Supreme Court New South Wales Medium Neutral Citation: KBL Mining Limited v Kidman Resources Limited & Ors [2015] NSWSC 515 Hearing dates: 8 and 9 April 2015 Date of orders: 07 May 2015 Decision date: 07 May 2015 Jurisdiction: Equity Division Before: White J Decision: Refer to para [215] of judgment. Catchwords: CONTRACT – interpretation – obligation to pay "interest " on "Secured Money" - consideration of what constitutes interest – whether difference between subscription and redemption values of promissory notes issued by the plaintiff is "interest" under a related contract – "Secured Money" included money owing but not yet payable - held that, despite the strict literal meaning of the clause, the surrounding circumstances made it clear that the difference between subscription and redemption values of the notes was "interest" on "Secured Money" under the contract and no further interest was payable under the contract CONTRACT – interpretation – contract provided that defendant company may appoint persons to investigate affairs of plaintiff if the defendant "considers that an Event of Default has occurred" – defendant served series of invalid notices alleging defaults – defendant seeking to trigger entitlement to enforce security before date for redemption of notes – defendant's director not called - whether service of notice and email sent from defendant's solicitors was sufficient evidence that the defendant considered that an Event of Default had occurred – held that the defendant had not established that it considered that an Event of Default had occurred EQUITY – rectification – where plaintiff succeeded on its contractual interpretation argument as to interest – held that contract should also be rectified for abundant caution by inserting a new clause MORTGAGES – contractual entitlement to costs in redemption suit – circumstances where an unsuccessful mortgagee will be deprived of its contractual entitlement to costs against the mortgagor – held that the mortgagee is not entitled to its costs because it acted improperly and in bad faith by issuing multiple contractual default notices as part of a campaign to enforce security interests over the mortgagor where there was no proper basis for the issue of most of the notices and where the mortgagee knew that its interpretation of the contract in issue was contrary to the true agreement made by the parties Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Mining Act 1992 (NSW) Personal Property Securities Act 2009 (Cth) Cases Cited: Amalgamated Investment & Property Co Limited (in liq) v Texas Commerce International Bank Limited [1982] QB 84 Aquaclear Technology Pty Ltd v Cameron & Brister & Co Pty Ltd [2001] SASC 186; (2001) 214 LSJS 289 Australian Gypsum Limited v Hume Steel Limited (1930) 45 CLR 54 Bond v Barrow Haematite Steel Co [1902] 1 Ch 353 Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 Capital Networks Pty Ltd v .au Domain Administration Limited [2004] FCA 808; (2004) ATPR (Digest) 46-254 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 Coghlan v S H Lock (Australia) Ltd (1985) 4 NSWLR 158 Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467 Cotterell v Stratton (1872) LR 8 Ch App 295 Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390n; [1939] 1 All ER 662 Dabbs v Seaman (1925) CLR 538 El Ajou v Dollar Holdings PLC [1994] 2 All ER 685 Eslea Holdings Limited v Butts (1986) 6 NSWLR 175 Fowler v Fowler (1859) 4 De G & J 250; 45 ER 97 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 Frontier Petroleum NL v Anzoil NL (unreported, Supreme Court of Western Australia, Anderson J, 4 June 1997, BC9702594 at 7) GFT Australia Pty Ltd v Collector of Customs (1995) 128 ALR 219 Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 GPI Leisure Corporation Limited v Herdsman Investments Pty Limited (No 4) (1990) 9 BPR 17,461 H L Bolton (Engineering) Co Limited v T J Graham & Sons Limited [1957] 1 AB 159 Hamilton v Whitehead (1988) 166 CLR 121 Johnson Matthey Limited v AC Rochester Overseas Corp (1990) 23 NSWLR 190 Joscelyne v Nissen [1970] 2 QB 86 KBL Mining Ltd [2015] ATP 3 Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 Lennard's Carrying Company Limited v Asiatic Petroleum Company Limited [1915] AC 705 Lomax (HM Inspector of Taxes) v Peter Dixon and Son Limited [1943] KB 671 Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Muriti v Prendergast [2005] NSWSC 281 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pearson v Dennett (1911) 11 SR (NSW) 449 Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1384; [1971] 3 All ER 237 Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1996) 42 NSWLR 505 Pukallus v Cameron (1982) 180 CLR 447 Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd [2012] VSCA 139; (2012) 37 VR 486 Riches v Westminster Bank Limited [1947] AC 390 Simson v Wotif [2013] NSWSC 124 Standard Portland Cement Co Pty Ltd v Good [1982] 2 NSWLR 668 Tael One Partners Limited v Morgan Stanley & Co International PLC [2015] UKSC 12; [2015] Bus LR 278 Tesco Supermarkets Limited v Nattrass [1972] AC 153 The Olympic Pride [1980] 2 Lloyds Rep 67 Universal Telecasters (Qld) Limited v Guthrie (1978) 18 ALR 531 Texts Cited: CL Pannam, Law of Money Lenders in Australia and New Zealand, The Law Book Co, 1965 E L G Tyler, P W Young and C E Croft, Fisher and Lightwood's Law of Mortgage, 3rd Australian ed K R Handley, Estoppel by Conduct and Election, Thomson, Sweet & Maxwell 2006 Category: Principal judgment Parties: KBL Mining Limited (Plaintiff) Kidman Resources Limited (1st Defendant) Kidman Mining Limited (2nd Defendant) RIKID511 Pty Ltd (3rd Defendant) Capri Trading Pty Ltd (4th Defendant) Representation: Counsel: I Pike SC with E A J Hyde C R C Newlinds SC with S Duggan Solicitors: Addisons Lawyers (Plaintiff) K & L Gates (Defendant) File Number(s): 2014/370524 Judgment 1. HIS HONOUR: The plaintiff (KBL Mining Limited ("KBL")) commenced proceedings against four defendants. The proceedings against the first defendant, Kidman Resources Limited ("KDR"), the second defendant, Kidman Mining Limited ("Kidman") and the fourth defendant, Capri Trading Pty Ltd ("Capri") have been discontinued. 2. The third defendant (RIKID511 Pty Limited ("RIKID")) is the assignee of rights granted by the KBL to Capri under three deeds entitled "Note Issuance Deed", "General Security Agreement", and "Mortgage over Mining Tenements" all dated 6 March 2013. 3. Pursuant to the Note Issuance Deed KBL issued notes to Capri that had to be redeemed by 16 March 2015. KBL was required to pay $12.6 million to redeem the notes at maturity. The General Security Agreement and the Mortgage over Mining Tenements gave security to Capri as mortgagee over various assets of KBL, including its mine known as Mineral Hills, to secure KBL's obligation to redeem the notes. 4. RIKID became a wholly owned subsidiary of Kidman which is a wholly owned subsidiary of KDR. KBL and KDR are competitors. They are both listed companies. Capri assigned the notes to RIKID on 5 November 2014. After the assignment RIKID contended that KBL had breached the General Security Agreement, the Note Issuance Deed and the Mining Mortgage in various respects and threatened to exercise its powers as mortgagee. KBL denied the alleged breaches. 5. KBL commenced proceedings on 17 December 2014 following service of a notice by RIKID on 10 December 2014. The first notice asserted that RIKID considered that an Event of Default under the General Security Agreement had occurred and stated that RIKID had engaged a firm of accountants to conduct an investigation into the financial affairs, condition and viability of the business of KBL. On the return of the summons, 19 December 2014, the proceedings were listed for final hearing before me on 8 and 9 April 2015. 6. Whilst the proceedings were pending new issues arose as the result of the service of additional notices of alleged default by RIKID. Further notices were issued by RIKID on 19 January, 27 January, 29 January, 29 January (again), 30 January, 10 February and 5 March 2015. KBL challenges the validity of each of the notices of alleged default. 7. There was no issue that at least $12,600,000 needed to be paid to redeem the notes and KBL was obliged to do so by 16 March 2015. RIKID asserted that additional moneys were secured by its securities; a contention that KBL denies. 8. On 10 March 2015 I made orders to the effect that RIKID discharge its securities on payment of $12,600,000 and on KBL's paying $3,679,264.57 into a controlled moneys account of its solicitors, with those moneys not to be dealt with, except with the consent of RIKID or order of the Court. On 16 March 2015 the notes were redeemed and the security was released on those terms. Hence the principal question is now who is entitled to the moneys held in the controlled moneys account of KBL's solicitors. The resolution of that question requires determining KBL's challenges to the eight notices published by RIKID. In monetary terms, the principal question is whether, as RIKID asserts but KBL denies, KBL is liable to pay interest of more than $3,125,000 in addition to the $12,600,000 payable on redemption of the notes. 9. I have concluded that KBL was not liable to pay interest as claimed by RIKID and that none of the notices issued by RIKID was valid. All of the moneys in the controlled moneys account should be paid to KBL. Background 1. KBL is a miner. Its main assets are a mine near Condoblin called Mineral Hill which is a copper-gold-silver-lead-zinc mine and its 75 per cent interest in a lead-silver-zinc mine at Sorby Hills in Western Australia under a joint venture with Henan Yuguang Gold & Lead Co Limited. 2. On 1 August 2011 KBL (then called Kimberley Metals Limited) issued a prospectus for a rights issue for shareholders to take up convertible notes to raise up to $9.543 million and a further placement of notes to raise up to a further $3.8 million. Shareholders were offered the right to subscribe for one convertible note for each six shares held. The notes were to be for a term of five years and carry interest at 10 per cent per annum with the option to convert each note to a share. KBL announced that the funds would be used as working capital primarily for expansion of its processing facilities at the Mineral Hill mine as well as to bring forward exploration drilling and to advance production of the Sorby Hills project. 3. At the beginning of 2013 KBL sought to raise additional debt funding, partly to retire debt under a $3 million bridging loan facility established in December 2012 and partly to expand or develop the construction of plant or other production facilities on different projects. 4. On 6 March 2013 Capri, KBL and KBL Sorby Hills Pty Limited (a subsidiary of KBL) entered into the Note Issuance Deed. Capri and KBL entered into the General Security Agreement and the Mortgage over Mining Tenements. 5. Mr Geoffrey Kinghorn signed the agreements for Capri as its sole director. Note Issuance Deed 1. Clause 3.1 of the Note Issuance Deed provided that on the "Completion Date", being the date for settlement of the issue of the notes, KBL (called "the Company") was to issue and Capri (called the "Initial Noteholder") was to subscribe for notes to the face value of $10 million. Each Note was to have a face value of $100. Accordingly, 100,000 notes were to be issued. 2. Clause 5.1 provided: "5.1 Final payment The Company must pay the Redemption Value in respect of each Note on the Repayment Date to the Noteholder which is shown on the register of Noteholders as the holder [of] the Note at the beginning of the Repayment Date." 1. "Redemption Value" was defined as follows: "Redemption Value means in respect of a Note, (a) subject to paragraph (b), $126; and (b) where the Note is redeemed on a date on or before the first anniversary of the Completion Date, $113." 1. The "Repayment Date" was the date that was 24 months after the Completion Date in respect of the note or any other date agreed between the Company and the Noteholder. The "Completion Date" was the date on which the notes were issued. 2. It follows that KBL could redeem any of the notes at any time up to the second anniversary of the notes being issued, but was required to redeem all of the notes by that date. The notes were issued on 15 March 2013. Because 15 March 2015 fell on a Sunday, the notes were required to be redeemed on Monday, 16 March 2015 (clause 1.5). 3. There was no advantage to KBL in redeeming the notes earlier than the first or second anniversary of their issue as it would be required to pay either $113 or $126 per note whether the note was redeemed on the anniversary of their issue or at some earlier time. 4. Schedule 2 to the Note Issuance Deed set out the form of a "Note Certificate". A certificate was to certify that the holder of the note was the registered holder of a specified number of notes with a face value of $100 each issued under the Note Issuance Deed. It otherwise did not contain any relevant promise. The form of the Note Certificate provided that the certificate was to be surrendered to KBL on transfer, conversion, repayment or purchase by KBL of any note represented by the certificate. 5. Hence, a note was a promise by KBL to pay to the noteholder the Redemption Value of the note on the Repayment Date, which was to be no later than the second anniversary of the date of issue. 6. Clause 3.3 imposed a restriction on transfer of notes. It provided: "3.3 Transfer of notes (a) Other than as specified in paragraph (b), a Noteholder may only transfer Notes with the written consent of the Company. (b) A Noteholder may transfer all or some of the Notes held by it to: (i) a Relative of Geoffrey Andrew Kinghorn; or (ii) entity of which Geoffrey Andrew Kinghorn is a Related Entity, without the consent of the Company. (c) The Company must register any transfer of Notes in accordance with this clause 3.3 on receipt of a document executed by the transferor and the transferee which constitutes a proper transfer." 1. A "Related Entity" had the same meaning as in s 9 of the Corporations Act 2001 (Cth). Section 9 of the Corporations Act provides that a related entity in relation to a body corporate includes a director or member of the body corporate. Hence by clause 3.3(b)(ii) any company of which Mr Kinghorn was a director or member was a Related Entity to whom notes could be transferred without the consent of KBL. General Security Agreement 1. The General Security Agreement between KBL and Capri defined KBL as the "Grantor". Capri was defined as the "Secured Party". There is no issue but that an authorised assignee of Capri's interest in the notes was also a "Secured Party" within the meaning of the General Security Agreement. There is no issue that RIKID is an assignee of the notes and a Secured Party entitled to enforce the rights conferred on a Secured Party under the General Security Agreement. 2. Clause 2 of the General Security Agreement provided that the Grantor (that is, KBL) granted to the Secured Party a "PPSA Security Interest" over all "PPSA Personal Property". This was a reference to a security interest within the meaning of the Personal Property Securities Act 2009 (Cth). 3. Clause 3.1(1) provided: "3.1 Pay Secured Money (1) The Grantor must pay the Secured Money to the Secured Party in accordance with the Commercial Contract." 1. The "Commercial Contract" was the Note Issuance Deed. "Secured Money" was defined to mean: "all moneys and amounts that are now or in the future, actually or contingently payable by the Grantor to the Secured Party under the Commercial Contract". 1. Clauses 4.1 and 4.2 loom large in this case. They provide: "4.1 Pay interest The Grantor must pay interest on that part of the Secured Money owing by the Grantor to the Secured Party. 4.2 Interest rate (1) Interest must be paid in accordance with any agreement requiring interest to be paid on the Secured Money. (2) If there is no agreement, interest: (a) accrues daily at the Applicable Interest Rate; (b) will be computed from and including the day when the money on which interest is payable becomes owing to the Secured Party by the Grantor until but excluding the day of payment of that money; (c) will be calculated on the actual days elapsed based on a 365 day year (or if applicable as determined by the Secured Party based on the number of days in the year for calculation of interest for the relevant currency according to the custom and practice of reputable international banks); and (d) must be paid by the Grantor on demand." 1. RIKID submitted that KBL's obligation to pay the Redemption Value of the notes was "Secured Money" which was owing by KBL to the Secured Party at all times from the date of issue of the notes. Although the debt was not payable, it was debt that was owing. RIKID submitted that therefore interest was required to be paid on the Secured Money, that is, $12.6 million, being an amount that was in the future to be actually or contingently payable by KBL to the Secured Party. RIKID submitted that there was no agreement requiring interest to be paid on the Secured Money. Accordingly, clause 4.2(2) applied. It contended that interest accrued daily at the "Applicable Interest Rate". Interest accrued from the day when the money on which interest was payable became owing (not the day on which it became payable) which, it submitted, was 15 March 2013. 2. "Applicable Interest Rate" was defined as follows: "Applicable Interest Rate means if there is no such agreement, the rate 2% per annum above the rate for unsecured overdraft accommodation in excess of A$100,000" 1. On its face there is something missing from or superfluous to the definition. The words "if there is no such agreement" have no role to play. KBL submits that there may be any number of rates that would come within the definition of "the rate 2% per annum above the rate for unsecured overdraft accommodation in excess of A$100,000" and there can be no certainty as to what that rate would be. It contends that if clauses 4.1 and 4.2 are otherwise applicable, which it denies, they are void for uncertainty because of the uncertainty as to what is denoted by the expression "Applicable Interest Rate". 2. In any event, KBL says that clauses 4.1 and 4.2 do not apply. They submit that the reference to the Secured Money being "owing" in clause 4.1 and 4.2(2)(b) should be read as moneys being owing and payable, or, if not, that the agreement should be rectified to have that effect. KBL also submits that clause 4.2(1) applies and that there is an agreement requiring interest to be paid on the Secured Money, being the difference between the Redemption Value of the notes and the subscription price payable on the issue of the notes. This was the return of 13 per cent per annum, or more in the unlikely event that the notes were redeemed before an anniversary date. KBL submitted that this return on the Secured Party's investment was interest within the meaning of clauses 4.1 and 4.2(1) and no additional interest was payable under clause 4. 3. Clauses 12.1 and 12.2 of the General Security Agreement provided: "12.1 Secured Party may investigate If the Secured Party considers that an Event of Default has occurred, whether or not it is subsisting, the Secured Party may engage an accountant, solicitor, valuer or other expert (including any of its Representatives) as an investigator to do one or more of the following: (1) investigate the Collateral, financial affairs and condition and viability of the business of the Grantor; (2) during normal business hours, inspect the records (including taking copies of them), of the Collateral and assets of the Grantor; (3) value any Collateral, assets or business of the Grantor; and (4) report on those circumstances to the Secured Party. 12.2 Grantor to cooperate The Grantor agrees to: (1) cooperate fully with any investigator appointed by the Secured Party including procuring and ensuring that any person who has possession or control of: (a) the records of the Grantor; and (b) any other information relating to the Collateral or the business activities of and financial affairs of the Grantor; (2) provide the investigator with proper access to the Grantor's records and other information; (3) comply with any reasonable request of the investigator; and (4) pay the costs incurred by the Secured Party for the investigator." 1. "Events of Default" was defined in clause 10. Clause 10.1 relevantly provided: "10.1 Events of Default Each of the following events listed in this clause 10 is an Event of Default (whether or not it is in the control of the Grantor): (1) obligations under Transaction Documents the Grantor fails to: (a) pay or repay in accordance with its obligations under the Transaction Documents any part of the Secured Money when due; or (b) comply with any of its obligations under the Transaction Documents or with any condition of any waiver or consent by the Secured Party under or in connection with any Transaction Document; (2) defaults capable of remedy no Event of Default under clause 10.1(1)(b) occurs if the failure to comply: (a) is in the opinion of the Secured Party capable of being remedied; and (b) is remedied to the satisfaction of the Secured Party, within 10 Business Days of the earlier of: (i) the Secured Party giving notice to the Guarantor requiring the failure to be remedied; and (ii) the Guarantor becoming aware of the failure to comply. … (4) Insolvent the Grantor becomes insolvent; …" 1. "Insolvent" was defined in clause 1.1 as follows: "(33) Insolvent means, in relation to the Grantor: (a) If a corporation: (i) it is unable to pay its debts when they fall due; … (iv) it is subject to any arrangement, assignment, moratorium or composition, protected from creditors under any Law or dissolved (in each case, other than to carry out a reconstruction or amalgamation while solvent on terms approved by the Secured Party); (v) an application or order has been made (and, in the case of an application, it is not stayed, withdrawn or dismissed within 5 Business Days), a resolution is passed, proposal put forward, or any other action taken, in each case in connection with that person, which is preparatory to or could result in any of the events described in clauses 1.1(33)(a)(ii), 1.1(33)(a)(iii) or 1.1(33)(a)(iv) above; …" 1. Clause 13.1 provided that after an Event of Default had occurred the Secured Party by notice could declare all or any part of the Secured Money to be due and payable immediately and could appoint a receiver. 2. Clauses 21 and 22 relevantly provided: "21.1 Enforcement costs The Grantor must promptly on demand, pay to the Secured Party the amount of all costs and expenses incurred by the Secured Party in connection with the enforcement of, or the preservation of any rights under, any Transaction Document or in connection with anything referred to in clause 20. … 22.3 Other indemnities The Grantor must promptly on demand, indemnify the Secured Party against any Loss incurred by the Secured Party as a result of: (1) the occurrence of any Event of Default or Potential Event of Default; (2) any enquiry, investigation, subpoena (or similar order) or litigation with respect to: (a) the Grantor; or (b) the transactions contemplated or financed under this document; (3) a failure by the Grantor to pay any amount due under a Transaction Document on its due date (except where paid in accordance with this document); or (4) the Secured Party acting or relying in good faith on any notice or other communication from or genuinely believed to be from the Grantor." 1. All the notices of alleged default issued by RIKID were in respect of alleged defaults under the General Security Agreement. It was not in dispute that an Event of Default under the General Security Agreement would be an Event of Default under the Mortgage over Mining Tenements that would potentially trigger the right to appoint a receiver over those tenements. Assignment of the Notes: KDR's Agreement with Capri 1. From about June 2014 KBL had been engaged in extensive discussions with Capri to extend the date for payment of the notes as part of a broader plan by KBL to secure finance to expand its mine at Mineral Hill. The detail of the negotiation is not material. 2. On 5 November 2014 Capri and RIKID gave notice to KBL that Capri had assigned its right, title and interest in the Note Issuance Deed, including but not limited to its right, title and interest in the "Security", to RIKID. Capri and RIKID directed KBL to make all payments payable by KBL under the Note Issuance Deed to RIKID. 3. Capri had acquired a nine per cent shareholding in KBL. Those shares were transferred to Kidman on 5 November 2014. 4. On 7 November 2014 Mr Kinghorn of Capri telephoned the managing director of KBL, Mr Brian Wesson, and said to Mr Wesson words to the effect: "I have sold everything to Kidman. I'm out. I have had enough of this. I have no time to deal with KBL. Go talk to Kidman." 1. Later that day Mr Donohue of KDR, told Mr Wesson that: "We have bought the KBL Mining debt and security and the KBL shares have been transferred to Kidman. Kinghorn is out completely and dealings going forward will be with Kidman." 1. RIKID was incorporated on 5 November 2014, that is, on the same day as the assignment of the notes by Capri to it. Capri was initially its sole shareholder but the share in RIKID was transferred to Kidman. According to the ASIC company search, Mr Kinghorn at all times was a director of RIKID. Mr Donohue was a director of RIKID from 9 December 2014 to 23 January 2015. 2. On 11 November 2014 KDR issued an ASX Release which stated that under the terms of a Note Issuance and Share Sale Agreement between Kidman and Capri in consideration for taking over the "loan" (viz. the notes held by Capri under the Note Issuance Deed), Kidman would undertake a note issue for $12.6 million to Capri with an initial term up until 20 March 2015 at which time the note would either be repaid or Kidman would have the right to extend it on commercial terms. The ASX Release also stated that "Kidman will also reassign the original security by providing a charge over the shares in the Kidman subsidiary company that will issue the notes back in favour of Capri." The purchase price for the shares acquired by Kidman from Capri was the deferred issue to Capri of shares in KDR. The ASX Release stated that: "If the Capri loan has been repaid in full by KBL on or before the settlement date, or alternatively at the election of Kidman at any time up to March 30th 2015 the respective share issues will be reversed whereby Kidman will be obliged to retransfer to Capri the KBL shares acquired from it, or pay cash in respect of any KBL shares that Kidman has disposed of and the deferred issue of Kidman shares to Capri will not proceed." Manoeuvres up to service of first RIKID notice 1. On 18 November 2014 KBL sent a notice to noteholders under its 2011 Convertible Note Trust Deed convening a meeting to be held on 10 December 2014 for noteholders to consider approving amendments to the trust deed. A letter convening the meeting stated that potential financiers had indicated that finance to be made available to the company would need to be repaid before the date on which the company's convertible notes were required to be redeemed, and accordingly KBL was seeking a special resolution to approve of a six-month extension to the maturity date of the notes on the basis that KBL would pay interest at the higher rate of 12 per cent per annum rather than 10 per cent per annum from 1 January 2015 to the proposed new maturity date of 16 February 2017. 2. On 19 November 2014 Kidman requisitioned an extraordinary general meeting of KBL to seek removal of its directors. 3. On 1 December 2014 KDR gave notice to KBL requiring that KBL provide access to its "technical people" including engineers, metallurgists and a geologist to visit the Mineral Hill mine. The notice was purportedly given by KDR pursuant to clause 7.3(20)(a) and 7.3(2)(b) of the General Security Agreement. By clause 7.3(20)(a) KBL undertook to grant to the Secured Party and its "Representatives" at any reasonable time a right to enter on any property owned, used or occupied by KBL for any purpose related to the General Security Agreement. Clause 7.3(2)(b) was not relevant. Clause 7.3(20) did not provide that KBL was required to pay the costs of the Representatives of the Secured Party. Access was granted. 4. On 2 December 2014 KDR sent a letter to KBL stating that it was seriously concerned about KBL's financial position and in particular its ability to pay its debts, including the repayment of the "loan moneys" owed to KDR. It stated "In Kidman's [defined to mean KDR's] view, KBL may be 'insolvent' for the purposes of the Security Agreement, which if correct, would result in KBL being in breach of the representations and warranties contained in … the Security Agreement." KDR formally requested, under clause 7.3(3)(j) of the General Security Agreement that KBL provide it with detailed information as to its financial position. Clause 7.3(3)(j) required KBL to promptly provide information about it or its financial condition or business or operations that the Secured Party reasonably requested, and in a form acceptable to the Secured Party. 5. KBL complied with the request, notwithstanding that it was made by KDR not RIKID, subject to conditions of confidentiality. Information was provided in a due diligence data room on a restricted access basis and subject to terms and conditions as to confidentiality. 6. On 8 December 2014 KDR commenced proceedings in the Supreme Court of Victoria challenging the validity of the meeting of noteholders convened for 10 December 2014. On the same day KDR issued an ASX Release that queried KBL's solvency. 7. Also on the same day, that is 8 December 2014, KBL issued an ASX Release accusing KDR of seeking to engineer a default under the General Security Agreement on a technical basis. In its ASX Release KBL stated that it appeared to it from the details of KDR's agreement with Capri that had been disclosed that that agreement provided that if KBL repaid the loan that KDR (viz. RIKID) had acquired from Capri by the due date, the acquisition of that loan would be wholly reversed such that Capri would be the party repaid and KDR would receive nothing, but that if KBL defaulted under the "Capri-Kidman Loan", KDR could enforce the security over, and gain control of, KBL's assets. KBL asserted that therefore KDR had no interest in enabling KBL to repay the "Capri-Kidman loan" and was seeking to frustrate KBL's refinancing efforts by seeking to cancel the noteholder meeting on baseless assertions and was seeking, to destabilise the KBL board. 8. Although there is no direct evidence of it, KDR's application to the Supreme Court of Victoria to prevent the noteholders' meeting from proceeding must have been either withdrawn or dismissed. The meeting was held on 10 December 2014, but was adjourned to 6 January 2015 for lack of a quorum. The proposed resolutions were passed by noteholders on 6 January 2015. 9. On 9 December 2014 KBL convened a meeting of shareholders to be held on 19 January 2015 pursuant to KDR's requisition of 19 November 2014. First RIKID notice 1. On 10 December 2014 RIKID served its first notice. There is an illegible signature on the notice and there was no evidence of who signed the notice on behalf of RIKID. The signature is not the same signature as appears on later notices that are stated to be signed by Mr Kinghorn. I infer it is not Mr Kinghorn's signature. The notice stated that: "In accordance with clause 12.1 of the GSA, RPL [RIKID] considers that an Event of Default has occurred. RPL has engaged Nicols and Brien (and its Representatives) as an investigator for the purpose of clause 12.1 of the GSA to do the matters described in clause 12.1 of the GSA. Representatives of Nicols and Brien will attend your office at 9.00 am tomorrow." 1. Later on 10 December 2014 KBL's solicitors, Addisons, wrote to KDR's solicitors, Minter Ellison, referring to the notice served by KDR's wholly owned subsidiary RIKID. Addisons stated that KBL denied that an Event of Default had occurred and required an immediate explanation by RIKID as to the grounds on which it alleged that an Event of Default had occurred under the General Security Agreement. Addisons said that until KBL received the requested explanation, representatives of Nicols and Brien would not be permitted entry into KBL's offices. 2. On 11 December 2014 Minter Ellison provided an explanation and made further comments as follows: "Please see the following explanation of why an Event of Default has occurred under the General Security Agreement (GSA): KBL by a notice of meeting dated 18 November 2014 convened a meeting of Noteholders (which was to be held today (Wednesday 10 December 2014) to consider, among other things, a resolution to amend the Convertible Note Trust Deed so as to defer the Maturity Date for the Convertible Notes to 16 February 2017; the proposed amendments to the Convertible Note Trust Deed are not 'terms approved by the Secured Party' for the purposes of clause 1.33(a)(iv) of the GSA; the convening of the meeting of Noteholders constituted 'a proposal put forward' or 'any other action taken' within the meaning of clause 1.33(a)(v) of the GSA; if and when the resolution by the Noteholders is passed, KBL will become subject to an 'arrangement' for the purposes of clause 1.33(a)(iv) of the GSA; and accordingly, KBL is currently 'Insolvent' within the meaning of clause 1.33 of the GSA and, as such, the Event of Default in clause 10.1(4) of the GSA has occurred. I would also point out that, under clause 12.1 of the GSA, RIKID, as the secured party, may appoint an investigator to investigate the financial affairs and condition and viability of the business of KBL if it considers an Event of Default has occurred. As noted in the letter to your client of today's date, RIKID considers an Event of Default has occurred under the GSA. Accordingly, Kidman Mining and RIKID expect access will be provided to its nominated accountant when he attends at KBL's office and that, as required by clause 12.2 of the GSA, KBL cooperates. In any event we note clause 25.3 of the GSA which states that the secured party is not obliged to give the reasons for its determination or opinion in relation to any matter under the GSA. We also note that any failure by KBL to comply with its obligations under the GSA will constitute an Event of Default in and of itself (see clause 10.1(1)(b)). The costs and expenses associated with the appointment of the investigative accountant are to be borne by KBL in accordance with clause 21 of the GSA. Accordingly, our client will provide KBL with an estimate of such costs." 1. Thus, the explanation as to why an Event of Default had allegedly occurred was that KBL was "Insolvent" within the meaning of clauses 1.1(33)(a)(iv) and (v) of the General Security Agreement. But clause 1.1(33)(a)(iv) provided that KBL would be Insolvent if it were subject to an arrangement, assignment, moratorium or composition, protected from creditors under any Law or dissolved, and clause 1.1(33)(a)(v) provided that it would be Insolvent if, relevantly, a proposal were put forward or other action taken that could result in such an event described in clause 1.1(33)(a)(iv). ("Law" was defined broadly in clause 1.1(36)). The proposal to amend the Convertible Note Trust Deed was not a proposal for the entry into an arrangement or moratorium or composition "protected from creditors under any Law". This was pointed out by Addisons on behalf of KBL. At no time did KDR or RIKID attempt to advance any other argument to justify the notice. RIKID served written submissions before the hearing that simply asserted that the resolution of 6 January 2015 fell within the definition of Insolvent in clauses 1.1(33)(a)(iv) and (v) of the GSA, but without any supporting reasons. The contention was abandoned in oral submissions, and rightly so. Counsel for RIKID did not suggest any plausible basis upon which anyone could have considered that the proposed arrangement with a particular class of creditors for the amendment of the Convertible Note Trust Deed was a proposed arrangement for protection from creditors under any Law. 2. RIKID did not adduce evidence from Mr Kinghorn or Mr Donohue or any other individual that he or she considered that an Event of Default had occurred when the notice of 10 December 2014 was given. RIKID relies on the assertions to that effect in the notice and the statement of Mr Clarke of Minter Ellison in his email of 11 December 2014 that "As noted in the letter to your client of today's date, RIKID considers an Event of Default has occurred under the GSA." 3. On 11 December 2014 Addisons on behalf of KBL rejected the validity of the notice of 10 December 2014. They advised that KBL would not tolerate any attempt by RIKID or any person nominated or directed by it to enter its premises. They demanded withdrawal of the notice of 10 December 2014. 4. On 12 December 2014 KDR issued an ASX release stating that it had advised KBL that it considered an Event of Default had occurred as defined by the General Security Agreement and had appointed business recovery accountants, Nicols and Brian to undertake an immediate review of KBL's current financial position. It stated that "At this stage" KBL denied that an Event of Default had occurred and had refused to allow access to its financial affairs. It stated that it was of the opinion that this action was itself a further Event of Default. 5. These proceedings were commenced on 17 December 2014. 6. On 6 January 2015 the Noteholders approved of the proposed amendments to the Convertible Notes Trust Deed. 7. On 7 January 2015 KDR sent an invoice to KBL for $27,349.23 claiming reimbursement for the costs of consultants engaged by KDR with respect to their visit to the KBL mine between 1 December and 18 December 2014. KBL's application to Takeovers Panel 1. On 9 January 2015 KBL applied to the Takeovers Panel for a declaration of unacceptable circumstances in relation to Capri's giving of a notice that it had ceased to be a substantial shareholder in KBL and in relation to KDR's not giving to KBL or to the ASX a complete copy of the agreement between KDR and Capri. KBL alleged that KDR and Capri had breached s 671B(4)(a) and (6)(a) of the Corporations Act by not attaching a full copy of the "Capri-Kidman Sale Agreement". In its application to the Takeovers Panel KBL accused KDR of engaging in various efforts to acquire effective control of KBL by destabilising its board, causing speculation as to its financial position and solvency, and seeking to frustrate its ability to secure finance to repay the Capri-Kidman debt and fund its expansionary plans for the Mineral Hill project. 2. On 28 November 2014 KDR had provided to KBL an incomplete copy of the Capri-Kidman Sale Agreement. The copy omitted schedule 4 which set out the terms on which Kidman issued notes to Capri. The agreement is dated 7 November 2014. As initially provided to KBL, it disclosed that Kidman had agreed to buy from Capri the shares in RIKID and Capri's shares in KBL. The consideration for the purchase of the shares in RIKID was the issue by Kidman to Capri of 12,600 convertible notes. Clause 6.3(a)(ii) provided that by 31 March 2015 Kidman was required to pay for Capri's shares in KBL by procuring the issue by KDR to Capri of 22,249,824 shares in KDR. Clause 6.3(b) provided that if the "Capri Loan" had been repaid in full by KBL on or before 31 March 2015 (or such other date agreed in writing by the parties) Kidman would not be obliged to complete the purchase of the KBL shares, and if it elected not to complete that purchase it would immediately do everything necessary to retransfer the KBL shares to Capri. Clause 6.3(b) also provided that in accordance with conditions 2.1(b) and 4(a) of the "Conditions of Issue" set out in schedule 1 to the "Kidman Note Deed", the notes issued by Kidman to Capri would be redeemed within two business days of the repayment of the Capri Loan by KBL. 3. The Kidman Note Deed was not initially disclosed. 4. KBL's ASX Release of 8 December 2014 substantially disclosed the commercial effect of these provisions so far as they had then been disclosed to KBL. It appeared that the effect of clauses 6.2(a) and 6.3(b) was that Kidman was to receive transfers of the KBL shares from Capri but it was not required to pay the consideration for those shares, being the issue of shares in KDR, until 31 March 2015 and could elect not to complete the purchase if KBL repaid the Capri Loan before that date. 5. In its application to the Takeovers Panel KBL submitted: "The Applicant cannot see the economics of Kidman's purchase of the Capri-Kidman Loan (through the RIKID Share) if the objective was not to gain and (more importantly) enable Capri to indirectly gain effective control of the Applicant's assets, given that: Kidman has very limited cash funds of $1.63 million [footnote: 'Based on KDR's Appendix 5B in respect of the quarter ended 30 September 2014, dated 31 October 2014'], which is substantially insufficient [to] repay its $12.6 million loan to Capri pursuant to the Kidman Consideration Notes if the transactions under the Capri-Kidman Sale Agreement are not unwound because the Applicant had (for reasons the Applicant consider[s] unlikely) defaulted in repaying the Capri-Kidman Loan [footnote: 'The Applicant assumes that the Kidman Consideration Notes were issued on 12 November 2014 on completion of the Sale, in accordance with clause 6.3(a) of the Capri-Kidman Sale Agreement (Annexure C)']; and in the more plausible scenario where the Applicant repays the Capri-Kidman Loan in time, Capri regain[s] control over the Capri-Kidman Loan. Given that the Capri-Kidman Sale Agreement: makes a material (if not the only) contribution to the circumstances giving rise to the Respondents' substantial holdings in the Applicant; and contains information of material relevance and use to Shareholders and the market as a whole, as discussed above, a complete copy of the Capri-Kidman Sale Agreement, including the form of the Kidman Note Deed contained in schedule 4, should have been disclosed by Kidman, Capri and their respective associates to the Applicant and ASX … The summary of the Capri-Kidman Sale Agreement contained in the Capri-Kidman Sale Announcement omitted material terms of the agreement, including the convertibility and terms of the KDR Consideration Notes and the Extension Fee, and the full text of the Capri-Kidman Sale Agreement has not been disclosed to the Applicant or ASX …" 1. Earlier in the application to the Takeovers Panel KBL had said that the parts of the Capri-Kidman Sale Agreement provided by KDR to it on 28 November 2014 had revealed that the notes that Kidman was to issue to Capri would be convertible, but the document provided to it did not disclose the terms of conversion, including the conversion ratio, because the form of the Kidman Note Deed had not been provided. KBL also noted that the document provided had included a reference to an "Extension Fee" of 25,200,000 KDR shares which it said would be relevant to the terms of the conversion of the notes. KBL assumed that the notes were convertible because the definition of "Kidman Notes" in the agreement provided to it stated that those notes meant the 12,600 convertible notes to be issued to Capri pursuant to the Kidman Note Deed. 2. On 15 January 2015 the Takeovers Panel announced that it would be prepared not to conduct proceedings on KBL's application if KDR released the entirety of the Note Issuance and Share Sale Agreement, including the Kidman Note Deed in schedule 4, to the ASX by the opening of trading on the next day. KDR did so. 3. It appears from schedule 4 to the Note Issuance and Share Sale Agreement that the notes were not convertible. They would carry interest at 10 per cent per annum only from 16 March 2015. The maturity date of the Notes was to be the earlier to occur of the next business day after 15 March 2015, subject to any extension of the term of the Notes under condition 2.2, or two business days after the date on which the Capri Loan was repaid by KBL. Condition 2.2 provided that if Kidman so requested, Capri agreed to extend the term of the notes on payment of the Extension Fee to 31 March 2018. The Extension Fee was the issue of 25,200,000 shares in KDR. The obligation of Capri to extend the term of the Notes was subject to a requirement in condition 2.2(b) that Kidman provide evidence to Capri's reasonable satisfaction that Kidman "will be able to finance or arrange finance, or procure the financing of the construction and commissioning of a CIL gold circuit at the Mineral Hill Mine". If that condition could not be fulfilled the extended maturity date of the notes would be 15 September 2015. 4. This condition further demonstrates the accuracy of KBL's complaint that Capri assigned the notes issued by KBL to RIKID, a company that became KDR's ultimate subsidiary, and KDR took the assignment, in order to seek to take control of KBL's assets. This is a relevant fact in determining whether RIKID did consider that an Event of Default under the General Security Agreement had occurred as it from time to time asserted, or whether such assertions were merely part of a continuing campaign to disrupt KBL's attempt to obtain refinancing and to seek to bring about a default that would justify the appointment of a receiver to KBL's assets. 5. Meanwhile, on 14 January 2015 KDR withdrew its requisition for an extraordinary general meeting of shareholders of KBL to consider resolutions to change the directors. In announcing the withdrawal of the notice KDR said that it did not want to place its nominees in a position where they would be joining a board where there remained uncertainty concerning KBL's ability to refinance its existing debt and adequately fund itself into the future. KBL issued an ASX Release saying that it had already received sufficient proxies to defeat the resolutions. Second RIKID notice 1. On 19 January 2015 RIKID issued a second notice alleging a breach of the General Security Agreement that it contended was also a breach of clause 1.7 of schedule 3 of the Note Issuance Deed that allowed it to demand immediate payment. RIKID alleged that KBL had breached various clauses of an agreement known as the "Sorby Hills Joint Venture Agreement" dated 30 August 2010 by granting a mortgage to MRI Trading AG ("MRI") on 24 December 2012 without the approval of its joint venture partner, Yuguang (Australia) Pty Limited. The notice also stated that: "We are considering our position and note the terms of the default interest clause 4 of the GSA. We calculate an amount of $3,120,500 has accrued on the Secured Money from 6 March 2013 to 31 December 2014 at an Applicable Interest Rate of 11.66 %. Would you please confirm your agreement with this calculation." Reported amendment to KDR's agreement with Capri 1. On 21 January 2015 KDR issued an ASX Release stating that it had amended its agreement with Capri and RIKID in relation to the KBL debt. It stated that Kidman had redeemed its notes to Capri and as a result the outstanding debt was now payable directly to RIKID, which was a fully owned subsidiary of Capri. It said that KDR remained a substantial shareholder in KBL. 2. Thus, it appears that from 21 January 2015 Capri again stood behind RIKID. Mr Kinghorn had always been a director of RIKID and, according to the ASIC search, its sole director apart from a short period from 9 December 2014 to 23 January 2015. From at least 24 January it appears that he, and he only, would be the person whose mind would be the mind of RIKID. Response to second RIKID notice 1. KBL responded to the second notice on 27 January 2015. It said that the terms of the "MRI Mortgage" had been clearly disclosed to Capri prior to the parties' execution of the Note Issuance Deed and the General Security Agreement and that Capri was aware that the MRI mortgage was released and discharged on settlement of the issue of the notes to Capri pursuant to the Note Issuance Deed and therefore no longer existed. It disputed that the grant of the mortgage had been in breach of the Sorby Hills Joint Venture Agreement and said that no default notice, or default purchase notice, had been issued to KBL pursuant to that agreement and no event had occurred which required disclosure to the ASX. 2. Again, prior to the hearing RIKID served written submissions that merely repeated the allegation of default, but without attempting to answer KBL's response. In oral submissions counsel for RIKID rightly abandoned that position and did not advance any submission in support of the second notice. Third RIKID notice 1. Also on 27 January 2015, RIKID issued a third notice (dated 23 January 2015). Again, that notice was not pressed. The third notice asserted two Events of Default. The first was that KBL had breached the ASX Listing Rules. The notice stated: "5. We refer to KBL's Application to the Takeovers Panel dated 9 January 2015 ('Application'), in which KBL submits that: 'the Capri-Kidman Sale Agreement contains information of material relevance and use to Shareholders and the market as a whole' (at paragraph 5 of page 15 of the Application).['] 6. KBL obtained the Capri-Kidman Sale Agreement (as defined in the Application) on 28 November 2014. KBL's failure to disclose the Capri-Kidman Sale Agreement to the ASX on its receipt of the Capri-Kidman Sale Agreement is in breach of Clause 7.3(14) of the GSA. KBL's breach is particularly manifest given KBL's own submission to the Takeovers Panel that the Capri-Kidman Sale Agreement is of 'material relevance and use to Shareholders and the market.' 7. RPL considers that an Event of Default has separately occurred under clause 8.1(l) of the Note Deed. Pursuant to clause 8.1(l) of the Note Deed: 'an event of default (however described) occurs under any Transaction Documents [including the GSA]' constitutes an Event of Default under the Note Deed. Consequently, KBL's Event of Default under the GSA constitutes an Event of Default under the Note Deed." 1. The Takeovers Panel had published reasons on 23 January 2015 for its decision on KBL's application for declarations of unacceptable circumstances against Capri, Kidman and KDR (KBL Mining Ltd [2015] ATP 3). The Panel said that KDR, Kidman and Capri had contravened s 671B of the Corporations Act by not attaching a copy of the Capri-Kidman Sale Agreement, including the Note Deed which was schedule 4 to that agreement, to their respective substantial shareholder notices. The Panel found that KDR's ASX announcement of 11 November 2014 was insufficient fully to address an information deficiency that had been created by not attaching the Capri-Kidman Sale Agreement to the substantial shareholder notices. It said that KBL was not obliged to release the copy of the Capri-Kidman Sale Agreement it received (which was lacking schedule 4) although it could have done so had it chosen to do so. The Takeovers Panel found that as the s 249D notice (viz. the notice convening a meeting of shareholders of KBL) had been withdrawn, and as the agreement had ultimately been disclosed in full, there was no reasonable prospect that it would make a declaration of unacceptable circumstances and therefore it had decided not to conduct proceedings to consider whether to make any final orders. 2. It is not strange having regard to its evident motivation, but it is disturbing, that RIKID should have alleged as an Event of Default that KBL was in breach of the Listing Rules by not disclosing the Capri-Kidman Sale Agreement (or the part of it that it had) to the market, when it was Capri and KDR who had been found by the Takeovers Panel to have contravened the Corporations Act by not disclosing the agreement with their substantial shareholder notices. The Takeovers Panel had said that KBL was not obliged to release the agreement with which it had been provided. RIKID did not attempt to demonstrate that KBL had not, by its own market release, disclosed the material substance of the Capri-Kidman Sale Agreement with which it had been provided to ensure, so far as it could, that the market was fully informed. KBL's submission to the Takeovers Panel to the effect that the market had not been properly informed by Capri, KDR and Kidman was directed primarily to the inference that it drew from the parts of the agreement with which it was provided that the Kidman notes were convertible into shares, and that an extension fee was payable in connection with such conversion. That does not appear to have been the position, but is understandable that KBL would have drawn that inference from the parts of the agreement it was given. No evidence was called by RIKID from any individual to depose that he or she did consider that KBL was in breach of the Listing Rules by reason of its alleged failure to disclose material that it was Kidman's, KDR's and Capri's obligation to disclose. 3. The second alleged Event of Default in the third notice was a contravention of clause 5.1(1) of the General Security Agreement and clause 4.4(2) of the Mortgage over Mining Tenements. Clause 5.1(1) provided that KBL must not create or attempt to create or permit to exist any "Security Interest" over the "Collateral" other than a "Permitted Security Interest". Clause 4.4(2) of the Mortgage over Mining Tenements provided that KBL must not create or allow to come into existence any Security Interest other than a Permitted Security Interest over, or assign its rights under, the mortgage, without the mortgagee's consent. RIKID alleged that a "Royalty Deed" was registered against a number of mining leases and that a party to the Royalty Deed, Cyprus Mines Corporation ("Cyprus"), had registered the Royalty Deed with the NSW Trade and Investment (Resources and Energy) Department pursuant to the Mining Act 1992 (NSW) and had lodged a caveat pursuant to clause 10.4 of the Royalty Deed evidencing a Security Interest as contemplated under the General Security Agreement and Mortgage over Mining Tenements. The Royalty Deed in question was dated 22 March 1990. RIKID alleged that this was a breach of the security documents and an Event of Default. 4. In response KBL said that Cyprus had not registered a caveat over the mining leases and in any event, such a caveat would not of itself give Cyprus any right or interest in the relevant mining leases that the Royalty Deed did not provide for. It said that Cyprus had a contractual right to royalties under the Royalty Deed, but this was not a Security Interest in the relevant mining leases and did not trigger a breach of the General Security Agreement or the Mortgage over Mining Tenements. At the hearing RIKID did not attempt to justify this allegation of an Event of Default. Service of invoices 1. On 28 January 2015 Mr Kinghorn sent an email to Mr Wesson of KBL attaching "revised and itemised tax invoices, which include relevant costs under clauses 21.1, 21.3 and 22.3(2) of the General Security Agreement". He requested payment. He attached for payment an invoice from K & L Gates to him at Capri for $11,912.96 which appears to have related to Capri's transaction with KDR, including Capri's obligations under the Corporations Act arising from its agreement with KDR. A second invoice was for $7,353.43 addressed to Mr Kinghorn at RIKID from K & L Gates that contained no relevant information other than "Drafting RIKID511 Request for Notes Certificate to KBL" for which there was a charge of $450.00. The only other details provided were "Reviewing documents", "Meeting with client" and "Meeting and drafting". Fourth RIKID notice 1. On 29 January 2015 RIKID served a fourth notice. It asserted that KBL was in breach of clause 12 of the General Security Agreement that required it to co-operate with RIKID's investigators as requested in earlier notices on 10 December 2014 and 19 January 2015. It asserted that the failure to co-operate was an Event of Default. Again, RIKID gave KBL notice that in accordance with clause 12.1 it had appointed an investigator, Nicols and Brien, for the purposes of clause 12.1 and that KBL was required to co-operate with the investigator. RIKID stated that "As previously advised in the 23 January Notice RPL [RIKID] considers that additional Events of Default have occurred in accordance with clause 12.1 of the GSA (separate to the Events of Default detailed in the 10 December Notice and the 19 January Notice)". (The 23 January notice was a notice of that date served by K & L Gates on behalf of RIKID on 27 January 2015 referred to above as the third notice.) 2. Addisons responded on 29 January 2015 by referring to earlier correspondence which set out KBL's reasons for contending that RIKID did not have a right under clause 12.1 to engage an investigator. Fifth RIKID notice 1. Later on that same day, 29 January 2015, RIKID served a fifth notice demanding payment of interest. This claim had been foreshadowed in the second notice of 19 January 2015. The fifth notice stated that interest of at least $3,120,500 had accrued on the Secured Money from 6 March 2013 to 31 December 2014 at an applicable interest rate of 11.66 per cent. Pursuant to clause 4.2(d) of the General Security Agreement RIKID demanded that $350,000 be paid immediately as part payment of the accrued interest within seven days of the letter. 2. On 30 January 2015 KBL rejected this claim. It referred to the terms of clause 4.2(2)(b) of the General Security Agreement that provides that interest, if payable, is payable from and including the day when the "money on which interest is payable becomes owing". KBL asserted that no interest could accrue in respect of the Secured Money until it became due and payable. In other words it appears to have asserted that the clause meant that interest would be computed from the day on which money that was owing became payable. In monetary terms, RIKID's claim for interest is the most significant issue in the proceeding. Sixth RIKID notice 1. On 30 January 2015 RIKID served a sixth notice repeating its allegation that KBL was in breach of clauses 12.2 and 7.3(20) of the General Security Agreement by failing to provide its investigators with proper access to KBL's records or co-operate in any way with the investigators. It demanded that the breach be remedied within 10 business days, failing which it would consider enforcing its rights under the General Security Agreement. Statutory demands 1. On 6 February 2015 KDR served a statutory demand on KBL demanding payment of $31,109.25 consisting of $27,349.23 for the provision of geological services and outlays paid by KDR "on behalf of the debtor company" plus collection costs in the sum of $3,760.02. Its solicitors, DCL & Associates Lawyers of Brisbane, served the statutory demand under cover of a letter in which the solicitors claimed a further amount of $1,430 in respect of costs incurred in issuing the demand. This was improper. 2. On about 9 February 2015 RIKID served a statutory demand claiming $58,438.76 described as costs due to it pursuant to clauses 21.1 and 22.3 of the General Security Agreement in respect of three invoices issued by K & L Gates to RIKID dated 27 November 2014, 21 December 2014 and 29 January 2015 for $11,912.96, $7,353.43 and $39,172.37 respectively. 3. On 19 February 2015 DCL & Associates withdrew KDR's statutory demand. 4. On 2 March 2015 KBL filed an originating process to set aside RIKID's statutory demand and on 11 March 2015 RIKID consented to orders setting aside the statutory demand and for payment of costs. 5. All this was taking place at a time KBL was endeavouring to complete the negotiations for refinancing. I draw the clearly available inference that service of the repeated notices of Events of Default and service of statutory demands constituted an attempt to disrupt KBL's attempt to refinance in the hope that KBL would default on repaying the $12,600,000 that was payable on the notes on 16 March 2015. So far as the service of the statutory demands was concerned, this was an abuse of the statutory procedures. Seventh RIKID notice 1. Returning to the chronology, on 10 February 2015 RIKID served a seventh notice entitled "Notice of Failure to Pay". The notice is confusing. It made the following demand: "Demands for payment 2. We refer to following demands by RPL for payment to KBL: (a) tax invoice to KBL for the amount of $27,349.23 dated 7 January 2014; (b) email to KBL dated 28 January 2015, which demanded payment for the total amount of $19,266.39; (c) email to KBL dated 2 February 2015, which demanded payment for the total amount of $50,416.51; (d) email to KBL dated 4 February 2015, which demanded payment of $39,172.37; and (e) email to KBL dated 5 February, which demanded payment for the total amount of $58,438.76, (together the 'Demands'). Obligation to Pay Costs 3. KBL has failed to pay any of these Demands. 4. Pursuant to clause 21.1 and clause 22.3 of the GSA, KBL is liable to RPL for certain amounts. 5. KBL has failed to comply with its obligations under clause 21.3 and clause 22.3 of the GSA by reason of KBL failing to pay the Demands, being the total amount of $108,855.27 as previously demanded by RPL. 6. RPL hereby demands payment by KBL to RPL of the total amount of $108,855.27 owed by KBL to RPL within 10 Business Days of this letter in order to remedy the failure of KBL to comply with its obligations under clause 21.3 and clause 22.3 of the GSA." 1. The five figures referred to at subparas (a)-(e) of para 2 total $194,643.26. The demand was for $108,855.27. It appears that that figure is the sum of the invoices referred to in subpara 2(a), (b) and at (d), and a sum of $39,172.37 referred to in the email identified in subpara 2(c). The email referred to in subpara 2(e) is repetitious of earlier demands. The figure of $50,416.51 referred to in subpara 2(c) is wholly unexplained. 2. The first demand of $27,349.23 was for the invoice submitted by KDR to KBL for geological services on the mine site visit of $27,349.23 referred to above. That demand is no longer pressed. As noted at para [49] above, the clauses to which KDR had referred when it foreshadowed a claim that KBL pay its costs of its representatives, imposed no such requirement. No explanation has been provided as to why the demand, if it was thought to be genuine, has been dropped, or if not thought to be genuine, why it was ever made in the first place. 3. The second demand of $19,266.39 was made up of two invoices from K & L Gates dated 27 November 2014 and 21 December 2014 addressed to Capri and RIKID respectively for $11,912.96 and $7,353.43. Only the latter is pressed. There is no explanation as to why the former demand, if genuinely made, has been dropped or why, if not genuine, it was ever made in the first place. It is clear though from the terms of the invoice of K & L Gates to Capri that the invoice did not relate to attempted enforcement of the security, which, in any event, had been assigned on 5 November 2014. 4. The third demand for the inexplicable figure of $50,416.51 apparently referred to an invoice of Minter Ellison of $23,067.28. It has also not been pressed. The same comment applies as made in respect of the earlier invoices. 5. The fourth demand for $39,172.37 was for an invoice from K & L Gates to RIKID that was headed "Preservation of rights against KBL Mining". It is clear from the detail of the account provided that parts of it related to the application before the Takeovers Panel. A more detailed account consists of 36 items covering the period from 22 December 2014 to 29 January 2015. Items numbered 4-13 and 18 are not pressed. The balance totalling $22,787.88 is pressed. Thus, of the demand for $108,855.27 only the sum of $30,141.31 is now "pressed". Although not admitting as much expressly, by its conduct RIKID acknowledges that it had no right to demand the greater sum. Request for confirmation of sum payable to redeem 1. On 12 February 2015 Addisons wrote to K & L Gates seeking RIKID's confirmation that the security would be discharged on tender of a bank cheque for $12,600,000. On 23 February 2015 K & L Gates replied. Inferentially, but not expressly, K & L Gates refused to provide that confirmation by saying that RIKID would release its security if KBL's obligation to pay the Secured Money was satisfied. They referred to the definition of Secured Money as being all amounts that now or in the future, actually or contingently, were payable by KBL to RIKID under the Note Issuance Deed. They observed that RIKID had demanded payment of certain moneys under the Note Issuance Deed and the General Security Agreement which constituted Secured Money under the Note Issuance Deed and noted that there was ongoing court action initiated by KBL. The reply was elliptical, but it can be inferred that the short answer to Addisons' request for confirmation that the security would be discharged on payment of $12,600,000 was, no. Invoice and claim for litigation costs 1. On 3 March 2015 K & L Gates issued an invoice to RIKID for $140,454.60 "for work completed on the Company's behalf for the period ending 26 February 2015." There was no breakdown. Mr Timothy Webster, the solicitor for RIKID, deposed that of that amount a sum of $129,699.80 was "pressed". He later provided an itemised breakdown of the bill which covers the period from 28 January 2015 to 26 February 2015. The bill relates, or at least substantially relates, to the costs of these proceedings. RIKID claims that under clause 22.3 of the General Security Agreement KBL is required to indemnify it against the costs incurred by RIKID in the litigation. 2. In his affidavit of 4 March 2015 Mr Webster deposed that in his opinion RIKID's "solicitor and client" costs of the proceedings from 27 February 2015 up to the conclusion of a one-day final hearing on 8 April 2015 would be at least $146,600 excluding GST. RIKID contends that KBL is contractually required to indemnify it against such costs whether RIKID is successful or unsuccessful against KBL. Eighth RIKID notice 1. On 5 March 2015 RIKID served an eighth notice. It referred to four of its earlier notices and noted that none of the Events of Default referred to in those notices had been remedied. Pursuant to clause 8.2(a) of the Note Issuance Deed, RIKID purportedly declared that all money owing (actually or contingently) under the "Transaction Documents" was immediately due and payable. Release of report on KBL's financial position 1. At about the end of February 2015 KBL released its report for the half-year ended 31 December 2014. It reported a loss for itself and its subsidiaries of $5,378,006. The report stated that consolidated current assets of KBL and its subsidiaries totalled approximately $4.9 million compared with current liabilities of $18,518,064 (which included the RIKID debt). Its total assets compared with its total liabilities as reported, showed a substantial surplus of over $34 million. The auditor conducted a review, which was not an audit, and stated that the auditor was not aware of any matter that made it believe that the half-year financial report did not give a true and fair view of the consolidated entity's financial position and of its performance. But the auditor drew attention to a note to the half-year financial report: "… which indicates that the consolidated entity's current liabilities exceeded its current assets by $13,601,740 as at 31 December 2014 and that the consolidated entity is dependent upon restructuring debt. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity's ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business." 1. Note 1 stated that: "Management have prepared a cash flow forecast which indicates that the consolidated entity will not have sufficient cash from operations to meet its debt repayment obligation to RIKID511 Pty Ltd. Based upon the cash flow forecast, the consolidated entity is dependent upon restructuring debt. These conditions indicate the existence of a material uncertainty that may cast significant doubt over the consolidated entity's ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Management are in final negotiations with Quintana Resources Holdings LP for the funding of US$21 million in pre-purchased metals, the target for completion of the funding is the RIKID511 Pty Ltd loan repayment date in March 2015. The directors are aware the financial and legal due diligence is nearing completion and are not aware of any matters that could prevent successful financing. The directors are therefore confident they will be successful in restructuring debt in order to repay the amount owing to RIKID511 Pty Ltd by the due date. As such, these interim financial statements have been presented on a going concern basis." Discharge of security 1. KBL had filed a notice of motion on 3 March 2015 seeking, amongst other orders, an order that RIKID be restrained pending the final determination of its claim from taking steps to enforce the General Security Agreement or the Mortgage over Mining Tenements. The notice of motion was returnable for hearing on 10 March 2015. In its eighth notice of 5 March 2015 RIKID confirmed that it would not exercise what it asserted were its rights to appoint a receiver or to take possession of security pending the outcome of the hearing of KBL's notice of motion. 2. On 9 March 2015 KBL, and its subsidiary (Newincco 1347 Limited) entered into an agreement with Quintana Mineral Hill Streaming Co LLC called a "Metals Purchase Agreement". Pursuant to that agreement Quintana agreed to make an "Upfront Payment" of $23 million at the completion of various milestones. This included a payment that would be sufficient to enable KBL to make the payment of $12.6 million to redeem the notes held by RIKID. 3. As noted above, on 10 March 2015 orders were made, ultimately without opposition, requiring RIKID to discharge its securities on provision of a bank cheque for $12.6 million and a payment of $3,679,264.57 to Addisons' controlled moneys account to await the further order of the court. 4. On 16 March 2015 RIKID's security was released: $12.6 million was paid to it and $3,679,264.57 was paid into the controlled moneys account. 5. KBL borrowed the moneys required to be paid into the controlled moneys account from MRI Trading AG. Interest accrues to MRI Trading AG at the rate of $876.71 per day. Interest is earned on the controlled moneys account at the rate of $171.51 per day. KBL claims damages from RIKID accruing at the rate of $705.20 per day for the loss suffered by it by its being required to pay $3,679,264.57 into its solicitor's controlled moneys account in order to obtain the discharge of RIKID's securities. RIKID's claim for interest 1. In monetary terms, the principal issue is whether KBL is liable to pay interest to RIKID pursuant to clause 4 of the General Security Agreement. This is a question of construction of the agreement in the light of extrinsic evidence that is admissible to construe the agreement. On the question of construction there are two questions. The first is whether, as a matter of construction, the word "owing" in clauses 4.1 and 4.2(2)(b) can be read as "owing and payable". In substance, this was KBL's contention when the demand for interest was first pressed. The second question is whether there was "any agreement requiring interest to be paid on the Secured Money" within the meaning of clause 4.2(1). KBL contends that there was. It contends that within the meaning of clause 4.2(1) it was required to pay interest of $2.6 million on a loan of $10 million after two years. Accordingly, it says, it was not required to pay any more interest. 2. RIKID submits that the price of $12.6 million that was required to be paid to redeem the notes issued by KBL was not repayment of a loan, but was a price payable for the redemption of notes and it says that there was no element of interest in the amount payable on redemption of the notes. Accordingly, RIKID submits that interest was payable on the amount of the Secured Money that was owing, not the amount that was owing and payable, and it submits that the amount that was owing from 15 March 2013 was a sum of $11.3 million for the first year and $12.6 million for the second year. 3. This question of construction must be determined in the light of the evidence, admissible for this purpose, of the matrix of facts in which the agreement was made. The construction does not depend "purely on internal linguistic considerations" (Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 239 per Lord Wilberforce). 4. KBL also submits that in any event the agreement for payment of interest is void for uncertainty because the definition of the "Applicable Interest Rate" refers to a rate of two per cent above the rate for "unsecured overdraft accommodation in excess of A$100,000" without providing any means for deciding which amongst many possible such interest rates is the rate referred to. 5. KBL also submits that both KBL and Capri (and later RIKID) adopted the assumption that provided KBL tendered a bank cheque in the amount of $11.3 million prior to 12.00 noon on 17 March 2014, or alternatively $12.6 million prior to 12.00 noon on 16 March 2015, no interest would be payable on the moneys advanced pursuant to the terms of the Note Issuance Deed. It contended that RIKID was estopped from claiming that interest was payable on the Secured Money (or at least on the sum of $12.6 million) pursuant to the provisions of the General Security Agreement. 6. Finally, and belatedly, KBL claimed that the General Security Agreement should be rectified to give effect to the common intention of the parties as submitted on its claim for a conventional estoppel. 7. "Secured Money" was defined to mean any amount that was "now or in the future, actually or contingently payable" by KBL to the Secured Party under the Commercial Contract (being the Note Issuance Deed). From the date Capri subscribed for the notes and paid KBL $10 million for that purpose, that is, from 15 March 2013, KBL was under an actual (not contingent) obligation to pay money in the future to the Secured Party. Under clause 4.1 interest is payable on "that part of the Secured Money" that is owing by the Grantor to the Secured Party. The debt of $11.3 million or $12.6 million was Secured Money that was owing by KBL to the Secured Party from 15 March 2013 if "owing" is given its usual meaning of a presently existing obligation. As Barrett J said in Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219; (2002) 20 ACLC 726 at [17]: "[17] A statement that one person 'owes' a particular sum to another and 'is indebted' in that sum asserts no more than the existence of a debt, that is, an obligation to pay the sum concerned. It says nothing about the time at which the obligation must be performed. … It is, of course, axiomatic that a debt, in the form of a payment obligation, may be presently owing but not yet either 'due' or 'payable'. …" 1. KBL submitted that the word "owing" needed to be interpreted having regard to the context in which it was used, and in particular that in clause 4.2(2)(b) the word "owing" was preceded by the word "becomes". It submitted that this had the effect of limiting the money to which the words "becomes owing" applied to moneys that were due and payable. KBL submitted that when the phrase "… the day when the money … becomes owing" in clause 4.2(2)(b) is read with the definition of Secured Money that includes money payable in the future, either actually or on a contingency, the words point to a change in the character of an amount comprising the Secured Money from an amount owing but not payable until a future date or subject to a contingency, to an amount that has become due and payable. 2. I do not agree. There is a consistency between the definition of Secured Money, clause 4.1 and clause 4.2(2)(b) because the Note Issuance Deed was entered into before Capri subscribed for the notes. It was only on the conditions for the issue of the notes being satisfied or waived and the notes being subscribed for, that any amount became owing by KBL under the Note Issuance Deed. There is therefore no need to read the word "owing" as meaning "owing and payable" for the provisions to make linguistic sense when applied to the KBL's obligation to pay the redemption price for the notes. As a matter of language, interest would be payable on the Secured Money owing by KBL to the Secured Party at a future date. 3. Clause 4.1 provides that interest is to be payable only on that part of the Secured Money that is owing. But that is explicable by the fact that there may be moneys that fall within the definition of Secured Money that are not immediately owing. For example, if KBL were liable to pay RIKID's claimed expenses under clause 21.1, or to indemnify it for expenses incurred under clause 22.3, the liability would not fall within the definition of Secured Money until, at the earliest, the occurrence of the event giving rise to the incurring of the expense. 4. KBL submitted that nonetheless as a matter of the proper construction of the clause, interest is not payable under clause 4.2(2) because clause 4.2(1) applies, that is, interest is required to be paid in accordance with an agreement (being the Note Issuance Deed) requiring interest to be paid on the Secured Money. It submitted that the Note Issuance Deed is an agreement requiring interest to be paid on the Secured Money for the purposes of clause 4.2(1) of the General Security Agreement, notwithstanding that the Note Issuance Deed does not expressly contemplate the accrual of interest or expressly explain the nature of the difference between the face value of the notes and the redemption value payable on the notes. KBL submitted that the Note Issuance Deed provided in substance for the payment of interest on the face value of the notes at a rate of 13 per cent per annum. It submits that the difference between the amount advanced for the notes and the amount redeemable on the notes is interest required to be paid by the Note Issuance Deed although not described as such. 5. KBL referred to the judgment of Lord Greene MR (with whom MacKinnon and du Parcq LJJ agreed) in Lomax (HM Inspector of Taxes) v Peter Dixon and Son Limited [1943] KB 671 at 675 where Lord Greene said: "If A. lends B. [£]100 on the terms that B. will pay him [£]110 at the expiration of two years, interpretation of the contract tells us that B.'s obligation is to make this payment. It tells us nothing more. The contract does not explain the nature of the [£]10, yet who could doubt that the [£]10 represented interest for the two years? The justification for reaching this conclusion may well be that, as the transaction is obviously a commercial one, the lender must be presumed to have acted on ordinary commercial lines and to have stipulated for interest on his money. In the case supposed, the [£]10, if regarded as interest, is obviously interest at a reasonable commercial rate, a circumstance which helps to stamp it as interest." 1. This was referred to with approval and applied by a majority of the Full Court of the Federal Court in GFT Australia Pty Ltd v Collector of Customs (1995) 56 FCR 30 at 4 per Burchett and O'Loughlin JJ; 128 ALR 219 at 236. 2. In Bond v Barrow Haematite Steel Co [1902] 1 Ch 353 Farwell J said (at 363) that "Interest is compensation for delay in payment" and in Riches v Westminster Bank Limited [1947] AC 390 Lord Wright said (at 400) that: "the essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation." 1. KBL submitted that the difference between the Redemption Value of the notes and the price for which they were subscribed was interest according to ordinary conceptions, being the compensation payable to the Secured Party for its deprivation of the use of the $10 million it subscribed for the notes. 2. RIKID submitted that KBL has mischaracterised the transaction as a loan of $10 million with a repayment obligation of $11.3 million after one year, or $12.6 million after two years, and thus characterised the return to the so-called lender as being a return of interest at 13 per cent (or more if the "loan" were repaid early). RIKID submitted that that was not the true nature of the transaction. It submitted that Capri did not lend or advance moneys. Instead it acquired an asset being the notes issued by KBL and KBL's obligation to redeem the notes was an obligation to make a payment, not a repayment of an advance or loan. It submitted that the obligation to redeem the notes for $11.3 million or $12.6 million was an obligation to pay a sum of money that included no interest on money advanced. 3. The essence of a loan is a payment and obligation of repayment (Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1996) 42 NSWLR 505 at 512 per Gleeson CJ; (CL Pannam, Law of Money Lenders in Australia and New Zealand, The Law Book Co, 1965 at 6). 4. The difficulty with RIKID's argument is that the chose in action constituted by the notes was simply a promise to pay a sum of money in the future. A lender pays a sum of money to the borrower, and in return receives a promise by the borrower to make a payment or payments in the future. The fact that the promise by KBL was expressed to be in the form of notes that were to be redeemed does not alter the legal character of the transaction as being a payment with the promise of repayment in the future of a greater sum representing the moneys advanced and a return of at least 13 per cent over one or two years. 5. In Tael One Partners Limited v Morgan Stanley & Co International PLC [2015] UKSC 12; [2015] Bus LR 278 the Supreme Court of the United Kingdom (per Lord Reed at [2]) said: "Loan agreements normally entitle the lender to charge interest on the principal sum. They may also entitle the lender to the payment of a further lump sum at the time when the principal is repaid. This is sometimes known as a payment premium." 1. There was no evidence of a similar usage in Australia. Nor did the UK Supreme Court have occasion to consider whether the "payment premium" should in any event be characterised as interest. 2. I agree with KBL's submission that the difference between the amount payable by KBL to redeem the notes and the $10 million paid by Capri on 15 March 2013 represented interest on an advance of $10 million. What is less clear is whether KBL's agreement to pay what amounts to interest on the $10 million advanced was an agreement "requiring interest to be paid on the Secured Money" within the meaning of clause 4.2(1). Clause 4.1 required KBL to pay interest on that part of the Secured Money owing by it to the Secured Party; and the Secured Money owing by it (that was payable in the future) was $11.3 million or $12.6 million, not $10 million. I do not think that the meaning of the clause is plain (even without regard to extrinsic circumstances), but if regard were had only to the text of clauses 4.1 and 4.2, I would conclude that the better view is that interest was payable on the amount of $12.6 million that was owing by KBL to Capri, and later to RIKID, although not payable. The fact that the Secured Money owing included a component of interest on moneys advanced by Capri would not mean that there was no obligation by KBL to pay interest on the full amount of the Secured Money that was owing (but not yet payable). 3. But as Lord Wilberforce said in Prenn v Simmonds, agreements are not to be interpreted purely on internal linguistic considerations, but having regard to the matrix of facts in which they were entered into. Lord Wilberforce said at 1383-1384, in a passage quoted with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (at 348-349): "The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-literal, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v Adamson (1877) 2 App Cas 743, 763 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald v Longbottom (1860) 1 E & E 977) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term." 1. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW Mason J said (at 352): "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract. There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances: see Heimann v The Commonwealth (1938) 38 SR(NSW) 346 at 695." 1. On 6 February 2013 the Chief Financial Officer of KBL, Mr Beaurepaire, wrote to a Mr Joe Capra of Macquarie Bank outlining KBL's proposal for obtaining finance. He explained in brief terms the purposes for which funding was sought and attached what was called a "cleaned indicative term sheet" for funding of $13.2 million. The indicative term sheet proposed the issue of 44 million secured bonds each with a free option to subscribe for and be issued one fully paid ordinary share on payment of an exercise price that was described. The term sheet provided that the issue price of each bond would be 30 cents and the bonds would be redeemed at that issue price two years after their issue date and that the bonds would pay interest at 10 per cent per annum quarterly in arrears. There were other indicative terms. 2. On 13 February 2013 Mr Capra sent to Mr Beaurepaire a letter of introduction for Mr Geoff Kinghorn and an "Indicative Terms Sheet" received from him. Mr Kinghorn was a client of Macquarie Bank. The Indicative Terms Sheet from Mr Kinghorn proposed the issue of notes by KBL in March 2013 and the issue of options for no additional consideration. The issue size would be $10 million and the notes were to mature 24 months after their issue. The issue price would be $100 per note. The redemption price would be $113 for a redemption date within 12 months from the issue date and $126 for a redemption date after 12 months from the issue date. The Indicative Terms Sheet from Mr Kinghorn included no term, such as was included in the indicative terms sheet proposed by Mr Beaurepaire on 6 February 2013, for the payment of interest. In his covering email attaching the letter of introduction for Mr Kinghorn and the Indicative Terms Sheet received from Mr Kinghorn, Mr Capra stated that Mr Kinghorn's proposal, in summary, was: "* $10 million facility with Issue Date in March 2013 * Effectively a 13% cost of capital payable only on redemption (improving cash flow for KBL Mining; potentially no cash payment for two years) …" 1. There were subsequent negotiations in respect of various of the terms on the terms sheet, particularly in relation to the security and the grant of options, but no amendment was proposed to the terms sheet relating to the issue price for the notes, or the redemption price for the notes. Nor was there any proposal to include in the Indicative Terms Sheet any term for the payment of interest on the notes. 2. On 25 February 2013 Mr Kinghorn sent a marked up version of the Indicative Terms Sheet proposing that it be signed and that solicitors be instructed to produce a notes and option deed in line with the signed Indicative Terms Sheet and a security package "in line with existing position, noting the Sorby Hill JV position". The reference to the Sorby Hill JV position was to negotiations concerning what security, if any, would be granted in respect of KBL's interest in that joint venture. That issue and its resolution is not presently relevant. 3. On 20 February 2013 Mr Kinghorn asked to be provided with a redacted copy of the current Mineral Hill security documents. On the same day Mr Stephen Lonergan, a director, the secretary and in-house counsel for KBL, sent to Mr Kinghorn a copy of a General Security Agreement and Mortgage over Mining Tenements that was the security for its existing financier. Those documents were used as a template for the securities given to Capri. 4. Mr Tom Lennox, a partner with the firm of solicitor Dibbs Barker, acted for Capri on the transaction. Mr Geoff Cairns and Mr Jeff Baker, also of Dibbs Barker, acted for KBL. The "template" General Security Agreement included clauses 4.1 and 4.2 which remained unchanged in the final agreement. The template document included an elaborate definition of "Secured Money" but which included "all money and damages: (a) that now or in the future are owing or payable (actually or contingently) by the Grantor to the Secured Party". 5. It appears that Mr Lennox had prepared drafts of a Note Issuance Deed and General Security Agreement and Mortgage over Mining Tenements, with the last two documents being based upon the template. On 4 March 2013 Mr Baker provided comments on, amongst other things, the draft General Security Agreement. The draft General Security Agreement included clauses 4.1 and 4.2 that were unchanged from the template document. Those clauses remained unchanged. The draft included a definition of "Applicable Interest Rate" as follows: "(3) Applicable Interest Rate means: (a) the rate for the time being equal to the highest rate of interest payable by the Grantor to the Secured Party under the Advance Purchase Facility; or (b) if there is no such agreement, the rate 2% per annum above the rate for unsecured overdraft accommodation in excess of A$100,000." 1. The draft had a definition of "Loan and Advance Payment Facility" as follows: "(2) Loan and Advance Payment Facility means the loan facility and advance payment facility provided by the Secured Party to the Grantor in clause 14 of the document described in Item 2 of Schedule 1." 1. In the draft, item 2 of schedule 1 defined "Commercial Contract" as follows: "Commercial Contract means any document that sets out the terms of payment of Financial Indebtedness by the Grantor to the Secured Party and includes the deed entitled 'Note Issuance Deed' dated on or about the date of this document between the Grantor, the Secured Party and the Relevant Company." 1. Mr Baker's comments on the draft General Security Agreement included the following: "'Loan and Advance Payment Facility' – this does not appear to be relevant in the context of the Note Issuance Deed so it should be removed; 'Applicable Interest Rate' and other provisions for the payment of interest – please amend to reflect that interest payable (if any), will be determined by reference to the Note Issuance Deed; … Clause 4.2(1) – amend to reflect that interest will be paid in accordance with the Commercial Contract and delete the rest of the clause; Clause 4.3 – delete on the basis that interest capitalisation is not relevant and has not been agreed". 1. On the following day Mr Lennox sent revised marked up drafts of the documentation to Mr Cairns, Mr Kinghorn, Mr Baker and others. The definition of Loan and Advance Payment Facility was deleted. The definition of Applicable Interest Rate was amended by deleting subpara (a) so that the definition read as it appears in the final agreement as quoted at para [31] above. The definition of Commercial Contract in item 2 of schedule 1 was amended by deleting the words "any document that sets out the terms of payment of Financial Indebtedness by the Grantor to the Secured Party and includes". Hence, Commercial Contract was defined in the same way as appears in the final agreement as being the Note Issuance Deed. There was no amendment to clause 4. 2. The revised drafts were sent by Mr Lennox at 10.59 am on 5 March 2013. At 1.05pm on that day Mr Cairns responded to Mr Lennox advising, amongst other things, that "Jeff [Baker] has now reviewed the GSA and mortgage amendments and these are fine". The agreements appear to have been entered into on 7 March 2013 and were dated 6 March 2013. 3. On 6 March 2013 Mr Lonergan sent to Mr Kinghorn, with copies to, amongst others, Mr Lennox, an email enclosing a draft ASX announcement which Mr Lonergan said KBL anticipated releasing the following morning before the market opened. It appears from Mr Lonergan's affidavit that the email enclosing the draft ASX announcement was sent before the agreement with Capri was concluded. The draft announcement stated that: "$10 million Debt Facility The Company advises that it has entered into an agreement under which it will borrow $10 million from a private investor, Capri Trading Pty Ltd, primarily to fund additional working capital at Mineral Hill Mine, in Central New South Wales. The loan has a 2 year term. No interest payments are required during the term and the repayment amount is $11.3 million if repaid before the first anniversary of the loan and otherwise $12.6 million to be repaid before the second anniversary of the loan (Repayment Date). The lender will also be issued with 44 million options each exercisable at 11 cents up to the 5th anniversary of the Repayment Date. The loan will be secured over the Mineral Hill mine and certain other assets. It is expected the loan will be drawn down during March 2013. The loan funds will enable: Completion of the underground development of the Red Terror Ore bodies to establish stoping blocks for higher grade copper-gold ore production; Commencement of construction of a gold plant; Initial stripping of the open cut for Pearse gold silver project; and Repayment of the remaining principal and interest under the $3 million bridge loan facility established in December 2012." 1. No objection was made to the proposed announcement by Capri. The announcement was made on 7 March 2013. 2. KBL relies upon the statement in the draft ASX announcement for its claim that the General Security Agreement should be rectified if it bears the construction for which RIKID contends, or that RIKID is estopped from contending that interest is payable on the debt of $12.6 million. KBL accepts that that statement is not admissible extrinsic evidence from which to construe the General Security Agreement. It relates only to what the parties subjectively thought was the effect of the agreement. 3. KBL submits that Mr Kinghorn's rejection of the first Indicative Term Sheet that had been proposed by KBL which provided for the payment of interest on the issue price for bonds is extrinsic evidence that is receivable to rebut the interpretation for which RIKID contends. In the passage from Codelfa Construction Pty Ltd v State Rail Authority of NSW quoted above at [136] Mason J said that it was possible that evidence of mutual intention, if amounting to concurrence, was receivable to negative an inference sought to be drawn from surrounding circumstances. The evidence cannot be used to negative a particular construction of the contractual words by showing that that construction was not in accordance with the parties' actual intentions. However, the rejection of the structure for the transaction proposed in Mr Beaurepaire's initial proposed Indicative Term Sheet by the Terms Sheet proposed by Mr Kinghorn is evidence that one of the objective aims of the transaction was to improve KBL's cashflow, potentially for up to two years, by not requiring cash payments before redemption of the notes. 4. The request for amendment made by Mr Baker to the draft of the General Security Agreement prepared by Mr Lennox, the apparent rejection of Mr Baker's request for amendment to clause 4.1 and deletion of clause 4.3, and the acceptance of that position by Mr Baker, are neutral matters on the present question, and in any event could only throw light on the possible subjective beliefs of the parties as to the meaning of the contract. The absence of any amendments to clause 4 are likely to reflect the subjective beliefs of the parties that the amendments proposed by Mr Baker were unnecessary because on the proper construction of clause 4 interest was not payable on the redemption value of the notes as the Note Issuance Deed provided for the payment of interest on the issue price of the notes. This is relevant to the alternative claims of rectification and estoppel, but not to the construction of the contract. 5. RIKID's construction would not advance the aim of improving KBL's cashflow, potentially up for two years. That is because if additional interest were payable under clauses 4.1 and 4.2(b) and (c) (that is, interest additional to that payable under the Note Issuance Deed on redemption of the notes) the interest would be payable on demand pursuant to clause 4.2(2)(d). 6. Because one of the objective aims of the transaction was to improve KBL's cashflow, I consider that clauses 4.1 and 4.2(1), when read together and having regard to the aim of the transaction, mean that interest, being the return on the advance of $10 million, is to be paid in accordance with the Note Issuance Deed and that such payment satisfies the requirement of clause 4.1 and 4.2(1), so that clause 4.2(2) is not engaged. That is so even though having regard only to the text of the provisions, without regard to extrinsic evidence of the background and aim of the transaction, I would not consider that the better construction. As Leeming JA (with whom Ward and Emmett JJA agreed) observed in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113 (at [74]): "[74] Very often, there is no dispute as to the ordinary grammatical or literal meaning of a sentence, and no dispute that that is the legal meaning. Very often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text. 'But not always' …" Rectification 1. If that conclusion is wrong, the next question is whether clause 4 of the General Security Agreement should be rectified to accord with what is said to be the common intention of the parties. It was not until the course of closing submissions that KBL sought an order for rectification. It relied on the same evidence as that on which it relied for its claim of conventional estoppel. Its application to amend the summons to include a claim that the agreement be rectified was not opposed. RIKID did not seek to adduce additional evidence. 2. Logically, KBL's claim for rectification should be determined before its claim for conventional estoppel. KBL's claim that RIKID was estopped from contending that interest was payable on the sum of $12.6 million arises only if the contract requires that such interest be paid. Such interest is not payable either if it is not payable on the proper construction of the contract, or if the General Security Agreement should be rectified to accord with the parties' common intention that such interest not be payable. 3. There are cases in which a plea of conventional estoppel has been upheld based on the parties' pre-contractual negotiations, for example, Coghlan v S H Lock (Australia) Ltd (1985) 4 NSWLR 158. In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 the Court of Appeal dealt with claims of rectification and conventional estoppel as separately available grounds of claim (or defence), even though they relied on essentially the same facts. In Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1982] QB 84 and Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 the conventions which each party adopted arose at the time of, or during negotiations for, as well as after the execution of the guarantees that were sought to be enforced (Texas Bank at 125; Eslea Holdings Ltd v Butts at 83). 4. I accept that there is no reason in principle that a case of conventional estoppel cannot be run in conjunction with a claim for rectification, even though the claim of conventional estoppel is based, or partly based, on pre-contractual conduct. The principles are distinct. A decree of rectification is a rectification of an instrument to bring it into accord with the parties' true agreement or common intention. Conventional estoppel applies if the parties have adopted as a conventional basis of their relationship something that is different from their contractual terms. But although the principles are conceptually distinct, it must be a rare case in which a conventional estoppel based on pre-contractual dealings could succeed if the contract could not be rectified. The contract would form the conventional basis of the parties' relationship (see Dabbs v Seaman (1925) 36 CLR 538 at 549-552, 555-557 per Isaacs J; K R Handley, Estoppel by Conduct and Election, Thomson, Sweet & Maxwell 2006 at [8-012]). Coghlan v S H Lock (Australia) Ltd was an example of a successful plea of conventional estoppel based only on pre-contractual dealings. In that case rectification was not sought. The findings of fact that gave rise to a successful claim of conventional estoppel at first instance and in the Court of Appeal would appear to have satisfied the requirements for rectification. It is a reasonable inference that conventional estoppel rather than rectification was pleaded for fear that a late amendment might be successfully opposed or granted on onerous terms. 5. The decision of McLelland J in Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 195-196 reflects an unease in allowing principles of conventional estoppel to outflank the principles upon which rectification of an instrument embodying the parties' contract will be granted or refused. As Macready AsJ observed in Simson v Wotif [2013] NSWSC 124 at [54], McLelland J's decision that pre-contractual conduct was not admissible on the question of whether an estoppel by convention arose was approved by the Victorian Court of Appeal in Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd [2012] VSCA 139; (2012) 37 VR 486 at [137]). 6. Counsel for KBL accepted that if a decree of rectification could not be made, no conventional estoppel could be established based on the parties' pre-contractual dealings. 7. In a claim for rectification evidence of the parties' pre-contractual common intention can include their post-contractual conduct. In August 2014 KBL was seeking to re-negotiate its financing arrangements and was attempting to persuade Capri to allow a new lender to rank pari passu with Capri with respect to its Mineral Hill security for some proposed additional funding and was seeking an extension of time for the redemption of notes, for which additional consideration was offered. In response to that proposal Mr Kinghorn wrote on 4 August 2014 as follows: "Before we look at documentation, we better clarify the existing position. The existing Capri facility is deliberately structured under a Note Issuance Deed. Each Note was issued at $100 with a Redemption Value of $126. The Notes can be redeemed at any time, but must be fully redeemed with 24mths of issue (i.e. March 2015). There was no interest or coupons paid. If Capri were to extend the final redemption date, it would need to reflect the current structure. The Note Deed would need to be amended to change the Redemption Value to $129.79 (being $10m *13% dived by 12mths *3.5mth) and extend the final redemption date to 1 July 2015. The ability for KBL to redeemed [sic] early would be maintained and if redemption occurred before 15 March 2015 the redemption price would be the original $126." 1. If clause 4 of the General Security Agreement can be rectified there must be clear and convincing proof that at the time the agreement was entered into both parties had the same intention to include in their agreement a term which, by mutual mistake, was not included or was not properly expressed (Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J, 456 per Brennan J; Maralinga Pty Limited v Major Enterprises Pty Limited (1973) 128 CLR 336 at 350-351 per Mason J). The alleged common intention must be established "in the clearest and most satisfactory manner" (Fowler v Fowler (1859) 4 De G & J 250 at 265; 45 ER 97 at 103; Australian Gypsum Limited v Hume Steel Limited (1930) 45 CLR 54 at 64; see also Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390n at 1399; [1939] 1 All ER 662 at 669; Joscelyne v Nissen [1970] 2 QB 86 at 98; The Olympic Pride [1980] 2 Lloyds Rep 67 at 73; Pukallus v Cameron at 452 per Wilson J). 2. Even if the court concludes that properly construed the agreement does accord with the parties' common intention, rectification can be ordered for abundant caution to clarify the words used (Standard Portland Cement Co Pty Ltd v Good [1982] 2 NSWLR 668 at 672; Franklins Pty Ltd v Metcash Trading Ltd at [539] per Campbell JA). 3. As Simonds J said in Crane v Hegeman-Harris Co Inc and as Campbell JA explained in Franklins Pty Ltd v Metcash Trading Ltd the requirement of convincing proof that the instrument does not represent the common intention of the parties is particularly strong where the instrument has been the subject of negotiation by parties who have had legal advice. 4. There is clear and convincing proof that it was the intention of both Capri and KBL that provided KBL tendered a bank cheque in the amount of $11.3 million on or prior to the first anniversary of the issue of the notes for which Capri was to subscribe (or the next business day), or alternatively tendered a bank cheque in the amount of $12.6 million on or prior to the second anniversary of the issue of the notes (or the next business day), then no interest would be payable on the money advanced. This was the clear effect of the Indicative Terms Sheet submitted by Mr Kinghorn and was expressly stated in the covering email from Mr Capra. It was expressly stated in the draft ASX announcement submitted by KBL to Mr Kinghorn and his lawyer on 6 March 2013. Their comments or suggestions were invited and it is clear that none was made because the same statement that "No interest payments are required during the term and the repayment amount is $11.3 million if repaid before the first anniversary of the loan and otherwise $12.6 million to be repaid before the second anniversary of the loan" appeared in the release issued the following day. In his email of 4 August 2014 Mr Kinghorn described the structure of the facility as one on which the notes had a redemption value of $126, but no interest was paid. 5. On 6 March 2013 the directors of KBL resolved that the "2 year, $10 million loan facility" negotiated with Mr Kinghorn should proceed unless any better funding alternative was to emerge. Mr Lonergan gave evidence that at the board meeting he told the other directors that the transaction with Mr Kinghorn was in final shape and that the proposals previously explained to the board were now becoming final. Those aspects of the proposal were that KBL would borrow $10 million and would have to repay $12.6 million after two years and there was no interest on the way through, but that the interest component was built into the $12.6 million or, if KBL paid within one year, $11.3 million. It was agreed that the proposal should proceed. I accept that evidence. 6. Mr Kinghorn did not give evidence. I can readily conclude that his intention was not different from that expressed in the correspondence referred to. 7. RIKID submitted that no conclusion could be drawn from the draft ASX release as to the assumptions made by Capri. Mr Kinghorn did not reply to Mr Lonergan's email of 6 March 2013 and there was no reason he should give any input in relation to KBL's ASX release. I do not agree with the last proposition. If Mr Kinghorn did consider that interest was payable, I would expect him to have conveyed that position to KBL so that KBL did not issue a release which he would consider was misleading. RIKID submitted that the ASX release contained a number of errors. It submitted that it was wrong to describe the transaction as a "Debt Facility" and a "loan". It submitted there was no advance of funds and that the moneys paid by Capri were to acquire notes. Those moneys were not required to be repaid. Instead the notes were to be redeemed. For the reasons at para [131] above I do not accept this submission. 8. RIKID also submitted that the statement in the ASX release that "no interest payments are required during the term" implied that interest was payable at the end of the term, otherwise interest would not be payable at all. This is correct. There is the implication that interest would be payable at the end of the term. The interest that both parties had in mind was the return of $1.3 million or $2.6 million on the advance of $10 million. If clauses 4.1 and 4.2(2) applied to require payment of interest on the debt of $11.3 million or $12.6 million, then interest would be payable on demand (clause 4.2(2)(d)). Interest payments could be required during the term, contrary to the ASX release. 9. RIKID submitted that the fact that the request by KBL's solicitor, Mr Baker, of 4 March 2013 for amendments to be made to the General Security Agreement, including clause 4.2(1), was not accepted, indicates that there was no mutual assumption that interest would not be payable on the debt of $11.3 million or $12.6 million. Neither Mr Baker nor Mr Lennox gave evidence. I do not know what was the reason for Mr Baker's requested amendment not being made, or what was the reason for his being happy with the redrafting of the General Security Agreement which did not include his suggested amendments. There was no evidence that the proposed amendment was considered by anyone other than the lawyers. In deciding what was the common intention of the corporate parties, the individuals whose state of mind is to be considered are those entrusted with the exercise of the powers of the corporation in the transaction in question. I do not consider that the solicitors' intention on a key commercial consideration on which the directors of both KBL and Capri had a common intention should be attributed to the parties. Neither Mr Lennox nor Mr Baker represented the directing mind or will of Capri and KBL on this question (Tesco Supermarkets Limited v Nattrass [1972] AC 153 at 199-200; Universal Telecasters (Qld) Limited v Guthrie (1978) 18 ALR 531 per Bowen CJ at 535-25-.40, per Franki J at 548.40; El Ajou v Dollar Holdings PLC [1994] 2 All ER 685 at 705.7, 706.E; Lennard's Carrying Company Limited v Asiatic Petroleum Company Limited [1915] AC 705 at 713; H L Bolton (Engineering) Co Limited v T J Graham & Sons Limited [1957] 1 AB 159 at 172, referred to with apparent approval in Hamilton v Whitehead (1988) 166 CLR 121 at 127; Frontier Petroleum NL v Anzoil NL (unreported, Supreme Court of Western Australia, Anderson J, 4 June 1997, BC9702594 at 7; cp GPI Leisure Corporation Limited v Herdsman Investments Pty Limited (No 4) (1990) 9 BPR 17,461 at 17,470). 10. In any event, as indicated above at para [153], I think the fate of Mr Baker's request for amendment to the draft of the General Security Agreement is a neutral matter. I do not conclude from the fact that his proposed amendment was not adopted that either of the parties thought that the interest on the debts of $11.3 million or $12.6 million would be payable if the notes were paid on time. The more likely position is that the solicitors thought that on the proper construction of the clause, no additional interest would be payable if the notes were redeemed on time because pursuant to clause 4.2(1) the only interest would be payable would be the interest payable under the Note Issuance Deed, being interest of $1.3 million or $2.6 million on an advance of $10 million. 11. It is both necessary and sufficient in order for the Court to order rectification of the instrument that the Court can conclude with appropriate clarity both the substance and the detail of the precise variation that needs to be made to the wording of the instrument to give effect to the parties' common intention (Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 at 407; Commonwealth Bank of Australia v Cluness (1997) 8 BPR 15,467 at 15,470). That is to say, it is sufficient that the Court can ascertain the parties' common intention with sufficient clarity that it can be satisfied that the substance and detail of the precise variation to be made to the wording of the instrument will give effect to, and not go beyond, the intention which both parties held (Muriti v Prendergast [2005] NSWSC 281 at [130]-[137]; Franklins Pty Ltd v Metcash Trading Ltd at [445]-[449]). 12. KBL initially proposed that clause 4.1 should be rectified by adding an additional sentence as follows: "For the purposes of this clause only the Parties agree that the obligation to redeem the Notes under the Commercial Contract is not Secured Money which is owing until such time as the Redemption Date has passed and interest will only accrue from that date in accordance with clause 4.2(2) below." 1. In the course of submissions counsel for KBL accepted that the same result would be achieved by adding the words "and payable" after the word "owing" in clauses 4.1 and 4.2(2)(b) and KBL sought an order in the alternative for rectification by adding those words. 2. The parties did not address their mind to precisely what additional words should be added to give effect to their common intention. For the reasons above, that is not necessary. It is enough that their intention can be precisely ascertained and words can be modified or added to give effect to that intention, but not go beyond it. The addition of the words "and payable" after the word "owing" in clause 4.1 and clause 4.2(2)(b) would give effect to their common intention as it concerns the payment of interest. But it would have a wider effect to which the parties did not turn their minds. Accordingly the Note Issuance Deed should be rectified for abundant caution, but only to the extent initially sought by KBL as set out at para [174] (Franklins Pty Ltd v Metcash Trading Ltd at [448]). 3. No submission was advanced that no order for rectification should be made because RIKID is an assignee. Mr Kinghorn was the mind of both Capri and RIKID. 4. Because the General Security Agreement should be rectified for more abundant caution, it follows that I do not need to deal with KBL's alternative case of conventional estoppel. Nor do I need at this stage to deal with its contention that clauses 4.1 and 4.2 are void for uncertainty. That question will only arise if there are moneys owing and payable to RIKID pursuant to clauses 21.1 or 22.3 on which interest is payable. Demand for enforcement costs 1. The seventh notice served by RIKID, being the notice served on 10 February 2015, demanded payment of $108,855.27 pursuant to clauses 21.1 and 22.3 of the General Security Agreement. The demand was made up of five invoices. The demand in respect of three of those invoices was not pressed. A demand for a sum of $7,353.43 was pressed by RIKID at the hearing and a claim for $22,787.88 being part of an invoice from K & L Gates of $39,172.37 is pressed. 2. The invoice for $7,353.43 sent by K & L Gates to Mr Kinghorn at RIKID was dated 21 December 2014. The so-called "Details of Account" showed that the invoice related to work done by K & L Gates on 28 November 2014, 8 December 2014 and 10 December 2014. With one exception the account does not disclose the subject matter of the legal work done. The description of work done is merely "Reviewing documents" (on 28 November 2014), "Meeting with client" (on 8 December 2014) and "Meeting and drafting" (on 10 December 2014). The remaining item of charge was $450 (not including GST) for "Drafting RIKID511 Request for Note Certificate to KBL" on 28 November 2014. The detailed account stated that that amount would be claimed pursuant to clause 22.3(2), whereas the other three amounts were claimed pursuant to clauses 21.1 and 22.3(2). It seems that K & L Gates did not consider that the request for a note certificate was work done in enforcing or preserving RIKID's rights under a Transaction Document. It was not work in connection with the litigation. There was no evidence that a request for a note certificate was ever sent, or that there was any need for such a request. 3. These proceedings were commenced on 17 December 2014. The work done could not have related to RIKID's defence of the claims brought against it, unless the work was in anticipation of a contemplated proceeding. There is no evidence that the work was done in connection with the defence of anticipated litigation that might fall within clause 22.3. 4. The question under clause 21.1 is whether the costs and expenses claimed were incurred by RIKID in connection with the enforcement of or the preservation of any rights under a Transaction Document. It is not suggested that the costs and expenses were incurred in connection with any other matter falling within clause 20. 5. Clause 21 allows RIKID to recover costs and expenses incurred in the enforcement or preservation of rights under a Transaction Document, not for the enforcement or preservation of merely asserted rights. RIKID did not dispute this. 6. I infer that at least some part of the charge incurred on 10 December 2014 of $2,760 for "Meeting and drafting" was incurred in connection with the first RIKID notice of 10 December 2014 that stated that RIKID considered that an Event of Default had occurred and had engaged Nicols and Brien as an investigator under clause 12.1 and required KBL's co-operation with their investigation. Thus, the validity of that notice is of more than academic interest. If RIKID were entitled to serve the notice, it was entitled to recover its costs of doing so from KBL. 7. Clause 12.1 provided that the Secured Party could engage an accountant or other expert as an investigator to conduct an investigation of the financial affairs, condition and viability of the business of KBL "If the Secured Party considers that an Event of Default has occurred". RIKID rightly emphasised that its entitlement to appoint an investigator depended on its considering that an Event of Default had occurred, not on the actual occurrence of an Event of Default (Capital Networks Pty Ltd v .au Domain Administration Limited [2004] FCA 808; (2004) ATPR (Digest) 46-254 at [87]). It submitted that RIKID's correspondence stating that it considered that an Event of Default had occurred and the statement by Minter Ellison that it was instructed that RIKID considered that an Event of Default had occurred was sufficient evidence to establish that that was the fact. It cited Aquaclear Technology Pty Ltd v Cameron & Brister & Co Pty Ltd [2001] SASC 186; (2001) 214 LSJS 289 at [8] and [9] as an example of a case in which the conclusion was drawn that a party considered that a certain state of affairs existed from statements in that party's correspondence. 8. I do not draw that inference in the present case. For the reasons previously outlined, I conclude in the present case that RIKID was endeavouring to bring about a situation in which it could enforce its security. For that purpose it issued a series of notices, many of which are not now defended and could not reasonably be defended. When asked to give its reasons for the issue of the first notice, it asserted as a reason a ground that could not plausibly be maintained (see paras [58]-[59] above). No-one gave evidence for RIKID that he or she did consider that an Event of Default had occurred. 9. Counsel for RIKID submitted that this contention was not open to KBL because it amounted to an allegation of fraud, and would need to have been pleaded. I do not accept that submission. This matter proceeded without pleadings. However the parties were directed to file a statement of issues. The issues identified by RIKID, with which KBL agreed, included "Whether, at the time of the issue of the First RIKID Notice or at any time thereafter, RIKID considered (within the meaning of clause 12.1 of the GSA) that Events of Default had occurred." Thus, an issue was plainly identified as to whether RIKID's statement that it considered an Event of Default had occurred was true. KBL had complained to the Takeovers Panel that KDR (of which RIKID was then a subsidiary) had engaged in various efforts to acquire effective control of it by destabilising its board, causing speculation as to its financial position and solvency and seeking to frustrate its ability to secure finance to repay the Capri-Kidman debt and fund its plans for expansion of the Mineral Hill project. RIKID was on notice that the integrity of its dealings was in issue. The question of whether RIKID would be calling evidence from an individual to establish that it did consider that an Event of Default had occurred was raised at a directions hearing on 26 February 2015. RIKID did not then submit that KBL would need to plead fraud. 10. RIKID submitted that the report on KBL's financial position released at the end of February 2015 (paras [107] and [108] above), showed that it was justified in considering that KBL was or may have been insolvent, as it may have been unable to pay its debts, including its debt to RIKID, when they fell due. But according to Minter Ellison's email of 11 December 2014 (para [58]), this was not the basis on which RIKID considered that an Event of Default had occurred. No-one gave evidence for RIKID that he or she considered that KBL had committed an Event of Default because KBL was unable to pay its debts as they fell due. I infer that RIKID's concern was that KBL would be able to pay its debts as they fell due and sought to prevent its doing so. 11. In my view RIKID has not established that it considered that Events of Default had occurred. The first RIKID notice is not valid. 12. RIKID "does not press" the second and third notices. 13. For the same reason as given in respect to the first notice, the fourth notice is not valid. 14. I have rejected RIKID's claim for interest that was the subject of the fifth notice. 15. The sixth notice is invalid for the same reasons as in respect of the first and fourth notices. 16. For these reasons, RIKID is not entitled to the sum of $7,353.43 that was part of the claim in the seventh notice. 17. The remaining amount "pressed" in respect of the seventh notice was $22,787.88. This was part of the amounts invoiced by K & L Gates to RIKID on 29 January 2015 that, as ultimately "pressed" covered the period 22 December 2014 to 9 January 2015, from 20 January 2015 to 22 January 2015, and from 22 January 2015 to 29 January 2015. Part of that work is described with such generality that it is not possible to say what it relates to. But the "Details of Account" described the "Relevant Provisions" pursuant to which the claim was made as being clauses 21.1 and 22.3(2). Some of the work was described simply as "Reviewing materials" and "Reviewing documents". Others related to "Drafting". Others referred to "Drafting Notice Appointing Investigator", "Drafting amendments to Notice of Events of Default relating ASX disclosure rules and encumbrances". Other items referred to "Review transaction documents and memorandum relating to Capri/KBL/KDR finance structure". Others to "Drafting Notice of Claim". None of the material appears to relate to costs of the litigation. That is the subject of a separate claim. All of the items pressed appear to relate to the service of purported notices of default. As I have concluded that RIKID was not entitled to serve any of the notices of default preceding the seventh notice, none of the charges can be justified under clause 21.1. 18. RIKID only "pressed" a claim of $30,141.31 in respect of the seventh notice that demanded a payment by KBL of $108,855.27. The fact that it made a demand for the greater sum under threat of enforcement of its security if its demand was not met raises the same inference as I draw with respect to its service of other purported notices of default which threatened enforcement of its security, but which were "not pressed" and could not have been properly pressed. Further, for the reasons I have given, I conclude that RIKID was not entitled to any of the amounts demanded in its seventh notice. That notice should also be declared invalid. 19. The invalidity of the first to seventh notices means that the eighth notice purportedly declaring the Secured Money to be immediately due and payable (see para [106]) was also invalid. RIKID's costs of the proceedings 1. RIKID claims to be entitled to its costs of these proceedings on the indemnity basis pursuant to clause 22.3(2) irrespective of its success in the proceedings. It submits that the costs which it has incurred in defending the proceedings is a loss that it incurred as a result of litigation with respect to KBL and the transactions contemplated under the General Security Agreement. Hence, clause 22.3(2) applies and KBL is required promptly on demand to indemnify it against that loss. RIKID accepts that clause 22.3 does not exclude KBL's statutory right to have those costs assessed, but it contends that it has a contractual right that does not depend upon the exercise of the Court's discretion to award costs and which, it submits, cannot be taken away by a costs order under s 98 of the Civil Procedure Act 2005 (NSW). It submits that a costs order should be made under s 98 to give effect to its contractual right. 2. Counsel for KBL submitted that clause 22.3(2) did not apply to the present proceeding because the proceeding was not "litigation" within the meaning of the clause. KBL submitted that when read with the words that preceded it, namely "any inquiry, investigation, subpoena (or similar order)" the word "litigation" should be read as meaning third party litigation into which the Secured Party was drawn, not litigation between the Grantor and the Secured Party. 3. I do not accept this submission. This is not a case in which a general word can be read down as limited to specific kinds of matters indicated by earlier specific examples that form a class or genus. Whilst the reference to the incurring of "Loss" as a result of a subpoena or similar order would indicate that the clause extended to a case in which the Secured Party was drawn into litigation brought by third parties if the litigation was with respect to the Grantor or the transactions contemplated or financed, it does not indicate any intention to limit the words which precede it or the word which succeeded it in the same way. Thus, an inquiry or an investigation might be an inquiry or investigation conducted by a third party, such as a Royal Commission, but need not necessarily be. The limit placed on each of the subject matters of inquiry, investigation, subpoena (or similar order) or litigation is the qualification preceded by the words "with respect to". That is, there is an express limitation introduced by the words "with respect to the Grantor or the transactions contemplated or financed under this document". I do not accept that there is another implied limitation. 4. In Kyabram Property Investments Pty Limited v Murray [2005] NSWCA 87 Beazley JA (with whom Hodgson and Ipp JJA agreed) held that a promise that "the mortgagor will upon demand pay to the Mortgagee … all expenditure incurred by the Mortgagee for or in connection with this Mortgage" was not wide enough to cover costs incurred by the mortgagee in defending a cross-claim brought by the mortgagor that alleged that the mortgage had been entered into unconscionably, or was unjust in the circumstances in which it was made (at [18]-[22]). However, it appears to me that the present litigation was, in part, litigation with respect to the transactions contemplated or financed under the General Security Agreement. RIKID's claim that it was entitled to appoint an investigator to investigate the financial position of KBL was litigation with respect to KBL. The terms upon which KBL was entitled to redeem its mortgage was litigation with respect to the transaction contemplated and financed under the General Security Agreement as the redemption of the notes was just such a transaction. The words of clause 22.3 are wide enough to apply to RIKID's costs of the litigation. 5. Counsel for RIKID conceded that a term would be implied into clause 22.3 that for the Secured Party to be entitled to be indemnified for its costs of the litigation, if caused or commenced by the Secured Party, must have occurred as a result of its reasonable actions or, if the litigation were not caused by or commenced by the Secured Party, that the Secured Party nonetheless conducted the litigation reasonably. Counsel submitted that unless it were found that the whole of the litigation was unreasonably caused by RIKID, it was entitled to its costs. Counsel submitted that whatever might be said of some of the default notices, there was a reasonable basis for the demand for interest, even if, as I have found, the claim for interest failed. In monetary terms, although not I think in terms of the costs that have been incurred in the proceedings, the issue of KBL's liability to pay interest was by far the most important issue. 6. These proceedings in substance became a redemption suit. The question became what amount was KBL required to pay in order to redeem its security. The powers of the Court as to costs are not only contained in s 98 of the Civil Procedure Act. In a suit for redemption the Court, in the exercise of its equitable jurisdiction, can determine what amount of costs the mortgagee is entitled to before being required to surrender its security. 7. In Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 the Court of Appeal stated the following principles concerning the inter-relationship between a mortgagee's contractual right to costs, the Court's statutory power to order costs, and the exercise of equitable jurisdiction with respect to a mortgagee's costs. Their Lordships said (at 194): "In our opinion, the following principles emerge from the cases and dicta to which I have referred. (i) An order for the payment of costs of proceedings by one party to another party is always a discretionary order: section 51 of the Act of 1981. (ii) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right. (iii) The power of the court to disallow a mortgagee's costs sought to be added to the mortgage security is a power that does not derive from section 51 but from the power of courts of equity to fix the terms on which redemption will be allowed. (iv) A decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the section 51 discretion or a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee's contractual right to add his costs to the security or a combination of two or more of these things. The pleadings in the case and the submissions made to the judge may indicate which of the decisions to which we have referred has been made. (v) A mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs." 1. This passage was cited with approval in Kyabram Property Investments Pty Limited v Murray at [14]. 2. In Cotterell v Stratton (1872) LR 8 Ch App 295 Lord Selborne LC said (at 302): "The right of a mortgagee in a suit for redemption or foreclosure to his general costs of suit, unless he has forfeited them by some improper defence or other misconduct, is well established, and does not rest upon the exercise of that discretion of the Court which, in litigious causes, is generally not subject to review. The contract between mortgagor and mortgagee, as it is understood in this Court, makes the mortgage a security, not only for principal and interest, and such ordinary charges and expenses as are usually provided for by the instrument creating the security, but also for the costs properly incident to a suit for foreclosure or redemption. … These rights, resting substantially upon contract, can only be lost or curtailed by such inequitable conduct on the part of a mortgagee or trustee as may amount to a violation or culpable neglect of his duty under the contract." 1. A mortgagee is not to be deprived of his costs of a redemption action merely because he demands more than is found to be due. In Pearson v Dennett (1911) 11 SR (NSW) 449 Cullen CJ (with whom Sly J and Ferguson AJ agreed) said (at 454) that the "first test" of the question of whether a mortgagee has lost his right to costs "by such inequitable conduct … as amounts to a violation or culpable neglect of his duty under the contract" is to ask what was the occasion for the litigation. There the mortgagee had released part of the mortgage debt, but had threatened to exercise a power of sale treating the mortgage still as security for the part of the debt that had been released. Cullen CJ said that if the mortgagee had continued with that attitude, then whatever other causes might have led to the litigation, the position of the mortgagee in regard to the costs of the suit would have been "most seriously affected by it" (at 455). His Honour said: "I can well understand that if a mortgagee, having released part of the debt, insists on treating the security as covering money which he has released, and the mortgagor, who was prepared to do equity and pay the actual amount owing on the security, brings his suit – I can well understand a Judge not only depriving the mortgagee of his costs, but ordering him to pay the costs of that suit …" 1. But those were not the facts. The cause of the litigation was the mortgagor's default under the mortgage and his offer to pay less than the amount that was found to be due. The mortgagee had not persisted in his demand to treat the mortgage as security for the part of the debt for which the mortgage had been released. He had claimed more than was found to be due, but this was not sufficient to deprive him of his costs. 2. These authorities were referred to with approval by Gaudron and Gummow JJ in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [41] where their Honours said: "In a suit for redemption, the successful mortgagor, being obliged to do equity, was required to bear the mortgagee's general costs of the suit, unless the mortgagee had forfeited them by some improper defence or other misconduct." (See also E L G Tyler, P W Young and C E Croft, Fisher and Lightwood's Law of Mortgage, 3rd Australian ed at [40.1] and [40.3]. 1. In my view RIKID has been guilty of such improper conduct as disentitles it from requiring KBL to pay any of its costs of the proceedings as a condition of its being entitled to redeem RIKID's security. RIKID caused the institution of the proceedings by its service of alleged notices of default and threats to exercise its security for which there was no proper basis. I am comfortably satisfied that the notices were issued as part of a campaign to seek to bring about a default so that RIKID, for the benefit of its then holding company, KDR, could acquire control of KBL's assets. It did not act in good faith. It is true that its claim to interest on the debt of $12.6 million was a claim that, as a matter of contractual interpretation, was reasonably arguable. But I am satisfied that RIKID through its director, Mr Kinghorn, knew that if the agreement bore the construction for which RIKID contended, then that was not the true agreement that the parties had made. It was not reasonable for RIKID to advance that claim. 2. For these reasons, notwithstanding the terms of clause 22.3, I do not consider that RIKID is entitled to an order for costs, nor that it is entitled to insist on the retention of any part of the moneys that have been paid into Court on account of its claim for costs. Prima facie, it also follows that by reason of the implied qualification to RIKID's contractual right to indemnity acknowledged by it (at [202]) it does not have a contractual right for an indemnity for its costs. However, it is unnecessary to determine that question. 3. Costs will follow the event and RIKID must pay KBL's costs. KBL's claim for damages 1. KBL has suffered damage by being required to pay moneys into court as a condition of the order requiring RIKID to release its security. RIKID's refusal to release its security on payment of the $12.6 million that was due on 16 March 2015 was a breach of its contract with KBL. It is liable to pay damages of $705.20 per day from 16 March 2015 to the date of judgment. That sum is $36,670.40. There is no claim for interest on that amount. Cross-summons 1. RIKID filed a cross-summons seeking an order that KBL pay it interest accrued pursuant to clause 4.2 of the General Security Agreement, damages, costs and interest. The cross-summons will be dismissed. Orders 1. For these reasons I make the following declarations and orders: 1. Declare that the notices described in the third further amended summons as the first, second, third, fourth, fifth, sixth, seventh and eighth RIKID notices issued by the third defendant ("RIKID") to the plaintiff ("KBL") were invalid and of no effect. 2. Declare that no interest became payable by KBL to RIKID pursuant to clause 4 of the General Security Agreement between KBL and Capri Trading Pty Ltd ("Capri") dated 6 March 2013 and that RIKID was obliged to discharge the security interest granted under the General Security Agreement and under the deed entitled Mortgage over Mining Tenements between KBL and Capri dated 6 March 2013 on payment by KBL to RIKID on 16 March 2015 of the sum of $12,600,000.00. 3. Order that for abundant caution the General Security Agreement be rectified by the insertion of the following clause after clause 4.1: "4.1A No interest is to be payable on the value of the Notes issued pursuant to the terms of the Commercial Contract if the Grantor tenders a bank cheque to the Secured Party in the amount of $11,300,000.00 prior to 12.00 noon on 16 March 2014, or alternatively $12,600,000.00 prior to 12.00 noon on 16 March 2015." 4. Order that within 28 days RIKID and KBL deliver the original copies of the General Security Agreement to the Registrar and direct that the Registrar endorse order no. 3 on the original copies of that agreement and re-deliver them to the parties. 5. Order that the sum of $3,679,264.57 paid by KBL into the controlled moneys account of its solicitor pursuant to orders made on 10 March 2015, and all interest earned on that sum, be paid out to KBL. 6. Judgment for KBL against RIKID in the sum of $36,670.40. 7. Order that the cross-summons be dismissed. 8. Order that RIKID pay KBL's costs of the proceedings. 9. The third further amended summons be otherwise dismissed. 10. The exhibits and court book may 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: 07 May 2015