Beach Petroleum NL v Johnson

BEACH PETROLEUM NL and CLAREMONT PETROLEUM NL v. MALCOLM KEITH JOHNSON and
OTHERS
No. G53 of 1991
FED No. 392
Number of pages - 176
Corporations - Principal and Agent - Trade Practices - Tort - Affirmation
(1993) 115 ALR 411
(1993) 11 ACSR 103
(1993) 43 FCR 1

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
Von Doussa J(1)

CATCHWORDS

Corporations - purchase by applicant companies of interests in oil leases - whether bona fide transaction - whether purchase price fraudulently ramped - whether directors of applicants aware that transaction not at arm's length and not bona fide - whether directors party to conspiracy to injure by unlawful means - whether in breach of fiduciary duty - whether liable to pay compensation for a contravention of s.229 of the Companies (South Australia) Code.

Corporations - common directors of applicant and respondent companies - respondent companies purporting to provide financial assistance to applicant to purchase interests in oil leases - whether knowledge of common directors that purchase was part of fraudulent scheme to injure the applicants attributed to respondent companies - whether financing transactions totally in fraud of respondent companies - whether transactions by design or result for benefit of respondents - whether moneys paid by applicant in purported repayment of loans received by respondents with knowledge that applicant's money paid in breach of directors' fiduciary duty - whether constructive trust - whether respondents knowingly concerned in contravention of sub.s.229(1) of the Companies (South Australia) Code.

Principal and Agent - directors acting for company - liability of company for fraud of directors - whether directors acting within the scope of their authority - attribution of knowledge of directors to the company.

Trade Practices - misleading or deceptive conduct - common directors of applicant and respondent companies - respondent companies providing financial assistance to applicant to purchase interests in oil leases in USA - whether in trade or commerce in Australia - common directors participants in fraudulent scheme - common directors failing to disclose to the applicant that the purchase and provision of finance were not bona fide transactions - whether directors knowledge and conduct knowledge and conduct of the respondent companies - whether conduct misleading or deceptive.

Tort - deceit - whether constituted by failure by one party to disclose to the other party to a commercial transaction that the transaction is not bona fide - whether failure to disclose amounts to a representation.

Affirmation - estoppel - whether applicant company became aware of facts giving rise to right to impugn the transaction - whether applicant thereafter affirmed transaction.

Trade Practices Act (Cwth) 1974, ss.52, 84, 87

Fair Trading Act 1987 (SA), ss.3, 56

Companies (South Australia) Code, ss.5, 229, 230

The Companies and Securities (Interpretation and Miscellaneous Provisions) (South Australia) Code, s.38

HEARING

ADELAIDE, LONDON, 4-10, 13-17, 20-24, 27-31 July 1992, 3-7, 10-14, 17-21, 24, 25, 27, 28, 31 August 1992, 1-4, 7-11, 14-18 September 1992, 6-9, 12-16, 19-23, 27-30 October 1992, 2-6, 9-12, 18, 20, 24-26, 30 November 1992, 1-4, 8-10, 14-16 December 1992, 27-29 January 1993, 2-5, 22-26 (London) February 1993, 1, 2 (London), 8-12, 22-26, 29-31 March 1993, 1, 5, 6 April 1993

#DATE 10:6:1993, ADELAIDE

Beach Petroleum NL : Counsel: Messrs TA Gray QC,
Claremont Petroleum JR Sulan QC, CNH Bagot
NL (Applicants) and GT Grieve

: Solicitors: Piper Alderman

Malcolm Keith Johnson : No appearance at trial
(First Respondent)

Michael John Fuller : Counsel: Messrs BT Lander QC,
(Second Respondent) FG Lever and SP White to

8 December 1992. Thereafter appeared in person

: Solicitors: Baker O'Loughlin to 8

December 1992 Floreani Coates and Co from 22 March 1993

Christopher Paul
McDonald Main : No appearance at trial
(Third Respondent)

Joseph Patrick : Counsel: Messrs FG Lever and SP
Cummings White to 8 December.
(Fourth Respondent) Thereafter appeared in person

: Solicitors: Baker O'Loughlin to 8

December 1992

Firstway Limited : No appearance
(Fifth Respondent)

Jingellic Minerals NL : Counsel: Mr MN Rice
(Sixth Respondent)

: Solicitors: TN Cogan to 24 November

1992. Goldberg and Co from 4 December 1992

Spargos Mining NL : Counsel: Messrs JM Ireland QC
(Seventh Respondent) and DEJ Ryan

: Solicitors: Finlaysons

Enterprise Gold Mines : Counsel: Messrs DM Quick QC and
NL (Eighth Respondent) TL Stanley

: Solicitors: Corrs Chambers Westgarth

to 10 December 1992. Thereafter Thomsons

Independent Resources : Counsel: Mr MN Rice to 9
Ltd and Independent September 1992
Resources (Asia) Group Messrs BT Lander QC and
Pty Ltd SP White to 8 December
(Ninth and Tenth Respondents) 1992. Thereafter no appearance

: Solicitors: Baker O'Loughlin to 8

December 1992.

Australian Securities : Counsel: Ms AV Moroney
Commission (Intervenor)

DW King, PC Dunn, : Counsel: Messrs RJ Bainton QC and
MW Atkins and GW Dewar RJ Whitington
(First Cross-Respondents)

: Solicitors: Ms Rosemary H Craddock

ORDER

THE COURT ORDERS THAT:

1. On the claim for damages pleaded in the application, judgment for Beach Petroleum NL against each of the respondents for $44,450,000.00.

2. All other claims for relief by the applicants adjourned to a date to be fixed.

3. All cross-claims adjourned to a date to be fixed.

4. Direct the applicants to bring into Court short minutes of order reflecting the reasons for judgment published this day.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

INDEX

Section Topic

1. Introduction

2. Causes of action alleged

3. Service and representation of the respondents

4. Respondents' cases

5. Disallowance of proposed amendment to Spargos defence

6. Cross-claims

7. Evidence matters

8. Witnesses

9. Control by Mr Johnson of IRL Group

10. Control of Claremont by IRL and Mr Johnson

11. Control of Spargos, Enterprise and Jingellic by IRL

12. Transactions at Atlantic Capital Corporation

13. The escrow transaction

14. The Burbank transaction

15. The SCAFA transactions

16. Rahn and Bodmer meeting 13/14 September 1989

17. Beach payments in reduction of vendor finance

18. Proposals for restructuring IRL group - including Topco

19. Financial position of the respondent entities

20. Real value of the Burbank interests

21. Events of 1990 and Heads of Agreement

22. Legal issues and conclusions on liability

23. Remedies

JUDGE1

VON DOUSSA J

INTRODUCTION

1.1 The applicants are public listed companies. Beach Petroleum NL ("Beach") is a 65.2% owned subsidiary of Claremont Petroleum NL ("Claremont"). They claim a variety of equitable remedies or, in the alternative, damages against the respondents, resulting from the acquisition by Beach of minority interests in the North and South Burbank Units of the Burbank oil leases granted by the Osage Indians in Osage County, Oklahoma, U.S.A. ("the Burbank interests"). The acquisition occurred as a result of the exercise on 30 June 1989 of an option contained in a Charge and Option Agreement dated 29 June 1989 between the applicants and Firstway Limited ("Firstway"), a company incorporated in the Republic of Liberia whereby, for a consideration of US$28 million, Beach acquired from Firstway the single bearer share constituting the issued capital of Mazeley Limited ("Mazeley"), another company incorporated in the Republic of Liberia. Mazeley in turn held all the issued capital of Burbank Petroleum Company ("BPC"), a company incorporated in Colorado, U.S.A., Burbank Oil and Gas Limited, a company incorporated in the Bahamas and another company of the same name, Burbank Oil and Gas Limited incorporated in Texas, U.S.A. which at some point had acquired the assets of the Bahaman company of the same name. Both companies are for convenience referred to as "BOG".

1.2 From October 1988 the grant of an option to Claremont to purchase an interest in the Burbank Units was under discussion as part of the consideration for Claremont lending money to Mazeley and BPC, but on 11 May 1989 Beach was substituted for Claremont as the party to become the option holder.
1.3 The acquisition cost was met as follows:

US$8,197,564 (or thereabouts as slightly different figures often appear in the documents due to conversion from one currency to another) referred to in the Charge and Option Agreement as the "Option Fee", from moneys advanced prior to the exercise of the option by Claremont under the guise of loans to Mazeley or BPC. In their inter-company accounts Beach gave credit for this amount to Claremont as at 30 June 1989 US$10,428,987 from a purported loan to Beach under the Syndicated Cash Advance Facility Agreement ("SCAFA") from the seventh respondent Spargos Mining NL ("Spargos") as to US$1,582,808.24, from the eighth respondent Enterprise Gold Mines NL ("Enterprise") as to US$5,741,785.02, and from the sixth respondent Jingellic Minerals NL

("Jingellic") as to US$3,104,394.04

US$3,989,866 transferred by Beach to Firstway from a deposit account at Rahn and Bodmer Banquiers ("Rahn and Bodmer") in Zurich, Switzerland, being the equivalent of A$5 million which had been the subject of an assignment by Spargos to Beach in May 1989 under a transaction referred to as the "currency swap".

These three payments were notionally appropriated to Firstway on or about 3 July 1989.

the balance of US$28 million remained outstanding as vendor finance but substantial payments were made by or on behalf of Beach to Firstway over the next few months so that by 19 January 1990 the amount unpaid was reduced to US$639,783 or thereabouts (which remains unpaid).

1.4 Although the SCAFA arrangement was apparently agreed to prior to 30 June 1989 and partially put into effect about that date, the formal SCAFA documentation was not signed until 19 October 1989. Under SCAFA, Spargos was appointed agent for the lenders to whom Beach was required to make payments. Spargos fulfilled that role until December 1990 when Spargos retired and Jingellic became agent. By that time Spargos had appropriated payments made to it by Beach which exceeded its entitlement under SCAFA. This gives rise to a cross-claim in these proceedings by Jingellic against Spargos.
1.5 The moneys said to be advanced under SCAFA to Beach were the credit balances standing in separate Australian dollar deposit accounts in the names of each of Spargos, Enterprise and Jingellic (together referred to as SEJ) at Rahn and Bodmer as at 30 June 1989.
1.6 At material times between October 1988 and January 1991, the ninth respondent Independent Resources Limited ("IRL") effectively controlled a group of companies including the applicants, the tenth respondent Independent Resources (Asia) Group Pty Ltd ("IRAG") and SEJ. The corporate structure, according to publicly available information as at 30 June 1989, is shown in the following chart. At October 1988 there was an open takeover offer by Inspar Pty Ltd ("Inspar") for Petrogulf Resources Ltd ("Petrogulf") which did not close until April 1989. Prior to the offer closing, Inspar's holding in Petrogulf was less than 67.3 per cent. Otherwise the picture in October 1988 was basically the same. This chart does not include Meridian Oil NL ("Meridian") which was involved in some of the events which are later described.

(CHART 2A OMITTED)

Published records suggest that on 19 February 1988 Spargos and its subsidiary Yellowstone Exploration and Mining Pty Ltd ("Yellowstone") held about 26% of the issued capital of Meridian, and this holding had increased to about 35% by 3 March 1989. From 5 January 1988 the Meridian board was controlled by people from the IRL camp.

1.7 Between October 1988 and January 1991 the directors of the IRL group of companies, who are parties to these proceedings, were:

Name Appointed Ceased Beach

Kolm Jan E. 12. 6.81 22.11.88 Lobban, Alan R. 17. 4.72 22.11.88 Hilton, Norman Anthony 15. 6.87 23.12.88 Burney, Cecil Denniston 9.10.87 6. 6.89 Bayly, Geoffrey Lawrence

(alternate for C D Burney) 28.10.87 16.12.88 Fuller, Michael John 9.10.87 18. 1.91 Main, Christopher Paul

Macdonald (alternate

for C D Burney) 2. 5.89 6. 6.89 Main, Christopher Paul

Macdonald 6. 6.89 23. 3.90 Cummings, Joseph Patrick 23.12.88 21.12.90 Hebberd, Richard Stanley 23. 3.90 24. 1.91 Towner, Geoffrey Ferguson 23. 3.90 24. 1.91 Atkins, Michael William 24. 1.91

Dewar, Geoffrey William 24. 1.91

Dunn, Peter Charles 24. 1.91

King, David William 24. 1.91

Claremont

Woollett, John Marcus 24. 4.86 5.12.88 Hilton, Norman Anthony 7. 7.86 23.12.88 Burney, Cecil Denniston 23. 9.87 6. 6.89 Bayly, Geoffrey Lawrence

(alternate for C D Burney) 22.10.87 16.12.88 Fuller, Michael John 23. 9.87 6.12.90 Main, Christopher Paul

Macdonald 6. 6.89 23. 3.90 Cummings, Joseph Patrick 23.12.88 29.11.90 Hebberd, Richard Stanley 23. 3.90 29.11.90 Towner, Geoffrey Ferguson 23. 3.90 7.12.90 Atkins, Michael William 29.11.90

Dunn, Peter Charles 29.11.90

Dewar, Geoffrey William 6.12.90

King, David William 6.12.90

IRL

Fuller, Michael John 24. 4.80

Greenham, Ian Maxwell 4. 3.87 16.12.88 Bayly, Geoffrey Lawrence

(alternate to I M Greenham) 6. 5.88 16.12.88 Burney, Cecil Denniston 8. 6.87 20. 6.89 Cummings, Joseph Patrick 16.12.88

Fleming, David Alec Andrew 29.11.90

IRAG

Greenham, Ian Maxwell 20. 3.87 16.12.88 Fuller, Michael John 20. 3.87

Cummings, Joseph Patrick 16.12.88

Spargos

Jermyn, Peter Geoffrey 25. 3.80 6.11.89 Bayly, Geoffrey Lawrence 5. 1.88 16.12.88 Greenham, Ian Maxwell 5. 1.88 16.12.88 Burney, Cecil Denniston 5. 1.88 5. 6.89 Fuller, Michael John 5. 1.88 21. 9.90 Cummings, Joseph Patrick 16.12.88 21. 9.90 Bateman, Gregory Thomas 16.12.88 14. 2.89 Winby, Richard 19.12.88 4. 8.89 Main, Paul Christopher

Macdonald 29. 5.89 23. 3.90 Saunders, John Milton 23. 3.90

Towner, Geoffrey Ferguson 23. 3.90

Halse, Alden Jonson

(alternate for G J Trevor) 21. 9.90

Lewis, Michael Aswtun 21. 9.90

Trevor, Garry John 21. 9.90

(The last five mentioned directors were appointed or re-appointed by order of the Supreme Court of West Australia dated 21 September 1990)

Enterprise

Fuller, Michael John 30.12.81 (see para.12.3 below) Bayly, Geoffrey Lawrence 22. 3.88 16.12.88 Greenham, Ian Maxwell 23. 3.88 16.12.88 Webb, Richard Godfrey 16. 1.91 Bateman, Gregory Anthony

Thomas 16.12.88 14. 2.89 Cummings, Joseph Patrick 16.12.88 Winby, Richard 19.12.88 4. 8.89 Main, Paul Christopher

Macdonald 29. 5.89 23. 3.90 Saunders, John Milton 23. 3.90 31.12.90 Towner, Geoffrey Ferguson 23. 3.90 15. 1.91

(By order of the Supreme Court of West Australia dated 8 November 1991, Jeffrey Laurence Herbert was appointed Receiver and Manager of Enterprise)

Jingellic

Bayly, Geoffrey Lawrence 7. 7.87 16.12.88 Greenham, Ian Maxwell 4. 3.87 16.12.88 Fuller, Michael John 30.12.81 (see para.12.3 below) Webb, Richard Godfrey 6. 5.87 Cummings, Joseph Patrick 16.12.88 Bateman, Gregory Anthony

Thomas 16.12.88 14. 2.89 Winby, Richard 19.12.88 4. 8.89

These lists do not show all the people who were appointed from time to time as alternate directors. A comprehensive listing of all directors of all companies in the IRL group is to be found in Exhibit 720.

1.8 Ian Maxwell Greenham and Geoffrey Lawrence Bayly and several other IRL personnel were killed in a light aeroplane crash on 16 December 1988. Immediately following the crash the fourth respondent, Joseph Patrick Cummings, was appointed a director of companies in the IRL group on whose boards the deceased had been members.
1.9 In June 1989, when the Charge and Option Agreement was entered into and the option exercised, the second respondent Michael John Fuller, Mr Cummings and the third respondent Paul Christopher Macdonald Main were the directors of each of the applicants and IRL. Messrs Fuller and Cummings were the only directors of IRAG, and two of the four directors of Jingellic. Messrs Fuller, Cummings and Main comprised the majority of the directors of Spargos and Enterprise. The statement of claim alleges that through these board positions, Messrs Fuller, Cummings and Main procured companies in the IRL group to obey their instructions.
1.10 The first respondent, Malcolm Keith Johnson, was at one time in business in Adelaide, but left Australia in the early 1980s following bankruptcy and a conviction in the Supreme Court of South Australia on a corporate fraud charge. Mr Fuller, then practising as a solicitor in Adelaide, had acted for Mr Johnson whilst he was in Adelaide. In 1988 and 1989 Mr Johnson's principal residence was at Stienbechle 1, Kitzbuhel, Austria, but he conducted an office at Scorpio House in London and had extravagant houses in London, Wonham Hill and Pine Stows in Surrey. Throughout this period, Mr Main was engaged by Mr Johnson to assist him in the conduct of his business affairs. The evidence shows that Mr Main was Mr Johnson's right hand person who closely followed Mr Johnson's instructions. Mr Main joined the board of Meridian on 10 August 1988 and became a director of many IRL group companies in May and June 1989.

1.11 Mr Cummings is a lawyer who, until he assisted Mr Fuller full time in the affairs of the IRL group, practised in Adelaide. By 1988 he was Mr Fuller's right hand person, attending in particular to legal aspects of transactions. He was closely engaged in the affairs of the IRL companies before he joined the boards after the aeroplane crash.
1.12 The applicants in their statement of claim allege that, at least between 1 June 1988 and 30 March 1990, the majority of the directors of the applicants, SEJ, IRL and IRAG, were accustomed to act in accordance with the directions of Mr Johnson, and by reason of s.5 of the relevant Companies Codes, Mr Johnson was a deemed director of these companies. As such, he owed duties to the applicants as if he had been duly appointed a director of each company. It is also alleged that between June 1988 and April 1990 Firstway, Mazeley, BPC and BOG acted in accordance with the directions and instructions of Mr Johnson. Those instructions were often given by Lynne Brooke, a partner in Brooke Blain Russell ("BBR"), solicitors of London. It is alleged that Mr Brooke was also accustomed to act in accordance with Mr Johnson's instructions. Firstway was owned by Hong Kong Fidei Commissaire Limited ("HKFC") in the Crown colony of Hong Kong as trustee of the Ska Trust, a trust set up on Mr Johnson's instructions for the benefit of his family and through which Mr Johnson himself benefited. HKFC acted in accordance with instructions received from Messrs Brooke and Johnson.
1.13 In brief outline, the statement of claim goes on to allege that in about August 1988 Mr Johnson, through the Ska Trust and in turn through the corporate structure of Firstway (formed on 4 October 1988), Mazeley (formed on 20 September 1988), BPC (formed on 21 July 1988) and BOG (first formed in the Bahamas on 28 October 1988) progressively acquired small interests in the North and South Burbank Units which by June 1989 totalled almost 47% of the North Burbank Unit and 6.1% of the South Burbank Unit. These are the Burbank interests the subject of the Charge and Option Agreement. During the same period, unsuccessful attempts were made by Mr Johnson to acquire from Phillips Petroleum Inc. ("Phillips") its majority holdings of 51% of the North Burbank Unit and 63.7% of the South Burbank Unit.
1.14 The Burbank interests were acquired in the names of BPC and BOG. The consideration paid was slightly less than US$3.6 million, which sum was almost entirely advanced by Claremont as loans to BPC and Mazeley. The statement of claim alleges that Messrs Fuller, Cummings and Main were aware of the actual cost of the acquisition of these minority interests when Beach and Claremont entered into the Charge and Option Agreement, and the option was exercised. It is pleaded that the true value of the interests at 30 June 1989 was in the order of US$3.6 million or, more probably, between nil and US$2.4 million. The price was then ramped, and the interests sold at Mr Johnson's direction to Beach.
1.15 The applicants allege that the motive for this gross breach of duty by the respondent directors was to conceal other gross breaches of duty and of the law which had earlier occurred with the knowledge of Messrs Fuller, Cummings, Main and Johnson in relation to the deposits of SEJ at Rahn and Bodmer, and to provide money to meet pressing requirements of various of the respondents. The deposit moneys had originally been lodged in 1987 as time deposits with Atlantic Capital Corporation ("ACC"), a merchant bank with offices in the United States and London. Sir Cecil Burney, whose name frequently appears in the above lists of directors of IRL group companies, was a senior executive officer of ACC, and had an office in 1988 in Scorpio House, London. On 24 April 1987 ACC had lent to IRL A$25.8 million, and then in September 1987 had lent a further A$7.3 million to IRL. By October 1988 these loans had been reduced by IRL to $22,218,289.94 including accrued interest. The deposits of SEJ with ACC at 28 October 1988, including accrued interest (no interest having to that time been paid) were -

Spargos A$6,719,835.62 Enterprise 7,129,178.08 Jingellic 3,854,529.11 $17,703,542.81

1.16 On 28 October 1988, ACC was demanding repayment. The IRL loans were refinanced through Rahn and Bodmer. This refinancing was achieved by a series of transactions at Rahn and Bodmer conducted through an account opened by Mr Brooke who had been appointed by IRL, ACC, and SEJ to act as an escrow agent. The balance of the IRL loan included A$6,779,964.94 accrued interest, on the payment of which IRL was required to pay $677,996.49 Australian withholding tax. Accordingly, the balance due to ACC to extinguish the IRL loan was $21,540,293.45. On repayment of this sum, ACC agreed to release securities held by it, and to transfer the deposits of SEJ to Rahn and Bodmer. In accordance with instructions given by the parties to Mr Brooke, the following transactions were intended to occur through the escrow account -

DR CR Balance A$ A$ A$ Advance by Rahn and Bodmer 21,540,293.45 21,540,293.45 CR Payments to the order of Atlantic:

To Jingellic - at Rahn and Bodmer

3,854,529.11 17,685,764.34 CR To Enterprise - at Rahn and Bodmer

7,129,178.08 10,556,586.26 CR To Spargos - at Rahn and Bodmer

6,719,835.62 3,836,150.64 CR To ACC - at Barclays Bank Plc.

3.836,750.64 Nil

In accordance with the intended entries in the escrow account, the only funds actually transferred between the banks were A$3,836.750.64 sent by Rahn and Bodmer to ACC.

1.17 The applicants allege that, in reality, the deposits of SEJ at ACC had been security to support the IRL borrowings, and that, as a result of the escrow transaction, the deposit accounts opened in the names of SEJ at Rahn and Bodmer became back to back security for the Rahn and Bodmer loan to refinance the IRL borrowings. Those representing IRL in the negotiations with Rahn and Bodmer sought a loan of A$24 million. In the events which happened, this became two loans each for A$12 million, one to IRL and one to IRAG. The applicants allege that the back to back arrangement was achieved by the SEJ deposits being placed in Fiduciary Accounts numbered 240 and 241 and used as security for fiduciary loans by Rahn and Bodmer to IRL and IRAG, recorded in loan accounts also numbered 240 and 241 in the bank's records. By virtue of the common directorships between SEJ, IRL and IRAG, this security arrangement, if it existed, was in breach of s.230 of the Companies (Western Australia) Code.
1.18 On the applicants' case, the SEJ deposits at ACC were effectively lost to SEJ before the time of the escrow assignment because IRL had no prospect of repaying its borrowings. It was this situation that led to a conspiratorial scheme which included, as its centrepiece, the acquisition of the Burbank oilfield by Mr Johnson through Ska Trust entities and its resale at a grossly inflated price into Claremont.
1.19 It is alleged that this scheme ("the Burbank scheme"), as developed and implemented by Messrs Johnson, Fuller, Cummings, and Main included a number of objectives. At its inception, a principal objective was to use the over-value to conceal the illegal use of the SEJ deposits. The over-value would provide funds to cover the IRL borrowings and free the SEJ deposits. In addition, the over-value would provide much needed funds for companies in the IRL group and Mr Johnson. At the time, IRL was under pressure from the National Companies and Securities Commission ("NCSC") to make a full takeover offer for Claremont, as the NCSC considered earlier transactions by which IRL had acquired relevant interests in Claremont shares contravened s.11 of the Companies (Acquisition of Shares) (Queensland) Code. The IRL directors and Mr Johnson were planning a major restructuring of the IRL group which would include a full takeover offer for Claremont.
1.20 The applicants allege that the Burbank scheme was conceived probably in July and August 1988. On Mr Johnson's instructions BPC, Mazeley and Firstway were established, and interests in Burbank acquired. Initially, the scheme was for Ska Trust entities to acquire the Phillips' interests as well, and as the majority interest holder, to control who would be operator of the Units. It was hoped that this could be achieved quickly. But as events turned out, Phillips would not sell, and the fulfilment of the Burbank scheme was delayed. During the period of delay, the financial pressures on the IRL group increased. Money was urgently needed to meet particular expenses. The Burbank scheme was modified and refined to meet these exigencies. Although the Burbank scheme evolved over time in this way, a principal purpose was always to cover up the use made of the SEJ deposits at Rahn and Bodmer. As the scheme evolved, finally that purpose was to be achieved through the currency swap and the SCAFA transactions.
1.21 The applicants contend that the Burbank scheme was a conspiracy to injure Claremont and Beach by unlawful means. The conspiracy was intended to benefit SEJ by making available to them the amounts of their deposits which were otherwise lost. Further, it is alleged that Spargos gained a benefit of A$5m from Beach under the currency swap transaction, and that, under the restructuring proposals as they developed, Spargos was to become the main holding company in the group (the "Topco" proposal). This, so it is asserted, was another intended benefit to Spargos to be financed in part by the use of money received from the ramped price for the Burbank interests.
1.22 The applicants contend that the knowledge of the respondent directors including Mr Johnson is to be treated as the knowledge of SEJ, and that by entering into SCAFA and associated transactions, SEJ became party to the conspiracy, and liable to the applicants for that and other reasons, for the full loss suffered by them.
1.23 Under the SCAFA transaction, SEJ purported to lend amounts equal to their deposits at Rahn and Bodmer with accrued interest to 30 June 1989 to Beach. This was to be achieved by those deposits being assigned to Firstway, and the credits in the deposit accounts being transferred by Rahn and Bodmer to a Firstway account at that bank which would then become security under another fiduciary loan arrangement for the IRL and IRAG loans. Whilst instructions were given on 30 June 1989 at the time of the exercise of the option for the transfer of the SEJ deposits to Firstway, Rahn and Bodmer did not act on the instructions. The transfers were not recorded in the bank's accounts until a conference occurred at the bank attended by Messrs Johnson, Fuller, Main and Brooke, amongst others, on 13-14 September 1989. The accounting entries were backdated as of 1 July 1989.
1.24 It is pleaded that following the exercise of the option, Messrs Fuller, Cummings, Main and Johnson caused Beach to make repayments of the borrowings under SCAFA commencing with A$2 million on 6 July 1989. By 7 January 1991 the repayments totalled A$9,788,922.06.
1.25 As from 30 June 1990, the moneys advanced under SCAFA were due for repayment on demand. Through 1990 the composition of the boards of Claremont and Beach changed and the IRL camp ceased to be in control. On 8 January 1991 Jingellic, purporting to act as the then appointed agent of the lenders under SCAFA, delivered to Beach a notice under para.460(2)(a) of the Corporations Law demanding the balance then outstanding, namely A$5,398,166.60. On 18 January 1991 Beach entered into an agreement with Jingellic called the "Heads of Agreement", under which Beach was to pay $300,000 on 18 January 1991 and other monthly amounts thereafter, with a final payment on 17 July 1991. This agreement was to avert threatened winding-up proceedings against Beach. Pursuant to the Heads of Agreement, Beach paid $300,000 on 18 January 1991, and further sums of $100,000 on 21 January 1991 and 18 February 1991.
1.26 Between 18 and 24 January 1991, the board of directors of Beach further changed so that at 24 January 1991 the directors were Messrs Dunn, Atkins, Dewar and King ("the new directors"). The pleadings allege that not earlier than 1 March 1991, and before 14 March 1991, the new directors arrived at the conclusion that the Burbank transactions had been fraudulent, and that the Charge and Option Agreement and all associated transactions were unenforceable. On 14 March 1991 the new directors declined to pay the next instalment due on 18 March 1991. This led to Jingellic, on 28 March 1991, issuing winding-up proceedings against Beach in the Supreme Court of South Australia. Those proceedings were ultimately dismissed on 1 November 1991 on the grounds that Beach had raised a bona fide dispute on substantial grounds as to the enforceability of SCAFA.
CAUSES OF ACTION ALLEGED
27. 2.1 The statement of claim pleads a variety of causes of action over some 72 pages against the respondents or some of them. The following causes of action are identified:

In relation to the Charge and Option Agreement: (SC75-84A)
28. 2.2 Messrs Fuller, Cummings and Main as directors, and Mr Johnson as a deemed director of Beach and Claremont, caused Beach to enter into the Charge and Option Agreement and to exercise the option knowing that the true value was not more than US$3.6 million, without first undertaking any proper due diligence, without obtaining the records of Mazeley, BPC and BOG, knowing the transaction was not at arms length but between parties controlled by Mr Johnson, and in disregard of valuation advice by Mr Dene Rogers, the senior petroleum engineer employed by Claremont. In doing so, Messrs Fuller, Cummings, Main and Johnson acted dishonestly and fraudulently, in breach of their fiduciary duty to Beach and Claremont, and in breach of s.229 of the Companies (South Australia) Code, with the intention of depriving Beach of the difference in value between US$28 million and the real value of the Burbank interests and to make those funds available for the benefit of Firstway, IRL, IRAG, Messrs Johnson and Fuller, and SEJ, and are therefore liable for the loss suffered by Beach. The losses claimed include the overvalue in the ramped acquisition price, expenses paid in connection with the transaction and compound interest.

In relation to the SCAFA (SC85-86AA)
29. 2.3 Messrs Fuller, Cummings and Main as directors, and Mr Johnson as a deemed director of Beach caused Beach to enter into SCAFA and make repayments dishonestly, in breach of their fiduciary duty and in breach of s.229 of the Companies (South Australia) Code. Further, it is alleged that SEJ were knowingly concerned in these breaches of s.229 and are each accordingly deemed to be in breach of that section and liable for the losses under s.38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) (South Australia) Code.

In relation to the heads of agreement (SC86-86AA)
30. 2.4 Mr Fuller as a director and Mr Johnson as a deemed director of Beach caused Beach to enter into the Heads of Agreement dishonestly and fraudulently, in breach of their fiduciary duty to Beach and Claremont, and in breach of s.229 of the Companies (South Australia) Code.

Fraud on behalf of Spargos, Enterprise and Jingellic (SC86A-86E)
31. 2.5 SEJ are to be imputed with the knowledge of their respondent directors including Mr Johnson. SEJ therefore undertook the impugned transactions dishonestly and fraudulently with the intention of depriving Beach of the difference between US$28 million and the true value of the Burbank interests. The applicants claim from SEJ the full damages suffered, not just the direct benefits received by them under SCAFA and the currency swap.

Misleading and deceptive conduct
32. 2.6.1 Messrs Fuller, Cummings, Main and Johnson were guilty of misleading or deceptive conduct in contravention of s.56 of the Fair Trading Act 1987, (SC87-89, 90-91). Furthermore, Firstway (SC89A) and SEJ (SC93A.2) were knowingly concerned in the contravention and are liable for all the losses suffered by the applicants.

2.6.2 SEJ, by their participation in the SCAFA transactions, and in the case of Spargos, by its participation in the currency swap, were also guilty of misleading or deceptive conduct in contravention of s.56 of the Fair Trading Act 1987 and s.52 of the Trade Practices Act 1974, (SC91A-92).

Conspiracy (SC94-97)
34. 2.7 Between 1 June 1988 and 31 January 1991 the respondents and each of them conspired amongst themselves to defraud and injure the applicants by causing them to enter into and complete the acquisition of the Burbank interests. The total damages are claimed on this footing from each of the respondents.

Principal and agent (SC97A-97BB)
35. 2.8 In arranging, organising and causing SEJ to enter into the SCAFA and associated transactions, and the currency swap in the case of Spargos, Messrs Fuller, Cummings and Main as directors and Mr Johnson as a deemed director of SEJ acted within the scope of their authority as agents. The companies are liable for the fraud and dishonesty of their agents.

Knowledge of breach of duty (SC97C-97E)
36. 2.9 As SEJ had knowledge of the breaches of duty owed to Beach and Claremont by their directors in relation to the impugned transactions, and in that knowledge received payments under those transactions, SEJ are constructive trustees of those funds for Beach.

Breach of Articles of Beach (SC98-103)
37. 2.10 It is alleged that on 5 October 1989 when Messrs Fuller, Cummings and Main at a meeting of directors of Beach resolved in favour of Beach entering SCAFA, each director was disqualified for interest under the Articles of Association. The resolution was therefore void and the subsequent entry into SCAFA a nullity.

SERVICE AND REPRESENTATION OF THE RESPONDENTS
38. 3.1 Mr Johnson was served with the application in the United Kingdom. He did not formally appear and take part during the interlocutory stages. Shortly after the trial commenced, solicitors on his behalf from London wrote saying he wished to appear and take part in the trial. The Court directed that the letter be treated as an appearance, and so advised the London solicitors. Nothing further has been heard from them and Mr Johnson has not taken part in the trial. Mr Johnson was also served in the United Kingdom by Enterprise with its cross-claim.
3.2 The applicants' agent served the proceedings on a person they believed to be Mr Main in London on 27 November 1991. The original affidavits of service were unsatisfactory in their proof of identification. Additional affidavits were later filed which establish on the balance of probabilities that Mr Main was a person living at the address at which service occurred. Oral evidence in the trial provided a description of Mr Main which matches that of the person served. I am satisfied that the applicants have sufficiently proved service of the proceedings on Mr Main. He did not appear and has taken no part in the trial.
3.3 Messrs Fuller and Cummings were initially represented by solicitors and counsel, but during the closing stages of the trial they became unrepresented. They then appeared in person.
3.4 Firstway was served through the Ministry of Foreign Affairs in Liberia on 18 October 1991. It did not appear.
3.5 Jingellic was represented and appeared by counsel until 23 November 1992 when, as part of a Mareva injunction, Michael Jaunay Mount was appointed Receiver and Manager of the company. Thereafter, the company was not continuously represented, but appeared by counsel during addresses and made submissions.

3.6 Jingellic and Enterprise were initially represented by the same solicitors and filed closely similar pleadings. However after the appointment of the Receiver and Manager of Enterprise on 8 November 1991, Enterprise was separately represented and appeared at the trial by counsel.
3.7 IRL and IRAG were initially represented by the solicitors and counsel acting for Jingellic. However shortly after evidence commenced, counsel for Mr Fuller took over their representation. When Mr Fuller became unrepresented, so did the companies, and they took no further part in the trial.
3.8 The Australian Securities Commission, in exercise of its powers under s.1330 of the Corporations Law, intervened for the purpose of assisting the Court by making available documents in its possession, and addressing argument on points of law.
THE RESPONDENTS' CASES
46. 4.1 Apart from admissions on formal matters and on some aspects of the Burbank transaction which were public knowledge through published reports of the companies, most facts alleged by the applicants were either denied or not admitted. The allegation of control of the respondent companies by Mr Johnson was at first disputed by all respondents, but as the applicants' evidence unfolded, the attitude of SEJ noticeably changed. By the end of the evidence Spargos and Enterprise accepted that position, and supported the proposition that Mr Johnson was "the master puppeteer" who, with the assistance of the other individual respondents, acted in fraud not only of the applicants but of SEJ, with the effect of causing loss to every one of the companies. Spargos and Enterprise accept that the directors of Beach were guilty of breach of fiduciary duty in relation to Beach in May and June 1989 in respect of the Burbank transaction, but do not admit that a conspiracy as alleged by the applicants occurred.
4.2 The final position of Jingellic was to make no submissions regarding the conduct of Messrs Fuller and Cummings, but the company did not seek to defend their conduct. Jingellic disputed the conspiracy and fraud cases advanced by the applicants.
4.3 In his final address Mr Fuller conceded that the evidence showed Mr Johnson to be implementing Mr Johnson's personal plans in relation to IRL companies, but contended that the evidence failed to show that he, Mr Fuller, had knowledge of those plans or was part of them. Mr Cummings did not make the same concession. Messrs Fuller and Cummings deny any wrongdoing, and in particular deny any breach of duty in relation to the Burbank transactions, but neither of them gave evidence.
4.4 SEJ deny that their deposits were security for IRL borrowings either at ACC or at Rahn and Bodmer, and contend that the applicants have failed to prove that SCAFA and associated transactions were not, from the viewpoint of SEJ, bona fide transactions which involved SEJ parting with their deposits by way of loan in exchange for the obligations imposed on Beach under SCAFA. In consideration for the loans, SEJ received security over the Mazeley share and the Burbank interests. As those were of next to no value on the applicants' case, SEJ contend that they were each victims of the misfeasance of the directors who put them into the transaction. Alternatively, if their deposits had been encumbered, that was a fraud by the directors involved on SEJ. The companies deny that they received any benefit from their involvement in the impugned transactions. Moreover, as annual reports for the years ended 30 June 1988 and following demonstrate, each of the companies suffered very heavy losses under the stewardship of Mr Fuller and the other respondent directors. If there were a conspiracy and fraud by the individual respondents, as the companies were themselves victims, the knowledge of Messrs Fuller, Cummings, Main and Johnson about the Burbank scheme should not, as a matter of law, be attributed to SEJ.
4.5 Spargos additionally contends that it was a victim of the Burbank scheme as its deposit at Rahn and Bodmer was being used during the implementation of the scheme to maintain control of Claremont and Beach for IRL and Mr Johnson. The currency swap, it contends, was a further fraud on Spargos for the same purpose.
4.6 Jingellic and Enterprise rely on the circumstances surrounding the execution of the Heads of Agreement as indicating that Beach, at a time when its new directors knew or had reason to know of the fraud involved in the Burbank scheme, affirmed the SCAFA transaction. It is alleged that the applicants are estopped from taking action to set it aside.
4.7 All the respondents deny that the Burbank interests acquired by Beach are of as little value as Beach asserts, and dispute the damages claimed. The respondents also dispute the applicants' entitlement to any of the equitable remedies claimed.
DISALLOWANCE OF PROPOSED AMENDMENT TO SPARGOS' DEFENCE
53. 5.1 The trial commenced on 6 July 1992. On 8 March 1993, close to the end of the Spargos case, Spargos sought leave to amend the defence by adding a new paragraph 64 to plead that Beach had received knowledge well before the execution of the Charge and Option Agreement that the Burbank interests had been acquired by BPC and BOG for approximately US$3.6m. In effect, the amendment sought to allege that Beach, knowing the real position, had gone into the Burbank transaction with open eyes. The knowledge was said to have come to Beach through its solicitor, Sheldon Cordell of the firm Joelson Wilson and Co of London. That firm had been instructed to act for Claremont, and later for Beach, in the Burbank transaction. Discovered documents from the file of that firm indicate that on 1 March 1989, if not before, a solicitor in the firm was given information which disclosed the acquisition costs to BPC and BOG.
5.2 For reasons given on 11 March 1993, leave to make that amendment was refused. The applicants' pleadings and opening were premised on the fact that Beach was at no time aware of the acquisition price paid by BPC and BOG, and until the application to amend the pleadings was made, the case had been conducted on that footing. To allow the amendment would have introduced an entirely new issue into the case at a time when it was too late for that issue to be agitated without incurable prejudice to the parties.
CROSS-CLAIMS
By Spargos against Beach, Claremont, Jingellic, Enterprise, Messrs Fuller, Cummings and Main
55. 6.1 In the event that the SCAFA transaction is set aside, an account is sought as between the corporate parties to the cross-claim. In the event that Spargos is held liable on the claims for misleading and deceptive conduct, fraud and conspiracy, contribution is sought from Messrs Fuller, Cummings and Main. This cross-claim has not been served on Mr Main and accordingly cannot proceed against him. Further, Spargos alleges that if there were a conspiracy as alleged, in the events which happened Claremont also became a party to it when it recovered the payments comprising the "Option Fee" under the Charge and Option Agreement. If Beach recovers damages based on that conspiracy, Spargos claims contribution from Claremont as a joint tortfeasor. Similar claims for contribution were made late in the trial by Enterprise and Jingellic.

By Enterprise against Beach and Claremont
56. 6.2 In March 1991, when Beach refused to make further payments under SCAFA, the amount still to be repaid to Enterprise was in the order of A$2.5m. The balance outstanding plus interest to date is claimed from Beach. In the alternative it is alleged that Beach and Claremont engaged in misleading and deceptive conduct at the time of the Heads of Agreement by representing to Jingellic, as agent for Enterprise, that the SCAFA and associated documents were valid and enforceable, and that Beach would pay the moneys due under them. Injunctive relief is sought to prevent Beach and Claremont from acting in a way which is inconsistent with those representations, along with orders requiring payment of the balance due under SCAFA and the Heads of Agreement. Further, the cross-claim alleges that Claremont induced Beach intentionally and without justification to break the SCAFA and Heads of Agreement and damages are claimed for that tort. Finally, there is the claim for contribution against Claremont in the event that the conspiracy claim is made out.

By Enterprise against Messrs Johnson, Fuller, Main and Cummings
57. 6.3 In the event that the applicants make out their claims based on the imputation of the knowledge of its directors to it, Enterprise seeks indemnity or contribution from each of those directors, but the cross-claim has not been served on Mr Main.

By Enterprise against Firstway, IRL and IRAG
58. 6.4 In the event that Enterprise is found to be a party to the conspiracy alleged, Firstway, IRL and IRAG would be co-conspirators, and contribution is sought from them. Firstway has not been served with the cross-claim.

By Jingellic and Enterprise against Messrs Dunn, Dewar, Atkins and King
59. 6.5 In these counter-claims the companies allege that the new directors of Beach and Claremont intentionally and without justification caused Beach to break the SCAFA and Heads of Agreement. The new directors were separately represented through a substantial part of the trial, but on 8 March 1993 this cross-claim was settled. Judgment was entered by consent in favour of the new directors dismissing the cross-claims of Enterprise and Jingellic, with no further order.

By Jingellic against Beach and Claremont
60. 6.6 The balance due to Jingellic under SCAFA and the Heads of Agreement in March 1991 when Beach ceased making payments was approximately $2.4m. Jingellic claims from Beach the balance outstanding plus interest. There is also a claim for contribution against Claremont in the event that the conspiracy claim is made out.

By Jingellic against Spargos
61. 6.7 By the time Spargos retired as agent under SCAFA it had retained from payments received from Beach approximately $1.3m more than it was entitled to retain. Under SCAFA this amount was due to Jingellic. Some repayments have since been made but as of 8 March 1993 the balance, including interest, stood at $843,603.53 which Jingellic now claims from Spargos.

EVIDENCE MATTERS
Burden of proof
62. 7.1 The allegations of the applicants include those of fraud and conspiracy. Notwithstanding that conspiracy is also a crime, the ordinary civil rule as to the sufficiency of proof applies. The applicants must prove their case on the balance of probabilities. However, the strength of the evidence required may vary according to the gravity of the fact to be proved. Where a charge of fraudulent and dishonest conduct is made, the court will require a higher degree of probability than it would if it were considering an allegation such as negligence. The seriousness of the allegation must affect the answer to the question whether these issues have been proved to the reasonable satisfaction of the court: Briginshaw v Briginshaw and Another (1938) 60 CLR 336 at 362 and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449.

Associations and similar fact evidence
63. 7.2 The evidence led by the applicants, particularly through Messrs Brooke and Trevor George Bailey, dealt with many transactions involving Mr Johnson, and other people who are not parties to the present proceedings. Much of this evidence was admissible only against Mr Johnson and then was of marginal relevance. However the applicants at times sought to justify parts of this evidence, and evidence of other transactions, on the basis that they showed "association". It was said that this assisted in making out the applicants' case of conspiracy.

7.3 In some cases evidence of association between alleged conspirators may be important. However, in this case, there has never been any doubt that Mr Johnson was known to the directors of the IRL companies, and that there were frequent communications between the individual respondents, Messrs Greenham and GL Bayly before their deaths, and the several solicitors and other agents involved in the Burbank transactions. Proof of association between the alleged conspirators on other occasions does not advance the applicants' case. Nor is it relevant to the case alleged for the applicants to seek to prove (or rather suggest) wrongdoing on the part of some of these people in earlier transactions. I do not pay any regard to evidence about wrongdoing in one or more of the unrelated transactions that are touched on in the evidence except where that wrongdoing concerns a witness who has been cross-examined about it. I have then taken it into account in the assessment of credit and of the weight that should be given to the evidence of that witness.
7.4 Evidence given in connection with the transaction involving Meridian in these proceedings is, however, difficult to isolate and leave out of account as the transaction is not wholly unrelated. As will appear, A$4.5m was, in June 1988, applied from the funds of Meridian in circumstances that excite suspicion, and to cover up that use Firstway granted an option to Meridian to purchase a percentage of the Burbank interest in conflict with the rights already promised to Claremont. But again, proof of blatant dishonesty on that occasion by Mr Johnson, and by those who followed his instruction, does not prove the applicants' case in relation to the Burbank transaction.

Conspiracy
66. 7.5 The conspiracy alleged is one that evolved over a period of some months, and to which the corporate respondents became parties at different times after the scheme was conceived by the individual respondents. In all the evidence led there is no direct account which proves the details of the Burbank scheme, its purposes, its parties, and its scope. The applicants seek to prove these matters by circumstantial evidence. That there was a combination for a particular purpose, and the identity of the parties to it, are matters to be inferred from evidence of many facts, separate in themselves and attributable to different people, but which together indicate that particular people were acting in concert. Sometimes the process of inference from evidence admissible against individual people proves both the pre-concert and the identity of the parties to the conspiracy: R. and The Attorney-General (Cth) v The Associated Northern Collieries and Others (1911) 14 CLR 387 at 400 and Ahern v The Queen (1988) 165 CLR 87 at 93. As evidence was led in the present case by the applicants of acts and statements by individuals said to be parties to the conspiracy, objection was taken on behalf of other of the individual respondents that the acts and statements were done in their absence, and on behalf of the corporate respondents that there was no evidence that the actor had authority to speak or act on behalf of the company. I ruled that so long as the evidence was admissible against one of the respondents for some purpose in the proceedings, it would be admitted, and a ruling reserved until the completion of the evidence as to the use which could be made of the evidence against any other respondent in the proceedings. The admissibility and relevance of much of this evidence against other parties depends on the alleged conspiracy being established. If the evidence fails to establish pre-concerted action, or if it is not proved that the other parties joined the conspiracy, the evidence as against them is irrelevant.

7.6 For reasons which follow I hold that the evidence clearly establishes a combination for the purpose of implementing the Burbank scheme between the individual respondents, and Messrs Greenham and GL Bayly until their deaths. The evidence of individual acts involving those people gives rise both to the inference of the combination and their participation in it. The remaining objection to the evidence is with respect to its admissibility against the corporate respondents as evidence of their participation in the combination. As the High Court explained in Ahern v The Queen, at pp 94-100, there is a difficulty in using evidence of acts and statements made by some of the parties to a conspiracy done in the absence of another party, as evidence of their authority to speak and act on that other party's behalf. The Court at p 100 said:

"Where an accused is charged with conspiracy, evidence in the form of acts done or words uttered outside his presence by a person alleged to be a co-conspirator will only be admissible to prove the participation of the accused in the conspiracy where it is established that there was a combination of the type alleged, that the acts were done or the words uttered by a participant in furtherance of its common purpose and there is reasonable evidence, apart from the acts or words, that the accused was also a participant."

The present case has a feature not present in Ahern v The Queen. Here, the parties against whom it is sought to use the evidence of others as evidence of their participation were companies, and the actors, or some of them, were directors of those companies whose acts the applicants rely on as evidence of the companies' participation. In the circumstances of this case, whether the directors were acting at the time on behalf of one or more of the companies ultimately turn on questions of law and in particular, whether each company is to be attributed with the knowledge of the combination possessed by its directors. Of particular importance in deciding this question will be whether a purpose of the combination was to benefit the company. In the present case, the overt acts by SEJ principally relied on as evidence that they joined the conspiracy, are their agreements to participate in SCAFA, and in the case of Spargos, in the currency swap. These are transactions which the applicants allege benefited SEJ. The relevance of these matters is discussed in the conclusions to these reasons at 22.31-22.35 below. If it is held that the directors whose acts and statements were relied upon were, as a matter of law, acting with the authority of the company at the time, then those acts and statements are evidence against the company.

7.7 The appendix to chapter 24 of the written submissions of Spargos identifies a number of items of evidence which were admitted for a limited purpose against only one or some of the respondents, and it was contended that even if the applicants' conspiracy case were upheld, this evidence would not become admissible against other respondents. I indicate that in my view, with one exception, the evidence identified in that appendix is not admissible except for the limited purpose for which it was originally admitted, even against those parties who I have found participated in a conspiracy. The exception is the evidence at transcript p 3377.

Business records
69. 7.8 The applicants sought to prove their case primarily on documents - many thousands of them. These documents were obtained by the applicants from numerous sources including the files of solicitors who acted in the Burbank acquisitions for Mazeley, BPC and BOG, from Joelson Wilson and Co who acted for Beach and Claremont, and from the extensive files of BBR. Although that firm acted on instructions from Mr Johnson, Mr Brooke made available a copy of his extensive files to the applicants' solicitors. He did so after he had been required to produce those files to the Serious Fraud Office in London in connection with an investigation into the affairs of Mr Johnson, and after he had received advice from independent solicitors that legal professional privilege did not attach to them. The Serious Fraud Office also obtained papers from company administrators situated in the Channel Islands and Guernsey, Scorpio House, Mr Johnson's houses in England and from other sources. Copies supplied to the Australian Securities Commission were made available through discovery in these proceedings. In addition, the applicants obtained records from numerous companies and people who had been involved in aspects of relevant transactions in Australia through the service of some 105 subpoenas.

22.109 Moreover, it is pleaded by the applicants that the Heads of Agreement was another transaction entered into in consequence of fraud by Messrs Fuller and Cummings as agents for Enterprise and Jingellic, and in consequence of misleading and deceptive conduct. In my view, those allegations are made out. Representations were impliedly made by Messrs Fuller and Cummings by entering into the Heads of Agreement that the underlying source of the obligations of Beach, that is the SCAFA obligations, arose from a bona fide transaction. They held no such belief. They knew that the SCAFA obligations were voidable, and would be avoided if Beach learned the true facts. Their conduct in seeking to enforce payment by the service of the para.460(2)(a) notice, and then by their insistence that there be an acknowledgment of the obligation in the Heads of Agreement, were further steps to maintain the objects of the Burbank scheme.
22.110 Insofar as Enterprise and Jingellic seek to raise equitable defences they do not come to Court with clean hands. The conduct of the individual respondents who were from time to time their directors acting on their behalf disqualifies them from equitable relief. Moreover, insofar as those defences depend on allegations that the applicants became aware of grounds for relief against the Burbank transactions and delayed in taking action, I consider the defences fail as the new directors of the applicants did not become aware of facts to substantiate those grounds (as opposed to hearing allegations about those facts) until after the Heads of Agreement were signed. Insofar as the defences depend on estoppel by representation they must fail as Enterprise and Jingellic are to be imputed with knowledge of the Burbank scheme through Messrs Fuller and Cummings and Mr Main as well in the case of Enterprise. With knowledge of that fraudulent scheme neither company could have relied on the representations pleaded as each company would have known that the representations were made by Beach in ignorance of the true facts, and would not have been made had the true facts been disclosed.
22.111 I am unable to accept the submission that the rights of the applicants are barred by the fact that the Burbank interests were included in the 1990 annual accounts at the purchase cost of A$37.96m. The valuation of an oil field is notoriously difficult, and may vary according to perceptions about future oil prices and exchange rates, and according to the state of technology relevant to the field. The directors referred to these variables in the annual report. That it is now apparent that the carrying value was too high does not deny them the opportunity to come to Court and claim damages arising out of the transaction based on the proved value of the asset.
REMEDIES
Damages
652. 23.1 Whilst the primary thrust of the claims for relief, as pleaded in section 17 of the statement of claim, is for equitable relief by way of orders declaring void the Charge and Option Agreement, the exercise of the option, SCAFA, all the associated security documents and the Heads of Agreement, and orders for restitution and other declarations, the pleading of the causes of action earlier in the statement of claim, and the presentation of the applicants' case, gave greater emphasis to the claims for damages according to the tort measure of damages for deceit. Those claims for damages necessarily involved affirming the purchase of the Burbank interests: Alati v Kruger (1955) 94 CLR 216 at 222; Munchies Management Pty Ltd and Another v Belperio and Another (1988) 84 ALR 700 at 706, 709. It is hardly surprising that the case was presented in this way. It is not possible at this stage to set aside the Charge and Option Agreement and the exercise of the option without affecting in a substantial way the rights of Phillips as the operator, and holder of the majority interests of the North and South Burbank Units. It is almost four years since the option was exercised, and in that time, both before and after the issue of these proceedings, Beach has participated in decisions made regarding the management of the Units. It is probable that certain of those decisions involve ongoing expenses. Phillips is not a party to these proceedings, and has not been heard on the consequences which would follow if the Charge and Option Agreement and the exercise of the option were set aside.
23.2 In my opinion the appropriate remedy in the circumstances of this case is damages according to the measure of damages in an action for deceit. That measure of damages would apply also to the claims under the Trade Practices Act and the Fair Trading Act.
23.3 The applicants led evidence on damages from Mr Morris and through him tendered a Report of Economic Loss (exhibit 709 - the "third Morris report") which sets out the basis upon which the applicants seek damages. The report assumes an assessment at 30 June 1989. I accept the opinion of Mr Morris that it is appropriate to value the Mazeley share acquired by Beach on the basis of the consolidated financial position of the Mazeley group. As one of the interest calculations contained in the third Morris report assumes an underlying value for the Burbank interests at US$3.2m, I adopt that figure. If a figure of only US$3m were accepted, the ultimate assessment of damages would be higher by the difference between the two figures plus interest. The fair value of the Mazeley share is to be arrived at as follows:

Reported net assets of the Mazeley group

represented by the consolidated balance

sheet at 30 June 1989 - US$3,586,357 Deduct book value of leasehold acquisition and equipment ($4,311,668) ($ 725,311) Burbank interests at valuation $3,200,000 Total US$2,474,689 Convert to A$ at 30/6/89 rates A$3,312,837 Rounded to A$3,300,000

23.4 Appendix 12 to the third Morris report records each of the payments made by or on behalf of Beach, converted where necessary into Australian dollars at the prevailing exchange rates on the dates of payment. The value of the Mazeley share is brought to account at 30 June 1989. Payments made by Claremont are treated as payments made by Beach because Beach refunded Claremont the amounts of these payments together with interest at commercial rates. Appendix 12 assumes that whilst at different times during the implementation of the Burbank scheme each of the applicants was an intended victim, at the end of the day the full loss was suffered by Beach. In my opinion this assumption is correct.
23.5 Appendix 12 calculates interest at rates applicable to the unofficial market 24 hour call rate, compounded monthly. This approach assumes that interest is to be allowed as part of the damages in the assessment. In the circumstances of this case I agree that that assumption is properly made: Hungerfords and Others v Walker and Others (1988-1989) 171 CLR 125. The rate at which interest should be allowed has been a matter of debate between the parties. The third Morris report proffers the following explanation for the rate used in Appendix 12. Upon a reading of the annual reports of Beach, Mr Morris considered that the moneys paid by Beach in connection with the acquisition of Mazeley would otherwise have been available to Beach for some other purpose.

"It is reasonable to presume that Beach is likely to have established some programme of exploration expenditures which would have utilised some of those moneys and may have derived particular returns which Beach has not enjoyed. Notwithstanding that, (I) believe that it is appropriate, for the purposes of this study, to conclude that a considerable sum is likely to have been invested as excess cash in some form of short term deposit".

For the purposes of the exercise Mr Morris assumed an investment of the total sum at the 24 hour call rate.

23.6 This approach was challenged in the evidence of Mr Hall. In his report, exhibit 7040, he expressed the opinion:

"Beach was a junior oil explorer and producer and would almost certainly have invested its shareholders' funds in oil and gas exploration interests or producing properties rather than leaving millions of dollars on cash deposit over a three year period..."

Mr Hall considered that the approach contended by Mr Morris was "totally arbitrary and unrealistic". He undertook a study of 21 oil and gas companies of similar size to Beach as a surrogate for the type of oil and gas investments that Beach might have made in that period. His analysis charted the share price of the companies as an indication of their performance. The weighted performance of the companies produced the result that an investment of A$1,000 in the selected oil and gas companies at the beginning of July 1989 would have been worth A$825 at 31 December 1992, a marked under-performance in relation to an investment in bank deposits. This approach depends of course on the state of the share market from time to time, and whilst the result just stated would have been the position at 31 December 1992, in the intervening months the result would have changed considerably - indicating that Mr Hall's alternative does not avoid arbitrariness. His approach assumes an average performance amongst similar oil and gas companies, but that immediately prompts the enquiry whether Beach would have performed in an average way, or would have been more or less successful. It also prompts an enquiry as to whether Beach would have pursued the same types of exploration activities. But for the Mazeley transaction Beach would probably have maintained its Victorian oil and gas interests, and other assets which were producing income. Instead of spending money on exploration, it may have acquired other existing oil and gas producing assets which were not accompanied by the same risk. Enquiries of this kind are reminiscent of those urged in bodily injury cases prior to Cullen v Trappell (1979-1981) 146 CLR 1 and Todovoric and Another v Waller (1981) 150 CLR 402. In considering the discount rate to be applied in the assessment of future economic loss, arguments were heard that the Court should consider the likely use to be made of the award by the plaintiffs when determining both the discount rate and the allowance for taxation to be included in the calculation. These decisions however, establish that the use which a particular plaintiff might make of an award is an irrelevant consideration. The assessment of pre-trial interest as a component of damages is not on all fours, but elements of prophecy and speculation arise in the same way. Unless it is clearly established by evidence that a particular plaintiff would not invest available capital and cash reserves in a way that would produce at least the market rates, market rates should be adopted. In the present case I do not think that the evidence justifies departing from the rates adopted in the third Morris report.

23.7 As an alternative approach the applicants have contended that interest should be awarded at even higher rates than those adopted in Appendix 12 on the ground that the claims include a claim based on constructive trust, and that compound interest rates at a rate of 1% above the commercial rate is for that reason appropriate: Wallersteiner v Moir (No.2) (1975) 1 QB 373 and Southern Cross Commodities Pty Ltd (In Liquidation) v Ewing (1988) 14 ACLR 39. That principle has been applied to ensure that trustees and fiduciaries disgorge all the profits presumed to have been made out of misconduct that was either fraudulent or gravely serious. In the present case the moneys received by certain of the respondents with knowledge that it was paid in breach of trust by the directors of Beach was used for commercial purposes, but there is no reason to believe that it was used in a way that would have attracted higher rates of interest overall than those which would be awarded to the applicants if the calculations made in Appendix 12 are accepted and allowed in accordance with the principle established in Hungerfords v Walker. I do not think this is an appropriate case for the application of the equitable principle involved in the cases upon which the applicants rely.
23.8 I propose to allow interest at the rates applied in Appendix 12 as updated by the calculation to 31 March 1993 handed up during addresses. It is necessary to allow interest since that date. I propose to make a global allowance. The loss including interest to 31 March 1993 is in round figures A$44m. I assess damages including interest to the date of judgment at A$44,450,000. Damages as assessed will be awarded in favour of Beach against each of the respondents named in the application.
23.9 Included in Appendix 12 are payments made for expenses directly related to the acquisition of Mazeley, namely audit fees on the Mazeley group accounts and fees to Doyle Financial Consulting Group and Pro Management for advice in relation to the carrying cost of the Burbank interest to be shown in the 1990 annual report. In my opinion, those amounts are properly to be allowed as part of the damages. Exhibit 716 itemises a further $770,249 of expenses which Beach has capitalised as forming part of the cost of the acquisition of Mazeley. I am not satisfied that these additional items are directly related to the cost of acquiring Mazeley and I do not allow them.
23.10 The Appendix 12 calculation does not include the balance of the US$28m not paid by Beach to Firstway. Nor does it include the balance of the moneys which remain unpaid in accordance with the terms of the SCAFA. In other words the assessment is made on the footing that no further payments will be made by Beach to Firstway or under SCAFA, the associated security documents, or the Heads of Agreement.
23.11 In my opinion, Beach will be adequately protected against the possibility of claims for the unpaid balances by the judgment for damages for fraud to be entered in accordance with these reasons, and by orders dismissing the cross-claims against Beach by Enterprise and Jingellic. It would not appear to be necessary to take the further step of proceeding under s.87 of the Trade Practices Act to set aside SCAFA to achieve this result. However, unless relief is granted under s.87 in respect at least of the associated security documents Beach may encounter difficulty in recovering the Mazeley bearer share and in having the charges over the Burbank interests discharged. I consider the associated security documents should be set aside under s.87, and for completeness I think this should be done in association with an order under s.87 setting aside SCAFA. Further consequential orders will be necessary. Spargos by its amended cross-claim seeks, in the event of SCAFA and the associated security documents being set aside, orders setting aside the Deed of Agreement and the Deed of Loan made on 11 December 1990, and the Deed of Assignment dated 14 January 1991. These concern the rights of SEJ amongst themselves under SCAFA. In my opinion, those documents should also be set aside.
23.12 In consequence of my findings a further question arises in the events which have happened, including this judgment determining that there have been breaches of trust by Messrs Fuller, Cummings and Main as directors of Beach in respect of the SCAFA and payments thereunder, whether the moneys paid by Beach to Spargos as agent under SCAFA, and still retained to Spargos, are now impressed with a constructive trust in favour of Beach, and if so, whether that trust should be reflected in the judgment of the Court. As at 8 March 1993 those moneys stood at A$843,603.53.
23.13 Upon the delivery of these reasons I propose to enter judgment in favour of Beach for the sum of A$44,450,000 against each of the respondents on the damages claims, and to stand over the balance of the claims with a direction that the applicants bring into Court minutes of order reflecting the balance of this judgment. I will then hear the parties as to the terms of the other orders that should be recorded, and as to costs.

The Cross-claims
665. 23.14 By Spargos.
On the findings which I have made my tentative view is that the cross-claims for an account between the Beach, Claremont and SEJ should be dismissed, but there will be leave to the parties to address the Court on that issue in light of the findings now made.
I consider that there should be judgment for Spargos against Messrs Fuller and Cummings on the cross-claims for complete indemnity against the judgment for damages awarded against Spargos in favour of the applicants.

23.15 By Enterprise.
The cross-claim against Beach for the balance due under SCAFA and the Heads of Agreement should be dismissed. The cross-claim against Beach and Claremont based on misleading and deceptive conduct should be dismissed.
The cross-claim against Claremont alleging that Claremont induced Beach intentionally and without justification to break SCAFA and Heads of Agreement without justification must be dismissed. The findings of the Court establish that Claremont was justified in inducing Beach not to make further payments beyond March 1991.
The cross-claim for contribution against Claremont based on the allegation that Claremont was a party to the conspiracy found against Enterprise should be dismissed.
On the cross-claim against Messrs Johnson, Fuller, Main and Cummings for indemnity against the judgment for damages awarded against Enterprise there should be judgment for Enterprise against Messrs Johnson, Fuller and Cummings (Mr Main has not been served with the cross-claim).
On the claim for contribution against Firstway, IRL and IRAG there will be judgment that Enterprise recover from IRL and IRAG two-thirds of the damages awarded to Beach. (Firstway has not been served with the cross-claim).
23.16 By Jingellic.
The cross-claim against Beach for the balance due under SCAFA and the Heads of Agreement should be dismissed.
The cross-claim for contribution against Claremont based on the allegation that Claremont was a party to the conspiracy found against Jingellic should be dismissed.
The cross-claim against Spargos for moneys due under the Deed of Agreement and Deed of Loan should be dismissed.

[1993] FCA 392

10 JUNE 1993