Martech International Pty Ltd v Energy World Corporation Ltd

[2006] FCA 1004

FEDERAL COURT OF AUSTRALIA

Martech International Pty Ltd v Energy World Corporation Limited [2006] FCA 1004

CONTRACT – variation – termination – interpretation – managing director of company – service contract with his private company – annual fee payable – company in financial difficulty – unilateral temporary reduction in fee by managing director – whether variation of service contract – entitlement to recover shortfall – change in status of managing director to executive director – change of duties – whether service contract terminated – whether termination fee payable – implied term – reasonable duty of care – whether breach by managing director authorising payment by company on advice from senior officer where company not liable to make payment

CORPORATIONS  - directors – duties – statutory duty – common law duty – fiduciary duty – reasonable care and due diligence – reasonable reliance on advice of officer – no breach of duty

TRADE PRACTICES  - misleading or deceptive conduct – representation of intention to enter into service contract – alleged representations by silence – no representations made – no misleading or deceptive conduct – managing director of company authorising payment by company on erroneous belief – whether constitutes misleading or deceptive conduct by managing director’s private company to the company of which he is managing director – no misleading or deceptive conduct

WORDS AND PHRASES  ‘terminate’ – ‘termination’

Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth) s 51A
Trade Practices Act 1974 (Cth)

Foakes v Beer [1884] 9 App Case 605 cited
Vanbergen v St Edmunds Properties Ltd (1933) 2 KB 223 cited
Australia & New Zealand Banking Group Ltd (ACN 005 357 522) v Ringrong Pty Ltd (ACN 005 496 855) [1995] FCA 722 cited
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 cited
Brambles Nationwide Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 cited
Nationwide Produce Holdings Pty Ltd v Linknarf Limited (2005) Aust Contract Reports 90-424 cited
Vroon BV v Fosters Brewing Group Ltd (1994) 2 VR 32 cited
British and Beningtons, Limited v North Western Cachar Tea Co Ltd [19232] AC 48 cited
Morris v Baron & Co [1918] AC 1 cited
Williams v Moss Empires [1915] 3 KB 242 cited
United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340 cited
Tallerman & Co Pty ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 cited
Dan v Barclays Australia Ltd (1983) 46 ALR 437 cited
Permanent Building Society (In Liquidation) v Wheeler (1993) 10 WAR 109 cited
Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 cited
Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 cited
Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 cited
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 cited
Bridge v Campbell Discount Co Ltd [1962] AC 600 cited
R v Social Services Secretary, Ex parte Khan [1973] 1 WLR 189 cited
Paal Wilson & Co v Partenreederei Hannah Blumenthal [1983] 1 AC 854 cited
Re HIH Insurance Limited (In Prov Liq); Australian Securities Commission v Adler and Others (2002) 41 ACSR 72 cited
Darvall v North Sydney Brick and Tile Co Ltd (1989) 16 NSWLR 260 cited

Carter on Contracts (Butterworths, 2002)

MARTECH INTERNATIONAL LTD ACN 009 022 799 v ENERGY WORLD CORPORATION LIMITED ACN 009 124 994
WAD 65 OF 2004

FRENCH J
3 AUGUST 2006
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 65 OF 2004

BETWEEN:

MARTECH INTERNATIONAL PTY LTD
ACN 009 022 799
Applicant

AND:

ENERGY WORLD CORPORATION LIMITED
ACN 009 124 994
Respondent

ENERGY WORLD CORPORATION LIMITED
ACN 009 124 994
First Cross-claimant

AUSTRALIAN ENERGY EQUITY PTY LTD
Second Cross-claimant

MARTECH INTERNATIONAL PTY LTD
ACN 009 022 799
First Cross-respondent

FLETCHER MAURICE BRAND
Second Cross-respondent

JUDGE:

FRENCH J

DATE OF ORDER:

3 AUGUST 2006

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.The applicant has judgment against the respondent in the sum of $71,663.65.

2.The application is otherwise dismissed.

3.The parties to file written submissions as to pre-judgment interest and costs within 14 days.

4.The cross-claim is dismissed.

5.The cross-claimants are to pay the cross-respondents’ costs of the cross-claim to be taxed, if not agreed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 65  OF 2004

BETWEEN:

MARTECH INTERNATIONAL PTY LTD
ACN 009 022 799
Applicant

AND:

ENERGY WORLD CORPORATION LIMITED
ACN 009 124 994
Respondent

ENERGY WORLD CORPORATION LIMITED
ACN 009 124 994
First Cross-claimant

AUSTRALIAN ENERGY EQUITY PTY LTD
Second Cross-claimant

MARTECH INTERNATIONAL PTY LTD
ACN 009 022 799
First Cross-respondent

FLETCHER MAURICE BRAND
Second Cross-respondent

JUDGE:	FRENCH J
DATE:	3 AUGUST 2006
PLACE:	PERTH

REASONS FOR JUDGMENT

Introduction

1. In 1985 Mr Fletcher Brand set up a company now known as Energy World Corporation Ltd (Energy).  He came from a marketing background but wanted to promote the use of natural gas in the transport sector.  From the outset Mr Brand was the managing director of the company and provided his services in that capacity under successive agreements made between Energy and his private company, Martech International Pty Ltd (Martech). 

2. Energy grew to become a substantial public company with interests in gas and power projects in Australia and overseas, including Indonesia and India.  In 1999 however, it  experienced financial difficulties.  Its share price dropped and its principal financier the Commonwealth Bank of Australia (CBA) advised that it was not prepared to refinance or renegotiate a $115 million facility which it had provided.

3. Energy explored various options including asset sales.  In the end a new investor came to its rescue in the form of Energy World International Ltd (EWI), whose principal was Mr Stuart Elliott.  As an aspect of the restructuring that followed EWI’s involvement, Mr Elliott replaced Mr Brand as managing director and Mr Brand became an executive director of the company.  Ultimately, he resigned from the company in November 2001. 

4. The parting of the ways between Mr Brand and Energy has given rise to the present litigation.  Mr Brand’s company, Martech, has made a variety of claims against Energy.  One of the claims is for a shortfall of fees following its unilateral, but temporary, reduction in the fees paid under the service contract for the period from 1 March 2000 to 30 September 2000.  That shortfall is claimed at $71,663.65.  Martech also claims a substantial Termination Payment in excess of $800,000 which it says is due under the contract by reason of the change in Mr Brand’s status from managing director to executive director and the change in his duties.  Claims for damages for misleading or deceptive conduct are also made.

5. For the reasons that follow, I consider that Martech is entitled to the shortfall in agreed fees for the period 1 March 2000 to 30 September 2000.  I do not consider that there is any entitlement to a Termination Payment.  Nor do I consider that any of the other causes of action brought by Martech have been made out. 

6. Energy and its subsidiary, Australian Energy Equity Ltd (AEE) cross-claim against Martech and Mr Brand arising out of a payment made in respect of a power station development in India.  This development is known as the Vypeen Combined Cycle Power Project (the Vypeen Project).  It is said that, in 1999, Mr Brand authorised a milestone payment in connection with the development of the Vypeen Project when the contractual condition of a Sale and Purchase Agreement, under which that payment had to be made, had not been satisfied.  The relevant condition was that approvals had been obtained from the Indian Government for the importation of condensate fuel for use as an interim fuel in the proposed power station.  A clearance given by one Ministry was later contradicted by another.  It is alleged that Mr Brand failed in his duty to Energy and AEE by authorising the payment without taking reasonable care or exercising due diligence to ensure that it was due.

7. In my opinion because of Mr Brand’s reasonable reliance on the judgment of a senior officer of Energy and the circumstances surrounding the payment, I am satisfied that he did not fail in his duty and the cross-claim against him and Martech in that respect should be dismissed.  

   Energy World and Martech in 1999 - Background

8. Energy was incorporated in March 1985 and listed on the Australian Stock Exchange (ASX) in December 1989.  Fletcher Maurice Brand has been a shareholder of Energy since its incorporation and its Managing Director from that time until 29 September 2000.  His services as Managing Director were provided under consecutive agreements entered into between his private company, Martech and Energy.  One such  an agreement was made on or about 28 May 1999 (the Agreement). It provided that Mr Brand was to act as Energy’s managing director for the period 1 July 1999 to 30 June 2003.  Martech was to be paid a fee of $500,000 per annum, reviewable on 1 July in each year of its term and to be increased by at least the annual percentage increase in the CPI on each such occasion.  Under Energy’s Constitution, adopted in 1998, Mr Brand as managing director was not required to retire on a rotational basis as were other directors of Energy.  The services of most of Energy’s senior staff were provided under consultancy agreements made with companies controlled by those staff members.  In 1998 all of these agreements contained provision for termination payments calculated according to the length of service and payable if termination occurred other than by resignation or for cause. 

9. In October 1997 Energy negotiated a two year facility with the CBA for a maximum advance of about $115 million.  Monies advanced under the facility were to be repaid or rolled over for a ten year period in January 2000.  However towards the end of 1999 the CBA advised Energy that it was not prepared to refinance or renegotiate the facility.  It wanted the money repaid.  At that time Energy’s share price had declined.  It had reached a peak of about $1.60 in the middle of 1998 and had declined to between 30 and 35 cents in the second half of 1999.   The shares continued to decline through 2000.

   Energy Board meeting - 3 February 2000

10. At a meeting of the Energy Board on 3 February 2000 Mr Brand reported that the CBA facility had been extended to 29 February 2000.  The CBA had refused to commit to a longer term.  It would not agree to any extension until after the settlement of the sale of one of the company’s projects known as Basin Bridge.  This stance created a significant liquidity problem for Energy.  The Board of Directors canvassed its options including refinancing, asset sales and reduction of overheads. It also considered seeking an injection of capital from a third party. 

11. Present at the Board meeting was Stuart Elliott, the managing director of an unrelated company, EWI.  He was a non-executive director of Energy.   Also present, by invitation, was Mr Ian Jordan an Executive Director of EWI.  He had been appointed to the Board of Energy on 29 November 1999 as an alternate director to Mr Elliott. 

12. There was discussion at the meeting about a possible capital injection by EWI, which had previously been under consideration.  EWI had commissioned a due diligence report by Poynton Corporation which it had received in draft on 21 January 2000.   Mr Elliott said that EWI had confidence in Energy’s asset base and that the company had a lot of potential.  His group was prepared to put in $10 to $15 million through a funding arrangement and to underwrite a rights issue.    However, he wanted to see a change in Energy’s management.  It suffered from a negative market perception which he estimated was worth at least 10 cents per share.  He expected EWI would be a bigger shareholder in the future.  It had already invested substantially in Energy and was concerned about management performance, particularly because of the size of write-offs made in September 1999 for the year ended 30 June 1999.  Mr Elliott also queried the level of overheads at the corporate office and was told by Mr Brand that staff levels had dropped by 20 over the preceding 12 months.

13. The minutes of the meeting record that the EWI proposal was discussed in the absence of Messrs Ellliott and Jordan.  They rejoined the meeting after that discussion and were informed of the status of the CBA facility.  Mr Elliott said that EWI could make $5 million available with $10 million as a standby facility.  However in return he would need ‘some management autonomy’.  The Chairman of the Board, Ronald Punch, said it was important that Mr Elliott complete his proposal so that it would be clear to the Board what he was preparing to do and how he saw his future management role.  Mr Elliott said that initially he would expect to put in some financial and/or technical personnel.  He expected the Board to decide on the role of EWI appointees and the persons to whom they would report.  The Board resolved that Mr Punch, Mr Brand, Mr Hayes, the executive director finance, and Mr Elliott meet with the CBA to discuss the debt reduction program.  Mr Elliott also asked that his representative from Poynton Corporate attend.

14. Mr Brand said, in evidence, that he told the Board that there had been a large reduction in staff over the previous months and that he had asked Energy’s consultants to take temporary reductions in their fees pending the sale of the Basin Bridge project and other assets.  They had agreed and the reductions would take effect from 1 March 2000.  Mr Brand said he also told the Board that he would reduce his fees temporarily from $500,000 per annum to $300,000 per annum.  Mr Bill Hornaday, who was chief operating officer, had agreed to reduce his fee to $200,000.  The Chairman Mr Punch, said in effect that the proposed reductions were appreciated.   Mr Brand was not cross-examined on that evidence.

15. Mr Brand’s evidence was that the arrangements made with Energy’s consultants, other than Mr Hornaday, contemplated that their arrears of fees would be paid up when assets were sold.  These arrangements covered Messrs Bridgewood, Trigalvcanin and Lindsay.  The arrangement he made with Mr Hornaday was similar to his own, namely that the reduction would be temporary and arrears would be paid in options and bonuses.   

16. Mr Punch said in his evidence-in-chief that he did not recall Mr Brand making a statement about his fees at the Board meeting.  He said it was unlikely that he personally would have thanked him for the reduction in his fees although why that would be so is not apparent.  There is no record of Mr Brand’s statement in the minutes of the meeting.  Mr Punch accepted in cross-examination that he had no memory of what was said at the meeting other than what appeared in its minutes.  He said:

    ‘I have no direct recollection of it.  It may well have been stated, but I have no recollection of it.’

    However, in a letter of 12 March 2000 to Mr Elliott, referred to later in these reasons, Mr Punch acknowledged that Mr Brand had already effected a reduction in his drawings to $300,000 per annum from between February 2000 and 30 June 2001.

17. Mr Elliott and Mr Jordan both denied that Mr Brand had made, in their presence, the statements he claimed to have made at the meeting.  In cross-examination Mr Elliott agreed that he was aware at the time that Mr Brand and other staff members had consultancy agreements with Energy.Neither he nor Mr Jordan was cross-examined on their evidence that Mr Brand had not informed the Board in their presence of temporary salary reductions.  Given the importance accorded, in the statement of claim, to the meeting of 3 February 2000, this is surprising.  On the other hand, it was not in dispute that Messrs Elliott and Jordan were absent for part of the meeting while EWI’s proposal was discussed.

18. In Martech’s statement of claim it is alleged that the board of Energy orally requested Martech (for which read Brand) in or about January 2000 that it forebear from claiming the entirety of the fee to which it was entitled under the Agreement of May 1999.  It is then alleged that at the meeting of Energy’s Board on 3 February 2000, Mr Brand proposed that  Martech would forebear for the time being from claiming the entirety of the fee,  would only claim $300,000 per annum, and that Energy would compensate Martech for the loss of part of the fee in a manner which would be agreed between them.  It is further contended in the statement of claim, that at that meeting the members of Energy’s Board orally represented to Martech that Energy was grateful for Martech’s forbearance and that Energy would provide compensation in a manner which it would negotiate and agree with Martech. 

19. Reference to the minutes of the Board meeting held on 3 February 2000 indicates that meetings of the Board had been held on 4 and 20 January 2000.  Neither of those minutes was in evidence.  There was no reference in the minutes of the meeting held on 3 February 2000 to the proposal which it is alleged that Mr Brand made at that meeting.  Nor was there any reference to the members of the Board responding to any such proposal.  However it is not in dispute that from 1 March 2000 to 29 September 2000 Martech was paid at the reduced rate of $300,000 per annum. 

20. In my opinion, Mr Brand probably told the Board of the reduction in his fees and that of other consultants at the February meeting.  It was a prudent and politic response to the parlous financial circumstances of the company. His evidence and Mr Punch’s letter of 12 March 2000 support that finding.  I am satisfied also that he said his fees were being reduced temporarily.  That would have been consistent with a hope that the financial difficulties would be resolved.  That does not imply, and the evidence does not support a finding, that Mr Brand proposed, or that the Board agreed, that he would be compensated for the shortfall in due course.  Had such an agreement been reached at the meeting in February 2000 it would in all probability have been recorded or at least referred to in the minutes. It was not.  I do not, in so finding, exclude the possibility that Mr Brand hoped or expected that the reduction in his remuneration could be compensated under some agreement which could be negotiated when the company’s financial situation had stabilised. 

    Energy Board meeting – 12 March 2000

21. The EWI proposal was advanced at a meeting of the Board held on 12 March 2000.  Mr Punch advised that he had signed an exclusivity agreement between Energy and EWI up to 15 March 2000 as EWI was incurring third party costs in preparation of proposals to the CBA.  He had forwarded a letter to the CBA with a copy of the EWI proposal for the provision of a sub-debt of $15 million.  He had informed the CBA that while some procedural and statutory matters were being addressed, the principle of the proposed funding arrangements offered by EWI had been endorsed by the Energy Board.  The Board ratified the letter to the CBA.  This may be taken as an acceptance in principle by the Board of the EWI proposal.

22. It also emerged at the meeting of 12 March that, in the course of carrying out due diligence inquiries for EWI, Poynton Partners had reported that cl 3.2 in Mr Brand’s Agreement of 28 May 1999 was in breach of cl 10.18 of the ASX Listing Rules.  Clause 3.2 provided, in effect, that Martech or Energy could terminate the Agreement in the event that one party or a group of associated parties acquired 25% or more of the issued capital of the company and so altered the composition of the Board that the majority of directors would be nominated or appointed by that controlling party.  Mr Elliott had received the Poynton Partners’ report and passed it on to Messrs Punch and Brand.

    Deed of Variation of Martech Agreement – 13 March 2000

1. The day following the Board meeting of 12 March Martech and Energy executed a Deed of Variation of the Agreement of 28 May 1999.  The Deed of Variation amended the Agreement with effect from 1 July 1999 by deletion of cl 3.2 and the consequential deletion of a reference to that clause in cl 8.6. The deed was prepared by solicitors then acting for Mr Brand.  There was no reference in the deed to any change in remuneration arrangements. 

   Proposals for reorganisation of Energy and officer remuneration – 16 March 2000-July 2000

2. On 16 March 2000 Mr Brand wrote to Mr Elliott reconfirming Energy’s commitment to proceeding with the proposal which had been discussed over the preceding fortnight.  He said:

   ‘Please be assured that all Directors are comfortable and have committed to the process of a restructure so that the confidence and credibility of EEC can be restored.  We are appreciative of your efforts to assist in the process and I thank you for your support.’

   The letter concluded:

   ‘I will also provide separately the reductions in costs that have taken place following my commitment to you in early February to do so.  I understand that you are comfortable with the reductions for Bill and I as working Directors as explained this afternoon.’

   There was no reference to any subsequent ‘catch-up’ compensation.

3. In a letter sent to Mr Elliott on 17 March 2000, Mr Punch wrote about the need for reorganisation and restructuring of the Board and the management of Energy.  He said that this was recognised and acknowledged by directors as an integral part of the new way forward to restore confidence and credibility for Energy.  The letter went on:

   ‘Accordingly, this letter is to inform you of the commitment of all Directors in the context of assisting with and supporting the EWI proposal, with the exception of Dr Suparno, to resign from their respective Board positions at the appropriate time.’

   He was prepared to stand aside from his position as Chairman and to discuss a timetable for doing so.  He referred to the need for discussions with Mr Bill Hornaday regarding his on-going role.  He noted that Mr Hornaday had agreed to take a reduction in his drawings from $300,000 to $200,000 per annum which was put into effect during February 2000 and would continue until 30 June 2001. 

4. In relation to Mr Brand, Mr Punch wrote:

   ‘While clearly understanding the requirement for Maurice’s position to be re-defined to ensure the expedient implementation of the EWI proposal, the Board believes that he has a positive role in assisting with its implementation.  Maurice has suggested the position of Chief Executive Officer (with or without a Board seat), but has no difficulties with any other appropriate title.’

   He said that it would be appropriate for Mr Brand to continue coordinating various activities of the company and to report to him weekly so that change would be implemented smoothly.  He proposed that Mr Brand continue to manage the West Kimberly LNG and Power Project which was at a critical stage in government processes.  Mr Punch wrote:

   ‘You should also be aware that Maurice has already triggered a reduction in his drawings from $500,000 to $300,000 per annum in February until 30 June 2001.  An amendment to his Contract has been instigated.

   If these arrangements are unacceptable then Maurice has advised that he has no problem in discussing a commercial settlement to have his contract terminated at the appropriate time.’

   There was no reference to any foreshadowed adjustment to compensate for the reduction in Mr Brand’s drawings.

5. In his written statement Mr Elliott said that he understood from Mr Punch’s letter that Mr Brand had agreed to reduce his salary.  Neither Mr Punch nor Mr Brand, while engaged by Energy, ever told him verbally or otherwise that the reduction in salary was not permanent or that there would be any arrears due by reason of the reduction.  Mr Brand was not cross-examined on this question.  As I have earlier indicated, I am satisfied that Mr Brand did say that the reduction was temporary.  I am not satisfied that he made any statement in February or March about claiming back arrears of his fees. 

6. On 23 March 2000 Mr Brand sent a memorandum to Mr Mark Lindsay, who was then the company secretary for Energy.  The memorandum was headed ‘Cash Cost Reductions’.  It referred to changes in directors’ annual fees and then continued:

   ‘Please note the new annual rates for the following people, effective 1 March 2000.

   Maurice Brand          $300,000
   Bill Hornaday            $200,000
   Paul Bridgwood         $150,000
   Mark Lindsay             $120,000
   Garry Triglavcanin     $120,000’

   Mr Hayes’ rate was to remain unchanged pending his departure at Easter time.  In his witness statement Mr Brand said that the memorandum referred to cash payment reductions which he had agreed with Energy’s consultants, including, Mr Hornaday, Mr Bridgwood and Mr Lindsay.  The purpose of the memorandum was to provide Mr Lindsay with information for the preparation of weekly and monthly cash flows.

7. Mr Lindsay’s evidence was that he provided his services to Energy through his private company, Bracton Pty Ltd (Bracton).  Because of Energy’s cash flow problems he was asked by Mr Brand in February 2000 to temporarily forbear from charging the full fees which Bracton would otherwise be entitled to under its consultancy agreement.  Mr Brand told him in effect that Energy was proposing to undertake a capital raising.  When that was completed he expected that sufficient funds would be available to make good the arrears in the consultancy fees.  Mr Lindsay agreed to the forbearance on this basis.  He recalled the fee reduction being raised by Mr Brand at at least one directors’ meeting at which he was present.  He was not cross-examined on his statement and I accept its accuracy.

8. On 4 April 2000 Mr Punch again wrote to Mr Elliott raising topics which he thought should be discussed relevant to the content of an Explanatory Memorandum for the shareholders’ meeting necessary to approve the proposed restructure.  He asked Mr Elliott to let him have his thoughts on changes to the Board, which he would like to have approved by the shareholders.  He referred to changes to Energy’s management structure which had been generally canvassed in various discussions and would also have to be outlined in the Memorandum.  He said:

   ‘In this regard Maurice will draw up a revised staff schedule and management structure including job descriptions which can then be discussed at the earliest suitable opportunity.’

   Consistent with those changes and the putting in place of the new way forward for Energy would be the implementation of a revised Option Incentive Plan for Directors and senior management.  Mr Elliott recalled, in his evidence-in-chief, receiving the letter.  He understood at the time that Energy was taking steps to restructure its management and to reduce costs  including consultants’ fees. 

9. Energy submitted in closing that Mr Brand, fully understanding the company’s financial difficulties, unilaterally proposed the reduction of his own fee without any qualification or limitation.   Martech rendered monthly invoices for its services.  Invoices for the period July 1999 to November 2001 were tendered through Mr Jordan.  None made any provision for deferment of payment of any amount.  All claimed payments at the reduced rates applicable, according to Mr Brand’s case, in that period. Mr Jordan, who became an executive director of Energy in September 2000 said that Mr Brand never told him or otherwise indicated to him that he was merely forbearing to claim his full fee entitlement rather than taking a reduction in the fee payable to him.  

10. By early July 2000 the sale of the Basin Bridge project and other assets had not occurred.  Mr Brand spoke to Mr Punch shortly before 10 July 2000.  He told Mr Punch, in effect, that as the sale of Basin Bridge and other assets was not proceeding he would be prepared to waive Martech’s outstanding fees (the arrears of payments since March 2000) on the basis of a new structure.  He told Mr Punch that he proposed, in general terms, the payment of arrears in the form of options and/or bonuses which would reduce demands on Energy’s cash flow.  On the other hand it would ensure that Martech continued to receive the agreed return for his services to ensure that he was not disadvantaged.  He said in his evidence that the proposal he made was never negotiated and never proceeded any further.  He told Mr Punch, in effect, that he was prepared to continue with the reduction in his cash payments until 30 June 2001. Mr Brand’s evidence to this effect was neither challenged in cross-examination nor contradicted by other evidence. Rather Energy’s position in closing argument was that what Mr Brand did was not by way of temporary forbearance.  The reduction in fees, it was submitted, was necessary because of the dire financial situation of Energy which Mr Brand understood intimately.   

11. Mr Brand also said that in June or July 2000 he spoke with the consultants who had temporarily waived part of their fees.  He asked them to continue to do so.  He said that as Energy had entered into a convertible note facility with EWI, which was to be put to shareholders at the AGM due to be held in late September or early October 2000, he expected that arrears would be paid once the funds from the facility were available.  He said that he asked the consultants to continue to forego part of their fees until the facility was in place when they would be paid.  They agreed to do so.

12. On 10 July 2000 Mr Brand sent to Mr Punch a memorandum on the subject of directors, management structure and contracts. The memorandum contained ‘information and suggestions’  for discussions between Mr Punch and EWI.  Mr Brand contemplated in the memorandum the probability that he would no longer be Managing Director following the EWI injection.  He said:

    ‘If I am no longer Managing Director but remain as a Director, then my appointment will also need to be submitted to the AGM and Suparno’s delayed until the 2001 AGM.’

    Under the heading ‘Executive Directors’ he wrote:

    ‘2.1     FM Brand
    My current contract is to 30 June 2003 with an annual fee of $500,000 (adjusted annually for CPI effective 1 July 1999); and can be terminated or not renewed by EEC under a pay out provision of, currently, 21 months as at 30 June 2000 after 24 months as at 30 June 2003.

    In view of the Company’s financial position, I agreed in February 2000 that from 1 March 2000, to decrease the amount per day to equivalent to $300,000 per annum. (sic) As a result, the drawings for 1999/2000 will be $479,000 (1998/99 $500,000) due to no leave being taken.  For 2000/2001 it will be $327,500, which includes a carry over of one month as at 30 June 2000.  I have previously conveyed to the Board this arrangement to 30 June 2001.  No document has been executed by EEC to reflect this position.  I was prepared to “waiver” the difference for the period to 30 June 2001 on the basis of a new structure.’

13. The memorandum foreshadowed that Stewart Elliott and Ian Jordan would both be acting in Energy’s management.  In a proposed structure which he attached to the memorandum Mr Brand said that because Messrs. Elliott and Jordan would be actively participating in other companies he had adopted for himself a dual role in relation to the company’s operation in Australia and what he called ‘Corporate’ on the basis that he would have a reduced workload in ‘the Corporate arena’.  He said:

    ‘This revised structure should be reflected in an amended contract for me for the existing contract period to 2003.’

    He also foreshadowed that following EWI approval of the structure, amended or new arrangements would need to be negotiated for all personnel.  He suggested a base package plus cash bonuses such as a success fee for new projects or for achieving operating results ahead of budget.

14. Mr Brand explained that the purpose of the memorandum was to brief Mr Punch who was travelling to Sydney to meet with Mr Elliott to discuss, among other things, the issues raised in the memorandum.  Mr Punch agreed that he had a meeting with Mr Elliott in Sydney sometime later in July 2000 and discussed the management structure for Energy.  However, he did not recall whether he gave Mr Elliott a copy of the memorandum.  Mr Punch was asked whether the matters contained in the memorandum were reflective of matters he had discussed with Mr Brand up until that time.  His answers to these questions were not particularly responsive.   He did say that he was not a party to discussions between Mr Brand and consultants engaged by Energy.

15. Mr Elliott said in his evidence-in-chief that he did not recall having seen the memorandum of 10 July 2000.  He said he might or might not have seen it.  He did think, however, that there had been discussion with Mr Punch about the agreement by certain of Energy’s consultants to take temporary reductions in their remuneration and that they ‘… expected to catch up their remuneration’ when ‘the convertible note to be provided by [EWI] was in place’.

16. Mr Brand sent a memorandum to Messrs. Elliott and Jordan on 27 July 2000 asking to discuss the management structure and reporting arrangements with them.  He attached a proposed Organisational Structure diagram.  He received no response to that memorandum.

    Brand replaced as Managing Director – 29 September 2000

17. It was Mr Brand’s evidence that in about mid-September 2000 he met with Messrs. Elliott and Jordan in Sydney.  In the course of that meeting Mr Elliott told him that he wanted him to cease as Managing Director of Energy for 12 months to negotiate the repayment of the CBA facility.  He also told Mr Brand that, in effect, he would be appointed an Executive Director with responsibilities to be determined from time to time.  Mr Brand said that he told Mr Elliott that he would cease as managing director on a basis to be agreed.  Mr Brand observed that by September 2000, Mr Elliott’s company, EWI, controlled Energy in the sense that it could ultimately remove directors by a shareholders’ resolution.  Mr Elliott therefore controlled the composition of the Board and he had no real alternative but to accept what Mr Elliott said about his future.   Mr Elliott, in his evidence-in-chief, flatly denied having had such a conversation with Mr Brand.  Mr Jordan denied that Mr Elliott had told Mr Brand, in his presence, that he wanted Mr Brand to cease to be managing director for 12 months..

18. The Sydney meeting was referred to by Mr Brand in a draft agenda for a Board meeting of 29 September 2000 which he prepared and sent to Mr Elliott on 28 September 2000.  In that draft agenda, which appeared in part to take the form of draft minutes, he included a proposed resolution in the following terms:

    ‘2.3     Board Appointments.

    Following discussions with EWI and pursuant to their proposal outlined under the Convertible Note, Stewart Elliott is to be appointed Managing Director/Chief Executive Officer and the current Managing Director is to be retained as an Executive Director.  Based on discussions with Mr Elliott, in Sydney, he has outlined a proposed organisational structure and a paper will be prepared by FM Brand and submitted to Mr Elliott for consideration by 6 October 2000.  Accordingly, it would be appropriate for the formal resolution as follows:

    2.3.1Mr SWG Elliott be appointed Managing Director/Chief Executive Officer with effect from 1 October 2000 and that the EEC Chairman negotiates a remuneration arrangement and refer it to the EEC Board for approval;

    2.3.2that the Chairman of EEC negotiates a revised consultancy arrangement with the existing Managing Director, Mr FM Brand, with effect from 1 October 2000, representing his position as an Executive Director and refer it to the EEC Board for approval;’

    The balance of the resolution dealt with the negotiation of revised arrangements with Mr Hornaday and the appointments of Mr Jordan and Mr Gordon Trayling as Executive Directors.

19. Mr Elliott was cross examined about this part of the draft agenda.  He was asked whether he told Mr Brand in Sydney at the meeting referred to in item 2.3 that he wanted him to cease to be managing director.  He initially described the change as part of ‘voluntary moves’ by the Chairman and Directors of Energy.  He had no ambition to become managing director of Energy but the CBA had requested it.  He denied, however, that he told Mr Brand that he would act as managing director in order to deal with the CBA.  It was Mr Brand and his fellow directors who offered to install him as managing director.

20. Notwithstanding the preceding testimony Mr  Elliott eventually agreed in cross-examination that he had told Mr Brand in Sydney that the CBA had asked him to become managing director and that if they were to have any chance of saving the company they would have to accede to the CBA’s request.  I accept therefore that, as Mr Brand said in his evidence, Mr Elliott effectively required him to relinquish his office as managing director and become an executive director instead.   Mr Elliott, in so doing, acted in his own capacity.  His conduct was not to be attributed to Energy.  His effective power came from EWI’s status as a major shareholder.   I find, moreover, that Mr Brand did not expressly assert any legal entitlement, on behalf of Martech, under which he could continue in that office.  He agreed to what Mr Elliott proposed because the financial circumstances of the company, the attitude of its major creditor and Mr Elliott’s control of a major shareholder, left him no practical alternative. 

21. Mr Elliott was asked in cross examination whether he was aware, by reference to item 2.3.2 of the agenda, that Mr Brand expected there to be a new consultancy agreement to reflect his change of status from managing director to executive director and the change in his remuneration.  Mr Elliott said he would have read the agenda but had no recollection of thinking that Mr Brand required a new consultancy agreement. 

22. At the meeting of the Board held on 29 September 2000 discussion about Board appointments took place.  Messrs. Elliott and Jordan retired during that discussion.  The minutes record that Mr Punch noted that EWI had had the carriage of discussions with the CBA.  Mr Brand observed that conditions precedent of proposed convertible notes included changes in management.  He had discussed the proposed changes with Mr Elliott and it was a requirement that he step aside on a basis to be agreed.

23. Mr Elliott was appointed Managing Director and Chief Executive Officer of the company at a meeting of the Board held on 29 September 2000. (X 7)  Mr Jordan was appointed as an Executive Director. It was also resolved that Mr Brand be appointed as an Executive Director.

24. Mr Punch reported that he had discussed the issue of an incentive scheme options plan with Mr Elliott and that the company should establish such a scheme at its next meeting.

25. Mr Brand said in his evidence-in-chief that up until 29 September 2000 he had, as managing director, full responsibility for all of Energy’s operations in Australia and overseas and its administration, financial and accounting functions.  Mr Lindsay, as Company Secretary and Financial Controller, reported to him as did Maurice Hayes.  Mr Brand also had overall responsibility for Energy’s Australian field operations at Barcoadine, Alice Springs, Eromanga and Gilmore.  Richard Rutherford had managerial responsibility for the Australian operations and reported to Mr Brand through Mr Brand’s fellow director, Bill Hornaday.  Mr Hornaday had direct responsibility for the company’s Indonesian operations and reported to Mr Brand on those.  Energy’s Indian operations were under a country manager, Mr Selvendra.  He reported to Paul Bridgwood, who in turn reported to Mr Brand.

    Mr Brand’s proposed reorganisation and redefinition of roles – 7 and 31 October 2000

1. On 7 October 2000 Mr Brand sent a further memorandum to Messrs Elliott and Jordan stating, inter alia, that they needed to tidy up the letters/arrangements/consents for their appointments and for his own position.  On the same day he sent them a memorandum setting out the proposed organisational structure and cost review.  His memorandum began:

   ‘Further to our ongoing discussions and request to reduce expenditure and to propose a new organisational structure, the following information is submitted.  Mark has assisted in this process and analysed the last two-year costs to assist in the evaluation.’

   He suggested that he was in a position to provide assistance to Richard Rutherford, who was giving management support for the Australian operations.  He proposed that Mr Rutherford report to him under the new organisational structure.  He reminded Mr Elliott that following his approval of Mr Hornaday’s basic arrangement it was essential that his current contract be amended which would reduce Energy’s outstanding liabilities in the event of termination.  He noted that the team allocated to the West Kimberley LNG and Power Projects included himself.  Towards the end of the memorandum he said:

   ‘Regarding my position, I would propose a further reduction from equivalent to $300,000 to $240,000 effective to 1 October 2000 with a waiver of any arrears.  I would like to participate in the Option Scheme and receive a bonus on Financial Close of the West Kimberley Project.  It is important that my contract be amended so that potential liability to EEC is eliminated.’

   The latter sentence appears to have been intended to refer to potential liability on the part of Energy to Martech.

2. Mr Brand said that the terms of his engagement as an executive director of Energy were never expressly agreed between Energy and Martech or himself.  From 29 September 2000 he ceased to discharge the duties of managing director and ceased to perform any of the duties set out in the schedule to the agreement of May 1999.  Martech rendered monthly invoices for his consultancy fees as an executive director and these were paid).  Mr Elliott, in his evidence-in-chief, said that there was no discussion of an agreement between Martech and Energy in his presence.

3. Mr Elliott agreed that he had received Mr Brand’s memorandum of 7 October but assumed that the matters set out in it would be implemented by Mr Brand.  The organisational chart attached to the memorandum was broadly consistent with his understanding of Mr Brand’s role following his own appointment as managing director.  The chart did not include Mr Jordan who, in effect, acted as Mr Elliott’s assistant at all times.

4. Mr Elliott said that he remained based in Hong Kong after 29 September 2000.  Mr Brand ran the Perth office and, according to Mr Elliott, ‘was responsible for the West Kimberley project as well as the Australian operations of [Energy]’.  The West Kimberley project involved a tender for the construction and operation of four power plants at Broome, Derby, Fitzroy Crossing and Halls Creek in the Kimberley region of Western Australia.

5. In cross-examination on the memorandum of 7 October, Mr Elliott seemed curiously reluctant to accept the obvious proposition that it embodied proposals directed to him.  Eventually he agreed that it did contain a proposal, inter alia, for a reduction in Mr Brand’s fees, participation in an option scheme and a bonus if the West Kimberley project reached a successful financial closure.  He also said that he was not aware of whether he did or did not respond to the memorandum.  No options were ever allotted to Mr Brand.  He did say that he had offered Mr Brand a bonus if the West Kimberley project reached financial closure, but could not recall when.  No such offer was put in writing. 

6. I am satisfied that Mr Elliott did not respond to Mr Brand’s proposals of 7 October 2000 and offered him neither participation in an option scheme nor, in any formal way, a bonus payable in respect of the West Kimberley project.  I do not exclude the possibility that a bonus was raised in discussion but am satisfied that it never reached any sort of resolution.  In any event, because of the fate of the West Kimberley Project, no bonus would have become payable.

7. Mr Brand sent a further memorandum to Mr Elliott on 31 October 2000 concerning the organisational structure of Energy, a cost review and a budget.  He began by noting that he had been unable to discuss his memorandum of 7 October 2000 and attachments with Mr Elliott during the week of 9 October.  He advised that nevertheless he had been implementing cash reductions as set out in the memorandum and documents.  He listed these and included the following item:

   ‘Reduced M Brand’s drawings (as per 7 October memo) by a further $5,000 per month plus tax equals $5,300.00.’

   In item 16 of his memorandum he said:

   ‘During December 2000, it is recommended that, subject to Shareholder approval of the Employee Option Plan on 29 November 2000, that revised arrangements be negotiated with all personnel who have taken reductions/deferrals to eliminate any contingent liabilities for EEC.’

8. Again Mr Elliott did not respond to the memorandum of 31 October.  He said in cross-examination:

   ‘I always saw Maurice as a very senior gentleman.  He’d run the company, he had all the capabilities to run and administer and put these things in place.  No one was stopping him from doing that.  We look to Mr Brand to take care of the Australian office and the operations here and to see that these things were in place and he was very familiar with all the staff and what had happened.’

   His non-responsiveness to Mr Brand’s memoranda is difficult to understand.  It suggests a degree of detachment from the affairs of the company for which he was managing director.  It may be that he was reliant largely upon Mr Jordan in relation to the affairs of Energy.

9. Mr Elliott’s testimony conflicted significantly with the position taken by Energy in other litigation in the Federal Court between Energy and Maurice Hayes, another consultant employed by Energy.  Mr Hayes sued Energy for termination payments and claims for arrears of salary due following voluntary reductions.  The company’s defence in that case depended, in part, upon the proposition that Mr Brand did not have authority to negotiate with Mr Hayes the conditions upon which he based his claim. Pressed with this inconsistency, Mr Elliott suggested that Mr Brand was free to make arrangements and organise the staff in Perth but would have to put such arrangements to the Board.  Whether such proposals were accepted by the other Directors was ‘… obviously a part of the administration that we had put in place to control costs’.  His responses did not resolve the apparent inconsistency between his testimony about his attitude to Mr Brand’s authority and the position taken by the company in the litigation with Mr Hayes.

10. Mr Brand said that although he received no response from Mr Elliott to his memorandum of 7 October 2000 some of the changes he recommended seemed to ‘evolve’.   A number of those changes, which he listed, were a natural consequence of his replacement as managing director by Mr Elliott.  Messrs. Lindsay and Hayes reported to Mr Elliott on financial, administrative and accounting matters.  Mr Brand’s responsibilities, which had previously covered all of Energy’s Australian operations and its Indonesian and Indian operations, contracted to direct second tier responsibility for the proposed West Kimberley joint venture project and some smaller Western Australian development projects.  In respect of these, he reported to Mr Elliott.

11. From shortly after September 2000 Energy’s Australian operations staff, other than those involved with the West Kimberley project, reported to Mr Jordan.  The gas venture staff reported to Mr Hornaday, who now reported to Mr Elliott.  Energy’s ‘power and development executives’ left the company in February 2001 and were not replaced.  Energy had no construction activities although some of its construction staff moved into the West Kimberley project and the power project development team. 

12. As Mr Brand saw the position generally he had, prior to September 2000, been responsible for about 80 people including operational staff at the company’s gas and power project in India and the company and group’s entire operation.  By February 2001 his responsibility had shrunk to five staff and all consultants who assisted with the development of the West Kimberley project.  By that time he was reporting to Mr Elliott.

13. While this was undoubtedly a matter of regret for Mr Brand it hardly gave him cause for complaint.  The reduction in his responsibility was a consequence of his necessary replacement as managing director by Mr Elliott.  That in turn was a consequence of Mr Elliott’s financial commitment to the company which was necessary for its survival.  I accept that his substitution as Chief Executive of the company was also necessary to give it credibility with its principal financier, the CBA.

    Brand agrees to reduce fees to $180,000 – October/November 2000

14. Mr Brand said in his evidence-in-chief that in late October or early November he met with Mr Jordan in Perth.  Mr Jordan told him that Mr Elliott wanted Martech and other consultants to further reduce their fees.  He agreed at a further meeting with Mr Jordan a day or two later that Martech would reduce its annual fee to $180,000 from 1 January 2001 in order to assist Energy with cashflow.  Mr Jordan said in his evidence that he recalled the conversation with Mr Brand but not precisely when it had occurred.

15. On 3 November 2000 Mr Brand sent a short letter to the Directors of Energy in the following terms:

    ‘Further to the recent request for reductions in consulting fees to assist the Company’s cashflow position, Martech International Pty Ltd has agreed to reduce its consulting fee from $240,000 to $180,000 per annum, effective 1 January 2001.

    All other terms and conditions of the Consultancy Agreement between Martech International Pty Ltd and Energy Equity Corporation Ltd remain in force for the remaining period of the Contract.’

16. At the annual general meeting of the company held on 29 November 2000 a shareholder asked what was being done about the ‘unacceptable levels of remuneration to directors and senior management’.  Mr Punch, who was in the chair at the meeting, replied that substantial adjustments to Management Remuneration had already been made.  Messrs. Elliott, Jordan, Trayling, Brand, Adijanto and Punch were all re-elected as directors.  The meeting also resolved to authorise the company to grant Convertible Notes, Shares and Options to Martech up to $100,000.

    Further consideration of organisation and remuneration – January-September 2001

17. Martech rendered to Energy an invoice for the services it had provided in January 2001.  According to Mr Brand, that invoice had not been paid by late February 2001.  However, on 30 January 2001 Mr Lindsay had a discussion with Mr Elliott about the payment of consultants generally.  He sent a fax to him on the same day following that discussion.  In it he asked Mr Elliott to review a list of staff and to provide approval for their fees.  The list included Mr Brand and Martech.  It set out his commencement date with Energy as 1992 and his current contract as commencing on 1 January 1999 and expiring on 30 June 2003.

18. On 9 February 2001 Mr Brand wrote to Mr Elliott setting out a summary of staff consulting arrangements.  In respect of each of Mark Lindsay, Maurice Hayes and Bill Hornaday he reported their agreement to reductions in their fees ‘pending discussions on future arrangements’.  In respect of operations staff, Richard Rutherford and Gelber Taco, he reported the extension of their base salaries ‘… pending discussion on future arrangements’.  In respect of his own position he said simply:

    ‘I would like to discuss my position’.

    In cross-examination Mr Elliott said that he understood the reductions referred to in the letter of 9 February 2001 would be permanent.  He had said that to Mr Brand but did not recall exactly when.  His view was that permanent cuts would form part of the ‘go forward plan’. The evidence does not, in my opinion, establish that any statement was made by Mr Brand on his own behalf or that of other consultants reserving their rights to claim catch-up payments at some later time.  Nor does it support any implication to that effect which, objectively speaking, should have been appreciated by Mr Elliott.

19. Mr Brand said in evidence-in-chief that on or about 23 February 2001 he had a meeting with Mr Elliott.  He thought Mr Jordan was also present.  Mr Elliott wanted the  consultants to become employees of the company.  He also said that the company should not be paying GST on invoices rendered by consultants.  Mr Brand replied that Energy had sufficient input credits to be able to claim back GST paid in any event.  Mr Elliott, however, maintained his position that GST would not be paid.  While Mr Brand said he was prepared to become an employee of Energy he wanted existing arrangements to continue until the Agreement expired on 30 June 2003.  He said that he would consider the basis upon which he might be prepared to become an employee of Energy and would provide Mr Elliott with details.  Mr Elliott recalled saying, at around that time, that he did not believe Energy was obliged to pay GST in addition to the remuneration specified in the various consultancy agreements.  He denied that Mr Brand said that he was prepared to become an employee of Energy but wanted existing arrangements to continue until 30 June 2003.  I accept Mr Brand’s account of this conversation as it was consistent with the terms of the letter that followed on 23 February 2001.  This does not involve any finding about the legal status of Martech’s Agreement at this time.

20. Mr Brand wrote to Mr Elliott on 23 February 2001 under the heading ‘Remuneration Arrangements’ and submitted points for his consideration expressed as follows:

    ‘1.Responsible to the Managing Director/Chief Executive Officer.

    2.Executive Director responsibilities as nominated by the Managing Director.

    3.That the existing Consultancy Agreement be amended to an annual fee of $180,000 inclusive of GST effective 1 January 2001 to its termination date of 30 June 2003, at which time any future employment would be on an employment basis as governed by the Energy Equity Corporation Ltd policy for employees.  If acceptable, the existing January 2001 invoice will be cancelled and reissued on this basis.

    4.That the termination provision with the existing Consulting Agreement be cancelled and that the date of service for termination be effective 1 January 2001 on the basis of one month for each year or part thereof to 30 June 2003.  Thereafter, the provisions of the employee company policy apply with the effective date of 1 January 2001. 

    2.(sic)Subject to shareholder approval, that I can participate in the Company’s Option Scheme.’

    The letter concluded with the statement:

    ‘It is my sincere desire to be part of the team instrumental in the successful restoration of value for EEC Shareholders.’

21. Mr Jordan responded on behalf of Energy in a letter dated 5 March 2001.  He said:

    ‘I confirm our acceptance of your offer of termination of the Consultancy Agreement, and our intention to offer you employment with the company.’

    He said that the terms and conditions of employment would be conveyed to Mr Brand in the near future for his consideration and acceptance.  In the meantime payment was made ‘“without prejudice”, on account’.

22. Mr Brand denied that he had, at any time in 2001, offered to terminate the Agreement between Energy and Martech.   After 5 March 2001 Energy continued to pay the consultancy fee monthly and Martech continued to invoice it.  He did not receive a reply to his letter of 23 February 2001 either orally or in writing.  That aspect of his evidence was not disputed.  Neither Mr Elliott nor Mr Jordan referred in their evidence-in-chief to the letter of 5 March 2001.  In cross-examination Mr Elliott could not remember whether he did or did not respond to the letter of 23 February 2001. 

23. Mr Brand said that throughout 2001 he felt increasingly excluded from the decision-making processes at Energy.  The Board did not pay a significant role in its management.  No budget was presented for 2000-2001.  There were no monthly management accounts and reports presented after December 2000.  He said executive decisions were made by Mr Elliott and implemented by Mr Jordan.  He himself was based in Perth and most executive decisions were made in Sydney without his involvement or the involvement of the Energy Board.  Decisions in relation to strategic directions and funding plans were made largely without any consultation with him.  This view of the company’s operations in 2001 was denied by Mr Elliott who said in his evidence-in-chief that no important decisions were taken or implemented without Board approval.  In cross-examination Mr Elliott initially said that after September 2000 Mr Jordan was responsible for ‘part of the management’ in Perth with Mr Brand.  He denied that Mr Jordan had day-to-day control.  Pressed with evidence he had given in other proceedings involving Mr Hayes, Mr Elliott agreed that he had designated Mr Jordan to take day-to-day control in Perth.  He accepted the proposition that Mr Brand did not run the Perth office and then said that Mr Brand and Mr Jordan had worked out between them what parts they were each running.

24. In my opinion the reality throughout 2001 was that real authority in the Perth office had shifted from Mr Brand to Mr Jordan.  Mr Jordan had, in effect, a direct line to the new Managing Director.  The marginalising of Mr Brand is corroborated by Mr Elliott’s failure to respond to his memoranda.  I accept Mr Brand’s evidence about his effective exclusion from decision-making processes in Energy in 2001. 

    Rotation of Directors – Proposal September 2001

25. On 25 September 2001 Mr Brand sent a memorandum to Mr Elliott pointing out that all the directors apart from Brian Allen had been elected by shareholders at the annual general meeting in 2000. As managing director, Mr Elliott would not be required to submit himself for re-election. However under cl 53 of the company’s Constitution, two of the other six directors would be up for re-election in that year, 2001, two in 2002 and two in 2003. It was therefore necessary for the directors to decide who would rotate. In order to expedite the process he had asked the company’s auditors, Ernst & Young, to draw lots for the names of the directors to determine who would come up for re-election in the three successive years. The results were as follows:

    2001    Dr B Littlechild and Mr M Brand

    2002    Mr I Jordan and Mr S Adijanto

    2003    Mr R Punch and Mr B Willcocks

    2004    Mr B Allen

    Mr Brand recommended that directors approve that procedure.  This meant that he and Brian Littlechild would retire and, being eligible for re-election, would be nominated for election and included in the notice for the annual general meeting.  The proposal was agreed to by the Directors.

    Mr Brand foreshadows retirement as a Director – October 2001

26. A meeting of the Board of Energy was held on 22 October 2001 in Perth.  The Directors considered a draft notice for the annual general meeting to be held on 30 November 2001.  They also discussed the collapse of the West Kimberley project for which Mr Brand had the oversight and management.  As recorded in the minutes, the Board was informed, presumably by Mr Brand, that Western Power Corporation had terminated the project and reserved its rights.  Costs to be written off as at 30 June 2001 were $2,086,355.  Resolutions were passed by the Board for steps to be taken to protect any rights that Energy might have against other parties in respect of the project. There was no record in the minutes of any discussion of Mr Brand’s ongoing role in Energy.

1. Mr Brand gave evidence of a meeting held later the same day between himself, Mr Elliott and Mr Jordan.  He made notes of the meeting after it had concluded. He said the meeting was called to discuss the scaling down of Energy’s Perth office and a transfer of a number of functions performed at it to the Sydney office.  He said that in the course of the meeting Mr Elliott told him, in effect, that he should think about his future with Energy overnight and that they should meet the next day to discuss it.  Mr Brand believed then that Mr Elliott did not want him to continue as a director of Energy.  At that time, as a result of the balloting process which he had suggested, his term as an executive director was due to expire at the annual general meeting on 30 November 2001.  He had offered himself for re-election.

2. Mr Elliott’s evidence was that Mr Brand appeared ‘visibly upset at the Board meeting that day’.  As to the subsequent meeting on the same day, he remembered a discussion with Mr Brand and Mr Jordan about organisational and administrative changes which Energy should make in light of the collapse of the West Kimberley project.  He recalled Mr Brand saying something to the effect that the Perth office should be closed and moved to Sydney and that various staff members should be terminated.  He denied that he told him to think about his future overnight.  Mr Brand recorded that suggestion in his notes of the meeting.  In my opinion, it was, in the circumstances, inherently probable that Mr Elliott would make such a suggestion.

3. Mr Jordan recalled that at about the time of the Board meeting of 22 October 2001 he and Mr Elliott met with Mr Brand to discuss moving the centre of Energy’s operations to Sydney.  He had not, at that time, had any discussion with Mr Elliott about Mr Brand’s position with the company. 

4. A further meeting was held on 23 October 2001.  Mr Brand said they had some further discussions about the Perth office and agreed to meet on the following day to discuss the question of his directorship.

5. According to Mr Brand’s account of their meeting on 24 October 2001, he told Messrs Elliott and Jordan that it was clear to him from their discussions over the previous two days and from the way in which Energy was now being managed, that Mr Elliott wanted a fresh start.  He had not been included in various strategic management meetings and he believed that it was in the best interests of everyone for there to be an amicable parting of the ways.  He said that he would withdraw his nomination for re-election as a director rather than put it to shareholders.  According to Mr Brand, Mr Elliott said that he did not think that Mr Brand could continue as a director of Energy.  Mr Brand replied that it would be pointless for him to continue with his nomination if EWI did not support it.  Mr Elliott said that that was a matter for the directors of EWI and its shareholders, however he controlled EWI. 

6. Mr Brand said that he then told Mr Elliott that he had been a director of Energy for 16 years since its formation and had been assured the year before and more recently of a continuing role with it.  He said he had not been seeking alternative employment and that he had fully supported the management restructure since September 2000.  While he was prepared to withdraw his nomination, a reasonable basis for him so doing would have to be agreed. 

7. He claimed that Mr Elliott then raised a number of issues which were in the nature of complaints about his performance as managing director and as an executive director.  These related to the CBA facility, legal action commenced against Energy by consultants for unpaid consultancy fees and the failure of the West Kimberley project.  He responded to those issues and then said he wanted to conclude a number of reports he had to hand and would be able to do so by 30 November 2001.  He wanted to see some payment, perhaps by way of an issue of shares and cash, to give him some time to find alternative employment. 

8. Mr Brand said that Mr Elliott required a letter withdrawing his nomination by noon that day or else it would have to proceed to the annual general meeting.  He wanted the letter to be independent of any negotiation of a severance arrangement.  Mr Elliott said he was prepared to negotiate a severance agreement in good faith provided that Mr Brand assisted in the defence of legal proceedings brought by previous consultants of Energy for arrears of consultancy fees and for termination payments.  Mr Brand said he would give an accurate account of events and would assist where possible.  He prepared notes of that meeting, as he had of the other two. 

9. Mr Brand’s evidence was that he knew that if he did not have EWI’s support his nomination as a director of Energy would not succeed.  He did not want to be humiliated in front of the shareholders.  He had known many of them for many years.  He therefore decided to accede to Mr Elliott’s request and withdraw his nomination.  This he did by a letter dated 24 October 2001.  The letter baldly stated:

   ‘I hereby advise that I do not offer myself for re-election at the Annual General Meeting of Energy Equity Corporation Ltd on 30 November 2001.

   Accordingly, please withdraw my nomination from the Notice of Meeting.

   My Directorship of EEC therefore ceases on 30 November 2001.’

   The letter was immediately circulated by Mr Jordan under cover of a fax dated 24 October 2001 to Mr Elliott and the other directors of Energy.

10. In his evidence-in-chief Mr Elliott denied that he had agreed, on 23 October 2001, to meet with Mr Brand on 24 October 2001 to discuss his directorship.  He denied without qualification Mr Brand’s account of their conversation about the need for him to cease to be a director of EWI.  He denied Mr Brand’s evidence that he was required to provide a letter withdrawing his nomination as a director by noon that day. As to Mr Brand’s statement that Mr Elliott raised complaints about his performance, this too was denied.  According to Mr Elliott he had no further personal contact with Mr Brand after 22 or 23 October 2001. Mr Jordan, like Mr Elliott, denied that Mr Elliott had ever made, in his presence, the statements attributed to him by Mr Brand about not continuing as a director.

11. When cross-examined, Mr Brand agreed with the proposition that he had thought about his position prior to the meeting of 24 October 2001 and had come to the view that it was in everybody’s best interests for there to be an amicable parting of the ways.   He agreed to withdraw his nomination.  He agreed it was his decision although he also said it was made only after he was advised that EWI would not vote for his re-election. While he contended that his experience within the LNG industry would have been beneficial to the company and said he mentioned that on 22 October, he did not offer any particular contribution.  He agreed that there was no other project that he was able to offer at that stage to replace the West Kimberley project.  He accepted that primarily as a result of the collapse of that project there was not a lot for him to do.

12. Mr Brand was pressed in cross-examination about his real reason for withdrawing his nomination.  His position was that he had lost the support of EWI, as indicated by Mr Elliott.  It was put to him, however, that his real reason for withdrawing his nomination was his wish to avoid being humiliated in front of shareholders whom he knew.  He had formed the company in 1985 and by October 2001 the shares had fallen to 6 cents each from a peak of $1.60.  He also agreed that he had suggested in the course of discussions that the Perth office should be closed.  He did not accept that that would mean the end of his role. 

13. I found Mr Brand’s evidence on this question less than convincing in the light of his own account of the discussions that he had at the meetings of 22, 23 and 24 October 2001.  The evidence does not support the inference that Mr Elliott unequivocally withdrew his support for Mr Brand, or that Mr Brand’s decision was based upon his perception of Mr Elliott’s want of support.  In my opinion, the evidence rather indicates that Mr Brand reached the conclusion in his own mind and in discussions with Mr Elliott, that his position as a director of the company was no longer tenable.  I make that finding on the basis that there was a discussion at the meeting of 24 October 2001 along the general lines indicated by Mr Brand.   It is also consistent with his state of mind at the time that, as I have found to be the fact, he had been effectively marginalised in relation to Energy’s operations after September 2000.   I reject the evidence of Messrs Elliott and Jordan in so far as they deny that any such discussion took place.  It seems to me to have been inherently probable that at that time, the very day that notices for the annual general meeting were to be issued, it was appropriate and practical to undertake a discussion of Mr Brand’s future with the company.

    The PY-1 Gas Field Interest, Energy’s default and duty of disclosure

14. In 2001 Energy Equity India Petroleum Pty Ltd (EEIP), a subsidiary of Energy, held a 35% interest in a gas permit, PY-1, in India under a Joint Operating Agreement (JOA) with the operator of the gas field covered by the permit.  The operator was Mosbacher India LLC (Mosbacher).  The other party to the JOA was Hindustan Oil Exploration Company Ltd (Hindustan). The JOA was originally made in October 1996 between Mosbacher, Hindustan and Petrodyne Inc.  I infer that EEIP bought into the JOA at some earlier date which is not material for present purposes.  As at 30 June 2001 the carrying value of the EEIP interest in the PY-1 gas field was shown in Energy’s balance sheet as $13.4 million.  At that time Energy’s net assets were about $125 million.

15. It appears that by March 2001 EEIP had failed to meet cash contribution obligations under the JOA.  An arrears notice was issued by Mosbacher.  Mr Elliott spoke by telephone to one of its principals, Mr Rob Mosbacher, early in March and they agreed that EEIP could make up its shortfall of some $150,000 in instalments.  Mr Elliott had a meeting with Mr Mosbacher and Walter Glasgow, the other principal of Mosbacher, on 31 March 2001.  It appears however that Energy’s difficulties were only temporarily abated.      

16. On 22 August 2001 Mosbacher gave notice that under Article 8.1 of the JOA that EEIP was in arrears because of its failure to pay cash calls.  The amount of the arrears was $US47,095.10.  The notice, which was sent to Messrs Elliott and Jordan, stated that EEIP had remedies under the terms of the JOA in order to avoid default.  These involved either demonstrating to the satisfaction of Mosbacher and Hindustan that the failure to pay was due to government hindrance or to pay the amounts due, with accrued interest, within 15 days of receipt of the notice. A default notice was issued by Mosbacher on 13 September 2001. 

17. On 28 September 2001 Mosbacher sent a Withdrawal Notice to Elliott and Jordan citing EEIP’s default by way of its failure to pay arrears due.  The notice stated:

    ‘Pursuant to Article 8.8 of the Joint Operating Agreement governing the PY-1 Contract Area, Mosbacher India, as Operator of record hereby notifies Energy Equity that Energy Equity as a Defaulting Party is required to completely withdraw from the Joint Operating Agreement and the Production Sharing Contract governing the PY-1 Contract Area.  The effective date of withdrawal shall be October 1, 2001 as the first business day following receipt of this notice.’

18. Mr Jordan communicated with Mosbacher to try to negotiate the payment of the arrears and the cancellation of the Withdrawal Notice.  He sent a fax to Mr Glasgow on 2 October 2001 and followed up with a phone call.  The response he received was not encouraging.  Mr Glasgow sent him an email on 3 October 2001 pointing out that Energy had been in arrears three times in the previous two years.  Although Energy had been allowed time to pay it was again in arrears in August.  He referred to Energy’s failure to respond to Mosbacher’s previous notices and said had there been some response there might have been some grounds upon which they could have worked the matter out.

19. Mr Elliott responded directly to Mr Glasgow’s communication by an email dated 4 October 2001.  He pointed out that the earlier notices had not been brought to the attention of Mr Jordan or himself.  He referred to the restructuring of Energy and the relocation of its registered office to Sydney.  In a reply dated 4 October 2001 Mr Glasgow pointed out that the notices were both faxed and delivered via FedEx or registered mail to Mr Elliott at Energy’s ‘address of record’.  Mr Elliott had a further telephone conversation with Mr Glasgow on 12 October 2001 and followed up with a letter of that date offering to meet with Mr Mosbacher in November 2001.  He referred to a current investigation ‘through legal channels’ of ‘the delicate matter discussed with regard to our former consultants’.  He sought confirmation that upon receipt of the arrears Mosbacher would withdraw the default and withdrawal notices.   Mosbacher replied on 15 October 2001 saying that payment of the arrears would not result in withdrawal of the notices.

20. Despite these unpromising responses Mr Elliott said in his evidence-in-chief that because he had resolved issues in the past with Mosbacher he was optimistic that he could resolve things at a face to face meeting proposed for 5 December 2001 in the United States.

21. Mr Brand did not become aware of the Withdrawal Notice until about 8 October 2001.  The effect of the Notice, as he understood it, was to require EEIP to transfer its 35% interest in the PY-1 gas field to Mosbacher for no consideration. On 15 October 2001 he sent a fax to Messrs. Elliott and Jordan and to Mr Brian Allen in which he said that it was arguable that the ASX should be notified.  He also stated that the CBA should be notified and the Withdrawal Notice would have to be mentioned in the Prospectus/Information Memorandum/Independent Expert’s Report in relation to the forth coming Share Offer.  He was concerned that Messrs. Elliott and Allen had signed a Representation Letter to Ernst & Young on 5 October 2001 and that Mr Elliott had signed financial statements as at 5 October 2001 with no reference to the Withdrawal Notice. 

22. At the meeting of the Board of Directors held on 22 October 2001 the directors were advised of the Withdrawal Notice.  The minutes recorded that:

    ‘In view of the fact that the Notice had been only served by one party and any process and action was currently incomplete, it was considered that, at this point in time, it did not warrant a separate ASX disclosure.  Reference to the Withdrawal Notice would need to be incorporated into the Information Memorandum and Prospectus.’

    Energy’s directors had signed off on the financial accounts for the year ending 30 June 2001 on 5 October 2001.  The auditors had signed off on them on 8 October 2001.  The Board, he said, was not advised of the Withdrawal Notice prior to the accounts being signed off. 

23. At this time Energy was finalising an Explanatory Memorandum to go to shareholders for the annual general meeting to be held on 30 November 2001.  The memorandum related, amongst other things, to a proposed rights issue to raise $11.331 million on the basis of the issue of one new share for every four existing shares at a price of $0.0665 per share.

24. Mr Brand was Chairman of the Due Diligence Committee which was responsible for overseeing the preparation of the disclosure documents relating to the Share Offer.  When he sent his fax of 15 October 2001 he expected that the dispute with Mosbacher would be resolved as only a small amount of money had to be paid and there had been a good relationship between Energy and Mosbacher previously.

25. On 26 October 2001 the Directors passed a Circular Resolution authorising the distribution of a Notice of the Annual General Meeting together with an Explanatory Memorandum and Independent Expert’s Report to shareholders together with the Annual Report.  The Board also resolved that Energy announce its proposed non-renounceable share offer to raise $11.331 million on the basis of a 1 for 4 issue at an issue price of 6.65 cents per share.  The offer was to close on 7 December 2001.  Mr Punch was authorised to sign the Prospectus to be dated 29 October 2001.

26. On 29 October 2001 the Due Diligence Committee comprising Messrs. Jordan, Allen, Brand and Ms Ling signed its final report to the effect that it had prepared the prospectus dated 29 October 2001 and considered that it contained no material omission or error or misrepresentation known to the members of the Committee at that date.  Mr Brand said that at this time he was still expecting the situation with Mosbacher would be resolved. 

27. The Notice of Annual General Meeting was accompanied by an Explanatory Memorandum and Independent Expert’s Report.  In the Explanatory Memorandum at p 16 there was a note referring to the PY-1 gas permit which stated:

    ‘Energy Equity India Petroleum Pty Ltd (EEIP), a wholly owned subsidiary of Energy Equity Corporation Ltd (EEC) advises that it has received a Withdrawal Notice from one of the parties to the Joint Operating Agreement, Mosbacher India LLC. 

    EEIP and EEC are currently reviewing its position and will take whatever action is required to protect  Company and Shareholders interests in the PY-1 Gasfield.’

28. Mr Brand was cross-examined on this entry.  He had seen it before it appeared in the printed version of the Explanatory Memorandum.

29. A similar statement appeared at p 15 of the Prospectus for the share offer.

30. On 9 November 2001 Mr Brand sent a memo to other members of the Due Diligence Committee.  In that memorandum he expressed his concern that the disclosure relating to PY-1 in the Prospectus was inadequate and that the Committee should consider the matter.  He asked the other members to advise him urgently of the position from their perspective.  He said:

    ‘The reasons for my concern is that in the 2000 and 2001 Annual Reports, the Company has highlighted PY-1 as having substantial value and indeed is carried in the accounts at some $13 million or approximately 10% of net assets as at 30 June 2001.  It is a key asset (and in my opinion, second to Sengkang in terms of future Shareholder value).  Careful consideration should therefore be given within that context in terms of the adequacy of our disclosure.’

    He noted that the Prospectus had been printed and would be dispatched on Monday, 12 November or at the latest, Tuesday 13 November.  Mr Punch had advised Mr Jordan and himself that he wanted the Board to agree to the document and that everything was in order prior to the dispatch on 12 November.  He asked the other members of the committee to discuss the matter with him first thing Monday morning. 

31. Mr Jordan sent a memorandum to the directors of Energy enclosing a copy of the final report of the Due Diligence Committee.  He reported that the CBA had been advised of the default issue in relation to PY-1.  He indicated that should the position with PY-1 not be satisfactorily resolved, further disclosure during the prospectus period might be required.  He asked all directors to sign an attached Circular Resolution.  The resolution was that the Directors had received and accepted the report of the Due Diligence Committee and that they approved the mailing of the Prospectus to shareholders.

32. Mr Brand said in his evidence-in-chief that he was still concerned about the PY-1 disclosure.  However Mr Jordan told him that Mr Elliott was meeting with Mosbacher and would sort out the issue of the Withdrawal Notice.  Mr Brand said he also believed that if it were not resolved adequate disclosure could be made.  The Circular Resolution was executed. The Prospectus was then distributed.

33. It appears that on or about 9 November 2001 Mr Jordan had sent a fax to Mosbacher about the capital raising.  Mosbacher responded on 12 November 2001 over the signature of Mr Glasgow, stating that they had not been aware of the fund raising process.  It did not however excuse non-performance under the JOA.  The history of default was repeated in the letter.  The letter concluded by observing that if Mr Elliott were to be in the US within the next six weeks Mosbacher would be pleased to meet with him to discuss matters, referred to in the letter, which appear to have had no bearing on PY-1.

1. In September 1999 Energy had breached covenants in its facility agreement with the CBA.  As a result, Mr Brand was heavily involved in negotiations with the CBA and exploring the proposed sale of Australian assets with a view to retiring the CBA debt.  Issues with PLN in relation to payments under the Sengkang gas and power project were ongoing.  In September, October and early November 1999 Energy’s Board negotiated with the American multinational company, Enron, for the latter to become a 51% shareholder in Energy.  Mr Brand described this as a major transaction in which he was heavily involved.  All of these matters occupied almost all of his time in late 1999. 

2. During this time Mr Brand had discussions with Mr Bridgwood about the progress of the Project.  He told Mr Bridgwood that he should endeavour to secure the repayment of the US$1 million or come to some agreement with Prenergy under which that payment could be used to fund ongoing project costs or that Energy could take over the Project.

3. In December 1999 Mr Brand was told that Mr Swaminathan had resigned.  Thereafter no progress was made in negotiations with Prenergy.  In early 2000 Mr Bridgwood tried to take over the management of the Project for Energy.  He did that with approval from the Board and reported progress.  Mr Brand was kept in closer touch with the progress of the Project in early 2000 than he had been up until that time.

4. On 2 May 2000 Mr Brand wrote to Dato Gnanalingam referring to earlier discussions and correspondence on the Vypeen Project.  He identified the main issues that had to be resolved namely:

   ‘1.Provide the most competitive tariff solution in order to defeat competing projects and obtain escrow.

   2.Secure the most appropriate fuel, both interim and long term.

   3.Attract an equity partner that can progress the project and add value.’

5. Towards the end of the letter he said:

   ‘Other than the above, EEC would also like to resolve the matter of overpayment of the fuel milestone of US$1 million.  This has been outstanding now for some time and needs to be resolved together with future funding for project development and possibly a revised agreement between EEC and PR.’

6. In August 2000 a Status Report on the Vypeen Project was prepared for the Energy Board.  The position with respect to fuel was summarised thus:

   ‘The original intention was to use condensate as the interim fuel for the project supplied by Woodside until LNG becomes available.  This was necessary since no naphtha fuel allocation was available for the Vypeen Project.  A MOU was signed with Woodside and a condensate FSA almost finalised.  Condensate, however will not been (sic) approved by the MoPNG, despite being approved by the MoP, so this option is no longer being pursued.  Note that various companies, including Woodside have been attempting to have condensate approved as an alternative fuel in India for several years without success.’

7. After looking at other difficulties attending the Project, including projected reductions in profits because of strong competition, the KSEB’s inability to determine escrow facility and select which IPP project should proceed, the fuel option problem and difficulties with the cost of the ABB plant, it was recommended that Energy continue to pursue the Project under a tight development budget subject to conditions.  The conditions were:

   ‘1.[Energy] agrees with its partner to take control and management of the project by end September 2000 and reaches agreement on the revise (sic) terms of the Sale and Purchase Agreement by end November 2000.

   2.SEL enters into a MOU with PTC or recommences PPA discussions with KSEB by end December 2000.

   3.SEL obtains a commitment on escrow from KSEB or another form of security to obtain financing acceptable for financiers by March 2001.

   4.SEL obtains a Fuel Supply Agreement for liquid and/or LNG fuel with BPCL by end December 2000.’

8. Mr Brian Allen, now an Executive Director of Energy with substantial experience in the financing of major power projects in Asia, said that the Vypeen Project has not advanced at all since June 2000.  He referred to the status report of August 2000 and inferred from it that at the time Energy did not consider that any of the key documents for project finance were available.  In January 2001 Mr Jordan told Mr Brand at a meeting in Energy’s West Perth office, that Mr Elliott who had become Energy’s Managing Director in September 2000 had decided not to incur any further expenditure on the Project. 

9. Mr Bridgwood resigned from Energy in February 2001.  Mr Selvendra resigned in April 2001.  Mr Hyder Ali also ceased to work for Energy in about April 2001. 

10. In May 2001 Mr Brand travelled to India with the new Managing Director, Mr Elliott and Mr Jordan, together with Mr Prux, an American adviser to Mr Elliott, to review Energy’s Indian assets.  They returned to Australia shortly before 25 May 2001.

11. The Vypeen Project was discussed at a meeting of Energy’s Board on 26 May 2001.  Mr Elliott raised the question of the US$1 million milestone payment and said he proposed to recover it from Prenergy.  Mr Jordan asked Mr Brand, after the meeting, to prepare a report about the circumstances in which that payment had been made.  At that time neither Mr Bridgwood nor Mr Selvendra were employed by Energy.  Mr Brand said that if they had been still employed he would have asked them to prepare the report because much of his knowledge was second hand.  The report he did prepare is based on a review of Mr Bridgwood’s file.

12. The report took the form of a one and a half page memorandum.  It set out a chronology of the events, which have already been referred to.  Paragraph 6 of the report said:

    ‘Based on the 18 December 1998 information; 2 February 1999 letter and that proper evidence was provided in relation to “all applicable State and Central Governments of India approvals for Vypeen Project acceptable to the Working Committee”, a payment of US$500,000 was made on 8 February 1999 and the balance of US$500,000 paid over four payments (25/3/1999 – US$100,000; 31/3/1999 – US$100,000; 30/4/1999 – US$150,000; and 6/5/1999 – US$150,000).  The payment dates were deferred to meet EEC’s cashflow.’

    Mr Allen said in his evidence, and I so find, that no further payments have been made by Energy to Prenergy since those described in the preceding paragraph.  Nor has Energy been asked to make any such payments. 

    The relevant Indian Law

13. Expert evidence of Indian law relevant to the approval process for the importation of condensate was given by Mr Guruprasad Pal who has been a legal practitioner in India since 1982.  Mr Pal’s experience was initially in property, banking and constitutional law.  His practice is general corporate law, ‘foreign collaborations’, joint ventures, mutual funds and technology transfer.  He has been involved in privatisation and project financing in the oil, gas, power, telecom and mining sectors. 

14. Mr Pal was asked to consider two questions:

    ‘1.As at January/February 1999 what approvals, if any, were required from the Ministry of Petroleum and Natural Gas (“MPNG”) of the Central Government of India, for the importation and use of condensate as a source of fuel for power generation at a power plant which was to be constructed in the State of Kerala (“the Vypeen project”)?

    2.What advice would an Indian lawyer with experience in the oil and gas industry have given, had he or she been asked in January/February 1999, whether any necessary approval from the (“MPNG”) (sic) for the importation and use of condensate at the Vypeen project had been obtained.’

    He was provided with a copy of the Liquid Fuel Policy for Power Generation dated 6 November 1995 issued by the Ministry of Power, Resolution No FU-32/97-IPC.I, dated 15 October 1998 from the Ministry of Power and the letter dated 17 October 1998 from the KSEB to the Power Department at the Government of Kerala.  He was also provided with a copy of the letter dated 17 December 1998 from the Principal Secretary of the Government of Kerala to Siasin.

15. Mr Pal was asked to assume that it was intended to import condensate in large commercial quantities as an interim fuel for up to three years for the purpose of power generation at the Vypeen Project and not for use in designated private or joint venture refineries.  The condensate intended to be used had a flashpoint above 23C and therefore fell within either Petroleum Category B or C.  He was also asked to assume that it was intended that condensate would be imported directly into India by the Vypeen proponents.  He assumed the definition of condensate as a ‘liquidate hydro-carbon by-product of natural gas that can be refined as if it were very light crude oil and is treated at par with crude oil’.

16. Mr Pal gave a brief overview of the relevant legal and regulatory regime in India.  The Ministry of Petroleum and Natural Gas regulates and develops oil fields and mineral oil resources, petroleum and petroleum products, other liquid and substances declared by Parliament by law to be dangerously inflammable.  Responsibility for exploration and production of oil and natural gas, their refining, distribution and marketing, import, export and conservation of petroleum products and Liquified Natural Gas falls under the scope of the Ministry.  The Petroleum Act 1934, is a consolidated law relating to import, storage, production, refining and blending of petroleum.  The Act defines petroleum as meaning any liquid hydro-carbon and mixture of hydro-carbons and any inflammable mixture (liquid, viscous or solid) which contains any liquid hydro-carbon.   Mr Pal was of the opinion that condensate, being a liquid hydro-carbon, would fall within the definition of petroleum.  The Petroleum Rules 1976 are made to give effect to the Act’s purposes. 

17. Section 3 of the Act says that no one shall import, transport or store any petroleum save in accordance with the Rules.  It is not necessary for present purposes to refer to the various Rules cited by Mr Pal.  It is clear enough that approval for the importation of petroleum is effectively controlled under Indian law by, inter alia, the Ministry of Petroleum and Natural Gas.

18. By its Resolution No 224 dated 21 November 1997, the Ministry of Petroleum and Natural Gas notified that all petroleum products except crude condensate, inter alia, would be decanalised with effect from 1 April 1998.  This left condensate on the canalised list.  The term ‘canalised’ in this context, means that the goods can only be imported by designated State-owned corporations.

19. The Ministry of Commerce in a policy circular dated 28 August 1998 addressed  to all licensing authorities, customs authorities and others regarding imports of canalised items stated that items which are canalised can be imported by the canalising agency only and not by any individual importer.  An individual importer would require an import licence issued under par 4.8 of the Export and Import Policy 1997-2002 known as the EXIM Policy.

20. Under par 4.8 of the EXIM Policy any goods, the import or export of which is canalised, may be imported or exported by the canalising agency specified in what are called Negative Lists.  The Director-General of Foreign Trade appointed under the Ministry of Commerce may grant a licence to any person to import or export any canalised goods.  According to the Negative Lists of the EXIM Policy, canalised goods can only be imported through the IOC, a public sector undertaking, acting as a canalising agent.  An application for the grant of a licence for import or export of items included in the Negative Lists can be made in a format set out in Appendix 24 to the EXIM Policy to the licensing authorities. 

21. Mr Pal noted that the Ministry of Power, in its Resolution No FU-32/97-IPC.I dated 15 October 1998, permitted the use of condensate for power generation.

22. Against the preceding background Mr Pal answered the questions posed to him as follows:

    ‘ANSWER 1
    The following licences/approvals were required for “importation” of condensate directly for the Vypeen Project:

    1.        A license from MPNG to import and store condensate in bulk.

    2.A licence from MC to import canalized goods as specified in Paragraph 4.8 of the EXIM Policy.

    ANSWER 2

    An Indian lawyer would if asked in January/February 1999 would advice (sic) that the following licences/approvals were not obtained for “importation” of condensate directly for Vypeen Project:

    1.        A license from MPNG to import and store condensate in bulk.

    2.A licence from MC to import canalized goods as specified in Paragraph 4.8 of the EXIM policy.’

    In cross-examination Mr Pal agreed that the licenses and approvals referred to in Answer 1 applied to ‘direct’ importation of condensate by the proponent of the project.  It would always be open for the proponent to arrange with the IOC to import condensate. In answer to a question from the Court, however, he said that the IOC was only a ‘canalising agent’ and that a licence would still be needed to import condensate through that company.

23. Mr Pal was then referred to the notice from the Ministry of Petroleum and Natural Gas dated 24 June 1999 which stated, inter alia:

    ‘… it is suggested that condensate may also be classified under this Code (No 27.09) for Customs Tariff purposes.’

    He accepted that the import and tariff code for condensate was 27.09.  He was then referred to a notification of 31 March 2001 by the Ministry of Commerce and Industry and agreed that its effect was that condensate could be imported freely into India without restriction after that date.

24. I infer from Mr Pal’s evidence, which I accept, and from the evidence relating to the attitude of the Ministry of Petroleum and Natural Gas, that all necessary approvals for the importation of condensate for use as an interim fuel for the Vypeen Project were not in place at the time that the milestone payments were made.  I accept also that the attitude adopted by the Ministry of Petroleum and Natural Gas contradicted all other indications previously given by the Ministry of Power and the State of Kerala.

    The value of the Vypeen Project today

25. Before becoming an Executive Director of Energy, Mr Allen was employed for 18 years by the HongKong and Shanghai Bank Corporation Ltd as a director of its investment bank.  He was responsible for determining whether or not the Bank would finance power projects in China and elsewhere in Asia similar to the Vypeen Project.

26. Mr Allen agreed with Mr Brand that the establishment of a major power project such as Vypeen, required high level negotiations and commercial and other dealings on complex matters.  It also involved considerable expenditure on development costs that are not recoverable in the event that the project does not go ahead or in the event that another party secures the project.  In Mr Allen’s opinion, for a project such as Vypeen to secure finance, a number of key agreements must be negotiated to the satisfaction of lenders.  It is not necessary to set out that catalogue of agreements here.  It is sufficient to note Mr Allen’s opinion that none of the key documents necessary to establish a bankable project were in place in respect of the Vypeen Project.  Moreover, many of the approvals which had been obtained were now out of date.  In his opinion, if Energy or any other person wished to re-establish the Project it would need to be the subject of a complete and comprehensive negotiation.  He considered it very likely that any documentation previously drafted would have little or no bearing on future events.

27. There have been ongoing negotiations between Energy and Prenergy.  In August 2004, Prenergy was planning to wind up its subsidiary, ARL.  Mr Allen wrote to Mr Choong of Prenergy on 19 August 2004 pointing out that if ARL were wound up then all past connections between it and the Vypeen Project and all historical records registered with Indian authorities would cease to be of any value.  In cross-examination he somewhat implausibly denied that this carried the implication that there was some residual value in the Vypeen Project.

28. In its 2001, 2002 and 2003 financial reports, Energy included the value of its investment in the Project at $4,296,000 as a non-current asset.  This reflected the expenditure which it had undertaken.  It necessarily included the milestone payments which had been made.  Those payments, it should be noted, were to be credited, under the Sale and Purchase Agreement, against the overall purchase price for the shares being acquired by AEE. 

29. In 2004 the Board of Energy decided to write down the value of that investment to zero.  In a letter to the auditors of Energy relating to the writing off of a number of assets, including Vypeen, Mr Allen said:

    ‘Whilst the Company remains confident that the investment made in the Vypeen Project can eventually be recovered as a consequence of the future development and implementation of the project the prospects for achieving this recovery in the near term foreseeable future remain remote.’

    In cross-examination Mr Allen said that was a correct statement of his opinion at that stage.

30. Since 29 November 2005 Energy has advanced a proposal to Prenergy under which, in effect, Prenergy would transfer its shares in ARL to Energy.  Energy would grant Prenergy an option to acquire a percentage of the Vypeen Project or of the shares in ARL when the project went into operation.  The precise number of shares to be transferred would be found by a calculation bringing into account development costs incurred by both Energy and Prenergy.  The development costs would, in all probability, include the US$1 million milestone payment which is the subject of these proceedings.  Mr Allen suggested that the extent to which particular payments could be brought into account in negotiations would depend upon demonstration in good faith of their relevance.  He said, inter alia:

    ‘We haven’t worked out what we propose to bring into account yet.’

31. To the extent that Mr Allen was giving evidence as a person experienced in the financing of power projects, he was not giving it as an independent expert.  He is a director of the first cross-claimant. His responses in the witness box at times tended to be argumentative and dismissive of the questions put to him.  At times he presented more as an advocate than as a witness concerned to give factual answers to the questions put to him.  In so saying, I do not suggest that he was anything other than honest. However, because of his adversarial approach, I treat his opinions with a degree of reserve particularly to the extent that they suggest that the Vypeen Project is, in effect, of no current value.  I am left at the end of his evidence unable to draw any firm conclusion about the extent to which payments previously made in relation to the development of the Project are likely to be reflected in a future asset based on the negotiations which have been undertaken with Preneregy.

    Causes of action

32. The common base of the causes of action alleged against Martech and Mr Brand is the proposition that Mr Brand failed to exercise reasonable care or due care and diligence in determining whether or not all applicable State and Central Government of India approvals for the use of condensate fuel at the proposed Vypeen Project in the State of Kerala in India had been obtained at the time that he authorised the relevant milestone payment.  His conduct is also attributed to Martech, of which he was the principal at all material times.

33. The causes of action raised upon this common foundation are as follows:

    1.Misleading or deceptive conduct on the part of Martech incorrectly representing to Energy that all applicable approvals had been obtained and that it had exercised due care and diligence in arriving at that determination (c/c 20).

    2.Breach of an implied term of the deed between Martech and Energy that Martech would exercise reasonable care and diligence in carrying out the services provided (c/c 5 and 28).

    3.Breach of common law duties of care owed by Mr Brand and Martech to Energy and AEE (c/c 11 and 11A, 28 and 31).

    4.Breach of a fiduciary duty owed by Mr Brand to Energy and AEE to exercise reasonable care in the performance of his duties as a director of Energy and AEE (c/2 12 and 31).

    Whether Martech and Mr Brand failed to exercise reasonable care or due care and diligence in breach of their duties to Energy and AEE

1. It may be accepted for present purposes that Martech and Mr Brand owed Energy and AEE the various duties alleged in the cross-claim. Although the formulations of those contractual, common law, fiduciary and statutory duties vary from one to the other, they are for practical purposes, subsumed in the one standard of reasonable care. As was submitted on behalf of Martech and Mr Brand, the duties which were imposed on directors by s 232(4) of the Corporations Law, which was in force at the relevant time, are essentially the same as the duties of directors under the common law and, a fortiori, in equity.  The submission referred to authorities cited by Santow J in Re HIH Insurance Limited (In Prov Liq); Australian Securities and Investments Commission v Adler and Others (2002) 41 ACSR 72 at [372]. Plainly enough a director and, a fortiori, a managing director, may rely on the advice and information of officers of a company whose task it is to provide such advice and information.  Reliance may also be placed upon judgments made by officers of the company which fall within their sphere of responsibility.  That reliance would, of course, not be reasonable if a director or managing director knew, or by the exercise of ordinary care should have known, any facts which would raise a question about the judgment, information or advice offered. 

2. The question whether reliance by a director upon an officer of the company or delegation of a function to such an officer is reasonable falls to be determined in the circumstances of each case.  In Re HIH Insurance, Santow J listed, non-exhaustively, factors which may be important in determining reasonableness:

   ‘1.[whether] the function that has been delegated is such that “it may properly be left to such officers”;

   2.the extent to which the director is put on inquiry, or given the facts of a case, should have been put on inquiry;

   3.[whether] the relationship between the director and the delegate, must be such that the director honestly holds the belief that the delegate is trustworthy, competent and someone on whom reliance can be placed…;

   4.the risk involved in the transaction and the nature of the transaction.

   5.the extent of steps taken by the director, for example, inquiries made or other circumstances engendering “trust”;

   6.whether the position of the director is executive or non-executive.’

   (Citation of authorities omitted)

3. It was further submitted on behalf of Martech and Mr Brand that Mr Brand’s decision to make the reduced milestone payment was an aspect of a wider agreement to vary the terms of the milestone schedule to the Vypeen agreement.  This, it was said, was a ‘business decision’ which involved the balancing of a range of circumstances and factors.  It was Energy and AEE which wished, for their own reasons, to revise the milestone schedule and which had to reach a compromise acceptable to Prenergy.  It was submitted that courts properly refrain from assuming the management of corporations and substituting their own decisions and assessments for those of directors.  Directors can be expected to have much greater knowledge and more time and expertise at their disposal to evaluate the best interests of the corporation, rather than the court – Darvall v North Sydney Brick and Tile Co Ltd (1989) 16 NSWLR 260 at 281.

4. In their submissions, Energy and AEE relied upon the formulation of the condition for the making of the milestone payment, namely the satisfaction of ‘All applicable State and Central Government of India approvals for alternative fuel for the Vypeen Project’.  They submitted that Mr Brand accepted that the law of India effectively prohibited the import of condensate for use in the Vypeen Project and that the way to address that situation was to seek to persuade the Indian Government to change the law.  What was necessary was a change in the law generally not just a facilitation for the purpose of the Vypeen Project.  The law in relation to importation of condensate did not change between 1998 and 1999 and for that reason applicable approvals had not been obtained.  It was also emphasised that no application for approval was ever made.  On that ground, it was submitted, that objectively speaking there was no basis upon which the milestone payment should be made.

5. Energy and AEE relied upon Mr Brand’s understanding of certain important facts.  He knew that the supply of condensate fuel was the most critical component and the key to financing the project.  This appeared from the memorandum dated 27 February 1998 which he had received.  He also knew from a fax dated 26 March 1998 from Mr Bridgwood that condensate was not then permitted to be imported into India.  Of course that fax added that the Ministry of Petroleum and Natural Gas would recommend to the Ministry of Power that condensate be approved for importation under the Open General Licence (In fact the position seems to have been the other way round).  He was aware of the proposed lobbying of the Ministry of Power and the Ministry for Petroleum and Natural Gas.   The text of the brief to the relevant Ministers has been set out earlier in these reasons.

6. Energy and AEE also referred to Mr Brand’s letter to Mr Gnanalingam on 3 April 1998 on the condensate issue and Mr Swaminathan’s response of 4 April 1998.  It was put that at this time he knew that the approval of both the Ministry of Commerce/Finance and the Ministry of Petroleum and Natural Gas was required for the importation of condensate.  They  pointed out that Mr Brand had read the executive summary of 5 May 1998, being part of the papers considered by the Board before it entered into the Sale and Purchase Agreement.  He attended the meeting of 7 May 1998 and made a presentation in relation to the Vypeen Project in the absence of Mr Bridgwood.   He had read the Sale and Purchase Agreement prior to entering into it.  He was familiar with the payment clause 3.09 and the milestone schedule.  He also received the fax of 3 July 1998 from Mr Swaminathan and replied to it on 6 July 1998.

7. It was submitted that until July 1998 Mr Brand was aware that there had to be a change in the law in India in order to enable condensate to be imported.  There was no evidence of any change in that position other than the fax of 3 July 1998 from Mr Swaminathan to Mr Brand which attached no supporting documentation or provided any official indications which would support the proposition advanced by Mr Swaminathan.  The source for Mr Swaminathan’s views were said to remain ‘entirely unknown and undisclosed’. 

8. It was submitted by Energy and AEE that Mr Bridgwood was not the source of the information about the proposed change of the law.  That source was Mr Swaminathan.  It was in Mr Swaminathan’s interest to promote Prenergy’s position.  It was submitted that the provisions of cl 3.09 of the Sale and Purchase Agreement underscored the fact that it was for Energy to consider its position before agreeing that it was obliged to make any milestone payment.

9. Energy and AEE pointed out that Mr Brand agreed in cross-examination that in deciding to make the payment he had in mind commercial considerations.  They contended that Mr Brand’s approach was that because Energy was in financial difficulties it was important to keep the Project moving, almost no matter what.  As a result, he made a decision without regard to whether the milestone payment had fallen due because he wanted to keep Prenergy happy.  As to the latter proposition I observe, as earlier found, that Mr Brand acted, at all material times, in the belief that the relevant approvals had been secured and saw the restructuring of the milestone payments as entirely to Energy’s advantage.

10. In my opinion, Energy and AEE seek to hold their former managing director to an unrealistically high standard of care.  I am satisfied that:

    1.At the time he authorised the milestone payments, Mr Brand believed that the relevant condition for making those payments had been satisfied.

    2.Mr Brand formed his belief in July 1998, based on advice from Mr Bridgwood and a confirming fax from Mr Swaminathan.

    3.Mr Brand regarded Mr Bridgwood as a senior, long-serving, experienced and trusted officer of the company.  While it would have been reasonable for him to have requested precise documentary verification of the satisfaction of the milestone condition, it did not amount to a failure on his part to take reasonable care or to exercise due diligence as a director that, in the circumstances, he relied upon Mr Bridgwood’s judgment.

    4.The reasonableness of Mr Brand’s conduct in relying upon Mr Bridgwood’s judgment and advice can be viewed against the range of responsibilities that Mr Brand had as managing director and the variety of issues, including the question of the CBA debt, with which he was directly involved.

    5.Although his authorisation of the milestone payments was founded upon the belief that the relevant condition was satisfied, Mr Brand also had legitimate concerns that the Project should be kept moving and that a harmonious relationship should be maintained with Prenergy.  A close and searching scrutiny of the claimed approvals, having regard to his belief that they had been obtained, would, on that hypothesis,  merely cause delay in the progress of the Project and disruption to the relationship with Prenergy. 

11. It is important to bear in mind in assessing the reasonableness of judgments made by a managing director that they are not always to be tested against the criteria which a legal practitioner might apply in giving advice on the matter for decision.  Commercial decisions, in the dynamic context of an ongoing commercial relationship and a complex development project, even important decisions, are not unusually taken on imperfect or partial information and reasonably in reliance upon the advice of colleagues and other officers in the common enterprise, whether it be a corporation or some other business structure. In my opinion, having regard to the circumstances to which I have referred, Mr Brand did not breach his common law duty of care nor his duty as a director of Energy and AEE.  Martech did not, by reason of his conduct, breach any implied duty of care in the agreement under which it provided his services as managing director.

12. So far as the cause of action based in misleading or deceptive conduct is concerned, I do not consider that the representations attributed to Martech were made. Mr Brand was Chief Executive and Managing Director of Energy.  If he formed a belief based upon advice given to him by a senior officer of the company, that belief is attributable to Energy.  His actions upon that belief including reports to the Board of Directors are not capable of amounting to representations to Energy for the purposes of the Trade Practices Act.

13. For the preceding reasons, each of the causes of action alleged against Martech and Mr Brand fails.  The cross-claim should be dismissed.

    Causation

14. It was submitted on behalf of Martech and Mr Brand that to show a causal link between any breach of duty by Mr Brand, it would have to be shown that Energy would not have made the fuel milestone payment absent that breach.  It was submitted that given the new Liquid Fuel Policy announced by the Ministry of Power and the subsequent actions of Government of India Ministries, the KSEB and the State Government of Kerala consistent with the subsistence of the new Liquid Fuel Policy,  the Board might well have regarded final placement of condensate under OGL as a formality likely to be satisfied in the immediate future.

15. Whether members of the Board, provided with all relevant documentation which was known to Mr Brand and/or Mr Bridgwood, would have come to a different view is a matter of some speculation.  None of the former directors was called to say what they would have done in the circumstances.  It may be that if they had had the benefit of advice from an Indian lawyer such as Mr Pal that there was a further step to be taken with the Ministry of Petroleum and Natural Gas, the milestone payment would have been deferred.  It may be that they would have been prepared to make the payment even if the condition was not finally satisfied given the apparent likelihood of its approval and the availability of alternative modes of importation and alternative fuels, such as diesel.  It may well have been relevant to such consideration that the milestone payment was an element of the ultimate purchase price of the shares under the contract.  The causation hypothesis is based upon the assumption that Mr Brand had a duty to procure or request that legal advice be procured and that his failure to take reasonable care or to act with due diligence arose from that failure. 

16. As Mr Pal pointed out, condensate could be imported into India from 31 March 2001.  Had the Project continued to that point then, the alternative fuel milestone would have been satisfied and a payment of US$2 million due under the terms of the original agreement.  In that connection it may be noted that in its 2001 Annual Report, Energy stated, at p 10:

    ‘In the southern State of Kerala, EEC has executed a Sale and Purchase and Shareholders’ Agreement with Pembinaan Redzai of Malaysia for a 40% interest in a 680 MW Vypeen Power Project.

    The Techno Economic Clearance to proceed with the project was issued by the Central Electricity Authority of India in September 1998.  The clearance gives approval for local government, the Kerala State Electricity Board and the Government of Kerala to proceed with the project.

    Negotiation of the Amended and Revised Power Purchase Agreement, Fuel Supply Agreement and Escrow Facilities to permit project financing are still continuing, albeit more slowly than planned.  The probability is that the development of the power plant will be achieved in phases leading up to a total capacity of 680 MW rather than a single development.’

    The preceding statement was contained in the Company Review signed by the new managing director, Mr Elliott and dated 5 October 2001.  Mr Allen had been appointed to the Board as an executive director at that time.  The company accounts disclosed the shareholding in ARL and identified their costs as $4,296,000. 

    Loss and damage

17. For the reasons which I have already outlined in discussing Mr Allen’s evidence, I do not think the evidence enables me to conclude that, even had Mr Brand breached his duty as alleged, Energy and/or AEE have suffered the loss claimed.  To make out the relevant loss it would be necessary for Energy and AEE to show that the milestone payment represented an irrecoverable cost associated with the Vypeen Project.

18. As was pointed out in submissions made on behalf of Martech and Mr Brand, Energy carried the value of the Vypeen Project up until 30 June 2004 at $4,296,000 represented by its 42% shareholding in ARL.  Although it wrote off the carrying value of the Vypeen Project on 30 June 2004 this appeared from evidence given by Mr Allen in relation to a letter written by him in February 2004 to flow from the reluctance of financiers to lend to IPPs in India following the collapse of Enron.  His explanation to Energy’s auditors for the write off included the statement that the company remained confident that the investment made in the Project could eventually be recovered as a consequence of the future development implementation of the Project. Mr Allen did not express any view that the Vypeen Project has no value, or that the shares in ARL had no value.  Nor did he express a view about what the value of the Project and the shares was.

19. Energy’s argument, advanced by its counsel, that the Vypeen Project has no value, was based on the assertion that the Vypeen agreements were of no utility.  The state of the Vypeen agreements has not altered since 2000.   As contended by Martech and Brand, the submission is contrary to contemporary statements by Energy and, in particular, the statement made to its auditor on 26 August 2004.  It was submitted for Martech and Mr Brand that Energy does see the value in the Vypeen Project because it has negotiated over time to acquire Prenergy’s shares in ARL and continues to do so.  When Prenergy threatened to wind up ARL in August 2004, Mr Allen asked it not to do so because the loss of connection to records held by Indian authorities in relation to the development of the Project meant that it would cease to have any value. 

20. I am left in the position that I am not, on the balance of probabilities, able to say whether the Vypeen Project has any value and if so what value it has.  Nor am I able to say that all or any part of the payments made in relation to the development of the Project are irrecoverable.  At the very least it would appear that those payments provide a basis for negotiation with Prenergy for the acquisition of its shareholding in ARL so that Energy itself may be in a position to proceed with the Project subject to re-entry by Prenergy on some agreed formula.  In my opinion, however, the evidence as to the actual loss, if any, suffered by Energy and/or AEE as a result of the alleged breaches of duty by Mr Brand and Martech is inconclusive.

I certify that the preceding three hundred and sixty (360) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:
Dated:            3 August 2006

Counsel for the Applicants and Cross-respondents:	Mr DM Stone
Solicitor for the Applicants and Cross-respondents:	Williams & Hughes
Counsel for the Respondents and Cross-claimants:	Mr P McGowan
Solicitor for the Respondents and Cross-claimants:	Christensen Vaughan
Date of Hearing:	19, 20 and 21 September 2005 13, 18, 19 and 21 April 2006
Date of Judgment:	3 August 2006