15/01/2010 - 00:00

Record payouts, failed prosecutions

15/01/2010 - 00:00


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THE corporate watchdog was left to lick its wounds late last year after suffering three failed trials in just over a month.

Record payouts, failed prosecutions

Litigation winners & losers

THE corporate watchdog was left to lick its wounds late last year after suffering three failed trials in just over a month.

The most recent high-profile trial, involving Andrew Forrest, concluded with the Federal Court in Perth throwing out allegations that the Fortescue Metals Group founder misled and deceived by overstating the nature of so-called binding agreements with Chinese parties.

The agreements ultimately unravelled.

Fortescue and Mr Forrest had faced maximum civil penalties of $6 million and $4.4 million respectively, and the trial could have also led to the billionaire being banned as a company director.

Justice John Gilmour said Mr Forrest exercised his powers and discharged his duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of Fortescue in Fortescue’s circumstances.

The legal loss for the Australian Securities and Investments Commission, where it was ordered to pay costs, followed the failed prosecutions of One.Tel executives Jodee Rich and Mark Silbermann, and AWB’s former managing director Andrew Lindberg.

While the Forrest case related to events in late 2004 and early 2005, a dispute between the University of Western Australia and Bruce Gray dates back more than a decade.

And once again, in 2009 the verdict favoured the individual over the institution.

During Dr Gray’s employment as a professor of surgery at the university he continued to develop technologies designed to treat liver cancer, a goal he was working towards before going to UWA.

In 1997, Sirtex Medical (a company established by Dr Gray) took ownership of the intellectual property rights to the liver treatment technologies. In 1999, the university indicated it may have a claim over the rights now owned by Sirtex.

After originally opting against taking legal action, UWA eventually went to the courts in 2004. In 2008, former federal court judge Robert French rejected the university’s claim it was the rightful owner of Dr Gray’s equity in Sirtex, and last year the university unsuccessfully appealed that ruling to the full Federal Court.

Dr Gray’s stake in the company is worth about $75 million, following the successful commercialisation of the treatment.

UWA has now lodged a plea for a High Court appeal.

Lavan Legal counsel Martin Bennett, who appeared at trial and on appeal for Dr Gray, said the legal action had jeopardised the balance of UWA’s intellectual property and that the blanket attempt by academic institutions to claim rights over inventions needed to be reviewed.

In terms of the sheer size of a payout, the biggest litigation win of 2009 was handed to liquidators of Alan Bond’s former Bell Group of companies.

A judgment awarded more than $1.5 billion to the liquidators – the largest payout ever awarded in Australia – as compensation from about 20 banks that grabbed security over a number of Bell assets as it neared collapse in 1990.

The bank consortium, led by Westpac, originally generated $280 million from selling the assets, however compound interest and time calculations resulted in the record payout.

The case was originally filed by liquidator Tony Woodings 15 years ago.

In September, a judgement was delivered to safeguard the money should the banks win on appeal.

The big payouts continued in 2009 with the top tier Ernst & Young agreeing to pay administrators of Western Australian company Sons of Gwalia $125 million to settle a damages case concerned with the inadequate audit of the gold miner.

The agreement was negotiated in mediation, with the accountancy firm quick to point out it was not an admission of guilt.

Ernst & Young’s chief executive for Oceania, Gerard Dalbosco, said in a statement that the decision to settle “is a commercial one and after four years of litigation we want to bring this matter to a close”.

In 2005, Sons of Gwalia colllapsed under the weight of its own hedge book, owing about $800 million. This amount increased when some shareholders won the right to be considered as creditors.

Litigation funder IMF benefitted from the Ernst & Young settlement, taking a cut along with its shareholder clients. The settlement was one of the biggest in Australian corporate history.


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