| IN THE COURT OF APPEAL | [1993] QCA 087 |
| SUPREME COURT OF QUEENSLAND |
Appeal No. 38 of 1992
Brisbane
Before The President
Mr Justice Pincus Mr Justice Davies
[Idemitsu Queensland & ors. v. Agipcoal Australia & ors.]
BETWEEN:
IDEMITSU QUEENSLAND PTY LTD & ORS
Appellants
AND:
AGIPCOAL AUSTRALIA PTY LTD & ORS
Respondents
Appeal No. 39 of 1992
BETWEEN:
IDEMITSU QUEENSLAND PTY LTD & ORS
Appellants
AND:
PACIFIC COAL PTY LTD & ORS
Respondents
Appeal No. 43 of 1992
BETWEEN:
LUCKY - GOLDSTAR INTERNATIONAL (AUSTRALIA)
PTY LTD
Appellant
AND:
PACIFIC COAL PTY LTD & ORS
Respondents
Appeal No. 44 of 1992
BETWEEN:
LUCKY - GOLDSTAR INTERNATIONAL (AUSTRALIA)
PTY LTD
Appellant
AND:
AGIPCOAL AUSTRALIA PTY LTD & ORS
Respondents
REASONS FOR JUDGMENT - THE PRESIDENT
Judgment delivered 24/03/1993
I am in substantial agreement with the joint judgment
of Pincus and Davies JJA. but propose to note briefly my
separate views in relation to some aspects of the discussion
in relation to liability. I shall do so by reference to the
headings adopted in the joint judgment.
5. Contravention of s.52 of the Trade Practices Act and
whether it caused the plaintiffs loss.
Although it makes no difference to the outcome, in my
opinion Pacific and Agipcoal are entitled to succeed on this
basis also. There was a continuing misrepresentation by
Idemitsu, not substantially different from that pleaded,
that there had been specific purchasers committed to buy
which had been lost. This was, in my view, misleading
conduct which induced the Government's decisions not to
renew the Authority to Prospect in favour of all the holders
but to grant a new Authority to Prospect to Idemitsu, Bligh
and Lucky only.
6. Breaches of the Investigation Agreement by Pacific and
Agipcoal and whether they caused the plaintiffs' loss.
In my opinion, it is less than entirely satisfactory to
decide these issues by reference to the manner in which the
case was pleaded or the precise form of the submissions
after there has been such a comprehensive and elaborate
exploration of the issues.
Irrespective of how they expressed themselves in
particular letters or meetings, each of Pacific and Agipcoal
pursued a course of delay and obstruction as a basis for
attempted renegotiation of the Investigation Agreement and
the negotiation of more favourable terms in the prospective
joint venture and operating agreements. This conduct was a
breach of the Investigation Agreement, and provided part of
the motivation for Idemitsu's breaches of that agreement
which produced the Government's material decisions. In that
sense, the breaches of the Investigation Agreement by
Pacific and Agipcoal were an indirect cause of those
decisions.
It may be possible to go further and say that the
relevant conduct of Pacific and Agipcoal was a factor
directly taken into account by the Government in arriving at
its decisions. However, it is necessary to explain what is
meant. In my opinion, the Government would have decided as
it did even if Pacific and Agipcoal had not so acted and,
conversely, would not have decided as it did but for
Idemitsu's breaches of the Investigation Agreement and the
Trade Practices Act. The critical consideration for the
Government, influenced by Idemitsu, was not that Pacific and
Agipcoal had previously delayed and obstructed but that
they would not commit immediately and unconditionally at the
time when the decision fell to be made. There was no
obligation on them to do so at that time.
In these circumstances, in my opinion, it was
Idemitsu's breaches, not those of Pacific and Agipcoal,
which were relevantly causative of the plaintiffs' loss.
8. Discharge of the Investigation Agreement for breach by
Pacific and Agipcoal; affirmation of the Investigation
Agreement by Idemitsu after breach by Pacific and Agipcoal.
| 9. | Other questions of liability. I agree that Idemitsu affirmed the Investigation |
Agreement after Pacific and Agipcoal's breaches and that
those breaches caused only nominal loss.
General
I concur in the orders proposed.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 38 of 1992
Brisbane
Before The President
Mr Justice Pincus Mr Justice Davies
[Idemitsu Queensland & ors. v. Agipcoal Australia & ors.]
BETWEEN:
IDEMITSU QUEENSLAND PTY LTD & ORS
Appellants
AND:
AGIPCOAL AUSTRALIA PTY LTD & ORS
Respondents
Appeal No. 39 of 1992
BETWEEN:
IDEMITSU QUEENSLAND PTY LTD & ORS
Appellants
AND:
PACIFIC COAL PTY LTD & ORS
Respondents
Appeal No. 43 of 1992
BETWEEN:
LUCKY - GOLDSTAR INTERNATIONAL (AUSTRALIA)
PTY LTD
Appellant
AND:
PACIFIC COAL PTY LTD & ORS
Respondents
Appeal No. 44 of 1992
BETWEEN:
LUCKY - GOLDSTAR INTERNATIONAL (AUSTRALIA)
PTY LTD
Appellant
AND:
AGIPCOAL AUSTRALIA PTY LTD & ORS
Respondents
REASONS FOR JUDGMENT - PINCUS AND DAVIES JJ.A.
Judgment delivered 24/03/1993
| Heading | Page No. |
| 1 | The actions and appeals | 3 |
| 2 | The relationship between the parties | 5 |
| 3 | Breaches of the Investigation Agreement |
by Idemitsu 10 4 Whether those breaches caused the
plaintiffs' loss 14 5 Contravention of s. 52 of the Trade
Practices Act and whether it caused the
plaintiffs' loss 46 6 Breaches of the Investigation Agreement
by Pacific and Agipcoal and whether they
caused the plaintiffs' loss 47 7 Termination of the Investigation Agreement
upon failure of the parties to make a
determination to proceed within a reasonable
time 57 8 Discharge of the Investigation Agreement for
breach by Pacific and Agipcoal; affirmation
of the Investigation Agreement by Idemitsu
| |||
| 9 |
|
| 10 Conclusions on liability | 64 |
| 11 Damages | 65 |
| 12 Orders | 91 |
1. The actions and appeals
Four appeals have been brought from judgments delivered in
the Trial Division on 21 February 1992 and 6 March 1992 in
actions 1139 and 1392 of 1990.
In action 1139 of 1990, Agipcoal Australia Pty Ltd - ("Agipcoal") sued Idemitsu Queensland ("Idemitsu"), Idemitsu Kosan Co. Ltd ("Idemitsu Kosan"), Bligh Coal Limited ("Bligh"), Lucky-Goldstar International (Australia) Pty Ltd ("Lucky") and Pacific Coal Pty Ltd ("Pacific"), seeking a number of declarations, an injunction, an account of profits, damages for breach of contract and for contravention of s. 52 of the Trade Practices Act and some other orders pursuant to s. 87 of that Act, equitable compensation for breach of fiduciary duty and, against Idemitsu Kosan, damages for inducing breach of contract.
Idemitsu, Bligh and Lucky counterclaimed against Agipcoal seeking damages for breach of contract and against its parent, Agipcoal S.p.A., and Ente Nazionale Idrocarburi ("Ente") seeking damages for inducing a breach of contract.
Each side also claimed interest.
In action 1392 of 1990, Pacific sued Idemitsu, Idemitsu Kosan, Bligh, Lucky and Agipcoal seeking similar relief to that sought by Agipcoal. Idemitsu, Bligh and Lucky counterclaimed, seeking against Pacific similar relief to that claimed against Agipcoal and against Pacific's parent, CRA Limited ("CRA") similar relief to that claimed against Agipcoal S.p.A. and Ente.
Judgments were given in favour of each of Agipcoal and Pacific against Idemitsu, Idemitsu Kosan and Bligh for $29,500,000.00 damages for breach of contract and for contravention of s. 52 of the Trade Practices Act and equitable compensation for breach of fiduciary duty, it not being disputed that the measure of damages and compensation in each of these respects was the same. A declaration was made that Idemitsu and Bligh had acted in breach of their fiduciary obligations to Agipcoal and Pacific. An injunction was also granted restraining Idemitsu, Bligh and Lucky from using certain reports, records, data studies, opinions and other information with a provision for that injunction to be discharged upon payment, or an undertaking to make payment, to each of Agipcoal and Pacific of 19% of the costs incurred in the production of such reports, records, data studies, opinions and other information, together with interest at 12% per annum from the date when the costs were incurred.
Idemitsu, Idemitsu Kosan and Bligh were ordered to pay the taxed costs of the actions, including reserved costs, of Agipcoal and Pacific. No orders were made as between Agipcoal and Pacific. The counterclaims were dismissed, and Idemitsu, Idemitsu Kosan and Bligh were ordered to pay the taxed costs of the counterclaims, including reserved costs, of Agipcoal, Agipcoal S.p.A., Ente, Pacific and C.R.A.
Two appeals have been instituted in each action, one by Idemitsu, Idemitsu Kosan and Bligh and one by Lucky. Each of the appellants seeks the dismissal of the actions by Agipcoal and Pacific, and each of Idemitsu, Bligh and Lucky seeks judgment on its counterclaims against Agipcoal, Agipcoal S.p.A., Pacific and C.R.A.. The counterclaims against Ente are not pursued.
Idemitsu Kosan, Agipcoal S.p.A., Ente and C.R.A. are involved in the dispute because of their respective relationships with the companies directly involved. Those relationships and the liabilities sought to be attributed to the parent companies if their respective subsidiaries are liable are not contested. Further, no adverse findings were made against Lucky and, at the material time, Bligh's involvement was as a subsidiary of Idemitsu. It is therefore appropriate to discuss the lengthy sequence of events by reference to the central actors, Agipcoal, Pacific, and Idemitsu.
2. The relationship between the parties
Although the critical events occurred in 1990, it is necessary to start almost a decade earlier. On 3 April, 1982, the Queensland Government called tenders for the grant of an Authority to Prospect under the then mining legislation in respect of a large area of land in the Bowen Basin, including the Ensham area. Thirty-eight companies, in 19 groups, responded in relation to Ensham. Apparently without consultation, the Government invited 15 of these companies to form a consortium. Seven agreed to do so and, on 13 January 1984, executed an Investigation Agreement. Subsequently, they applied for and were granted Authority to Prospect No. 426C, which entitled them to prospect for coal in the Ensham area for a period of three years from 22 February, 1984, which was extended for a further three years when the Authority to Prospect was renewed in February 1987.
The parties to the Investigation Agreement and their initial percentage interests in the joint venture were Agipcoal (15%), Pacific (15%), Idemitsu (22.5%), Bligh (22.5%), Lucky-Goldstar International Corporation (an associated company of Lucky) (5%) and two others, A.Q.C. (Ensham) Pty Ltd ("A.Q.C.") (15%) and Rheinbraun Australia Pty Ltd ("R.B.A.") (5%). Lucky Goldstar International Corporation assigned its interest to Lucky in December 1984.
The Investigation Agreement is of fundamental importance in this litigation and its terms are set out as a schedule to these reasons.
On 29 June, 1984, the members of the consortium executed an Operating Agreement in accordance with the Investigation Agreement. The Operator appointed was A.Q.C. Pty Ltd, a company in which each of A.Q.C. and Pacific held a 50% interest.
Pacific, Agipcoal, Idemitsu and, though less clearly, Lucky, had substantially divergent interests and objectives. Pacific, or the C.R.A. group of companies of which it is a member, had other major coal mining interests in Queensland.
There were limited advantages for it in the development of the Ensham deposit until there were markets for Ensham coal which its existing mines could not supply. Further, when that occurred, Pacific wished to profit from mining the Ensham coal as well as the marketing of its share of what was mined. As was demonstrated by an element of the damages which it sought (and was awarded) in this litigation, Pacific's share of the consortium was perceived to be potentially more valuable if exploitation of the Ensham coal could be delayed. Agipcoal was concerned to ensure the commercial feasibility of the project before embarking on development. Idemitsu was interested in early development of Ensham to allow marketing of its share of the coal on the Japanese market as soon as possible, with apparently less concern than either Pacific or Agipcoal to ensure the commercial viability of the project before doing so. Lucky, which was wholly owned by the Korean Government, sought its share for early marketing in South Korea, also apparently without the need to prove the commercial viability of the project.
The potential tension which these differing aims created needs to be set in the context of other possible sources of conflict, such as the perception - at least by Pacific - that A.Q.C. and Bligh lacked the financial capacity to participate in the development of the project, and external factors, such as existing and anticipated markets and prices for coal from Ensham (upon which there was ample scope for different opinions), the negotiation of railway freight rates payable to the Queensland Government (which would have a significant impact on the cost of production and marketing and thus the profitability of Ensham coal), the desire of the Government that the consortium proceed with the early development of the project, and the possibility that the Foreign Investment Review Board, a Commonwealth instrumentality, would require the consortium to be restructured before the project would be allowed to be developed.
As appears from the respective percentage interests stated above, the interests in the venture, and consequently the voting power under the Investigation Agreement, were spread without any participant having a major interest. A consortium member which wished to proceed to development needed support from other members sufficient to provide a 75% vote in favour of that course; and consequently anything more than 25% of the voting power was sufficient to block or delay development: clause 9.5.
Clauses 3.9, 3.10 and 11.1 of the Investigation Agreement imposed on the parties obligations of good faith or duties analogous to such obligations. Those clauses provided:
"3.9
No Participant shall do or cause to be done any act matter or thing whereby any penalty may be imposed or disadvantage suffered in respect of the breach of any covenant or failure to observe or comply with any obligation contained in any Tenement or whereby the same may be rendered liable to be cancelled, forfeited, not issued, not renewed or not extended, or whereby their continued enjoyment might be jeopardised.
3.10
Each Participant covenants to be just and faithful in all its activities and dealings with the other Participants and to act bona fide in the interests of the objectives of the Joint Venture.
... 11.1
Forthwith upon the execution of this Agreement the Participants shall proceed in good faith with a view to settling and executing prior to 1st May, 1984 comprehensive joint venture and operating agreements to govern the Participants' rights and obligations in relation to the exploration of and the development and operation of a mine in, the Venture Area."
Each of Pacific and Agipcoal alleged, in addition, that the parties owed one another fiduciary duties which arose from the Agreement or the relationship between them. The duties which Pacific alleged thereby arose were:
(a) a duty not to place themselves in a position where their interests conflicted with their duties to the other parties to the joint venture;
(b) a duty to account to the other parties to the joint venture for any property, benefit or gain obtained or received by use of or by reason of the parties' position as a joint venturer or of opportunity or knowledge resulting from the same.
Agipcoal made similar allegations and added:
(c) a duty not to use its position to gain an advantage for itself or so as to act in its own interest and/or to the prejudice of the interests of the other participants.
Idemitsu and Lucky denied the existence of any such fiduciary duties.
There was a dispute between the parties as to whether, having regard to the specific terms of the Investigation Agreement, any such fiduciary duties could arise out of it or the relationship between the parties. However, counsel for Pacific conceded in argument, and Agipcoal did not dispute, that there were no fiduciary duties so arising which were not coterminous with the terms of the Agreement. Since it was not contended that there was a different measure of compensation payable, the dispute became academic and does not need to be resolved. It is therefore unnecessary for us to say anything further about duties which any party owed to the others except to the extent that they were stated in the Agreement.
3. Breaches of the Investigation Agreement by Idemitsu
Pacific and Idemitsu each commenced to manoeuvre, or at least plan, to improve its position in 1987 after the initial renewal of the Authority to Prospect. Later, Agipcoal was drawn in, although to a lesser degree. Ultimately, as will be seen, Idemitsu won. When the Authority to Prospect again expired on 22 February 1990 it was not renewed but a new Authority to Prospect was granted to Idemitsu, Bligh and Lucky over the same area. Each of Pacific and Agipcoal accuses Idemitsu of causing this outcome, and resultant loss, by breaches of the Investigation Agreement and of s. 52 of the Trade Practices Act. Idemitsu, whilst admitting breach of the Agreement, denies that its breach was causative and further says that each of Pacific and Agipcoal caused, or contributed to, its own exclusion from the new Authority to Prospect by its breaches of the Investigation Agreement. Further, Idemitsu and Lucky blame these breaches by Pacific and Agipcoal for loss allegedly suffered by reason of delays, additional expenses, etc..
The concession by Idemitsu of breach by it of the Investigation Agreement must be taken to be a concession of breach in the respects found by His Honour, none of which was the subject of challenge on appeal. His Honour found breaches of clauses 3.7, 3.9 and 3.10. We have already set out clauses 3.9 and 3.10. Clause 3.7 provided:-
"No Participant (whether alone or in association with others) shall engage in any activity in respect of the Tenements or the Venture Area except as provided or authorised by this Agreement or as agreed by the Participants."
His Honour found that from at least May 1987 Idemitsu intended to and did seek the support of the Queensland Government to remove from the joint venture those parties which would prevent it from proceeding with its desire for early development of the Ensham mine even though it was aware that those parties had doubts, which might well be justified, about its economic viability and though they could not then be required, under the Investigation Agreement, to make a determination to proceed. In numerous meetings with Ministers and government officials it sought to persuade the Government that it had secured important markets in Japan which would be lost if development were delayed, and even that the project might never be developed if development was delayed. It represented Pacific and Agipcoal as negative and said that it was prepared and able to proceed with development alone if necessary.
Specifically, it sought in July 1989 to persuade the Government to shorten the period of 120 days which, under clause 9.3 of the Investigation Agreement, must elapse after a project report has been submitted by the operator to each participant before a management committee meeting can be held to consider that project report. The approaches made by Idemitsu to Ministers and government officials were concealed from Pacific and Agipcoal.
His Honour also found specifically that over the period 1987 to May 1990 Idemitsu in meetings and letters and by other communications with the responsible Minister and officers of the Government (a) sought to secure the grant of mining and exploration rights in respect of the Ensham area for Idemitsu alone; (b) sought to persuade the Government not to renew the Authority to Prospect or otherwise grant mining rights to the joint venture, but only to those members of the joint venture prepared to commit to immediate development of the project; (c) denigrated and criticised the plaintiff to the Government as: (i) negative about proceeding to development of the project, and as seeking to hinder such development; (ii) not genuine in its assertion that it was positive about participating in the development of the project; (iii) unreasonable in its negotiations with Idemitsu towards finalisation of the joint venture and related agreements; (iv) not trustworthy; (v) not of benefit as a joint venturer in relation to the development of the project; (d) pressed the Government to take action to expedite a decision by Agipcoal either to commit to immediate development of the project or to sell its interest in the project to Idemitsu; (e) made known to the Government that Idemitsu was willing and financially able to proceed with immediate development of the project should the Government refuse mining rights to the joint venture and grant them to Idemitsu alone; and (f) disclosed to the Government and otherwise made use of information obtained in confidence at meetings of the joint venture or otherwise made available to Idemitsu in the course of the operation of the joint venture. He also found as established allegations that following announcement by the Minister on 9 May 1990 of refusal of the application for renewal of the Authority to Prospect and of rejection of mining lease applications on behalf of the consortium, Idemitsu encouraged and requested the Minister to remain firm in his decision to grant mining rights to Idemitsu alone and continued to represent the plaintiffs as untrustworthy.
All of this conduct his Honour found to be in breach of the
Investigation Agreement.
His Honour held that Idemitsu, in making application for an exploration permit over the area formerly covered by Authority to Prospect No. 426C and applying for mining tenements enabling it to prospect and mine that area of land, engaged in an activity in respect of the venture area not authorised by the Investigation Agreement or agreed by the participants. He held further that the conduct of Idemitsu in seeking Government support to exclude Pacific and Agipcoal from the project was conduct which might render the tenement liable to be not renewed or which might jeopardise the continued enjoyment of the tenement by the parties, contrary to clause 3.9. And he held that in seeking to induce the Government to act as it wished, contrary to the known wishes of the other participants and their interests, and without informing them of its approaches to the Government, and in seeking to procure the result which eventuated, Idemitsu was acting in breach of its obligation under clause 3.10.
4. Whether those breaches caused the plaintiffs' loss
The main contention of Idemitsu on the appeal was that these breaches were not causative of the respondents' loss. It was common ground that the immediate causes of that loss were the decision of the Minister for Resource Industries ("the Minister") on 23 April 1990 to reject an application for renewal of the Authority to Prospect and two mining lease applications by the consortium members and the decision of the Government on the same day, plainly related to the decision of the Minister, to grant an Authority to Prospect over the same area to Idemitsu, Bligh and Lucky.
Idemitsu submitted that these decisions were not caused by its breaches referred to above, but by the following:
(a) The Queensland Government had its own political agenda for wanting development of the Ensham resource at the earliest possible date.
(b) The Government knew from its own sources that there was a growing demand for coal.
(c) It knew from meetings it had had with the co-venturers that they were deadlocked on the question of distribution of equity and that there was no real prospect of any resolution of that question.
(d) The Government had repeatedly warned the co-venturers that it wanted a development and that it would not renew the Authority to Prospect in favour of those unwilling to proceed.
(e) Pacific and Agipcoal fully appreciated the risk they were running in continuing to refuse to agree to develop the mine in the face of the Government's warnings but preferred to run that risk in order to have a chance to get more equity, or at least a better price to leave the joint venture.
(f) Notwithstanding the grave risks of which they were both made aware, Pacific and Agipcoal, so far as it lay within their power to do so, took steps to prevent the project progressing in order to get what they wanted.
(g) The Government knew from its own sources that markets had already been lost and would continue to be lost if there were further delay.
(h) There was no reason to suppose that if the Authority to Prospect were renewed in favour of all the co-venturers the differences between them would disappear.
(i) This joint venture was a laughing stock in the industry.
(j) One Wolff, Director-General of the relevant Department, acted as he did in advising the Minister to act as Idemitsu and Lucky desired, mainly because they gave an unqualified commitment to proceed to develop the mine, whereas Pacific and Agipcoal in substance refused to do so, by giving heavily qualified commitments.
The real question is whether Idemitsu's breaches were a cause of the decisions favourable to Idemitsu and Lucky. In order to determine that, it is necessary to examine the correlation between Idemitsu's conduct in breach of the Agreement and the expressed opinions and actions of the Minister and the Government.
Prior to a meeting between Mr Idemitsu, the President of Idemitsu, and senior officers of Idemitsu, on the one hand, and, on the other, the then Minister and Director-General Wolff on 26 May 1987 Idemitsu had prepared a "case study" on the possibility of approaching the Government and asking it to remove other members of the consortium if they continued with their reservations about the project. This case study is reflected in an internal memorandum of Idemitsu of 3 June.
Two of those senior officers of Idemitsu, Messrs. Suma and Hayashi, gave evidence at the trial. At the above meeting, as his Honour found, Mr Suma raised with the Government representatives Idemitsu's wish to make a decision, by September 1987, to proceed with development, that date being chosen because of the development of new thermal power facilities and large scale boilers in Japan; and indicated that Idemitsu would be prepared to proceed even on the terms of the Government's then current offer with respect to rail freight charges. Mr Suma admitted that he raised this because he wanted to enlist the Government's support for Idemitsu's position; and that he knew that other consortium members had doubts about the economic viability of the project at that time (Idemitsu acknowledged that current market conditions were dull) and consequently that there was little chance that they would agree, by September 1987, to proceed with development. Mr Suma's statement about rail freight charges did not prevent Idemitsu from continuing to negotiate on that issue and a short time later it was asserting to the Minister that the deciding factor in determining whether the project could be economically competitive would be how far rail freight charges could be lowered. Such negotiations continued until, and remained unresolved at the time of, the Minister's decision of 23 April 1990.
Shortly after that meeting in May 1987 the Minister issued a press release which stated Idemitsu's hope that a decision to proceed would be made by September 1987, in which case the mine would be operational by the beginning of 1990. It also stated his advice to Idemitsu that the Government would provide whatever support and assistance it could to expedite the project.
The Investigation Agreement provided in clause 9, in effect, that a determination to proceed with development of the project could be made only by notification to the operator by participants whose aggregate interests comprised 75% of the whole; that notification could be given only after a meeting held to consider a project report prepared by the operator; and that such meeting could be held only after the expiration of 120 days from the date of the project report.
Even after such determination to proceed any other participant had a further 60 days in which to notify the operator that it agreed to participate. No project report had been prepared in 1987 and indeed none was submitted to the consortium members until 6 October 1989. There was no allegation or evidence that either Pacific or Agipcoal delayed the preparation or submission to consortium members of the project report.
There was evidence that, prior to that meeting, the Government favoured development of the project sooner rather than later but no evidence that it had any view of what that should mean specifically.
Idemitsu continued to have frequent meetings with the Minister or Mr Wolff from then until May 1990 in which it engaged in conduct which His Honour found, and Idemitsu did not dispute, was in breach of the Investigation Agreement. We mention the more significant of these occasions, in summary form only.
On 8 July 1987 Mr Yamada of Idemitsu (who also gave evidence at the trial) told Mr Wolff that Pacific and Agipcoal would be a problem for development of the project, at the same time continuing to negotiate the cost of rail freight on the ground of the marginal economic viability of the project.
He also said that if Ensham could not achieve its first railing by mid-1990 the market for Ensham coal would be lost forever. The possibility that a failure to develop the project by any specific date could cause prospective markets and consequently the project to be lost forever, fanciful though its seems, was repeated by Idemitsu to Mr Wolff in early 1990, as recorded in his memorandum of 11 January 1990 to the Minister's private secretary, to which we later refer. As appears from the events set out below, other statements to similar effect were made on other occasions between those dates.
On 28 July 1987 Mr Suma told the Minister and Mr Wolff that the consortium was split and that the positive members were Idemitsu and Lucky only. He also said that if the consortium missed the Hekinan power station, owned by an entity referred to as Chubu, which would start operation in 1991, Ensham could find itself without a market; that Chubu would decide its supplier that autumn and that if a decision to proceed was not made by then Ensham would have trouble securing a commitment from it. He emphasised the urgency of the matter. He also once again mentioned, as the deciding factor in the economics of the project, the rail freight problem. He said that Idemitsu would be prepared to proceed alone with the project. The Minister replied that the Chubu/Hekinan opportunity should not be missed.
On 26 October 1987 after a meeting with Sir Leo Hielscher in which he made a new offer with respect to rail freight, Messrs Suma and Yamada met the Minister and Mr Wolff and said that now that the problem of rail freight charges seemed to be settling down there remained the question of how to convince the doubtful partners, Pacific and Agipcoal.
Mr Suma said that Idemitsu would be prepared to buy these partners out and that if this question came up Idemitsu would hope to meet the Minister to discuss the issue. The Minister readily agreed.
At a meeting of the management committee of the Ensham consortium on 16 December 1987, at which Idemitsu was represented by, amongst others, Mr Yamada, it was generally agreed that unless there was a major change in market conditions in the short term the Ensham proposal would be relegated to a waiting situation and very low key.
Nevertheless Idemitsu continued to indicate to the consortium that they had identified a special market opportunity which would permit the establishment of the large Ensham mine to be brought on stream at a much earlier date than would otherwise be possible. It was agreed by all parties that no-one was in the least interested in developing a non-viable mine, large or small, and that before proceeding to definite decision the viability must be as close to proven as possible and any final determination would be withheld until that time. Idemitsu was authorised to enter the marketplace with indications that small tonnages could be provided on an early time scale, allowing it to endeavour to seek orders. No such orders were ever received. An internal document of Idemitsu of 18 April 1988 stated its future actions as acquiring as many letters of interest as possible in order to press each member of the consortium to make a decision; as attempting to acquire other companies' equity or have the State government press them to participate or concede their equity; and as holding a negotiation with the Government over a sole risk operator led by only supportive members.
No doubt pursuant to the first of these intentions, between April and July 1988 Idemitsu requested and received a number of letters of intent from Japanese coal consumers and Mr Suma told the Minister and Mr Wolff of some of these, amounting to 1 million tonnes per year, on 13 June 1988. He also said that Idemitsu would take for itself 400,000 tonnes per year and Chubu was in addition to this. On 22 June he told them that the total tonnage of letters of intent had increased to 1.2 million tonnes per year. However this appears to have made no immediate impact on Mr Wolff because, in a memorandum to the Minister's private secretary on 18 July 1988, he referred to press reports as his source of information about markets for Ensham coal. The letters were shown to Mr Wolff on 18 April 1989 and at a meeting with him on 10 May 1989 he was handed by Idemitsu a document which referred to those letters and which said that no action must be taken which might disappoint the expectations that had been built up in the minds of potential customers and which might affect the project's potential credibility in Japan. There were references by Idemitsu at subsequent conferences with Government officers, the Minister and the Premier either to the letters of intent or to the fact that it had secured markets for 1.6 million tonnes per annum of coal from Ensham.
It was not suggested that these letters were contractual or that Mr Wolff thought they were, but what they appeared to show was a bona fide intention to commit to purchase a specific quantity of coal. What Idemitsu did not disclose to Mr Wolff or anyone else on behalf of the Government was that, apparently in order to obtain those letters of intent, Idemitsu in most cases wrote a letter to the consumer indicating that the requested letter of intent was made out for the purpose of obtaining approval for the Ensham project development by the Queensland Government and that, in effect, whatever commitment was made in the letter of intent could be disregarded. It was these and subsequent representations to the Government about the effect of these letters of intent which his Honour found contravened s. 52 of the Trade Practices Act. We will say something further about these in that context later. However these representations were relevant also to the breaches of the Agreement found by his Honour and whether those breaches were causative of Pacific's and Agipcoal's loss. This was so because the representations identified a specific market other than Chubu, which Idemitsu said would be lost if the project were delayed.
The second and third future actions stated in the document of 18 April were also apparently pursued. Mr Suma on 26 April 1988 told the new Minister and Mr Wolff that there were some negative companies in the consortium, that, by implication because of them, it was not possible to move on to development and that, if possible, Idemitsu would like to have the Authority to Prospect re-issued only to the "positive companies". A possible offer to buy out the negative companies was mentioned. Similar statements were made by Mr Suma on the following day at a conference with the Minister for Finance.
At a meeting with Sir Sydney Schubert, the Coordinator- General of the Queensland Government, on 29 April 1988 Mr Suma said that the problem was that there was a negative faction against development and that the time had come to find a drastic solution. He said that Agipcoal was negative because it was mainly concerned with the European market and, considering the ocean freight difference, the holding of Australian coal was like a kind of insurance. Pacific, he said, was negative because its real intention was to expand Blair Athol first. He mentioned the possibility of an offer to buy out the negative faction and said that Idemitsu's intention was simply to achieve timely development of the project, that is, with a target of first shipment being October 1989. No mention was made by Mr Suma either on 26 April or 29 April, or by Idemitsu to the Government at any subsequent time, of its agreement at the management committee meeting of 16 December that final determination to proceed should be withheld until the economic viability of the proposal was as close as possible to proven.
On 8 June 1988 Mr Yamada spoke on the telephone with Mr Wolff about the content of a proposed offer to Agipcoal and R.B.A. to purchase their interests. In the course of that conversation Mr Wolff suggested that Idemitsu make clear to Agipcoal that the timing of the development at Ensham was very important and that the Queensland Government really wished that the project be developed in accordance with the timing suggested by Idemitsu. That is the first occasion upon which the Government expressed any specific view as to what it thought should be the timing of the development.
The timing suggested by Idemitsu by this time included a commitment to development before the end of 1988 when it was expected that Chubu would make a decision on coal to be purchased by it.
On 22 June 1988 at a meeting between officers of Idemitsu on the one hand and the Minister and Mr Wolff on the other, Mr Suma sought to persuade the Government that the project should be restructured whereby Idemitsu was given equity allowing it to "take the leadership". It would accept responsibility for the market, he said. He referred again to Pacific's conflict of interest with Blair Athol and obstruction. The Minister asked Idemitsu whether it should send a letter to all the consortium members before the management committee meeting in July, to which Mr Suma replied that that would make them very happy. Shortly after that Idemitsu became involved in the drafting of the letter which the Minister in fact sent on 5 July to all consortium members.
That letter said that the Minister would be greatly concerned if perceived opportunities to produce and supply Ensham coal to potential markets in Japan and elsewhere were not pursued with great vigour. If it did not occur, he said, he would have to consider what alternative means were available to effect this development for the benefit of the State. In its reply to that letter dated 15 August 1988, Idemitsu expressed its strong wish to realise early development of the project in order not to miss the demand increase in Japan which would occur in 1990 and said that otherwise it feared that there would be no other chance for Ensham to proceed to development. It also said that, in order for there to be early development and a smooth expansion, a capable company should have leadership of the project. By "capable company" of course it meant Idemitsu and by "leadership" it meant plainly majority interest. In a separate letter of the same date Mr Suma asked the Minister for "continued and strong support for early development".
An internal memorandum of Idemitsu of 23 February 1989 outlined its current policy in this respect. This was:
1. to influence the State Government to reorganise the consortium, disenfranchising opponents such as Pacific and Agipcoal. Reference in this respect was made to the Mines Minister, the Director-General, the Finance Minister and the Premier with all of whom Idemitsu had had previous contact;
2. at the same time, to gain the support of the Mines Department and negotiate with the Minister of Finance to obtain a favourable freight rate; and
3. finally, after Pacific and Agipcoal had been divested of their rights, to seek the participation of Australian companies that could promote the move to development together with Idemitsu.
By this time Idemitsu had succeeded in its takeover bid for Bligh. We will refer to this and in particular some alleged consequences of this in considering the question of breach of the Investigation Agreement by Pacific and Agipcoal.
Mr Yamada said in evidence that when he wrote a letter of 6 February 1989 to Sir Frank Moore, the chairman of the Ensham joint venture, setting out Idemitsu's position in relation to how the venture should proceed from that point, the viability of the project was acceptable for Idemitsu to make it suitable to proceed immediately. However, it had not agreed upon the important question of rail freight rate. An internal memorandum of Idemitsu of 6 March 1989 notes that Mr Wolff expressed awareness of the fact that there was a significant difference between the rail freight rate offered by Treasury and the freight rate necessary to make the project viable; and that Idemitsu then thought that less than 50% of the amount offered by Treasury was necessary.
There is also reference in a later internal document to the problem of rail freight needing a political solution.
At a meeting of the consortium of 7 March 1989 Pacific's representative put to Mr Yamada that it believed that Idemitsu had told the Minister that the Ensham project was at a deadlock caused by the joint venture participants other than Idemitsu. Mr Yamada gave an evasive and, in substance, untruthful answer to that accusation. Two days later Pacific ascertained from Mr Wolff that the Idemitsu representatives had told him of the reluctance of the other joint venture participants to proceed "even though the markets were all stitched up". At no time did Idemitsu inform Pacific or Agipcoal that it was separately and frequently conferring with Government representatives.
On 20 March 1989 Mr Suma and some other officers of Idemitsu met representatives of the Premier's Department. They told them of a deadlock situation to which they were coming, the solution being to increase Idemitsu's share to 75%. On the same day they met the Minister and Mr Wolff and Mr Suma asked them if there were some means of enabling Idemitsu to hold a 75% interest. He mentioned that the negative faction, which included Pacific, would not budge. When Mr Wolff asked what Mr Suma thought about a redistribution in February 1990 when the Authority to Prospect expired, Mr Suma replied that that was too late; the timing for contracts with the electricity companies would be lost. Mr Wolff said they would have to investigate the legal position. The Idemitsu representatives also met the Minister for Finance to whom Mr Suma made similar remarks, mentioning also the time limit for supply to Chubu, which necessitated early development. Finally, he mentioned the need to negotiate freight rates on a political basis.
Following the meeting with the Minister Mr Suma wrote to him on 30 March enclosing a paper which discussed alternative courses of action which would help expedite the Ensham project. The paper indicated that it was now imperative that the mine be in a position to make the first shipment in April 1991 and that this required fixing of the freight rate at a level which would support the viability of the project by June 1989 and, presumably also by that date, FIRB approval which could only be obtained after the participants had reviewed the feasibility study and made their decisions on whether or not to participate. It said that several participants in the project had indicated that they refused to proceed further towards development and that such refusal was in breach of the Investigation Agreement. Four possible courses of action were proposed. They were division of the Authority to Prospect, transfer to existing participants willing to proceed, the introduction of new Australian participants and finally forfeiture and reissue of the Authority to Prospect to those willing to commit to immediate development.
It was true, at least in one sense, that Pacific and Agipcoal (for they were plainly the participants adversely referred to in the paper) had refused to proceed further towards development. At the time the paper was written the attitude of each of those companies was that, before any further steps should be taken, there should be a redistribution of the equitable interests in the venture in their favour; that the shares in Bligh which Idemitsu had acquired should be distributed equally between Idemitsu, Pacific and Agipcoal. But the only relevant action required of them at that time was to negotiate with a view to settling a joint venture agreement. The assertion made by Idemitsu to Mr Wolff shortly prior to 7 June 1989 that by "refusing to proceed with the documentation for the venture, the feasibility study etc." Pacific and Agipcoal were in breach of express terms of the Agreement seems to be correct so far as it related to the preparation of the joint venture agreement. However, the project report was still being prepared and, as we have already said, was not submitted to the consortium members until 6 October 1989. We have already referred to the absence of evidence that Pacific or Agipcoal delayed the preparation of the project report or its submission to consortium members.
On 4 April 1989 Sir Frank Moore, the chairman of the Ensham consortium, met the Minister who indicated he wanted to have a meeting with representatives of the consortium on 3 May. He said he expected them to indicate at the meeting a plan of action for the development, a date for the decision to proceed with the development and for the first shipment of coal to be exported. He said that if the decision to proceed to development had not been made by the expiration of the Authority to Prospect, which was in February 1990, the Authority to Prospect would not be renewed. We infer that in making these statements the Minister had in mind the timetable referred to in the paper sent to him by Mr Suma on 30 March because Mr Wolff, in a meeting with Mr Yamada on 31 March, had said how pleased he was to receive that document before the meeting between the Minister and Sir Frank and commented that the "background" section, which contained Idemitsu's proposed timetable and its view that the other participants were in breach of the Investigation Agreement, was very useful.
There were further meetings between Mr Yamada and Mr Wolff on 5 April, 18 April, 10 May, 19 May and 26 May at which Mr Yamada, to use his term in an internal memorandum of Idemitsu, "applied the pressure" to Mr Wolff saying that delay would cause loss of the available market.
At a meeting between the consortium members, the Minister and Mr Wolff on 7 June 1989 (the meeting originally scheduled for 3 May) the Minister said that the Government required a start up by early 1990 with rail freighting by April 1991; and that disputes about equity participation had to be resolved internally or those dissatisfied had to get out. By this time A.Q.C. and R.B.A. had indicated their intention of withdrawing from the consortium. Their interests were subsequently distributed to the other participants except Lucky in proportion to their holdings.
Lucky did not elect to increase its holding. The result was that Idemitsu and Bligh each held 28.5%, Pacific and Agipcoal each held 19%, and Lucky held 5%. This meant that Idemitsu, which by then wholly owned Bligh, effectively held 57%.
On 28 June 1989 the Premier visited Idemitsu's head office in Japan. Further pressure was applied. Mr Suma said that Idemitsu was keen for the project to get off the ground and that Chubu was also hoping that a decision to develop would be made. As the official start of the operation of the Chubu/Hekinan power station was set for October 1991 and coal would be required six months prior to this for testing, he stressed that it was necessary for the Ensham project to get off the ground in order to meet this timing.
At a meeting between Mr Wakahara on behalf of Idemitsu and Mr Wolff on 25 July 1989, and after they had discussed other aspects of the proposal, Mr Wakahara asked the Government to assist in circumventing the 120 day period allowed under clause 9.3 of the Investigation Agreement for consideration of the project report by consortium members before a management committee meeting could be held to consider it. He proposed that the Minister arrange another meeting in August to force each company to clarify its final position. Mr Wolff said that the Minister was available in August and that it was the Minister's desire that the period definitely be shortened. Idemitsu kept up the pressure at a meeting between Mr Yamamoto and Mr Wolff on 17 August 1989, at which Mr Yamamoto told Mr Wolff that Chubu would decide upon the coal to be used for Hekinan in September so that it was more important than ever to make a quick decision to proceed with development of the project. He also mentioned again Idemitsu's schedule for a project start in January 1990 with first railing of coal in April 1991.
By the time of a meeting which he had with the consortium on 26 July 1989 the Minister seemed convinced by Idemitsu of the need, in order to meet the prospective market, to rail coal in early 1991. At that meeting he asked whether coal could still be railed in 1991 to which Sir Frank Moore replied that they would still try to meet Idemitsu's early requirements. This need is reflected in briefing notes prepared by Mr Wolff for the Minister on 26 September 1989.
On 27 October 1989 the Australian officers of Idemitsu were instructed by their superiors in Japan to contact Mr Wolff by telephone telling him that Idemitsu was being pressured by Chubu to promise that the first shipment would arrive in April 1991 and that if a decision was not made then, including in respect of rail freight charges, delivery to Chubu in April 1991 would be impossible. Though there is no evidence that that communication was ever made to Mr Wolff, there is evidence that at about that time Idemitsu was asking Mr Wolff to put pressure on Pacific and Agipcoal. On 1 November 1989 Mr Wolff told the members of the consortium that he would investigate the possibility of early termination of the Authority to Prospect with a view to precipitating action before February 1990. At that meeting and at a meeting with the Premier, the Minister and Mr Wolff on 31 October, Idemitsu represented, in effect, that it had secured markets for 1.6 million tonnes per annum of coal from Ensham, on 31 October mentioning the letters of intent, and on 1 November saying that it could sell it at the full Japanese reference price, that is, not at a discount.
After a meeting between Mr Wolff and the members of the consortium on 27 November 1989 Mr Yamada asked Mr Wolff, once again, to exert strong pressure so that the timing of a decision to develop could be brought forward even a little.
At that meeting Sir Frank Moore had mentioned the understanding of all companies in the consortium that Idemitsu had a commitment to sell 1.6 million tonnes per annum at Japanese power companies' price over three to five years.
All of this appeared to be bearing fruit for Idemitsu at a luncheon meeting between Messrs Morita and Yamada of Idemitsu and Mr Wolff on 28 November 1989. Mr Wolff told them that the Government was considering sending a letter to Idemitsu and Lucky, without telling Pacific or Agipcoal, undertaking to grant an Authority to Prospect over the project area to Idemitsu and Lucky after the expiration of the existing Authority to Prospect in February 1990.
Bearing that in mind, he said, he would like Idemitsu to assure the Japanese electricity companies that Ensham coal would be available so that the market would not disappear, even if a decision to develop was not made that year. At the meeting between Mr Wolff and members of the consortium on 27 November Idemitsu had made the point that a decision to delay a top level meeting between Chubu and Idemitsu until 29 and 30 November was made after a request at the last consortium meeting and expressed concern that Idemitsu would not be able to report to Chubu at the proposed meeting that a decision to develop Ensham had been made. Idemitsu said that Chubu could make its decision at any time and would make it by the end of the year at the latest.
On 22 December 1989, shortly after the State election, Mr Nagano, on behalf of Idemitsu, wrote to the new Minister stating that Idemitsu had a very difficult problem in relation to the Japanese market where its potential clients had for some time been expecting to receive an assurance that the project would in fact proceed. This had become particularly critical, he said, and he had received a clear indication from one major customer that it would not be able to wait much longer. He said it would assist Idemitsu and Lucky to preserve the marketing opportunities which they had secured for the project if the Minister could write a letter to them assuring them that as from the date of the expiration of the Authority to Prospect a renewed tenement would be immediately granted over the same area only to those parties which had committed to the development of the deposit. The new Minister replied on 8 January assuring Mr Nagano that it would be a matter of deep concern to the Queensland Government if the very significant market opportunities established by Idemitsu were lost as a result of these delays, that he would write such a letter and that consequently Idemitsu's Japanese customers should be greatly reassured that the Government's proposed course would allow the project to proceed swiftly to development.
On the following day the Minister wrote as promised to each of the consortium members. It appears from that letter that he thought that if he did not do so the project would be unable to meet initial delivery schedules. That this was his belief is supported by a memorandum prepared by Mr Wolff a few days later (11 January 1990) in which he said that Idemitsu and Lucky had established markets in Japan and Korea for 2.1 million tonnes per year. Mr Wolff said in evidence that he had been told that Idemitsu had established markets in Japan for 1.6 million tonnes per year and that Idemitsu had said that that was the subject of agreements in principle with customers. He agreed that it was important to his view that there should be a commitment to development forthwith so that markets secured by the agreements in principle should not be lost but denied that that was critical. He thought that a more critical matter was the possibility that in the absence of immediate commitment the Ensham project might be lost forever. That he could have believed this seems surprising but he was certainly told this by Idemitsu, as appears from the memorandum of 11 January. The fact that there were no binding commitments to take coal from Ensham was pointed out to the Minister by Pacific in its reply on 31 January to the Minister's letter of 9 January. By then Mr Wolff also knew that Chubu had decided to purchase coal for Hekinan from existing mines, although Idemitsu told him it was in this respect "doing its best". Neither that letter from Pacific nor Agipcoal's response of 17 January 1990 gave an unequivocal commitment to develop forthwith.
A management committee meeting to consider the project report pursuant to clause 9.3 of the Investigation Agreement was held on 6 February 1990. Idemitsu, Bligh and Lucky advised that they were prepared to accept the report and to proceed to development of a mine. They also indicated that they would be communicating that fact to the operator pursuant to clause 9.4 of the Investigation Agreement.
Neither Pacific nor Agipcoal gave an unequivocal commitment.
It therefore appeared unlikely that participants
aggregating 75% would notify the operator of agreement to
participate in the development of the project on the basis
of the project report.
Mr Yamada sent to Mr Wolff a document on 9 February 1990 which asserted that:
1. Notwithstanding the reluctance of Japanese customers to commit to purchase coal from the project on which final commitment to proceed with development had not been made, Idemitsu secured letters of intent from 23 Japanese companies for a total of 1.6 million tonnes of Ensham coal for shipment to commence in 1990. However all of those companies had now chosen other coal.
2. In addition, Idemitsu had made considerable efforts to supply Chubu whose new power station was scheduled to commence operation in October 1991. The time for commitment to supply that power station having been the end of 1989, Chubu had chosen other coal.
3. Notwithstanding Idemitsu's consistent and repeated statements to the other participants that the venture's ability to secure those sales opportunities was entirely dependent upon a timely determination to proceed with the project and its indication that it would commit to secure sales of such tonnage, Agipcoal and Pacific had been reluctant to make such determination.
4. However Idemitsu was confident that if a final determination could be made it would be able to persuade some of those who had made an earlier commitment to switch back to Ensham coal. Chubu was also still interested in Ensham as a supply source and Idemitsu was confident that it would be able to secure orders from Chubu once a determination was made and also from other power companies.
The Minister appeared to be convinced of these assertions because, in a letter which he wrote to Pacific on 13 February 1990, having acknowledged Pacific's statement that there were no binding commitments to take coal from Ensham and therefore no delivery schedules, he said "There are, however, major consumers who have indicated their willingness to buy this coal provided they can be assured that their delivery requirements will be met." In its reply of 15 February Pacific said that it needed to be assured that the end consumer, that is the power utility, cement company, etc. was committed to taking the tonnage. The Minister's reply of 27 February 1990 indicated that the Government intended to adhere to its timing of project commitment. Mr Wolff then followed up that letter and the Minister's earlier letter of 9 January with a letter of 1 March 1990 to each of the consortium members seeking its advice, by 22 March, as to whether it was prepared to commit to development of the Ensham project.
By this time Mr Wolff appeared to be convinced, probably correctly, that Pacific would not commit to development in accordance with the timetable which the Government had adopted. On 14 February he had told delegates of Idemitsu to forget about Pacific but that he would like there to be some agreement arrived at with Agipcoal. We note that that was even before Pacific's letter of 15 February. Mr Wolff's view in that respect was again confirmed by him on 16 February. And at a meeting between him and Idemitsu's representatives on 6 March to report on the progress of negotiations with Agipcoal he described Pacific as "hopeless".
By letter dated 8 March 1990 Idemitsu confirmed that it was prepared to develop Ensham.
On 3 April the Minister wrote to all participants, referring to his letter of 9 January and requesting commitment by 6 April.
On 6 April 1990 Pacific wrote to the Minister advising that it agreed to proceed to development on four conditions: FIRB approval on acceptable conditions, agreement on conditions of renewal of the Authority to Prospect, agreement on management and marketing including protection of minority interests, and an optimised project report, currently being prepared, being agreed upon as the basis for actual mine development. We have already mentioned Agipcoal's response of 17 January. It was subject not only to FIRB approval but apparently also, though this is not clear, to renegotiation between the participants in order to ensure that the minority participants had an acceptable degree of protection. When it responded on 5 April to the Minister's letter of 3 April it agreed to proceed to development with the existing joint venturers on the existing Government rail freight offer and on the condition that the mining lease and FIRB approval were granted on acceptable terms and that the parties agreed upon and executed joint venture and all related documents. It required an additional condition of minority protection only if Pacific did not proceed.
No doubt because of Mr Wolff's statement on 14 February and perhaps other statements from the Government indicating its preference for Agipcoal remaining in the venture if possible, Idemitsu had continued to negotiate, or at least to give the appearance of doing so, with Agipcoal. Indeed, on 6 March 1990 Mr Coffrini, on behalf of Agipcoal, and Mr Hayashi, on behalf of Idemitsu, made an agreement, subject to the approval of each of their boards, which would enable unconditional commitment by Agipcoal. It was immediately obvious within Idemitsu, however, that this agreement was unacceptable to Mr Suma, and that consequently it would be unacceptable to the board of Idemitsu, in two essential respects - transfer of equity to Agipcoal and appointment of the chief executive officer requiring agreement of both parties. Nevertheless Mr Suma instructed Mr Hayashi to telephone Mr Coffrini, not to frankly tell him this, but on the contrary to say that Mr Suma was trying to persuade the board of Idemitsu to the agreement but was finding it hard, and to ask Mr Coffrini to make some concessions, without apparently suggesting what they might be. It appears that Mr Hayashi did this on 12 March.
On 19 March Idemitsu sent to Agipcoal a draft agreement containing its proposal. It is not necessary for present purposes to say more in this respect than that negotiations continued between the parties but final agreement was never reached. Each of the parties blamed the other for this and each made accusations against the other to the Government.
We think that there is some substance in the accusations of each. Agipcoal was intent on improving its position vis a vis Idemitsu in the consortium and unless it could do so was probably unwilling to commit in accordance with the proposed timetable. On the other hand, Agipcoal's refusing to commit was a result which Idemitsu not only wanted but was endeavouring to achieve. Its endeavour was successful.
It was on 4 April that Idemitsu appears to have finally persuaded the Government to allow only Idemitsu, Bligh and Lucky to proceed with the project. On that day representatives of Idemitsu met the Premier, his Under Secretary, the Minister and Mr Wolff. The Idemitsu representatives said that the Japanese power utilities were still interested in Ensham because of its enormous reserves of high quality coal but that Idemitsu could not obtain the 75% support necessary for development. They described how unreasonable Agipcoal had been in negotiations and how reasonable Idemitsu had been though to no avail; Agipcoal had refused to negotiate further. Idemitsu then requested the Government to let only those companies who wished to proceed to do so. By that, of course, it meant itself, Bligh and Lucky. The Premier then enquired of Mr Wolff whether there would be any legal problems in implementing what Idemitsu requested and was told there were not. He then said that the Government would proceed. As appears from the above dates this was before either Pacific or Agipcoal had responded to the Minister's ultimatum of 3 April.
On 23 April the Minister refused the application by members of the consortium for renewal of Authority to Prospect No. 426C and their application for two mining leases. On the same day Cabinet adopted a submission dated 11 April from the Minister to invite Idemitsu, Bligh and Lucky to apply for an authority to prospect over the area covered by Authority to Prospect No. 426C which had expired on 22 February. Paragraph 13 of the body of that submission, which formed part of the Cabinet minute, under the heading "URGENCY" stated:
"Opportunities currently exist for marketing of Ensham coal in Japan and South Korea. However to secure firm sales contracts from those companies which have so far agreed in principle to take Ensham coal, it will be necessary for the Ensham project to be in a position to guarantee coal delivery by mid-1991. This will not be possible unless a firm commitment to proceed with mine development is made in the very near future."
That was, of course, what Idemitsu had been telling Mr Wolff, the Minister and other Government representatives and, except as to the date by which delivery must be guaranteed, in substance what it had been telling the Government since 1987.
The cover sheet of that submission, under the heading
"OBJECTIVE OF SUBMISSION" stated:
"The Ensham coal deposit has been held under exploration and mining lease applications by a joint venture of five companies. Three of these companies are willing to proceed now with development of a large opencut coal mine to service export markets for thermal coal. The remaining two companies are not willing to commit to development of the project at this time without imposition of conditions considered inhibiting by the former three companies."
This seems to indicate that it was the dissatisfaction of Idemitsu with conditions which each of Pacific and Agipcoal imposed on its commitment, rather than any dissatisfaction of the Minister, which, so far as it was relevant at all, caused the recommendation.
On 9 May the Minister informed Pacific and Agipcoal of the decisions made on 23 April. On 1 August Idemitsu, Bligh and Lucky were invited to apply for such authority to prospect, they did so and an exploration permit was granted to them on 11 November, conditional upon them committing forthwith to apply for a mining lease and to establish a mine capable of producing at least 1.6 million tonnes of coal per year by September 1991.
The sequence of events from 1987 to 1990 shows that throughout that period the Government was responding to Idemitsu's efforts to persuade it to enforce on the other participants a timetable for development of the project, suggested by Idemitsu, which ignored their rights under the Investigation Agreement to assess a project report before determining whether to proceed or not. There is a strong correlation, during the period from May 1987 until at least towards the end of 1989, between statements made by Idemitsu as to the need to exploit existing markets which it had secured and the timetable necessary to achieve that, on the one hand, and, on the other, statements emanating from the Minister and Mr Wolff indicating acceptance of those statements and seeking to impose that timetable upon the other participants.
From February 1990 when Idemitsu said that the customers which it had secured and Chubu were lost but that, in effect, those specific markets could be regained if the project were developed forthwith, until it finally made its decision, the Government responded by accepting and repeating that statement and acting in the way advocated by Idemitsu. Throughout the whole of that period there was an increasing acceptance by the Minister, Mr Wolff, other officers and finally the Premier of Idemitsu's statements that Pacific and Agipcoal were being unreasonably negative about this, in a way which was likely to result in loss of those markets and consequently loss of reputation of Ensham.
This persuaded the Government that unless Pacific and Agipcoal unconditionally committed themselves to development of the mine by a date determined by Idemitsu's timetable they should be excluded from the joint venture. We add that his Honour, who made findings that the actions of Idemitsu were persuasive in the way we have described also had the advantage of hearing and observing three of the principal witnesses on this question, Mr Wolff, Mr Suma and Mr Yamada, and to assess the susceptibility of Mr Wolff to the influence of Messrs Suma and Yamada. The
documents indicate that Mr Wolff's views had a considerable
influence on the views of the Minister and the Government.
We therefore conclude that Idemitsu caused the Government to set a timetable for development without regard to the participants' contractual rights under the Investigation Agreement and caused it to exclude Pacific and Agipcoal because they were not prepared to commit in accordance with that timetable.
It is true, as Idemitsu contended, that the Government wanted development of Ensham to take place earlier rather than later and it may be correct to say that it knew, from its own sources, that there was a growing demand for coal. But what caused it to require a commitment to develop when it did was its adoption of Idemitsu's timetable.
It is also correct to say, as Idemitsu does, that the Government repeatedly warned the co-venturers that it wanted development and that it would not renew the Authority to Prospect in favour of those unwilling to proceed. But again what caused it to do this when it did was its adoption of Idemitsu's timetable.
His Honour was therefore correct in concluding that Idemitsu's breaches of the Investigation Agreement caused the Minister to reject the application for renewal of the Authority to
Prospect and Cabinet to resolve to grant a new Authority to
Prospect over the same area to Idemitsu, Bligh and Lucky.
5. Contravention of s. 52 of the Trade Practices Act and whether it caused the plaintiffs' loss
His Honour's finding that representations made to the Government about the existence of letters of intent were misleading by virtue of the existence of side letters was not seriously disputed on appeal and was plainly right. Those representations were probably also misleading by virtue of what they said the effect of the letters of intent was; for example, the representation which Idemitsu permitted Sir Frank Moore to make on its behalf to Mr Wolff on 27 November 1989 that Idemitsu had a commitment to sell (and inferentially purchasers who had a commitment to buy) 1.6 million tonnes per annum at the Japanese power companies' price over a three to five year period.
The real question here was again causation. The arguments of Idemitsu were that, as the availability of markets for steaming coal was not in question, the letters of intent could never have been causative; and, in any event, they could not have been causative after 9 February 1990 because by then the Government knew that the customers from whom Idemitsu had obtained letters of intent had chosen other coal.
As to the first of these, the representation with respect to the letters was more than the mere availability of markets; it was that there were specific markets "stitched up", that is, inferentially, specific purchasers committed to buy at specific or ascertainable prices. As to the second, however, although at that time the Government was also informed that Idemitsu was confident that if a final determination could be made it would be able to persuade some of those who had made an earlier commitment to switch back to Ensham coal, it is not clear that the Government's belief in the existence of an earlier commitment caused it to believe that a guarantee of coal delivery by mid-1991 would secure firm market sales to those companies from whom the earlier commitment had been obtained. We conclude that the representations about the letters of intent did not cause the decisions not to renew the Authority to Prospect or to grant a new Authority to Prospect to Idemitsu, Bligh and Lucky only.
6. Breaches of the Investigation Agreement by Pacific and Agipcoal and whether they caused the plaintiffs' loss
Idemitsu alleged breaches of the Investigation Agreement by each of Pacific and Agipcoal in three respects; that after the success of Idemitsu's takeover bid for Bligh each declined, unless Idemitsu agreed to relinquish part of its interest in the Investigation Agreement:
(a) to give a commitment to the Queensland Government promptly to proceed, or to proceed at all, to develop and mine the Ensham coal deposits, notwithstanding that the Minister informed it that he would not renew the Authority to Prospect or grant a mining lease unless the parties to the Investigation Agreement agreed to proceed
to the development of a mine on the proposed mining
lease;(b) to make a determination to proceed within the meaning of cl. 9 of the Investigation Agreement at the meeting held on 6 February 1990 for that purpose or within a reasonable time thereafter; and
(c) to negotiate bona fide with Idemitsu, Bligh and Lucky with a view to settling and executing comprehensive joint venture and operating agreements to govern such development and mining.
His Honour held that the first of these, even if established, could not constitute a breach of the Investigation Agreement because there was nothing in the Investigation Agreement which required participants to give any commitment to proceed to the Queensland Government. It gave a participant an option to notify the operator that it agreed to participate in the development of the project or to withdraw from the joint venture. For the same reason he held that failure to make a determination to proceed could not constitute a breach of the Investigation Agreement.
However his Honour thought that, if the third allegation was made out, it would amount to a breach of cll. 3.10 and 11.1 of the Investigation Agreement. He also thought that in 1989, but not later, Pacific refused to negotiate with Idemitsu to settle the comprehensive joint venture and operating agreements until the equity imbalance was settled.
However, he was satisfied that Pacific's reasons for not committing itself to proceed with development in early 1990 were those expressed in its letter of 31 January 1990 which mentioned markets, rail freight, foreign equity and project viability; foreign equity meaning only provision in the joint venture for pre-emptive rights should the FIRB require greater Australian ownership. That letter did not refer to increasing its equity as a condition of negotiation or of commitment. Nor was it mentioned in Pacific's statement at the meeting of the consortium on 6 February 1990 or in its letter to the Minister of 6 April 1990.
His Honour was also satisfied that Agipcoal in January 1989 refused to discuss further the comprehensive joint venture documents until the equity was redistributed. By November 1989, however, as his Honour found, Agipcoal had ceased to insist on more equity as a condition of proceeding with the project (it stated that at the consortium meeting of 27 November 1989) though it regarded an increase in equity as a means of protecting its interest as a minority participant.
In its reply to the Minister's letter of 9 January 1990 and
in a statement which it made to the consortium on 6 February
1990 Agipcoal insisted on the need for minority protection.
His Honour was satisfied that Agipcoal was genuine in
seeking this and that it was not negotiating to obtain an
increase in equity except so far as this would give it
increased minority protection. It did not refuse to
negotiate with Idemitsu, he held; on the contrary, it did so
and reached an agreement with it which was subject to
approval by the boards of the respective companies; though
approval was not given by the Idemitsu board. His Honour
was unable to accept that in those circumstances Agipcoal
was not negotiating in good faith with Idemitsu to settle
the joint venture and operating agreements. He thought that
Agipcoal's concerns to obtain protection as a minority
participant in relation to the making of important
decisions, the ownership of the operating company and the
appointment and dismissal of its chief executive officer
were legitimate commercial concerns and that Agipcoal was
not in breach of the Investigation Agreement in seeking to
have them covered in a comprehensive joint venture
agreement.
His Honour accepted the submission of Pacific that it was not alleged against it that it breached its contract with Idemitsu, Bligh and Lucky in that it planned and implemented tactics designed to prevent and had in fact prevented a commitment to develop the project; but that Idemitsu, Bligh and Lucky had alleged three much narrower pieces of misconduct; that is, only those set out above. That was plainly right and was right also in respect of their allegations against Agipcoal. And as can be seen from what we say below, the same is also true of their contentions in their notices of appeal.
His Honour did not expressly resolve the question whether the conduct which he held to be in breach of the Investigation Agreement, limited as it was to 1989, was a cause of the Minister's decision not to renew the Authority to Prospect though he referred to the contention by Idemitsu that it did. After saying that it could readily be inferred that the position expressed by Pacific and Agipcoal in their letters of reply to the Minister's letter of 9 January 1990 was a factor which influenced Cabinet in making its decision, he said of the conduct of Pacific and Agipcoal which he found to be in breach only that it had a direct effect on the conduct of Idemitsu which he had held to be in breach. However, it may be that, in saying that, he was implicitly excluding causation of the Minister's decision.
Idemitsu appealed against his Honour's conclusions on the issues of breach by Pacific and Agipcoal and their consequences in three respects. First, it said in its notices of appeal, his Honour should have found that the conduct of each of Agipcoal and Pacific which he found to be in breach of cll. 3.10 and 11.1 of the Investigation Agreement was a breach also of cl. 3.9 and was a cause of the Cabinet decision not to renew the Authority to Prospect in favour of all parties to the Investigation Agreement.
Secondly, it said that his Honour should have found that Agipcoal and Pacific were in breach after late 1989 and that breaches at dates later than the dates on which his Honour found conduct to be in breach were causative of the above decision. Read in context this contention appears to be limited to breaches of the kind alleged in paragraph (c) above, which his Honour had found in 1989; and as not resurrecting contentions of breaches of the kind alleged in paragraphs (a) and (b) above. As we mention below, Idemitsu also limited its oral argument in this way. And thirdly, it said that his Honour should have found that conduct in each of the respects referred to in paragraphs (a), (b) and (c) above was conduct:
(i) whereby to the knowledge of Agipcoal and Pacific the Authority to Prospect was rendered liable not to be renewed;
(ii) whereby to the knowledge of each the continued enjoyment of the Authority to Prospect by the parties to the Investigation Agreement might be jeopardised;
| (iii) | in breach of cll. 3.9, 3.10 and 11.1 of the Investigation Agreement; and |
| (iv) | repudiatory of its obligations under the Investigation Agreement. |
The third contention appears to be relevant only to a further contention which his Honour had rejected, but which was pursued in the notice of appeal, that Idemitsu and Bligh by letter of 10 May 1990 and Lucky by conduct on 9 August 1990 terminated the Investigation Agreement. That further contention was not advanced by Idemitsu either in its written or oral argument. Nevertheless we discuss it under heading 8 below.
Hathaway said that his cash flows were a "weighted sum" which he defined as "the various possible cash flows by the probabilities of those cash flows". This has no resemblance to Phillips' workings. He assumed, as Phillips did not, that the coal price would remain "constant in real terms" and increased it only by the inflation rate. When asked to explain why, at the same starting coal price, Phillips' NPV was very much higher than his, he could not assist, although
he said (as also did Phillips) that each made the same
assumptions.
When Phillips was pressed to discuss the basis of Hathaway's calculations he tended to refer the questioner to Hathaway and one explanation which he did proffer was not endorsed by Hathaway in his oral evidence. Phillips agreed that his view was that the only proper approach would have been to use a 5.6% increase (annually) in the price of coal;
Hathaway did not do that. Phillips said that "the value of the time delay option is not dependent on the price of coal" and when asked to explain that remarked:
"It is a consequence of the theory behind the option valuation and it is probably something that could be more succinctly explained by Professor Hathaway".
Phillips also said that his and Hathaway's values "reconciled very well", but no-one has ever put before the Court, here or below, a true reconciliation.
Some of the argument before us assumed that the option value the judge added, taken from Hathaway's evidence, simply reflected the annual increase in the price of coal which Barnett prophesied. That is plainly not so.
The pre-condition of effecting a reconciliation of Phillips' results with Hathaway's appears to be to understand Hathaway's method. Phillips worked by a method which he said - and it was not disputed - was conventional and well known. The evidence left it unclear what assumptions Hathaway made and his approach to the valuation of the time delay option was described only in a general way. The onus was on the respondents to establish their damages. An essential step was to show that it was proper, as Phillips said, to add to his figure for the present value of the project Hathaway's calculation of the value of the option.
In our opinion, that required proof that the two figures were worked out on the same or at least reconcilable foundations. That was not shown to be so and in that important respect the assessment of damages is falsified.
We do not say that a complex valuation method can never be put forward in aid of assessing damages, without a comprehensive explanation. Here, the Hathaway method has not been properly explained, its application to the valuation of the property has not been justified, and its results cannot be reconciled with the results of another and unchallenged method (Phillips') which allows for examination of its workings. Not even at the hearing of the appeal was any proper explanation of the nature of Hathaway's result or method put forward. We were, in effect, asked to uphold the judge's conclusion, accepting the correctness of the challenged addition of Hathaway's result to Phillips, as a matter of blind faith rather than reasoning.
In our opinion, the legitimacy of adding Hathaway's option value to Phillips' nett present value to obtain the full value of the project was not established. His Honour's finding with respect to the option value must be set aside.
Any notion that this step produces an injustice is weakened by Phillips' evidence that the range of values of a 19% interest, leaving the option value out of account, was between $18m and $25m at 1 July 1990 and between $19m and $22m at 1 January 1992. The judge accepted the earlier and higher figures; this shows that, according to Phillips' estimates, the value of the interest tended to fall rather than rise over the 18 month period, so that a person who had paid at the earlier date an additional $10m to $15m for the time delay option, as Phillips said would have been justified, might have been disappointed.
Other Evidence of Value
The appellants' counsel strongly pressed the proposition that the judge should have taken into account the prices for which interests in this very project were sold at dates close enough to the relevant date (1 July 1990) to be of use. The answer the respondents gave was that, although the dates were close, the project had become much more promising by 1 July 1990, so that the market transactions were not of much relevance. Phillips rejected them for that reason.
Phillips said, in effect, that a value of about $9m would, reasoning from the 1988 and 1989 sales, be attributed to a 19% interest, if one ignored the reduction of project risk resulting from completion of feasibility studies and the offer of a definite rail haulage agreement. Phillips would not attach a value to the reduction of risk.
It is worth noting that his discussion of this matter occurred in the context of a valuation made by his primary report, "as at 1 January 1992 being a value reasonably representative of the value in October 1991". Rejection of the market transactions becomes of course more questionable when one considers Phillips' supplementary report, acted upon by the judge. This gives a value of the interest "as at 1 July, 1990, being a value reasonably representative of the value in May 1990". The supplementary report does not deal with the problem of reconciling values as at May 1990 with the market transactions, two of which were effected 12 months earlier. It is our opinion that when they are analysed, the sales of interests in the project appear to provide substantial help.
In approaching this subject, one must keep in mind that Phillips regarded the critical uncertainty in his valuation as being the coal price. He accepted Barnett's report, which was not challenged by the parties. As we have pointed out, Barnett did not give evidence that the coal prices over the life of the mine would in fact be those he set out; he said in essence that in the long run the price would be about the same as the cost of production at the marginal - i.e. most expensive - Australian coal mine at the relevant date. This was a prediction based on the assumption that the market's behaviour would conform to economic theory.
The sales relied on by the appellants were not theoretical predictions, but facts.
There were three sales. The first was Idemitsu's takeover of Bligh coal, which implied a value of $4.9m for a 19% interest. The second and third were the acquisitions of the interests of AQC and Rheinbraun Interests, both implying a value of about $5.3m. Moneys had, however, been spent on "feasibility studies, land acquisition and other pre- commitment activities necessary for project development", according to Phillips' primary report. Unfortunately, it is unclear when those moneys were spent and as Phillips' accepted valuation purported to give a value as at May 1990, it may be that a substantial part of the additional expenditure is irrelevant to the fixation of a value in that month.
Between May 1989, when the last two of the three sales took place, and May 1990, events occurred which would tend to make the 19% interest less valuable and others which would tend to make it more so. The respondents contend, correctly as it seems to us, that the matters which tended to diminish value were, in substantial part, caused by the very breaches of contract for which damages were awarded. The principles of assessment require that one proceed on the hypothesis that there was no breach.
But this is not to say that one ignores, in assessing value, evidence of the parties' attitudes. Pacific was at all material times of a mind to defer a commencement of the project for some years, whereas Idemitsu wanted an early start. Agipcoal was prepared to have an early start, but had raised questions about the proposed agreement between the parties which might well have been difficult to resolve.
It appears to us that the market value of each of the interests - that of Pacific and that of Agipcoal - would, absent any breach, probably have been lessened as at May 1990 by the prolonged lack of harmony within the consortium and, more particularly, by its consequence, the lack of agreement on the conditions of the joint venture. This must have created
uncertainty in the minds of potential acquirers of a
minority interest.
Phillips pointed out in his first report that when the sales occurred the feasibility study which culminated in the September 1989 project report "had not been completed, so that the project was significantly less well-defined than it is today". It is not easy to see why the completion of the project report would have enhanced value much. We were referred to no evidence proving that it produced a view of the project substantially different from that which the parties had previously entertained, nor that it contained information of such a kind as significantly to affect value.
Further, as the appellants' submissions pointed out, the parties had not at the relevant dates (May 1990 to 1 July 1990) agreed on development in accordance with the report.
A more powerful contention in favour of the view that the value of the project rose fairly sharply shortly before the valuation date was based upon the progress of negotiations about rail freight. The evidence showed that the Queensland Government charged a price for rail freight which was considerably in excess of its cost; the freight level constituted in practice a substantial tax on production.
Before May 1990 at least an informal agreement was reached for extension of a favourable rail freight offer, previously made by the Government to the holders of the title issued to replace the Authority to Prospect. The precise date on which this occurred is unclear, but appears to have been shortly before 20 February 1990.
There is, however, an obstacle in the path of one seeking to support the view that the value of the project increased greatly in early 1990. This is that the documents show that Pacific executives, after the events which according to Phillips increased value, apparently did not take this view.
There are documents of November 1989 and March 1990 suggesting that Pacific's opinion of the value of its interest at those times was that it was much the same as it had been at the time of the 1988 and 1989 sales. The latter document indicates that Mr. O'Reilly of Pacific, then its Managing Director, had doubts whether the interest was saleable at that stage. The judge appears to have placed no reliance upon Pacific's view, expressed quite close to the date at which Phillips attached values to the interest ranging up to more than six times as much as O'Reilly's opinion.
Although there were, as Phillips said, difficulties in adjusting the values implied by the 1988 and 1989 sales of interests in the project so as to give a value as at 1 January 1992, those sales should have been given significant weight. The arguments in favour of ignoring them weaken if one takes, as the judge did, 1 July 1990 as the relevant date; it is hard to accept that events between mid-1989 and mid-1990 multiplied the value of these minority interests.
We are emboldened to express disagreement with the judge's view about this point by the fact that his Honour may have been influenced, in attaching as much weight as he did to Phillips' opinions, by the notion that they were reconcilable with those of Hathaway and therefore received support from Hathaway.
We propose to make a finding as to the proper level of damages, in substitution for that made by the judge. The alternative course would be to send the matter back for reassessment of damages. Two reasons have inclined us against doing so. First, it is unlikely that anything of critical significance would, if the damages were sent back for reassessment, be added to the considerable amount of information relevant to damages which is already in the record. Secondly, the case does not appear to be one in which much would be gained from seeing and hearing the witnesses on damages in arriving at what can only be an estimate; there was no significant conflict of primary fact in this part of the case.
It is necessary to deal, as foreshadowed, with some other substantial points about damages which were raised on one side or the other. The appellants contended that the judge was wrong in accepting as the basis of assessment Phillips' supplementary report, rather than his primary report; this brought the date of assessment back to 1 July 1990 rather than 1 January 1992. Although there is something to be said for this view, the earlier date is the more relevant one, having regard to the time at which events came to a head.
We do not accept that his Honour erred in this respect. Then, it is said that the judge should have discounted for the possibility that the rail freight offer would not remain open; it appears to be correct that no discounting was made, but we were referred to no evidence giving substantial support to the argument that one was necessary; that submission must be rejected. A similar contention - as to discounting - was based on the possibility that the parties would never have agreed on the terms of a joint venture. This argument has more substance, but on the whole we are unpersuaded that his Honour erred in not treating an ultimate failure to agree as a real possibility.
On the respondents' side, considerable emphasis was laid upon expressions of opinion as to value in two documents, one a report by Messrs Ernst and Young obtained by the appellants and the other a project report valuation. Each of these was argued to give some support to Phillips' views of valuation and we think the contention sound, but that the weight of these additional opinions is limited. The judge did not rely on them.
The more important expression of view was that by Messrs Ernst and Young, because it was obtained for the appellants.
It was said to support a valuation of a 19% interest of about $28m, but its force is weakened by a number of circumstances. One is that there was no evidence that the author or authors of the report had any special expertise in the valuation of such interests. Another is that, although the report leaves the date unclear, it implies a valuation as at September 1989; this may be deduced from its reliance on data at that date and from the absence of a specification of any other valuation date. In our view, good evidence of the value of a 19% interest at September 1989 is constituted by the two then recent sales of interests in the project.
It is impossible to accept that interests which, if the sales are to be used as a guide, were worth about $5m in May 1989 were, for reasons unexplained, worth $28m by September 1989. Further, the September 1989 report on which Ernst and Young based their calculations was not adopted by the parties.
The criticisms of use of the Ernst and Young report which we have set out are, in substance, those advanced by the appellants; we think them well-founded. The appellants also contended that the Ernst and Young report should be ignored on the ground that it should not have been admitted.
What happened was that the report was obtained, it appears, to support what we think to have been a rather frivolous counter-claim put forward by the appellants. Counsel for the appellants cross-examined on the basis of the report and was ordered to tender it. Despite the elaborate arguments advanced against that course, we are satisfied that it was correct. Considering the matter, as we were invited to do, as one depending on fairness, we see nothing at all unfair in requiring the tender of a document so used.
In summary, our principal views on the question of damages are as follows:
(a) The mode of reconciliation of Phillips' nett
present value with that of Hathaway, which was
accepted by the judge, was admittedly erroneous;
no other way of reconciling the two has been
placed before us.(b) It was not shown that Hathaway's calculations, which were not disclosed in detail, were of such a character as to make it a proper course to add any of his results to those of Phillips.
(c) The contention that an allowance should be made for what was described as the value of the option must be rejected.
(d) Phillips' figure for nett present value obtains no support from the figure arrived at by Hathaway.
(e) Phillips' nett present value is thrown into doubt by three sales of interests in the venture, the most recent of which were only 12 months before May 1990, the date on which Phillips' calculation, accepted by the judge, was based.
(f) The proper figure for damages must be assessed having regard to the three sales, which show a value of about $5m and to Phillips' calculations which show a value of between $11.5m and $24.8m.
(g) Not by any mathematical process, but as a matter of estimation, we fix the value of a 19% interest as at 1 July 1990 at $12m. Interest must, of course, be added.
The judge's assessment of damages in each case was, as we have mentioned, $29.5m. It was made up of $25m plus interest at 12% for 18 months; no point was taken in the notice of appeal about the allowance of interest. In our opinion therefore, interest should be allowed at the same rate on the reduced amount of damages for an additional 13 months, the period from the date of pronouncement of the judgment below to the date of our judgment. The amount of interest in each case will be $3.72m.
12. Orders
In each of Appeals Nos. 38 and 39, the order will be as
follows:
1. Appeal allowed in part.
2. Judgment for the plaintiff in the sum of $29.5m set aside and in lieu judgment for the plaintiff in the sum of $15,720,000.
3. That the declaration made in paragraph 3 of the order of the Honourable Mr. Justice Ryan be set aside.
4. That the orders (as varied) made in paragraph 4 of His Honour's order for referral to the Registrar, an injunction, and discharge of that injunction be set aside.
5. That the order made for dismissal of the counter-claim be set aside and that in lieu thereof there be judgment in favour of the first plaintiffs by counter-claim against the defendants by counter-claim for $1.00 damages.
6. That the orders for costs made below be set aside and that in lieu thereof the appellants pay the costs of the respondents in the whole action, including reserved costs.
7. That the respondents pay the appellants' taxed costs of the appeal, limited to four days' hearing.
8. Liberty to apply.
In Appeal No. 43, the order will be as follows:
1. Appeal allowed in part.
2. That the orders (as varied) made in paragraph 4 of His Honour's order for referral to the Registrar, an injunction, and discharge of that injunction be set aside.
3. That the order made for dismissal of the counter-claim be set aside and that in lieu thereof there be judgment on the counter-claim for Lucky Goldstar International (Australia) Pty. Ltd. against CRA Limited and Pacific Coal Pty Ltd for $1.00 damages.
4. That the respondents pay the appellants' taxed costs of the appeal, limited to four days' hearing.
In Appeal No. 44, the order will be as follows:
1. Appeal allowed in part.
2. That the orders (as varied) made in paragraph 4 of His Honour's order for referral to the Registrar, an injunction, and discharge of that injunction be set aside.
3. That the order made for dismissal of the counter-claim be set aside and that in lieu thereof there be judgment on the counter-claim for Lucky Goldstar International (Australia) Pty. Ltd. against Agipcoal S.p.A. and Agipcoal Australia Pty. Ltd. for $1.00 damages.
4. That the respondents pay the appellants' taxed costs of the appeal, limited to four days' hearing.
In each appeal, there will be a direction that the order not be taken out for 14 days in case any party wants to make submissions as to the form of the order.
- AGLC
- Idemitsu Queensland Pty Ltd v Agipcoal Australia Pty Ltd [1993] QCA 87
- Case
- [1993] QCA 87
- Decision Date
CaseChat Overview and Summary
The court found that Idemitsu's breaches of the Investigation Agreement and the Trade Practices Act were causative of the Government's decision to not renew the Authority to Prospect in favour of all parties but to grant a new Authority to Prospect to Idemitsu, Bligh, and Lucky only. The court held that Idemitsu's misleading conduct, including the misrepresentation of specific markets, led the Government to adopt a timetable for development of the Ensham coal deposit which ignored the participants' contractual rights. The breaches of the Investigation Agreement by Pacific and Agipcoal were not found to be causative of the Government's decision.
The court also held that the assessment of damages was flawed. The addition of the value of the time delay option to the net present value was not properly justified. Furthermore, the valuation of the 19% interest in the joint venture was not supported by the evidence of market transactions. The court set aside the original damages award and fixed the damages at $15,720,000 plus interest for an additional 13 months. The court also set aside the orders for the declaration, injunction, and discharge of injunction, and ordered the appellants to pay the respondents' costs in the whole action, including reserved costs. The respondents were ordered to pay the appellants' taxed costs of the appeal, limited to four days' hearing.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.