Supreme Court New South Wales Medium Neutral Citation: Tiaro Coal Limited (In Liquidation) v Amzalak [2018] NSWSC 111 Hearing dates: 30 and 31 January 2018; 1 February 2018 Decision date: 16 February 2018 Jurisdiction: Equity - Commercial List Before: Ball J Decision: The plaintiff's claim be dismissed with costs. Catchwords: CONTRACTS – Construction and interpretation – Parol evidence rule – Exceptions – Evidence of surrounding circumstances adduced to resolve ambiguity CONTRACTS – Oral contract – Principles to be applied in determining terms of contract CONTRACTS – Rectification – Intention – Determining the common intention of the parties Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 Australian Gypsum Ltd v Hume Steel Ltd (1930) 45 CLR 54; [1930] HCA 38 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 91 ALJR 486; [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503; [1932] All ER Rep 494 Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; [1973] HCA 23 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 Category: Principal judgment Parties: Tiaro Coal Limited (In Liquidation) (Plaintiff) Benjamin Amzalak (Defendant) Representation: Counsel: DC Price (Plaintiff) MK Condon SC with GP Gee (Defendant) Solicitors: Bridges Lawyers (Plaintiff) Piper Alderman (Defendant) File Number(s): 2014/358950 Publication restriction: None Judgment Introduction 1. The plaintiff, Tiaro Coal Limited, which is now in liquidation, was incorporated in October 2007 to undertake exploration for commercially viable coal deposits in South East Queensland. It was listed on the Australian Stock Exchange on 3 March 2008. 2. Between February 2008 and June 2014, the defendant, Mr Benjamin Amzalak, was engaged to provide corporate consulting services to Tiaro. Those services included providing advice on potential corporate activities such as raising capital and entering into joint ventures. Mr Amzalak provided his services through a number of corporate vehicles, including Anything Communications Pty Ltd and MM&R Services Pty Ltd. He also did work for other clients. He estimates that during the period he worked for Tiaro he spent approximately 25 per cent to 33 per cent of his time on Tiaro-related activities. 3. In these proceedings, Tiaro seeks to recover what are said to be three loans it advanced to Mr Amzalak during the period he provided consulting services to it. The first loan is said to have been made in August 2010. Tiaro claims that the amount it lent was $135,000, of which $55,000 plus interest remains owing. The second loan was made in March 2011 and was for $100,000. The third loan was made in August 2011 and was for $200,000. Tiaro claims the amount of those loans plus interest. 4. Mr Amzalak admits receiving the three amounts paid to him. However, he denies that the first amount ($135,000) was a loan. Rather, he claims that it was a payment to him to enable him to make an investment in Australian Bauxite Limited (ABX) on Tiaro's behalf, which he did. 5. Mr Amzalak admits the other two loans, but contends that they were limited recourse loans made to him as part of an incentive scheme. Under the terms of the scheme, the loans were made to enable Mr Amzalak to acquire shares in Tiaro, which he did. He was required to pay interest at the rate of 9 per cent per annum, but Tiaro was only entitled to recover the loans and interest from the sale of the shares. The result was that if Tiaro's share price did not increase by at least 9 per cent per annum, Mr Amzalak would receive nothing, but if the share price did better than that, Mr Amzalak would be entitled to the difference. Mr Amzalak submits that, properly interpreted, the relevant loan agreements provided for limited recourse loans. However, if he is wrong about that, he submits that the agreements should be rectified to have that effect. Mr Amzalak also advances alternative cases based on estoppel and alleged misleading and deceptive conduct on the part of Tiaro at the time the loans were advanced. Background 1. Prior to 2008, Mr Amzalak provided consulting services to Hudson Resources Limited and associated companies. Hudson Resources held approximately 24 per cent of the shares in Tiaro until June 2014, when it sold a 19.9 per cent stake in Tiaro. One of the directors of Hudson Resources was Mr Vincent Tan, who was also a director of Tiaro. Mr Amzalak has also been a non-executive director of Hudson Resources since 13 June 2013. Hudson Resources, or companies associated with it, provided administrative services to Tiaro pursuant to an executive services agreement entered into in 2008. 2. It appears that Mr Amzalak was introduced to Tiaro by Mr Tan. At that time, the chief executive officer of Tiaro was Mr Peter Meers. Mr Meers held that position until approximately July 2012. From July 2012 to 1 August 2013, he was the executive deputy chairman of Tiaro, following which he became its executive chairman. 3. Mr Amzalak and Mr Meers agree on almost nothing that occurred during the time they both worked for Tiaro. 4. According to Mr Amzalak, the first major piece of work he did for Tiaro was to introduce Mr Meers to a transaction by which Tiaro raised $2,500,000 from Dynasty Metals Australia Limited. Following that transaction, Mr Amzalak says that Mr Meers offered him a consultancy with Tiaro and told Mr Amzalak to report directly to him. It was agreed that Mr Amzalak would be paid a retainer of $4,000 per month. Mr Amzalak says that he and Mr Meers became close friends. Mr Meers, on the other hand, says that Mr Tan introduced the Dynasty transaction to Tiaro, that Mr Tan engaged Mr Amzalak and that Mr Amzalak reported to Mr Tan. Mr Meers denies they became close friends. 5. From the time of his engagement, Mr Amzalak submitted monthly invoices to Tiaro initially through Anything Communications and then through MM&R. Those invoices were paid by cheque. The invoices were normally approved by Mr Meers and Mr Meers was normally one of the signatories on the cheques. 6. On 25 May 2010, Tiaro paid MM&R an amount of $100,000 for corporate advisory services Mr Amzalak had provided to Tiaro. Mr Amzalak says that he was paid that amount at the suggestion of Mr Meers in appreciation for the work that he had done. Mr Meers says that he only approved payment of the relevant invoice because it was in accordance with instructions given to him by Mr Tan. 7. In August 2010, Tiaro paid Mr Amzalak $110,000 for consulting fees for the period July, August and September 2010. How that amount came to be paid is not explained in the evidence. In addition, in the same month, Mr Amzalak was paid $220,000 by Tiaro for arranging the placement of 10,000,000 shares in Tiaro with a company referred to as "Patterson" at $0.34 per share. Again, how that came about is not explained in the evidence. 8. According to Mr Amzalak, on or before 26 August 2010, Mr Meers, who was also the chairman and a director of ABX, approached Mr Amzalak, who also provided corporate advisory services to ABX, concerning a share placement by ABX valued at $6,000,000, in respect of which there was a $135,000 shortfall. Mr Meers suggested that Tiaro could fund the shortfall but said that because he was a director of both companies his preference was not to put the shares in Tiaro's name. Mr Amzalak says that in response he offered to buy the shares in his name. Mr Meers agreed and said that Tiaro would provide Mr Amzalak with the money, which it did. Mr Meers denies any such conversation. He accepts that he signed the cheque for $135,000. He says that he would only have done so on instructions from Mr Tan, although he has no specific recollection of a conversation with Mr Tan about the $135,000. The relevant Tiaro payment voucher for the $135,000, which is dated 27 August 2010, describes the payment as being made for "investment - short term", which is how the amount was described in the balance sheet for Tiaro for August 2010 and a number of subsequent balance sheets. 9. In about September 2010, it appears that Mr Amzalak sold $80,000 worth of the ABX shares and paid that amount to Tiaro. 10. On 13 December 2010, Mr Francis Choy, who was the financial controller of Tiaro and the Hudson Group of Companies, sent to Mr Amzalak an email in these terms: Hi Benny Funding $135000 dated 27.08.10 Repaid ($80000) dated 16.09.10 Balance $55000 Thanks Best Regards, Francis Choy 1. On 21 December 2010, Mr Choy sent Mr Amzalak a further email, which he copied to Mr Tan, which said: Hi Benny As mentioned before Its best to repay this account before year ended … 1. Mr Tan replied to that email on the same day saying "Will sort out next year". 2. On 18 March 2011, Tiaro and Mr Amzalak entered into a loan agreement in respect of $100,000 (the First Loan Agreement). The agreement was in the following terms: Following your request, we are pleased to offer you a loan on the following terms:- Borrower Benjamin Amzalak Lender Tiaro Coal Limited (TCM) Facility $100,000 (Loan) Purpose The borrower warrants that the funds from the loan will be utilised for a lawful purpose. Interest Rate 9% per annum payable on the balance outstanding on each anniversary of the loan, such interest to be added to the outstanding balance of the loan. Advance of Funds Funds will be advanced in one instalment with the Loan to be drawn in full prior to the 31 March 2011. Security Script lien over 500,000 FP Ordinary shares in TCM [that is, Tiaro] (Shares). Term/Repayment Upon the sale of any Shares provided as Security with a Bullet Repayment on the sale or surrender of the Shares on the fifth anniversary of the loan. In the event of:- (a) Insolvency of the Borrower; Event of Default (b) The borrower ceasing to be engaged as a consultant to TCM or any of its associated companies In which event the Loan is to be repaid. In the event of non-repayment under the events outlined above at (a) and (b) TCM is legally entitled to take control of and will sell sufficient Shares at a price not less than the amount outstanding on the Loan including accrued interest and outstanding charges. The remaining TCM shares will become the property of the Borrower. Loan Covenants and other conditions Nil Acceptance of the Offer Please confirm your acceptance and agreement to the terms of this Offer by signing and returning the enclosed copy of this Offer Letter within 10 days from the issue of this offer. 1. Mr Amzalak accepted the offer on 21 March 2011 and drew down on the loan on 11 April 2011. Mr Amzalak acquired 400,000 shares in Tiaro from Sing Capital Pty Ltd on the same day using those funds. 2. At the time the First Loan Agreement was entered into, Tiaro was exploring ways of implementing an employee share plan. A plan was approved at Tiaro's general meeting on 27 May 2011. Under the terms of that plan, the directors were entitled to offer employees loans to enable the employees to buy shares in Tiaro. Tiaro could require the shares to be sold in certain circumstances and the proceeds of sale to be applied to repaying the relevant loan. To the extent that there was a shortfall the plan provided that it would be forgiven. No loans were advanced in accordance with that scheme. 3. Mr Amzalak says that on or about 18 March 2011, he had a conversation with Mr Meers in which Mr Meers expressed Tiaro's gratitude for the work that Mr Amzalak had done in relation to a transaction with Guildford Coal Limited (Guildford) and indicated that Tiaro wanted to provide Mr Amzalak with benefits similar to the proposed employee share scheme in order to incentivise Mr Amzalak. Mr Meers explained the proposed scheme to Mr Amzalak and assured him that under the scheme Tiaro would only be able to sell the shares acquired by Mr Amzalak to recover its loan and would have no claim against Mr Amzalak. Mr Amzalak indicated that that proposal was acceptable to him. Mr Meers denies that conversation. 4. The First Loan Agreement was drafted by Mr Henry Kinstlinger who in 2008 was engaged to provide consulting services to Hudson Investment Group Limited, another company in the Hudson Group of Companies and who between August 2008 and October 2014 also provided consulting services to Tiaro. According to Mr Kinstlinger, on or about 18 March 2011, Mr Meers said that he wanted to incentivise Mr Amzalak for the work that he was doing in relation to a transaction with Guildford and he asked Mr Kinstlinger (who is not a lawyer) to prepare a limited recourse loan agreement for $100,000 with an interest rate of 9 per cent per annum. Mr Meers denies that conversation. 5. Mr Kinstlinger says that in preparing the draft, he intended to make the loan a limited recourse loan so that, in the event of default or on expiration of the loan, the borrower "could simply hand back the shares held as security". He says that he had a conversation with Mr Meers in which he explained that the draft he had prepared provided for a limited recourse loan. Again, Mr Meers denies that conversation. Mr Kinstlinger also says that he told Mr Amzalak that he would not "be exposed beyond the Tiaro shares held as security" when he provided Mr Amzalak with a copy of the First Loan Agreement. Mr Amzalak gives evidence to similar effect. 6. The transaction with Guildford was a transaction in which Mr Amzalak was involved by which Guildford would acquire a 51 per cent interest in an exploration permit held by Tiaro known as EPC 1260 in exchange for the payment of $3,300,000 plus an agreement by Guildford to fund exploration in the permit area up to an amount of $5,000,000. Under the terms of the proposal, Gleneagle Securities, which had proposed the transaction to Guildford, was to be paid a fee equal to 6 per cent of the transaction value of $8,300,000 (that is, $498,000). Gleneagle was also to receive a 9 per cent interest in EPC 1260 to be held by a special purpose company. In fact, that interest came to be held by Nissan 5771 Pty Ltd, a company controlled by Mr Amzalak. The transaction with Guildford was approved by the Tiaro board on or about 7 April 2011. 7. On 21 April 2011, Anything Communications issued an invoice to Tiaro for $217,800 (that is, $198,000 plus GST) for "Consulting Fees" in respect of the Guildford transaction. In his affidavit, Mr Amzalak describes this as a "one-off advisory fee" that had been approved by Mr Meers for Mr Amzalak's role in the transaction. He gave a somewhat different account of the invoice in cross-examination. According to Mr Amzalak, the fee was a proportion of the fee payable to Gleneagle; and Gleneagle invoiced Tiaro for the balance of the fee ($300,000). Mr Amzalak says that Nissan held the shares on behalf of Gleneagle and himself, although precisely how that came about is not explained in the evidence. 8. On 29 August 2011, Tiaro and Mr Amzalak entered into a loan agreement (the Second Loan Agreement) for $200,000 on similar terms to the terms of the First Loan Agreement, except that the term of the agreement was one year. Tiaro paid the amount of the loan to Hudson Corporation which transferred 800,000 Tiaro shares to Mr Amzalak. Mr Amzalak says that that loan was made following a conversation he had with Mr Meers in which Mr Meers said that the board had been looking at salary packages for managers and board members and as part of that Tiaro proposed to provide a further non-recourse loan to Mr Amzalak of $200,000. Again, Mr Meers denies the conversation. 9. The balance sheet for Tiaro for the month ended September 2011 shows as an asset "Receivables - Benjamin Amzalak" of $305,819.17 and the balance sheet for October 2011 contains a similar item. The balance sheet for the year ended 31 December 2011 in a note to the accounts concerning related party transactions describes a receivable payable to Tiaro as "Advance to related party" of $367,625. The note goes on to explain that: The loan to consultant $367,625 (2010:Nil) is secured by shares. The interest bearing loan has a fixed term of repayment. 1. In connection with the audit of those accounts, Mr Amzalak signed a document headed "GL Account Reconciliation" which disclosed that he had made drawdowns of $100,000 on 11 April 2011 and $200,000 on 29 August 2011 and that the total amount owing with interest was $312,624.66. 2. Mr Amzalak says that in June 2012, he had a discussion with Mr Meers in which Mr Meers proposed that the remaining shares in ABX be sold and that the proceeds of sale of $55,000 be used by Mr Amzalak to buy an additional 100,000 shares in Tiaro. According to Mr Amzalak, the conversation continued in these terms: Mr Meers: "Once you have acquired the Tiaro shares, please arrange an off-market transfer form for the sale of 1.4 million Tiaro shares with your signature as the seller, and provide this form to Francis Choy as CFO of Tiaro as security for all outstanding amounts." Mr Amzalak: "OK. I understand that this means that there is no claim by Tiaro against me given the loans are non-recourse and Tiaro will now have control over the 1.3 million Tiaro shares held as security plus the additional 100,000 Tiaro shares I am acquiring from the $55,000 ABX short term investment from 2010 which I still hold on Tiaro's behalf." Yet again, Mr Meers denies having a conversation with Mr Amzalak in the terms alleged. 1. Mr Amzalak did execute an off-market share transfer for 1,400,000 Tiaro shares, although it is not clear when the transfer was executed. In addition, the general ledger account reconciliation in respect of Mr Amzalak for the month ending 31 May 2012 shows an additional receivable of $55,000. The date for the receivable is said to be 1 January 2012 and the receivable is described as "Previous $135K loan balance". The date of the reconciliation is 21 June 2012. 2. Subsequent general ledger account reconciliations show Mr Amzalak owing a total of $355,000 plus interest and are in similar terms to the one dated 21 June 2012. 3. On 12 February 2013, KS Black and Co, Tiaro's auditors, sent Mr Amzalak an audit confirmation letter in which he was asked to confirm the following: Loan payable to Tiaro Coal Limited: AUD $399,648.63 Loan Terms as per loan agreement: $100,000 plus interest due 10.04.2016 at 9% interest p.a. secured by 500,000 ordinary shares of the company and $200,000 plus interest due 28.08.12 at 9% interest p.a. secured by 800,000 ordinary shares of the company. Loan can also be repaid within the next 12 months upon sale of shares. Loan is recourse. On this basis if the shares are sold and the proceeds do not extinguish the borrowing, a debt will remain. Mr Amzalak gave that confirmation. 1. Mr Amzalak says that before doing so he had a conversation with Mr Meers to the following effect: Mr Amzalak said: "I have read the Audit Confirmation Letter and it says that the loan is recourse. The actual agreement states that Tiaro must sell the shares for no less than the loan amount. From my understanding of our arrangement, and my reading of the audit confirmation letter and the terms of the actual agreement, Tiaro cannot come after me because the shares will be sold for the loan amount owing, and if they cannot sell the shares then they cannot come after me. It becomes Tiaro's own issue to sell the shares and recoup the amount owed. Is that what it means by recourse? That Tiaro has recourse against the shares? And only against me if I sell the shares but don't repay the loan?" Mr Meers: "Benny that's right. And there is no way that Tiaro will come after you for what is an incentive scheme. And now that Tiaro also has an additional 100,000 Tiaro shares as security, this also takes care of the $55,000 short term investment amount." 1. In July 2012, Mr Daniel Buckley replaced Mr Meers as Tiaro's chief executive officer. He says that at the time he commenced employment as chief executive officer he reviewed Tiaro's financial records and noticed in those records a reference to a receivable owed by Mr Amzalak. He says that he had a discussion with Mr Meers in the following terms: Mr Buckley: "I have noticed this loan amount here. What is this about?" Mr Meers: "These were non-recourse loans to Benny Amzalak." Mr Meers denies that conversation. 1. As I have said, Tiaro was ultimately placed into liquidation and it is the liquidators who sue to recover the debts allegedly owing by Mr Amzalak. The contractual claim 1. The principles applicable to the interpretation of commercial contracts are not in dispute. They require that the rights and liabilities of the parties under a contract be determined "objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose": Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] per French CJ, Nettle and Gordon JJ. The appropriate question to be asked when determining the meaning of a term is "what a reasonable businessperson would have understood those terms to mean", which will require "consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract": at [47]; see also Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 91 ALJR 486; [2017] HCA 12 at [16]-[17] per Kiefel, Bell and Gordon JJ. 2. Unless a contract indicates a contrary intention, the court may assume "that the parties … intended to produce a commercial result" and should interpret a contract's provisions so as to avoid it "making commercial nonsense or working commercial inconvenience": Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [51] per French CJ, Nettle and Gordon JJ citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] per French CJ, Hayne, Crennan and Kiefel JJ. In doing so, provisions should be read "fairly and broadly, without being too astute or subtle in finding defects": Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 514; [1932] All ER Rep 494 at 503 per Lord Wright cited in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110 per Gibbs J; [1973] HCA 36. 3. Evidence of surrounding circumstances may be adduced in cases of ambiguity where an expression is capable of more than one meaning: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [48] per French CJ, Nettle and Gordon JJ; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J; [1982] HCA 24. To that end, the court may refer to "events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating": Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [49]-[50] per French CJ, Nettle and Gordon JJ. 4. Evidence of post-contractual conduct cannot be used to construe the contract's terms: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [35] per Gummow, Hayne and Kiefel JJ. However, where the conduct "provides evidence of facts, the assertion of which is against the interests of one party, it may be admissible as an admission by that party"; but "to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless": Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at 121 per Basten JA (with whom Gleeson JA agreed; see also per Beazley P at [79]f). Post-contractual conduct may also be relevant to the question whether a contract was reached: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [13] per Allsop P. 5. Before addressing the specific contracts in this case, it is necessary to say something about the evidence generally. 6. Plainly, the liquidators have no personal knowledge of the facts relevant to this case. Their contention that Mr Amzalak owes Tiaro money is based on the Loan Agreements that he signed, the records of Tiaro showing debts owed by him and the admissions that he made. Indeed, Tiaro's primary submission was that the admissions – particularly the one made in response to the auditor's confirmation letter dated 12 February 2013 – were determinative, if not conclusive of its claim. 7. In response to that evidence, Mr Amzalak sought to explain how the loans came about, largely by reference to conversations he had had with Mr Meers. That evidence was said to be relevant both to the construction of the two Loan Agreements and to the terms on which the $135,000 was originally paid to Mr Amzalak and the $55,000 was retained by Mr Amzalak, as well as the ancillary claims made by Mr Amzalak. The liquidators sought to answer that evidence with evidence from Mr Meers, who denied having any conversations with Mr Amzalak and who suggested that any discussions concerning the loans were between Mr Amzalak and Mr Tan, and that he (Mr Meers) simply acted on the instructions of Mr Tan. 8. There are, however, difficulties with the evidence relied on by the liquidators. Contrary to Tiaro's primary submission, the admissions made by Mr Amzalak are of little, if any, relevance to determining whether the loans of $100,000 and $200,000 were recoverable from Mr Amzalak personally. The terms of those loans were reduced to writing. The agreements are poorly drafted but the question they raise is whether they gave Tiaro a right to pursue Mr Amzalak personally for repayment of the loans. That is a question of construction of the relevant agreements, which is a legal question. It is not a question on which admissions can carry any weight. Although the audit confirmation letter purported to deal with the whole amount said to be owing by Mr Amzalak, it said nothing specifically about the $55,000. Consequently, it is difficult to treat the admission as having a different quality or carrying a different weight in relation to that loan. Mr Amzalak's acceptance of the audit confirmation letter is evidence that he had borrowed an amount from Tiaro that included the $55,000. It is of limited assistance in determining whether or not that loan was limited recourse (in the sense that it could only be enforced against the shares). 9. Tiaro submits that the admission should be given considerable weight because the letter asked Mr Amzalak whether he agreed that the terms of the loans were as set out in the letter. The terms of the loans were questions of fact. I do not accept that submission. The letter sought to summarise the effect of the loans. In doing so, it was seeking to interpret the written contracts (at least in relation to the loans for $100,000 and $200,000). By asking the question it did, the letter was asking Mr Amzalak to agree with the auditor's interpretation of the written agreements. 10. The other records of Tiaro, and in particular the general ledger account reconciliations in respect of Mr Amzalak, do not take the matter any further. They are evidence that at some stage Mr Amzalak was advanced the sum of $135,000 which was reduced to $55,000 on 1 January 2012 and that Mr Amzalak had other borrowings of $100,000 and $200,000. They are not, however, evidence of the terms of those advances, such as whether one of those terms was that the loans were limited recourse. 11. As a result, in relation to the loans of $100,000 and $200,000, it is necessary to focus on the words of the relevant agreements construed in light of the surrounding circumstances. And in relation to the loan of $55,000, it is necessary to focus on the circumstances in which that debt arose. Tiaro relies on the evidence given by Mr Meers in this regard. However, that evidence is of little assistance for two reasons. First, even if it is accepted, it says very little about the circumstances in which the loans were made since the effect of it is that Mr Meers knew very little about those circumstances. 12. Second, and in any event, it is difficult to accept that Mr Meers' involvement was as limited as he says it was. At the relevant time, Mr Meers was the chief executive officer of Tiaro. Mr Amzalak was an important consultant who played a substantial role in raising capital for Tiaro. During 2010 to 2012, Mr Amzalak was paid very substantial amounts for the work that he did. It is difficult to believe that Mr Meers was not involved and apparently had no knowledge of the payments made to Mr Amzalak beyond giving formal approval to the payments and signing the relevant cheques. Moreover, the evidence given by Mr Amzalak provides an explanation for why the amounts in issue were paid to him. It is apparent that Tiaro was in constant need of additional capital to fund its exploration activities. Why, it might be wondered, was it making loans to one of its consultants for no apparent reason? And why did Mr Amzalak feel the need to borrow funds from Tiaro to invest in it and ABX, particularly when it appears that Mr Amzalak was a very successful advisor who had a substantial income and was likely to be able to borrow money from other sources? The result is that Mr Amzalak gives a plausible explanation of how the loans came about, whereas Mr Meers, in circumstances where it seems reasonable to think that he would have known something about the arrangements between Tiaro and Mr Amzalak, does not. That is a reason for preferring Mr Amzalak's evidence. 13. Another reason for preferring Mr Amzalak's evidence is the evidence given by Mr Kinstlinger and Mr Buckley. The evidence they gave is not relevant to the interpretation of the Loan Agreements. The evidence of Mr Kinstlinger is evidence of his and Mr Meers' subjective intentions, which is not relevant to the interpretation of the agreements. And the evidence given by Mr Buckley is evidence of Mr Meers' intention or evidence of post-contractual events. In either case, it also is not relevant to the interpretation of the agreements. However, in my opinion, the evidence can be taken into account in determining whether to accept Mr Meers' evidence. Mr Meers' position appears to be that he knew nothing about the reasons for the payments to Mr Amzalak. The evidence given by Mr Kinstlinger and Mr Buckley undermines that evidence. 14. Tiaro submits that that evidence should not be accepted and it is particularly critical of the evidence given by Mr Buckley, which is expressed in such a short-hand fashion that it is said to be valueless. It may be that Mr Buckley's evidence in particular could have been better expressed. However, in my opinion, there is no reason not to believe the evidence that both witnesses gave. They could have been mistaken, but it seems more likely that Mr Meers has forgotten much of what happened than that they have false recollections of what Mr Meers said to them. 15. It is for those reasons that generally I prefer the evidence of Mr Amzalak over the evidence given by Mr Meers. 16. It is convenient to begin with the loans for $100,000 and $200,000. As I have said, the Loan Agreements are in similar terms. Both are poorly drafted. Neither of them specifically provides that the loans are to be repaid by Mr Amzalak at the end of their respective terms and it is unclear on their face whether they are intended to be limited recourse or not. The critical clauses are the clauses dealing with "Term/Repayment" and "Event of Default". The former makes little grammatical sense. It appears to be saying that if any shares are sold during the term, the proceeds of sale must be repaid to Tiaro (that is, there is to be a "Repayment" "Upon the sale of any of the Shares provided as Security") and that there is to be "a Bullet Repayment" "on the sale or surrender of the Shares" on the expiration of the loan (after five years in the case of the first loan and after one in the case of the second). "Bullet Repayment" is not defined, but presumably it means a repayment of the total amount payable on expiration of the loan. It is unclear, however, what that amount is. The clause appears to contemplate two possibilities on expiration of the loan. One is sale of the shares. The other is surrender of them – presumably, to Tiaro. The obvious payment in the first case is the amount realised from the sale of the shares. The payment in the second case seems to be delivery of the shares themselves. It is difficult to see what further payment could be contemplated, particularly in the second case. It could not have been intended that Mr Amzalak would both deliver up the shares and repay the amount of the loan; and if the agreement contemplated that Tiaro might keep the shares, which it does, it is to be expected that if it also contemplated that Mr Amzalak would then be required to make a further payment, it would say something about how the amount of that payment was to be calculated, which it does not. 17. The Event of Default clause identifies two types of default and states that on the occurrence of either one of them, the loan is to be repaid. It then states that in the event of non-repayment, Tiaro is entitled to take control of and sell sufficient shares "at a price not less [than] the amount outstanding on the Loan". It provides for no other remedy. It specifically states that the remaining shares will become the property of Mr Amzalak. The clause does not contemplate that the value of the shares might be insufficient to repay the whole amount of the debt. 18. Consequently, the agreements do not appear to require Mr Amzalak to repay the loans except by returning the shares or selling them and paying the proceeds of sale to Tiaro. That conclusion is reinforced by the surrounding circumstances. The agreements were entered into at a time when Tiaro had put in place an incentive scheme for employees that involved Tiaro lending money to employees to acquire shares in Tiaro on the basis that Tiaro would only seek to recover the amount of the loans through the sale of the shares. It is common ground that Mr Amzalak was not an employee and consequently was not entitled to participate in that scheme. He was, however, a highly valued consultant, and although Mr Meers disputed in his affidavit evidence the need to provide incentives to Mr Amzalak, he accepted in cross-examination that the two loans were made to Mr Amzalak to incentivise him and that that could only be achieved by making the loans non-recourse. The Guildford transaction was very beneficial for Tiaro and it appears that Mr Amzalak played a major role in it. He was paid a significant fee in relation to it, but I accept that that fee came out of the fee that Gleneagle had negotiated. Consequently, it is not surprising that Tiaro would want to give Mr Amzalak the benefit of the incentive scheme it had set up for employees. As I have said, it is difficult to see why else Tiaro would have lent money to Mr Amzalak or why Mr Amzalak would have borrowed money from Tiaro. Those matters support the conclusion that, properly construed, the agreements limit Tiaro's right to recover the loans to taking possession of or selling the shares. 19. The issues in relation to the claim for $55,000 are different. There is no written agreement to be interpreted. The question is what was agreed. 20. I do not accept that the original payment of $135,000 was a simple loan to Mr Amzalak; and in the absence of any other explanation for the payment, in my opinion, the one offered by Mr Amzalak is the most probable. For the reasons already given, it strikes me as inherently unlikely that Tiaro would have simply agreed to lend Mr Amzalak $135,000 or that Mr Amzalak would have borrowed that sum of money from Tiaro to buy shares in ABX. On the other hand, the explanation offered by Mr Amzalak seems plausible. It is consistent with the Tiaro payment voucher. The payment voucher strikes me as the most reliable contemporaneous record of what the payment was for. It states that the payment was for an "investment - short term". That must have been an investment by Tiaro. It would be unusual to describe a loan to Mr Amzalak as a short-term investment; and actual loans to Mr Amzalak were described in Tiaro's records as loans, not investments. 21. Tiaro places weight on the emails from Mr Choy, which suggest that the payment was a loan the balance of which Mr Choy was seeking to recover in December 2010. It also places weight on the other records of Tiaro. But none of those documents undermines Mr Amzalak's evidence that the original payment was made to him for the purpose he describes. It is apparent from the emails that Mr Choy thought that the amount paid to Mr Amzalak was a loan. But it is equally apparent from Mr Tan's email that there was more to the payment than that and that what was to happen to the remaining $55,000 and presumably to the remaining ABX shares was something that still needed to be sorted out. Up until some of the ABX shares were sold and part of the $135,000 was repaid, Tiaro's records consistently describe the amount as a short-term investment. Prior to the time the balance of the ABX shares were sold, apart from the emails, the only record of Tiaro that suggested that the remaining $55,000 was to be treated as a loan to Mr Amzalak was the annual accounts for the year ended 31 December 2011. However, those accounts were not consistent with the confirmation given by Mr Amzalak, which did not include the $55,000 as a loan to him. 22. It follows that the likely position is that the $135,000 was paid to Mr Amzalak so that he could buy shares in ABX on Tiaro's behalf and that he held those shares on trust for Tiaro. 23. The position changed when Mr Amzalak sold the remaining shares in ABX, although the evidence concerning what happened is not satisfactory. The effect of Mr Amzalak's evidence appears to be that the price of the ABX shares did not vary and that he was able to sell the remaining shares for their original value, producing a sales price of $55,000. According to Mr Amzalak, Mr Meers told Mr Amzalak in effect that he could use the $55,000 to buy shares in Tiaro and to keep those shares on the same terms as applied to the previous loans. Mr Amzalak's evidence is not satisfactory. It seems unlikely that he was able to sell the remaining ABX shares for precisely the price that he paid for them; and he gives an improbable, self-serving account of his conversation with Mr Meers in which he (Mr Amzalak) emphasised that all of the loans were non-recourse. Having said that, it is difficult to accept any other account of what happened either. It does not appear to be disputed that Mr Amzalak acquired additional shares in Tiaro using the $55,000. Although the timing is uncertain, he did sign a share transfer for 1,400,000 shares. And although events appear to be out of sequence, it is at about that time that the records show that Mr Amzalak owed Tiaro an additional $55,000. For the reasons given previously, it is difficult to accept that Tiaro would have made a simple loan to Mr Amzalak or that Mr Amzalak would have wanted a simple loan from Tiaro at that particular time in order to buy additional Tiaro shares. The fact that the arrangements were not reduced to writing suggests that the loan was intended to be on the same terms as the previous ones, without any thought being given to precisely when the loan expired. 24. On balance, then, I have concluded that Mr Amzalak and Mr Meers agreed that the loan of $55,000 was also limited recourse in the sense that Tiaro could only seek to recover it by exercising its rights against the Tiaro shares held by Mr Amzalak. Other allegations 1. Having regard to the conclusions I have reached, it is not strictly necessary to examine the other ways in which Mr Amzalak seeks to resist Tiaro's claims. However, I should say something about Mr Amzalak's claim for rectification, which raises somewhat different factual issues and which, in my opinion, would have provided another basis on which Mr Amzalak was entitled to succeed in relation to the loans for $100,000 and $200,000. 2. Mr Amzalak seeks to have both Loan Agreements rectified by deleting the words "TCM is legally entitled to take control of and will sell" in the Event of Default term and inserting in their place the words "TCM's right of recovery is limited to taking control of and selling". The claim for rectification is raised in Mr Amzalak's defence and not in a cross-claim, but no point was taken about that during the hearing. 3. It is common ground that rectification is available where there is clear and convincing proof that at the time of execution of the agreements, the parties had a common intention which was not reflected in the written contract: Australian Gypsum Ltd v Hume Steel Ltd (1930) 45 CLR 54 at 63-64 per Rich, Starke and Dixon JJ; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 349 per Mason J; [1973] HCA 23; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [451] per Campbell JA. 4. In determining the parties' intention, the court may have regard to parol evidence of the parties' subjective intentions, including from the draftsperson stating what his or her instructions were: Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [269]-[270] per Campbell JA. 5. In the present case, I accept that the common intention of the parties was that the First Loan Agreement was limited recourse. As I have explained, I prefer the evidence given by Mr Amzalak and Mr Kinstlinger to the evidence of Mr Meers. It is Mr Kinstlinger's evidence that he was instructed to draft a limited recourse loan agreement and that is what he set out to do. He explained to Mr Amzalak that that was the effect of the agreement when he gave a draft of it to Mr Amzalak. It is apparent that Mr Amzalak proceeded on that basis. That was consistent with the discussion that he had had with Mr Meers. That evidence together provides clear and convincing proof that the common intention of Tiaro and Mr Amzalak was that the loan was to be limited recourse. 6. The Second Loan Agreement was in the same terms as the first (other than the term). By adopting the same language, the parties must have intended it to have the same effect as the First Loan Agreement and, in particular, also to be limited recourse. 7. Consequently, had it been necessary, I would have ordered that both agreements be rectified in the way contended for by Mr Amzalak. Orders 1. The orders of the court are that the plaintiff's claim be dismissed with costs. ********** 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: 16 February 2018