FEDERAL COURT OF AUSTRALIA

CONTRACT – application for damages for breach of contract – language of agreement unclear – whether contract both written and oral – whether contract orally varied – whether estoppel arises as to time for exercise of option – whether misleading or deceptive conduct in relation to exercise of option – repudiation of contract – whether damages precluded because applicant not ready, willing and able to perform contract.

DAMAGES – measure of damages for breach by seller of fungible property – difference between contract price and market price – time at which market price should be determined where assessment of damages depends on future events.

Secured Income Real Estate (Australia) Pty Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596, referred

Bahr v Nicolay (No. 2) (1988) 164 CLR 604, referred

Willis v The Commonwealth (1946) 73 CLR 105, followed

Johnson v Perez (1988) 166 CLR 351, referred

Foran v Wight (1989) 168 CLR 385, referred

KENNETH MAURICE BRIMAUD v BOSTON SECURITIES ENTERTAINMENT INVESTMENTS PTY LIMITED & ORS

NG 996 of 1996

 

EMMETT J

SYDNEY

9 SEPTEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 996  of  1998

 

BETWEEN:	KENNETH MAURICE BRIMAUD Applicant
AND:	BOSTON SECURITIES ENTERTAINMENT INVESTMENTS PTY LIMITED First Respondent   CINEMA PLUS LIMITED Second Respondent   GARY BLOM Third Respondent

 

JUDGE:	EMMETT J
DATE:	9 september 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

HIS HONOUR:  The applicant, Kenneth Maurice Brimaud (“Mr Brimaud”) claims damages from Boston Securities Entertainment Investments Pty Limited (“Boston”), Cinema Plus Limited (“Cinema Plus”) and Gary Blom (“Mr Blom”).  The claim for damages is based upon breaches of contract, contraventions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) and contraventions of the Corporations Law.  The primary claims are for alleged breach of contract and the other claims might fairly be characterised as fall back positions so far as Mr Brimaud is concerned.

BACKGROUND

Mr Brimaud and Mr Blom first became acquainted in late 1988 or 1989.  They met socially on one or two occasions thereafter.  However, in late 1994, Mr Blom telephoned Mr Brimaud and a meeting was arranged.  Mr Blom indicated that he had a few things which might be of interest to Mr Brimaud, one of which was connected with Darling Harbour.

The two men met thereafter and, in the course of their discussions, Mr Blom intimated to Mr Brimaud that the matter connected with Darling Harbour involved building an IMAX theatre.  Mr Blom explained that IMAX is a “unique technology which projects a high definition image onto giant screens up to the size of a 10 storey building”.  Mr Blom said that one of the people involved in the project was John Weiley, an Australian film producer who, he said, had won an international award for the IMAX film “Antarctica”.  Mr Blom said that Mr Weiley had been a successful tenderer when the Darling Harbour Authority called for expressions of interest but was not able to obtain project finance and that was how Mr Blom got involved.  Mr Blom said that the theatre which was proposed would be one of the largest in the world.

The meetings led to Mr Blom, in his capacity as managing director of Boston Securities Australia Limited (“Boston Securities”), writing to Mr Brimaud on 5 December 1994 confirming an offer that Mr Brimaud become a director of Cinema Plus (DH) Pty Limited (“Cinema Plus DH”).  The letter said that a director’s fee of $20,000 per annum would be paid to Mr Brimaud by Cinema Plus DH commencing 15 January 1995.  The letter also said as follows:

We see your role as one of active involvement assisting us with discussions with the corporate sector, government officials and other appropriate parties.  We feel that your position with the Powerhouse Museum and your dedication and commitment to the Arts and associated fields will be of great value to the IMAX Theatre project.

The letter enclosed a form of consent to act as a director and on 15 December 1994 Mr Brimaud returned the form duly signed.

 

The IMAX Project

In late March 1995, Mr Brimaud received from Mr Blom a document entitled “Business Plan” under the name of Cinema Plus and Cinema Plus DH (“the Business Plan”).  The precise purpose for which the Business Plan was prepared is not clear, although it might be assumed that it was to furnish information to other parties who might become involved in the IMAX theatre project.  The Business Plan described Cinema Plus DH as a wholly owned subsidiary of Cinema Plus and said that Cinema Plus DH had “secured a significant site in Darling Harbour for a 99 year lease on which an IMAX theatre will be constructed”.  The Business Plan described “the project” in the following terms:

Cinema Plus has secured an exciting opportunity to construct New South Wales’ first IMAX theatre at Sydney’s premier tourist destination, Darling Harbour.  Having secured the rights to a long term lease from the Darling Harbour Authority (DHA), construction of the theatre is to commence in March 1995 with completion and opening mid-December 1995.

………………………………

The building will house a 560 seat theatre, 300 seat restaurant and merchandising areas and a spacious function room to be called “Room with a View”.  This function room, with its commanding views over Sydney Harbour, will be available for product launches and gatherings for up to 500 people in first class comfort.  Its location will make it a natural focal point for the film industry and a natural marketing tool for the IMAX theatre.

The first movie to be shown will be John Weiley’s “Antarctica” together with one of the several successful space movies.  Within 12 months these will be replaced by the feature “Australia”, which has commenced production and then the movie on the Olympics.  The themes and timing of the proposed movies are obviously linked to the marketing strategy of the IMAX theatre.

The Business Plan described the proposed management team which included Mr Blom and Mr Weiley.  Under the heading “Ownership Structure – Cinema Plus Pty Limited” the following appeared:

	No. of Shares		%
Boston Securities Entertainment Investments Pty Ltd	2,383,721	50.0
Votraint No. 856 Pty Ltd	1,430,233	30.0
AusAsean Exporters Fund Limited	953,488			20.0
	4,767,442	100.0

 

Note:   AusAsean Exporters Fund Limited’s initial shareholding is 20% however, there is an option for them to purchase an additional 10% if so desired by the Directors of Cinema Plus, which must be exercised prior to December, 1995.  This would result in Boston’s shareholding being reduced to 40% and AusAsean’s shareholding increased to 30%.

Votraint No. 856 Pty Ltd (“Votraint”) is a company controlled by Mr Weiley.

On 22 March 1995, Mr Brimaud wrote to Mr Blom referring to a meeting of the previous week at which Mr Blom was said to have confirmed that Mr Brimaud was to be appointed a director of Cinema Plus “which is to operate IMAX cinemas in Australia and elsewhere”.  The letter went on to say, inter alia, the following:

In consideration of my services you have agreed that I am to be paid reasonable directors fees and be included in a profit sharing scheme to be implemented for directors and others who do not hold equity in the company.  The rationale behind the profit sharing scheme seems to me to be for the rewarding of non equity owning directors for their services to the company on an ongoing basis

………………………

I do not think you will disagree that I have already made a substantial contribution up front by assisting in the negotiations with the Darling Harbour Authority and I believe that I will play a significant role with Multiplex to get over the inconvenience caused by Baulderstone Hornibrook.  I have no idea of the amount of time this will involve me in and I think it is fair that I am properly compensated.

I would like you to consider granting me some share options in the company that you and the other shareholders will be comfortable with and be prepared to give me.  It is usual for companies to secure the commitment and reward directors by this means.

At some time after receipt of that letter by Mr Blom and before 8 May 1995, probably during April 1995, Mr Brimaud and Mr Blom met to discuss the letter.  By that stage, Mr Brimaud had read the Business Plan.  It is common ground that there was a discussion between Messrs Brimaud and Blom concerning the terms upon which Mr Brimaud would be entitled to acquire an equity interest in Cinema Plus.  However, there is a dispute as to the precise terms of the discussions.  Mr Blom made some notes during the course of the discussion and Mr Brimaud added briefly to those notes.

Whatever the terms of the discussions, they led to Mr Brimaud preparing a letter evidencing the terms of the arrangement which they contemplated by the end of their discussion.  It is common ground that, after signature of the letter in question, to which I shall refer in detail later, there was a binding contract in existence.  However, there is a dispute as to the extent to which the discussions should also be regarded as constituting part of the contract which thereafter came into existence.

On 5 May 1995, Cinema Plus submitted to the Darling Harbour Authority (“DHA”) a document entitled “Lessee’s Proposal” also under the names of Cinema Plus and Cinema Plus DH (“the Lessee’s Proposal”).  The Lessee’s Proposal was an outline to the DHA of proposals of Cinema Plus to take a lease of a site in Darling Harbour and to construct and operate on that site an IMAX theatre.  Under the heading “The Participants and Their Roles” there appeared a reference to an attachment showing the ownership of Cinema Plus.  The Lessee’s Proposal indicated that the current shareholders of Cinema Plus were John Weiley and Susane Weiley each holding one ordinary share of $1.  It was stated that, upon signing of lease documents with the DHA, the shareholders of Cinema Plus would be:

·        Boston Securities Entertainment Investment – 35% (1,668,605 shares)

·        Votraint No. 856 Pty Ltd – 30% (1,430,233 shares)

·        AusAsean Exporters Fund Limited  - 30% (1,430,232 shares)

 

The Lessee’s Proposal also stated that four private investor companies had committed to take up a total of 5%.  Those companies (“the Spatt Group Investors”) were as follows:

·        Capital Credit Company Pty Ltd

·        Management Services – 4 - U Pty Ltd

·        Vosare Pty Ltd

·        Mergamin Pty Ltd

 

The Spatt Group Investors were associated with Mr Nathan Spatt (“Mr Spatt”).  The significance of the shareholdings is that, while the proposition had changes, the total number of issued shares remained at 4,767,442.

 

The Lessee’s Proposal also indicated that a number of agreements would be entered into by participants in the proposal.  The agreements to be entered into include a shareholders’ agreement between the proposed members of Cinema Plus. 

 

The 8 May Agreement

Against that background, Mr Brimaud sent a letter to Mr Blom on 8 May 1995 (“the 8 May Agreement”).  The terms of the letter are critical and I set out its terms verbatim:

 

Dear Gary,

This is to confirm my acceptance of the offer made to me by you on behalf of Cinema Plus Pty Limited and Boston Securities Entertainment Investments Pty Limited and, as indicated by you, with their authority, that in consideration of my personal involvement in, and the provision of advisory services related to, the development of an IMAX theatre complex at Darling Harbour, I shall receive the following benefits:

1.         After signing of the Head Lease between Cinema Plus Pty Limited and the Darling Harbour Authority in respect of the site at Cockle Bay, Darling Harbour on which an IMAX theatre is to be built (the Lease), my consultancy company will be retained to provide advisory and business services to Cinema Plus Pty Limited for its subsidiaries, associated and related companies or entities at the hourly rate of $250.00 per hour payable within thirty (30) days of invoice date.

2.         My consultancy company will continue to receive $1,666.00 per month payable monthly for the provision of consultancy services until the opening of the IMAX Theatre and thereafter I shall be paid director’s fees of $2,500.00 per month payable monthly.

3.         I shall be allotted 47,674 shares being the equivalent of one percent (1%) of the fully diluted capital of Cinema Plus Pty Limited at the price of $1.674 per share, fifty percent (50%) of which will be fully paid now and the balance to be exercisable no later than 31 December 1996.  It is further agreed that payment for these shares and allotment calls may, at my option, and it is hereby acknowledged, be made by applying consultancy fees due and payable to me.

4.         I am granted at no cost an option to purchase a further 47,674 shares being the [e]quivalent of an additional one percent (1%) of the fully diluted capital of Cinema Plus Pty Limited at the share price of $1.674 per share such option to be exercised no later than 31 December 1995.

Please sign this letter and copy in confirmation.

Yours faithfully,

[Signed]                                                                           Agreed and Confirmed

                                                                                                                [Signed]

Ken Brimaud                                                       ……………………………………

Enc.                                                                                                    Gary Blom

                                                         On behalf of Cinema Plus Pty Limited and

                                 Boston Securities Entertainment Investments Pty Limited

 

While the letter was signed by Mr Blom, he did so only on behalf of Cinema Plus and Boston.  He did not purport to incur any personal obligation. I consider, therefore, that the intended parties to the contract were Mr Brimaud on the one hand and Cinema Plus and Boston on the other.  Since all three respondents have been represented in these proceedings by the same solicitors and counsel, that may not have any practical significance.

 

Four separate matters can be identified as arising from the 8 May Agreement as follows:

 

1.         Mr Brimaud’s “consultancy company” would be retained to provide advisory and business services at the hourly rate of $250.  That consultancy company would continue to receive $1,666 per month until the opening of the IMAX theatre.  It is not totally clear from the language of the 8 May Agreement, but the preferable reading is that the consultancy company would be paid a retainer of $1,666 per month until the opening of the IMAX theatre and in addition would be paid at the rate of $250 per hour for services actually provided.  That construction is supported by the terms of the letter of 5 December 1995 whereby Mr Brimaud was to receive director’s fees of $20,000 per annum payable monthly which would amount to $1,666 per month.  The intention appears to have been to convert the entitlement of Mr Brimaud to director’s fees from Cinema Plus DH into an entitlement that his consultancy company receive a retainer of $1,666 per month from Cinema Plus until the opening of the IMAX theatre.

 

2.         Mr Brimaud was to be paid director’s fees of $2,500 per month after the opening of the IMAX theatre.  In the light of the letter of 22 March 1995, that appears to be remuneration as a director of Cinema Plus rather than Cinema Plus DH.  No mention is made of any period during which Mr Brimaud was to receive those fees.  Nor is there any reference to any circumstances in which Mr Brimaud would cease to be a director.  That is of significance for reasons which will become apparent later.

 

3.                  Mr Brimaud was to be “allotted” 47,674 shares in Cinema Plus for a price of $1.674 per share (“the first tranche”).  Those shares would represent the equivalent of 1% of “the fully diluted capital” of Cinema Plus.  Having regard to the terms of the Business Plan and the Lessee’s Proposal, it is clear that the parties to the 8 May Agreement had in contemplation that Mr Brimaud would be entitled to 1% of 4,767,442 shares intended at that stage to be issued by Cinema Plus.  No mention is made of the par value of the shares.  Neither Votraint nor AusAsean Exporters Fund Limited (“AusAsean”) was a party to the 8 May Agreement.  The parties to the 8 May Agreement appear to have contemplated, therefore, that Mr Brimaud’s initial tranche of 47,674 shares would come from the shares intended to be issued to Boston.  Boston was originally to receive 2,383,721 shares.  However, by the time of the Lessee’s Proposal, that number had been reduced to 1,668,605 by allocations to AusAsean and the Spatt Group Investors.

 

Mr Brimaud was to pay for the first tranche  as to half immediately and as to the other half no later than 31 December 1996.  Mr Brimaud was to be entitled to pay for those shares by applying consultancy fees due and payable to him.

 

A number of observations can be made in relation to paragraph 3.  First, the 8 May Agreement refers to the balance of the price being “exercisable” no later than 31 December 1996.  That is nonsensical since, while a price may be payable, it is not “exercisable”.  The use of that word may signify an expectation that Mr Brimaud was to have an option in respect of the first tranche. However, paragraph 3 provides that 50% of the price for the first tranche “will be fully paid now”.  That language signifies the imposition of an immediate obligation upon Mr Brimaud.  Secondly, it contemplated that “allotment calls” might be payable.  It is not clear what that means.  It might suggest that the shares were to be issued and allotted by Cinema Plus direct to Mr Brimaud credited as partly paid with the balance payable by way of call no later than 31 December 1996.  Thirdly, the payment of the balance of the price, whatever character that might have, was to be made by applying consultancy fees.  However, no consultancy fees were due and payable to Mr Brimaud.  The only consultancy fees payable were those payable to Mr Brimaud’s “consultancy company”.  Those considerations suggest that the draftsman of the 8 May Agreement had somewhat imprecise notions as to what obligation paragraph 3 was intended to create.  They indicate that one can have no confidence that language was used with any degree of precision.

 

4.         The right created by paragraph 4 is expressed to be an option and it is clear that Mr Brimaud had no obligations unless he exercised the option.  Mr Brimaud was to have an option to acquire a further tranche of 47,674 shares in the capital of Cinema Plus (“the second tranche”). That second tranche was also contemplated by the parties as comprising 1% of the shares which the Business Plan and the Lessee’s Proposal indicated would be issued by Cinema Plus.  The option was to be exercised no later than 31 December 1995.  The price payable on exercise of the option was also to be $1.674 per share.  The use of the term “purchase” in contrast to the term “allot” in paragraph 3 suggests that the draftsman had in mind that the second tranche was to be acquired by way of transfer rather than initial allotment.  Once again, however, the lack of precision in the drafting of the 8 May Agreement would leave one with no confidence that the draftsman intended to draw that distinction.

 

One critical matter which is not addressed in the 8 May Agreement and which gives rise to a significant issue in the proceedings is precisely what was intended to be the subject of the third and fourth paragraphs when those paragraphs refer to “47,674 shares”.  At the time of the 8 May Agreement, the issued capital of Cinema Plus was two shares of $1 each.  There is nothing in either the Business Plan or the Lessee’s Proposal to indicate the intended par value of the 4,767,442 shares which were to be issued.  However, it is clear enough that the parties to the 8 May Agreement had in mind that, whatever the nominal or par value of the shares issued, 4,767,442 shares would be issued and, as a consequence, Mr Brimaud would be entitled to acquire two tranches of 47,674 such shares for a price of $1.674 per share.  Whether the shares were to be issued and allotted direct by Cinema Plus to Mr Brimaud from the shares which would otherwise have been issued and allotted to Boston or whether the shares were intended to be transferred by Boston to Mr Brimaud following issue and allotment to Boston by Cinema Plus may not, in the events which have happened, much matter.  It is clear enough that obligations were imposed either jointly or severally on Boston and Cinema Plus at least to procure that Mr Brimaud would acquire those shares subject, of course, to his performing or being ready, willing and able to perform, his side of the bargain.

 

On 13 June 1995, Mr Blom, as managing director of Cinema Plus, wrote to Mr Brimaud requesting that he complete a consent to act as director in respect of Cinema Plus and Cinema Plus DH.  The documents were completed by Mr Brimaud on 19 June 1995 and returned.  In connection with the consent to act as a director of Cinema Plus, Mr Brimaud completed a form of notice pursuant to sections 231 and 236 of the Corporations Law.  Those sections require, inter alia, notification of:

·        particulars of shares in the company, and in related bodies corporate, in which the director has a relevant interest;

·        particulars of rights and options held by the director in respect of the acquisition or disposal of shares in the company and related bodies corporate.

 

Mr Brimaud completed a schedule disclosing the following in relation to relevant interests:

·        name of company:  Cinema Plus Pty Ltd

·        number of shares:  1% of fully diluted capital

·        nature and extent of relevant interest:  shares not yet issued but allotted to me or at my direction

·        consideration per share:  $1.674

·        date:  8 May ’95.

 

In relation to rights and options, Mr Brimaud disclosed the following:

·        name of company:  Cinema Plus Pty Ltd

·        number of rights/options:  unknown - 1% of fully diluted issued capital

·        description and class of rights/options:  option over fully paid ordinary shares expiring on 31 Dec 95

·        number, description and class of underlying securities:  unknown

·        consideration:  exercise price $1.674 per share

·        date:  8 May ’95.

 

Initial Capitalisation of Cinema Plus

On incorporation of Cinema Plus on 8 July 1994, 2 shares of $1 each had been deemed to be issued to the subscribers.  On 5 June 1995, 2 shares of $1 each were transferred from the subscribers to Votraint and 286 further shares of $1 each were issued to Votraint.

 

On 29 June 1995, a shareholders agreement was entered into by each of the proposed shareholders of Cinema Plus other than Mr Brimaud.  By that stage, it appears that AusAsean was no longer to be a shareholder.  In lieu of AusAsean, Perpetual Trustees Australia Limited, in its capacity as trustee of Macquarie Investment Trust II (“Macquarie Trust”), was a party to the shareholders agreement.  The shareholders agreement provided that there were to be three classes of shares in the capital of Cinema Plus being A Class Ordinary Shares, B Class Ordinary Shares and C Class Ordinary Shares.  The A Class, B Class and C Class Shares were all to have a par value of 20 cents.  The A Class Ordinary Shares were to be issued to Votraint, the B Class Ordinary Shares to Boston and the C Class Ordinary Shares to Perpetual and Boston.  At that stage, the issued capital of Cinema Plus consisted of 288 ordinary shares of $1.00 each held by Votraint.  Those shares were to be reclassified as 1,440 A Class Ordinary Shares.

 

Clauses 7.1 and 7.4 of the shareholders agreement relevantly provided as follows:

 

7.1       Rights Attached to Shares

The A Class Ordinary Shares, B Class Ordinary Shares and C Class Ordinary Shares will carry the same rights in all respects except:

(a)       the voting rights and dividend entitlements attached to the A Class Ordinary shares will not fall below 20% of the total voting rights and dividend entitlements in the Company before [the date on which the IMAX theatre… is first opened and screened to members of the Public]…

(b)        the A Class Ordinary Shares will entitle the holder (Votraint) to appoint two directors to the Board of Directors;

(c)        the B Class Ordinary Shares will entitle the holder (Boston) to appoint two directors to the Board of Directors and…Boston may transfer 238,372 B Class Ordinary Shares to [the Spatt investors]; and

(d)        the holder of the C Class Ordinary Shares other than Boston will entitle the holder to appoint one director to the Board of Directors.

………………………………

7.4       Critical Matters

…the parties agree that none of the matters referred to below shall occur or be effected at any time unless:

(a)        it is first submitted to the Board of Directors; and

(b)        the matter is approved by Directors appointed pursuant to clause 7.1 representing Shareholders who collectively hold not less than eight five percent (85%) of the voting rights in the Company.

The matters referred to above are as follows:

………………………………

(vii)      allotting shares, convertible notes, options or other securities in the Company;

………………………………

(xiv)     appointing and removing the Chairman, chief executive officer, chief financial officer and general managers and the Company’s bankers, Auditors and solicitors;

………………………………

By facsimile of 17 August 1995 from Messrs Gilbert and Tobin, the solicitors for Cinema Plus, Mr Brimaud was notified of a proposed directors’ meeting of Cinema Plus to be held at 2 p.m. on that day. The business to be transacted at the meeting included allotment of further shares in Cinema Plus. 

Mr Brimaud did not attend the meeting because, he said, of the short notice and a long standing commitment.  He said that he had a telephone conversation with Mr Blom after he received the notice during which there was a discussion concerning the absence of any reference in the business to the allotment of shares to Mr Brimaud.  Mr Brimaud says that Mr Blom told him that he did not have to worry and that Mr Brimaud still had to pay for the shares.  He said that Mr Blom said “the shares will be allotted to you as we agreed”.  Mr Blom denies that such a conversation took place.  On the issues which arise in the case, it may not matter whether that conversation took place or not. 

 

In any event, the meeting apparently proceeded and the following business was transacted:

·        the articles of association of Cinema Plus were altered to reflect the provisions of the shareholders agreement;

·        the 288 shares of $1 each held by Votraint were subdivided into 1,440 shares of 20 cents each and those shares were converted into “A” class shares;

·        1,668,605 “B” class shares were issued to Boston;

·        1,430,232 “C” class shares were issued to Perpetual Trustees Australia Limited as trustee for Macquarie Trust.

Entries were subsequently made in the register of members of Cinema Plus recording the allotment of shares on 17 August 1995.  In addition, it appears that options were granted to Votraint for a further 1,428,793 “A” class shares.

Shortly after 17 August 1995, Mr Brimaud received an invitation to attend the formal announcement by the New South Wales State Government Minister responsible for Darling Harbour that Cinema Plus had been granted the right to build and operate the IMAX theatre.  Mr Brimaud subsequently attended the announcement on 28 August 1995.  There was considerable media coverage of the announcement in the days which followed.

There is in evidence a document purporting to be minutes of a meeting of directors of Cinema Plus held on 26 September 1995 by telephone.  The minutes record, inter alia, the following:

Financial Statements:  The company’s accounts for year ended 30th June, 1995 with the reports thereon were tabled.  It was resolved that the accounts be approved for presentation to members at the 1995 annual general meeting.

Directors Statement:  It was resolved that the Director’s Statement presented to the meeting, made up pursuant to section 301 of the Corporations Law, be signed on behalf of the Board by two of the Directors present and attached to the Company’s accounts for the year.

Directors Report:  It was resolved that the Directors Report presented to the meeting, made out pursuant to section 304 of the Corporations Law, be signed on behalf of the Board by two of the Directors present and attached to the Company’s accounts for the year.

There is also in evidence a document purporting to be minutes of the annual general meeting of the members of Cinema Plus held by telephone on 10 October 1995.  The only people reported as present were directors, all of whom were shown as present by telephone.  The minutes include the following:

Financial Statements:  The company’s accounts for period ended 30^th June, 1995 with the reports thereon were tabled.  It was resolved that the accounts and the reports thereon be received and adopted.

Mr Brimaud was recorded as being present “by telephone” at both meetings.  That fact was not the subject of any cross-examination.  However, Mr Blom was cross-examined concerning the terms of the report of the directors which forms part of the annual accounts of Cinema Plus for the period ended 30 June 1995.

The report of the directors and the statement by directors are both dated 10 October 1995.  Significantly, the report of the directors contains the following statement:

No options to shares in the company have been granted during the financial period and there were no options outstanding at the end of the financial period.

There was no explanation from Mr Brimaud as to how he would be a party to such a report, having regard to the terms of the 8 May Agreement.  Mr Blom said, in cross-examination, that he believed that the statement was true.  That is difficult to accept having regard to the way in which he described the right conferred by paragraph 4 of the 8 May Agreement.  He referred to the right as “options to take up shares in Cinema Plus”.  He agreed, in cross-examination, that it was an option “associated with the issue of new shares in Cinema Plus”.

In about the second week of October 1995, Mr Brimaud received notice of a directors’ meeting of Cinema Plus to be held on 17 October 1995.  The board papers for the meeting included financial information comprising, inter alia, a “Pro Forma Balance Sheet Projected to Opening Date” of Cinema Plus.  That pro forma balance sheet disclosed shareholders’ equity as including the following:

·        paid up capital (20 cents) $953,488;

·        share premium reserve $1,713,854.

 

A note to those items states as follows:

Issued capital is represented by 4,767,442 ordinary shares totalling $2,667,342.

A further document entitled “Summary of Share Capital Structure” set out the issued capital as follows:

Shareholder	Class	Shares Allocated
Votraint	A	1,440
Votraint (Options to be exercised) (Issued out of share premium account)	A	1,428,793
Boston Securities Entertainment Investment Pty Ltd (Note:  5% - 238,378 B Class Shares on sold by             Boston to Spatt group of investors)	B	1,668,605
Macquarie Bank	C	1,430,232
Boston Securities Ent. Inv. P/L (Off balance sheet expenditure by Braniff/Boston   to be converted to C Class Shares.)	C	238,372

The agenda for the board meeting also included an item as follows:

Tabling of share transfers to [sic] Cinema Plus Pty Limited board from Boston Securities Entertainment Investments for the transfer of 238,378 shares to the minority shareholders.

The minutes of that meeting record the approval of transfers of 238,372 “B” class shares from Boston to the following transferees:

·        Capital Credit Company Pty Limited – 139,554 shares

·        Vosare Pty Limited – 84,862 shares

·        Mergamin Pty Limited – 13,956 shares

The next step in the initial capitalisation of Cinema Plus took place on 21 March 1996 when 238,372 “C” class shares were issued to Boston.  As a result of that allotment, the issued capital of Cinema Plus was 4,767,442 shares of 20 cents each, on the assumption that the option granted to Votraint would be exercised.  The shares would therefore be held as follows:

·        Votraint:                             1,430,233 “A” class shares

·        Boston:                               1,430,233 “B” class shares

   238,372 “C” class shares

·        Macquarie Trust                 1,430,232 “C” class shares

·        Spatt Group of Investors        238,372 “B” class shares

Failure to Exercise the Option for the Second Tranche

Mr Brimaud said that after the meeting of 17 October 1995 he spoke to Mr Blom and asked him why he did not raise Mr Brimaud’s shareholding.  He said that Mr Blom told him to stop worrying and to send him Mr Brimaud’s “bill to part pay the shares”.  Mr Blom did not deny that such a conversation took place.  In any event, Mr Brimaud subsequently forwarded to Cinema Plus a fee note in the name of “International Consulting Services Pty Limited” dated 24 October 1995.  The fee note was headed “Darling Harbour IMAX Theatre Project” and was said to be on account of:

Consulting services including attendances, correspondence and advices provided to the Company, on and from December 1994.

The services were detailed over two pages.  The fee note ended:

Significantly in excess of, but say…. $45,000

The status of International Consulting Services Pty Limited was not the subject of any evidence.  The address shown in the fee note referred to above was Mr Brimaud’s residential address.  There was some evidence that International Consulting Services Pty Limited was a company previously controlled by Mr Brimaud’s father and that Mr Brimaud had changed its name after his father’s death. Mr Brimaud said that he is now the only shareholder and director of International Consulting Services Pty Ltd.

 

Further meetings of the directors of Cinema Plus were held on 28 November 1995 and 13 December 1995.  The former was attended by Mr Brimaud by telephone according to unsigned minutes.  Mr Brimaud is also recorded in unsigned minutes as being present at the meeting on 13 December 1995.  It is significant that although a proposal had been received by Cinema Plus from IMAX which was regarded as generally acceptable, the minutes of the meeting of 13 December 1995 record the following:

Essentially, it appears that the climate of conciliatory negotiation we have cherished with Brian Hall is not indicative of the IMAX corporation as a whole…

It is imperative that the company establish its ground either one way or the other with IMAX before Christmas.  It is the desire of both management and investors of the company to form a strategic alliance with IMAX however, we will not commit to any agreement that is detrimental to the company.

Accordingly, the board is in agreement that negotiations be urgently elevated beyond Brian Hall and contact made directly with the board of IMAX.  It was resolved that a sub-committee be formed and the powers of the board be duly assigned to the committee so that it is empowered to complete negotiations on behalf of the company with IMAX.  The duly authorised members of this committee are Gary Blom and Michael Traill.

………………………………

The agreement as it stands does not provide for any financial penalties, however, if certain performance milestones are not met the company could be exposed to the payment of minimum royalties on sites not yet operational, and in the worse case scenario the company’s exclusivity for Australia and New Zealand would be extinguished.

Accordingly, the board recognises that once Sydney is on its way and Melbourne under construction the company will be in a much stronger position to re-negotiate any timing issues in respect of payments and upgrades, etc.

………………………………

The sub-committee will continue to keep all members abreast of development as they occur [sic].

The significance of that item in the minutes is that the success of Cinema Plus must, at that stage, be seen to be at least somewhat equivocal. 

Two days after the meeting, Mr Weiley wrote to all directors, including Mr Brimaud referring to a court case in which IMAX was involved against “IWERKS” which was described as “its competitor in the 15/70 projector manufacturing business”.  The letter to the Board finished as follows:

IWERKS would be delighted to install and maintain our IMAX projector and sound system, to supply and install our screen etc. and to sell us a matching a 15 perf projector if we want to go to 3D.

Adopting this alternative would be fraught with difficulty but if dealing with Imax Corp goes from being almost impossible to completely impossible it is important to remember that there are other ways of skinning this cat.

On the same day, Mr Traill wrote to IMAX in New York saying, inter alia, as follows:

I am writing to express concern at certain recent developments.  In particular, some of these seem to reflect a hardened and, in some cases, uncommercial approach on the part of Imax and I would appreciate the opportunity to take up the offer expressed by you in our phone call to talk directly if any blocking points to completing an agreement emerged.

From my reading of Brian Hall’s letter of November 29, 1995 to Gary Blom there are two key issues which need to be addressed, on both of which Imax’s current position appears to have been modified substantially relative to the tenor of discussions held over the last 3 months

………………………………

My concern is that there appears to have been an adversarial framework for discussions that has recently developed, which is inconsistent with the dialogue between Gary and Brian over the last three months and the conversation between you and I [sic].

The significance of those matters is to indicate that an air of concern was apparent by December 1995.  In other words, while there may still have been optimism on the part of the directors of Cinema Plus, it appears that there was cause for some concern at the turn of events in the negotiations with IMAX.  The conflicting evidence between Messrs Brimaud and Blom concerning discussions which took place between them in December 1995 must be assessed against this background.

It is common ground that some discussions took place between Messrs Brimaud and Blom during November and December 1995.  The two versions of the discussions, however, are quite inconsistent in some respects.  Mr Brimaud said that in late November 1995 he had a telephone discussion with Mr Blom as follows:

Brimaud:         Gary, I would like to finalise our agreement.  When can we do it?

Blom:              I am working on a plan which may save you having to find the cash to pay for the shares.  I mentioned before the possibility of floating the company.  If that happens it will be a good opportunity to grant you options which you won’t have to pay for right away.  Lets get together soon to discuss it.

Mr Blom denied that such a conversation took place.

Mr Brimaud said that after the directors’ meeting of 13 December he had a another conversation with Mr Blom as follows:

Brimaud:         We had better talk about my shares and when I have to pay for it.

Blom:              I wouldn’t worry about it.  As I told you.  I am looking at an alternative way for you to get the shares without having to outlay funds at this time.  Why don’t you give me a ring when you get back to the office.

Mr Blom denied that such a discussion took place.

Mr Brimaud said that within the next few days he had a further discussion with Mr Blom as follows:

Blom:              What are you doing over Christmas?

Brimaud:         I am not sure.  I have made no firm plans.  I was thinking of going away but don’t think I will now.

Blom:              Well why don’t you come to the Hunter.  I will have the family and we can catch up and talk about Cinema Plus.

Brimaud:         What are your movements?

Blom:              We will be at the Hunter over Christmas and then we may go to the South Coast.

Brimaud:         Well I am not sure, can I ring you next week?

Blom:              Sure.  It would be a good opportunity for us to get together and talk.

Brimaud:         Being December when should I pay for the options?

Blom:              That is not important.  As I have told you I am going to try to work something out that will be better for you.  I do appreciate what you have done.  Trust me.

Mr Blom denied that any conversation about options in the terms asserted by Mr Brimaud took place.  Mr Blom, on the other hand, asserted that in December 1995 he spoke to Mr Brimaud and had a conversation to the effect of the following:

Blom:              Are you going to take up the option to purchase the shares?

Brimaud:         I don’t have the financial ability to come up with the money.  I am near a settlement with my partners.  Can I have $45,000 cash instead for my services and forget about purchasing the shares.

Blom:              I can’t do that.  However, we will be structuring a profit share or option scheme for non-executive directors which you would be entitled to participate in.

Brimaud:         That would be great.

It is common ground that Mr Brimaud did not purport to exercise the option conferred by paragraph 4 of the 8 May Agreement.  The conversations in dispute, to which I have just referred, are critical to the basis upon which Mr Brimaud says he was, nevertheless, entitled to treat the option contained in paragraph 4 as continuing on foot during 1996.  Mr Brimaud said that he believed what Mr Blom had said to him, as set out above, and that he relied on Mr Blom’s “statements and assurances”.  In his signed statement he said:

I did not think that I had to exercise the option formally in writing or to make formal application for the shares.  I expected that Blom would let me know when he required payment.  But for that conduct of Blom and my reliance upon it I would have exercised the option in a formal manner and by 31 December 1995.

Development of a Rift between Messrs Blom and Brimaud

On 15 January 1996, Mr Brimaud received a memorandum from Mr Blom announcing that on 22 December 1995, “we signed an agreement with Imax Corporation which grants Cinema Plus exclusive agency for the Australian and New Zealand Territory”.  Mr Blom went on to say that the signing of the agreement “now puts the company in an excellent and strong position”.

Mr Brimaud said that later in the week beginning 22 January 1996, he had lunch with Mr Blom during which, he says, the following discussion took place:

Brimaud:         When can we get everything finalised?

Blom:              I am still talking to the brokers.  I have a few ideas but I am waiting for them to come up with some proposals.  Don’t be anxious.

Mr Blom denies that such a discussion took place.  Mr Brimaud says that Mr Blom also said to him on that occasion:

If I were you I would concentrate on one or two important projects.  Get your money together for the shares and concentrate on making Cinema Plus a big success.

Mr Blom does not deny that such a discussion took place and said that he had numerous discussions with Mr Brimaud about that time in which he said words to the effect:

You should get your money together for the Cinema Plus shares now.  Once Cinema Plus floats, the Boston shares will be in escrow.

Whichever version is accepted, the discussion appears somewhat equivocal.  No distinction is drawn between the two tranches of shares provided for in the 8 May Agreement.

Mr Brimaud also says that on the night before the meeting of directors of Cinema Plus fixed for 6 March 1996, he had a conversation with Mr Blom as follows:

Brimaud:         How will the float affect my shareholdings since my entitlement is to 2% of the fully diluted capital of the company?

Blom:              I can’t answer that question at the moment.  I have been talking to a number of brokers like Bain and Pru-Bache.  I can’t do anything without a valuation.  It is being worked on.  We can then have a talk and finalise our agreement.  Ken stop worrying.

Mr Blom denied that such a discussion took place.  The significance of that discussion, if it took place, would be that it appears to involve acceptance by Mr Blom that Mr Brimaud was still entitled to “2% of the fully diluted capital of the company” as at March 1996.  He would be unlikely to have accepted such a proposition from Mr Brimaud without question if he thought that the option had lapsed following its non-exercise before the end of December 1995.

No document was brought into existence prior to April 1996 which in any way confirmed either Mr Brimaud’s version or Mr Blom’s version of the discussions which took place in December 1995.  However, Mr Brimaud brought into existence a diary note dated 2 April 1996 following a meeting which, according to the diary note, took place between Messrs Brimaud and Blom at 8 a.m. that day.  Mr Brimaud said that in the course of the meeting, the following discussion took place:

Blom:              I’ve got a valuation from Pru-Bache.  They valued the company at $70 million.  You are going to have a huge capital gains tax problem.

Brimaud:         Why is that?

Blom:              Because your shares will be worth a lot of money.  You will have to find the money for the tax because you will not be able to sell your shares for about two years.  They will be in escrow.

Brimaud:         Have you taken expert advice on that?

Blom:              Yes, I have.

Brimaud:         Well I doubt if that is correct but I will also check on it.

Brimaud  (after referring to “2% of the fully diluted capital of Cinema Plus”):

                        I hope the float will not dilute my interest.

Blom:              Well your equity will be diluted, just as mine will.

Brimaud:         To what extent?

Blom:              Your 1% will probably be diluted to .6%.  But it is better to have .6% of $70 million rather than 1% of $7 million.

Brimaud:         Well Gary, I hope that I am getting the full 2% and that you will not renege on it.  I did not write to you formally exercising the option to take up the additional 1% because you said it wasn’t necessary.  I am still waiting to hear from you when I have to pay for them.

Blom:              I am still talking to brokers.  I think we will go with Pru-Bache.  I have told you not to worry and to trust me.  You do have an important role to play in promoting the theatre to tourist and cultural bodies.  I’d like you to help organise the opening night.  It has to be a spectacular affair like one of those Powerhouse opening nights.

Mr Blom denied that such a conversation occurred.  Mr Brimaud’s diary note of the discussion, after referring to his own understanding of the effect of the 8 May Agreement, went on to say as follows:

Gary said that there would be a capital gains tax problem in relation to the 1% already half paid for on the float of Cinema Plus because the value of the shares would increase significantly.  After discussing the capital gains issue, I indicated that the 2% was always intended to be of the fully diluted capital of Cinema Plus and that this should be taken into account on the proposed float as it would have the effect of reducing the agreed share of equity I was to be given.  He replied by saying that this was a necessary consequence of a float and affected his shareholding as well.  He said in response to a question from me that the dilution would be in the order of 40% and that it was better that I had .6% of $71 [million] rather than 1% of $7 million.

In relation to the further option to purchase shares being the equivalent of an additional1% of the fully diluted capital of Cinema Plus, he confirmed that he had waived the date on which the option was to be exercised and he would put in place an option and bonus plan which would effectively give me what had been promised in our agreement without me having to shell out any funds on the exercise date while being able to exercise the option over a longer period of time and pay for the options if and when I onsold the shares.

He indicated that there were discussions going on with the brokers, and the preferred broker for the float would be Prudential.  He repeated again that he intended to honour the agreement to the letter and indicated that he had a role for me to play in relation to the Tourism and Institutions linkage and discussed putting me in charge of the opening night. [Emphasis added.]

The diary note has a self-serving air about it.  Further, Mr Brimaud conceded, in the course of cross-examination, that the diary note was not an accurate record of what was said.  Mr Brimaud’s evidence was as follows:

He didn’t use the word, waived, he said he had another plan in place.  He didn’t say I waived the date.  He said, I am giving you a 1 per cent in a different way, I’ve got an option plan, option bonus plan.

… he didn’t say I’ll waive the date, waive the date.

When asked what caused him to include a statement that Mr Blom confirmed that he had “waived” the date, Mr Brimaud said:

 

Because he said words to me that indicated to me that the date, that we had gone beyond December 1995 and that I would be getting the 1 per cent through another way, through an option and bonus plan that he would be putting in place.

That, of course, is not a waiver but a confirmation of a different arrangement.  The diary note does not corroborate the version of the conversation which Mr Brimaud set out in his statement.  Further, Mr Brimaud’s concession in cross-examination indicates that the diary note itself is not a reliable record of what was said at the time.  In the circumstances, I do not regard it as corroborative of the version of the discussion in December 1995 relied on by Mr Brimaud.

If anything, it tends to corroborate Mr Blom’s version that there was a discussion about a profit share or option scheme for non-executive directors which would give Mr Brimaud an interest in the equity of Cinema Plus without any need on his part to pay out funds which would have been necessary upon exercise of the option.  Indeed, the statement that Mr Blom “intended to honour the agreement to the letter” is hardly consistent with an arrangement which involved a variation of the 8 May Agreement, or a departure from the strict performance of its terms.

 

On 9 April 1996, Mr Brimaud received from Mr Traill a copy of a letter of 1 April 1996 from Prudential-Bache Securities (Australia) Limited (“Pru-Bache”).  The letter stated that Pru-Bache had arrived at a preliminary valuation of the Cinema Plus business of approximately $70 million.  The letter set out a pro forma capital structure of Cinema Plus assuming an issue to the public to raise $30 million.  The capital structure disclosed set out shareholdings as follows:

·        Boston - 20%

·        Votraint– 17%

·        Macquarie Trust - 17%

·        Other vendor shareholders – 3%

·        New investors (following public issue) – 43%

 

The letter, after saying that the capital structure assumed that there was no sale by the vendors of their shares in Cinema Plus, also said:

In Prudential’s view share market perception of promoter’s commitment is essential to the success of a float and for this reason we strongly advise that the vendors of the Cinema Plus business do not sell their shares.

The letter went on to refer to the requirements of the listing rules of Australian Stock Exchange Limited (“ASX”) restricting the transfer of ownership of securities issued by a company in consideration of the acquisition of any interest in an asset for which value cannot be readily ascertained.  The letter also said that ASX had consistently imposed “escrow periods” of between 18 and 24 months depending on its assessment of the investment risk to the public.  The letter expressed the belief that ASX would impose an escrow period of 2 years on securities issued to the vendor shareholders of Cinema Plus.  However, the letter referred to precedent for ASX excluding from escrow vendor securities up to the value of a vendor shareholder’s original investment in the business.

 

Mr Brimaud said that a further conversation took place with Mr Blom following a presentation to the directors of Cinema Plus at the offices of Macquarie Bank on 16 April 1996.  Mr Brimaud said in his statement that the conversation was as follows:

Brimaud:         What is happening?  When can we finalise our agreement?  We are talking about a float and I still don’t know what my position is.  I can pay for the shares.

Blom:              We have to wait until the Board decides to go ahead with the Pru-Bache proposal and then we can put it in place.

Brimaud:         But I still don’t know what you have in mind in relation to the additional 1%.

Blom:              I don’t know how many times I’ve told you not to worry.  You have no reason not to trust me.  Once we get it through the Board then we can move.  Be patient.

Mr Blom denies that such a conversation took place.  He conceded, however, that he had a number of discussions with Mr Brimaud in which he said that it was still his intention that the non-executive directors of Cinema Plus, including Mr Brimaud, would participate in a share option scheme.  Even if the conversation took place as asserted by Mr Brimaud, it is equivocal in relation to Mr Brimaud’s version of the discussions in December 1995.

During April 1996, a dispute arose within Cinema Plus which has a bearing on one of the claims made by Mr Brimaud.  The dispute concerns the proposed appointment of Ms Julie Steiner as managing director, or chief executive officer, of Cinema Plus.  The dispute was essentially one between Messrs Blom and Weiley.

On 20 March 1996, Mr Blom, purporting to act as managing director of Cinema Plus, had written to Ms Steiner offering her the position of managing director of Cinema Plus and setting out proposed remuneration.  Ms Steiner was also offered an option to acquire “an equity position” in Cinema Plus.  The letter said that 139,554 shares at a price of $1.674 would be available for her acquisition “from an existing minority shareholder”.

It appears that Mr Weiley was unhappy about the proposed appointment of Ms Steiner.  The reasons are not clear and are probably not relevant to the issues before me.  On 11 April 1996, Mr Weiley wrote to Ms Steiner saying, relevantly, as follows:

As you have no doubt become aware, the process of attempting to arrange for you to join Cinema Plus as CEO has been extremely unsatisfactory from my point of view.  Pretty much everything that could be done to create a fait accompli and extinguish my rights to have an equal say in the matter has been done.

The fact remains that you cannot be appointed to the position until more than 85% of the shareholders vote for you at a board meeting and also approve the terms of any contract with you.

………………………………

If you are still interested in the position and would like to try to sort this problem out I would be happy to meet you as soon as possible after your return.  The board meeting to resolve this matter will have to be held within a week or so.

………………………………

Mr Weiley was clearly referring to clause 7.4 of the shareholders’ agreement entered into on 29 June 1995 which is set out above.

A meeting of the directors of Cinema Plus was proposed for 22 April 1996.  One item of business was the appointment of Ms Steiner as chief executive officer.  On 22 April 1996, that meeting was deferred to 24 April 1996.  However, for reasons which are not clear and probably do not matter, the meeting did not take place.  The next meeting took place on 22 May 1996 in circumstances of some acrimony.

The May Correspondence

In the meantime, a further discussion took place between Messrs Brimaud and Blom on 1 May 1996.  Mr Brimaud said that the conversation was as follows and Mr Blom did not dispute that version.

Brimaud:         I have had a chance to look at the Prudential-Bache proposal.  I could be serious disadvantaged.  I will write to you and put my concerns in writing rather than do it now on the telephone.

Blom:              Ken, there’s no need to do that.  I have told you 27 times now that you don’t have to worry.  It will all be done before the theatre opens.

Brimaud:         I know Gary.  I am just afraid that if we don’t sort this out now, especially given the problems with Weiley, it could get messy.  There are a number of things that could happen with a float.  I don’t know exactly what you are planning.  Anyway, its better if I put it in writing so you can give it proper consideration.

The conversation is equivocal in relation to the issues before me.  In any event, the letter foreshadowed by Mr Brimaud was written on 2 May 1996.  Thereafter, there was a series of letters passing between Messrs Blom and Brimaud concerning the 8 May Agreement.  The terms of that correspondence are of some significance in resolving the dispute as to the disputed discussions in December 1995.  Running in parallel with the latter part of that series of letters, was a further line of communications, mostly oral but some in writing, between Mr Brimaud on the one hand and Mr Blom and others concerned with Cinema Plus on the other.  The second line of communications resulted from the dispute concerning Ms Steiner and Mr Blom’s proposed resolution of that question.  I shall deal with that second line of communications below.

Mr Brimaud’s letter to Mr Blom of 2 May 1996 was in the following terms:

Dear Gary,

Cinema Plus Pty Limited

I refer to our telephone conversation yesterday when I indicated to you that I was proposing to write to finalise my shareholding position in the company in the light of the proposed public issue.

Also, from our telephone discussion there appears to be a strong possibility of a change in shareholding in the company before the proposed float and this is all the more reason to document and finalise the issue of my equity in the company.

As you know, I only received a copy of the Shareholders Agreement from Michael Traill last Friday week prior to the aborted Board Meeting of 22 April, the papers for which also contained the Prudential-Bache letter on the proposed public issue.  The information I received from these documents impact on our agreement of 8 May 1995.

In our telephone conversation you referred to having told me “27 times now” that you would ensure I received the benefits under our agreement.  I do not doubt your sincerity but since receiving the copy of the Shareholders Agreement and details of the proposed float, it is clear that I would be seriously disadvantaged by not receiving the second 1% equity since for each share in the existing company it appears I would receive 8.39 shares in the public company.  Perhaps you could let me know how you propose to cover this with the options plan you told me you were in the process of preparing with Michael Traill?

When we last discussed this issue, over coffee on Tuesday afternoon of 16 April, after the MoV presentation, you seemed to say that I had lost the additional 1% because I failed to formally exercise the option to purchase by the due date (December 1995).  Perhaps I misunderstood you because you did reassure me (you would say ‘yet again’) that I would obtain this benefit but in another way.

On a number of occasions, prior to and after December 1995, you indicated you were formulating an options/bonus plan as a suggested alternative which would be better for me as it would minimise or draw out the cash commitment for the additional 1% equity.  This was mentioned in the context of floating Cinema Plus and I recall you mentioning discussions with Bain and Dicksons.  Indeed, in our breakfast meeting on 2 April you specifically said I should not be concerned about the additional 1% because you intended soon to submit the options/bonus plan for Board approval.

Thus, from our many discussions, I formed a clear impression that the exercise date for the option was not a ‘deadline’ because you had not finalised your alternative proposal for my consideration.

On these occasions you would criticise my bringing up the topic yet again as you had repeatedly told me you ‘would look after me’.  What I need to know now is the nature and value of the equivalent benefit you are proposing so we do not find ourselves in conflict later.

It may be that your plan is to issue options in the present entity which will have a right to options in the float with a factor of 8.39 which might achieve the result you intend.  However, the number of options issued to me should not only reflect the 1% additional equity offered to me but also the options I would have received as a director of the company.

………………………………

Gary, I am sure you appreciate the value of my contribution which along with yours was vital to the project getting up.  If the DHA deal had not eventuated there would have been no Imax exclusive rights and the wealth which has been created for you in the project would not have happened.  The equity I have been promised is minuscule by comparison and I am paying a premium for it.

I have no doubt that you want to do the right thing by me and honour our agreement.  I appreciate there are many important issues to focus on now and I would like us to do so and get this matter resolved and finalised.

Like you, I am fully committed to the success of Cinema Plus and excited by the opportunities that lie ahead.  I know I can make a significant contribution to the company’s future development and look forward to continuing our close relationship.

Kind regards.

Yours sincerely,

 

It is significant that Mr Brimaud did not, in his letter of 2 May 1996, attempt to confirm the conversations which he asserted had taken place in December 1995.  The references to the proposed formulation of “an options/bonus plan” as an alternative which would minimise or draw out the cash commitment is important.  That is not inconsistent with Mr Blom’s assertion that he referred to a proposed profit share or options scheme.  It is also consistent with Mr Brimaud’s diary note of 2 April 1996 to the effect that the option and bonus plan would give Mr Brimaud what had been promised without Mr Brimaud having “to shell out any funds on the exercise date while being able to exercise the option over a longer period of time and pay for the options if and when they are onsold to the shares”.

The conclusion in Mr Brimaud’s letter of 2 May 1996 was that he had “formed a clear impression” from his many discussions with Mr Blom.  He did not assert that Mr Blom had said that it was “not important” that he pay for the options and that Mr Brimaud should “trust” Mr Blom. 

It is also of significance that Mr Brimaud’s reference to the alleged discussion of 16 April 1996 in the letter of 2 May 1996 is not consistent with the version of that discussion which he included in his statement as set out above.  There is no suggestion in that version that Mr Blom “seemed” to say that Mr Brimaud “had lost the additional 1% because I failed to formally exercise the option to purchase by the due date (December 1995)”.  That is another reason for rejecting Mr Brimaud’s statement as reliable evidence of conversations.

The thrust of the 2 May 1996 letter is a complaint about the absence of the options bonus plan as follows:

What I need to know now is the nature and value of the equivalent benefit you are proposing so we do not find ourselves in conflict later.

There never was a satisfactory response to that demand.  However, if Mr Brimaud truly believed that the date for exercising the option for the second tranche had been deferred and also understood that Mr Blom was saying on 16 April that because of failure to exercise the option by the due date the second tranche had been lost, it is surprising that there was no protest by Mr Brimaud in the letter of 2 May 1996.  It would also be surprising if there were no complaint at the meeting on 16 April 1996.

On 14 May 1996, Mr Blom responded to the letter of 2 May 1996 in the following terms:

Dear Ken,

In accordance with your letter of 2 May 1996 I am writing to confirm with you what has been agreed previously in our many discussions.

As per our agreement of 8 May 995, Boston Securities Entertainment Investment Pty Limited (“Boston”) agreed to allot you 47,647 shares (1%) of its shareholding in Cinema Plus Pty Limited (“Cinema Plus”) at a price of $1.674 per share.  Fifty percent of this amount has been fully paid by way of contra of your legal services provided in assisting with the DHA negotiation.

The remaining fifty percent still outstanding requires payment no later than 31 December 1996.  In the event the Board of Cinema Plus decides to proceed with the public offering as planned you will need to pay the balance outstanding of $39,903 to Boston so it may issue you with the appropriate share certificates prior to the issue of any new shares.

In regard to the additional one percent (1%) you were granted an option to purchase a further 47,674 at $1.674 which was to be exercised no later than 31 December 1995.  Prior to December 1995 you advised me that you were short of funds due to the fact that you needed money to settle an outstanding legal problem with you[r] old law firm.

Based on this situation I advised you, that rather than your funding an additional $79,806 to take up your option, it was our intention to issue Directors who are non-shareholders, management stock options and that you and Keith Moremon would participate in this non-executive option scheme.

Based on discussions with other shareholders it is our intention to issue stock options to non executive directors (K. Brimaud, K. Moremon), senior executives and key employees prior to the company going public.

Once we have determined the actual capital structure and the price per share we will be formalising the actual number of options to be issued to the various parties.

Assuming at the time of the public offering the share price is $1, these options would be issued to directors and management at the same value and would be subject to similar escrow provisions that will apply to all existing shareholders which we anticipate will remain in effect for 24 months.

………………………………

In addition, I wish to confirm with you that you are the only director currently receiving a monthly consultancy fee which we agreed to continue until opening of the theatre and thereafter at the rate of $2,500 per month for your past and current involvement.

I trust that this clarifies and confirms the situation.

Ken, I honestly do appreciate all of your efforts to date and trust that you will be involved with Cinema Plus for many years to come.

Yours sincerely,

Gary Blom

One matter of significance which emerges from that letter is the unequivocal acceptance by Mr Blom that, in respect of the first tranche of shares in Cinema Plus, part of the price had already been made “by way of contra of your legal services”.  While Mr Blom, as he subsequently acknowledged, was incorrect in referring to payment of 50%, the letter constitutes an unequivocal acceptance of part payment in respect of that tranche.

More significant, however, is the assertion by Mr Blom that Mr Brimaud had advised him that he was “short of funds due to the fact that you needed money to settle an outstanding legal problem with you[r] old law firm”.  Mr Brimaud himself said that he had told Mr Blom in the discussion in 1995 which preceded the 8 May Agreement that he was keeping some cash in reserve “to settle some outstanding claims relating to my old firm”.  That language is consistent with the language used by Mr Blom in his letter.  On the other hand, Mr Blom’s language in the letter does not support the language he set out in his statement:

I don’t have the financial ability to come up with the money.  I am near a settlement with my partners.

Further, there is no suggestion in the letter that Mr Brimaud had said, as Mr Blom asserted in his statement:

Can I have $45,000 cash instead for my services and forget about purchasing the shares.

However, the reference to an intention that Mr Brimaud would participate in a “non executive option scheme” is more consistent with Mr Blom’s version of the December discussions than Mr Brimaud’s.

On 20 May 1996, Mr Brimaud wrote again to Mr Blom, this time in the following terms:

Thank you for your letter of 14 May 1996, but there are a number of statements you have made with which I disagree.

First, in arriving at the price Macquarie Bank paid for their shares you suggest that their $1 million convertible note should be factored into the calculation.  I understand this note is treated by the bank as ‘debt’ and it was originally planned that if the project was successful it would be retired from profits.  If it was not sufficiently profitable the bank may elect to convert it to shares.  Hence, the price I should be paying is less than $1.398 per share.  What Nathan Spatt paid is immaterial.

In calculating the amount payable by me by 31 December 1996 I would point out that I rendered an account for my services for an amount of $45,000 last October which was to be by way of contra against the cost of my first 47,647 shares (1%).  Based on a price of $1.398 per share the total cost would be $66,610 with a net amount payable of $21,610.00.

Secondly, in relation to the additional 1% equity for which I was granted an option, I did advise you at the time that I may have a settlement payment to make but had set aside funds for that purpose.  I never did say that I could not or would not take up the option since at the time I had more than sufficient assets to raise the funds and this fact is easily verified.  You suggested you had a plan involving options which would provide me with an equivalent benefit without a cash outlay.

Accordingly, in relation to your stated intent to issue stock options to non-executive Directors, am I to take it that this means that I will receive 47,674 options which in the public float would each be entitled to 8.39 options which equates to 400,000 options?  If so, then you would be giving me the equivalent value under the alternative arrangement you had suggested.  If no, you misled me when you said (on more than one occasion) that I need not worry abut exercising the option.

The alternative you proposed of the issuing of options is predicated on there being a public float.  However, if this does not occur then the original arrangement whereby I purchase outright the further 1% equity stands.  In that case we need to agree the timing for the payment of these shares.

Thirdly, I am not the only Director receiving a consultancy fee.  You and John Wieley [sic], either directly or indirectly, are receiving consultancy fees for your services.  In my case, it was part of our agreement that I would have a Board seat and until the opening be paid a fee to be called a consultancy fee which would be converted to a Director’s fee of $2,500 per month after opening.

Finally, I am pleased you appreciate my efforts on behalf of the company and that you would like me to be involved with Cinema Plus for many years to come.  I am sure that you will acknowledge, on reflection, that what I have outlined is a true and accurate account of the position and honour our agreement.

We should therefore move to finalise these aspects of our agreement as soon as possible.

Yours sincerely,

Ken Brimaud

Mr Brimaud again referred to the possibility of a “settlement payment”.  That clearly refers to the discussions which took place in April 1995.  Mr Brimaud, however, then goes on to refer to the time at which he would have been required to take up the option, namely by the end of December 1995.  His assertion that he had “more than sufficient assets to raise the funds” is significant for reasons which will appear later.  That is a matter which goes to the heart of Mr Brimaud’s credibility as a reliable witness.  The reference to Mr Blom suggesting that he had a plan involving options relates to the same time, namely, the time at which the option for the second tranche would have been taken up.

In this letter, however, Mr Brimaud complains about being misled when, as he says, Mr Blom told him that he “need not worry about exercising the option”.  Mr Brimaud, however, does not specify in the letter when it was that Mr Blom told him not to worry about exercising the option.  In the letter he took the stance, which he maintained in the proceedings, that if options were not issued following the public float, the original arrangement should stand, in which event it would be necessary to agree on the timing for payment.

Mr Blom’s response of 22 May 1996 to Mr Brimaud’s letter of 20 May 1996 confirmed without equivocation that Mr Brimaud’s obligation in respect of the first tranche had been satisfied to the extent of $45,000, leaving a balance outstanding $34,806.  In relation to the second tranche, however, the letter was somewhat equivocal.  It confirmed Mr Blom’s intention in relation to non executive director stock options but it does not assist in determining whether or not the option was still on foot.  It confirms Mr Brimaud’s expectation that, if the public float proceeded, his entitlement would be approximately 400,000 options in the new structure.  However, it says nothing about the option for the second tranche under the 8 May Agreement.

Mr Brimaud placed reliance on the expression in the letter “you will still be entitled”.  However, that appears to me to refer to a continuation of an entitlement under the non executive director stock option scheme, notwithstanding change in the valuation or issue price.  It does not, in my opinion, constitute an acknowledgment that there is still in existence an option under the 8 May Agreement.

Removal of Mr Brimaud as a Director

The dispute between Messrs Weiley and Blom concerning the proposed appointment of Ms Steiner gave rise to a series of communications between Messrs Brimaud and Blom in the second half of May 1996.  Mr Brimaud prepared diary notes reporting his discussions with Mr Blom and others.  There was also an exchange of letters between Messrs Brimaud and Blom.

On 21 May 1996, Mr Brimaud and Mr Blom met, at Mr Blom’s request, at 10.30 a.m.  Mr Blom told Mr Brimaud that he wanted Ms Steiner to be appointed to the board so she could hold herself out as having the necessary authority to perform her duties adequately.  Mr Blom told Mr Brimaud that he had consulted Mr Gilbert of Messrs Gilbert and Tobin, the solicitor for Cinema Plus, and suggested that he, Mr Gilbert, should step down and Ms Steiner be appointed in his place.  Mr Blom said that Mr Gilbert advised that that would not be wise and that Mr Brimaud should be the one to resign from the board for Ms Steiner.  Mr Brimaud recorded Mr Blom as saying that “our agreement” would remain in place and it would be a “temporary arrangement”.  Mr Brimaud indicated that they had an agreement whereby he was to have a board seat and receive a certain level of remuneration.

Later in the morning, Mr Brimaud spoke to Mr Gilbert who said that he had not advised that Mr Brimaud should step down from the board as it was not his idea or concept to put Ms Steiner on the board.  Mr Gilbert agreed with Mr Brimaud’s assessment that placing Ms Steiner on the board would provoke a reaction from Mr Weiley.  Mr Gilbert said that he had indicated to Mr Blom that the proposal would be seen as a “back door” method of achieving what Mr Blom could not achieve under the shareholders’ agreement.  Mr Brimaud expressed his concern about being part of a scheme to circumvent the shareholders agreement.  In the evening of 21 May 1996, Mr Brimaud had a series of conversations with other directors of Cinema Plus.  The conversations appear to have been inconclusive.

On 22 May 1996, Mr Blom wrote to Mr Brimaud concerning his position on the board in the following terms:

In regard to the Board meeting today, I have reviewed your concerns made last night with Macquarie Bank and our company lawyers and, therefore, wish to confirm that I require you to resign as my nominee director for today’s special Board Meeting.

Please appreciate that this is only a temporary situation and I wish to confirm that you will be re-appointed as a director as quickly as possible.  In the interim, I would ask that you remain as my alternate director and therefore you continue to receive all information that is regularly distributed to board members.  Your monthly consultancy and entitlement to options, etc. will remain as my attached letter.

As stated I will be appointing Julie Steiner as my nominee director, only until such time as the current shareholder dispute is resolved.

Ken, please appreciate that this is a very difficult situation and one that must be strategically handled correctly.  Your ongoing commitment and involvement in the project will continue as if you are a full member of the Board and hopefully this will only endu[r]e for a short interim period.

The attached letter referred to is the letter of 22 May 1996 referred to above dealing with the 8 May Agreement.

Mr Brimaud responded to Mr Blom’s letter later in the day saying, relevantly:

I refer to our meeting yesterday morning in which you indicated that you wished to have Julie Steiner appointed to the Board of Cinema Plus Pty Ltd so that she would have the requisite executive authority as John Weiley has opposed her appointment as CEO.

You put to me that I should step down from the Board temporarily in order to make way for Julie Steiner.  You would then appoint me your alternate director and I would be receiving all Board papers and other information to which directors are entitled.

After full consideration of your proposal, I believe that there are serious legal implications in my agreeing to resign.  An obvious consequence is that I would be a willing participant in a scheme to circumvent or breach the shareholders agreement…  Being put on notice of this provision and the fact that John Weiley objects to the appointment of Julie Steiner as CEO, to agree to your proposal could implicate me in an attempt to by-pass the shareholders agreement.

………………………

…As I indicated to you, I am always willing to act in the best interests of the company.  I do not believe that resigning from the Board in these circumstances is in the company’s best interest.

This morning I received a letter from you in which you advise me that you are removing me from the Board to make way for Julie Steiner.  I note that you wish me to be your alternate director and that I will be re-appointed as a director “as quickly as possible”.

The minutes of a meeting of the directors of Cinema Plus held on 22 May 1996 record the following:

Gary Blom advised that he has exercised his right under clause 7.3(c) of the Shareholders Agreement by removing his ‘B’ Class nominee director Ken Brimaud and appointing Julie Steiner.  A letter dated 22 May 1996 received from Ken Brimaud was tabled acknowledging this fact along with a consent to act as director received from Julie Steiner also dated 22 May 1996.  The company secretary was requested to complete the necessary Form 304 and lodge with the ASC.

………………………………

Gary Blom advised those directors present that he has appointed Julie Steiner as his Assistant.  Those directors noted their approval of this appointment.

Mr Traill wrote to Mr Brimaud on 23 May 1996 criticising his decision to distribute his letter of 22 May 1996 to the other directors.  Mr Blom also responded to the letter on 27 May 1996 saying, inter alia:

I find your view of the events pertaining to the appointment of Julie Steiner somewhat misplaced and ill informed.  I take particular offence at your inference that our appointment is a “scheme to circumvent or breach the shareholders agreement”.  The appointment of Julie Steiner as both ‘Assistant to the CEO’ and a director of the board is fully within my powers vested to me by right of the provisions contained within the Shareholders Agreement.  Furthermore, this is an agreement to which you are not even a party and to which you have no pecuniary interest.

Please be advised that your actions have no doubt lead [sic] to the increased aggravation of the current shareholder dispute.  Furthermore, I have extreme difficulty in understanding how such actions are in the best interest of the company or it’s [sic] shareholders.

 

That letter was written by Mr Blom in his capacity as director of Boston.  Mr Blom also wrote another letter to Mr Brimaud on 27 May 1996 as chief executive officer of Cinema Plus.  That letter included the following:

I reject your suggestion that any of this is an attempt to by-pass or circumvent the shareholders agreement.  The appointment of Julie Steiner as my assistant and to the board is in all respects lawful and in accord with the shareholders agreement.  The shareholders agreement appoints me as CEO and I will remain CEO until a new CEO is appointed under the terms of that agreement.

The characterisation which you have given this matter is wrong.

Mr Brimaud responded to Mr Blom’s letters on 13 June 1996.  In that correspondence he sought to justify his actions ending with the following comment:

It is unfortunate that the conflict with John Weiley has led to some uncertainty and disharmony between us.  I hope there will be an early resolution so we can continue to work together to achieve the goals we have often spoken about.

The dispute between Messrs Weiley and Blom was resolved by Votraint transferring all of its shares to other members and Mr Weiley resigning as director, secretary and public officer of Cinema Plus.  The shareholders’ agreement was terminated.  A reconstruction of the share capital then proceeded.  All of those events occurred in August 1996.

On 28 August 1996, Mr Brimaud wrote to Mr Blom saying:

As you know, I have been trying to get together with you before you (and I) left for overseas at the end of August without success.

As you indicated in one of our brief telephone conversations, you have now settled with John Weiley.  Therefore, there should be no impediment to you re-appointing me as a director and honouring the terms of your letter dated 22 May 1996.  I would appreciate knowing your intentions as soon as possible.

I will be away until 26 September 1996 and if I do not speak to you beforehand, will hope to see you on my return.

However, the ill will engendered by Mr Brimaud’s letters concerning the appointment of Ms Steiner was apparently sufficient to prevent Mr Blom from reappointing Mr Brimaud as a director.

Public Flotation of Cinema Plus

At the meeting of directors of Cinema Plus held on 22 May 1996, the directors confirmed that management was authorised to commence the necessary steps for listing of Cinema Plus on ASX.  Prior to doing so, however, it was necessary to reorganise the capital of Cinema Plus.  First, on 12 August 1996, 1,428,793 shares of 20 cents each were issued to Votraint apparently pursuant to the option referred to above.  On the same day, in order to prepare for the public flotation, the capital of Cinema Plus was restructured as follows:

·        each 20 cent share was split into 6 ²/₃ shares of 3 cents each,

·        bonus issue of 12,217,053 shares of 3 cents.

The result of that restructuring was an issued share capital of 44,000,000 shares of 3 cents each.

The dispute between Messrs Weiley and Blom was resolved, as I have said, by Votraint transferring all of its shares.  The consequence was that, prior to the issue of the prospectus, the holders of the 44,000,000 issued shares of 3 cents were as follows.

 

On 2 September 1996, Cinema Plus issued a prospectus offering to the public for subscription 31,000,000 shares of 3 cents each in Cinema Plus at $1 per share.  The application list closed on 27 September 1996.  The issue was fully subscribed and the shares in Cinema Plus were subsequently listed for quotation on ASX.  In the meantime, the opening of the IMAX theatre took place on 25 September 1996.  Mr Brimaud attended the opening night after his return from overseas.

Termination of the 8 May Agreement

It was not until 25 September 1996 that Mr Brimaud first learned that the prospectus had been issued by Cinema Plus.  Having obtained a copy of the prospectus, he noted that his rights under the 8 May Agreement were not referred to.  Mr Brimaud therefore took up the matter of the 8 May Agreement again. On 26 September 1996 his solicitors, Messrs Whittens, wrote to Gilbert and Tobin.

In their letter, Whittens referred to Mr Brimaud as having “options entitling him to acquire 2% of the share capital of Cinema Plus as fully diluted by the flotation”.  By September 1996, even if the first tranche of shares was the subject of an option, the option had been exercised by the part payment represented by the set off of the fee note for $45,000.  Further, there is no reference in the 8 May Agreement to dilution by any “flotation”.  There is no basis for concluding that the reference to “fully diluted capital” in the 8 May Agreement was intended to be a reference to a proposed public flotation of Cinema Plus.  Rather, at that stage, it was clearly a reference to the proposed capitalisation described in the Business Plan and in the Lessee’s Proposal.

That misconception led to the following claim made in the letter:

According to the capital of Cinema Plus indicated at point 14 of the prospectus, the total issued share capital will then constitute 75,000,000 shares making Mr Brimaud’s entitlement 1,5000,000 [sic].

That is to say, Whittens were advancing the contention that Mr Brimaud was entitled to 1% of the share capital of Cinema Plus after the proposed capital raising from the public.  There is no mention of such a capital raising in the Business Plan or the Lessee’s Proposal.  The letter of 26 September 1996 went on, maintaining that position, by saying:

[W]e suggest that the company issue 422,900 of our client’s shares now and bring forward the exercise date for the remaining 1,077,100 shares to within say, 30 days of the listing of the shares on the Stock Exchange.

The figure of 422,900 shares was based on the part payment of $45,000.  At this stage, of course, there was no purported exercise of the option in respect of the second tranche.

There was no response to the letter of 26 September 1996 and, on 15 November 1996, Whittens wrote again to Gilbert and Tobin.  That letter set out a brief history of the circumstances leading up to the claim and attached copies of some of the correspondence to which I have referred above.  The letter made a claim for $6,664 for director’s fees for June to September 1996 to which Mr Brimaud’s consultancy company was said to be entitled, together with a claim of $2,500 per calendar month from and including October.  In addition, the letter said as follows:

Mr Brimaud has made an arrangement with his bank to provide the amount of $114,612.00 being the total required to purchase the remaining share [sic] and calls upon Cinema Plus to set a reasonable time and place for the settlement of the transaction and delivery of the necessary share certificate.  As the date 31 December 1996 in paragraph 3 of the agreement would appear to be a cut off date rather than a date for completion our client is entitled to pick any date prior thereto as the date for completion and to make time of the essence.  He does so requiring completion by 29 November 1996.

If there is any dispute as to our client’s version of the facts or of our view of the legal position please let us know by 22 November 1996.  It is likely that any misunderstanding or difference of opinion can be resolved more simply now in an atmosphere of co-operation rather than later at a point where litigation has eventuated.  But in the event that the matter is not resolved by the end of the month our instructions are to commence legal proceedings and this letter is not “without prejudice”.

The letter did not specify the number of shares to which Mr Brimaud was said to be entitled but simply referred to “Mr Brimaud’s entitlement to 2% of the fully diluted share capital of Cinema Plus”.  It appears that Whittens were not intending to depart from the position which had been taken up in the letter of 26 September 1996.  It is clear, however, that, in the letter of 15 November 1996, Whittens were asserting an entitlement based on part payment of $45,000 in respect of the first tranche and waiver by Cinema Plus of the requirement that Mr Brimaud should exercise the option for the second tranche by 31 December 1995.

Gilbert and Tobin responded on 27 November 1996, indicating that Mr Blom was interstate and requesting that Mr Brimaud refrain from commencing any legal proceedings until 13 December 1996.  Whittens’ response was that, once the deadline they had fixed in their letter of 15 November 1996 had passed, there was nothing to be gained by delaying the commencement of proceedings.  Gilbert and Tobin replied on 29 November 1996 saying that they would be providing a reply to the letter of 15 November 1996 by 6 December 1996.

On 6 December 1996, Gilbert and Tobin sent a facsimile communication to Whittens which was expressed to be “without prejudice except as to costs”.  The letter made reference to Whittens’ letter of 15 November 1996 and said:

We are instructed to make the following offer:

(a)       Our client will recognise the validity of the account rendered by your client in October 1995;

(b)       In consideration for the account referred to at (a) above, Boston Securities Entertainment Investments Limited (Boston) will allot 244,600 Cinema Plus shares to Mr Brimaud in October 1998, being the date at which the escrow period which applies to the Cinema Plus shares owned by Boston expires.

As to the additional 1% claimed by your client, you are referred to paragraph 4 of our client’s letter of 14 May 1996.  Our client’s position remains unchanged.

………………………………

The number of shares offered by our client are calculated by taking the number of allotted shares prior to the public float of Cinema Plus (44,000,000) and dividing this number by the acquisition price of 1% of the total issued shares, of which $45,000.00 in services has been rendered by your client.

 

In relation to the first tranche, Mr Brimaud was entitled to defer payment of the balance of the price up to 31 December 1996.  There was no basis for an assertion that he was entitled to receive only shares representing the part of the price which he had paid.  That indicates that the offer contained in the letter was intended only as a compromise and was not an offer to perform the 8 May Agreement in so far as it was still on foot.

On the same day, 6 December 1996, Mr Brimaud sent to Mr Blom, Cinema Plus and Boston a document entitled “Notice of Exercise of Options” which was in the following terms:

Although I am certain that you have received notice of my exercise of my options to acquire shares in Cinema Plus Ltd by reason of the correspondence which has passed between Whittens solicitors and Gilbert & Tobin, for an abundance of caution this notice is to be served on each of you.

TAKE NOTICE that I hereby exercise each of the options contained in paragraphs numbered 3 and 4 of the attached copy letter of 8 May 1996 signed by myself and G. Blom; each option being in respect of a discrete 1% of the present issued share capital of Cinema Plus Ltd.

For the reasons indicated above, that document exhibits the same misconceptions as had been exhibited in Whittens letter of 15 November 1996.  That is to say, it suggests that paragraphs 3 and 4 of the 8 May Agreement both gave rise to options.  It also refers to a proportion of “the present issued share capital” of Cinema Plus rather than the capital as proposed in the Business Plan.

No attempt was made by either Boston or Cinema Plus to vest any shares in Mr Brimaud.  Nor was any other offer made by either of them to perform the 8 May Agreement.

THE ISSUES

These proceedings were commenced on 18 December 1995.  In the application, Mr Brimaud claims only damages.  He does not seek specific performance of the 8 May Agreement.  The statement of claim alleges that, by refusing to appoint a time and place for completion of the allotment of shares as sought in the letter of 15 November 1996, the respondents evinced an intention not to be bound by the 8 May Agreement and had repudiated it.  Mr Brimaud asserts in the statement of claim that he was obliged to accept that repudiation and accepted it by the statement of claim itself.  The proceedings were conducted, therefore, on the basis that the 8 May Agreement was no longer on foot.

The questions before me arise out of that alleged repudiation of the 8 May Agreement by Boston and Cinema Plus.  Claims were also made against Mr Blom personally, alleging that he aided, abetted, counselled or procured conduct on the part of Boston and Cinema Plus which was in contravention of the Trade Practices Act 1974 and the Corporations Law.  In essence, there are three heads of claim made by Mr Brimaud with alternative subclaims under each head.  They may be summarised as follows:

First Tranche

The first claim relates to the first tranche of shares in Cinema Plus as referred to in paragraph 3 of the 8 May Agreement.  It is alleged that, following the failure and refusal on the part of Boston and Cinema Plus to appoint a time and place for completion of “allotment” of the first tranche, Mr Brimaud terminated the 8 May Agreement and was entitled to damages.  The damages were said to be the difference between the sum of $89,806, being the price payable for the shares, and the market price of Cinema Plus shares, either at the date of breach or at the date of judgment, together with the sum of $45,000 already paid by set off of the fees due to Mr Brimaud’s consultancy company.

In the alternative it is alleged that in May 1995 the respondents, through Mr Blom, made a representation to Mr Brimaud in terms of paragraph 3 of the 8 May Agreement.  I understand assertion of this cause of action to be a fall back position on the part of Mr Brimaud.  That is to say, it arises only in the event of a finding that there was no contractual obligation created by the 8 May Agreement.  However, it was never contended on behalf of the respondents that no contractual obligation arose out of the letter of 8 May 1995.  Accordingly, it will not be necessary to deal with this question.

Second Tranche

Mr Brimaud also alleges that in November and December 1996 he was still entitled to exercise the option in respect of the second tranche as contemplated by paragraph 4 of the 8 May Agreement.  That contention was based on the discussions said to have taken place prior to the end of December 1995 in relation to the non executive directors share option plan.  The contention involved allegations, in the alternative, of:

(a)        oral variation of the 8 May Agreement;

(b)        waiver;

(c)        estoppel;

(d)        contravention of section 52 of the Trade Practices Act and section 42 of the Fair Trading Act.

All four causes of action depend upon the same facts, namely the alleged conduct of Mr Blom in the latter part of 1995.  It is said that Mr Blom, on behalf of Boston and Cinema Plus, represented to Mr Brimaud that he need not exercise the option in respect of the second tranche and that, relying on the representations, Mr Brimaud refrained from exercising the option.  The respondents are therefore said to be estopped from denying that Mr Brimaud was, as at September 1996 and at all material times thereafter, entitled to exercise the option.

It is also said that Mr Blom did not have reasonable grounds for making that representation and that, accordingly, it was a contravention of section 52 of the Trade Practices Act and section 42 of the Fair Trading Act to make the representation. In so far as reliance is placed on the Trade Practices Act or the Corporations Law, Mr Blom is alleged to have aided, abetted, counselled or procured the contravention and, accordingly, to have been knowingly concerned in the relevant conduct.  Accordingly, the same damages are claimed against Mr Blom.

It is also alleged that the 8 May Agreement was varied prior to 31 December 1995 in that the parties agreed that Mr Brimaud need not exercise the option in respect of the second tranche by 31 December 1995 or alternatively the respondents waived their rights in that regard and the option remained open.

The damages claimed are similar to those claimed in respect of the first tranche, being the difference between the price which would have been payable on exercise, namely $89,806 and the market value of Cinema Plus shares as at the date of breach or as at the date of judgment.

Finally, it is also alleged that representations were made in terms of paragraph 4 of the 8 May Agreement.  Again, I understand those allegations to be a fall back position for Mr Brimaud.  Since it was not contended that no contractual obligation arose in relation to the second tranche, it is not necessary to deal with this issue.

Directorship

Mr Brimaud relies on paragraphs 1 and 2 of the 8 May Agreement and on alleged oral agreement as the basis for a claim for damages for lost director’s fees and loss of entitlement to a share in the non executive options scheme.  It is alleged that he has lost the value of consultancy fees which would have been payable up to the opening of the IMAX theatre at the rate of $1,666 per month and director’s fees at the rate $2,500 per month thereafter.  The consultancy company, of course, is not a party to the proceedings.  The issue in relation to director’s fees following the opening of the IMAX theatre turns on the question of when and in what circumstances Mr Brimaud could be removed as a director of Cinema Plus.

In the alternative, Mr Brimaud also alleged that in May 1995 the respondents made representations that:

·        Mr Brimaud’s consultancy company was to be retained to provide advisory and business services to Cinema Plus for its subsidiaries associated in related companies or entities;

·        the consultancy company would continue to be paid for the provision of consultancy services until the opening of the IMAX cinema theatre; and

·        thereafter Mr Brimaud would be paid director’s fees. 

Those allegations follow the language of paragraphs 1 and 2 of the 8 May Agreement.  In addition, it was alleged that in May 1995, Mr Blom, on behalf of the respondents, represented that Mr Brimaud was entitled to a seat on the board of Cinema Plus and of each subsidiary which engaged in future IMAX projects.

CREDIBILITY OF MESSRS BLOM AND BRIMAUD

Messrs Blom and Brimaud both gave evidence before me.  However, their evidence in chief for the most part was in the form of written statements.  That is not a satisfactory means of giving evidence where there is an issue concerning the terms of conversations.  Although I suggested that it may be appropriate for evidence, at least as to disputed conversations, to be given viva voce, the parties preferred to rely on the written statements as evidence in chief.  The consequence is that I have considerable difficulty in determining which version, if either, of the disputed conversations I should accept.  The dispute as to the discussions which took place in about April may not be significant because of the 8 May Agreement which was subsequently brought into existence.  However, discussions which took place later in the year are critical in relation to the resolution of certain of the issues which arise in the proceedings.  I shall deal with those discussions later.

 

Several issues in the proceedings depend upon assessment of the reliability of the evidence given by Messrs Brimaud and Blom.  I am not confident that I can accept as reliable the version of conversations in either of the written statements.  I was not especially impressed by either witness in the witness box.  Such a conclusion, of course, must take account of the difficulties under which any witness is placed in the witness box.  However, my impression was such that I have greater confidence in drawing inferences from the contents of documents brought into existence at various times during the relevant period in order to resolve the issues between the parties.  There are several specific matters to which I shall refer which have led me to the conclusion that that is the better approach in this case to the resolution of disputation between Messrs Brimaud and Blom.

 

Mr Brimaud

The principal attack on Mr Brimaud’s credibility arose out of evidence in relation to his financial position in December 1995 and in the latter part of 1996.  Mr Brimaud’s financial position at those times was an issue in the proceedings and its relevance is dealt with below.  However, the evidence reflects adversely on Mr Brimaud’s credibility.

 

In cross-examination, Mr Brimaud said that by December 1995 he had taken no steps in preparation for exercise of the option by raising funds.  He said:

 

The funds were there.

………………………………

I had three bank accounts which in November - November/December ‘95 were approximately $150,000 in total.  I had $150,000 in cash. 

He said that he expected to have to pay about $78,000 “or thereabouts” by the end of December 1995.

 

At that stage of his evidence, he also admitted that he believed that he might be called to make a contribution for certain claims “that were around” in relation to his former partnership in a solicitors’ practice.  When asked whether he had set aside funds at any time in 1995 against the possibility that he may have to make a settlement payment he said “I had the cash there”.  He said that he did not set funds aside but that he “had the cash sitting there for quite some time”.  In that context he referred again to a sum of “around $130,000, $140,000 sitting in three accounts”.

 

He would not agree that he had set aside funds for the purposes of a settlement payment, although that language was used in his letter of 20 May 1996 referred to above.  In the same letter, he said that at the time when he would have taken up the option he “had more than sufficient assets to raise the funds and this fact is easily verified”. 

 

There is a tension between Mr Brimaud’s proposition that “the funds were there” to exercise the option and his proposition that he had “more than sufficient assets to raise the funds”.  While he consistently maintained at that stage in his evidence that he had approximately $150,000 in three bank accounts, there was an inconsistency as to whether those funds had been set aside or kept in reserve in order to settle outstanding claims relating to his former partnership or were available for the purposes of exercising the option in December 1995.  Either he had the funds or he would need to raise the funds to exercise the option.  It is not possible to discern which alternative Mr Brimaud was asserting.

 

The cross-examination of Mr Brimaud was interrupted pending further discovery of documents relating to his financial position and he was recalled after the examination of Mr Blom had concluded.  By that time, there had been produced by Mr Brimaud a deed of settlement (“the Deed of Settlement”) entered into between Mr Brimaud and National Australia Bank Limited (“NAB”) which had not previously been discovered.  It is necessary to consider the terms of the Deed of Settlement in some detail in order to assess the significance of the earlier evidence given by Mr Brimaud.

 

The Deed of Settlement contains inter alia the following recitals:

 

A.        At all material times Brimaud was a Partner in the Partnership which traded as “Michell Sillar”.

B.         Pursuant to the terms and conditions outlined in the Letter of Offer, the Bank provided to the Partnership, the Facilities.

………………………………

D.        The partnership was dissolved on 30 November 1993.

E.        The Bank alleges (but Brimaud denies) that Brimaud was a partner in the Interim Partnership.

………………………………

I.          By Deed of appointment dated 9 June 1995, the Bank appointed David John Frank Lombe as its agent over the property secured by the Charge.

J.         As at 30 June 1996 the Partnership was indebted to the Bank for the Debt.

K.        As at 30 June 1996, Brimaud was indebted to the Bank for the Debt in proportion to his equity share in the Partnership.

L.         Brimaud and the Bank have agreed to settle Brimaud’s liability in relation to the Debt and in relation to the Overdraft in Reduction on the following terms and conditions.

 

Certain of the terms found in the recitals were defined in the Deed of Settlement as follows:

 

“Charge” means the Deed of charge… between the Bank and the Partnership over the book debts and work in progress of the Partnership;

“Debt” means the amount of $2,073,451.33;

“Interim Partnership” means the partnership carried on by [various partners] trading as “Michell Sillar” from 1 December 1993 to 30 June 1994;

“Partnership” means the partnership carried on by Brimaud [and others] trading as “Michell Sillar” which was dissolved on 30 November 1993.

 

The Deed of Settlement contained the following relevant terms:

 

3.         SETTLEMENT

            Brimaud shall:-

3.1       …pay to the Bank the sum of $83,000.00… as follows:

(a)        $27,666.67 on the date of this deed;

(b)        $27,666.67 on the date 6 months from the date of this deed;

(c)        $27,666.66 on the date 12 months from the date of this deed;

(d)        interest on the sum of $55,333.33…

3.3       provide to the Bank on or before 12 December 1996 a statutory declaration outlining his personal assets, liabilities and monthly income and expenditure…

3.4       Upon receipt of the sum of $83,000.00 together with interest… the Bank will accept this amount in full and final satisfaction of Brimaud’s liability to the Bank…

4.         WARRANTIES

4.1       Brimaud warrants to the Bank that the statement of assets and liabilities, and monthly income and expenditure which is annexed to this Deed and marked “A” accurately reflects all of his assets, liabilities and monthly income and expenditure as at 9 July 1996.

 

A copy of the statement of assets and liabilities of 9 July 1996 referred to in clause 4 was in evidence before me.  It showed total assets, including two properties situated in Paddington and a property situated at Port Macquarie, of $1,021,550 as against liabilities $1,069,920.  The list of assets included “cash reserves $12,500”.  There was also in evidence before me a statutory declaration by Mr Brimaud dated 12 December 1996 which had been furnished to NAB pursuant to clause 3.3 of the Deed of Settlement.  There was attached to that statutory declaration a statement of assets and liabilities as at that date.  That statement disclosed total assets of $1,021,491 as against liabilities of $1,062,080.  The list of assets included “cash reserves $29,000”.

 

When recalled for further cross-examination, Mr Brimaud agreed that the statement as at 9 July 1996 was accurate as at that date.  He also agreed that his asset position throughout 1996 did not materially differ from that set out in that statement.  He said that his asset position throughout 1995 was different because he “may have had more cash reserves”.  Nevertheless, he could not, with any greater particularity, explain how his asset position throughout 1995 was different.  There is, of course, no reference in the statement of assets and liabilities to cash of approximately $150,000.

 

There was prepared on behalf of Mr Brimaud and tendered in evidence before me a document entitled “Schedule of Available Funds”.  That document was a summary of bank statements and credit card statements which were also in evidence.  The schedule showed, in relation to November and December 1995 and in relation to the period September-December 1996, funds standing to the credit of three bank accounts together with particulars of funds said to be available by drawing on credit card accounts.  The information relating to the three bank accounts was as follows:

 

 

Those figures bear no resemblance to the items “cash reserves” shown in the two statements of assets and liabilities furnished to NAB.  When asked why there was no reference in the statement as at 9 July 1996 to the cash amounts shown in the schedule, Mr Brimaud’s response was:

 

That relates only to one account.  That’s the Colonial cash management, yes.

 

He agreed that the account did not comprise his personal funds but was a trust account containing “the remainder of the cash assets for my father’s estate”.

 

Mr Brimaud’s conduct in relation to the matter of further discovery is somewhat concerning.  Mr Brimaud acknowledged that he appreciated at the time that I had directed him on 12 December 1997 to file a list comprising documents evidencing any liability or obligation in excess of $20,000, whether contingent or actual, which was in existence during either of the periods December 1995 and September to December 1996.  The Deed of Settlement was not included in any such list of documents.

 

Mr Brimaud said that he received a report from his solicitor as to the terms of the order of 12 December 1997.  In the course of cross-examination concerning his understanding of the order he said:

 

My understanding of the order was that any liability that I had to meet in December which affected my ability to pay for the shares should be disclosed.  Now the amount was $27,000 that I paid in December so I discussed the Deed of Settlement with my solicitor.

 

Mr Brimaud also said in cross-examination:

 

I spoke to my lawyer about the terms of the order…

I asked him about it and we discussed the Deed of Settlement.

 

Thus, it was apparent to Mr Brimaud that there was at least a question as to whether or not the Deed of Settlement should be produced in order to comply with my direction.  Mr Brimaud said that he regarded the Deed of Settlement as “a sensitive document affecting fifteen partners and the bank”.

 

Mr Brimaud’s explanation for not discovering the Deed of Settlement was as follows:

 

Because, on the day I acknowledged the debt, by signing the deed, the amount of money that was due, I paid.

 

That was, so Mr Brimaud explained, a reference to the provisions of clause 3.1(a) of the Deed of Settlement.  The argument seems to be that, once Mr Brimaud had paid the sum referred to in clause 3.1(a) of the Deed of Settlement, there was no liability in existence in December 1996.  I find it virtually impossible to accept that Mr Brimaud and his solicitor could genuinely believe that argument.

 

Mr Brimaud said that he received advice from his solicitor which confirmed his view.  However, Mr Brimaud is himself a solicitor and must be taken to have a mind of his own in relation to such a matter.

 

I consider that Mr Brimaud’s attitude to the discovery of the Deed of Settlement reflects adversely on his credit.  His failure to discover the Deed of Settlement could not be justified by a wish to preserve the confidentiality of his former partners on NAB.  If that were a concern, it could have been accommodated.  His attitude in relation to discovery of the Deed of Settlement leads me to conclude that I should have no confidence that Mr Brimaud has approached this litigation with the appropriate degree of candour or frankness.

 

That conclusion is reinforced by Mr Brimaud’s lack of candour in relation to the schedule of available funds to which I have referred above.  It was quite misleading, and I conclude deliberately so, to be a party to the tender of a schedule of available funds with supporting bank statements, knowing that the funds standing to the credit of the Colonial Cash Management Trust did not belong to Mr Brimaud but were apparently trust funds.

 

Three quarterly statements concerning that account were in evidence.  The first, relating to the last quarter of 1995, was in the name of Mr Brimaud without any qualification.  However, the statements for the third and fourth quarters of 1996 were in the name:

 

MR KENNETH MAURICE BRIMAUD ATF

BRIMAUD FAMILY

 

Mr Brimaud justified his omission to mention that the account was a trust fund because, as he said, “the document says that its held in trust”.  Apparently “ATF Brimaud Family” means “as trustee for the Brimaud Family”.

 

Mr Brimaud said in cross-examination that he put all the moneys which he received when his father died into that account.  He said that he intended to do something with the money because the account was a very low interest bearing account.  He said that his father did not leave a will and that nobody took out letters of administration.  He said that “with the knowledge of the family” he took the money and put it in the account in his own name.  He confirmed that he regarded the account as a trust fund and that from time to time he applied parts of the fund for the benefit of members of his family, including his mother, his sister and his brother.  It is not for me to inquire as to whether Mr Brimaud in fact committed or participated in breaches of trust in relation to moneys comprising his father’s estate.  However, the fact that account was a trust fund must have a bearing on the question of whether Mr Brimaud can be believed when he says that “the funds were there” to exercise the option in December 1995.

 

In the course of his further cross-examination, Mr Brimaud sought to justify that position by saying that he was going to pay for the shares in December 1995 out of the trust moneys and “hold the shares in trust”.  There was, of course, not the faintest suggestion of that intention in the written statement signed by Mr Brimaud which was tendered as his evidence in chief.  The assertion in his written statement that “but for the conduct of Blom and my reliance upon it I would have exercised the option in a formal manner and by 31 December 1995” is not credible.

 

In the course of the further cross-examination, Mr Brimaud was asked why, if he had been ready and willing to pay what was needed to exercise the option, it was of any interest to him to participate in an arrangement which would enable him to defer making that payment.  His response was as follows:

 

Well, because if I bought the shares,… they would have been escrowed for two years anywhere [sic].  I couldn’t do anything with the shares for two years, they’d be shares on a vendors float, so what Mr Blom was saying to me was that they won’t be escrowed, I’ll give you the option, instead of having to pay for it up front, I’ll give it to you in the way of options – the equivalent of 1% - which will be on a float, vendors options, which you will have to escrow for two years and you won’t have to pay for them at the time you take them up.  You can pay for them when and if you want to sell the shares, two years after they’re out of escrow.

 

That was the first occasion on which Mr Brimaud suggested that there had been any discussion before the end of 1995 concerning the holding of shares in Cinema Plus “in escrow”.  That possibility was not adverted to in his written statement.

 

Mr Brimaud was asked the following question in cross examination:

Why did you ask him about the shares if you knew what you had to do to exercise an option which you had plenty of money to pay?

 

Mr Brimaud embarked on a rambling discourse which did not appear to be an answer to the question.  The closest to a response was as follows:

 

In relation to why I didn’t put it in, Mr Blom very convincingly kept saying, Ken, don’t be ridiculous, don’t worry, I’ll look after you.  And at some stage before December 1995 and close to December 1995, when I had the money there available in that fund which didn’t change in over two years it stayed about $69, $70,000, Mr Blom said, look Ken, you might be short of cash or don’t worry about paying the money up front, I’ve got a better way of working it out.  I’m going to give it to you in the way of options…  He was saying to me, Ken, you’re position might be a bit tight.  I don’t know because I did not tell him everything.  It might be a bit tight but here is a wonderful way of doing it.  I could give you options on the float the equivalent of 1%.  And that’s why I didn’t do anything at the end although I was a bit apprehensive that I might lose the 1%…  There were other ways in which I could have borrowed money if I needed to.  I’ve always been able to borrow money, if I needed to.  I have a very rich brother-in-law…

 

The statement that there were other ways in which Mr Brimaud could have borrowed money if he needed to and a reference to his “very rich brother-in-law” are at odds with the evidence which he had given earlier that he had funds available to exercise the option.

 

All of those matters leave me with little confidence that I can rely on Mr Brimaud’s assertions as to the conversations in late 1995 or his evidence as to alleged reliance on those conversations.

 

Mr Blom

Several matters were advanced on behalf of Mr Brimaud as reasons why I should not accept Mr Blom’s evidence.  I shall deal with each separately.

First, senior counsel for Mr Brimaud drew attention to the description of Boston in the Lessee’s Proposal as follows:

 

Boston Securities Entertainment Investments Pty Limited is a company specially formed to hold the interest of Caneel Bay Holdings Pty Limited in Cinema Plus Pty Limited.  Boston Entertainments has already invested more than $631,000 in the project to date and will underwrite the start-up capital requirements for the business.

Boston Entertainments is 100% owned by Caneel Bay Holdings Pty Limited, a private investment trust for the Blom Family Trust which has a number of investments in Australia and the United States.

However, the prospectus contained the following paragraph:

Gary [Blom] returned to Australia in 1994 to take up the position of Managing Director of Boston Securities Entertainment Investment Pty Ltd which is a merchant bank providing finance and management expertise to medium sized companies.

 

Mr Blom would not agree that it would have been more informative to prospective shareholders of Cinema Plus to put in the material from the Lessee’s Proposal rather than that which appeared in the prospectus.  He said one related to a period in 1995 and the other to a period in 1996.  However, there was no evidence to suggest there had been any change.  That tends to indicate that Mr Blom was prepared to gild the lily in order to raise funds from the public.

Mr Blom was cross-examined about the use of the word “allotted” in paragraph 3 of the 8 May Agreement.  Mr Blom was unequivocal in rejecting the suggestion that that word meant that Cinema Plus would allot shares in itself.  However, the word was chosen by Mr Brimaud and his use of language was not particularly precise.  Nevertheless, Mr Blom was adamant in maintaining the position that shares are “allotted” into the name of a purchaser of shares on the stock exchange.  Such use of language might indicate a lack of experience on the part of Mr Blom which is inconsistent with his statement in the prospectus that he had had “eleven years experience in investment banking and finance in the USA”.  Alternatively, it is an instance of Mr Blom refusing to accept the ordinary meaning of a word in circumstances where he thought it might be contrary to his interests to do so.  Either way, it reflects adversely on his credibility.

 

As I have indicated, the directors’ statement attached to the accounts of Cinema Plus for the year ended 30 June 1995 contains the statement that no options to shares in Cinema Plus had been granted during the financial period.  Whether that statement was false depends upon the true construction of the 8 May Agreement.  Mr Blom contends in these proceedings, and contended in his correspondence with Mr Brimaud in May 1996, that the option in respect of the second tranche conferred by paragraph 4 of the 8 May Agreement was an option granted by Cinema Plus.  There is no reason to think that Mr Blom had any different view when he signed the directors’ statement.  If that was his view, then he must be taken to have signed a false statement.  There is no evidence as to who prepared the directors’ statement.  In the circumstances, it may be an instance of oversight rather than a deliberately false statement.  On the other hand, it does tend to suggest a degree of irresponsibility in the discharge of the serious obligations of a company director.

 

However, the omission may have greater significance, having regard to the absence in the prospectus of any reference to Mr Brimaud’s rights under the 8 May Agreement.  In the course of the exchange of correspondence in May 1996, Mr Blom acknowledged the existence of Mr Brimaud’s entitlement to the first tranche, subject to payment of the balance of the price.  However, there is no reference at all in the prospectus to the 8 May Agreement.  That could not have been the result of any oversight.  In the course of carrying out a “due diligence”investigation, Gilbert and Tobin prepared working papers recording investigations which they had undertaken.  That work included interviews of Mr Blom and consideration of statutory records of Cinema Plus.  The working papers contain the following relevant observations:

 

We note that the consent to act as director of Ken Brimaud has a notation that Ken Brimaud was entitled to 1% of the fully diluted capital of Cinema Plus Pty Limited which were not yet issued.  These shares have not been issued and the company does not consider there is any basis upon which they are required to be issued.

………………………………

There do not appear to be any other agreements or rights to purchase or issue shares [other than the Shareholders Agreement and the proposed executive option plan].  However, we note our comments made in relation to the statutory records that the consent to act as director of Ken Brimaud refers to a right to have 1% of the capital of Cinema Plus allotted to him.  The Company does not consider that there is an obligation to issue such shares.

Mr Blom’s explanation for those responses was that, at the time of the prospectus, Mr Brimaud was not a non executive director and therefore was not entitled to participate in any scheme.  In relation to the first tranche, Mr Blom’s explanation was that “it had not been full paid, it was only partially paid”.  He gave an explanation that he had advice from lawyers that all shares prior to a public float must be fully paid for prior to the allotment of bonus shares or new issues.  There is no evidence as to whether the correspondence between Messrs Blom and Brimaud of May 1996 was brought to the attention of Gilbert and Tobin prior to the issue of the prospectus.  An inference can be drawn that it was not, having regard to the absence of any reference in the prospectus to the 8 May Agreement.

Mr Brimaud contended that the omission of any reference to the 8 May Agreement in the public documents of Cinema Plus was evidence of deliberate concealment on the part of Mr Blom.  It was said that Mr Blom never intended that Mr Brimaud would obtain shares in Cinema Plus as provided in the 8 May Agreement.  However, notwithstanding that such an inference may be open, Mr Brimaud was himself a party to the directors’ statement in October 1995.  Further, if Mr Blom was intending to conceal the existence of the 8 May Agreement, he is hardly likely to have written the letters which he wrote in May 1996.  Nevertheless, the omission from the prospectus indicates a lack of frankness on Mr Blom’s part.

Mr Blom was reluctant to accept that Mr Brimaud had made any contribution to the IMAX theatre project.  He did so in the face of his own statements on several occasions.  For example, on 5 December 1994, he wrote to Mr Brimaud in the terms which I have set out earlier.  When those words were drawn to his attention, he originally denied that they were his and endeavoured to attribute them to his secretary.  However, he then said that he dictates letters and he reads them and signs them.  The incident impressed me as being an indication that Mr Blom was prepared to deny his own language if he thought it would be advantageous to do so.

All of those matters tend to confirm the impression which I have formed that Mr Blom was prepared to be less than candid and frank where he thought it would be to his advantage.

 

RESOLUTION OF THE ISSUES

First Tranche

(a)        The Subject Matter of the 8 May Agreement.

The share capital of Cinema Plus has undergone two changes from the time of the 8 May Agreement.  Neither of the changes was referred to in the Business Plan or the Lessee’s Proposal.  The first change was the subdivision of $1 shares into 20 cent shares.  Following the capitalisation which occurred in June and August 1995 and March 1996, the issued capital was 4,767,442 shares, being the number of shares contemplated by both the Business Plan and the Lessee’s Proposal.  Those shares were 20 cent shares although the only reference in the Business Plan and the Lessee’s Proposal to the par value of the shares indicated that they were $1.00 shares.  The second change occurred in August 1996 when the issued share capital consisting of 4,767,442 shares of 20 cents each was converted, by bonus issue and subdivision, into 44,000,000 shares of 3 cents each.  There was certainly no hint of that possibility in either the Business Plan or the Lessee’s Proposal.

Those changes have significance in these proceedings because of the consequences which they are said to have had on the subject matter of the 8 May Agreement.  The 8 May Agreement referred to two tranches of 47,674 shares, each of which was said to represent 1% of “the fully diluted capital” of Cinema Plus.  However, as I have observed above, the 8 May Agreement did not specify the par or nominal value of those shares.  There is nothing in the evidence to indicate that the parties had in mind, as at 8 May 1995, that the 4,767,442 shares which were to be issued would be 20 cent shares, much less 3 cent shares, rather than $1 shares, being the only shares in Cinema Plus which existed at that time.

Thus, the question which arises is whether the obligation under paragraphs 3 and 4 was to vest in Mr Brimaud:

(i)         47,674 shares, irrespective of the par value and irrespective of the number of issued shares at the time; or

(ii)        1% of the total issued capital irrespective of the number of shares which would comprise 1%; or

(iii)       47,674 shares constituting 1% of the total issued capital such that any change in the issued capital rendered the obligation impossible of performance.

As at 26 September 1996, when the Whittens letter was written, the only possibilities open without further alteration in the capital of Cinema Plus were as follows:

·        47,674 shares of 3 cents each,

·        440,000 shares of 3 cents each, being 1% of the issued capital at that time.

 

It was no longer possible, without further alteration in the capital, for Mr Brimaud to acquire 47,674 shares of $1.00 each or 47,674 shares of 20 cents each. 

 

The primary contention of the respondents in relation to the construction of paragraph 3 of the 8 May Agreement is that Mr Brimaud was entitled to 47,674 shares in Cinema Plus, whatever the par or nominal value of those shares may be.  The relevant time for vesting was said to be the time of payment of the balance of the price at any time up to 31 December 1996.  Hence, it was contended that Mr Brimaud’s entitlement in November and December 1996 would have been to 47,674 shares of 3 cents each in Cinema Plus, assuming he had been willing and able to complete the contract so construed.  Those shares would have had a market value of approximately $1, although Mr Brimaud would have been required to pay $1.674 per share for each of those shares.  Clearly, Mr Brimaud was not prepared, in November and December 1996 to pay $1.674 to acquire shares in Cinema Plus which had a market value of $1.

 

That construction, however, ignores the words “being the equivalent of 1% of the fully diluted capital” which appear in paragraphs 3 and 4 of the 8 May Agreement.  The construction is said to be justified by the fact that the parties contemplated that there were only going to be 4,767,422 shares issued and it was adequate protection for Mr Brimaud to stipulate for a number of shares which represented 1% of the capital.  The respondents contended, in effect, that Mr Brimaud simply failed to provide for any reconstruction of the capital which would, in effect, defeat his right to obtain 1% of the issued capital for an outlay of $79,806. If that were the effect of the 8 May Agreement, it was clearly defective from Mr Brimaud’s point of view.

 

On the other hand, it was accepted by the respondents that Mr Brimaud had some contractual protection against Cinema Plus acting in a way which precluded it from being able to perform its obligations under the 8 May Agreement.  That protection was afforded by implied terms to secure the benefits of the contractual obligation for Mr Brimaud (Secured Income Real Estate (Australia) Pty Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596) and an implied term prohibiting Cinema Plus from putting performance of the contract beyond its power (Bahr v Nicolay (No. 2) (1988) 164 CLR 604 at 646).  By participating in the reorganisation of 12 August 1996, Cinema Plus and Boston have put it beyond their power to vest in Mr Brimaud 47,674 shares representing 1% of the issued capital of Cinema Plus and that was a breach of such implied terms.  However, no such implied terms were pleaded or relied on by Mr Brimaud.

 

An alternative construction, according to the respondents, is to read the 8 May Agreement as requiring that the shares to be allotted to Mr Brimaud by Cinema Plus have two characteristics, namely that they number 47,674 and that they represent 1% of the “fully diluted capital” of Cinema Plus.  Having regard to the terms of the Business Plan, the contemplated fully diluted capital was 4,767,442 shares.

 

The respondents contended that, as at November/December 1996, 440,000 shares would not have fulfilled that contractual promise, first because it was not 47,674 shares and second because it was not, at that stage, 1% of the issued capital of Cinema Plus.  Because the contract did not provide for the allotment of “the equivalent” of 47,767 shares being 1% of the fully diluted capital, performance after 12 August 1996 was said to be impossible.  It was doubly impossible following the issue of further shares pursuant to the prospectus.

 

Mr Brimaud, on the other hand, contended that each tranche referred to 1% of the capital of Cinema Plus, irrespective of how the capital was constituted at the relevant time.  Thus, following the augmentation of the capital to 75,000,000 shares of 3 cents each by the public issue, Mr Brimaud was entitled to 750,000 shares in respect of each tranche.  That construction was said to flow from the expression “the fully diluted capital” when used in paragraphs 3 and 4 of the 8 May Agreement. 

The only changes which were made to the share capital on 12 August 1996 were by means of subdivision of shares and bonus issue.  It was only at 12 March 1996 that the capital reached 4,767,442 shares.  No new funds were subscribed after 21 March 1996 which could have had the effect of diluting the capital.  In other words, there was no change in the equity by reason of the changes; there was no dilution of the share capital comprising 4,767,442 shares.  Neither the Business Plan nor the Lessee’s Proposal contemplated any further capitalisation beyond 4,767,422 shares.  There was certainly no suggestion of the augmentation of the capital which occurred by reason of the public issue. 

Up to 12 August 1996, there had been variations in the respective entitlements of Boston, Votraint and AusAsean as contemplated by the Business Plan.  Boston’s entitlement was reduced by permitting the Spatt Group of Investors to take a proportion.  Macquarie Trust took AusAsean’s interest.  However, while the total number of issued shares in the capital of Cinema Plus changed, it is fair to say that after 12 August 1996 and prior to the public issue, 1% of the issued capital was represented by 440,000 shares in lieu of 47,674 shares.

There was no magic in the number 47,674.  It was expected in April and May 1995 that 47,674 shares would represent 1% of the issued capital which was intended to be 4,767,422.  However, I consider that the intention to be gleaned from the 8 May Agreement was that Mr Brimaud would be entitled to two tranches of 1% of Cinema Plus as it was intended at that time to be capitalised.  I consider that that entitlement would have been, and would only have been, satisfied following the reconstruction of 12 August 1996 by 440,000 shares in the reconstituted capital.

It was still theoretically possible for Cinema Plus to issue new shares.  However, that would have required a recalculation of the number of shares which would represent 1%.  On the other hand, a transfer by Boston to Mr Brimaud of 47,674 20 cent shares prior to the August reconstruction or a transfer of 440,000 3 cent shares following that reconstruction would have put Mr Brimaud in the position in which he would have been had the 8 May Agreement been performed.

The question of whether the primary obligation was upon Cinema Plus or Boston is obscured by the language of the 8 May Agreement.  As I have observed above, the word “allotted” suggests issue of shares direct by Cinema Plus.  Further, consultancy fees which were to be applied in part payment of the shares were payable by Cinema Plus rather than Boston.  On the other hand, those fees were payable to Mr Brimaud’s consultancy company, not to him, and, if the 8 May Agreement is to be taken literally, it is clear that the “allotment” was to be to him personally and not to his consultancy company. 

In the events which have happened, it may not matter.  Both Boston and Cinema Plus were parties to the 8 May Agreement.  It is clear that neither Boston nor Cinema Plus was prepared in November or December 1996 to vest in Mr Brimaud any shares in Cinema Plus in performance of the 8 May Agreement.  The failure to do so was a repudiation of the 8 May Agreement. That repudiation has been accepted by Mr Brimaud.

 

(b)        Mr Brimaud’s Willingness and Ability to Perform

The respondents contended that Mr Brimaud is not entitled to recover damages in relation to the failure by Boston and Cinema Plus to vest in him the first tranche pursuant to paragraph 3 of the 8 May Agreement because he himself was not ready, willing and able to perform the 8 May Agreement in that regard.  They contended that Mr Brimaud had the onus of establishing that he was ready, willing and able to perform and that, if he failed to do so, he would not be entitled to claim damages for failure to perform on the part of Boston and Cinema Plus. To do so would be to permit recovery of a fortuitous windfall. The respondents relied on Foran v Wight (1989) 168 CLR 385 at 397, 400-403, 408 and 422-430.

 

Unwillingness and inability on the part of Mr Brimaud were said to be manifested in two ways as follows:

 

1.         Having regard to the correspondence from Whittens in September and November 1996, Mr Brimaud was not willing to perform the 8 May Agreement, except on the basis that he received 1,500,000 shares representing 2% of the augmented capital after the public issue.

 

2.         Mr Brimaud did not have funds available to him to enable him to pay the sum of $34,806 in respect of the first tranche or the sum $79,806 in respect of the second tranche.  The only funds available to Mr Brimaud were the funds in the Colonial Cash Management Trust.  Those funds, however, appear to have been held on trust for those entitled on intestacy following the death of Mr Brimaud’s father and subsequently the death of his mother.  Those persons appear to be Mr Brimaud’s two brothers and two sisters although Mr Brimaud also said in cross-examination that the funds were held on trust for infant beneficiaries.

 

As I have indicated, the correspondence from Whittens in September and November 1996 evinces a misconception as to the effect of the 8 May Agreement.  It also seeks performance of paragraph 4 in relation to the second tranche.  However, I do not consider that the correspondence should be construed as a statement on behalf of Mr Brimaud that he would perform the 8 May Agreement in accordance with the contentions put forward in the letter and none other.  I do not consider that he was advancing contentions in bad faith or that, if the misconceptions had been pointed out to him, he would not have been prepared to perform the 8 May Agreement as I have construed it.  Further, in oral evidence, Mr Brimaud confirmed that if it had been determined that his entitlement was only to 440,000 shares, he would have proceeded with the purchase.

 

The approach of Whittens was somewhat dogmatic.  On the other hand, the response of Gilbert and Tobin made no effort to advance an alternative view of the true construction of the contract.  Gilbert and Tobin did no more than formulate a compromise.  In the circumstances, I do not regard the correspondence in September and November/December as evincing an unwillingness or unreadiness on the part of Mr Brimaud to perform the 8 May Agreement as properly construed.

 

It is not possible on the evidence before me to reach a firm conclusion as to entitlement to the funds in the Colonial account.  The evidence suggests that Mr Brimaud, his two brothers and two sisters were entitled in equal shares and that Mr Brimaud’s siblings had entrusted him with the management of the funds.  However, there is certainly no evidence of any formality in that regard.  In particular, there was no evidence of any written assent or acquiescence on the part of Mr Brimaud’s siblings to the manner of investment of the funds.  More specifically, there was certainly no evidence of any authorisation by Mr Brimaud’s siblings of the investment of the funds either in a loan to Mr Brimaud to enable him to buy shares in Cinema Plus or in the purchase of shares in Cinema Plus on trust.  The question which arises is whether I should draw the inference that Mr Brimaud would have had resort to the funds in the Colonial Cash Management Trust or whether I should draw an inference that, despite what he said under oath, he would not have utilised the funds because that might have constituted a breach of trust.

 

Mr Brimaud was less than frank in relation to the matter as I have indicated above.  Further, in the letter from Whittens of 15 November 1996, the statement that Mr Brimaud “has made an arrangement with his bank to provide the amount of $114,612” is not supported by any evidence.  Mr Brimaud says, simply, that he would have used the funds standing to the credit of the account with Colonial Cash Management Trust to the extent that the funds standing to the credit of his account with CitiBank were inadequate.

 

The respondents contended that it was not open to Mr Brimaud to rely on the trust funds to support a conclusion that he was ready, willing and able to perform the balance of his obligations to acquire either the first tranche or the second tranche pursuant to the 8 May Agreement.  It was contended that the trust funds were not available to him in his personal capacity and that, in his capacity as trustee, he was not a party to the 8 May Agreement nor a party to the proceedings.  If I conclude that Mr Brimaud would have had resort to the funds in order to complete the purchase of the first tranche, I do not consider that the fact that he was utilising trust funds would affect that conclusion.  Rightly or wrongly, Mr Brimaud does not appear to have regarded that prospect as in any way improper.

 

By the time when he was seeking performance, in November/December 1996, the shares which he would acquire, if Cinema Plus and Boston performed, were, on the basis of their listed price, worth substantially more than the price he would have had to pay.  I consider that an inference should be drawn that, if Boston and Cinema Plus had been prepared to perform by vesting in Mr Brimaud 440,000 shares of 3 cents representing 1% of the capital prior to the public issue, he would have found the funds, probably from the Colonial Cash Management Trust, to pay the balance of the price payable of $34,806.  Whether Mr Brimaud would have been entitled to treat the shares as his own may be a different question. 

 

(c)        Measure of Damages

The failure of Boston and Cinema Plus to vest in Mr Brimaud a parcel of 440,000 shares of 3 cents each, representing 1% of the issued share capital of Cinema Plus prior to the public issue, was a breach of the 8 May Agreement.  Mr Brimaud is entitled to be put, so far as money can do so, in the position in which he would have been had Boston and Cinema Plus performed that obligation.

 

As a condition of the shares in Cinema Plus being listed for quotation by ASX, it was necessary for the promoters, being the existing shareholders, to accept a restriction on the transferability of their shares following listing.  Chapter 9 of the listing requirements of ASX is, relevantly, in the following terms:

 

9.1       An entity which issues restricted securities, or has them on issue, must enter into a restriction agreement with the holder.

………………………………

9.4       An entity must comply with, and enforce, a restriction agreement, and enforce its constitution, to ensure compliance with the requirements for restricted securities.

………………………………

9.6       An entity must get a bank’s or recognised trustee’s undertaking:

·        to hold the certificate of any equity security in a person (except a listed entity) that is required to enter a restriction agreement for the escrow period; and

·        not to release that certificate without ASX’s written consent.

9.8       If the entity is seeking admission to the official list, the escrow period is 24 months commencing on the date on which quotation of securities commences.  ASX may fix a different period.

………………………………

The shares in Cinema Plus held by Boston, Macquarie Trust and the Spatt Group of Investors were treated as “restricted securities”.  The respondents relied on that restriction as a basis for contending that the 8 May Agreement was no longer possible of performance when Mr Brimaud signified his desire to complete in November 1996.  However, there was no clear evidence as to how ASX would have treated a transfer from Boston to Mr Brimaud.  If Boston, in performance of the 8 May Agreement, had delivered a transfer to Mr Brimaud in exchange for payment of the sum $34,806, that may not have been a contravention of the ASX requirements. 

 

Even if it were, ASX may have been prepared to permit the transfer since it would have been the discharge of an obligation which came into existence many months before, namely on 8 May 1995.  It is highly probable that Mr Brimaud would have been required to accept the same restriction as was imposed on Boston.  That, however, is a different question although it is a relevant factor to be taken into account in considering the measure of damages which would be appropriate in the light of the breach by Boston and Cinema Plus.

 

The respondents contended that any obligation other than an obligation to vest 47,674 shares, being 1% of the issued share capital, was impossible of performance following the reorganisation of the share capital which occurred on 12 August 1996.  They contended that a breach occurred on 12 August 1996 and that, accordingly, damages should be assessed as at that time.  While the proposed public float was well under way by then, there was no certainty, so it was said, as to the realisability of any shares which Mr Brimaud would have acquired.

 

The best indication of value, so it was argued, was the value attributed to shares in Cinema Plus when Votraint disposed of its shares on 12 August 1996.  Votraint sold 953,489 shares in Cinema Plus for $5,250,000 representing approximately $5.50 per 20 cent share.  On that basis, 47,674 20 cent shares would have been worth $262,207.  Accordingly, Mr Brimaud’s damages would be $262,207 less the balance of $34,806 which was still payable.

 

That contention, however, is not tenable where the contract was still capable of being performed.  For the reasons which I have indicated, I consider that the parties did not attach any significance to the number “47,674” other than specifying that it was 1% of the intended total issued capital.  Accordingly, even after the reorganisation of the capital on 12 August 1996, it was still possible for Boston and Cinema Plus to perform by vesting 440,000 shares in Mr Brimaud, representing 1% of the issued capital prior to the public issue.  Further, whether or not there was an anticipatory breach of the 8 May Agreement in August 1996, Mr Brimaud did not rely on that breach.  He relied on the failure to perform in November 1996, after he called for performance.

 

The proper measure of damages for breach by a seller of fungible property is the difference between the contract price and market value at the date of breach or within such time thereafter as would be sufficient to enable the buyer to go into the market and buy the property which should have been delivered.  By November 1996, shares in Cinema Plus were fungibles because they were listed for quotation by ASX.  Accordingly, I consider that the appropriate measure of damage suffered by Mr Brimaud, as a result of the failure of Boston and Cinema Plus to vest in him in November or December 1996 440,000 shares in Cinema Plus, is the difference between $79,806 and the market price on an appropriate date.

 

The first day when Mr Brimaud could have gone into the market after the date fixed for completion in the letter of 15 November 1996 was 30 November 1996.  On that date, shares in Cinema Plus traded between $1.09 and $0.99 and closed at $1.00.  If that is the appropriate date, Mr Brimaud could have bought 440,000 shares for $440,000.  On that basis, Mr Brimaud’s loss was $440,000 less $79,806, namely $360,194.

 

However, Mr Brimaud may also be entitled to recover the $45,000 referred to in the fee note from his consultancy company.  Although there is no claim for that sum in these proceedings, the proceedings have been conducted on the basis that there was a payment of that sum by Mr Brimaud in part payment of the price of $79,806.  On that basis, that sum would be money recoverable as having been paid under a contract the consideration for which has totally failed. Mr Brimaud’s loss, therefore, also includes the further sum of $45,000, making a total of $405,194.  To that sum would be added interest under section 51A of the Federal Court Act 1976 (Cth).

 

However, as I have said, it is highly probable that, if Mr Brimaud had received 440,000 shares in Cinema Plus from Boston in November 1996, the restrictions imposed by ASX would have applied to those shares.  Accordingly, the probabilities are that he would have been required to retain the shares until the expiration of two years from listing.  That period will expire in October 1998. It would not have been possible for him to realise the 440,000 shares at market price before that time.  Mr Brimaud contended that, in those circumstances, the appropriate date for determining market price is the date of judgment. 

 

Mr Brimaud perceived that there would be a benefit for him in that course because the market price of shares in Cinema Plus during the trial was considerably higher than in November 1996. Mr Brimaud relied on observations made in Johnson v Perez (1988) 166 CLR 351 at 367 to the effect that, while, as a general rule, damages for breach of contract are assessed at the date of the breach, the rule will yield if, in the particular circumstances, some other date is necessary to provide adequate compensation.  Mr Brimaud contended that it would not be appropriate to assess damages as at the date of breach in November 1996 because he would not have had the funds to go into the market to buy 440,000 shares at the then market price of $1.00. 

 

However, the question is what amount of money would put Mr Brimaud in the position in which he would have been had there been performance by Boston and Cinema Plus.  Where assessment of damages depends upon uncertain future events, it is legitimate for the Court to take account of what has actually happened (Willis v The Commonwealth (1946) 73 CLR 105 at 109).  Mr Brimaud’s inability to buy shares is not to the point.  He would have received 440,000 shares which he probably would have been required to retain until some time in October 1998. Mr Brimaud would not have had to find funds to pay for shares but would have had both the benefit and burden of holding 440,000 shares during the period of compulsory retention.

 

The appropriate date, therefore, for determining market price of shares in Cinema Plus is the date of judgment, subject to a discount of that price to take account of the lack of saleability until the expiration of the period of compulsory retention.  For example, on 31 July 1998, at the end of the hearing, shares in Cinema Plus were trading at $1.94.  On that basis, the damages would be $853,600 less $79,806 plus $45,000 making a total of $818,794. That sum would be subject to a discount for any uncertainty in the market between judgment and the end of the period of compulsory retention, but would not attract interest under the Federal Court Act.

 

Second Tranche

In dealing with Mr Brimaud’s credibility, I have indicated my conclusion that I do not regard as reliable his evidence concerning the alleged discussions with Mr Blom in late 1995 and his alleged reliance on those discussions in not exercising the option for the second tranche.  There are other factors which lead me to conclude that Mr Brimaud’s claims in relation to the second tranche should fail.

 

I have set out above the discussions in October, November and December 1995 which are said to constitute a variation of the 8 May Agreement in respect of the second tranche.  However, even if I accepted that the conversations occurred as alleged by Mr Brimaud, they simply do not amount to a variation of contract.  Mr Brimaud had insisted upon a degree of formality in making the 8 May Agreement.  Mr Blom had apparently asked that the contract be simple but Mr Brimaud took the trouble to record formally the arrangement which they made.  If Mr Brimaud believed that he was varying the 8 May Agreement, he would have insisted upon some manner of formality.

 

Further, if Mr Brimaud was truly relying on an explicit oral deferral of the exercise date for the second tranche, let alone an implicit one, he is the sort of man who would have wished to obtain some confirmation or would at least have made a file note of the relevant conversation.  In April and May, for example, he produced a plethora of file notes recording in considerable detail discussions which he thought were important. 

 

The parties to the 8 May Agreement included Cinema Plus.  Mr Brimaud was always aware that there were directors of Cinema Plus other than Mr Blom and himself.  There is no suggestion that Mr Brimaud made any effort to raise with the other directors the understanding which he said he reached with Mr Blom in December 1995. In his earlier discussion with Mr Blom, Mr Brimaud had been very careful to obtain an assurance from Mr Blom that he had authority to bind the other shareholders in relation to the arrangements which he was then entering into.  By the end of 1995, of course, the affairs of Cinema Plus were attended with greater formality, having regard to the outside interests of Macquarie Trust and the Spatt Group of Investors. There was no challenge to Mr Blom’s authority to act on behalf of Cinema Plus.  However, I consider that Mr Brimaud would have sought some confirmation from the other directors at the end of 1995 if he really believed that he would be entitled to continue to exercise the option for some indefinite period into 1996.

 

Mr Brimaud, in his actions in 1995 and 1996, exhibited the character of a man who was careful to look after his own interests.  It is highly unlikely, if Mr Brimaud believed that his conversations with Mr Blom had legal consequences, at least in relation to deferral of the time within which he could exercise his option, that he would have failed to raise the matter with the other directors or at least confirm the matter to Mr Blom in writing.  Added to those considerations is the fact that Mr Brimaud was a solicitor with considerable commercial experience.  It is even more likely, therefore, that, if Mr Brimaud believed he had an enforceable arrangement to defer the exercise of the option, he would have made some effort to confirm that arrangement in writing.

 

Mr Brimaud gave an explanation in cross-examination for not seeking written confirmation of his understanding.  He said that he was concerned not to offend Mr Blom.  However, that so called concern did not prevent Mr Brimaud from questioning Mr Blom about the various assurances he claimed Mr Blom had given him that “everything would be alright” and that he should “stop worrying”.  One wonders why Mr Blom would have been offended by confirmation of assurances which he had given.

 

Mr Brimaud’s version of the conversation which he said occurred in October 1995, as set out in his statement, makes no mention of the second tranche.  His concern appears to have been in relation to the first tranche.  Even in the November conversation, according to the version in Mr Brimaud’s written statement, there was no mention of the word “option” but only to a desire “to finalise our agreement”.  That could have been related to payment of the balance of the price for the first tranche.  Mr Blom’s alleged response is curious if Mr Brimaud had never suggested that he had a problem with making the necessary payment or payments.

 

In the course of cross-examination, Mr Brimaud gave two additional versions of the discussion in November 1995.  On one occasion he said:

 

What is happening about my shareholding and about exercising the option?

 

On another occasion he claimed that he said:

 

What about my shares, when can we do something about it?  Do I have to exercise it?  I may have said I am ready to pay, or you know, I would like to pay for it and get it done.

 

The version in his written statement, of course, is quite different.  The differences confirm that no version is reliable.

 

It is quite unclear why Mr Brimaud thought that he might not have to exercise the option.  Further, Mr Brimaud’s evidence in cross-examination as to Mr Blom’s response is somewhat vague.  He asserted that Mr Blom said “might deliver the promise, deliver the 1% option in another way” or “Another idea of how I can deliver only the agreement, another way of doing”.  That would make no sense in relation to the option because, until the option was exercised, there was no obligation to deliver.  There is no suggestion of those words in the written statement.  Again, Mr Blom’s apparent unprompted concern to avoid Mr Brimaud having to pay for any shares at that time is unexplained.

 

In dealing in his written statement with the discussions alleged to have occurred on 13 December 1995, no mention is made of “the option”.  Rather, the words alleged were:

 

We had better talk about my shares and when I have to pay for it.

 

That conversation makes little sense if referring to the option.  One wonders why there would be any need to talk about the option and when it had to be paid for.  The option had to be exercised before the end of December.

 

The second conversation in December was the subject of oral evidence as well as the written statement.  In the course of oral evidence Mr Brimaud said that he said:

 

…what about my options, I would have said.  You know, its December, should I be doing something about that?

 

and:

 

…And by the way, look, you know, it is December now, you know, what about the option?  You know, do I have to exercise it, what do we have to do.

 

On the other hand, the written statement suggests that the payment date only was in issue and the option had been exercised.

 

Mr Brimaud did not have $79,000 of his own money in December 1995.  His credit card statements demonstrate that, at the end of 1995, he was overdue in paying the minimum amount payable and even when he did pay he only paid the minimum amount.  There is no evidence that he could have borrowed that money from anywhere other than the Colonial Cash Management Trust Account.  At that stage, while there may have been a degree of optimism, there were also concerns about the future of the IMAX Project.  Further, by that stage, Mr Brimaud had been an unsuccessful investor in the company of a good friend from which he had learned a bitter lesson.  That factor, coupled with the uncertainty with IMAX in December 1995, is a reason why Mr Brimaud would not have risked his family trust funds in the IMAX Project. 

 

That is particularly so where he had already committed himself to paying $79,000 for the first tranche, part of which he had already paid by set off of the consultancy fees.  The suggestion of the option scheme is something which Mr Brimaud would have found very attractive.  I consider that all those considerations led Mr Brimaud to decide not to exercise the option in respect of the second tranche.  Rather, he decided to pursue the alternative course suggested by Mr Blom of participating in the option scheme.

 

It is unlikely that, in December 1995, Mr Brimaud would have asked for payment of the fees which had been rendered by the consultancy company only a matter of weeks before.  The fee note was submitted at the behest of Mr Blom and it was clearly intended that both Mr Blom and Mr Brimaud would treat that as part payment for the first tranche as contemplated by the 8 May Agreement.  While Mr Brimaud’s financial position was tight in December 1995, there is no suggestion that it had deteriorated to such an extent since the date of the fee note that he would change his mind about wanting to acquire the first tranche.  The payment of the balance of the price of $34,806 was not required for another 12 months.  I conclude, therefore, that Mr Blom’s version of the conversation in December 1995 did not occur. 

 

However, while Mr Brimaud is unlikely to have resiled from his commitment for the first tranche, different considerations would have been operative on Mr Brimaud’s mind in relation to the second tranche.  That required a commitment and payment in December 1995 of the sum of $79,806.  At that time Mr Brimaud was under some financial pressure as evidenced by his overdue credit card accounts.  He was aware of possible claims in respect of his partnership.  He must also have been mindful of his position in relation to NAB.  By that stage, NAB had appointed an agent for the collection of the debtors of his former partnership.  That must be regarded as a very significant step to take in relation to a professional partnership of solicitors.  It is to Mr Brimaud’s discredit that he was not prepared to acknowledge, in cross-examination, that that was a significant step.

 

The share option proposal offered Mr Brimaud the opportunity of taking up further shares in Cinema Plus at a later time without the necessity of finding money which he did not have. Mr Blom was saying to him that by means of the proposed share option scheme there was a prospect that he would have the opportunity of participating to a greater extent in the project without any immediate commitment. There was at that stage no guarantee that any share option scheme would be established.  However, there was every reason to hope that, if the IMAX Project was ultimately successful, Mr Brimaud would be in a position to participate in that success.  That hope, however, was simply another consideration which would have afforded him some comfort in relation to his decision not to commit himself in relation to the second tranche. All of those considerations, when coupled with the difficulties then being encountered with IMAX, indicate that Mr Brimaud would have had good reason for not wanting to commit himself to immediate payment of $79,806. 

 

I do not accept that the discussions which Messrs Brimaud and Blom had before the end of December constituted a variation of the terms of the 8 May Agreement.  Nor did they constitute any representation or holding out by Mr Blom that, even if he did not exercise the option and pay the price before the end of December 1995, Mr Brimaud would continue to have an entitlement to do so until some indefinite time in 1996.  Accordingly, I do not consider that it would be unconscionable to hold Mr Brimaud to the strict terms of the 8 May Agreement in relation to the second tranche.

 

It must have been apparent to Mr Brimaud by the end of May that there was an intended reversion to the strict terms of the Agreement.  However, even in the correspondence of May 1996, there was no attempt to exercise the option or even any suggestion by Mr Brimaud that he might exercise the option. Mr Brimaud chose to rely on Mr Blom fulfilling his stated intention in that regard rather than to exercise the option.  There was no attempt to exercise the option until months later.  Even if it were unconscionable for Boston and Cinema Plus to rely on the strict terms of the 8 May Agreement as at May, it was not unconscionable in September, November or December 1996.  Accordingly, in my opinion, Mr Brimaud’s claim fails in so far as it is based on the second tranche and the purported exercise of the option in the second half of 1996.

 

Loss of Directorship

In the amended statement of claim, the alleged agreement in relation to the appointment of Mr Brimaud as a director is pleaded as follows:

 

8.         By agreement made in or about May 1995 between the Applicant on the one hand and the Respondents on the other the parties agreed as follows:

           

            …………….

(b)        the Respondents should appoint the Applicant a director of Cinema Plus and remunerate the Applicant in respect thereof by payment of $1,666 per month to the Applicant’s consultancy company until the opening of the IMAX Cinema Theatre by payment of $2,500 per month to the Applicant.

PARTICULARS

The terms of the Agreement were partly oral and partly written being constituted by the words spoken by the Applicant and the Third Respondent at the meeting and recorded in handwritten notes made contemporaneously at the meeting and partly reduced to writing in the letter of 8 May 1995 signed by the Applicant and Mr Blom; Mr Blom signing on behalf of himself, Boston and Cinema Plus.

8A       It was further agreed at the meeting that the Applicant should have a seat on the board of directors of the Second Respondent and all future subsidiaries which engaged in future IMAX Projects and Theatres.

PARTICULARS

The terms agreed orally in the course of the meeting.

 

……………………..

8C       The Applicant says that in May 1996 the Third Respondent on behalf of himself and the other Respondents wrongfully and in breach of the term alleged in paragraph 8A purported to dismiss the Applicant which purported dismissal the Applicant was obliged to accept.

 

            …………………………

 

27.       Further and in the alternative the Applicant says that in May 1995 in trade and commerce each of the Respondents by the Respondent Mr Blom represented the Applicant that in reward for the Applicant’s past assistance in IMAX project and by way of reward for his agreement to provide further assistance as might be required:

            ………………………

(b)        the Applicant’s consultancy company would continue to be paid $1,666 per month for the provision of consultancy services until the opening of the IMAX Cinema Theatre and thereafter the Applicant should be paid director’s fees of $2,500 per month.

………………………

 

(e)        the Applicant was entitled to a seat on the board of the Second Respondent and of each subsidiary which engaged in future IMAX projects.

            …………………………

31.       The Respondents in fact ceased to make payments to the Applicant’s consultancy company of the monies represented in 27(b), in or about May 1996 removed the Applicant as a director of Cinema Plus and despite the opening of the IMAX Cinema Theatre have not reappointed the Applicant as a director thereof and have failed or refused to make payment of the directors’ fees referred to therein…

 

Thus in so far as the agreement relating to directorships and representation in relation of directorships was said to be written, the writing comprised paragraphs 1 and 2 of the 8 May Agreement.  In so far as it was oral, Mr Brimaud relied on the version of the conversation in or about April 1995 contained in Mr Brimaud’s written statement.  The only part of that statement which records any conversation at that time concerning directorships is as follows:

 

Mr Brimaud:   I would also like to be a director of the holding company and all subsidiary companies.

Mr Blom:         The holding company is Cinema Plus Pty Ltd and I have no problem with your directorships.

Mr Brimaud asserted that, on the basis of the 8 May Agreement and that conversation, he was entitled to remain a director of Cinema Plus and its subsidiaries indefinitely and could be removed only for misconduct.  Alternatively, he contended that he could only be removed upon reasonable notice which, having regard to the long term nature of the arrangements said to be contemplated as between Mr Brimaud on the one hand and Mr Blom on the other, would require something in the order of at least three years’ notice.  Neither assertion was pleaded.  The pleading was limited to the assertion of an agreement that Mr Brimaud would be appointed.

 

The proceedings were commenced in December 1996.  It is significant that, when the proceedings were first commenced, the only reference to Mr Brimaud’s directorship was paragraph 8(b).  No mention was made of any partly oral agreement.  It was not until an amended statement of claim was filed in April 1998 that the words in bold type in the particulars to paragraph 8 and paragraphs 8A, 8C and 27(e) were inserted.  If Mr Brimaud had understood that the conversation had contractual significance it would be surprising that it was not referred to in the pleading until more than a year after the commencement of the proceedings.  As I have said, the discussion concerning directorship at the April 1995 meeting was disputed by Mr Blom.  I am not satisfied that any conversation which then took place was intended to have any contractual effect.

 

While the 8 May Agreement may constitute an agreement as to the fees which would be paid to Mr Brimaud as a director of Cinema Plus so long as he remained a director, I do not regard that letter, or the conversation which preceded it even if Mr Brimaud’s version is accepted, as constituting an express promise by any of Mr Blom, Boston or Cinema Plus that Mr Brimaud would remain a director for any particular period of time or that he would be maintained in office indefinitely.  No implied term is pleaded and there is nothing before me from which any implied term could arise concerning the circumstances of Mr Brimaud’s removal.

 

There is no basis for implying a term that a non executive director will be maintained in office for a reasonable period of time or that he will not be removed except after the expiration of reasonable notice. As between Cinema Plus and Mr Brimaud, there is no basis for implying a term that Cinema Plus would maintain Mr Brimaud in office as a director and its subsidiary or that reasonable notice would be given of his removal.  The constitution of the board of directors is a matter for the shareholders in accordance with the articles of association.

 

Prior to the discussion which led to the 8 May Agreement, Mr Brimaud had considered the contents of the Business Plan.  Prior to preparing the 8 May Agreement, Mr Brimaud had endorsed the letter from Mr Weiley to the general manager of the Darling Harbour Authority enclosing the Lessee’s Proposal.  The Lessee’s Proposal referred to the intention that there would be a shareholders’ agreement and that AusAsean, or any institutional investor standing in the place of AusAsean, would have the right to appoint one director to the board.  While the Lessee’s Proposal indicated that Mr Brimaud was a director of both Cinema Plus and Cinema Plus DH, there is nothing to indicate that the board of directors would be constituted otherwise than as determined by the shareholders from time to time.

 

Mr Brimaud’s claim under this head fails.

 

The amended statement of claim complains that Mr Brimaud’s consultancy company was not paid its consultancy fee.  However, the consultancy company is not a party to the proceedings.  There is no evidence before me which justifies any conclusion that Mr Brimaud himself suffered any loss by reason of non-payment of fees to his consultancy company.  There is no evidence as to the financial condition of that company which would suggest that, assuming Mr Brimaud is a shareholder of the company, failure to pay fees to that company resulted in any loss to Mr Brimaud.

 

Mr Brimaud also claimed that, because of his removal, he was unable to participate in an option scheme in which other directors apparently participated following the issue of the prospectus.  The prospectus issued by Cinema Plus discloses that options were intended to be granted to several directors prior to completion of the offer made by the prospectus.  Two non-executive directors were to be granted 150,000 options and another was to be granted 100,000 options.  However, there is no evidence as to the manner in which the number of options so granted was calculated.  It may be that an inference could be drawn that, if Mr Brimaud had remained a director of Cinema Plus, he would have been granted at least 100,000 but not more than 150,000 options.

 

The most which could be implied from the appointment of Mr Brimaud as a director is a term that he would only be removed as a director upon being given reasonable notice.  Board meetings were held fairly irregularly although generally, on the evidence before me, no more frequently than once a month.  I have seen nothing to suggest that any greater notice than one month would be appropriate.  Had Mr Brimaud been given one month’s notice on 22 May 1996 of Boston’s intention to remove him as a director, that notice would have expired before the prospectus was issued.  There is no basis on the material before me for concluding that Mr Brimaud suffered any calculable loss in respect of any option scheme by reason of his removal as a director in May 1996.

 

CONCLUSION

In the light of the findings which I have made above, Mr Brimaud is entitled to damages in respect of the repudiation of the 8 May Agreement in so far as it relates to the first tranche.  There should be an award of damages based on the listed price of shares in Cinema Plus as at today, subject to a discount to take account of the continuing restriction on sale of shares and the possibility that the price may change in the meantime.  There should also be an allowance for the sum of $45,000 in respect of the fee note of October 1995.

 

However, Mr Brimaud has been unsuccessful to a significant extent and accordingly, questions arise as to the appropriate order for costs.  I propose to give the parties the opportunity of further argument in relation to costs and the quantum of an appropriate discount after they have had the opportunity of considering my conclusions and the reasons for them.

 

 

 

I certify that this and the preceding seventy-seven (77) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett

 

 

Associate:

 

Dated:              9 September 1998

 

 

Counsel for the Applicant:	G.K. Downes QC with R.A. Campbell
Solicitor for the Applicant:	Cordato Partners
Counsel for the Respondent:	A.J.L. Bannon SC with D.B. Studdy
Solicitor for the Respondent:	Gilbert & Tobin
Date of Hearing:	22-26 June, 22 & 23 July & 3 August 1998
Date of Judgment:	9 September 1998