Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd

Case •

[2020] NSWSC 254

•

13 March 2020

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd [2020] NSWSC 254
Hearing dates: 4, 5, 6, 7, 11 November 2019
Date of orders: 13 March 2020
Decision date: 13 March 2020
Jurisdiction:Equity
Before: Rein J
Decision:

See [196].

Catchwords:

CORPORATIONS – Directors and officers – Fiduciary duties and Directors’ duties – Duty to act in good faith in the best interests of company and for proper purpose – Duty not to place oneself in position of conflict of interest between oneself and principal – Where plaintiff company sued two former directors for breach of fiduciary obligations, both in equity and pursuant to 181(1) and 182(1) of the Corporations Act 2001 (Cth) – Where the impugned conduct arose in connection with a 2008 board resolution authorising purchase and development of a house in Wollongong – Project involved plaintiff spending $10.153 million through a subsidiary company whose only asset was the house; all the shares in the subsidiary were sold to a third party in 2013 for $3.75 million, which is what the house was then valued at, leading to a loss for the plaintiff of $6.4 million – In promoting the project to the company’s board, the defendant directors (a married couple) intended to, and later did, use the house as an exclusive rent-free residence for themselves and their children, but did not disclose this intention to the board; they instead advanced a contrary purpose to secure passage of the resolution and personally voted on it instead of recusing themselves – Where one of the two defendant directors cross claimed against the company secretary and the two non-defendant directors of the company who voted on the impugned resolution, contending that if he himself was found liable then these three cross defendants were similarly liable – Held: defendant directors in breach of fiduciary duties and liable to plaintiff for loss of $6.4 million plus interest. Cross claim failed, as the cross defendants were not shown to have been aware of the defendant directors’ true purpose in promoting the purchase.

 

CORPORATIONS – Directors and officers – Directors’ duties – Duty of care and diligence – Where plaintiff company sued two former directors for breach of the duty of care and diligence, both in equity and pursuant to s 180(1) of the Corporations Act 2001 (Cth) – Where one of the two defendant directors cross claimed against the company secretary and the two non-defendant directors of the company who voted on the impugned resolution, contending that if he himself was found liable then these three cross defendants were similarly liable – Held: defendant directors not liable for breach of this duty due to lack of evidence, and cross defendants could have no coordinate liability to the plaintiff for breach of this duty.

 

EQUITY – Trusts and trustees – Constructive trusts – Rule in Barnes v Addy – Where plaintiff company sued defendant company (being plaintiff’s former wholly owned subsidiary), asserting a constructive trust over a house which had been purchased with money the plaintiff invested in and loaned to the subsidiary – The expenditure was a result of the breach of fiduciary obligations on the part of two directors of the plaintiff – Defendant received the money with knowledge of the breach because the two defaulting directors were also directors of the defendant company – Where, before proceedings commenced, the plaintiff had converted the debt the defendant owed to it into additional equity in the defendant and then sold all of its shares in the defendant to a third party for $3.75 million – Held: constructive trust not available because plaintiff unable to rescind the earlier transactions and did not seek to rescind the agreement to convert the debt to equity and the sale of shares to the third party.

  EQUITY – Equitable remedies – Equitable compensation – Where plaintiff company sought equitable compensation against two defendant directors for breach of fiduciary obligations; plaintiff also sought equitable compensation against its former subsidiary company which received the plaintiff’s funds with knowledge of the breach by the defendant directors – Where plaintiff later converted the debt owed to it by the subsidiary into further equity in the subsidiary and then sold all of its shares in the subsidiary to a third party for $3.75 million – Consideration of the causation test applicable to equitable compensation, including the Privy Council’s decision in Brickenden v London Loan & Savings Co concerning the kind of counterfactual scenarios courts can consider in determining causation – Consideration of distinction advanced between substitutive compensation and reparative compensation – Held: defendant directors held liable to pay equitable compensation to the plaintiff for all of the loss that would not have happened but for the breach (less the $3.75 million from the share sale) plus interest. Plaintiff’s claim for equitable compensation against the subsidiary refused on discretionary grounds because it was inconsistent with the sale of shares in the subsidiary to a third party.
Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)
Cases Cited: Adler v ASIC [2003] NSWCA 131; (2003) 179 FLR 1
Aequitas Ltd v AEFC Leasing Pty Ltd [2001] NSWSC 14; (2001) 19 ACLC 1,006
Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1
Amaltal Corporation Ltd v Maruha Corporation [2007] NZSC 40
Aneve Pty Ltd v Bank of Western Australia Ltd [2005] NSWCA 441
ASIC v Adler [2002] NSWSC 171; (2002) 168 FLR 253
Attorney-General v Bowman (1792) 2 Bos & P 532n
Attorney-General v Radloff (1854) 10 Exch 84; (1854) 156 ER 366
Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664
Barnes v Addy (1874) LR 9 Ch App 244
Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1
Bishopsgate Investment Management Ltd (in liq) v Maxwell [No 2] [1994] 1 All ER 261
Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1
Blendell v Byrne; The Estate of Noeline Joan Blendell [2019] NSWSC 583
Bond v Larobi Pty Ltd (1992) 6 WAR 489
Breen v Williams [1996] HCA 57; (1996) 186 CLR 71
Brickenden v London Loan & Savings Co [1934] 3 DLR 465
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282
Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534
Carapark Holdings Ltd v Commissioner of Taxation (Cth) [1967] HCA 5; (1967) 115 CLR 653
Citibank Ltd v Liu; ABN Amro Bank Ltd v Liu [2002] NSWSC 886
Commonwealth Bank of Australia v Smith (1991) 42 FCR 390; (1991) 102 ALR 453
Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394
Coyte v Norman [2016] NSWSC 1242; (2016) 115 ACSR 523
Crossman v Sheahan [2016] NSWCA 200; (2016) 115 ACSR 130
Darvall v North Sydney Brick & Tile Co Ltd (No 2) (1989) 16 NSWLR 260
Day v Mead [1987] 2 NZLR 443
Duncan v Independent Commission Against Corruption [2016] NSWCA 143
Eclairs Group Ltd v JKX Oil and Gas plc [2015] UKSC 71; [2016] 3 All ER 641
Everist v McEvedy [1996] 3 NZLR 348
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83
Fulton v Fulton [2014] NSWSC 619
Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583
Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239
Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 305 ALR 687
Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1
Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
Gujarat NRE India Pty Ltd v Wollongong Coal Ltd [2018] NSWSC 1459; (2018) 130 ACSR 133
Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2003] EWCA Civ 1048; [2004] 1 BCLC 131
Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60
Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; (2009) 78 NSWLR 265
Hancock Family Memorial Foundation Ltd v Porteous [2000] WASCA 29; (2000) 22 WAR 198
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483
Harpley Nominees Pty Ltd v Jeans [2006] NSWCA 176
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Hodgkinson v Simms [1994] 3 SCR 377
Hodgson v Amcor Ltd [2012] VSC 94; (2012) 264 FLR 1
Hordern v Hordern [1910] AC 465
Hyland v Hyland (1971) 18 FLR 461
In re Exchange Banking Company (Flitcroft’s case) (1882) LR 21 Ch D 519
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563
Krupace Holdings Pty Ltd v China Hotel Investments Pty Ltd [2018] NSWSC 862
Latimer v Day [2015] NSWSC 11
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118; (2018) 334 FLR 9
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Maio v Sacco (No 2) [2009] NSWSC 742
March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Markus v Provincial Insurance Co Ltd (1983) 25 NSWCCR 1
Mavrideros v Mack (1998) 45 NSWLR 80
Mendel v State of New South Wales [2019] NSWDC 146
Mills v Mills [1938] HCA 4; (1938) 60 CLR 150
Nadinic v Drinkwater [2017] NSWCA 114; (2017) 94 NSWLR 518
New South Wales v Avery [2016] NSWCA 147; (2016) 92 NSWLR 141
Nolan v Nolan [2004] VSCA 109
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; (1994) 14 ACSR 109
Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165
Prasad v AMP Life Ltd [2012] NSWSC 1076
Premium Real Estate Ltd v Stevens [2009] NZSC 15; [2009] 2 NZLR 384
Re Colorado Products Pty Ltd (in liq) [2014] NSWSC 789
Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Re O’Neil, Deceased [1972] VR 327
Re Purcom No 34 Pty Ltd (In Liq) (No 2) [2010] FCA 624
Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593
Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71; (2003) 175 FLR 286
Short v Crawley [No 30] [2007] NSWSC 1322
Simmons v NSW Trustee and Guardian [2014] NSWCA 405; (2014) 17 BPR 33,717
Swindle v Harrison [1997] 4 All ER 705
Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] AC 421
Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153
Thomas v Arthur Hughes Pty Ltd [2015] NSWSC 1027; (2015) 16 ASTLR 252
Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125
Viro v The Queen [1978] HCA 9; (1978) 141 CLR 88
Watson v Foxman (1995) 49 NSWLR 315
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
White v Illawarra Mutual Building Society Ltd [2002] NSWCA 164
Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285
Wollongong Coal Ltd v Gujarat NRE India Pty Ltd [2019] NSWCA 135
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
Texts Cited: Conaglen, Matthew, “Brickenden” in Simone Degeling and Jason N. E. Varuhas (eds), Equitable Compensation and Disgorgement of Profit (Hart Publishing, 2017)
Conaglen, Matthew, “Equitable Compensation for Breach of Fiduciary Dealing Rules” (2003) 119 Law Quarterly Review 246
Elliott, S. and C. Mitchell, “Remedies for Dishonest Assistance” (2004) 67 The Modern Law Review 16
Glister, J., “Breach of Trust and Consequential Loss” (2014) 8(3) Journal of Equity 235
Gummow, Hon Justice W., “Compensation for Breach of Fiduciary Duty” in T. G. Youdan (ed), Equity, Fiduciaries and Trusts (Carswell, 1989)
Hamilton, John, et al (eds), NSW Civil Procedure Handbook 2019 (Thomson Reuters, 9th ed, 2019)
Harder. S., “Is a Defaulting Fiduciary Exculpated by the Principal’s Hypothetical Consent” (2008) 8(1) Oxford University Commonwealth Law Journal 25
Heydon, J. D., “Causal Relationships Between a Fiduciary’s Default and the Principal’s Loss” (1994) 110 Law Quarterly Review 328
Heydon, J. D., Cross on Evidence (LexisNexis Butterworths, 10th ed, 2015)
Heydon, J. D., M. J. Leeming and P. G. Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015)
Mitchell, C., “Equitable Compensation for Breach of Fiduciary Duty” (2013) 66 Current Legal Problems 307
Tilbury, M. and G. Davis, “Equitable Compensation” in Patrick Parkinson (ed), The Principles of Equity (Thomson Lawbook Co, 2nd ed, 2003)
Ward, Hon Justice J., “Equitable Compensation – An Overview” in Simone Degeling and Jason N. E. Varuhas (eds), Equitable Compensation and Disgorgement of Profit (Hart Publishing, 2017)
Category:Principal judgment
Parties: Wollongong Coal Ltd (Plaintiff)
Gujarat NRE Properties Pty Ltd (First Defendant)
Mr Arun Jagatramka (Second Defendant and Cross Claimant)
Mrs Mona Jagatramka (Third Defendant)
Mr Sanjay Sharma (First Cross Defendant)
Mr Andrew Firek (Second Cross Defendant)
Mr Michael Anghie as the Executor of the Estate of the Late Maurice Anghie (Third Cross Defendant)
Representation:

Counsel:
Mr A. Coleman SC with Mr N. Riordan (Plaintiff)
Mr D. Pritchard SC with Mr A. Macauley (Second and Third Defendants)
Mr E. Hyde (First to Third Cross Defendants)

  Solicitors:
Thomson Geer (Plaintiff)
Gillard Consulting Lawyers (Second and Third Defendants)
Hall & Wilcox (First to Third Cross Defendants)
File Number(s): 2014/175645
Publication restriction: Nil

Judgment

  1. The Plaintiff, Wollongong Coal Ltd (“WCL”), by its Further Amended Statement of Claim (“FASTOCL”), sues Gujarat NRE Properties Pty Ltd (“Properties” – formerly known as Gujarat NRE Koyola Pty Ltd) and two former directors of WCL, namely Mr Arun Jagatramka (the Second Defendant) and his wife, Mrs Mona Jagatramka (the Third Defendant), in connection with a property known as 64 Cliff Road Wollongong NSW (“Cliff Road”). WCL was previously known as Gujarat NRE Coking Coal Ltd. There was a Fourth Defendant, Gujarat NRE India Pty Ltd (“GNI”), but that claim was previously resolved.

  2. There were at all relevant times two other directors of WCL, Mr Andrew Firek (“Mr Firek”) and Mr Maurice Anghie (“Mr Anghie”). Mr Sanjay Sharma (“Mr Sharma”) was at all relevant times between 2008 and 2013 company secretary of WCL and a director of Properties, and he was also chief commercial officer and a member of the audit committee of WCL. Mr and Mrs Jagatramka were also directors of Properties between these dates.

  3. WCL is (and has been since July 2007) a publicly listed company on the Australian Stock Exchange (“ASX”). The major shareholders of WCL until 2013 were subsidiaries of the Gujarat Group of companies, based in India, of which Mr Jagatramka’s family held the preponderance of shares. The ultimate shareholder was Gujarat NRE Coke Ltd (“GNCL”). In 2013 the major shareholder in WCL became Jindal Steel & Power (Mauritius) Ltd (“Jindal”), a company unconnected with the Jagatramkas.

  4. WCL operates two mines, one called NRE 1 at Russell Vale (“Russell Vale Colliery”) and the other called Wongawilli Colliery. Both produce coking coal for use in making steel. The Russell Vale Colliery sits on the edge of a residential area of Wollongong.

  5. The essence of the claims brought by WCL against Mr and Mrs Jagatramka is that, in breach of duties owed by them as directors to WCL, they caused approximately $10 million to be spent by WCL on the purchase of Cliff Road, demolition of the existing house and on construction of a new house in which they would reside rent-free on an exclusive, indefinite and continuous basis: see FASTOCL paragraphs 36 and 72. The new house can be seen in the photographs in Exhibit D3 and its location in the photographs in Exhibit C.

  6. Mr and Mrs Jagatramka deny any breach of duties owed to WCL. Mr Jagatramka has cross claimed against Mr Firek, Mr Anghie and Mr Sharma, seeking contribution from them should he, contrary to his Defence, be found liable to WCL, it being asserted that they are equally liable for any loss suffered by WCL as a result of the matters pleaded against Mr Jagatramka.

  7. The purchase of Cliff Road was not effected directly by WCL. Rather, WCL utilised a dormant shelf company owned by NRE Resources Pty Ltd, which became Properties, to purchase Cliff Road. WCL owned all the shares in Properties. The WCL Board resolution is found at CB A2:476-477 and 481. The resolutions by which WCL acquired the shares in Properties are found at CB A2:484, 485 and 534. The transfer to Properties is found at CB A3:562. WCL purchased the shares in Properties and lent money to Properties so that Properties could pay the deposit, the balance of the purchase price and all of the demolition and construction costs. The contract for the purchase of Cliff Road is found at CB A2:436-470. For convenience, in the balance of these reasons I shall refer to the purchase of Cliff Road as comprehending the purchase by Properties and the purchase of shares in Properties by WCL to achieve that end. Properties had no income and no assets other than Cliff Road, but it was at all relevant times from June 2008 until July 2013 a wholly owned subsidiary of WCL and utilised solely for the Cliff Road purchase. Its three directors were Mr and Mrs Jagatramka, and Mr Sharma. No interest was ever charged by WCL, nor any security obtained, for the loans made to Properties. In June 2013 the Board of WCL resolved to convert the debt owed by Properties to WCL (at the time, $9,353,000) into equity in Properties, and WCL then sold all of the shares in Properties to Happy Mining Pty Ltd (“Happy Mining”) for $3.75 million. Happy Mining was a shareholder of WCL and its director was Mr Rajat Sharma. There is no suggestion that Mr Sanjay Sharma and Mr Rajat Sharma are related. Happy Mining’s sole shareholder is Gujarat Metallic Coal and Coke Ltd (“GMCC”): CB A8:2473. Happy Mining assigned its rights to Basant International Pty Ltd (“Basant”), and Basant became the owner of all of the shares in Properties. Basant’s sole shareholder and director is Mr Kunal Chandak. WCL did, in July 2013, receive $3.75 million from sale of its shares in Properties to Basant and it used those funds to pay $2 million to Wonga Coal, $550,000 to Gujarat NRE Pty Ltd (“GNPL”) and $1.158 million to GNI.

  8. There are three components to WCL’s claim. WCL seeks to impugn:

  1. The decision to purchase Cliff Road (albeit through Properties) (“The First Component”).

  2. The funding of the expensive demolition and construction costs for Cliff Road (again, through Properties) (“The Second Component”).

  3. The debt to equity swap and sale of shares in Properties to Happy Mining (with Happy Mining’s rights under the share sale later assigned to Basant) (“The Third Component”).

  1. WCL claims that the purchase and construction of Cliff Road and the sale to Happy Mining/Basant were all engineered by Mr and Mrs Jagatramka, and their actions amount to:

  1. Breach of the fiduciary duties owed by them to WCL as directors.

  2. Breach of their statutory duties as directors, namely ss 180-182 of the Corporations Act 2001 (Cth) (“Corporations Act”).

WCL also claims that Properties, by the knowledge of Mr and Mrs Jagatramka as directors, was aware at all relevant times of the breach of duties by the Jagatramkas and are thus accessorily liable for those breaches, thereby entitling WCL to a constructive trust over Cliff Road or equitable compensation from Properties.

  1. WCL’s June 2008 circular resolution (so called because it was not signed at a meeting at which all directors were physically present) was in the following terms:

“By this circular resolution, we the undersigned, being all of the Directors of Gujarat NRE Minerals Ltd (The Company), hereby resolve that in accordance with the provisions of Section 248A of the Corporations Act 2001:

A. That the Company is hereby authorized to purchase entire shareholding, being 10,000 fully paid ordinary shares, of Gujarat NRE Koyala Pty Ltd from NRE Resources Pty Ltd for a total consideration of Aus $10,000 ($1.00 per share).

B. That Mr. Sanjay Sharma be and is hereby authorized to do all such acts, deeds and things that may be deemed necessary, incidental and ancillary towards attainment of the aforesaid resolutions.

Note: Board was informed that the Company has been offered with a rare opportunity to acquire a property at 64 Cliff Road, Wollongong, NSW 2500. It is one of the most exclusive addresses in Wollongong and perfectly suitable for a development of accommodation facilities for executives of NRE Groups. The cost of acquisition of property was estimated around $5,000,000 plus taxes and stamp duties. It was further anticipated that Company may incur additional $3,000,000 to $4,000,000 for the development of aforesaid accommodation facilities.

The Board agreed that the above mentioned property would be most suitable for proposed development and for strategic reasons suggested to acquire the offered property in one of its wholly owned subsidiaries.

It was brought into Board’s knowledge that the Company may acquire Gujarat NRE Koyala Pty Ltd, which is a dormant company at present, from NRE Resources Pty Ltd for the purpose of acquiring and developing the above-mentioned property and accommodation facilities. The Board agreed and approved on same.”

I shall in the balance of these reasons refer to this resolution as “the 2008 resolution”.

  1. Mr Anghie died last year and his executor Mr Michael Anghie was substituted as Cross Defendant.

  2. Mr A. Coleman SC with Mr N. Riordan appears for WCL. Mr D. Pritchard SC with Mr A. Macauley appears for Mr and Mrs Jagatramka. Mr E. Hyde of Counsel appears for Mr Firek, Mr Michael Anghie and Mr Sharma. Properties has never appeared in the proceedings.

  3. At the hearing I received, in addition to extensive oral submissions, detailed written submissions on behalf of the parties, which I set out below:

  1. On behalf of WCL:

  1. Plaintiff’s Closing Submissions (“PCS”).

  2. Plaintiff’s Submissions on Jones v Dunkel.

  3. Plaintiff’s Response to the Defendants’ Schedule of Non-Pleaded Claims.

  1. On behalf of the Jagatramkas:

  1. Defendants’ Closing Submissions (“DCS”).

  2. Defendants’ Schedule of Non-Pleaded Claims.

  3. Second and Third Defendant’s Salient Responsive Points to the Closing Submissions of the Plaintiff (“SRP”).

  4. Defendants’ Specific Response to the Matters Relied upon in Support of the Finding of Fact [sought by the Plaintiff] (“the Defendants’ Specific Response”).

I will refer to the Defendants’ submissions collectively as “the Jagatramkas’ submissions”.

  1. On behalf of the Cross Defendants:

  1. The Cross Defendants’ Closing Submissions (“CDCS”).

  1. Following the hearing and in accordance with directions made by consent on the last day of the hearing, I received on 25 November 2019 the Plaintiff’s Further Written Submissions on the issue of the relief available (“PFWS”), and then on 2 December 2019 I received the Defendants’ Further Written Submissions in Reply (“DSR”).

Some Preliminary Matters

  1. This case was originally listed to be heard in August 2018 and it commenced before me on 27 August 2018. WCL sought on that day to file a further amended statement of claim on the first day of that hearing and a question arose as to who on behalf of WCL had given instructions to the solicitors to file that document, since Mr Anghie and Mr Firek had not done so and they were not aware of any meeting having been called to authorise such a step. This led to WCL seeking an adjournment of the proceedings to enable a meeting of shareholders to be held, and I indicated that the hearing would have to be commenced afresh after that step had been taken. Mr Withers of Counsel, who then appeared for WCL, sought postponement of the hearing and agreed to conditions for the adjournment, including that:

“Plaintiff not be allowed to adduce any further evidence absent special circumstances being demonstrated, other than 2 folders of documents to be provided to the other parties by 5 pm, 29 August 2018, and any other document from material produced by Gokani & Associates and Wollongong City Council in answer to a subpoena” (see Exhibit 2 on the voir dire of 6 November 2019).

  1. The reference to “the 2 folders” was to documents that Mr Withers said “had not been printed by the time this case started and that I wanted to add to the bundle.”

  2. Those two folders became Exhibits A8A and A8B in the current hearing.

  3. On the third day of the current hearing (which commenced on 4 November 2019) shortly before closing WCL’s case, Mr Coleman sought leave to rely on an Affidavit of Mr Richard Norman Welsh of 6 November 2019.

  4. Mr Welsh is a private investigator who was hired to undertake surveillance of Cliff Road between 23 and 25 August 2018. According to his report, annexed to his Affidavit, Mr Welsh observed and photographed a young adult male who was identified by Mr Sharma, for the purposes of consideration of the report’s admissibility, as Mr Ayush Jagatramka, the son of Mr and Mrs Jagatramka.

  5. The report was prepared before the hearing on 28 August 2018. It was never provided, either alone or as an annexure to Mr Welsh’s Affidavit, to the Defendants or Cross Defendants. It was not included in the “2 folders” to which Mr Withers referred, and it was not included in the recently prepared Court Book.

  6. Mr Coleman’s explanation for not making the report and affidavit available to the Defendants’ solicitors was that his predecessor and he wanted to keep the report away from Mr Jagatramka until his cross examination. To disclose the report early would permit Mr Jagatramka an opportunity to tailor the evidence he would give in cross examination. This theme is similar to that seen in cases such as Markus v Provincial Insurance Co Ltd (1983) 25 NSWCCR 1, Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; (2009) 78 NSWLR 265, Prasad v AMP Life Ltd [2012] NSWSC 1076 and Latimer v Day [2015] NSWSC 11, although they are all cases where a party has sought an order from the Court that it not be required to provide potentially relevant material before hearing.

  7. Mr Pritchard contended that cases such as Halpin are all cases where a defendant seeks to hold back material not where a plaintiff seeks to hold back. In Mendel v State of New South Wales [2019] NSWDC 146 the principle was applied in favour of a plaintiff and I do not see any logical reason for limiting its operation to applications by defendants.

  8. There clearly was an expectation on the part of those advising WCL that Mr Jagatramka would attend for cross examination, he having served an affidavit in the proceedings which was included in the Court Book. When it became increasingly obvious that he was not going to attend, or at least that that was a real prospect, Mr Coleman on the second day of the hearing sought leave to serve a Notice to Admit Facts and have time abridged, requiring answers by 2:00 pm that day, an application which was resisted by Mr Pritchard and which I refused.

  9. I do not have any difficulty accepting that there were sound tactical reasons for not wanting Mr Jagatramka to see the report or the photographs until he was cross examined, but the fact is that, contrary to WCL’s expectation, he did not attend for cross examination, with the consequence that his Affidavit was not read. The issue then before the Court was not whether Mr Coleman could deploy the report for the purpose of cross examination but whether he could simply tender it.

  10. Mr Pritchard objected to such a course on a number of grounds, namely:

  1. WCL obtained an adjournment on terms which precluded advancing any new evidence absent special circumstances.

  2. The evidence involved Mr and Mrs Jagatramka’s son not them, and it was accepted by Mr Coleman that the son was, as of Thursday 6 November 2019, in India (see T409.44).

  3. The decision to hold back the report and affidavit, made for forensic reasons, did not constitute special circumstances.

  4. If the evidence were admitted, Mr Pritchard would need to subpoena Mr Welsh’s employer and possibly the contracting party with Mr Welsh’s employer (to ascertain the period over which surveillance had taken place), and would need an adjournment to take instructions from his clients on the matters raised and to obtain evidence from their son.

  5. The evidence that the son was present at Cliff Road in August 2018 would be of limited significance and weight in any event.

  6. In a case where there has already been an adjournment on the application of the Plaintiff, the Plaintiff should not be permitted to tender material on the third day of the hearing prejudicial to the Defendants, which was not provided to the Defendants until the day before and with which the Defendants could not fairly deal without an adjournment.

  1. I indicated to the parties on 6 November 2019 that I would not permit WCL to rely on the Affidavit of Mr Welsh. It was agreed by Counsel that I should provide the reasons for that decision within these reasons.

  2. I am inclined to think that, particularly having regard to what occurred on 27 and 28 August 2018, it was incumbent on WCL to make a Halpin application prior to the hearing in order to establish “special circumstances” which would dispense with the need for WCL to serve material on which it proposed to rely, but it did not do this. Whether or not it was open to WCL, notwithstanding the absence of any such application, to cross examine Mr Jagatramka on the matters contained in the report, and whether or not such cross examination would prove to be of value in impugning his credit, the fact of the matter is that he was not called in his own case and WCL’s reason for not producing the report earlier has been found to be misplaced. I do not think it is open to WCL to then seek to use the material as evidence in its case when it has not provided it to the Defendants before the hearing, and the Defendants are not in a position to deal with evidence made available to them on the third day of a hearing fixed in May 2019.

  3. Moving on to other matters, WCL called only one witness, Mr Sharma. The Jagatramkas did not give evidence and called no witnesses. Mr Firek, Mr Sharma and Mr Anghie all put on affidavits in defence of Mr Jagatramka’s Cross Claim and their affidavits were read. Mr Sharma and Mr Firek were cross examined at length by Mr Pritchard. That Mr Sharma was both the Plaintiff’s only witness and a Cross Defendant, who put on one affidavit on behalf of WCL and one in support of his Defence to the Cross Claim brought by Mr Jagatramka (but not Mrs Jagatramka), and that Mr Firek remains a director of WCL (but who was not called in WCL’s case against the Jagatramkas), produces a rather intriguing forensic situation to which I shall return.

  4. As previously noted, Properties has never appeared in these proceedings. There is evidence of service of the original proceedings upon it: see Affidavit of Service of Matthew Wilkinson dated 21 August 2018 at CB A9, Tab 21, and see also Tab 22. Properties’ failure to appear is quite striking given that it owns Cliff Road and WCL asserts a constructive trust over that property and claims that Cliff Road constitutes traceable proceeds of the share purchases and loans for the purpose of acquiring and developing Cliff Road, and Basant is the sole shareholder in Properties, having paid $3.75 million for those shares. Mr and Mrs Jagatramka have, through the submissions of their Counsel, resisted WCL’s claim to recover Cliff Road from Properties. Mr Coleman challenges the Jagatramkas’ right to do so because they ceased to have any connection with Properties when they resigned as directors of that company in June 2013: see PCS 2.7. Transfer of Cliff Road to WCL, as WCL seeks, would reduce the amount of the liability of the Jagatramkas to WCL if that were established, and yet curiously the Jagatramkas vigorously contend that WCL is not entitled to that relief against Properties.

Cliff Road

  1. When the property was purchased for $5 million the existing house was described in a report made soon after purchase as dilapidated and at “the end of its economic life”: see CB A2:512. That house was demolished and between 2009 and 2011 a new two storey house was built in its place. It was finished in September or October 2011 and a party was held in October 2011 to mark its completion. Cliff Road is situated opposite the small harbour of Wollongong and has extensive views over the Tasman Sea: see Exhibit D3.

  2. The house at Cliff Road was designed by an architect of Indian heritage (Mr Lalit Mital) with Indian architectural features said to be in the “Vastu” style. There is a dining room, family room, master bedroom, three other bedrooms, a prayer room and what is described as “a guest room” downstairs. It has a lounge/entertainment room and a rumpus room, two kitchens and a lift: see CB A5:1266. It has a turntable in the garage on the ground floor: CB A6:1538. The house has marble finishes, expensive fixtures and fittings, and a glass balustrade.

  3. It is clear from the correspondence that it was Mrs Jagatramka who selected all finishes for Cliff Road and whose requirements were being met. Although Mr Mital’s contract was with Properties (see CB A3:586-587, A4:954 and A5:1378-1381), he clearly believed that Mr and Mrs Jagatramka were effectively the clients, and that understanding came at least in part from Mr Sharma at CB A3:721, A4:934, 937, 949, and from Mrs Jagatramka who in her email to the architect described herself as the client: see CB A4:947. Mr Jagatramka instructed the architects not to do anything in relation to the building work without first clearing it with him or Mrs Jagatramka. Mr Sharma, who was both secretary of WCL and a director of Properties, was a conduit for much of the information and instructions, but he did not actually make any decisions himself. No one else from WCL or Properties was involved in any decisions or the giving of instructions in respect of Cliff Road.

  4. Mrs Jagatramka had no qualifications pertinent to the work being carried out but she had the experience of having a house built for her in Ahmedabad (which is the Jagatramkas’ home in India, and which she must have arranged for Mr Mital to see: CB A4:947). Cliff Road was never used by anyone other than Mr Jagatramka and his family: T167. When overseas visitors came to Wollongong after the construction of Cliff Road they were accommodated in local hotels: see aide memoir summarising evidence handed up by Mr Coleman and paragraph 82 of Mr Sharma’s first Affidavit.

  5. In 2013 it became clear that WCL was in dire financial circumstances. Creditors were pressing for payment and the auditors of WCL expressed the view to ASIC that the company might be insolvent. WCL’s Board resolved to sell non-core assets and steps were taken to sell an apartment at 4 Bank Street Wollongong (“Bank Street”), shares in Rey Resources Pty Ltd and Cliff Road. There is no dispute between the parties that this was necessary and appropriate. Cliff Road, however, was not owned directly by WCL. Rather, WCL had lent Properties all of the funds to buy the property and build the new house, and WCL owned all of the shares in Properties.

  6. The Boards of WCL and Properties resolved to convert the approximately $9.5 million debt owed by Properties to WCL to further equity in Properties and then to sell all of the shares in Properties to Happy Mining for $3.75 million. Mr and Mrs Jagatramka did not vote on the resolution relating to the debt to equity swap but did vote on the sale of the shares: CB A6:1559-1560. The share sale deed to Happy Mining is found at CB A6:1572-1582. That purchase required Foreign Investment Review Board (“FIRB”) approval (as had Properties’ original purchase in 2008) and, apparently due to the difficulty of obtaining FIRB approval (CB A6:1666), it was decided that Happy Mining’s agreement to buy the shares from WCL would be assigned to Basant. Happy Mining had already paid the $3.75 million to WCL and the payment was treated as a payment by Basant and the shares were duly transferred to Basant. Basant, which subsequently changed its name to Bhanu Properties Pty Ltd (although, for convenience, I will continue to refer to the company as Basant) remains the owner of all of Properties’ paid up capital. Basant has not been made a party to these proceedings and WCL has not sought to set aside the sale of shares in Properties to Happy Mining or Basant.

  7. Shortly before the sale of the shares in Properties to Happy Mining/Basant, WCL obtained a valuation of Cliff Road from Opteon (South East Regional NSW) Pty Ltd (“Opteon”) dated 13 May 2013: CB A6:1533-1547. The value ascribed to Cliff Road was $3 million for the land and $750,000 for the improvements, i.e. a total of $3.75 million. It will be recalled that the cost of improvements to Cliff Road exceeded $4 million.

  8. It will be readily apparent that the amount paid for all of the shares sold to Happy Mining/Basant is precisely equivalent to the value ascribed to Cliff Road by the valuation report. Properties’ only asset was Cliff Road. It will also be apparent that a property which cost Properties approximately $10 million ($5 million in 2008 and approximately $5 million in demolition and construction costs) sold for only $3.75 million five years later. WCL does not contend that Cliff Road was worth more than $3.75 million in 2013 when the shares in Properties were sold to Basant. It has put on no evidence to show that the $5 million paid in 2008 for Cliff Road exceeded its real value at that time. WCL’s case is not that Cliff Road was purchased at an inflated price. On WCL’s case, it is the purchase of Cliff Road in 2008 (through the medium of shares in Properties) and the commitment to spend (and later actual expenditure of) considerable amounts in constructing and fitting out Cliff Road that was not in the interests of WCL and was achieved because Mr and Mrs Jagatramka did not reveal that they wanted the house built exclusively for themselves and gave two other reasons for the proposed purchase.

  9. After Basant took over the shares in Properties, Properties leased Cliff Road to NRE Resources Pty Ltd for a period of two years: see Mr Jagatramka’s answer to interrogatories at CB A9, Tab 18. The interrogatories were answered on 1 February 2018. On the basis of those answers, the Jagatramkas’ involvement with Cliff Road ceased in April 2015. The Jagatramkas’ son continued to live there during the course of his university studies in Wollongong (T254.10) - that the son lived there after April 2015 is not established. Mr Jagatramka was a director of NRE Resources Pty Ltd at all relevant times and at least up until 2 March 2015, and Mrs Jagatramka was a director as at July 2013 and until 25 March 2014: see CB A8:2264-2267. Gujarat NRE Mineral Resources Ltd was a substantial shareholder in NRE Resources (CB A8:2267).

Bank Street

  1. In 2005, WCL, with Mr Jagatramka’s involvement, purchased Bank Street for $850,000. It was a four bedroom apartment with ocean views. It was used by Mr and Mrs Jagatramka (mainly Mr Jagatramka) between 2005 and 2011 when Mr Jagatramka visited Wollongong: see Mr Sharma’s first Affidavit at paragraph 77-82, CB A1:157-158. It was not used by any officer or executive of WCL other than the Jagatramkas. The unit was sold in 2013 at about the same time as the shares in Properties were sold to Basant in order to help stem WCL’s financial crisis.

Mr Jagatramka’s Role in WCL

  1. Mr Jagatramka and his family were, through Gujarat NRE Mineral Resources Ltd, the ultimate controllers of the principal shareholders in WCL, i.e. Gujarat NRE Pty Ltd, GNCL and Wonga Coal Pty Ltd. A director and non-executive chairman from October 2004, Mr Jagatramka (the son of the founder of the Gujarat Group) was very active in organising funding for a very significant expansion of the two mines which were owned by WCL. According to a document of WCL prepared when Mr Jagatramka was in control, Mr Jagatramka is a qualified chartered accountant and as at 2008 had 11 years’ experience in the production of coal and coke; he was the managing director of GNCL, said to be the largest independent producer of metallurgical coke in India. He was said by Mr Firek to be adept at building confidence in WCL and its image and he was able to secure $130 million of bank loans for WCL at a time of global financial crisis by means of support from the Gujarat Group of which his family were substantially in control.

  1. When Mr Jagatramka first became involved with WCL in 2005 the two mines were not operational (see T97.28 and T101.22). Under previous management the mines had run into difficulties a number of times and, according to Mr Firek, the local trades community and suppliers were not well disposed to the mines. In addition, as he understood it, previous employees had not been treated well.

  2. In the period 2004 to 2011, Mr Jagatramka would only visit Wollongong for short periods because, at least in part, he had only a visitor’s visa.

  3. In September 2011 Mr Jagatramka was appointed as executive director of WCL. In that connection, he and WCL entered into an Executive Services Agreement (“ESA”), by which Mr Jagatramka was to be paid $1 million a year in superannuation and to be provided with a “fully furnished residential property of an appropriate standard” for himself and his family, two cars and two domestic helpers. What constituted “appropriate standard” was not specified in the ESA: see CB A5:1223. At about the time the ESA was executed, Mr Jagatramka was granted a “457 Visa” which enabled him to visit Australia and spend as long as he wanted here. The grant of the 457 visa also coincided with the completion of Cliff Road. WCL originally alleged that the entry by WCL into the ESA also involved a breach of duty by Mr Jagatramka, but this claim was abandoned during opening submissions: T22.13-23.

  4. Mrs Jagatramka resigned as a director of WCL in July 2013 and Mr Jagatramka resigned in February 2014. They resigned as directors of Properties following the sale of shares to Happy Mining/Basant in June 2013. Effective control of WCL passed to Jindal in October 2013: CB A1:149, Mr Sharma’s first Affidavit at paragraph 32.

Pre-Purchase Discussions

  1. Mr Sharma’s evidence in his first Affidavit of 3 March 2015 is that the idea for purchase of Cliff Road was introduced by Mr Jagatramka in the presence of a real estate agent named Steve Cicekdag, from Hot Properties International, as follows (CB A1:158-159):

“Second Defendant: ‘Steve has informed me about a property at 64 Cliff Road, which is available for sale. He claims it would be suitable for our purpose. Do you have any idea about this property?’

I said: ‘I heard a little bit about it in the news, that it’s for sale and it’s an expensive piece of land and it's got a very old house on it.’

Mr Cicekdag: ‘Yes the house is quite old and of course you would have to remove it and build another one.’

I said: ‘What’s the price they’re asking for?’

Mr Cicekdag: ‘$5,000,000.00.’

[…]

Second Defendant: ‘Sanjay, what do you think about this property?’

I said: ‘If it is 64 Cliff Road, then it is definitely a prominent location, but the asking price seems to be a bit high. But I’m not into real estate business so I may not know.’

Second Defendant: ‘Would somebody else buy this land at $5,000,000?’

I said: ‘Individuals may not, but a developer may look at building a complex with a few floors and penthouse and make money out of it.’”

According to Mr Sharma, Mr Jagatramka also said:

“‘[t]his is the most spoken-about property in the local region. If [the Plaintiff] buys it then we will be making a statement that I am not just another foreign investor trying to make quick money and vanish.’” (CB A1:159)

  1. Mr Jagatramka had told Mr Sharma in late 2007 that he thought that WCL needed to purchase a larger property (i.e. larger than Bank Street) “to accommodate senior executives of Gujarat [WCL] and other Indian companies within the group… when they are visiting Australia”: see paragraph 18 of Mr Sharma’s second Affidavit. Bank Street was only used for the accommodation of the Jagatramkas: see Mr Sharma’s first Affidavit at paragraph 82.

  2. In a conversation with Mr Sharma in June 2008 (before the resolution) Mr Jagatramka said to Mr Sharma (see paragraph 29 of Mr Sharma’s second Affidavit):

“Shortly after this discussion, but still in June 2008, I had another discussion with Mr Jagatramka during which he said words to the following effect:

‘Purchasing this property will give us free publicity and will help to improve our image in the community and would have a tangible commercial benefit for the company. In buying the property we will make a solid statement that we are here for good. It can also be used as a company guesthouse for the executives who are vesting from India. In addition, it can be used for corporate functions for stakeholders and others.’”

  1. Mr Sharma also said (CB A1:159-160):

“[90] The Second Defendant explained to me in the discussions that followed shortly afterwards (but still in or about June 2008) that by purchasing such a prestigious property, the Plaintiff would be able to capitalise on the publicity it was already enjoying due to the Second Defendant’s local and international celebrity status. The Second Defendant did, on more than one occasion, remark to me that the Cliff Road Property would improve the Plaintiff's image in the local Wollongong community, and that this would result in tangible commercial benefits for the company.

[91] For example, in or about May 2008, whilst I was in the Second Defendant’s office discussing the Cliff Road Property, the Second Defendant said words to me that were to the following effect:

‘It took us more than two years to restore confidence of suppliers and employees, who in past were burnt by previous owners of this mine. Even now some believe that we are here for the short term. I believe by acquiring this Property, it will fetch free publicity for our Company and make a statement that we are here for a permanent establishment.’”

  1. In his Affidavit (see CB A1:198), Mr Firek says that in early to mid-2008 (or even late 2007) Mr Jagatramka said to him:

“Mr Jagatramka: ‘We are looking at buying a house which is for sale in Cliff Road, Wollongong. It would help to solidify our presence in the community and garner community support. There are also quite a few Indian executives who visit Australia quite frequently who we would entertain and accommodate there.’

Me: ‘I think that’s a good idea’

Arun or Me: ‘It would save money.’”

  1. Mr Firek said in his Affidavit that when he signed the resolution approving the purchase of shares in Properties:

  1. He did not know that Mr Jagatramka “intended to reside” at Cliff Road and that Mr Jagatramka did not intend for Cliff Road to be used primarily as a guest house for officials and guests of WCL.

  2. Had he known of those matters he would not have voted to approve the resolution. He also says that Mr Jagatramka or WCL had purchased Bank Street where “Mr Jagatramka would stay and reside whenever he was in Wollongong for company business”.

  1. Mr Anghie in his Affidavit of 31 October 2016 said that he had conversations with Mr Jagatramka about a guest house. According to Mr Anghie, Mr Jagatramka said in April or May (see paragraphs 12-13):

“‘We are going to buy a property in Wollongong to be used as a guest house for executives and directors who are coming to visit Wollongong.’

[…]

‘It will also help the company to get community support because it will show that we are here for the long run.’”

Later Mr Jagatramka told him he had identified the property WCL was to acquire at Cliff Road. Mr Anghie explained his thinking about this at paragraph 15 of his Affidavit (CB A1:188):

“At the time of my conversations referred to in paragraphs 12 to 14 above, I considered that a guest house was an appropriate asset for WCL to purchase due to the significance of guesthouses in Indian company culture and the number and frequency of guests who regularly visited Wollongong from India in relation to work conducted for WCL. I am aware that most large Indian companies have guesthouses that are available for visiting executives, directors and other dignitaries, and I have stayed at such guesthouses when visiting Indian companies in India and elsewhere in the world. As such, I did not think there was anything unusual about the proposal by Mr Jagatramka.”

  1. Mr Anghie said at paragraph 18-19 of his Affidavit that he did not know that Mr Jagatramka intended to reside at Cliff Road and did not intend for Cliff Road to be used primarily as a guest house for guests and officials of WCL. He says that he understood Mr Jagatramka or WCL had purchased a residential unit in Wollongong where Mr Jagatramka stayed and resided whenever he was in Wollongong for company business, and “it did not occur to me that Mr Jagatramka would need to use another property for this purpose.”

  2. Mr Anghie said he would not have voted for the resolution authorising purchase of Cliff Road had he known of the matters set out above.

  3. Mr Sharma in his second Affidavit dated 2 November 2016 says the following:

  1. He notes that before Mr Jagatramka became Executive Chairman, WCL was relying on Mr Jagatramka to provide funding for the company.

  2. He says that before Cliff Road was mentioned, Mr Jagatramka said to him (CB A1:207):

“A larger property needs to be acquired to accommodate senior executives of Gujarat [WCL] and other Indian companies within the group [the Gujarat NRE Group, an inter-related group of public and proprietary companies of which WCL was a member until around November 2013 (Gujarat Group)], when they are visiting Australia.”

  1. In one of the conversations around late 2007, Mr Jagatramka said to him (at CB A1:209):

“‘We need to get a larger property so we can also accommodate the senior executives visiting from India.

During these conversations, Mr Jagatramka would refer to the property as ‘the company’s guesthouse’.”

  1. In June 2008 Mr Jagatramka said to Mr Sharma in relation to Cliff Road:

“Purchasing this property will give us free publicity and will help to improve our image in the community and would have a tangible commercial benefit for the company. In buying the property we will make a solid statement that we are here for good. It can also be used as a company guesthouse for the executives who are visiting from India. In addition, it can be used for corporate functions for stakeholders and others.”

  1. Mr Sharma says (at paragraph 32, CB A1:210) that he did not know that Mr Jagatramka intended to reside at Cliff Road (except from time to time when visiting Australia for work undertaken with respect to WCL from his place of residence in India) and did not intend Cliff Road to be used primarily as a guest house for guests and officials of WCL. Mr Sharma says had he known those matters he would not have drafted the resolution in the form it was drafted and he would have required those matters to have been disclosed. Furthermore, he would have advised Mr and Mrs Jagatramka to abstain from attending or voting on the proposed resolution.

  1. In relation to the decision to purchase Cliff Road, it appears that the use of Properties was simply the means or vehicle by which WCL acquired Cliff Road. On the issue of the purchase of Cliff Road and other matters, Mr Sharma’s cross examination revealed:

  1. He was not part of the selection process for Cliff Road: T89.25.

  2. He did not, as a director of Properties, have a concern about the purchase in 2008 or the construction works: T90.1-47.

  3. He understood Mr and Mrs Jagatramka to exercise proper skill and care in the performance of their duties: T93 – T94.

  4. He was told by Mr Jagatramka to report to Mrs Jagatramka concerning the construction of the house, which he did: T94.45.

  5. He had no concerns as a director of Properties in relation to what Mrs Jagatramka told him or did regarding construction: T95.24. He had no concern that Mrs Jagatramka was the person giving him instructions (she being a director of Properties and WCL).

  6. He did not consider whether it was appropriate for Cliff Road to have an Indian flavour but was aware that it was going to have such (T96.33 – T97.8).

  7. The Russell Vale (or No 1) mine is close to a residential area of Wollongong and there were constant complaints about noise and dust from the operation of the Russell Vale mine: T109.25. The more trucks there were driving through the suburb, the more likely it was that there would be complaints: T109.39.

  8. There was increased production and plans to substantially increase production in 2008: T111.40.

  9. WCL’s capital expenditure in 2008 was $128 million: T113.45.

  10. Mr Jagatramka was chairman of WCL from 2004-2011: T136.11.

  11. No buyers’ agent was used in relation to the purchase of Bank Street: T137.

  12. It was Mr Sharma’s understanding that it was not uncommon for large corporate entities in India to have company guest houses: T138.9.

  13. Mr Sharma understood that Mr Jagatramka, if he wanted, would be one of the persons who would be using Cliff Road when he visited Australia for work connected with WCL (T143.40-50), and that from time to time his wife and family would come with him: T144.1-10 and see T243.25 – T244.40.

  14. Mr Sharma understood that it would be Mr Jagatramka who would decide who else would stay there: T144.25.

  15. Mr Jagatramka did not agree to anybody else using Cliff Road when it was built: T144.25. When he or his family were not staying at Cliff Road (which was “pretty much full time”: T254.10) it was locked and, to his knowledge, no guest ever stayed there: T167.20-25.

  16. There was a lot of public interest in Cliff Road before WCL purchased it: T146.45.

  17. Mr Sharma knew that the house at Cliff Road was quite old and would have to be removed and a new one built: T147.12-15.

  18. He understood that Cliff Road was in one of the most highly prized residential areas of Wollongong at the time of purchase: T149.10-12.

  19. Mr Sharma understood Mr Jagatramka’s statements that if WCL bought Cliff Road “we will be making a statement that I’m not just another foreign investor trying to make quick money and vanish” to be Mr Jagatramka’s genuine view and belief: T149.45-49.

  20. Mr Sharma believed that the purchase would attract a lot of media publicity for Mr Jagatramka and WCL: T150.27. The mine had had a bad history of four or five owners becoming bankrupt or leaving the mine, suppliers losing their money and employees losing their jobs: T150.43 – T151.37. That was, on his understanding, one of Mr Jagatramka’s reasons for buying Cliff Road: T152.4.

  21. WCL had no intention to sell or develop Cliff Road (other than as a house): T154.5.

  22. Mr Jagatramka was out there in the local community promoting WCL (T155.1-17), a strategy to build the image of WCL in the community: T155.35.

  23. Mr Sharma believed the purchase of Cliff Road would help WCL with image development and thinks that this was a rational view: T156.15.

  24. It had taken WCL two years to restore the confidence of suppliers and employees (T157.14), and even as at 2008 there were some people in Wollongong who felt that WCL was only there for the short term: T157.30.

  25. Mr Jagatramka told Mr Sharma that the purchase of Cliff Road would attract quite some publicity and make a statement that WCL was a permanent establishment, and Mr Sharma believed that (T158.12-45). Mr Sharma thought that it would assist WCL in its dealings with suppliers and the community: T159.10.

  26. Mr Sharma did not speak to Mr Anghie or Mr Firek about the purchase of Cliff Road: T159.10.

  27. 200 trucks were coming out of Russell Vale each day (T160.39-49) and there was community opposition to the mine.

  28. WCL sponsored a local basketball team called the Hawks (T161.22) and entered into a sponsorship agreement with Cricket NSW: T161.40.

  29. Wollongong is a fairly close knit community, and word of mouth and personal relationships are important: T162.10.

  30. Mr Sharma says that he thought Cliff Road was to be acquired as a guest house for guests and officials of WCL, but the property was not in fact used as a guest house but, rather, as the residence of Mr and Mrs Jagatramka and their family. Mr Sharma says that he only found out the true purpose in October 2011 and thereafter, since no one else other than Mr and Mrs Jagatrampka and their family ever stayed at Cliff Road: T166.45 – T167.35.

  31. He did not agree that Mr Jagatramka was given Cliff Road as his permanent accommodation when he became chief executive officer (they had Bank Street which they exclusively occupied: T197.44 – T198.17), but he appeared to accept that Mr Jagatramka did take de facto possession and control of Cliff Road in October 2011: T198.26 – T199.9.

  32. He believed as at 2008 that the purchase was within the best interests of Properties: T178.35.

  33. Mr Sharma was told that the Board of WCL estimated the construction cost of $3 to $4 million, and he did not know whether that was fair and reasonable: T181.31-38.

  34. FIRB approval required demolition of the existing building, construction of a new house (T182.15) and expenditure on that new house of at least 50% of the purchase price of Cliff Road: see CB A2:544.

  35. In 2010-11 WCL was doing well and Mr Jagatramka was the driving force behind WCL’s turn around: T191.10-24. Both prices of coal and production levels at the mines had improved: T191.24.

  36. The ESA was entered into to reflect that Mr Jagatramka was bringing in all the funds. WCL needed his support (T197.20) and he would be spending more time in Australia running WCL, and he was to have the benefit of permanent accommodation whilst in Australia: T197.45.

  37. Mr Sharma said that he did not understand that the accommodation for the Jagatramkas would be at Cliff Road because Mr Jagatramka already had permanent accommodation at Bank Street: see T197.48 – T198.35.

  38. He said that he understood that when the property was completed Mr Jagatramka and his family could use Cliff Road when they were in Australia: T202.1 and T203.40.

  39. Mr Sharma was asked about CB A6:1767, being a resolution of WCL to commence these proceedings that was prepared by WCL’s solicitors at Mr Jasbal Singh’s request, and which Mr Sharma circulated on the instructions of Mr Singh, who was appointed by Jindal interests. He accepted that he read it and he did not say (or say to anyone else) that the statement in it, namely “the Cliff Road Property was originally provided by the Company for the use of Mr Jagatramka under his remuneration arrangement as the Company’s executive chairman”, was not correct.

  40. Mr Sharma had no reason to doubt the Opteon valuation of $3.75 million for Cliff Road.

  1. The following emerged from cross examination of Mr Firek:

  1. He understood that as a director of WCL he had a duty to act in good faith, in the best interests of WCL and for a proper purpose (T341.1-4) and to act independently, bringing his own assessment to the task under performance: T341.6-10.

  2. By 31 March 2008, WCL was increasing its mine production, $88.4 million had been spent on capital expenditure and a further $41.5 million was planned for the forthcoming year (T346.37-50), a very large sum of money (T347.25) involving significant expansion.

  3. WCL was considering purchasing a property for use by guests of WCL attending from overseas and with a view to it being “like a monument to India and the company presence” in Wollongong: T347.42-50. It involved building confidence and acceptance of WCL similar to sponsorship of the basketball team and cricket sponsorship: T348.10. It was to show that WCL was here to say: T353.24-30.

  4. Mr Jagatramka was able to obtain funding of about $130 million for capital improvements (T352.20-37), which caused Mr Firek to have a very positive view of him: T353.10-12.

  5. It was important for WCL to establish confidence because there was an unwillingness to extend credit because prior owners of the mines had “not done the right thing by employees and contractors”: T356.30-35. Mr Firek was aware of negative perceptions in Wollongong and buying Cliff Road was part of the attempt to overcome ill-feeling in the community: T354.11, T354.32 and T356.45. This was one of the reasons he voted for the purchase of Cliff Road: T357.37. It was a high profile property in the community in Wollongong: T357.43.

  6. He agreed with Mr Jagatramka’s assertion to him that the purchase of Cliff Road would solidify the presence of WCL in the community and garner community support (T359.45 – T360.6), and that it was also to accommodate visiting executives, bankers and consultants and to entertain them: T360.15.

Here, in effect, WCL, having obtained the benefit of selling the shares in Properties to Happy Mining/Basant at full value, claims against Properties based on the losses incurred by WCL because of the earlier loans and share purchases that enabled the sale to Happy Mining/Basant.

  1. WCL could have sought to set aside all of the transactions, including the sale to Happy Mining/Basant once the Jagatramkas had departed, but it has not done so. Had WCL sought to rescind all of the impugned transactions including the allotments and loans, Cliff Road would have remained in the ownership of Properties (not WCL) and WCL would have been able to force Properties to sell Cliff Road to repay the monies wrongly advanced to Properties. It might have been entitled as at June 2013, say, to trace the payments made into Cliff Road, but even assuming that was possible, WCL would not have obtained more than the value of Cliff Road. After the transactions in July 2013, for WCL to take control of Cliff Road it would have had to rescind those transactions and pay back $3.75 million to Happy Mining/Basant, unless it could establish that Happy Mining/Basant had knowledge of the breaches by the Jagatramkas and Properties in relation to the 2008 resolution, of which there is no suggestion. I have previously referred to the question of loss: see [123] above. In some respects, these matters overlap with the considerations relevant to imposition of a constructive trust. I do not think it matters in considering this issue whether WCL’s claim against Properties is described as a substitutive claim or a reparative claim, and the conclusion is not based solely on the fact that WCL has not sought to rescind the sale to Happy Mining/Basant but also on the basis that it sold all of its shares in Properties to Happy Mining/Basant for $3.75 million following conversion of the debt then owed to WCL to equity. I accept WCL’s submission that In re Exchange Banking Company (Flitcroft’s case) (1882) LR 21 Ch D 519 (in which directors who had obtained a resolution to pay dividends by misleading the shareholders were required to repay all dividends to the company, which had been placed in liquidation) supports the contention that the impugned resolution does not have to be rescinded, but that is relevant to the claim against the Jagatramkas, not that against Properties (whose debt to WCL was wiped by the debt to equity swap and all shares in which were sold to Happy Mining/Basant).

Discretionary Considerations as Against the Jagatramkas

  1. The discretionary considerations referred to above in relation to Properties do not, however, apply to the Jagatramkas.

  2. To the extent that the submissions on behalf of the Jagatramkas seem to assert that the absence of rescission of the loan and allotment arrangements are a bar to a claim for equitable compensation, Greater Pacific and Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 305 ALR 687 at [177] and [179] per Emmett JA (with whom Meagher JA and Ward JA concurred) hold otherwise. I accept, however, that discretionary considerations can play a part in whether or not equitable compensation should be ordered (Maguire at 493-494 per Kirby J, Day v Mead and see Tilbury and Davis (supra) at [2212]) and that the absence of rescission is a relevant consideration: Crossman v Sheahan [2016] NSWCA 200 at [261]-[262]; (2016) 115 ACSR 130.

  3. If the Jagatramkas are to be taken as asserting that Agricultural supports the contention that failure to rescind precludes the reparative claims, I do not accept that it can be read in such a fashion, not least because in dealing with the third reason for rejecting the reparative claim (see [400]-[404]), His Honour focused on the fact that the licence could not be severed from the transaction as a whole – there was a benefit to Agricultural of $1.3 million on the land component that had to be taken into account and which undermined the claim that Agricultural had suffered a loss. I do not read the decision as relying on the absence of rescission per se as a reason for rejecting the claim for reparative relief (unlike the position with substitutive relief).

  4. As mentioned, Flitcroft’s case also supports WCL’s position that rescission is not required to claim the loss suffered by it from the Jagatramkas. In that case, Jessel MR said at 534:

“…if directors who are quasi trustees for the company improperly pay away the assets to the shareholders, they are liable to replace them… I am of opinion that the company could in its corporate capacity compel them to do so, even if there were no winding-up.”

See also Brett LJ at 535 and LJ Cotton who said at 535-536:

“But directors are in the position of trustees, and are liable not only for what they put into their own pockets, but for what they in breach of trust pay to others.”

In Wheeler, the directors who were held in breach of fiduciary duty were held liable for all the losses that flowed from the transaction brought about by their breach (see 248-249) and in O’Halloran the director who had breached his obligations to the company was held liable to it for all losses that flowed from his conduct notwithstanding that a contract which he had engineered to thwart rival shareholders from using the company’s voting power was affirmed by the company: see 268B – 269C.

  1. I do not regard the fact that WCL converted the debt owed to it and sold all of its shares in Properties, resulting in the sale at $3.75 million (the value ascribed by Opteon to Cliff Road), as a reason to reduce the Jagatramkas’ liability for the loss. The sale of the shares in fact reduced the amount of WCL’s loss and the Jagatramkas’ liability to compensate WCL was thereby reduced. Cliff Road was valued at $3.75 million and was Properties’ only asset – on the evidence as to Cliff Road’s value, WCL could not have recovered any more than this amount from Properties by requiring Properties to sell Cliff Road and pay back the proceeds in partial reduction of the debt. The Jagatramkas have paid no money for the shares in Properties. There is the further dimension that the Jagatramkas were still directors at the time of the debt to equity swap and sale (and voted on the sale), and Mr Jagatramka was the moving party in organising the sale to Happy Mining/Basant.

Compensation: s 1317H

  1. I have referred to the loss suffered by WCL as $6.403 million and I deal with the issue of interest below. Section 1317H of the Corporations Act provides for compensation to be awarded for breaches of the Act. There was agreement that the test in relation to statutory compensation is as set out in Adler v ASIC at [709], namely a causal connection between the damage and the contravening conduct, which is similar to the common sense causation test at common law: March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506. I have explained why even if the disclosure counterfactual can be investigated it does not assist the Jagatramkas. Having regard to the close overlap of the breaches of fiduciary and statutory duties, I think that an award of equitable compensation obviates the need to impose any separate additional amount pursuant to s 1317H.

Statutory Relief from Liability

  1. The Jagatramkas by their Defence seek pursuant to ss 1317S(2) and 1318(1) of the Corporations Act to be relieved from liability for breaches of their statutory and fiduciary duties.

  2. Sections 1317S(1) and (2), and 1318(1) are as follows:

“1317S Relief from liability for contravention of civil penalty provision

(1) In this section:

eligible proceedings:

(a) means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 961M, 1317GA, 1317H, 1317HA, 1317HB, 1317HC or 1317HE); and

(b) does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H, 1317HA, 1317HB, 1317HC or 1317HE).

(2) If:

(a) eligible proceedings are brought against a person; and

(b) in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:

(i) the person has acted honestly; and

(ii) having regard to all the circumstances of the case (including, where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention; the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.

[…]

1318 Power to grant relief

(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.”

  1. Both sections are relied on by the Jagatramkas in their Defence but no substantive submissions were made in the DCS on this point. Since I do not propose to make any order for compensation under s 1317, only s 1318 is potentially relevant. I am not persuaded that the Jagatramkas have acted honestly or that, having regard to all the circumstances of the case, they should be excused. They did not reveal their true intention to the other Board members. Rather, they put up a proposal that was inconsistent with the purpose they actually intended. They lived at Cliff Road from October 2011 until at least April 2015. The arrangements by which they came to reside at Cliff Road from October 2013 until April 2015 are opaque and invite suspicion. In any event, WCL has incurred a significant loss as a result of the purchase. The Jagatramkas were not prepared to give evidence, so again I draw the inference that their evidence would not have assisted them to establish the statutory defences which they assert are available to them.

Interest

  1. WCL claims pre-judgment interest, pursuant to s 100 of the Civil Procedure Act 2005 (NSW), on all the monies paid out by WCL in respect of Cliff Road (i.e. the monies lent and paid for shares in Properties), less the $3.75 million received in July 2013. The interest from 19 June 2008 was said by WCL to have been calculated in accordance with the prescribed pre-judgment interest rates for the Supreme Court of NSW (the calculation is annexed to the PFWS). The DSR did not challenge that per se, but the Jagatramkas dispute the amount of interest claimed by WCL because they assert that interest has been calculated as if the proceeds were lost from the day that the monies were paid out. That, they assert, would be appropriate if WCL’s claim was a substitutive claim, but it is not appropriate in respect of a reparative claim, which the Jagatramkas say WCL’s claim would have to be if it were to succeed at all. The Defendants’ submissions (see DSR 37) assert that the focus must be on loss caused by the breach of duty “with any interest only payable on that loss and when it was incurred”. The submissions do not provide any further details of how interest is to be calculated in this case and the Jagatramkas have not proposed an alternative figure.

  2. WCL’s case is that all money paid out by it for the Cliff Road project was a result of the Jagatramkas’ breach of duty. I do not accept that the claim must be framed as a claim for substitutive compensation for interest to be payable from the date the funds were disbursed. In my view the usual principle applies, being explained in Maio v Sacco (No 2) [2009] NSWSC 742 at [10] per White J (as His Honour then was):

“There is an inherent equitable jurisdiction to award interest in a wide variety of cases where it is necessary to do justice between the parties (State Bank of New South Wales Ltd v Federal Commissioner of Taxation (1995) 62 FCR 371 at 380).”

  1. Secondly, s 100(1) of the Civil Procedure Act provides that:

“(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:

(a) on the whole or any part of the money, and

(b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.”

See also the discussion in John Hamilton et al (eds), NSW Civil Procedure Handbook 2019 (Thomson Reuters, 9th ed, 2019) at [100.40] on the general principles applicable to awards of interest, with particular reference to Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 and New South Wales v Avery [2016] NSWCA 147; (2016) 92 NSWLR 141. WCL’s cause of action first arose in June 2008, and each disbursement thereafter for the Cliff Road project represented further loss to WCL.

  1. WCL is entitled by way of compensation to recover the monies expended and the loss to it of that money from the time it was expended for a purchase/investment that should not, on my findings, have been made. I, therefore, will award the amount of $5,690,677.95 for interest, as calculated by WCL until July 2019, plus a further amount to be calculated from then to the date of judgment.

The Cross Claim

  1. Mr Jagatramka’s Cross Claim asserts that if he is found liable then Messrs Sharma, Firek and Anghie are all in breach of their duties as much as he was.

  2. Paragraph 221-222 of the DCS contains the detail of the allegations against Mr Firek, Mr Anghie and Mr Sanjay Sharma. Mr Jagatramka contends that these officers have a coordinate liability with him. Since I have made no finding against the Jagatramkas of a breach of the duty to exercise due care and diligence, there is no need to consider the coordinate liability of these Cross Defendants in that respect. In relation to the issue of Mr Sharma’s position as secretary of WCL and director of Properties, that need not be considered further because my conclusions in relation to the Jagatramkas are not based on any conflict of interest between their position as directors of WCL and Properties. If the decision to purchase Cliff Road was not impugned then the use of Properties per se has not been shown to involve any breach of duty. In relation to the debt to equity swap and sale of shares in Properties, such breach as occurred has not led to any loss and nor has it been demonstrated that Mr Firek or Mr Anghie were aware of the connections between the Jagatramkas and Happy Mining/Basant, and there is Mr Anghie’s evidence that he was told Happy Mining was an “arms-length person”. Mr Sharma was not entitled to and did not vote on the debt to equity swap, and all he knew was that Happy Mining was a shareholder of WCL. Arguably, that itself ought to have raised concern but I have rejected the claim against the Jagatramkas in respect of the Third Component due to the absence of any loss being established, so it is not necessary to consider the issue further.

  3. The finding against the Jagatramkas is that they advanced their own interests in breach of their duty to WCL to act for proper purposes, to avoid conflict and that they failed to disclose their real interest in the 2008 resolution. Mr Firek and Mr Anghie who voted for the resolution have not been shown to have had any knowledge of the exclusive residence intention as at June 2008. Mr Sharma was not involved in the voting and he did not know of the exclusive residence intention as at June 2008. If he became aware of that intention at a later time, that is not relevant to the decision taken by the Board in June 2008. The Jagatramkas have not established a coordinate liability of the Cross Defendants.

  4. By reason of the conclusion in [193] above, it is not necessary to consider the two discretionary reasons advanced in the CDCS which are based on, firstly, Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 and, secondly, Bond v Larobi Pty Ltd (1992) 6 WAR 489 at 503 and Harpley Nominees Pty Ltd v Jeans [2006] NSWCA 176 at [43]-[45] and [47]. Nor is it necessary to consider the defence of misleading and deceptive conduct, which was advanced by the Cross Defendants against Mr Jagatramka.

  5. The Cross Claim therefore fails and Mr Jagatramka must pay the costs of the Cross Defendants.

Conclusion

  1. It follows that:

  1. There should be judgment in favour of WCL against Mr and Mrs Jagatramka in the amount of $6,403,050 plus interest, being an amount of $5,690.677.95 as at June 2019 (and to be calculated up to the date of judgment).

  2. There should be judgment in favour of Properties with no order as to costs.

  3. There should be judgment in favour of the Cross Defendants on Mr Jagatramka’s Cross Claim.

  4. Mr and Mrs Jagatramka should pay the costs of WCL of the proceedings.

  5. Mr Jagatramka should pay the costs of the Cross Defendants on the Cross Claim.

**********

Decision last updated: 18 March 2020

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