Addenbrooke Pty Limited v Duncan (No 6)

[2015] FCA 793

FEDERAL COURT OF AUSTRALIA

Addenbrooke Pty Limited v Duncan (No 6) [2015] FCA 793

Citation:	Addenbrooke Pty Limited v Duncan (No 6) [2015] FCA 793
Parties:	ADDENBROOKE PTY LIMITED (ACN 055 973 576) v TRAVERS WILLIAM DUNCAN, PETER GRAY and SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441); SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441) v CASCADE COAL PTY LTD (ACN 119 180 620), ARTHUR PHILLIP PTY LTD (ACN 100 908 101) and RICHARD JONATHON POOLE; PETER GRAY v CASCADE COAL PTY LTD (ACN 119 180 620)
File number:	NSD 2243 of 2012
Judge:	FOSTER J
Date of judgment:	5 August 2015
Catchwords:	TRADE AND COMMERCE – whether a potential investor in a placement of shares made by a private company was misled as to the true purpose of the capital raising – whether material facts were concealed from the potential investor – whether the investor relied upon the positive statements made to it and whether it relied upon those with whom it dealt to disclose certain facts – whether those facts were material to the investor
Legislation:	Australian Securities and Investments Commission Act 2001 (Cth), ss 12DA, 12GF, 12GB and 12GM Corporations Act 2001 (Cth), s 1041E
Date of hearing:	2–6, 10 and 16–18 June 2014
Date of last submissions:	6 May 2015
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	442
Counsel for the Plaintiff:	Mr FM Douglas QC, Mr G O'Mahoney and Mr JG Simpkins
Solicitor for the Plaintiff:	Gye Associates Lawyers
Counsel for the First Defendant:	Mr CRC Newlinds SC and Mr GES Ng
Solicitor for the First Defendant:	Yeldham Price O'Brien Lusk
Counsel for the Second and Third Defendants and the Cross-Claimants in the First and Second Cross-Claims:	Mr AJ Payne SC and Mr JAC Potts
Solicitor for the Second and Third Defendants and the Cross-Claimants in the First and Second Cross-Claims:	Speed & Stracey
Counsel for the First Cross-Defendant in the First Cross-Claim and the Cross-Defendant in the Second Cross-Claim:	Mr J Williams and Mr T O'Brien
Solicitor for the First Cross-Defendant in the First Cross-Claim and the Cross-Defendant in the Second Cross-Claim:	TressCox Lawyers
Counsel for the Second and Third Cross-Defendants in the First Cross-Claim:	Mr K Andronos
Solicitor for the Second and Third Cross-Defendants in the First Cross-Claim:	Torq Murray Law

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 2243 of 2012

BETWEEN:

ADDENBROOKE PTY LIMITED (ACN 055 973 576)
Plaintiff

AND:

TRAVERS WILLIAM DUNCAN
First Defendant

PETER GRAY
Second Defendant

SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441)
Third Defendant

and between:

SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441)
Cross-Claimant on the First Cross-Claim

AND:

CASCADE COAL PTY LTD (ACN 119 180 620)
First Cross-Defendant on the First Cross-Claim

ARTHUR PHILLIP PTY LTD (ACN 100 908 101)
Second Cross-Defendant on the First Cross-Claim

RICHARD JONATHON POOLE
Third Cross-Defendant on the First Cross-Claim

AND BETWEEN:

PETER GRAY
Cross-Claimant on the Second Cross-Claim

AND:

CASCADE COAL PTY LTD (ACN 119 180 620)
Cross-Defendant on the Second Cross-Claim

JUDGE:	FOSTER J
DATE OF ORDER:	5 AUGUST 2015
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Leave to amend the Amended Originating Application and the Second Amended Statement of Claim in accordance with the amendments set out in MFI-11 be refused.

2.The whole of this proceeding be dismissed.

3.The First and Second Cross-Claims be dismissed.

4.The plaintiff pay the costs of the first defendant (Travers William Duncan), the second defendant (Peter Gray) and the third defendant (Southern Cross Equities Pty Ltd) of and incidental to this proceeding (including the costs which those parties are ordered to pay to the cross-defendants pursuant to Order 5 and Order 6 below).

5.The cross-claimant in the First Cross-Claim (Southern Cross Equities Pty Ltd) pay the cross-defendants’ costs of and incidental to that Cross-Claim.

6.The cross-claimant in the Second Cross-Claim (Peter Gray) pay the cross-defendant’s costs of and incidental to that Cross-Claim. 

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 2243 of 2012

BETWEEN:

ADDENBROOKE PTY LIMITED (ACN 055 973 576)
Plaintiff

AND:

TRAVERS WILLIAM DUNCAN
First Defendant

PETER GRAY
Second Defendant

SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441)
Third Defendant

and between:

SOUTHERN CROSS EQUITIES PTY LTD (ACN 071 935 441)
Cross-Claimant on the First Cross-Claim

AND:

CASCADE COAL PTY LTD (ACN 119 180 620)
First Cross-Defendant on the First Cross-Claim

ARTHUR PHILLIP PTY LTD (ACN 100 908 101)
Second Cross-Defendant on the First Cross-Claim

RICHARD JONATHON POOLE
Third Cross-Defendant on the First Cross-Claim

AND BETWEEN:

PETER GRAY
Cross-Claimant on the Second Cross-Claim

AND:

CASCADE COAL PTY LTD (ACN 119 180 620)
Cross-Defendant on the Second Cross-Claim

JUDGE:	FOSTER J
DATE:	5 AUGUST 2015
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. Addenbrooke Pty Limited (Addenbrooke), which is the plaintiff in this proceeding, is the family company of the well-known Sydney businessman and entrepreneur, Denis James O’Neil.  Denis O’Neil is accustomed to making investments through Addenbrooke.  Denis O’Neil has been a director of Addenbrooke since 1993.  He is the Chairman of Directors.  He owns all of the issued capital of Addenbrooke, and always has. 

2. Denis O’Neil has a son, Ned Arthur O’Neil.  In mid-2014, Ned O’Neil was 29 years of age.  He finished school in 2002 and then attended the University of Sydney where he gained the degree of Bachelor of Commerce.  Before commencing work in the family businesses, Ned O’Neil worked for a short time for Multiplex Constructions as a junior project manager.  He has had no other external post-graduation work experience.  Ned O’Neil became a director of Addenbrooke in 2009 or 2010 when he was 24 or 25.  At all times thereafter, Denis O’Neil and Ned O’Neil have been the only directors of Addenbrooke. 

3. Gregory Alexander Smith (Smith) has been the Company Secretary and Financial Controller of Addenbrooke since 2006.  Before 2006, he was the Company Secretary of Addenbrooke and a financial accountant employed by it.  He commenced employment with Addenbrooke on 23 August 1999.  He is not and never has been a director of Addenbrooke.

4. In September or October 2010, Gregory Keith Jones (Jones) mentioned to Denis O’Neil that he (Jones) was involved in a coal deal and that the company involved (Cascade Coal Pty Ltd) (Cascade Coal) was about to undertake a capital raising with the assistance of Southern Cross Equities Pty Ltd (SCE).  He told Denis O’Neil that the operative at SCE who would have the carriage of the raising was Peter Gray (Gray).  At that time, Gray was SCE’s Director Corporate.  Gray was well known to Denis O’Neil.  He had been Addenbrooke’s stockbroker for some years. 

5. On 17 November 2010, Gray sent an Information Memorandum to Denis O’Neil, Ned O’Neil and Smith.  Gray called that memorandum a “deal sheet” and described it as “… a summary of what we will be discussing on Friday”.

6. The essence of the transaction as described in the deal sheet was that Cascade Coal was going to place up to 601,307 new fully paid ordinary shares at $46.57 per share in order to raise a total of $28 million of new capital.  In the deal sheet, the following appeared:

   Application of Funds

   Placement proceeds will be applied to reduce third party debt and creditors

7. The two projects which Cascade Coal then had in mind were the Mt Penny and Glendon Brook projects.  In the deal sheet, the authors said:

   Cascade Coal Pty Ltd, incorporated in 2006, is focused on the identification and development of Australian coal mining projects. Cascade holds Exploration Licence 7406 (“EL7406” or “Mt Penny”) through its subsidiary Mt Penny Coal Pty Ltd and Exploration Licence 7405 (“EL7405” or “Glendon Brook”) through its subsidiary Glendon Brook Coal Pty Ltd, both located in NSW. 

8. In these Reasons for Judgment, I shall refer to the two Exploration Licences mentioned in the deal sheet as “EL7405” and “EL7406” respectively.  I shall refer to Mt Penny Coal Pty Ltd as “MPC” and to its sister subsidiary of Cascade Coal, Mt Penny Properties Pty Ltd as “MPP”. 

9. On p 1 of the deal sheet, next to a map of NSW and immediately after the text which I have extracted at [7] above, the following corporate chart appeared:

10. At 11.00 am on 19 November 2010, a meeting took place in the board room at the offices of SCE at Level 32, Aurora Place, 88 Phillip Street, Sydney, NSW.  The following persons attended that meeting:

    ·Denis O’Neil (Addenbrooke)

    ·Ned O’Neil (Addenbrooke)

    ·Smith (Addenbrooke)

    ·Travers William Duncan (Duncan)

    ·Gray

    ·Rex William Adams (Adams) (SCE)

    ·John Atkinson (Atkinson) (or John Vern McGuigan) (John McGuigan ) (Cascade Coal)

11. There is no dispute that a meeting took place at the offices of SCE at 11.00 am on 19 November 2010 (the 19 November meeting).  There is no dispute that the O’Neils, Smith, Duncan, Gray and Adams were present at that meeting.  There is a dispute as to whether it was Atkinson or John McGuigan who also attended.  Those attendees who gave evidence before me all agreed that the person who attended was either Atkinson or McGuigan.  No-one suggested that both of those men attended.  Gray and Adams said that the person who attended was John McGuigan while Ned O’Neil sand Smith said it was Atkinson.

12. The 19 November meeting is critical to Addenbrooke’s case.  Addenbrooke contends that it was misled at this meeting by Duncan and by Gray. 

13. Addenbrooke argues that it was induced to invest in Cascade Coal by representations made at the 19 November meeting and by representations made in the deal sheet.  Addenbrooke also complains that it was not told certain matters which, had they been communicated to it, would have caused it not to invest in Cascade Coal.  The matters of which they were not told concerned the involvement of the Obeid family in the project. 

14. In particular, it is Addenbrooke’s case that, as at November 2010:

    (a)Family members of the Obeid family, of which the patriarch was Edward Moses Obeid MLC (Eddie Obeid) and/or corporate or individual nominees of family members of the Obeid family, owned or had a legal entitlement to acquire at their election three rural properties which comprised all or most of the land area over which EL7406 had been granted;

    (b)In mid-2009, a company which was the nominee of members of the Obeid family, Buffalo Resources Pty Ltd (Buffalo Resources), had entered into an unincorporated joint venture with Cascade Coal pursuant to which Buffalo Resources was to receive 25% of the proceeds of the development or sale of the Mt Penny coal reserves;

    (c)From about the middle of 2010, the directors of Cascade Coal had embarked upon a course of action designed to take out the Obeid family and its nominees as landowners in respect of EL7406 and as joint venturer with Cascade Coal in respect of the Mt Penny coal reserves;

    (d)The capital raising in which Addenbrooke was invited to participate was devised and implemented in order to raise sufficient funds for Cascade Coal to enable it to pay out the Obeid family and its nominees and to sever all ties with the Obeid family and its nominees; and

    (e)Both Duncan and Gray knew of the matters to which I have referred at subpars (a) to (d) above but did not disclose any of those matters to any of Denis O’Neil, Ned O’Neil or Smith at the 19 November meeting or at any other time.  Addenbrooke argues that all of those matters should have been disclosed to it and that, if any one or more of them had been disclosed, it would not have invested in Cascade Coal.

15. I am comfortably satisfied that the evidence tendered before me established the facts and matters summarised in subpars (a) to (d) of [14] above.  In truth, in the end, there was no serious contest as to whether those matters had been proven.

16. There was, however, a real and substantial dispute about the matters referred to in subpar (e) of [14]. In particular, the remaining defendants (Duncan, Gray and SCE) and all of the cross-defendants (Cascade Coal, Arthur Phillip Pty Ltd (Arthur Phillip) and Richard Jonathan Poole (Poole)) submitted that Addenbrooke’s case has been heavily influenced by hindsight.  Those parties argued that the Court should be wary of allowing its judgment to be influenced by matters which have, since 2010, become matters of considerable notoriety in the public domain in respect of Eddie Obeid and his family and should confine its attention to the facts proven in evidence in this proceeding and nothing else.  These cautionary remarks are well made.  I am very conscious that I must be careful to ensure that my judgment is based upon only those facts actually proven in evidence before me and not to allow myself to travel beyond those facts.  Of course, there is nothing unusual or out of the ordinary about such an approach—it is always the correct approach in every case.  But, in this particular case, extra care must be taken to avoid the pitfalls that may be created by the distorting effect of hindsight. 

17. The defendants and cross-defendants argued that, despite the evidence to the contrary led by Addenbrooke, in 2010, Denis O’Neil was still the real decision-maker on behalf of Addenbrooke in relation to its investments and that he had been the real decision-maker in respect of Addenbrooke’s investment in Cascade Coal.  They then submitted that, even if the Court accepts that he was not told any of the matters referred to in subpars (a) to (d) of [14] above, had he been told all of those matters, he still would have caused Addenbrooke to proceed with its investment in Cascade Coal.  This was so because, in 2010, the Obeid name did not carry the kind or level of negative connotations it had come to bear in subsequent years.  Those parties submitted that, at the time, Eddie Obeid was known as a power-broker in the Australian Labor Party in NSW but was not then generally seen by the public in NSW as corrupt or dishonest.  The defendants and cross-defendants said that, given the short-term nature of Addenbrooke’s investment in Cascade Coal and the real potential for Cascade Coal to unlock the value of the Mt Penny coal reserves by onselling its interests at Mt Penny to a public company, Denis O’Neil and thus Addenbrooke would not have been phased or discouraged by the full disclosure of the Obeids’ interests in the venture and may have even regarded the Obeids’ involvement as a positive factor.  After all, Addenbrooke stood to make $2 million on an investment of $8 million in a three to six month timeframe.  It was submitted that greed and the love of money were very powerful drivers for Denis O’Neil in 2010 when he was considering this investment.  It seemed to him to be a no-brainer.  The defendants and cross-defendants also submitted that, in any event, Denis O’Neil had made up his mind to cause Addenbrooke to invest in Cascade Coal before he attended the 19 November meeting.  He had done so, it was submitted, because of the influence of Jones with whom he had a close business relationship at the time and because he had made his own assessment of the deal. 

18. In order to decide whether Addenbrooke would still have gone ahead had it known all there was to know about the Obeids’ involvement in the venture and in order to explain my conclusion that Addenbrooke has established the facts and matters summarised in subpars (a) to (d) of [14] above, it will be necessary to traverse the facts in some detail. 

19. Of the main players in this story, only Denis O’Neil, Ned O’Neil, Smith and Gray gave evidence at the hearing.  Adams was also called.  But Duncan, John Alan Kinghorn (Kinghorn), John McGuigan, James McGuigan (John McGuigan’s son), Atkinson and Poole did not testify at all.  In addition, many other potential witnesses were not called.  Neither Eddie Obeid nor any member of his family was called to give evidence.  In particular, none of Eddie Obeid’s sons Paul Edward Obeid, Moses Edward Obeid, Edward Joseph Obeid, Damien Edward Obeid or Gerard Obeid testified before me. 

20. The absence of so many witnesses has meant that, in many cases, the documents, email communications, correspondence, notes and memoranda tendered in the case fall to be interpreted as part of the documentary jigsaw puzzle placed before the Court by the parties without the assistance of the authors and without explanation from those who theoretically may have been able to explain or qualify them.  For the most part, no great difficulty was caused by these circumstances as the documents generally spoke for themselves.  

21. On 26 November 2010, Addenbrooke invested a few dollars less than $8 million in Cascade Coal.  As matters presently stand, that investment is worthless. 

22. Addenbrooke claims declaratory relief and damages equating to its lost $8 million plus interest against Duncan, Gray and SCE.  It had originally sued others—Arthur Phillip, Arthur Phillip Nominees Pty Ltd (APN), Cascade Coal, Poole, John McGuigan, Atkinson, Kinghorn, Coal and Minerals Group Pty Ltd (CMG) and Amanda Poole, Poole’s wife—but subsequently settled with all of those parties. It relies upon ss 12DA, 12GF, 12GB and 12GM of the Australian Securities and Investments Commission Act 2001 (Cth). It also relies upon a common law action in negligence as against SCE and Gray.

23. Gray and SCE have brought Cross-Claims against Cascade Coal, Arthur Phillip and Poole by which they seek to offload to those parties some or all of any liability which they are found to have to Addenbrooke.

24. Thus, at the end of the hearing, the active parties in this proceeding were:

    ·Addenbrooke (plaintiff);

    ·Duncan (first defendant);

    ·SCE (third defendant and cross-claimant in the First Cross-Claim);

    ·Gray (second defendant and cross-claimant in the Second Cross-Claim);

    ·Cascade Coal (the first cross-defendant in both Cross-Claims);

    ·Arthur Phillip and Poole (the second and third cross-defendants in the First Cross-Claim)

    THE OBEIDS, CASCADE COAL AND MT PENNY—THE EARLY PERIOD (SEPTEMBER 2007–SEPTEMBER 2010)

25. The narrative set out in this section of these Reasons for Judgment and the findings made therein are based entirely upon the documents ultimately admitted into evidence as Exhibit E and inferences drawn from those documents.  No witness who might have spoken to this period and addressed the relevant documents was called by any party.

26. By Contract for Sale of Land made on 27 September 2007, Locaway Pty Ltd (Locaway), as trustee for the Moona Plains Family Trust, agreed to purchase for $3,650,000 the rural property at Bylong known as “Cherrydale Park”.  Bylong is in the centre of the area over which EL7406 was granted.  The vendor was John Howard Cherry.  Under the contract, settlement was to take place on 15 November 2007.  The vendor agreed to finance part of the purchase price.  The contract contained a confidentiality clause.  The two directors of Locaway who executed the contract on its behalf were Damian Obeid and Paul Obeid.  The guarantors named in the contract were Paul Obeid, Edward Joseph Obeid, Damian Obeid and Moses Obeid—four of Eddie Obeid’s sons.  I infer that Locaway was a company owned and controlled by the four Obeid sons named in the contract or which acted as their nominee in the transactions.

1. On 22 July 2008, Warwick Grigor, in his capacity as Chairman of Monaro Mining NL (MMNL) wrote to Mr Gardner Brook (Brook), who was at the time a senior executive at Lehman Brothers, confirming that MMNL was seeking to bid for coal exploration licences in New South Wales.  Grigor said that MMNL was seeking the support of Lehman Brothers to tender for certain thermal and coking coal tenements which were expected to be promoted via a closed tender process within 30 days after the date of the letter.  He said that while Monaro RO (MRO) was a listed company with the ability to raise equity capital through the issue of shares, he believed that Lehman Brothers’ participation as a principal with MRO in tendering would better distinguish the bid application.  He said:

   In return for Lehman Brothers participation with MRO through the tender process, we propose that Lehman Brothers would be issued an option for 60% of the issued shares in the bid company Special Purpose Vehicle (SPV). The option would be issued to Lehman Brothers for $1 and would only be exercisable upon a bid being successful. Lehman Brothers would have the right to transfer all or part of its option or shares post conversion.

   The option could also be exercisable over a direct equity in the licence as opposed to shares in the subsidiary company, at your election.

   At all times, including once a bid is won, Lehman Brothers would maintain the right of first refusal to provide or arrange capital for the purpose of developing a mine asset. Lehman Brothers would be under no obligation or capital or advice at any time.

2. In an internal document prepared at Lehman Brothers on 23 July 2008 and sent by Pryor, an employee of Lehman Brothers, to Brook, Pryor recorded:

   Monaro has become aware of certain tenements that are expected to come up for closed government tender in the next few days, and is seeking our financial support as per their written offer (attached) to make bids for Exploration Licences. Monaro has also (unofficially) identified a party whom is currently the holder of land parcels which are anticipated to be crucial to the successful development of coal tenements. The “land related” party is seeking to participate in the ownership of a mine and accordingly provide favourable to terms to any land reclamation in the event a mining license [sic] is awarded. To this end, it is proposed that Lehman Brothers would receive a 20% option over the shares in a successful JV bid SPV with Monaro, and a further option for 40% of the SPV shares would be issued to the land related party.

3. In the document in question, Pryor depicted this scenario in a table following immediately after the paragraph which I have quoted.  Obviously, the “‘land-related’ party” referred to by Pryor was Locaway. I infer from the contents of the document referred to at [28] above that both Pryor and Brook knew that members of the Obeid family were ultimately in control of the land referred to and that the Obeids wanted a stake (40%) in the mining venture.

4. Pryor continued:

   In return for Lehman Brothers participation with Monaro through the tender process, Lehman Brothers would be issued an option for 20% of the issued shares in the bid company Special Purpose Vehicle (SPV). The option would be issued to Lehman Brothers for $1 and would only be exercisable upon a bid being successful. An option on similar terms will be issued to the Land Related Entity. 

   Should an exploration license [sic] be granted it is anticipated that Lehman have the option to fund exploration and feasibility study expenditure in order to increase its ownership in Monaro Coal. The terms of such an agreement are still to be negotiated.

5. In the document, Monaro Coal is identified as the bid SPV. 

6. On 25 July 2008, Chris Rumore, a partner at Colin Biggers & Paisley, lawyers, met with Gerard Obeid and possibly Moses Obeid and Paul Obeid.

7. On Monday 28 July 2008, Rumore reported to Gerard Obeid, Moses Obeid and Paul Obeid informing them that:

   (a)Colin Biggers & Paisley had ordered two companies, in respect of one of which Greg Skehan would be the sole director and shareholder (which company will enter into the option for the shares in Monaro Coal (Aust) Pty Ltd) and the other in respect of which Rumore would be the sole director and shareholder and which entity would acquire the properties as trustee for Equitexx Pty Ltd as trustee for the Obeid Family Trust No 2. 

   (b)Rumore had sent faxes that day to the solicitors for the “various vendors” requesting amendments to the contract and two options.

   (c)Rumore noted that the recipients of the email were to check the schedule of improvements and inclusions annexed to the largest contract being the contract for the purchase from TE O’Brien (Merriwa) Pty Ltd.  Rumore requested any suggestions for amendments.

   (d)Rumore confirmed that the cheques for the option fees for the two O’Brien options and the deposit cheque for the purchase from the estate of Stanmore needed to be drawn on the bank account of the relevant company.  He undertook to provide the necessary details.

8. On 30 July 2008, Rumore reported to Gerard Obeid, Moses Obeid and Paul Obeid that the company which would acquire the properties at Bylong (in respect of which Rumore would be the shareholder and director) was Geble Pty Ltd (ACN 132 441 877) (Geble) and that the company which was to take the option in respect of the shares in Monaro Coal (Aust) Pty Ltd (in respect of which Greg Skehan will be the director and shareholder) was Voope Pty Ltd (ACN 132 441 868) (Voope).  As at 30 July 2008, there were three transactions in prospect:  a purchase of a rural property from the estate of the late KJ Stanmore, an option to purchase a rural property from TE O’Brien and an option to purchase an additional rural property from TE O’Brien (Merriwa) Pty Ltd.

9. Each of Geble and Voope was registered on 28 July 2008.

10. In its monthly Exploration Status Report (Group Projects) of August 2008, MMNL recorded the following:

    4.        NSW Coal

    Activities

    A new company Monaro Coal Pty Ltd (MCP) was registered to deal with a potential coal opportunity in NSW. Monaro was recently approached by Middle East interests via Leahman [sic] Brothers Australia Pty Ltd with the view to acting as the public face of a consortium wishing to tender for large coal deposits in NSW. To facilitate this process, an option deed was executed between Monaro Mining NL and Voope Pty Ltd (VPL), which will enable the latter to exercise an option to purchase shares in MCP in the event that MCP secures coal mining rights in NSW. MCP would end up with a minority interest in one or more potentially large coal deposits.

    At the same time, advice from the Department of Primary Industries (DPI) regarding the Company’s direct approach to them regarding coal areas in the Western Coal Fields of NSW, suggests that it will be another month or 2 before the Company is advised about its request to secure ground in this area. 

    Schedule

    Awaiting futher [sic] developments regarding MCP and a response from the DPI.

11. By contract for sale of land dated 6 August 2008, Geble agreed to purchase from the estate of the late KJ Stanmore the property at Bylong known as “Donola” for $600,000. 

12. On the same day (6 August 2008), Geble entered into a Call Option Agreement dated that day with Terence Edward O’Brien.  By that Agreement, Geble was granted the right to call for the transfer of a rural property owned by O’Brien for the total consideration of $73,678 (including the call option fee).  The Call Option Agreement contained a confidentiality clause.

13. By a second Call Option Agreement made on 6 August 2008, Geble required the right from TE O’Brien (Merriwa) Pty Ltd to secure the transfer of a second property at Bylong being “Coggan Creek”.  The acquisition price was $3,481,218.30 (including the call option fee).

14. By a Deed made on 20 August 2008 between MMNL and Voope, MMNL agreed to grant to Voope an option to acquire 80% of the fully paid ordinary shares in MCP upon the terms and conditions more fully set out in that Deed.  The recitals in the agreement recorded that Voope was assisting MCP in relation to an application in respect of a tenement described as:

    … the mining lease, exploration licence or any other mining interest applied for pursuant to the invitation to tender issued by the Department [of Primary Industries] at any time after the date of this document but prior to 1 January 2009 and granted pursuant to the [Mining Act 1992 (NSW) and any regulations or ordinances made pursuant to it] in [NSW] for the exploration or mining of coal.

15. No money was to change hands for this benefit granted to Voope.  The consideration was described as “the provision of consultancy, general assistance and advisory services by or on behalf of [Voope] or at the direction of [Voope] for the benefit of [MMNL] and [MCP]”.  The option granted by this document was to be kept open for a period of three years.

16. Thus, by the end of August 2008, companies controlled by members of the Obeid family had acquired or had the right to acquire Cherrydale Park at Bylong, Donola at Bylong and Coggan Creek at Bylong.  The total cost to those companies of those acquisitions was a little over $7.8 million.  In addition, Voope had placed itself in the position to control the mining venture then contemplated by MMNL.

17. By letter dated 9 September 2008, the Department of Primary Industries (DPI) invited MMNL “to participate in Expressions of Interest for coal Exploration Licences, in accordance with the Mining Act 1992, in one or more exploration areas, in the Sydney and Gunnedah Basins as follows”. [There followed a list of 11 coalfields of which one was the Mt Penny coalfield.]

18. The letter from DPI went on to say that only companies who had been invited to lodge an expression of interest may respond to its letter.  Invited parties who decided to respond were required to submit their expression of interest to the DPI with details of an exploration and development program.  The closing time and date for expressions of interest was said to be 12 noon on 24 November 2008.

19. By notice dated 6 November 2008, Geble, through its nominee Coopers World Pty Limited (ACN 133 940 388), exercised the call option granted to it pursuant to the Call Option Agreement dated 6 August 2008 between it and TE O’Brien.  On 7 November 2008, a contract for the sale of part of the property known as Coggan Creek at Bylong was entered into between TE O’Brien (Merriwa) Pty Limited and Coopers World Pty Limited for the purchase price of $3,427,359. 

20. By a Deed of Variation of Option over Shares entered into between MMNL and Voope on 22 December 2008, MMNL and Voope agreed to vary the definition of “Tenement” in the principal deed dated 20 August 2008 by removing all reference to the date “1 January 2009” in that definition.

21. The effect of that change was to leave open the arrangements between the parties indefinitely. 

22. On 14 January 2009, James McGuigan, who is the son of John McGuigan, sent an email to Poole, John McGuigan and Atkinson.  The email said that attached to it was the “NSW Coal Allocation – 9 January.pdf”.  The email was in the following terms:

    John, John and Richard

    Yesterday we received the Expression of Interest Information Pack from the NSW Department of Primary Industry. It is attached, but the key points are:

    –The 4 medium and 7 small allocations from our previous meeting are on the table.

    –This includes the Mt Penny and Spur Hill areas that we were previously of the view that there had been a deal done for them.

    –This does not include the other major coal allocation (Bennalbri) in the Gunnedah Coalfield

    –The expression of interests are to be submitted by 16 February

    As discussed before the Director General (Dr Richard Sheldrake) will make his recommendation to the Minister (Ian McDonald) in relation to rewarding the licence. The evaluation criteria is quite detailed, and we will most likely have to engage the services of a mine/exploration consultancy firm to assist us with the exploration program, mine development proposal, infrastructure plan etc…I have arranged a meeting with Behre Dolbear for early next week, however if you guys have other consultants that you think may assist please let me know.

    Each submission will cost approx $11,000 to submit, further if are awarded the licence a one off payment for the area is required to the DPI’s Coal Development Fund:

    –Spur Hill $1.5

    –Mt Penny $1m

    –Glendenbrook $300k

    Additional financial contributions may be included as part of an applicant’s Expression of Interest.

    Moving forward, John M is arranging a meeting with Greg Jones for this Saturday to figure out if the Mt Penny and Spur Hill areas have effectively already been allocated. If this is the case, from our meeting in November we were thinking:

    –Glendenbrook for Redman Mining

    –Spur Hill for Cascade Coal

    Both of those are Hunter Coalfield areas. We may want to revisit the WEC/Cessnock leverage point here. Further, both areas are close to Coal and Allied mines.

    I have attached the information package (Atko I sent one to North Sydney attention to John M). Below is also the article from December 30 referring to Ian McDonald’s allegations of buying personnel items on ministerial credit cards.

    I propose we arrange a meeting on Monday, after Saturday’s meeting to set a plan for the following 3 weeks.

    Please give me a call if there is anything else.

    James McGuigan
    Arthur Phillip Pty Ltd
    Level 33 Colonial Centre
    52 Martin Place

    Sydney NSW 2000

    Accused minister Ian Macdonald likely to be cleared by inquiry

    NSW Primary Industry Minister Ian Macdonald is set to be cleared of an accusation that he bought a $1299 LCD television for himself using taxpayers’ money.

    The Australian learned last night an internal inquiry by the Department of NSW Premier Nathan Rees had determined that key aspects of the allegations – first aired in a Sunday newspaper earlier this month – were unsubstantiated.

    The newspaper reported that Mr Macdonald used a departmental credit card in 2005 to pay for the TV with built-in DVD player, despite ministerial use of corporate cards having been banned in 1995. It said the TV had been in Mr Macdonald’s home but was subsequently moved to his office.

    Mr Macdonald’s name and private mobile number were included on a purchase order from Bing Lee, Burwood, that was leaked to The Sunday Telegraph. However, a spokeswoman for Mr Rees said that, while the inquiry was yet to be finalised, “so far it’s found that the statement he bought the TV on a credit card is false”.

    The spokeswoman also said the TV was never in Mr Macdonald’s home. She said the inquiry would be concluded soon but that the findings so far were “pretty conclusive”.

    The finding marks a reprieve for Mr Rees, who has had to sack two ministers for misbehaviour. Former police minister Matt Brown was dismissed in September after it was revealed he had danced at a party in Parliament House in his underpants. Former medical research minister Tony Stewart was sacked last month for verbally intimidating a female staff member at a public function.

23. In the email, James McGuigan referred to a newspaper article involving the NSW Primary Industry Minister, Ian Macdonald.  The allegations referred to in the newspaper article concern the misuse of a departmental credit card.  It also appears that, from at least January 2009, James McGuigan was employed by Arthur Phillip.

24. On 3 February 2009, Michael Johnstone (Johnstone), a mining engineer with whom Duncan had had dealings from time to time, sent an email to Duncan with a copy to James McGuigan.  The subject matter of that email was said to be “Coal area release”.  The email was in the following terms:

    Travers

    I had a telecon this afternoon with James, John and Richard.

    My preferences are Vickery South, Mount Penny and Glendon Brook. The latter is very tough but would like to keep it in at this stage.

    Vickery south presents a small OC <30mt inferred at grass, but coal quality is very good 5-9% ash raw. Whitehaven will be looking at this after they got access to Vickery ML consent late last year.

    Mount Penny, presents a larger resource say 50-150Mt of OC and UG coal. Ulan seam is target, with upper half of seam better quality 17-25% ash raw. Rail runs through northern part of EL Tenement bounds Anglo area, which DPI believe has not been tested and may have significant low ash resource in lower seam. Anglo will come under pressure to renew this EL.

    DPI advise that a property called “Cortina” owned by Bruce Reid, was the target for regional coal exploration program sponsored by Macgen in Mt Penny area. Ive asked James to check this property location.

    Glendon Brook is former HWE EL, on its own not much opportunity. Too much road to get to rail. However, Mitchells flat has resources next door, I think Xstrata have this now, and may bail out. If this is the case there may be opportunity for a mini power plant. Im thinking in terms of cost of rail contruction [sic] (12km), versus installed cost per MW of power generation, a 25 to 50 MW plant may stand up.

    Intention is to have broad outline for three areas by Monday and discuss PM. I suggested some financial “engineering” say a multiplier for 1, 2 or 3 properties with a Macgen incentive. You all should look at this, and CSIRO collaboration.

    John will [sic] to do some research on Spur Hill. From geological point there are mineable resources, though Arrowfield winery may be an issue!!

    Mining technology [sic], should include a heavy tilt at local content and job creation.

    Post discussion with Cascade I have arranged through A Wells, some words on local environment issues etc. I am aware that Alan was on Singleton Local government, when Peter Murray tried to get Mitchells Flat going. He has some documents which may be usefull [sic].

    Alans time has been capped to four days, and Ive asked him to bill this. Would it be easier for him to invoice me or Cascade? Can you give me some direction in this regards?

    Mike

25. On 4 February 2009, James McGuigan passed on to Poole, John McGuigan and Atkinson the email which he had received the day before from Johnstone.  In his covering email, after referring to Glendon Brook and Vickery South coalfields, James McGuigan said that he would not begin work on Mt Penny “until after the discussion with Greg Jones”.

26. The reference to a discussion with Jones in that email appears to be a reference to the planned meeting between John McGuigan and Jones to which reference had been made in earlier emails.

27. On 16 February 2009, by letter dated that day, on the letterhead of Cascade Coal, John McGuigan wrote to the Executive Director, Mineral Resources of the DPI, submitting an expression of interest for the Mt Penny Exploration Area in response to the request published by the DPI on 9 January 2009.  That letter was in the following terms, omitting formal parts:

    Re: Expression of Interest – Mt Penny Exploration Area

    Cascade Coal Pty Limited (“Cascade Coal”) is pleased to submit an Expression of Interest for the Mt Penny Exploration Area in response to the request published by the Department of Primary Industries on 9 January 2009.

    Cascade Coal has been specifically established to engage in greenfields exploration and developments within the coal sector preferably in New South Wales. You will note from the materials attached that the shareholders of Cascade Coal have significant experience in the coal sector and have been associated with large scale developments of coal properties in Australia and overseas. Cascade also currently has an active exploration program and holds a number of highly speculative tenements in Victoria referable to Brown Coal deposits.

    The shareholders of Cascade are committed to developing a coal project and have committed to inject sufficient capital to meet the up front fees and initial Program of Works as required in the event that Cascade is successful with its application.  In this regard the shareholders have secured an underwriting from the investment bank Arthur Phillip Pty Ltd to underpin their commitment.

    In addition having regard to both the experience and expertise of the shareholders in raising substantial development capital in the coal sector the shareholders are confident that the necessary capital to enable the development of the above areas will be raised on a timely basis. Our submission for the area addresses in some detail the relevant exploration program, the proposed mine development methodology, the relevant infrastructure, the required mitigation of greenhouse gasses, other environ-mental concerns and the benefits to local and regional communities.

    We look forward to the opportunity of discussing the attached expressions of interest with you. Our nominated contact person is Michael Johnstone who may be contacted on [phone numbers omitted].

1. The Expression of Interest document is a document of 31 pages in which Cascade Coal set out its plans for the Mt Penny tenement as well as details of the shareholders of Cascade Coal.  These shareholders were identified in the Expression of Interest document as Messrs Kinghorn, John McGuigan, Atkinson, Poole and Duncan.  The document also contained details of Cascade Coal’s work program and mining methods intended for the site.

2. Messrs Duncan, Kinghorn, John McGuigan and Atkinson were appointed directors of Cascade Coal on 19 February 2009.

3. In May 2009, the DPI prepared a confidential evaluation of the expressions of interest received in respect of a number of NSW coal areas.  In that document, in respect of Mt Penny, the author of the document recorded that it (the DPI) had received expressions of interest from four entities including MMNL and Cascade Coal.  The author said that the submission made by MMNL was considered to be far superior in terms of its proposed technical program and additional financial contributions of $25,000,000 upon the grant of an exploration licence.  The author went on to make favourable comments about MMNL’s program of exploration and conceptual mine development proposals.  The evaluation team considered that the MMNL expression of interest was superior to other expressions of interest.

4. By email sent on 20 May 2009, Moses Obeid provided some preliminary information on Go Radar to John McGuigan and Jones. 

5. At the meeting of its directors held on 22 May 2009, MMNL decided to abandon its “NSW Coal Project”.  The meeting was attended by Messrs Malone, Rampe and Barns.  The Minutes recorded the following matters:

   Opening address

   The Chairman referred to the discussion between the Directors and Gardner Brook held immediately prior to the Board Meeting in reference to the NSW Coal Project and the Expressions of Interest submitted by the Company. In summary, the Chairman indicated that the NSW Government’s requirement to have all fees and contributions paid within 30 days of offer placed the Company at too great a risk, should the Company fail to source the funds required. It was considered that the possibility of raising the funds nominated in the Expressions of Interest within the time frame suggested would be extremely difficult if not impossible. Given this very significant change to the anticipated strategy, the Chairman suggested that the Coal project was no longer viable.

   The Chairman noted the request from Gardner Brook representing Voope Ltd, who had expressed the desire to attempt a salvage of the coal project (in particular Mt Penny), given their significant exposure to the project.

   A discussion was then held between the directors during which time, various views were expressed.

   Resolution

   Resolved: to abandon the project, contingent upon the following:

   Voope to provide a new agreement outling [sic] a satisfactory mechanism for transferring any licences that may be awarded away from Monaro Mining and holding Monaro Mining harmless in all aspects;

   Voope to reimburse Monaro expenses, should it be successful in securing a coal licence

   The Chairman advised that he would report the result of the meeting to Mr M Duncan. The Chairman felt that Mr Duncan would be sympathetic to the above resolution. A circular resolution would be distributed to all directors giving effect to the above resolution. 

   Next meeting

   To be advised

   Closure

   There being no further business the Chairman declared the meeting closed at 10.45 am.

6. It appears that Brook had attended at the offices of MMNL immediately prior to the directors’ meeting in an endeavour to ensure that Voope did not lose its interest in the Mt Penny project.  I infer that, by 22 May 2009 at the latest, Brook was acting as the agent of and in the interests of the Obeid family, in particular, the four sons who had been involved in the land acquisitions at Bylong. 

7. It appears that, by late May 2009, Johnstone began to wonder whether there were links or associations between Cascade Coal and MMNL.  He raised this with James McGuigan in an email sent at 6.47 pm on 25 May 2009.  In response to that email, James McGuigan said that there were no links or associations between Cascade Coal and MMNL.  He went on to say: 

   There was the proposal of a deal to be brokered last week, where we would take 90% of Mt Penny and a Monaro associate would take 10%.

   What’s going on behind the scenes is that we are trying to raise the question on Monaro’s ability to raise finances, especially after they have committed on each EOI.

   That’s just between you and me.

   I think our stance is that we’re not going to negotiate anymore.

   Let’s see how it plays out.

8. Johnstone reverted to James McGuigan by saying that his email had “clarified some of the mixed spiel that he had been getting”. 

9. At 10.18 am on 1 June 2009, John McGuigan sent an email to his son James McGuigan to which was attached a document headed “Key Principles – 31-05-2009”.  That document is in the following terms:

   Key Principles

   l. Acquire land from landowners at a consideration equal to the assessed value of the land for agricultural purpose together with a premium that reflects the marketplace assessment for a sale of agricultural land to the holder of Mining Rights.

   2. The contract to purchase and the determination of the consideration to be formally entered into within 90 days of the award of the Exploration License for Mount Penny to Cascade Coal Pty Ltd (“Cascade”).

   3. Title and ownership in the properties owned by the landowners will remain with the land owners until completion.

   4.Completion will take place within 90 days of the grant to Cascade of its application for a mining lease over Mount Penny and any additional contiguous areas.

   5.The landowners and in particular UPG Pty Ltd (“UPG”) will fully cooperate with Cascade in its pursuit of the grant of a Mining Lease.

   6.In recognition of UPG’s position as the key land holder Cascade will grant UPG or its Nominee a 25% interest in the Joint Venture Company formed to hold the Exploration License over Mount Penny and to pursue the grant of a mining lease and subsequent mining operations.

   7. UPG or its Nominee will not be required to make any contribution to the costs of the Joint Venture up to the time of the grant of a Mining Lease. For the avoidance of doubt the costs will include the exploration costs, the costs associated with the development application for the Mining Lease and the costs in purchasing the land.

   8.Once the Mining Lease is granted, UPG or its Nominee will be required to make its proportionate contribution to all costs of the development of Mount Penny or be diluted in accordance with the provisions of the Joint Venture governing the development of Mount Penny.

   9. Cascade agrees to seek the grant of an Exploration License or other rights over areas contiguous to Mount Penny should they become available. To the extent that either Cascade or the Joint Venture Company acquires the rights over the contiguous areas, UPG or its nominee will be entered to a 25% interest.

   10. In the principles outlined in paragraphs 7 and 8 with respect to Mount Penny will apply equally to any contiguous areas.

   11.UPG or its nominee will be entitled to participation on the board of the Joint Venture Company to an extent to commensurate with its equity interest.

10. The essence of the deal embodied in this email was:

    (a)Cascade Coal or its nominee would acquire all of the Bylong land owned by the Obeid nominee companies;

    (b)The Obeid interests would be awarded a 25% interest in a joint venture company to be formed to hold the exploration licence over Mt Penny and to pursue the grant of a mining lease and subsequent mining operations;

    (c)The Obeid interests would not be required to contribute to the initial costs being the exploration costs, the costs associated with the development application for the mining lease and the costs of purchasing the land.  Once the mining lease is granted, the Obeid interests would have to pay 25% of the costs of development incurred thereafter. 

11. The reference to “UPG” in the email is a reference to United Pastoral Group Pty Limited (UPG), an Obeid-controlled company. 

12. By an email sent from Brook to James McGuigan at 5.18 pm on 1 June 2009, Brook passed on to James McGuigan his email address for him to send the first draft.  He did not identify the subject matter of that draft.  He then said:

    Monaro completed all that I indicated today, and the share transfer will occur tomorrow.

    I’ll send the relevant letters and agreement showing that we now have control of the bids.

13. At 6.43 pm on 1 June 2009, James McGuigan sent an email to Jones, John McGuigan and Poole. Attached to that email were documents described in the following terms:  “Cascade Coal Letter – Land Owners.docx (31.54 kB); Cascade Coal Letter – Equity.docx (32.48 kB)”.  The email was in the following terms:

    Greg, John and Richard

    Please find attached two Letters of agreement:

    1)Letter of Agreement between Cascade Coal Pty Ltd (“Cascade”) and United Pastoral Group Pty Ltd, Geble Pty Ltd, Coopers World Pty Ltd [collectively “the Landowners”].

    2)Letter of Agreement between Cascade Coal Pty Ltd (“Cascade”) and the (“Nominee”], collectively (“the Parties).

    I have had a discussion with Mo, but am yet to receive what Nominee company they want to do it with, as well as any of the Land Agreements as promised from Paul.

    Key changes made to these agreements include:

    1)We have agreed to form a Joint Venture instead of a Joint Venture Company with the Mount Penny asset to sit in Cascade

    2)With regards to Gardner’s comment about whether money in – will be treated as debt or equity, the following was inserted

    “The Nominee acknowledges it has received consideration for the relevant land and that any contributions up to the grant of the Mining Lease shall be treated as shareholder loans and repaid out of profits in due course.”

    Of immediate importance is the issue regarding as to what the multiplier which will be applied to the agricultural land – let’s discuss this.

    Greg, we will discuss this tomorrow @ 11:30 at Arthur Phillip’s offices which are: Level 33, 52 Martin Place (Colonial Centre)

    John, although documents are attached here I will resend as emails so that you can read on Blackberry. Please call me when you can.

    In other news, Monaro completed all that they indicated yesterday – today, and the share transfer will occur tomorrow.

    It will be a 100% entity owned by Gardner known as Royal Coal.

    Cheers

14. The reference to “Mo” in that email is clearly a reference to Moses Obeid.  I say this because earlier references to “Mo” in emails from Mr Rumore were sent to Streetscape, a business operated by Moses Obeid.  In addition, in the same breath as referring to “Mo”, James McGuigan also referred to “Paul”.  I infer that that reference was a reference to Paul Obeid.

15. The letter agreements attached to this email were agreements whereby Cascade Coal agreed to acquire the three properties referred to in the letters.  These were the properties owned by UPG, Geble and Coopers World Pty Ltd which had previously been acquired from the estate of KJ Stanmore, TE O’Brien and TE O’Brien (Merriwa) Pty Ltd.  The second draft attached to James McGuigan’s email dealt with a proposed joint venture between Cascade Coal and a corporation to be nominated by Moses and Paul Obeid.  This joint venture letter was in the following terms:

    Dear Sir  DRAFT

    Re:  Letter of Agreement between Cascade Coal Pty Ltd (“Cascade”) and the [“Nominee”], collectively (“the Parties”)

    I refer to our recent discussions in relation to Cascade’s intention to acquire a land interest in the Bylong region and to be granted an exploration licence (“the Exploration Licence”) and mining lease (“the Mining Lease”) over the Mount Penny area, and the letter of agreement between Cascade and the Landowners, dated 2 June 2009. Cascade has submitted an expression of interest requesting to be granted an Exploration Licence over the Mount Penny area.

    Subject to the grant of the Exploration Licence, the Parties have agreed to form a Joint Venture (“JV”) to explore and develop the Exploration Licence and pursue the granting of the Mining Lease, in addition the JV will pursue the grant and issue of all relevant exploration licences and mining leases for any additional contiguous areas to Mount Penny.

    Obligations of the Party’s

    In recognition of the Nominee’s position as the key owner of land in the Mount Penny area and in consideration of the Nominee:

    Ÿ and its associates or related parties undertaking not to pursue the grant of any mining rights to the area or any contiguous area;

    Ÿ agreeing to assist Cascade to explore and develop the Exploration Licence and Mining Lease;

    Ÿ agreeing to make available and provide their expert knowledge of the area to assist with further exploration and review of the contiguous areas:

    Cascade will agree to grant to the Nominee a 25% interest in the JV on the basis that the Nominee does not have to make any contribution to costs up to the grant of the Mining Lease.

    Obligations of the Nominee

    For the avoidance of doubt, prior to the granting of the Mining Lease the Nominee will not be liable to contribute to the exploration costs, the costs associated with the development application for the Mining Lease and the costs in purchasing the relevant land situated at Mount Penny. The Nominee acknowledges it has received consideration for the relevant land and that any contributions up to the grant of the Mining Lease shall be treated as shareholder loans and repaid out of profits in due course.

    Once the Mining Lease is granted, the Nominee will be required to make a contribution to all costs of the development of the commercial mining operations in Mount Penny proportionate to the Nominee’s equity interest in the JV. Failure to contribute costs proportionate to the Nominee’s equity percentage will result in the Nominee’s interest in the JV being diluted pro rata in accordance with the provisions of the JV agreement governing the development of commercial mining operations in Mount Penny.

    Contiguous Areas

    If from time to time, the NSW Department of Primary Industries seeks expressions of interest from parties for the granting of a [sic] exploration licence, mining lease or any other mining interest for land that is contiguous to or adjoining or relevant to the future development of Mount Penny (“Contiguous Area”), Cascade on behalf of JV must use its best endeavors to become the successful applicant in any such exploration licence, mining lease or mining interest. To the extent that Cascade acquires the rights to pursue a mining interest over the contiguous areas, such areas shall be added to the JV.

    The principles outlined above under the section “Obligations of the Nominee” with respect to contribution of costs relating to the development of a commercial mine at Mount Penny, will apply equally to the Contiguous Area.

    Management of the Joint Venture

    The Nominee will be entitled to participate on the board of JV to the extent to commensurate with the Nominee’s equity interest in JV.

    The Nominee will be entitled to participate in the management of JV to an extent to [sic] commensurate with the Nominee’s equity interest in JV

    Confidentiality

    Except as expressly permitted by this Letter of Agreement, Cascade and the Nominee undertake and agree to hold each of the terms in this Letter of Agreement in strict confidence and not to disclose or discuss any Confidential Information to or with any person except, in accordance with this Letter of Agreement or as otherwise permitted by Cascade or the Nominee.

    Cascade and the Nominee will ensure that no Confidential Information is photocopied, reproduced or recorded in any manner except to the extent that is necessary to provide such number of copies as are reasonably required by either Cascade or the Nominee.

    Cascade and the Nominee will not use or disclose the Confidential Information or any part of it to gain any commercial, financial or other advantage for itself or any other person or to the competitive disadvantage or otherwise to the detriment of either Cascade or the Nominee.

    Executed as an Agreement

    Signed for and on behalf of
    Cascade Coal Pty Ltd

    ACN 119 180 620

    ____________________   

    Director  Director

    ____________________   

    Name of Director  Name of Director
    (BLOCK LETTERS)  (BLOCK LETTERS)

    Signed for and on behalf of
    [“Landowners”]

    ACN [ ]

    ____________________   

    Director  Director

    ____________________   

    Name of Director  Name of Director

    (BLOCK LETTERS)  (BLOCK LETTERS)

16. By letter dated 1 June 2009 sent to the DPI, MMNL requested that all exploration licences which are granted to it pursuant to the expressions of interest currently lodged with the DPI be issued to its nominee company “Royal Coal Pty Ltd” (Royal Coal).  MMNL then said that the ownership of Royal Coal would be transferred to Voope which was described as the financial partner in MMNL’s consortium.  The author of the letter went on to say that it was intended that MMNL would provide consultancy services to Royal Coal via a management agreement should Royal Coal be awarded any exploration licences. 

17. A later version of that letter was tendered in evidence.  That version is dated 2 June 2009.  It appears to be in the same terms as the earlier letter dated 1 June 2009 with the exception that the reference to “Royal Coal Pty Ltd” was altered to “Loyal Coal Pty Ltd” (Loyal Coal). 

18. At 2.37 pm on 2 June 2009, Moses Obeid sent an email to James McGuigan which was in the following terms:

    James

    As discussed I have included a copy of the Landowners agreement.

    The multiple falls under 1.1 definitions clause ‘Criteria’.

    The name of the entity being used by Gardner for the JV is BUFFALO RESOURCES PTY LTD.

    I await you [sic] draft agreement.

    Cheers

19. By an email sent at 3.09 pm on 2 June 2009 by James McGuigan to Moses Obeid and Brook (copied to John McGuigan and Poole), James McGuigan sent the final form of the two Cascade Coal letters which had been the subject of consideration as drafts the day before.  It would appear that Moses Obeid had received a revised draft of the landowners’ letter earlier that day. 

20. Later in the day on 2 June 2009, a meeting was arranged at the offices of James McGuigan for 10.00 am on 3 June 2009.  It was expected that that meeting would be attended by Brook, Moses Obeid, Poole and James McGuigan. 

21. On 2 June 2009, Voope entered into a deed with MMNL.  The recitals to that deed recorded the fact that Voope and MMNL had entered into an option deed in respect of certain shares in MCP (as controlled by MMNL) and that the parties agreed to release each other from their obligations under that option agreement.  The deed recorded that MCP was to be renamed Loyal Coal Pty Ltd and that MMNL was to ensure that any exploration licences were granted in the name of Loyal Coal Pty Ltd.  The commercial deal recorded in the document seemed to be that, in consideration for MMNL transferring all of its shares in Loyal Coal Pty Ltd to Voope, Voope would pay MMNL the sum of $1 and keep MMNL indemnified against all claims, liabilities or causes of action arising from Loyal Coal becoming the successful bidder in respect of the relevant exploration licences.  This deed formalised the transfer of control and ownership of Loyal Coal Pty Ltd from MMNL and possibly others to Voope alone. 

22. By an email sent by John McGuigan to James McGuigan at a time when John McGuigan was overseas at a resort called Tabang in Indonesia apparently sent at 8.46 pm on 2 June 2009 and headed “CC – update”, John McGuigan said to his son:

    Call me after your meeting.
    I had a detailed discussion with Travers and we are on the same page.
    Once you have the land owners agreement we need to verify title etc.
    It is important we don’t give up on clause we inserted today re trigger of land purchase.
    I am around now if you pick this up.

    Tabang unbelievable.

1. I infer that John McGuigan brought Duncan up-to-date with Cascade Coal’s dealings with the Obeids.  No doubt they discussed the form of the two letters in play at that time and the commercial arrangements embodied therein. 

2. That email from John McGuigan was sent in response to an email from James McGuigan sent an hour or so earlier in which James McGuigan reported that there was to be a meeting at 10.00 am on 3 June 2009 in Sydney.  He makes reference to “they” in his email to his father.  It is perfectly plain that the “they” to which reference is made in that email are Moses and Paul Obeid.  This much was made clear in an email sent by James McGuigan to Jones at 4.52 pm on 2 June 2009 where he said that he had sent the Letters of Agreement “to the boys”.  In an email, he said to Mr Jones:

   Not sure if you want to come to the meeting – just letting you know so you are up to date with the events.

3. At 5.57 pm on 3 June 2009, James McGuigan sent updated Letters of Agreement to Moses Obeid and Brook with copies to his father, Jones and Poole.  In that email, James McGuigan said:

   … Let’s aim to sign at Kent St on Friday at 12:00.

4. In the email, he continued as follows:

   Before that happens we are going to need to gain comfort on the following issues:

   -the formal definitions of the land parcels that are referred to in the opening paragraph of the Landowners Agreement (highlighted in the attachment)

   -the addresses of the land holdings of the three Landowners properties, so that I can conduct a Title Search;

   -to confirm the existing mortgage agreements;

   -John McGuigan and Travers Duncan want to understand why we changed from “Mining Lease” to “Mine Approval”;

   -And to approve the withdrawal letters regarding Mount Penny and Glendon Brook Coal Release Areas from Loyal Coal Pty Ltd (formerly Monaro)

   -And the Buffalo Resource ACN

   Also please note I added in the equity letter under Obligations of the Parties the following comment regarding Glendon Brook

   •   “and its associates or related parties undertaking not to pursue the grant of any mining rights to the Mount Penny area or any contiguous area, or the Glendon Brook EOI Coal Release Area;”

   Please call or email me if there are any other matters to discuss.

   Cheers

5. I infer from the reference to “Travers Duncan” in James McGuigan’s email that Duncan had carefully reviewed the letters as at 3 June 2009. 

6. As I have mentioned, attached to that email were updated drafts of the Letter Agreements which had been under discussion over the preceding few days.

7. After the meeting held on 3 June 2009, Brook met with Moses Obeid and requested an alteration to the joint venture letter agreement.  The amendment was intended to protect the Obeid interests against early dilution of their interest.  A copy of that email was sent to Moses Obeid.

8. By email sent at 2.04 pm on 3 June 2009 to Brook and Moses Obeid, James McGuigan asked whether they had received their ACN for Buffalo Resources.

9. On 4 June 2009, Brook sought legal advice from a solicitor in respect of the landowners’ letter and the joint venture letter which had been under discussion and which was intended to be signed the next day (5 June 2009).  In his covering email, Brook said that the land agreement was with a related party.

10. Later the same day, Moses Obeid provided the lot numbers for the relevant land to James McGuigan and to Brook.  Brook passed on that information to the solicitor whom he was consulting at that time.

11. On 4 June 2009, MMNL submitted a share transfer in respect of all of its shares in Loyal Coal for stamping by the Chief Commissioner of State Revenue.  As anticipated, a Joint Venture Letter Agreement was signed between Cascade Coal and Buffalo Resources on 5 June 2009.  That agreement was in the following terms: 

    5 June 2009

    Gardner Brook
    Buffalo Resources Pty Ltd
    GPO Box 1810, Sydney

    NSW 2001

    Dear Sir,

    Re: Letter of Agreement between Cascade Coal Pty Ltd (“Cascade”) and Buffalo Resources Pty Ltd (“Buffalo”), collectively (“the Parties”).

    Further to our recent discussions this agreement is intended to outline the commercial terms for which both Buffalo and Cascade intend to establish a joint venture with the specific purpose of exploring and developing the Mount Penny Coal Release Area (“The Area”).

    Subject to the grant of the Exploration Licence (for the purposes of this agreement (“Exploration Licence”) means an exploration licence granted to Cascade (or an affiliate) as a result of the current tender process and includes any extension renewal or replacement of that licence), the Parties have agreed to form either a Joint Venture Company or an unincorporated Joint Venture (“JV”) to explore and develop the Exploration Licence and pursue the grant of Mining Approval over the Area. For the purposes of this agreement (“Mining Approval”) shall mean the obtaining of all necessary permits and approvals including without limitation the grant of an appropriate mining tenement or tenements and environmental and native title approvals necessary for the development of a 100 million tonne resource.

    In addition the JV will pursue the grant and issue of relevant Exploration Licences and Mining Approvals over the area contiguous to the Area and detailed on the attachment hereto currently known as EL 6676 or any portion thereof (“Contiguous Area”).

    Obligations of the Parties

    In recognition of Buffalo’s intellectual property contribution and in consideration of Buffalo:

    Ÿ and its associates or related parties including Gardner Brook and Loyal Coal Pty Ltd withdrawing any existing applications in relation to the Mount Penny and Glendon Brook Coal Release Areas and undertaking not to pursue the grant of any mining rights to the Area or any Contiguous Area, or the Glendon Brook EOI Coal Release Area;

    Ÿ agreeing to assist Cascade to explore and develop the Exploration Licence and obtain the Mining Approvals;

    Ÿ agreeing to make available and provide their expert knowledge of the Area to assist with further exploration and review of the Contiguous Area.

    Cascade agrees to:

    Ÿ vest 100% of its interest in the Exploration Licence in the JV; and

    Ÿ grant to Buffalo a 25% interest in the JV.

    Buffalo does not have to make any contribution to costs of the JV until the earlier of either:

    Ÿ Mining Approval for a 100 million tonne resource; or

    Ÿ minimum exploration expenditure of A$10m.

    Contributions up to this milestone by Cascade to the JV shall be treated as equity.

    For the avoidance of doubt, prior to the earlier of the, granting of the Mining Approval or minimum exploration expenditure of A$10m, Buffalo will not be liable to contribute to the costs of the JV including exploration costs.

    Upon the earlier of the grant of the Mining Approval or minimum exploration expenditure of A$10m Buffalo will be required to contribute its proportionate share of equity to fund costs should third party debt finance be unavailable or insufficient to fund such costs, including proportionate costs of any land acquisition. Failure to meet required equity contributions proportionate to Buffalo’s equity percentage will result in Buffalo’s interest in the JV being diluted pro rata in accordance with the provisions of the JV agreement governing the development of the Area.

    Contiguous Area

    If from time to time, the NSW Department of Primary Industries seeks expressions of interest from parties for the granting of a Exploration Licence, Mining Approval or any other mining interest in relation to the Contiguous Area, Cascade on behalf of the JV must use its best endeavors to become the successful applicant in any such Exploration Licence, Mining Approval or mining interest. To the extent that Cascade and its associates and related parties acquire the rights to pursue a mining interest over the Contiguous Area, such areas and rights shall be assigned to the JV.

    Management of the Joint Venture

    Buffalo will be entitled to participate on the board and management of the JV to the extent commensurate with Buffalo’s equity interest in the JV.

    Buffalo will be entitled to review the books and records of the JV to ensure Cascade has complied with its obligation under this agreement and to inspect and obtain copies of all exploration records and data.

    No transfer or encumbrance

    No party may transfer or encumber its interest in the EL, any underlying mining rights or the JV without obtaining the consent of the other party.

    Confidentiality

    Except as expressly permitted by this Letter of Agreement, Cascade and Buffalo undertake and agree to hold each of the terms in this Letter of Agreement in strict confidence and not to disclose or discuss any Confidential Information to or with any person except, in accordance with this Letter of Agreement or as otherwise permitted by Cascade or Buffalo.

    Cascade and Buffalo will ensure that no Confidential Information is photocopied, reproduced or recorded in any manner except to the extent that is necessary to provide such number of copies as are reasonably required by either Cascade or Buffalo.

    Cascade and Buffalo will not use or disclose the Confidential Information or any part of it to gain any commercial, financial or other advantage for itself or any other person or to the competitive disadvantage or otherwise to the detriment of either Cascade or Buffalo.

12. The Agreement was signed by John McGuigan on behalf of Cascade Coal and by Brook on behalf of Buffalo Resources.

13. On the same day (5 June 2009), Buffalo Resources executed a Deed Poll.  That document was signed by Andrew Kaidbay and Mario Sindone as directors of Buffalo Resources.  By that Deed Poll, Buffalo Resources declared that it held all of its interest in the joint venture documented in the letter between it and Cascade Coal dated 5 June 2009 on behalf of Warbie Pty Limited (ACN 137 486 018) (Warbie) and Equitexx Pty Limited (ACN 100 544 483) (Equitexx).  The beneficial interest of Equitexx in those companies’ share of the joint venture was stated as 88%.

14. On 6 June 2009, Cascade Coal and Buffalo Resources entered into a further letter agreement varying the agreement which they had entered into the day before.  This later letter agreement was in the following terms:

    Dear Sirs

    Letter of Agreement between Cascade Coal Pty Limited and Buffalo Resources Pty Limited

    We refer to the letter agreement between Cascade Coal Pty Limited and Buffalo Resources Pty Limited dated 5 June 2009 (JV Agreement). We would like to clarify a few points in the JV Agreement (by way of variation to the JV Agreement) by:

    1.deleting the words “or an unincorporated Joint Venture” in line 5 of paragraph 2 on page 1 of the JV Agreement; and

    2.deleting the first two (2) paragraphs on page 2 of the JV Agreement and replacing them with the following:

    “In recognition of Buffalo’s Intellectual property and for Buffalo and its associates or related parties including Gardner Brook and Loyal Coal Pty Limited withdrawing any existing applications in relation to the Mount Penny and Glendon Brook Coal Release Areas and undertaking not to pursue the grant of any mining rights to the Area or any Contiguous Area, or the Glendon Brook EOI Coal Release Area, Cascade agrees to:

    Ÿvest 100% of its interest in the Exploration Licence in the JV; and

    Ÿon and from the date of this agreement grant to Buffalo the right to acquire at anytime a 25% interest in the JV for $1.00.

    Buffalo’s contribution to the JV will be to:

    ŸAssist cascade to explore and develop the Exploration Licence and assist Cascade to obtain the Mining Approvals

    ŸMake available and provide its expert knowledge of the Area to assist with further exploration and review of the Contiguous Area.”

    Could you please confirm your acceptance of this variation and clarification by signing a copy of this letter.

    Dated:  6/6/09

15. On 9 June 2009, MMNL and Loyal Coal withdrew their interest in (amongst others) the Mt Penny coal release area. 

16. On 10 June 2009, James McGuigan sent an email to his father and to Poole.  In that email, James McGuigan said:

    The property Cherrydale Park is owned by Locaway Pty Ltd

    Directors of Locaway Pty Ltd

    -Paul Obeid

    -Edward Obeid

    -Damien Obeid

    -Moses Obeid

    Shareholding of Locaway Pty Ltd
    Paul Obeid 50%

    Obeid Corporation 50%

    So, there are some issues here.

17. On 11 June 2009, in response to an inquiry from Poole, James McGuigan sent an email in which he said:

    I spoke to Dad last night and set that we thought the logical progression was for Locaway to transfer the Cherrydale Park Asset to UPG.

    He’s having a meeting with Moses today.

    Will let you know as soon as there is news

    Cheers

18. Poole followed up James McGuigan at 1.50 pm.  James McGuigan reported to him that there was no news as at that time and said:

    Hopefully we will sit down with Moses by end of today and then I guess find out then.

19. By letter dated 19 June 2009 and signed by the Director General of the DPI, the DPI informed Cascade Coal that it had been selected as the successful EOI applicant for the exploration licence over the Mt Penny coal release area.  The author of the letter invited Cascade Coal to apply for the exploration licence over that area.  The letter went on to specify certain financial terms and conditions. 

20. In June and July 2009, the shareholders of Cascade Coal actively considered how they would fund the exploration licences which they had been granted including over the Mt Penny coal release area.

21. By late August 2009, James McGuigan (and possibly Poole) had prepared a document entitled “Cascade Coal: Shareholder Update (August 2009)”. 

22. On 22 August 2009, James McGuigan sent a draft of that Shareholder Update document to Poole for his consideration.  Poole made some suggestions for improvement. 

23. In an email sent by him to Poole on 23 August 2009, James McGuigan said:

    Richard –

    I’ve put your changes through as well reformatted it.

    I won’t resend until we discuss whether we go into more detail with the Mt Penny agreements.

    I understand the sensitivities of putting who the parties are – however I think we have to disclose who Buffalo is (i.e entities associated with the land owners) – and remove the Monaro comment – but allude to it.

    I am saying this because if we don’t include the background information – the comments don’t mean anything.

    Also – as I have been writing this email – Mike Johnstone has emailed the GB ELA.

    What are your thoughts on including it as an attachment or referring to it?

    Give me a call when you can to discuss – at the office

    Cheers

24. On Monday 24 August 2009, the updated version of that document was sent to John McGuigan, Atkinson, Kinghorn and Poole.  In that email, James McGuigan said that the update outlined that Cascade was proceeding to achieve the grant of exploration licences over the Mt Penny and Glendon Brook coal release areas and that an initial capital call of $2.1 million would be made ie $300,000 for each shareholder group.  He said that it was imperative that those funds be received before the end of that week (Friday 28 August 2009).  This email and its attachment (the revised Cascade Coal Shareholder Update) was also sent to an email address used by Duncan.  I infer that it reached Duncan.

25. The revised Shareholder Update document circulated on 24 August 2009 was in landscape format.  On pages 10 and 11 of that document, the authors addressed the Mt Penny agreements involving the landowners and Buffalo Resources in the following terms:

    3.   MT PENNY AGREEMENTS

    In preparation for the development of Mt Penny Cascade has entered into two agreements with:

    -the Landowners of the Mt Penny Area as well as;

    -Buffalo Resources Pty Ltd (“Buffalo”).

    The key points are summarised below.

    The Landowners Agreement

    To ensure Cascade can secure the land necessary for the development of Mt Penny and to reduce the risk in the project (given recent land owner issues in NSW) Cascade has entered into a conditional agreement to acquire three rural interests in the Bylong region specifically Cherrydale Park, Donola and Coggon Creek (“the Properties”) that are situated on the Mt Penny Area in the event that Cascade determines that it will proceed to mine This contract should ensure Cascade’s access for exploration and potential mine development at Mt Penny over a substantial portion of the Exploration License.

    The key terms of the agreement are:

    -Cascade to acquire 100% of each property. The purchase price shall be an amount equal to four times the total sum of the Properties. The value of each property shall be agreed as the improved value as at 1 June 2009 of each property and agreed between the parties or in the event of a failure to agree as determined by an independent valuer. Cascade’s obligation to acquire the properties is conditional upon Cascade being satisfied that it will undertake a mine development at Mt Penny and a Mining Lease be granted for that purpose.

    -Cascade will provide within 60 days if the grant of the Exploration License a facility enabling the Landowners to replace the existing mortgagee with Cascade, or its nominee, on standard commercial terms other than that Cascade will essentially assume responsibility for the interest payments or at its option Cascade shall commence paying all interest attached to the existing mortgages.

    Buffalo Resources Pty Ltd Agreement

    An arrangement has been entered into with Buffalo Resources Pty Ltd (“Buffalo”) whereby:

    -Cascade to vest 100% of the Mt Penny EL into a special purpose entity and to subsequently grant Buffalo a 25% interest in the entity;

    -Buffalo agreeing to assist Cascade to explore and develop the Exploration License and obtain the Mining Approvals;

    -Buffalo agreeing to make available and provide their expert knowledge of the Area to assist with further exploration and review of the Contiguous Area.

    -Buffalo does not have to make any contribution to costs of the JV until the earlier of either: Mining Approval for a 100 million tonne resource; or minimum exploration expenditure of A$10m.

    This above arrangement was entered into in recognition of Buffalo undertaking not to pursue the grant of any mining rights to Mt Penny or any contiguous areas and agreeing to facilitate the provision of unimpeded access to the Area.

26. At pages 18 and 19 of that document, the authors addressed the corporate structure of Cascade Coal in the following way:

    6.   CORPORATE STRUCTURE OF CASCADE COAL

    Shares in Cascade Coal will be held equally by the seven shareholder groups. Please advise as a matter of priority.

    Relevant to the award of the exploration licence was the fact that it could be demonstrated that Cascade had an existing interest in the coal sector. In this regard we were able to point to the fact that Cascade had an existing exploration program and that it was engaged in the “coal business”. This was relevant to the successful application. In this regard Cascade currently holds several highly speculative exploration licences in Victoria, Australia. Now that Cascade has been successful in the Mt Penny and Glendon Brook applications these will be transferred out with all related loans and expenses so Cascade has a clean balance sheet.

    It is envisaged that a Shareholders Agreement will be entered into covering the normal matters namely:

    -Appointment of Directors;

    -Management of the company and decision making;

    -Capital Raising;

    -Transfer of shares and Pre Emptive Provisions;

    -Tag along and Drag along rights.

    Two wholly owned subsidiaries have been established, Mt Penny Coal Pty Lt [sic] and Glendon Brook Coal Pty Ltd. The applications for the relevant Exploration Licences will be made in the names of the wholly owned subsidiaries.

    Additionally, two other wholly owned subsidiaries will be incorporated:

    -MP Landowners Pty Ltd;

    -GB Landowners Pty Ltd;

    The chart on the following page illustrates the intended corporate structure:

1. In this section of these Reasons for Judgment I set out my ultimate findings in respect of Addenbrooke’s investment in Cascade Coal. I have based these findings upon my detailed consideration of the evidence at [192]–[382] above.

2. The potential “coal play” was brought to Denis O’Neil in September 2010 by Jones.  It was presented to Denis O’Neil and understood by him to be an opportunity to make a short-term investment which would be very profitable.  Jones told Denis O’Neil that SCE and Gray would be given a mandate to raise capital for the venture by way of a private placement.

3. Thereafter, throughout September and October 2010, Denis O’Neil badgered Gray and Jones about the progress of the coal play.  He also arranged for his son, Ned O’Neil, to make persistent enquiries of both Jones and Gray along the same lines.

4. Meanwhile, in September and October 2010, Addenbrooke was pursuing the acquisition of shares in White Energy.  Denis O’Neil had formed the view that investing in coal at that time was a smart move—the price of coal was high at the time.  He may even have thought or suspected that White Energy was involved in the coal play but the evidence does not make this clear. 

5. Denis O’Neil was kept at bay until about mid-November 2010.  He was, by then, very keen to take up the coal play opportunity.  He said more than once in conversations with Jones and Gray in October that he did not want to miss out on that opportunity and that they should not forget him.

6. By early November 2010, Gray had had a number of meetings with the directors of Cascade Coal.  A Mandate Agreement for SCE had been prepared.  That Agreement was eventually signed on 10 November 2010, although it is dated 2 November 2010.

7. In the period August to October 2010, Cascade Coal was busy trying to lock down an exit deal with the Obeids.  The formal documents by which that deal was done were signed on or about 20 October 2010.   At the same time, plans were being made to sell Cascade Coal to White Energy.

8. Given that Duncan, John McGuigan, Atkinson and Brian Flannery were all directors of both companies, given the value of the coal reserves at Mt Penny (which had been established with some certainty by late October 2010) and given the circumstance that Cascade Coal had by then secured control of the main land holdings where the mining at Mt Penny was to occur, the transaction with White Energy looked to be fairly much a sure thing.  And so it turned out to be—at least at the beginning.  Immediately after Cascade Coal had raised the funds which it had sought through the private placement (25 November 2010), Cascade Coal made its offer to White Energy which showed instantaneous positive interest.  It committed to the deal in principle in late December 2010.

9. Denis O’Neil was out of Australia between 30 October 2010 and 14 November 2010.  During that trip, he spent some time with Neville Crichton, another wealthy businessman who was interested in and who eventually took up shares in Cascade Coal.  He was and is a close friend of Denis O’Neil.  Denis O’Neil almost certainly discussed Addenbrooke’s proposed investment with Neville Crichton at this time.  Neville Crichton did not give evidence before me.

10. Ned O’Neil claimed that, in the morning of the day of Denis O’Neil’s return from his trip (14 November 2010), Gray met with Denis O’Neil and him at the Rose Bay Marina Kiosk.  Gray denied that this meeting took place.  Denis O’Neil did not give evidence about it in either of his affidavits.  When, during his oral evidence in chief, he was led to the possibility that such a meeting had taken place, he said that it was possible that he had attended such a meeting.  He then said that he could not remember doing so. 

11. In Addenbrooke’s Statement of Claim, this meeting was specified as having taken place on 20 November 2010 (which was a Saturday).  In his affidavit evidence, Ned O’Neil placed the meeting as having taken place on 6 November 2010 or on 13 November 2010, both of which days were also Saturdays.  After he had sworn all of his affidavits but before he gave oral evidence, Ned O’Neil realised that his father was not in Australia on either of those days so he changed his evidence to accommodate that circumstance.  He then said that the meeting must have taken place on 14 November 2010, which was a Sunday.

12. I find that, when giving his evidence, Ned O’Neil was acutely conscious of the fact that, without this meeting and the evidence which he gave about it in par 10 of his first affidavit, Addenbrooke would be left with no particular occasion when Gray told them things that were arguably false or misleading and no particular occasion before Addenbrooke made its investment where Gray made specific representations about the proposal.

13. Ned O’Neil’s recollection of this meeting is confined to a detailed account of what Gray is alleged to have said.  He did not put those remarks into any context and did not give an account of anything which he or his father said.  Furthermore, there is an air of unreality about the statements which he has attributed to Gray.

14. For the reasons which I have explained at [391]–[395] above, I am not persuaded that this meeting took place on 14 November 2010 as alleged by Ned O’Neil nor am I satisfied that Gray made the statements attributed to him in par 10 of Ned O’Neil’s first affidavit at any time before Addenbrooke invested in Cascade Coal.

15. On 16 November 2010, Gray and Ned O’Neil set up the 19 November meeting. 

16. On 17 November 2010, Gray sent the deal sheet to Denis O’Neil, Ned O’Neil and Smith.

17. In the meantime, by no later than 3 November 2010, Denis O’Neil had organised a borrowing of $5 million from Dwek.  He intended to deploy those funds in the Cascade Coal investment.  There were no other investments seriously being considered at that time which would involve the use of those funds.  As at early November 2010, Denis O’Neil expected to have to commit to Cascade Coal on 15 November or 16 November 2010 and intended to do so at that time. 

18. The 19 November meeting took place at SCE’s offices at about 11.00 am.  Present at the meeting were Denis O’Neil, Ned O’Neil, Smith, Duncan, Gray, Adams and one other—either Atkinson or John McGuigan.

19. Both Gray and Adams testified that the second Cascade Coal representative at this meeting was John McGuigan.  Ned O’Neil and Smith said that it was Atkinson.  Denis O’Neil could not remember which of the two was present.

20. Both Gray and Adams knew John McGuigan.  Gray, in particular, had met him on many occasions in the past.  He had known him for almost 20 years.  He also knew Atkinson.  None of the Addenboooke witnesses had met either Atkinson or John McGuigan.  In those circumstances, it is more likely that the recollections of Gray and Adams on this point are more reliable.

21. The dispute about whether John McGuigan or Atkinson attended this meeting seemed to me to be rather beside the point.  Yet all witnesses gave firm evidence as to their recollections.

22. I find that the Addenbrooke witnesses are mistaken about this.

23. The evidence of Ned O’Neil and of Smith as to what was said at this meeting is broadly consistent.  However, there are some important differences between the two accounts.  These are:

    (a)Ned O’Neil claimed that Duncan said that the placement funds were required to develop the asset.  He then gave details of what was involved in that.  Smith, on the other hand, said that he knew that the funds were to be used to reduce debt and to pay creditors because he had read the deal sheet. He said that he asked what the money was to be used for and was told that it would be used to pay consultants’ fees. 

    (b)Ned O’Neil said that White Energy was not mentioned during the meeting but was mentioned afterwards—by Gray at the lift.  Smith said that White Energy was mentioned during the meeting itself.

    (c)Ned O’Neil said that the Obeid family’s ownership of the farms may have been mentioned at the meeting.  Smith said that there was no mention of the Obeids at the meeting.

24. Denis O’Neil claimed to have no recollection of the substance of what was discussed at the 19 November meeting.

25. I have summarised Gray’s account of the 19 November meeting at [358]–[364] above. It broadly fits with the evidence of Smith. There are also some features which are common to the accounts of that meeting given by Ned O’Neil and Smith (eg the desire of the existing shareholders to avoid dilution of their interests in the venture as between themselves). However, there are several important differences between Gray’s evidence and that of Ned O’Neil and Smith. These are:

    (a)Ned O’Neil claimed that there was no discussion along the lines that the funds being raised by the placement would be used to reduce external debt.  Smith accepted that the question of reducing debt was discussed.  Gray said that Duncan specifically mentioned that the purpose of the fundraising was to reduce some external debt and to leave Cascade Coal with some working capital for the short term.  Adams confirmed that the question of debt was mentioned. 

    (b)According to Ned O’Neil and Smith, there was no mention of CMG.  Gray claimed that CMG was mentioned.  Adams was not asked and did not comment one way or the other as to whether CMG was mentioned.  Gray also said that CMG was in effect a consultant and had been providing services to Cascade Coal to allow the exploration licence to move towards a mining lease.

    (c)Gray said that the question of landowners was mentioned at the meeting and that, in that context, the Obeid family was specifically referred to.  Adams recalled that the landowners were mentioned at the meeting although he did not say one way or the other whether the Obeids had been specifically mentioned.  Smith said that there was no mention of the Obeids at the meeting.  Ned O’Neil testified that there may have been mention of the Obeids at this meeting.

    (d)Gray and Adams both asserted that there was a folder of documents on the boardroom table which was taken away from the meeting by one or other of the Addenbrooke representatives.  No-one asserted with any great conviction that any of the Addenbrooke representatives had looked at this folder during the course of the meeting although Adams hinted that such a thing had occurred.  The presentation pack, as described by Gray and assumed by Adams, contained pro-forma Balance Sheets as Appendix 4 to the placement letter.  Ned O’Neil and Smith vehemently denied that there was a folder of documents on the boardroom table during this meeting and vehemently denied that they looked at any such file during the course of the meeting or took away such a file after the meeting. 

26. There were, as I have said, some common features across all accounts of what occurred at the 19 November meeting.  The existing shareholders’ desire not to dilute their interests as between themselves was one such matter.  The imputed value of Cascade Coal at around $400 million as at the date of the meeting was another.  The question of whether a change of government in NSW would make a difference to the proposal was a third.  And the idea that the enterprise would be sold to a publicly listed company or floated by means of an IPO was a fourth.  The proximity of other mines, the railway and road connections were also discussed according to most of the witnesses.  The likely nature of the mining operation was also referred to.

27. Each of the witnesses who gave evidence at the hearing gave me the impression that they were well versed as to the issues in the proceeding and as to the significance of the 19 November meeting to Addenbrooke’s case and to the defences raised by the defendants, particularly those raised by SCE and Gray.  Each witness had a significant incentive to push one or more particular points about the meeting.  Gray and Adams had every reason to introduce into their account of what occurred mention of CMG and the Obeids.  On the other side of things, Ned O’Neil and Smith had every reason to deny that they were told anything about CMG or the Obeids.  I have treated all of the evidence about the 19 November meeting with considerable caution. 

28. As at 19 November 2010, there was a significant degree of sensitivity amongst the existing stakeholders in Cascade Coal about the involvement of members of the Obeid family as landholders at Bylong and, in particular, as co-venturers in the mining joint venture which was in play insofar as the Mt Penny coal reserves area was concerned.  Why this was so is truly a matter of speculation although I have no doubt that the existing Cascade Coal stakeholders preferred to offer Cascade Coal to White Energy as a clean entity which had complete control of the Mt Penny coal reserves area rather than as an entity involved in an unincorporated joint venture with members of the Obeid family. 

29. This sensitivity had been demonstrated in the endeavours of the drafters of the placement letter to water down the detail of the arrangements that had hitherto been agreed with the nominees of the Obeid family involved in the joint venture and to avoid mentioning altogether the arrangements for organising an orderly exit of those nominees from that joint venture. 

30. In those circumstances, I very much doubt that Duncan would have mentioned at the 19 November meeting CMG or that Gray would have made available to the Addenbrooke representatives a folder of documents which included the pro-forma Balance Sheets.  By the time the meeting took place, the commercial deal with the Obeids had been done and the formal documents had been signed.  Duncan and Gray had every reason to think that the deal with White Energy would be consummated in due course and that the Obeids would be contented and happy retirees from the venture.  There was no reason to bring about a state of affairs whereby one of the external investors then being courted might ask awkward questions about the very complicated transactions which were then under way designed to implement an orderly exit of the Obeids from the venture. 

31. For these reasons, I am not persuaded that anyone mentioned CMG at the 19 November meeting nor am I persuaded that a folder of documents was made available to the Addenbrooke representatives at that meeting, being a folder which included the placement letter and appendices which, in turn, included the pro-forma Balance Sheets.  This was information which, on any view of things, was better kept away from the potential investors.  For the same reasons, I doubt that the fact that the Obeids owned land in the area where the mine was to be developed was mentioned.  I say this, notwithstanding that Ned O’Neil conceded that the Obeids might have been mentioned in this context. 

32. On the other hand, I am not convinced that there was no discussion at all about the statement in the deal sheet to the effect that the purpose of the placement was to raise funds in order to reduce third party debt and creditors.  I think that Smith may well have asked about this as he claimed.  I also think that, when he did so, he was given the explanation which he recounted in his evidence (ie that the funds would be used to repay existing consultants and likely future expenditure on consultancy fees).  The concepts of spending on consultants and of spending on infrastructure are not all that far apart.  However, I had the distinct impression when Ned O’Neil gave his evidence about this meeting that he had organised a series of topics about which he would speak and that he intended to emphasise that the general thrust of what Duncan had said was directed to matters of infrastructure rather than the commercial deal.  I think that Ned O’Neil exaggerated these points in order to “load up” Duncan with a series of statements which were demonstrably false.

33. In the end, if, as I have found, Duncan explained the purpose to which the funds would be used as paying consultants’ fees, that was literally true in the sense that CMG was said to have provided consultancy services to the venture.  However, I think that it is stretching credulity for anyone to accept that CMG or the Obeids for that matter provided $25.5 million worth of consultancy services to this venture. 

34. A statement to the effect that the use to which the funds raised by the placement would be put was to reduce third party debt and creditors without further explanation would have been false and capable of being seriously misleading in November 2010.  As I have found, such a statement was made on 19 November 2010.  A similar statement was made in the deal sheet. 

35. As the above narrative amply demonstrates, things moved very quickly after the 19 November meeting.  Addenbrooke paid its $8 million to Berndale Securities on 25 November 2010 and was thereafter committed to the venture.

36. As is commonly the case with causes of action based upon misrepresentation, the mere fact that a person makes a false statement will generally not be sufficient to found an action for damages or other relief.  Generally speaking, there will have to be a causal connection between the making of the statement and the loss claimed by the alleged victim.  The present case is no exception to these general rules. 

37. In the present case, Addenbrooke relies upon certain positive representations as being false and misleading.  It also relies upon the failure on the part of Duncan and Gray to put the Addenbrooke representatives fully in the picture as at October/November 2010 insofar as the involvement of members of the Obeid family in the enterprise was concerned. 

38. In order to make good that case, Addenbrooke must satisfy the Court that the decision-maker or decision-makers who made the relevant decisions on its behalf relied upon the positive misrepresentations that were made to its representatives and counted on being told of the involvement of the Obeids in the enterprise because knowledge of their involvement would have been a material factor in the decision which Addenbrooke ultimately made.

39. I now turn to deal with the question of whether Addenbrooke has made good the question of reliance as I have just explained it.

40. According to the evidence of Denis O’Neil, Ned O’Neil and Smith, up to a date in 2009, Denis O’Neil had run Addenbrooke.  He was and is its sole shareholder.  The O’Neils and Smith testified that, in about 2009, a change occurred in the management of Addenbrooke.  Ned O’Neil, who was then 22 or 23 years of age and utterly inexperienced in matters of commerce or investment, was appointed as a director of Addenbrooke.  At the same time, it was claimed that Denis O’Neil had agreed to consult with Ned O’Neil and Smith about all major investment decisions to be made by Addenbrooke and that decisions would be made on the vote of the majority.  That is, if Ned O’Neil and Smith were against a particular investment and Denis O’Neil was in favour of that investment, according to the O’Neils and Smith, the investment would not be made.

41. Denis O’Neil is a charming man who some may consider is charismatic.  He is a self-made man having worked extremely hard in his youth doing all manner of things including hard manual labour. He and his brother created a very successful business known as “Hymix Concrete”.  He has been involved in many very significant real estate developments over many years.  He has a wide circle of friends and acquaintances and a deep and widespread network of business acquaintances.  He is the consummate entrepreneur—not afraid to take risks where he considers the potential rewards to justify the taking of those risks.  He has proven over very many years that he has a good nose for a good deal. 

42. I do not accept that such a man agreed to subjugate his decision-making power to the views of his 22 year old son or his employed accountant whom he had never made a director of Addenbrooke and whom he did not regard as being part of his inner circle.  I do not accept the evidence of the O’Neils and Smith that suggested he did agree to do just that.

1. I find that in 2009 and 2010, as had always been the case, Denis O’Neil was the sole decision-maker in respect of investment decisions to be made by Addenbrooke.  In particular, I find that he was the sole or real decision-maker in respect of Addenbrooke’s investment in Cascade Coal.  This is not to say that he did not consult with others.  He did talk to Ned O’Neil and to Smith about the proposal.  He spoke to Jones on more than one occasion about the proposal.  He spoke to Gray about the proposal.  Undoubtedly, he spoke to Neville Crichton about the proposal.  But, in my judgment, the decision to invest was his and his alone. 

2. When Denis O’Neil gave his evidence, I had the distinct impression that he was either feigning or exaggerating his lack of recollection of the events surrounding Addenbrooke’s investment in Cascade Coal.  I also had the impression that he had determined upon such a course because he wanted to avoid or minimise cross-examination directed to his reasons for causing Addenbrooke to make that investment and to avoid or minimise cross-examination on the crucial topic of whether the presence of the Obeids in the enterprise was a material negative factor for him.  The effect of Denis O’Neil’s lack of recollection and the evidence of the O’Neils and Smith as to the significant role played by Ned O’Neil and Smith in the business and affairs of Addenbrooke was to bestow upon Ned O’Neil the sole responsibility of convincing the Court that Addenbrooke relied upon Duncan and Gray when deciding to invest in Cascade Coal, both in terms of what those men actually said to Ned O’Neil and in terms of what they did not tell him concerning the involvement of the Obeids in the Cascade Coal venture.  I have to say that the evidence in chief given by Ned O’Neil as to reliance was artificial.  It was broken down to its essentials during cross-examination and then demolished.

3. To my mind, Denis O’Neil generally made his investment decisions by looking at the people involved in the proposal and forming a view about the business acumen and trustworthiness of those people.  Obviously, he would be interested in the essence of the proposal but would not devote much attention to the detail.

4. As far as Addenbrooke’s investment in Cascade Coal was concerned, I have come to the conclusion that:

   (a)Throughout the period from August 2010 to late 2010, Denis O’Neil had a strong desire to invest in coal producing assets or companies involved in coal mining.  This was because he was aware that the price of coal was high at the time and was likely to remain high for some time;

   (b)He regarded Jones, who brought the proposal to him, as a friend, as trustworthy and as someone who had good business and political connections.  He considered Jones to be a very astute investor who had sound commercial acumen;

   (c)He knew Gray and thought that he too was well connected in investment circles;

   (d)His close friend and much admired businessman, Neville Crichton, was going to invest in the placement and that was good enough for him; and

   (e)He assessed the investment as short-term and likely to be very profitable.

5. In addition, I have come to the conclusion that Denis O’Neil had decided to go ahead with Addenbrooke’s investment in Cascade Coal by no later than the end of October or early November 2010.  He organised the Dwek loan funds to be available then.  At the time that he took that step, he was not aware that there was to be a presentation on 19 November 2010. 

6. It was Denis O’Neil’s evidence that, had he been informed of any involvement of any member of the Obeid family in the Cascade Coal venture, he would immediately have informed Ned O’Neil and Smith.  He also said that he would also have immediately informed Neville Crichton.  He also gave the curious evidence set out in par 20 of his first affidavit.  What Denis O’Neil did not say in his affidavit evidence was that he would not have gone ahead with the investment had he known that the Obeids had some involvement with Cascade Coal.

7. At [199]–[264] above, I have summarised Denis O’Neil’s evidence.  I formed the view that, from time to time, he was less than frank in the answers which he gave.  As I have noted in those paragraphs, he tried to distract the cross-examiner by using his charm.  In addition, he took refuge in his asserted lack of recollection when the questions became difficult.

8. The thrust of his evidence was that, had he known about the involvement of the Obeids in Cascade Coal and the foreshadowed mining venture, he would have consulted with his son and Smith to see what they would do next.  While I accept he may have spoken to his son and Smith had he known about the Obeids’ involvement in Cascade Coal, I do not accept that he would have vacated the decision-making ground in light of the disclosure of that involvement.  In this regard, I also do not accept that Ned O’Neil and Smith would have counselled Denis O’Neil against the proposed investment in Cascade Coal had they known that the Obeids had some involvement with it. 

9. When Ned O’Neil was pressed as to what it was about the involvement of the Obeids in the enterprise that would have been a deal-breaker, he was unable to say more than that Eddie Obeid had a questionable reputation.  It is difficult to understand why the simple fact that Eddie Obeid had a questionable reputation would have been enough to discourage Denis O’Neil from causing Addenbrooke to invest in Cascade Coal.  Ned O’Neil also said that he understood that Eddie Obeid was a factional warlord within the ALP.  While, at the time, this may have been seen as a slightly negative factor should the Liberal National Coalition have won the March 2011 election, it is again difficult to understand why that circumstance would have been enough to cause Addenbrooke not to invest in Cascade Coal.  None of the Addenbrooke witnesses gave evidence that they saw the 20 May 2010 article published by The Sydney Morning Herald on line.  Of those witnesses, only Ned O’Neil testified that the Obeids may have been mentioned at the 19 November meeting.  If the Obeids were mentioned, apparently he thought nothing of it.

10. Given Denis O’Neil’s palpable enthusiasm for the proposal, I do not accept that, had the Addenbrooke representatives been told that the Obeids owned the farms where the mining was likely to take place and had also, for some time, had an interest in the joint venture which was to exploit the mining rights but had recently been taken out both of the ownership of the land and the joint venture by Cascade Coal, that information would have made any difference to Denis O’Neil when it came to making his decision whether or not to invest in Cascade Coal.  To my mind, he would have gone ahead anyway, had he known those facts.  He was enthusiastic about coal, he was aware of some of the connections between White Energy and Cascade Coal and his money would be at risk for only a short time.  The rewards were great and the risks relatively contained. 

11. I am of the view that Denis O’Neil did not pay close attention to what Duncan said at the 19 November meeting and did not make his decision to invest based upon the circumstance that the funds to be raised by the placement were to be spent on infrastructure or consultancy fees.  Nor did he rely on anything said by Gray.  Nor did he count on Gray carrying out a due diligence.  Nor did he expect Gray to tell him all there was to know about the proposal.  It did not matter to him whether others were skimming off substantial sums in the enterprise.  What mattered to him was whether he was likely to make a substantial profit from the investment.  He made a judgment about that based upon his knowledge of the people involved and the fact that Cascade Coal was likely to be sold to White Energy.  In my judgment, had he been told the truth about the involvement of the Obeids at that time, it would have made no difference to the decision which he made.

    CONCLUSIONS

12. The findings which I have made in respect of Denis O’Neil are sufficient to dispose of this proceeding.

13. They are fatal to all of the statutory causes of action relied upon against Duncan and Gray for misleading and deceptive conduct and to the negligence action brought against SCE and Gray (see esp pars 175 ff of the Second Amended Statement of Claim).

14. In Closing Submissions, Senior Counsel for Addenbrooke sought to amend its Originating Application and the Second Amended Statement of Claim in order to raise a cause of action for contravention of s 1041E of the Corporations Act 2001 (Cth). Breach of that section constitutes a criminal offence. I was not disposed to allow that amendment because of the serious nature of the consequences of breach and because the application to amend had been raised so late. Further, the defendants may have conducted their case differently had s 1041E been in the ring earlier. I remain of the view that Addenbrooke’s amendment application should be refused.

15. The two Cross-Claims only come into play if Addenbrooke is successful in its claims against SCE and Gray.  It has failed against those parties.  For this reason, both Cross-Claims must be dismissed.

16. As to costs, Addenbrooke must pay the costs of Duncan, SCE and Gray.  SCE and Gray must pay the costs of the remaining cross-defendants of and incidental to the Cross-Claims.  I think that I should make an order requiring Addenbrooke to reimburse the cross-claimants the amount of those costs.  That is, the costs which Addenbrooke must pay to SCE and Gray should include the costs which those parties will be ordered to pay to the cross-defendants.

17. Before leaving the matter, I wish to note that, even if Addenbrooke had persuaded me that the defendants were liable, there remained very serious obstacles in the way of its claim, principally in the area of causation.  Because of the findings which I have made, it is not necessary to discuss these questions. 

18. There will be orders accordingly. 

I certify that the preceding four hundred and forty-two (442) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

Associate: 

Dated:       5 August 2015