Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd
[2005] QSC 233
•26 August 2005
SUPREME COURT OF QUEENSLAND
CITATION:
Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd & Ors [2005] QSC 233
PARTIES:
SOUTHERN CROSS MINE MANAGEMENT PTY LTD
A.C.N. 082 767 548
(plaintiff)
v
ENSHAM RESOURCES PTY LTD
A.C.N. 005 995 782
(first defendant)
and
BLIGH COAL LIMITED
A.C.N. 010 186 393
(second defendant)
and
IDEMITSU QUEENSLAND PTY LTD
A.C.N. 010 236 272
(third defendant)
and
EPDC (AUSTRALIA) PTY LTD
A.C.N. 002 307 682
(fourth defendant)
and
LG INTERNATIONAL (AUSTRALLIA) PTY LTD
A.C.N. 002 806 831
(fifth defendant)
and
KENNETH JOHN FOOTS
(first defendant added by counterclaim)
and
FOOTS PTY LTD
A.C.N. 010 195 061
(second defendant added by counterclaim)
and
LITTLE DIGGER MINING LIMITED
A.C.N. 096 110 717
(fourth defendant added by counterclaim)
and
NORMA AGNES FOOTS
(fifth defendant added by counterclaim)
and
KENNETH JOSEPH HILL
(third party to counterclaim)
and
KENNETH JOHN FOOTS
(fourth party to counterclaim)FILE NO:
S9548 of 2002
DIVISION:
Trial
PROCEEDING:
Trial
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
26 August 2005
DELIVERED AT:
Brisbane
HEARING DATE:
16/05/05 – 18/05/05, 23/05/05 – 26/05/05, 30/05/05 – 02/06/05, 06/06/05 – 10/06/05, 14/06/05 – 17/06/05, 20/06/05 – 24/06/05, 27/06/05 – 30/06/05, 04/07/05 – 08/07/05, 11/07/05 – 12/07/05, 25/07/05 – 28/07/05.
JUDGE:
Chesterman J
ORDER:
1. Judgment for the first, second, third, fourth and fifth defendants against the plaintiff on the plaintiff’s claim.
2. Judgment for the first defendant on its counterclaim against the plaintiff for a declaration that:
(a) the plaintiff holds the BE 1260 dragline presently located at Ensham mine on a constructive trust for the first defendant; and
(b) the dragline agreement made between the plaintiff and the first defendant and dated 30 July 1999 was validly rescinded on 16 September 2002.
3. Order that the plaintiff execute all such documents and do all such acts as are necessary to transfer to the first defendant its legal ownership of the dragline.
4. Order that the claim by the plaintiff against the third party to the counterclaim be dismissed.
5. Order that the claim by the fourth party to the counterclaim against the first defendant added by counterclaim be dismissed.
CATCHWORDS:
EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – GENERAL PRINCIPLES – Where Chief Executive Officer of a company, entered into contract with employer; contract not in best interests of employer; CEO benefited from contract – Whether the CEO is in breach of fiduciary duty;
EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – CONFLICT OF INTEREST AND DUTY – Whether CEO, an employed fiduciary, could negotiate such contract with employer;
EQUITY – GENERAL PRINCIPLES – FRAUDULENT MISREPRESENTATION AND INNOCENT MISREPRESENTATION – THE REPERESENTATION – NON-DISCLOSURE AND CONCEALMENT – Whether employer’s consent induced by fraudulent misrepresentation;
EQUITY – GENERAL PRINCIPLES – EQUITABLE DEFENCES – LACHES AND DELAY – WHAT CONSTITUTES GENERALLY – Whether concealment and misrepresentation by CEO brought about delay relied upon as defence;
EQUITY – GENERAL PRINCIPLES – EQUITABLE DEFENCES – ACQUIESCENCE – WHAT CONSTITUTES – Whether employer acquiesced in breach by fiduciary;
EQUITY – GENERAL PRINCIPLES – REMEDIES AND PROCEDURE – OTHER CASES – Whether property acquired by fiduciary by breach of duty is held on constructive trust.
Allcard v Skinner [1887] 36 Ch D 145, cited;
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 79 ALJR 993, cited;
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51, cited;
Baburin v Baburin (No. 2) [1991] 2 Qd R 240, cited;
Barnes v Addy (1874) LR 9 Ch App 244, cited;
Bennett v L and W Whitehead, Ltd [1926] 2 KB, cited;
Boardman & Anor v Phipps [1967] 2 AC 46, cited;
Boral Resources (Qld) Pty Ltd v Pyke [1992] 2 Qd R 25, cited;
Breen v Williams (1995-1996) 186 CLR 71, cited;
Bristol and West Building Society v Mothew (1998) Ch 1 at 18, cited;
Chan v Zacariah (1983-1984) 154 CLR 178, discussed;
Concut Pty Ltd v Worrell (2000) 75 ALJR 312, cited;
Cook v G.S. Deeks & Ors [1916] AC 554, cited;
Daly v The Sydney Stock Exchange Ltd (1985-1986) 160 CLR 371, cited;
Dunne v English [1874] LR 18 EQ 524, cited;
Erlanger v The New Sombrero Phosphate Company & Ors (1878) 3 App Cas 1218, discussed;
Evans v Benson & Co [1961] WAR 12, cited;
Furs Ltd v Tomkies & Ors (1936) 54 CLR 583, cited;
Fysh v Page (1956) 96 CLR 233, cited;
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, discussed;
Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41, cited;
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, cited;
Maguire & Anor v Makaronis & Anor (1996-1997) 188 CLR 449, cited;
Marquis of Clanricarde v Henning (1861) 44 ER 855, cited;
O’Sullivan & Anor v Management Agency and Music Ltd & Ors [1985] QB 428, cited;
Regal (Hastings) Ltd v Gulliver & Ors [1967] 2 AC 134, cited;
Sergeant v ASL (1974) 131 CLR 634, cited;
The Lindsay Petroleum Company v Hurd & Ors (1874) LR 5 PC 221, discussed;
Transport Commission (TAS) v Neale Edwards Pty Ltd (1954) 92 CLR 214, cited;
United States Surgical Corporation v Hospital Products International Pty Ltd & Ors (1983) 2 NSWLR 157, cited;
Warman International Ltd & Anor v Dwyer & Ors (1994) QCA 012b, cited;
With v O’Flanagan [1936] Ch 575, cited;
Yorke & Anor v Lucas (1985) 158 CLR 661, cited.
Law Reform Act 1995 (Qld)
Trade Practices Act 1975 (Cth)COUNSEL:
Mr W Sofronoff QC; with
Mr G Newton; and
Mr A Pomerenke for the first to fifth defendants;
Mr G Gibson QC with
Mr S Lumb; and
Mr T Bradley for the first and second defendants added by counterclaim and the fourth party to the counterclaim;
Mr H Fraser QC; with
Mr G O’Sullivan for the plaintiff;
Mr K Barlow for the third party to the counterclaimSOLICITORS:
Allens Arthur Robinson Lawyers for the first to fifth defendants;
Minter Ellison Lawyers for the first and second defendants added by counterclaim and the fourth party to the counterclaim;
James Watt & Co. for the plaintiff;
Macrossans Lawyers for the third party to the counterclaim
INDEX
Page No. Heading
6 1.0 Introduction
10 1.1 Chronology
12 1.2 Witnesses
142.0 Claims Against Defendants Added by Counterclaim and Plaintiff
14 2.1 Background
23 2.2 The Third Dragline
30 2.3 Mr Foots’ Management Company
35 2.4 The Third Dragline Continued
37 2.5 The Impugned Minute
40 2.6 The Third Dragline Continued
48 2.7 P&H and the Stripping Contract
51 2.8 The Third Dragline Continued
59 2.9 How Southern Cross Bought the Dragline
62 2.10 Sale to a Competitor
64 2.11 Approach to Westpac
66 2.12 The Third Dragline Continued
70 2.13 Spreadsheets
79 2.14 The Third Dragline Continued
86 2.15 Digression to Tokyo
88 2.16 The Third Dragline Continued
93 2.17 Negotiations for the Dragline Agreement
99 2.18 Dividends
100 2.19 Dragline Agreements
104 2.20 The Third Dragline Continued
133 2.21 Mr Foots’ Dismissal
135 2.22 Events Leading to Rescission
138 2.23 Relevant Legal Principles
1412.24 Analysis and Conclusion Concerning Fiduciary Duty and Representations
1472.25 Unconscionable Threats to Leave Ensham
1482.26 Defences I
1502.27 Defences II: Affirmation and Acquiescence
1592.28 Relief
1623.0 Southern Cross’ Claim Against Mr Hill
1654.0 Mr Hill’s Claim Against Mr Foots
1655.0 Exhibits
These reasons for judgment comprise four main parts. In the first part I give a brief introduction to the parties involved in the litigation, an outline of the facts and issues, a chronology of important events and observations upon the witnesses who gave evidence. In the second part I deal with the claims against the plaintiff and the defendants added by counterclaim, but predominantly the first defendant added by counterclaim: Mr Kenneth John Foots. In the third part I deal with the plaintiff’s claim against the third party to the counterclaim: Mr Kenneth Joseph Hill. In the fourth part, I deal with Mr Hill’s claim against Mr Foots.
The facts are quite complex. For the sake of clarity, I traverse the evidence on issues as they were raised and events as they occurred as close to chronological order as I could sensibly manage. The headings in the reasons form a guide to the issues/events to which I had to have regard when reaching conclusions about the legitimacy of the various claims. I state my reasons for judgment throughout.
1.0INTRODUCTION
The second, third, fourth and fifth defendants are joint venturers who together own a large open-cut coal mine (‘the Ensham mine’ or ‘the mine’) located near Emerald in central Queensland. Their respective interests in the joint venture and the mine, differed. The third defendant, together with the second defendant, which was its wholly-owned subsidiary, shared in the assets and profits of the joint venture to the extent of 85 per cent. The fourth defendant had a ten per cent interest in the mine and the fifth defendant five per cent. The third defendant (‘IQ’) is the subsidiary of a large Japanese resources and energy company. The fourth defendant (‘EPDC’) is also a subsidiary of a large Japanese power generating company. The fifth defendant (‘LG’) is a subsidiary of the well known Korean company. The first defendant (‘Ensham’) is a company owned by the joint venturers, the extent of whose shareholding accords with their respective interests in the joint venture.
Ensham operates and manages the mine on behalf of the second, third, fourth and fifth defendants, each of whom appointed one of its officers a director of the company. For some of the time which is relevant to this action, the Ensham mine was being developed. That process required a substantial amount of capital expenditure from the joint venturers. The planning and timetable for the development, including its budget, and the overall supervision of the implementation of the plan, was the responsibility of a Management Committee, the members of which were a representative from each of the four joint venture companies. Despite being a subsidiary of IQ, the second defendant (‘Bligh’) also appointed one of its officers as a director of Ensham and sent a representative to the Management Committee. Ensham’s senior managers attended meetings of the Management Committee, for obvious reasons.
The joint venturers regulated their relationship between themselves and to the Ensham project by an Operating Agreement which provided that Ensham should take custody and control of all property acquired for the purposes of the joint venture. All items of property were to be held by Ensham in its own name on trust for the joint venturers.
Pursuant to the Operating Agreement, Ensham owned and operated two draglines at the mine, which were used to strip overburden from above the coal seams to allow coal to be extracted. Both draglines were large: one, a Marion 8050 had a bucket capacity of 47 cubic metres and the other, a P&H 9020 had a bucket capacity of
89 cubic metres.
The plaintiff (‘Southern Cross’) is the owner of a smaller dragline, a BE 1260 with a bucket capacity of 25 cubic metres. By a written agreement (‘dragline agreement’) dated 30 July 1999 the plaintiff hired its dragline to Ensham for five years for a consideration fixed by reference to the volume of overburden removed. The agreement was conditional upon Southern Cross executing contracts (i) with Bucyrus Australia Pty Ltd (‘Bucyrus’ or ‘BE’) to maintain the dragline in good working order during the term of the dragline agreement and (ii) with Westpac Banking Corporation (‘Westpac’) for the loan of $2,300,000 to enable
Southern Cross to buy the dragline. The dragline agreement became unconditional on 3 December 1999.
Bucyrus is the subsidiary of a large American-owned engineering company, which specialises in building large machines. In Australia, its business is the construction, repair, sale and maintenance of draglines.
Prior to its acquisition by Southern Cross the small dragline was at Blackwater mine, which was operated by Central Queensland Coal Associates (‘CQCA’) a joint venture between BHP Coal Pty Ltd (‘BHP’), Mitsubishi and Queensland Coal Trust (‘QCT’). The machine was about 30 years old and was surplus to its owners’ requirements. It was in reasonably good condition. Each of BHP, Mitsubishi and QCT had to agree to the sale of the dragline. The mode of Southern Cross’ acquisition had some complexity. Bucyrus contracted with the owners to buy it. Bucyrus then, by separate contract, sold the dragline to Southern Cross for the same purchase price. As I have mentioned Bucyrus also contracted with Southern Cross to maintain the dragline in good working order during the term of the dragline agreement. As part of that arrangement it was to keep on hand a supply of spare parts to allow speedy repairs should the dragline break down.
On 16 September 2002, Ensham acted to rescind the agreement following which it took possession of the dragline. Since then it has continued to operate the dragline but has not paid Southern Cross for its use. Southern Cross seeks a declaration that it is the owner of the dragline and an injunction restraining Ensham and the joint venturers from preventing Southern Cross from taking possession of the dragline. As well it seeks to recover monies due under the dragline agreement and damages for wrongful detention of the dragline. The parties have agreed that if Southern Cross should succeed on its claim it is entitled to recover $11,175,905.20 plus $2,608.77 per day from 25 July 2005 to the date on which the dragline is returned to it.
Ensham and its owners have defended Southern Cross’ claim to be paid for the use of the dragline and have counterclaimed against it, as well as against Kenneth Foots (‘Mr Foots’), Foots Pty Ltd, Little Digger Mining Ltd (‘Little Digger’) and
Norma Foots (‘Mrs Foots’). These parties are respectively the first to the third and the fifth defendants added by counterclaim. Raymond Bird (‘Mr Bird’) had been the fourth defendant added by counterclaim. The actions to which he was a party were settled in the ninth week of the trial.
(a) Mr Foots was employed by Ensham as its Chief Executive Officer between
1 August 1991 and 21 June 2001.
(b) Mr Bird was employed by Ensham as its Mine Manager between 1 September 1992 and 21 June 2001.
(c) Mr and Mrs Foots are husband and wife. They were at relevant times shareholders and directors of Foots Pty Ltd (which was earlier known as Foots Consulting Pty Ltd). Mrs Foots resigned her office and transferred her shares on 30 October 2002.
Southern Cross was a company acquired by Mr Foots in December 1998. At its inception Mr Foots was its only director and Foots Pty Ltd was the sole shareholder. Mr Bird (and others) subsequently became directors of Southern Cross. After the dragline agreement was made, Messrs Foots and Bird, by their respective companies, were the major shareholders in Southern Cross. Each held 25.5 per cent of its share capital.
On 22 May 2001 Little Digger acquired all of the share capital of Southern Cross so that it became Little Digger’s wholly-owned subsidiary. The shares in Little Digger are owned by Foots Pty Ltd, Mrs Foots, Mr Bird and members of his family. At all relevant times the directors of Little Digger were Messrs Foots and Bird.
Ensham has alleged against Mr Foots that he owed it fiduciary and contractual duties of good faith and that, in breach of those duties, he failed to disclose to Ensham and the joint venturers facts material to Ensham’s decision to make the dragline agreement with Southern Cross. It is also alleged that, in breach of those duties of good faith, Mr Foots put himself in a position where his personal interest as a shareholder of Southern Cross conflicted with his duty to Ensham and he preferred his own interests, and those of Southern Cross, to his employer’s. Additionally, it is pleaded that Mr Foots made a number of fraudulent misrepresentations which induced Ensham to make the dragline agreement. Subsequent to the date of the agreement but before it became unconditional Ensham expressed a desire to terminate it but was induced by further misrepresentations to believe that it could not lawfully do so. The belief was induced by Mr Foots concealing his prior breaches of duty and making further misrepresentations.
Mr Foots’ alleged misconduct is said to constitute contraventions of section 52 of the Trade Practices Act 1975 (Cth) (‘TPA’), for which both Mr Foots and
Southern Cross are liable.
The agreed rate of remuneration paid to Southern Cross for the hire of the dragline has returned substantial profits to Southern Cross and its shareholders, particularly Mr Foots, Mr Bird and Little Digger. Ensham seeks to recover those profits. There are derivative claims to recover profits, or for compensation or damages, against the shareholders of Southern Cross, Mr Foots, Foots Pty Ltd and Little Digger. An account of profits is also sought against Mrs Foots in respect of her shareholding in Little Digger. The parties have agreed that should Ensham succeed in its counterclaim, and elect to recover damages and/or compensation rather than an account of profits, the amount for which judgment should be given is $2,460,000.
Ensham alleges against Southern Cross that it dishonestly assisted Mr Foots in his breach of fiduciary duties to Ensham by which he received profits from the dragline agreement which should have gone to Ensham, his beneficiary. He, of course, was a director of Southern Cross and a principal shareholder.
Ensham claims that the dragline is held on a constructive trust for it by reason of
Mr Foots and Southern Cross’ breaches of fiduciary duty.
Mr Foots defends these allegations on the grounds that:
(a)any fiduciary or contractual duties of good faith he owed to Ensham did not extend to the negotiations for the dragline agreement;
(b)Ensham did not wish to purchase the dragline itself so it lost no opportunity to its fiduciary;
(c)Ensham gave its informed consent to the transaction with its fiduciary; therefore Mr Foots denies misleading Ensham and asserts that he gave the joint venturers all relevant information;
(d)Ensham acted subsequent to the making of the agreement in such a manner as to indicate its acquiescence in, or affirmation of, the agreement;
(e)by deed dated 21 June 2001 Ensham released Mr Foots from any claim or proceeding arising out of, or relating to, his employment, other than claims for gross negligence and/or wilful misconduct. The release applies to Ensham’s claims against Mr Foots.
The claims against the other defendants to Ensham’s counterclaim are predicated upon those parties having assisted Mr Foots in his dealings with Ensham, which were in breach of his fiduciary duties, with knowledge of the breach. On this basis the claims are made against Southern Cross, Little Digger, Foots Pty Ltd and
Mrs Foots to recover profits from the agreement, in the case of Southern Cross, and dividends declared by Southern Cross from its profits, in the case of the other defendants.
Ensham’s counterclaim against Southern Cross is for rescission of the dragline agreement, a declaration that the dragline is held on a constructive trust for Ensham, an account of profits made by Southern Cross from the agreement, or alternatively equitable compensation and/or a declaration avoiding the dragline agreement pursuant to section 87 of the TPA. Southern Cross’ answer to the counterclaim substantially replicates Mr Foots’ defence to the counterclaim against him.
Little Digger also defends the action against it on the same grounds. As well it denies that its shareholding in Southern Cross, or any dividends received from that shareholding, were received as a consequence of Mr Foots’ alleged breaches of fiduciary duty. Little Digger contends that Ensham has acted inconsistently with its claim to a beneficial interest in Little Digger shares in Southern Cross by seizing the dragline and electing to claim an account of profits from Southern Cross.
In its resistance to Ensham’s counterclaim against it, Southern Cross has joined Kenneth Hill (‘Mr Hill’) as a third party. Mr Hill was employed by Ensham as the Manager of Technical Services between March 1996 and June 2001. He was a senior manager with qualifications in mining and accounting. He also became a shareholder and director of Southern Cross. He prepared a number of financial analyses which were given to Ensham during the negotiations for the dragline agreement. Southern Cross complains that Mr Hill should have known that it would rely upon him to prepare the analyses with reasonable care, and that errors in the models would expose Southern Cross to subsequent claims by Ensham. Accordingly Southern Cross claims Mr Hill owed it a duty to take that care. Separately it is alleged that Mr Hill owed Southern Cross duties as a director to act in good faith in the best interests of Southern Cross and to discharge his duties with reasonable care. If, as Ensham alleges, the analyses were flawed then Mr Hill breached his duty to Southern Cross and it claims damages, or an indemnity or contribution towards any liability that Southern Cross may have to Ensham or the joint venturers pursuant to their claims.
Mr Hill accepts that he owed Southern Cross a duty of care in preparing the analyses after he became a director on 12 July 1999. He defends the claim against him on the basis that the analyses were prepared in accordance with instructions given to him by Mr Foots with whom he discussed their contents and results. He asserts that his work was done relying upon the information given to him by
Mr Foots, which he believed to be accurate.
A further ground of defence is that Southern Cross has not suffered any loss by reason of his alleged negligence because, had Ensham been given the information which it is said the analyses should have contained, it would not have made the dragline agreement and Southern Cross would not have made any profits and is not entitled to damages in respect of profits it must reimburse Ensham.
To complete the circle Mr Hill joined Mr Foots as a fourth party to the counterclaim Ensham brought against him. The basis for Mr Hill’s claim against Mr Foots is that, as a director of Southern Cross, he owed the same duties to the company and breached them by providing Mr Hill with erroneous information for inclusion in the financial analyses. Accordingly Mr Hill seeks contribution or indemnity against
Mr Foots.
Finally Ensham seeks to set aside the transfer of real and personal property from
Mr Foots to Mrs Foots between 26 September 2002 and 5 February 2003 on the ground that the transfers were intended to defraud creditors and are voidable pursuant to section 228 of the Property Law Act 1974. Another impugned transfer concerns 170,000 shares in Little Digger which Mr Foots caused Foots Pty Ltd to transfer to Mrs Foots. Ensham claims that Mrs Foots received those shares knowing that Foots Pty Ltd had acquired them as a result of Mr Foots’ breaches of fiduciary duty he owed to Ensham. It asserts that there is a constructive trust of the shares in its favour.
The claims against Mrs Foots and the claims pursuant to section 228 of the
Property Law Actagainst Mr Foots were ordered to be tried separately and subsequently to the trial of the other claims.
1.1CHRONOLOGY
Despite the complexity and circularity of the actions the dispute is relatively confined. It turns upon what was said at a number of meetings between
September 1998 and December 1999 about the small dragline, and what the joint venturers knew about the transaction which led to its acquisition by Southern Cross.
The content of the last paragraph may suggest an unwarranted optimism. A very large number of witnesses gave evidence at the trial. Their evidence in chief, with two or three exceptions, was given in the form of written statements. The statements from many of the witnesses are long and detailed. The evidence touches upon numerous meetings and conversations between the joint venturers’ representatives, Mr Foots and Ensham’s other senior managers, as well as other parties who became involved in the provision or operation of the dragline. There were frequent meetings between the joint venturers, or some of them, and Mr Foots (and/or his subordinates) with respect to the negotiations for the dragline agreement. On Ensham’s side each joint venturer was represented by two or three employees who attended the same meetings. Each of them has given evidence. As well the joint venturers changed their Australian representatives regularly so that the number of witnesses who attended meetings multiply.
To do justice to the respective cases it is necessary to deal in some detail with many discussions involving many witnesses over a lengthy period.
A brief chronology of the major events with which the actions are concerned may assist with an early understanding of what is involved.
Date Event
10 June 1997 Mr Foots provided Ensham with a ‘third dragline option study’ recommending the early acquisition of another larger dragline anticipated to cost about $20,000,000.
15 August 1997 IQ informed Mr Foots that it wished to defer the purchase of a third dragline for as long as possible.
16 January 1998 Mr Foots informed the joint venturers that he would request a budget expenditure of $20,000,000 in 1998 to buy another (third) second-hand dragline.
14 December 1998 Southern Cross was incorporated. Mr Foots was the sole director and Foots Pty Ltd was the sole shareholder.
April 1999 Mr Foots on behalf of Southern Cross applied to Westpac for a loan to buy the small dragline.
1 June 1999Mr Foots proposed to the joint venturers that a company, to be owned by Ensham’s employees, should hire the small dragline to Ensham. The company was Southern Cross.
12 July 1999 Mr Hill and Mr Bird became directors of Southern Cross.
30 July 1999 The dragline agreement was executed.
11 August 1999 Bucyrus agreed to sell the dragline to Southern Cross.
12 August 1999 Mr Foots distributed an Information Memorandum offering shares in Southern Cross to selected employees of Ensham. He predicted dividends of at least 15 per cent in the first three years of the dragline agreement, 100 per cent in the fourth year and 175 per cent in subsequent years.
23 August 1999 BHP contracted to sell the small dragline to Bucyrus.
25 October 1999 The directors of Southern Cross approved the allotment of shares in the company.
3 December 1999 Westpac approved finance to Southern Cross and the dragline agreement becomes unconditional.
7 June 2001 Mr Foots’ employment was terminated peremptorily.
16 September 2002 Letters rescinding the dragline agreement were sent by Ensham to Southern Cross, Mr Foots and Foots Pty Ltd.
1.2WITNESSES
The Japanese witnesses who gave evidence on behalf on Ensham were able to communicate in English with varying degrees of fluency. Some, like Mr Fujiwara and Mr Ishizaki, testified wholly in English. Despite their linguistic competence their testimony exhibited occasions of confusion or misunderstanding and sometimes an inability to express themselves clearly. Other witnesses gave evidence partly in English and partly in Japanese, with the aid of an interpreter. A number of witnesses made no attempt to testify in English, though all of these professed to be able to read and write the language. It would appear that some, like Mr Nagano and Mr Nakatsuka, could converse in English in a social or relaxed business setting but were unable to do so in the more intimidating and formal setting of the courtroom.
Despite criticism of the approach there is no doubt that demeanour is of some assistance in forming an opinion as to witnesses’ credibility. Somewhat to my surprise I thought that it was helpful in determining whether or not to accept evidence from some witnesses who testified through an interpreter. Having said that I should record that I saw no reason to doubt the evidence of any of the witnesses called to support Ensham’s case. A sustained attack was made on
Mr Ishizaki’s credit. The submissions did not, however, cause me to doubt
Mr Ishizaki’s overall honesty or recollection. For reasons which I will try to make apparent I regarded Mr Foots’ testimony as thoroughly dishonest. He was a most unconvincing, unsatisfactory and untrustworthy deponent. A difficulty for Mr Foots is that the evidence includes a number of his documents which contain serious misrepresentations of fact. Each document was prepared by Mr Foots to advance his pecuniary interest. As well his testimony brings him into conflict in important respects with other witnesses, such as Messrs Nienaber, Gazzard, Quinn, Pegler and Harley, all of whom were disinterested and impressive witnesses. There was nothing in the evidence, nor their manner of giving it, of Mr Hill and Mr Dawson (with one exception in Dawson’s case) which would lead me to disbelieve them. For reasons which I will explain, some caution is needed in assessing Mr Hill’s testimony, which is important. I thought his evidence should be accepted.
I have taken the narrative for ‘the third dragline’ substantially from the evidence of Mr Ishizaki because he attended nearly all of the relevant meetings and, with one exception, made a note of what had been said. As well he was the IQ employee with particular responsibility for the Ensham mine. I have thought it safe to rely upon his account. I thought he was a reliable and honest witness. There is no doubt that at times he struggled to comprehend what was being put to him or to express himself clearly in response to questions. The gist of what he said was plain enough.
There are two respects in which Mr Ishizaki appears to have been mistaken. One concerns his account of the signing of the dragline agreement on 30 July 1999 and the other the events at a meeting on 14 July 1999. What I regard as Mr Ishizaki’s mistaken account of these two events does not lead me to disbelieve him or regard him as an unreliable witness.
Their impaired facility to comprehend and express themselves in English, which the joint venturers’ representatives to a greater or lesser extent possessed, must have meant that in their dealings with Mr Foots there was considerable scope for misunderstanding or incomprehension. This would have been so whether or not there was any chicanery on Mr Foots’ part. Any attempt by him to mislead or deceive a Japanese audience would have been made easier by that lack of facility.
Mr Andrew Smith, IQ’s solicitor for many years, noted that:
‘… generally, the Japanese representatives had difficulty understanding what I was saying to them and then would ring me up to ask me to explain it … I would often put my advice in writing because it was my experience that they preferred to have the time to digest the advice and understand what was being conveyed to them as opposed to … simply (providing) oral advice.
…
It is unlikely that I gave any oral advice to (Mr Ishizaki on 3 June 1999). As a matter of practice I did not do so because I had found, by experience that representatives of Idemitsu would give an impression that they understood, by nodding their heads, but in fact did not understand advice given to them.’
In oral testimony Mr Smith said (T 1512.19 - 32):
‘I usually asked (Mr Nakatsuka) to put his requests in writing.
Is that because you found it difficult to understand each other intelligibly? – It shortened the process of understanding. Over a period of time when we discussed things, I would understand what he needed, but it took some time; sometimes a great deal of time.
I take it you are saying there was a comprehension difficulty between you and the various Japanese gentlemen from Idemitsu that you spoke to over the years? – Yes, to a greater or lesser extent. Usually their command of written English was much better than their command of spoken English.’
I would accept Mr Smith’s assessment in its entirety given my reading of the evidence in this case and my observation of the witnesses.
It was the habit of the Japanese representatives of the joint venturers who attended meetings with Mr Foots or other senior managers to make notes of what was said and to compile a written memorandum of the meeting afterwards, both as a record and as the basis for a report to be transmitted to their head offices in Tokyo. There are, accordingly, usually several records of the same meeting. As well the Ensham employees, usually Mr Dawson, would often prepare a minute of meetings. Formal minutes were kept of the Management Committee meetings. With the exception of one document, which is discussed at some length, the contemporaneous written records appear to be reliable, though incomplete on occasions.
The communications between the defendants’ officers in Australia and their superiors in Asia were in Japanese. The documents have been translated for the purposes of the trial and, despite some initial quibbling about the accuracy of translation, the effect of the original communications appears to have been caught in the English versions, though there well may be nuances of meaning and subtleties of expression that are not captured. On some occasions a witness who was bilingual was asked to read in English what he had written in Japanese. Once, a little irregularly but without objection, the interpreter was asked to give the English rendition of a Japanese passage.
2.0CLAIMS AGAINST DEFENDANTS ADDED BY COUNTERCLAIM AND PLAINTIFF
2.1BACKGROUND
Idemitsu Kosan (‘IK’), which is the Japanese parent of IQ, had a number of mining interests in Australia in addition to the Ensham mine. It owned a mine at Muswellbrook, as well as one at Ebenezer near Ipswich. By a process which need not be recounted in any detail IK became the owner of a wholly-owned subsidiary, Apollo Resources Pty Ltd (‘Apollo’), which then became the owner of a number of coal mines in Australia (although not Ensham) and which supervised and managed IK’s coal mining interests, including Ensham.
Despite its enormous size and wealth IK is a privately owned, family, company. Its principal business is the production and sale of petroleum products. It has interests in coal, but these amount to only about three per cent of IK’s business.
Apollo’s office was initially in Sydney but moved to Brisbane on 1 July 1999. Its senior staff consisted mostly of IK employees who were seconded to Apollo, usually for a term of only two or three years. The terms of the secondment, at least of the more senior people, included appointment to directorships in Apollo, IQ and Bligh, or some of them. As well an IK employee at Apollo would represent IQ at Management Committee meetings; another would represent Bligh. They would have responsibilities to Apollo and IK not only for the Ensham project but for IK’s other coal mines in Australia.
IQ was the largest shareholder in Ensham. It held 85 per cent of the shares and
85 per cent of the joint venturers’ interest in the Ensham project; its employees supplied the chairman of the Management Committee. The other joint venturers tended to follow IQ’s lead in matters concerning the development or operation of the Ensham mine. That is not to say they did not take their responsibilities seriously, but their smaller interest and lesser financial commitment meant that IQ played a larger role in the management and decision-making of the joint venture.
A consequence of the rotational policy by which IK’s employees served relatively short terms in Australia meant that new and inexperienced employees were required to deal with negotiations or decision-making processes which pre-dated their appointments and about which they had no prior knowledge.
There can, I think, be no doubt that the joint venture representatives placed great confidence and trust in Mr Foots’ knowledge, experience and integrity. They had little choice, but it is clear that they regarded him highly as a competent and knowledgeable Chief Executive. Their faith in his skill and competence was, no doubt, well placed. As I have indicated, and as will emerge more clearly, their faith in his honesty was misplaced. None of the representatives had any particular knowledge of coal mining in general, nor the operation of open-cut coal mines in particular, or the characteristics and operational requirements of draglines.
Mr Foots had such knowledge, acquired from a lifetime in mining, and decades in coal mining.
The senior managers employed by Ensham were often referred to as ‘the Foots team’ or the ‘management team’. In fact the senior managers had all been recruited by Mr Foots, or on his recommendation. This was true of Mr Bird, Mr Hill,
Mr Edmondson and Mr Dawson, who between them occupied all the important managerial roles in Ensham. Mr Edmondson was the Commercial Manager and Secretary. Mr Dawson was initially appointed as Exploration Manager but soon became the General Manager of Marketing. Mr Hill was appointed later as Manager of Technical Services. Mr Edmondson died before the action commenced.
There is no doubt that Mr Foots, and his ‘team’, did manage the development of Ensham’s mine efficiently, economically and expeditiously. A particular achievement was to secure a non-unionised workforce which gave Ensham an enviable record of industrial harmony and minimal stoppage in production or disruption to supply by reason of industrial action. This achievement was particularly prized by the joint venturers.
It is equally clear that Mr Foots appreciated that his superior knowledge and experience gave him an ascendancy over the joint venture representatives in his dealings with them. They were in no position to argue with him about the correctness of his assertions or recommendations. In particular Mr Foots understood that the joint venturers did not ‘have the dragline experience that we had’ and that in dealing with them on the subject of draglines ‘they were at a disadvantage.’ (T 2401.50 - 58)
Mr Foots did not bother to conceal his realisation that he was superior to the joint venture representatives in knowledge of things pertaining to coal mines and, therefore, power with respect to decisions affecting the operation of coal mines.
Mr Ishizaki, upon taking up his duties in Australia in July 1998, was reminded by Mr Foots that he had recently been ‘working as a trainee in the coal department’ in IK in Tokyo. Mr Ishizaki recognised the comment as a deprecation and a claim by Mr Foots to dominance in their relationship.
Mr Nagano had a somewhat similar experience. When he expressed his anxiety about mining in an area which had not been part of the original proposal for Ensham, Mr Foots told him that he was a ‘green boy’ and should not worry because he, Foots, ‘was very experienced’. Mr Nagano was, in fact, a mature, educated and intelligent man.
Mr Foots was capable of rudeness when he became, or professed to become, impatient with the joint venturers’ ignorance. On one occasion he told Mr Ishizaki that ‘an employee like you is referred to as a post box in Australia. You have no powers of decision and confer with head office on everything.’ The second part of the observation may have been accurate, though the personal slight was unnecessary. There is also evidence from Mr Matake that on occasions when
Mr Foots was questioned about a recommendation, so that the joint venturers could have a better appreciation of what this involved, Mr Foots was dismissive.
Of more immediate relevance to the issues in the trial is the fact that, as well as possessing vastly superior knowledge about coal mining, Mr Foots had all the relevant information concerning the contentious third dragline. He and his team were Ensham’s and the joint venturers’ only source of information about operations at the mine and the prudence or desirability of acquiring the third dragline.
IQ’s interest in the Ensham mine began in the 1980s when it, and some other companies, acquired exploration and prospecting rights. By 1991 more than $26,000,000 had been spent on investigating the coal deposits and IQ had paid its share. In 1988 IQ bought out the second defendant’s (‘Bligh’) interest in the joint venture for $6,120,000 by acquiring all the shares in that company. In 1989 IQ paid a little over $3,000,000 to acquire the interests of two other joint venturers. There were, however, difficulties involved in developing the mine. In large part these were due to disputes which arose between IQ and those other joint venturers who complained that their interests had been unlawfully circumvented by IQ and that they still had an interest in the mining tenements. This led to protracted litigation in this court which was not resolved until 1992. The result was that IQ, Bligh and LG were confirmed as the owners of the mining tenements but were obliged to pay substantial compensation to their former partners. At that time EPDC had not joined the joint venture. The judgment left outstanding a dispute between the joint venturers and their former partners about the right to mine over land adjacent to the Ensham mine but necessary for its mining activity. The exploration and extraction rights were held by the former partners. By mid-1992 a compromise had been negotiated which allowed the joint venturers to exploit that land.
In the meantime Ensham had proceeded to develop an area outside the main mine area, known as Yongala.
The litigation delayed the development of the mine and the commencement of mining. As a result the joint venturers lost opportunities to sign contracts for the sale of coal. In October 1991, however, they managed to secure a contract to supply coal to a Korean power company.
In July 1992 the joint venturers acquired their first dragline, a second-hand Marion 8050 from Capricorn Coal Management Pty Co. (‘Capcoal’). There was some delay in its acquisition. It had first been inspected in February but IQ would not commit itself to the expenditure until the litigation was resolved and the joint venturers’ right to exploit the mine was established. The dragline did not start work immediately at the mine which was not then at a stage where the dragline could be utilised. Instead it was leased back to Capcoal until March 1993 when it was moved to Ensham and commenced stripping overburden at Yongala.
Mr Foots was employed by Ensham pursuant to a contract evidenced by a letter dated 23 July 1991 to him from Ensham, which he and Mr Horii, who was at the time chairman of Ensham’s board of directors, both signed. The contract relevantly provided:
‘1. DUTIES
You shall be responsible for ensuring the implementation of the objectives of (Ensham) …, in accordance with the policies and directions of the board of directors … and the Management Committee …, and subject to such controls … you will be responsible for:-
-The development of the Ensham Mine.
-Review and finalisation of the development programme and budget.
-The formulation of an appropriate management structure.
-Operation of the Ensham Project on a competitive basis.
-All other matters customarily performed by a person holding the position of Chief Executive Officer …
During the term of your employment, you shall devote your full time and attention to, and use your best efforts in furtherance of the interests of (Ensham) …
2.TERM
Your employment will commence on 1 August 1991 and shall continue until 31 July 1994 and will be extended thereafter for successive periods of one year each unless either you or (Ensham) gives notice …
…
3.REMUNERATION
You shall be paid a remuneration package of $250,000 per annum …
…
6.CONFIDENTIAL INFORMATION
You shall not, either during or after your employment with (Ensham), except as authorised by (Ensham), use or make known to any other party any confidential information obtained in the course of your employment.’
An attachment to the letter was headed ‘MAIN ACCOUNTABILITIES’. It stipulated that Mr Foots was to:
‘8.Prepare and present to the Board the Company’s development and operation plans.
…
10.Prepare recommendations regarding matters requiring Board approval and present the same to the Board.
11.Ensure a fully informed Board through accurate and timely reporting on a regular basis in accordance with the Board requirements.’
Mr Inoue replaced Mr Horii, who returned to Tokyo in July 1994. Mr Inoue was appointed chairman of the Management Committee during his secondment to Apollo between mid-1994 and 1998. Shortly after his appointment Mr Foots’ term of employment expired and an extension was negotiated. By a letter dated
13 July 1994 from Mr Inoue to Mr Foots and signed by them both, Mr Foots’ appointment as Chief Executive Officer of Ensham was extended until 31 July 1997. His remuneration was increased but the terms of the previous contract were largely replicated. Mr Foots’ duties specifically referred to were:
·‘The development and operation of the Ensham and Yongala Mines.
·Review, finalisation and implementation of development programmes and budgets.
·The administration of the management structure, and the formulation of any modifications.
·Operation of the Ensham Project on a competitive basis.’
This contract did contain a new term, by which Mr Foots was to be paid incentives:
·Two per cent of any savings which reduced the amounts expended on Stage 2 of the Ensham Coal Project … to less than $20,720,000; and
·20 cents per tonne of coal produced in excess of 1.1 million tonnes per annum (MTPA) not to exceed $40,000.
The latter term was included at the request of Mr Foots who advised Mr Inoue that it was ‘normal’.
In 1994 Ensham was producing coal from the Yongala pit which was Stage 1 of the mine’s development. The dragline purchased in 1992 was operating there. Stage 2 of the development was the exploitation of coal from the main pit at Ensham itself. This activity was underway by July 1994. At this time the joint venturers turned their attention to the third stage of development. Quite lengthy consideration was given to whether the project should move to Stage 3 or whether that development should be deferred.
In May 1995 Mr Foots recommended to Ensham that it purchase a second dragline in order to increase coal production. The dragline was the most cost-effective means of gaining access to the coal. In July 1995 Mr Inoue notified Mr Foots that IK had not approved advancing to Stage 3 of the development and that acquisition of a second dragline was considered part of that stage. Accordingly Mr Foots’ recommendation to acquire the second dragline was not acted on. Mr Inoue requested Mr Foots to prepare, for the consideration of the Management Committee, a detailed feasibility study for the further development of the Ensham mine. On
3 January 1996 Mr Foots delivered his report entitled ‘Ensham Coal Project Stage 3 Development – 25 Year Feasibility Study’.
It is worth quoting from the report because it provides a description of the mining operation at Ensham, and its development, as well as dealing with some aspects of relevance concerning the proposed use of draglines. It read, in part:
‘This report has been prepared following a request from Idemitsu to prepare a study detailing the development of the third stage of the Ensham Project to give a nominal production level of 5.5Mtpa from the opencut coal reserves through to the year 2019.
This report sets out a strategy for the further development of the … Mine and covers Stage 3 which consists of a commitment by the Joint Venturers to construct:
·Dragline Nos. 2 and 3 and associated mining equipment.
·Coal treatment facilities (crushing, stockpiling and train loading).
·Small coal preparation plant.
·Support services and facilities including workshop/store and office.
·Ensham village accommodation.
·Rail spur line.
·Water management system.
·Roads, access and haul roads.
The implementation of this strategy results in an increase in coal production from the current 1.8Mtpa to 3.8Mtpa by JFY 1998 and to 5.5Mtpa by 2000 following the Stage 3 capital expenditure program of A$268.514 million and results in a rate of return to the Joint Venturers of 29.3%.
…
1.2 Existing Operations
The Ensham Joint Venture was established in November 1990 to develop the Ensham coal reserves …
In order to satisfy contractual coal supply obligations a small scale operation was commenced in the Yongala pit with first coal rail to the port in September 1993. This Stage 1 operation commenced at an annual production of 0.9Mtpa, using a secondhand dragline purchased from German Creek.
With legal impediments removed to the establishment of a mine in the lower stripping ratio Ensham area the Joint Venture moved to utilise these coal reserves by committing to the development of Stage 2 with first coal being mined in December 1994 from a contract truck and shovel operation. The dragline moved from Yongala to this area in March 1995 and production now has doubled to 1.8Mtpa.
…
1.6Mining/Mining Equipment
The mine plan for Stage 3 development allows for the existing 8050 Marion dragline to strip overburden … until a new and larger dragline is commissioned in 1998. At this time the 8050 dragline will move south … and commence work in Pit B. The new machine will move to Pit D.
Contract removal of overburden will continue in Pit C and then will supplement the draglines by pre stripping. …
Coal extraction will continue as presently (practiced) using hydraulic excavator or front end loaders mining carefully in whole of seam or (piles) as needed to satisfy quality considerations. Coal will be hauled by bottom dump truck or by side dumping road trains to the Ensham coal treatment facility.
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1.14Project Implementation
The key milestone dates associated with Stage 3 development are:
· Stage 3 approval by Joint Venturers 1 April 1996
· Coal Treatment Facility and Loadout 1 May 1997
· Rail Spur Line and Balloon Loop 1 May 1997
· Dragline No. 2 Commissioned 1 September 1998
· Dragline No. 3 Commissioned 1 April 2000
· Coal Preparation Plant 1 April 2001
1.15Project Cost Estimates and Economics
1.15.1 Capital Costs
The capital costs … including the completed Stages 1 and 2 plus Stage 3 are estimated in current terms at $385.7 million …
Stage 3 has been divided into Stage 3(a) which is up to completion of the second dragline in September 1998 and then Stage 3(b) which is at completion of the third dragline and a small preparation plant.’
The utilisation of draglines was dealt with in greater detail in the body of the report:
‘6.0 MINING/MINING EQUIPMENT
…
The two present pits are mined using an 8050 dragline in D pit, and a contract truck and shovel fleet in C pit. Truck and shovel stripping is necessary in C pit due to large thicknesses of sand which pose difficulties for a dragline operation.
…
6.2Mining Methods
6.2.1 Overburden Extraction
Large walking draglines will be the main excavation units. The study considers three machines, a smaller 8050 Marion dragline currently in operation, with a bucket size of 47 cubic metres, and two larger, new draglines with 75 cubic metre buckets. All machines essentially have similar operating dimensions with the larger draglines each accounting for an overall production rate of 19.84 million cubic metres per year, and 13.0 million cubic metres per year for the 8050.
…
6.3Mine Development Strategy
The mine development hinges around three principal events, the first being the completion of the rail spur and loadout facility, and the second and third being the completion of each of the new draglines. All other activities such as contract stripping, and the smaller dragline movements are dependent on these events.
The rail spur will be completed in May 1997, while the first new dragline will be operational in September in 1998 and the second at the commencement of JFY 2000.’
“JFY” is a reference to the Japanese financial year, which commences on 1 April.
The reference to ‘truck and shovel operations’ is a reference to the removal of overburden by mechanical shovels and trucks. Shovels, in this context, come in a variety of types but at Ensham they were excavators of the familiar kind. Excavation by truck and shovel was performed as a preliminary to large scale overburden stripping by a dragline. This was referred to as ‘pre-stripping’. As well light, sandy soils were better suited to excavation by mechanical shovels rather than draglines. Ensham’s truck and shovel contract was with Golding Contractors Pty Ltd (‘Golding’). The overburden removed by dragline or excavator was measured in ‘bank cubic metres’ or ‘bcm’. Golding charged $1.55 per bcm.
The report also dealt with the sale of coal from which the joint venturers’ profits would come. The economics of the project were predicated upon the mine producing and selling 5.5 million tonnes of coal per year from the year 2006 to the year 2019. Ensham did not have committed purchasers for those quantities.
The report estimated the cost of the third dragline, to become operational in the year 2000, to be $55,000,000. Its commencement was to coincide with the increased production of coal to 5.5 million tonnes per annum (‘MTPA’), which was to remain constant as the volume of coal produced and sold until the year 2019.
The report contemplated that:
(a)a second dragline with a 75 cubic metre bucket capacity would be acquired as part of Stage 3a;
(b)a third dragline, also with a 75 cubic metre bucket capacity would be acquired as part of Stage 3b;
(c)Ensham’s first dragline, the Marion 8050 would commence work in B Pit in 1998;
(d)there would be some mining operations in the flood plain where overburden would be removed by truck and shovel operations; and
(e)these initiatives would result in an increase in coal production from 1.8 MTPA to 3.8 MTPA by 1998 and to 5.5 MTPA by 2000.
In May 1996 Mr Foots recommended to the joint venturers that Ensham buy a new P&H 9020 dragline with a bucket capacity of 89 cubic metres for an estimated cost of $54,000,000. ‘P&H’ was the name by which Harnischfeger of Australia Pty Ltd was known. The Management Committee which met on 31 May 1996 approved the purchase of that dragline and formally gave their approval for the mine to be developed to Stage 3(a). On 5 June 1996 P&H duly contracted to build the new dragline which was completed, about seven weeks late, in August 1998.
In February 1997 EPDC became a joint venturer by acquiring a ten per cent interest in the Ensham coal project from IQ. EPDC’s parent company was a very large power generating company in Japan which bought substantial quantities of coal. At about this time EPDC’s Japanese parent entered a long-term contract for the purchase of coal from Ensham. It took an interest in the joint venture to ensure the continuity of supply. The agreement provided for the delivery of coal over 15 years. The volume of coal to be sold increased from 300,000 tonnes in the first year to 2,000,000 tonnes in the fifth and each subsequent year of the contract.
It was a term of the contract that the coal should contain no more than 700 parts per million of chlorine. If the chlorine content exceeded 1,000 parts per million the buyer was entitled to reject the shipment. This requirement posed a problem for Ensham because its coal was relatively high in chlorine. There were deposits of coal which had a low chlorine content and the contract specification could be met by blending coal from these deposits with other coal to provide an average chlorine content which met the specification.
The contract to supply coal to EDPC was of particular importance to Ensham and the joint venture. As Mr Dawson explained, a 15-year contract was exceptional. Mostly coal sales contracts were for one, two or three years. As well the quantity of coal to be sold each year was unusually large. The contract was, therefore, valuable to Ensham. For its part EDPC stressed their need for the reliability of coal supply for their power stations. This was of paramount importance to EPDC and, therefore, Ensham. Mr Dawson explained:
‘Our Japanese customers (more than any others), and especially EDPC are extremely sensitive to, and anxious about, the possibility of any disruption in the supply of coal … EPDC is, without a doubt, our most demanding customer.’
2.2THE THIRD DRAGLINE
Part of the land included within the Ensham mine site was a flood plain of the Nagoa River. The permits and approvals which gave Ensham the right to extract coal made an exception of the flood plain, but following negotiations with the relevant authorities in about May 1997 the flood plain was included in the area from which coal could be extracted. The result was that a significant quantity of coal covered by relatively thin layers of overburden was available for mining. This became B Pit.
Mr Foots reported to the Management Committee meeting of 30 May 1997 that ‘the impact of opening up this area will mean the production will go straight to five million tonnes next financial 1998/1999 from the main mine and 5.5 million tonnes in future years … The new coal handling plant … would be adequate to handle the additional capacity with the only extra expenditure required being about $0.5 million for a conveyor. This could be funded from the Stage 3 budget.’
According to the minutes Mr Foots advised that studies were being undertaken to determine what Ensham’s future requirements for additional dragline capacity would be. The minutes record that Mr Foots ‘indicated that the preferred option would be the purchase of a second-hand Marion 8050 dragline or equivalent should a suitable machine become available at the right price. … Now the … flood plain is available for mining, the urgency for a third dragline has been reduced. A decision on a new dragline is not required for at least two years while the flexibility with the second-hand dragline puts us in a better negotiating position when a suitable machine becomes available … a second-hand machine is not likely to be available for at least 6-12 months.’
On 10 June 1997 Mr Foots sent the joint venturers a document entitled ‘Third Dragline Option’, which discussed the viability of purchasing a third dragline. Five studies were carried out and the conclusion was summarised by Mr Foots in a memorandum which accompanied the report. He wrote:
‘The new ability to mine the Flood Plains coal reserves just south of the Nogoa River … has greatly influenced the Ensham Mine’s production and capacity for the next few years. This is the result of the low strip ratios on the flood plains, and the necessity to open up B Pit North of the flood plains with contractors (shovel/truck) to meet government conditions.
This has resulted in a completely new mining schedule which cannot be compared directly with previous studies …
“Our recommendation is that a secondhand Marion 8050 or equivalent be purchased as soon as one becomes available which is acceptable in terms of price and condition”
The study highlights there is some flexibility in the timing of purchasing a secondhand dragline … Ensham believes there will be at least one dragline, with a maximum of three draglines, available in the next eighteen months.’
The cost of the second-hand Marion dragline was said to be $20,000,000. Mr Foots sought approval for the recommendation by 10 July 1997.
It will be appreciated that the recommendation contained in the report of 10 June differs significantly from the report to the Management Committee on 30 May. Within two weeks of that meeting Mr Foots was advocating the purchase, for a cost of $20,000,000, of a dragline ‘as soon as one becomes available’ when the recommendation to the meeting was that a decision on a new dragline would not be required to at least two years. Ensham’s counsel suggests, with some justification, that the reason for the change is to be found in the renegotiated contract of employment with Mr Foots of 6 June 1997. The terms were roughly similar, though two points of distinction emerge. The first concerns Mr Foots’ obligation to serve Ensham. In the earlier contracts he had been required to devote his ‘full time and attention’ to Ensham’s business. The new contract required Mr Foots only to devote his ‘time and attention’ to Ensham. The second point of distinction is that Mr Foots was to be paid incentives, being 1.5 per cent ‘of any savings which reduce the amount from the annual approved budgeted … cash cost … multiplied by the annual invoiced sales tonnage.’ The result was that Mr Foots stood to gain financially from producing coal cheaply, whether or not it could be sold profitably. Mr Foots or his staff prepared the draft of the employment contract which was accepted by Mr Inoue who did not notice the first change. The second change was suggested by Mr Foots; Mr Inoue probably did not appreciate its significance. The recommended acquisition of the third large dragline would have led to increased production of coal more economically than the truck and shovel contract.
On 15 August 1997 Mr Inoue, having consulted his superiors in Tokyo, wrote to
Mr Foots to express IQ’s attitude to the acquisition of the third dragline. The facsimile reads:
‘… [I]t is the best option for the Joint Venture to purchase a second-hand Marion or equivalent as the third dragline when we proceed to the production increase to 5.5 MTPA.
Secondly, we note that even with two draglines the Ensham mine will have the production capacity of 5.0-5.5 MTPA from Y1998 through Y2001 under the Stage 3(a) Development with the recent approval to mine the River Flood Plain without any further capital expenditure.
Thirdly, (Bligh) … and (IQ) would need to consider the sales prospects for the possible increased tonnage before the Management Committee can approve the increased production … We would need to be reasonably satisfied with the sales prospects for the increased tonnage and the profitability of such sales.
…
Obviously, under the present low priced market we do not need to hurry for purchasing the third dragline when the … Mine is soon to hold the capacity … of producing up to 5.5 MTPA for the next couple of years with the two draglines. … [W]e would like to defer the timing to purchase the third dragline as late as practically possible.’
The concern about obtaining customers for the additional coal produced and the profitability of sales was a reflection of the then market conditions. It was the time of the Asian currency crisis when economic activity in east Asia had declined, as had the price of coal. IQ thought, reasonably enough, that there was little point in incurring the costs of producing additional coal that could not be sold, or sold at a profit. Moreover the increase in production to the projected maximum amount was possible without the acquisition of a third dragline, as the letter explains.
At the Management Committee meeting on 29 August 1997 the joint venturers accepted that the purchase of a second-hand dragline was a preferable course but IQ, Bligh and EPDC all considered it essential to have firm prospects of selling the additional coal before the third dragline was purchased. Mr Foots expressed his confidence at the meeting that a second hand dragline, equivalent to a Marion 8050, would become available from an adjacent mine within 12 months and for a price less than $20,000,000.
At the next meeting of the Management Committee on 4 December 1997 Mr Foots said that there was a dragline at the Gregory mine which had not been in operation for about four months and he expected that it would become available for sale.
Mr Sato, the representative of EPDC, asked Mr Foots to explain how the acquisition of a third dragline would benefit the joint venture because, unless the acquisition could be justified on financial or economic terms none of the joint venturers would consider it.
Mr Foots’ response was that a second-hand dragline could remove the overburden from above the coal under the flood plain more cheaply than utilising the truck and shovel contractor which, to that time, was engaged in the task. The truck and shovel operation would remain necessary because some material was not suitable for removal by a dragline but if a dragline were acquired the volume of material to be removed by truck and shovel would be greatly reduced. Mr Foots also said that the joint venturers should decide at an early stage whether to acquire a third dragline because second-hand machines were not always available for sale and a new machine would take about two years to have built.
On 21 January 1998 Mr Foots sent the joint venturers a copy of a memorandum prepared by Mr Hill. It read, relevantly:
‘The 25 Year Feasibility Study dated January 1996 outlines the staged expansion of Ensham Coal Project. Stage 3A is nearing completion … The second dragline … is due to be commissioned in June 1998, some three months ahead of the original plan of 1 September 1998.
Stage 3B includes the purchase of an additional dragline to be operational on 1 April 2000. To achieve this timetable for a new dragline requires the order to be placed prior to 1 April 1998.
There are several options available, these include various sized new draglines and the option of a secondhand dragline. The following table summarises the capital costs of these options …
…
The Third Dragline Option Study of June 1997 indicated a superior economic option to purchasing a new dragline was the purchase of a second hand dragline. There is currently a second hand Marion 8050 dragline idle at BHP’s Gregory Mine. It is likely that this machine could be purchased for approximately $16.7 million, including walking it to Ensham.
The earlier delivery period … means two years earlier production …’
Mr Inoue sent Mr Hill’s memorandum to IK’s head office in Tokyo and received a response from Mr Fujiwara (who was then a senior manager in IK’s office and is now the Managing Director of Apollo Resources). Mr Fujiwara’s reply, translated, reads:
‘1. We are fully aware of the benefits of the second hand dragline.
1)On the premise that we can sell 5.5 million tonnes/year at the stated price the cash flow for the option of the second hand dragline is greater than that of the contractor option. (Approximately A$10 million/year)
2.However, we would like to proceed in the following manner as an investment project on the basis of sales forecasts and the investment environment within Idemitsu.
1)We will make a decision to purchase the second hand dragline when the following conditions are met.
§When sales of 5.5. tonnes/year are substantially in sight.
§When it has been confirmed that (Apollo’s) loan repayments are being made ahead of schedule.
§When we can cover the loan repayments and investment with Ensham’s cash flow.
§When we are able to obtain a second-hand dragline in good condition.
2)We think the timing … on the purchase of the second hand dragline will be in the second half of 1999.
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4)In the unlikely event that there is no second-hand dragline at that time we will continue production with the contractor. (On the basis of our judgement that a second hand dragline will come on the market in the future)
3.In line with your proposal, please pursue the possibilities for renting a second-hand dragline in place of the contractor.’
The translation may not reflect the true meaning of Mr Fujiwara’s original, Japanese, communication. It is likely that the second dot point in paragraph 2(1) should be understood as a requirement that the loan repayments be made on schedule, not ahead of it.
On 4 February 1998 Mr Inoue attended a regular marketing and sales meeting involving officers of Ensham, ECS (Ensham Coal Sales Pty Ltd, the selling company for the joint venturers’ coal) and Apollo. During the meeting Mr Foots said that if EPDC’s demands for low chlorine coal were to be met a third dragline was essential. He said there were two possibilities: a Marion 8050 at Gregory mine or another Marion 8050 at Norwich Park. Mr Inoue asked Mr Foots whether it was necessary to make a decision on acquiring a third dragline immediately when the two draglines then in operation at Ensham, together with the truck and shovel contractors, could achieve the desired production of 5.5 million tonnes per year until 2001 and the dragline would not be fully used for two years. Mr Inoue also raised the possibility that a dragline might be rented for a period and bought later.
Two days later, on 6 February 1998, Mr Foots sent a memorandum to the joint venturers enclosing a note written by Messrs Hill and Edmondson of the same date. Mr Foots summarised:
‘The recommendation is to urgently decide on the purchase of a second hand dragline.
In relation to the three potential second hand draglines discussed previously, my latest confidential information is that there will not be a dragline coming available from Curragh. Oaky Creek have recently re-commissioned the dragline … BHP … could return the … draglines at … Norwich Park to production … This increases the urgency for a decision on this matter.
Ensham’s earlier correspondence indicated some flexibility in the timing of a second hand dragline purchase. This was correct in June 1997. Now a decision must be made to either purchase a second hand dragline or a new dragline on 1 April 1998. The flexibility regarding the timing of this decision has been consumed with the number of available draglines decreased.
A decision on this matter is requested at the next Joint Venture meeting.’
Despite Mr Foots’ urging Mr Inoue thought it unlikely that a commitment to acquire a third dragline could be made at the next Management Committee meeting. He was not satisfied that such an acquisition was necessary. He had not received what he regarded as a satisfactory explanation from Mr Foots as to why the long term sales contracts which Ensham had could not be met using the current draglines and contractor. Mr Inoue was concerned about the prospect of selling coal to Asia; demand was low. He thought the acquisition of a new dragline should be deferred until it was clear that there would be ‘profitable sales to match production of 5.5 MTPA …’. Mr Sato of EPDC shared these concerns. He was unpersuaded that a third dragline was needed, or that additional volumes of coal would be sold profitably.
Mr Inoue corresponded with Mr Fujiwara in Tokyo. On 24 February 1998
Mr Inoue sent Mr Foots a facsimile to explain IK’s attitude. It read:
‘… [W]e have fully understood the advantage to introduce the third dragline when we increase the nominal production level … to 5.5 MTPA. We basically agree … that it is the best option to purchase a second-hand dragline …
However, we are of the view that it is premature to purchase a second-hand dragline at present and therefore we should defer the dragline purchase due to the following reasons.
Firstly, … we have not had a clear sales prospect for a level of 5.5 MTPA … [I]t would take some more time for ECS … to secure more term contracts which we believe will be required for the Joint Venturers to decide on the third dragline.
Secondly, it has become rather difficult for us to project the future coal demand in the Asia due to the change in the economic situations … It would be wise for us to hold a conservative view that coal prices would not pick up at least for the next couple of years …
Thirdly, even if we purchased the third dragline and increased the production, … ECS would need to sell Ensham Coal at cheaper prices in the spot market, resulting in simply lowering market coal prices. This would be contrary to the benefit to the Joint Venturers.
Fourthly, the Operator has advised the Joint Venturers … that even with two draglines the Ensham Mine will be able to achieve a production level of 5.5 MTPA through FY2001 …
While we fully understand the disadvantage of using mining contractors … when compared to using draglines, we would need to consider the sales prospect for the … increased tonnage and the profitability of such sales … (before) we could make a decision to purchase … a second-hand dragline.’
There was another meeting of the Management Committee on 27 February 1998. LG had given its approval to the purchase of a second-hand dragline prior to the meeting and Mr Foots pressed the other joint venturers for their approval. He said that coal could be supplied to meet sales commitments using the two draglines and the truck and shovel contractors until 1999, but in the following years there would be a problem extracting sufficient low chlorine coal to satisfy requirements. He said it would be cheaper to have the third dragline and that it was not always possible to acquire a second-hand dragline and that the purchase of a new dragline would take at least 28 months. To begin operation in 2001 a new machine would have to be ordered in 1998. He asked the joint venturers to make a decision.
The minutes of the meeting record that Mr Foots said he had held preliminary discussions with contractors who were prepared ‘to finance the purchase of a second hand dragline secured by long term stripping contracts.’ This is apparently a proposal that an independent contractor acquire the dragline and hire it to Ensham. The business risk was to be avoided by long term stripping contracts, the return from which would cover the contractor’s costs of acquisition and operation. This is the first time such a proposal appears to have been mentioned.
On 25 March 1998 Mr Foots sent a facsimile to the joint venturers enclosing an updated third dragline study. Mr Foots summarised the effects of the study as being that, unless the third dragline was put into operation by 2001, there would be an ‘inability to satisfy forecasted customer requirements for low chlorine coal … There is a severe shortfall predicted for JFY 2001 and beyond.’
On 20 April 1998 Mr Inoue attended the regular sales and marketing meeting at Apollo’s office in Sydney. During the meeting Mr Foots said that the Marion 8050 dragline at Gregory mine was to be moved to Blackwater, that all four draglines at Curragh were operating, and that the dragline at Oaky Creek was in poor condition and even if acquired may not be got to operating condition by 2001. Mr Inoue told Mr Foots that IK’s attitude to the acquisition of a third dragline had not changed. He (or another IK employee) said that IK would like to conduct its own investigation into the economic feasibility of acquiring a third dragline. He asked for a copy of the relevant information to be provided on a compact disc. Mr Foots said he would tell Mr Edmondson to provide it.
2.3MR FOOTS’ MANAGEMENT COMPANY
Something should be said about a suggestion made to the joint venturers by
Mr Foots. It concerned the formation of a company to be owned by Mr Foots and his ‘team’. The proposal was that the company would manage and operate coal mines, including but not limited to Ensham. The management would be undertaken by Mr Foots, Mr Bird and other managers employed by Ensham. The proposal had obvious difficulties from the joint venturers point of view. It would involve its Chief Executive Officer and Mine Manager, as well as other senior employees, giving their time and attention to businesses other than theirs. Moreover, those businesses were competitors of Ensham’s. This episode occupies much documentary evidence in the case and is relied upon by Ensham as providing proof of Mr Foots’ perfidy. It has some relevance in that regard and as showing the provenance of the dragline agreement.
In March 1998 Mr Foots was in Tokyo where he met Messrs Nagano, Ishizaki and Fujiwara. Mr Nagano was the General Manager of the department responsible for IK’s coal interests. At this time Mr Ishizaki worked in Tokyo. After Mr Foots returned on 11 March he consulted Mr Andrew Smith, a partner in Clayton Utz who were the solicitors for Ensham and for IQ, though not for EPDC or LG. Mr Smith had been Ensham’s solicitor for some years. He knew Mr Foots, who came to the meeting with Mr Bird. Mr Smith cannot recall the meeting but his notes indicate that he was consulted about a company, described by Mr Foots as ‘XYZ Pty Ltd’ which would perform the role of a management company providing operational services to coal mines. In this context Mr Foots mentioned the ‘dry hire of (dragline)’ and ‘employee share’. Mr Smith’s recollection, or reconstruction, is that ‘Mr Foots thought it would be a good idea for the employees to have shares in a company which would own the dragline.’
Mr Smith did not inform anyone at Ensham or IQ that he had consulted with
Mr Foots and given him advice. Mr Foots did not tell his employer of his consultation.
On 21 April 1998 Mr Foots sent a lengthy facsimile to Messrs Fujiwara, Nagano and Abe, who was IK’s senior employee in Apollo. It bore the letterhead ‘Foots Consulting Services Pty Ltd’. Under the heading ‘Separate Managing Company’ Mr Foots wrote:
‘A separate managing company needs to be formed similar to the XYZ Pty Ltd in the information left with (IK) during my last Tokyo visit.
… [A]s discussed with Mr … Nagano … ownership of the XYZ company needs determining. The problems of various ownership relationships were spelt out in the notes given to (IK) …
As suggested by Mr … Nagano …, if the ownership of the managing company was by Ken Foots and his staff I believe it would be beneficial …
As discussed …, the Ensham team has been approached by other organisations to introduce the Ensham Culture and to manage some of their operations. …
[A]t present Ensham staff have been approached by another group on this matter of management and possibly some ownership. Ensham staff with a couple more additional personnel, could easily handle these new operations. Unfortunately, with the present situation Ensham staff cannot perform both, unless there is a separate management company, and thus will have to choose between staying with Ensham or moving on to manage other projects. It would be better for all parties if this choice doesn’t have to be made as I believe there would be mutual benefits for all if the separate management company is formed and given the appropriate terms as discussed above.’
The terms were that Mr Foots’ management company should manage and oversee all of IK’s coal mines in Australia, the Ensham open-cut joint venture, and the sales of coal by the other joint venture companies.
It is not true that Mr Foots, or his team, had been approached by other organisations to manage their operations. He had made the approach, as will appear.
Mr Nagano disputes that he requested such a proposal from Mr Foots. He denies that he ever intended, or suggested to Mr Foots, that a company owned by him and his staff should manage IK’s mines. The possibility that Mr Foots and his staff might leave Ensham to manage other mines was of particular concern. As
Mr Nagano explained:
‘They were very important to us. They had developed the mine and we trusted them to run the operations for us.’
In the first half of 1998 the owners of the Curragh open-cut coal mine engaged Macquarie Bank Ltd to find a buyer for it. Mr Foots became interested in the prospect of owning the mine. This event coincided with his interest in establishing his separate management company. Mr Foots opened communications with the subsidiary of Macquarie Bank Ltd handling the sale. He did not immediately tell Ensham of his activity. Instead he asserted he had been ‘approached’.
On 15 June 1998 Mr Foots sent in his bid. It was on the letterhead of ‘Foots Consortium’ which the first paragraph sought to introduce. It read:
‘A new consortium has been constructed to bid for and hopefully purchase the Curragh Project and surrounds. This consortium is referred to in this indicative bid as the Foots Consortium. As discussed earlier the management team of Ensham Resources has obtained the consent of its Joint Venture Partners to form a company that would manage the Ensham Coal Project and be able to manage and operate other coal projects. This process of restructuring is still progressing and as an interim the term Foots Consortium has been adopted for this bid.’
The paragraph contains a serious misstatement of fact. The ‘management team’ had not obtained the consent of the joint venturers to the establishment of a company to manage the Ensham project, let alone other, competing, coal projects. The bid was composed at a time when Mr Foots was negotiating with the joint venturers for the right to establish a company which would manage Ensham and other projects. He had not obtained that approval, and indeed never did so. The misstatement was clearly intended to improve the chances that his bid for Curragh would succeed.
Mr Inoue consulted Mr Smith about the implications of Mr Foots’ proposal on
22 April 1998. Mr Smith gave a letter of advice on 28 April but did not inform
Mr Inoue that he had earlier spoken to Mr Foots about that very proposal. The letter noted the substantial difficulties to which the proposal might give rise and the need to address each of them carefully if the matter were to proceed.
I will deal briefly with the facts Mr Foots submits establish affirmation or acquiescence to show that they leave untouched the substantial body of misrepresentations and concealment which together induced the dragline agreement.
The first point to be noted is the advice given by Mr Kaneko in August and September 1999 concerning errors in the spreadsheets. I have already rehearsed
Mr Kaneko’s evidence and noted that he did not advert to the critical aspects of the spreadsheets. He noted discrepancies in the Southern Cross contract case only. He did not realise, understandably, that the comparisons they were meant to demonstrate were invalid by reason of the inflated figures for maintenance and working capital included in the lease and purchase case analyses. It is true that his work led to the removal of the term which would have seen Ensham pay for the demobilisation costs of the dragline. That is all he achieved. He also realised that the rate of return the dragline would give Southern Cross was more than 25 per cent expressed as an IRR. He did not realise, and was not told, that the dividends were projected to be eight times greater than the spreadsheets showed.
Mr Omori’s memoranda of advice take the matter no further. It is difficult to know what point Mr Omori had in mind, apart from the obvious observation that the dragline agreement constituted self-dealing by a fiduciary. That was true: it was obvious, it was known to Ensham before Mr Omori gave his advice. Mr Omori’s unspecific, and indeed vague, references to misconduct by Mr Foots did not alert Ensham to any particular misrepresentation or act of concealment; Mr Omori did not know of any. His advice was passed on to Ensham with the caveat that it had been expressed without knowledge of the relevant circumstances. It was certainly written in ignorance of the facts which are of particular relevance in this action.
It is pointed out that Ensham had the benefit of legal advice from Clayton Utz and Mr Smith in particular. This is true but I have set out the terms of the advices he gave, none of which deal with the points of present relevance. Mr Smith advised in general terms about fiduciaries and conflicts of interests. He did not advise with respect to the facts which prove Ensham’s right to rescind the agreement or which would have led it to withhold its consent from the arrangement. This is because he was unaware of them, as were his clients who gave instructions on which the advices were given.
The advice that would have been of particular importance to Ensham would have come from someone knowledgeable about open-cut coal mines and the economics of dragline operations. Ensham employed such people but they gave their advice to Southern Cross.
Reliance is also placed upon the advice received from Mr Dighton on
1 September 1999 in which it was said that the rights of the parties depended largely upon an examination of the figures, and recommended such an examination. Ensham did not undertake the examination because it had the spreadsheets which it believed fairly set out the economics of the dragline agreement, and the alternatives. Mr Dighton did not know, and did not advise, that the spreadsheets were inaccurate.
In any event in cases where advice is relevant to decide whether a transaction should be set aside because it is in some way inequitable;
‘The advice which is more urgently required is that of a man of the world – a man of common sense – who, without despising emotion, does not rank it among the virtues, but also finds a place there for prudence. Such a man, especially if in a general way conversant with the administration of property, and capable of expressing his views clearly and strongly, would be a far better adviser than a solicitor or counsel who did not possess these qualifications.’
(Per Kekewich J in Allcard v Skinner [1887] 36 Ch D 145 at 159.)
It is also pointed out that Mr Vickery’s advice of 8 October 1999 intimated that a search ‘revealed that there is no prospectus registered at the present time …’. This was not a clear contradiction of Mr Foots’ assertions at the meetings of August and September that he could not cancel the dragline agreement because there were applicants for shares based on an issued prospectus. It is no more than an assertion that a prospectus had not been registered, as it should have been. It was no doubt a pointer to further investigations which might have revealed that particular misrepresentation but it is clear from the letter that that possibility had not occurred to Mr Vickery. It did not occur to Mr Ishizaki, nor apparently to counsel for
Mr Foots, who did not question him on the point.
Next, attention is drawn to Mr Mathieson’s advice of 18 October 1999 in which he said:
‘… [W]hen approached … to terminate this arrangement, Ken indicated that it was too late because of commitments made to third parties. From my reading of the documents this was not the case. If so, then he has used deceptive and misleading conduct to provide personal benefit to himself and others. There may be a case to say that the contract is therefore null and void.’
Mr Mathieson explained that the point he was adverting to was that Westpac had not made a commitment to lend money to Southern Cross and the dragline agreement was conditional. About ten days after Mr Mathieson wrote his advice Mr Ishizaki discovered from Mr Hill that Westpac had not agreed to lend money and that the dragline agreement remained conditional. I have described the consequences of his discovery and of Ensham’s attempt to use it to bring the agreement to an end.
There are one or, perhaps, two instances where I think Mr Foots has demonstrated that Ensham did know he had misrepresented things.
The first concerns Ensham’s knowledge of the extent to which Mr Foots was a shareholder in Southern Cross. Mr Ishizaki and Mr Matake were told by
Mr Dawson in August 1999 that Mr Foots and Mr Bird between them held
51 per cent of the shares. Despite their irritation about the size of the shareholding and the fact that it had been kept from them, Ensham did not seek to bring the dragline agreement to an end, but proceeded to perform it.
It should be pointed out, however, than Ensham does not rely upon a misrepresentation or non-disclosure about the number of shares held by Mr Foots.
The second point concerns the representation that Mr Foots could not find an independent stripping contractor. On 25 January 2000 two Ensham employees, while conducting a routine audit at the mine, came across a document dated
20 August 1999 written by Mr Bird and addressed to all Ensham employees. They had it translated into Japanese and sent to Tokyo. Translated back to English, it read:
‘Ensham employees had initially wanted to buy shares in the Ensham mine. However, it is impossible for employees to own shares because Ensham is an unincorporated joint venture.
In order to overcome this difficult situation, senior management negotiated with the JV owners and succeeded in creating a scheme where management and employees form a separate company …
The initial format was the establishment of Southern Cross, which succeeded in concluding an agreement with ER.
Southern Cross is in the process of obtaining the BE 1260 dragline, and is expected to conclude a five year … dragline contract with Ensham.’
These are not the precise terms in which Mr Bird wrote, but its sense is the same.
On 28 January Mr Ishizaki and Mr Matake reported to Mr Shibata on Mr Bird’s memorandum. They commented on it:
‘According to this … document … Ken Foots … came up with Southern Cross, with themselves as shareholders … with the objective of taking profit from the JV. …
This is an act of intentionally providing incorrect information … in an attempt to move profits … to Ken Foots …
To that end, all business with Southern Cross must be cancelled, and the situation returned to normal.
Furthermore we are considering the following for future action. However, we would like to confer frequently with our lawyers …
Idemitsu heard that the subcontractor agreement was proposed to other contractors and the manufacturer (BE), but they refused, and we believed that. However, according to the internal document, there is the possibility that this matter was proceeded with under the Southern Cross concept. Were other contractors and the manufacturer (BE) actually approached with a subcontract agreement proposal? Is there any evidence of this? …
If Ken Foots’ explanation about approaching other manufacturers and contractors differs from the truth, then J/V owners were led in the wrong direction and … the Southern Cross agreement … could be described as invalid …’
Mr Ishizaki admitted that late in 1999 he suspected that Mr Foots might not have approached independent contractors to acquire the dragline and hire it to Ensham. On 27 January 2000 he spoke to Mr Smith and expressed his suspicion but nothing seems to have been done to investigate the matter further.
I think the evidence falls short of establishing knowledge of the falsity of the representation. Suspicion and knowledge are different. No doubt there are gradations in the strength of suspicions, as there are in degrees of knowledge. A strong suspicion may blend unnoticeably into doubtful knowledge. What is required for acquiescence is such knowledge
‘… as to make it his duty, if he intends to seek redress, to make enquiry and to ascertain the circumstances of the case.’
(Per Romilly MR in Marquis of Clanricarde v Henning (1861) 44 ER 855 at 857.)
Given the thoroughness with which Mr Foots had deceived Ensham, and the extent of Mr Ishizaki’s (and Ensham’s) incomprehension of the facts because of that deceit, I think that Mr Ishizaki’s suspicion was insufficient to require him to take action.
It is also submitted that Ensham should be deemed to have knowledge of Mr Foots’ misrepresentations and concealment because it deliberately refrained from enquiring into their existence. The principle is clear enough but what is needed to make it applicable was described by Lindley LJ in Allcard (at 188):
‘… [I]f the Plaintiff did not know her rights, her ignorance was simply the result of her own resolution not to inquire into them. She knew all the facts; she was in communication with her present solicitor in 1880, his remark that “it was too large a sum to leave behind without asking for it back,” was a clear intimation to her that she ought to ask for her money back, and was a distinct invitation to her to consider her rights. She declined to do so … Ignorance which is the result of deliberate choice is no ground for equitable relief; nor is it an answer to an equitable defence based on laches and acquiescence.’
The evidence does not establish that Ensham ‘knew all the facts’ and deliberately chose not to enquire into its rights.
These are the only matters relied upon as showing knowledge in Ensham sufficient to disentitle it from relief to which it would otherwise be entitled. They leave untouched the corpus of Mr Foots’ deception.
It is worthwhile setting out Mr Matake’s explanation for why he did not initiate further investigations upon receipt of the memoranda from Mr Mathieson and
Mr Kaneko.
On 2 September 1999 Mr Matake received a report from Mr Shibata which set out the essence of Mr Omori’s memorandum of the same date. Mr Matake took no steps to investigate the matters discussed in the memorandum because he had just received an advice from Mr Dighton of Deacons and thought that the dragline agreement could not be brought to an end because it was ‘economically reasonable’ for Ensham.
Some time about 10 September 1999 Mr Matake read a copy of Mr Kaneko’s memorandum which was critical, it will be recalled, of IQ’s managers in Australia for making the dragline agreement and pointed out some anomalies in the spreadsheets. Mr Matake did not take Mr Kaneko’s criticism seriously because he was known for his caustic manners and because he had no understanding of the difficulties Mr Matake and his subordinates faced in dealing with Mr Foots and ensuring that the mine ran smoothly and produced coal for supply to its customers.
On about 8 October 1999 Mr Matake received a report from his head office which suggested, among other things, that he should examine the costs which
Southern Cross would incur in performing the dragline agreement in order to negotiate a lower contract rate. The report suggested that Mr Mathieson should be asked to advise. Accordingly Mr Matake gave Mr Mathieson the cashflow models, probably for the ‘Southern Cross case’. Mr Matake read Mr Mathieson’s report when he received it but was dismissive of it. His reasons were that he knew of the animosity between Mr Mathieson and Mr Foots which had been given particular focus by Mr Mathieson’s appointment as Vice President of Apollo. As well
Mr Matake considered that Mr Mathieson’s opinion could be discounted because he was not a lawyer and Ensham’s solicitors, Deacons Graham and James, had recently given advice and had not suggested that the dragline agreement was voidable or that Mr Foots had misled the joint venturers into making the agreement.
Mr Matake explains that his:
‘… main reason for not accepting Rob Mathieson’s opinion … was that he said Mr Foots had misled and deceived (Ensham) about his reason for being unable to cancel the contract. I did not believe that this could be true. At that time I did not believe that Mr Foots could do such a thing … and I had complete faith in his honesty.’
I think this is probably true, at least substantially so, despite Mr Matake’s sense he had been ‘betrayed’ by Mr Foots over the concealment of the extent of his shareholding in Southern Cross.
Following his meeting with Mr Foots on 18 May 2000, an account of which I have set out earlier, Mr Matake realised that ‘Mr Foots would not agree to the joint venture purchasing 70 per cent of the shares in Southern Cross except at a very high price.’ He understood that ‘it was not going to be possible to persuade Mr Foots to agree to change the scheme in a way that would benefit the joint venture’.
Mr Matake thought that Ensham ‘had no choice but to respect the contract’ and ‘no option but to negotiate the final contract rate as best we could and proceed with the agreement.’
Quite apart from the point already discussed, it is, I think, impossible to conclude that Ensham affirmed the dragline agreement or acquiesced in the breaches of fiduciary duty which led to it because of the events of December 1999 which led to Westpac approving the loan to Southern Cross, and the dragline agreement becoming unconditional. The approval was a direct result of audacious dishonesty. Ensham was entitled to take advantage of the non-fulfilment of the condition of the dragline agreement as to finance. It was not obliged to assist Southern Cross, or Westpac, to make the contract unconditional. There was nothing unlawful or even sharp about its decision. By an appalling act of disloyalty and deception Mr Foots secured for Southern Cross the loan from Westpac which made the agreement effective and bound his employer to it. The tergiversation by which this result was achieved was hidden from Ensham and came to light only when documents were disclosed in preparation for the trial.
Given this state of affairs it is, I think, impossible to think that Ensham affirmed the contract or acquiesced in Mr Foots’ inequitable conduct. It is objected that this episode is not relied on in Ensham’s pleading. It is not put forward as an instance of fraud or concealment. It was both, and was a fact identified as significant on the first day of the trial. The document proving the intrigue was in the possession of all parties before the trial commenced, and during it. It was mentioned in statements provided to Mr Foots’ solicitors prior to trial. Mr Foots was cross-examined about the letter. I do not see that its absence from the pleadings deprives the facts relating to it of the consequence I have described.
2.28RELIEF
Ensham has made out its case against Mr Foots and Southern Cross on the basis of fraudulent misrepresentations which induced it to make the dragline agreement, and breach of fiduciary duty in procuring the dragline agreement for Southern Cross. As well it has established contravention of section 52 of the TPA by Southern Cross and by Mr Foots pursuant to section 75B. In this case Southern Cross and Mr Foots are indistinguishable. It was the entity by which he profited from his fraud, breach of fiduciary duty and statutory contravention. He was its agent throughout the negotiations and discussions with Ensham, and his knowledge and actions are Southern Cross’ knowledge and actions. In terms of legal analysis Southern Cross is liable as principal for Mr Foots’ misrepresentations. I have described how the TPA makes both Mr Foots and Southern Cross liable for the contravention of section 52. As to the breach of fiduciary duty Southern Cross was a knowing participant in Mr Foots’ breaches and is liable for the benefit it obtained by reason of those breaches pursuant to the principle explained in Barnes v Addy (1874) LR
9 Ch App 244.
Ensham seeks a declaration that the dragline is held by Southern Cross on a constructive trust for it. The claim seems justified by authority: Chan v Zachariah at 205 and Boardman v Phipps & Anor [1967] 2 AC 46 at 117. The remedy follows from the principle that as a fiduciary Mr Foots should have obtained the dragline for Ensham. To require Southern Cross to hold it on trust for Ensham is a means by which the erring fiduciary is compelled to account for its forbidden profit. The declaration and consequential orders can also be made pursuant to section 87 of the TPA.
In this case there was a practical reason for the order. It is a consequence of my findings that Ensham has suffered loss by reason of having had to pay
Southern Cross the moneys due under the dragline agreement which exceed what would have been the cost to it of owning the dragline itself and operating it. If the dragline agreement is left in Southern Cross’ ownership and used by it at the mine Ensham will have to pay for the use of the dragline but will be entitled to recover part of those moneys by way of damages. To avoid circularity of action it is best to declare the trust and divest Southern Cross of ownership. The alternative, that Southern Cross might, if it retained ownership, take the dragline elsewhere will also result in loss to Ensham which would be obliged to obtain alternative dragline capacity. Southern Cross could take the dragline but would have to pay Ensham for the cost of a replacement machine. Accordingly,
1.I give judgment for the first, second, third, fourth and fifth defendants against the plaintiff on the plaintiff’s claim.
2.I give judgment for the first defendant on its counterclaim against the plaintiff for a declaration that:
(a)the plaintiff holds the BE 1260 dragline presently located at Ensham mine on a constructive trust for the first defendant; and
(b)the dragline agreement made between the plaintiff and the first defendant and dated 30 July 1999 was validly rescinded on 16 September 2002.
3.I order the plaintiff to execute all such documents and do all such acts as are necessary to transfer to the first defendant its legal ownership of the dragline.
The quantum of the first defendant’s loss, whether that be assessed as equitable compensation, or common law damages or damages for contravention of the TPA, is in the sum of $2,460,000. As I understood the defendants’ position at the end of the trial it was that they had not finally elected whether to pursue an account of profits or judgment for that amount. (Their written submissions ask for judgment in the agreed amount but I am not sure that truly states their final position.) In the event they elect to recover damages there will be judgment for $2,460,000 against the first defendant added by counterclaim (Mr Foots) and the plaintiff (Southern Cross), but no orders would be made against the second, fourth or fifth defendants added by counterclaim (Foots Pty Ltd, Little Digger and Mrs Foots). If an account of profits is pursued orders may be sought against some or all of those parties.
In their written submissions counsel for Southern Cross contend that ‘as a condition of granting a constructive trust and consequential orders … Ensham should first be required to do equity by paying (or crediting against any sufficient money claim) … the purchase price paid by (Southern Cross) to buy the dragline …’. The principle is well established, but reference is made to Maguire at 467 and 475. The evidence, I thought, established that the price paid by Southern Cross for the dragline was $3,300,000 of which $1,000,000 was raised by way of shareholders’ capital and the balance borrowed from Westpac. The written submissions do not seek any monetary allowance for Southern Cross in respect of the risk it ran in obtaining the dragline and putting it into operation, or for the efforts of its officers in acquiring the dragline. Mr O’Sullivan, who appeared led by Mr H Fraser QC for
Southern Cross, did indicate during the course of the trial that such an allowance would be sought in the event that I made a declaration that the dragline was held on trust for Ensham and if an account of profits were ordered.
Counsel for Ensham staunchly oppose any allowance being made to Southern Cross in return for the creation of a constructive trust over the dragline. They submit that no allowance can be made in favour of a dishonest fiduciary, and point to such authorities as United States Surgical Corporation v Hospital Products International Pty Ltd & Ors (1983) 2 NSWLR 157 at 242-3, O’Sullivan & Anor v Management Agency and Music Ltd & Ors [1985] QB 428 at 467 and Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 in which Heydon JA reviewed the authorities at some length (at 371-384) and referred to the:
‘… ancient jurisdiction under which, while a person who takes on the office of a trustee, acts conformably with the intent of the trust and makes profits must account for them, the court may order in favour of that person that he receive “a proper salary for the pains and trouble he had been at in the management thereof”.’
Heydon JA thought (at 374) that the authorities revealed ‘at least … reluctance to make orders for allowances’ and that such orders are ‘exceptional’ not ‘ordinary’. His Honour also quoted, with apparent approval, the judgment of Fox LJ in O’Sullivan ([1985] QB at 467):
‘A hard and fast rule that the beneficiary can demand the whole profit without an allowance for the work without which it could not have been created is unduly severe. Nor do I think that the principle is only applicable in cases where the personal conduct of the fiduciary cannot be criticised. I think that the justice of the individual case must be considered on the facts of that case. Accordingly, where there has been dishonesty or surreptitious dealing or other improper conduct then … it might be appropriate to refuse relief; but that would depend upon the circumstances.’
His Honour also referred to the judgment of Waller LJ in the same case (at 471):
‘There are many reported cases of bargains being set aside because they were made under undue influence … In each case the order of the court included the payment of a reasonable sum, e.g. … interest (and) … reasonable charges … There are on the other hand cases where trustees and directors have used their position and knowledge to make a secret profit and in those cases the whole profit except for expenses was ordered to be paid over.’
Harris was a case in which an award of exemplary damages had been made against a defaulting fiduciary. The Court of Appeal held that such an order could not be made. One of the reasons for this conclusion was that equity did not punish a wrongdoer but required him to make recompense. Heydon JA concluded his review of the cases by saying (at 384):
‘If it is for the defendant to establish that it is inequitable to order an account of the entire profits, it follows that the onus on the defendant is to negate dishonesty or other grave forms of misconduct, and hence the position is not so much that an account of the entire profits is a punishment, but rather that an absence of grave misconduct is a passport to an indulgence in favour of the defendant.’
As I understood the situation the parties’ position at the end of the trial the question whether there should be any allowance for Southern Cross’ industry and skill, or recompense for the risks it ran in acquiring and operating the dragline was to be decided as part of the account of profits, should Ensham elect that particular remedy. Apart from noting the difficulty the authorities appear to put in the way of a dishonest trustee I say nothing about the claim.
It would not be right to order Ensham to pay Southern Cross the price of the dragline as a term of the imposition of a constructive trust over it. Such an order would be too generous to Southern Cross. $2,300,000 of the purchase price was borrowed from Westpac and repaid out of the profits from the dragline agreement. To allow it to keep the profits and receive that part of the purchase price as well would be inequitable. If an account of profits were taken the repayment of the loan and interest would be allowed as proper disbursements but only on the basis that Southern Cross had borrowed the sum and had not itself paid the whole of the price.
This consideration does not, I suspect, apply to the $1,000,000 which
Southern Cross paid from shareholders’ funds towards the purchase of the dragline. It would probably be inequitable to divest Southern Cross of the dragline without requiring Ensham to pay that sum. Whether that is so or not might depend upon which remedy Ensham in the end elects to pursue. No particular submissions on this point were addressed by the parties and I will not decide it until they have had an opportunity to present further submissions.
I indicate that the orders I have made concerning the disposition of the dragline are not intended to preclude a claim by Southern Cross for payment of the $1,000,000 and, perhaps, a modest amount by way of interest.
These, and no doubt other matters, can be the subject of debate when the parties have had a chance to consider these reasons for judgment. Accordingly I will make no orders apart from those I have mentioned but will allow the parties to make submissions about what further orders, if any, should be made.
3.0SOUTHERN CROSS’ CLAIM AGAINST MR HILL
Southern Cross joined Mr Hill as a third party to the counterclaim brought against it by Ensham. Its case against Mr Hill has never been articulated except by reference to the pleadings. The retainer of counsel who had appeared for Southern Cross at the trial was terminated before addresses were heard. They prepared, as a matter of professional courtesy and for the assistance of the court, some brief written submissions outlining their former client’s contentions with respect to various claims and counterclaims brought against it and the claims which it made. The submissions are succinct and were not amplified by any oral address. The written submissions do not deal with any question of fact or evidence.
The claim has not been abandoned and must be dealt with, but I regard it as insubstantial and, indeed, artificial. I feel confident that its origins lie no deeper than the fact that Ensham chose to sue Mr Foots and Mr Bird for their part in securing the dragline agreement for Southern Cross but did not sue Mr Hill who remained employed by Ensham and gave evidence in support of its claims.
Mr Foots and Mr Bird remain directors of Southern Cross though instructions for its defence at the trial came from Mr Gilchrist, Mr Foots’ old friend. The joinder of
Mr Hill by Southern Cross appears to be the product of animosity or an attempt to obtain some forensic advantage in the litigation against Ensham.
Whatever the correctness of my surmise I am satisfied that the claim has no legal merit and should be dismissed. I will say why quite briefly.
Southern Cross pleads against Mr Hill that he:
(a)held himself out as possessing relevant expertise in the preparation of the spreadsheet economic analyses;
(b)became a director of Southern Cross on 12 July 1999;
(c)prepared all the spreadsheet financial models;
(d)knew, or should have known, that Mr Foots, Southern Cross and Ensham would all rely upon him to prepare the models appropriately;
(e)knew, or should have known, that any errors in the models would expose Southern Cross to a claim by Ensham;
(f)owed Southern Cross a duty to take care that the models were appropriate for their purpose;
(g)owed Southern Cross duties, as a director, to act in good faith in the best interests of Southern Cross and to discharge his director’s duties with reasonable care and diligence.
Each of these allegations is either admitted or made out by the evidence.
Southern Cross further alleges that if Ensham’s claim against Southern Cross succeeds it must follow that Mr Hill was in breach of his duty to Southern Cross by: (i) introducing, or not disclosing, the errors and deficiencies in the spreadsheets; and (ii) by failing to disclose to Ensham his knowledge of Mr Foots’ wrongdoing. It follows, so it is said, that Mr Hill’s breach of duty exposed Southern Cross to liability to Ensham and caused it to suffer loss to the extent that Southern Cross must pay damages to Ensham or recompense it for the profit it made from the dragline agreement.
The claim fails, if nowhere else, at the point of causation. To succeed Southern Cross must prove that it suffered loss by reason of Mr Hill’s derelictions of duty.
The second aspect of that dereliction can be disposed of very shortly. It is that
Mr Hill did not advise Southern Cross that Mr Foots (and Mr Bird) were acting in such a way as to expose Southern Cross to future claims by Ensham. Mr Foots knew this better than Mr Hill and Southern Cross is fixed with his (Foots) knowledge. Any failure in this regard by Mr Hill did not cause Southern Cross to do or omit to do anything; it was guided and controlled by Mr Foots.
The other, and principal, aspect in which it is said Mr Hill failed in his duty was in the preparation of the spreadsheets. The case must be that had they been prepared honestly and with reasonable care Ensham would not have suffered any loss for which Southern Cross is liable. For that to be the case it must be the fact that Ensham would not have made the dragline agreement had it been given spreadsheets which accurately showed the comparative costs of the contract, lease and purchase options.
There is an immediate difficulty. There was no examination in the course of the trial to ascertain what Ensham would have done had it been given spreadsheets of the type it is said that Mr Hill should have produced. (The claim against Mr Hill by Southern Cross is artificial because he produced the spreadsheets Mr Foots asked for. For Southern Cross now to claim that it has been damaged because Mr Hill produced the spreadsheets is, some might think, contemptible.)
It is not self-evident that Ensham would not have made the dragline agreement had the spreadsheets been prepared with proper care.
There are indications that the spreadsheets were not causative of Ensham’s decision to make the dragline agreement. In August and September 1999, after the spreadsheets had been prepared and delivered to the joint venturers, the senior managers in IK resolved to have Ensham buy the dragline. They requested and indeed importuned Mr Foots to have Southern Cross bring the dragline agreement to an end consensually so that Ensham could buy the dragline. He obdurately refused. It is a fair inference that the cause of Ensham’s decision not to buy the dragline was Mr Foots’ intransigence disguised by deceit and that the spreadsheets played no part.
I have found that Ensham was induced to make the dragline agreement by numerous misrepresentations and other acts of deception practiced on it by Mr Foots. He told many lies over months and worked assiduously to insinuate Southern Cross into the dragline agreement. One of his falsehoods was that Ensham could not buy the dragline from BHP. Another was that Ensham needed the small dragline if it was to meet its production targets. Later he told Ensham that the dragline agreement could not be cancelled, when it could have been without difficulty, and he did not tell the board of Southern Cross of Ensham’s desire to terminate the agreement. Given this state of affairs it is not possible to conclude what Ensham would have done if one should notionally withdraw the mix of deceit and concealment from the misleading spreadsheets. Certainly I am not prepared to conclude that Ensham would have acted differently. Southern Cross has failed to prove that any misconduct by
Mr Hill caused it loss.
Of course if one did conclude that Ensham would not have made the dragline agreement one basis for Southern Cross’ claim against Mr Hill disappears. On this hypothesis, that there was no dragline agreement, Southern Cross would not have made profits and Mr Hill cannot be held liable in respect of any liability
Southern Cross may now have to account to Ensham for those profits.
The only possible basis for a claim against Mr Hill is that Southern Cross suffered loss as a result of making the dragline agreement. The loss can only be such sum as it is ordered to pay Ensham by way of damages or compensation for its unlawful conduct in the formation of the agreement. That claim fails because of Southern Cross’ omission to prove that Mr Hill’s conduct was a cause of that event which gives rise to Southern Cross’ liability to Ensham.
There is, as well, a claim by Southern Cross against Mr Hill for contribution or indemnity. The pleading does not identify the basis on which this claim is put.
Mr Barlow’s detailed and helpful submission points out the inadmissibility of the claim. The facts and conditions necessary to establish a right to contribution or indemnity under section 6 of the Law Reform Act 1995 (Qld) or in equity have not been pleaded or proved.
Accordingly I dismiss the claim by Southern Cross against Mr Hill.
4.0MR HILL’S CLAIM AGAINST MR FOOTS
This was brought in response to the claim by Southern Cross against Mr Hill.
Mr Hill sought relief from Mr Foots in the event that he was found liable to Southern Cross. There being no such liability Mr Hill’s claim should also be dismissed.
5.0EXHIBITS
During the course of the trial I admitted into evidence statements from a large number of witnesses, a number of whom were not called, the contents of their statements being accepted as accurate. I was, additionally, supplied with statements from a number of witnesses which were responsive to statements delivered to the Ensham parties by Mr Foots’ solicitors. These responsive statements were regarded as part of the evidence but I did not formally admit them or allot individual exhibit numbers to them. So that the record is complete I indicate that the statements which appear in the following schedule are admitted into evidence and are given the exhibit number appearing in the last column.
| Statement Of | Statement No. | Tendered By | Tendered On | Old Exhibit No. | New Exhibit No. |
| Abe | 2 (Vol 32) | Defendants | 16/05/05 | Part 2 of 2 | 119 |
| Dawson | 2 (Vol 36) | Defendants | 16/06/05 | Part 2 of 6 | 120 |
| Fujiwara | 2 (Vol 32) | Defendants | 16/05/05 | Part 2 of 8 | 121 |
| Furuno | 2 (Vol 32) | Defendants | 16/05/05 | Part 2 of 9 | 122 |
| Inoue | 2 (Vol 33) | Defendants | 16/05/05 | Part 2 of 14 | 123 |
| Inoue | 2 (Vol 33) | Defendants | 16/05/05 | Part 3 of 14 | 124 |
| Matake | 2 (Vol 20) | Defendants | 16/05/05 | Part 2 of 19 | 125 |
| Matake | 3 (Vol 35) | Defendants | 16/05/05 | Part 2 of 19 | 126 |
| Matsushima | 2 (Vol 34) | Defendants | 16/05/05 | Part 2 of 22 | 127 |
| Nabetani | 2 (Vol 21) | Defendants | 16/05/05 | Part 2 of 24 | 128 |
| Nabetani | 3 (Vol 34) | Defendants | 16/05/05 | Part 2 of 24 | 129 |
| Nagano | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 25 | 130 |
| Nakatsuka | 2 (Vol 34) | Defendants | 16/05/05 | Part 2 of 26 | 131 |
| Pegler | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 29 | 132 |
| Sato | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 32 | 133 |
| Shibata | 2 (Vol 35) | Defendants | 16/05/05 | Part 3 of 34 | 134 |
| Smith, T | 2 (Vol 37) | Defendants | 16/05/05 | Part 2 of 37 | 135 |
| Sugino | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 38 | 136 |
| Takahashi | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 39 | 137 |
| Uchiuzo | 2 (Vol 37) | Defendants | 16/05/05 | Part 2 of 41 | 138 |
| Wakahara | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 44 | 139 |
| Wheeler | 2 (Vol 35) | Defendants | 16/05/05 | Part 2 of 45 | 140 |
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