This case provides some useful insight into the factors a court will consider when determining whether a concluded and binding agreement has arisen, particularly where there have been protracted negotiations.  The case also illustrates a reluctance to impute a person with actual or apparent authority to bind a company without board approval merely because it would be reasonable to infer that a decision would not be made by the company without that person’s approval.  Ensuring agreements are clearly recorded in writing and properly authorised will reduce the scope for a subsequent claim that the alleged agreement was neither concluded nor binding.

Mr Porter alleged that he made an agreement with Sundance Resources Ltd (Sundance) (through the Sundance Chairman and MrRankineWilson (the largest shareholder of Sundance and the founding director of Sundance’s corporate advisor)) to:

  • appoint Mr Porter as a consultant to provide services as manager of the Mbalam iron ore project (which was acquired by Sundance when it acquired Cam Iron SA); and
  • grant him 30 million Sundance options.

Sundance denied that there was any binding agreement to grant options.

Le Miere J in the Supreme Court of Western Australia outlined the key legal principles in relation to formation of contract:

  • protracted or imprecise negotiations will often give rise to doubt whether a final agreement has been made;
  • the Court must ascertain from the parties’ dealings whether or not they intended to make a concluded agreement, with intention to be tested objectively by reference to what a reasonable person would have concluded; and
  • in determining a party’s objective intentions, the Court may look to such factors in relation to a contract of the type alleged as the customary method of forming a contract and whether an informal exchange that is alleged to lead to a contract would accord with the expectation of the parties.

Le Miere J then found that there was no concluded or binding agreement to issue options to Mr Porter on the basis that:

  • there were doubts as to the credibility and reliability of Mr Porter’s evidence;
  • it was inherently unlikely that a publicly listed company would make an oral agreement to issue options through an informal exchange not evidenced in writing (although noting that a Court may find a contact to have been made if evidence establishes that the parties unequivocally committed themselves by their words or conduct);
  • a draft ASX announcement in relation to the acquisition of Cam Iron SA stated that the issue of options to Porter was ‘subject to the required approvals’ which suggested that Sundance believed shareholder approval was necessary or intended to seek shareholder approval (whether it was necessary or not) and was a further indication that there was no unconditional agreement (the announcement as finally issued made no reference to Mr Porter);
  • all parties must have known that if an agreement had been made to issue options to Mr Porter then it should have been disclosed yet the notice of meeting to approve the acquisition of Cam Iron SA issued in April 2006 made no mention of the issue of any options to Mr Porter, although it did refer to the grant of options to others; and
  • while subsequent evidence suggested that Mr Porter was negotiating for the issue of options, such negotiations never resulted in a concluded binding agreement.

Although a finding was not strictly necessary, Le Miere J also found that Mr RankineWilson did not have actual or apparent authority to enter into an agreement on behalf of Sundance as:

  • the scope of the engagement by Sundance of its corporate advisor did not authorise Mr RankineWilson to enter into an agreement on behalf of Sundance to engage Mr Porter or for Sundance to grant options; and
  • Mr RankineWilson did not have ostensible or apparent authority to enter into the alleged agreement with Mr Porter.  Although references by Sundance to Mr RankineWilson in the course of negotiations and his presence during discussions may reasonably have led Mr Porter to believe that Sundance would not enter into an agreement without Mr RankineWilson’s approval, this did not amount to a representation that Mr RankineWilson was authorised to enter into an agreement without approval by the Sundance directors.

An appeal has been lodged by Mr Porter.

See the case.