LAW340, Equity & Trusts.
Assignment Question, 2016.
Susan is a director of a company, Havoc Mining Pty Ltd [‘Havoc’] based in Armidale NSW. This company has various coal mining leases and is actively engaged in prospecting for new coal seams. For this purpose Havoc engages Bill, a mining geologist, to undertake tests on a site known as Peterson’s Ridge which had shown promising signs of having coal deposits and to which Havoc had previously purchased the mining rights from the NSW government.
One evening at a social function, Susan runs into Bill. Bill tells Susan that, that very day, he got the results back from the ore samples from Peterson’s Ridge that he had taken pursuant to his contract with Havoc. Initial testing done previously on the Peterson’s Ridge site suggested it held deposits in the range of some $1 billion worth of mineable coal, but Bill’s results indicated that in fact the deposit could be worth as much as 50 times that amount. Bill says that the only two people who know the true value of the deposits at Peterson’s Ridge are himself and (now) Susan. The two decide this is too good an opportunity to pass up, so they agree between them that Bill, in his final report to Havoc, will falsify the value of the
Patterson’s’ Ridge deposits, and state in the report that they are worth “between $1 and $2 billion at today’s rates”. This he does.
At the next Havoc Board meeting, Susan uses this report to argue strongly that the returns to Havoc are not worth the investment costs, especially given Havoc’s current tight financial position. Although her motion that Havoc abandon the project is voted down, she does succeed in her alternative motion in which the other Board members agree to defer a decision on the Peterson’s Ridge project for two years.
Bill and Susan then establish their own company, Rudge Investments Pty Ltd [‘Rudge’] of which they are the only two directors. Rudge, through its solicitor Julianna, contacts Havoc and offers to purchase the lease Havoc holds over Peterson’s Ridge, for a sum twice that paid by Havoc. At the next Havoc Board meeting, Susan argues strongly that the company accept the offer. That motion is carried. Rudge immediately commences mining at Peterson’s Ridge.
Six months later, Susan resigns from her positon at Havoc to concentrate on the activities of Rudge. It soon becomes apparent that Rudge needs to raise venture capital. Julianna mentions to Bill and Susan that she has a client, Lizard Investments Pty Ltd [‘Lizard’] which could advance them the funds they needed, and Julianna agrees to “put them together”. Julianna handles all the legal requirements for both parties – with both parties’ knowledge and consent - including the contract of loan, but conceals from Bill and Susan the fact that she (Julianna) is, in fact, a director of Lizard. Julianna also charges Rudge a personal fee for her services as a “finance broker” which is over and above the fees agreed pursuant to her solicitor’s contract of retainer with Rudge.
Peterson’s Ridge proves to be spectacularly successful and in the first year of production returns huge profits to Rudge. About this time the remaining Board members of Havoc learn that Susan and Bill are in fact the Directors of Rudge, that they established Rudge for the sole purpose of exploiting the Peterson’s Ridge deposits, and that they together falsified the report as to the true value of the Peterson’s Ridge site.
Advise Havoc on what action(s) it could pursue at law or in equity against Susan, Bill and Rudge.
Also briefly discuss what remedies may be available to Havoc.
What actions and remedies may be available against Julianna?