aztec's previous major shareholder, Cambrian Mining Plc). We thank you for your loyalty and urge you to continue your support for Aztec in the face of the opportunistic bid from Mount Gibson. We continue to remain focused on bringing the Koolan Island Project into production for the benefit of all Aztec shareholders. 39On 1 November 2006 Aztec's directors sent another letter to shareholders. The directors stated that they had written it "to correct the scaremongering and spread of misinformation" by Mount Gibson. The board continued to recommend rejection of "the inadequate offer" from Mount Gibson. 40On 6 November 2006 Peter Bilbe, on behalf of Aztec, wrote to Mr Shemesian, on behalf of the plaintiff, as follows: We refer to the deed of settlement and release between Aztec Resources Limited (Aztec) and Carlow Castle Pty Limited trading as Greenhill Capital Partners (Greenhill Capital) dated 14 February 2006 (Deed). Terms defined in the Deed have the same meaning in this letter. Aztec is presently the subject of a takeover offer from Mount Gibson Iron Limited (Mount Gibson) (Offer). You have asked Aztec's board of directors (Aztec Board) to confirm its interpretation of the operation of clause 11.5 of the Deed in the context of the Offer and, in particular, the point at which Aztec considers that Success will have occurred for the purposes of that clause. At this juncture, the Aztec Board does not consider it appropriate for the Aztec Board to express a view on the circumstances in which Success might or might not occur for the purposes of clause 11.5 of the Deed, nor to otherwise offer any opinion in respect of the circumstances in which any amount might or might not be payable to Greenhill Capital. This letter supersedes all previous correspondence (both oral and written) in respect of this matter. 41On 22 November 2006 Aztec announced that Mount Gibson had acquired a relevant interest in Aztec shares of 50.52%. Mount Gibson filed a notice of change of interests of substantial shareholder. It disclosed that it had voting power of 54.07% and was the registered holder of 42.92% of the shares on issue, the difference being represented by shares in respect of which various offerees had accepted its offer. 42On 28 November 2006 the board of Aztec unanimously recommended acceptance of Mount Gibson's takeover offer in a joint ASX and media release. 43On the same day the plaintiff sent Aztec an invoice for the claimed Success Fee. 44The following day Macquarie Bank wrote to Aztec in the following terms: As per our Letter of Engagement dated 19 April 2005 and our subsequent discussions and correspondence with Aztec in respect of the payment of the Performance Fee, please find enclosed our tax invoice for professional services encompassing Macquarie's Performance Fee incurred for Project Spear totalling $4,316,933.44. Could you please remit the funds as per the instructions enclosed on the following pages. As per the Letter of Engagement, these funds are payable prior to any change to the Board of Aztec or within seven days from the date of the invoice, whichever occurs first. We would also request payment of invoice IBG3387 at the same time. 45That day the board of Aztec met. The minutes record the following: Payment of Macquarie Invoice - Success Fee The Board noted a letter from Macquarie dated 14 November 2006 seeking the payment of their performance fee. The Directors noted that the main criteria for payment of the performance fee (as had been previously discussed with Macquarie) had been met, namely: Mt Gibson Iron had acquired more than 50% of the issued capital of Aztec, and The Directors of Aztec had recommended that the Company's shareholders accept the offer. It was RESOLVED that the performance fee be paid to Macquarie, subject to the calculation of the fee being checked and agreed by the Company. (emphasis added) 46Aztec paid Macquarie Bank on 7 December 2006. On 29 November 2006 more than 50% of the issued shares in Aztec were registered in Mount Gibson's name. 47Mr Shemesian gave affidavit evidence that at the time he signed the Deed on behalf of the plaintiff it was his understanding and intention that the plaintiff would be entitled to payment of the Success Fee if the bidder acquired more than 50% of Aztec shares and the bid was recommended by the Aztec board irrespective of the timing of the Aztec board's recommendation. He said that it was irrelevant to his mind in judging whether a takeover bid was successful when the Aztec board made its recommendation so long as the Aztec board recommended the bid and the bidder acquired control of Aztec. 48He said that this was his intention from the start and he believed it was clear in all his discussions with Mr Burston and Mr Bilbe. He would not have signed the Deed had he been told that its effect would be to deny the plaintiff a Success Fee if the board recommended a takeover bid after the bidder had acquired 50% of Aztec. He gave evidence that he believes it was the intention of the parties at the time of the Deed that the Success Fee would not be paid if the board recommendation happened after the bidder had acquired 50% or more of Aztec. No director of Aztec at the time indicated to him in any discussions that the board recommendation for the purpose of achieving Success under the Deed had to precede the bidder achieving 50% or more of acceptances. 49As is described above, Mount Gibson took control of Aztec in November 2006. In July 2012, nearly six years later, the plaintiff commenced these proceedings claiming the Success Fee. CONSTRUCTION OF THE DEED 50The meaning of the words used in a commercial contract is to be determined objectively, that is, by what a reasonable person would have understood them to mean. This requires attention to the language used by the parties, the commercial circumstances which the document addresses, the purpose of the transaction and the objects which it was intended to secure. The whole of the instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole of an instrument: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 at 529; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160. 51If the words used are unambiguous, the Court must give effect to them. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted: Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137 at [55]; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1. 52Where words used in a contract are ambiguous, the Court can, in determining the objective intention of the parties, have regard to all of the surrounding circumstances which were known to them at the time of the contract: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352. 53The plaintiff contends that cl 11.5(a) describes two events, which if both occur have the consequence that the Success Fee becomes payable. Those events are the acquisition of a controlling interest by a bidder and a recommendation in favour of the bid by a majority of the Aztec board. The plaintiff puts that the acquisition of control plus a positive recommendation, whenever it occurs, represents Success from Aztec and its shareholders' point of view. This construction, it puts, is commercially the more sensible one. It points out that its functions and those of Macquarie Bank continued under its Engagement, that the Macquarie letter did not terminate on a change of control and that the board of Aztec remained under a continuous obligation to act in the interests of shareholders while a bid remained open, even once a change of control had occurred. 54In my view, the plaintiff's construction is untenable and does not accord with the plain meaning of the words used in cl 11.5(a). 55Where cl 11.5(a) refers to "the acquisition", this is a reference to the bidder's acquisition of 50% or more of the shares in Aztec. The words in parenthesis "acquires a controlling interest" are also a reference to 50% or more of the shares. 56It is this acquisition which must be recommended by a majority of the board of Aztec, something which never occurred. 57If it were necessary to have resort to which is the more commercially sensible construction, Aztec's plainly is. Underlying the notion of Success in each of the three cases described in cl 11.5 is that the outcome is one which had the support of the board (presumably being advised by the corporate advisor). 58Hence, cl 11.5(a) has in mind a takeover where the passing of control has the support of the Aztec board. Correspondingly, cl 11.5(b) has in mind the successful repulsion of a bidder rejected by the board. Clause 11.5(c) contemplates other types of transactions occurring with the imprimatur of the board. 59What occurred here was the passing of a controlling interest despite the bid being hotly rejected by the Aztec board. As evinced by the circular dated 28 November 2006, the board capitulated but only after the battle had been lost. At that point the board may well have considered it in the interests of shareholders to sell into the takeover. But a commercially sensible approach would equate this more with failure than with the type of success the Deed had in mind. 60Success is conditioned on the passing of a controlling interest which accords with the recommendation of the board, not on acquisition of shares beyond that. RECTIFICATION 61Where a written agreement does not, as a result of a common mistake by parties, express their true agreement correctly, the Court may rectify the agreement. The words may have been purposely used, but not give effect to the true intention of the parties. It must be established by clear and convincing proof that the parties had an actual intention as to the legal and factual operation of the instrument which was inconsistent, in a clearly identified way, with the legal and factual operation it does have, although an outward expression of accord as to their common intention is not required. Where there has been prolonged negotiations resulting in a formal instrument, with parties having their own legal advisors, there is a strong assumption that the instrument represents their real intention: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 664-665; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350; NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329. 62Subsequent conduct by parties acting as if the document stood in the form into which it is sought to be rectified can be evidence, even strong evidence, of the existence of an intention on the part of that party to contract in those terms: see for example Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31; Muriti v Prendergast [2005] NSWSC 281 at [107] and following. 63In Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [237]-[287], Campbell JA, with whom Tobias JA and Mason P agreed, considered various authorities dealing with the question whether it is necessary for there to be an outward expression of accord for rectification to be granted. At [287] his Honour said: [M]ere proof that the subjective intentions of contracting parties were identical, if each contracting party had kept his or her intention completely to himself or herself, would not amount to showing a consensual relationship between the parties... 64The plaintiff contends that it and Aztec had a common intention that the payment of the Success Fee was not to be dependent on the timing of the Aztec board's recommendation. It puts that this intention is established by: (a)Mr Shemesian's evidence as to his own personal understanding; (b)the confirmation by Mr Bilbe in his email of 20 October 2006, in which he referred to "our understanding of the meaning of success" in response to Mr Fayad's earlier email; (c)the acknowledgement by the Aztec board on 29 November 2006 in relation to the payment of the Macquarie Bank fee; (d)the actual payment by Aztec of the Macquarie Bank fee; and (e)the acknowledgement by Aztec's Chairman and Managing Director in mid-October 2006 that the plaintiff would be paid. 65For the reasons which follow, in my view, the plaintiff's evidence falls well short of the clear and convincing proof required to establish rectification. 66At the outset it may be observed that the plaintiff did not suggest that its evidence extended to establishing that any subjective intention was relevantly disclosed by one party to the other at the time the Deed was made so as to prove that there was a common intention. If this is what is required by Ryledar v Euphoric, the plaintiff's rectification claim fails at the first hurdle. However, for the reasons which follow, the plaintiff's claim for rectification fails in any event. 67I record the plaintiff put a "formal submission" that to the extent that the decision in Ryledar v Euphoric appears to require disclosure by each party to the other of its subjective intention, it is wrong and should not be followed, presumably on the basis that such a requirement is inconsistent with other judicial statements to the effect that outward expression of the accord is not required, see for example Pukallus v Cameron (1982) 180 CLR 447 at 452. 68The Deed was signed on behalf of Aztec by Mr Clifford, a director, and Mr Edwards, Aztec's secretary. There is insufficient evidence of any relevant subjective intention held by those people, or indeed the other persons who were the guiding minds of Aztec at the relevant time. 69The Deed was negotiated with the assistance of lawyers, neither of whom gave evidence to support any such common intention, which would be heavily at odds with what I consider to be one of the main commercial rationales of the Deed, that is, to provide for a Success Fee when an acquisition of a controlling interest occurs or fails, or some other transaction occurs, in each case at a time at which that outcome accords with the recommendation of a majority of the Aztec board. 70Mr Bilbe's expression of a present understanding on 20 November 2006 falls well short of evidence of any subjective intention or understanding on his part, let alone on the part of other persons who were the guiding minds of Aztec at the time of the Deed. Moreover, Mr Bilbe, for reasons which the evidence does not disclose, refused in his letter dated 6 November 2006 to confirm Aztec's interpretation of the operation of cl 11.5 of the Deed and went on to add that the letter "superseded all previous correspondence (both oral and written) in respect of this matter." 71At the meeting of 29 November 2006, the directors of Aztec noted that "the main criteria for payment of the performance fee (as had previously been discussed with Macquarie) had been met". The implication is that not all such criteria had been met, but the Court did not have the benefit of any evidence of the board's motivations. The board's motivations for paying Macquarie Bank may have been many and varied. Macquarie Bank's letter of 29 November 2006 referred to subsequent discussions and correspondence in relation to the payment of the fee to Macquarie Bank. The Court did not have the benefit of any evidence disclosing the nature and content of those matters, which for all the Court knows may have involved a conscious decision to pay notwithstanding the absence of any legal liability to do so. 72The evidentiary material does not reflect subsequent conduct on the part of Aztec from which any conclusion can, either safely or at all, be drawn that it had a subjective intention at the time of the Deed as the plaintiff suggests. THE AMENDMENT 73On 16 November 2012 the hearing date was set down on an estimate of one day and fixed for 28 February 2013. 74In paragraphs 17 to 20 of its Commercial List Statement, the plaintiff pleaded the announcement of the Mount Gibson takeover offer, that by about 22 November 2006 Aztec shareholders had accepted the Mount Gibson offer in respect of greater than 50% of the issued shares in Aztec and that on or about 28 November the Aztec board unanimously recommended that Aztec shareholders accept the Mount Gibson offer. In par 21 the plaintiff pleaded that "[b]y reason of the matters pleaded in paragraphs 17-20, Mount Gibson acquired 50% or more of the shares in Aztec under an offer which was recommended by a majority of the Aztec board..." 75After the lunch adjournment the plaintiff sought leave to amend so as, for the first time, to place in issue that acceptance by Aztec shareholders of Mount Gibson's offer in respect of greater than 50% of the issued shares in Aztec did not constitute the acquisition of 50% or more of the shares in Aztec, within the meaning of cl 11.5 of the Deed. Acceptances of more than 50% had been achieved by 22 November 2006. Registrations to that level were only achieved by 29 November 2006. 76The proposition proposed to be put was that accepted offers were not sufficient to constitute acquisition of shares in Aztec and that what was required was registration of transfer of the shares into the name Mount Gibson. If this was correct, the relevant threshold of 50% or more would have been met only after the Aztec board changed position. In that event, it was intended to be put, the acquisition would have been in accordance with the recommendation of the board. 77I refused leave to amend and said I would give reasons in this judgment. They follow. 78Senior Counsel for the defendant informed the Court from the Bar table, and I accepted, that he was not in a position on the day to deal with the issues which the amendment would raise. If leave to amend were granted, the case would have had to have been adjourned for at least some weeks (the time taken up by argument on the amendment meant that the Court had to sit late on the day to enable the matter to be finished). It could not be suggested that the plaintiff had not had a full opportunity prior to the hearing to articulate its case. The plaintiff begun the proceedings nearly six years after the relevant events and it had more than three months to prepare its case from the date upon which it was set down. The parties had both conducted the proceedings on the footing that acceptances of offers were sufficient to constitute acquisition. In effect the plaintiff was seeking to withdraw an admission. The idea behind the amendment was clearly spawned by debate with the Court. Beyond this, there was no explanation for why the point had not been raised earlier. The claim involves a substantial sum of money and the defendant is entitled to know its position sooner rather than later: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at 223. 79I observe that cl 11.5 refers to the formal acquisition of a controlling interest. Formal acceptance of offers made by Mount Gibson legally entitled it to have the shares delivered to it which gave it a relevant interest in the shares and practical control over them. It is accordingly not surprising that the plaintiff itself conducted the proceedings until the amendment application on the footing that this amounted to acquisition of a controlling interest. CONCLUSION 80The result is that the plaintiff's claim fails. 81The Summons is dismissed with costs. 82The Exhibits are to be returned. ********** 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. Decision last updated: 12 March 2013