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    Thursday
    Sep262002

    Slater & Gordon's tropical nightmare

    Risky litigation ... Slater & Gordon acts for Solomon Island landowners in treacherous case against Ross Mining ... Firm later "regrets ever having become involved in the proceedings" ... Earlier adventures of Nick Styant-Browne ... Champerty and maintenance ... From Justinian's archive, September 2002 

    Pit at Gold Ridge

    Slater & Gordon, Australia's big class action law shop and media darling, has been having such a gorgeous time over Clayton Utz's BAT fiasco that it must have erased the memory of its own litigation nightmare in the tropics. 

    Slater & Gordon came a cropper with a compensation claim against Ross Mining NL, made on behalf of Solomon Islands' landowners.

    The distressing outcome was that S & G and its client Denis Reinhardt were obliged to cough-up millions of dollars in costs and damages. 

    As for the landowners, after four Solomon Islands High Court appeals, they have ended up with minimal compensation of between $3.75 million and $4 million. 

    In December 2001, the law firm made the following public grovel to the Australian Stock Exchange:  

    "Slater & Gordon regrets ever having become involved in the proceedings against Ross Mining in respect of its mining operations in the Solomon Islands and acknowledges that such proceedings harmed Ross Mining."

    At much the same time the then Prime Minister of PNG, Sir Mekere Morauta, was saying some beastly things about S & G in the parliament: 

    "This firm is infamous for the havoc and chaos it causes in developing countries in its neo-colonial attempts to exploit villagers for its own financial gain. 

    It has not only engaged in these fast-money schemes in Papua New Guinea before. It has used the same tactics in the Solomon Islands, where its actions threatened the development of a substantial gold mine.

    In the end, the only people to benefit from this scandalous court case were the owners of Slater & Gordon.

    Mr Speaker, the villagers the firm exploited in the Solomons got nothing ... 

    The High Court found that Slater & Gordon had engaged in a civil conspiracy, in abuse of process and in champerty. The firm was ordered to pay costs to the owner of the mine, Ross Mining (now Delta Gold) of Australia. It paid up yesterday, an amount believed to be at least $A6 million ... 

    Mr Speaker, the divisions amongst landowners and others in the Solomon Islands actively fostered by the principals of Slater & Gordon and its associates led indirectly to slayings, injury and destruction of property.

    These events were factors in the civil war that all but destroyed our neighbour." 

    Even though Sir Mekere may have been carried away with his rhetoric, it would be fair to say that this sort of parliamentary attack was not in Slater & Gordon's script. 

    When S & G took on the claims of the Solomon Islanders in 1997 it was confidently expecting to replicate its success with the Ok Tedi litigation in Papua New Guinea. In that case a lengthy dispute with BHP over compensation for local landowners resulted in the Big Australian forking-up over $500 million. 

    This was not to be the case in the Solomons. 

    Just a bunch of gold diggers

    The saga started in 1994 when Australian gold miner Ross Mining paid $19 million for mining rights to a gold deposit at Gold Ridge in the Solomon Islands' highlands. 

    In 1996, Ross struck a $3.76 million compensation agreement with local landowners for the loss of their land and income and for the re-location of their village.

    It was a pretty paltry package when you consider that projected gross profit over the ten-year life of the mine was projected to be $155 million. 

    The agreement also provided for a $15 million tailings dam and included a clause that restricted compensation payments solely to the mining lease area.

    This turned out to be a critical point. In the Ok Tedi litigation Slater & Gordon had successfully argued for compensation for the people who lived downstream and who would be affected by the mine's effluent. 

    At Gold Ridge the complications were compounding. The Solomon Islands Electricity Authority and the mining company were at loggerheads because Ross wanted to generate its own power for the project and not use the SIEA's power from the Lungga hydro scheme. 

    The hydro power consortium was headed by the former chief executive of the Snowy Mountains Engineering Corporation, Jack Boniface, and a colourful former journalist and Queensland businessman, Denis Reinhardt. 

    The SIEA claimed that the Lungga project would not be commercially viable if Ross installed its own generators. 

    The dispute over the mine's power supply culminated in the government sacking the board of the electricity authority.

    Slater & Gordon brought proceedings against Ross on behalf of the sacked chairman of the authority Billy Gatu, claiming there had been "a breach of procedure". 

    It was alleged in this action that Ross pressured the government into sacking the authority's board to ensure a second application to generate its own power was approved. 

    At the same time the land owners were having second thoughts about the compensation agreement reached with Ross Mining.

    Under the baton of Harley-riding partner Nick Styant-Browne, a fresh copy of the Ok Tedi litigation blueprint in his paws, Slater & Gorgon filed a claim in the Solomon Islands High Court seeking to overturn the compensation agreement on the grounds that it was environmentally "unreasonable" and the compensation was inadequate. 

    Styant-Browne: trouble with the landowners

    In the statement of claim lodged in March 1997 on behalf of four local landowners, it was alleged Ross Mining intended to flush waste down-river. Ross disputed this saying it had always planned to build a tailings dam. 

    Slater & Gordon wrote one of its stylish letters to Ross' managing director, Dr Lambertus de Graaf:  

    "While this firm is quite prepared to embark upon lengthy and internecine litigation to advance the interest of its clients, we also have a proven capacity to negotiate reasonable resolutions to those sort of claims, and we would respectfully suggest that you and your company give consideration to taking early steps to negotiate."

    At the time of signing the initial agreement with the Gold Ridge landowners, de Graaf had commented, perhaps presciently, that:  

    "Gold brings out the worst and best in people."

    Slater & Gordon also applied pressure by approaching one of Ross Mining's proposed sources of finance, the UK based Commonwealth Development Corporation. It faxed a letter to CDC in London, saying:  

    "We are instructed to request that you give serious consideration to the terms and conditions upon which you agreed to extend funding to Ross Mining." 

    S & G also kept up steady stream of writs against Ross.

    On behalf of landowners Willie Roni and David Thuguvoda it lodged writs claiming that Ross' compensation was insufficient and that the agreement with them was procured unconscionably because they were unaware that they had indemnified Ross against further claims arising from the activities of the mine.

    In June 1997 S & G lodged a similar writ on behalf of landowner John Maningela and 213 other plaintiffs.

    On behalf of land owner Samuel Saki and five others it lodged a representative writ for the 1,020 people living downstream, alleging the Gold Ridge mine would discharge approximately 5,000 tonnes of waste down-river. 

    As is traditional, the story got Slater & Gordon some positive spin in the Australian press, mostly at Ross' expense.

    The actions on behalf of the landowners were endorsed by Australian environmental groups, three of which received a total of $25,000 in donations from the law firm. 

    (S & G had made the gifts after receiving a settlement from The Australian Financial Review over an allegedly defamatory report in the paper on the Solomon's case.)

    Roni and Thugovoda visited Australia meeting journalists, brokers and some of Ross' shareholders. In one letter to shareholders Roni ominously warned that the company should pay attention to the controversy surrounding the Bougainville copper mine. 

    Ross complained its stock price was slipping because of the tide of litigation against company. 

    All that glitters ... 

    Already things were sliding out of control. 

    In April 1997 the local community at Gold Ridge put out a statement saying it supported the mine and opposed the litigation.

    It was alleged that not all the people listed in the writs had actually consented to the action. Two of the four listed landowners lodged affidavits denying they had authorised the commencement of proceedings. 

    Then in October 1997 Slater's main clients, Roni and Thugovoda, dropped a bombshell. They had agreed to withdraw their claims against Ross for an undisclosed amount that included shares, money, a house and a car. 

    However, two months later they were back in Slater's camp, lodging fresh writs to overturn their agreement with Ross claiming that they had been pressured. It was a huge schmozzle.

    On December 19, 1997 Justice Palmer, sitting in the Solomon Islands' High Court, dismissed the Manigela and Saki claims.

    He found they disclosed no reasonable cause of action as well as being frivolous, vexatious and an abuse of process. 

    Five months later in April 1998, Justice Palmer dismissed the attempt by the flip-flopping plaintiffs Roni and Thuguvoda to renew their cases and awarded costs against them. 

    In a final farcical twist both Roni and Thuguvoda filed affidavits for Ross Mining against Slater & Gordon and Denis Reinhardt, the Queensland businessman involved in the Lungga Hydro Power consortium who had been working closely with Slaters. 

    Ross and its new lawyers, Blake Dawson Waldron, also had a few interesting shots in the armory. 

    Ross turns the tables

    In December 1998, Ross filed a writ in the Solomon's High Court alleging that Slaters and Reinhardt had committed the ancient tort of champerty and maintenance by paying for numerous flights from the Solomons and Australia, plus food and accommodation for Roni and Thuguvoda. 

    Ross also claimed S & G had paid for the construction of a boom-gate preventing access to the mine site and that the law firm and Reinhardt had unlawfully conspired to place improper pressure on Ross to negotiate. This allegedly involved pressure to obtain the electricity supply for the Gold Ridge project. 

    The claim asserted that Slaters and Reinhardt sought to destroy Ross' business by means of a media campaign against the mining company and by making false and defamatory statements to the Australian Stock Exchange, stockbrokers and shareholders. 

    Ross also alleged that Nick Styant-Browne had tried to encourage the provincial government of Guadalcanal to become a plaintiff in the proceedings against the company.

    Slater & Gordon "cavalier and irresponsible"

    Slater & Gordon lodged no defence on the merits, objecting instead to the court's jurisdiction to hear the matter.

    It didn't wash. 

    In June 1999, Chief Justice Sir John Muria entered a default judgment against the law firm and Reinhardt.

    He rejected S & G's argument that the writ was served on Christmas Eve and consequently it was caught in the January legal break: 

    "The defendants, in particular, were represented by a large law firm of Slater & Gordon whose resources must certainly be adequate to deal with the matter on behalf of their clients in such manner as to properly comply with the rules."

    Slaters and Reinhardt appealed but found the judgment by the Solomon Islands' Court of Appeal, comprising former Australian Chief Justice Sir Anthony Mason, Mr Justice McPherson of the Queensland Supreme Court and Mr Justice Los of PNG, even less sympathetic.  

    "We have no hesitation in rejecting the challenge to the Chief Justice’s refusal to accept the appellants' explanation of the delay."

    Adding:

    "The first appellant’s lack of attention to detail in the circumstances was both cavalier and irresponsible"

    Slaters gets a good slating 

    Uncowed, Slater & Gordon made a new application in December 2000 to have the default judgment set aside under the discretionary power of the court.

    It engaged Melbourne silk Julian (Smoothybags) Burnside. The firm's solicitors filed a plethora of affidavits pleading for another chance.

    Chief Justice Muria, again, was underwhelmed, saying in his judgment of March 2001:  

    "The only complaint of injustice echoed throughout the defendants' argument was that it would not be just to refuse them to have another chance to defend the action ... They had that opportunity and failed to make use of it."

    Justice Muria further criticised Slater & Gordon's conduct, saying: 

    "The defendants have simply glossed over the allegations of facts contained in the plaintiffs' statement of claim..."

    And: 

    "The first defendant is a firm of solicitors who has the means at their disposal to ensure that the conduct of their case complied with the discipline of the substance and practice of the law in litigation... They were aware of the proceedings seeking judgment against them and yet had chosen not to take the necessary steps to avoid judgment being obtained against them."

    He upheld the default judgment against S & G, ordering costs against the firm. 

    Postscript

    By any reckoning, the Solomon's litigation escapade cost everyone dearly.

    Slater & Gordon and Denis Reinhardt reached a multi-million dollar settlement with Ross Mining's new owners, Delta Gold.

    Delta subsequently abandoned the mine in the wake of further political upheaval in the Solomons. 

    Styant-Browne later departed Slater & Gordon for Seattle and the lush pastures of US class action shop, Hagens Berman.  

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