Beach Petroleum Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others [1993] FCA 283 | Case summary

Beach Petroleum Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others [1993] FCA 283 | Case summary | Zoe

[43]

Name Appointed Ceased

Beach

Kolm Jan E. 12. 6.81 22.11.88

Lobban, Alan R. 17. 4.72 22.11.88

Hilton, Norman Anthony 15. 6.87 23.12.88

Burney, Cecil Denniston 9.10.87 6. 6.89

Bayly, Geoffrey Lawrence

(alternate for C D Burney) 28.10.87 16.12.88

Fuller, Michael John 9.10.87 18. 1.91

Main, Christopher Paul

Macdonald (alternate

for C D Burney) 2. 5.89 6. 6.89

Main, Christopher Paul

Macdonald 6. 6.89 23. 3.90

Cummings, Joseph Patrick 23.12.88 21.12.90

Hebberd, Richard Stanley 23. 3.90 24. 1.91

Towner, Geoffrey Ferguson 23. 3.90 24. 1.91

Atkins, Michael William 24. 1.91

Dewar, Geoffrey William 24. 1.91

Dunn, Peter Charles 24. 1.91

King, David William 24. 1.91

Claremont

Woollett, John Marcus 24. 4.86 5.12.88

Hilton, Norman Anthony 7. 7.86 23.12.88

Burney, Cecil Denniston 23. 9.87 6. 6.89

Bayly, Geoffrey Lawrence

(alternate for C D Burney) 22.10.87 16.12.88

Fuller, Michael John 23. 9.87 6.12.90

Main, Christopher Paul

Macdonald 6. 6.89 23. 3.90

Cummings, Joseph Patrick 23.12.88 29.11.90

Hebberd, Richard Stanley 23. 3.90 29.11.90

Towner, Geoffrey Ferguson 23. 3.90 7.12.90

Atkins, Michael William 29.11.90

Dunn, Peter Charles 29.11.90

Dewar, Geoffrey William 6.12.90

King, David William 6.12.90

IRL

Fuller, Michael John 24. 4.80

Greenham, Ian Maxwell 4. 3.87 16.12.88

Bayly, Geoffrey Lawrence

(alternate to I M Greenham) 6. 5.88 16.12.88

Burney, Cecil Denniston 8. 6.87 20. 6.89

Cummings, Joseph Patrick 16.12.88

Fleming, David Alec Andrew 29.11.90

IRAG

Greenham, Ian Maxwell 20. 3.87 16.12.88

Fuller, Michael John 20. 3.87

Cummings, Joseph Patrick 16.12.88

Spargos

Jermyn, Peter Geoffrey 25. 3.80 6.11.89

Bayly, Geoffrey Lawrence 5. 1.88 16.12.88

Greenham, Ian Maxwell 5. 1.88 16.12.88

Burney, Cecil Denniston 5. 1.88 5. 6.89

Fuller, Michael John 5. 1.88 21. 9.90

Cummings, Joseph Patrick 16.12.88 21. 9.90

Bateman, Gregory Thomas 16.12.88 14. 2.89

Winby, Richard 19.12.88 4. 8.89

Main, Paul Christopher

Macdonald 29. 5.89 23. 3.90

Saunders, John Milton 23. 3.90

Towner, Geoffrey Ferguson 23. 3.90

Halse, Alden Jonson

(alternate for G J Trevor) 21. 9.90

Lewis, Michael Aswtun 21. 9.90

Trevor, Garry John 21. 9.90

[116]

66. 7.5 The conspiracy alleged is one that evolved over a period of some months, and to which the corporate respondents became parties at different times after the scheme was conceived by the individual respondents. In all the evidence led there is no direct account which proves the details of the Burbank scheme, its purposes, its parties, and its scope. The applicants seek to prove these matters by circumstantial evidence. That there was a combination for a particular purpose, and the identity of the parties to it, are matters to be inferred from evidence of many facts, separate in themselves and attributable to different people, but which together indicate that particular people were acting in concert. Sometimes the process of inference from evidence admissible against individual people proves both the pre-concert and the identity of the parties to the conspiracy: R. and The Attorney-General (Cth) v The Associated Northern Collieries and Others [1911] HCA 73; (1911) 14 CLR 387 at 400 and Ahern v The Queen [1988] HCA 39; (1988) 165 CLR 87 at 93. As evidence was led in the present case by the applicants of acts and statements by individuals said to be parties to the conspiracy, objection was taken on behalf of other of the individual respondents that the acts and statements were done in their absence, and on behalf of the corporate respondents that there was no evidence that the actor had authority to speak or act on behalf of the company. I ruled that so long as the evidence was admissible against one of the respondents for some purpose in the proceedings, it would be admitted, and a ruling reserved until the completion of the evidence as to the use which could be made of the evidence against any other respondent in the proceedings. The admissibility and relevance of much of this evidence against other parties depends on the alleged conspiracy being established. If the evidence fails to establish pre-concerted action, or if it is not proved that the other parties joined the conspiracy, the evidence as against them is irrelevant.

[122]

70. 7.9 The applicants initially sought to rely mainly on the legislative provisions in aid of proof concerning business records to get these documents before the Court. Objection was taken to the admission of the vast majority of them. However, by the end of the trial, objection to almost all the documents fell away, mainly because the bulk of them had been directly proved by evidence from Mr Brooke and other witnesses involved in the Burbank transactions, and it was then plain where the other documents fitted into the events which happened. Of those documents not directly proved, some were admitted expressly under various sections of the South Australian Evidence Act 1929 applied by virtue of s.79 of the Commonwealth Judiciary Act 1903, in particular ss.34c, 45b, 45c, and 59j of the South Australian legislation. Others were taken in bulk as "business records" although, had there been argument, it is probable that some of those documents would also have fallen under one or other of the provisions of the South Australian legislation already mentioned. Where documents were received as "business records" they were received pursuant to Part IIIA of the Commonwealth Evidence Act 1905. The applicants contend that s.45a of the Evidence Act 1929 (SA) also applies, and argue that it is slightly more liberal in its scope for the reception of business records than the Commonwealth legislation. As no particular document or documents were subjected to specific argument in final addresses, I do not propose to discuss the evidentiary provisions at length. I indicate my view that Part IIIA of the Commonwealth legislation deals exclusively with the admission of documents which come within the terms of Part IIIA, and s.45a of the South Australian legislation has no residual operation: Arnotts Ltd and Others v Trade Practices Commission (1990) 97 ALR 555 at 613. However a document that does not come within the description of a document admissible under Part IIIA, might be admissible under provisions other than s.45a of the South Australian legislation. The various provisions of the Evidence Acts are cumulative in their operation so that a document may be rendered admissible under several sections on different grounds.

[125]

73. 8.2 Mr Brooke qualified as a solicitor in London in 1971 and had been a principal of his own firm since 1979. He met Mr Johnson in 1981 and acted for him, apart from one break, from then until 1990. Mr Brooke came to Australia voluntarily to give evidence, without indemnity against prosecution either in the United Kingdom or Australia. His evidence was damning of his own position, as well as that of Mr Johnson and others, as it demonstrated numerous examples of his knowing involvement in tax avoidance and other fraud committed by Mr Johnson over a long period of time. He professed remorse at his involvement in what he says he now realises was an international fraud of large proportions. He said he is ashamed of his involvement in a number of transactions which were canvassed in the course of his cross-examination, and which showed that he blindly followed the instructions of Mr Johnson even when he knew that to do so involved telling lies. Two examples of gross deception may be found first in false documents he prepared and had sent in August 1982 to the Official Receiver in South Australia misrepresenting the asset position of Mr Johnson who was seeking discharge from bankruptcy, and secondly in communications with the auditor of Meridian on 4 August 1989 when he falsely stated that Firstway was owned by a Spanish family independent of the directors of Meridian and their associates. Other examples where Mr Brooke implemented the instructions of Mr Johnson in blatant disregard of others' interests, may be found in his cross-examination relating to the Kimbercrest Limited transaction, and the ownership of Shirerise Petroleum Limited ("Shirerise"). Mr Brooke admitted impropriety in these transactions and others, but at times showed a surprising reticence, even resistance, to frankly admitting the extent of his wrongdoing. The attack on his credit included suggestions that he was giving evidence out of self-interest, for a high daily fee and to ingratiate himself with the authorities.

[133]

81. 8.10 The respondents were correct to object that it was not the role of Mr Morris or any other expert witness to resolve disputed questions of fact, particularly where those disputed questions of fact turned on the assessment of the credit of witnesses, and inferences to be drawn from ordinary commercial documents that do not require expert knowledge in a particular field of learning to understand. For example, in the present case it is no part of the function of an expert witness to resolve the dispute whether SEJ's deposits at Rahn and Bodmer were security for loans to IRL and IRAG, and if so, on what terms. That and similar conclusions of fact are matters for the Court. Within chapters of the Morris report there are conclusions on this question and on other purely factual questions. Nevertheless I do not consider the criticisms which were levelled at the Morris report by the respondents were, for the most part, justified. In my opinion, it was within the province of an expert witness to undertake an examination of the many documents involved in this case, some of which clearly require accounting expertise to be properly understood, and from those documents to trace the trail of money and assets as they were transferred by transactions between the parties, to interpret the accounting records that were generated in the course of the transactions, and to construct an accounting treatment of those transactions where financial and other records were deficient. By this process the witness became qualified to express opinions found in his report that accounting records were either consistent with or suggestive of a transaction of a particular type, and that the accounting treatment of transactions by others was consistent with a particular legal interpretation of transactional documents. In the process of forming opinions on these topics I think it was entirely appropriate that Mr Morris record in detail, as he has done, the documents to which he had regard, and the conclusions of fact which he drew from them. By doing so, the Court is then able to assess the expert's process of reasoning, and his conclusions, against the findings of fact made by the Court. If the Court's findings of fact differ from the facts assumed by the witness, then the opinion, insofar as it is based on those assumed facts, may require modification or rejection.

[139]

87. 8.16 Mr Cordell acted in a number of the transactions about which evidence has been given. In the Burbank transaction he acted for Claremont and then for Beach. In the escrow transaction in October 1988 he acted for IRL, IRAG and SEJ. His evidence for these proceedings was taken in London. The trial judge was appointed an examiner for that purpose under FCR Order 24. Mr Cordell was called as a witness by Spargos "to put an end to the theory" that the SEJ deposits were encumbered to Rahn and Bodmer at the time of the escrow transaction. His evidence in chief was to the effect that he acted for SEJ at the time, that he had no instructions to encumber the deposits and that he did not do so. His evidence on this topic is discussed in section 13 below. It suffices at this stage to say that I am unable to accept his evidence on contentious issues where it is not supported by other evidence. The many documents prepared by him which are in evidence, and his evidence, show that he is an intelligent, technically sound and professionally knowledgeable solicitor who had a good understanding of commercial and banking transactions. However, on important issues I considered him to be evasive and his answers on some topics anything but convincing. I draw no adverse inference as to his credibility from the selection of topics that were or were not covered by his preliminary affidavit or from the way in which that affidavit was cast. Questions of legal professional privilege and style could account for the criticisms that were made by the applicants on that score. Nor do I draw any particular inference from his cross-examination about the possible conflict of interest that arose between the position of Beach and the position of Meridian under the conflicting option agreements that existed for some months. The matters, however, where I found his evidence anything but satisfactory were his understanding and explanation about the security for the proposed IRL/IRAG loans, his explanation about the reference to a "big arrow" in Mr Brooke's notes, his absence of notes of discussions with Mr Main, what I perceived to be a deliberate effort in his evidence to play down the role of Mr Johnson, his explanation about his fee note on 3 April 1989, his conversation with Mr Cummings shortly before 20 January 1989, his evidence about the notice of assignment in the Hazap transaction, and his evidence about the unidentified documents received from Australian solicitors which were filed by him in an unspecified deed packet.

[169]

114. 9.25 Article 4 of the share sale agreement provided that the purchaser would use its best endeavours to procure finance, but if unable to do so, the vendor would procure finance on a limited recourse basis secured against the shares the subject of the sale. However, vendor finance was never contemplated by the purchaser as this would have created difficulties under the Companies (Acquisition of Shares) (South Australia) Code as the second planned stage of the Hazap transaction unfolded. From the outset it was planned that following completion under the share sale agreement, IRL would make a paper offer for PPR and Duralite, and IRL shares would be substituted as the security for the non-recourse loan. When this occurred, if there were vendor finance, the vendor would obtain a relevant interest in more than enough IRL shares to trigger the obligation to make a full takeover offer for IRL. To avoid this consequence, the parties sought to take advantage of sub-s.12(l) of the Companies (Acquisition of Shares) (South Australia) Code which provided that the restriction on acquisition of shares in s.11 did not apply in relation to an acquisition by a person whose ordinary business included the lending of money where the acquisition resulted from the exercise by that person of a power in relation to the shares conferred on or vested in him in connection with the lending of money entered into by him in the ordinary course of that business. Hence the transaction was structured to give the appearance that a bank was the financier. To this end, on 25 March 1987 Mr Brooke, as attorney for Uni-invest Stiftung and Mr Christopher Disspain, Mr Brooke's partner who had been given a power of attorney by Hazap as Mr Cordell was not available that day, travelled to Luxembourg and entered into a loan agreement with the Berliner Bank International by which that bank agreed to lend US$96,132,460 on non-recourse terms to Hazap, and Hazap entered into an equitable mortgage of shares to the bank giving security over the PPR and Duralite shares. The share sale agreement between Uni-invest Stiftung and Hazap, the loan agreement, and the equitable mortgage between the Berliner Bank International and Hazap taken together would give the impression that the transaction was in fact financed by the bank.

[182]

123. 9.34 At the extraordinary general meeting, resolutions were carried in favour of the proposals. Later, however, the shares allotted to Hazap were credited in IRL's books as issued at a premium of A$3.80 per share, a marked contrast to the value at which the allotment to International Prospectors was credited, and also in marked contrast with a return of allotment filed by the company which said that the shares had been allotted at a premium of A$9.80. The allotment price credited in IRL's books fixed the notional disposal value of Duralite and PPR shares by Hazap at A$38.5m, and resulted in an immediate loss of about A$98m to Hazap. This loss is shown in the Hazap financial statements for the year ended 30 June 1987, where there is no reference to limited recourse by Uni-invest Stiftung under the share sale agreement. By mid-1989 those responsible for keeping the financial records of Hazap were concerned that the outstanding loan could produce a foreign exchange gain on currency fluctuations, and that the company may have an obligation to pay withholding tax in respect of the interest liability that was continuing to accrue on the loan, although no interest had ever been paid. This led to communications on Hazap's behalf with Mr Cordell, who in turn communicated with Mr Brooke. Mr Brooke took instructions from Mr Johnson, and in the result, in October 1989 Uni-invest Stiftung agreed to the loan being converted into Australian dollars, and to waive interest, from the inception of the loan. A supplemental deed to give effect to those changes was to be drawn but before that occurred, the Serious Fraud Office commenced its investigation into the affairs of Mr Johnson, Mr Brooke ceased to act for him, and Mr Cordell advised that his firm was unable to continue acting for Hazap. The evidence, although perhaps not complete as to later events, suggests that there was no further communication with Uni-invest Stiftung, and no payments have been made by Hazap to that company.

[196]

137. 10.9 At about the same time as IRL acquired interests in Moage, so did overseas investors headed by Rahn and Bodmer. On 14 August 1987 Rahn and Bodmer instructed the National Australia Bank to accept, free of payment, from Westpac Banking Corporation 3,276,000 Moage shares which was approximately 14.5% of the issued capital. On 19 August 1987 the National Australia Bank sent a facsimile to Rahn and Bodmer stating that they had been contacted by BBR who advised them that the Moage shares would be delivered along with a parcel of options, and the transfer of stock to National Australia Bank would constitute a change of beneficial interest. Rahn and Bodmer responded by advising the National Australia Bank that Rahn and Bodmer had purchased the shares to be registered with National Nominees, and that the shares were held on a discretionary basis for a number of clients whose identity they were not in a position to disclose. On 19 August 1987 the then chairman of Moage, Joseph Grant Jagelman, announced to the Australian Stock Exchange that he had sold approximately 7% of the capital of Moage to overseas investors led by Rahn and Bodmer, and along with shares sold by a number of other shareholders, there had been a transfer of approximately 15% of Moage's capital. Moage's list of 20 largest shareholders as at 18 October 1988 shows 14.5% of the capital registered in the name of National Nominees. A diagram prepared by Mr Cummings on 18 January 1989 showing significant shareholdings in group companies, shows a 15% interest to a "Swiss investor". Mr Brooke gave evidence about this transaction. He said ACC had lent money on the security of the Moage shares to four Ska Trust companies: Coninvest, Cawston, Sunstone and Norseman. There is a measure of support for this evidence in that, on 19 August 1987, ACC, by letter to National Nominees Limited which referred to correspondence from Rahn and Bodmer directed National Nominees to register the shares in its name and then deliver the same with blank executed transfers to ACC's solicitors in Sydney.

[210]

150. 10.22 Although the letter of offer from BBR was in respect of the sale of Shirerise assets, the moneys when received by BBR were placed in a client account for Kola Establishment, (sometimes referred to in documents as Kola Anstalt). Correspondence from BBR's file shows that on 1 August 1988 Mr Brooke advised the administrator of Shirerise (Centre Services) and the accountants instructed to prepare its financial statements, that the moneys received from Meridian for the Shirerise assets had been lent to "Kola Anstalt" for the purpose of a placement of shares in Claremont. Other documents produced from Mr Brooke's file indicate that the Claremont shares were lodged as security, along with an interest in the Park Hotel, for a loan from Rahn and Bodmer to Grampian Limited (another Ska Trust company) of approximately A$5m for use in a complicated transaction concerning the acquisition of shares in another public company, the details of which it is not necessary to explore. The Rahn and Bodmer loan to Grampian was guaranteed by Zuri Invest and Kola Establishment, and it was under that guarantee that the shares were lodged as security. The deed of guarantee describes Kola Establishment as the beneficial owner of the shares. In a letter of report written by BBR to Mr Johnson on 25 August 1988, reference is made to various transmissions of moneys, presumably from the Rahn and Bodmer loan, by European banks, Bank Cantrade and Trinkhaus and Burkhardt. The latter bank transferred the sum of US$117,000 to BBR for onward transmission to BRFT. This money was required by BRFT for the acquisition of interests in the Burbank field for a Ska Trust entity. The letter of report also refers to the involvement of Dunedin Investments Limited said to be a company owned by Mr Main. The letter indicates that other moneys had been deposited with Bank Cantrade in the name of Dunedin Investments Limited as security under a fiduciary agreement for a loan granted by Bank Cantrade to Grampian Limited. The inference from the letter is that BBR and Mr Johnson were quite familiar with this form of lending by a bank against a deposit as security under a fiduciary agreement.

[308]

Between

Enterprise Gold Mines NL ...

-and-

Messrs Rahn and Bodmer...

The following has been agreed upon:

1. The Mandator requests the Bank to grant in a fiduciary capacity

an advance of up to a maximum amount of

A$ 3.970.800.--(Australian Dollars three million nine hundred

and seventy thousand eight hundred)

to

Independent Resources Ltd.

8th Floor, 263 Adelaide Terrace hereinafter

AUS - Perth 6000 called "Debtor".

As to the conditions of this advance, reference is made to the

attached copy of the confirmation of credit to the Debtor, dated

October 28, 1988.

2. The Mandator undertakes to transfer to the Bank funds equal to

the amount of the advance granted to the Debtor. The Bank will place

these funds to the credit of a fiduciary account in the name of the

Mandator which will be governed by the following terms:

- no interest

- free of commission.

For the duration of this agreement, the balance of the fiduciary

account shall always be equal to the amount of the advance granted

to the Debtor. The Mandator is not allowed to dispose of the

fiduciary account.

3. When granting the advance mentioned under paragraph 1 to the

Debtor, the Bank acts merely in a fiduciary capacity, i.e. the Bank

will act towards the Debtor in its own name, but exclusively for

account and at the risk of the Mandator...

4. With regard to payments by the Debtor, the only duty of the

Bank as fiduciary agent consists of its obligation to put the net

amounts effectively paid by the Debtor at the disposal of the

Mandator in the following way:

a) Interest and commissions will, after deduction of any taxes,

duties, etc. in any country, be placed at the disposal of the

Mandator.

b) ...

5. ...

6. The Mandator undertakes to pay to the Bank as a remuneration

for its fiduciary activity in connection with the advance

concerned, a commission of 1/2% p.a., calculated on the highest

balance owed by the Debtor.

7. ...

The present contract has been executed in duplicate, and a copy has

been handed to each party.

Zurich, October 28, 1988

RAHN and BODMER The Mandator:

(Signed) ENTERPRISE GOLD MINES N.L.

(Not signed)"

[382]

279. 14.33 On 10 October 1988 Mr Johnson informed Mr TG Bailey that he was again having difficulty arranging the McKenzie Management money. Mr TG Bailey described the day as chaotic and noted at one stage in his diary that, "deal off?". On 29 September 1988 Mr TG Bailey had obtained from Petrotech Consultants Inc a sensitivity analysis in the form of computer generated cash flow analyses prepared on most optimistic data which he and Mr R Larry Johnson had provided with respect to production rates, operating costs and incremental oil prices. The analyses assumed ownership of 100% of the North and South Burbank Units and the non-unitised leases. As would be expected assuming high oil prices, low production costs, and favourable tertiary recovery, the net cash flow over the life of the field was high. That document had been obtained as a step towards producing a brochure which Mr Johnson, in late August 1988, had instructed be prepared for the whole Burbank field using optimistic figures. On 10 October 1988 this document was transmitted to Mr Fuller at Mr Johnson's request. Also sent to Mr Fuller was a letter from Mr Charles Johnston dated 3 October 1988. This letter had been received after Mr Johnson instructed Mr R Larry Johnson to obtain the most favourable valuation possible. Mr Charles Johnston described the equipment on the field as in excellent condition with a salvage value estimated at US$20m, and spoke of the field having the potential to produce some 20 million barrels at present price conditions on restoration of operations to early 1986 patterns, and for tertiary recovery operations to produce a further 20 to 60 million barrels beyond water flood means. The letter did not put a dollar value on the field but anticipated lower cost with another operator, and observed that "one of the greatest values of this project is the undeveloped zones within the thousands of acres of leasehold. It would be impossible today to amass such a leasehold position. As a long range project, the Burbank properties offer a financial opportunity unequaled (sic) in the oil field today". Mr TG Bailey realised that the information in that letter did not correlate with other information he had received about the field. Presumably this information was transmitted to Mr Fuller to assist him to persuade his fellow directors and Claremont management to authorise the payment of money to Gardner Weller and Co.

[435]

328. 14.82 Following the telephone conference with BRFT on 14 November 1988 (see 14.44 above), revised drafts of the loan agreement and the charge and option agreement were prepared, but further progress thereafter stalled in the following circumstances. The accounting period for Meridian closed on 31 December 1988. Immediately following the aeroplane crash it seems to have been realised by one of the surviving directors, Mr Fleming, that the transaction involving the payment of A$4.5m on 15 June 1988 by Meridian purportedly to Shirerise for the purchase of Virginia assets (see 10.20-10.23 above) had not been completed. On the contrary, it had become clear in the months following September 1988 that Shirerise was unable to give title to the oil assets. On about 19 December 1988 Mr Fleming telephoned Mr Cordell, requested him to act for Meridian, and followed those instructions up with a memorandum, incorrectly dated 23 August 1988, asking Mr Cordell to prepare Heads of Agreement which would permit Meridian to acquire all the oil, gas or coal properties or any of them. On 19 December 1988, Mr Cordell sent a skeleton draft to Mr Fleming although it was devoid of any description of the assets. It seems that Mr Fleming then requested Joelson Wilson and Co to arrange to have BBR forward another letter of offer backdated to 15 June 1988 differently describing the assets. Mr Brooke was contacted at this stage by Joelson Wilson and Co and asked to assist in documenting the earlier transaction. The proposal to backdate the letter was vetoed by Messrs Brooke and Cordell. An alternative proposal was suggested, it is not clear by whom, namely that the payment of A$4.5m be treated as an advance to one of the Ska Trust companies involved in the Burbank transaction in consideration for an option to acquire an interest in Burbank. Mr Brooke altered one of the early drafts of the loan and option agreement with Claremont and submitted it to Joelson Wilson and Co. That draft was amended by Joelson Wilson and Co, the name of Mazeley as the optionor was inserted, and the proposed option was said to be in respect of 15% of the issued capital of BFC. Later the drafts were amended in consultation between the lawyers so that the parties would be Meridian and Firstway, and the option would be in respect of 19.9% of the entire issued capital of Mazeley.

[535]

401. 15.7 The proposed loans by SEJ to Beach for the purposes of the Burbank transaction had been discussed at management level within SEJ prior to 30 June 1989, and had come to the attention of Mr Winby who was a director of each of the companies. As 1989 progressed, the liquidity difficulties of the IRL and SEJ became more acute. IRL's position was alleviated somewhat by the transfer of moneys from Claremont camouflaged as option fee payments. The position in SEJ was apparently serious by the beginning of May 1989. On 4 May 1989 Mr Main wrote to Sir Cecil Burney saying that "Dick (Winby) is in desperate need of cash". On 8 June 1989 Mr Winby requested from Mr Fuller a rough outline of the proposed loan to Beach, the term, security, interest rates, etc. and enquired what inducement was proposed to make the deal attractive. On 12 June 1989 in a memorandum to Messrs Fuller, Cummings, Main and Webb, Mr Winby expressed the view that Enterprise should not lend more than A$2m to Beach as Enterprise had commitments of A$4.9m to be met by the end of June 1989. His opposition to the loan however appears to have gone unheeded. There is no documentary evidence to show whether he expressed opposition to the loans on behalf of Spargos and Jingellic, but at least in the case of Jingellic it may be inferred from the substance of minutes of directors' meetings of Enterprise and Jingellic on 10 July 1989 that he did so. The relevant minutes of meetings of directors of those companies on that date are in similar terms. The minutes record under the heading "Loan to Beach" that Mr Fuller used the agenda item "Any Other Business" to bring up the loan transaction. He reported that Beach had contracted to buy an interest in leases in Oklahoma, and that it had been provisionally agreed between the directors of Beach and some of the directors of SEJ that loan funds would be provided to Beach to complete the transaction. Mr Main had been given a power of attorney to effect that part of the loan transaction comprising the company's contribution being the amount of the Rahn and Bodmer deposit. Mr Fuller said he raised the matter as one of the directors had expressed reservations to him. Mr Fuller moved that the acts of the company's attorney in relation to the transfer of funds at Rahn and Bodmer consequent upon the exercise of the option be ratified. There was discussion. Mr Fuller confirmed that it was a 180 day loan. Mr Winby expressed his view that taking into account the relatively tight cash flow situation of the company, the loan to Beach was not the most appropriate use of the company's funds, and he expressed his opposition. The minutes continue:

[566]

Markus said Sheldon gave all these instructions and he represented

the Australian companies. How can he do that. Malcolm Johnson said

hold on there.

Malcolm Johnson (Mr Brooke says that this is an error on his part,

the speaker was Dr Klainguti) said in our returns to Berne, Rahn

and Bodmer showed that the deposits were cross pledged.

(Mr Malcolm Johnson said...) Firstway has cash from sale of its

assets on 1st July and Firstway could guarantee.

Three companies had $ on deposit. Firstway owned oil fields.

Three companies bought the oil fields and Firstway has the

money. Firstway is a private European company. To fix problem

can't Firstway pledge the oil fields.

Klainguti explained the concept of a fiduciary; it's a loan by the

bank fronting for the three companies, i.e. deposits of three

companies don't appear on the balance sheet of the bank.

Paul Main said Firstway will sign fiduciary agreement as at 1st

July. Paul Main said on 3rd July he with permission of Fuller

gave permission to move the three companies deposit.

Malcolm Johnson said has family trusts i.e. Johnson Family

Trusts. Malcolm Johnson is an investor and advisor and he is

not a director of IRL group.

Klainguti said for end December balance sheet and half year 1989

they'll bring in unencumbered deposits and loan to IRL. Problem

is 35% withholding tax has to be paid. Chris Rahn said can

claim 25% from Swiss authorities and 10% credit in Australia.

Michael Fuller pointed out that there is unpaid interest by IRL

to bank. Agreed show deposits and interest less withholding

tax.

Paul Main said OK to sign IRL and IRAG loan agreements for

A$6M.

Klainguti said need confirmatory agreements for assignments

from the three companies.

Michael Fuller said blocking deposit letters from the three

companies was signed by Max Greenham. Michael Fuller said he

was non-executive chairman in Adelaide and didn't take over

financial management until after Max Greenham's death.

Malcolm Johnson said Max picked up all documents from Markus in

ShangriLa in Singapore for signing. Michael Fuller said had he

had known about it he wouldn't have allowed it to happen.

$A6 million loan is inadequately secured.

Christian asked whether it would be possible to pay the interest

on the IRL account. Malcolm Johnson suggested shift deposits from

IRL to US company which could afford to pay the interest. Malcolm

Johnson said instead of changing over from A$ to Swiss francs loan

in 48 hours some other options to solve the problems should become

available. Paul Main confirmed will come back within that time

scale with the options.

3.8 paid to Atlantic and 1.8 direct loan to Perth. Paul Main

said loans booked by Rahn and Bodmer to Consolidated instead of

IRL and IRAG. Paul Main said will find out from Australia

tonight.

IRL, IRAG (CGMA) owes Rahn and Bodmer $A8m(?)

Jana AG loan SF 3m.

[604]

445. 17.3 When Rothwells collapsed it was indebted to Claremont for A$7.75m. Claremont held bills of exchange in respect of the debt. After the liquidation of Rothwells, the Claremont receivable was not of full value, and was unlikely to be realised for some time. On 19 and 20 September 1989 at Landerbank, transactions referred to in these proceedings as the Frame transactions took place. Frame Investments Inc was a company incorporated in Liberia on instructions from Mr Brooke on behalf of the Ska Trust. Frame was administered by Peel Yates and Co, an administrator in Jersey. By deed of assignment executed at Landerbank on 20 September 1989 between Claremont (whose common seal was affixed by Messrs Main and Fuller) and Mr Brooke acting as attorney for Frame, Claremont assigned to Frame the Rothwells receivable for A$3m. The deed of assignment was prepared by ATRK, and Mr Fuller took it with him to the meeting. Payment of the consideration for the assignment was effected by transactions recorded at Landerbank on 28 September 1989 on the assumption that A$3m had an Austrian equivalent of OS 31,908,000. Landerbank lent that sum to Frame, Frame paid it to Claremont, Claremont advanced the money to Beach, and Beach paid it to Firstway. The transfers were effected between accounts at Landerbank. The Rothwells receivable was to be pledged to Landerbank as security for the loan to Frame and the moneys paid to Firstway were to be deposited into Spaarbuch accounts. Spaarbuch passbooks are apparently identified by number only and are transferable by delivery. It seems probable that Frame, on receiving the Spaarbuch passbooks, would have used them to repay Landerbank. BBR gave notice of the assignment to the liquidators of Claremont. Contrary to that notice of assignment however, Claremont lodged a proof of debt with the liquidators in November 1989. Subsequently a further notice of assignment was given on behalf of Frame, followed by yet another notice dated 20 September 1990 which advised that the Rothwells' debt had been assigned by Frame to Real Finance and Estate Limited.

[614]

454. 18.3 By the end of the trial, although the applicants had not formally abandoned the allegation in the pleadings about Topco, I did not understand them to be relying any further on it. However, in written submissions a somewhat different argument was advanced by the applicants against all corporate respondents, namely that one of the objects of the Burbank scheme was to take from the applicants part of the costs necessary to raise finance to take over Claremont. It is contended that this was unlawful as it made improper use of the over value paid for Burbank, and involved Claremont in giving financial assistance for the acquisition of its own shares. This contention is not one that finds expression in the pleadings. In any event, I think it, too, encounters difficulty. Whilst the NCSC enquiry commenced at the end of June 1988, it was not until late in that year that IRL and the NCSC were discussing a possible settlement of the enquiry on terms that included a takeover offer by one or more of the IRL group companies for Claremont at 40 cents per share. It seems probable that this occurred after completion of the acquisition of the Mackenzie Management interests, and after the initial option exercise price of US$19.5m had been fixed. There is no clear connection between a decision by the directors of IRL to reach a compromise with the NCSC and the conspiratorial Burbank scheme alleged by the applicants. By the time that the decision to seek a compromise was made, earnest steps were under way to raise finance from a number of sources to enable the restructuring to occur. There was initial optimism that the finance would become available. Had that happened, there would have been no reliance upon moneys received from Beach to implement restructuring. Further, in some of the negotiations with financiers, Mr Winby was present. It is not suggested that he was one of the conspirators, and his presence in the discussions is an added reason to believe that the restructuring proposals were independent of fraud involved in the Burbank transaction.

[629]

(a) A$37.8m is accounted for as a write-down in 1989 in the value

of the Bellevue gold mine. This represents a full reversal of a

revaluation made to the asset revaluation reserve in the accounts

at 1 January 1988. There was a further write-down in the value

of the investment at 31 December 1990 by A$6m.

(b) As the result of the guarantee and mortgages given by

Spargos to Elfic on 4 August 1989 (see 14.137 above), Spargos was

called upon to pay A$16.3m to Elfic. That was reported as an

abnormal loss.

(c) In May 1988 the company entered into an option agreement to

acquire mining rights at The King King gold prospect in the

Philippines at a cost of A$15m. The full amount was written off

as to A$10m in the year ended 30 June 1989 and the balance in

the year ended 30 June 1990.

(d) IPR transaction. During the year ended 30 June 1989 the

company advanced A$9.26m to Indo-Pacific Resources NL. The

principal together with interest was written off mainly in the

year ended 30 June 1989, but completely by 30 June 1990.

(e) Petrogulf. The acquisition of Petrogulf resulted in an

accounting loss of A$8.8m, but A$7.12m of that was goodwill

written off on consolidation.

(f) Meridian. By 1 January 1988 Spargos had relevant interests

in voting shares of Meridian. To 30 June 1989 Spargos had

advanced funds of A$3.7m. An accounting loss of A$6.7m was

reported, but that included a diminution in the value of the

shareholding investment.

(g) Queen Margaret Gold Mines. In the year ended 30 June

1989 an accounting loss of A$6.7m was recorded, but that was

due almost entirely to goodwill written off on consolidation,

and the balance was a discount given on the issue of shares.

(h) In the year ended 30 June 1989 exploration expenditure of

A$5.9m was written off.

(i) The accounts include a provision of A$4.6m for diminution

in value of buildings and other property, plant and equipment.

(j) IRAG transaction. In May 1988 Spargos acquired 5% of the

ordinary capital of IRAG for A$270,000, and advanced loans of

A$3.6m. These amounts had been wholly written off by 30 June 1991.

[658]

497. 20.3 The respondents, however, contended that damages should be assessed at the date of trial, and they argued that additional information now available as to the prospect of enhanced oil recovery should result in a higher valuation of the Burbank interests than at 30 June 1989. In my opinion, the applicants' contention is correct. Johnson v Perez recognises that the general rule might be displaced where its application would not lead to a result that fairly compensated an applicant, but in my view there is no reason in the circumstances of this case to depart from the general rule. I consider that to do so would only serve to add complexity and uncertainty to the result. If damages were to be assessed at the date of trial, it would be necessary to have regard to the manner in which the fields have been operating since the date of acquisition, and to take account of the revenue and expenses during that period. This would require close consideration of the operating decisions that have been made during that time, in particular of certain proposals for expenditure to which Beach did not agree. This exercise would introduce consequential profits or losses, as the case may be, into the calculations which are dependent, amongst many things, on fluctuations in international pricing and on decisions of the operator and Beach. These are remote matters from any wrongdoing of the respondents. Difficult questions would also arise whether decisions made by Beach in the ongoing operation of the field were decisions required to mitigate the extent of the loss caused to Beach. Moreover, the only valuation evidence led at trial was from Messrs Heather and Keeling, and they said that information which has come to light through Phillips since 30 June 1989 would not cause them to increase their valuations. Rather, recent estimates of the operator as to the cost of plugging and abandoning many old wells led Mr Keeling to suggest that the liabilities attaching to Beach in consequence of the purchase could result in the Burbank interests having a negative value.

[675]

511. 21.4 In the months following the AGMs, Mr Atkins was trying to straighten out a number of accounting and corporate problems in Claremont and Beach. He was endeavouring to get suspensions lifted by the Australian Stock Exchanges, to establish accounts for Mazeley, BPC and BOG, to obtain information which management lacked about Burbank, and to sell off the overseas subsidiaries, Claremont UK and Woodbine Petroleum. He was also endeavouring to comply with notices to produce documents served by regulatory authorities. To deal with a number of these matters, Messrs Atkins and Bowen travelled to the United Kingdom in May 1990. Whilst there they visited Joelson Wilson and Co and St James Corporate Services of Jersey who had taken over as administrators of Mazeley. It was clarified that Joelson Wilson and Co had acted for Beach, and that the firm wanted outstanding accounts paid. Discussion concerned enquiries as to title of the Burbank properties. Mr Atkins was having difficulty following some of the information that he was given as he was not familiar with many aspects of the Burbank transaction. From St James Corporate Services it was learned that the acquisition cost of the Burbank interest disclosed in the Mazeley accounts was in the order of US$4m compared with the US$28m paid by Beach. Mr Atkins met Mr Main in relation to matters pertaining to Claremont UK but Burbank was not discussed as Mr Atkins was not aware of his involvement in the transaction at that stage. Mr Atkins learned that the Serious Fraud Office ("SFO") was investigating the affairs of Mr Johnson. On his first day in London he learned that the SFO had obtained a wide ranging injunction which restrained numerous companies with which Mr Johnson was thought to have some association from dealing with their assets. Claremont and Beach were named in the injunction. Messrs Atkins and Bowen were concerned that the injunction might affect the ability of Claremont and Beach to carry on business, and they returned to Australia to sort out the implications of the injunction. Shortly after they returned, another company named in the injunction succeeded in having much of the injunction lifted including that part which named Claremont and Beach.

[678]

514. 21.7 One matter of particular concern was the auditors' insistence that steps be taken to assess the fair value of the Burbank interests including obtaining an independent expert's valuation. The auditors put their requisitions in writing on 24 July 1990. Shortly afterwards Mr Fuller instructed Doyle Financial Consulting Group Pty Ltd of Sydney to perform an evaluation of the Burbank interests. That company's appointment was later confirmed by the board. Late in August Doyle Financial Consulting Group Pty Ltd presented its report (the Doyle report). Based on discounted cash flow calculations the opinion was expressed that, "we estimate the intrinsic value of the Beach interest in the Burbank Oilfield to have a minimum value of US$22,000,000. We also recognise that this value may well significantly understate the ultimate value of Beach's interest...if either higher future oil price scenarios or a lower annual discount rate was adopted..." At balance date, 30 June 1990, the oil price had been around US$17 a barrel but had shot up markedly to above US$30 per barrel at the time of the report because of the Kuwait crisis. Parameters adopted for the purposes of the calculations included a 1990 oil price of $21 per barrel. More importantly, as the text of the report indicated, no independent enquiry was conducted to determine the extent of economically producible reserves. The assumptions made by Mr Rogers for the purposes of his February 1989 evaluation were largely adopted as were his conclusions as to the potential for enhanced oil recovery by polymer flood techniques. Information available to Mr Rogers (which Mr Rogers thought to be inadequate) was also used to estimate capital and operating expenses. It was assumed that the equipped but shut in wells could be brought on line at minimal expense to return production to the pre-1986 levels. The report did not bring to bear any independent knowledge or expertise about the particular oil field. Rather it was an exercise of applying a computer model to information obtained from the reports of other people. Mr Towner says that he was not particularly interested in that report as he thought it was important for the new board members to make their own independent assessment of the asset.

[729]

552. 22.11 I return to the suggestion made in final submissions by the applicants that other people were additional parties to the conspiracy. In principle, if a conspiracy is pleaded against several defendants, the fact that the evidence discloses that there were other parties as well is not fatal to the cause of action alleged. In the present case however, the respondents - rightly in my view - raised strong objection to the belated suggestion that Mr Hilton was a party on the ground that certain of the respondents had conducted their cross-examinations of the applicants' witnesses on the footing that the applicants did not allege that Mr Hilton was one of the conspirators. Fortunately, I consider the applicants apparent change of ground to be a non-issue as the evidence does not indicate that Mr Hilton was one of the conspirators. The evidence leaves his role in many respects unclear, for example why he went to Zurich on 27 October 1988. But insofar as the evidence touches on whether Mr Hilton was a knowing participant in wrongdoing by the individual respondents, it points against that being the case. It is of note that on 3 January 1989 Mr Johnson told Mr TG Bailey he wanted to remove both Mr Hilton and Mr Zillman from Claremont management as he was "having a problem" with them. Senior counsel for Spargos also protested that at times the applicants asserted that Mr Cordell was one of the conspirators, but that this was not clearly put to him in cross-examination. I do not think anything turns on this criticism. It is not a necessary step in the applicants' case for them to prove that Mr Cordell was a knowing party to the conspiracy or to other wrongdoing of the individual respondents, as the case was conducted throughout on the footing that the applicant companies did not know of the illegal and fraudulent conduct of their directors: see section 5 above. Furthermore, insofar as it was implicit in the applicants' case that Mr Cordell knew that the SEJ deposits at Rahn and Bodmer were to be subject to fiduciary loans, and therefore encumbered, that allegation was sufficiently put to Mr Cordell, and denied by him.

[765]

"In my view, the outer limit of the delegation doctrine is reached

and exceeded when the directing mind ceases completely to act, in

fact or in substance, in the interests of the corporation. Where

this entails fraudulent action, nothing is gained from speaking

of fraud in whole or in part because fraud is fraud. What I take

to be the distinction raised by the question is where all of the

activities of the directing mind are directed against the

interests of the corporation with a view to damaging that

corporation, whether or not the result is beneficial economically

to the directing mind, that may be said to be fraud on the

corporation. Similarly, but not so importantly, a benefit

to the directing mind in single transactions or in a minor part

of the activities of the directing mind is in reality quite

different from benefit in the sense that the directing mind

intended that the corporation should not benefit from any

of its activities in its undertaking. A benefit of course can,

unlike fraud, be in whole or in part, but the better standard,

in my view, is established when benefit is associated with fraud.

he same test then applies. Where the directing mind conceives

and designs a plan and then executes it whereby the corporation

is intentionally defrauded, and when this is the substantial part

of the regular activities of the directing mind in his office,

then it is unrealistic in the extreme to consider that the manager

is the directing mind of the corporation. His entire energies

are, in such a case, directed to the destruction of the

undertaking of the corporation. When he crosses that line he

ceases to be the directing mind and the doctrine of

identification ceases to operate. The same reasoning and

terminology can be applied to the concept of benefits.

Where the criminal act is totally in fraud of the corporate

employer and where the act is intended to and does result

in benefit exclusively to the employee-manager, the

employee-directing mind, from the outset of the design and

execution of the criminal plan, ceases to be a directing mind

of the corporation and consequently his acts could not be

attributed to the corporation under the identification

doctrine. This might be true as well on the American approach

through respondeat superior. Whether this is so or not, in

my view, the identification doctrine only operates where the

Crown demonstrates that the action taken by the directing

mind

(a) was within the field of operation assigned to him;

(b) was not totally in fraud of the corporation, and

(c) was by design or result partly for the benefit of the

company."

[771]

"Beyond cases of actual authority to commit a wrongful act, of which

only rare instances appear, to hold the employer liable for

negligent acts was simple and uncontroversial. Negligence is a

method of performing an act: instead of it being done carefully,

it is done negligently. So liability for negligent acts in the

course of employment is clear. Cases of fraud present at first

sight more difficulty: for if fraudulent acts are not directly

forbidden, most relationships would carry an implied prohibition

against them. If committed for the benefit of the employer and

while doing his business, principle and logic demand that the

employer should be held liable, and for some time the law rested

at this point. The classic judgment of Willes J in Barwick v

English Joint Stock Bank (1867) LR 2 Ex 259, 266 stated the

principle thus:

'In all these cases it may be said...that the master has not

authorised the act. It is true, he has not authorised the

particular act, but he has put the agent in his place to do that

class of acts, and he must be answerable for the manner in

which the agent has conducted himself in doing the business which

it was the act of his master to place him in.'

That was a case where the wrong was committed for the master's

(viz, the bank's) benefit, and Willes J stated this as an

ingredient of liability at p 265:

'...the master is answerable for every such wrong of the servant

or agent as is committed in the course of the service and for

the master's benefit, though no express command or privity of

the master be proved.'

This judgment (a) did not cover the case where the wrongful

act was committed solely for the servant's benefit, and

(b) is no authority as regards acts done by the servant outside

the scope of his employment.

What then if the wrong was committed solely for the benefit

of the employee? Although Willes J did not so state, or even

imply, it took the decision of the House of Lords in Lloyd v

Grace, Smith and Co [1912] UKHL 1; (1912) AC 716 to dispel the suggestion

that there was no liability of the employer for frauds or

wrongs committed for the benefit of the employee.

Earl Loreburn LC said, at p 725:

'Willes J cannot have meant that the principal is absolved

whenever his agent intended to appropriate for himself the

proceeds of his fraud. Nearly every rogue intends to do that.'

and this point was elaborated in the classic opinion of

Lord Macnaghten. Since then it has never been held, or

contended, that for liability to exist, the act must be done

for the benefit of the master. If the act was in fact done

for the master's benefit, that is a valuable indication that

it was done in the course of employment: the converse was

thenceforth not true."

[779]

581. 22.41 On the findings made in sections 12 and 13.1 above, Enterprise and Jingellic, by reason of the put option given to ACC on 24 April 1987, and the declining value of the securities given to ACC by IRL to support the principal loan, had little prospect of recovering the deposits of A$17m and A$4m once they were made, and by May 1988 it must have been apparent that IRL had no prospect of repaying ACC. In the events which have happened since April 1987, the put option appears as a most unfavourable transaction for Enterprise and Jingellic, but the transaction must be assessed not with the benefit of hindsight, but as it might reasonably have appeared to the directors in April 1987. Even so viewed, it is difficult to avoid the conclusion that it was a transaction entered into not for the benefit of Enterprise and Jingellic, but for the collateral purpose of IRL gaining control first of Coronet/Cortaus and then of Claremont. That this was so gains strength from the fact that Mr Fuller's alleged retirement from the boards of Enterprise and Jingellic on 24 April 1987 and the existence of the put option were never revealed to the shareholders in the annual reports or the financial statements. Having regard to where the onus of proof lies on the question of the knowledge to be imputed to Enterprise and Jingellic I consider the contentions of Enterprise and Jingellic that they were "victims" should be considered on the footing that their directors who caused them to enter the put option did so totally in fraud of those companies. It would follow that the extension of the put option to cover the additional loan to Moage agreed to by letter in September 1987 was also totally in fraud of the companies as were the deposits lodged with ACC, the true nature of which would not be apparent to auditors and others not aware of the contingent liability existing under the put option. But that fraud on Enterprise and Jingellic, even though a fraud by the same directors who later combined together in the Burbank scheme, is in my opinion, a fraud which must be treated as separate and discrete from the Burbank scheme. The put option and later deposit payments occurred earlier in time by 12-17 months. The Burbank scheme was not part of that fraudulent scheme but another fraudulent scheme intended to cover up the earlier one, and to avoid discovery by auditors and others of the put option and fate of those parts of the deposits which had not been applied to the IRL preference share issue in May 1988. A central purpose of the Burbank scheme was to take money from Claremont and use it for the benefit of Enterprise and Jingellic so that as the result of the implementation of the scheme, Enterprise and Jingellic would recover their otherwise lost deposits.

[786]

"230(1) A company shall not, whether directly or indirectly -

(a) make a loan to -

(i) a director of the company, a spouse of such a director,

or a relative of such a director or spouse;

(ii) a director of a corporation that is related to the

company, a spouse of such a director, or a relative of such a

director or spouse;

...

(iv) a corporation, where a person referred to in

sub-paragraph (i) or (ii) has, or 2 or more such persons

together have, a relevant interest or relevant interests in

shares in the corporation the nominal value of which is not

less than 10% of the nominal value of the issued share

capital of the corporation; or

...

(b) give a guarantee or provide security in connection with

a loan made or to be made by another person to a natural

person or corporation referred to in paragraph (a).

...

230(5) Where a company makes a loan, gives a guarantee

or provides security in contravention of this section, the

company is, notwithstanding section 570, not guilty of an offence

but -

...

(c) in a case of a loan made to, or a guarantee given or

security provided in relation to a loan made to, a

corporation referred to in

sub-paragraph (1)(a)(iv) (in this paragraph referred to as

the 'relevant corporation') - any director of the company,

or of a corporation that is related to the company, by

virtue of whose relevant interest or relevant interests in

shares in the relevant corporation the making of the loan, the

giving of the guarantee or the provision of the security

contravened this section, and any other officers of that

company or of the relevant corporation who are in default,

are each guilty of an offence and, in addition, are jointly

and severally liable to indemnify the company against any

loss arising from the making of the loan, the giving of the

guarantee or the providing of the security, as the case may be.

Penalty -

(d) in a case to which paragraph (e) does not apply -

$5,000; or

(e) where the offence was committed with intent to deceive

or defraud the company, members or creditors of the company

or creditors of any other person or for any other fraudulent

purpose - $20,000 or imprisonment for 5 years, or both.

230(6) It is a defence to a prosecution for an offence

against sub-section (5) or to a proceeding instituted in

respect of a liability under that sub-section if the

defendant proves that he had no knowledge of the making of

the loan, the giving of the guarantee or the provision of

the security.

230(7) Nothing in this section operates to prevent the

company from recovering the amount of, or of any interest

on, any loan made, or any amount for which it becomes liable

under any guarantee given or in respect of any security

provided, contrary to the provisions of this section.

...

230(10) This section has effect in addition to, and not

in derogation of, any other law in force in the State."

[788]

588. 22.48 I do not think the events surrounding the currency swap require that knowledge of the respondent directors should be imputed to Spargos at that time. It is not realistic to isolate the currency swap from the context of the Burbank scheme. The effect of the partial implementation of the Burbank scheme in October 1988 when the Spargos deposit was used as security meant that the deposit was no longer available as a source of funding for the Inspar take-over of Petrogulf. It is most unlikely that the currency swap would have been part of the original Burbank scheme as planned in October 1988. It was probably a variation which evolved due to the financial pressures that descended suddenly in May 1989 when Elfic refused to provide additional funding to complete the take-over. The currency swap had the effect of accelerating a payment by Beach to conceal the illegal use of part of the Spargos deposit. The transaction nevertheless had the effect of further implementing one of the original features of the Burbank scheme. The directors who were part of the conspiracy implemented the currency swap with the full expectation that Beach would, in due course, transfer the "assigned" deposit at Rahn and Bodmer to Firstway as part of the consideration for the Burbank interests on the exercise of the option to be included in the Charge and Option Agreement. In general terms that was in accordance with the original broad concept of the Burbank scheme. Whilst it is obvious that Spargos received an immediate cash payment from the currency swap, that payment was part of the cover up to conceal from Spargos and the authorities that its deposit was being improperly used as security at Rahn and Bodmer. Payment to the acceptance of the Inspar offer, and to Elfic, from the currency swap moneys was essential to ensure that IRL and Mr Johnson maintained control of Claremont and Beach. If that control were lost it would not be possible to carry through the sale of the Burbank interests as envisaged by the Burbank scheme. The currency swap was an essential step in the implementation of the Burbank scheme. So too, in my view, was the granting by Spargos on 4 August 1989 of the guarantee and charge over the Bellevue gold mine to Elfic: see 14.137 and 19.8 above. The purpose of the guarantee and charge was to continue IRL and Mr Johnson's control of Claremont and Beach without which the implementation of the Burbank scheme would have collapsed. In the overall picture of the Burbank scheme, I hold that Spargos remained one of the "victims", and did not receive a benefit at the time of the currency swap such that the knowledge of respondent directors should be imputed to it. For similar reasons, I hold that Spargos did not receive a benefit from the SCAFA arrangements. It follows that I hold that Spargos, in the absence of that knowledge, did not become a party to the conspiracy.

[800]

600. 22.60 The traditional general law approach is that between parties dealing at arm's length, a failure by one party to disclose to the other that the transaction is not as the other would believe in the circumstances does not give rise to a representation capable of founding an action in deceit: Ward v Hobbs (1878) 4 App Cas 13. In an arm's length transaction in a commercial situation it is recognised that the parties will have conflicting interests. One party will ordinarily not be under any obligation to the other to bring forth information which may cause the other party to take a different negotiating stance: see Lam v Ausintel Investments Australia Pty Ltd and Others (1990) ATPR 40-990 at 50,880 per Gleeson CJ. But even in that type of case there may be circumstances in which an action for deceit will lie against a party even though no statement is made and there is no special relationship between the parties which would create a duty to disclose information. The fact that a party is prepared to, and does, enter into the transaction in question amounts to an implied representation that that party has a present intention to carry out the promises made. Thus for a person to purchase goods on credit when at the time that person has no intention of paying for the goods amounts to deceit: ex parte Whitaker, In re Shackleton (1875) LR 10 Ch App 446 at 449 and In re Eastgate ex parte Ward (1905) 1 KB 465. In the present circumstances I consider that Messrs Fuller, Cummings and Main were guilty of the tort of deceit. In the case of the currency swap, I consider that Messrs Fuller and Cummings impliedly represented that Spargos had at Rahn and Bodmer a deposit capable there and then of being assigned to Beach according to the tenor of the documents prepared under their direction and executed on Spargos' behalf by Mr Fuller. In the case of the SCAFA arrangements Messrs Fuller, Cummings and Main impliedly represented that SEJ each would have available at completion sums of money equal to the amounts of the deposits which were available and capable of being advanced to or at the direction of Beach. At the time of the currency swap, and when entering into the SCAFA arrangements, SEJ did not have deposits or money available to enable those transactions to occur, and but for the fraudulent scheme then being implemented, SEJ would never do so, as Messrs Fuller, Cummings and Main well knew. They never intended that genuine transactions of the kind agreed to by them on behalf of SEJ would occur. False representations were made by SEJ's agents with the intention that they should be acted upon, and they were acted upon when Beach entered the transactions. If the respondent directors were acting within the scope of their authority, SEJ are vicariously responsible, even if under the Houghton principle the companies did not have imputed knowledge of the relevant directors' fraudulent behaviour.

[815]

609. 22.69 It is alleged that the conduct of SEJ was conduct in trade or commerce within the meaning of s.52 of the Trade Practices Act as the companies were public listed companies, the transactions entered into were within the class of transaction usually employed for the financing of resource acquisitions such as oil fields, Beach was engaged in the business of producing oil and the acquisition of an interest in an oil producing property was a transaction of the kind usual for an oil producer, and the entry into the transactions was an integral part of the acquisition by Beach of the Burbank interest and the financing of that acquisition by SEJ. In my view, the conduct alleged against SEJ was an aspect of activities and transactions which, of their nature, bear a trading or commercial character: Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594; Bevanere Pty Ltd v Lubidineuse and Others [1985] FCA 134; (1985) 7 FCR 325 and re Ku-ring-gai Co-operative Building Society (No.12) Ltd [1978] FCA 50; (1978) 36 FLR 134 at 139, 167. Subject to the geographical argument raised by Enterprise, the conduct was in trade or commerce. Enterprise contends in para.87A of its defence that the Fair Trading Act and the Trade Practices Act have no application as the oilfield the subject of the Charge and Option Agreement, the execution of that Agreement, the exercise of the option, and payments made in consideration of the option and its exercise all happened outside Australia, and the Charge and Option Agreement is by its terms governed by English law. Even if these facts are accepted as correct, the legislation still applies in respect of conduct engaged in in Australia, in trade or commerce within Australia. Beach and SEJ are all companies registered in Australia and carrying on business in several States of Australia. The impugned conduct includes that of Messrs Fuller and Cummings who were in Australia for most of the time between October 1988 and June 1989. Messrs Main and Johnson were also in Australia for substantial periods, including in May 1989 when the currency swap occurred. Spargos instructed its solicitors in Sydney to act in relation to SCAFA and the SCAFA documents were ultimately prepared by them in Sydney. Apart from the fact that Mr Main purported to act on behalf of Beach and SEJ on the execution of the Charge and Option Agreement, and for all companies in connection with the exercise of the option, in London, there is no evidence that any conduct relied on by Beach occurred elsewhere than in Australia. It is not to the point that the subject matter of contracts entered into by the parties in consequence of misleading or deceptive conduct relates to property outside Australia: cf No.1. Raberem Pty Ltd and Others v Monroe Schneider and Associates (Inc) and Another (von Doussa J. Federal Court 8 February 1991, judgment no.19 of 1991, at 95-97), where the subject matter of the contracts was carpet in New Zealand and the USA.

[868]

648. 22.108 Insofar as Enterprise and Jingellic seek to rely on the common law principles of affirmation those principles would only apply on proof of conduct amounting to an election to proceed with the transactions, made with the knowledge of the facts which gave rise to the right to elect: Sargent v ASL Developments Limited [1974] HCA 40; (1974) 131 CLR 634 at 642 and Khoury and Another v Government Insurance Office of New South Wales [1984] HCA 55; (1983-1984) 165 CLR 622 at 633. The respondents contend that the requirement of such knowledge may be satisfied by knowledge of circumstances which will provide information from which the decisive fact giving rise to the legal right is a clear if not necessary inference. Even if that contention be correct, in the present case I consider Enterprise and Jingellic would have to show that the applicants, through directors who are not respondents, had come to know of circumstances which gave rise to a clear, if not necessary, inference that the respondent directors of Beach had acted in fraud of Beach in causing it to enter into the Burbank transactions, including SCAFA, and that Beach then failed to act on that knowledge to impugn the transactions. Until Messrs Atkins and King gathered the papers from the offices of the overseas solicitors after the execution of the Heads of Agreement, I do not consider that directors of Beach and Claremont, apart from those involved in the fraud, had such knowledge. They knew of allegations of fraud in the Burbank transaction, but these had been denied publicly by Mr Fuller at the annual general meetings of Beach and Claremont in April 1990: see 21.3 above. The allegations made in July 1990 in the Four Corners programme repeated allegations already denied by Mr Fuller. Central to the theme of the Four Corners programme was an assertion that the Burbank interests had been purchased by Beach at a gross overvalue. In July 1990 the board of Beach was investigating value, first by instructing Doyle Financial Consulting Group, and then, after that company's report was received, by making enquiries in the USA. Whilst Messrs Towner and Hebberd at that stage did not seek to investigate other aspects of the allegations of fraud, their failure was not a calculated omission to enquire for fear of unearthing fraud or breach of duty: see United States Surgical Corporation v Hospital Products International Pty Ltd and Others (1983) 2 NSWLR 157 at 254. This was the position when the 1990 annual accounts were signed. In January 1991 the directors other than Mr Fuller still had no proof to substantiate the allegations, and the directors of Claremont had been advised by senior counsel that they had no admissible evidence to make out even a prima facie case of fraud. It was not until they learned that Mr Main was acting on both sides of the transaction that suspicion began to assume the character of reality, and it was not until the Eureka fax was discovered that an item of clear proof of the real state of knowledge of Mr Fuller emerged. The fact that BPC acquired the Burbank interest for much less than the sale price to Beach does not in itself indicate fraud. It is knowledge of that fact by directors of Beach during the Burbank transaction which would indicate fraud, and the new directors of Beach had no evidence of that until late February 1991.

[882]

Mr Hall considered that the approach contended by Mr Morris was "totally arbitrary and unrealistic". He undertook a study of 21 oil and gas companies of similar size to Beach as a surrogate for the type of oil and gas investments that Beach might have made in that period. His analysis charted the share price of the companies as an indication of their performance. The weighted performance of the companies produced the result that an investment of A$1,000 in the selected oil and gas companies at the beginning of July 1989 would have been worth A$825 at 31 December 1992, a marked under-performance in relation to an investment in bank deposits. This approach depends of course on the state of the share market from time to time, and whilst the result just stated would have been the position at 31 December 1992, in the intervening months the result would have changed considerably - indicating that Mr Hall's alternative does not avoid arbitrariness. His approach assumes an average performance amongst similar oil and gas companies, but that immediately prompts the enquiry whether Beach would have performed in an average way, or would have been more or less successful. It also prompts an enquiry as to whether Beach would have pursued the same types of exploration activities. But for the Mazeley transaction Beach would probably have maintained its Victorian oil and gas interests, and other assets which were producing income. Instead of spending money on exploration, it may have acquired other existing oil and gas producing assets which were not accompanied by the same risk. Enquiries of this kind are reminiscent of those urged in bodily injury cases prior to Cullen v Trappell [1980] HCA 10; (1979-1981) 146 CLR 1 and Todovoric and Another v Waller [1981] HCA 72; (1981) 150 CLR 402. In considering the discount rate to be applied in the assessment of future economic loss, arguments were heard that the Court should consider the likely use to be made of the award by the plaintiffs when determining both the discount rate and the allowance for taxation to be included in the calculation. These decisions however, establish that the use which a particular plaintiff might make of an award is an irrelevant consideration. The assessment of pre-trial interest as a component of damages is not on all fours, but elements of prophecy and speculation arise in the same way. Unless it is clearly established by evidence that a particular plaintiff would not invest available capital and cash reserves in a way that would produce at least the market rates, market rates should be adopted. In the present case I do not think that the evidence justifies departing from the rates adopted in the third Morris report.

Beach Petroleum Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others [1993] FCA 283;

At a glance

Court

Decision date

Before

Source

Judgment (899 paragraphs)

Beach Petroleum Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others [1993] FCA 283; (1993) 115 ALR 411 (1993) 11 ACSR 103 (1993) 43 FC (10 June 1993)

Parties

Legislation Cited (6)

Cases Cited (27)