Bell case sets litigation record

Australia’s longest civil trial is scheduled to sit for a further four months after reaching an unprecedented 400 sitting days in early May.

The total cost of the Bell Group liquidator’s action against a consortium of banks could exceed $300 million when the trial concludes on September 8, ensuring the case will forever be remembered for its extraordinary cost and duration.

It will also provide a reference point whenever people discuss court reform and the merits of alternative dispute resolution.

Western Australian companies Sons of Gwalia and Aquila Resources provide notable recent examples of how arbitration and mediation can be effective alternatives to a trial.

Another recent dispute involving Sally Malay Mining and Thundelarra Exploration indicates the mere prospect of expensive court action can be a great help when two companies seek to negotiate a commercial settlement.

The Bell case, before Supreme Court Justice Neville Owen, has kept teams of lawyers from Blake Dawson Waldron and Freehills busy for more than a decade.

The legal action was commenced in 1995 by Bell Group liquidator Tony Woodings, with financial backing from the Insurance Commission of WA.

Mr Woodings’ key claim was that two banking syndicates, including Westpac, Lloyds, National and Commonwealth, knew that Bell Group was insolvent when they obtained security over its assets in 1990.

The banks put Bell Group into receivership in 1991 and subsequently recovered $280 million from asset sales, leaving nothing for other creditors, who want to claw back some of that money.

With inflation and interest, the claim has increased to $1.4 billion.

The case was originally lodged in the Federal Court but was transferred to the Supreme Court.

It was further complicated when the banks commenced their own legal action against the Insurance Commission and others.

The case finally commenced in the Supreme Court in July 2003 and has recently spent several weeks conducting hearings in London.

Justice Owen, who is overseeing a complex case management plan in conjunction with court registrars, has ordered that hearings must conclude by September 8.

Blake Dawson Waldron, which is acting for the liquidator, currently has a team of 20 lawyers, plus paralegals and other support staff, working on the case.

That is well below the peak workforce in early 2003, when both sides had large teams working on matters such as document discovery and preparation in the lead-up to the court case.

To help with the task of resourcing such a big case, Blakes has seconded people from its interstate offices and engaged others on contract.

This includes partner Ashley Wharton, who has been seconded to Perth since 1998 to coordinate the case.

Freehills, which is acting for the banks, has its team working from offices in Australia Square, separate from the main Freehills office.

The cost of running the case has never been publicly disclosed.

However, Attorney-General Jim McGinty said in July 2003 that the case had cost $90 million to that point, with $53 million of that covered by a special insurance policy.

The Insurance Commission, which is funding the liquidator, subsequently disclosed in its annual reports that it spent $24 million in 2003-04 and $23 million in 2004-05.

Assuming it keeps on spending at that rate until September, its total cost would hit about $160 million.

With the banks assumed to be spending a similar amount, the total cost could pass $300 million.

Mining company Sons of Gwalia and its major customer, Cabot Corporation, included a dispute resolution process in their sales contract to ensure they did not have to go to court.

Hence, when the two companies hit an impasse on contract pricing, the matter was referred to the London Court of International Arbitration.

The arbitration was settled in February 2006, resulting in a deal that had benefits for each party.

Cabot made a lump sum payment of $US27 million to terminate the existing five-year supply agreement, and the two companies entered a new supply agreement that incorporated a significantly reduced annual volume but higher prices, resulting in Cabot paying an extra $13 million per annum.

Aquila Resources’ action against Pasminco related to a 2001 agreement to buy Pasminco’s 49 per cent interest in the Ernest Henry mine in Queensland.

When the purchase did not eventuate, Aquila claimed Pasminco’s actions were misleading and deceptive and in breach of contract, and sought damages of $153 million.

Following completion of witness statements before the Federal Court, the matter was referred for mediation, culminating in a settlement announced last week.

Pasminco agreed to pay $14 million to Aquila, which reportedly had spent $2 million on the case.

Some companies don’t need mediation to settle a dispute.

Sally Malay Mining and Thundelarra Exploration ran into a dispute last year over their planned Copernicus nickel joint venture, with the key issue being whether Sally Malay had completed a bankable feasibility study to earn a 60 per cent interest.

The companies engaged lawyers to prepare for a trial, but Sally Malay chief executive Peter Harold said the time and cost involved in the pending litigation was hanging over both companies.

“We initially thought it would be a two-day trial last September, then it became three weeks in the middle of the year,” Mr Harold told WA Business News.

Instead, the two companies negotiated a commercial settlement in April, one year after the dispute first arose.

The settlement had benefits for both parties, but also reflected the commercial imperative bringing the two companies closer: Thundelarra needed access to Sally Malay’s nearby processing mill to make the project viable, while Sally Malay was keen to have extra tonnage through its mill.

The quick settlement stands in contrast to the protracted and increasingly expensive legal action that Westgold Resources is pursuing against St Barbara Mines and former St Barbara director Ron Woss.

Westgold is claiming $6.2 million (plus interest and costs) which it alleges it lost in 1997 after buying St Barbara shares from Mr Woss.

St Barbara, which is under new management, is vigorously defending the claim and has incurred legal costs to date of just more than $1 million.

If Westgold wins the case, which is listed for trial in November 2006, there is likely to be further legal action between St Barbara and Mr Woss over who pays the damages.

Mr Woss has attempted to have parts of the matter struck out but this has been dismissed.

The Westgold action isn’t the only legal claim hanging over St Barbara.

The administrator of Kingsteam Steel lodged a claim in 2002 relating to mining lease applications that were allegedly covered by an option agreement.

The value of the damages claim was not specified until earlier this year, when Kingstream delivered a report by Snowden Mining Industry Consultants valuing the claim at up to $14.7 million.